UNITED STATES
                       SECURITIES AND EXCHANGE COMMISSION
                             WASHINGTON, D.C. 20549
                                    FORM 10-K

            [X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
                         SECURITIES EXCHANGE ACT OF 1934
                    For the fiscal year ended January 2, 2005

                                       OR

            [ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d) OF
                       THE SECURITIES EXCHANGE ACT OF 1934
             For the transition period from .......... to ..........

                         Commission file number: 0-22624

                            FOAMEX INTERNATIONAL INC.
             ------------------------------------------------------
             (Exact Name of registrant as Specified in its Charter)

           Delaware                                            05-0473908
----------------------------------------                -----------------------
(State or other jurisdiction of                         (I.R.S. Employer
incorporation or organization)                          Identification Number)

1000 Columbia Avenue, Linwood, PA                               19061
----------------------------------------                -----------------------
(Address of principal executive offices)                      (Zip Code)

Registrant's telephone number, including area code:  (610) 859-3000
                                                     --------------

Securities registered pursuant to Section 12(b) of the Act: None
                                                            ----

Securities registered pursuant to Section 12(g)
of the Act:                                     Common Stock, par value $.01 per
                                                share,  which  is traded through
                                                the   National   Association  of
                                                Securities Dealers, Inc.
                                                National Market System.

Indicate  by check mark  whether the  registrant  (1) has filed all reports
required to be filed by Section 13 or 15(d) of the  Securities  Exchange  Act of
1934  during the  preceding  12 months  (or for such  shorter  periods  that the
registrant  was required to file such  reports) and (2) has been subject to such
filing requirements for the past 90 days.
YES  X    NO
   -----     -----

     Indicate by check mark if disclosure of delinquent  filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's  knowledge,  in definitive proxy or information  statements
incorporated  by reference in Part III of this Annual Report on Form 10-K or any
amendment to this Annual Report on Form 10-K. [X]

     Indicate by check mark whether the registrant is an  accelerated  filer (as
defined in Rule 12b-2 of the Securities Act of 1934).
YES  X  NO
    ---    ---

     The aggregate market value of the voting stock held by nonaffiliates of the
registrant as of June 27, 2004, was $54.0 million.

     The number of shares  outstanding  of the  registrant's  common stock as of
March 31, 2005 was 24,509,728.

                       DOCUMENTS INCORPORATED BY REFERENCE

     Portions of the Company's definitive proxy statement to be filed within 120
days  pursuant to Rule 12b-23 of the  Securities  and Exchange  Act of 1934,  as
amended.

<PAGE>





                            FOAMEX INTERNATIONAL INC.

<TABLE>
<CAPTION>
                                      INDEX
<S>           <C>                                                                                                 <C>
                                                                                                               Page
Part I

         Item 1.      Business                                                                                    3
         Item 2.      Properties                                                                                 10
         Item 3.      Legal Proceedings                                                                          10
         Item 4.      Submission of Matters to a Vote of Security Holders                                        11

Part II
         Item 5.      Market for Registrant's Common Equity and
                           Related Stockholder Matters                                                           11
         Item 6.      Selected Financial Data                                                                    12
         Item 7.      Management's Discussion and Analysis of
                           Financial Condition and Results of Operations                                         14
         Item 7a.     Quantitative and Qualitative Disclosures about Market Risk                                 29
         Item 8.      Financial Statements and Supplementary Data                                                29
         Item 9.      Changes in and Disagreements with Accountants
                           on Accounting and Financial Disclosure                                                29
         Item 9a.     Controls and Procedures                                                                    30
         Item 9b.     Other Information                                                                          31

Part III
         Item 10.     Directors and Executive Officers of the Registrant                                         31
         Item 11.     Executive Compensation                                                                     31
         Item 12.     Security Ownership of Certain Beneficial Owners
                           and Management                                                                        31
         Item 13.     Certain Relationships and Related Transactions                                             31
         Item 14.     Principal Accounting Fees and Services                                                     31

Part IV
         Item 15.     Exhibits, Financial Statement Schedules
                           and Reports on Form 8-K                                                               32

         Signatures                                                                                              38

</TABLE>


The Registrant  will furnish a copy of any exhibit to this Annual Report on Form
10-K upon the payment of a fee equal to the Registrant's  reasonable  expense in
furnishing such exhibit.



                                       2
<PAGE>



PART I
ITEM l.  BUSINESS

General

     Foamex  International  Inc.  (referred to in this document as the "Company,
we, us and/or our") is engaged  primarily in the  manufacturing and distribution
of flexible  polyurethane and advanced  polymer foam products.  As of January 2,
2005, our operations are conducted through our wholly-owned  subsidiary,  Foamex
L.P., and through Foamex Canada Inc.  ("Foamex  Canada"),  Foamex Latin America,
Inc. and Foamex Asia, Inc.,  which are wholly-owned  subsidiaries of Foamex L.P.
We were incorporated in 1993 to act as a holding company for Foamex L.P.

     Throughout  this Annual  Report on Form 10-K, we  incorporate  by reference
information from parts of other documents filed with the Securities and Exchange
Commission (the "SEC"). The SEC allows us to disclose  important  information by
referring to it in this manner, and you should review that information.

     We make our  Annual  Report on Form 10-K,  quarterly  reports on Form 10-Q,
current  reports on Form 8-K and proxy  statements for our annual  shareholders'
meeting,  as well as any amendments to those  reports,  available free of charge
through our web site as soon as reasonably  practicable  after we electronically
file that material  with, or furnish it to, the SEC. You can learn more about us
by reviewing our SEC filings on our web site. Our SEC reports, available through
www.sec.gov which is maintained by the SEC, can be accessed through the investor
relations page of our web site, which is located at www.foamex.com/investor.php.

Segments

     We are the largest  manufacturer  and distributor of flexible  polyurethane
and  advanced  polymer  foam  products  in  North  America.   We  have  numerous
manufacturing  facilities  dedicated  to  specific  product  lines  as  well  as
facilities with the capability to support  multiple  product lines.  Each of our
business  segments has a customer base that is significantly  different from the
other  segments.  Our senior  executives  direct  sales  efforts for each of our
business segments.

     Our five business segments are described below.

     Foam Products

     Our foam products are distributed  directly from  manufacturing  facilities
and indirectly through independent fabricator distributors. These foams are used
by the bedding industry in quilting rolls,  toppers,  cores and border rolls for
mattresses.  In the furniture industry,  they are generally used for upholstered
seating products and in the retail industry, for a broad range of products, such
as mattress overlay pads, leisure furniture,  futons and pillows.  Foam products
are generally sold in large volumes on a regional basis because of high shipping
costs.

     Our bedding  products  are sold to mattress  manufacturers.  We also supply
cut-to-size  seat  cushions,  back  cushions and other  pieces to the  furniture
industry.  Furniture foams are sold directly to manufacturers as well as through
distributors.  The consumer products group sells therapeutic sleep products such
as mattress pads and bed pillows for the health care and consumer  markets and a
broad line of home furnishing products to retailers throughout North America.

     The development and introduction of value-added  products continues to be a
priority including products incorporating  Reflex(R),  Sensus(R),  Quiltflex(R),
Resilitex(R)  and other  viscoelastic  "memory" foams for the bedding  industry,
which maintain their resiliency better than other foams and materials. Reflex(R)
materials  include  cushion  wraps and cushion  cores and are  advanced  polymer
cushioning  products  designed to improve  comfort,  quality and  durability  in
upholstered furniture and bedding products. Reflex(R) was created using patented
VPF(SM) manufacturing technology.



                                       3
<PAGE>



     Carpet Cushion Products

     We manufacture and distribute carpet cushion products, which include prime,
rebond, felt and rubber carpet padding. Prime carpet padding is made from virgin
polyurethane  foam,  which is formed  into buns and sliced into  sheets.  Rebond
carpet  padding is primarily  made from  recycled  foam,  which is shredded into
small pieces,  processed and then bonded using a polyurethane chemical adhesive.
Rebond  manufacturing  requires  the  management  of a  comprehensive  recycling
business that  includes an extensive  internal and external  collection  network
from the automotive and foam industries on a worldwide basis. Our felt operation
incorporates both mechanical and chemical bonding techniques to produce high-end
padding from virgin and  recycled  fibers.  We produce  high-end  rubber  carpet
padding utilizing synthetic rubber.

     Automotive Products

     We are one of the largest  suppliers of  polyurethane  foam products to the
North American automotive  industry.  Our product lines include:  foam rolls and
flame-laminated  composites,  to improve comfort and provide pleasing appearance
in seat covers and other interior soft-trim applications;  thermoformable foams,
to provide  structure and shape in various  substrate  applications;  acoustical
foams,  to reduce noise and improve sound  quality in the vehicle;  barrier foam
products,  which allow our customers to more efficiently process components with
low-pressure  injection-molding or foam-in-place  manufacturing methods;  molded
energy-absorbing  foams, to enhance occupant safety in vehicle crash situations;
and molded seating cushions.

     We supply  our  product  lines  through a range of tiers in the  automotive
industry supply chain, varying greatly depending on the specific application and
the original equipment manufacturer ("OEM"). Most frequently,  we supply to Tier
1 system integrators,  which in turn provide components and systems to the OEMs.
In  conjunction  with these  efforts,  we maintain  direct contact with OEMs for
material  specification  development,  appearance  approvals,  and  new  product
development initiatives.

     Technical Products

     We are one of the  industry's  prime  innovators and suppliers of specialty
foam material, which we refer to as "Technical Products," for a diverse array of
markets  and  industries.  Technical  Products  can be  tailored  to meet a wide
variety of energy and fluid  management  challenges and are found in automotive,
industrial,   electronics,  consumer,  medical,  and  other  markets.  Technical
Products are commonly used in applications such as gasketing and sealing systems
for  automobiles,   inkjet  printer  cartridges,   rollers  in  digital  imaging
equipment,  noise and vibration damping for computer disc drives,  air and fluid
filtration in cars and aircraft,  medical devices,  and numerous  consumer items
such as sponges, mops, paint brushes and cosmetic applicators. Due to the highly
specialized nature of most Technical Products,  a technical staff of engineering
and research and development experts work with customers to design,  develop and
manufacture products to meet specific requirements. We provide technical support
from product  conceptualization  through  prototyping  and  production  and work
closely with the product developers,  engineers, brand managers and research and
development  staffs  of both  major  OEMs  in  specific  markets  and  with  the
industry's  premier foam  fabricators to deliver  innovative  solutions to their
product needs and challenges.

     Other

     Other  consists   primarily  of  certain   manufacturing   and  fabrication
operations  in  Mexico  City,  corporate  expenses  not  allocated  to the other
business segments and restructuring, impairment and other charges (credits).

Marketing and Sales

     Foam Products sells  directly to major bedding and furniture  manufacturers
and  also  through  third  party  independent   fabricators.   In  addition,  we
manufacture and distribute foam-based consumer products such as futons, pillows,
mattress pads and children's furniture to retail chains. Our foam-based consumer
products  sales  efforts  are  primarily  regionally  based.  The key  strategic
elements  supporting  growth in these areas are a focus on  marketing  and sales
efforts, high quality,  cost-competitive and innovative products and low freight
costs  through  optimal  plant


                                       4
<PAGE>



location.  Plant locations are critical in this regionalized  business where the
transportation cost typically comprises a significant portion of product cost.

     Carpet Cushion  Products sells carpet padding to distributors  and to major
home product and floor covering retail chains.

     Our  Automotive  Products  customer  base  includes all of the major Tier 1
interior system  integrators.  We compete for new business both at the beginning
of  development of new models and upon the redesign of existing  models.  Once a
foam producer has been  designated to supply parts for a new model program,  the
foam producer  usually  produces parts for the life of the program.  Competitive
factors in the market include product quality and  reliability,  cost and timely
service,  technical expertise and development capability, new product innovation
and customer service.

     We  market  our  Technical   Products  through  a  network  of  independent
fabrication and distribution  companies in North America, the United Kingdom and
Asia.  These  fabricators  or  distributors  often  further  process  or  finish
Technical  Products to meet the specific  needs of end users.  Our specialty and
technical foams service unique end user  requirements  and are generally sold at
relatively  high  margins.  This  business is  characterized  by a diversity and
complexity of both customers and applications.

International Operations

     Our  international  operations  are located in Canada,  Mexico and Asia. We
operate four manufacturing facilities in Canada to service our foam products and
automotive  customers and have five  facilities in Mexico serving the automotive
and cushioning industries. Four of the Mexican facilities are located within the
Mexican  free  trade  zones  close  to the U.S.  border  and  primarily  service
automotive customers. Our Mexico City facility services both automotive and foam
fabrication customers.

     We participate in a joint venture with fabrication  facilities in Singapore
and Thailand.  Although we own 70% of the joint venture,  we do not control this
entity.  The joint venture  installed its first foam pourline  during 2003. This
pourline,  which was entirely financed by the joint venture entity, reduces foam
shipping  costs for  sales to the  region  and  increases  the range of  markets
served.

     We  have  maintained  a  longstanding   relationship   with  Recticel  s.a.
("Recticel"), a leading manufacturer of flexible polyurethane foam in Europe. We
have in the past exchanged technical  information and expertise relating to foam
manufacturing with Recticel.

Major Customers

     Sales to Johnson  Controls,  which are  included  in  Automotive  Products,
accounted  for  approximately  12.5% of our net sales in 2004,  16.3% of our net
sales in 2003, and 17.3% of our net sales in 2002. No other  customer  accounted
for more than 10.0% of our net sales  during any of the past  three  years.  Net
sales to our five largest  customers  comprised  approximately  29.6% of our net
sales in 2004,  34.7% of our net  sales in 2003,  and  33.8% of our net sales in
2002.  The loss of any one of these  customers  could  have a  material  adverse
effect on our business.

Manufacturing and Raw Materials

     Our manufacturing and distribution  facilities are strategically located to
service our major  customers  because the high  freight  cost in relation to the
cost  of  the  foam  product  generally  results  in  distribution   being  most
cost-effective within a 200 to 300 mile radius.

     Our fabrication  process involves cutting foam buns into various shapes and
sizes to meet customer specifications.  Fabricated foam is sold to customers and
is utilized by us to produce our  foam-based  consumer  products.  Scrap foam, a
byproduct of foam production and  fabrication,  is used to produce rebond carpet
padding.


                                       5
<PAGE>


     Raw materials account for a significant portion of our manufacturing costs.
The two principal  chemicals used in the  manufacture  of flexible  polyurethane
foam are toluene diisocyanate,  or "TDI," and polyol. There are a limited number
of major suppliers of TDI and polyol.  We generally have  alternative  suppliers
for each major raw material.  We believe that we could find alternative  sources
of supply should we cease doing  business  with any one of our major  suppliers,
although there may be some delay in replacing a major supplier.  A disruption in
our ability to obtain TDI and/or polyol that continues for a significant  period
of time could cause us to suspend our manufacturing operations, which could have
a material adverse effect on our business and results of operations.

     The prices of TDI and polyol have  historically been cyclical and volatile.
The  prices of these raw  materials  are  influenced  by  demand,  manufacturing
capacity,  oil and natural gas prices and the current  geopolitical  instability
and its impact on oil  production and prices.  We experienced  increases of more
than 20% in the price of raw materials  from major chemical  manufacturers  from
the first  quarter of 2004 to the fourth  quarter  of 2004.  Our major  chemical
suppliers  further increased prices for both TDI and polyol by approximately 10%
effective  in March  2005.  We attempt to offset raw  material  price  increases
through selling price increases and manufacturing process  efficiencies,  but we
were only  partially  able to do so in the year ended  January  2, 2005.  In the
future,  we may not be successful  in  implementing  selling price  increases to
fully recover raw material cost increases. Competitive pricing pressure may also
require us to adjust our selling prices or lose volume.

     A key material  needed in the manufacture of rebond carpet padding is scrap
foam. We internally generate a substantial portion of the scrap foam used in the
production of rebond carpet padding from our other operations. Historically, the
market price of rebond carpet  padding has  fluctuated  with the market price of
scrap foam.

Employees

     As  of  January  2,  2005,  we  employed   approximately   5,500   persons.
Approximately  1,500 of these  employees  are located  outside the United States
including  approximately 1,000 covered by collective  bargaining agreements with
labor  unions.  Approximately  1,100  United  States  employees  are  covered by
collective  bargaining  agreements at 8 facilities.  These agreements  expire on
various dates through 2008. We consider relations with our employees to be good.

Competition

     The flexible  polyurethane foam industry is highly  competitive with price,
quality and service being significant  competitive  factors.  Our competitors in
the polyurethane foam industry include E. R. Carpenter Company,  Leggett & Platt
Incorporated,  Hickory Springs Manufacturing Company,  Vitafoam,  Inc., Flexible
Foam Products,  Inc.,  Future Foam, Inc.,  Crest Foam  Industries,  Inc., Wm. T.
Burnett & Co. and The Woodbridge Group.  None of these competitors  individually
competes in all of the business segments in which we do business.

Patents and Trademarks

     We own various  patents and trademarks  registered in the United States and
in numerous  foreign  countries.  The  registered  processes  and products  were
developed  through  ongoing  research  and  development  activities  to  improve
quality, reduce costs and expand markets through development of new applications
for  flexible  polyurethane  foam  products.  While we consider  our patents and
trademarks  to be a  valuable  asset,  we do not  believe  that our  competitive
position  is  dependent  upon  patent  protection  or that  our  operations  are
dependent upon any individual patent, trademark or tradename.

Research and Development

     We believe we have a leading  research and  development  capability  in the
flexible  polyurethane  foam  industry.  Our primary  research  and  development
facility is located in Eddystone,  Pennsylvania.  Expenditures  for research and
development  amounted to $2.8 million for 2004,  $3.6 million for 2003, and $4.8
million for 2002.



                                       6
<PAGE>


     Foamex L.P.,  Recticel,  and Beamech Group Limited,  an unaffiliated  third
party,  have an interest in Prefoam AG, a Swiss  corporation  that  develops new
manufacturing  technology for the production of polyurethane  foam including the
VPF(SM)  manufacturing   process.   Recticel  and  affiliates  of  Recticel  are
shareholders of the Company.  Foamex L.P.,  Recticel and their affiliates have a
royalty-free  license to use technology  developed by the Swiss corporation.  We
and Recticel have exchanged know-how, trade secrets, engineering and other data,
designs,  specifications,  chemical formulations,  technical information, market
information and drawings which are necessary or useful for the manufacture,  use
or sale of foam  products.  We anticipate  that we will continue to do so in the
future.

Risk Factors

     In addition to the other  information  in this Annual  Report on Form 10-K,
investors  should  carefully  consider the following  factors about us.  Certain
statements   in   "Risk   Factors"   are   forward-looking    statements.    See
"Forward-Looking Information."

Our substantial debt could impair our financial condition.

     We  continue  to be highly  leveraged  and have  substantial  debt  service
obligations.  As of January  2, 2005,  our total  long-term  debt and  revolving
credit  borrowings  were  approximately  $750.5  million  and our  stockholders'
deficiency  was  approximately  $358.3  million.  As of January 2, 2005,  we had
approximately  $25.0 million in revolving loan  availability  and  approximately
$22.1 million in  outstanding  letters of credit.  We may also incur  additional
debt in the  future,  subject  to  certain  limitations  contained  in our  debt
agreements.

     The degree to which we are leveraged could have important consequences. For
example:

o          our ability to obtain additional financing in the future for working
           capital, capital expenditures, acquisitions, general corporate
           purposes or other purposes may be limited;

o          a significant portion of our cash flow from operations must be
           dedicated to the payment of interest and principal on our debt, which
           reduces the funds available for operations;

o          some of our debt is and will continue to be at variable rates of
           interest, which may result in higher interest expense in the event of
           increases in interest rates or our inability to achieve certain
           financial conditions; and

o          our debt agreements contain, and any agreements to refinance our debt
           likely will contain, financial and restrictive covenants, and our
           failure to comply with them may result in an event of default which,
           if not cured or waived, could have a material adverse effect on us.

If we are unable to comply with our financial covenants,  our bank lenders could
cause all amounts  outstanding  under the Senior  Secured  Credit  Facility  and
Secured Term Loan to be due and payable immediately.

     On August 18,  2003,  Foamex L.P.  and its bank  lenders  executed a $240.0
million Senior Secured Credit  Facility (the "Senior  Secured Credit  Facility")
and an $80.0 million  Secured Term Loan with another lending group (the "Secured
Term Loan"), which, among other things, requires Foamex L.P. to meet a financial
covenant.  On  November 3, 2004,  Foamex L.P.  entered  into  amendments  to the
financing  agreements with the existing  lenders under the Senior Secured Credit
Facility  and the  Secured  Term  Loan to  provide  up to $54.0  million  of new
financing,  the proceeds of which could be used only to  repurchase  prior to or
repay  Foamex  L.P.'s 13 1/2% senior  subordinated  notes  currently in the face
amount of $51.6 million (the "13 1/2% Senior Subordinated  Notes") due on August
15, 2005 and certain fees related to the new  financing.  The lenders  under the
Senior Secured  Credit  Facility have agreed to lend up to $15.0 million under a
new junior term loan with a floating  interest rate based upon either LIBOR,  as
defined,  reset monthly plus 6.00% or a Base Rate, as defined, plus 4.00% with a
maturity  date of April 30, 2007.  The lenders under the Secured Term Loan would
lend up to an  additional  $39.0 million with  interest  rates  identical to the
rates under the existing  Secured Term Loan. The Secured Term Loan maturity date
was also


                                       7
<PAGE>

extended to April 1, 2009.  Under the Senior  Secured  Credit  Facility  and the
Secured Term Loan, as amended, Foamex L.P. is subject to a fixed charge coverage
ratio, as defined,  of 1.00 measured  quarterly.  On March 15, 2005, the lenders
executed  waivers to the Senior  Secured  Credit  Facility  and the Secured Term
Loan, which waived  compliance with the fixed charge coverage ratio for the four
consecutive quarter period ended January 2, 2005. On March 31, 2005, Foamex L.P.
entered into  amendments  with the  existing  lenders  under the Senior  Secured
Credit  Facility  and the  Secured  Term Loan which  modified  the fixed  charge
coverage  ratio for the first quarter of 2005 through the first quarter of 2006,
at which  time the  fixed  charge  coverage  ratio  will be 1.00 for the  second
quarter of 2006 and thereafter,  and permit  borrowing of up to $25.0 million of
the  additional  $39.0  million  commitment  under the  Secured  Term Loan,  the
proceeds of which would be used to repay revolving loans.  Foamex L.P.'s ability
to comply  with the  revised  covenant  will be  substantially  dependent  on an
improved gross profit margin and lower administrative costs. If we are unable to
comply with the revised  financial  covenant,  the bank lenders  could cause all
amounts  outstanding  under the Senior Secured Credit  Facility and Secured Term
Loan to be due and payable  immediately.  In  addition,  any event of default or
declaration of acceleration  under one debt  instrument  could also result in an
event of default  under one or more of Foamex  L.P.'s  other  debt  instruments,
which unless  cured or waived,  would have a material  adverse  effect on us and
could impair our ability to continue as a going concern.

We may not be able to  generate  sufficient  cash flow to meet our debt  service
obligations.

     Our  ability  to  generate  sufficient  cash flow from  operations  to make
scheduled  payments on our debt  service  obligations  will depend on our future
financial  performance,   which  will  be  affected  by  a  range  of  economic,
competitive and business factors,  many of which are outside of our control. For
the last  three  fiscal  years we have  not  generated  enough  cash  flow  from
operations   sufficient  to  pay  our  debt  service   obligations  and  capital
expenditures.  Our annual debt service obligations will increase by $2.4 million
per year  for each 1%  increase  in  interest  rates,  based on the  balance  of
variable rate debt outstanding as of January 2, 2005. Our estimated debt service
obligation  for 2005 is $136.2  million,  based on  levels of debt and  interest
rates in effect at January 2, 2005. As described in the previous risk factor, we
have arranged for additional  borrowings  under the Secured Term Loan and junior
term loan in the  aggregate  amount of up to $54.0  million to repay the 13 1/2%
Senior  Subordinated  Notes.  If we do not  generate  sufficient  cash flow from
operations  to  satisfy  our  other  debt  service  obligations,  we may have to
undertake  alternative financing plans, such as refinancing or restructuring our
debt,  selling assets,  reducing or delaying  capital  investments or seeking to
raise  additional  capital.  We may not be able to refinance or restructure  our
debt  or  sell  assets  on a  timely  basis,  on  acceptable  terms  or at  all.
Furthermore,  the proceeds of any  refinancing,  restructuring or asset sale may
not  generate  sufficient  cash flow to meet our debt  service  obligations.  In
addition, we may not be able to obtain additional financing on acceptable terms,
if at all, or may not be  permitted  to obtain  additional  financing  under the
terms of our various debt instruments then in effect.  Our inability to generate
sufficient  cash flow to satisfy our debt service  obligations,  or to refinance
our obligations on commercially  reasonable terms, would have a material adverse
effect on our business, financial condition and results of operations.

We may incur more debt, which could exacerbate the risks described above.

     We and  our  subsidiaries  may be  able  to  incur  substantial  additional
indebtedness in the future. The Senior Secured Credit Facility,  as amended, the
Secured Term Loan, as amended,  and the indentures  relating to Foamex L.P.'s 10
3/4% senior  secured notes due 2009, 9 7/8% senior  subordinated  notes due 2007
and 13 1/2% Senior  Subordinated Notes restrict Foamex L.P. and its subsidiaries
in incurring additional indebtedness,  but do not fully prohibit Foamex L.P. and
its  subsidiaries  from  doing  so.  If  new  debt  is  added  to  our  and  our
subsidiaries' current debt levels, the related risks,  including those described
above,  that we and they now face could  intensify,  which could have a material
adverse effect on us.

The price and availability of raw materials account for a significant portion of
our manufacturing costs. We have experienced significant increases in raw
material costs and may continue to do so.

     The  two  principal   chemicals   used  in  the   manufacture  of  flexible
polyurethane  foam  are  TDI and  polyol.  The  prices  of TDI  and  polyol  are
influenced  by demand,  manufacturing  capacity  and oil and natural gas prices.
Historically,  the price of raw materials has been cyclical and volatile and our
principal  suppliers  of raw  materials  used  in the  manufacture  of  flexible
polyurethane  foam  have  significantly  increased  the  price of raw  materials
several times over the past several years.


                                       8
<PAGE>

     We attempt to offset raw material  price  increases  through  selling price
increases and manufacturing process efficiencies,  but we were not able to fully
do so in 2004.  Our major  chemical  suppliers  implemented  price  increases of
approximately  10% effective March 1, 2005. Our suppliers of TDI and polyol,  as
well as our other suppliers,  may increase raw material prices in the future and
we may not be able to  implement  additional  selling  price  increases to fully
offset raw material cost  increases.  A failure to recover cost increases  could
result in debt covenant violations which may lead to lenders demanding immediate
payment of our  outstanding  debt and impair our  ability to continue as a going
concern.

We depend on a limited number of suppliers of TDI and polyol.

     There  are a  limited  number  of  major  suppliers  of TDI and  polyol.  A
disruption  in our  ability to obtain TDI and/or  polyol  that  continues  for a
significant  period  of  time  could  cause  us  to  suspend  our  manufacturing
operations,  which  could have a material  adverse  effect on our  business  and
results of operations.

We must effectively manage our other operating expenses.

     In  addition  to our  ability to  effectively  increase  selling  prices in
response to raw material  cost  increases,  we must manage and control our other
operating   expenses  including  the  costs  for  ongoing  compliance  with  the
provisions  of  the  Sarbanes-Oxley  Act  of  2002  (the  "Act").  In  2004,  we
experienced an increase in selling,  general and administrative  expenses, which
include expenditures for compliance with Section 404 and other provisions of the
Act. We could incur additional significant costs in implementing improvements to
our internal  controls over financial  reporting.  If we incur such costs or are
otherwise  unable to achieve  reductions in other operating  expenses and in our
selling, general and administrative expenses, this could have a material adverse
effect on our business, financial condition and results of operations.

We rely on a few large customers for a significant portion of our net sales.

     A few of our customers are material to our business and  operations.  Sales
to our five largest customers together accounted for approximately  29.6% of our
net sales in 2004, 34.7% of our net sales in 2003, and 33.8% of our net sales in
2002. Sales to Johnson Controls,  our largest  customer,  accounted for 12.5% of
our net  sales in 2004,  16.3% of our net  sales in 2003,  and  17.3% of our net
sales in 2002. The loss, or a substantial  decrease in the amount,  of purchases
by any of our major customers could adversely affect our financial  position and
results of operations.

Our  customers'  financial  condition may have a material  adverse effect on our
business, financial condition and results of operations.

     In  the  ordinary  course  of  business,  we  extend  trade  credit  to our
customers.  In the event our customers,  in the aggregate or certain significant
customers,  are not able to pay us for our products on a timely basis or at all,
this could have a material adverse effect on our business,  financial  condition
and results of operations.

We could incur significant costs if we are unable to renew leases for certain of
our manufacturing facilities.

     We lease certain of our foam pouring facilities. In the event we are unable
to renew our leases at these  facilities,  we could incur  significant  costs in
relocating  our  manufacturing  operations.  Such costs could include the actual
removal  and  relocation  of  equipment  and  inventory,  lost  production  time
associated  with the transition,  relocation of certain key employees,  training
employees at the relocated  manufacturing  facilities,  and additional costs for
preparing the new locations for operations.  In addition,  we may not be able to
secure the required permits at an optimal location. If we were unable to renew a
lease and were forced to relocate,  the costs  associated  with such  relocation
could have a material  adverse effect on our business,  financial  condition and
results of operations.



                                       9
<PAGE>

We are subject to extensive federal, state, local and foreign environmental laws
and regulations.

     Our past and present business operations and the past and present ownership
and  operation  of our real  property  are  subject to  extensive  and  changing
federal, state, local and foreign environmental laws and regulations,  including
those  relating  to the  use,  handling,  storage,  discharge  and  disposal  of
hazardous   substances,   the  discharge  or  emission  of  materials  into  the
environment and the remediation of environmental contamination. We are currently
remediating  soil and groundwater  contamination in excess of state standards at
several  of our  current  and  former  facilities.  Further,  we  are  currently
designated as a Potentially  Responsible  Party,  or "PRP," by the United States
Environmental Protection Agency, or "EPA", or by state environmental agencies or
by other PRPs  relating to 12 sites.  We have  accrued our  estimated  costs for
remediation of these sites.  If there are additional  sites or our estimates are
not correct, there could be a material adverse effect on our financial condition
and results of operations.  We cannot predict what environmental  legislation or
regulations  will be enacted  in the  future,  how  existing  or future  laws or
regulations will be administered or interpreted or what environmental conditions
may be found to exist on our properties.  Compliance with more stringent laws or
regulations,  as well as more vigorous  enforcement  policies of the  regulatory
agencies or stricter  interpretation  of existing  laws,  and  discovery  of new
conditions  may  require  us to  make  additional  expenditures,  which  may  be
material.

Our business is cyclical.

     The polyurethane foam business is cyclical to the extent that our customers
are in cyclical industries.  We are especially subject to the cyclical nature of
the  automotive,  housing,  technology and furniture and bedding  industries.  A
protracted  downturn  in the  businesses  of  our  customers  in  any  of  these
industries, either simultaneously or sequentially, could have a material adverse
effect on our results of operations.

ITEM 2.  PROPERTIES

     As of January 2, 2005,  we  maintained 56  manufacturing  and  distribution
facilities.  Total  floor  space  in  use  at our  16  owned  manufacturing  and
distribution facilities is approximately 3.2 million square feet and total floor
space in use at our 40  leased  manufacturing  and  distribution  facilities  is
approximately  4.6 million  square feet.  Forty-seven  of these  facilities  are
located  throughout 34 cities in the United States,  four facilities are located
in Canada,  and five facilities are located in Mexico. We have approximately 1.4
million square feet of idle space.

     We do not anticipate any problem in renewing or replacing any of the leases
expiring in 2005.

     We maintain administrative offices in Linwood, Pennsylvania.

     Property  information by business  segment is not reported  because many of
our facilities produce products for multiple business segments.

ITEM 3.  LEGAL PROCEEDINGS

     Litigation

     We and our  subsidiaries are party to various  lawsuits,  both as defendant
and  plaintiff,  arising in the normal course of business.  It is the opinion of
management that the  disposition of these lawsuits will not,  individually or in
the  aggregate,  have a material  adverse  effect on our  financial  position or
results of operations.  If management's  assessment of the liability relating to
these actions is incorrect,  these actions could have a material  adverse effect
on our consolidated financial position, results of operations and cash flows. As
of January 2, 2005, we have accrued  approximately  $1.1 million for litigation,
claims  and  other  legal  matters  in  addition  to the  environmental  matters
discussed below.

     Environmental and Health and Safety

     We are subject to extensive and changing federal,  state, local and foreign
environmental  laws  and  regulations,  including  those  relating  to the  use,
handling, storage, discharge and disposal of hazardous substances, the discharge



                                       10
<PAGE>

or  emission  of  materials  into  the  environment,   and  the  remediation  of
environmental contamination,  and as a result, are from time to time involved in
administrative and judicial  proceedings and inquiries relating to environmental
matters.  As of January 2, 2005, we had accruals of  approximately  $2.0 million
for  environmental  matters,  including  approximately  $1.7 million  related to
remediating and monitoring soil and groundwater  contamination and approximately
$0.3 million relating to PRP sites and other matters.

     On  August  31,  2002,   Environment  Canada,  the  Canadian  environmental
regulatory  agency,  finalized a rule which would require flexible  polyurethane
foam manufacturing operations to reduce methylene chloride (dichloromethane) air
emissions.  The  rule  established  a  50.0%  reduction  in  methylene  chloride
emissions by December 1, 2004, which we have  implemented,  and 100.0% reduction
by January 1, 2007.  This  standard  has not required and will not require us to
make material expenditures for our Canadian plants.

     We have reported to the appropriate  state  authorities  that we have found
soil and/or  groundwater  contamination  in excess of state standards at certain
locations.  Seven sites are  currently  in various  stages of  investigation  or
remediation. Accordingly, the extent of contamination and the ultimate liability
is not known with certainty for all sites.

     We have either  upgraded  or closed all  underground  storage  tanks at our
facilities in accordance with applicable regulations.

     The Comprehensive  Environmental Response,  Compensation and Liability Act,
or "CERCLA," and comparable  state laws impose  liability  without fault for the
costs of  cleaning  up  contaminated  sites on certain  classes of persons  that
contributed to the release of hazardous substances into the environment at those
sites, for example, by generating wastes containing  hazardous  substances which
were disposed at such sites. We are currently  designated as a PRP by the EPA or
by state  environmental  agencies or other PRPs, pursuant to CERCLA or analogous
state statutes,  with respect to 12 sites.  Estimates of total cleanup costs and
fractional  allocations  of liability  are often  provided by the EPA, the state
environmental  agency or the  committee  of PRPs with  respect to the  specified
site.  Based  on  these  estimates  (to  the  extent  available)  and  on  known
information,  in each case and in the  aggregate,  we do not  expect  additional
costs, if any, to be material to our results of operations,  financial  position
or cash flows.

     Although it is possible that new information or future  developments  could
require  us  to  reassess  the  potential   exposure  relating  to  all  pending
environmental  matters,  including those described  above,  management  believes
that, based upon all currently  available  information,  the resolution of these
environmental matters will not have a material adverse effect on our operations,
financial  position,   capital   expenditures  or  competitive   position.   The
possibility  exists,   however,   that  new  environmental   legislation  and/or
environmental  regulations may be adopted,  or other  environmental  conditions,
including the presence of previously unknown environmental contamination, may be
found  to  exist  or  a  reassessment  of  the  potential  exposure  to  pending
environmental  matters  may  be  necessary  due  to new  information  or  future
developments,  that may require expenditures not currently  anticipated and that
may be material.

     Other

     In April 2004, we disclosed  certain  reportable  conditions  regarding our
internal  controls.  Subsequent to that disclosure,  we became the subject of an
informal  inquiry by the  Securities  and  Exchange  Commission  relating to our
internal controls. We are currently negotiating a settlement of this matter with
the staff of the Securities and Exchange Commission.

ITEM 4.  SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS

       None


                                       11
<PAGE>

PART II
ITEM 5.  MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER
          MATTERS

     Our common stock is traded  through the National  Association of Securities
Dealers, Inc. National Market System (the "NASDAQ") under the symbol "FMXI".

     The  following  table sets forth the high and low bid prices for the common
stock.

     2004                                      High              Low
                                             --------          -------
     Quarter Ended March 28                   $5.22             $3.15
     Quarter Ended June 27                    $5.42             $3.07
     Quarter Ended September 26               $5.03             $2.88
     Quarter Ended January 2, 2005            $4.18             $3.23

     2003
     Quarter Ended March 30                   $3.20             $1.08
     Quarter Ended June 29                    $3.69             $0.90
     Quarter Ended September 28               $5.95             $2.87
     Quarter Ended December 28                $5.20             $3.54

     As of March 11, 2005, there were 129 holders of record of the common stock.
On April 1, 2005, the closing price of our common stock was $1.84.

     There  were no cash  dividends  paid on common  stock  during  the past two
fiscal  years.  The payment of any future  dividends  will be  determined by the
Board of Directors in light of conditions then existing, including our earnings,
financial  condition and  requirements,  restrictions  in financing  agreements,
business  conditions  and other factors.  We are a holding  company whose assets
consist primarily of a wholly-owned  subsidiary,  Foamex L.P. Consequently,  our
ability to pay  dividends is dependent  upon the earnings of Foamex L.P. and any
future  subsidiaries  and the  distribution of those earnings to us and loans or
advances by Foamex L.P. and any such future subsidiaries.  The ability of Foamex
L.P. to make  distributions is restricted by the terms of financing  agreements.
Due to such restrictions, we expect to have only limited access to the cash flow
generated by Foamex L.P. for the foreseeable future.

Equity Compensation Plan Information

     The following table summarizes  information about the Foamex  International
Inc. 1993 Stock Option Plan and the Foamex  International  Inc. 2002 Stock Award
Plan for Directors, Executive Officers and Key Employees. This information is as
of January 2, 2005.

<TABLE>
<CAPTION>
                                                               Number of      Weighted        Number of Securities
                                                           Securities to be    Average      Available for Future
                                                             Issued Upon      Exercise     Issuance Under Equity
                                                              Exercise of     Price of     Compensation Plans
                                                             Outstanding     Outstanding     (Excluding Securities
               Plan Category                                   Options         Options           Outstanding)
------------------------------------------------------     ----------------  -----------   -----------------------
<S>                                                           <C>               <C>                <C>
Equity compensation plans approved by stockholders            3,059,600         $5.13              3,558,509
Equity compensation plans not approved by stockholders                -           N/A                      -
                                                              ---------         -----              ---------
Total                                                         3,059,600         $5.13              3,558,509
                                                              =========         =====              =========
</TABLE>

ITEM 6.  SELECTED FINANCIAL DATA

     The following table presents  selected  historical  consolidated  financial
data.  The financial data should be read in  conjunction  with the  consolidated
financial statements and related notes thereto included in this Annual Report on
Form 10-K.


                                       12
<PAGE>


<TABLE>
<CAPTION>
                                                                         Fiscal Year (1)
                                                -------------------------------------------------------------------
                                                    2004           2003        2002        2001 (2)        2000
                                                ----------     ----------   ----------    ----------    -----------
                                                          (thousands, except for earnings per share)
Statements of Operations Data
<S>                                             <C>            <C>          <C>           <C>           <C>
   Net sales                                    $1,266,394     $1,304,560   $1,328,094    $1,252,904    $1,257,778
   Income (loss) from continuing
     operations (3)(4)(5)                       $ (150,933)    $  (21,489)  $   60,948    $   (5,612)   $   17,013
   Basic earnings (loss) per share from
     continuing operations                      $    (6.17)    $    (0.88)  $     2.51    $    (0.24)   $     0.69
   Diluted earnings (loss) per share from
     continuing operations                      $    (6.17)    $    (0.88)  $     2.32    $    (0.24)   $     0.67

Balance Sheet Data
   Total assets                                 $  645,711     $  789,906   $  813,577    $  766,962    $  751,581
   Long-term debt, classified as current (6)    $  114,907     $   96,065            -             -             -
   Long-term debt, excluding current portion    $  568,461     $  633,621   $  738,540    $  648,232    $  687,758
   Stockholders' deficiency                     $ (358,313)    $ (203,116)  $ (189,733)   $ (180,746)   $ (164,669)
</TABLE>

(1)  We changed to a fiscal year from a calendar  year during 2002. We have a 52
     or  53-week  fiscal  year  ending on the  Sunday  closest to the end of the
     calendar  year. The 2004 fiscal year included the 53 weeks ended January 2,
     2005.  The 2002 fiscal year  included the 52 weeks ended  December 29, 2002
     after  adjustment  for  December  31, 2001 which was  included in the prior
     year.

(2)  Includes the results of  operations of General Foam  Corporation  from July
     25, 2001, the date it was acquired.

(3)  Includes net  restructuring,  impairment  and other charges  (credits),  as
     discussed in Note 5 to the consolidated  financial  statements  included in
     this  Annual  Report on Form  10-K.  Listed  below are the  pretax  charges
     (credits).

       2004 - $ 3.2  million
       2003 - $(1.8) million
       2002 - $ 4.8  million
       2001 - $36.1  million
       2000 - $ 6.3  million

(4)  The  provision for income taxes in 2000  reflected the partial  reversal of
     the deferred income tax valuation allowance recognized in 1998.

(5)  During 2004, we established a valuation allowance for our U.S. deferred tax
     assets  as we  determined  that  it is not  likely  that we will be able to
     generate  sufficient  amounts of future U.S.  taxable income to utilize our
     net operating loss carryforwards and realize other deferred tax assets. The
     establishment  of the valuation  allowance  reduced income from  continuing
     operations by $128.6  million in 2004.  During 2002, we determined  that it
     was more likely than not that our net deferred tax assets would be realized
     in the future.  Accordingly,  we reversed a previously  recorded  valuation
     allowance  which  increased  income  from  continuing  operations  by $77.3
     million in 2002.

(6)  Revolving  credit  borrowings  under Foamex  L.P.'s Senior  Secured  Credit
     Facility  are  classified  as current as required  by Emerging  Issues Task
     Force  Issue  No.  95-22,   "Balance  Sheet  Classification  of  Borrowings
     Outstanding   Under  Revolving  Credit   Agreements  that  Include  both  a
     Subjective  Acceleration  Clause  and a  Lockbox  Arrangement"  ("EITF  No.
     95-22").


                                       13
<PAGE>




ITEM 7. MANAGEMENT'S  DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
        OF OPERATIONS

FORWARD-LOOKING STATEMENTS

     The  Private  Securities  Litigation  Reform  Act of 1995  provides a "safe
harbor"  for  forward-looking   statements  so  long  as  those  statements  are
identified as  forward-looking  and are  accompanied  by  meaningful  cautionary
statements  identifying  important  factors that could cause  actual  results to
differ  materially from those projected in such  statements.  In connection with
certain forward-looking  statements contained in this Annual Report on Form 10-K
and  those  that may be made in the  future  by or on  behalf  of us  which  are
identified as forward-looking, we note that there are various factors that could
cause  actual  results  to differ  materially  from  those set forth in any such
forward-looking  statements,  such as the ability to implement  customer selling
price  increases in response to higher raw material  costs,  raw material  price
increases, general economic conditions, the interest rate environment, the level
of automotive production,  carpet production,  furniture and bedding production,
and housing starts, the achievement of management's  business plans, our capital
and debt  structure  (including  various  financial  covenants),  litigation and
changes  in  environmental   legislation  and  environmental   conditions.   The
forward-looking  statements  contained  in this Annual  Report on Form 10-K were
prepared  by  management  and are  qualified  by, and  subject  to,  significant
business,  economic,   competitive,   regulatory  and  other  uncertainties  and
contingencies,  all of which are  difficult or impossible to predict and many of
which are beyond our control.

     Accordingly,  there can be no assurance that the forward-looking statements
contained  in this  Annual  Report on Form 10-K will be  realized or that actual
results  will  not  be  significantly   higher  or  lower.  The  forward-looking
statements  have not been audited by,  examined by,  compiled by or subjected to
agreed-upon  procedures  by  independent  accountants,  and no third  party  has
independently  verified  or  reviewed  such  statements.  Readers of this Annual
Report on Form 10-K should  consider these facts in evaluating  the  information
contained  herein.  In  addition,  our business  and  operations  are subject to
substantial risks which increase the uncertainty inherent in the forward-looking
statements  contained in this Annual  Report on Form 10-K.  The inclusion of the
forward-looking  statements  contained in this Annual Report on Form 10-K should
not be regarded as a  representation  by us or any other  person that any of the
forward-looking  statements contained in this Annual Report on Form 10-K will be
achieved. In light of the foregoing,  readers of this Annual Report on Form 10-K
are  cautioned  not to place undue  reliance on the  forward-looking  statements
contained herein.

EXECUTIVE SUMMARY

Overview

     We operate in the flexible  polyurethane and advanced polymer foam products
industry.  Our  operations  are  primarily  conducted  through our  wholly-owned
subsidiary,  Foamex L.P. Business segments are listed below and business segment
financial  information  is  included  in Note 12 to the  consolidated  financial
statements.  Please  see  Part  I,  Item  1,  "Business"  for  a  more  complete
description of the activities of our business segments.

     An executive vice president heads each of our principal operating segments.
Each executive vice president is responsible for developing budgets and plans as
well as  directing  the  operations  of the  segment.  The  performance  of each
operating  segment is  measured  based upon income  from  operations,  excluding
restructuring,  impairment and other charges and corporate  overhead.  We do not
allocate  restructuring,  impairment  and other  charges to  operating  segments
because many of our facilities produce products for multiple segments.

     Foam  Products -  manufactures  and markets  cushioning  foams for bedding,
     furniture,  packaging and health care applications, and foam-based consumer
     products, such as mattress pads and children's furniture.

     Carpet Cushion Products - manufactures and distributes rebond,  prime, felt
     and rubber carpet padding.

     Automotive Products - distributes automotive foam products and laminates to
     major Tier 1 suppliers and OEMs.


                                       14
<PAGE>


     Technical  Products  -  manufactures  and  markets  reticulated  and  other
     specialty foams used for  reservoiring,  filtration,  gasketing and sealing
     applications.

     Other  -  primarily  consists  of  certain  manufacturing  and  fabrication
     operations  in Mexico City,  corporate  expenses not allocated to the other
     business   segments  and   restructuring,   impairment  and  other  charges
     (credits).

     Our sales are  primarily to markets in the United  States.  These sales are
impacted by economic conditions in several sectors of the United States economy,
including consumer spending,  sales of new and existing homes, the overall level
of  passenger  car and light truck  production  and  seasonality.  We  typically
experience  two  seasonally  slow periods during each year, in early July and in
late December, due to scheduled plant shutdowns and holidays.

     A small number of major customers produce a significant  portion of our net
sales.  In 2004,  our largest  customer  provided 12.5% of our net sales and our
five largest customers  provided 29.6% of our net sales. Two of the five largest
customers  are  customers  of the  Automotive  Products  segment  and  three are
customers of the Foam Products segment.

     The  following   discussion   should  be  read  in  conjunction   with  the
consolidated  financial  statements  and related  notes  included in this Annual
Report on Form 10-K.

     Operations

     The  following  table  includes  key elements of our  financial  statements
expressed as a percentage of net sales for the years 1999 through  2004,  except
for net cash provided by (used for) operating  activities  which is expressed in
millions of dollars.

<TABLE>
<CAPTION>
                                      2004         2003         2002        2001        2000         1999
                                   ----------   ----------   ----------  ----------  ----------   ----------
<S>                                  <C>          <C>          <C>         <C>         <C>          <C>
Net Sales                            100.0%       100.0%       100.0%      100.0%      100.0%       100.0%

Cost of Goods Sold                    88.8%        89.0%        89.2%       85.8%       86.3%        86.1%

Gross Profit Margin                   11.2%        11.0%        10.8%       14.2%       13.7%        13.9%

Selling, General and
   Administrative Expenses             6.9%         6.3%         7.1%        6.4%        5.5%         5.9%

Operating Income Margin                4.0%         4.8%         3.3%        4.9%        7.7%         7.2%

Interest and Debt
   Issuance Expense                    6.1%         6.8%         5.2%        5.0%        6.0%         5.6%

Net Cash Provided by (Used
   for) Operating Activities         $(1.0)       $17.5       $(50.4)     $106.4       $51.0        $58.7
</TABLE>

     As demonstrated by the table above, our results significantly  deteriorated
in 2002 and improved only  marginally in 2003 and 2004.  Our gross profit margin
has been reduced by approximately three percentage points compared to 2001 while
selling,  general and  administrative  expenses and  interest and debt  issuance
expense have both increased as a percentage of net sales, as well as in absolute
dollar  terms.  Net sales  dollars have been  relatively  flat over the six year
period with 2004 representing a decrease of 2.2% compared to 1999.

     Our management is focusing on restoring  former levels of  profitability by
concentrating on the following key areas:

     o    Developing  new  value-added  products  that  leverage  our  technical
          capability and entering new markets with increased profit potential.

     o    Managing raw material costs.


                                       15
<PAGE>


     o    Maintaining  selling  price  increases  to  customers  to recover  raw
          material and manufacturing cost increases.

     o    Controlling   and   reducing   labor  and   overhead   costs  both  in
          manufacturing and administration.

     The cost of major chemical raw materials  increased several times effective
during  the  second  half  2004,  so that  the  weighted  average  cost of major
chemicals  was more than 20%  higher in the  fourth  quarter of 2004 than in the
first  quarter  of 2004.  Primarily  as a  result  of these  raw  material  cost
increases,  our gross profit  margin  declined to 8.7% in the fourth  quarter of
2004.  Our major  chemical  suppliers  further  increased the price of polyol by
approximately  15% effective in January 2005 and  increased  prices for both TDI
and  polyol  by  approximately  10%  effective  in March  2005.  There can be no
assurance that chemical prices will not further increase in 2005. In addition to
rising  prices,  some of the key  chemicals we use have been in short supply and
availability  may  continue  to be tight in the future.  We manage raw  material
costs by  negotiating  discounts  and rebates for volume  purchases  and seeking
alternative sources of supply.

     We have been only partially successful in raising selling prices to recover
raw material and other cost increases.  Further selling price increases, reduced
costs and increased mix of higher profit products are major factors in restoring
gross profit margin percentages to the levels experienced in 1999-2001. At those
levels we should be able to reduce  borrowings  and also cash interest  expense,
although  there is no assurance we will be  successful in our efforts to achieve
those levels of gross profit margins.

     We are  focused on reducing  both  manufacturing  costs and  administrative
expenses.  We  believe  that  manufacturing  costs  can be  further  reduced  by
emphasizing  efficiency and better supply chain management.  Our focus areas for
further  reductions in  administrative  expenses are employee  related costs and
professional  service  fees,  although we have  experienced  large  increases in
professional   fees  in  conjunction   with  our  efforts  to  comply  with  the
requirements of Section 404 of the Sarbanes-Oxley  Act of 2002. In addition,  we
will explore the potential sales of non-strategic assets during 2005.

     Financing

     Our Senior  Secured  Credit  Facility  initially  consisted  of a revolving
credit  facility with a maximum  availability  of $190.0  million and an initial
term loan of $50.0  million.  The  revolving  credit  facility  includes a $50.0
million  sublimit for letters of credit and  availability is limited to eligible
amounts, as defined,  of accounts receivable and inventory.  At January 2, 2005,
Foamex L.P. had available  borrowings of approximately $25.0 million and letters
of  credit  outstanding  of $22.1  million.  Borrowings  under the term loan are
limited  to  eligible  amounts,  as  defined,  of  equipment  and  real  estate.
Substantially  all the assets of Foamex L.P. and its domestic  subsidiaries  and
Foamex Canada are pledged as collateral for the related  borrowings.  Borrowings
under the revolving  credit facility and the term loan bear interest at floating
rates based upon and  including a margin  over either  LIBOR or a Base Rate,  as
defined.  At January 2, 2005, the weighted average interest rates were 6.00% for
both the revolving  loans and the term loan.  The term loan  requires  quarterly
installment payments of approximately $1.8 million.  Borrowings under the Senior
Secured Credit Facility will mature on April 30, 2007.

     Our Secured  Term Loan had an  original  maturity  date of April 30,  2007.
Borrowings  under this  facility  bear interest at a rate that is 9.25% plus the
greater of the Reference Rate, as defined, or 4.25%. The minimum rate, which was
in effect as of December 28, 2003,  is 13.50%.  The rate in effect at January 2,
2005 was 14.50%. In addition,  Foamex L.P. is subject to a 1.00% facility fee on
the initial $80.0 million term loan which is payable annually on the anniversary
date.  Borrowings  under the Secured  Term Loan are  collateralized  by the same
collateral as the Senior Secured Credit  Facility.  An  intercreditor  agreement
governs  the  distribution  of  collateral  among the  lenders  under the Senior
Secured Credit Facility and the Secured Term Loan.

     Under the Senior Secured Credit Facility and the Secured Term Loan,  Foamex
L.P. is subject to a minimum fixed charge coverage  ratio,  as defined,  of 1.00
measured quarterly.  For the two quarters ended December 28, 2003, Foamex L.P.'s
fixed charge  coverage  ratio was 1.09.  Amendments to the Senior Secured Credit
Facility and Secured Term Loan executed on November 3, 2004 allowed  Foamex L.P.
to  exclude  certain  charges   aggregating   approximately   $3.7  million  and
approximately   $1.0  million  in  the  first  and  second   quarters  of  2004,
respectively,


                                       16
<PAGE>


from the computation of the fixed charge  coverage ratio.  For the four quarters
ended January 2, 2005, FoamexL.P.'s fixed charge coverage ratio was 0.98 and the
lenders have agreed to waive compliance with the fixed charge coverage ratio for
that period.  On March 31, 2005,  Foamex L.P.  entered into  amendments with the
existing  lenders under the Senior Secured Credit  Facility and the Secured Term
Loan that set lower minimum fixed charge  coverage  ratios through April 2, 2006
and permit  borrowing of up to $25.0  million of the  additional  $39.0  million
commitment,  discussed below, under the Secured Term Loan, the proceeds of which
would be used to repay revolving loans.  Foamex L.P.  incurred fees and expenses
for the waivers and amendments  aggregating  approximately $1.0 million.  Foamex
L.P. is also subject to a maximum  annual capital  expenditure  amount which was
$36.0  million for the year ended  January 2, 2005 and will be $46.8 million for
the year ending January 1, 2006.

     There can be no assurance that we will be successful in achieving our plans
or complying  with the fixed  charge  coverage  ratio,  as there are a number of
factors  beyond our control,  including  raw material  cost changes and customer
acceptance of selling price increases that are necessary for us to be successful
and  we  have  limited  borrowing   capacity  and  access  to  capital  markets.
Additionally, compliance with the amended fixed charge coverage ratio may not be
met if business  conditions are not as anticipated  or other  unforeseen  events
impact results unfavorably. In the event that such noncompliance appears likely,
or occurs,  we will seek the  lenders'  further  approval of  amendments  to, or
waivers  of,  such  covenants.  Historically,  we have been able to  renegotiate
financial  covenants and/or obtain waivers.  Management  currently believes that
obtaining  waivers  and/or  amendments  in  the  future  may  be  difficult.  If
amendments  or waivers are not  obtained,  Foamex  L.P.  would be in default and
lenders could demand immediate  payment of Foamex L.P.'s  outstanding debt under
the Senior  Secured  Credit  Facility and Secured Term Loan. In addition,  it is
possible  that the  holders of Foamex  L.P.'s  Senior  Secured  Notes and Senior
Subordinated  Notes could also demand immediate  payment.  We may not be able to
secure  additional  financing  at a  reasonable  cost,  or at all.  The  lack of
financing  would have a material  adverse  effect on our financial  position and
could impair our ability to continue as a going concern.

     Our 13 1/2% Senior  Subordinated  Notes with a face value of $51.6  million
are due on August 15, 2005.  We may,  from time to time,  directly or indirectly
make  purchases of these notes or our other public debt in the open market or in
private  transactions.  On November 3, 2004,  Foamex L.P. entered into financing
agreements  with the existing  lenders under the Senior Secured Credit  Facility
and the Secured Term Loan to provide up to $54.0 million of new  financing,  the
proceeds of which could be used only to repurchase prior to or repay the 13 1/2%
Senior  Subordinated  Notes at  maturity  and  certain  fees  related to the new
financing.  The lenders under the Senior Secured Credit  Facility have agreed to
lend up to $15.0 million  under a new junior term loan with a floating  interest
rate based upon LIBOR, as defined, reset monthly plus 6.00% with a maturity date
of April 30, 2007.  The lenders  under the Secured Term Loan would lend up to an
additional  $39.0 million with interest  rates  identical to the rates under the
existing  Secured  Term  Loan.  The  Secured  Term Loan  maturity  date was also
extended to April 1, 2009. The financing  commitment under the Secured Term Loan
requires the payment of an unused  commitment  fee at the rate of 1.5% per annum
and a funding fee equal to 2.5% of the amount  borrowed  with a minimum  funding
fee of approximately  $0.6 million.  The amendments permit Foamex L.P. to reduce
the financing  commitments by any cash proceeds,  as defined in the  amendments,
generated  from  certain  sources.  If Foamex L.P. is unable to meet its minimum
fixed charge  coverage ratio, as amended,  the financing  commitments  under the
Senior Secured Credit Facility and the Secured Term Loan may not be available to
repay  the 13 1/2%  Senior  Subordinated  Notes  when due.  Withdrawal  of these
commitments  would have a material adverse effect on our financial  position and
could impair our ability to continue as a going concern.

CRITICAL ACCOUNTING POLICIES

     We prepared  the  consolidated  financial  statements  in  conformity  with
accounting  principles  generally  accepted in the United States of America.  As
such, we are required to make certain estimates, judgments, and assumptions that
we believe are reasonable based upon the information available. These estimates,
judgments  and  assumptions  affect  the  reported  amounts  of the  assets  and
liabilities and revenues and expenses.  Our significant  accounting policies are
discussed in Note 2 to the  consolidated  financial  statements.  The accounting
policies  which we believe are the most  critical to aid in fully  understanding
and evaluating our reported  financial  results and which require  management to
exercise judgment include the following:


                                       17
<PAGE>


     Revenue Recognition

     Revenue from sales, net of discounts and estimated returns,  allowances and
customer rebates,  is recognized when product title and the risks and rewards of
ownership passes to the customer,  the sales price is fixed and determinable and
collection is reasonably  assured.  Products are shipped FOB shipping point. Net
sales are reduced by allowances  for estimated  discounts,  returns and customer
rebates. Balances for allowances and rebates are reviewed at least quarterly and
are adjusted if warranted.  Shipping and handling costs are included in costs of
goods sold.

     Accounts Receivable and Allowance for Uncollectible Accounts

     We actively monitor  customer  payments in conjunction with customer credit
evaluations.  Accordingly,  a reserve for  estimated  uncollectible  accounts is
maintained  and is  based  on  historical  collection  experience  and  specific
customer  collection issues. A significant change in the financial  condition of
one or more of our larger  customers  could have a  material  adverse  impact on
future financial results.

     Long-Lived Assets

     Net property,  plant and  equipment  totaled  $141.5  million at January 2,
2005.  Property and equipment held for use is grouped for impairment  testing at
the lowest level for which there are identifiable cash flows. Impairment testing
of the asset group occurs whenever events or changes in  circumstances  indicate
that the  carrying  amount of the assets  may not be  recoverable.  The  Company
assesses  recoverability  by comparing the carrying amount of the asset group to
the  estimated  undiscounted  future cash flows  expected to be generated by the
assets.  If an asset group is considered  impaired,  the  impairment  loss to be
recognized  would be measured as the amount by which the asset group's  carrying
amount  exceeds  its fair  value.  Estimated  future  cash  flows  are  based on
historical results adjusted for estimated future market conditions and operating
plans. To the extent that these estimates change, impairment losses could have a
material adverse impact on future financial results.

     Goodwill

     We evaluate the  recoverability  of goodwill on an annual basis as required
by Statement of Financial  Accounting  Standards  No. 142,  "Goodwill  and Other
Intangible Assets" ("SFAS No. 142"). We perform this annual evaluation as of the
first day of the fourth fiscal quarter,  or more frequently if events or changes
in  circumstances,  such as declining sales,  earnings or cash flows or material
adverse  changes in the business  climate,  indicate that the carrying  value of
goodwill  might be impaired.  Goodwill is considered to be impaired when the net
book value of a reporting unit exceeds its estimated fair value. Fair values are
primarily   established   using  a  discounted   cash  flow   methodology.   The
determination  of discounted cash flows is based on businesses'  strategic plans
and long range planning forecasts.

     Deferred Income Taxes

     Income taxes are accounted for under the asset and liability method.  Under
this  method,  deferred  income taxes are  provided  for  temporary  differences
between  the  financial  reporting  basis and  income  tax  basis of assets  and
liabilities and for net operating loss carryforwards using the income tax rates,
under existing legislation,  expected to be in effect at the date such temporary
differences are expected to reverse. Deferred income tax assets are reduced by a
valuation allowance when it is considered more likely than not that a portion of
the  deferred  income tax assets will not be realized  in a future  period.  The
estimates  utilized in the recognition of deferred income tax assets are subject
to revision in future periods.

     Self Insurance

     We are partially  self-insured  up to certain  limits for a number of risks
including  workers'  compensation,  medical,  automobile and general  liability.
Commercial  insurance  policies  are  carried  for  amounts  in  excess  of  the
self-insured  amounts.  Management exercises  significant judgment in estimating
the ultimate  liability for claims.  The


                                       18
<PAGE>

services of an outside actuary are used to assist management in their evaluation
of the liability for workers' compensation and automobile claims.

     Benefit Plans

     We maintain defined benefit pension plans that cover most of our employees.
Projected  benefit  obligations,  pension expense and amounts  included in other
comprehensive  income are impacted by a number of  assumptions.  Key assumptions
include the discount  rates to determine  benefit  obligations  and the expected
long-term  rate of return on plan assets.  Discount  rates are applied to future
cash  flows to  measure  benefit  obligations  on a present  value.  We  assumed
weighted average discount rates of 7.00%,  6.50% and 6.00% to calculate  pension
expense in 2002, 2003 and 2004, respectively.  Based on pension plan obligations
at year-end  2004,  a 0.50%  reduction  in the discount  rate  assumption  would
increase pension expense by approximately  $0.8 million.  The estimated increase
is primarily attributable to the impact on the pension expense component for the
amortization  of net losses,  discussed  below.  Based on pension plan assets at
year-end 2004, a 0.50% reduction in the expected rate of return assumption would
increase pension expense by approximately $0.5 million.  The amortization of net
actuarial  losses  remains a  significant  component of pension  expense for the
Company.  The net loss position of the pension plans was primarily the result of
declining  discount  rates and  accumulated  returns  on  pension  assets  below
expected  returns,  principally  in periods  before  2003.  The pension  expense
component  for the  amortization  of net  actuarial  losses  is  expected  to be
approximately  $3.2  million in 2005.  We  anticipate  funding  $7.4  million to
retiree benefit plans in 2005.

     Claims and Litigation

     We  receive  claims for  damages  that are not  covered  by our  insurance.
Management  evaluates these claims and records its estimate of liabilities  when
such  liabilities are considered  probable and an amount or reasonable range can
be estimated.

     Environmental Remediation

     We have a number of  manufacturing  facilities and certain idle  facilities
that require remediation of soil and/or groundwater  contamination.  As required
by applicable State and/or Federal compliance programs,  many of these sites are
in the monitoring stage that requires periodic sampling of contamination  levels
in conjunction with ongoing assessments of remediation actions. Accordingly, the
recognition  of  environmental  liabilities  requires  estimates  concerning the
duration of monitoring and  associated  costs,  often  projected to extend for a
number  of  years.  To  the  extent  that  these  estimates  change,  additional
environmental  costs could have a material  adverse  impact on future  financial
results.  See the section below entitled  "Environmental  Health and Safety" for
additional information.

LIQUIDITY AND CAPITAL RESOURCES

     Our operations are conducted through a wholly-owned subsidiary, Foamex L.P.
Our liquidity  requirements consist primarily of the operating cash requirements
of Foamex L.P.

     Foamex L.P.'s cash requirements consist principally of accounts receivable,
inventory and accounts payable,  scheduled payments of interest and principal on
outstanding indebtedness,  capital expenditures,  and employee benefit plans. We
believe that cash flow from Foamex L.P.'s operating activities, cash on hand and
periodic  borrowings  under its credit  agreements  will be adequate to meet its
liquidity  requirements  for the next 12 months.  In  addition,  we will explore
potential  sales of  non-strategic  assets  during this  period.  The ability of
Foamex  L.P.  to make  distributions  to us is  restricted  by the  terms of its
financing  agreements.  We expect to have only  limited  access to the cash flow
generated by Foamex L.P. for the foreseeable future.

     Cash and cash  equivalents were $5.4 million at January 2, 2005 compared to
$6.6  million at December  28,  2003.  Working  capital at January 2, 2005 was a
negative  $57.1  million and the current ratio was 0.84 to 1 compared to working
capital at December 28, 2003 of $24.1  million and a current ratio of 1.08 to 1.
The decrease in working capital is primarily due to the  reclassification of the
$52.2 million of 13 1/2% Senior  Subordinated  Notes due August 15, 2005 as they
mature in less than one year, and the establishment of a valuation  allowance on
the current  portion of deferred tax assets.


                                       19
<PAGE>


     Total  long-term  debt and revolving  credit  borrowings at January 2, 2005
were $750.5  million,  a $4.9 million  increase  from  December 28, 2003.  As of
January 2, 2005, there were revolving credit  borrowings of $114.9 million under
the Senior Secured Credit  Facility with $25.0 million  available for borrowings
and $22.1 million of letters of credit outstanding.  Revolving credit borrowings
at January 2, 2005 reflect working capital requirements.

     On August 18,  2003,  Foamex  L.P.  entered  into a Senior  Secured  Credit
Facility  with a new  group of  lenders  and a Secured  Term  Loan with  another
lender.  Proceeds  borrowed  under  these  facilities  were  used to  repay  all
outstanding  balances  under  the  Foamex L. P.  Amended  Credit  Facility  (the
"Amended  Credit  Facility")  which was  terminated  as of August 18,  2003.  In
addition,  Foamex  Canada's  revolving  credit  facility  that  did not have any
outstanding  borrowings and had availability of  approximately  $5.9 million was
terminated as of August 18, 2003. The termination of the Amended Credit Facility
resulted in a write off of debt issuance costs of $12.9 million in 2003.

     The Senior  Secured  Credit  Facility  initially  consisted  of a revolving
credit  facility with a maximum  availability  of $190.0  million and an initial
term loan of $50.0  million.  On November 3, 2004,  the lenders under the Senior
Secured Credit Facility agreed to lend up to an additional $15.0 million under a
new junior term loan.  The revolving  credit  facility  includes a $50.0 million
sublimit for letters of credit and availability is limited to eligible  amounts,
as defined, of accounts receivable and inventory. Borrowings under the term loan
are limited to eligible  amounts,  as defined,  of  equipment  and real  estate.
Substantially  all the assets of Foamex L.P. and its domestic  subsidiaries  and
Foamex Canada are pledged as collateral for the related  borrowings.  Borrowings
under the revolving  credit facility and the term loan bear interest at floating
rates based upon and  including a margin  over either  LIBOR or a Base Rate,  as
defined.  At January 2, 2005, the weighted average interest rates were 6.00% for
both the revolving loans and the term loan. The margin for borrowings  under the
revolving  credit  facility  and the term  loan  increased  by 0.25% in 2004 and
increased by an  additional  0.25% as of March 31, 2005.  The term loan requires
quarterly  installment payments of approximately $1.8 million.  Borrowings under
the junior term loan can be used only to repay the 13 1/2%  Senior  Subordinated
Notes at maturity and will bear interest at a floating rate based upon LIBOR, as
defined,  reset  monthly plus 6.00%.  All  borrowings  under the Senior  Secured
Credit  Facility  will  mature on April 30,  2007.  The  Senior  Secured  Credit
Facility  includes  both  a  subjective   acceleration   clause  and  a  lockbox
arrangement  which  requires  all lockbox  receipts  be used to repay  revolving
credit borrowings.  Accordingly,  borrowings under the revolving credit facility
are classified as current in the accompanying  balance sheet as required by EITF
No. 95-22.

     The Secured Term Loan had an original  maturity  date of April 30, 2007. On
November 3, 2004, the lenders agreed to lend up to an additional  $39.0 million,
the proceeds of which could be used only to repurchase  prior to or repay the 13
1/2% Senior  Subordinated  Notes at maturity and certain fees related to the new
financing.  The lenders  also agreed to extend the  maturity of the Secured Term
Loan to April 1, 2009.  Borrowings  under this  facility bear interest at a rate
that is 9.25% plus the greater of the Reference Rate, as defined,  or 4.25%. The
minimum rate,  which was in effect as of December 28, 2003, is 13.50%.  The rate
in effect at January 2, 2005 was 14.50%. In addition,  Foamex L.P. is subject to
a 1.00%  facility  fee on the initial  $80.0  million term loan which is payable
annually on the anniversary date, a 1.5% commitment fee on the unused portion of
the $39.0 million  additional  commitment and a funding fee equal to 2.5% of the
amount  borrowed  with a minimum  funding  fee of  approximately  $0.6  million.
Borrowings under the Secured Term Loan are collateralized by the same collateral
as the Senior Secured Credit Facility.  An intercreditor  agreement  governs the
distribution  of collateral  among the lenders under the Senior  Secured  Credit
Facility and the Secured Term Loan.

     Under the Senior  Secured  Credit  Facility and the Secured  Term Loan,  as
amended,  Foamex L.P. is subject to a minimum fixed charge  coverage  ratio,  as
defined,  of 1.00 measured  quarterly.  For the two quarters  ended December 28,
2003,  Foamex  L.P.'s fixed charge  coverage  ratio was 1.09.  Amendments to the
Senior  Secured  Credit  Facility and Secured Term Loan  executed on November 3,
2004 allowed Foamex L.P. to exclude  certain charges  aggregating  approximately
$3.7 million and approximately  $1.0 million in the first and second quarters of
2004, respectively, from the computation of the fixed charge coverage ratio. For
the four  quarters  ended January 2, 2005,  Foamex L.P.'s fixed charge  coverage
ratio was 0.98 and the lenders  have agreed to waive  compliance  with the fixed
charge coverage ratio for that period.  On March 31, 2005,  Foamex L.P.  entered
into  amendments  with the  existing  lenders  under the Senior  Secured  Credit
Facility and the Secured Term Loan that set lower minimum fixed charge  coverage
ratios through April 2, 2006 and permit  borrowing of up to $25.0 million of the
additional $39.0 million


                                       20
<PAGE>


commitment  under the Secured Term Loan,  the proceeds of which would be used to
repay revolving  loans.  Foamex L.P.  incurred fees and expenses for the waivers
and  amendments  aggregating  approximately  $1.0  million.  Foamex L.P. is also
subject to a maximum annual capital  expenditure  amount which was $36.0 million
for the year ended January 2, 2005 and will be $46.8 million for the year ending
January 1, 2006.

     Effective May 1, 2002, Foamex L.P. completed a series of interest rate swap
transactions  with notional  amounts  aggregating  $300.0  million.  Foamex L.P.
designated, documented and accounted for these interest rate swaps as fair value
hedges of its 10 3/4%  Senior  Secured  Notes due April 1, 2009.  The risk being
hedged in these  transactions was the change in fair value of the 10 3/4% Senior
Secured Notes based on changes in the benchmark interest rate, LIBOR. The effect
of these interest rate swap  transactions was to convert the fixed interest rate
on the 10 3/4% Senior  Secured  Notes to floating  rates reset twice per year to
correspond with the interest payment dates for the 10 3/4% Senior Secured Notes.
On September 18, 2002,  Foamex L.P. unwound the interest rate swap  transactions
in exchange  for net cash  proceeds of $18.4  million,  including  $3.6  million
realized through lower effective interest rates while the swap transactions were
in effect. The unwinding  resulted in a deferred credit of $14.8 million,  which
is being amortized over the term of the 10 3/4% Senior Secured Notes,  using the
effective interest rate method.

     Cash Flow from Operating Activities

     Cash used for  operating  activities  in 2004 was $1.0 million  compared to
cash  provided  of $17.5  million  in 2003.  In 2004,  cash used for  operations
consisted  of  approximately  $4.5  million of cash  generated  from  results of
operations  after  adjusting  for  deferred  income  taxes and non cash  charges
included in net loss, offset by approximately  $5.5 million of cash requirements
used to fund working capital needs,  other operating  expenses and restructuring
liabilities.  In 2003,  cash provided by operations  consisted of  approximately
$15.9 million of cash generated from results of operations  after  adjusting for
deferred   income  taxes  and  non  cash  charges   included  in  net  loss  and
approximately  $14.6 million of cash  generated  from working  capital  accounts
offset by $13.0 million used to pay restructuring liabilities.

     Cash Flow from Investing Activities

     Cash used for investing  activities  totaled $5.2 million for 2004 compared
to $8.6 million in 2003. Cash requirements included capital expenditures of $5.5
million and capitalized software  development costs of $2.4 million.  These uses
were  partially  offset by proceeds from asset  disposals of $2.7 million.  Cash
used for  investing  activities in 2003 included  capital  expenditures  of $6.5
million and capitalized  software  development costs of $3.3 million.  Estimated
capital  expenditures for 2005 are approximately $6 to $8 million.  In addition,
we expect to spend approximately $5 million for internally developed software in
2005, a portion of which may be capitalized.

     Cash Flow from Financing Activities

     Cash provided by financing  activities was $4.9 million in 2004 compared to
cash used of $6.8  million in 2003.  During  2004,  Foamex L.P.  utilized  $18.8
million of increased revolving credit borrowings to reduce its long-term debt by
$10.9 million and to satisfy working capital  requirements.  During 2003, Foamex
L.P.  utilized $130.0 million of proceeds from new term loans and an increase in
revolving  credit  borrowings of $44.2  million to repay $162.2  million of term
loans under its former Amended Credit  Facility and to pay $11.9 million of debt
issuance costs.

     Contractual Obligations

     Our  contractual  obligations  as of  January  2,  2005  are  shown  in the
following table:



                                       21
<PAGE>





<TABLE>
<CAPTION>
                                                          Payment due by Period
                                      ----------------------------------------------------------------------
Contractual Obligations                Total        2005        2006-07          2008-09     2010 and beyond
-----------------------               --------    --------     ---------        ---------    ---------------
                                                              (dollars in millions)
Long-Term Debt, including
<S>                                   <C>          <C>         <C>    <C>        <C>            <C>
   Capital Leases                     $  740.1     $ 60.4      $293.7 (1)        $380.0         $  6.0
Interest (2)                             296.7       79.4       143.0              73.8            0.5
Operating Leases                          71.4       16.2        22.1              14.2           18.9
Purchase Obligations (3)                 688.4      232.0       190.9             177.0           88.5
Restructuring Liabilities                  7.4        1.8         1.9               1.6            2.1
Employee Benefits and Other (4)
                                      --------     ------      ------            ------         ------
Total Contractual Obligations (5)     $1,804.0     $389.8      $651.6            $646.6         $116.0
                                      ========     ======      ======            ======         ======
</TABLE>

     (1)  Includes $114.9 million of revolving credit borrowings due in 2007 but
          classified as current in the consolidated balance sheet to comply with
          EITF 95-22. See Note 7 to the consolidated financial statements.

     (2)  Includes interest  applicable to borrowings  outstanding at January 2,
          2005  computed  using  interest  rates in effect as of January 2, 2005
          through the due dates of the  borrowings as defined by the  applicable
          financing agreements plus interest on replacement  financing after the
          13 1/2% Senior Subordinated Notes are repaid at maturity on August 15,
          2005.

     (3)  Includes outstanding purchase orders and other commitments to purchase
          minimum quantities of materials or services.

     (4)  We also have obligations to provide employee benefits  including those
          under our defined benefit and defined  contribution  retirement  plans
          and  our  medical   benefit  plan.  In  addition,   we  are  partially
          self-insured  for a number of risks including  workers'  compensation,
          automobile and general liability.  Due to the many variables involved,
          accurate  estimates of these  future  obligations  cannot be made.  In
          2004,  payments for these obligations  aggregated  approximately $37.7
          million.

     (5)  Comprised of the following:

             Liabilities recorded on the balance sheet            $  760.6
             Commitments not recorded on the balance sheet         1,043.4
                                                                  --------
                                                                  $1,804.0

RESULTS OF OPERATIONS

<TABLE>
<CAPTION>
                                                  Carpet
                                     Foam         Cushion       Automotive     Technical
                                   Products       Products       Products       Products        Other         Total
                                   --------       --------      ----------     ---------      ---------    ----------
2004                                                        (dollars in thousands)
<S>                                <C>            <C>            <C>            <C>           <C>          <C>
Net sales                          $551,414       $209,182       $350,985       $124,146      $ 30,667     $1,266,394
Income (loss) from operations      $ 52,418       $  8,539       $ 19,245       $ 32,916      $(62,516)    $   50,602
Depreciation and amortization      $ 10,213       $  2,978       $  3,116       $  2,801      $  6,825     $   25,933
Income (loss) from operations
   as a percentage of net sales         9.5%           4.1%           5.5%          26.5%       n.m.(a)           4.0%

2003
Net sales                          $507,586       $208,855       $447,068       $117,450      $ 23,601     $1,304,560
Income (loss) from operations      $ 43,983       $  5,395       $ 33,399       $ 32,115      $(52,031)    $   62,861
Depreciation and amortization      $ 11,002       $  3,275       $  2,815       $  2,931      $  6,022     $   26,045
Income (loss) from operations
   as a percentage of net sales         8.7%           2.6%           7.5%          27.3%       n.m.(a)           4.8%

</TABLE>



                                       22
<PAGE>

<TABLE>
<CAPTION>
                                                  Carpet
                                     Foam         Cushion       Automotive     Technical
                                   Products       Products       Products       Products        Other         Total
                                   --------       --------      ----------     ---------      ---------    ----------
2002                                                        (dollars in thousands)
<S>                                <C>            <C>            <C>            <C>           <C>          <C>
Net sales                          $471,005       $234,001       $466,718       $124,124      $ 32,246     $1,328,094
Income (loss) from operations      $ 45,466       $  1,239       $ 34,146       $ 35,185      $(71,877)    $   44,159
Depreciation and amortization      $ 13,632       $  5,904       $  3,721       $  2,815      $  5,520     $   31,592
Income (loss) from operations
   as a percentage of net sales         9.7%           0.5%           7.3%          28.3%       n.m.(a)           3.3%
</TABLE>

(a) Not meaningful.

     Business  segment results include  revenues and costs that are specifically
identifiable and costs shared by business  segments have been allocated based on
utilization.

2004 Compared to 2003

     Net sales for 2004 decreased 3% to $1,266.4  million from $1,304.6  million
in 2003. The decrease was primarily  attributable  to a $96.1 million decline in
net sales in the  Automotive  Products  segment due to lower  volume,  including
sourcing actions by major customers, partially offset by higher net sales in the
Foam Products and Technical Products segments.

     Gross profit was $141.8 million, or 11.2% of net sales, in 2004 compared to
$143.7 million, or 11.0% of net sales, in 2003. Gross profit margin has improved
primarily due to profit  improvements  as a result of better product mix in Foam
Products and lower costs in Carpet Cushion  Products,  partially offset by lower
volume in the Automotive Products segment. However, gross profit margin declined
in the last six months of 2004 and in the fourth  quarter was 8.7%. We were only
partially able to recover raw material cost increases during 2004.

     Income from  operations for 2004 was $50.6  million,  or 4.0% of net sales,
which  represented a 20% decrease from the $62.9 million,  or 4.8% of net sales,
reported  during 2003.  A decline of $14.2  million in the  Automotive  Products
segment more than offset  increases in the other  operating  segments.  Selling,
general and administrative  expenses  increased $5.4 million,  or 7% principally
due to a $3.0  million  net  charge to bad debt  expense  following  a  customer
bankruptcy,  litigation related costs and higher professional fees primarily for
information  technology  and the cost of our  efforts  under  Section 404 of the
Sarbanes-Oxley  Act,  partially offset by lower corporate  expenses and employee
costs as a result of the closing of our New York City  office.  Results  include
net restructuring  charges of $3.2 million in 2004 and net restructuring credits
of $1.8 million in 2003. Restructuring items are discussed below.

     Foam Products

     Foam Products net sales for 2004 increased 9% to $551.4 million from $507.6
million in 2003  primarily  due to higher  volumes of  value-added  products and
higher selling prices.  Income from operations increased 19% to $52.4 million in
2004 from $44.0  million in 2003 as a result of  improved  volume mix and higher
selling  prices  partially  offset by higher raw  material  costs.  Income  from
operations was 9.5% of net sales in 2004 and 8.7% of net sales in 2003.

     Carpet Cushion Products

     Carpet  Cushion  Products  net  sales  for  2004  of  $209.2  million  were
essentially  flat compared to 2003.  Income from  operations was $8.5 million in
2004  compared to $5.4 million in 2003 with the increase due  primarily to lower
material and operating  costs.  Income from  operations was 4.1% of net sales in
2004 and 2.6% of net sales in 2003.

     Automotive Products

     Automotive Products net sales for 2004 decreased 21% to $351.0 million from
$447.1  million in 2003  principally  as a result of lower volumes from sourcing
actions by major customers including a decrease in sales of $54.4 million to our
largest customer. Income from operations decreased 42% to $19.2 million compared
to $33.4


                                       23
<PAGE>


million in 2003 primarily due to lower sales volume and higher per unit
labor and overhead  costs.  Income from operations was 5.5% of net sales in 2004
and 7.5% of net sales in 2003.  We expect that sales will  increase  during 2005
but may be substantially less than in 2003.

     Technical Products

     Net sales for  Technical  Products in 2004  increased 6% to $124.1  million
from $117.5  million in 2003 primarily due to higher unit volume and new product
introductions.  Income from  operations  increased  2% to $32.9  million in 2004
compared to $32.1 million in 2003 primarily due to new product introductions and
slightly higher overall pricing partially offset by higher selling,  general and
administrative  expenses.  Income from operations was 26.5% of net sales in 2004
and 27.3% of net sales in 2003.

     Other

     Other  primarily   consists  of  certain   manufacturing   and  fabrication
operations in Mexico City, corporate expenses not allocated to business segments
and restructuring  charges (credits).  The increase in net sales associated with
this segment resulted from our Mexico City operations.  The loss from operations
was $62.5  million  in 2004 and $52.0  million  in 2003 and  reflects  generally
higher  corporate  expenses in 2004 and includes  restructuring,  impairment and
other  charges of $3.2  million,  discussed  below.  During  2003,  we  recorded
restructuring credits of $1.8 million.

     Restructuring, Impairment and Other Charges

     In 2004, we recorded  restructuring,  impairment  and other charges of $3.2
million,  primarily  consisting of a $1.7 million  charge related to lease costs
and asset write offs in  connection  with the closing of our New York office,  a
$0.7 million charge related to the realignment of our automotive  operations and
an impairment charge of $0.6 million for an idle facility.

     In 2003, we recorded  restructuring credits of $1.8 million consisting of a
$3.2 million reduction in the liability  primarily for severance and termination
benefits no longer required as the actions  contemplated under the related plans
have been substantially  completed,  and a charge of $1.1 million for additional
lease  termination  costs for a closed  facility  as a result of changes in real
estate market conditions. Additionally, we recorded a $0.3 million restructuring
charge reported in the Other segment as a result of an employee termination plan
for approximately 300 employees at our Mexico City operations. The actions under
this plan were substantially completed in 2003.

     Interest and Debt Issuance Expense

     Interest  and debt  issuance  expense  was  $76.7  million  in 2004,  which
represented a 13% decrease from 2003 expense of $88.4  million.  The decrease is
primarily due to lower  amortization  of debt issuance  costs,  which included a
write off of $12.9 million in 2003 associated with the refinancing of our credit
facilities.

     Income from Equity Interest in Joint Ventures

     The income  from an equity  interest  in an Asian  joint  venture  was $0.5
million in 2004 and $1.2  million in 2003.  Income from an equity  interest in a
joint  venture in Eastern  Europe was $0.2  million in 2004 and $0.3  million in
2003.

     Other Income (Expenses), Net

     Other  expense,  net was $0.2  million in 2004  compared to $3.4 million in
2003. The 2004 period includes  foreign currency  transaction  losses related to
operations  in Mexico and Canada of $0.6  million  compared  to $2.7  million in
2003. Also included in 2004 were gains of $1.0 million on asset disposals.


                                       24
<PAGE>


     Provision (Benefit) for Income Taxes

     During 2004, we established a valuation allowance of $128.6 million for our
U.S.  deferred tax assets. As a result of our evaluation of the realizability of
our deferred  tax assets  conducted in  accordance  with  Statement of Financial
Accounting Standards No. 109, "Accounting for Income Taxes" ("SFAS No. 109"), we
have  determined  that it is not  likely  that  we  will  be  able  to  generate
sufficient  amounts of future U.S.  taxable  income to utilize our net operating
loss  carryforwards  and realize other deferred tax assets.  The  uncertainty of
recent   economic   conditions,   including  the  escalating  cost  of  chemical
feedstocks,  in part due to increases  in crude oil prices and their  volatility
combined  with our limited near term  ability to timely  recover  material  cost
increases  from our customers,  have  adversely  impacted our forecast of future
U.S.  taxable  income.  Net U.S.  deferred tax assets  generated since the third
quarter of 2004 have been subject to a full valuation allowance.

     In accordance  with SFAS No. 109, we will continue to test the  realization
of our U.S. net operating loss  carryforwards and other deferred tax assets. Our
assessment will include an analysis of both positive and negative  objective and
subjective evidence such as our recent performance, market conditions and prices
of our major chemical raw materials and the levels of our future  profitability.
If, as a result of this assessment,  there is sufficient  positive evidence such
that it is more likely than not that we will realize the benefit of our deferred
tax assets we may reduce a portion or all of our  valuation  allowance in future
periods.

     The  effective  tax  benefit  rate was 21.8% for 2003 and  included  a $3.1
million  provision that reduced the effective tax benefit rate. The $3.1 million
of tax expense was related to the Foamex L.P. Senior Secured Credit Facility and
the  collateral  provisions  that  pledged  the  stock of  Foamex  Canada.  This
collateral  pledge under the U.S.  Internal  Revenue  Code  resulted in a deemed
distribution of accumulated earnings, as defined, of Foamex Canada.  Because the
Company will not be able to utilize any Canadian tax credits associated with the
deemed  distribution,  the full amount of the  distribution  was subject to U.S.
taxation and  resulted in a reduction  in the amount of the U.S.  net  operating
loss carryforwards available.

2003 Compared to 2002

     Net sales for 2003 decreased 2% to $1,304.6  million from $1,328.1  million
in 2002.  An  increase  in Foam  Products  net sales  were  more than  offset by
decreases in the other  segments.  Selling price  increases in all segments were
more than  offset,  in the  aggregate,  by  reductions  in  volume.  The  volume
reductions were primarily due to the requirement to increase  selling prices and
plant closures as we shifted away from unprofitable business.

     Gross  profit was $143.7  million,  or 11.0%,  in 2003  compared  to $143.7
million,  or 10.8%,  in 2002.  Gross profit margin has improved  throughout 2003
from the depressed levels experienced in the second half of 2002 as we have been
successful at recovering some of the raw material cost increases  experienced in
the second half of 2002 and we have realized manufacturing cost savings.

     Income from  operations for 2003 was $62.9  million,  or 4.8% of net sales,
which  represented a 42% increase from the $44.2 million,  or 3.3% of net sales,
reported for 2002. Selling,  general and administrative expenses decreased $12.2
million, or 13%, due primarily to lower employee costs and professional fees. In
2002,  we incurred  $4.9  million of  organizational  and  transaction  costs in
connection  with  a  proposed  public  offering  of  a  subsidiary,   which  was
subsequently  terminated,  and a proposed  sale of the Carpet  Cushion  Products
segment.  Restructuring,  impairment and other credits discussed below were $1.8
million in 2003, while we recorded  restructuring,  impairment and other charges
of $4.8 million in 2002.

     Foam Products

     Foam Products net sales for 2003 increased 8% to $507.6 million from $471.0
million in 2002  primarily  due to increases in selling  prices to customers and
increased volumes of consumer products,  partially offset by decreases in volume
in other markets.  Income from operations decreased 3%, to $44.0 million in 2003
from  $45.5  million  in 2002,  primarily  due to  increases  in the cost of raw
materials. Income from operations was 8.7% of net sales in 2003, and 9.7% of net
sales in 2002.


                                       25
<PAGE>


     Carpet Cushion Products

     Carpet Cushion  Products net sales for 2003 decreased 11% to $208.9 million
from $234.0 million in 2002. Average selling prices increased but were more than
offset by an  approximate  16% decline in volumes,  as we closed  several carpet
cushion  facilities in 2002 and 2003 to focus this  business on more  profitable
markets.  Income from operations  increased $4.2 million, or 335%, primarily due
to cost  containment  from the  streamlining  of operations  and higher  selling
prices. Income from operations represented 2.6% of net sales in 2003 and 0.5% of
net sales in 2002.

     Automotive Products

     Automotive  Products net sales for 2003 decreased 4% to $447.1 million from
$466.7 million in 2002.  Sales declined  throughout the second half of 2003 as a
major  customer  decreased its  purchases  from us in an effort to diversify its
supplier  base.  While  some of this  business  has been  recovered  from  other
customers, automotive products net sales were just over $100 million per quarter
in the second half of 2003,  which is an annual rate of more than $60.0  million
less than the 2002 net sales. For the full year 2003, volumes were down about 1%
and average  selling  prices were down about 3% due to lower fabric costs passed
on to customers.  Income from operations  decreased $0.7 million,  or 2%, as the
lower sales were partially offset by lower manufacturing costs, resulting from a
plant  closure  in early 2003 and labor and  overhead  reductions.  Income  from
operations represented 7.5% of net sales in 2003 and 7.3% of net sales in 2002.

     Technical Products

     Net sales for  Technical  Products in 2003  decreased 5% to $117.5  million
from  $124.1  million  in 2002  primarily  due to a  decrease  in  volume  of 9%
partially  offset  by  an  increase  in  average  selling  prices.  Income  from
operations  decreased 9% to $32.1  million in 2003  compared to $35.2 million in
2002 due to higher raw  material  and  overhead  costs.  Income from  operations
represented 27.3% of net sales in 2003 and 28.3% of net sales in 2002.

     Other

     Other  primarily  consists of certain  manufacturing  operations  in Mexico
City,  corporate  expenses not allocated to business segments and restructuring,
impairment and other charges.  The $8.6 million,  or 27%,  decrease in net sales
associated with this segment  primarily  resulted from the Mexico City operation
and was primarily due to a decline in the consumer products  business.  The loss
from operations was $52.0 million in 2003 and included restructuring, impairment
and other credits of $1.8 million,  discussed below. The loss from operations in
2002 was $71.9 million, including restructuring, impairment and other charges of
$4.8 million,  discussed below.  Corporate  overhead expenses and employee costs
decreased $6.7 million in 2003 compared to 2002.

     Restructuring, Impairment and Other Charges

     In 2003, we recorded  restructuring credits of $1.8 million consisting of a
$3.2 million reduction in the liability  primarily for severance and termination
benefits no longer required as the actions  contemplated under the related plans
have been substantially  completed,  and a charge of $1.1 million for additional
lease  termination  costs for a closed  facility  as a result of changes in real
estate market conditions. Additionally, we recorded a $0.3 million restructuring
charge reported in the Other segment as a result of an employee termination plan
for approximately 300 employees at our Mexico City operations. The actions under
this plan were substantially completed in 2003.

     In 2002,  we recorded net  restructuring,  impairment  and other charges of
$4.8 million.  Fourth quarter  charges of $10.0 million  included  severance and
other  termination  benefits for  approximately 200 employees and exit costs and
remaining  lease  payments  related  to  the  reorganization  of  executive  and
corporate management and the closure of six operations.  Approximately 60 of the
planned terminations  occurred during 2002 with the remainder occurring in 2003.
The charges also  included  $2.5  million of asset  impairments,  primarily  for
leasehold  improvements  and  machinery  and  equipment  in the  Carpet  Cushion
Products  segment.  Earlier in 2002, we recorded  restructuring,  impairment and
other credits of $5.2 million including a reversal of approximately $3.7 million
from the reevaluation of the 2001 Operational  Reorganization Plan.


                                       26
<PAGE>



Interest and Debt Issuance Expense

     Interest  and debt  issuance  expense  was  $88.4  million  in 2003,  which
represented a 27% increase from 2002 expense of $69.7 million. The 2003 and 2002
periods  include  charges  of  $12.9  million  and $4.9  million,  respectively,
relating  to the  write  off  of  debt  issuance  costs  as a  result  of  early
extinguishment  of debt. Higher average debt levels,  higher effective  interest
rates and higher  amortization  of debt issuance  costs all  contributed  to the
increase in 2003.

     Income from Equity Interest in Joint Ventures

     The income  from an equity  interest  in an Asian  joint  venture  was $1.2
million in 2003 and $1.6  million in 2002.  Income from an equity  interest in a
joint  venture in Eastern  Europe was $0.3  million in 2003 and $0.1  million in
2002.

     Other Income (Expenses), Net

     Other  expense,  net was $3.4  million in 2003  compared to $2.1 million in
2002. We incurred  foreign currency  transaction  losses of $2.7 million in 2003
compared to foreign currency transaction losses of $2.3 million in 2002.

     Benefit for Income Taxes

     The  effective  tax  benefit  rate was 21.8% for 2003.  The  effective  tax
benefit  rate for 2003,  included  $3.1  million of tax  expense  related to the
Foamex L.P.  Senior Secured Credit  Facility and the collateral  provisions that
pledged  the stock of  Foamex  Canada.  This  collateral  pledge  under the U.S.
Internal Revenue Code resulted in a deemed distribution of accumulated earnings,
as  defined,  of  Foamex  Canada.  Because  we will not be able to  utilize  any
Canadian tax credits associated with the deemed distribution, the full amount of
the distribution was subject to U.S. taxation and resulted in a reduction in the
amount of the U.S. net  operating  loss  carryforwards  available.  Without this
adjustment,  the  effective  tax  benefit  rate  would have been 33.1% for 2003.
Effective tax rates are impacted by annual income from equity in joint ventures,
which is considered to be  permanently  invested.  Accordingly,  no deferred tax
liabilities are recognized on such income.

     During 2002, we determined that, based on the weight of available evidence,
including improved financial results for the rolling three years ended March 31,
2002,  reduced  NOL  carryforward  utilization  limitations  based  on an  asset
appraisal  report received in the quarter ended June 30, 2002,  projected future
taxable income, and tax planning strategies  initiated in the two quarters ended
June 30,  2002,  it was more likely than not that  substantially  all of our net
deferred tax assets  would be realized in the future.  Accordingly  in 2002,  we
reversed  a  previously  recorded  valuation  allowance  of $99.3  million.  The
adjustment  increased  net  income  for 2002 by  $77.3  million,  and  decreased
goodwill by $12.4 million and other comprehensive loss by $9.6 million.

     We had net  deferred  income tax assets  aggregating  $123.3  million as of
December  28,  2003  that  primarily  represented  the  benefit  of  future  tax
deductions  and net  operating  loss  carryforwards  available to offset  future
taxable  income in the U.S. In order to realize these  assets,  we must generate
sufficient taxable income to offset our U.S. net operating loss carryforwards of
approximately  $267.3  million at December 28, 2003  expiring from 2010 to 2023.
Approximately $111.5 million of the net operating loss carryforwards, related to
$39.0 million of deferred tax assets,  expire in the years 2010 to 2012 with the
remainder  principally  expiring in the 2018-2023 period. Our actual results for
2002 were  essentially  similar to the results we projected when we reversed the
valuation  allowance in 2002, as discussed above. Our projections as of December
29, 2002  included  tax losses for 2003 and 2004 that can be carried  forward to
2023 and 2024.  Our  actual  results  for 2003 were  essentially  similar to our
projection.  Our projections as of December 28, 2003 included a tax loss in 2004
that can be carried forward to 2024. We have had an ownership  change as defined
in IRC Section  382 and  accordingly,  we are  limited  (on an annual  basis) to
approximately $21.0 million of operating loss carryforward utilization.


                                       27
<PAGE>



     As  discussed  in  the  2004  compared  to  2003  section  above,  we  have
established a valuation  allowance of $128.6 million in 2004 for all of our U.S.
deferred tax assets.  We will continue to evaluate the realizability of deferred
tax assets on an annual and quarterly basis or if there is a significant  change
in circumstances that may cause a change in our judgment about  realizability of
deferred tax assets.

     Cumulative Effect of Accounting Changes

     The  cumulative  effect of  accounting  changes in 2002 includes a goodwill
impairment  charge of $72.0  million as a result of the adoption of SFAS No. 142
and the write off of a $1.3 million  unamortized  deferred credit as a result of
the adoption of Statement of Financial  Accounting  Standards No. 141, "Business
Combinations" ("SFAS No. 141").

OTHER

Environmental Health and Safety

     We are subject to extensive and changing federal,  state, local and foreign
environmental  laws  and  regulations,  including  those  relating  to the  use,
handling, storage, discharge and disposal of hazardous substances, the discharge
or  emission  of  materials  into  the  environment,   and  the  remediation  of
environmental contamination,  and as a result, are from time to time involved in
administrative and judicial  proceedings and inquiries relating to environmental
matters.  As of January 2, 2005, we had accruals of  approximately  $2.0 million
for  environmental  matters  including  approximately  $1.7  million  related to
remediating and monitoring soil and groundwater  contamination and approximately
$0.3 million  relating to sites where we had been designated as a PRP by the EPA
or a state authority and other matters.  Additional losses, if any, in excess of
amounts currently accrued, cannot be reasonably estimated at this time. If there
are additional matters or if any current estimates are incorrect, there could be
a material adverse effect on our financial  position,  results of operations and
cash flows.

     On  August  31,  2002,   Environment  Canada,  the  Canadian  environmental
regulatory  agency,  finalized a rule which requires flexible  polyurethane foam
manufacturing  operations to reduce  methylene  chloride  (dichloromethane)  air
emissions.  The  rule  established  a  50.0%  reduction  in  methylene  chloride
emissions by December 1, 2004 and 100.0%  reductions  by January 1, 2007.  We do
not believe this standard will require us to make material  expenditures for our
Canadian plants.

     We have reported to the appropriate  state  authorities  that we have found
soil and/or  groundwater  contamination  in excess of state standards at certain
locations.  Seven sites are  currently  in various  stages of  investigation  or
remediation. Accordingly, the extent of contamination and the ultimate liability
is not known with certainty for all sites.

     We have either  upgraded  or closed all  underground  storage  tanks at our
facilities in accordance with applicable regulations.

     The CERCLA and comparable state laws impose liability without fault for the
costs of  cleaning  up  contaminated  sites on certain  classes of persons  that
contributed to the release of hazardous substances into the environment at those
sites, for example, by generating wastes containing  hazardous  substances which
were disposed at such sites. We are currently  designated as a PRP by the EPA or
by state  environmental  agencies or other PRPs, pursuant to CERCLA or analogous
state statutes,  with respect to 12 sites.  Estimates of total cleanup costs and
fractional  allocations  of liability  are often  provided by the EPA, the state
environmental  agency or the  committee  of PRPs with  respect to the  specified
site.  Based  on  these  estimates  (to  the  extent  available)  and  on  known
information,  in each case and in the  aggregate,  we do not  expect  additional
costs,  if any,  to be  material  to our  results of  operations,  cash flows or
financial position.

     Although it is possible that new information or future  developments  could
require  us  to  reassess  the  potential   exposure  relating  to  all  pending
environmental  matters,  including those described  above,  management  believes
that, based upon all currently  available  information,  the resolution of these
environmental matters will not have a material adverse effect on our operations,
financial  position,   capital   expenditures  or  competitive   position.   The
possibility


                                       28
<PAGE>


exists,  however,  that  new  environmental   legislation  and/or  environmental
regulations may be adopted,  or other  environmental  conditions,  including the
presence of  previously  unknown  environmental  contamination,  may be found to
exist or a  reassessment  of the  potential  exposure  to pending  environmental
matters may be necessary due to new information or future developments, that may
require expenditures not currently anticipated and that may be material.

Claims and Litigation

     We and our  subsidiaries are party to various  lawsuits,  both as defendant
and  plaintiff,  arising in the normal course of business.  It is the opinion of
management that the  disposition of these lawsuits will not,  individually or in
the aggregate, have a material adverse effect on our financial position, results
of  operations or cash flows.  If  management's  assessment  is incorrect,  such
actions  could  have a material  adverse  effect on our  consolidated  financial
position,  results of operations  and cash flows.  As of January 2, 2005, we had
accrued  approximately  $1.1  million  for  litigation,  claims and other  legal
matters in addition to the environmental matters discussed above.

Inflation, Raw Material Costs and Other Matters

     On  average,  inflation  rates  for the  domestic  economy  continue  to be
relatively low. Although long-term  inflation rates are difficult to predict, we
believe we have the flexibility in operations and capital  structure to maintain
a competitive position.  The prices of the two principal chemicals used by us in
manufacturing,  TDI and  polyol,  are  influenced  by demand  and  manufacturing
capacity. In addition, the prices of TDI and polyol are significantly influenced
by  crude  oil  production  and  prices  and  by  world  political  instability,
particularly in the Middle East. Results for 2004, 2003 and 2002 were negatively
impacted by higher average costs for raw materials.  We experienced  significant
increases in the prices of raw material from major chemical manufacturers during
2004 and 2002. We sought to recover these cost increases  through  manufacturing
process  efficiencies  and  selling  price  increases,  but were only  partially
successful.  We may not be  successful  in  implementing  further  selling price
increases to fully recover raw material cost increases and  competitive  pricing
pressure  may require us to adjust  selling  prices or lose  volume.  Results of
operations have been and could be adversely  affected by delays in implementing,
or inability to  implement,  additional  selling  price  increases to offset raw
material  cost  increases.  Additionally,  we must  reduce and control our other
operating and corporate expenses  including selling,  general and administrative
expenses  to offset raw  material  cost  increases.  A failure  to recover  cost
increases  could result in debt  covenant  violations  which may lead to lenders
demanding  immediate  payment of our outstanding  debt and impair our ability to
continue as a going concern.

ITEM 7a.  QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

     Our debt securities with variable interest rates are subject to market risk
for changes in interest  rates. On January 2, 2005,  indebtedness  with variable
interest rates totaled $239.3 million.  On an annualized  basis, if the interest
rates on these  debt  instruments  increased  by 1.0%,  interest  expense  would
increase by approximately $2.4 million.

     The  two  principal   chemicals  used  in  the  manufacturing  of  flexible
polyurethane  foam  are  TDI and  polyol.  The  prices  of TDI  and  polyol  are
influenced by demand,  manufacturing capacity and oil and natural gas prices. We
attempt to offset raw material price  increases  through selling price increases
and manufacturing process efficiencies.

ITEM 8.  FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

     An index to the financial  statements and financial  statement schedules is
included in Item 15.

ITEM 9.  CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
           FINANCIAL DISCLOSURE

     We changed accountants during 2004. Detailed  information  required by this
item was  included in Current  Reports on Form 8-K and Form 8-K/A filed with the
Securities and Exchange Commission on April 2, 2004 and April 12, 2004.


                                       29
<PAGE>


ITEM 9a.  CONTROLS AND PROCEDURES

     Evaluation of Disclosure Controls and Procedures

     Our management,  with the  participation of our Chief Executive Officer and
Chief Financial Officer,  evaluated the effectiveness of our disclosure controls
and  procedures  as of the end of the period  covered by this report.  The Chief
Executive  Officer  and  Chief  Financial  Officer  concluded  that,  due to the
material  weaknesses  described below, our disclosure controls and procedures as
of the end of the period  covered by this report were not  effective  to provide
reasonable  assurance  that the  information  required to be  disclosed by us in
reports  filed  under  the  Securities  Exchange  Act of 1934  is (i)  recorded,
processed,  summarized  and reported  within the time  periods  specified in the
SEC's rules and forms and (ii)  accumulated and  communicated to our management,
including  the  Chief  Executive  Officer  and  Chief  Financial   Officer,   as
appropriate to allow timely decisions  regarding  disclosure.  A controls system
cannot provide absolute assurance that the objectives of the controls system are
met, and no  evaluation  of controls  can provide  absolute  assurance  that all
control  issues,  errors and instances of fraud,  if any,  within a company have
been detected.

     Management's Annual Report on Internal Control Over Financial Reporting

     We are  responsible for  establishing  and  maintaining  adequate  internal
control over financial  reporting as defined under Exchange Act Rules  13a-15(f)
and 15d-15(f).  Internal control over financial  reporting is a process designed
to provide reasonable assurance regarding the reliability of financial reporting
and the preparation of financial  statements for external purposes in accordance
with generally accepted accounting principles. A company's internal control over
financial  reporting  includes those policies and procedures that pertain to the
maintenance of records that, in reasonable detail, accurately and fairly reflect
the  transactions  and  dispositions  of  the  assets  of the  company;  provide
reasonable  assurance  that  transactions  are  recorded as  necessary to permit
preparation  of financial  statements  in  accordance  with  generally  accepted
accounting principles, and that the receipts and expenditures of the company are
being made only in accordance with authorizations of management and directors of
the company;  and provide reasonable  assurance  regarding  prevention or timely
detection of  unauthorized  acquisition,  use, or  disposition  of the company's
assets that could have a material effect on the financial statements.

     Because of its  inherent  limitations,  internal  controls  over  financial
reporting  may not prevent or detect  misstatements.  Also,  projections  of any
evaluation  of  effectiveness  to future  periods  are  subject to the risk that
controls may become  inadequate  because of changes in  conditions,  or that the
degree of compliance with the policies or procedures may deteriorate.

     We have not completed management's  assessment of the internal control over
financial  reporting  required by Section 404 of the  Sarbanes-Oxley Act of 2002
and we will avail  ourselves  of the 45-day  exemptive  order to  complete  such
assessment as provided by SEC Release No. 34-50754.  Therefore,  as permitted by
the SEC exemptive order, we have not included in this Annual Report on Form 10-K
management's  annual report on internal control over financial  reporting or the
related attestation report of our independent registered public accounting firm.
However, we have identified two material weaknesses in our internal control over
financial  reporting  as of January 2,  2005.  As defined by the Public  Company
Accounting  Oversight  Board  ("PCAOB")  in Auditing  Standard No. 2, a material
weakness  is  a  significant   deficiency,   or   combination   of   significant
deficiencies,  that  results  in more than a remote  likelihood  that a material
misstatement of the annual or interim financial statements will not be prevented
or detected.  Because we have identified two material weaknesses, we will not be
able to conclude in our  management's  annual  report on internal  control  over
financial  reporting  that our  internal  control  over  financial  reporting is
effective.

     The identification of the material weaknesses is based on findings to date.
Due to the incomplete  status of management's  assessment,  we cannot be certain
that additional  material  weaknesses will not be identified prior to the filing
of management's annual report on internal control over financial reporting.

     The  first  identified  material  weakness  in our  internal  control  over
financial  reporting related to our accounting for labor and overhead  variances
to our  standard  costs,  which  should be  included  in our work in process and
finished  goods  inventories.  The material  weakness  could have  resulted in a
material  misstatement  of the carrying  value of our  inventory.  Management is
addressing  the  material  weakness by revising the process to account for labor
and


                                       30
<PAGE>


overhead variances The other material weakness related to the restatement of the
third  quarter 2004  financial  statements  to correct an error in recording the
valuation allowance established in that period for deferred income tax assets. A
portion of the valuation  allowance,  which was previously  charged  directly to
stockholders' deficiency as a component of accumulated other comprehensive loss,
should have been included in the  provision for income taxes thereby  increasing
the net loss in the third  quarter  by $16.7  million,  but  having no impact on
total stockholders' deficiency.

     Changes in Internal Controls

     During the quarter we strengthened our internal controls over the following
areas.

     o    Information  Technology:  Segregation of Duties and Information System
          Users.  In the fourth  quarter of 2004 we  conducted a review of roles
          and responsibilities and user access within our information technology
          systems and identified certain users with  inappropriate  access. As a
          result,  we implemented  changes to tie user access to our information
          systems to user needs based on the roles and  responsibilities  of the
          user.  This  implementation  has  continued  into the first quarter of
          2005.  During the fourth  quarter we also  established a formal change
          management    process   to   ensure   that   when   employees   change
          responsibilities  or status their system access  requirements are also
          appropriately and promptly changed accordingly.

     o    Controls over Fixed Assets. The Company did not have adequate policies
          to address the process for taking fixed assets inventories. During the
          fourth   quarter,   we  implemented  a  policy  with  respect  to  the
          identification of potentially idle assets and the communication of the
          need to assess the  recoverability  of such assets to the  appropriate
          company personnel for resolution or disposition.

     o    One Time Transactions and Significant  Agreements.  During our review,
          it was determined  that the Company did not have adequate  controls in
          place to insure the proper accounting for certain non-recurring events
          and significant agreements.  This issue has been addressed, as we have
          implemented comprehensive review processes and procedures for one-time
          events and  significant  agreements to insure more robust  reviews and
          proper accounting.

     Other than as  described  above,  no change in our  internal  control  over
financial  reporting  occurred  during the most recent  fiscal  quarter that has
materially affected,  or is reasonably likely to materially affect, our internal
control over financial reporting.

ITEM 9b.  OTHER INFORMATION

       None

PART III

     The information  required by Part III (Items 10, 11, 12, 13 and 14) will be
included in a Proxy  Statement  to be filed no later than 120 days after the end
of the  fiscal  year  covered  by  this  Annual  Report  on  Form  10-K,  and is
incorporated herein by reference.


                                       31
<PAGE>

PART IV
ITEM 15.  EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K

(1)  Financial statements.

<TABLE>
<CAPTION>
       Foamex International Inc. and Subsidiaries:
<S>                                                                                                               <C>
         Reports of Independent Registered Public Accounting Firms                                              F-2
         Consolidated Balance Sheets as of January 2, 2005 and December 28, 2003                                F-4
        Consolidated Statements of Operations for the years ended January 2, 2005,
           December 28, 2003 and December 29, 2002                                                              F-6
        Consolidated Statements of Cash Flows for the years ended January 2, 2005,
           December 28, 2003 and December 29, 2002                                                              F-7
        Consolidated Statements of Stockholders' Deficiency for the years ended January 2, 2005,
           December 28, 2003 and December 29, 2002                                                              F-8
         Notes to Consolidated Financial Statements                                                             F-9

(2)  Foamex International Inc. and Subsidiaries Financial Statement Schedules:

         Schedule I - Condensed Financial Information of Registrant                                             S-2
         Schedule II - Valuation and Qualifying Accounts                                                        S-5
</TABLE>

(3)  Exhibits.

2.1(l)      -  Transfer Agreement, dated as of February 27, 1998, by and between
               Foam Funding LLC and Foamex L.P.
2.2(l)      -  Asset Purchase  Agreement,  dated as of February 27, 1998, by and
               among Foamex Carpet Cushion, Inc.   ("Foamex   Carpet"),   Foamex
               International  Inc.  ("Foamex  International"  or the "Company"),
               Foam  Funding LLC and General  Felt  Industries,  Inc.  ("General
               Felt").
3.1(a)      -  Certificate of Limited Partnership of Foamex L.P.
3.2.1(a)    -  Fourth Amended and Restated Agreement of Limited  Partnership  of
               Foamex L.P.,  dated as of December  14, 1993,  by and among FMXI,
               Inc.  and Trace Foam  Company,  Inc.,  as general  partners,  and
               Foamex International, Inc. as a limited partner (the "Partnership
               Agreement").
3.2.2(b)    -  First  Amendment  to  the  Partnership  Agreement, dated June 28,
               1994.
3.2.3(c)    -  Second  Amendment  to  the  Partnership Agreement, dated June 12,
               1997.
3.2.4(i)    -  Third  Amendment to the  Partnership  Agreement,  dated  December
               23, 1997.
3.2.5(l)    -  Fourth  Amendment to the  Partnership  Agreement,  dated February
               27, 1998.
3.2.6(r)    -  Fifth Amendment to the Partnership Agreement, dated March 26,
               2002.
3.3(j)      -  Certificate of Incorporation of FMXI.
3.4(j)      -  By-laws of FMXI.
3.5(e)      -  Certificate of Incorporation of Foamex Capital Corporation.
               Corporation.
3.6(e)      -  By-laws of Foamex Capital Corporation.
3.7.1(a)    -  Certificate of Incorporation of Foamex International.
3.7.1(g)    -  Amendment to Certificate of Incorporation of Foamex
               International.
3.8(a)      -  By-laws of Foamex International.
3.9(s)      -  Certificate of Incorporation of Foamex Asia, Inc.
3.10(s)     -  By-laws of Foamex Asia, Inc.
3.11(s)     -  Certificate of Incorporation of Foamex Latin America, Inc.
3.12(s)     -  By-laws of Foamex Latin America, Inc.
3.13(s)     -  Certificate of Incorporation of Foamex Mexico, Inc.
3.14(s)     -  By-laws of Foamex Mexico, Inc.
3.15(s)     -  Certificate of Incorporation of Foamex Mexico II, Inc.
               3.16(s) - By-laws of Foamex Mexico II, Inc.
4.1(c)      -  Indenture,  dated as of June 12, 1997,  by and among Foamex L.P.,
               FCC, the  subsidiary  guarantors  and  The  Bank of New York,  as
               trustee, relating  to  $150,000,000  principal  amount  of 9 7/8%
               Senior  Subordinated  Notes  due  2007,  including  the  form  of
               Senior Subordinated Note and Subsidiary Guarantee.


                                       32
<PAGE>


4.1.3(i)    -  First  Amendment  to Indenture,  dated  as  of December 23, 1997,
               between Foamex LLC and The Bank of New York, as trustee, relating
               to the 9 7/8% Senior Subordinated Notes due 2007.
4.1.3(l)    -  Second   Supplemental   Indenture,  dated   as  of  February  27,
               1998, among Foamex L.P. and Foamex Capital Corporation,  as joint
               and several  obligors,  General  Felt  Industries,  Inc.,  Foamex
               Fibers, Inc., and Foamex LLC, as withdrawing guarantors,  and The
               Bank of New  York,  as  trustee,  relating  to the 9 7/8%  Senior
               Subordinated Notes due 2007.
4.1.4(r)    -  Third  Supplemental  Indenture,  dated  as  of  March  25,  2002,
               between  Foamex  Carpet  Cushion LLC and The Bank of New York, as
               trustee,  relating  to the 9 7/8% Senior  Subordinated  Notes due
               2007.
4.2.3(r)    -  Second  Supplemental  Indenture,  dated  as  of  March  25, 2002,
               between  Foamex  Carpet  Cushion LLC and The Bank of New York, as
               trustee,  relating to the 13 1/2% Senior  Subordinated  Notes due
               2005.
4.3.1(i)    -  Indenture,  dated  as  of   December  23,  1997,  by  and   among
               Foamex  L.P.,   Foamex   Capital   Corporation,   the  subsidiary
               guarantors,  Crain Holdings Corp., as intermediate obligator, and
               The  Bank  of New  York,  as  trustee,  relating  to  $98,000,000
               principal amount of 13 1/2% Senior  Subordinated  Notes due 2005,
               including  the form of Senior  Subordinated  Note and  Subsidiary
               Guarantee.
4.3.1(l)    -  First   Supplemental   Indenture,  dated   as  of  February   27,
               1998, among Foamex L.P. and Foamex Capital Corporation,  as joint
               and several  obligors,  General  Felt  Industries,  Inc.,  Foamex
               Fibers,  Inc. and Foamex LLC, as  withdrawing  guarantors,  Crain
               Industries,  Inc., as withdrawing  intermediate  obligor, and The
               Bank of New York,  as  trustee,  relating  to the 13 1/2%  Senior
               Subordinated Notes due 2005.
4.3.1(r)    -  Indenture,  dated  as  of  March  25,  2002,  among  Foamex L.P.,
               Foamex Capital Corporation, the Guarantors party thereto and U.S.
               Bank  National  Association,  as trustee,  including  as exhibits
               thereto,  the form of note,  relating to  $300,000,000  principal
               amount of 10 3/4% Senior  Secured Notes due 2009,  including form
               of Senior Secured Note and Subsidiary Guaranty.
4.3.2(r)    -  Pledge and Security Agreement, dated as  of March 25, 2002,  made
               by   Foamex   L.P.   and   U.S.  Bank  National  Association,  as
               collateral agent.
4.3.3(r)    -  Patent Security Agreement, dated as of March 25, 2002, by  Foamex
               L.P.  in favor of U.S. Bank National Association,  as  collateral
               agent.
4.3.4(r)    -  Trademark  Security  Agreement,  dated  as  of March 25, 2002, by
               Foamex  L.P. in  favor  of  U.S.  Bank National  Association,  as
               collateral agent.
4.3.5(r)    -  Copyright  Security  Agreement,  dated  as  of March 25, 2002, by
               Foamex  L.P. in  favor  of U.S.  Bank National   Association,  as
               collateral agent.
4.3.6(r)    -  Registration  Rights  Agreement,  dated  as  of  March  25, 2002,
               among Foamex L.P.,  Foamex  Capital  Corporation,  the Guarantors
               party thereto and Credit Suisse First Boston Corporation, Salomon
               Smith Barney Inc., Scotia Capital (USA) Inc., Bear, Stearns & Co.
               Inc., and Jefferies & Company, Inc., as initial purchasers.
4.3.7(z)    -  Rights Agreement, dated as of  August  5,  2004,  between  Foamex
               International  Inc.  and Mellon  Investor  Services  LLC,  as the
               Rights Agent.
4.9.1(m)    -  Promissory Note, dated June 12, 1997, in the aggregate  principal
               amount of $5,000,000, executed by Trace Holdings to Foamex L.P.
4.9.2(m)    -  Promissory Note, dated June 12, 1997, in the aggregate  principal
               amount of $4,794,828, executed by Trace Holdings to Foamex L.P.
4.15.1(u)   -  Credit Agreement, dated  as  of  August  18,  2003,  among Foamex
               L.P.  as a Borrower  and  Guarantor,  Foamex  International Inc.,
               FMXI, Inc.,  Foamex  Canada  Inc.,  Foamex  Capital  Corporation,
               Foamex Latin America,  Inc.,  Foamex Mexico,  Inc., Foamex Mexico
               II, Inc.,  Foamex Asia,  Inc.  and Foamex  Carpet  Cushion LLC as
               Guarantors, the financial institutions party thereto from time to
               time as lenders and Bank of America,  N.A. as the  Administrative
               Agent.
4.15.2(u)   -  Pledge  and  Security  Agreement,  dated  as  of August 18, 2003,
               among Foamex L.P. and Bank  of America,  N.A.  as  Administrative
               Agent.
4.15.3(v)   -  Amendment  No.  1  to  Credit  Agreement,  dated  as  of December
               1, 2003,  among  Foamex  L.P.,  as Borrower,  the  affiliates  of
               Borrower  party hereto,  the lenders  party  hereto,  and Bank of
               America, N.A. as Administrative Agent.


                                       33
<PAGE>


4.15.4(y)   -  Amendment and Waiver No. 2 to Credit Agreement, dated  as of June
               15, 2004,  among  Foamex  L.P., as  Borrower,  the  affiliates of
               Borrower  party  hereto,  the  lenders party hereto,  and Bank of
               America, N.A. as Administrative Agent.
4.15.5(aa)  -  Amendment  No.  3  to  Credit  Agreement,  dated  as  of November
               3, 2004,  among  Foamex  L.P.,  as Borrower,  the  affiliates  of
               Borrower  party hereto,  the lenders  party  hereto,  and Bank of
               America, N.A. as Administrative Agent.
4.15.6(cc)  -  Waiver  to Credit  Agreement, dated as of March 15,  2005,  among
               Foamex  L.P.,  as  Borrower,  the  affiliates  of Borrower  party
               hereto,  the lenders party hereto,  and Bank of America,  N.A. as
               Administrative Agent.
4.15.7*     -  Amendment No. 4  to Credit Agreement, dated as of March 31, 2005,
               among Foamex L.P., as Borrower, the affiliates of Borrower  party
               hereto,  the lenders party hereto,  and Bank of America,  N.A. as
               Administrative Agent.
4.16.1(u)   -  Credit Agreement, dated as of August 18, 2003, among  Foamex L.P.
               as a Borrower and Guarantor,  Foamex  International  Inc.,  FMXI,
               Inc.,  Foamex Canada Inc.,  Foamex  Capital  Corporation,  Foamex
               Latin America, Inc., Foamex Mexico, Inc., Foamex Mexico II, Inc.,
               Foamex Asia,  Inc. and Foamex Carpet  Cushion LLC as  Guarantors,
               the  financial  institutions  party  thereto from time to time as
               lenders  and  Silver  Point  Finance,  LLC as the  Administrative
               Agent.
4.16.2(u)   -  Pledge and Security Agreement, dated as of August 18, 2003, among
               Foamex  L.P.  and  Silver  Point  Finance,  LLC as Administrative
               Agent.
4.16.3(v)   -  Amendment  No.  1  to  Credit  Agreement, dated as of December 1,
               2003, among Foamex L.P., as Borrower,  the affiliates of Borrower
               party hereto, the lenders party hereto, and Silver Point Finance,
               LLC as Administrative Agent.
4.16.4(y)   -  Amendment  No.  2 to Credit Agreement, dated as of June 15, 2004,
               among Foamex L.P., as Borrower,  the affiliates of Borrower party
               hereto, the lenders party hereto,  and Silver Point Finance,  LLC
               as Administrative Agent.
4.16.5(aa)  -  Amendment  No. 3  to  Credit  Agreement, dated  as of November 3,
               2004,  among  Foamex  L.P.,  as  Borrower,  the   affiliates   of
               Borrower party hereto, the lenders party hereto, and Silver Point
               Finance, LLC as Administrative Agent.
4.16.6(cc)  -  Waiver  to  Credit  Agreement,  dated as of March 15, 2005, among
               Foamex  L.P.,  as  Borrower,  the  affiliates  of Borrower  party
               hereto, the lenders party hereto,  and Silver Point Finance,  LLC
               as Administrative Agent.
4.16.7*     -  Amendment No. 4 to Credit Agreement, dated a s of March 31, 2005,
               among Foamex L.P., as Borrower,  the affiliates of Borrower party
               hereto, the lenders party hereto,  and Silver Point Finance,  LLC
               as Administrative Agent.
4.17.1(u)   -  Intercreditor Agreement, dated as of August 18, 2003,  among Bank
               of  America,  N.A.,  as Senior  Bank Agent and Senior  Collateral
               Agent, Silver Point Finance, LLC, as Senior Term Loan B Agent and
               as future  Senior  Collateral  Agent after a Discharge  of Senior
               Bank Lender Claims has occurred,  U.S. Bank National Association,
               as trustee and collateral  agent under the Indenture  referred to
               below, and Foamex L.P., a Delaware limited partnership.
10.1(d)     -  Reimbursement Agreement, dated  as  of  March  23, 1993,  between
               Trace Holdings and General Felt Industries,  Inc.
10.2(d)     -  Shareholder  Agreement,  dated December 31, 1992, among Recticel,
               s.a.  ("Recticel"),  Recticel  Holding  Noord B.V.,  Foamex L.P.,
               Beamech Group Limited, LME-Beamech,  Inc., James Brian Blackwell,
               and Prefoam AG relating to a foam technology-sharing arrangement.
10.3(e)     -  Asset  Transfer  Agreement, dated  as of October 2, 1990, between
               Trace International  Holdings, Inc. ("Trace Holdings") and Foamex
               L.P. (the "Trace Holdings Asset Transfer Agreement").
10.4(e)     -  First  Amendment,  dated  as  of  December 19, 1991, to the Trace
               Holdings Asset Transfer Agreement.
10.5(e)     -  Amended  and  Restated  Guaranty, dated  as of December 19, 1991,
               made by Trace  Foam  Company,  Inc.  ("Trace  Foam")  in favor of
               Foamex L.P.

10.6(e)     -  Asset Transfer Agreement, dated as of October  2,  1990,  between
               Recticel Foam Corporation ("RFC") and Foamex L.P. (the "RFC Asset
               Transfer Agreement").

10.7(e)     -  First  Amendment,  dated  as of  December  19,  1991,  to the RFC
               Asset Transfer Agreement.


                                       34
<PAGE>


10.10.5(h)  -  The  Foamex  L.P.  Hourly  Pension  Plan  (formerly  "The  Foamex
               Products  Inc.  Hourly  Employee  Retirement  Plan"),  as amended
               December 31, 1995.
10.10.6(h)+ -  Foamex L.P. 401(k) Savings Plan effective October 1, 1997.
10.10.12(q)+-  Foamex Supplemental  Executive  Retirement Plan,  effective as of
               May 15, 2001.
10.11.6(x)+ -  Separation  Agreement  and  General Release, dated as of February
               22,   2004,   by  and  between   Marshall  S.  Cogan  and  Foamex
               International Inc.
10.11.11(t)+-  Severance Agreement and Release, dates as of January 31, 2003, by
               and between Foamex International and Pratt W. Wallace, Jr.
10.11.12(w) -  Form of Foamex International  Inc.  Code of Ethics for  Director,
               Officers, Senior Management and Certain Other Employees.
10.11.13+(v)-  Amended and  Restated  Employment  Agreement,  dated  January 27,
               2004, by and between Foamex International and Thomas E. Chorman.
10.11.14+(v)-  Amended and  Restated  Employment  Agreement,  dated  January 26,
               2004, by and between Foamex International and K. Douglas Ralph.
10.11.15+(y)-  Separation  Agreement  and  Release,  dated  as of June 19, 2004,
               between Foamex International Inc. and John V. Tunney.
10.16.1(l)  -  Supply  Agreement, dated as of February 27, 1998,  by and between
               Foamex L.P. and General Felt (as assigned to Foamex Carpet).
10.16.2(l)  -  Administrative Services Agreement, dated as of February 27, 1998,
               by  and  between  Foamex  L.P. and General  Felt (as assigned  to
               Foamex Carpet).
10.17(e)+   -  Salaried Incentive Plan of Foamex L.P. and Subsidiaries.
10.18(e)+   -  Equity Growth Participation Program.
10.19(f)+   -  The Foamex L.P. Salaried  Pension  Plan  (formerly, "The  General
               Felt Industries,  Inc. Retirement Plan for Salaried  Employees"),
               effective as of January 1, 1995.
10.22(n)+   -  Foamex International Amended and Restated 1993 Stock Option Plan.
10.23(a)+   -  Foamex International Non-Employee Director Compensation Plan.
10.24(o)+   -  Foamex  International  Equity  Incentive  Plan  for  Non-Employee
               Directors.
10.25(o)+   -  Foamex International Key Employee Incentive Bonus Plan.
10.26(p)+   -  Agreement with Consultant,  dated  April 24,  2001 by and between
               Robert J. Hay and Foamex L.P.
10.30(bb)+  -  Foamex International  2002  Stock  Award  Plan,  as  Amended  and
               Restated.
10.17.2(k)  -  Loan Agreement between Hua Kee Company  Limited and Foamex  Asia,
               Inc., dated as of July 8, 1997.
10.18.1(p)  -  Joint Venture Agreement  between  Hua  Kee  Company  Limited  and
               Foamex Asia, Inc. amended and restated as of December 3, 2001.
10.44(s)+   -  Agreement with Consultant, dated  August 8, 2002,  by and between
               Raymond E. Mabus, Jr. and Foamex International.
21*         -  Subsidiaries of Foamex International.
23*         -  Consent of Independent  Registered Public  Accounting Firm,  KPMG
               LLP.
23.1*       -  Consent  of  Independent   Registered   Public  Accounting  Firm,
               Deloitte & Touche LLP.
31.1*       -  Certification  of Chief Executive Officer pursuant to Section 302
               of the Sarbanes-Oxley Act of 2002.
31.2*       -  Certification of Chief Financial  Officer pursuant to Section 302
               of the Sarbanes-Oxley Act of 2002.
32.1*       -  Certification of Chief Executive  Officer pursuant to Section 906
               of the Sarbanes-Oxley Act of 2002.
32.2*       -  Certification of Chief Financial  Officer pursuant to Section 906
               of the Sarbanes-Oxley Act of 2002.

--------------------------------------------------------
*      Filed herewith.

+      Management contract or compensatory plan or arrangement.

(a)  Incorporated   herein  by  reference  to  the  Exhibit  to  Foamex   L.P.'s
     Registration Statement on Form S-1, Registration No. 33-69606.


                                       35
<PAGE>



(b)  Incorporated  herein by  reference  to the Exhibit to the Annual  Report on
     Form 10-K of Foamex  International  for the fiscal  year  ended  January 1,
     1995.

(c)  Incorporated  herein by reference  to the Exhibit to the Current  Report on
     Form 8-K of Foamex  International  reporting an event that occurred on June
     12, 1997.

(d)  Incorporated  herein by  reference  to the Exhibit to the Annual  Report on
     Form 10-K of Foamex L.P. and FCC for fiscal year ended January 3, 1993.

(e)  Incorporated  herein  by  reference  to the  Exhibit  to  the  Registration
     Statement of Foamex L.P. and FCC on Form S-1,  Registration  Nos.  33-49976
     and 33-49976-01. (f) Incorporated herein by reference to the Exhibit to the
     Annual  Report on Form 10-K of Foamex L.P. for fiscal year ended January 2,
     1994.

(g)  Incorporated  herein  by  reference  to the  Exhibit  in  the  Registration
     Statement of Foamex International on Form S-4, Registration No. 333-30291.

(h)  Incorporated  by  reference  to the Exhibit to the Form 10-Q of Foamex L.P.
     for the quarterly period ended September 28, 1997.

(i)  Incorporated  herein by reference  to the Exhibit to the Current  Report on
     Form 8-K of Foamex L.P.,  FCC and Foamex  International  reporting an event
     that occurred on December 23, 1997.

(j)  Incorporated  herein by  reference  to the Exhibit to the Annual  Report on
     Form 10-K of Foamex  International  for the fiscal year ended  December 28,
     1997.

(k)  Incorporated  herein  by  reference  to the  Exhibit  in  the  Registration
     Statement of Foamex L.P. and FCC on Form S-4,  Registration No.  333-45733,
     filed February 6, 1998.

(l)  Incorporated  herein  by  reference  to the  Current  Report on Form 8-K of
     Foamex International reporting an event that occurred on February 27, 1998.

(m)  Incorporated  herein by  reference  to the Exhibit to the Annual  Report on
     Form 10-K of Foamex  International  for the fiscal year ended  December 31,
     1998.

(n)  Incorporated  herein by reference to the Exhibit to Foamex  International's
     definitive proxy statement dated May 31, 2000.

(o)  Incorporated herein by reference to the Appendix to Foamex  International's
     definitive amended and restated proxy statement dated July 12, 2001.

(p)  Incorporated  herein by reference to the Exhibit to the Form 10-Q of Foamex
     International for the quarterly period ended June 30, 2001.

(q)  Incorporated  herein by  reference  to the Exhibit to the Annual  Report on
     Form 10-K of Foamex  International  for the fiscal year ended  December 31,
     2001.

(r)  Incorporated  herein by reference to the Exhibit to the Form 10-Q of Foamex
     L.P. and FCC for the quarterly period ended March 31, 2002.

(s)  Incorporated  herein by reference to the Exhibit to Amendment  No. 1 to the
     Registration Statement of Foamex L.P. and FCC on Form S-4, Registration No.
     333-90632, filed October 22, 2002.


                                       36
<PAGE>



(t)  Incorporated  herein by  reference  to the Exhibit to the Annual  Report on
     Form 10-K of Foamex  International  for the fiscal year ended  December 29,
     2002.

(u)  Incorporated  herein by reference  to the Exhibit to the Current  Report on
     Form 8-K of Foamex International reporting an event that occurred on August
     18, 2003.

(v)  Incorporated  herein by  reference  to the Exhibit to the Annual  Report on
     Form 10-K of Foamex  International  for the fiscal year ended  December 28,
     2003.

(w)  Incorporated herein by reference to the Exhibit to the Annual Report on
         Form 10-K of Foamex L.P. and FCC for the fiscal year ended December 28,
         2003.

(x)  Incorporated  herein by reference  to the Exhibit to the Current  Report on
     Form 8-K of  Foamex  International  reporting  an event  that  occurred  on
     February 22, 2004.

(y)  Incorporated  herein by reference to the Exhibit to the Form 10-Q of Foamex
     International for the quarterly period ended June 27, 2004.

(z)  Incorporated  herein by reference  to the Exhibit to the Current  Report on
     Form 8-K of Foamex International reporting an event that occurred on August
     5, 2004.

(aa) Incorporated  herein by reference to the Exhibit to the Form 10-Q of Foamex
     International for the quarterly period ended September 26, 2004.

(bb) Incorporated herein by reference to Foamex International's definitive proxy
     statement dated April 26, 2004.

(cc) Incorporated  herein by reference  to the Exhibit to the Current  Report on
     Form 8-K of Foamex International  reporting an event that occurred on March
     15, 2005.

Certain  instruments  defining the rights of security holders have been excluded
herefrom  in  accordance  with  Item   601(b)(4)(iii)  of  Regulation  S-K.  The
registrant  hereby  agrees  to  furnish  a copy of any  such  instrument  to the
Securities and Exchange Commission upon request.


                                       37
<PAGE>




                                   SIGNATURES

     Pursuant to the  requirements of Section 13 of the Securities  Exchange Act
of 1934,  the  registrant has duly caused this report to be signed on its behalf
by the undersigned, thereunto duly authorized as of the 4th day of April 2005.

                               FOAMEX INTERNATIONAL INC.


                               By:      /s/  Thomas E. Chorman
                                        ----------------------------------------
                               Name:       Thomas E. Chorman
                               Title:      President and Chief Executive Officer


                               By:      /s/  K. Douglas Ralph
                                        ----------------------------------------
                               Name:       K. Douglas Ralph
                               Title:      Executive Vice President and
                                           Chief Financial Officer


                               By:      /s/ Bruno Fontanot
                                        ----------------------------------------
                               Name:        Bruno Fontanot
                               Title:       Senior Vice President - Finance
                                            and Chief Accounting Officer



                                       38
<PAGE>

     Pursuant to the  requirements of the Securities  Exchange Act of 1934, this
report  has been  signed  below by the  following  persons  on its behalf by the
registrant and in the capacities and on the dates indicated:

Signature                            Title                        Date


/s/ Raymond E. Mabus, Jr.            Chairman of the Board        April 4, 2005
-----------------------------
Raymond E. Mabus, Jr.


/s/ Robert J. Hay                    Chairman Emeritus            April 4, 2005
-----------------------------
Robert J. Hay                         and Director


/s/ Thomas E. Chorman                President, Chief Executive   April 4, 2005
-----------------------------
Thomas E. Chorman                     Officer and Director


/s/ S. Dennis N. Belcher             Director                     April 4, 2005
-----------------------------
S. Dennis N. Belcher


/s/ John C. Culver                   Director                     April 4, 2005
-----------------------------
John C. Culver


/s/ Thomas M. Hudgins                Director                     April 4, 2005
-----------------------------
Thomas M. Hudgins


/s/ David A. Lieberman               Director                     April 4, 2005
-----------------------------
David A. Lieberman


/s/ Raul J. Valdes-Fauli             Director                     April 4, 2005
-----------------------------
Raul J. Valdes-Fauli


                                       39
<PAGE>





                            FOAMEX INTERNATIONAL INC.
                   INDEX TO CONSOLIDATED FINANCIAL STATEMENTS

<TABLE>
<CAPTION>

<S>                                                                                                               <C>
           Index to Consolidated Financial Statements                                                           F-1

           Reports of Independent Registered Public Accounting Firms                                            F-2

           Consolidated Balance Sheets as of January 2, 2005 and December 28, 2003                              F-4

           Consolidated Statements of Operations for the years ended January 2, 2005,
                December 28, 2003 and December 29, 2002                                                         F-6

           Consolidated Statements of Cash Flows for the years ended January 2, 2005,
                December 28, 2003 and December 29, 2002                                                         F-7

           Consolidated Statements of Stockholders' Deficiency for the years
                ended January 2, 2005, December 28, 2003 and December 29, 2002                                  F-8

           Notes to Consolidated Financial Statements                                                           F-9
</TABLE>



                                      F-1
<PAGE>



                        REPORT OF INDEPENDENT REGISTERED
                             PUBLIC ACCOUNTING FIRM


The Board of Directors and Stockholders of
Foamex International Inc.:


We  have  audited  the  accompanying   consolidated   balance  sheet  of  Foamex
International  Inc. and  subsidiaries  (the "Company") as of January 2, 2005 and
the related consolidated statements of operations,  cash flows and stockholders'
deficiency for the fiscal year then ended.  In connection  with our audit of the
consolidated financial statements,  we also have audited the financial statement
schedules  listed in the Index at Item 15 (2) as of  January 2, 2005 and for the
fiscal year then ended.  These consolidated  financial  statements and financial
statement  schedules are the  responsibility  of the Company's  management.  Our
responsibility  is  to  express  an  opinion  on  these  consolidated  financial
statements and financial statement schedules based on our audit.

We conducted  our audit in accordance  with the standards of the Public  Company
Accounting Oversight Board (United States). Those standards require that we plan
and perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement.  An audit includes examining, on a
test basis,  evidence  supporting  the amounts and  disclosures in the financial
statements.  An audit also includes assessing the accounting principles used and
significant  estimates  made by  management,  as well as evaluating  the overall
financial  statement  presentation.   We  believe  that  our  audit  provides  a
reasonable basis for our opinion.

In our opinion, the consolidated  financial statements referred to above present
fairly, in all material respects, the financial position of Foamex International
Inc. and subsidiaries as of January 2, 2005, and the results of their operations
and their cash flows for the fiscal year then  ended,  in  conformity  with U.S.
generally  accepted  accounting  principles.  Also, in our opinion,  the related
financial  statement  schedules,  when  considered  in  relation  to  the  basic
consolidated  financial  statements  taken as a whole,  presents fairly,  in all
material respects, the information set forth therein.


/s/ KPMG LLP


Philadelphia, Pennsylvania
April 4, 2005


                                      F-2
<PAGE>





                        REPORT OF INDEPENDENT REGISTERED
                             PUBLIC ACCOUNTING FIRM


To the Board of Directors and Stockholders of
Foamex International Inc.
Linwood, Pennsylvania

We  have  audited  the  accompanying   consolidated   balance  sheet  of  Foamex
International  Inc. and subsidiaries (the "Company") as of December 28, 2003 and
the related consolidated statements of operations,  cash flows and stockholders'
deficiency  for each of the two years in the period ended December 28, 2003. Our
audits also  included the  consolidated  financial  statement  schedules for the
years ended  December 28, 2003 and December 29, 2002 listed in the Index at Item
15(2).  These  consolidated  financial  statements  and  consolidated  financial
statement  schedules are the  responsibility  of the Company's  management.  Our
responsibility  is  to  express  an  opinion  on  these  consolidated  financial
statements and consolidated financial statement schedules based on our audits.

We conducted our audits in accordance  with the standards of the Public  Company
Accounting Oversight Board (United States). Those standards require that we plan
and  perform  the  audit  to  obtain  reasonable  assurance  about  whether  the
consolidated  financial statements are free of material  misstatement.  An audit
includes  examining,  on a test  basis,  evidence  supporting  the  amounts  and
disclosures in the  consolidated  financial  statements.  An audit also includes
assessing the  accounting  principles  used and  significant  estimates  made by
management,  as well as evaluating the overall consolidated  financial statement
presentation.  We believe  that our audits  provide a  reasonable  basis for our
opinion.

In our opinion,  such consolidated  financial  statements present fairly, in all
material  respects,  the financial  position of the Company at December 28, 2003
and the results of its  operations  and its cash flows for each of the two years
in the period ended December 28, 2003 in conformity with  accounting  principles
generally accepted in the United States of America.  Also, in our opinion,  such
consolidated  financial statement schedules,  when considered in relation to the
basic consolidated  financial statements taken as a whole, present fairly in all
material respects the information set forth therein.

As discussed in Note 2 to the  consolidated  financial  statements,  the Company
changed its method of  accounting  for goodwill and other  intangible  assets in
2002.



/s/ DELOITTE & TOUCHE LLP

March 9, 2004
Parsippany, New Jersey



                                      F-3
<PAGE>





                   FOAMEX INTERNATIONAL INC. AND SUBSIDIARIES
                           CONSOLIDATED BALANCE SHEETS


<TABLE>
<CAPTION>
                                                                               January 2,           December 28,
                                                                                 2005                    2003
                                                                            --------------       -------------------
ASSETS                                                                                    (thousands)
CURRENT ASSETS
<S>                                                                            <C>                    <C>
    Cash and cash equivalents                                                  $  5,351               $  6,613
    Accounts receivable, net of allowance for doubtful
      accounts and discounts of $9,001 in 2004 and $10,505 in 2003              182,740                181,288
    Inventories                                                                 100,029                 95,882
    Deferred income taxes                                                             -                 15,676
    Other current assets                                                         22,403                 27,116
                                                                               --------               --------

            Total current assets                                                310,523                326,575
                                                                               --------               --------

PROPERTY, PLANT AND EQUIPMENT
    Land and land improvements                                                    6,300                  6,818
    Buildings and leasehold improvements                                        113,592                117,265
    Machinery, equipment and furnishings                                        281,071                289,528
    Construction in progress                                                      1,783                  1,069
                                                                               --------               --------

            Total                                                               402,746                414,680

    Less accumulated depreciation and amortization                             (261,203)              (251,830)
                                                                               --------               --------

       Property, plant and equipment, net                                       141,543                162,850

GOODWILL                                                                        126,814                126,258

DEBT ISSUANCE COSTS, net of accumulated
amortization of $17,477 in 2004 and $10,648 in 2003                              21,152                 27,195

DEFERRED INCOME TAXES                                                               237                109,658

SOFTWARE COSTS, net of accumulated amortization of $6,401
    in 2004 and $3,603 in 2003                                                    9,325                  9,767

INVESTMENTS IN AND ADVANCES TO AFFILIATES                                        16,521                 14,503

OTHER ASSETS                                                                     19,595                 13,100
                                                                               --------               --------

TOTAL ASSETS                                                                   $645,710               $789,906
                                                                               ========               ========
</TABLE>



               The accompanying notes are an integral part of the
                       consolidated financial statements.



                                      F-4
<PAGE>


                   FOAMEX INTERNATIONAL INC. AND SUBSIDIARIES
                           CONSOLIDATED BALANCE SHEETS

<TABLE>
<CAPTION>
                                                                               January 2,           December 28,
                                                                                 2005                    2003
                                                                            --------------       -------------------
LIABILITIES AND STOCKHOLDERS' DEFICIENCY                                        (thousands, except share data)
CURRENT LIABILITIES
<S>                                                                           <C>                   <C>
    Revolving credit borrowings                                               $ 114,907             $ 96,065
    Current portion of long-term debt                                            67,131               15,937
    Accounts payable                                                            104,315               98,319
    Accrued employee compensation and benefits                                   22,354               28,331
    Accrued interest                                                             13,063               12,376
    Accrued restructuring                                                         1,759                3,911
    Accrued customer rebates                                                     16,979               18,077
    Cash overdrafts                                                              10,437               12,692
    Other accrued liabilities                                                    16,680               16,721
                                                                              ---------             --------

      Total current liabilities                                                 367,625              302,429

LONG-TERM DEBT                                                                  568,461              633,621

ACCRUED EMPLOYEE BENEFITS                                                        55,388               43,348

ACCRUED RESTRUCTURING                                                             5,682                5,837

OTHER LIABILITIES                                                                 6,867                7,787
                                                                              ---------             --------

    Total liabilities                                                         1,004,023              993,022
                                                                              ---------             --------

COMMITMENTS AND CONTINGENCIES

STOCKHOLDERS' DEFICIENCY
    Preferred Stock, par value $1.00 per share:
      Authorized 5,000,000 shares
      Issued 15,000 shares - Series B (liquidation
      preference $1.5 million) in 2004 and 2003                                      15                   15
    Common Stock, par value $.01 per share:
      Authorized 50,000,000 shares
      Issued 27,949,762 in 2004 and 27,898,149 shares in 2003
      Outstanding 24,460,762 shares in 2004 and 24,409,149 shares in 2003           279                  279
    Additional paid-in capital                                                  102,354              102,155
    Accumulated deficit                                                        (388,665)            (237,732)
    Accumulated other comprehensive loss                                        (35,295)             (30,832)
    Other:
      Common Stock held in treasury, at cost:
        3,489,000 shares in 2004 and 2003                                       (27,780)             (27,780)
      Shareholder note receivable                                                (9,221)              (9,221)
                                                                              ---------             --------

      Total stockholders' deficiency                                           (358,313)            (203,116)
                                                                              ---------             --------

TOTAL LIABILITIES AND STOCKHOLDERS' DEFICIENCY                                $ 645,710             $789,906
                                                                              =========             ========
</TABLE>

               The accompanying notes are an integral part of the
                       consolidated financial statements.


                                      F-5
<PAGE>



                   FOAMEX INTERNATIONAL INC. AND SUBSIDIARIES
                      CONSOLIDATED STATEMENTS OF OPERATIONS
                               FOR THE YEARS ENDED

<TABLE>
<CAPTION>
                                                                  January 2,       December 28,    December 29,
                                                                     2005              2003           2002
                                                                --------------     ------------    ------------
                                                                       (thousands, except per share amounts)
<S>                                                               <C>               <C>              <C>
NET SALES                                                         $1,266,394        $1,304,560       $1,328,094

COST OF GOODS SOLD                                                 1,124,547         1,160,870        1,184,392
                                                                  ----------        ----------       ----------

GROSS PROFIT                                                         141,847           143,690          143,702

SELLING, GENERAL AND ADMINISTRATIVE
    EXPENSES                                                          87,995            82,588           94,744

RESTRUCTURING, IMPAIRMENT AND OTHER
    CHARGES (CREDITS)                                                  3,250            (1,759)           4,799
                                                                  ----------        ----------       ----------

INCOME FROM OPERATIONS                                                50,602            62,861           44,159

INTEREST AND DEBT ISSUANCE EXPENSE                                    76,667            88,374           69,679

INCOME FROM EQUITY INTEREST IN JOINT VENTURES                            687             1,466            1,734

OTHER EXPENSE, NET                                                      (220)           (3,446)          (2,078)
                                                                  ----------        ----------       ----------

LOSS BEFORE PROVISION (BENEFIT) FOR INCOME TAXES
    AND CUMULATIVE EFFECT OF ACCOUNTING CHANGES                      (25,598)          (27,493)         (25,864)

PROVISION (BENEFIT) FOR INCOME TAXES                                 125,335            (6,004)         (86,812)
                                                                  ----------        ----------       ----------

INCOME (LOSS) BEFORE CUMULATIVE EFFECT OF
    ACCOUNTING CHANGES                                              (150,933)          (21,489)          60,948

CUMULATIVE EFFECT OF ACCOUNTING CHANGES                                    -                 -          (70,647)
                                                                  ----------        ----------       ----------

NET LOSS                                                          $ (150,933)       $  (21,489)      $   (9,699)
                                                                  ==========        ==========       ==========

EARNINGS PER SHARE - BASIC
   INCOME (LOSS) BEFORE CUMULATIVE EFFECT OF
     ACCOUNTING CHANGES                                           $    (6.17)       $    (0.88)      $     2.51
   CUMULATIVE EFFECT OF ACCOUNTING CHANGES                                 -                 -            (2.91)
                                                                  ----------        ----------       ----------
   NET LOSS                                                       $    (6.17)       $    (0.88)      $    (0.40)
                                                                  ==========        ==========       ==========

EARNINGS PER SHARE - DILUTED
   INCOME (LOSS) BEFORE CUMULATIVE EFFECT OF
     ACCOUNTING CHANGES                                           $    (6.17)       $    (0.88)      $     2.32
   CUMULATIVE EFFECT OF ACCOUNTING CHANGES                                 -                 -            (2.69)
                                                                  ----------        ----------       ----------
   NET LOSS                                                       $    (6.17)       $    (0.88)      $    (0.37)
                                                                  ==========        ==========       ==========

</TABLE>


               The accompanying notes are an integral part of the
                       consolidated financial statements.


                                      F-6
<PAGE>


<PAGE>


                   FOAMEX INTERNATIONAL INC. AND SUBSIDIARIES
                      CONSOLIDATED STATEMENTS OF CASH FLOWS
                               FOR THE YEARS ENDED

<TABLE>
<CAPTION>
                                                                  January 2,        December 28,     December 29,
                                                                     2005               2003            2002
                                                                  ----------        -----------      ------------
OPERATING ACTIVITIES                                                                (thousands)
<S>                                                               <C>                <C>              <C>
   Net loss                                                       $(150,933)         $(21,489)        $ (9,699)
   Adjustments to reconcile net loss to net
     cash provided by (used for) operating activities:
     Cumulative effect of accounting changes                              -                 -           70,647
     Depreciation and amortization                                   25,933            26,045           31,592
     Amortization of debt issuance costs, debt premium
        and debt discount                                             2,762             4,458            3,280
     Write off of debt issuance costs                                     -            12,928            4,892
     Asset impairment and other charges                               2,809                 -            2,503
     Loss (gain) on disposition of assets                            (1,185)               30                -
     Provision for uncollectible accounts                             3,291             2,115            2,336
     Retirement benefit funding greater than expense                 (2,175)             (892)          (1,604)
     Deferred income taxes                                          124,739            (7,488)         (92,400)
     Other, net                                                        (708)              184              266
   Changes in operating assets and liabilities:
     Accounts receivable                                             (4,742)            8,143          (20,421)
     Inventories                                                     (4,147)            2,128           (8,580)
     Accounts payable                                                 5,996            10,919          (41,452)
     Accrued restructuring                                           (2,111)          (13,023)          (2,225)
     Other assets and liabilities                                      (549)           (6,567)          10,440
                                                                  ---------          --------         --------

        Net cash provided by (used for) operating activities         (1,020)           17,491          (50,425)
                                                                  ---------          --------         --------

INVESTING ACTIVITIES
   Capital expenditures                                              (5,510)           (6,543)         (15,582)
   Proceeds from sale of assets                                       2,701             1,237               21
   Other investing activities                                        (2,400)           (3,329)          (7,990)
                                                                  ---------          --------         --------

        Net cash used for investing activities                       (5,209)           (8,635)         (23,551)
                                                                  ---------          --------         --------

FINANCING ACTIVITIES
   Net proceeds from (repayments of) revolving loans                 18,841            44,242          (73,176)
   Proceeds from long-term debt                                           -           130,000          356,590
   Repayments of long-term debt                                     (10,853)         (164,020)        (190,450)
   Repayments of long-term debt-related party                             -                 -          (31,590)
   Increase (decrease) in cash overdrafts                            (2,255)           (5,109)          13,728
   Debt issuance costs                                                 (785)          (11,880)         (29,981)
   Deferred credit on interest rate swaps                                 -                 -           14,821
   Other financing activities                                            19                 -            3,494
                                                                  ---------          --------         --------

        Net cash provided by (used for) financing activities          4,967            (6,767)          63,436
                                                                  ---------          --------         --------

Net increase (decrease) in cash and cash equivalents                 (1,262)            2,089          (10,540)

Cash and cash equivalents at beginning of period                      6,613             4,524           15,064
                                                                  ---------          --------         --------

Cash and cash equivalents at end of period                        $   5,351          $  6,613         $  4,524
                                                                  =========          ========         ========
</TABLE>


               The accompanying notes are an integral part of the
                       consolidated financial statements.


                                      F-7
<PAGE>




                   FOAMEX INTERNATIONAL INC. AND SUBSIDIARIES
               CONSOLIDATED STATEMENTS OF STOCKHOLDERS' DEFICIENCY


<TABLE>
<CAPTION>
                                                                                                Accumulated
                                                                    Additional                    Other
                                               Preferred  Common      Paid-in     Accumulated  Comprehensive
                                                 Stock     Stock      Capital       Deficit        Loss          Other    Total
                                               ---------  ------    ----------    -----------  -------------   --------  --------
                                                                            (thousands)

<S>                 <C>                           <C>     <C>         <C>         <C>           <C>            <C>       <C>
Balances at January 1, 2002                       $15     $273        $97,668     $(206,544)    $(35,157)      $(37,001) $(180,746)

Net loss                                                                             (9,699)                                (9,699)
Minimum pension liability adjustment                                                             (11,325)                  (11,325)
Deferred tax valuation allowance adjustment                                                        9,597                     9,597
Foreign currency translation adjustment                                                           (1,869)                   (1,869)
                                                                                                                         ---------
  Comprehensive loss                                                                                                       (13,296)
Stock compensation - directors                                            221                                                  221
Stock options exercised                                      5          3,534                                                3,539
Deferred taxes on stock option exercises                                  549                                                  549
                                                  ---     ----        -------     ---------      -------        -------  ----------

Balances at December 29, 2002                      15      278        101,972      (216,243)     (38,754)       (37,001)  (189,733)

Net loss                                                                            (21,489)                               (21,489)
Minimum pension liability adjustment                                                               1,310                     1,310
Foreign currency translation adjustment                                                            6,612                     6,612
                                                                                                                         ---------
  Comprehensive loss                                                                                                       (13,567)
Stock compensation                                           1            183                                                  184
                                                  ---     ----        -------     ---------      -------        -------  ---------

Balances at December 28, 2003                      15      279        102,155      (237,732)     (30,832)       (37,001)  (203,116)


Net loss                                                                           (150,933)                              (150,933)
Minimum pension liability adjustment                                                              (6,501)                   (6,501)
Foreign currency translation adjustment                                                            2,038                     2,038
                                                                                                                         ---------
  Comprehensive loss                                                                                                      (155,396)
Stock compensation                                                        183                                                  183
Stock options exercised                                                    16                                                   16
                                                  ---     ----       --------     ---------     --------       --------  ---------

Balances at January 2, 2005                       $15     $279       $102,354     $(388,665)    $(35,295)      $(37,001) $(358,313)
                                                  ===     ====       ========     =========     ========       ========  =========
</TABLE>


               The accompanying notes are an integral part of the
                       consolidated financial statements.


                                      F-8
<PAGE>


                   FOAMEX INTERNATIONAL INC. AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

1.   ORGANIZATION AND BASIS OF PRESENTATION

     Organization

     Foamex   International  Inc.  (the  "Company")  operates  in  the  flexible
polyurethane  and  advanced  polymer  foam  products  industry.   The  Company's
operations are primarily conducted through its wholly-owned  subsidiary,  Foamex
L.P. Foamex Carpet Cushion,  Inc.  ("Foamex  Carpet") was converted to a limited
liability  company and was  contributed  to Foamex L.P.  on March 25,  2002.  On
December 30, 2002, Foamex Carpet distributed certain assets, liabilities and its
business to Foamex L.P. Foamex L.P. conducts foreign  operations  through Foamex
Canada Inc. ("Foamex Canada"),  Foamex Latin America, Inc. and Foamex Asia, Inc.
Financial  information  concerning  the  business  segments  of the  Company  is
included in Note 12.

     In 2002, the Company changed its reporting period from a calendar year to a
52/53-week  fiscal year  ending on the Sunday  closest to January 1. Fiscal year
2004 included 53 weeks ended January 2, 2005 while fiscal year 2003 included the
52 weeks ended  December  28, 2003 and fiscal  year 2002  included  the 52 weeks
ended  December  29,  2002 after  adjustment  for  December  31,  2001 which was
included in the prior year.

     The Bank of Nova  Scotia  owns  approximately  5.8  million  shares  of the
Company's  outstanding common stock, or approximately  23.5% at January 2, 2005.
The Bank of Nova  Scotia  also owns 15,000  shares of the  Company's  non-voting
non-redeemable  Series B convertible preferred stock. Each share of the Series B
Preferred Stock can be converted into 100 shares of the Company's  common stock,
but only if such  conversion  would not trigger a "change of  control"  event as
defined by certain debt agreements of the Company's  subsidiaries.  Ownership of
more than 25% of the common stock would constitute a "change of control". During
early 2005,  the Bank of Nova Scotia  sold 0.3 million  shares of the  Company's
common  stock and as of  February  15,  2005  holds  approximately  22.3% of the
Company's outstanding common stock.

2.   SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Consolidation

     The consolidated  financial  statements include the accounts of the Company
and all  majority-owned  subsidiaries where control exists. The equity method of
accounting  is used  for  investments  in  which  the  Company  has  significant
influence, generally this represents ownership of at least 20% and not more than
50%. The Company has a joint venture in Asia (Foamex Asia Co., Ltd.) in which it
has  ownership  of 70%.  The  Company  does not  exercise  control of this joint
venture due to the minority shareholders'  substantive  participation rights and
therefore  the Company uses the equity  method of  accounting.  All  significant
intercompany accounts and transactions have been eliminated in consolidation.

Accounting Estimates

     The  preparation  of financial  statements  in  conformity  with  generally
accepted accounting  principles in the United States requires management to make
estimates  and  assumptions  that  affect  the  reported  amounts  of assets and
liabilities and disclosures of contingent  assets and liabilities at the date of
the  financial  statements  and the  reported  amounts of revenues  and expenses
during the reporting period. Actual results could differ from those estimates.

Concentration of Credit Risk

     Financial  instruments which potentially subject the Company to significant
concentrations of credit risk consist primarily of cash and cash equivalents and
trade accounts  receivable.  The Company maintains cash and cash equivalents and
certain other financial  instruments with various large financial  institutions.
The Company's periodic evaluation of these financial institutions are considered
in the Company's investment strategy.


                                      F-9
<PAGE>

                   FOAMEX INTERNATIONAL INC. AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


2.   SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)

     The Company sells products to the furniture and bedding, automotive, carpet
and other  industries.  The Company performs  ongoing credit  evaluations of its
customers  and  generally  does not require  collateral.  The Company  maintains
allowance  accounts for potential credit losses and such losses have been within
management's expectations.

Revenue Recognition, Discounts and Rebates

     Revenue from sales, net of discounts and estimated returns,  allowances and
customer rebates,  is recognized when product title and the risks and rewards of
ownership passes to the customer,  the sales price is fixed and determinable and
collection is reasonably  assured.  Products are shipped FOB shipping point. Net
sales are reduced by allowances  for estimated  discounts,  returns and customer
rebates. Balances for allowances and rebates are reviewed at least quarterly and
are adjusted if warranted.  Shipping and handling  costs are included in cost of
goods sold.

Cash and Cash Equivalents

     Highly liquid investments with an original maturity of three months or less
when purchased are recognized as cash equivalents.

Accounts Receivable and Allowance for Uncollectible Accounts

     An  estimate  of  uncollectible  accounts  is  maintained  and is  based on
historical  collection  experience and specific  customer  collection  issues. A
significant  change in the  financial  condition of one or more of the Company's
larger  customers  could  have a  material  adverse  impact on future  financial
results.

Fair Value of Financial Instruments

     Carrying amounts  reported in the consolidated  balance sheets for cash and
cash equivalents, accounts receivable, accounts payable, accrued liabilities and
short-term  borrowings  approximate  fair value due to the short-term  nature of
these instruments.

     The carrying  amount and fair value of long-term debt and revolving  credit
borrowings  at  January  2,  2005  were  $750.5  million  and  $714.7   million,
respectively,  and at December 28, 2003 were $745.6 million and $683.3  million,
respectively.  The fair value of long-term debt is estimated using quoted market
prices, where available, or discounted cash flows. Fair value estimates are made
at a specific  point in time,  based on relevant  market  information  about the
financial  instruments.  These  estimates  are  subjective in nature and involve
uncertainties  and matters of  significant  judgment  and  therefore,  cannot be
determined with precision. Changes in assumptions could significantly affect the
estimates.

Inventories

     Inventories  are stated at the lower of cost or market.  Cost is determined
on a first-in, first-out basis.

Property, Plant and Equipment

     Property,  plant and equipment are stated at cost and are depreciated using
the  straight-line  method over the  estimated  useful lives of the assets.  The
range of useful lives  estimated for buildings is generally 20 to 35 years,  and
the range for machinery,  equipment and furnishings is 5 to 12 years.  Leasehold
improvements  are  amortized  over the  shorter  of the terms of the  respective
leases or the estimated useful lives of the leasehold improvements. Depreciation
expense  for 2004,  2003 and 2002 was $22.9  million,  $24.1  million  and $29.1
million, respectively.



                                      F-10
<PAGE>

                   FOAMEX INTERNATIONAL INC. AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


2.   SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)

     Maintenance  and repairs are charged to expense as  incurred.  Renewals and
major  improvements  are capitalized if they extend the life of the asset.  When
assets are retired or otherwise  disposed of, the asset and related  accumulated
depreciation are removed from the accounts and any gain or loss is recognized in
the results of operations.

Goodwill

     The Company adopted  Statement of Financial  Accounting  Standards No. 142,
"Goodwill and Other Intangible  Assets" ("SFAS No. 142") on January 1, 2002 with
certain  provisions  adopted as of July 1, 2001. SFAS No.142 address the initial
recognition  and  measurement  of  intangible  assets not acquired in a business
combination and the recognition and measurement of goodwill and other intangible
assets  subsequent  to their  acquisition.  Under SFAS No.  142,  goodwill is no
longer amortized, but is subject to annual impairment tests.

     In accordance  with SFAS No. 142,  goodwill was tested for impairment  upon
adoption  of the  standard  and is  tested  annually  thereafter.  SFAS No.  142
requires that goodwill be tested for impairment  using a two-step  process.  The
first step is to identify a potential  impairment  and the second step  measures
the amount of the impairment loss, if any.  Goodwill is deemed to be impaired if
the carrying amount of a reporting  unit's  goodwill  exceeds its estimated fair
value. The Company's  initial  impairment test resulted in the recognition of an
impairment loss of $72.0 million recorded as a cumulative  effect of a change in
accounting principle in accordance with the transitional implementation guidance
of SFAS No.142.  The Company has completed its annual goodwill  impairment tests
as  of  September  27,  2004,   September  29,  2003  and  September  30,  2002,
respectively, with no recognition of any additional impairment.

     Goodwill at January 2, 2005  increased  $0.6 million from December 28, 2003
as a result of  foreign  currency  translation  adjustments  reflected  below as
Other.

     Goodwill balances include:

                                   Balance                          Balance
           Segments            December 28, 2003      Other     January 2, 2005
     -----------------------   -----------------   ----------   ---------------
                               (thousands)
     Foam Products                 $ 74,631           $222          $ 74,853
     Carpet Cushion Products          2,497              -             2,497
     Automotive Products             35,261            334            35,595
     Technical Products              13,869              -            13,869
                                   --------           ----          --------
         Total                     $126,258           $556          $126,814
                                   ========           ====          ========

Debt Issuance Costs

     Debt  issuance  costs  consist of amounts  incurred in obtaining  long-term
financing  and  are  disclosed  in  the  financing  activities  section  of  the
consolidated  statements of cash flows. These costs are being amortized over the
term of the related debt using the effective interest method.

Software Costs

     The Company  expenses  costs incurred in the  preliminary  project stage of
developing or obtaining internal use software,  such as research and feasibility
studies, as well as costs incurred in the post-implementation/operational stage,
such as maintenance and training.  Capitalization of software  development costs
occurs only after  management  authorizes the project,  the preliminary  project
stage is complete  and it is  probable  the project  will be  completed  and the
software will be used for the function  intended.  The Company is in the process
of replacing its primary  financial and operating  information  and  transaction
processing systems and anticipates this project will be substantially  completed
in 2006.  Capitalized  software costs aggregated $2.4 million,  $3.4 million and
$7.0 million in 2004, 2003 and 2002,  respectively.  The  capitalized  costs are
amortized  beginning  in the period  when  placed in service on a  straight-line
basis over the estimated  useful life of the software,  which is generally  five
years or less.


                                      F-11
<PAGE>
                   FOAMEX INTERNATIONAL INC. AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

2.   SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)

Long-Lived Assets

     Property and equipment  held for use is grouped for  impairment  testing at
the lowest level for which there are identifiable cash flows. Impairment testing
of the asset group occurs whenever events or changes in  circumstances  indicate
that the  carrying  amount of the assets  may not be  recoverable.  The  Company
assesses  recoverability  by comparing the carrying amount of the asset group to
the  estimated  undiscounted  future cash flows  expected to be generated by the
assets.  If an asset group is considered  impaired,  the  impairment  loss to be
recognized  would be measured as the amount by which the asset group's  carrying
amount  exceeds  its fair  value.  Estimated  future  cash  flows  are  based on
historical results adjusted for estimated future market conditions and operating
plans. To the extent that these estimates change, impairment losses could have a
material adverse impact on future financial results.

Environmental Remediation

     Environmental  expenditures that relate to current operations are expensed.
Expenditures that relate to an existing condition caused by past operations, and
which do not contribute to current or future revenue  generation,  are expensed.
Liabilities are recorded when environmental  assessments and/or remedial efforts
are  probable  and the costs can be  reasonably  estimated.  Amounts  charged to
operations  were $0.6 million,  $0.5 million and $1.1 million in 2004,  2003 and
2002, respectively.

Comprehensive Income (Loss)

     Other comprehensive income or loss items are revenues,  expenses, gains and
losses that under generally accepted accounting principles are excluded from net
income and  reflected  as a component  of  stockholders'  deficiency,  including
foreign currency translation and minimum pension liability adjustments.

Foreign Currency Translation

     The financial  statements of foreign subsidiaries have been translated into
U.S. dollars by using  period-end  exchange rates for the assets and liabilities
and the  average  exchange  rates for the  statements  of  operations.  Currency
translation  adjustments are included in accumulated other  comprehensive  loss.
Transaction losses are reflected in other expense in the consolidated statements
of operations and included $0.6 million, $2.7 million, and $2.3 million in 2004,
2003 and 2002, respectively.

Research and Development

     Research and development costs are expensed as incurred. Amounts charged to
operations  were $2.8 million,  $3.6 million and $4.8 million in 2004,  2003 and
2002, respectively.

Self Insurance

     The  Company  is  partially  self-insured  for a number of risks  including
workers'  compensation,  medical,  automobile and general liability.  Commercial
insurance  policies  are  carried  for  amounts  in excess  of the  self-insured
amounts.  Amounts  charged to operations  were $26.5 million,  $24.9 million and
$31.2 million in 2004, 2003 and 2002, respectively.

Claims and Litigation

     The Company  evaluates  claims for  damages  and  records  its  estimate of
liabilities  when such  liabilities  are  considered  probable  and an amount or
reasonable range can be estimated.



                                      F-12
<PAGE>

                   FOAMEX INTERNATIONAL INC. AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

2.   SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)

Income Taxes

     Income taxes are accounted for under the asset and liability method.  Under
this  method,  deferred  income taxes are  provided  for  temporary  differences
between  the  financial  reporting  basis and  income  tax  basis of assets  and
liabilities and for net operating loss carryforwards using the income tax rates,
under existing legislation,  expected to be in effect at the date such temporary
differences are expected to reverse. Deferred income tax assets are reduced by a
valuation allowance when it is considered more likely than not that a portion of
the  deferred  income tax assets will not be realized  in a future  period.  The
estimates  utilized in the recognition of deferred income tax assets are subject
to revision in future periods.

Stock Options

     Statement  of  Financial  Accounting  Standards  No. 123,  "Accounting  for
Stock-Based  Compensation" ("SFAS No. 123"),  encourages,  but does not require,
companies to record  compensation  cost for  stock-based  employee  compensation
plans at fair  value.  The  Company  has  chosen  to  continue  to  account  for
stock-based   compensation  using  the  intrinsic  value  method  prescribed  in
Accounting  Principles  Board  Opinion No. 25,  "Accounting  for Stock Issued to
Employees" ("APB No. 25"), and related interpretations. Accordingly, the Company
records  expense in an amount equal to the excess,  if any, of the quoted market
price on the grant date over the option price.

     In  December  2004,  the FASB  issued  Statement  of  Financial  Accounting
Standards No. 123R,  "Share-Based  Payment" ("SFAS No. 123R"). The provisions of
SFAS No. 123R require the cost of employee  services received in exchange for an
award of equity  instruments  be based on the grant date fair value of the award
and be  recognized  over the period  during  which the  employee  is required to
provide  service in  exchange  for the award.  SFAS No.  123R is  required to be
applied to all awards of equity instruments granted in annual or interim periods
beginning after June 15, 2005.

     The following table includes as reported and proforma  information required
by  Statement  of  Financial  Accounting  Standards  No.  148,  "Accounting  for
Stock-Based  Compensation-Transition  and Disclosure ("SFAS No. 148").  Proforma
information is based on the fair value method under SFAS No. 123. Fair values of
options granted were estimated using the  Black-Scholes  option pricing model as
discussed in Note 9.

<TABLE>
<CAPTION>
                                                             2004                2003            2002
                                                          ----------         ----------       --------
                                                                (thousands, except per share data)
<S>                                                       <C>                 <C>              <C>
     Net loss as reported                                 $(150,933)          $(21,489)        $ (9,699)
     Add:  Stock-based employee compensation
        expense included in reported net loss,
        net of tax benefit                                       (2)                 2               30
     Deduct:  Stock-based employee compensation
        expense determined under fair value
        based method, net of tax benefit (a)                 (1,427)            (1,343)          (1,345)
                                                          ---------           --------         --------
     Proforma net loss                                    $(152,362)          $(22,830)        $(11,014)
                                                          =========           ========         ========

     Basic loss per share
        As reported                                       $   (6.17)          $  (0.88)        $  (0.40)
        Proforma                                          $   (6.23)          $  (0.94)        $  (0.45)

     Diluted loss per share
        As reported                                       $   (6.17)          $  (0.88)        $  (0.37)
        Proforma                                          $   (6.23)          $  (0.94)        $  (0.42)
</TABLE>

(a)  For 2004 there is no tax  benefit due to the  establishment  of a valuation
     allowance on U.S. deferred tax assets as discussed in Note 10.


                                      F-13
<PAGE>

                   FOAMEX INTERNATIONAL INC. AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


2.   SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)

Accounting Changes

     In  January  2003,   the  FASB  issued  FASB   Interpretation   No.  46,  "
Consolidation of Variable Interest Entities" ("FIN No. 46") which was amended in
October 2003 and replaced with FIN No. 46R in January 2004. The Company does not
have any "Variable Interest Entities" as defined by FIN No. 46R and accordingly,
the  adoption  of FIN No.  46R did have an  impact  on the  Company's  financial
statements.

     In  November  2004,  the FASB  issued  Statement  of  Financial  Accounting
Standards  No. 151,  "Inventory  Costs an  amendment  of ARB No. 43,  Chapter 4"
("SFAS No. 151").  The provisions of SFAS No. 151 require that abnormal  amounts
of idle  facility  expense,  freight,  handling  costs and  wasted  material  be
recognized as current  period  charges,  regardless of the  circumstances  under
which such charges arose.  SFAS No. 151 is effective for fiscal years  beginning
after June 15,  2005 and is not  expected  to have a  significant  impact on the
Company's financial statements.

Reclassifications

     Certain amounts from prior years have been reclassified to conform with the
current presentation.

3.   EARNINGS (LOSS) PER SHARE

     The  following  table shows the amounts  used in computing  basic  earnings
(loss) per share.

<TABLE>
<CAPTION>
                                                               2004 (a)        2003 (a)           2002
                                                             ----------      ----------        ----------
                                                                 (thousands, except per share amounts)
     Income (loss) before cumulative effect of
<S>                                                          <C>              <C>                <C>
         accounting changes                                  $(150,933)       $(21,489)          $60,948
     Cumulative effect of accounting changes                         -               -           (70,647)
                                                             ---------        --------           -------
     Net loss                                                $(150,933)       $(21,489)          $(9,699)
                                                             =========        ========           =======

     Weighted average common stock outstanding                  24,444          24,394            24,275
                                                             =========        ========           =======

     Income (loss) per share before cumulative effect
         of accounting changes                               $   (6.17)       $  (0.88)          $  2.51
     Cumulative effect of accounting changes per share               -               -             (2.91)
                                                             ---------        --------           -------
     Net loss per share                                      $   (6.17)       $  (0.88)          $ (0.40)
                                                             =========        ========           =======
</TABLE>

     The following  table shows the amounts used in computing  diluted  earnings
(loss) per share.

<TABLE>
<CAPTION>
                                                               2004 (a)        2003 (a)           2002
                                                             -------------    ----------       ----------
                                                                 (thousands, except per share amounts)
     Income (loss) before cumulative effect of
<S>                                                          <C>              <C>                <C>
         accounting changes                                  $(150,933)       $(21,489)          $60,948
     Cumulative effect of accounting changes                         -               -           (70,647)
                                                             ---------        --------           -------
     Net loss                                                $(150,933)       $(21,489)          $(9,699)
                                                             =========        ========           =======

     Weighted average common stock outstanding                  24,444          24,394            24,275

     Incremental shares resulting from
         Stock options (b)                                           -               -               529
         Convertible preferred stock (c)                             -               -             1,500
                                                             ---------        --------           -------

     Adjusted weighted average shares                           24,444          24,394            26,304
                                                             =========        ========           =======
</TABLE>


                                      F-14
<PAGE>


                   FOAMEX INTERNATIONAL INC. AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

3.   EARNINGS (LOSS) PER SHARE (continued)

<TABLE>
<CAPTION>
                                                               2004 (a)        2003 (a)           2002
                                                             -------------    ----------       ----------
                                                                 (thousands, except per share amounts)
     Income (loss) per share before cumulative effect of
<S>                                                          <C>              <C>                <C>
         accounting changes                                  $   (6.17)       $  (0.88)          $  2.32
     Cumulative effect of accounting changes per share               -               -             (2.69)
                                                             ---------        --------           -------
     Net loss per share                                      $   (6.17)       $  (0.88)          $ (0.37)
                                                             =========        ========           =======
</TABLE>

(a)  There is no dilution resulting from potential incremental shares in 2004 or
     2003,  because  the  Company  had net losses  before  cumulative  effect of
     accounting changes, and the inclusion of potential incremental shares would
     be antidilutive. For 2004, potential incremental shares included options to
     purchase shares of common stock  (3,059,606  shares at January 2, 2005) and
     Series B Preferred Stock  convertible  into 1,500,000 of common stock.  For
     2003,  potential  incremental shares included options to purchase shares of
     common stock (4,177,431 shares at December 28, 2003) and Series B Preferred
     Stock convertible into 1,500,000 of common stock.

(b)  The average  number of stock  options that were not included in the diluted
     earnings per share calculation  because the exercise price was greater than
     the average market price aggregated 1,462,600 in 2002.

(c)  Series B Preferred Stock is convertible into 1,500,000 common shares.

4.   CUMULATIVE EFFECT OF ACCOUNTING CHANGES

     Statement   of   Financial   Accounting   Standards   No.  141,   "Business
Combinations"  ("SFAS No. 141") requires that any  unamortized  deferred  credit
related to an excess over cost arising from a business combination that occurred
before July 1, 2001 to be written off and  recognized  as the effect of a change
in accounting  principle.  Accordingly,  the Company has recorded a $1.3 million
credit as the cumulative effect of an accounting change in 2002.

     Also  included as a cumulative  effect of  accounting  changes in 2002 is a
charge of $72.0 million  associated  with the adoption of SFAS No. 142 (see Note
2).

5.   RESTRUCTURING, IMPAIRMENT AND OTHER CHARGES

2004

     During  2004,  the Company  recorded  restructuring,  impairment  and other
charges of $3.2 million, primarily consisting of a $1.7 million charge primarily
related to lease  costs and asset write offs in  connection  with the closing of
its New York City office,  a $0.7 million charge  related to the  realignment of
its automotive  operations and an impairment  charge of $0.6 million for an idle
facility.

2003

     During  2003,  the Company  recorded  restructuring,  impairment  and other
credits of $1.8 million  consisting of a $3.2 million reduction in the liability
primarily  for  severance  and  termination  benefits no longer  required as the
actions contemplated under the related plans have been substantially  completed,
and a charge of $1.1 million for additional lease termination costs for a closed
facility as a result of changes in real estate market conditions.  Additionally,
the Company recorded a $0.3 million  restructuring  charge reported in the Other
segment  as a result  of an  employee  termination  plan for  approximately  300
employees  at its  Mexico  City  operations.  The  actions  under this plan were
substantially completed in 2003.




                                      F-15
<PAGE>


                   FOAMEX INTERNATIONAL INC. AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


5.   RESTRUCTURING, IMPAIRMENT AND OTHER CHARGES (continued)

2002

     In  the  fourth  quarter  of  2002,  the  Company  recorded  restructuring,
impairment and other charges of $10.0 million relating to the  reorganization of
its  executive  and  corporate  management  and the closure of or  reduction  of
activities  at  six  operations.   The  charges  included  severance  and  other
termination  benefits for approximately 200 employees,  exit costs and remaining
lease payments. Also included in restructuring, impairment and other charges was
a  $2.5  million  asset  impairment   provision  to  reduce  certain   leasehold
improvements and machinery and equipment included in the Carpet Cushion Products
segment to their estimated fair values. The employees to be terminated  included
manufacturing hourly and salaried personnel, sales force personnel and executive
and administrative staff. Approximately 60 of these employees were terminated in
2002 and the remainder in 2003.

     Also in 2002,  the Company  recorded  restructuring,  impairment  and other
credits of $5.2 million.  These  credits  resulted  from a  reevaluation  of the
Company's 2001 Operational  Reorganization  Plan and $2.1 million related to the
collection of deferred rent receivable which had been fully reserved.

     The   following   table  sets  forth  the   components   of  the  Company's
restructuring, impairment and other charges (credits):

<TABLE>
<CAPTION>
                                                       Plant Closure      Personnel
                                             Total       and Leases      Reductions     Impairment          Other
                                             -----     -------------     ----------     ----------        --------
       2002                                                               (millions)
<S>                       <C>                <C>            <C>            <C>            <C>               <C>
       Balance at January 1, 2002            $25.0          $14.7          $ 7.8          $  -              $2.5
       2002 Restructuring Plan                10.0            2.2            4.5           2.5               0.8
       Adjustments and other                  (5.2)          (4.4)          (1.4)            -               0.6
       Net cash receipts (spending)           (4.5)           0.1           (2.7)            -              (1.9)
       Asset impairment                       (2.5)             -              -          (2.5)                -
                                             -----          -----          ------         ----              ----
       Balance at December 29, 2002           22.8           12.6            8.2             -               2.0

       2003
       Adjustments                            (1.8)           0.2           (1.8)            -              (0.2)
       Cash spending                         (11.3)          (4.8)          (5.5)            -              (1.0)
                                             -----          -----          -----          ----              ----
       Balance at December 28, 2003            9.7            8.0            0.9             -               0.8

       2004
       Restructuring and impairment charges    3.2            2.4            0.8             -                 -
       Cash spending                          (4.1)          (2.3)          (1.0)            -              (0.8)
       Asset impairment                       (1.4)          (1.4)             -             -                 -
                                             -----          -----          -----          ----              ----
       Balance at January 2, 2005            $ 7.4          $ 6.7          $ 0.7          $  -              $  -
                                             =====          =====          =====          ====              ====
</TABLE>

     The Company  expects to spend  approximately  $1.8 million during 2005 with
the balance to be spent through  2012,  primarily  for lease  termination  costs
which are recorded net of estimated sublease rental income of approximately $3.8
million.

6.   INVENTORIES

     The components of inventory are listed below.

                                          January 2,            December 28,
                                             2005                     2003
                                          ----------            ------------
                                                    (thousands)
     Raw materials and supplies           $ 63,336                $61,855
     Work-in-process                        18,667                 16,484
     Finished goods                         18,026                 17,543
                                          --------                -------
     Total                                $100,029                $95,882
                                          ========                =======


                                      F-16
<PAGE>


                   FOAMEX INTERNATIONAL INC. AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

7.   LONG-TERM DEBT AND REVOLVING CREDIT BORROWINGS

     The components of long-term debt and revolving credit borrowings are listed
below.

<TABLE>
<CAPTION>
                                                                       January 2,            December 28,
                                                                          2005                   2003
                                                                       ----------            ------------
     Foamex L.P. Senior Secured Credit Facility                                  (thousands)
<S>            <C>                                                      <C>                   <C>
     Term Loan (1)                                                      $ 37,371              $ 48,214
     Foamex L.P. Secured Term Loan (1)                                    80,000                80,000
     10 3/4% Senior Secured Notes due 2009 (2) (4)                       309,703               311,950
     9 7/8% Senior Subordinated Notes due 2007 (2)                       148,500               148,500
     13 1/2% Senior Subordinated Notes due 2005 (includes
       $581 and $1,543 of unamortized debt premium) (2)                   52,166                53,128
     Industrial revenue bonds (3)                                          7,000                 7,000
     Other (net of unamortized debt discount of $45 in 2004
       and $93 in 2003)                                                      852                   766
                                                                        --------              --------
                                                                         635,592               649,558

     Less current portion                                                 67,131                15,937
                                                                        --------              --------

     Long-term debt                                                     $568,461              $633,621
                                                                        ========              ========

     Revolving credit borrowings (1)                                    $114,907              $ 96,065
                                                                        ========              ========
</TABLE>

(1)  Subsidiary debt of Foamex L.P.,  guaranteed by the Company,  FMXI, Inc. and
     Foamex Canada.
(2)  Subsidiary debt of Foamex L.P. and Foamex Capital Corporation.
(3)  Subsidiary debt of Foamex L.P.
(4)  Includes $9.7 million in 2004 and $12.0 million in 2003 of deferred credits
     on interest rate swap transactions.

Senior Secured Credit Facility

     On August 18,  2003,  Foamex  L.P.  entered  into a Senior  Secured  Credit
Facility  with a new group of lenders and an $80.0  million  term loan  facility
with another lender.  Proceeds  borrowed under these new facilities were used to
repay all  outstanding  balances under the Foamex L. P. Amended Credit  Facility
which was  terminated  as of August  18,  2003.  In  addition,  Foamex  Canada's
revolving  credit facility that did not have any outstanding  borrowings and had
availability of approximately $5.9 million was terminated as of August 18, 2003.
The termination of the Amended Credit  Facility  resulted in a write off of debt
issuance costs of $12.9 million recorded in 2003.

     The Senior  Secured  Credit  Facility  initially  consisted  of a revolving
credit facility with a maximum availability of $190.0 million and a term loan of
$50.0 million.  On November 3, 2004, the lenders under the Senior Secured Credit
Facility  agreed to lend up to an  additional  $15.0  million under a new junior
term loan. The revolving  credit facility  includes a $50.0 million sublimit for
letters of credit and availability is limited to eligible  amounts,  as defined,
of accounts receivable and inventory.  At January 2, 2005 and December 28, 2003,
Foamex L.P. had available  borrowings of  approximately  $25.0 million and $46.8
million,  respectively,  and letters of credit  outstanding of $22.1 million and
$20.9  million,  respectively.  Borrowings  under the term loan are  limited  to
eligible amounts,  as defined,  of equipment and real estate.  Substantially all
the assets of Foamex L.P. and its domestic  subsidiaries  and Foamex  Canada are
pledged as collateral for the related borrowings. Borrowings under the revolving
credit facility and the term loan bear interest at floating rates based upon and
including a margin over either LIBOR or a Base Rate,  as defined.  At January 2,
2005, the weighed average interest rates were 6.00% for both the revolving loans
and the term loan. At December 28, 2003,  the weighted  average  interest  rates
were 4.53% and 4.42% for the  revolving  loans and the term loan,  respectively.
The term loan requires  quarterly  installment  payments of  approximately  $1.8
million, which commenced on September 30, 2003. Borrowings under the junior term
loan can be used only to repay the 13 1/2% Senior Subordinated Notes at maturity
and will bear


                                      F-17
<PAGE>

                   FOAMEX INTERNATIONAL INC. AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


7.   LONG-TERM DEBT AND REVOLVING CREDIT BORROWINGS (continued)

interest at a floating  rate based upon LIBOR,  as defined,  reset  monthly plus
6.00%.  All borrowings  under the Senior Secured Credit  Facility will mature on
April 30, 2007. The Senior Secured  Credit  Facility  includes both a subjective
acceleration  clause  and a  lockbox  arrangement  which  requires  all  lockbox
receipts be used to repay revolving credit borrowings.  Accordingly,  borrowings
under  the  revolving   credit   facility  are  classified  as  current  in  the
accompanying  consolidated  balance sheet as of January 2, 2005 and December 28,
2003 as required by Emerging  Issues Task Force Issue No. 95-22,  "Balance Sheet
Classification of Borrowings  Outstanding Under Revolving Credit Agreements that
Include both a Subjective  Acceleration  Clause and a Lockbox Arrangement ("EITF
No. 95-22").

     The Secured Term Loan had an original  maturity  date of April 30, 2007. On
November 3, 2004, the lenders agreed to lend up to an additional  $39.0 million,
the proceeds of which could be used only to repurchase  prior to or repay the 13
1/2% Senior  Subordinated  Notes at maturity and certain fees related to the new
financing.  The lenders  also agreed to extend the  maturity of the Secured Term
Loan to April 1, 2009.  Borrowings  under this  facility bear interest at a rate
that is 9.25% plus the greater of the Reference Rate, as defined,  or 4.25%. The
minimum rate,  which was in effect as of December 28, 2003, is 13.50%.  The rate
in effect at January 2, 2005 was 14.50%. In addition,  Foamex L.P. is subject to
a 1.00%  facility  fee on the initial  $80.0  million term loan which is payable
annually on the anniversary date, a 1.5% commitment fee on the unused portion of
the $39.0 million  additional  commitment and a funding fee equal to 2.5% of the
additional  amount  borrowed with a minimum  funding fee of  approximately  $0.6
million.  Borrowings under the Secured Term Loan are  collateralized by the same
collateral as the Senior Secured Credit  Facility.  An  intercreditor  agreement
governs  the  distribution  of  collateral  among the  lenders  under the Senior
Secured Credit Facility and the Secured Term Loan.

10 3/4% Senior Secured Notes

     The 10 3/4% Senior  Secured  Notes were  issued by Foamex  L.P.  and Foamex
Capital  Corporation  on March 25, 2002 and are due on April 1, 2009.  The notes
are guaranteed on a senior basis by all of Foamex L.P.'s  domestic  subsidiaries
that guarantee the Senior Secured  Credit  Facility.  The notes are secured on a
second-priority  basis (subject to permitted  liens) on  substantially  the same
collateral that secures the obligations under the Senior Secured Credit Facility
and the  Secured  Term  Loan.  The notes rank  effectively  junior to all senior
indebtedness  that is  secured  by first  priority  liens and senior in right of
payment  to all  subordinated  indebtedness.  Interest  is  payable  April 1 and
October 1. The notes may be redeemed at the option of Foamex  L.P.,  in whole or
in part,  at any time on or after April 1, 2006.  The initial  redemption  is at
105.375% of their principal  amount,  plus accrued and unpaid interest,  if any,
thereon to the date of redemption  and declining  annually to 100.0% on or after
April 1, 2008.  Additionally,  on or before  April 1,  2005,  up to 35.0% of the
principal  amount of the notes may be  redeemed at a  redemption  price equal to
110.750% of the  principal  amount,  plus accrued and unpaid  interest,  if any,
thereon to the date of  redemption  with the net  proceeds of one or more equity
offerings.

     Upon the  occurrence of a change of control,  as defined,  each holder will
have the right to  require  Foamex  L.P.  to tender for such notes at a price in
cash equal to 101.0% of the aggregate principal amount thereof, plus accrued and
unpaid interest, if any.

     The  Company  was  required  to cause a  registration  statement  under the
Securities  Act of 1933 to be effective  within 180 days of March 25, 2002.  The
Company filed the registration statement, but it was not effective until January
30,  2003 and  therefore  the  Company was liable for  liquidated  damages  from
September 23, 2002 until the date the registration  statement became  effective.
The  liquidated  damages  were at the rate of $15,000  per week for the first 90
days, escalating by $15,000 per week for each additional 90 days. The liquidated
damages of $0.3 million were paid on April 1, 2003.

     Effective May 1, 2002, the Company completed a series of interest rate swap
transactions  with notional  amounts  aggregating  $300.0  million.  The Company
designated, documented and accounted for these interest rate swaps as fair value
hedges of the Company's 10 3/4% Senior Secured Notes due April 1, 2009. The risk
being hedged in these transactions was the change in fair value of the Company's
10 3/4% Senior Secured Notes based on changes in



                                      F-18
<PAGE>

                   FOAMEX INTERNATIONAL INC. AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


7.   LONG-TERM DEBT AND REVOLVING CREDIT BORROWINGS (continued)

the  benchmark  interest  rate,  LIBOR.  The effect of these  interest rate swap
transactions  was to convert the fixed interest rate on the senior secured notes
to floating rates reset twice per year to correspond  with the interest  payment
dates for the 10 3/4% Senior Secured  Notes.  On September 18, 2002, the Company
unwound the interest rate swap transactions in exchange for net cash proceeds of
$18.4 million,  including $3.6 million realized through lower effective interest
rates while the swap  transactions were in effect.  The unwinding  resulted in a
deferred credit of $14.8 million which is being amortized through April 1, 2009,
using the effective interest rate method.

9 7/8% Senior Subordinated Notes

     The 9 7/8% Senior  Subordinated Notes were issued by Foamex L.P. and Foamex
Capital  Corporation  and  are  due  on  June  15,  2007.  The  notes  represent
uncollateralized  general obligations of Foamex L.P. and are subordinated to all
Senior  Debt,  as  defined in the  Indenture.  Interest  is payable  June 15 and
December 15. The notes may be redeemed at the option of Foamex L.P., in whole or
in part,  at any time on or after June 15, 2002.  The initial  redemption  is at
104.938% of their principal  amount,  plus accrued and unpaid interest,  if any,
thereon to the date of redemption  and declining  annually to 100.0% on or after
June 15,  2005.  At January 2, 2005,  the  redemption  price was  101.646%  plus
accrued and unpaid interest.

     Upon the  occurrence of a change of control,  as defined,  each holder will
have the right to  require  Foamex  L.P.  to tender for such notes at a price in
cash equal to 101% of the aggregate  principal amount thereof,  plus accrued and
unpaid interest thereon,  if there is such a "change of control".  The notes are
subordinated in right of payment to all senior  indebtedness  and are pari passu
in right of payment to the 13 1/2% Senior Subordinated Notes (described below).

13 1/2% Senior Subordinated Notes

     The 13 1/2% Senior Subordinated Notes were issued by Foamex L.P. and Foamex
Capital  Corporation  and  are due on  August  15,  2005.  The  notes  represent
uncollateralized  general obligations of Foamex L.P. and are subordinated to all
Senior Debt, as defined in the Indenture.  Interest is payable  semiannually  on
February  15 and August 15.  The notes may be  redeemed  at the option of Foamex
L.P., in whole or in part, at any time on or after August 15, 2000.  The initial
redemption  was  106.75% of their  principal  amount,  plus  accrued  and unpaid
interest,  if any,  thereon to the date of redemption and declining  annually to
100.0% on or after August 15, 2004. At January 2, 2005, the redemption price was
100.000% plus accrued and unpaid interest.

     Upon the  occurrence of a change of control,  as defined,  each holder will
have the right to  require  Foamex  L.P.  to tender for such notes at a price in
cash equal to 101% of the aggregate  principal amount thereof,  plus accrued and
unpaid interest,  if any, thereon,  if there is such a "change of control".  The
notes are  subordinated in right of the payment of all senior  indebtedness  and
are pari  passu in right of  payment  to the 9 7/8%  Senior  Subordinated  Notes
(described above).

Industrial Revenue Bonds ("IRBs")

     IRB debt includes a $1.0 million bond that matures on October 1, 2005 and a
$6.0 million bond that matures in 2013. Interest is based on a variable rate, as
defined,  with options  available to Foamex L.P. to convert to a fixed rate.  At
January 2, 2005,  the interest rate was 1.95% on the $1.0 million bond and 2.04%
on the $6.0 million  bond.  The maximum  interest rate for either of the IRBs is
15.0% per annum.  If Foamex L.P.  exercises its option to convert the bonds to a
fixed  interest  rate  structure,  the IRBs are  redeemable at the option of the
bondholders.  In addition,  at any time prior to conversion to a fixed  interest
rate structure,  bondholders upon notice to the bond trustee and the remarketing
agent may place the bonds for sale. If the  remarketing  agent is not successful
in reselling the bonds before  settlement  is due on bonds placed for sale,  the
bond  trustee  may draw on a letter of credit  issued  under the Senior  Secured
Credit  Facility to repay the bondholder for the bonds placed for sale until the
bonds can be resold by the remarketing agent. Pursuant to this arrangement,  the
IRBs have been classified as current in the  accompanying  consolidated  balance
sheets at January 2, 2005 and December 28, 2003.


                                      F-19
<PAGE>

                   FOAMEX INTERNATIONAL INC. AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

7.   LONG-TERM DEBT AND REVOLVING CREDIT BORROWINGS (continued)

     The  IRBs  are  collateralized  by  certain   properties,   which  have  an
approximate net carrying value of $10.5 million at January 2, 2005.

Other

     Other debt includes a non-interest bearing promissory note with a principal
amount of $0.9 million at January 2, 2005 issued in connection  with  increasing
the  Company's  interest  in an Asian  joint  venture  to  70.0%  in  2001.  The
promissory  note which matures on December 1, 2005 had  unamortized  discount of
$0.1 million at January 2, 2005.

Debt Covenants

     The indentures and other indebtedness  agreements contain certain covenants
that limit, among other things, the ability of the Company's subsidiaries (i) to
pay distributions or redeem equity interests,  (ii) to make certain  restrictive
payments  or  investments,  (iii)  to  incur  additional  indebtedness  or issue
Preferred Equity Interests,  as defined, (iv) to merge,  consolidate or sell all
or substantially  all of its assets,  or (v) to enter into certain  transactions
with affiliates or related  persons.  In addition,  certain  agreements  contain
provisions  that, in the event of a defined  change of control or the occurrence
of an undefined material adverse change in the ability of the obligor to perform
its  obligations,  the  indebtedness  must be repaid,  in certain cases,  at the
option  of  the  holder.   Under  the  most   restrictive  of  the  distribution
restrictions,  the Company could be paid by its  subsidiaries,  as of January 2,
2005,  funds only to the extent to enable  the  Company to meet its tax  payment
liabilities and its normal operating expenses of up to $1.5 million annually, so
long as no default or event of default has occurred.

     On  November  15,  2002,  Foamex  L.P.  and its bank  lenders  executed  an
amendment to the Amended Credit Facility.  Under the amendment,  Foamex L.P. was
subject to minimum net worth,  minimum EBDAIT,  as defined,  and maximum capital
expenditure  covenants  through  periods  ending  December 28, 2003. The minimum
EBDAIT  covenant was tested  monthly,  on a  cumulative  basis,  beginning  with
December  2002.  Foamex L.P.  was in  compliance  with the revised  covenants at
December  29, 2002 and  throughout  2003 until the Amended  Credit  Facility was
terminated on August 18, 2003.  Under the Senior Secured Credit Facility and the
Secured Term Loan,  Foamex L.P. is subject to a minimum  fixed  charge  coverage
ratio, as defined, of 1.00 measured quarterly.  Amendments to the Senior Secured
Credit  Facility  and Secured  Term Loan  executed  on November 3, 2004  allowed
Foamex L.P. to exclude certain charges  aggregating  approximately  $3.7 million
and  approximately  $1.0  million  in the first  and  second  quarters  of 2004,
respectively,  from the computation of the fixed charge coverage ratio.  For the
four quarters ended January 2, 2005,  Foamex L.P.'s fixed charge  coverage ratio
was 0.98 and the lenders have agreed to waive  compliance  with the fixed charge
coverage  ratio for that  period.  On March 31, 2005,  Foamex L.P.  entered into
amendments  with the existing  lenders under the Senior Secured Credit  Facility
and the Secured Term Loan that set lower  minimum fixed charge  coverage  ratios
through  April 2,  2006 and  permit  borrowing  of up to  $25.0  million  of the
additional $39.0 million commitment under the Secured Term Loan, the proceeds of
which would be used to repay  revolving  loans.  Foamex L.P.  incurred  fees and
expenses for the waivers and amendments aggregating  approximately $1.0 million.
For the two  quarters  ended  December  28,  2003,  Foamex  L.P.'s  fixed charge
coverage ratio was 1.09. Foamex L.P. is also subject to a maximum annual capital
expenditure  amount which was $36.0  million for the year ended  January 2, 2005
and will be $46.8 million for the year ending January 1, 2006.


                                      F-20
<PAGE>

                   FOAMEX INTERNATIONAL INC. AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


7.   LONG-TERM DEBT AND REVOLVING CREDIT BORROWINGS (continued)

Maturities of Long-Term Debt

     Scheduled  maturities  of  long-term  debt as of  January 2, 2005 are shown
below (thousands):

     2005                                                          $ 60,595
     2006                                                             7,172
     2007                                                           171,586
     2008                                                                 -
     2009                                                           380,000
     Thereafter                                                       6,000
                                                                   --------
                                                                    625,353

     Unamortized debt premium/discount and fair
         value adjustment, net                                       10,239
                                                                   --------

     Total                                                         $635,592
                                                                   ========

8.   RETIREE BENEFIT PLANS

Defined Benefit Pension Plans

     The Company provides pension and survivor benefits for salaried and certain
hourly employees in the United States (the "Qualified  Pension Plan").  Salaried
employees are provided benefits that are based principally on the combination of
years of credited  service  and  compensation.  Hourly  employees  are  provided
benefits that are based  principally on stated amounts for each year of credited
service.  Certain employees in a wholly-owned  Canadian  subsidiary are provided
pension and survivor benefits.

     The Company also has a supplemental executive retirement plan (the "SERP").
The SERP is a  non-qualified  plan and provides  retirement  benefits to certain
executives  that  supplement the benefits  provided under the Qualified  Pension
Plan.

Retiree Medical and Life Insurance Benefits

     The Company  provides  postretirement  health care and life  insurance  for
eligible  employees,  limited  primarily  to one  manufacturing  facility in the
United States.  These plans are unfunded and benefits are paid as the claims are
submitted. The benefits are only provided until the participant becomes eligible
for Medicare.  Consequently,  the Medicare  Prescription  Drug,  Improvement and
Modernization  Act of 2003 will not  impact  the  obligations  or expense of the
Company.  The Company  retains the right,  subject to  existing  agreements,  to
modify or eliminate these benefits.

     The  measurement  date to determine  pension assets and  obligations is the
calendar year end.


                                      F-21
<PAGE>

                   FOAMEX INTERNATIONAL INC. AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

8.   RETIREE BENEFIT PLANS (continued)

     Change in  projected  benefit  obligations,  plan assets and funded  status
follows:

<TABLE>
<CAPTION>
                                                              Pension Benefits           Other Benefits
                                                             2004          2003         2004         2003
                                                          ----------    ----------    --------     --------
     Change in Benefit Obligations                                            (thousands)
<S>                                                        <C>           <C>           <C>          <C>
       Benefit obligations at beginning of year            $125,052      $107,390      $ 1,234      $ 1,248
       Service cost                                           4,804         4,300           30           29
       Interest cost                                          7,463         7,086           69           76
       Amendments                                                 -           257            -            -
       Benefits paid                                         (6,038)       (5,392)         (78)        (139)
       Plan participants' contributions                           -             -           16           15
       Actuarial loss (gain)                                 12,008        10,461          (45)           5
       Foreign currency exchange rate changes                   615           950            -            -
                                                           --------      --------      -------      -------

       Benefit obligation at end of year                   $143,904      $125,052      $ 1,226      $ 1,234
                                                           ========      ========      =======      =======

     Change in Plan Assets
       Fair value of plan assets at
          beginning of year                                $ 79,886      $ 60,085      $     -      $     -
       Actual return on plan assets                           7,746        15,240            -            -
       Employer contribution                                 10,186         9,564           62          124
       Plan participants' contributions                           -             -           16           15
       Benefits paid                                         (6,038)       (5,392)         (78)        (139)
       Plan administrative expenses                            (500)         (438)           -            -
       Foreign currency exchange rate changes                   588           827            -            -
                                                           --------      --------      -------      -------

       Fair value of plan assets at end of year            $ 91,868      $ 79,886      $     -      $     -
                                                           ========      ========      =======      =======

     Funded Status and Net Amounts Recognized
     in Consolidated Balance Sheets
       Funded status                                       $(52,036)     $(45,166)     $(1,226)     $(1,234)
       Unrecognized transition asset                           (290)         (365)           -            -
       Unrecognized prior service cost (benefit)                192            92          (41)         (47)
       Unrecognized net actuarial loss                       60,021        50,997          328          387
                                                           --------      --------      -------      -------
       Net amount recognized in consolidated
          balance sheets                                   $  7,887      $  5,558      $  (939)     $  (894)
                                                           ========      ========      =======      =======

     Amounts Recognized in the Consolidated
     Balance Sheets
       Prepaid benefit costs                               $  9,263      $  6,520      $     -      $     -
       Accrued benefit liability                            (53,109)      (46,192)        (939)        (894)
       Intangible assets                                        596           674            -            -
       Accumulated other comprehensive loss*                 51,137        44,556            -            -
                                                           --------      --------      -------      -------

       Net amount recognized                               $  7,887      $  5,558      $  (939)     $  (894)
                                                           ========      ========      =======      =======
</TABLE>

*    Before related income tax benefit.

     The accumulated benefit obligation for all defined benefit plans was $135.9
million at year-end 2004 and $119.5  million at year-end 2003.  Information  for
defined benefit plans with an accumulated  benefit  obligation in excess of plan
assets is listed below.


                                      F-22
<PAGE>

                   FOAMEX INTERNATIONAL INC. AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


8.   RETIREE BENEFIT PLANS (continued)

<TABLE>
<CAPTION>
                                                                December 31, 2004          December 31, 2003
                                                                -----------------          -----------------
                                 (thousands)
<S>                                                                 <C>                       <C>
     Projected benefit obligation                                   $139,242                  $121,381
     Accumulated benefit obligation                                 $132,444                  $116,767
     Fair value of plan assets                                      $ 88,128                  $ 76,871
</TABLE>
     Components of Net Periodic Benefit Plan Cost


<TABLE>
<CAPTION>
                                                           Pension Benefits                  Other Benefits
                                                     ----------------------------     -------------------------
                                                      2004       2003      2002        2004      2003     2002
                                                     ------     ------    ------      ------    ------   ------
                                                                             (thousands)
<S>                                                  <C>        <C>       <C>           <C>     <C>      <C>
     Service cost                                    $4,804     $4,300    $3,866        $30     $  29    $ 29
     Interest cost                                    7,463      7,086     6,556         69        76      82
     Expected return on plan assets                  (6,891)    (5,611)   (5,823)         -         -       -
     Amortization of transition assets                  (75)       (75)      (75)         -         -       -
     Amortization of prior service benefit             (111)      (109)     (140)        (6)       (6)     (6)
     Amortization of net loss (gain)                  2,776      3,090     1,643         14        16      15
     Curtailment                                          -          -      (162)         -         -       -
                                                     ------     ------    ------       ----      ----    ----

     Net periodic benefit plan cost                  $7,966     $8,681    $5,865       $107      $115    $120
                                                     ======     ======    ======       ====      ====    ====
</TABLE>

     Additional Information

<TABLE>
<CAPTION>
                                                       Pension Benefits                Other Benefits
                                                   ------------------------       -----------------------
                                                      2004         2003             2004           2003
                                                   ----------   ----------        --------       --------
                                                                      (thousands)
     Increase (decrease) in minimum liability
<S>                                                  <C>         <C>
       included in other comprehensive loss*         $6,581      $(2,033)             N/A            N/A
</TABLE>

*    Before related income tax benefit.

<TABLE>
<CAPTION>
     Weighted-Average Assumptions Used                 Pension Benefits                Other Benefits
                                                   ------------------------       -----------------------
     to Determine Benefit Obligations                 2004         2003             2004           2003
     ----------------------------------------      ----------   ----------        --------       --------
<S>                                                    <C>          <C>            <C>            <C>
     Discount rate -U.S. Plans                         5.5%         6.0%           5.5%           6.0%
     Discount rate - Canadian Plans                   5.75%         6.0%            N/A             N/A
     Expected long-term return on plan assets*         8.5%         9.0%            N/A             N/A
     Rate of compensation increase                3.5%-5.0%    3.5%-5.0%            N/A             N/A

     Weighted-Average Assumptions Used
     to Determine Annual Net Benefit Cost
     Discount rate                                     6.0%         6.5%           6.0%           6.5%
     Expected long-term return on plan assets*         8.5%         9.0%            N/A             N/A
     Rate of compensation increase                3.5%-5.0%    4.0%-5.0%            N/A             N/A
</TABLE>

*    The determination of the expected long-term rate of return is a combination
     of historical  returns and future return assumptions based on the Company's
     pension plan asset strategy as discussed below.

<TABLE>
<CAPTION>
                                                                            Other Benefits
                                                                -----------------------------------------
       Assumed Health Care Cost Trend Rates                     December 31, 2004       December 31, 2003
<S>                                                                     <C>                     <C>
       Health care cost trend rate assumed for next year                11.0%                   12.0%
       Rate to which the cost trend rate is assumed to
         decline (ultimate trend rate)                                   5.0%                    5.0%
       Year that the rate reaches the ultimate trend rate               2011                    2011
</TABLE>


                                      F-23
<PAGE>


                   FOAMEX INTERNATIONAL INC. AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


8.   RETIREE BENEFIT PLANS (continued)

     Assumed  health  care cost  trend  rates have a  significant  effect on the
amounts  reported for the health care plans.  A  one-percentage  point change in
assumed  health care cost trend rates  would have the effects  listed  below for
2004.

     Assumed Health Care Cost Trend

<TABLE>
<CAPTION>
                                                        1% Point Increase         1% Point Decrease
                                                        -----------------         -----------------
                                                                        (thousands)
<S>                                                               <C>                     <C>
     Effect on total of service cost and interest cost            $10                     $  (8)
     Effect on postretirement benefit obligation                  $98                      $(84)
</TABLE>

Funding,  Investment  Strategy,  Asset  Allocations and Risk Management for Plan
Assets.

     U.S.  pension  plan  assets  are  primarily  comprised  of equity  and debt
securities, including both U.S. and foreign securities. At year-end 2004, common
stock of the Company  totaled $1.6 million,  or 1.9% of the assets.  At year-end
2003, common stock of the Company totaled $2.1 million, or 2.8% of the assets.

<TABLE>
<CAPTION>
                                            U. S. Plan Assets
                                --------------------------------------------
                                December 31, 2004          December 31, 2003
                                -----------------          -----------------
<S>                                      <C>                         <C>
     Equity securities                   63%                         64%
     Debt securities                     30                          30
     Other                                7                           6
                                        ---                         ---

     Total                              100%                        100%
                                        ===                         ===
</TABLE>

     The  Company's  funding  policy  for  the  Qualified  Pension  Plan  is  to
contribute an amount that both satisfies the minimum funding requirements of the
Employee  Retirement  Income  Security  Act of 1974 and does not exceed the full
funding limitations of the U.S. Internal Revenue Code.

     For the U.S. pension plans, the investment strategy,  asset allocations and
risk management  strategies are detailed in the Investment Policy Statement (the
"IPS") of the Company. The IPS was developed in conjunction with a comprehensive
review  and  assessment  of  current  and  projected   financial   requirements.
Investment  guidelines  are based on an investment  horizon of greater than five
years.  Key risk management  considerations  include asset  allocation and asset
class mix, control procedures and performance  monitoring and review.  Under the
IPS, the U.S. pension plan may use certain classes of hedge funds (derivatives),
but the amount of hedge funds is limited to less than 3% of U.S. plan assets.

     The strategic target of U.S. pension assets include 60% of equities and 40%
of debt securities and cash and cash equivalents. The amount of cash equivalents
is targeted to approximate one year of benefit payments to plan participants.

Canadian Plan Assets

     Pension plan assets from pension plans in Canada  totaled $7.2 million,  or
7.9% of  assets,  at  year-end  2004 and $5.5  million,  or 6.9% of  assets,  at
year-end 2003.  Canadian pension plan assets are primarily  invested in Canadian
equity securities with the balance in foreign equities.

Cash Flows

Contributions

     The Company  expects to  contribute  $7.4 million to its pension  plans and
$0.1 million to its other postretirement benefit plans in 2005.



                                      F-24
<PAGE>

                   FOAMEX INTERNATIONAL INC. AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

8.   RETIREE BENEFIT PLANS (continued)

Estimated Future Benefit Payments

     The following benefit payments,  which reflect expected future service,  as
appropriate, are expected to be paid:

                               Pension Benefits             Other Benefits
                               ----------------             --------------
       2005                        $ 6,200                       $132
       2006                        $ 6,548                       $120
       2007                        $ 6,822                       $100
       2008                        $ 7,314                       $ 98
       2009                        $ 7,751                       $ 82
       Years 2010-2014             $46,264                       $441

Defined Contribution Plan

     The Company maintains a defined contribution plan, which is qualified under
Section 401(k) of the Internal Revenue Code ("401(k) Plan") and is available for
eligible employees who elect to participate. Under the terms of the 401(k) Plan,
the Company partially matches certain employee contributions.  Expense for these
contributions was $0.9 million,  $0.9 million and $1.0 million in 2004, 2003 and
2002, respectively.

9.   STOCK OPTION PLANS

     The Foamex  International Inc. 2002 Stock Award Plan, as amended (the "2002
Stock Award Plan") provides for the issuance of nonqualified and incentive stock
options  for common  stock of the  Company.  Eligibility  extends to  employees,
directors  and  consultants  of the  Company,  including  its  subsidiaries  and
affiliates.  At the Annual Meeting of Stockholders on May 25, 2004, stockholders
approved an increase in the number of shares  reserved  for  issuance  under the
2002 Stock Award Plan by 2,500,000.  As of January 2, 2005,  4,600,000 shares of
the Company's  common stock are reserved for issuance under the 2002 Stock Award
Plan.

     The 2002 Stock  Award Plan also  provides  for stock  appreciation  rights,
restricted  stock,  phantom  stock units,  performance  share units and/or stock
bonuses, although none of these awards have been issued. Of the 4,600,000 shares
of the Company's common stock reserved under the 2002 Stock Award Plan,  500,000
of these shares are  available  for awards of  restricted  stock,  phantom stock
units, performance share units and/or stock bonuses.

     The 1993 stock option  plan,  as amended,  (the "1993 Stock  Option  Plan")
provided for the issuance of nonqualified and incentive stock options for common
stock of the Company.  Officers and  executives  of the Company,  including  its
subsidiaries  and  affiliates  were eligible to  participate.  During the fourth
quarter of 2003, the 1993 Stock Option Plan expired  according to the provisions
of the plan. Consequently, no further options can be granted under the plan. The
1993 Stock Option Plan  provided  for the issuance of up to 4,750,000  shares of
the Company's common stock.  Options outstanding on the expiration date continue
to be available for the issuance of the  Company's  common stock under the terms
and conditions at their issuance.

     The price and terms of options  under the plans  discussed  above is at the
discretion of the Company,  except that the term of the option cannot exceed ten
years.

     Option Grants

     Options granted in 2004 included the following terms:

     o    805,500 options with a three-year vesting period and a six-year term.

     o    83,334 options with a five-year vesting period and a ten-year term.


                                      F-25
<PAGE>

                   FOAMEX INTERNATIONAL INC. AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


     9.   STOCK OPTION PLANS (continued)

     Options granted in 2003 included the following terms:

     o    141,750 options with a three-year vesting period and a six-year term.

     o    40,000  options with a five-year  vesting  period and a six-year term.
          The vesting  provisions could be accelerated to three-year  vesting in
          either 25%, 50%, or 100%  increments,  depending on certain  financial
          measures in fiscal 2003, as defined. These goals were not attained.

     o    130,833 options with a five-year vesting period and a ten-year term.

     Options granted in 2002 included the following terms:

     o    210,000 options with a three-year vesting period and a ten-year term.

     o    270,500  options with a five-year  vesting period and a ten-year term.
          The vesting  provisions may be accelerated in 50% or 100%  increments,
          depending on the average closing price of the Company common stock, as
          defined.

     o    100,000 options with a three-year vesting period and a six-year term.

     o    756,250  options with a five-year  vesting period and a six-year term.
          The  vesting  provisions  included  accelerated   three-year  pro-rata
          vesting features in either 25%, 50%, or 100% increments,  depending on
          attainment  of certain  financial  goals in fiscal  2003,  as defined.
          These goals were not attained.

     o    897,561 options with a five-year vesting period and a ten-year term.

     All options were  granted  with an exercise  price equal to the fair market
value at the date of the grant.

     Option Modifications

     As provided in a severance  agreement during 2004, the Company extended the
exercise period for 81,000 options for up to one year beyond the exercise period
provided at issuance.  The Company did not recognize any compensation expense in
connection  with this  modification  because the fair market value was less than
the exercise price on the modification date.

     As provided in a severance  agreement during 2003, the Company extended the
exercise  period for 40,700 options up to four years beyond the exercise  period
provided for at issuance. The Company did not recognize any compensation expense
in connection with this modification because the fair market value was less than
the exercise price on the modification date.

     As  provided  in certain  severance  agreements  during  2002,  the Company
extended  the  exercise  period  for 80,900  options  up to one year  beyond the
exercise period provided for at issuance and  accelerated  vesting.  The Company
did  not  recognize   any   compensation   expense  in  connection   with  these
modifications  because the fair market value was less than the exercise price on
the modification date.

     A summary of stock option activity is presented below.

<TABLE>
<CAPTION>
                                            2004                         2003                      2002
                                    --------------------         ---------------------     -----------------------
                                                Weighted                      Weighted                    Weighted
                                                Average                       Average                     Average
                                                Exercise                      Exercise                    Exercise
                                     Shares      Price             Shares      Price        Shares          Price
                                    ---------   --------         ---------    --------     ---------      --------
<S>                                 <C>           <C>            <C>           <C>         <C>             <C>
Outstanding at beginning of period  4,177,431     $6.11          4,528,650     $6.42       3,465,542       $6.88
Granted                               888,834     $4.19            312,583     $3.29       2,234,311       $5.87
Exercised                             (15,000)    $1.23                  -     $   -        (551,352)      $6.33
Forfeited/expired                  (1,991,659)    $6.79           (663,802)    $6.93        (619,851)      $7.07
                                   ----------                    ---------                 ---------
Outstanding at end of period        3,059,606     $5.13          4,177,431     $6.11       4,528,650       $6.42
                                   ==========                    =========                 =========

Exercisable at end of period        1,088,409     $6.50          1,480,265     $7.38       1,365,852       $7.34
</TABLE>



                                      F-26
<PAGE>

                   FOAMEX INTERNATIONAL INC. AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


9.   STOCK OPTION PLANS (continued)

     Listed below is a summary of the stock options  outstanding and exercisable
at January 2, 2005.

       Outstanding
                                                   Weighted          Weighted
              Exercise                             Average           Average
                Price                              Exercise         Remaining
                Range             Options           Price           Life-Years
         -----------------      -----------       ---------         --------
         $ 1.20 -  2.61            626,166           $2.23             4.4
         $ 3.07 -  4.60            960,084           $4.12             5.2
         $ 5.06 -  6.88            819,106           $5.82             4.8
         $ 7.49 - 13.25            654,250           $8.56             5.9
                                 ---------
                                 3,059,606
                                 =========

       Exercisable
                                                         Weighted
             Exercise                                     Average
             Price                                       Exercise
             Range                Options                 Price
         ----------------       -----------              ----------
         $ 1.20 - 2.61              75,333                $2.54
         $ 3.07 - 4.60              55,520                $4.11
         $ 5.06 - 6.88             563,506                $5.75
         $ 7.49 -13.25             394,050                $8.66
                                 ---------
                                 1,088,409
                                 =========

     For purposes of the disclosure  required under SFAS No. 148 and as included
in Note 2, the fair value of each option was  estimated  on the grant date using
the Black-Scholes  option-pricing  model. Based on the assumptions listed below,
the weighted average fair value of options granted was $2.66 per option in 2004,
$2.12 per option in 2003 and $3.74 per option in 2002.

                                   2004            2003             2002
                                ---------        ---------       ----------
    Expected life in years        3.0              3.0              3.0
    Risk-free interest rate       1.89%            2.22%            2.82%
    Volatility                  102.29%          101.73%           97.66%
    Dividend yield                0.00%            0.00%            0.00%

10.    INCOME TAXES

     The sources of income  (loss)  before the  provision  (benefit)  for income
taxes are shown below.

<TABLE>
<CAPTION>
                                                                  2004          2003              2002
                                                               ---------      --------          --------
                                                                            (thousands)
<S>                                                            <C>            <C>               <C>
     United States                                             $(25,342)      $(28,467)         $(30,609)
     Foreign                                                       (256)           974             4,745
                                                               --------       --------          --------
     Loss before provision  (benefit) for income taxes         $(25,598)      $(27,493)         $(25,864)
                                                               ========       ========          ========
</TABLE>


                                      F-27
<PAGE>

                   FOAMEX INTERNATIONAL INC. AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

10.  INCOME TAXES (continued)

     A reconciliation  of the statutory federal income tax to income tax expense
is shown below.

<TABLE>
<CAPTION>
                                                                2004             2003             2002
                                                              --------         --------         ---------
                                                                            (thousands)
<S>                                                           <C>              <C>              <C>
     Statutory income taxes                                   $ (8,959)        $(9,623)         $ (9,052)
     State income taxes, net of federal benefit                 (1,116)           (876)           (1,089)
     Increase (decrease) in valuation allowance                134,737             649           (75,371)
     Deemed distributions of foreign earnings to U.S.                -           3,109                 -
     Alternative minimum tax                                         -               -              (200)
     Foreign tax rate differential                                  12             (10)              192
     Impact of tax rate changes                                      -              85                 -
     Other, net                                                    661             662            (1,292)
                                                              --------         -------          --------
     Total                                                    $125,335         $(6,004)         $(86,812)
                                                              ========         =======          ========
</TABLE>

     The provision (benefit) for income taxes is summarized as follows:

<TABLE>
<CAPTION>
                                                                2004              2003             2002
                                                            ------------      ------------     ------------
     Current                                                                (thousands)
<S>                                                           <C>              <C>              <C>
       Federal                                                $      -         $     -          $  3,004
       State                                                        19              39               160
       Foreign                                                     577           1,286             2,423
                                                              --------         -------          --------
         Total current                                             596           1,325             5,587
                                                              --------         -------          --------

     Deferred
       Federal                                                  (8,825)         (6,562)          (14,577)
       State                                                    (1,135)           (915)           (1,779)
       Foreign                                                     (38)           (501)             (672)
                                                              --------         -------          --------
         Total deferred                                         (9,998)         (7,978)          (17,028)
                                                              --------         -------          --------

     Change in valuation allowance                             134,737             649           (75,371)
                                                              --------         -------          --------

     Total provision (benefit) for income taxes               $125,335         $(6,004)         $(86,812)
                                                              ========         =======          ========
</TABLE>

     The tax  effect of the  temporary  differences  that give rise to  deferred
income tax assets and liabilities are listed below.

<TABLE>
<CAPTION>
                                                                              January 2,         December 28,
                                                                                 2005                2003
                                                                              ----------         ------------
     Deferred income tax assets                                                          (thousands)
<S>                                                                            <C>                  <C>
       Inventory basis differences                                             $  2,089             $  1,804
       Employee benefit accruals                                                 22,989               21,749
       Allowances and contingent liabilities                                     10,342                9,740
       Restructuring and plant closing accruals                                   2,812                3,704
       Other                                                                      4,990                7,201
       Net operating loss carryforwards                                         114,953               99,432
       Capital loss carryforwards                                                   190                  394
       Valuation allowance for deferred income tax assets                      (139,847)              (2,560)
                                                                               --------             --------
       Deferred income tax assets                                                18,518              141,464
                                                                               --------             --------
</TABLE>



                                      F-28
<PAGE>

                   FOAMEX INTERNATIONAL INC. AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

10.  INCOME TAXES (continued)

<TABLE>
<CAPTION>
                                                                              January 2,         December 28,
                                                                                 2005                2003
                                                                              ----------         ------------
       Deferred income tax liabilities                                                  (thousands)
<S>                                                                             <C>                  <C>
         Basis difference in property, plant and equipment                      (12,488)             (13,538)
         Other                                                                   (7,786)              (4,673)
                                                                               --------             --------
         Deferred income tax liabilities                                        (20,274)             (18,211)
                                                                               --------             --------

       Net deferred income tax assets (liabilities)                            $ (1,756)            $123,253
                                                                               ========             ========
</TABLE>

     During the third  quarter of 2004,  the  Company  established  a  valuation
allowance of $128.6 million for its U.S. deferred tax assets. As a result of its
evaluation  of the  realizability  of  its  deferred  tax  assets  conducted  in
accordance with SFAS No. 109, the Company  determined that it is not likely that
it will be able to generate  sufficient amounts of future U.S. taxable income to
utilize its net operating  loss  carryforwards  and realize  other  deferred tax
assets. The uncertainty of recent economic conditions,  including the escalating
cost of chemical  feedstocks,  in part due to  increases in crude oil prices and
their  volatility,  combined  with the  Company's  limited  near term ability to
timely  recover  material cost  increases  from its  customers,  have  adversely
impacted the Company's forecast of future U.S. taxable income. Net U.S. deferred
tax assets generated since the third quarter of 2004 have been subject to a full
valuation allowance.

     The  American  Jobs  Creation  Act of 2004  introduced  a special  one-time
dividends  received  deduction on the repatriation of certain foreign  earnings.
Following a review by the Company,  no earnings  from foreign  subsidiaries  are
anticipated to be repatriated to utilize the special deduction.

     The effective tax benefit rate for 2003,  included a $3.1 million provision
that reduced the effective tax benefit rate. The $3.1 million of tax expense was
related to the Foamex L.P.  Senior  Secured  Credit  Facility and the collateral
provisions that pledged the stock of Foamex Canada. This collateral pledge under
the U.S. Internal Revenue Code resulted in a deemed  distribution of accumulated
earnings, as defined, of Foamex Canada.  Because the Company will not be able to
utilize any Canadian tax credits  associated with the deemed  distribution,  the
full amount of the distribution  was subject to U.S.  taxation and resulted in a
reduction in the amount of the U.S. net operating loss carryforwards available.

     During 2002, the Company  determined that, based on the weight of available
evidence  including improved financial results for the rolling three years ended
March 31, 2002, reduced NOL carryforward limitations based on an asset appraisal
report received in the quarter ended June 30, 2002,  increased  projected future
taxable  income,  and tax planning  strategies  initiated  in 2002,  it was more
likely than not that  substantially  all of its net deferred tax assets would be
realized in the future. Accordingly,  the Company reversed a previously recorded
valuation  allowance of $99.3 million.  The adjustment  increased net income for
2002 by $77.3  million,  and  decreased  goodwill  by $12.4  million  and  other
comprehensive  loss by $9.6 million.  The Company's actual results for 2002 were
essentially  similar to the results it projected  when it reversed the valuation
allowance.

     The Company has U.S. net  operating  loss  carryforwards  of  approximately
$305.9  million  at January 2, 2005  expiring  from 2010 to 2024.  Approximately
$111.5 million of the net operating loss carryforwards  expire in the years 2010
to 2012 with the remainder  principally  expiring in the 2018-2024  period.  The
Company  has  had an  ownership  change  as  defined  in  IRC  Section  382  and
accordingly,  the Company is limited (on an annual basis) to approximately $21.0
million of net operating loss carryforward utilization.

     At January 2, 2005,  the Company  had $2.3  million of net  operating  loss
carryforwards  in a Mexican  subsidiary that expire in 2006 through 2014. A full
valuation allowance has been recorded due to uncertainty  regarding  utilization
of these net operating loss carryforwards.


                                      F-29
<PAGE>

                   FOAMEX INTERNATIONAL INC. AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


10.  INCOME TAXES (continued)

     Cumulative undistributed earnings of foreign subsidiaries for which no U.S.
income or foreign withholding taxes have been provided, amounted to $5.2 million
at  January  2, 2005 and  December  28,  2003.  Such  earnings  are deemed to be
permanently invested by the Company. As such, no deferred tax liability has been
recognized   with  regard  to  the   remittance  of  such   earnings.   Further,
determination  of the amount of unrecognized  deferred tax liability with regard
to such earnings is not practicable.

11.  STOCKHOLDERS' DEFICIENCY

Preferred Stock

     The Company has 5.0 million shares of preferred  stock,  par value of $1.00
per share, authorized for issuance. In 2000, 15,000 shares of Series B Preferred
Stock were issued in exchange for  1,500,000  shares of common  stock.  Series B
Preferred Stock is non-voting, non-redeemable and convertible into 100 shares of
the Company's  common stock.  The  conversion  feature is only  available if the
conversion  would not trigger a "change of control"  event, as discussed in Note
1. The  Series B  Preferred  Stock is  noncumulative  and would be  entitled  to
dividends only if a dividend is declared on the Company's common stock. It ranks
senior to any future  preferred stock issued by the Company and is entitled to a
liquidation  preference of $100 per share. No other  preferred  shares have been
issued.

Common Stock

     The  Company  has 50  million  shares of common  stock,  par value $.01 per
share, authorized. At January 2, 2005, there were 24.5 million shares issued and
outstanding  and 6.5  million  shares of common  stock  reserved  for  potential
issuance in connection with stock option plans, discussed in Note 9. Included in
the  Consolidated  Statements  of  Stockholders'  Deficiency  is the  portion of
compensation  for the Company's  directors  that is paid in common stock.  There
were no cash  dividends  paid by the Company on its common stock during the past
three fiscal years.  The payment of any future  dividends  will be determined by
the Board of Directors  in light of  conditions  then  existing,  including  the
Company's  earnings,  financial  condition  and  requirements,  restrictions  in
financing  agreements,  business conditions and other factors.  The Company is a
holding company whose assets consist  primarily of its wholly-owned  subsidiary,
Foamex L.P.  Consequently,  the Company's  ability to pay dividends is dependent
upon the earnings of Foamex L.P. and any future  subsidiaries of the Company and
the  distribution  of those  earnings  to the  Company  and loans or advances by
Foamex L.P.  and any such future  subsidiaries  to the  Company.  The ability of
Foamex L.P. to make  distributions  is  restricted by the terms of its financing
agreements.  Due to such  restrictions,  the  Company is  expected  to have only
limited  access to the cash flow  generated by Foamex L.P.  for the  foreseeable
future.

Treasury Stock

     The Board of  Directors  has  authorized  the  purchase of up to  3,000,000
shares of the Company's common stock, however the Senior Secured Credit Facility
limits the  Company's  ability to purchase  its common  stock.  As of January 2,
2005, 1,989,000 shares have been purchased under this program.

Accumulated Other Comprehensive Loss

     The components of accumulated other comprehensive loss are listed below.

<TABLE>
<CAPTION>
                                                              January 2,         December 28,      December 29,
                                                                 2005               2003               2002
                                                              ----------         ------------      ------------
                                                                                 (thousands)
<S>                                                            <C>                <C>                <C>
     Foreign currency translation adjustment                   $ (1,219)          $ (3,257)          $ (9,869)
     Minimum pension liability (a)                              (34,076)           (27,575)           (28,885)
                                                               --------           --------           --------
                                                               $(35,295)          $(30,832)          $(38,754)
                                                               ========           ========           ========
</TABLE>


                                      F-30
<PAGE>

                   FOAMEX INTERNATIONAL INC. AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


11.  STOCKHOLDERS' DEFICIENCY (continued)

     (a) Net of income tax  benefit of $17.0  million,  $15.8  million and $16.5
million  at  January  2,  2005,   December  28,  2003  and  December  29,  2002,
respectively.

Preferred Share Purchase Rights

     On August 5,  2004,  the  Board of  Directors  of the  Company  declared  a
dividend of one preferred share purchase right (a "Right") for each  outstanding
share of common stock, par value $0.01 per share,  payable on August 23, 2004 to
the  stockholders of record on August 16, 2004. The Board of Directors  declared
these rights to protect  stockholders from coercive or otherwise unfair takeover
tactics.  The  Rights  would not  interfere  with any  merger or other  business
combination  approved  by  the  Board  of  Directors.  The  Rights  will  become
exercisable only if a person or group  beneficially  acquires 20% or more of the
stockholder  voting  power of the  Company or if a person or group  announces  a
tender  offer,  which,  if  consummated,  would  result in such  person or group
beneficially owning 20% or more of such voting power, in either case without the
approval of the Board of Directors.  The Board of Directors  may, at its option,
redeem the Rights at $0.001 per Right or amend the rights  plan within a certain
period of time before the rights become exercisable.

     Under most  circumstances  involving an acquisition by a person or group of
20% or more of the  stockholder  voting power of the  Company,  and in which the
Rights become  exercisable,  each Right will entitle its holder (other than such
person or group),  in lieu of purchasing  preferred  stock,  to purchase  common
stock of the Company at a 50%  discount.  In  addition,  in the event of certain
business combinations following such an acquisition, each Right will entitle its
holder to  purchase  the common  stock of an  acquirer  of the  Company at a 50%
discount.

     Unless earlier redeemed,  exercised or exchanged, the Rights will expire on
August 4, 2014.

12.    BUSINESS SEGMENTS

     The  reportable   business   segments  reflect  the  Company's   management
organization that is structured based on distinct product lines and customers.

     An executive vice president  heads each operating  segment.  Each executive
vice  president  is  responsible  for  developing  budgets  and plans as well as
directing  the  operations of the segment.  The  performance  of each  operating
segment is measured based upon income from operations,  excluding restructuring,
impairment  and other  charges.  The Company  does not  allocate  restructuring,
impairment and other charges to operating segments because many of the Company's
facilities produce products for multiple segments.

     Foam  Products  manufactures  and  markets  cushioning  foams for  bedding,
furniture,  packaging  and health  care  applications  and  foam-based  consumer
products,  such as  mattress  pads  and  children's  furniture.  Carpet  Cushion
Products  manufactures  and distributes  rebond,  prime,  felt and rubber carpet
padding.  Automotive Products supplies foam products and laminates to major tier
one  suppliers  and  original   equipment   manufactures.   Technical   Products
manufactures  and  markets  reticulated  and  other  specialty  foams  used  for
reservoiring, filtration, gasketing and sealing applications.

     The "other" column in the table below represents certain  manufacturing and
fabrication operations in Mexico City, corporate expenses not allocated to other
business segments and restructuring, impairment and other charges (credits) (see
Note 5). Asset and capital  expenditure  information by business  segment is not
reported because many of the Company's  facilities produce products for multiple
business segments.

     The accounting  policies of the business segments are the same as described
in Note 2.  Business  segment  results  include  revenues  and  costs  that  are
specifically  identifiable  and costs  shared  by  business  segments  have been
allocated based on utilization.


                                      F-31
<PAGE>

                   FOAMEX INTERNATIONAL INC. AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


12.  BUSINESS SEGMENTS (continued)

     Sales to one customer, which are included in Automotive Products, accounted
for  approximately  12.5%,  16.3% and 17.3% of net sales in 2004, 2003 and 2002,
respectively.  No other  customer  accounted  for more  than  10.0% of net sales
during the periods presented.

     Business segment results are presented below.

<TABLE>
<CAPTION>
                                                  Carpet
                                     Foam         Cushion       Automotive     Technical
                                   Products       Products       Products       Products        Other         Total
                                   --------       --------      ----------     ---------      ---------    ----------
2004                                                        (dollars in thousands)
<S>                                <C>            <C>            <C>            <C>           <C>          <C>
Net sales                          $551,414       $209,182       $350,985       $124,146      $ 30,667     $1,266,394
Income (loss) from operations      $ 52,418       $  8,539       $ 19,245       $ 32,916      $(62,516)    $   50,602
Depreciation and amortization      $ 10,213       $  2,978       $  3,116       $  2,801      $  6,825     $   25,933

2003
Net sales                          $507,586       $208,855       $447,068       $117,450      $ 23,601     $1,304,560
Income (loss) from operations      $ 43,983       $  5,395       $ 33,399       $ 32,115      $(52,031)    $   62,861
Depreciation and amortization      $ 11,002       $  3,275       $  2,815       $  2,931      $  6,022     $   26,045

2002
Net sales                          $471,005       $234,001       $466,718       $124,124      $ 32,246     $1,328,094
Income (loss) from operations      $ 45,466       $  1,239       $ 34,146       $ 35,185      $(71,877)    $   44,159
Depreciation and amortization      $ 13,632       $  5,904       $  3,721       $  2,815      $  5,520     $   31,592
</TABLE>

(a) Not meaningful.

     Geographical information is presented below.

<TABLE>
<CAPTION>
                                                      United
                                                      States           Canada            Mexico      Consolidated
                                                     ----------        -------          --------     ------------
2004                                                                           (thousands)
<S>                                                  <C>               <C>              <C>           <C>
Net sales                                            $1,009,102        $59,435          $197,857      $1,266,394
Property, plant and equipment, net                   $  120,578        $ 5,100          $ 15,865      $  141,543

2003
Net sales                                            $  989,075        $67,542          $247,943      $1,304,560
Property, plant and equipment, net                   $  142,602        $ 5,003          $ 15,245      $  162,850

2002
Net sales                                            $  981,927        $66,940          $279,227      $1,328,094
Property, plant and equipment, net                   $  157,007        $ 3,898          $ 21,133      $  182,038
</TABLE>

13.  SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION

                                          2004           2003              2002
                                      ------------   ------------      ---------
                                                    (thousands)
Cash paid for interest                  $73,218        $72,785          $56,583
                                        =======        =======          =======

Cash paid for income taxes, net         $   120        $ 2,349          $ 2,222
                                        =======        =======          =======

Non cash - capital leases               $    49        $     -          $     -
                                        =======        =======           ======



                                      F-32
<PAGE>



                   FOAMEX INTERNATIONAL INC. AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS



14.    RELATED PARTY TRANSACTIONS AND BALANCES

     The Company  regularly enters into  transactions with its affiliates in the
ordinary course of business.

Trace Promissory Notes

     On July 1, 1997, Trace International  Holdings,  Inc. ("Trace"),  which was
formerly a major stockholder of the Company, borrowed $5.0 million pursuant to a
promissory  note with an aggregate  principal  amount of $5.0 million  issued to
Foamex L.P. on June 12, 1997. The promissory  note was due and payable on demand
or, if no demand  was made,  on July 7,  2001,  and bears  interest  at 2?% plus
three-month LIBOR, as defined, per annum payable quarterly in arrears commencing
October 1, 1997. On June 12, 1997, another promissory note issued to Foamex L.P.
by Trace in July 1996 was amended.  The amended  promissory note is an extension
of a promissory note of Trace that was due in July 1997. The aggregate principal
amount of the  amended  promissory  note was  increased  to  approximately  $4.8
million and the maturity of the promissory note was extended.  The principal was
reduced by approximately $0.6 million relating to a portion of the proceeds from
the sale of a  corporate  aircraft  in  1999.  The  promissory  note was due and
payable on demand or, if no demand was made, on July 7, 2001, and bears interest
at 2 3/8% plus  three-month  LIBOR, as defined,  per annum payable  quarterly in
arrears.

     The  Trace  notes are  included  in the other  component  of  stockholders'
deficiency.  Based on Trace's bankruptcy filing and financial  condition,  it is
not  probable  that  Trace  will be able to pay  the  aggregate  amount  of $9.2
million. Upon conclusion of the Trace bankruptcy  proceedings,  the Company will
charge the uncollected  portion of the Trace notes to accumulated  deficit.  The
Company  has not  recorded  any  interest  income on these notes since the Trace
bankruptcy.

Trace Accounts Receivable

     At January 2, 2005 and  December 28, 2003,  operating  accounts  receivable
from Trace were approximately $3.1 million and $3.4 million, respectively. These
accounts receivable were fully reserved for prior to 2002.

Foam Funding LLC Debt

     Subsidiaries  of the Company paid interest on notes payable to Foam Funding
LLC, an affiliate of Trace, of $0.7 million in 2002. Subsidiaries of the Company
paid  principal on notes  payable to Foam Funding LLC of $31.6  million in 2002.
This debt was fully repaid in 2002.

Other

     Effective  February 10, 2004, the Company's  Chairman resigned his position
by mutual  agreement with the Company's  Board of Directors.  In connection with
this  resignation,  the Company  entered  into a separation  agreement  with the
former Chairman and recorded a one-time charge of approximately  $1.4 million in
the first  quarter of 2004 for amounts  payable  under this  agreement,  none of
which related to past service rendered by the former Chairman. Additionally, the
Company  recorded the reversal of  approximately  $1.4 million  reflected on the
balance sheet as of December 28, 2003 related to various  retirement  provisions
contained in an employment agreement with the Company that are no longer payable
to the former Chairman under the terms of the separation agreement.

     In 2002,  pursuant  to the  terms of an  existing  agreement,  the  Company
acquired  the 5.0% stock  interest in Foamex de Mexico S.A. de C.V.  ("Foamex de
Mexico")  which had been held by the  general  director  of Foamex de Mexico for
$1.0 million.

     In 2001,  one of the  Company's  former  directors  received a loan of $0.2
million from the Company's  joint  venture in Asia.  The loan was evidenced by a
20-year non-recourse  promissory note bearing interest at 4.0% per annum secured
by the former  director's  5.0%  interest in the value of the  Company's  equity
interest in the joint venture in Asia. The Company also  maintained an apartment
used by this former director. Rent expense for this


                                      F-33
<PAGE>


                   FOAMEX INTERNATIONAL INC. AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

14.  RELATED PARTY TRANSACTIONS AND BALANCES (continued)

facility  was $0.1  million  in 2004  and $0.2  million  in 2003 and  2002.  The
apartment lease expired in 2004 and was not renewed.

     The Company,  Recticel,  a European  polyurethane  foam  manufacturer,  and
Beamech Group Limited,  an unaffiliated third party, have an interest in a Swiss
corporation  that develops new  manufacturing  technology  for the production of
polyurethane  foam  including the VPF(SM)  manufacturing  process.  Recticel and
affiliates of Recticel are shareholders of the Company.

     The  Company's  former Pico Rivera,  California  facility was owned by Foam
Funding LLC and leased to the  Company.  The Pico Rivera  facility was sold to a
third party during 2002.

     During 2001,  the Company  entered into an agreement  that  guarantees  two
non-recourse  promissory  notes,  totaling  $0.7  million,  payable to a foreign
affiliate that the Company accounts for under the equity method.  The promissory
notes were issued to a former  director of the Company and an employee of Foamex
L.P. The Company has  established  an accrual of $0.3 million  included in other
liabilities at January 2, 2005 since the promissory notes are non recourse.

     During 2002,  a member of the Board of  Directors  became an officer of the
Company at an annual  salary of at least $0.4 million plus a target annual bonus
of 75.0% of base  salary  of which  80.0%  was  guaranteed  in any  given  year.
Additionally  under the  employment  agreement,  the  director  had the right to
terminate  employment and receive termination benefits under certain conditions,
including  the Company's  failure to purchase a business  owned by the director.
Since the  Company did not enter into a  definitive  agreement  to purchase  the
business by October 31,  2002,  the  director  had the option to  terminate  the
employment  agreement  within 90 days and  exercised the  termination  option in
January 2003. This director did not stand for reelection at the Company's annual
shareholder  meeting  held on May 23, 2003.  During 2002,  the Company paid $0.5
million to the director's business for consulting services.

     Also during 2002,  the Company  entered into an agreement  with a member of
the Board of  Directors  to  provide  consulting  services  in  connection  with
potential  strategic  business  opportunities  in Asia at an annual cost of $0.2
million. The Company also paid $0.1 million in 2004 and $0.5 million in 2002 for
legal services to a law firm in which another director is a partner.

15.    COMMITMENTS AND CONTINGENCIES

Operating Leases

     The Company is obligated under various  noncancelable  lease agreements for
rental of facilities,  vehicles and other equipment.  Many of the leases contain
renewal  options  with  varying  terms and  escalation  clauses that provide for
increased  rentals based upon increases in the Consumer Price Index, real estate
taxes and lessors' operating expenses. Total minimum rental commitments required
under operating leases at January 2, 2005 are (thousands):

     2005                                  $16,232
     2006                                   12,065
     2007                                   10,012
     2008                                    8,061
     2009                                    6,186
     Balance                                18,878
                                           -------
     Total                                 $71,434
                                           =======

     Rental expense charged to operations  under operating  leases  approximated
$19.3  million,  $18.8  million  and  $23.4  million  in 2004,  2003  and  2002,
respectively.  Substantially  all such rental  expense  represented  the minimum
rental payments under operating leases.


                                      F-34
<PAGE>


                   FOAMEX INTERNATIONAL INC. AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

15.  COMMITMENTS AND CONTINGENCIES (continued)

Contractual Commitments

     The Company has entered into contracts for information  technology services
and certain raw materials that have minimum  purchase  commitments  estimated at
$117.7  million in 2005,  $98.3 million in 2006,  $92.5  million in 2007,  $88.5
million in 2008 and $88.5 million in 2009.

Litigation

     The Company is party to various lawsuits,  both as defendant and plaintiff,
arising in the normal course of business.  It is the opinion of management  that
the  disposition of these lawsuits will not,  individually  or in the aggregate,
have a material adverse effect on the Company's financial position or results of
operations.  If management's  assessment of the Company's  liability relating to
these actions is incorrect,  these actions could have a material  adverse effect
on the Company's consolidated financial position, results of operations and cash
flows.

     As of January 2, 2005, the Company had accrued  approximately  $1.1 million
for litigation and other legal matters in addition to the environmental  matters
discussed below.

Environmental and Health and Safety

     The Company is subject to extensive and changing federal,  state, local and
foreign environmental laws and regulations, including those relating to the use,
handling, storage, discharge and disposal of hazardous substances, the discharge
or  emission  of  materials  into  the  environment,   and  the  remediation  of
environmental  contamination,  and as a result, is from time to time involved in
administrative and judicial  proceedings and inquiries relating to environmental
matters.  As of January 2, 2005, the Company had accruals of approximately  $2.0
million for environmental matters,  including approximately $1.7 million related
to  remediating   and  monitoring  soil  and   groundwater   contamination   and
approximately  $0.3 million  related to sites where it has been  designated as a
PRP, by the EPA or a state authority,  and other matters.  Additional losses, if
any, in excess of amounts currently accrued,  cannot be reasonably  estimated at
this time.  If there are  additional  matters or if our  current  estimates  are
incorrect,  there could be a material adverse effect on the Company's  financial
position, results of operations and cash flows.

     On  August  31,  2002,   Environment  Canada,  the  Canadian  environmental
regulatory agency,  finalized a rule, which requires flexible  polyurethane foam
manufacturing  operations to reduce  methylene  chloride  (dichloromethane)  air
emissions.  The  rule  established  a  50.0%  reduction  in  methylene  chloride
emissions by December 1, 2004, which we have implemented,  and 100.0% reductions
by January 1, 2007.  This  standard  has not and will not require the Company to
make material expenditures for its Canadian plants.

     The Company has reported to the appropriate  state  authorities that it had
found soil and/or  groundwater  contamination  in excess of state  standards  at
certain locations.  Seven sites are currently in various stages of investigation
or  remediation.  Accordingly,  the  extent of  contamination  and the  ultimate
liability is not known with certainty for all sites.

     The Company has either upgraded or closed all underground  storage tanks at
its facilities in accordance with applicable regulations.

     The CERCLA and comparable state laws impose liability without fault for the
costs of  cleaning  up  contaminated  sites on certain  classes of persons  that
contributed to the release of hazardous substances into the environment at those
sites, for example, by generating wastes containing  hazardous  substances which
were disposed at such sites. The Company is currently designated as a PRP by the
EPA or by state  environmental  agencies  or other  PRPs,  pursuant to CERCLA or
analogous state statutes,  with respect to 12 sites.  Estimates of total cleanup
costs and fractional allocations of liability are often provided by the EPA, the
state  environmental  agency  or the  committee  of  PRPs  with  respect  to the
specified site. Based on these estimates (to the extent  available) and on known
information,  in each case and in the  aggregate,  the  Company  does not expect
additional costs, if any, to be material to liquidity,  results of operations or
financial position.


                                      F-35
<PAGE>


                   FOAMEX INTERNATIONAL INC. AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


15.  COMMITMENTS AND CONTINGENCIES (continued)

     The  possibility   exists  that  new   environmental   legislation   and/or
environmental  regulations may be adopted,  or other  environmental  conditions,
including the presence of previously unknown environmental contamination, may be
found  to  exist  or  a  reassessment  of  the  potential  exposure  to  pending
environmental  matters  may  be  necessary  due  to new  information  or  future
developments,  that may require expenditures not currently  anticipated and that
may be material.

16.  QUARTERLY FINANCIAL DATA (UNAUDITED)

<TABLE>
<CAPTION>
                                                     First           Second          Third          Fourth
                                                    Quarter          Quarter       Quarter(a)       Quarter
                                                    -------          -------       ----------       -------
                                                                                   (restated)
                                                            (thousands, except per share amounts)
    2004
<S>                                                 <C>              <C>           <C>             <C>
      Net sales                                     $313,618         $314,140      $ 309,993       $328,643
      Gross profit                                  $ 39,759         $ 40,181      $  33,172       $ 28,735
      Net loss                                      $ (2,115)        $ (2,617)     $(131,234)(b)   $(14,967)

      Loss per share
        Basic                                       $  (0.09)        $  (0.11)     $   (5.37)      $  (0.61)
        Diluted                                     $  (0.09)        $  (0.11)     $   (5.37)      $  (0.61)

                                                      First          Second         Third           Fourth
                                                     Quarter         Quarter       Quarter          Quarter
                                                    -------          -------       ----------       -------
                                                           (thousands, except per share amounts)
    2003
      Net sales                                     $328,151         $337,637      $ 323,542       $315,230
      Gross profit                                  $ 30,537         $ 38,674      $  37,346       $ 37,133
      Net income (loss)                             $(10,422)        $  3,445      $ (10,999)      $ (3,513)

      Earnings (loss) per share
        Basic                                       $  (0.43)        $   0.14      $   (0.45)      $  (0.14)
        Diluted                                     $  (0.43)        $   0.13      $   (0.45)      $  (0.14)
</TABLE>

(a)  The third  quarter of 2004 has been restated on April 4, 2005 to correct an
     error in  recording a valuation  allowance  established  in that period for
     deferred income tax assets. The restatement increased the reported net loss
     in the third quarter of 2004 by $16.7  million,  but had no impact on total
     stockholders' deficiency.

(b)  Includes  establishment  of a deferred  tax  valuation  allowance of $128.6
     million.


                                      F-36
<PAGE>



                            FOAMEX INTERNATIONAL INC.
                     INDEX TO FINANCIAL STATEMENT SCHEDULES


       Index to Financial Statement Schedules

       Schedule I - Condensed Financial Information of Registrant

       Schedule II - Valuation and Qualifying Accounts

     All other  schedules  are omitted  since the  required  information  is not
present or is not present in amounts  sufficient  to require  submission  of the
schedule,  or because the information  required is included in the  consolidated
financial statements and notes thereto.



                                      S-1
<PAGE>

                                                                      Schedule I
                   FOAMEX INTERNATIONAL INC. AND SUBSIDIARIES
                  CONDENSED FINANCIAL INFORMATION OF REGISTRANT
                                 BALANCE SHEETS

<TABLE>
<CAPTION>
                                                                               January 2,           December 28,
                                                                                 2005                   2003
                                                                               ---------           -------------
ASSETS                                                                          (thousands, except share data)
CURRENT ASSETS
<S>                                                                             <C>                 <C>
    Cash and cash equivalents                                                   $      -            $       -
    Intercompany receivables                                                         298                  141
    Deferred taxes                                                                     -               15,676
                                                                                --------            ---------
            Total current assets                                                     298               15,817

DEFERRED INCOME TAXES                                                                  -              109,243
                                                                                --------            ---------


TOTAL ASSETS                                                                    $    298            $125,060
                                                                                ========            ========

LIABILITIES AND STOCKHOLDERS' DEFICIENCY
CURRENT LIABILITIES
    Accounts payable                                                            $      1            $      9
    Other accrued liabilities                                                      3,044                3,051
                                                                                --------            --------
      Total current liabilities                                                    3,045               3,060

LONG-TERM LIABILITIES
    Deficit in consolidated subsidiaries                                         355,566             325,116
                                                                                --------            --------
      Total liabilities                                                          358,611             328,176
                                                                                --------            --------

COMMITMENTS AND CONTINGENCIES

STOCKHOLDERS' DEFICIENCY
    Preferred Stock, par value $1.00 per share:
      Authorized 5,000,000 shares
      Issued 15,000 shares - Series B in 2004 and 2003                                15                  15
    Common Stock, par value $.01 per share:
      Authorized 50,000,000 shares
      Issued 27,949,762 shares in 2004 and 27,898,149 shares in 2003;
      Outstanding 24,460,762 shares in 2004 and 24,409,149 shares in 2003            279                 279
    Additional paid-in capital                                                   102,354             102,155
    Accumulated deficit                                                         (388,665)           (237,732)
    Accumulated other comprehensive loss                                         (35,295)            (30,832)
    Other:
      Common Stock held in treasury, at cost:
        3,489,000 shares in 2004 and 2003                                        (27,780)            (27,780)
      Shareholder note receivable                                                 (9,221)             (9,221)
                                                                                --------            --------

    Total stockholders' deficit                                                 (358,313)           (203,116)
                                                                                --------            --------

      TOTAL LIABILITIES AND STOCKHOLDERS' DEFICIENCY                            $    298            $125,060
                                                                                ========            ========
</TABLE>


                 See notes to consolidated financial statements,
                             beginning on Page F-9.
                                   (continued)


                                      S-2
<PAGE>

                                                                      Schedule I

                   FOAMEX INTERNATIONAL INC. AND SUBSIDIARIES
                  CONDENSED FINANCIAL INFORMATION OF REGISTRANT
                            STATEMENTS OF OPERATIONS

<TABLE>
<CAPTION>
                                                             2004              2003             2002
                                                          -----------       ----------       ------------
                                                           (amounts in thousands except per share amounts)
SELLING, GENERAL AND
<S>                                                       <C>               <C>               <C>
    ADMINISTRATIVE EXPENSES                               $   1,198         $  1,574          $    418
                                                          ---------         --------          --------

LOSS FROM OPERATIONS                                         (1,198)          (1,574)             (418)

EQUITY IN LOSS OF CONSOLIDATED
    SUBSIDIARIES                                            (25,033)         (27,416)          (27,208)

INTEREST EXPENSE                                                  -                -                33
                                                          ---------         --------          --------

LOSS BEFORE PROVISION (BENEFIT) FOR
    INCOME TAXES AND CUMULATIVE EFFECT
    OF ACCOUNTING CHANGES                                   (26,231)         (28,990)          (27,659)

PROVISION (BENEFIT) FOR INCOME TAXES                        124,702           (7,501)          (88,607)
                                                          ---------         --------          --------

INCOME (LOSS) BEFORE CUMULATIVE EFFECT OF
    ACCOUNTING CHANGES                                     (150,933)         (21,489)           60,948

CUMULATIVE EFFECT OF ACCOUNTING
    CHANGES                                                       -                -           (70,647)
                                                          ---------         --------          --------

NET LOSS                                                  $(150,933)        $(21,489)         $ (9,699)
                                                          =========         ========          ========

EARNINGS PER SHARE - BASIC

   INCOME (LOSS) BEFORE CUMULATIVE EFFECT
    OF ACCOUNTING CHANGES                                 $   (6.17)        $  (0.88)         $   2.51
   CUMULATIVE EFFECT OF ACCOUNTING CHANGES                        -                -             (2.91)
                                                          ---------         --------          --------
   NET LOSS                                               $   (6.17)        $  (0.88)         $  (0.40)
                                                          =========         ========          ========

EARNINGS PER SHARE - DILUTED
   INCOME (LOSS) BEFORE CUMULATIVE EFFECT
     OF ACCOUNTING CHANGES                                $   (6.17)        $  (0.88)         $   2.32
   CUMULATIVE EFFECT OF ACCOUNTING CHANGES                        -                -             (2.69)
                                                          ---------         --------          --------
   NET LOSS                                               $   (6.17)        $  (0.88)         $  (0.37)
                                                          =========         ========          ========
</TABLE>

Provision for income taxes includes the  establishment of a valuation  allowance
for deferred income tax assets of $128.6 million in 2004.

Cumulative effect of accounting  changes include equity in subsidiaries of $72.0
million in 2002.

                 See notes to consolidated financial statements,
                             beginning on Page F-9.
                                   (continued)


                                      S-3
<PAGE>

                                                                      Schedule I
                   FOAMEX INTERNATIONAL INC. AND SUBSIDIARIES
                  CONDENSED FINANCIAL INFORMATION OF REGISTRANT
                            STATEMENTS OF CASH FLOWS

<TABLE>
<CAPTION>
                                                               2004                2003              2002
                                                             ---------          ----------      ------------
OPERATING ACTIVITIES                                                             (thousands)
<S>                                                          <C>                  <C>                <C>
    Net loss                                                 $(150,933)           $(21,489)          $ (9,699)
    Adjustments to reconcile net loss to
      net cash used for operating activities:
      Deferred income taxes                                    124,702              (7,509)           (90,681)
      Equity in losses of consolidated subsidiaries             25,033              27,416             24,413
      Cumulative effect of accounting changes                        -                   -             70,647
      Other                                                        183                 180              2,012
    Changes in operating assets and liabilities:
      Intercompany receivables                                    (157)                952               (377)
      Accounts payable                                              (8)                  3                (90)
      Other assets and liabilities                                 (37)               (164)             2,968
                                                             ---------            --------           --------
       Net cash used for operating activities                   (1,217)               (611)              (807)
                                                             ---------            --------           --------

INVESTING ACTIVITIES
    Distribution from (to) subsidiaries                          1,200                 513               (105)
                                                             ---------            --------           --------
      Net cash provided by (used for) investing activities       1,200                 513               (105)
                                                             ---------            --------           --------

FINANCING ACTIVITIES
    Repayments of note payable to consolidated
      subsidiary                                                     -                   -             (2,490)
    Proceeds from exercise of stock options                         18                   -              3,494
    Increase (decrease) in cash overdraft                           (1)                (60)                64
                                                             ---------            --------           --------
       Net cash  provided by (used for) financing activities        17                 (60)             1,068
                                                             ---------            --------           --------

NET INCREASE (DECREASE) IN CASH AND
    CASH EQUIVALENTS                                                 -                (158)               156

CASH AND CASH EQUIVALENTS AT
    BEGINNING OF PERIOD                                              -                 158                  2
                                                             ---------            --------           --------

CASH AND CASH EQUIVALENTS AT
    END OF PERIOD                                            $       -            $      -           $    158
                                                             =========            ========           ========
</TABLE>

                 See notes to consolidated financial statements,
                             beginning on Page F-9.



                                      S-4
<PAGE>

                                                                    Schedule II
                   FOAMEX INTERNATIONAL INC. AND SUBSIDIARIES
                        VALUATION AND QUALIFYING ACCOUNTS
                                   (thousands)

<TABLE>
<CAPTION>
                                             Balance at      Charged to    Charged to                     Balance at
                                            Beginning of     Costs and       Other                         End of
                                              Period         Expenses       Accounts     Deductions         Period
                                            ------------     ----------    ----------    ----------       ----------

YEAR ENDED JANUARY 2, 2005
<S>                                           <C>              <C>          <C>             <C>             <C>
Allowance for Uncollectible Accounts          $8,254           $3,291       $     -         $ 4,491         $7,054
                                              ======           ======       =======         =======         ======

Reserve for Discounts                         $2,251           $    -       $14,751 (1)     $15,055         $1,947
                                              ======           ======       =======         =======         ======


YEAR ENDED DECEMBER 28, 2003
Allowance for Uncollectible Accounts          $7,963           $2,115       $  (217)        $ 1,607         $8,254
                                              ======           ======       =======         =======         ======

Reserve for Discounts                         $2,348           $    -       $13,429 (1)     $13,526         $2,251
                                              ======           ======       =======         =======         ======


YEAR ENDED DECEMBER 29, 2002
Allowance for Uncollectible Accounts          $8,720           $2,336       $     -         $ 3,093         $7,963
                                              ======           ======       =======         =======         ======

Reserve for Discounts                         $2,220           $    -       $15,143 (1)     $15,015         $2,348
                                              ======           ======       =======         =======         ======
</TABLE>




(1)  Adjustments reflect a reduction in net sales.


                                      S-5
<PAGE>