Question-and-Answer Session
Operator
Thank you very much. (Operator Instructions). Our first question or comment is from the line of Sam Darkatsh, please excuse me for miss pronunciation with Raymond James. Your line is open.
Sam Darkatsh
Hi, Jim, how are you.
James Brenn
Fine Sam.
Sam Darkatsh
Number of questions, I’ll ask you, if you will and get back into the queue. First of, did I hear that right with respect to the engines your $20 million in sales above plan and $18 million in EBIT above plan? The mix was roughly inline with what you were looking for and material cost or at least input cost had to be higher. So help me understand if my math is right. Why there is such a positive variance with the $20 million variance of sales?
James Brenn
Well, the engine segment sales in fact were up $30 million, right.
Sam Darkatsh
But versus plan, I thought John said was over, it was 20 million on the plant?
James Brenn
I think we did better at the variance line then we thought we are going to do. And we had some pretty good reductions in couple of the manufacturing overhead cost categories primarily in healthcare benefits and in some case our warranty reserves are lower than they have been in the past.
Sam Darkatsh
Got you.
James Brenn
All is gotten better.
Sam Darkatsh
I got you. Okay. Talk about exposure to steel and aluminum inflation, how that hits or might effect '08 and '09 as you look out?
John S. Shiely
I would tell you, I mean, there is some creep that’s already occurring in ’08, and we are seeing obviously especially in steel even where we have contracts, some of these guys are coming back now due to pushing for surcharges or talking about potentially just ignoring the contracts that are in place. I think that probably gives us a little bit of headwind in Q4, probably in the 2 or $3 million of the reduction that you are seeing is coming from that increased cost. The real ramification in my mind is for ’09. Right today, as we take a look at the commodity cost for aluminum and steel in particular, we probably are looking at probably at 40 to $45 million commodity cost increase in the engine business somewhere in the probably 25 to $35 million in the yard product business because of the steel. And those things will have to be recovered through pricing in next year. The real question in my mind is where do cost continue to go during the year and we are going to try to evaluate what type of pricing mechanism we’re going to use for next year on that.
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