Third Quarter Financial Summary
Earnings per diluted share (EPS) under U.S. generally accepted accounting principles (GAAP) in the third quarter of 2012 were $(0.03), and reflect the tax provision recorded in connection with the anticipated repatriation of foreign earnings together with certain transaction costs related to the proposed Sealy acquisition. Adjusted EPS were $0.70 in the third quarter of 2012 as compared to GAAP EPS of $0.90 per diluted share in the third quarter of 2011.
Net sales decreased 9% to $347.9 million in the third quarter of 2012 from $383.1 million in the third quarter of 2011. On a constant currency basis, net sales decreased 7%. Net sales in the North American segment decreased 14% and International segment net sales increased 3%. On a constant currency basis, International segment net sales increased 11%.
Mattress sales decreased 11% globally in the third quarter of 2012. Mattress sales decreased 15% in the North American segment and increased 1% in the International segment. On a constant currency basis, International mattress sales increased 10%. Pillow sales increased 11% globally. Pillow sales increased 5% in North America and increased 16% internationally. On a constant currency basis, International pillow sales increased 23%.
Gross profit margin was 49.2% as compared to 52.4% in the third quarter of 2011. The gross profit margin decreased primarily as a result of product mix and increased promotions and discounts, offset partially by geographic mix.
Operating income decreased 34% to $63.4 million, or 18.2% of sales as compared to $96.6 million, or 25.2% of sales in the third quarter of 2011 reflecting deleverage throughout the income statement driven by lower sales. Operating income in the third quarter of 2012 included $3.6 million of transaction costs related to the proposed Sealy acquisition, as well as a benefit of $8 million related to an adjustment to long-term incentive stock compensation following a re-evaluation of the probability of meeting certain related required financial metrics.
The Company generated $67.2 million of operating cash flow as compared to $75.0 million in the third quarter of 2011.
Chief Executive Officer Mark Sarvary commented, "Changes in the competitive environment that we experienced during the second quarter in North America continued to have an adverse impact on our third quarter performance. We recently launched a broad series of new initiatives in response to the new competitive landscape in North America, and while it remains early, we are seeing some stabilization as a result.
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