DELPHI 2014 Annual Report Download - page 59

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37
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
percentage of net sales.
Cost of sales increased $283 million for the year ended December 31, 2014 compared to the year ended December 31,
2013, as summarized below. The Company's material cost of sales was approximately 50% of net sales in both the year ended
December 31, 2014 and December 31, 2013.
Year Ended December 31, Variance Due To:
2014 2013 Favorable/
(unfavorable) Volume (a) FX Operational
performance Other Total
(dollars in millions) (in millions)
Cost of sales.................... $ 13,850 $ 13,567 $ (283) $ (685) $ 6 $ 453 $ (57) $ (283)
Gross margin................... $ 3,173 $ 2,896 $ 277 $ (90) $ 11 $ 453 $ (97) $ 277
Percentage of net sales.... 18.6% 17.6%
(a) Presented net of contractual price reductions for gross margin variance.
The increase in cost of sales reflects increased volumes before contractual price reductions for the period, partially offset
by operational performance improvements and the following unfavorable items in Other above:
• Approximately $47 million of increased depreciation and amortization; and
• The absence of a prior period gain on the disposal of property of approximately $11 million from the sale of a
manufacturing site that was closed as a result of Delphi's overall restructuring program.
Selling, General and Administrative Expense
Year Ended December 31,
2014 2013 Favorable/
(unfavorable)
(dollars in millions)
Selling, general and administrative expense............................................................... $ 1,081 $ 963 $ (118)
Percentage of net sales................................................................................................ 6.4% 5.8%
Selling, general and administrative expense (“SG&A”) includes administrative expenses, information technology costs
and incentive compensation related costs, and increased as a percent of sales during the year ended December 31, 2014
compared to 2013 due to an increase in accruals for incentive compensation, information technology costs and for other service
providers.
Amortization
Year Ended December 31,
2014 2013 Favorable/
(unfavorable)
(in millions)
Amortization ............................................................................................................... $ 101 $ 104 $ 3
Amortization expense reflects the non-cash charge related to definite-lived intangible assets primarily recognized as part
of the Acquisition and resulting from the acquisition of MVL in October 2012. The relative consistency in amortization expense
during the year ended December 31, 2014 compared to 2013 reflects the continued amortization of these definite-lived
intangible assets. In 2015, we expect to incur non-cash amortization charges of approximately $104 million, which includes the
charges related to definite-lived intangible assets as a result of the acquisitions completed in 2014.