Note 3: Inventory

Our inventory consists of raw materials, primarily comprised of ferrous and non-ferrous scrap metal and alloys such as nickel, chrome, molybdenum, manganese and copper. Our semi-finished and finished steel products are work-in-process in various stages of production or are finished products waiting to be shipped to our customers. Operating materials are primarily comprised of forge dies and production molds and rolls that are consumed over their useful lives. During the nine months ended September 30, 2014 and 2013, we amortized these operating materials in the amount of $1.2 million and $867,000, respectively. This expense is recorded as a component of cost of products sold on the consolidated statements of operations and included as a part of our total depreciation and amortization on the consolidated statements of cash flows. Inventory is stated at the lower of cost or market with cost principally determined on a weighted average cost method. Such costs include the acquisition cost for raw materials and supplies, direct labor and applied manufacturing overhead. We assess market based upon actual and estimated transactions at or around the balance sheet date. Typically, we reserve for slow-moving inventory and inventory that is being evaluated under our quality control process. The reserves are based upon management’s expected method of disposition. During 2014, we scrapped inventory that was no longer considered sellable and returned it to our melt shop. Prior to this disposition, the inventory was reserved for. Inventories consisted of the following:



	September 30,		December 31,
(in thousands)	2014		2013

Raw materials and starting stock	$	7,989	$	6,848
Semi-finished and finished steel products		78,391		69,333
Operating materials		8,829		8,463

Gross inventory		95,209		84,644
Inventory reserves		(1,338)		(2,051)

Total inventory, net	$	93,871	$	82,593