By David Reed, UT EditorLinwood, Pennsylvania-Foamex International Inc. has reported a substantially increased loss in the fourth quarter of last year, despite sales increasing 4 percent to $328.6 million. Gross profit for the whole year was down 23 percent, at $28.7 million, "primarily due to raw material cost increases," the firm said in a 4 April news release.The company has also had to restate its third quarter 2004 financial statements, correcting an error in recording the valuation allowance established in the period against its deferred income tax assets. This resulted in the net loss in the quarter increasing by $16.7 million, to $131.2 million. The change has "no impact on total stockholders' deficiency," the statement emphasised.Income down 60% in Q4Income from operations in the final quarter of 2004 was $5.8 million, down more than 60 percent on the $14.7 million income reported for the fourth quarter of 2003, the 4 April statement showed."This was a difficult quarter and year for the company," said Tom Chorman, Foamex president and chief executive officer, in the statement. "We experienced significant increases in the cost of our chemical raw materials in the second half of the year, which has had a clear adverse impact on our near-term results, and overshadowed positive year-to-year revenue and profit trends in several of the businesses," he added."We are aggressively implementing customer price increases, and tightening spending to manage through this currently difficult environment, while adhering to the strategies that will create long-term financial improvement for the company," Chorman said.The company also announced that Foamex LP, its primary operating subsidiary, has amended the credit agreements with its existing lenders as well as making changes allowing it to use $25 million of a $39-million loan for working capital.Automotive segment sales downThe poor performance in the second half of last year resulted in net sales for 2004 falling by 3 percent on the previous year, to $1270 million, primarily as a result of a $96-million decline in net sales in the automotive products segment, Foamex reported. This was due to lower volume "from sourcing actions by major customers," the firm said, adding that the fall was partly offset by higher net sales in its foam products and technical products segments. Gross profit, however, was down only 1.3 percent on the prior year, at $141.8 million. For the year 2004, the firm's automotive products segment had net sales of $351 million, down 21.5 percent down on the sales in 2003, while income dropped over 40 percent, to $19.2 million as against $33.4 million in 2003, for the reasons noted above, said Foamex.The firm's carpet cushion products business saw a tiny increase in sales in 2004, to $209.2 million from $208.9 million in 2003. However, income from these operations in 2004, at $8.5 million, was up more than 57 percent compared to the 2003 result, primarily due to reductions in operating costs.Foamex's third major business segment, technical products saw a modest rise in sales in 2004, reaching $124.1 million, compared to $117.5 million in 2003. This was primarily due to higher unit volume and improved mix of products, the firm's statementsuggested. Income from these operations in 2004 increased very slightly, to $32.9 million as against $32.1 million in 2003, the Foamex statement concluded.One major factor impacting the firm's situation in 2004 was the frequency of increases in prices of key raw materials as well as, in some cases, problems with supply continuity, the firm highlighted during a 4 April webcast of its results announcement.In a question and answer session, the firm reported no fewer than five separate sets of price rises from the second half of last year to date, giving rise to a total increase of the order of 20 percent over the period. "Raw materials are at a record high [price] now," asserted Foamex chief Chorman.The company aims to pass these increased costs on to customers as fully and rapidly as possible, but admitted that there was a time lag between its increased costs and its price rises. Competitors 'doing strange things'Also, the extent to which it could pass on the increases was limited by the actions of smaller, local competitors, Chorman said during the webcast. "They have been doing some strange things," he commented, such as delaying their price increases, despite facing similar increases in raw material prices. But, he added, "it's a competitive marketplace, so you can't go to far out of line."The other side of this coin was the shortage of some materials, most notably MDI (methylene diphenyl diisocyanate) and polyether polyols, Foamex indicated."Polyols have been tight in the market," Chorman said, suggesting this was primarily due to problems with the supply of propylene. On MDI he commented that the company has been doing some "chemical balancing acts to cope with this."Asked whether there were alternative raw material sources, Chorman said that the industry "is working on this generally .… there are only a half-dozen chemical firms active in the business [but] the industry is looking outside the petchem derivatives area."Striving to add valueIn addition, Foamex emphasises that it has been striving to get away from commodity businesses and into more value-added products. The firm cites the development of visco-elastic foam and its Reflex high-resilience foams as examples of this, with another being a long-life filter product for the automotive sector. The latter offers a lifetime performance, more than 150 000 miles, Foamex claimed.When asked whether the company would consider selling any assets, Chorman commented that "we are always looking for sales of non-strategic assets," but later added that "there aren't many people knocking on my door."While declining to be too specific about the rest of the year, Chorman commented that the key factors would be "what [raw material] prices do, and how quickly we respond."We will also continue to get out of commodity businesses and into value-added products," he concluded."