Inventory

Inventories are summarized as follows:



	December 31, 2013			December 31, 2012⁽¹⁾
Raw materials	$	240.2		$	250.3
Work-in-process	1,057.8			1,033.6
Finished goods	43.7			35.9
Product inventory	1,341.7			1,319.8
Capitalized pre-production⁽²⁾	486.2			524.6
Deferred production	1,661.2			1,173.8
Forward loss provision	(1,646.5		)	(607.4		)
Total inventory, net	$	1,842.6		$	2,410.8

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(1)	For December 31, 2012, deferred production of $1,173.8 was reclassified from work-in-process to conform to current year presentation.


(2)	For December 31, 2013, $17.9 of work-in-process was reclassified to capitalized pre-prodution.

Capitalized pre-production costs include certain contract costs, including applicable overhead, incurred before a product is manufactured on a recurring basis. Significant unfunded statement of work changes can also cause pre-production costs to be incurred. These costs are typically recovered over a certain number of ship set deliveries and the Company believes these amounts will be fully recovered.

Total inventory includes deferred production costs for the excess of production costs over the estimated average cost per ship set, and credit balances for favorable variances on contracts between actual costs incurred and the estimated average cost per ship set for units delivered under the current production blocks. Recovery of excess-over-average deferred production costs is dependent on the number of ship sets ultimately sold and the ultimate selling prices and lower production costs associated with future production under these contract blocks. The Company believes these amounts will be fully recovered. Sales significantly under estimates or costs significantly over estimates could result in the realization of losses on these contracts in future periods.

Non-recurring production costs include design and engineering costs and test articles.

Inventories are summarized by platform and costs below:



	December 31, 2013
	Product Inventory
	Inventory		Non-Recurring		Capitalized Pre-Production		Deferred Production			Forward Loss Provision⁽¹⁾⁽²⁾			Total Inventory, net December 31, 2013
B747⁽³⁾	$	96.4	$	0.1	$	4.4	$	1.0		$	(37.2	)	$	64.7
B787	263.9		14.7		158.2		597.3			(606.0		)	428.1
Boeing — All other platforms⁽⁴⁾	421.4		11.5		7.0		(21.7		)	(18.6		)	399.6
A350⁽⁵⁾	166.7		42.5		76.5		388.8			(120.8		)	553.7
Airbus — All other platforms	83.2		—		—		18.8			—			102.0
G280⁽⁶⁾	46.9		—		4.9		233.7			(285.5		)	—
G650	59.2		—		192.7		373.3			(450.8		)	174.4
Rolls-Royce⁽⁷⁾	15.8		—		42.5		69.3			(127.6		)	—
Sikorsky	—		5.4		—		—			—			5.4
Bombardier C-Series	9.1		—		—		0.7			—			9.8
Aftermarket	37.0		—		—		—			—			37.0
Other platforms⁽⁸⁾	67.1		0.8		—		—			—			67.9
Total	$	1,266.7	$	75.0	$	486.2	$	1,661.2		$	(1,646.5	)	$	1,842.6



	December 31, 2012
	Product Inventory
	Inventory		Non-Recurring			Capitalized Pre-Production		Deferred Production			Forward Loss Provision⁽¹⁾			Total Inventory, net December 31, 2012
B747	$	83.6	$	(0.7	)	$	7.2	$	3.6		$	(11.5	)	$	82.2
B787	225.2		26.6			189.5		595.1			(184.0		)	852.4
Boeing — All other platforms⁽⁴⁾	392.3		31.6			5.8		(67.6		)	(6.5		)	355.6
A350	133.2		51.3			56.8		177.4			(8.9		)	409.8
Airbus — All other platforms	88.2		—			—		18.2			—			106.4
G280	83.3		—			5.5		98.3			(118.8		)	68.3
G650	36.7		—			208.4		297.3			(162.5		)	379.9
Rolls-Royce⁽⁷⁾	12.6		—			51.4		51.2			(115.2		)	—
Sikorsky	—		4.7			—		—			—			4.7
Bombardier C-Series	3.9		—			—		0.3			—			4.2
Aftermarket	45.0		—			—		—			—			45.0
Other platforms⁽⁸⁾	98.3		4.0			—		—			—			102.3
Total	$	1,202.3	$	117.5		$	524.6	$	1,173.8		$	(607.4	)	$	2,410.8

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(1)	Forward loss charges taken since January 1, 2012 on blocks that have not closed.

(2)

Forward loss charges taken through December 31, 2011 were reflected within capitalized pre-production and inventory for the respective programs and are therefore not reflected as part of the Forward Loss Provision figure presented. The cumulative forward loss charges, net of contract liabilities, through December 31, 2013 on open blocks are $123.8, $463.1 and $29.0 for the A350 XWB, G280 and Sikorsky programs, respectively.


(3)	Forward loss provision of $41.1 recorded on the fuselage portion of the B747 program in 2013 included $21.2 of charges on the subsequent planning block. The total provision exceeded the inventory balance which resulted in a contract liability of $3.9 which will be reduced as additional contact costs are incurred.

(4)

Forward loss provision of $11.6 recorded in 2013 on the B767 program of which $7.5 related to propulsion which exceeded the inventory balance for the propulsion portion of the program. The excess of charge over program inventory was classified as a contract liability of $5.8 which will be reduced as additional contract costs are incurred. Forward loss provision of $8.0 recorded on the B767 program in the fourth quarter of 2012 exceeded the total inventory balance. The excess of the charge over program inventory was classified as a contract liability of $1.5 as of December 31, 2012 and was reduced to zero as additional inventory was generated as of June 27, 2013.

(5)

Forward loss provision of $32.7 recorded on the non-recurring fuselage portion of the A350-1000 XWB program in 2013 exceeded the total inventory balance. The excess of the charge over the program inventory is classified as a contract liability of $7.7, reduced to zero as additional inventory was generated as of December 31, 2013. This liability was reported in other current liabilities and was absorbed back into the forward loss category of inventory as inventory on the non-recurring portion of the program increased. In 2013, non-recurring in the amount of $17.9 was reclassified to capitalized pre-prodution.

(6)

Forward loss provision of $240.9 recorded in 2013 exceeded the total inventory balance. The excess of the charge over program inventory is classified as a contract liability. The total contract liability as of December 31, 2013 is $74.2. This contract liability is reported in other current liabilities. This liability will flow back into the forward loss category of inventory as inventory on the program increases.

(7)

Forward loss provision of $151.0 recorded in 2012 exceeded the total inventory balance. The excess of the charge over program inventory is classified as a contract liability. In 2013 a forward loss provision of $21.7 and forward loss reduction of $8.4 was recorded, the net of which increased the contract liability from 2012. The total contract liability is $36.7 as of December 31, 2013. This contract liability is reported in other current liabilities. This liability will flow back into the forward loss category of inventory as inventory on the program increases.


(8)	Includes over-applied and under-applied overhead.

The following is a roll forward of the capitalized pre-production costs included in the inventory balance at December 31, 2013 and December 31, 2012:



	2013			2012
Balance, January 1	$	524.6		$	553.2
Charges to costs and expenses	(64.8		)	(59.7		)
Capitalized costs ⁽¹⁾	26.4			31.1
Balance, December 31	$	486.2		$	524.6

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(1)	Capitalized costs in 2013 primarily due to reclassification of $17.9 from non-recurring to capitalized pre-production.

The following is a roll forward of the deferred production included in the inventory balance at December 31, 2013 and December 31, 2012:



	2013⁽¹⁾			2012⁽¹⁾
Balance, January 1	$	1,173.8		$	813.2
Charges to costs and expenses	(591.2		)	(260.1		)
Capitalized costs	1,072.8			617.6
Exchange rate	5.8			3.1
Balance, December 31	$	1,661.2		$	1,173.8

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(1)	Increases in deferred production are driven primarily by new and maturing programs.

Significant amortization of capitalized pre-production and deferred production inventory will occur over the following contract blocks:



	Contract Block Quantity	Orders(1)
B787	500	916
A350 XWB	400	812
G280	250	85
G650	350	145
Rolls-Royce	350	136

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(1)	Orders are from the published firm-order backlogs of Airbus and Boeing. For all other programs, orders represent purchase orders received from OEMs and are not reflective of OEM sales backlog. Orders reported are total block orders, including delivered units.

Current block deliveries are as follows:



Model	Current Block Deliveries
B787	164
A350 XWB	11
Business/Regional Jets	217

Contract block quantity is projected to fully absorb the balance of deferred production inventory. Capitalized pre-production and deferred production inventories are at risk to the extent that we do not achieve the orders in the forecasted blocks or if future actual costs exceed current projected estimates, as those categories of inventory are recoverable over future deliveries. In the case of capitalized pre-production this may be over multiple blocks. Should orders not materialize in future periods to fulfill the block, potential forward loss charges may be necessary to the extent the final delivered quantity does not absorb deferred inventory costs.