Note 5 - Inventories

The components of inventories were as follows:



	September 30, 2014			December 31, 2013
Manufacturing supplies	$	25.7		$	26.8
Raw materials	57.0			62.3
Work in process	227.4			199.2
Finished products	332.9			312.7
Subtotal	643.0			601.0
Allowance for obsolete and surplus inventory	(24.7		)	(18.4		)
Total Inventories, net	$	618.3		$	582.6

Inventories are valued at the lower of cost or market, with approximately 30% valued by the last-in, first-out (LIFO) method and the remaining 70% valued by the first-in, first-out (FIFO) method. The majority of the Company's domestic inventories are valued by the LIFO method and all of the Company's international (outside the United States) inventories are valued by the FIFO method.

An actual valuation of the 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 must be based on management’s estimates of expected year-end inventory levels and costs. Because these calculations are subject to many factors beyond management’s control, annual results may differ from interim results as they are subject to the final year-end LIFO inventory valuation.

The LIFO reserves at September 30, 2014 and December 31, 2013 were $197.6 million and $199.3 million, respectively. The Company recognized a decrease in its LIFO reserve of $1.7 million during the first nine months of 2014, compared to an increase in its LIFO reserve of $3.1 million during the first nine months of 2013.

Based on current expectations of inventory levels and costs, the Company expects to recognize a decrease of approximately $2.1 million in its LIFO reserve for the year ended December 31, 2014. The decrease in the LIFO reserve for 2014 reflects lower anticipated costs. A 1.0% increase in costs would increase the current LIFO expense estimate for 2014 by $3.5 million. An increase in inventory quantities would have no effect on the current LIFO expense estimate for 2014.

During the third quarter of 2014, the Company recorded an inventory valuation adjustment of $18.7 million related to its Aerospace segment. The Company recorded this adjustment during the third quarter of 2014 as a result of the announcement to exit the engine overhaul business, as well as other product lines, and lower than expected future sales. The Company expects to dispose of the related inventory during the fourth quarter of 2014.