Changes in Estimates

6 Months Ended

Jun. 30, 2022

. Changes in Estimates

The Company has a periodic forecasting process in which management assesses the progress and performance of the Company’s programs. This process requires management to review each program’s progress by evaluating the program schedule, changes to identified risks and opportunities, changes to estimated revenues and costs for the accounting contracts (and options, if applicable), and any outstanding contract matters. Risks and opportunities include but are not limited to management’s judgment about the cost associated with the Company’s ability to achieve the schedule, technical requirements (e.g., a newly-developed product versus a mature product), and any other program requirements. Due to the span of years it may take to completely satisfy the performance obligations for the accounting contracts (and options, if any) and the scope and nature of the work required to be performed on those contracts, the estimation of total revenue and costs is subject to many variables and, accordingly, is subject to change based upon judgment. When adjustments in estimated total consideration or estimated total cost are required, any changes from prior estimates for fully satisfied performance obligations are recognized in the current period as a cumulative catch-up adjustment for the inception-to-date effect of such changes. Cumulative catch-up adjustments are driven by several factors including production efficiencies, assumed rate of production, the rate of overhead absorption, changes to scope of work, and contract modifications.

During the second quarter ended June 30, 2022, the Company recognized unfavorable changes in estimates of $71.7, which included net forward loss charges of $63.7, and unfavorable cumulative catch-up adjustments related to periods prior to the second quarter of 2022 of $8.0.

The forward losses in the second quarter relate primarily to increased cost estimates for production rate decreases and build schedule changes, supply chain costs, and other costs on the B787 program, and anticipated production recovery costs related to the bankruptcy of a supplier and associated failure to deliver key parts on the A220 wing program. Forward loss charges were also recorded on the A350 program driven by production schedule changes received from our customer, increased labor costs, and increased non-recurring engineering and tooling costs. The forward loss charges for the second quarter of 2022 also include, to a lesser extent than the aforementioned B787, A220, and A350 programs impacts, increased cost projections on the RB3070, B747, B767, Bombardier Challenger 650, and Bell V280 programs, and a partial offset related to the release of a previously recorded forward loss provision that was impacted by the suspension of activities in Russia noted above. See Note 1 Organization, Basis of Interim Presentation and Recent Developments.

The unfavorable cumulative catch-up adjustments for the second quarter ended June 30, 2022 primarily relate to the B737 and A320 programs. Increased cost estimates on the B737 program were driven by production schedule changes, parts shortages, and increased supply chain costs. The A320 program unfavorable cumulative catch-up adjustment was driven by production cost overruns experienced and estimates of the impact of production schedule changes, increased material cost, increased freight cost, and increased labor and overhead cost.

During the second quarter ended July 1, 2021, the Company recognized unfavorable changes in estimates of $42.3, which included net forward loss charges of $52.2, and favorable cumulative catch-up adjustments related to periods prior to the second quarter of 2021 of $9.9. The favorable cumulative catch-up adjustment was driven by a change in the estimate of production costs on the B737 program. The forward losses in the second quarter ended July 1, 2021 related primarily to the B787 program, driven by engineering analysis and the estimated cost of rework, and also included additional loss on the A350 program related to changes to production schedule and estimated quality improvement costs, and loss on the B767 program due to cost performance.

Changes in estimates are summarized below:


	For the Three Months Ended				For the Six Months Ended
Changes in Estimates	June 30, 2022		July 1, 2021		June 30, 2022		July 1, 2021
(Unfavorable) Favorable Cumulative Catch-up Adjustment by Segment
Commercial	$	(7.9)	$	10.5	$	(25.2)	$	(0.4)
Defense & Space	(0.1)		(0.6)		0.8		0.5
Aftermarket	—		—		—		—
Total (Unfavorable) Favorable Cumulative Catch-up Adjustment	$	(8.0)	$	9.9	$	(24.4)	$	0.1

Changes in Estimates on Loss Programs (Forward Loss) by Segment
Commercial	$	(59.4)	$	(51.2)	$	(85.2)	$	(118.8)
Defense & Space	(4.3)		(1.0)		(2.3)		(5.8)
Aftermarket	—		—		—		—
Total Changes in Estimates (Forward Loss) on Loss Programs	$	(63.7)	$	(52.2)	$	(87.5)	$	(124.6)

Total Change in Estimate	$	(71.7)	$	(42.3)	$	(111.9)	$	(124.5)
EPS Impact (diluted per share based upon applicable forecasted effective tax rate)	$	(0.63)	$	(0.42)	$	(0.98)	$	(1.22)