Segment operating income of $35.5 million increased 19.9 percent compared with the prior-year quarter primarily due to higher sales and improved gross margin. Segment operating margin improved to 13.0 percent compared with 11.5 percent in the prior-year quarter and 9.0 percent in the 2012 first quarter.
Total corporate expenses were $21.8 million for the second quarter, a decrease of 20.4 percent compared with the prior-year quarter and a decrease of 14.2 percent from the 2012 first quarter. Lower corporate expenses primarily were due to lower incentive compensation accruals and restructuring initiatives announced in the first quarter of 2012.
Defined benefit pension expense for the second quarter was $16.8 million compared with $15.1 million for the prior-year quarter. The 11.3 percent increase primarily was due to year-over-year changes in actuarial assumptions including lower discount rates and a lower expected long-term rate of return on plan assets.
Interest expense was $11.3 million for the second quarter compared with $11.0 million for the prior-year quarter. The annualized weighted average interest rate on pre-petition obligations for the second quarter was 3.5 percent.
Income taxes are recorded at a global effective tax rate of approximately 33.5 percent before considering the effects of certain non-deductible Chapter 11 expenses, changes in uncertain tax positions and other discrete adjustments.
Grace has not had to pay U.S. Federal income taxes in cash in recent years since available tax deductions and credits have fully offset U.S. taxable income. Income taxes in foreign jurisdictions are generally paid in cash. Grace expects to generate significant U.S. Federal net operating losses upon emergence from bankruptcy. Income taxes paid in cash, net of refunds, were $30.4 million during the six months ended June 30, 2012, or approximately 15.4 percent of income before income taxes.
Net cash provided by operating activities for the six months ended June 30, 2012, was $115.1 million compared with a use of cash of $72.3 million in the prior-year period. The improved cash flow primarily was due to lower pension contributions and improved working capital performance.