Sal Tharani, Goldman Sachs
So your fourth quarter result of $16 per ton operating income – I forgot what the number was $15 – did not have that – what I mean is should we correspondingly deduce your fourth quarter 2014 number by that amount because you had already…?
Richard Peach, CFO, SVP
No, no, no. These were contracts for shipment during the first quarter and we actually did still ship the tons during the fourth quarter – during the first quarter, rather. So both the original contract and the revised contract were within the first quarter, so there is no impact on fourth quarter numbers.
Sal Tharani, Goldman Sachs
Yes, because I’m a little confused. You expected to sell at a certain price, yet you sell it at a lesser price. Why would we adjust it? I just don’t understand that…
Richard Peach, CFO, SVP
Well, it’s because we’re adjusting it to provide comparability with previous reporting periods because, as I said, the last time this happened was as far back as 2008, which was a very long time ago. So it’s really an adjustment for comparability and to provide insight to our overall performance in terms of our expected and actual revenue trends.
Sal Tharani, Goldman Sachs
Got you. So we should not really add it back to your EPS number, should we? Because this was just an expectation versus what is realized? I know…
Richard Peach, CFO, SVP
We have added it back to our EPS number. Remember, we buy behind these sales, so we had an expectation of a level of profitability on those sales that was built into our expectations for our performance for the quarter. That did not happen so we are showing our results both on the reported and the adjusted results because remember these were actual sales contracts and purely our own internal expectations. The customers did not honor the commitments that were within these contracts.
Sal Tharani, Goldman Sachs
Okay, I understand. Thank you very much.
operator
Thank you. Our next question comes from the line of Luke Folta from Jefferies.
Tamara Lundgren, President, CEO
Good morning.
Luke Folta, Jefferies
Hi, good morning. First question I had was on APB margins, just trying to get a sense. If you add back the average inventory impact for the quarter, you still had a pretty – a sequentially weaker margin in that business. I was just hoping you can give us some more color on what’s going on there. Is it more of commodity prices have come down, non-ferrous prices have come down so you are extracting less value from what you are processing there or parts? Or is it more a function of competitive dynamics, getting the cars?
Richard Peach, CFO, SVP
There is two issues going on there, Luke, and you pointed out both of them. You are correct that sequentially, our operating income did reduce. It was $5 million in Q4 and it was $2 million in Q1 for auto parts. Of that difference, $2 million is the adverse impact of average inventory accounting. Because the market was falling so quickly, we were reducing our purchase costs for cars. But the average inventory cost that goes into our cost of goods sold lagged behind the reduction in cash purchase prices, about $2 million of it. The remainder of it is compression in cash metal spreads as a consequence of the lower ferrous and non-ferrous prices in the first quarter. So these are really the two reasons why the first quarter results are different from the fourth quarter results.
