Cost of sales declined 16.9 percent to $73.9 million from $88.9 million in the prior-year quarter. The company’s gross profit margin was 23.0 percent compared with 27.1 percent in the prior-year and 23.6 percent in the second quarter. The lower gross margin compared to the prior year reflects lower volume, higher wage rates, higher raw material costs, and lower pricing for network and power products. Compared to the second quarter, gross profit margin decreased slightly mainly due to lower pricing and unfavorable mix of network products.
Selling, general and administrative expenses—which include research and development—decreased 20.9 percent to $19.8 million from $25.0 million in the third quarter of 2010. The decrease in spending was due to expense reduction actions announced earlier in 2011 and prudent expense management in light of lower sales.
Operating loss (U.S. GAAP) was $0.7 million compared with a profit of $8.1 million in the prior-year quarter. Non-GAAP operating profit was $2.6 million compared with $8.7 million in the prior-year quarter. The operating loss (U.S. GAAP) and non-GAAP operating profit included the net favorable impact of approximately $0.5 million from non-recurring items. Additionally, the operating loss (U.S. GAAP) included $3.0 million for severance, impairment and associated costs.
The company had $16.4 million of cash and cash equivalents at September 30, 2011 compared with $35.9 million at December 31, 2010. In the third quarter, the company used $9.2 million of cash held at a majority-owned subsidiary with limited availability for other uses to repay long term debt. Additional uses of cash this quarter included planned capital expenditures, restructuring actions, and a dividend payment.Cost and Expense Actions As previously announced, the company took several cost and expense reduction actions during the first and second quarters of 2011. The company believes it is on track to meet the expected savings and effective time frames it previously announced, and net of planned increases in spending will meet its previously stated objective to reduce annual operating expenses approximately $12 million in the next 6 to 12 months. During the quarter the company identified nearly $1.8 million of longer-term cost reductions expected to be fully realized toward the end of this period.
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