Standard Register today announced its financial results for the third quarter. The Company reported revenue of $157.5 million and a net profit of $8.4 million, or $0.29 per diluted share. The results compare to prior year revenue of $163.6 million and a net profit of $1.4 million, or $0.05 per diluted share. Through nine months, the Company reported revenue of $486.7 million and a net profit of $8.0 million, or $0.28 per diluted share. The nine month results compare to prior year revenue of $495.7 million and a net profit of $0.5 million, or $0.02 per diluted share. The results for the current quarter and year reflect a favorable impact to net profit of $12.2 million, or $0.42 per diluted share due to termination of the postretirement healthcare plan.
Results of Operations
Core solution revenues across the Company grew during the quarter but were lower than overall expectations. Slightly accelerated declines in legacy products, such as business forms and transactional labels, across all business units resulted in a 4% overall revenue decline during the quarter.
The Healthcare business unit showed improved growth in its core solution revenues in part due to the Dialog Medical acquisition but also through organic growth, particularly within patient communications. Software sales for that segment were lower than expected when factoring out the Dialog Medical revenues. Clinical documents and administrative forms sales eroded as expected, albeit at the high end of estimates.
The Industrial business unit continued its progress with in-mold labeling solutions but experienced overall softness in manufacturing parts solutions as orders from existing customers declined during the quarter. HVAC and home appliance manufacturers, which are a large part of the segment's customer base, reported declining sales during the quarter, and short-term forecasts are cautious. Sales from new contracts and growth in marketing and critical communications stabilized the segment, allowing for modest growth overall.
Within the Commercial business unit, Financial Services also saw strong growth in core revenues; particularly marketing and critical communication solutions. Sales from new contracts in this segment are being mainly offset by declines isolated to a major customer. Commercial markets experienced overall declines due to continued erosion in legacy products and reductions in core solutions that were the result of lost revenues from a few large customers.
"Turmoil within the economy in segments like banking combined with accelerated declines in legacy products affect our business and emphasize the need to accelerate our transformation to market-focused core solutions," said Joseph P. Morgan, Jr., president and chief executive officer. "During the quarter we launched several marketing solutions and critical communications initiatives aimed at helping our customers to meet their strategic objectives and advance their reputations. We have also completed the majority of investments in software, services and print technology, which is vital to our success with these solutions. Although we experienced modest growth in core revenues during the quarter, we are not satisfied with the results and they do not represent our expectations going forward. We will continue proactively to execute our strategy and react quickly and decisively to any further deterioration of the overall economy."
Gross margin as a percent of revenue decreased from 31.7 in the prior year quarter to 29.3 for the current year quarter. The Company experienced challenges particularly in its label operations due in part to the unexpected reduction in the Industrial business customer demand during the quarter. This reduction of label sales coupled with material cost increases of pressure sensitive materials accounted for about $2 million of the margin decline. In addition, the investment in digital color equipment impacted expense with no immediate offset of revenue in the quarter. Year-to-date, gross margin as a percent of revenue reduced to 31.0 percent in the current year from 31.7 percent during the prior year, which is due to $2.1 million of more favorable LIFO adjustments recognized last year. Selling, general and administrative expenses excluding pension loss amortization and postretirement termination benefits was up $0.4 million relative to the prior year quarter and down $2.7 million on a year-to-date basis.
Adjusting for pension loss amortization, restructuring charges and postretirement termination benefits, non-GAAP net income was a break-even for the current quarter, compared with non-GAAP net income of $4.2 million, or $0.15 per diluted share for the prior year quarter. Adjusting for pension loss amortization and settlement, restructuring charges and postretirement termination benefits, non-GAAP net income was $7.1 million, or $0.25 per diluted share for the first nine months compared with non-GAAP net income of $9.8 million, or $0.34 per diluted share for the prior year first nine months.
For the first nine months, capital expenditures were $12.0 million and are expected to be in the range of $18-21 million for the year, the majority of which will support the advancement of core growth solutions. In addition, the Company acquired 100% of the ownership interest in iMedConsent, LLC (dba Dialog Medical) for $4.9 million in cash. Additionally, a $0.7 million note payable will be paid over two years and, up to an additional $2.0 million in contingent payments based upon the performance of the business through the two-year anniversary of the transaction. Pension funding contributions were $20.0 million through the first nine months and are expected to be approximately $24-30 million for the year. Non-GAAP cash on a net debt basis was negative $5.8 million for the first nine months.
Postretirement Healthcare Plan Termination
Standard Register terminated its postretirement healthcare plan effective December 31, 2011. While there is no successor plan to replace coverage for the retired employees currently covered by the plan, the Company is facilitating their purchase of individual plans in the marketplace.
The elimination of these benefits triggered a one-time favorable $20.2 million pre-tax impact to earnings due to elimination of $5.1 million of accumulated postretirement benefit obligations recorded as a long-term liability on the balance sheet plus, a net credit of $15.1 million for the immediate recognition of previously unrecognized prior service credits and actuarial losses that resided in accumulated other comprehensive income and deferred tax liabilities. Going forward, the Company will no longer amortize the unrecognized prior service credits and actuarial losses that have been favorably impacting pre-tax earnings by approximately $1.0 million per quarter or $4.0 million annually.
On Thursday, October 27, 2011, Standard Register's board of directors declared a quarterly dividend of $0.05 per diluted share to be paid on December 9, 2011, to shareholders of record as of November 25, 2011. The board will consider future dividend payments on a quarter-by-quarter basis in accordance with its normal practice.