Sara Lee 2008 Annual Report Download - page 17

Sara Lee Corporation and Subsidiaries 15
Total selling, general and administrative expenses in 2007
increased $168 million, or 4.5%. Changes in foreign currency
exchange rates, primarily in the European euro, increased SG&A
expenses by $120 million, or 3.3%. The remaining increase in
SG&A expenses was $48 million, or 1.2%. Measured as a percent
of sales, SG&A expenses decreased from 33.4% in 2006 to 32.6%
in 2007. SG&A expenses as a percent of sales declined in each
of the business segments with the exception of North American
Retail Meats and International Beverage.
Total SG&A expenses reported in 2008 by the business segments
increased by $229 million, or 6.6%, over 2007 primarily due to the
impact of changes in foreign currency exchange rates, higher distri-
bution costs driven by higher fuel costs, and the impact of inflation
on wages and employee benefit costs, partially offset by the bene-
fits of cost savings initiatives and lower costs associated with the
corporation’s transformation program.
Amortization of intangibles increased by $3 million in 2008
versus 2007. General corporate expenses, which are not allocated
to the individual business segments, decreased by $98 million, due
to a reduction in business transformation costs, lower pension and
other benefit plan costs, and the non-recurrence of costs related
to corporate hedging programs.
Total SG&A expenses reported in 2007 by the business
segments increased by $129 million, or 3.8%, over 2006, primarily
due to the impact of changes in foreign currency exchange rates,
higher media advertising and promotion expenditures and higher
distribution and selling costs partially offset by the benefits of cost
savings initiatives and lower costs associated with the corporation’s
transformation program.
Amortization of intangibles increased by $6 million in 2007.
General corporate expenses increased by $33 million, or 10.3%,
primarily due to unfavorable foreign currency results, partially offset
by lower transformation expenses and a decrease in corporate
office and administrative expenses.
As previously noted, reported SG&A reflects amounts recognized
for actions associated with the corporation’s ongoing business
transformation program and other significant amounts. These
amounts include the following:
In millions 2008 2007 2006
Transformation costs – IT $40 $÷42 $÷32
Transformation costs – other 3 67 122
Accelerated depreciation –110
Hurricane losses – – 3
Change in vacation policy – – (14)
Total $43 $110 $153
Gross Margin The gross margin, which represents net sales less cost
of sales, increased by $445 million in 2008, driven by the favorable
impact of changes in currency exchange rates, price increases to
offset higher commodity costs, higher unit volumes, and savings
from continuous improvement programs, partially offset by higher
commodity costs and higher labor costs due to inflationary pressures.
The gross margin percent declined from 38.5% in 2007 to 38.3%
in 2008. The gross margin percent declined in each business seg-
ment with the exception of North American Retail Meats. The gross
margin percent was negatively impacted by higher commodity costs
and inflation, which was partially offset by price increases.
The gross margin in 2007 increased by $295 million due to
the favorable impact of changes in currency exchange rates, sales
price increases, savings from continuous improvement programs
and an improved product mix partially offset by higher commodity
and energy costs.
The gross margin percent declined from 38.6% in 2006 to
38.5% in 2007. The gross margin percent declined in each business
segment except North American Retail Bakery, primarily due to the
impact of higher commodity and energy costs and competitive
market conditions.
Selling, General and Administrative Expenses
In millions 2008 2007 2006
SG&A expenses in the business
segment results
Media advertising and promotion $÷«594 $÷«567 $÷«531
Other 3,124 2,922 2,829
Total business segments 3,718 3,489 3,360
Amortization of identifiable intangibles 67 64 58
General corporate expenses 254 352 319
Total $4,039 $3,905 $3,737
Total selling, general and administrative (SG&A) expenses in
2008 increased $134 million, or 3.4%. Changes in foreign currency
exchange rates, primarily in the European euro, increased SG&A
expenses by $213 million, or 5.3%. The remaining decrease in
SG&A expenses was $79 million, or 1.9%. Measured as a percent
of sales, SG&A expenses decreased from 32.6% in 2007 to 30.6%
in 2008. SG&A expenses as a percent of sales declined in each
of the business segments. The results reflect the favorable impact
of savings from continuous improvement initiatives, a $67 million
reduction in transformation related costs and lower general
corporate expenses.