Note 3 - Inventories

9 Months Ended

Sep. 30, 2020

Notes to Financial Statements

Inventory Disclosure [Text Block]

NOTE 3 – INVENTORIES

The composition of our inventory is as follows (in millions):

	September 30,			December 31,
	2020			2019
Finished goods inventory at average cost:
Valves, automation, measurement and instrumentation	$	303		$	355
Carbon steel pipe, fittings and flanges		183			268
All other products		249			268
		735			891
Less: Excess of average cost over LIFO cost (LIFO reserve)		(135	)		(155	)
Less: Other inventory reserves		(18	)		(35	)
	$	582		$	701

The Company uses the last-in, first-out (“LIFO”) method of valuing U.S. inventories. The use of the LIFO method has the effect of reducing net income during periods of rising inventory costs (inflationary periods) and increasing net income during periods of falling inventory costs (deflationary periods). Valuation of inventory under the LIFO method can be made only at the end of each year based on the inventory levels and costs at that time. Accordingly, interim LIFO calculations are based on management’s estimates of expected year-end inventory levels and costs and are subject to the final year-end LIFO inventory determination. Our inventory quantities are expected to be reduced for the current year, resulting in a liquidation of a LIFO inventory layer that was carried at a lower cost prevailing from a prior year, as compared with current costs in the current year (a “LIFO decrement”). A LIFO decrement results in the erosion of layers created in earlier years, and, therefore, a LIFO layer is not created for years that have decrements. For the three and nine months ended September 30, 2020, the effect of this LIFO decrement decreased cost of sales by approximately $14 million and $22 million, respectively.  

During the nine months ended September 30, 2020, we incurred non-cash inventory-related charges totaling $34 million necessary to reduce the carrying value of certain products determined to be excess or obsolete to their net realizable value based on our current market outlook for these products. This amount includes $19 million in our U.S. segment, $1 million in our Canada segment, and $14 million in our International segment due to increased reserves for excess and obsolete inventory as well as the exit of our Thailand business. We may continue to sell to customers in Thailand from time-to-time on an export basis.