Inventory

3 Months Ended

Mar. 28, 2013

5. Inventory

Inventories are summarized as follows:

		March 28,		December 31,
		2013		2012⁽¹⁾
Raw materials		$	230.8	$	250.3
Work-in-process			1,039.3		1,033.6
Finished goods			39.3		35.9
	Product inventory		1,309.4		1,319.8
Capitalized pre-production			510.0		524.6
Deferred production			1,296.1		1,173.8
Forward loss provision			(622.6)		(607.4)
	Total inventory, net	$	2,492.9	$	2,410.8

______________________

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

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.

Deferred production includes 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:

		March 28, 2013
	Product Inventory
		Inventory		Non-Recurring		Capitalized Pre-Production		Deferred Production		Forward Loss Provision⁽¹⁾		Total Inventory, net March 28, 2013
		Inventory		Non-Recurring		Capitalized Pre-Production		Deferred Production		Forward Loss Provision⁽¹⁾		Total Inventory, net March 28, 2013
B747⁽²⁾	$	93.9	$	-	$	6.8	$	4.8	$	(5.1)	$	100.4
B787		227.0		32.1		181.9		606.2		(199.3)		847.9
Boeing - All other platforms⁽³⁾		434.3		30.0		6.8		(77.2)		(6.9)		387.0
A350		138.4		40.2		56.8		225.0		(8.6)		451.8
Airbus - All other platforms		79.9		-		-		11.9		-		91.8
G280		57.5		-		5.4		154.1		(118.8)		98.2
G650		49.8		-		203.3		316.3		(162.5)		406.9
Rolls-Royce⁽⁴⁾		17.6		-		49.0		54.8		(121.4)		-
Sikorsky		-		3.8		-		-		-		3.8
Bombardier C-Series		4.7		-		-		0.2		-		4.9
Aftermarket		48.9		-		-		-		-		48.9
Other platforms⁽⁵⁾		47.6		3.7		-		-		-		51.3
Total	$	1,199.6	$	109.8	$	510.0	$	1,296.1	$	(622.6)	$	2,492.9

		December 31, 2012
	Product Inventory
		Inventory		Non-Recurring		Capitalized Pre-Production		Deferred Production		Forward Loss Provision		Total Inventory, net December 31, 2012
		Inventory		Non-Recurring		Capitalized Pre-Production		Deferred Production		Forward Loss Provision		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⁽³⁾		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⁽⁴⁾		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⁽⁵⁾		98.3		4.0		-		-		-		102.3
Total	$	1,202.3	$	117.5	$	524.6	$	1,173.8	$	(607.4)	$	2,410.8

Forward loss charges taken from January 1, 2012 through March 28, 2013 on open blocks.
Due to contract block closure in the first quarter of 2013, $6.4 of forward loss provision related to fuselage was closed out against deferred production.
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 is classified as a contract liability of $1.5 which will be reduced as additional inventory is generated. This contract liability is reported in other current liabilities. This liability will amortize into the forward loss category of inventory as inventory on the program increases.
Forward loss provision of $151.0 recorded in the third quarter of 2012 exceeded the total inventory balance. The excess of the charge over program inventory is classified as a contract liability of $35.8 which will be reduced as additional inventory is generated. This contract liability is reported in other current liabilities. This liability will amortize into the forward loss category of inventory as inventory on the program increases.
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 March 28, 2013:

Balance, December 31, 2012	$	524.6
Charges to costs and expenses		(15.2)
Capitalized costs		0.6
Balance, March 28, 2013	$	510.0

The following is a roll forward of the deferred production costs included in the inventory balance at March 28, 2013:

Balance, December 31, 2012	$	1,173.8
Charges to costs and expenses		(77.3)
Capitalized costs		207.1
Exchange rate		(7.5)
Balance, March 28, 2013	$	1,296.1

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

	Contract Block Quantity		Orders⁽¹⁾
	Contract Block Quantity		Orders⁽¹⁾
B787		500		840
A350 XWB		400		616
G280		250		49
G650		350		95
Rolls-Royce		350		90

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

		Current Block Deliveries
Model
B787		116
A350 XWB		5
Business/Regional Jets		142

Contract block quantities are 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.

- Definition

The entire disclosure for inventory. This may include, but is not limited to, the basis of stating inventory, the method of determining inventory cost, the major classes of inventory, and the nature of the cost elements included in inventory. If inventory is stated above cost, accrued net losses on firm purchase commitments for inventory and losses resulting from valuing inventory at the lower-of-cost-or-market may also be included. For LIFO inventory, may disclose the amount and basis for determining the excess of replacement or current cost over stated LIFO value and the effects of a LIFO quantities liquidation that impacts net income.

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