Gross margin increased 50 basis points versus prior year to 37.9 percent as pricing and productivity more than offset the negative impact of input cost inflation.
Normalized operating margin for the quarter was 13.7 percent, flat to the prior year. Gross margin expansion was offset by an increase in SG&A expense as lower structural costs realized through Project Renewal initiatives were offset by higher strategic SG&A spending on a local currency basis and the absence of certain compensation-related benefits recognized in the prior year quarter. On a reported basis, operating margin for the quarter was 12.3 percent, compared with negative 12.4 percent last year. The prior year period included $382.6 million in asset impairment charges.
Third quarter normalized operating income was $210.7 million compared with $211.8 million in the prior year period, and reported operating income was $188.4 million compared with a loss of $192.2 million in the prior year period. Third quarter normalized operating income excludes $22.3 million of restructuring and restructuring-related costs incurred primarily in connection with Project Renewal and the European Transformation Plan. In 2011, normalized operating income excluded $382.6 million of impairment charges primarily related to goodwill write-downs associated with the Baby & Parenting and Hardware global business units; $17.0 million of restructuring and restructuring-related costs incurred in connection with the European Transformation Plan; and $4.4 million in incremental costs associated with the company’s CEO transition.
The normalized tax rate for the quarter was 28.9 percent compared with 28.2 percent in the prior year. The reported tax rate for the quarter was 35.3 percent compared with 24.4 percent in the prior year. The year-over-year change in the reported tax rate was primarily driven by the geographical mix of earnings and discrete items recorded in each of the quarters. In the third quarter of 2012, the company’s effective tax rate was increased as a result of recording certain tax contingencies and recognition of tax expense related to expiration of various worldwide statutes of limitation and audits. In the third quarter of 2011, the company recognized a tax benefit due to the reversal of certain tax contingencies due to resolution of tax audits and the expiration of various worldwide statutes of limitation.
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