Note 4. Inventories

Inventories are stated at the lower of cost or market. Cost is determined using the first-in, first-out method.

Inventories are comprised of the following (in thousands):


	June 30,			December 31,
	2011			2010

Raw materials	$	13,422		$	12,882
Work in process		9,664			8,837
Finished goods		21,061			21,467
Less inventory reserves		(1,493	)		(1,304	)

	$	42,654		$	41,882

Inventories on consignment at customer locations as of June 30, 2011 and December 31, 2010 totaled $3,870 and $3,401, respectively.

During the first quarter of 2011, $2,407 of inventory at Eltmann was deconsolidated from the financial statements of NN. (See Note 1 of the Notes to Condensed Consolidated Financial Statements).

The inventory valuations above were developed using normalized production capacities for each of our manufacturing locations. Any costs from abnormal excess capacity or under-utilization of fixed production overheads are expensed in the period incurred and are not included as a component of inventory valuation.