Total net sales for the quarter were $168.0 million, a 3% decline from $172.7 million in last year’s fourth quarter. Net income was $5.0 million, or $0.20 per diluted share, compared with $11.1 million, or $0.45 per diluted share, a year ago. EBITDA (earnings before interest, taxes, depreciation, amortization and impairment) for the quarter was $13.6 million, compared with $27.3 million a year ago.
The results for both periods include a number of significant special items, which are summarized in the table below, including non-cash foreign exchange losses and gains. For the fourth quarter of 2008, these items had a net negative impact on net income of $10.6 million, or $0.44 per diluted share; a year ago, similar items reduced net income by $2.5 million, or $0.10 per diluted share. Excluding these items from both periods, diluted earnings per share for the fourth quarter of 2008 were $0.64, a 16% increase from $0.55 a year ago.
“Our solid overall operating results are primarily due to continued growth at Fuel Specialties, which now accounts for about 70% of Innospec’s total sales,” said Paul Jennings, president and chief executive officer. “Fuel Specialties delivered an excellent 18% increase in operating income in the face of a very difficult operating environment in the fourth quarter. In addition, Octane Additives’ results improved sequentially from the third quarter, as we expected. Partially offsetting these gains was a disappointing performance at Active Chemicals, mainly reflecting dramatic declines in sales and profitability in its non-core polymers business towards the end of the quarter.”
For the full year, EBITDA was $50.4 million, compared with $97.0 million in 2007. Special items reduced net income for the year by $32.9 million, or $1.35 per diluted share; in 2007, similar items reduced net income by $12.2 million, or $0.49 per diluted share. Excluding these items from both periods, diluted earnings per share for the year were $1.86, an 11% increase from $1.68 in 2007.
In Fuel Specialties, operating income for the quarter was $22.0 million, an 18% increase from $18.6 million a year ago. The segment’s gross margin was 32.5%, compared with 31.5% a year ago. Its net sales for the quarter increased 8%, to $117.8 million. By region, sales rose 18% in the Americas and 30% in the Asia-Pacific region, but declined 8% in the Europe, Middle East and Africa (EMEA) region principally due to the adverse impact of exchange rates. For the full year, operating income in Fuel Specialties was up 26%, to $80.0 million; the segment’s sales increased 18%, to $440.9 million.
Active Chemicals reported an operating loss for the quarter of $2.4 million, compared with operating income of $1.0 million a year ago. The segment’s gross margin was 5.7% for the quarter, down from 16.8% a year ago. Excluding the polymers business, the segment’s gross margin was 12.6%, compared with 14.9% a year ago. Net sales in Active Chemicals were $27.9 million, down 15% from last year’s fourth quarter. By region, sales declined 2% in the Americas and 26% in the EMEA region, and were unchanged in the Asia-Pacific region. For the year, Active Chemicals’ sales rose 3%, to $138.3 million, but the segment posted a $5.0 million operating loss, compared with operating income of $6.1 million in 2007.
In Octane Additives, operating income for the quarter was $8.0 million, compared with $3.2 million in last year’s fourth quarter. A year ago, the segment’s operating income included $4.4 million in legal expenses and accruals in respect of the United Nations Oil for Food Program and related investigations. The segment’s gross margin for the quarter was 46.2%, compared with 46.9% a year ago. Octane Additives’ net sales for the quarter were $22.3 million, down 28%. For the full year, the segment reported $1.2 million in operating income (after charging $15.5 million in Oil for Food and related investigation expenses), compared with $19.9 million in 2007. Octane Additives’ sales for the year declined 35%, to $61.3 million.
Corporate costs for the quarter were $4.4 million, compared with $6.2 million a year ago, reflecting the pound’s weakness against the dollar as well as continued tight cost controls. The Company also incurred a $0.5 million pretax non-cash charge related to its pension plan, compared with a $1.2 million charge a year ago. The effective tax rate for the quarter was 28.6%, compared with 27.0% a year ago. After-tax non-cash foreign exchange losses recognized in the quarter were $9.9 million, compared with gains of $3.0 million a year ago, primarily reflecting markto-market losses on foreign currency forward contracts.
Innospec’s balance sheet remained strong at year-end, with net debt of $59.1 million, compared with stockholders’ equity of $229.3 million. The Company did not repurchase any additional shares of its common stock during the quarter; for the year, it repurchased about 484,000 shares for a total of $9.6 million.
Jennings commented, “2008 was an extremely challenging year for Innospec but the performances that our teams have delivered in our core businesses have been particularly gratifying. As previously announced, we recently completed successful negotiations for a new three-year $150 million finance facility. Amidst the current difficult economic and credit market conditions, we are very pleased with the strong support and confidence shown in Innospec and its management team by our banking group. While 2009 will clearly be another challenging year, we remain confident that our ongoing Fuel Specialties business is well positioned for the future, and that Active Chemicals can recover and realize its growth potential over the longer term.”
