INVENTORIES

Inventories consist of the following:



	September 28, 2012		December 31, 2011
In thousands
Merchandise for resale	$	127,105	$	129,345
Contracts and other work in process	222,781		195,299
Finished goods (including certain general stock materials)	14,327		15,202
Total	$	364,213	$	339,846

Inventories include amounts associated with matters such as contract changes, negotiated settlements and claims for unanticipated contract costs. These amounts are as follows:



	September 28, 2012		December 31, 2011
In thousands
Contract changes, negotiated settlements and claims for unanticipated contract costs	$	6,326	$	7,432
Total	$	6,326	$	7,432

During the third quarter, the Company settled one of these claims which resulted in a one-time loss of $0.6 million.

7. INVENTORIES (CONTINUED)

K-MAX® inventory of $18.1 million and $20.3 million as of September 28, 2012, and December 31, 2011, respectively, is included in contracts and other work in process inventory and finished goods. Management believes that a significant portion of this K-MAX® inventory will be sold after September 28, 2013, based upon the anticipation of supporting the fleet for the foreseeable future.

SH-2G(I), formerly SH-2G(A), inventory of $52.6 million and $52.7 million as of September 28, 2012 and December 31, 2011, respectively, is included in contracts and other work in process inventory. Management believes that a significant portion of this inventory will be sold after September 28, 2013, based upon the time needed to market the aircraft and prepare them for sale. For more information on the SH-2G(I) inventory, see Note 10, Commitments and Contingencies.

Long-term Contracts

For long-term aerospace contracts, the Company generally recognizes revenue and cost based on the percentage-of-completion method of accounting, which allows for recognition of revenue as work on a contract progresses. The Company recognizes revenues and cost based on either (1) the cost-to-cost method, in which sales and profit are recorded based upon the ratio of costs incurred to estimated total costs to complete the contract, or (2) the units-of-delivery method, in which sales are recognized as deliveries are made and cost of sales is computed on the basis of the estimated ratio of total cost to total sales.

Revenue and cost estimates for all significant long-term contracts for which revenue is recognized using the percentage-of-completion method of accounting are reviewed and reassessed quarterly. Based upon these reviews, the Company records the effects of adjustments in profit estimates each period. If at any time the Company determines that in the case of a particular contract total costs will exceed total contract revenue, the Company will record a provision for the entire anticipated contract loss at that time. The net decrease in our operating income from changes in contract estimates totaled $0.3 million and $1.8 million for the three-month and nine-month periods ended September 28, 2012, and $0.2 million and $2.6 million for the three-month and nine-month periods ended September 30, 2011, respectively.