Question-and-Answer Session
Operator
(Operator instructions) The first question comes from the line of Olga Guteneva with J.P. Morgan.
Olga Guteneva – J.P. Morgan
Did you say that your raw material benefits this quarter were 15% year over year?
Michele Volpi
They were actually 14.9% versus last year and down 1.4% versus Q2.
Olga Guteneva – J.P. Morgan
So, there was a small sequential improvement, you said 1.4% versus the second quarter?
Michele Volpi
Yes.
Olga Guteneva – J.P. Morgan
In your cost of goods sold, roughly speaking, what is the fixed cost component, and what happened with this component over the past two years?
Jim Giertz
Broadly speaking, in our cost of goods sold, about 75% of our cost of goods sold is raw materials, and the balance is everything else, and some portion of the everything else is clearly fixed and other parts are partially fixed and some are variable.
Olga Guteneva – J.P. Morgan
Were you able to reduce your fixed cost component over time or it remained fixed?
Michele Volpi
Olga, you know that we’re strong believers of Six Sigma, and we believe in continuous improvement, so when you really look at our factory labor, manufacturing overhead over the years, we have generated lots of efficiencies. We continue to do that, and whenever needed, not just from an efficiency standpoint but also from a strategic perspective, we also adjust our capacity. I think we have done a pretty good job over the years, and clearly that together with pricing actions, sourcing negotiations, and product line reformations is what is contributing to this gross margin improvement. Jim, do you want to add something?
Jim Giertz
The other thing Olga, I’d just point out, we mentioned in our press release that we had a facility restructuring in North America in the third quarter, and that’s a specific example of actions taken to manage down our fixed cost in our manufacturing operation here in North America.
Olga Guteneva – J.P. Morgan
So I take it that this restructuring charge is reflected in the cost of goods sold line on the income statement. Is it correct?
Jim Giertz
That’s correct. One hundred percent is in the cost of goods sold line.
Operator
The next question comes from the line of Jason Weiner with Deutsche Bank.
Jason Weiner – Deutsche Bank
On the raw materials, I sort of thought that thing was up sequentially looking elsewhere, so can you elaborate on what basket of raws you saw helping your earnings sequentially?
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