Question-and-Answer Session
Operator
(Operator Instructions) Your first question comes from Michelle Applebaum of Michelle Applebaum Research.
Michelle Applebaum - Michelle Applebaum Research
I have -- first of all, congratulations to Stan. I’ve known you for 28 years and you are one of the best people I’ve ever worked with, so -- second, I am the first question and I have to apologize because I have an accounting degree and I took a class called inflation accounting in graduate school, and I still am not getting some of this discussion here about LIFO. Can you explain to me what the difference is between saying LIFO expense was $129 million and you were forecasting 20, and saying costs were higher than expected?
William B. Larson
I don’t know about the costs were higher than expected, but clearly as we rolled into the third quarter, we did not have the $147 scrap adjustment in front of us. We had looked at adjustments in price increases in the neighborhood of $20 or $30 a ton, consistent with other springs where with the thaw, the material flow increases and generally there’s a correction. Clearly that didn’t happen and you -- although you can’t quite straight-line it, I mean, you can see that going from a $30 expectation to well over -- well, it went up almost $200 during the quarter, that you are not going to get it right.
Michelle Applebaum - Michelle Applebaum Research
You know, I thought I was asking you what’s the difference between missing LIFO and costs were higher than expected? Was that answering -- I mean, I understand it’s hard to forecast LIFO but what’s the difference between not forecasting LIFO correctly and costs went up higher than expected?
William B. Larson
Well, costs did go up higher than expected. If you just want to discuss on a FIFO basis, there’s no question that --
Murray R. McClean
There’s energy.
William B. Larson
Yeah, energy, alloys, I’d agree with that, Michelle, that LIFO simply reflects the underlying reality that a lot of the cost inputs went up. So that’s absolutely correct.
Michelle Applebaum - Michelle Applebaum Research
Okay. All right. My other question was yesterday we saw Mittal buy Bayou Steel and it’s just interesting how they are sort of a little bit pregnant in North America in the long product business. And I was just wondering what you thought their plan might be and how that might impact from a competitive perspective what you guys are doing.
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