Other/Unallocated Corporate Costs include sales and profits from non-premium business acquired in the Wausau transaction, as well as unallocated corporate costs. In the third quarter of 2012, sales for these products were $8.5 million, with operating income of $0.5 million. There were no sales in the prior year period. Unallocated Corporate Costs were $3.4 million in 2012 and $2.6 million in 2011, reflecting timing differences resulting in lower spending in the third quarter of 2011.
Net interest expense of $3.3 million in the third quarter of 2012 compared to $3.6 million in the prior year period. Lower interest expense in 2012 resulted from reduced debt levels and lower average interest rates, reflective of a reduced proportion of long-term bonds in the mix of debt following the Company’s partial redemptions of long-term notes in March 2011 and April 2012.
The effective income tax rate of 29 percent for the third quarter of 2012 compared to a rate of 24 percent in the third quarter of 2011. The 2012 year-to-date rate of 30 percent is consistent with the full year rate of 29 percent in 2011. The 2011 third quarter rate was unusually low as a result of changes to the projected mix of income.
Cash flow provided by operations of $32.1 million for the third quarter 2012 was $7.1 million higher than the prior year period. Increased cash flow in 2012 was due to higher operating income and reduced investments in working capital. Capital spending was $6.5 million in the third quarter of 2012 compared to $6.0 million in the prior year period.
Debt as of September 30, 2012 was $183.1 million, down $19.7 million from June 30, 2012. Cash and equivalents as of September 30, 2012 were $6.6 million compared to $1.8 million on June 30, 2012. Cash flow generated in the third quarter of 2012 was used primarily to reduce debt.
Reconciliation to GAAP Measures
The Company will report adjustments to GAAP figures when they are believed to communicate results of ongoing operations more clearly. In these instances, a reconciliation of adjusted income measures to comparable GAAP measures will be provided.
Year-to-date sales of $616.2 million for the first nine months of 2012 increased 16 percent compared to sales of $530.5 million in the prior year. The increase in 2012 reflected higher sales of Fine Paper primarily due to brands acquired from Wausau in January 2012. Technical Products sales for the first nine months of 2012 decreased five percent compared to 2011, as a higher value mix and improved selling prices were more than offset by unfavorable currency effects and lower volumes. On a constant currency basis, year-to-date Technical Products sales increased less than one percent.
Operating income of $54.5 million in 2012 increased from $43.0 million in 2011. Growth in income in 2012 resulted from higher sales levels, improvements in mix and selling prices, manufacturing efficiencies and lower input costs. Operating income in 2012 includes costs of $8.2 million for integration of acquired fine paper brands and a pension settlement charge.
Cash provided by operating activities of $21.9 million for the nine months ended September 30, 2012 compared to $39.5 million in the prior year period. Cash flow in 2012 was lower due to $23.3 million of unusual items, consisting of a SERP pension payment of $6.9 million, a payment of $6.6 million to acquire Wausau inventory, excess tax benefits of $5.1 million related to the vesting or exercise of stock-based awards and acquisition integration costs of $4.7 million. Excluding these items, cash provided by operating activities for the nine months ended September 30, 2012 was $45.2 million, or $5.7 million higher than the comparable prior year period, as higher operating income more than offset increased investments in working capital.
Year-to-date capital spending in 2012 of $15.8 million compared to $18.9 million the prior year period.