DELPHI 2011 Annual Report Download - page 48

Table of Contents
Cost of Sales
Cost of sales is primarily comprised of material, labor, manufacturing overhead, freight, fluctuations in foreign currency exchange rates, product
engineering, design and development expenses, depreciation and amortization, warranty costs and other operating expenses. Gross margin is revenue less cost
of sales and gross margin percentage is gross margin as a percent of net sales. Cost of sales increased $1,618 million for the year ended December 31, 2011
compared to the year ended December 31, 2010, as summarized below.
Year ended December 31, Variance due to:
2011 2010
Favorable/
(unfavorable) Volume(1)
Operational
performance Other Total
(dollars in millions) (in millions)
Cost of sales $ 13,386 $ 11,768 $ (1,618) $ (1,285) $ 177 $ (510) $ (1,618)
Gross margin $ 2,655 $ 2,049 $ 606 $ 436 $ 177 $ (7) $ 606
Percentage of net sales 16.6% 14.8%
(1) Presented net of contractual price reductions for gross margin variance.
The increase in cost of sales was driven by increases in volume and the following items in other above:
• $229 million of increased pass-through commodity costs, which were offset in sales through contract escalation clauses with our customers;
• Increased depreciation of fixed assets, including tooling, of $45 million; and
• Approximately $360 million due to fluctuations in foreign currency exchange rates.
These increases were partially offset by improved operational performance as well as $94 million related to divested businesses (primarily the occupant
protection systems business on March 31, 2010).
Selling, General and Administrative Expense
Year ended December 31,
2011 2010
Favorable/
(unfavorable)
(dollars in millions)
Selling, general and administrative expense $ 901 $ 815 $ (86)
Percentage of net sales 5.6% 5.9%
Selling, general and administrative expense ("SG&A") includes administrative expenses, information technology costs and incentive compensation
related costs, and declined as a percent of sales during the year ended December 31, 2011 compared to 2010 due to maintaining administrative and
information technology cost increases at or lower than the increasing rate of net sales. Increases in SG&A were largely attributable to foreign exchange effects
and increased accruals for incentive compensation of $29 million including the accelerated vesting of Board of Directors shares upon our initial public
offering.
Amortization
Year ended December 31,
2011 2010
Favorable/
(unfavorable)
(in millions)
Amortization $ 79 $ 70 $ (9)
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