In addition, Cenveo experienced lower sales in its label segment primarily due to the decision to exit its coating operation, which was completed in the second quarter of 2016 and accounts for approximately 1% of its consolidated net sales decline. These declines were offset in part by higher direct mail envelope volumes.
Operating income in the third quarter increased 7% to $20.9 million compared to $19.5 million in the same period last year. The increase was primarily due to a significant restructuring charge in the third quarter of 2015 related to the closure of a print facility, partially offset by lower gross profit in the label and envelope segments in the third quarter of 2016 due the aforementioned lower demand and decision to exit the coating operation. Non-GAAP operating income in the third quarter of 2016 was $25.5 million compared to non-GAAP operating income of $29.0 million for the same period last year.
“Our third quarter was generally in line with our expectations,” said Robert G. Burton, Sr., chairman and CEO of Cenveo. “In our label segment, revenue was impacted by our decision to exit our coating operations, which accounted for the majority of the quarter-over-quarter revenue decline for that segment. In envelope, continued growth in our direct mail products helped mitigate softness in our wholesale and office products, which was driven by disruption and inventory rationalization in the office superstore channel. From a balance sheet perspective, we acquired through open market repurchases over half of our outstanding 7% convertible notes and commenced the process of redeeming half of our 11.5% unsecured notes due May 2017. We anticipate addressing the balance of our 2017 maturities in the first quarter of 2017.
“As we enter the fourth quarter, we will continue our focus on operational improvements and improved cash flow, which should significantly improve due to the reduction in our cash interest costs. Despite challenges in certain marketplaces, we believe our expectations for our direct mail envelope products and print related products continue to be a strong foundation for our organization, and our capital reinvestment plans this year will provide meaningful contributions to our future prospects.”
Income from continuing operations in the third quarter was $8.7 million, or $1.00 per diluted share, compared to a loss of $3.6 million, or $0.42 per diluted share, for the same period last year. The significant increase was primarily driven by gains on the early extinguishment of debt of $7.4 million. Non-GAAP income from continuing operations in the third quarter was $6.0 million, or $0.67 per diluted share, compared to income of $6.5 million, or $0.59 per diluted share, in the same period last year.
Net income in the third quarter was $9.4 million compared to a net loss of $3.2 million for the same period last year. Adjusted EBITDA was $38.9 million compared to $42.0 million for the same period last year.
Cash flow provided by operating activities of continuing operations for the third quarter of 2016 was $7.8 million compared to $9.8 million for the same period last year. The decrease was primarily due to changes in working capital, particularly the timing of sales and collections from customers and the timing of payments to vendors, partially offset by lower pension contributions.
At Oct. 1, 2016, cash and equivalents totaled $4.9 million compared to $7.8 million at January 2, 2016. Total principal debt outstanding declined 12% to $1.1 billion compared to $1.2 billion at Jan. 2, 2016.
Cenveo reaffirms its 2016 net sales expectation of approximately $1.7 billion. Adjusted EBITDA is now expected to be at the low end of the $155 million to $160 million range. Capital expenditures in 2016 are still expected to be no less than $40 million with Adjusted Free Cash Flow expected to range between $20 million and $30 million, primarily driven by the higher capital expenditures.