INVENTORIES

Inventories consist of the following:



	March 28, 2014		December 31, 2013
In thousands
Merchandise for resale	$	151,006	$	152,194
Raw materials	19,603		20,609
Contracts and other work in process	196,652		205,220
Finished goods (including certain general stock materials)	11,206		12,472
Total	$	378,467	$	390,495

6. INVENTORIES (CONTINUED)

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



	March 28, 2014		December 31, 2013
In thousands
Contract changes, negotiated settlements and claims for unanticipated contract costs	$	7,337	$	11,581
Total	$	7,337	$	11,581

The reduction in this balance is due to the settlement of a claim related to a commercial composite structures program.

K-MAX® inventory of $17.4 million and $17.0 million as of March 28, 2014, and December 31, 2013, 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 March 28, 2015, based upon the anticipation of supporting the fleet for the foreseeable future.

At March 28, 2014, and December 31, 2013, $38.6 million and $43.8 million, respectively, of SH-2G(I), formerly SH-2G(A), inventory was included on the Company's balance sheet in contracts and other work in process inventory. On May 8, 2013, the Company announced that it had entered into a $120.6 million contract with the New Zealand Ministry of Defence for the sale of ten SH-2G(I) Super Seasprite aircraft, spare parts, a full mission flight simulator, and related logistics support. Although a substantial portion of the SH-2G(I) inventory will be used in the performance of this contract, management believes that $13.4 million of the SH-2G(I) inventory will be sold after March 28, 2015, based upon the time needed to prepare the aircraft for sale and the requirements of our customer. For more information on the SH-2G(I) inventory, see Note 9, 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. Changes in contract estimates contributed $0.8 million to the Company's operating income for the three-month period ended March 28, 2014. The increase for the three-month period was primarily a result of improved performance on the JPF program and material and labor hour improvements on one of our commercial aerostructures programs. Changes in contract estimates did not have a material impact on the Company's operating income for the three-month period ended March 29, 2013.