This excerpt taken from the KMGB 8-K filed Oct 14, 2008.
Starting with the income statement; net revenues increased 118% in the fourth quarter to $51.4 million from $23.6 million in Q4 of 2007. Of the $27.8 million of additional revenue in Q4, our new Electronic Chemicals business contributed $26.4 million. Both Animal Health and Penta revenues were down for the quarter by about $430,000 for the reasons described by Neal and Creosote revenues were up by $2.2 million.
For the fiscal year 2008, Revenues were $154.4, a 79% increase over the previous year. The top-line growth was driven by the addition of the Electronic Chemicals business, and strong creosote sales. The Electronic Chemicals business contributed $61.1 million to the 68.2 million increase in revenues for the year. Creosote revenues were up by $11.6 million and we saw a $2.5 million and $2.0 million decline in Animal Health and Penta respectively.
Gross Profits increased $16.4 million for the fiscal year to $46.8 million primarily due to the addition of the Electronic Chemicals business. Without the addition of that business, gross profits in our legacy business would have declined by about $3.1 million. While creosote revenues increased, creosote is a lower margin product for us. Conversely, Penta and Animal Healths insecticidal ear tags are among our highest margin products, which saw declines in the fiscal year. Also we saw a 35% increase in the cost of a petroleum-based solvent used to manufacture our main penta product. That spike in price caused a reduction in our gross profit dollars and margins for penta. The margin for the overall business declined in 2008 to 30.3% from 35.3% in fiscal 2007.
Looking at SG&A, SG&A was $35.3 million in fiscal 2008, a $20 million increase over the prior year. Most of that increase was due to the new electronic chemicals business. As a percentage of revenue, SG&A was 22.9 percent in fiscal 2008 versus 17.8 percent last year. We include distribution expenses in SG&A. The electronic chemicals business is a supply chain-intensive business with relatively high distribution expenses; therefore, its SG&A, as a percentage of revenue, is higher than KMGs legacy business.
Besides the normally recurring SG&A, we have also incurred an additional $667,000 of fees paid to outside accounting and IT consultants associated with the integration of the electronic chemicals business so far this year. Also the transitional services that we purchase from Air Products is based on their overhead cost structure. We estimate that our overhead cost structure would reduce that expense by over $175,000 per month or $1.2 million for the year.
SG&A in our legacy business increased by $2.5 million over the previous fiscal year. Supply Chain costs increased $477,000, primarily associated with the creosote segment. Animal health SG&A was up by $746,000 associated with our sales force additions and initiatives to grow the product offerings and geographic footprint of that business. Legal and regulatory spending overall was us up $605,000 and headquarters administrative expenses increased by $700,000.
Operating income declined by $3.6 million to $11.5 million for the year, a 24% decline from 2007. The electronic chemicals business contributed approximately $2.1 million to operating income. Pentas contribution to operating income declined by $2.5 million for the year, primarily due to the increase in the cost of the solvent raw material, but also due to the 7% decline in revenues. Animal Healths contribution to operating income declined by $2.0 million on lower sales. The increases in legal, regulatory and headquarters administrative expenses mentioned earlier made up the balance of the difference
Our income tax rate was 38.6% , up from 37.8% last year
Regarding discontinued operations; in the first quarter we reported discontinued operations associated with our MSMA business. Accordingly, the financial results of that segment had been removed from our reporting of the results of continuing operations for the current and prior years. MSMA is an agricultural product used mainly on cotton in the U.S. which
we manufacture at our Matamoros plant. It was our smallest segment with sales of $3.6 million in fiscal 2007.
Net income for continuing operations for the year was $5.7 million or $.50 per diluted share. Last year we earned $.83 diluted share. For the fourth quarter, the company earned $571,000 or $.05 per diluted share versus $.19 per diluted share last year
Moving to our balance sheet, we closed the year with $2.6 million of cash. Long-term debt (including the current portion) of $61.0 million. We repaid $9.0 million of principal on the debt outstanding at the time we acquired the Electronic Chemicals business using cash flow from operations. We had borrowed $9 million on our revolver to close the acquisition and repaid $3.8 million by year end, and had the $2.6 million in cash remaining. Reduction of revolver borrowings during the last seven months was lower than anticipated due to the weakness in Animal Health sales in the second half of the year and the fact that the transitional services with Air Products extended through September. At year-end, we had $29.8 million of unused borrowing capacity on our revolver. The year finished with working capital of $31.0 million and shareholders equity of $63.7 million.
We finished the year in a good position relative to the three financial covenants we have with our bank group. We were required to maintain a fixed charge coverage ratio of at least 1.25; our ratio was 1.50 at year-end. We are also required to maintain a funded debt to capital ratio of no more than 60%, ours was 49%; and a funded debt to pro forma EBITDA ratio of no more than 3.5 and we were at 2.7 on July 31st.
We are currently paying 2.25% over LIBOR on our term loan borrowings which were $31.8 million at year-end as well as the $5.2 million borrowed on our revolver. We have $20 million on non-amortizing notes maturing for which we pay a fixed interest rate of 7.43%, and we have $4 million remaining on a seller note from Oxy Chem. for which we pay a fixed rate of 4%.
Ill now hand it back to Neal