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 December 29, 2002
                                             -----------------
                                       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
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(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      NO  X
                                                          ----     ---

       The aggregate market value of the voting stock held by nonaffiliates of
the registrant as of March 11, 2003, was $14.6 million.

       The number of shares outstanding of the registrant's common stock as of
March 14, 2003 was 24,350,658.

                       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>

<TABLE>
<CAPTION>






                                                           FOAMEX INTERNATIONAL INC.

                                                                   INDEX

                                                                                                               Page
                                                                                                               ----
Part I
<S>            <C>                                                                                                <C>
         Item  1.     Business                                                                                    3
         Item  2.     Properties                                                                                 10
         Item  3.     Legal Proceedings                                                                          11
         Item  4.     Submission of Matters to a Vote of Security Holders                                        13

Part II
         Item  5.     Market for Registrant's Common Equity and
                           Related Stockholder Matters                                                           13
         Item  6.     Selected Consolidated Financial Data                                                       13
         Item  7.     Management's Discussion and Analysis of
                           Financial Condition and Results of Operations                                         15
         Item  7a.    Quantitative and Qualitative Disclosures about Market Risk                                 31
         Item  8.     Financial Statements and Supplementary Data                                                31
         Item  9.     Changes in and Disagreements with Accountants
                           on Accounting and Financial Disclosure                                                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.     Controls and Procedures                                                                    31

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

         Signatures                                                                                              39

         Certification of Chief Executive Officer                                                                41

         Certification of Chief Financial Officer                                                                42
</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 December 29,
2002, our operations are conducted through our wholly-owned  subsidiary,  Foamex
L.P.,  and through  Foamex Canada Inc.,  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.

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  quilts,  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)  and  viscoelastic  or
"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.  We also
have   introduced  high   efficiency   thermal   management  foam  products  for
applications in work gloves and outerwear.

       Carpet Cushion Products

       We manufacture carpet cushion products, which include rebond, prime, felt
and rubber carpet padding. Prime carpet padding is made from virgin polyurethane
foam buns.  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 fiber 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 both natural and synthetic
rubber.


                                       3
<PAGE>


       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, which includes our new
SmoothBond(R)  product,  using  patented  VPF(SM)  technology to provide  unique
comfort   characteristics  in  seating  applications;   CustomFit(R)  semi-rigid
thermoformable  foams,  to provide  structure  and shape in headliner  substrate
applications;  Qylite(R)  acoustical  foams,  to reduce noise and improve  sound
quality  in the  vehicle.  We  provide  a range of foams  in this  category  for
applications  such  as  dash  insulators,  hood  insulators  and  interior  trim
insulators;  contoured  foam products for motor  vehicle  floor carpet  underlay
pads;  barrier foam products,  which provide soft-touch  cushioning,  while also
allowing  our  customers  to  more  efficiently   process  the  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 allow our customers to meet federal  regulatory  safety  standards for their
components;  molded  seating  cushions,  diversifying  us  further  into  molded
products to complement our core slab-based business.

       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.

       We maintain our position in the automotive  industry through a continuing
focus  on  new  product  development,   flexible  and  efficient   manufacturing
capabilities,  and  outstanding  quality  and  service in our QS9000  registered
manufacturing facilities.

       Technical Products

       We are one of the foam  industry's  prime  innovators  and  producers  of
industrial,  specialty,  consumer  and  safety  foams,  which  we  refer  to  as
"Technical  Products." Technical Products consist of reticulated foams and other
custom  polyester and polyether foams,  which are sometimes  combined with other
materials to yield specific properties.  Reticulation is the thermal or chemical
process used to remove the membranes from the interconnecting cells within foam.
This leaves a porous,  skeletal  structure  allowing  for the free flow of gases
and/or liquids.  Felting and lamination with other foams or materials give these
composites specific properties.

       Reticulated  foams are well suited for  filtration,  reservoiring,  sound
absorption and sound transmission.  Industrial applications include carburetors,
computer  cabinets,  inkpad  reservoirs,  high-speed inkjet printers and speaker
grills.  Medical applications  include oxygenators for cardiopulmonary  surgery,
instrument  holders  for  sterilization,   pre-op  scrubbers   impregnated  with
anti-microbial  agents and EKG pads containing  conductive gels. Other Technical
Products  have  unique  characteristics  such  as  flame  retardancy  and  fluid
absorption.  Additional  products  sold  within  this  group  include  foams for
refrigerated supermarket produce counters, mop heads, paint brushes and cosmetic
applications.

       Due to the highly  specialized  nature of most  Technical  Products,  our
research  staff works with  customers to design,  develop and  manufacture  each
product to  specification.  In  addition,  we  advertise  in trade  journals and
related media to attract customers and, more generally, to increase an awareness
of our capabilities for Technical Products.

       Other

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



                                       4
<PAGE>

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  products and low freight costs through
optimal  plant  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  bedding and
automotive  customers and have six  facilities in Mexico  serving the automotive
and cushioning industries. Five 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.  In December  2001,  we increased  our  non-controlling
equity  interest  in the joint  venture  to 70%.  The joint  venture  expects to
install  its first foam  pourline  during  2003.  This  pourline,  which will be
entirely  financed by the joint venture entity,  will reduce foam shipping costs
for sales to the region and increase 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  17.3% of our net sales in 2002,  15.7% of our net
sales in 2001, and 12.3% of our net sales in 2000. 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  33.8% of our net
sales in  2002,  35.0% of our net  sales in 2001 and  29.7% of our net  sales in
2000.  The loss of any one of these  customers  could  have a  material  adverse
effect on our business.


                                       5
<PAGE>

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.  During 2002, we closed certain
rebond  carpet  padding  operations,   foam  pouring  operations,   and  a  foam
fabrication  operation.  We have identified  additional  operations to be closed
during  2003.  In many cases,  the volume from these closed  operations  will be
absorbed by our existing facilities in order to improve capacity utilization. In
some but not all  instances,  our  other  existing  facilities  will  have to be
upgraded  to absorb the  transferred  volume.  We may lose some  revenue  due to
closing these operations.

       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.

       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. 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, especially a supplier of TDI and/or polyol. There are a limited number
of major suppliers of TDI and polyol.  Our principal  supplier of TDI and polyol
is The Dow Chemical  Company.  Although we have not  experienced  a  significant
shortage  of  available  materials,  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 prices and the current geopolitical  instability and
its impact on oil production and prices. We experienced 32.0% to 37.0% increases
in the price of raw  materials  from  major  chemical  manufacturers  during the
fiscal year ended December 29, 2002. Our major chemical suppliers have announced
their  intention to increase  prices by  approximately  10.0% to 12.0% effective
April 1, 2003. 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 fiscal  year ended  December  29,  2002.  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  December  29,  2002,  we  employed  approximately  5,800  persons.
Approximately 1,700 of these employees are located outside the United States and
approximately  2,200 employees are covered by collective  bargaining  agreements
with labor  unions.  These  agreements  expire on various dates through 2004. 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,  Hickory Springs
Manufacturing  Company,  Vitafoam,  Inc.,  Flexible Foam Products,  Inc., Future
Foam,  Inc. and The Woodbridge  Group.  None of these  competitors  individually
competes in all of the business segments in which we do business.



                                       6
<PAGE>

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 on 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 $4.8  million for 2002,  $3.1 million for 2001 and $2.5
million for 2000.

       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
VPFSM   manufacturing   process.   Recticel  and   affiliates  of  Recticel  are
shareholders of Foamex International. 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 December 29, 2002, our total debt was  approximately  $738.6
million and our shareholders' deficiency was approximately $189.7 million. As of
December  29,  2002,  we had  approximately  $27.6  million  in  revolving  loan
availability and approximately  $20.6 million in outstanding  letters of credit.
We may also incur additional debt in the future,  subject to certain limitations
contained in our debt instruments.

       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, beginning in 2004, 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 inability to achieve certain  financial
          conditions;

     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;
          and

                                       7
<PAGE>


     o    On February 26,  2003,  Standard and Poor's  Rating  Services  ("S&P")
          announced  that it had lowered its  corporate  credit rating on Foamex
          L.P.  from "B+" to "B".  In their  announcement,  S&P cited their view
          that our weak operating performance,  higher raw material costs, and a
          sluggish domestic  economy,  which if not reversed will likely elevate
          near-term  liquidity  concerns.  The S&P action  could have a negative
          impact on the cost of our future borrowings, if any, and the extension
          of trade credit.

We and our bank lenders  executed an amendment to the Amended Credit Facility on
November 15, 2002 revising our financial  covenants.  If we are unable to comply
with our revised financial  covenants,  our bank lenders could cause all amounts
outstanding under the Amended Credit Facility to be due and payable immediately.

       On November  15,  2002,  Foamex  L.P.  and the bank  lenders  executed an
amendment to the Amended Credit Facility, which, among other things, revised the
financial covenants.  In addition,  borrowings under the Amended Credit Facility
are subject to a borrowing base calculation,  which could limit borrowings under
the revolving credit facility to less than the maximum commitment.  Also, Foamex
L.P. is subject to other  financial  covenants  through  December  28,  2003.  A
minimum EBDAIT, as defined,  covenant is tested monthly,  on a cumulative basis,
beginning with December 2002. Foamex L.P.'s minimum EBDAIT covenants have higher
thresholds in the second half of 2003. Foamex L.P.'s ability to comply with this
covenant will be substantially  dependent on an improved gross profit margin and
lower administrative costs compared to the latter part of 2002. If we are unable
to comply with the revised financial covenants, the bank lenders could cause all
amounts  outstanding  under the  Amended  Credit  Facility 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.

If we breach any of the financial covenants under our various indentures, credit
facilities or guarantees, our debt service obligations could be accelerated.

       If we breach any of the financial covenants under our various indentures,
credit facilities or guarantees,  our substantial debt service obligations could
be accelerated.  Furthermore, any breach of any of the financial covenants under
our   subsidiaries'   indentures  or  credit  facilities  could  result  in  the
acceleration of all the  indebtedness of our  subsidiaries.  In the event of any
such  simultaneous  acceleration,  we  would  not be  able to  repay  all of the
indebtedness under our various guarantees or under our subsidiaries' indentures,
guarantees or credit facilities.

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. Our
annual debt service  obligations will increase by $2.2 million per year for each
1%  increase  in interest  rates,  based on the  balance of  variable  rate debt
outstanding as of December 29, 2002.  Our estimated debt service  obligation for
2003 is $69.7  million,  based on levels of debt and interest rates in effect at
December 29, 2002. If we do not generate sufficient cash flow from operations to
satisfy  our 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 Amended  Credit  Facility  and the  indentures
relating  to  Foamex  L.P.'s  10  3/4%  senior  secured  notes,  9  7/8%  senior
subordinated


                                       8
<PAGE>

notes due 2007 and 13 1/2% senior  subordinated  notes due 2005 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 toluene diisocyanate,  or "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.

       We  experienced  32.0% to 37.0%  increases in the price of raw  materials
from major  chemical  manufacturers  during the fiscal year ended  December  29,
2002. Our major chemical  suppliers have announced  their  intention to increase
prices by  approximately  10.0% to 12.0%  effective April 1, 2003. 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 fiscal year ended  December 29, 2002.  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. This could have a material adverse effect on
our business, financial condition and results of operations.

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

       There are a limited  number of major  suppliers  of TDI and  polyol.  Our
principal  supplier of TDI and polyol is The Dow Chemical  Company.  Although we
have not experienced a significant shortage of available materials, 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. We experienced an increase in other operating expenses,  and
selling,  general  and  administrative  expenses  in 2002.  If we are  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  33.8% of our
net sales in 2002,  35.0% of our net sales in 2001 and 29.7% of our net sales in
2000. Sales to Johnson Controls,  our largest  customer,  accounted for 17.3% of
our net sales in 2002, 15.7% of our net sales in 2001 and 12.3% of our net sales
in 2000.  Johnson  Controls  has  informed  us that it  intends  to  reduce  its
purchases of certain  products  from us in 2003,  in an effort to diversify  its
supply  base,  which may result in up to a $70.0  million  reduction  in our net
sales to them. 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.

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


                                       9
<PAGE>

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 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 eight 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.

Forward-Looking Information

       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 completion of various restructuring/consolidation plans,
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.

ITEM 2.  PROPERTIES

       As of December 29, 2002, we maintained 62 manufacturing  and distribution
facilities,   including  six   facilities   that  will  be  closed  as  part  of
restructuring  plans  during  2003.  Total  floor  space  in use at our 18 owned
manufacturing  and distribution  facilities is approximately  3.5 million square
feet  and  total  floor  space  in  use  at  our  44  leased  manufacturing  and
distribution  facilities is approximately 5.2 million square feet.  Fifty-two of
these


                                       10
<PAGE>

facilities  are  located  throughout  38  cities  in  the  United  States,  four
facilities are located in Canada,  and six facilities are located in Mexico.  We
do not  anticipate  any  problem  in  renewing  or  replacing  any of the leases
expiring in 2003. In addition,  we have approximately 1.4 million square feet of
idle space of which approximately 0.9 million is leased.

       We maintain administrative offices in Linwood, Pennsylvania and New York,
New York.

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

ITEM 3.  LEGAL PROCEEDINGS

         Litigation--Breast Implants

       As of March 11, 2003, Foamex L.P. and Trace International  Holdings, Inc.
("Trace")  were two of multiple  defendants  in 961  actions  filed on behalf of
approximately  1,087  recipients  of breast  implants in various  United  States
courts and one  Canadian  provincial  court,  some of which  allege  substantial
damages,  but most of which allege unspecified  damages for personal injuries of
various  types.  Three of these  cases  seek to  allege  claims on behalf of all
breast implant recipients or other allegedly affected parties,  but no class has
been approved or certified by the courts. During 1995, we, Foamex L.P. and Trace
were granted summary judgments and dismissed as defendants from all cases in the
federal courts of the United States and the state courts of California.  Appeals
for these  decisions were  withdrawn and the decisions are final.  The number of
pending  cases has steadily  declined over the last several years from a peak of
3,486  cases on behalf of  approximately  5,766  individuals.  Despite  the 1995
Summary  Judgment,  some cases have been filed against  Foamex L.P. and Trace in
federal courts.  These have been dismissed and, in many cases,  the actions were
re-filed  in state  courts.  No cases  relating to breast  implants  are pending
against  Foamex  L.P.  or Trace in federal  courts at this time.  None of Foamex
L.P.,  we,  or Trace  nor any of our  carriers  has paid to  settle  any  claims
relating to breast  implants,  and no  judgment  has ever been  entered  against
Foamex L.P., Trace, or us or any of our carriers in respect of these matters.

       Although  breast  implants  do not contain  foam,  certain  silicone  gel
implants  were  produced  using  a  polyurethane  foam  covering  fabricated  by
independent distributors or fabricators from bulk foam purchased from us or from
Trace. Neither we nor Trace recommended, authorized, or approved the use of foam
for these purposes.  We are also  indemnified by Trace for any such  liabilities
relating to foam manufactured  prior to October 1990.  Trace's insurance carrier
has continued to pay our litigation  expenses after Trace's filing of a petition
for  relief  under  the  Bankruptcy  Code on July 21,  1999.  Trace's  insurance
policies  continue to cover certain  liabilities of Trace,  but if the limits of
those policies are exhausted, it is unlikely that Trace will be able to continue
to provide  additional  indemnification.  While it is not feasible to predict or
determine the outcome of these actions, based on management's present assessment
of the merits of pending claims, without taking into account the indemnification
provided by Trace, the coverage provided by Trace's and our liability  insurance
and potential  indemnity from the  manufacturers of polyurethane  covered breast
implants,  management  believes  that it is not  reasonably  possible  that  the
disposition  of  the  matters  that  are  pending  or  that  may  reasonably  be
anticipated  to be  asserted  will  result  in a loss  that is  material  to our
consolidated  financial  position,  results  of  operations  or cash  flows.  If
management's assessment of our liability relating to these actions is incorrect,
these actions could have a material  adverse  effect on our financial  position,
results of operations and cash flows.

       Litigation--Other

       During  the second  quarter of 2001,  we were  notified  by an  insurance
provider  concerning a dispute  involving the  reimbursement of liability claims
paid on behalf of Trace. The insurance provider is contending that we are liable
for claims of  approximately  $6.1  million.  We intend to strongly  defend this
claim and consider the claim to be without merit. If management's  assessment of
our  liability  relating to this action is  incorrect,  this action could have a
material  adverse  effect on our financial  position,  results of operations and
cash flows.

       We and our  subsidiaries  are party to various  other  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,


                                       11
<PAGE>


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 December 29, 2002, we have accrued
approximately $0.7 million for litigation 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
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 December 29, 2002, we had accruals of approximately $2.7 million
for  environmental  matters,  including  approximately  $2.3 million  related to
remediating and monitoring soil and groundwater  contamination and approximately
$0.4 million relating to PRP sites and other matters.

       On August 8, 2001,  the EPA  proposed a National  Emission  Standard  for
Hazardous  Air  Pollutants,   or  "NESHAP",   for  Flexible   Polyurethane  Foam
Fabrication  Operations.  The proposed NESHAP  regulates  emissions of methylene
chloride and other  Hazardous Air  Pollutants  and restricts air emissions  from
flame lamination sources. We do not believe that this standard, if adopted, will
require us to make material expenditures.

       On August  31,  2002,  Environment  Canada,  the  Canadian  environmental
regulatory  agency,  proposed a rule which would require  flexible  polyurethane
foam manufacturing operations to reduce methylene chloride (dichloromethane) air
emissions. The proposed rule establishes a 50.0% reduction in methylene chloride
emissions by December 1, 2003 and 100.0%  reductions  by January 1, 2007.  We do
not believe that this  standard,  if adopted,  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.  During  2000,  we  reached  an
indemnification  agreement  with the former owner of the  Morristown,  Tennessee
facility.  The  agreement  allocates the incurred and future  remediation  costs
between the former owner and us. The  estimated  allocation  of future costs for
the  remediation  of this  facility is not  significant,  based on current known
information.  The former owner was Recticel  Foam  Corporation,  a subsidiary of
Recticel.

       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 eight 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  or  financial
position.

       In 2003,  capital  expenditures for safety and  environmental  compliance
projects  are  anticipated  to be  approximately  $1.5  million.  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


                                       12
<PAGE>

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.

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

       None

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.

                                                    High               Low
                                                    ----               ---
       2002
       Quarter Ended March 31                      $10.43            $ 7.75
       Quarter Ended June 30                       $11.55            $ 7.75
       Quarter Ended September 29                  $11.11            $ 4.66
       Quarter Ended December 29                   $ 5.76            $ 1.12

       2001
       Quarter Ended March 31                      $ 5.94            $4.50
       Quarter Ended June 30                       $ 7.83            $4.50
       Quarter Ended September 30                  $ 8.12            $5.90
       Quarter Ended December 31                   $ 8.46            $6.00

       As of December 29, 2002, there were 131 holders of record of the common
stock.

       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.

ITEM 6.  SELECTED CONSOLIDATED FINANCIAL DATA

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


                                       13
<PAGE>
<TABLE>
<CAPTION>








                                                                                        Fiscal  Year (1)
                                               --------------------------------------------------------------------------------

                                                   2002          2001 (2)        2000          1999                 1998
                                               -------------- ------------  ------------  ---------------       -------------
<S>                                           <C>              <C>              <C>              <C>             <C>
                                                          (thousands, except for earnings per share)
Statements of Operations Data
Net sales                                     $ 1,328,094      $ 1,252,904      $ 1,257,778      $ 1,294,639     $ 1,260,559
Income (loss) from continuing
operations (3)(4)(5)                          $    62,741      $    (5,612)     $    17,013      $    19,716     $   (69,853)
Basic earnings (loss) per share from
continuing operations                         $      2.58      $     (0.24)     $      0.69      $      0.79     $     (2.79)
Diluted earnings (loss) per share from
continuing operations                         $      2.39      $     (0.24)     $      0.67      $      0.78     $     (2.79)

Balance Sheet Data
Total assets                                  $   813,577      $   766,962      $   751,581      $   781,313     $   874,965
Long-term debt, classified as current (6)             -                -                -                -       $   771,092
Long-term debt, excluding current portion     $   738,540      $   648,232      $   687,758      $   725,297     $     8,240
Stockholders' deficiency                      $  (189,733)     $  (180,746)     $  (164,669)     $  (166,381)    $  (204,119)
Dividends paid                                        -                -                -                -       $     1,245
<FN>

(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 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 the business was acquired.

(3)  Includes net restructuring, impairment and other charges (credits), as
     discussed in Note 6 to the consolidated financial statements included in
     this Annual Report on Form 10-K. Listed below are the pre-tax charges
     (credits).

         2002 - $  4.8 million
         2001 - $ 36.1 million
         2000 - $  6.3 million
         1999 - $ 10.5 million
         1998 - $ (9.7)million

(4)  The provision for income taxes in 2000 and 1999 reflected the partial
     reversal of the deferred income tax valuation allowance recognized in 1998.
     The 1998 provision for income taxes of $58.2 million for continuing
     operations consisted primarily of an increase in the valuation allowance
     for deferred income tax assets.

(5)  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 $75.8 million.

(6)  At December 31, 1998, we classified approximately $771.1 million of
     long-term debt as current, in response to financial conditions at year-end
     1998.
</FN>
</TABLE>


                                       14
<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 completion of various restructuring/consolidation plans,
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.

Overview

       We  operate  in the  flexible  polyurethane  and  advanced  polymer  foam
products  industry.  As of December 29, 2002,  our operations  were  principally
conducted through our wholly-owned subsidiary, Foamex L.P. Business segments are
listed below and business segment  financial  information is included in Note 14
to the consolidated financial statements.

       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. 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   original   equipment
          manufacturers, or "OEMs".

                                       15
<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  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
sales.  In 2002,  our largest  customer  provided 17.3% of our net sales and our
five largest customers  provided 33.8% 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.

       There are a limited  number of  suppliers  of TDI and  polyol,  the major
chemicals  used in the  production  of foam.  Our  principal  supplier  of these
chemicals  has  historically  been The Dow Chemical  Company.  While we have not
experienced  shortages of raw  materials,  a disruption in our ability to obtain
these chemicals would have a material adverse effect on our business.

       TDI and polyol are oil-based  chemicals and, as such, the prices of these
chemicals are significantly influenced by crude oil production and prices and by
world  political  instability,  particularly in the Middle East. The conflict in
that  part of the  world  could  significantly  impact  the  price of these  raw
materials.

       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.

Overview of 2002

       Operations

       We had income from  operations  of $45.7  million in the six months ended
June 30, 2002 and a loss from operations of $3.8 million in the six months ended
December 29, 2002.  Contributing factors to this significant negative turnaround
in operating results included the following:

o    Significant   increases  in  raw  material   prices  from  major   chemical
     manufacturers  reduced our gross profit margin from 12.7% in the first half
     of 2002 to 8.7% in the second half of 2002. We  experienced  20.0% to 25.0%
     increases  in raw  material  prices  beginning in June 2002 and further 10%
     increases  beginning in November 2002. The two price  increases  raised raw
     material  costs by 32.0% to  37.0%  by the end of 2002.  We  achieved  only
     limited  success in raising  selling  prices to offset these cost increases
     during 2002.

o    Selling,  general and  administrative  expenses  were $39.5  million in the
     first  half of 2002 and $55.2  million  in the  second  half of 2002.  This
     increase was partially  attributable to organizational  and proposed public
     offering costs of $3.6 million  related to the formation of Symphonex Inc.,
     a proposed new subsidiary which would have included our Technical  Products
     segment and other related activities,  and $1.3 million of costs associated
     with the proposed sale of our Carpet Cushion Products  segment.  The public
     offering of Symphonex Inc. has been deferred  indefinitely and the proposed
     sale of the  Carpet  Cushion  Products  segment  has  been  terminated.  In
     addition,  in the  second  half of  2002  we  experienced  an  increase  in
     professional fees, primarily due to information  technology  consulting and
     accounting  fees and an increase in bad debt expense,  primarily due to one
     large write off of the balance due from a customer that ceased operations.


                                       16
<PAGE>

o    Restructuring,  impairment and other charges  increased $6.3 million in the
     second half of the year compared to the first six months.

       Our  results  for 2003 will be  principally  dependent  on our success in
maintaining  and increasing  margins  through  selling price  increases and cost
efficiencies  to  offset  past  and  future  raw  material  cost  increases.  We
implemented  significant price increases in late 2002, but further selling price
increases are needed to increase gross profit margins to acceptable  levels.  We
are developing  alternative  sources of supply for raw materials in an effort to
stabilize and reduce raw material  costs. We also expect the  reorganization  of
our facilities,  operations and management to result in savings of approximately
$8.0 to $10.0 million on an  annualized  basis,  in addition to the  anticipated
annualized  savings of  approximately  $25.0 to $27.0  million from the business
reorganization that began in the fourth quarter of 2001.

       There  were a number of  unusual  items that  impacted  2002.  Accounting
changes  as a result  of the  adoption  of  Statement  of  Financial  Accounting
Standards  No. 142,  "Goodwill  and Other  Intangible  Assets" and  Statement of
Financial Accounting Standards No. 141, "Business  Combinations"  produced a net
charge to income of $70.6 million. We had net extraordinary  charges as a result
of the early  extinguishment of debt in the amount of $1.8 million. In addition,
we reversed the valuation  allowance for deferred tax assets, as we believe that
it is more likely than not that such assets will be  realized,  resulting in the
recognition  of a $77.4  million tax benefit in the  consolidated  statement  of
operations.

       Financing

       On March 25, 2002, Foamex L.P. completed a refinancing of a major portion
of its debt structure.  The refinancing  included the issuance of $300.0 million
of 10 3/4% Senior  Secured  Notes due April 1, 2009 and  amendment of the Foamex
L.P. credit facility  ("Amended Credit Facility") to provide for term loans with
maturity dates of June 30, 2005 through  December 29, 2006, and a $100.0 million
revolving  credit facility that matures on June 30, 2005. Net proceeds were used
to pay a portion of debt outstanding  under the credit facility and the proceeds
from a new term loan under the Amended  Credit  Facility  was used to repay debt
due to a related party. Additionally,  the financial debt covenants contained in
the Amended  Credit  Facility  were  adjusted to reflect  changes in the capital
structure  and business  environment.  Subsequently,  Foamex L.P.  purchased and
retired  $49.0  million  of the 13 1/2%  senior  subordinated  notes,  including
unamortized debt premium of $2.5 million,  and $1.5 million of the 9 7/8% senior
subordinated notes.

       On November  15,  2002,  Foamex  L.P.  and its bank  lenders  executed an
amendment to the Amended Credit Facility.  Foamex L.P. would have been unable to
comply with certain  financial  covenants as of  September  29, 2002.  Under the
amendment,  compliance  with certain  existing  covenants was suspended  through
September  28,  2003  with the  covenants  revised  and  reinstated  thereafter.
Instead,  Foamex L.P. is subject to other financial  covenants  through December
28, 2003 and was in  compliance  with such  covenants  at December  29,  2002. A
minimum EBDAIT,  as defined,  covenant is tested monthly,  on a cumulative basis
beginning  with  December  2002,  in addition to revised  minimum net worth,  as
defined,  and maximum  capital  expenditures,  as defined,  covenants,  measured
quarterly.  Our ability to comply with the EBDAIT covenant will be substantially
dependent on the achievement of an improved gross profit margin and reduction of
administrative  costs  compared  to the last six  months of 2002.  Additionally,
Foamex  L.P.  is  subject to a  borrowing  base  calculation  that may limit its
ability to borrow funds in the future.

       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

       We record net sales  when  product  title and risk of loss  passes to the
customer,  which is primarily at the time of shipment.  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.

       Account Receivable and Allowance for Uncollectible Accounts

       We actively monitor customer payments in conjunction with customer credit
evaluations.  Accordingly,  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 our larger  customers  could have a  material  adverse  impact on future
financial results.

       Long-Lived Assets

       We  have  a  significant   investment  in  long-lived  assets  consisting
primarily of property,  plant and  equipment.  Impairment  losses are recognized
when events  indicate  that  certain  long-lived  assets may be  impaired  and a
projection of future  undiscounted cash flows generated from the assets are less
than the current  carrying value of the assets.  These cash flow projections are
based on the  combination of 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.

       Deferred Income Taxes

       We have a significant  amount of Federal net operating loss carryforwards
that can reduce the Federal tax payments required on taxable income generated in
the future.  These Federal net operating loss  carryforwards are recognized as a
deferred tax asset and the  realization of the related asset must be continually
evaluated.  In  this  evaluation,  we are  required  to  evaluate  existing  tax
attributes,  projections of future  taxable  income and tax planning  strategies
available to  determine  the  probability  that the Federal net  operating  loss
carryforwards will be utilized in the future. We have determined that it is more
likely than not that all of the Federal net operating losses will be utilized in
future  years  and  have  reversed  in  2002  a  previously  provided  valuation
allowance.  As a result,  our  effective  tax rate has  increased  following the
reversal.  We must  continually  evaluate the  realizability of our deferred tax
assets and it is possible  that some or all of the valuation  allowance  will be
reinstated in future years.

       Self Insurance

       We are partially  self-insured for a number of risks up to certain limits
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.

       Retiree Benefit Plans

       We  provide  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.  These
assumptions include the discount rate on projected benefit obligations,  and the
expected long-term rate of return on plan assets. The discount rate on projected
benefit  obligations enables us to state expected future cash flows at a present
value on the  measurement  date. We have little latitude in selecting this rate,
as it is required to  represent  the market rate for  high-quality  fixed income
investments.  A lower  discount  rate  increases  the  present  value of benefit
obligations and increases pension expense.  The decrease in the discount rate on
projected benefit  obligations from 7.0% to 6.5% is expected to increase pension
expense by $0.5 million.  To determine the expected  long-term rate of return on
pension plan assets, we consider the current and expected asset allocations,  as
well as historical and expected returns on various categories of plan assets. We
assumed that  long-term  returns on our pension plans were 9.0% in 2002 and 2001
and  10.0% in 2000.  Amortization  of  losses  has  been and  continues  to be a
significant  component of pension  expense and this  amortization is expected to
increase by  approximately  $1.0 million in 2003.  The losses have resulted from
actual returns that are significantly  less than the expected return


                                       18
<PAGE>

assumption, particularly over the last three years, and funding levels that have
not been  sufficient  to offset  the growth in  benefit  obligations.  We expect
pension expense to increase by a total of approximately $2.0 million in 2003.

       Claims and Litigation

       We  receive  claims  for  damages  that  are  outside  of  our  insurance
coverages.  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 operating cash requirements consist principally of accounts
receivable,  inventory and accounts payable requirements,  scheduled payments of
interest 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 Foamex  L.P.'s  credit  facility will be
adequate to meet liquidity requirements.  Scheduled principal payments on Foamex
L.P.'s debt are not significant  until the second half of 2004. If Foamex L.P.'s
cash flow is not  adequate  to meet  liquidity  requirements,  there  would be a
material  adverse  effect on our  financial  position  as well as our ability to
continue as a going concern. 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 $4.5 million at December 29, 2002 compared
to $15.1 million at December 31, 2001.  Working capital at December 29, 2002 was
$136.7 million and the current ratio was 1.7 to 1 compared to working capital at
December 31, 2001 of $65.0 million and a current ratio of 1.3 to 1. The increase
in  working  capital is  primarily  due to  increases  in  accounts  receivable,
inventories  and  deferred  income  taxes and  decreases  in current  portion of
long-term  debt and  accounts  payable,  partially  offset by decreases in other
current assets and increases in accrued interest and cash overdrafts.

       Total debt at  December  29,  2002 was $738.6  million,  a $72.3  million
increase  from December 31, 2001,  including a deferred  credit of $14.2 million
related to  interest  rate swap  transactions.  (See Note 9 to the  consolidated
financial  statements.)  As of December 29, 2002,  there were  revolving  credit
borrowings  of $51.8 million  under the Foamex L.P.  credit  facility with $27.6
million  available  for  borrowings  and  $20.6  million  of  letters  of credit
outstanding.  Foamex Canada Inc.  ("Foamex Canada") did not have any outstanding
borrowings as of December 29, 2002 under Foamex  Canada's  short-term  revolving
credit agreement,  with unused  availability of approximately $5.1 million.  The
increased debt balance reflects the issuance of $300.0 million of 10 3/4% Senior
Secured  Notes due 2009 on March 25,  2002,  offset  by $280.0  million  of debt
repayments  from  proceeds  of the  offering.  Revolving  credit  borrowings  at
December 29, 2002 reflect working capital requirements.

       In 2002,  Foamex L.P.  purchased and retired $49.0 million of the 13 1/2%
senior subordinated notes,  including  unamortized debt premium of $2.5 million,
and $1.5 million of the 9 7/8% senior  subordinated  notes for a total  purchase
price of $48.5 million.



                                       19
<PAGE>

       On October 16, 2002, Foamex L.P.  announced that it had obtained a waiver
of its  financial  covenants  under the Amended  Credit  Facility for the period
ended  September  29, 2002 since it would not have been in  compliance  with the
covenants.  The waiver was  effective  until  November  30, 2002 and reduced the
commitment  under the revolving  credit  facility  from $100.0  million to $70.0
million for the period the waiver was in effect.  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.  is subject to  minimum  net worth,  minimum
EBDAIT, as defined,  and maximum capital  expenditure  covenants through periods
ending  December 28, 2003.  The minimum  EBDAIT  covenant is tested monthly on a
cumulative  basis  beginning with December  2002.  Foamex L.P. was in compliance
with the revised  covenants at December 29, 2002.  In addition,  Foamex L.P. was
subject  to a  minimum  EBDAIT,  as  defined,  covenant  for the  quarter  ended
September 29, 2002 and was in compliance.  Compliance with existing covenants on
leverage,  fixed  charge  coverage  and  interest  coverage  ratios is suspended
through  periods  ending  September 28, 2003,  but the covenants are revised and
will be reinstated  thereafter.  All of the financial covenants were established
based on a business plan provided to the lenders. In addition,  borrowings under
the Amended  Credit  Facility will be subject to a borrowing  base  calculation,
which could limit  borrowings  under the revolving  credit facility to less than
the maximum commitment.  As of February 23, 2003, the borrowing base calculation
does not  limit  borrowings  under  the  Amended  Credit  Facility.  The cost of
obtaining the amendment  aggregated  approximately $4.0 million,  including bank
and legal fees.

       On  February  26,  2003,  Standard  and Poor's  Rating  Services  ("S&P")
announced  that it had lowered its  corporate  credit rating on Foamex L.P. from
"B+" to "B". In their announcement, S&P cited their view that our weak operating
performance,  higher raw material costs, and a sluggish domestic economy,  which
if not reversed will likely elevate near-term liquidity concerns. The S&P action
could have a negative impact on the cost of our future  borrowings,  if any, and
the extension of trade credit.

       Foamex L.P.'s  minimum  EBDAIT  covenants  have higher  thresholds in the
second half of 2003.  Management's  current  plans to achieve  EBDAIT  covenants
require continued  customer selling price management in response to raw material
cost changes,  successful  implementation of on-going cost savings  initiatives,
plant  closures,  improved  operating  efficiencies,  improved  working  capital
management and reduced  capital  expenditures.  Management is also continuing to
evaluate strategic alternatives in an effort to reduce our debt. There can be no
assurance  that we will be successful  in achieving our plans or complying  with
the  amended  covenants,  as there are a number of factors  beyond our  control,
including  raw material cost changes and customer  acceptances  of selling price
increases that are necessary for us to be successful.  Additionally,  compliance
with the financial  covenants 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  financial  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,  or not possible if required.  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 Amended
Credit Facility.  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.

       During  2002,  we  purchased,  pursuant  to  the  terms  of  an  existing
agreement,  the 5% stock  interest held by the director of Foamex de Mexico S.A.
de C.V. for a cash payment of $1.0 million. In addition,  during 2002 we entered
into an employment  agreement with one director and a consulting  agreement with
another  director.  Payments under these  agreements  were to aggregate at least
$0.7 million and $0.2 million,  respectively, on an annual basis. The employment
agreement with the director was terminated effective January 31, 2003.

       Foamex L.P.  was  required to cause a  registration  statement  under the
Securities  Act of 1933 for its 10 3/4%  Senior  Secured  Notes to be  effective
within 180 days of March 25, 2002. Foamex L.P. filed the registration statement,
but it was not effective  until  January 30, 2003 and  therefore  Foamex L.P. is
liable for  liquidated  damages from  September 23, 2002 until January 30, 2003.
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 until a maximum
of  $150,000  per week


                                       20
<PAGE>

is reached.  At December  29, 2002,  Foamex L.P.  has an accrual for  liquidated
damages of $0.2 million.  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 a 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 will be 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 2002 was $50.4 million compared to
cash provided of $106.4 million in 2001 reflecting  significantly higher working
capital requirements principally relating to inventories and accounts payable.

       Cash Flow from Investing Activities

       Cash used for investing  activities  totaled $23.6 million for 2002. Cash
requirements  included  capital  expenditures of $15.6 million.  Other investing
activities include software  development costs of $5.9 million in 2002. In 2001,
cash used for investing  activities  was $40.6  million,  which  included  $22.5
million of capital expenditures and $17.6 million for an acquisition.  Estimated
capital   expenditures  for  2003  are  approximately  $19.0  million  including
approximately $1.5 million for safety and environmental activities. In addition,
we expect to spend approximately $6.8 million for internally  developed software
in 2003, a portion of which may be capitalized.

       Cash Flow from Financing Activities

       Cash provided by financing  activities was $63.4 million in 2002 compared
to cash used of $55.7  million in 2001.  Foamex L.P.  completed  the offering of
$300.0  million of 10 3/4% Senior  Secured Notes on March 25,  2002.Foamex  L.P.
used $280.0  million of net proceeds  from these notes and $56.6  million of new
term  loans to repay  revolving  loans of $125.0  million,  term loans of $140.0
million and long-term debt to a related party of $31.6 million. Foamex L.P. also
purchased and retired $49.0  million of the 13 1/2% senior  subordinated  notes,
including  unamortized  debt  premium of $2.5  million and $1.5 million of the 9
7/8% senior  subordinated  notes. Cash used during 2001 primarily reflected debt
repayments.

       Contractual Obligations and Commercial Commitments

       At  December  29,  2002,  we had  obligations  to repay a total of $722.0
million of principal of long-term debt borrowed under a number of  arrangements.
The amortization  schedule for our long-term debt payments is included in Note 9
to  the  consolidated  financial  statements.  At  December  29,  2002,  we  had
outstanding letters of credit aggregating $20.6 million.

       We also have  commitments for operating leases as discussed in Note 17 to
the consolidated  financial  statements that require minimum  payments  totaling
$52.2 million,  with $44.5 million due through December 31, 2007 and the balance
in later years.  We have  entered  into  contracts  for  information  technology
services  and certain  raw  materials  that have  minimum  purchase  commitments
estimated at $84.8  million in 2003,  $98.0  million in 2004,  $39.9  million in
2005, $39.4 million in 2006, $36.1 million in 2007 and $32.2 million for each of
the years 2008 to 2010.




                                       21
<PAGE>

<TABLE>
<CAPTION>


RESULTS OF OPERATIONS

                                                 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   $   23,896    $  (12,524)    $   25,346    $   20,339    $  (15,175)  $   41,882
Depreciation and amortization   $   15,466    $    6,469     $    3,856    $    2,982    $    2,819   $   31,592
Income (loss) from operations
as a percentage of net sales           5.1%         (5.4)%          5.4%         16.4%      n.m.(a)          3.2%

2001
Net sales                       $  499,668    $  230,965     $  377,753    $  111,043    $   33,475   $1,252,904
Income (loss) from operations   $   66,312    $   (6,831)    $   21,187    $   22,884    $  (40,079)  $   63,473
Depreciation and amortization   $   15,732    $    8,181     $    4,991    $    3,312    $    1,772   $   33,988
Income (loss) from operations
as a percentage of net sales          13.3%         (3.0)%          5.6%         20.6%      n.m.(a)          5.1%

2000
Net sales                       $  519,197    $  256,439     $  342,386    $  106,697    $   33,059   $1,257,778
Income (loss) from operations   $   55,001    $    2,035     $   22,235    $   28,888    $  (11,688)  $   96,471
Depreciation and amortization   $   17,813    $    7,742     $    5,785    $    2,663    $    2,585   $   36,588
Income (loss) from operations
as a percentage of net sales          10.6%          0.8%           6.5%         27.1%      n.m.(a)          7.7%
<FN>

(a) Not meaningful.
</FN>
</TABLE>

2002 Compared to 2001

       Net sales for 2002 increased 6.0% to $1,328.1 million from $1,252.9
million in 2001. The increase was primarily attributable to improved sales in
the Automotive Products and Technical Products segments, partially offset by a
decrease in the Foam Products segment. The improvement in sales partially
reflected the impact of sales related to the acquisition discussed in Note 4 to
the consolidated financial statements.

       The gross profit margin was $141.4 million, or 10.6%, in 2002 compared to
$180.1 million, or 14.4%, in 2001 primarily as a result of the 32.0% to 37.0%
increases in the cost of our major chemical raw materials during the second half
of 2002. The gross profit margin was further reduced by higher manufacturing
costs principally in the Foam Products segment, unfavorable yields, higher
manufacturing overhead expense and unfavorable production mix. We are seeking to
improve gross profit margins through customer selling price increases, selective
elimination of unprofitable customer accounts and products, and reductions in
manufacturing overhead expenses.

       Income from operations for 2002 was $41.9 million, which represented a
34.0% decrease from the $63.5 million reported for 2001. Income from operations
was 3.2% of net sales in 2002 compared to 5.1% of net sales in 2001. The
decrease attributable to the reduced gross profit margin is discussed above. In
addition, selling, general and administrative expenses increased by $14.2
million, or 17.6%, which included $3.6 million of organizational and proposed
public offering costs related to the formation of Symphonex Inc. The proposed
public offering of Symphonex Inc. has been deferred indefinitely. Selling,
general and administrative expenses also include $1.3 million of transaction
costs associated with the proposed sale of our Carpet Cushion Products segment
which was subsequently terminated. The remainder of the increase was primarily
due to higher professional service fees for information technology and
accounting services and employee related expenses, partially offset by reduced
goodwill amortization and lower bad debt expense.




                                       22
<PAGE>


       Foam Products

       Foam Products net sales for 2002  decreased  5.7% to $471.0  million from
$499.7 million in 2001. The decrease primarily  reflected  reduction in business
from a major bedding  manufacturer  and the slow recovery of sales after an odor
issue caused by defective  chemicals  from a major  supplier in late 2001.  Foam
Products gross profit margin was 10.8% in 2002, down from 17.9% in 2001.  Income
from operations  decreased 64.0%, to $23.9 million in 2002 from $66.3 million in
2001,  primarily due to increased raw material costs, lower net sales and higher
manufacturing  costs. Income from operations was 5.1% of net sales in 2002, down
from 13.3% in 2001.

       Carpet Cushion Products

       Carpet  Cushion  Products  net  sales for 2002  increased  1.3% to $234.0
million from $231.0  million in 2001.  We were able to increase our market share
in spite of market  weakness  and overcome the loss of sales to one large retail
customer  that  exited  the  carpet  business.   Loss  from  operations,   which
principally  reflected higher raw material and other operating costs during 2002
and included  expenses of $1.3 million in 2002 associated with the proposed sale
of the business which was subsequently terminated, represented 5.4% of net sales
in 2002 and 3.0% of net sales in 2001.

       Automotive Products

       Automotive  Products net sales for 2002 increased 23.6% to $466.7 million
from $377.8 million in 2001.  The  improvement  primarily  reflected a continued
high build rate for new cars and new  product  programs.  We have been  informed
that our largest  customer  intends to reduce its purchases of certain  products
from us in 2003 to diversify  its supply base.  This may result in reduced sales
to this customer of up to $70.0  million in 2003,  some of which may be replaced
by sales to other customers. Automotive Products gross profit margin was 8.2% in
2002  compared to 8.4% in 2001 and  reflects  the impact of higher raw  material
costs  offsetting  the  contribution  from  increased  net  sales.  Income  from
operations represented 5.4% of net sales in 2002 and 5.6% of net sales in 2001.

       Technical Products

       Net  sales  for  Technical  Products  in 2002  increased  11.8% to $124.1
million from $111.0 million in 2001. Higher sales partially reflected sales from
the  acquisition  of General  Foam  Corporation  in July 2001 (see note 4 to the
consolidated  financial  statements).  Income from operations decreased 11.1% to
$20.3 million in 2002 compared to $22.9 million in 2001.  The decrease  reflects
the  contribution  from higher net sales offset by higher raw material costs and
the costs related to Symphonex Inc. as described  above.  Income from operations
represented 16.4% of net sales in 2002 compared to 20.6% in 2001.

       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 3.7% decrease in net sales  associated  with
this segment  primarily  resulted from the Mexico City operation.  The loss from
operations was $15.2 million in 2002 and included restructuring,  impairment and
other  charges,  discussed  below.  The loss from  operations  in 2001 was $40.1
million, including restructuring, impairment and other charges.

       Restructuring, Impairment and Other Charges

       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.  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


                                       23
<PAGE>

including a reversal of approximately  $3.7 million from the reevaluation of the
2001  Operational  Reorganization  Plan.

       In 2001, we recorded restructuring, impairment and other charges of $36.1
million, primarily related to our 2001 Operational Reorganization Plan including
plant facility  closures,  reductions in management and support  personnel,  and
cost  reductions in purchasing and logistics.  The charge included an impairment
charge of $13.8 million (net of anticipated  proceeds of $4.6 million) to reduce
certain assets,  primarily leasehold improvement and equipment,  included within
the Foam Products and Carpet Cushion  Products  segments to their estimated fair
values.  Approximately  700 employee  terminations  including  plant  personnel,
support staff and executives and management were originally  planned pursuant to
the  2001  Operational  Reorganization  Plan.  The  subsequent  reevaluation  of
facilities closures reduced the number of planned  terminations to approximately
500. Approximately 340 employees were terminated in 2002.

       We will have substantially  completed the remaining actions  contemplated
by the 2001 Operational Reorganization Plan in early 2003 and expect to complete
the facility closures and personnel reductions related to the 2002 restructuring
plan  during  2003,   primarily  in  the  first  six  months.   Terminations  of
approximately 300 employees are planned to take place in 2003.

       Interest and Debt Issuance Expense

       Interest  and debt  issuance  expense  was $66.6  million in 2002,  which
represented a 5.3% increase from 2001 expense of $63.2 million. The increase was
attributable  to higher  amortization  of debt issuance  costs.  We  capitalized
interest of $0.3  million in 2002  compared to $1.4  million in 2001.  We expect
2003 interest and debt issuance expense to be at or higher than the 2002 level.

       Income from Equity Interest in Joint Ventures

       The income from an equity  interest  in an Asian  joint  venture was $1.6
million in both 2002 and 2001.  We have a 70%  ownership  interest  in the joint
venture since December 2001. Previously our ownership interest was 49%.

       Provision (Benefit) for Income Taxes

       During  2002,  we  determined  that,  based on the  weight  of  available
evidence,  including  improved  financial  results,  revised net operating  loss
carryforward utilization limitations and other tax planning strategies initiated
in 2002, it was more likely than not, that substantially all of our net deferred
tax  assets  would  be  realized  in the  future.  Accordingly,  we  reversed  a
previously  recorded  valuation  allowance  of  $99.4  million.  The  adjustment
increased net income for 2002 by $77.4 million.

       Extraordinary Items, Net of Income Taxes

       In connection  with the  refinancing  transaction  completed on March 25,
2002,  Foamex  L.P.  wrote off debt  issuance  costs  associated  with the early
extinguishments  of  long-term  debt due to a related  party  and the  revolving
credit  facility,  resulting in an  extraordinary  loss of $2.6 million,  net of
income tax benefit of $1.7  million.  Foamex L.P.  purchased  and retired  $49.0
million of the 13 1/2% senior  subordinated  notes,  including  unamortized debt
premium of $2.5  million,  and $1.5  million of the 9 7/8%  senior  subordinated
notes resulting in an extraordinary gain of $0.8 million, net of income taxes of
$0.6 million.  These  extraordinary items will be reclassified upon the adoption
of Statement of Financial Accounting Standards No. 145 in 2003.

       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 Statement of
Financial  Accounting  Standards No. 142, "Goodwill and Other Intangible Assets"
("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").



                                       24
<PAGE>

2001 Compared to 2000

       Net sales for 2001  decreased  0.4% to  $1,252.9  million  from  $1,257.8
million in 2000. The decline was primarily  attributable  to lower sales in Foam
Products  and  Carpet  Cushion  Products,  partially  offset  by  a  significant
improvement  in  Automotive  Products  sales.  Technical  Products also recorded
improved sales.

       The gross  profit  margin  was 14.4% in 2001  compared  to 13.7% in 2000.
Certain raw  material  cost  reductions  had the effect of  improving  the gross
profit margin percentage in 2001 by approximately 1.4 percentage  points.  These
2001 cost reductions are not anticipated to continue in 2002.  Selling,  general
and administrative expenses were 16.2% higher in 2001. The increase included the
impact of higher professional fees,  including those associated with a change in
independent accountants,  higher bad debt expense related to economic conditions
and increased compensation and benefit costs.

       Income from  operations in 2001 was $63.5  million,  which  represented a
34.2% decrease from the $96.5 million  recorded  during 2000.  Results  included
restructuring,  impairment  and other  charges of $36.1 million in 2001 and $6.3
million in 2000.  Restructuring,  impairment and other charges  recorded  during
2001 are discussed under "Other" below. Excluding the restructuring,  impairment
and other charges for comparison  purposes,  income from  operations  would have
been $99.5  million in 2001  compared to $102.7  million in 2000. On this basis,
income  from  operations  was 7.9% of net  sales  in 2001  and 8.2% in 2000.  In
addition to the raw material cost  reductions  discussed  above,  cost reduction
programs and increases in certain selling prices were also positive factors.

       Foam Products

       Foam Products net sales for 2001  decreased  3.8% to $499.7  million from
$519.2 million in 2000. The decrease  primarily  reflected the domestic economic
slowdown that impacted the markets for  furniture  manufacturers  and other foam
fabricators.  Despite the sales decline, income from operations increased 20.6%,
from $55.0 million in 2000 to $66.3 million in 2001.  The increase was primarily
the impact of raw material cost  reductions,  discussed  above,  which primarily
benefited the Foam Products  segment.  Income from  operations  was 13.3% of net
sales in 2001, up from 10.6% in 2000.

       Carpet Cushion Products

       Carpet  Cushion  Products  net  sales for 2001  decreased  9.9% to $231.0
million  from $256.4  million in 2000.  The sales  decline  continued to reflect
competitive  pressures  that resulted in lower sales volumes  across all product
lines.  Lower selling prices in certain product lines and a lower value shipment
mix also contributed to the sales decline. The factors contributing to the sales
decline translated to a loss from operations of $6.8 million in 2001 compared to
income  from  operations  of $2.0  million  in 2000.  The loss  from  operations
represented  3.0% of net sales in 2001 and income  from  operations  represented
0.8% of net sales in 2000.

       Automotive Products

       Automotive  Products net sales for 2001 increased 10.3% to $377.8 million
from $342.4 million in 2000.  The  improvement  primarily  reflected new product
programs and renewed activity  following  inventory  corrections in the domestic
automotive  industry earlier in the year. Income from operations  declined 4.7%,
from $22.2  million in 2000 to $21.2  million in 2001.  Income  from  operations
represented  5.6% of net sales in 2001 and 6.5% in 2000.  The lower  results  in
2001 were primarily  attributed to intense  pricing  competition  and higher raw
material costs.

       Technical Products

       Net sales for Technical  Products in 2001 were up 4.1% to $111.0  million
from $106.7 million in 2000.  Higher sales  primarily  reflected  sales from the
acquisition of certain assets from General Foam Corporation, discussed in Note 4
to the consolidated financial statements. Income from operations decreased 20.8%
to $22.9  million  in 2001  compared  to $28.9  million  in  2000.  The  decline
reflected  a lower  value  shipment  mix and the  impact  of a slow  down


                                       25
<PAGE>

in the technology  industry,  especially  during the first half of 2001.  Income
from  operations  represented  20.6% of net sales in 2001  compared  to 27.1% in
2000.
       Other

       Other primarily  consists of certain  manufacturing  operations in Mexico
City,  corporate  expenses not allocated to business  segments and restructuring
and other charges.  Net sales were slightly higher in 2001 compared to 2000. The
loss from  operations  was $40.1  million  in 2001 and  included  restructuring,
impairment  and other  charges  of $36.1  million,  discussed  below.  The $11.7
million loss from  operations in 2000  included  restructuring,  impairment  and
other charges  totaling $6.3 million.  The 2000 loss also included  professional
fees  associated  with the  resolution  of  certain  change  in  control  issues
following  the  Trace  bankruptcy  and the  settlement  of  certain  shareholder
litigation.

Restructuring, Impairment and Other Charges

       In December 2001, we announced our 2001 Operational  Reorganization  Plan
to reduce operating costs and accelerate  revenue growth.  The major initiatives
of the 2001 Operational  Reorganization  Plan included plant facility  closures,
headcount  reductions,  purchasing and logistics  cost  reductions and sales and
marketing management consolidation.

       We  identified  a  total  of 17  plant  operations  to be  closed.  Costs
associated with this aspect of the 2001 Operational Reorganization Plan included
lease termination costs and severance and termination benefits aggregating $14.1
million. Additionally, we identified salaried positions to be eliminated, mainly
in support  function areas.  Severance,  termination and other costs  associated
with these positions were estimated to be $4.4 million.

       Further,  we evaluated the  recoverability  of certain  other  long-lived
assets,  both associated and not associated with the Operational  Reorganization
Plan,  in  accordance  with SFAS No.  121,  "Accounting  for the  Impairment  of
Long-Lived  Assets and for Long-Lived  Assets to be Disposed".  As a result,  we
recorded an impairment  provision of $13.8 million (net of anticipated  proceeds
of $4.6 million) to reduce these assets to their estimated fair values.

       Severance and  termination  benefits as a result of the 2001  Operational
Reorganization   Plan  were  expected  to  be  incurred  for  approximately  700
employees. We expected to spend approximately $12.4 million during 2002 with the
balance to be spent through  2012,  primarily  for lease costs.  Other  one-time
period  expenses  during the fourth  quarter  consisted  primarily  of executive
severance  of $1.9  million  and  consulting  fees  related  to the  Operational
Reorganization Plan in the amount of $1.2 million.

       In addition,  we recorded $0.4 million for  restructuring  plans prior to
the fourth  quarter of 2001 that  included  severance  for 41 employees and $1.4
million  related to  executive  severance  recorded  in other  charges.  We also
recorded  a net  restructuring  credit of $1.2  million  related  to  changes in
estimates to prior restructuring plans.

       During  2000,  we  recorded  $6.2  million for  restructuring  plans that
included  severance  for 102  employees.  We also  recorded a net  restructuring
charge of  approximately  $0.1 million  related to changes in estimates to prior
years'  restructuring  plans.  Also during 2000, we received $3.6 million of net
proceeds from the sale of assets related to restructuring plans.

       Interest and Debt Issuance Expense

       Interest and debt issuance  expense totaled $63.2 million in 2001,  which
represented a 15.9%  decrease from $75.2 million  recorded in 2000. The decrease
was attributable to lower average debt levels and lower effective interest rates
in 2001.  We  capitalized  interest of $1.4 million and $0.8 million in 2001 and
2000,  respectively,  as a  component  of the  construction  costs of plant  and
equipment.

       Income from Equity Interest in Joint Venture

       Income from an equity  interest in an Asian joint  venture  totaled  $1.6
million and $1.7 million in 2001 and 2000, respectively.



                                       26
<PAGE>

       Other Expense, Net

       Other expense, net for 2001 was $2.2 million.  Expense items totaled $2.7
million and included letter of credit fees. Interest income recorded in 2001 was
$0.5 million.

       In 2000, other expense, net was $3.0 million.  Expense items totaled $3.6
million and significant  components  included the costs associated with a buyout
proposal and letter of credit fees.  Interest  income  recorded in 2000 was $0.6
million.

       Income Tax Expense

       The 2001  effective  tax  rate  reflects  an  increase  in the  valuation
allowance  for  deferred  tax assets  recognized  during the year since,  in our
judgment,  it was more likely than not that these assets will not be realizable.
The  effective tax rate in 2000  reflected the partial  reversal of the deferred
income tax asset valuation allowance recognized in 1998. The valuation allowance
was  reduced to reflect  the  utilization  of Federal  loss  carryforwards  that
reduced the current tax  component of the Federal tax  provision.  Additionally,
the  valuation  allowance  was  reduced to offset the net  deferred  Federal tax
liability generated in 2000.

       At  December  31,  2001,  we  had  approximately  $164.4  million  of net
operating loss carryforwards for Federal income tax purposes, expiring from 2010
to 2020.  Also at December  31,  2001,  there were $1.0  million of  alternative
minimum tax credit  carryforwards.  In addition,  we had an ownership  change as
defined in IRC Section 382. Accordingly,  we may be limited (on an annual basis)
as to the amount of net operating loss utilization.

OTHER

Shareholder and Change in Control Developments

       Trace International Holdings, Inc. ("Trace") is a privately held company,
which  owned  approximately  29% of  our  outstanding  voting  common  stock  at
September 30, 2000, and whose former  Chairman also serves as our Chairman.  Our
common stock owned by Trace was pledged as collateral against certain of Trace's
obligations. Certain credit agreements and promissory notes of our subsidiaries,
pursuant to which  approximately  $401.1  million of debt was  outstanding as of
September  30, 2000,  provided  that a "change of control"  would be an event of
default and could result in the  acceleration of such  indebtedness.  "Change of
control" means, for this purpose, that (i) a person or related group, other than
Trace,  beneficially owns more than 25% of our outstanding voting stock and (ii)
such voting stock constitutes a greater percentage of such voting stock than the
amount beneficially owned by Trace.  Additionally,  certain indentures of Foamex
L.P. and Foamex Capital Corporation ("FCC"), a wholly-owned subsidiary of Foamex
L.P.,  relating to senior subordinated notes contain similar "change of control"
provisions,  which  require  Foamex  L.P.  and FCC 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".

       On July 21, 1999,  we were informed by Trace that it filed a petition for
relief  under  Chapter 11 of the  Bankruptcy  Code in Federal  Court in New York
City.  Subsequently,  on January 24, 2000,  an order was signed  converting  the
Trace  bankruptcy from Chapter 11 to Chapter 7 of the Bankruptcy Code. A trustee
was appointed to oversee the  liquidation  of Trace's  assets.  Neither  Trace's
bankruptcy  filing  nor the  conversion  to Chapter 7  constituted  a "change of
control" under the provisions of the debt agreements described above.

       On July 31, 2000, we announced that we had entered into an agreement (the
"Exchange  Agreement") with The Bank of Nova Scotia relating to a portion of the
7,197,426  shares  of our  common  stock  pledged  by  Trace to The Bank of Nova
Scotia. The Exchange Agreement provided for the transfer of the pledged stock to
The Bank of Nova  Scotia in a manner  that  would not  constitute  a "change  of
control" as described above. These transactions were conditioned upon bankruptcy
court approval of a settlement agreement between The Bank of Nova Scotia and the
trustee for the Trace  bankruptcy,  which was entered on October  18,  2000.  On
November 2, 2000, the  transactions  contemplated by the Exchange  Agreement and
the settlement  agreement were consummated,  and did not constitute a "change of
control". As a result, Trace no longer owns any shares of our common stock.



                                       27
<PAGE>

       Under the Exchange Agreement,  The Bank of Nova Scotia initially received
1,500,000  shares of our  common  stock  from the Trace  bankruptcy  estate  and
exchanged  these  common  stock  shares  for  15,000  shares  of a new  class of
non-voting  non-redeemable  convertible preferred stock (the "Series B Preferred
Stock").  Each share of the Series B Preferred  Stock can be converted  into 100
shares of our  common  stock  but only if such  conversion  would not  trigger a
"change of control" event, as discussed  above. The Series B Preferred Stock (a)
is entitled to dividends only if a dividend is declared on our common stock, (b)
ranks senior to any future preferred stock issued by us and (c) is entitled to a
liquidation  preference of $100 per share.  Following this exchange, The Bank of
Nova Scotia became the owner of 24.41% of the  outstanding  shares of our common
stock when the remaining  5,697,426  shares of our common stock were transferred
to The Bank of Nova  Scotia from the Trace  bankruptcy  estate.  Certain  equity
transactions,  primarily the exercise of stock options, have reduced the Bank of
Nova Scotia's common stock ownership percentage to 23.6% at February 15, 2003.

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 December 29, 2002, we had accruals of approximately $2.7 million
for  environmental  matters  including  approximately  $2.3  million  related to
remediating and monitoring soil and groundwater  contamination and approximately
$0.4 million relating to PRP sites 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 8, 2001,  the EPA  proposed a National  Emission  Standard  for
Hazardous Air Pollutants or "NESHAP" for Flexible  Polyurethane Foam Fabrication
Operations.  The proposed NESHAP regulates  emissions of methylene  chloride and
other Hazardous Air Pollutants and restricts air emissions from flame lamination
sources.  We do not believe that this standard,  if adopted,  will require us to
make material expenditures.

       On August  31,  2002,  Environment  Canada,  the  Canadian  environmental
regulatory  agency,  proposed a rule which would require  flexible  polyurethane
foam manufacturing operations to reduce methylene chloride (dichloromethane) air
emissions. The proposed rule establishes a 50.0% reduction in methylene chloride
emissions by December 1, 2003 and 100.0%  reductions  by January 1, 2007.  We do
not believe that this  standard,  if adopted,  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.  During  2000,  we  reached  an
indemnification  agreement  with the former owner of the  Morristown,  Tennessee
facility.  The  agreement  allocates the incurred and future  remediation  costs
between the former owner and us. The  estimated  allocation  of future costs for
the  remediation  of this  facility is not  significant,  based on current known
information.  The former owner was Recticel  Foam  Corporation,  a subsidiary of
Recticel.

       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 eight 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,


                                       28
<PAGE>

in each case and in the aggregate, we do not expect additional costs, if any, to
be material to liquidity, results of operations or financial position.

       In 2003,  capital  expenditures for safety and  environmental  compliance
projects  are  anticipated  to be  approximately  $1.5  million.  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.

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 or
results of operations.  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 December 29, 2002, we had accrued
approximately $0.7 million for litigation 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, 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.
The conflict in that part of the world could  significantly  impact the price of
these raw materials.  Results for 2002 were negatively  impacted by higher costs
for raw materials.  In 2001, the beginning of the economic  slowdown resulted in
excess  manufacturing  capacity for the major chemical suppliers.  This, coupled
with declining oil prices, resulted in lower costs for raw materials in 2001. We
experienced  32.0% to 37.0%  increases in the prices of raw material  from major
chemical  manufacturers  during 2002. We sought to recover these cost  increases
through  manufacturing  process  efficiencies  and  management  of selling price
increases, but were only partially able to do so during 2002. Our major chemical
suppliers have announced  their  intention to increase  prices by  approximately
10.0% to 12.0%  effective  April 1,  2003.  In an  attempt  to offset  these raw
material cost  increases,  we have announced price increases to our customers to
be effective  during April 2003. We may not be successful in implementing  these
and 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  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.

Related Party Transactions

       We have a number  of  related  party  transactions.  Such  related  party
transactions  and current  balances are discussed in Note 16 to the consolidated
financial statements included in this report on Form 10-K.



                                       29
<PAGE>


Accounting Changes

       Statement of Financial  Accounting Standards No. 142, "Goodwill and Other
Intangible Assets" ("SFAS No. 142") addresses financial accounting and reporting
for acquired  goodwill and other intangible  assets. A key change as a result of
implementing  SFAS No. 142 is that goodwill and certain other intangibles are no
longer  amortized but will be  periodically  assessed for  impairment,  and as a
result  there may be more  volatility  in the  reported  results  than under the
previous standard because  impairment losses are likely to occur irregularly and
in varying amounts.  An impairment of goodwill due to the initial application of
SFAS No. 142 is discussed  below.  Any goodwill and intangible  assets  acquired
after  June 30,  2001,  including  the  acquisition  discussed  in note 4 to the
consolidated  financial  statements,  are  subject  to the  nonamortization  and
amortization  provisions  of SFAS No. 142. The other  provisions of SFAS No. 142
were adopted by us on January 1, 2002.

       SFAS No. 142 provides a six-month  transitional period from the effective
date to perform an assessment of whether there is an indication that goodwill is
impaired.  We completed this  assessment in the second quarter of 2002. Step one
of the transitional impairment test uses a fair value methodology, which differs
from the  undiscounted  cash  flow  methodology  that  continues  to be used for
intangible  assets with an identifiable  life. We identified six reporting units
during the second quarter and performed step one of the transitional  impairment
test on each of the  reporting  units.  Based on the  results of step one of the
transitional  impairment test, the Company  identified one reporting unit in the
Foam Products segment,  the Carpet Cushion Products reporting unit and the Other
reporting  unit,  for which the carrying  values  exceeded the fair values as at
January  1,  2002,  indicating  a  potential  impairment  of  goodwill  in those
reporting units. Step two of the transitional  impairment test, to determine the
magnitude of any goodwill impairment, was completed in the third quarter of 2002
and the  resulting  impairment  loss of $72.0  million  has been  recorded  as a
cumulative effect of a change in accounting principle,  retroactive to the first
quarter  2002  results  of  operations  in  accordance  with  the   transitional
implementation  guidance  of SFAS No.  142.  We  performed  our annual  goodwill
impairment test as of September 30, 2002 which did not result in the recognition
of any additional impairment.

       On April 30, 2002,  Statement of Financial  Accounting Standards No. 145,
"Rescission of FASB  Statements  No. 4, 44, and 64,  Amendment of FASB Statement
No. 13, and Technical  Corrections"  ("SFAS No. 145") was issued. The provisions
of this  Statement  related to the rescission of Statement 4 shall be applied in
fiscal years beginning after May 15, 2002. Any gain or loss on extinguishment of
debt that was  classified as an  extraordinary  item in prior periods  presented
that  does  not  meet  the  criteria  in  Opinion  30 for  classification  as an
extraordinary item shall be reclassified. Early application of the provisions of
this  Statement  related to the  rescission  of Statement 4 is  encouraged.  The
adoption  of this  Statement  in 2003 will result in a  reclassification  of the
extraordinary items recorded during 2002.

       Statement of Financial  Accounting  Standards  No. 146,  "Accounting  for
Costs Associated with Exit or Disposal Activities ("SFAS No. 146") was issued in
June 2002.  SFAS No. 146 requires that a liability for costs  associated with an
exit or disposal  activity be recognized  when the liability is incurred  rather
than at the date of an entity's commitment to an exit plan. SFAS No. 146 further
establishes  that fair value is the  objective  for initial  measurement  of the
liability.  The statement is effective for exit or disposal activities initiated
after December 31, 2002.

       In November  2002,  the FASB issued FASB  Interpretation  ("FIN") No. 45,
"Guarantor's  Accounting and Disclosure  Requirements for Guarantees,  Including
Indirect  Guarantees  of  Indebtedness  of  Others."  FIN No. 45  clarifies  the
requirements  of SFAS No. 5,  "Accounting  for  Contingencies,"  relating to the
guarantor's  accounting for and disclosures of certain  guarantees.  The initial
recognition and measurements  provisions of the interpretation are applicable on
a prospective  basis to guarantees  issued or modified  after December 31, 2002,
irrespective of the guarantor's fiscal year-end. The disclosure  requirements of
the interpretation  are effective for financial  statements of interim or annual
periods ending after December 15, 2002. The adoption of this  interpretation  is
not  expected  to have any impact on the  results  of  operations  or  financial
position of the Company.  The Company does not have any  disclosure  obligations
under this interpretation at December 29, 2002.

       Statement of Financial  Accounting  Standards  No. 148,  "Accounting  for
Stock Based  Compensation-Transition  and Disclosure:  ("SFAS No. 148") which is
effective for fiscal years ending after December 15, 2002,



                                       30
<PAGE>

provided  alternative  methods of transition for a voluntary  change to the fair
value based method and requires more prominent and more frequent  disclosures in
the  financial  statements  about the effects of  stock-based  compensation.  We
elected to continue accounting for stock-based  compensation using the intrinsic
value method under  Accounting  Principles Board Opinion No. 25, and its related
interpretations.  Proforma  information  is based on the fair value method under
Statement of Financial Accounting Standards No. 123, "Accounting for Stock-Based
Compensation."  The fair  value of  options  granted  were  estimated  using the
Black-Scholes  option pricing model as discussed in Note 11 to the  consolidated
financial  statements.  See Note 2 to the consolidated  financial statements for
disclosures related to stock compensation required by SFAS No. 148.

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 December  29, 2002,  indebtedness  with
variable  interest rates totaled $221.0 million.  On an annualized basis, if the
interest rates on these debt  instruments  increased by 1.0%,  interest  expense
would increase by approximately $2.2 million.

ITEM 8.  FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

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

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

       We changed accountants during 2001. Detailed information required by this
item was  included in the  Current  Reports on Form 8-K and 8-K/A filed with the
Securities  and  Exchange  Commission  on June 29,  July 6, July 17 and July 19,
2001.

PART III

       The  information  required  by Part III (Items 10, 11, 12 and 13) 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.

ITEM 14.  CONTROLS AND PROCEDURES

       The Company's management, including its Chief Executive Officer and Chief
Financial  Officer,  have  conducted an evaluation of the  effectiveness  of the
Company's  disclosure  controls and  procedures as defined in Exchange Act Rules
13a-14(c) and 15d-14(c) as of a date within 90 days of the filing of this Annual
Report on Form 10-K (the "Evaluation Date"). Based on the evaluation,  the Chief
Executive  Officer  and  Chief  Financial  Officer  concluded  that  as  of  the
Evaluation  Date,  the  disclosure  controls  and  procedures  are  effective in
ensuring  that all  material  information  required  to be filed in this  annual
report  has been  made  known to them in a timely  fashion.  There  have been no
significant changes in internal controls, or in factors that could significantly
affect internal controls, subsequent to the date the Chief Executive Officer and
Chief Financial Officer completed their evaluation.




                                       31
<PAGE>
<TABLE>
<CAPTION>



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

(a) Financial statements.

<S>                                                                                                       <C>
       Foamex International Inc. and Subsidiaries:
         Independent Auditors' Report                                                                           F-2
         Report of Independent Accountants                                                                      F-3
         Consolidated Balance Sheets as of December 29, 2002 and December 31, 2001                              F-4
         Consolidated Statements of Operations for the years ended
         December 29, 2002, December 31,
             2001 and 2000                                                                                      F-6
         Consolidated Statements of Cash Flows for the years ended December 29, 2002, December 31,
             2001 and 2000                                                                                      F-7
         Consolidated Statements of Stockholders' Deficiency for the years ended December 29,
           2002, December 31, 2001 and 2000                                                                     F-8
         Notes to Consolidated Financial Statements                                                             F-9

       Information Required by Rule 3-09
       Foamex Asia Company Limited
         Consolidated Financial Statements of Foamex Asia Company Limited and Subsidiary
           for the year ended December 31, 2002 (unaudited)                                                     F-40
         Consolidated Financial Statements of Foamex Asia Company Limited and Subsidiary
           for the year ended December 31, 2001, including Report of the Independent
           Certified Public Accountants                                                                         F-56
         Consolidated Financial Statements of Foamex Asia Company Limited and Subsidiary
           for the year ended December 31, 2000 (unaudited)                                                     F-72

       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
<FN>

(b) Reports on Form 8-K.
</FN>
</TABLE>

     A report dated October 4, 2002, was filed for Item 7. - Financial
     Statements and Exhibits submitted for Item 9. - Regulation FD Disclosure,
     concerning a press release announcing that the Company had terminated
     discussions with Leggett & Platt, Incorporated, a Missouri corporation
     ("Leggett & Platt") for the sale of the Company's GFI Carpet Cushion
     business to Leggett & Platt.

     A report dated October 16, 2002, was filed for Item 7. - Financial
     Statements and Exhibits submitted for Item 9. - Regulation FD Disclosure,
     concerning a press release announcing that the Company expected to report a
     net loss for the third quarter ended September 29, 2002 and that in light
     of these results it had obtained a waiver from its bank lenders of its
     financial covenants for the period ended September 29, 2002.

     A report dated November 11, 2002, was filed for Item 8. - Change in Fiscal
     Year, concerning a press release announcing that 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 and that because the transition period was
     less than one month, no transition report was required.

(c) Exhibits.

2.1(p)    -    Transfer Agreement, dated as of February 27, 1998, by and between
               Foam Funding LLC and Foamex L.P.
2.2(p)    -    Asset Purchase  Agreement,  dated as of February 27, 1998, by and
               among Foamex  Carpet  Cushion,  Inc.  ("Foamex  Carpet"),  Foamex
               International Inc. ("Foamex International"), Foam Funding LLC and
               General Felt Industries, Inc. ("General Felt").
3.1(a)    -    Certificate of Limited Partnership of Foamex L.P.



                                       32
<PAGE>

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.  ("FMXI") and Trace Foam Company,  Inc.  ("Trace Foam"),  as
               general partners, and Foamex International,  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(n)  -    Third   Amendment  to  the Partnership Agreement, dated December
               23, 1997.
3.2.5(p)  -    Fourth Amendment to the Partnership Agreement, dated February 27,
               1998.
3.2.6(aa) -    Fifth Amendment to the Partnership  Agreement,  dated
               March 25, 2002.
3.3(q)    -    Certificate of Incorporation of FMXI.
3.4(q)    -    By-laws of FMXI.
3.5(f)    -    Certificate  of  Incorporation  of Foamex  Capital  Corporation
               ("FCC").
3.6(f)    -    By-laws  of FCC.
3.7.1(a)  -    Certificate  of Incorporation  of Foamex  International.
3.7.1(r)  -    Amendment to Certificate of Incorporation of Foamex
               International.
3.7.2(aa) -    Certificate of Formation of Foamex Carpet Cushion, Inc.
3.7.3(aa) -    Certification of Conversion of Foamex Carpet Cushion LLC.
3.7.4(aa) -    Amended  and  Restated  Limited   Liability   Company   Operating
               Agreement of Foamex Carpet Cushion LLC, dated March 25, 2002.
3.8(a)    -    By-laws of Foamex International.
4.1.1(d)  -    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  (the  "9  7/8%  Notes"),
               including  the form of Senior  Subordinated  Note and  Subsidiary
               Guarantee.
4.1.2(n)  -    First  Supplemental  Indenture,  dated as of December  23,  1997,
               between Foamex LLC ("FLLC") and The Bank of New York, as trustee,
               relating to the 9 7/8% Notes.
4.1.3(p)  -    Second Supplemental  Indenture,  dated as of February 27, 1998,
               among Foamex L.P. and FCC, as joint and several obligors, General
               Felt,  Foamex  Fibers,  Inc.  ("Foamex  Fibers"),  and  FLLC,  as
               withdrawing  guarantors,  and The Bank of New York,  as  trustee,
               relating to the 9 7/8% Notes.
4.1.4(aa) -    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% Notes.
4.2.1(n)  -    Indenture,  dated as of December 23, 1997,  by and among Foamex
               L.P.,  FCC, 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 (the "13 1/2% Notes"),  including the
               form of Senior Subordinated Note and Subsidiary Guarantee.
4.2.2(p)  -    First  Supplemental  Indenture,  dated as of February 27, 1998,
               among Foamex L.P. and FCC, as joint and several obligors, General
               Felt,  Foamex Fibers and FLLC, as withdrawing  guarantors,  Crain
               Industries,  Inc., as withdrawing  Intermediate  Obligor, and The
               Bank of New York, as trustee, relating to the 13 1/2% Notes.
4.2.3(aa)  -   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% Notes.
4.3.1(aa)  -   Indenture,  dated as of March 25,  2002,  by and among  Foamex
               L.P.,  Foamex  Capital   Corporation,   each  of  the  Subsidiary
               Guarantors  and  U.S.  Bank  National  Association,  as  trustee,
               relating  to  $300.000,000  principal  amount  of 10 3/4%  Senior
               Secured  Notes  due 2009  ("10 3/4%  Notes"),  including  form of
               Senior Secured Note and Subsidiary Guaranty.
4.3.2(aa)  -   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(aa)  -   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(aa)  -   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(aa)  -   Copyright  Security  Agreement,  dated as of March 25,  2002,  by
               Foamex  L.P.  in  favor of U.S.  Bank  National  Association,  as
               Collateral Agent.



                                       33
<PAGE>

4.3.6(aa)  -   Registration  Rights  Agreement,  dated as of March 25,  2002,
               between Foamex L.P. and FCC, the issuers, and Credit Suisse First
               Boston  Corporation,  Salomon  Smith Barney,  and Scotia  Capital
               (USA) Inc., the purchasers.
4.4.2.1(aa)-   Third Amended and Restated Foamex International Guaranty, dated
               as of March 25, 2002,  made by Foamex  International  in favor of
               Citicorp USA, Inc., as Collateral Agent.
4.4.3(aa)  -   Amended and Restated Guaranty, dated as of March 25, 2002, made
               by FMXI and the  Subsidiary  Guarantors in favor of Citicorp USA,
               Inc., as  Collateral  Agent,  each Lender,  each Issuing Bank and
               each other holder of an Obligation.
4.4.4(bb)  -   Amended and Restated Pledge and Security Agreement, dated as of
               March 25, 2002, made by Foamex  International,  FMXI, Foamex L.P.
               in favor of Citicorp USA, Inc., as Collateral Agent.
4.4.5(bb)  -   Patent  Security  Agreement,  dated as of March 25, 2002, made by
               Foamex L.P. in favor of Citicorp USA Inc., as Collateral Agent.
4.4.6(bb)  -   Trademark Security Agreement, dated as of March 25, 2002, made by
               Foamex L.P.  and Foamex  Carpet  Cushion LLC in favor of Citicorp
               USA, Inc., as Collateral Agent.
4.4.7(bb)  -   Copyright Security Agreement, dated as of March 25, 2002, made by
               Foamex L.P. in favor of Citicorp USA, Inc., as Collateral Agent.
4.5(cc)    -   Commitment Letter and Attachment,  dated July 5, 2002, from the
               Bank of Nova Scotia to Foamex  Canada Inc.  4.9.1(j) - 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(j)   -   Promissory Note, dated June 12, 1997, in the aggregate  principal
               amount of $4,794,828, executed by Trace Holdings to Foamex L.P.
4.10.11(aa)-   Credit Agreement,  dated June 12, 1997, as amended and restated
               as of February  27, 1998,  as further  amended and restated as of
               June 29, 1999 and as further amended and restated as of March 25,
               2002 among Foamex L.P., FMXI, the institutions  from time to time
               party  thereto as  lenders,  the  institutions  form time to time
               party  thereto as issuing  banks and Citicorp  USA,  Inc. and the
               Bank of Nova Scotia as Administrative Agents.
4.10.12(aa) -  Intercreditor  Agreement,  dated as of March 25, 2002,  by and
               among  Citicorp USA,  Inc.,  as Senior Agent,  U.S. Bank National
               Association,  as trustee and collateral agent under the Indenture
               for the 10 3/4% Notes and Foamex L.P.
4.14(s)     -  Letter Agreement,  dated as of July 31, 2000, between the Company
               and The Bank of Nova Scotia.
4.14.1(u)   -  Certificate of  Designations  of Series B Preferred  Stock of the
               Company.
10.1(dd)+   -  Employment Agreement, dated as of August 20, 2002, by and between
               the Company and Thomas E. Chorman.
10.2(dd)+   -  Employment Agreement, dated as of August 20, 2002, by and between
               the Company and Peter W. Johnson.
10.2.1(e)   -  Reimbursement  Agreement,  dated as of March  23,  1993,  between
               Trace Holdings and General Felt.
10.3(dd)+   -  Employment  Agreement,   dated  as  of  September  10,  2002  and
               effective  as of July 22,  2002,  by and  between the Company and
               Virginia Kamsky.
10.3.1(e)   -  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.
10.4(dd)+   -  Agreement  with  Consultant  dated August 8, 2002, by and between
               the Company and Raymond E. Mabus, Jr.
10.4.1(f)   -  Asset Transfer  Agreement,  dated as of October 2, 1990,  between
               Trace  Holdings  and  Foamex  L.P.  (the  "Trace  Holdings  Asset
               Transfer Agreement").
10.4.2(f)   -  First  Amendment,  dated as of December 19, 1991,  to the Trace
               Holdings  Asset  Transfer  Agreement.
10.4.3(f)   -  Amended  and Restated  Guaranty,  dated as of December 19, 1991,
               made by Trace Foam in favor of Foamex L.P.

                                       34
<PAGE>


10.5(ee)    -  Amendment  No. 1 dated as of  November  15,  2002,  to the Credit
               Agreement,  dated as of June 12, 1997, as amended and restated as
               of February 27, 1998, as further  amended and restated as of June
               29,  1999 and as further  amended  and  restated  as of March 25,
               2002,  by  and  among  Foamex  L.P.,  FMXI,  Inc.  the  financial
               institutions  party  thereto  from time to time as  lenders  (the
               "Lenders"), the financial institutions party thereto from time to
               time as issuing banks (the "Issuing Banks"),  Citicorp USA, Inc.,
               as  administrative  agent and as collateral agent for the Lenders
               and the Issuing  Banks,  and The Bank of Nova Scotia,  as funding
               agent and as  syndication  agent for the Lender  and the  Issuing
               Banks.
10.5.1(f)   -  Asset Transfer  Agreement,  dated as of October 2, 1990,  between
               Recticel Foam Corporation ("RFC") and Foamex L.P. (the "RFC Asset
               Transfer Agreement").
10.5.2(f)   -  First  Amendment,  dated as of December  19,  1991,  to the RFC
               Asset  Transfer  Agreement.
10.5.3(f) -    Schedule 5.03 to the RFC Asset Transfer  Agreement (the "5.03
               Protocol").
10.5.4(e) -    The 5.03 Protocol Assumption Agreement, dated as of October 13,
               1992, between RFC and Foamex L.P.
10.5.5(e) -    Letter Agreement between Trace  Holdings and  Recticel  regarding
               the Recticel  Guaranty, dated as of July 22, 1992.
10.7.1(g)   -  First  Amended and  Restated Tax Sharing  Agreement,  dated as of
               December 14, 1993, among Foamex L.P., Trace Foam, FMXI and Foamex
               International.
10.7.2(d)   -  First  Amendment  to  First  Amended  and  Restated  Tax  Sharing
               Agreement,  dated as of June 12, 1997,  by and among Foamex L.P.,
               Foamex International, FMXI and Trace Foam.
10.7.3(o)   -  Second  Amendment  to First  Amended and  Restated  Tax Sharing
               Agreement,  dated as of December  23,  1997,  by and among Foamex
               L.P., Foamex International, FMXI, and Trace Foam.
10.7.4(q)   -  Third  Amendment  to  First  Amended  and  Restated  Tax  Sharing
               Agreement,  dated as of February 27, 1998, by and between  Foamex
               L.P., Foamex International and FMXI.
10.8.1(h)   -  Tax  Distribution  Advance  Agreement,  dated as of December  11,
               1996, by and between Foamex L.P. and Foamex-JPS Automotive L.P.
10.8.2(d)   -  Amendment No. 1 to Tax Distribution  Advance Agreement,  dated as
               of  June  12,  1997,  by  and  between  Foamex  L.P.  and  Foamex
               International.
10.10.1(f)+ -  Salaried Incentive Plan of Foamex L.P. and Subsidiaries.
10.10.3(f)+ -  Equity Growth Participation Program.
10.10.4(i)+ -  The Foamex L.P.  Salaried  Pension Plan  (formerly,  "The General
               Felt Industries,  Inc. Retirement Plan for Salaried  Employees"),
               effective as of January 1, 1995.
10.10.5(m)+ -  The  Foamex  L.P.  Hourly  Pension  Plan  (formerly  "The  Foamex
               Products  Inc.  Hourly  Employee  Retirement  Plan"),  as amended
               December 31, 1995.
10.10.6(m)+ -  Foamex L.P. 401(k) Savings Plan effective October 1, 1997.
10.10.7(t)+ -  Foamex  International's  Amended and  Restated  1993 Stock Option
               Plan.
10.10.8(a)+ -  Foamex International's Non-Employee Director Compensation Plan.
10.10.9(x)+ -  Foamex  International Inc. Equity Incentive Plan for Non-Employee
               Directors.
10.10.10(x)+-  Foamex International Key Employee Incentive Bonus Plan.
10.10.11(y)+-  Agreement  with  Consultant,  dated April 24, 2001 by and between
               Robert J. Hay and Foamex L.P.
10.10.12(z)+-  Foamex Supplemental  Executive  Retirement Plan,  effective as of
               May 15, 2001.
10.10.13(z)+-  Split   dollar   Life   Insurance    Agreement   Between   Foamex
               International Inc. and Marshall S. Cogan, dated as of May 1, 2001
10.11.1(v)+ -  Employment Agreement, dated as of January 1, 1999, by and between
               the Company and Marshall S. Cogan.
10.11.2(r)+ -  Employment Agreement,  dated as of March 16, 1999, by and between
               Foamex International and John G. Johnson, Jr.
10.11.3(v)+ -  Employment  Agreement,  amended effective as of January 29, 2001,
               by and between Foamex International and John Televantos.
10.11.4(w)+ -  Termination  and Release  Agreement dated as of January 30, 2001,
               by and between the Company and John G. Johnson, Jr.
10.11.5(z)+ -  Termination  and Release  Agreement dated as of December 6, 2001,
               by and between the Company and John Televantos.

                                       35
<PAGE>

10.11.8(z)+-   First Amendment to Employment Agreement, dated as of December 31,
               2001, by and between the Company and Marshall S. Cogan.
10.11.9(ff)-   Foamex International Inc. 2002 Stock Award Plan.
10.11.10+* -   Severance  Agreement and Release,  dated as of November 23, 2002,
               by and between the Company and Theodore J. Kall.
10.11.11+* -   Severance Agreement and Release, dated as of January 31, 2003, by
               and between the Company and Pratt W. Wallace, Jr.
10.11.12+* -   Employment Agreement,  dated as of March 24, 2003, by and between
               the Company and K. Douglas Ralph.
10.14(i)   -   Stock Purchase  Agreement,  dated as of December 23, 1993, by and
               between   Transformacion   de  Espumas  u  Fieltros,   S.A.,  the
               stockholders which are parties thereto, and Foamex L.P.
10.15.1(h) -   Asset  Purchase  Agreement,  dated as of August 29, 1997,  by and
               among  General  Felt,  Foamex L.P.,  Bretlin,  Inc. and The Dixie
               Group.
10.15.2(l) -   Addendum  to Asset  Purchase  Agreement,  dated as of  October 1,
               1997, by and among General Felt, Foamex L.P.,  Bretlin,  Inc. and
               The Dixie Group.
10.17(q)   -   Tax Sharing  Agreement,  dated as of February 27, 1998, between
               Foamex  International  and  Foamex  Carpet.
10.18.1(z) -   Joint Venture  Agreement  between  Hua Kee  Company  Limited and
               Foamex Asia, Inc. amended and restated as of December 6, 2001.
10.18.2(o) -   Loan Agreement  between Hua Kee Company  Limited and Foamex Asia,
               Inc., dated as of July 8, 1997.
21*        -   Subsidiaries of registrant.
23*        -   Consent of Independent Accountants, PricewaterhouseCoopers LLP.
23.1*      -   Consent of Independent Auditors, Deloitte & Touche LLP.
99.1*      -   Certification of Chief Executive  Officer pursuant to Section 906
               of the Sarbanes-Oxley Act of 2002
99.2*      -   Certification of Chief Financial  Officer pursuant to Section 906
               of the Sarbanes-Oxley Act of 2002

+      Management contract or compensatory plan or arrangement.

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

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

(b)    Incorporated herein by reference to the Exhibit to the Annual Report on
       Form 10-K of the Company 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 the Company reporting an event that occurred May 28, 1997.

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

(e)    Incorporated herein by reference to the Exhibit to the Annual Report on
       Form 10-K Statement of Foamex L.P. and FCC for fiscal 1992.

(f)    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.

(g)    Incorporated herein by reference to the Exhibit to the Registration
       Statement of FJPS, FJCC and Foamex L.P. on Form S-4, Registration No.
       33-82028.

                                       36
<PAGE>

(h)    Incorporated herein by reference to the Exhibit to the Annual Report on
       Form 10-K of the Company for the fiscal year ended December 29, 1996.

(i)    Incorporated herein by reference to the Exhibit to the Annual Report on
       Form 10-K of Foamex L.P. for fiscal 1993.

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

(k)    Incorporated herein by reference to the Current Report on Form 8-K of
       Foamex L.P. reporting an event that occurred on August 29, 1997.

(l)    Incorporated herein by reference to the Current Report on Form 8-K of
       Foamex L.P. reporting an event that occurred on October 6, 1997.

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

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

(o)    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.

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

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

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

(s)    Incorporated herein by reference to the Exhibit to the Current Report on
       Form 8-K of the Company reporting an event that occurred on July 31,
       2000.

(t)    Incorporated herein by reference to the Exhibit to the Company's
       definitive proxy statement dated May 31, 2000.

(u)    Incorporated herein by reference to the Exhibit to the Current Report on
       Form 8-K of the Company reporting an event that occurred on November 2,
       2000.

(v)    Incorporated herein by reference to the Exhibit to the Annual Report on
       Form 10-K of the Company for year ended December 31, 2000.

(w)    Incorporated herein by reference to the Exhibit to the Form 10-Q of the
       Company for the quarterly period ended March 31, 2001.

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

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


                                       37
<PAGE>

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

(aa)   Incorporated herein by reference to the Exhibit to the Form 10-Q of the
       Company for the quarterly period ended March 31, 2002.

(bb)   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.

(cc)   Incorporated herein by reference to the Exhibit to the Form 10-Q of the
       Company for the quarterly period ended June 30, 2002.

(dd)   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.

(ee)   Incorporated herein by reference to the Exhibit to the Form 10-Q of
       Foamex L.P. and FCC for the quarterly period ended September 29, 2002.

(ff)   Incorporated herein by reference to Appendix C to the Company's
       definitive proxy statement dated April 30, 2002.

       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
Commission upon request.




                                       38
<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 26th day of March 2003.

                               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



                                       39
<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:
<TABLE>
<CAPTION>

Signature                                      Title                                Date

<S>                                         <C>                                         <C>

/s/ Marshall S. Cogan                          Chairman of the Board                March 26, 2003
--------------------------------
     Marshall S. Cogan


/s/ John V. Tunney                             Vice Chairman and Director           March 26, 2003
---------------------------------
     John V. Tunney


/s/ Robert J. Hay                              Chairman Emeritus                    March 26, 2003
--------------------------------
     Robert J. Hay                              and Director


/s/ Thomas E. Chorman                          President, Chief Executive           March 26, 2003
--------------------------------
     Thomas E. Chorman                          Officer and Director


/s/ S. Dennis N. Belcher                       Director                             March 26, 2003
--------------------------------
     S. Dennis N. Belcher


                                               Director                             March 26, 2003
--------------------------------
     Luis Echarte


/s/ Julie Nixon Eisenhower                     Director                             March 26, 2003
--------------------------------
     Julie Nixon Eisenhower


                                               Director                             March 26, 2003
--------------------------------
    Stuart J. Hershon


                                               Director                             March 26, 2003
--------------------------------
     Virginia A. Kamsky


/s/ Raymond E. Mabus                           Director                             March 26, 2003
--------------------------------
     Raymond E. Mabus


                                               Director                             March 26, 2003
--------------------------------
     Henry Tang



</TABLE>


                                       40
<PAGE>


                                  CERTIFICATION
                                  -------------


I, Thomas E. Chorman, certify that:


1. I have reviewed this annual report on Form 10-K of Foamex International Inc.;


2. Based on my knowledge, this annual report does not contain any untrue
statement of a material fact or omit to state a material fact necessary to make
the statements made, in light of the circumstances under which such statements
were made, not misleading with respect to the period covered by this annual
report;


3. Based on my knowledge, the financial statements, and other financial
information included in this annual report, fairly present in all material
respects the financial condition, results of operations and cash flows of the
registrant as of, and for, the periods presented in this annual report;


4. The registrant's other certifying officers and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined in
Exchange Act Rules 13a-14 and 15d-14) for the registrant and have:


     a) designed such disclosure controls and procedures to ensure that material
     information relating to the registrant, including its consolidated
     subsidiaries, is made known to us by others within those entities,
     particularly during the period in which this annual report is being
     prepared;


     b) evaluated the effectiveness of the registrant's disclosure controls and
     procedures as of a date within 90 days prior to the filing date of this
     annual report (the "Evaluation Date"); and


     c) presented in this annual report our conclusions about the effectiveness
     of the disclosure controls and procedures based on our evaluation as of the
     Evaluation Date;


5. The registrant's other certifying officers and I have disclosed, based on our
most recent evaluation, to the registrant's auditors and the audit committee of
registrant's board of directors (or persons performing the equivalent
functions):


     a) all significant deficiencies in the design or operation of internal
     controls which could adversely affect the registrant's ability to record,
     process, summarize and report financial data and have identified for the
     registrant's auditors any material weaknesses in internal controls; and


     b) any fraud, whether or not material, that involves management or other
     employees who have a significant role in the registrant's internal
     controls; and


6. The registrant's other certifying officers and I have indicated in this
annual report whether there were significant changes in internal controls or in
other factors that could significantly affect internal controls subsequent to
the date of our most recent evaluation, including any corrective actions with
regard to significant deficiencies and material weaknesses.




Date: March 26, 2003                 /s/ Thomas E. Chorman
                                    -----------------------------------------

                                    Thomas E. Chorman
                                    President and Chief Executive Officer



                                       41
<PAGE>




                                  CERTIFICATION
                                  -------------


I, K. Douglas Ralph, certify that:


1. I have reviewed this annual report on Form 10-K of Foamex International Inc.;


2. Based on my knowledge, this annual report does not contain any untrue
statement of a material fact or omit to state a material fact necessary to make
the statements made, in light of the circumstances under which such statements
were made, not misleading with respect to the period covered by this annual
report;


3. Based on my knowledge, the financial statements, and other financial
information included in this annual report, fairly present in all material
respects the financial condition, results of operations and cash flows of the
registrant as of, and for, the periods presented in this annual report;


4. The registrant's other certifying officers and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined in
Exchange Act Rules 13a-14 and 15d-14) for the registrant and have:


     a) designed such disclosure controls and procedures to ensure that material
     information relating to the registrant, including its consolidated
     subsidiaries, is made known to us by others within those entities,
     particularly during the period in which this annual report is being
     prepared;


     b) evaluated the effectiveness of the registrant's disclosure controls and
     procedures as of a date within 90 days prior to the filing date of this
     annual report (the "Evaluation Date"); and


     c) presented in this annual report our conclusions about the effectiveness
     of the disclosure controls and procedures based on our evaluation as of the
     Evaluation Date;


5. The registrant's other certifying officers and I have disclosed, based on our
most recent evaluation, to the registrant's auditors and the audit committee of
registrant's board of directors (or persons performing the equivalent
functions):


     a) all significant deficiencies in the design or operation of internal
     controls which could adversely affect the registrant's ability to record,
     process, summarize and report financial data and have identified for the
     registrant's auditors any material weaknesses in internal controls; and


     b) any fraud, whether or not material, that involves management or other
     employees who have a significant role in the registrant's internal
     controls; and


6. The registrant's other certifying officers and I have indicated in this
annual report whether there were significant changes in internal controls or in
other factors that could significantly affect internal controls subsequent to
the date of our most recent evaluation, including any corrective actions with
regard to significant deficiencies and material weaknesses.



Date: March 26, 2003                     /s/ K. Douglas Ralph
                                         ---------------------------------------
                                         K. Douglas Ralph
                                         Executive Vice President and
                                         Chief Financial Officer





                                       42
<PAGE>
<TABLE>
<CAPTION>







                            FOAMEX INTERNATIONAL INC.
                   INDEX TO CONSOLIDATED FINANCIAL STATEMENTS


<S>                                                                                                         <C>
       Foamex International Inc.

           Index to Consolidated Financial Statements                                                           F-1

           Independent Auditors' Report                                                                         F-2

           Report of Independent Accountants                                                                    F-3

           Consolidated Balance Sheets as of December 29, 2002 and December 31, 2001                            F-4

           Consolidated Statements of Operations for the years ended December 29, 2002, December 31,
                2001 and 2000                                                                                   F-6

           Consolidated Statements of Cash Flows for the years ended December 29, 2002,
                December 31, 2001 and 2000                                                                      F-7

           Consolidated Statements of Stockholders' Deficiency for the years ended December 29, 2002,
                December 31, 2001 and 2000                                                                      F-8

           Notes to Consolidated Financial Statements                                                           F-9

       Information Required by Rule 3-09

       Foamex Asia Company Limited

           Consolidated Financial Statements of Foamex Asia Company Limited and Subsidiary
              for the year ended December 31, 2002 (unaudited)                                                 F-40

           Consolidated Financial Statements of Foamex Asia Company Limited and Subsidiary
              for the year ended December 31, 2001, including Report of Independent
              Certified Public Accountants                                                                     F-56

           Consolidated Financial Statements of Foamex Asia Company Limited and Subsidiary
              for the year ended December 31, 2000 (unaudited)                                                 F-72



</TABLE>



                                       F-1
<PAGE>





                          INDEPENDENT AUDITORS' REPORT


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

We  have  audited  the  accompanying   consolidated  balance  sheets  of  Foamex
International  Inc. and subsidiaries (the "Company") as of December 29, 2002 and
December 31, 2001, and the related consolidated  statements of operations,  cash
flows and stockholders' deficiency for the two years then ended. Our audits also
included the consolidated  financial statement schedules as of and for the years
ended  December  29, 2002 and December 31, 2001 listed in the Index at Item 15a.
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 audits.

We conducted our audits in accordance with auditing standards generally accepted
in the  United  States of  America.  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 29, 2002
and December 31, 2001,  and the results of its operations and its cash flows for
the two years then ended in  conformity  with  accounting  principles  generally
accepted in the United States of America.  Also,  in our opinion,  such 2002 and
2001 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 18, 2003
Parsippany, New Jersey

                                      F-2
<PAGE>



                        REPORT OF INDEPENDENT ACCOUNTANTS



To the Board of Directors and Stockholders
of Foamex International Inc.:

In our  opinion,  the  consolidated  statements  of  operations,  cash flows and
stockholders'  deficiency listed in the index appearing under Item 15(a) present
fairly,  in all material  respects,  the results of operations and cash flows of
Foamex  International  Inc. and its subsidiaries for the year ended December 31,
2000 in conformity with accounting  principles  generally accepted in the United
States  of  America.  In  addition,  in our  opinion,  the  financial  statement
schedules as of and for the year ended  December  31, 2000,  listed in the index
appearing  under  Item 15(a)  present  fairly,  in all  material  respects,  the
information  set  forth  therein  when  read in  conjunction  with  the  related
consolidated  financial  statements.  These  financial  statements and financial
statement  schedules are the  responsibility  of the Company's  management;  our
responsibility  is to  express  an opinion  on these  financial  statements  and
financial  statement  schedules  based on our audit.  We conducted  our audit of
these statements in accordance with auditing standards generally accepted in the
United  States of America,  which  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,  assessing
the accounting principles used and significant estimates made by management, and
evaluating the overall  financial  statement  presentation.  We believe that our
audit provides a reasonable basis for our opinion.

As discussed in Note 9, during the year ending  December 31, 2001, the Company's
financial  debt  covenants,  with which the  Company  must comply on a quarterly
basis, become more restrictive.  Management's plans in regard to this matter are
also described in Note 9.


/s/ PricewaterhouseCoopers LLP

Philadelphia, Pennsylvania
March 30, 2001


                                      F-3
<PAGE>
<TABLE>
<CAPTION>





                   FOAMEX INTERNATIONAL INC. AND SUBSIDIARIES
                           CONSOLIDATED BALANCE SHEETS


                                                                            December 29,         December 31,
                                                                                    2002                 2001
                                                                            -------------------  -------------------
<S>                                                                          <C>                    <C>
ASSETS                                                                                          (thousands)
CURRENT ASSETS
    Cash and cash equivalents                                                $    4,524             $   15,064
    Accounts receivable, net of allowance for doubtful
      accounts and discounts of $10,311 in 2002 and $10,940 in 2001             191,546                173,461
    Inventories                                                                  98,010                 89,430
    Deferred income taxes                                                        21,011                    375
    Other current assets                                                         22,558                 32,935
                                                                             ----------             ----------

            Total current assets                                                337,649                311,265
                                                                              ---------              ---------

PROPERTY, PLANT AND EQUIPMENT
    Land and land improvements                                                    7,272                  7,512
    Buildings and leasehold improvements                                        119,582                116,232
    Machinery, equipment and furnishings                                        287,847                275,261
    Construction in progress                                                      3,868                  8,199
                                                                              ---------              ---------

            Total                                                               418,569                407,204

    Less accumulated depreciation and amortization                             (236,531)              (206,407)
                                                                               --------               --------

       Property, plant and equipment, net                                       182,038                200,797

GOODWILL                                                                        125,321                208,184

DEBT ISSUANCE COSTS, net of accumulated
amortization of $14,079 in 2002 and $14,643 in 2001                              36,827                 13,690

DEFERRED INCOME TAXES                                                            97,341                      -

OTHER ASSETS                                                                     34,401                 33,026
                                                                             ----------             ----------

TOTAL ASSETS                                                                   $813,577               $766,962
                                                                               ========               ========


</TABLE>








The  accompanying  notes  are an  integral  part of the  consolidated  financial
statements.
                                      F-4

<PAGE>
<TABLE>
<CAPTION>


                                     FOAMEX INTERNATIONAL INC. AND SUBSIDIARIES
                                             CONSOLIDATED BALANCE SHEETS

                                                                                December 29,         December 31,
                                                                                    2002                  2001
                                                                            -------------------  -------------------
<S>                                                                            <C>                   <C>
LIABILITIES AND STOCKHOLDERS' DEFICIENCY                                         (thousands, except share data)
CURRENT LIABILITIES
    Current portion of long-term debt                                          $       46            $   4,023
    Current portion of long-term debt - related party                                   -               14,040
    Accounts payable                                                               87,400              128,852
    Accrued employee compensation and benefits                                     26,330               25,858
    Accrued interest                                                               14,173                8,946
    Accrued restructuring                                                          14,424               12,392
    Accrued customer rebates                                                       18,813               21,869
    Cash overdrafts                                                                17,801                4,073
    Other accrued liabilities                                                      20,093               24,551
    Deferred income taxes                                                           1,864                1,612
                                                                               ----------            ---------

      Total current liabilities                                                   200,944              246,216

LONG-TERM DEBT                                                                    738,540              630,682

LONG-TERM DEBT - RELATED PARTY                                                          -               17,550

ACCRUED EMPLOYEE BENEFITS                                                          48,022               25,944

DEFERRED INCOME TAXES                                                                   -                4,171

ACCRUED RESTRUCTURING                                                               8,347               12,604

OTHER LIABILITIES                                                                   7,457               10,541
                                                                               ----------           ----------

    Total liabilities                                                           1,003,310              947,708
                                                                               ----------            ---------

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 2002 and 2001                                        15                   15
    Common Stock, par value $.01 per share:
      Authorized 50,000,000 shares
      Issued 27,839,658 in 2002 and 27,260,441 shares in 2001
      Outstanding 24,350,658 shares in 2002 and 23,771,441 shares in 2001             278                  273
    Additional paid-in capital                                                    101,972               97,668
    Accumulated deficit                                                          (216,243)            (206,544)
    Accumulated other comprehensive loss                                          (38,754)             (35,157)
    Other:
      Common Stock held in treasury, at cost:
        3,489,000 shares in 2002 and 2001                                         (27,780)             (27,780)
      Shareholder note receivable                                                  (9,221)              (9,221)
                                                                               ----------           ----------

      Total stockholders' deficiency                                             (189,733)            (180,746)
                                                                                 --------             --------

TOTAL LIABILITIES AND STOCKHOLDERS' DEFICIENCY                                   $813,577             $766,962
                                                                                 ========             ========
</TABLE>

The  accompanying  notes  are an  integral  part of the  consolidated  financial
statements.
                                      F-5
<PAGE>

<TABLE>
<CAPTION>


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

                                                                  December 29,       December 31,       December 31,
                                                                     2002               2001               2000
                                                             ------------------  ------------------   --------------
                                                                       (thousands, except per share amounts)
<S>                                                               <C>               <C>              <C>
NET SALES                                                         $1,328,094        $1,252,904       $1,257,778

COST OF GOODS SOLD                                                 1,186,669         1,072,823        1,085,753
                                                                  ----------        ----------       ----------

GROSS PROFIT                                                         141,425           180,081          172,025

SELLING, GENERAL AND ADMINISTRATIVE
    EXPENSES                                                          94,744            80,540           69,286

RESTRUCTURING, IMPAIRMENT AND OTHER
    CHARGES                                                            4,799            36,068            6,268
                                                                  ----------        ----------       ----------

INCOME FROM OPERATIONS                                                41,882            63,473           96,471

INTEREST AND DEBT ISSUANCE EXPENSE                                    66,607            63,237           75,229

INCOME FROM EQUITY INTEREST IN JOINT VENTURES                          1,734             1,645            1,652

OTHER INCOME (EXPENSE), NET                                               41            (2,196)          (3,042)
                                                                  ----------        ----------       ----------

INCOME (LOSS) BEFORE PROVISION (BENEFIT)
    FOR INCOME TAXES                                                 (22,950)             (315)          19,852

PROVISION (BENEFIT) FOR INCOME TAXES                                 (85,691)            5,297            2,839
                                                                  ----------        ----------       ----------

INCOME (LOSS) BEFORE EXTRAORDINARY ITEMS AND
    CUMULATIVE EFFECT OF ACCOUNTING CHANGES                           62,741            (5,612)          17,013

EXTRAORDINARY ITEMS, NET OF INCOME TAXES                              (1,793)                -                -

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

NET INCOME (LOSS)                                                  $  (9,699)     $     (5,612)     $    17,013
                                                                   =========      ============      ===========

EARNINGS PER SHARE - BASIC
   INCOME (LOSS) BEFORE EXTRAORDINARY ITEMS AND
     CUMULATIVE EFFECT OF ACCOUNTING CHANGES                      $     2.58     $      (0.24)       $    0.69
   EXTRAORDINARY ITEMS, NET OF INCOME TAXES                            (0.07)               -               -
   CUMULATIVE EFFECT OF ACCOUNTING CHANGES                             (2.91)               -               -
                                                                  ----------        ----------       ----------
   NET INCOME (LOSS)                                               $   (0.40)    $      (0.24)       $    0.69
                                                                   =========     ============        =========

EARNINGS PER SHARE - DILUTED
   INCOME (LOSS) BEFORE EXTRAORDINARY ITEMS AND
     CUMULATIVE EFFECT OF ACCOUNTING CHANGES                       $    2.39     $      (0.24)       $    0.67
   EXTRAORDINARY ITEMS, NET OF INCOME TAXES                            (0.07)               -               -
   CUMULATIVE EFFECT OF ACCOUNTING CHANGES                             (2.69)               -               -
                                                                  ----------        ----------       ----------
   NET INCOME (LOSS)                                                $  (0.37)    $      (0.24)       $    0.67
                                                                  ==========        ==========       ==========


</TABLE>

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


                                       F-6
<PAGE>
<TABLE>
<CAPTION>


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

                                                                December 29,      December 31,         December 31,
                                                                   2002                2001               2000
                                                           ---------------------- ----------------  ---------------
<S>                                                                <C>              <C>               <C>

OPERATING ACTIVITIES                                                                (thousands)
   Net income (loss)                                               $ (9,699)        $  (5,612)        $ 17,013
   Adjustments to reconcile net income (loss) to net
     cash provided by (used for) operating activities:
     Extraordinary items                                              3,375                 -                -
     Cumulative effect of accounting changes                         70,647                 -                -
     Depreciation and amortization                                   31,592            33,988           36,588
     Amortization of debt issuance costs, debt premium
        and debt discount                                             4,797             1,288            1,335
     Asset impairment and other charges                               2,503            13,811            2,621
     Loss  on disposition of assets                                       -               963            1,654
     Provision for uncollectible accounts                             2,336             5,479            2,838
     Retirement benefit funding greater than expense                 (1,604)           (1,752)          (7,198)
     Deferred income taxes                                          (92,400)            1,635              513
     Other, net                                                         266               361              303
   Changes in operating assets and liabilities:
     Accounts receivable                                            (20,421)           (9,578)          (6,857)
     Inventories                                                     (8,580)           15,177           (2,452)
     Accounts payable                                               (41,452)           45,913              262
     Accrued restructuring                                           (2,225)           15,549           (3,352)
     Other assets and liabilities                                    10,440           (10,808)           7,720
                                                               ------------         ---------        ---------

        Net cash provided by (used for) operating activities        (50,425)          106,414           50,988
                                                                 ----------          --------         --------

INVESTING ACTIVITIES
   Capital expenditures                                             (15,582)          (22,482)         (23,593)
   Proceeds from sale of assets                                          21               600            3,570
   Acquisitions                                                           -           (17,559)               -
   Other investing activities                                        (7,990)           (1,130)          (1,850)
                                                                -----------        ----------        ---------

        Net cash used for investing activities                      (23,551)          (40,571)         (21,873)
                                                                  ---------         ---------         --------

FINANCING ACTIVITIES
   Repayments of short-term borrowings                                    -                 -           (1,627)
   Net proceeds from (repayments of) revolving loans                (73,176)          (20,905)          32,220
   Proceeds from long-term debt                                     356,590                 -                -
   Repayments of long-term debt                                    (190,450)           (8,538)         (20,550)
   Repayments of long-term debt-related party                       (31,590)          (15,795)         (41,898)
   Increase (decrease) in cash overdrafts                            13,728            (2,812)           1,029
   Debt issuance costs                                              (29,981)           (2,578)               -
   Deferred credit on interest rate swaps                            14,821                 -                -
   Other financing activities                                         3,494            (5,041)              24
                                                                -----------        -----------     -----------

        Net cash provided by (used for) financing activities         63,436           (55,669)         (30,802)
                                                                  ---------         ---------         --------

Net increase (decrease) in cash and cash equivalents                (10,540)           10,174           (1,687)

Cash and cash equivalents at beginning of period                     15,064             4,890            6,577
                                                                  ---------        ----------        ---------

Cash and cash equivalents at end of period                        $   4,524          $ 15,064         $  4,890
                                                                  =========          ========         ========


</TABLE>

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


                                      F-7
<PAGE>

<TABLE>
<CAPTION>


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


                                                                                    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, 2000            $   -     $270    $87,475    $(217,945)     $(7,758)    $(28,423) $(166,381)

Net income                                                             17,013                               17,013
Minimum pension liability adjustment                                               (14,628)                (14,628)
Foreign currency translation adjustment                                               (910)                   (910)
                                                                                                          -----------
  Comprehensive income                                                                                       1,475
Exchange of common stock for
  preferred stock - Series B              15               8,563                                 (8,578)         -
Stock option compensation                                    213                                               213
Stock options exercised                                       24                                                24
                                      ------  ------- ------------  -----------  ------------  ---------- -----------

Balances at December 31, 2000             15      270     96,275     (200,932)     (23,296)     (37,001)  (164,669)

Net loss                                                               (5,612)                              (5,612)
Minimum pension liability adjustment                                               (10,782)                (10,782)
Foreign currency translation adjustment                                             (1,079)                 (1,079)
                                                                                                        ----------
  Comprehensive income (loss)                                                                              (17,473)
Stock compensation - directors                               352                                               352
Stock options exercised                             3        914                                               917
Deferred taxes on stock option exercises                     127                                               127
                                      ------  ------- ------------  -----------  ------------  ---------- -----------

Balances at December 31, 2001             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 income (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)
                                       =====     ====   ========    =========     ========     ========  =========
</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.  As of December 29,
2002, 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.  Foamex L.P. conducts foreign  operations  through Foamex Canada
Inc.,  Foamex Latin America,  Inc. and Foamex Asia, Inc.  Financial  information
concerning the business segments of the Company is included in Note 14.

       The Company has 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
2002 includes the 52 weeks ended December 29, 2002, after adjustment for
December 31, 2001 which was included in the prior year.

       Shareholder and Change in Control Developments

       Trace International Holdings, Inc. ("Trace") is a privately held company,
which owned approximately 29% of the Company's outstanding voting common stock
at September 30, 2000, and whose former Chairman also serves as the Company's
Chairman. The Company's common stock owned by Trace was pledged as collateral
against certain of Trace's obligations. Certain credit agreements and promissory
notes of the Company's subsidiaries, pursuant to which approximately $401.1
million of debt was outstanding as of September 30, 2000, provided that a
"change of control" would be an event of default and could result in the
acceleration of such indebtedness. "Change of control" means, for this purpose,
that (i) a person or related group, other than Trace, beneficially owns more
than 25% of the Company's outstanding voting stock and (ii) such voting stock
constitutes a greater percentage of such voting stock than the amount
beneficially owned by Trace. Additionally, certain indentures of Foamex L.P. and
Foamex Capital Corporation ("FCC"), a wholly-owned subsidiary of Foamex L.P.,
relating to senior subordinated notes contain similar "change of control"
provisions, which require Foamex L.P. and FCC 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".

       On July 21, 1999, the Company was informed by Trace that it filed a
petition for relief under Chapter 11 of the Bankruptcy Code in Federal Court in
New York City. Subsequently, on January 24, 2000, an order was signed converting
the Trace bankruptcy from Chapter 11 to Chapter 7 of the Bankruptcy Code. A
trustee was appointed to oversee the liquidation of Trace's assets. Neither
Trace's bankruptcy filing nor the conversion to Chapter 7 constituted a "change
of control" under the provisions of the debt agreements described above.

       On July 31, 2000, the Company announced that it had entered into an
agreement (the "Exchange Agreement") with The Bank of Nova Scotia relating to a
portion of the 7,197,426 shares of the Company's common stock pledged by Trace
to The Bank of Nova Scotia. The Exchange Agreement provided for the transfer of
the pledged stock to The Bank of Nova Scotia in a manner that would not
constitute a "change of control" as described above. These transactions were
conditioned upon bankruptcy court approval of a settlement agreement between The
Bank of Nova Scotia and the trustee for the Trace bankruptcy, which was entered
on October 18, 2000. On November 2, 2000, the transactions contemplated by the
Exchange Agreement and the settlement agreement were consummated, and did not
constitute a "change of control". As a result, Trace no longer owns any shares
of the Company's common stock.

       Under the Exchange Agreement, The Bank of Nova Scotia initially received
1,500,000 shares of the Company's common stock from the Trace bankruptcy estate
and exchanged these common stock shares for 15,000 shares of a new class of the
Company's non-voting non-redeemable convertible preferred stock (the "Series B
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 discussed above. The Series B
Preferred Stock (a) is entitled to dividends only if a dividend is declared on
the Company's common stock, (b) ranks senior to any future preferred stock
issued by the Company and (c) is entitled to a liquidation preference of $100
per share. Following this exchange, The Bank of Nova Scotia became the owner of
24.41% of the outstanding

                                      F-9
<PAGE>

                   FOAMEX INTERNATIONAL INC. AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

1.     ORGANIZATION AND BASIS OF PRESENTATION (continued)

shares of the Company's common stock when the remaining 5,697,426 shares of the
Company's common stock were transferred to The Bank of Nova Scotia from the
Trace bankruptcy estate. Certain equity transactions, primarily the exercise of
stock options, have reduced the Bank of Nova Scotia's common stock ownership
percentage to 23.6% at December 29, 2002.

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 in which it increased its ownership
to 70% in late 2001. The Company does not have control of this joint venture due
to the minority shareholders' substantive participation rights and therefore
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 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 revenue 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.

       The Company sells foam products to the automotive, carpet, cushioning 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 risk of loss passes
to the customer, which is primarily at the time of shipment.

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.
                                      F-10
<PAGE>

                   FOAMEX INTERNATIONAL INC. AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

2.     SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)

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 at December 29, 2002
were $738.6 million and $490.3 million, respectively, and at December 31, 2001
were $666.3 million and $603.4 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 2002, 2001 and 2000 was $29.1 million, $26.4 million
and $28.7 million, respectively.

       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.

Capitalized 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 the preliminary project stage is complete, management
authorizes the project, and it is probable that the project will be completed
and the software will be used for the function intended. The capitalized costs
are amortized on a straight-line basis over the estimated useful life of the
software, which is generally five years or less.

Long-Lived Assets

       The Company reviews the carrying value of its long-lived assets other
than goodwill whenever events or changes in circumstances indicate that the
carrying value of an asset may no longer be appropriate. The Company assesses
recoverability of the carrying value of the asset by estimating the future net
cash flows expected to result from the asset, including eventual disposition. If
the future undiscounted net cash flows are less than the carrying value of the
asset, an impairment loss is recorded equal to the difference between the
asset's carrying value and fair value.

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.

                                      F-11
<PAGE>

                   FOAMEX INTERNATIONAL INC. AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


2.     SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)

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.

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 gains (losses) are reflected in operations.

Research and Development

       Research and development costs are expensed as incurred. Amounts charged
against income were $4.8 million, $3.1 million and $2.5 million in 2002, 2001
and 2000, respectively.

Start-Up Costs

       Costs incurred in the start-up of a facility, including training and
production testing, are expensed as incurred.

Self Insurance

       The Company is partially self-insured for a number of risks up to certain
limits including workers' compensation, medical, automobile and general
liability. Commercial insurance policies are carried for amounts in excess of
the self-insured amounts.

Claims and Litigation

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

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.



                                      F-12
<PAGE>

                   FOAMEX INTERNATIONAL INC. AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

2.     SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)

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.

       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 11.
<TABLE>
<CAPTION>

                                                                2002                2001           2000
                                                            ------------         ----------      --------
                                                                  (thousands, except per share data)

<S>                                                        <C>                   <C>             <C>
       Net income (loss) as reported                       $  (9,699)            $(5,612)        $17,013
       Add:  Stock-based employee compensation
          expense included in reported net income
          (loss), net of tax benefit                              30                   8             202
       Deduct:  Total stock-based compensation
          expense determined under fair value
          based method, net of tax benefit                    (1,345)             (1,297)         (1,465)
                                                          ----------            --------        --------
       Proforma net income (loss)                           $(11,014)            $(6,901)        $15,750
                                                            ========             =======         =======

       Basic earnings (loss) per share
          As reported                                      $   (0.40)            $ (0.24)       $   0.69
          Proforma                                         $   (0.45)            $ (0.29)       $   0.63

       Diluted earnings (loss) per share
          As reported                                      $   (0.37)            $ (0.24)       $   0.67
          Proforma                                         $   (0.42)            $ (0.29)       $   0.62
</TABLE>

Accounting Changes - Business Combinations

       During  2001,  Statement  of  Financial  Accounting  Standards  No.  141,
"Business  Combinations"  ("SFAS No.  141") was issued.  SFAS No. 141  addresses
financial  accounting  and  reporting for business  combinations  and limits the
accounting for business  combinations to the purchase method.  The Statement was
effective for all business combinations,  including the acquisition discussed in
Note 4, with an acquisition date of July 1, 2001, or later.

Accounting Changes - Goodwill and Other Intangible Assets

       Statement of Financial  Accounting Standards No. 142, "Goodwill and Other
Intangible Assets" ("SFAS No. 142") addresses financial accounting and reporting
for acquired  goodwill and other intangible  assets. A key change as a result of
implementing  SFAS No. 142 is that goodwill and certain other intangibles are no
longer amortized but are periodically  assessed for impairment,  and as a result
there may be more  volatility  in the  reported  results than under the previous
standard  because  impairment  losses  are  likely to occur  irregularly  and in
varying amounts. An

                                      F-13
<PAGE>

                   FOAMEX INTERNATIONAL INC. AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


2.    SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)

impairment  of  goodwill  due to the  initial  application  of SFAS  No.  142 is
discussed  below.  Any goodwill and  intangible  assets  acquired after June 30,
2001,  including  the  acquisition  discussed  in Note  4,  are  subject  to the
nonamortization  and  amortization   provisions  of  SFAS  No.  142.  The  other
provisions  of SFAS No. 142 were adopted by the Company on January 1, 2002.  The
impact on the Company's financial statements for prior years was limited to $6.0
million of annual goodwill  amortization.  The Company's adjusted net income and
diluted  earnings  per share would have been $0.4  million and $0.02 in 2001 and
$23.0 million and $0.91 in 2000, if SFAS No. 142 had been adopted  retroactively
to January 1, 2000.

       SFAS No. 142 provides a six-month transitional period from the effective
date to perform an assessment of whether there is an indication that goodwill is
impaired. The Company completed this assessment in the second quarter of 2002.
Step one of the transitional impairment test uses a fair value methodology,
which differs from the undiscounted cash flow methodology that continues to be
used for intangible assets with an identifiable life. The Company identified six
reporting units and during the second quarter performed step one of the
transitional impairment test on each of the reporting units. Based on the
results of step one of the transitional impairment test, the Company identified
one reporting unit in the Foam Products segment, the Carpet Cushion Products
reporting unit and the Other reporting unit, for which the carrying values
exceeded the fair values as of January 1, 2002, indicating a potential
impairment of goodwill in those reporting units. Step two of the transitional
impairment test, to determine the magnitude of any goodwill impairment, was
completed in the third quarter of 2002. The resulting impairment loss of $72.0
million has been recorded as a cumulative effect of a change in accounting
principle, retroactive to the Company's first quarter results of operations in
accordance with the transitional implementation guidance of SFAS No. 142. The
Company performed its annual goodwill impairment test as of September 30, 2002
which did not result in the recognition of any additional impairment.
<TABLE>
<CAPTION>

       Goodwill balances include:

                                              Balance          Accounting                         Balance
                    Segments            December 31, 2001         Changes     Other  (1)     December 29, 2002
       -------------------------------- -----------------      ------------   ----------     -----------------
                                   (thousands)
<S>                                         <C>                 <C>            <C>               <C>
       Foam Products                        $  90,909           $  (7,771)     $  (8,869)        $  74,269
       Carpet Cushion Products                 62,898             (60,401)             -             2,497
       Automotive Products                     37,244                   -         (2,558)           34,686
       Technical Products                      14,658                   -           (789)           13,869
       Other                                    2,475              (2,475)             -                 -
                                          -----------          -----------   ------------      ------------
           Total                             $208,184            $(70,647)      $(12,216)         $125,321
                                             ========            ========       ========          ========
</TABLE>

       (1) Principally the reversal of a deferred income tax valuation allowance
(see note 12).

Future Accounting Changes - Extinguishment of Debt

       On April 30, 2002, Statement of Financial Accounting Standards No. 145,
"Rescission of FASB Statements No. 4, 44, and 64, Amendment of FASB Statement
No. 13, and Technical Corrections" ("SFAS No. 145") was issued. The provisions
of this Statement related to the rescission of Statement 4 shall be applied in
fiscal years beginning after May 15, 2002. Any gain or loss on extinguishment of
debt that was classified as an extraordinary item in prior periods presented
that does not meet the criteria in Opinion 30 for classification as an
extraordinary item shall be reclassified. Early application of the provisions of
this Statement related to the rescission of Statement 4 is encouraged. The
adoption of this Statement in 2003 will result in a reclassification of the
extraordinary items recorded during 2002.


                                      F-14
<PAGE>

                   FOAMEX INTERNATIONAL INC. AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


2.     SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)

Future Accounting Change - Guarantees

       In November 2002, the FASB issued FASB Interpretation ("FIN") No. 45,
"Guarantor's Accounting and Disclosure Requirements for Guarantees, Including
Indirect Guarantees of Indebtedness of Others." FIN No. 45 clarifies the
requirements of SFAS No. 5, "Accounting for Contingencies," relating to the
guarantor's accounting for and disclosures of certain guarantees. The initial
recognition and measurements provisions of the interpretation are applicable on
a prospective basis to guarantees issued or modified after December 31, 2002,
irrespective of the guarantor's fiscal year-end. The disclosure requirements of
the interpretation are effective for financial statements of interim or annual
periods ending after December 15, 2002. The adoption of this interpretation is
not expected to have any impact on the results of operations or financial
position of the Company. The Company does not have any disclosure obligations
under this interpretation at December 29, 2002.

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>

                                                                   2002            2001 (a)          2000
                                                                ----------      ------------     ------------
<S>                                                               <C>            <C>               <C>
       Earnings per share - basic:                                 (thousands, except per share amounts)
         Income (loss) before extraordinary items and
           cumulative effect of accounting changes                $62,741        $(5,612)          $17,013
         Extraordinary items, net of income taxes                  (1,793)             -                 -
         Cumulative effect of accounting changes                  (70,647)             -                 -
                                                                  -------   ------------     -------------
         Net income (loss)                                        $(9,699)       $(5,612)          $17,013
                                                                  =======        =======           =======

         Weighted average common stock outstanding                 24,275         23,599            24,814
                                                                  =======        =======          ========

         Income (loss) before extraordinary items and
           cumulative effect of accounting changes              $    2.58        $ (0.24)         $   0.69
         Extraordinary items, net of income taxes                   (0.07)             -                 -
         Cumulative effect of accounting changes                    (2.91)             -                 -
                                                                ---------    -----------      ------------
         Net income (loss)                                       $  (0.40)       $ (0.24)         $   0.69
                                                                 ========        =======          ========

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

                                                                   2002            2001 (a)          2000
                                                                ----------      ------------     ------------
                                                                   (thousands, except per share amounts)
       Earnings per share - diluted:
         Income (loss) before extraordinary items and
           cumulative effect of accounting changes                $62,741        $(5,612)          $17,013
         Extraordinary items, net of income taxes                  (1,793)             -                 -
         Cumulative effect of accounting changes                  (70,647)             -                 -
                                                                  -------   ------------     -------------
         Net income (loss)                                        $(9,699)       $(5,612)          $17,013
                                                                  =======        =======           =======

         Weighted average common stock outstanding                 24,275         23,599            24,814


</TABLE>
                                      F-15
<PAGE>

                   FOAMEX INTERNATIONAL INC. AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

<TABLE>
<CAPTION>



3.     EARNINGS (LOSS) PER SHARE

                                                                   2002            2001 (a)          2000
                                                                ----------      ------------     ------------
<S>                                                                   <C>                              <C>
                                                                   (thousands, except per share amounts)
         Incremental shares resulting from
           Stock options (b)                                          529              -               149
           Convertible preferred stock (c)                          1,500              -               245
                                                                 --------   ------------         ---------

         Adjusted weighted average shares                          26,304         23,599            25,208
                                                                  =======        =======          ========

         Income (loss) before extraordinary items and
           cumulative effect of accounting changes               $   2.39        $ (0.24)         $   0.67
         Extraordinary items, net of income taxes                   (0.07)             -                 -
         Cumulative effect of accounting changes                    (2.69)             -                 -
                                                                 --------    -----------      ------------
         Net income (loss)                                        $ (0.37)       $ (0.24)         $   0.67
                                                                  =======        =======          ========
</TABLE>

(a)        There is no dilution resulting from potential incremental shares in
           2001, because the Company had a net loss before extraordinary items
           and cumulative effect of accounting changes, and the inclusion of
           potential incremental shares would be antidilutive.

(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 and
           1,715,000 in 2002 and 2000, respectively.

(c)        Series B Preferred Stock was issued during the fourth quarter of 2000
           (see Note 13) and is convertible into 1,500,000 common shares.

4.     ACQUISITION

       On July 25, 2001, the Company purchased certain assets and assumed
certain liabilities of General Foam Corporation, a manufacturer of polyurethane
foam products for the automotive, industrial, and home furnishings markets, at a
total cost of $18.5 million, which resulted in goodwill of approximately $9.1
million. The business was acquired due to its synergy with the Company's
existing business. The assets purchased primarily included inventory and
machinery and equipment. The results of the acquired business have been included
in the consolidated financial statements since the date of acquisition. The
effects of the acquisition on the Company's consolidated financial statements
are not material.

5.     EXTRAORDINARY ITEMS AND CUMULATIVE EFFECT OF ACCOUNTING CHANGES

       In connection with the refinancing transaction completed on March 25,
2002 (see Note 9), the Company wrote off debt issuance costs associated with the
early extinguishment of its long-term debt due to a related party and its
revolving credit facility, resulting in an extraordinary loss of $2.6 million,
net of income tax benefit of $1.7 million. In addition, the Company purchased
and retired $49.0 million of its 13 1/2% senior subordinated notes, including
unamortized debt premium of $2.5 million, and $1.5 million of its 9 7/8% senior
subordinated notes resulting in an extraordinary gain of $0.8 million, net of
income taxes of $0.6 million.

       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).
                                      F-16

<PAGE>

                   FOAMEX INTERNATIONAL INC. AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


6.     RESTRUCTURING, IMPAIRMENT AND OTHER CHARGES

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.

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

       The 2001 Operational  Reorganization Plan is expected to be substantially
completed in early 2003 and the Company expects to complete all of the remaining
facility  closures and personnel  reductions  related to its 2002  restructuring
plan  during  2003,   primarily  in  the  first  six  months.   Terminations  of
approximately 300 employees for both plans are planned to take place in 2003.

2001

       During 2001, the Company recorded restructuring, impairment and other
charges of $36.1 million, primarily related to its December 2001 Operational
Reorganization Plan. Included in the Operational Reorganization Plan were plant
facility closures, reductions in support function personnel and cost reductions
in purchasing and logistics. The Operational Reorganization Plan originally
included severance and termination benefits for approximately 700 employees at
plants, in support functions and in executive management. A reevaluation of the
plan in 2002 reduced the number of facilities to be closed and as a result the
number of employees planned to be terminated was reduced to approximately 500.
Approximately 340 of these employees were terminated in 2002. Restructuring,
impairment and other charges included an impairment provision of $13.8 million
(net of anticipated proceeds of $4.6 million) to reduce certain leasehold
improvements and machinery and equipment included in the Foam Products and
Carpet Cushion Products segments to their estimated fair values.

2000

       During 2000, the Company recorded restructuring, impairment and other
charges of $6.3 million which included severance and other termination benefits
for approximately 100 employees, all of whom have been terminated.

       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
                                             -----       ----------      ----------     ----------        -----
<S>                       <C>                 <C>           <C>             <C>              <C>         <C>
       2000                                                         (millions)
       Balance at January 1, 2000             $9.0          $10.1           $2.7             $(3.8)      $    -
       Provision                               6.3            1.4            2.3               2.6            -
       Net cash receipts (spending)           (3.5)          (3.9)          (3.2)              3.6            -
       Asset impairment                       (2.6)            -               -              (2.6)           -
                                            ------      --------         -------             -----       ------
       Balance at December 31, 2000            9.2            7.6            1.8              (0.2)           -

                                      F-17
<PAGE>

                   FOAMEX INTERNATIONAL INC. AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

6.     RESTRUCTURING, IMPAIRMENT AND OTHER CHARGES (continued)

                                                         Plant Closure   Personnel
                                             Total       and Leases      Reductions     Impairment          Other
                                             -----       ----------      ----------     ----------          -----
       2001                                                         (millions)
       2001 Operational Reorganization
         Plan                                 35.4           10.6            8.3              13.4           3.1
       Adjustments and other                   0.7           (0.4)          (0.3)               -            1.4
       Net cash receipts (spending)           (6.5)          (3.1)          (2.0)              0.6          (2.0)
       Asset impairment                      (13.8)            -               -             (13.8)           -
                                            ------      ---------         -------             -----       --------
       Balance at December 31, 2001           25.0           14.7            7.8                -            2.5

       2002
       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
                                             =====          =====           ====            ======          ====
</TABLE>

       The Company expects to spend approximately $14.4 million during 2003 with
the balance to be spent through 2012, primarily for lease costs.

7.     INVENTORIES

       The components of inventory are listed below.

                                               December 29,         December 31,
                                                  2002                  2001
                                          -------------------   ----------------
                                                        (thousands)
       Raw materials and supplies             $60,588                 $53,398
       Work-in-process                         16,737                  12,476
       Finished goods                          20,685                  23,556
                                             --------                --------
       Total                                  $98,010                 $89,430
                                              =======                 =======

8.     SHORT-TERM BORROWINGS

       Foamex Canada Inc. ("Foamex Canada") is a wholly-owned subsidiary of
Foamex L.P. and has a short-term credit facility that provides for $8.0 million
of Canadian dollar loans (U.S. dollar equivalent of approximately $5.1 million
as of December 29, 2002) of which up to $2.0 million is available in U.S. dollar
loans. The amount of borrowings available is based on a combination of accounts
receivable and inventory, as defined in the credit facility. Interest on
Canadian dollar borrowings is based on the bank's prime lending rate plus 1 1/2
%. On U.S. dollar loans, interest is based on the bank's U.S. dollar base rate
in Canada plus 1 1/2 %. At December 29, 2002 and December 31, 2001, there were
no short-term borrowings outstanding and approximately $5.1 million was
available at December 29, 2002.





                                      F-18
<PAGE>

                   FOAMEX INTERNATIONAL INC. AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

<TABLE>
<CAPTION>

9.     LONG-TERM DEBT

       The components of long-term debt are listed below.

                                                                       December 29,          December 31,
                                                                            2002                  2001
                                                                       ----------------     ---------------
<S>                  <C>                                                 <C>                    <C>
       Foamex L.P. Credit Facility                                                (thousands)
         Term Loan B (1)                                                 $  39,262              $  76,139
         Term Loan C (1)                                                    35,693                 69,218
         Term Loan D (1)                                                    51,700                100,259
         Term Loan E (1)                                                    16,290                      -
         Term Loan F (1)                                                    19,243                      -
         Revolving credit facility (1)                                      51,823                125,000
       10 3/4% Senior secured notes due 2009 (2) (5)                       314,237                      -
       9 7/8% Senior subordinated notes due 2007 (2)                       148,500                150,000
       13 1/2% Senior subordinated notes due 2005 (includes
         $2,486 and $6,515 of unamortized debt premium) (2)                 54,071                104,515
       Industrial revenue bonds (3)                                          7,000                  7,000
       Other (net of unamortized debt discount of $137 in 2002
         and $281 in 2001)                                                     767                  2,574
                                                                      ------------             ----------
                                                                           738,586                634,705

       Less current portion                                                     46                  4,023
                                                                     -------------             ----------

       Long-term debt-unrelated parties                                   $738,540               $630,682
                                                                          ========               ========

       The components of related party long-term debt are listed below.

                                                                       December 29,          December 31,
                                                                          2002                  2001
                                                                    --------------            ------------
                                                                                  (thousands)
       Note payable to Foam Funding LLC (4)                          $          -                $31,590

       Less current portion                                                     -                 14,040
                                                                    -------------               --------

       Long-term debt - related party                                $          -                $17,550
                                                                     ============                =======
</TABLE>

(1)  Subsidiary debt of Foamex L.P., guaranteed by the Company and FMXI, Inc.
(2)  Subsidiary debt of Foamex L.P. and Foamex Capital Corporation.
(3)  Subsidiary debt of Foamex L.P.
(4)  Subsidiary debt of Foamex Carpet.
(5)  Includes   $14.2   million  of  deferred   credit  on  interest  rate  swap
     transactions at December 29, 2002.

       On March 25, 2002, Foamex L.P. and Foamex Capital Corporation issued
$300.0 million of 10 3/4% Senior Secured Notes due 2009 (the "Senior Secured
Notes") and amended the Foamex L.P. Credit Facility (the "Amended Credit
Facility"). Under the Amended Credit Facility, the Company may borrow up to
$262.2 million, consisting of $162.2 million of term loans and a $100.0 million
revolving credit facility. Net proceeds from the Senior Secured Notes of $280.0
million were used to repay a portion of the debt outstanding under the Foamex
L.P. Credit Facility. The $31.6 million note payable to a related party, Foam
Funding LLC, was repaid with the initial proceeds of a new term loan under the
Amended Credit Facility. Additionally, financial covenants contained in the
Amended Credit Facility were adjusted to reflect changes in the capital
structure and the current business environment of Foamex L.P. Under the
covenants contained in the Senior Secured Notes and the Amended Credit Facility,
the Company was able to spend up to $48.5 million of the proceeds from the
Senior Secured Notes to repurchase or redeem some of its senior subordinated
notes. In July and August 2002, Foamex L.P. utilized $48.5 million to purchase
and retire $49.0

                                      F-19
<PAGE>

                   FOAMEX INTERNATIONAL INC. AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


9.     LONG-TERM DEBT (continued)

million of its 13 1/2% senior  subordinated  notes,  including  unamortized debt
premium of $2.5  million,  and $1.5  million of its 9 7/8%  senior  subordinated
notes.

       Amended Credit Facility
       -----------------------

       The Amended  Credit  Facility  consists of (1) the new  revolving  credit
facility,  which is a non-amortizing revolving credit facility provided by a new
syndicate of lenders  (the "New  Revolving  Credit  Facility"),  which  provides
working  capital for Foamex L.P. and its  subsidiary  guarantors and funding for
other general corporate  purposes,  (2) Term B, C, and D loans, (3) a new Term E
Loan in the initial amount of $31.6 million, the proceeds of which were borrowed
at closing and used to repay in full the obligations  outstanding under the note
payable to Foam Funding LLC, and (4) a new Term F Loan in the initial  amount of
$25.0 million,  the proceeds of which were borrowed at closing and used to repay
indebtedness  outstanding  under the revolving  credit  facility.  The remaining
obligations  outstanding  under the revolving credit facility were repaid with a
portion of the proceeds from the issuance of the 10 3/4% Senior Secured Notes as
described below.

       The commitments  under the New Revolving Credit Facility are available to
Foamex L.P. in the form of (1) revolving  credit loans, (2) swing loans (subject
to a $20.0  million  sublimit)  and (3)  letters of credit  (subject  to a $40.0
million sublimit). At December 29, 2002, Foamex L.P. had available borrowings of
$27.6 million and letters of credit outstanding of $20.6 million.

       A portion of the net proceeds  from the 10 3/4% Senior  Secured Notes was
used to repay a portion of the existing term loans, the Term E Loan and the Term
F Loan.  Loans made under the New Revolving  Credit Facility will mature and the
commitments  under them will  terminate on June 30, 2005.  The Term B Loan,  the
Term E Loan and the Term F Loan will  mature on June 30,  2005,  the Term C Loan
will mature on June 30,  2006 and the Term D Loan will  mature on  December  29,
2006.  Each of the Term Loans will be subject  to  amortization  on a  quarterly
basis;  however,  after  giving  effect to the  prepayments  of the Term  Loans,
quarterly  principal payments will commence for the Term B Loan, the Term E Loan
and the Term F Loan in 2004, for the Term C Loan in 2005 and for the Term D Loan
in 2006.

       Foamex L.P. is required to make mandatory  prepayments of loans under the
Amended Credit  Facility with: (1) the net cash proceeds  received from sales of
assets by Foamex L.P. or certain of its subsidiaries,  (2) the net cash proceeds
received from certain  issuances by Foamex L.P., or any of its  subsidiaries  of
indebtedness  for borrowed money or equity  interests and (3) 75% of excess cash
flow in any fiscal year,  such  percentage  to be reduced to 50% if the ratio of
outstanding obligations under the Amended Credit Facility to EBDAIT (as defined)
for such fiscal year is reduced to specified levels,  subject,  in each case, to
certain limited exceptions.

       Foamex L.P. is permitted to make voluntary prepayments and/or permanently
reduce the  commitments  under the New Revolving  Credit Facility in whole or in
part,  without  premium or penalty,  subject to  reimbursement  of the  lenders'
redeployment  costs  in the  case  of  prepayment  of  LIBO,  as  defined,  rate
borrowings,  other  than  at the  end  of any  interest  period.  All  voluntary
prepayments  of Term Loans will be  applied  to such  tranches  of Term Loans as
Foamex L.P. may select.

       The Company,  FMXI, Inc. and each of Foamex L.P.'s domestic  subsidiaries
continue to guarantee the repayment of the obligations  under the Amended Credit
Facility.  The  Amended  Credit  Facility  is secured by a  first-priority  lien
(subject to permitted liens) on  substantially  the same collateral that secured
the  obligations  under the prior Foamex L.P.  credit  facility,  which includes
substantially all of the Company's  material tangible and intangible  assets. In
addition,  all of the partnership  interests,  all of the capital stock or other
equity  interests  of the  Company's  domestic  subsidiaries  (including  Foamex
Carpet) and 65% of the capital stock or other equity  interests of the Company's
first-tier  foreign  subsidiaries  are pledged as part of the  security  for the
obligations under the Amended Credit Facility.

                                      F-20
<PAGE>

                   FOAMEX INTERNATIONAL INC. AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

9.     LONG-TERM DEBT (continued)

       Borrowings  under the Amended Credit Facility bear interest at a floating
rate based upon (and including a margin over), at our option,  (1) the higher of
(a) the  funding  agent's  prime  rate and (b) 0.50% in  excess  of the  Federal
Reserve reported  weighted  average  overnight rate for federal funds or (2) the
higher of (x) 2.50% per annum and (y) the LIBO rate,  as defined,  as determined
by the funding agent. The effective interest rates at December 29, 2002 for Term
Loans B, C, D, E and F ranged  between 7.00% and 7.38%.  The effective  interest
rate for revolving  loans at December 29, 2002 was 7.75%.  The rates increase 25
basis points each quarter that Foamex L.P.'s leverage ratio, as defined, exceeds
5.00 to  1.00.  Once the  leverage  ratio  is  reduced  below  this  level,  the
cumulative  amount of any 25 basis point  adjustment  to the  interest  rates on
borrowings  are reset to zero.  At December 29, 2002,  the  calculated  leverage
ratio was 8.66 to 1.00. Accordingly,  an additional 25 basis point rate increase
will become effective early in the second quarter of 2003.

       The Amended Credit Facility contains  affirmative and negative  covenants
that,  subject  to  certain  exceptions,  are  substantially  similar  to  those
contained  in the prior  credit  facility.  The  Amended  Credit  Facility  also
includes the following financial  covenants,  as defined therein:  (1) a minimum
net worth test;  (2) a minimum ratio of EBDAIT to cash interest  expense;  (3) a
minimum ratio of EBDAIT to fixed charges; and (4) a maximum ratio of funded debt
to EBDAIT.  These covenants are substantially the same as those contained in the
prior credit facility with appropriate changes to take into account the issuance
of the Senior Secured Notes and the contribution of Foamex Carpet to Foamex L.P.
The Amended Credit  Facility also requires the refinancing of the 13 1/2% senior
subordinated notes on or prior to March 1, 2005.

       The Amended Credit Facility contains events of default including, but not
limited to, nonpayment of principal,  interest,  fees or other amounts when due,
violation of covenants,  inaccuracy  of  representations  and  warranties in any
material  respect,  cross  default  and  cross  acceleration  to  certain  other
indebtedness,  bankruptcy,  ERISA,  material  judgments  and change of  control.
Certain of these events of default are subject to grace periods and  materiality
qualifications. See the Debt Covenants section of this Note.

       Foamex Carpet Credit Facility
       -----------------------------

       At December 31, 2001,  Foamex Carpet had a revolving credit facility (the
"Foamex Carpet Credit  Facility"),  which provided a commitment of $15.0 million
through  February 2004.  There were no borrowings  outstanding  under the credit
facility at December 31, 2001 and  available  borrowings  totaled  $14.8 million
with $0.2 million of letters of credit  outstanding.  The Foamex  Carpet  Credit
Facility was terminated on March 25, 2002 in connection with the refinancing.

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  Amended  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 Amended Credit Facility.  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 and liquidated damages, as defined, 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  and
liquidated  damages,  as defined, 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 and liquidated  damages,  as defined, if any, if there is such a
"change of control".

                                      F-21
<PAGE>

                   FOAMEX INTERNATIONAL INC. AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

9.     LONG-TERM DEBT (continued)

       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 is liable  for  liquidated  damages  from
September 23, 2002 until the date the registration  statement became  effective.
The  liquidated  damages  are 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 amount
accrued for liquidated damages at December 29, 2002 was $0.2 million.

       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 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, 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 will be 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
104.938%  of their  principal  amount,  plus  accrued  and unpaid  interest,  as
defined,  if any,  thereon to the date of redemption  and declining  annually to
100.0% on or after June 15, 2005.

       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 December 29, 2002, the  redemption  price
was 103.375% 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).


                                      F-22
<PAGE>

                   FOAMEX INTERNATIONAL INC. AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


9.     LONG-TERM DEBT (continued)

Industrial Revenue Bonds ("IRBs")

       IRB debt  includes a $1.0  million  bond that  matures in 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
December  29,  2002,  the  interest  rate was 1.55% on the $1.0 million bond and
1.60% 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.  The obligations are  collateralized by certain  properties,  which
have an approximate net carrying value of $10.8 million at December 29, 2002.

Other

       Other  debt  at  December  31,  2001  included  a  term  loan  owed  by a
majority-owned  Mexican subsidiary,  Foamex de Cuautitlan S.A. de C.V. Quarterly
principal  payments  were due on the term loan through its maturity in May 2002.
Also included in other debt is a  non-interest  bearing  promissory  note with a
principal  amount of $0.9 million at December 29, 2002 issued in connection with
increasing the Company's  interest in an Asian joint venture to 70% in 2001. The
promissory note had unamortized discount of $0.1 million at December 29, 2002.

Related Party - Note Payable to Foam Funding LLC

       Foamex  Carpet  entered into a $70.2 million  promissory  note payable to
Foam Funding LLC, a subsidiary of Trace International  Holdings, Inc. ("Trace").
Principal was payable in quarterly  installments  that began in June 1998 with a
final installment in February 2004.  Interest was based on a variable rate equal
to the sum of 2.25%  plus the  higher  of: (i) the base rate of The Bank of Nova
Scotia or (ii) the Federal Funds rate plus 0.5%. At the option of Foamex Carpet,
interest  payable  under the note was  convertible  into LIBOR  based loans plus
3.25%.

       Amounts  outstanding were  collateralized  by all of the assets of Foamex
Carpet on a pari  passu  basis  with the  Foamex  Carpet  Credit  Facility.  All
obligations  under the note  payable to Foam  Funding LLC were paid on March 25,
2002.

Debt Covenants

       The  indentures,  the  Foamex  L.P.  Amended  Credit  Facility  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.
Also, the Company's  subsidiaries are required under certain of these agreements
to maintain  specified  financial  ratios of which the most  restrictive are the
maintenance of net worth, interest coverage,  fixed charge coverage and leverage
ratios, as defined. Under the most restrictive of the distribution  restrictions
as of December 29, 2002,  the Company  could be paid funds by its  subsidiaries,
only to the extent to enable the Company to meet its tax payment liabilities and
its normal  operating  expenses of up to $1.0  million  annually,  so long as no
event of default has occurred.

       Foamex L.P. and Foamex  Carpet,  the then principal  subsidiaries  of the
Company,  were in compliance with the various financial  covenants of their loan
agreements as of December 31, 2000.  Certain  Foamex L.P. and Foamex Carpet debt
agreements  contained certain quarterly financial  covenants,  which became more
restrictive  during  2001.  In the absence of a waiver of or  amendment  to such
financial  covenants,  noncompliance  would have constituted an event of default
under the applicable debt  agreements,  and the lenders would have been entitled
to accelerate the maturity of the indebtedness outstanding thereunder.  Prior to
filing the Annual Report on Form 10-K for the year

                                      F-23

<PAGE>

                   FOAMEX INTERNATIONAL INC. AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


       9.LONG-TERM DEBT (continued)

ended December 31, 2000, the Company,  Foamex L.P. and Foamex Carpet anticipated
they would  continue to comply with the  financial  covenants in the  applicable
debt agreements during 2001. In the event that noncompliance  appeared likely or
occurred, management was prepared to seek lenders' approval of amendments to, or
waivers of,  such  financial  covenants.  In December  2001,  certain  financial
covenants were modified to accommodate the  restructuring,  impairment and other
charges recorded in the fourth quarter of 2001 as a result of the Company's 2001
Operational  Reorganization  Plan. At that time certain financial covenants were
also eased for 2002.  The Company  paid a fee of  approximately  $1.8 million to
obtain this  modification.  The Foamex Carpet debt agreements were terminated in
connection with the refinancing which took place on March 25, 2002.

       On October 16, 2002, Foamex L.P.  announced that it had obtained a waiver
from its bank  lenders  of its  financial  covenants  under the  Amended  Credit
Facility for the period ended September 29, 2002 since it would not have been in
compliance with the covenants.  The waiver was effective until November 30, 2002
and reduced the  commitment  under the  revolving  credit  facility  from $100.0
million to $70.0  million  for the period the waiver was in effect.  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. will be subject to minimum net
worth,  minimum EBDAIT, as defined,  and maximum capital  expenditure  covenants
through  periods ending December 28, 2003. The minimum EBDAIT covenant is tested
monthly, on a cumulative basis, beginning with December 2002. Foamex L.P. was in
compliance  with the revised  covenants as of December  29,  2002.  In addition,
Foamex  L.P.  was subject to a minimum  EBDAIT,  as  defined,  covenant  for the
quarter ended September 29, 2002 and was in compliance. Compliance with existing
covenants on leverage,  fixed charge  coverage and interest  coverage  ratios is
suspended  through  periods  ending  September  28, 2003,  but the covenants are
revised and will be reinstated  thereafter.  All of the financial covenants were
established  based on a business  plan  provided to the  lenders.  In  addition,
borrowings under the Amended Credit Facility will be subject to a borrowing base
calculation, which could limit borrowings under the revolving credit facility to
less  than  the  maximum  commitment.  Under  the  borrowing  base  calculation,
availability  under the Revolving  Credit Facility shall equal the lesser of (1)
the Revolving Credit Facility  commitment or (2) the sum of 65% of Foamex L.P.'s
accounts receivable plus 50% of Foamex L.P.'s inventory plus $85.0 million, less
certain other adjustments for Term Loan repayments, less the outstanding balance
of Term Loans.  As of December 29, 2002, the borrowing base  calculation did not
limit borrowings  under the Amended Credit  Facility.  The cost of obtaining the
amendment aggregated $4.0 million, including bank and legal fees.

       The Company's  minimum  EBDAIT  covenants  have higher  thresholds in the
second  half of 2003.  Management's  current  plans to achieve  EBDAIT  covenant
compliance  require  continued  customer selling price management in response to
raw material cost changes,  successful  implementation  of on-going cost savings
initiatives,   improved   operating   efficiencies,   improved  working  capital
management and reduced  capital  expenditures.  Management is also continuing to
evaluate strategic alternatives in an effort to reduce the Company's debt.

Maturities of Long-Term Debt

       Scheduled maturities of long-term debt as of December 29, 2002 are shown
below (thousands):

       2003                                                 $        46
       2004                                                      33,795
       2005                                                     160,216
       2006                                                      73,444
       2007                                                     148,500
       Thereafter                                               306,000
                                                               --------
                                                                722,001

       Unamortized debt premium/discount
         and deferred credit, net                                16,585
                                                             ----------

       Total                                                   $738,586
                                                               ========

                                      F-24
<PAGE>

                   FOAMEX INTERNATIONAL INC. AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

10.    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.

       Effective May 15, 2001, a  supplemental  executive  retirement  plan (the
"SERP")  was  established.  The  SERP  is  a  non-qualified  plan  and  provides
retirement  benefits to certain executives that supplement the benefits provided
under the Qualified Pension Plan.
<TABLE>
<CAPTION>

       The components of pension expense are listed below.

                                                                  2002             2001             2000
                                                               ----------       ----------       ----------
                                                                              (thousands)
<S>                                                              <C>             <C>               <C>
       Service cost                                              $3,866          $3,666            $3,307
       Interest cost                                              6,556           6,158             5,667
       Expected return on plan assets                            (5,823)         (5,829)           (6,371)
       Amortization
         Transition asset                                           (75)            (75)              (75)
         Prior service cost                                        (140)           (177)             (240)
         Losses and other                                         1,643           1,163               179
         Curtailment gain                                          (162)              -                 -
                                                               --------     -----------       -----------
           Total                                                 $5,865          $4,906            $2,467
                                                                 ======          ======            ======
</TABLE>

       The following  table sets forth the changes in obligations and assets and
outlines the  development  of the funded  status and amounts  recognized  in the
consolidated balance sheets.
<TABLE>
<CAPTION>

                                                                             December 29,         December 31,
                                                                                  2002               2001
                                                                         -------------------  -------------------
<S>                                                                                <C>               <C>
                                                                                                (thousands)
       Change in Benefit Obligation
         Benefit obligation at beginning of year                                   $95,962           $84,820
         Service cost                                                                3,866             3,666
         Interest cost                                                               6,556             6,158
         Amendments, including SERP in 2001                                            157             1,059
         Benefits paid                                                              (5,003)           (4,525)
         Actuarial loss                                                              6,512             4,784
         Curtailment                                                                  (660)                -
                                                                              ------------     -------------
           Projected benefit obligation at end of year                            $107,390           $95,962
                                                                                  ========           =======

       Change in Plan Assets
         Fair value of plan assets at beginning of year                            $65,514           $66,199
         Actual return on plan assets                                               (7,350)           (2,269)
         Company contributions                                                       7,464             6,347
         Benefits paid                                                              (5,003)           (4,525)
         Other                                                                        (540)             (238)
                                                                                ----------        ----------
           Fair value of plan assets at end of year                                $60,085           $65,514
                                                                                   =======           =======



                                      F-25
<PAGE>

                   FOAMEX INTERNATIONAL INC. AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

10.    RETIREE BENEFIT PLANS (continued)

                                                                             December 29,         December 31,
                                                                                  2002               2001
                                                                         -------------------  -------------------
                                                                                       (thousands)
       Funded Status
         Plan assets less than benefit obligation                                $ (47,305)        $ (30,448)
         Unrecognized transition asset                                                (440)             (515)
         Unrecognized prior service cost                                              (265)             (733)
         Unrecognized net losses                                                    52,573            34,656
                                                                                 ---------         ---------
           Net prepaid assets                                                    $   4,563         $   2,960
                                                                                 =========         =========

       Amounts Recognized in the Consolidated Balance Sheets
         Prepaid benefit costs                                                   $     194         $     389
         Accrued benefit liability                                                 (42,983)          (26,363)
         Intangible assets                                                             763               612
         Accumulated other comprehensive loss                                       46,589            28,322
                                                                                 ---------         ---------
           Net amount recognized                                                 $   4,563         $   2,960
                                                                                 =========         =========
</TABLE>

       Significant assumptions used in the calculation of pension expense and
obligations are listed below.
<TABLE>
<CAPTION>

                                                                     2002          2001             2000
                                                                  ----------    ----------       ----------
<S>                                                               <C>            <C>              <C>
       Expected long-term rate of return on plan assets           9.0%           9.0%             10.0%
       Discount rate on projected benefit obligations             6.5%           7.0%              7.25%
       Rate of compensation increase                              4.0%-5.0%      4.0%-7.0%         4.0%
</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  Internal  Revenue  Code of 1986,  as amended  (the
"Code").

       At December 31, 2002 and December 31, 2001,  included in plan assets were
420,000 shares of the Company's stock. The value of the Plan's investment in the
Company's stock was approximately  $1.3 million and $3.4 million at December 31,
2002 and December 31, 2001, respectively.

Defined Contribution Plan

       The Company  maintains a defined  contribution  plan,  which is qualified
under Section  401(k) of the 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 $1.0 million,  $1.0 million and $1.1 million in 2002, 2001 and
2000, respectively.

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 Company retains the right,  subject to existing  agreements,  to
modify or eliminate these benefits.


                                      F-26
<PAGE>

                   FOAMEX INTERNATIONAL INC. AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

10.    RETIREE BENEFIT PLANS (continued)

       The components of retiree medical and life insurance benefits expense are
listed below.
<TABLE>
<CAPTION>

                                                                     2002            2001           2000
                                                                  ----------      ----------     ----------
                                                                                  (thousands)
<S>                                                                  <C>             <C>             <C>
       Service cost                                                  $29             $19             $15
       Interest cost                                                  82              60              57
       Amortization
         Prior service cost                                           (6)             (6)             (6)
         Losses and other                                             15              (8)            (27)
                                                                   -----           -----            ----
       Total                                                        $120             $65             $39
                                                                    ====             ===             ===
</TABLE>

       The  following  table  outlines  the changes in  obligations  and benefit
payments  and  outlines  the  development  of  the  funded  status  and  amounts
recognized in the consolidated balance sheets.
<TABLE>
<CAPTION>

                                                                                December 29,        December 31,
                                                                                  2002                   2001
                                                                            ----------------       ----------------
<S>                                                                           <C>                  <C>
                                   (thousands)
       Change in Benefit Obligation
         Benefit obligations at beginning of year                                 $  624               $ 763
         Service cost                                                                 29                  19
         Interest cost                                                                82                  60
         Employee contributions                                                       19                  23
         Benefits paid                                                              (144)               (399)
         Actuarial loss                                                              638                 158
                                                                                --------              ------
           Accumulated postretirement benefit obligation at end of year           $1,248               $ 624
                                                                                  ======               =====

       Change in Plan Assets
         Fair value of plan assets at beginning of year                         $      -            $      -
         Company contributions                                                       125                 376
         Employee contributions                                                       19                  23
         Benefits paid                                                              (144)               (399)
                                                                                  ------              ------
           Fair value of plan assets at end of year                             $      -            $      -
                                                                                ========            ========

       Funded Status of the Plan
         Plan assets less than benefit obligation                                $(1,248)             $ (624)
         Unrecognized prior service cost                                             398                 (60)
         Unrecognized net gains                                                      (53)               (224)
                                                                              ----------             -------
           Net accrued liabilities                                              $   (903)             $ (908)
                                                                                ========              ======
</TABLE>

       Significant  assumptions  used in the  calculation  of  retiree  and life
insurance benefit expense and obligations are listed below.
<TABLE>
<CAPTION>

                                                                  2002             2001             2000
                                                               ----------       ----------       ----------

<S>                                                              <C>             <C>               <C>
       Discount rates on projected benefit obligations           6.5%            7.0%              7.25%
       Health care cost increase                                13.0%            9.0%              7.0%
</TABLE>

       The health care cost  increase  assumption  will  gradually be reduced to
5.0% by 2011.  Increasing or decreasing the weighted average assumed health care
cost trend rates by one percentage point would not have a significant  impact on
the  accumulated  postretirement  benefit  obligation or on service and interest
costs.



                                      F-27
<PAGE>

                   FOAMEX INTERNATIONAL INC. AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

11.    STOCK OPTION PLANS

       At the Annual  Meeting  of  Stockholders  on June 5,  2002,  stockholders
approved amendments to the Foamex  International Inc. 2001 Equity Incentive Plan
for Non-Employee Directors. The amendments:

o    expanded participant  eligibility to include employees,  employee-directors
     and consultants to the Company, including its subsidiaries and affiliates;
o    expanded the types of awards that may be granted to include incentive stock
     options,  phantom stock units and  performance  share units, in addition to
     nonqualified options provided for under the existing plan;
o    increased  the  number of shares of Common  Stock  that are  available  for
     awards by 600,000; and
o    renamed  the plan to the Foamex  International  Inc.  2002 Stock Award Plan
     (the "2002 Stock Award Plan").

       Following  these  amendments,  2,100,000  shares of the Company's  common
stock are reserved for the 2002 Stock Award Plan.

       The 1993 stock option plan,  as amended,  (the "1993 Stock Option  Plan")
provides 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 are eligible to participate.  At the Annual Meeting
of Stockholders on June 30, 2000,  stockholders  approved amendments to the 1993
Stock Option Plan that  increased  from  3,000,000  to  4,750,000  the number of
shares of the  Company's  common  stock that may be issued,  and to allow future
option grants to qualify as "performance-based compensation" for purposes of the
Internal Revenue Code of 1986, as amended.

       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 2002 included the following terms:

          o    210,000 options with a three-year pro-rata 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 pro-rata 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 may be accelerated to three-year
               pro-rata vesting in either 25%, 50%, or 100% increments,
               depending on attainment of certain financial goals in fiscal
               2003, as defined.

          o    All other options were granted with five-year pro-rata vesting
               period and a ten-year term.

          Option grants in 2001 and 2000 included the following terms:

          o    100,000 options with pro-rata vesting in years three through five
               and a ten-year term.

          o    250,000 options with a seven-year vesting period and a ten-year
               term. The vesting provisions can be accelerated to full vesting
               in at the end of a three-year period depending on attainment of
               certain financial performance goals, as defined. o All other
               options were granted with five-year pro-rata 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, except for certain options that were repriced in
1996 with an exercise price below the fair market value on the revaluation date.
Compensation  expense  related to these options was recognized  over the vesting
period with  approximately  $0.2 million  recognized  in 2000.

                                      F-28
<PAGE>

                   FOAMEX INTERNATIONAL INC. AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

11. STOCK OPTION PLANS (continued)

       During 2000,  25,000 options were granted to a director of the Company in
exchange for consulting  services.  The consulting  expense  associated with the
25,000  options  was less than $0.1  million  and is being  recognized  over the
five-year vesting period.

       Option Modifications

       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 under the option plans discussed above 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 option price on the modification date.

       As provided in certain severance agreements during 2001, the Company
extended by three months the exercise period for 57,200 options beyond the
exercise period provided for under the option plans discussed above.
Compensation expense of $0.1 million was recorded for the fair market value in
excess of the option price on the modification date. Also in 2001, the terms of
750,450 options were modified to provide for 100% vesting and the extension of
the period provided to exercise; including 250,000 options until January 31,
2006 and 500,450 options until January 31, 2002. The Company did not recognize
any compensation expense in connection with these modifications because the fair
market value was less than the option price on the modification date.
<TABLE>
<CAPTION>

       A summary of stock option activity is presented below.

                                                 2002                            2001                             2000
                                    ------------------------------  -------------------------------  -----------------------------

                                                     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     3,465,542     $   6.88        2,980,110        $   7.35       2,299,649     $   7.94
Granted                                2,234,311         5.87        2,104,576            6.42         885,250         5.93
Exercised                               (551,352)        6.33         (163,125)           5.62          (3,514)        6.88
Forfeited                               (619,851)        7.07       (1,456,019)           7.32        (201,275)        7.79
---------                               ---------        ----       -----------           ----        ---------        ----
Outstanding at end of period           4,528,650     $   6.42        3,465,542        $   6.88       2,980,110     $   7.35
                                       =========     =========      ===========       =========      ==========    =========

Exercisable at end of period           1,365,852     $   7.34        1,431,489        $   7.03       1,145,727     $   8.16
                                       =========     =========      ===========       =========      ==========    =========
</TABLE>

       Listed below is a summary of the stock options outstanding and
exercisable at December 29, 2002.
<TABLE>
<CAPTION>

Outstanding
                                                           Weighted                   Weighted
               Exercise                                     Average                    Average
                 Price                                      Exercise                  Remaining
                 Range             Options                     Price                  Life-Years
          -----------------      -----------               -------------              ----------
<S>       <C>                       <C>                       <C>                        <C>
          $ 1.20 -  2.61            881,250                   $2.20                      6.1
          $ 5.00 -  6.88          1,749,199                   $6.07                      5.4
          $ 7.00 -  8.76          1,382,285                   $8.07                      8.3
          $ 9.33 - 13.25            515,916                  $10.45                      7.1
                                 ----------
                                  4,528,650
                                 ==========
</TABLE>




                                      F-29
<PAGE>


                   FOAMEX INTERNATIONAL INC. AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS



11.    STOCK OPTION PLANS (continued)

       Exercisable
                                                                   Weighted
                      Exercise                                     Average
                        Price                                      Exercise
                        Range             Options                     Price
                 -----------------      -----------               --------------
                 $ 1.20 - 2.61                   -                      -
                 $ 5.00 - 6.88             923,079                   $6.23
                 $ 7.00 - 8.76             195,840                   $7.67
                 $ 9.33 -13.25             246,933                  $11.26
                                        ----------
                                         1,365,852
                                        ==========

       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 $3.74 per
option in 2002, $2.95 per option in 2001 and $2.52 per option in 2000.
<TABLE>
<CAPTION>

                                                                  2002              2001             2000
                                                              ------------      ------------     ------------
<S>                                                              <C>              <C>              <C>
       Expected life in years                                    3.0              3.0              3.0
       Risk-free interest rate                                   2.82%            4.41%            6.11%
       Volatility                                               97.66%           61.85%           55.00%
       Dividend yield                                            0.00%            0.00%            0.00%

12.    INCOME TAXES

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

                                                                    2002            2001             2000
                                                                ------------    ------------     ------------
                                                                              (thousands)
       United States                                             $(27,404)       $(8,293)          $14,877
       Foreign                                                      4,454          7,978             4,975
                                                              -----------       --------         ---------
       Income (loss) before provision for income taxes           $(22,950)      $   (315)          $19,852
                                                                 ========       =========        =========


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

                                                                    2002            2001             2000
                                                                ------------    ------------     ------------
                                                                              (thousands)
       Statutory income taxes                                    $(8,033)       $   (110)          $ 6,948
       State income taxes, net of federal benefit                   (987)           (135)              825
       Increase (decrease) in valuation allowance                (75,371)          1,400            (6,939)
       Non-deductible amortization                                     -           1,391             1,364
       Alternative minimum tax                                      (200)            350                 -
       Use of acquired tax benefits                                    -           1,550                 -
       Foreign tax rate differential                                 192             142               874
       Other, net                                                 (1,292)            709              (233)
                                                                --------       ---------        ----------
       Total                                                    $(85,691)        $ 5,297           $ 2,839
                                                                ========         =======           =======
</TABLE>



                                      F-30
<PAGE>

                   FOAMEX INTERNATIONAL INC. AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

<TABLE>
<CAPTION>





12.    INCOME TAXES (continued)

       The provision for income taxes is summarized as follows:

                                                                    2002            2001             2000
                                                                ------------    ------------     ------------
<S>                                                               <C>           <C>            <C>
       Current                                                                (thousands)
         Federal                                                  $3,004        $    924       $         -
         State                                                       160             262               160
         Foreign                                                   2,423           2,594             2,541
                                                                --------        --------          --------
           Total current                                           5,587           3,780             2,701
                                                                --------        --------          --------

       Deferred
         Federal                                                 (13,557)            174             6,083
         State                                                    (1,678)           (397)              920
         Foreign                                                    (672)            340                74
                                                                --------       ---------        ----------
           Total deferred                                        (15,907)            117             7,077
                                                                --------       ---------          --------

       Change in valuation allowance                             (75,371)          1,400            (6,939)
                                                                 -------        --------           -------

       Total provision for income taxes                         $(85,691)        $ 5,297           $ 2,839
                                                                ========         =======           =======
</TABLE>
<TABLE>
<CAPTION>

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

                                                                                December 29,       December 31,
                                                                                   2002                2001
                                                                                ---------------- ----------------
<S>                                                                               <C>                <C>
       Deferred income tax assets                                                                 (thousands)
         Inventory basis differences                                              $   757            $   1,436
         Employee benefit accruals                                                 22,006               13,869
         Allowances and contingent liabilities                                     10,459                8,231
         Restructuring and plant closing accruals                                   8,786               10,522
         Intangible asset basis differences                                         4,901                7,393

         Other                                                                     12,188                9,118
         Net operating loss carryforwards                                          77,873               61,485
         Capital loss carryforwards                                                   325                1,333
         Valuation allowance for deferred income tax assets                        (1,770)            (100,695)
                                                                                ---------             --------
         Deferred income tax assets                                               135,525               12,692
                                                                                 --------            ---------

       Deferred income tax liabilities
         Basis difference in property, plant and equipment                        (12,953)             (15,937)
         Other                                                                     (6,084)              (2,163)
                                                                                 --------            ---------
         Deferred income tax liabilities                                          (19,037)             (18,100)
                                                                                 --------             --------

       Net deferred income tax assets (liabilities)                              $116,488             $ (5,408)
                                                                                 ========             ========
</TABLE>

       During 2002, the Company determined that, based on the weight of
available evidence, including adjusted financial results for the last three
years, revised net operating loss carryforward utilization limitations 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 aggregating $99.4 million. The adjustment reduced the loss from
continuing operations and extraordinary items by $75.8 million and $1.6 million,
respectively, and decreased goodwill by $12.4 million and other comprehensive
loss by $9.6 million.

                                      F-31
<PAGE>

                   FOAMEX INTERNATIONAL INC. AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

12.    INCOME TAXES (continued)

       The 2001 income tax provision included an increase in the valuation
allowance to reduce the Company's deferred tax assets. Effective tax rates for
2000 were reduced by the partial reversal of the deferred income tax asset
valuation allowance originally recognized in 1998. The valuation allowance was
reduced to reflect the realization of Federal loss carryforwards that offset the
current tax component of the Federal and Mexican tax provision. Additionally,
the valuation allowance was reduced to offset the net deferred Federal tax
liability generated. The valuation allowance has also been adjusted by $3.8
million and $4.3 million in 2001 and 2000, respectively, to give effect to the
deferred tax assets resulting from the recognition of a minimum pension
liability.

       At December 29, 2002, the Company had approximately $209.8 million of net
operating loss carryforwards for federal income tax purposes expiring from 2010
to 2022. Approximately $113.0 million of the net operating loss carryforwards
expire in the years 2010 to 2012 with the remainder principally expiring in the
2020-2022 period. Also at December 29, 2002, there were $0.7 million of
alternative minimum tax credit carryforwards. In addition, the Company has had
an ownership change as defined in IRC Section 382. Accordingly, the Company is
limited (on an annual basis) as to the amount of its net operating loss
utilization.

       At December 29, 2002, the Company had $2.9 million of net operating loss
carryforwards in a Mexican subsidiary that expire in 2009. A full valuation
allowance has been recorded at December 29, 2002 and December 31, 2001 due to
uncertainty regarding utilization of these net operating loss carryforwards.

       Cumulative undistributed earnings of foreign subsidiaries for which no
U.S. income or foreign withholding taxes have been provided, amounted to $13.4
million at December 29, 2002 and $10.6 million at December 31, 2001,
respectively. 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.

13.    STOCKHOLDERS' DEFICIENCY

Preferred Stock

       The Company has 5.0 million shares of preferred stock, par value of $1.00
per share, authorized for issuance. As discussed in Note 1, 15,000 shares of
Series B Preferred Stock were issued in exchange for 1,500,000 shares of common
stock during the fourth quarter of 2000. 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 December 29, 2002, there were 6.9 million shares of common
stock reserved for issuance in connection with stock option plans, discussed in
Note 11. Included in the Consolidated Statements of Stockholders' Deficiency is
the compensation for the Company's directors 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 of the Company. The ability of Foamex L.P.
to make distributions is restricted by the terms of their respective 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.

                                      F-32
<PAGE>

                   FOAMEX INTERNATIONAL INC. AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

13.    STOCKHOLDERS' DEFICIENCY (continued)

Treasury Stock

       As discussed in Note 1 and the Preferred Stock disclosures above,
1,500,000 shares of common stock were exchanged for Series B Preferred Stock
during the fourth quarter of 2000.

       The Board of Directors has authorized the purchase of up to 3,000,000
million shares of the Company's common stock. As of December 29, 2002, 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>

                                                              December 29,       December 31,      December 31,
                                                                  2002              2001               2000
                                                              ------------      --------------     --------------
<S>                                                             <C>                <C>                <C>
                                                                                   (thousands)
       Foreign currency translation adjustment                  $  (9,869)         $  (8,000)         $  (6,921)
       Minimum pension liability (a)                              (28,885)           (27,157)           (16,375)
                                                                  -------          ---------          ---------
                                                                 $(38,754)          $(35,157)          $(23,296)
                                                                 ========           ========           ========
</TABLE>

       (a) Net of income tax benefit of $16.5 million at December 29, 2002.

14.    BUSINESS SEGMENTS

       The reportable business segments reflect the Company's management
organization that was 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
operations in Mexico City, corporate expenses not allocated to other business
segments and restructuring, impairment and other charges (see Note 6). 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. Geographic sales are determined based on the
location in which the sale originated.

       Sales to one customer, which are included in Automotive Products,
accounted for approximately 17.3%, 15.7% and 12.3% of net sales in 2002, 2001
and 2000, respectively. No other customer accounted for more than 10.0% of net
sales during the periods presented.

                                      F-33
<PAGE>

                   FOAMEX INTERNATIONAL INC. AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

<TABLE>
<CAPTION>

14.    BUSINESS SEGMENTS (continued)

       Business segment results are presented below.

                                                 Carpet
                                   Foam         Cushion     Automotive      Technical
                                 Products       Products       Products      Products        Other         Total
                                 --------       --------       --------      --------        -----         -----
<S>                              <C>          <C>             <C>           <C>           <C>         <C>
2002                                                        (thousands)
Net sales                       $ 471,005   $  234,001      $466,718     $  124,124      $  32,246   $ 1,328,094
Income (loss) from operations   $  23,896   $  (12,524)     $ 25,346     $   20,339      $ (15,175)  $    41,882
Depreciation and amortization   $  15,466   $    6,469      $  3,856     $    2,982      $   2,819   $    31,592

2001
Net sales                       $ 499,668   $  230,965      $377,753     $  111,043      $ 33,475    $ 1,252,904
Income (loss) from operations   $  66,312   $   (6,831)     $ 21,187     $   22,884      $(40,079)   $    63,473
Depreciation and amortization   $  15,732   $    8,181      $  4,991     $    3,312      $  1,772    $    33,988

2000
Net sales                       $ 519,197   $  256,439      $342,386     $  106,697      $  33,059    $1,257,778
Income (loss) from operations   $  55,001   $    2,035      $ 22,235     $   28,888      $ (11,688)   $   96,471
Depreciation and amortization   $  17,813   $    7,742      $  5,785     $    2,663      $   2,585    $   36,588

       Geographical information is presented below.

                                                         United
                                                          States        Canada           Mexico      Consolidated
                                                          ------        ------           ------      ------------
2002                                                                           (thousands)
Net sales                                           $   981,927       $ 66,940         $ 279,227     $ 1,328,094
Property, plant and equipment, net                  $   157,007       $  3,898         $  21,133     $   182,038

2001
Net sales                                           $   966,614       $ 65,179         $ 221,111     $ 1,252,904
Property, plant and equipment, net                  $   172,456       $  4,006         $  24,335     $   200,797

2000
Net sales                                           $ 1,024,388       $ 69,180         $ 164,210     $ 1,257,778
Property, plant and equipment, net                  $   183,266       $  4,623         $  24,642     $   212,531
</TABLE>

15.    SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION
<TABLE>
<CAPTION>

                                                                           2002           2001              2000
                                                                       ------------   ------------      ------------
                                                                                     (thousands)
<S>                                                                      <C>            <C>              <C>
Cash paid for interest                                                   $56,583        $63,593         $ 75,155
                                                                        ========       ========         ========

Cash paid for income taxes, net                                         $  2,222       $  1,990         $  2,962
                                                                        ========       ========         ========

Non cash - capital leases                                               S      -       $    299         $     53
                                                                        ========       ========         ========

Non cash - common stock - preferred stock exchange (Note 1)             $      -       $      -         $  8,578
                                                                        ========       ========         ========

Non cash - debt exchanged for increased ownership
  in joint venture                                                      $      -       $  1,069         $      -
                                                                        ========       ========         ========

</TABLE>


                                      F-34
<PAGE>

                   FOAMEX INTERNATIONAL INC. AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS



16.    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  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 3/8% 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 financial  position discussed in Note 1, 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 December 29, 2002 and December 31, 2001, operating accounts receivable
from Trace were approximately $3.4 million. These accounts receivable were fully
reserved for prior to 2000.

Foam Funding LLC Debt

       Subsidiaries  of the  Company  paid  interest  on notes  payable  to Foam
Funding LLC of $0.7  million,  $2.8 million and $5.8  million in 2002,  2001 and
2000, respectively.  Subsidiaries of the Company paid principal on notes payable
to Foam Funding LLC of $31.6  million,  $15.8 million and $41.9 million in 2002,
2001  and  2000,  respectively.  This  debt was  fully  repaid  pursuant  to the
Company's refinancing on March 25, 2002 (see Note 9).

Other

       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,  two  members  of the  board of  directors  provided  consulting
services to the Company for which fees paid were $0.2 million. Also in 2001, one
of these  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 director's 5.0% interest
in the value of the Company's  equity  interest in the joint venture in Asia. In
2000,  one  member of the  board  provided  consulting  services  totaling  $0.1
million.  In 2000,  this  director  also  received an option to purchase  25,000
shares of common  stock of the Company at the fair  market  value on the date of
grant.  The Company also  maintained an apartment  used by this  director.  Rent
expense for this facility was $0.2 million in 2002, 2001 and 2000.

       As discussed in Note 9,  included in the group of banks that provides the
Foamex L.P. Credit  Facility is The Bank of Nova Scotia,  which is a shareholder
of the Company.


                                      F-35
<PAGE>

                   FOAMEX INTERNATIONAL INC. AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

16.    RELATED PARTY TRANSACTIONS AND BALANCES (continued)

       The Company,  Recticel,  s.a. ("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 VPFSM  manufacturing  process.
Recticel and affiliates of Recticel are shareholders of the Company.

       The Company's 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  December  2001,  the  Company  entered  into  an  agreement  that
guarantees two  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 director of the Company and an employee of Foamex L.P.

       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.  During 2002,  the Company  paid $0.5  million to the  director's
business  for  consulting  services  and has  agreed  to engage  the  director's
business  to  provide  future  consulting   services  to  assist  in  its  Asian
operations.

       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 $0.5 million in 2002 for legal services to a law
firm in which another director is a partner.

17.    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 December 29, 2002 are (thousands):

         2003                                                   $15,438
         2004                                                    10,889
         2005                                                     7,970
         2006                                                     7,575
         2007                                                     2,622
         Balance                                                  7,701
                                                              ---------
         Total                                                  $52,195
                                                                =======

       Rental expense charged to operations under operating leases  approximated
$23.4  million,  $20.2  million  and  $16.3  million  in 2002,  2001  and  2000,
respectively.  Substantially  all such rental  expense  represented  the minimum
rental payments under operating leases.



                                      F-36
<PAGE>

                   FOAMEX INTERNATIONAL INC. AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


17.    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 $84.8 million in 2003, $98.0 million in 2004, $39.9 million in
2005, $39.4 million in 2006, $36.1 million in 2007 and $32.2 million for each of
the years 2008 to 2010.

Litigation - Breast Implants

       As of March 11, 2003, the Company and Trace were two of multiple
defendants in actions filed on behalf of approximately 1,087 recipients of
breast implants in various United States federal and state courts and one
Canadian provincial court, some of which allege substantial damages, but most of
which allege unspecified damages for personal injuries of various types. Three
of these cases seek to allege claims on behalf of all breast implant recipients
or other allegedly affected parties, but no class has been approved or certified
by the court. During 1995, the Company and Trace were granted summary judgments
and dismissed as defendants from all cases in the federal courts of the United
States and the state courts of California. Appeals for these decisions were
withdrawn and the decisions are final.

       Although breast implants do not contain foam, certain silicone gel
implants were produced using a polyurethane foam covering fabricated by
independent distributors or fabricators from bulk foam purchased from the
Company or Trace. Neither the Company nor Trace recommended, authorized, or
approved the use of its foam for these purposes. The Company is also indemnified
by Trace for any such liabilities relating to foam manufactured prior to October
1990. Trace's insurance carrier has continued to pay the Company's litigation
expenses after Trace's filing for relief under the Bankruptcy Code on July 21,
1999. Trace's insurance policies continue to cover certain liabilities of Trace
but if the limits of those policies are exhausted, it is unlikely that Trace
will be able to continue to provide additional indemnification. While it is not
feasible to predict or determine the outcome of these actions, based on
management's present assessment of the merits of pending claims, after
consultation with the general counsel of the Company, and without taking into
account the indemnification provided by Trace, the coverage provided by Trace's
and the Company's liability insurance and potential indemnity from the
manufacturers of polyurethane covered breast implants, management believes that
it is not reasonably possible that the disposition of the matters that are
pending or that may reasonably be anticipated to be asserted will result in a
loss that is material to the Company's consolidated financial position, results
of operations or cash flows. 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 financial position, results of
operations and cash flows.

Litigation - Other

       During 2001, the Company was notified by an insurance provider concerning
a dispute involving the reimbursement of liability claims paid on behalf of
Trace before 1990. The insurance provider is contending that the Company is
liable for the claims of approximately $6.1 million. The Company intends to
strongly defend this claim and considers the claim to be without merit. If
management's assessment of the Company's liability relating to this action is
incorrect, this action could have a material adverse effect on the Company's
financial position, results of operations and cash flows.

       The Company is party to various other 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 December 29, 2002, the Company had accrued approximately $0.7
million for litigation and other legal matters in addition to the environmental
matters discussed below.

                                      F-37
<PAGE>

                   FOAMEX INTERNATIONAL INC. AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

17.    COMMITMENTS AND CONTINGENCIES (continued)

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, are from time to time involved in
administrative and judicial  proceedings and inquiries relating to environmental
matters. As of December 29, 2002, the Company had accruals of approximately $2.7
million for environmental matters,  including approximately $2.3 million related
to mediating and monitoring soil and groundwater contamination and approximately
$0.4 million related to PRP sites 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 8, 2001, the United States Environmental  Protection Agency, or
"EPA," proposed a National  Emission  Standard for Hazardous Air Pollutants,  or
"NESHAP" for Flexible  Polyurethane  Foam Fabrication  Operations.  The proposed
NESHAP  regulates  emissions  of  methylene  chloride  and other  Hazardous  Air
Pollutants  and restricts  air  emissions  from flame  lamination  sources.  The
Company does not believe that this standard, if adopted, will require it to make
material expenditures.

       On August  31,  2002,  Environment  Canada,  the  Canadian  environmental
regulatory  agency,  proposed a rule which would require  flexible  polyurethane
foam manufacturing operations to reduce methylene chloride (dichloromethane) air
emissions. The proposed rule establishes a 50.0% reduction in methylene chloride
emissions by December 1, 2003 and 100.0%  reductions  by January 1, 2007.  We do
not believe that this  standard,  if adopted,  will require us to make  material
expenditures for our Canadian plants.

       The Company  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.  During 2000,  the Company
reached an  indemnification  agreement with the former owner of the  Morristown,
Tennessee facility.  The agreement allocates the incurred and future remediation
costs  between the former owner and the Company.  The  estimated  allocation  of
future costs for the remediation of this facility is not  significant,  based on
current known  information.  The former owner was Recticel Foam  Corporation,  a
subsidiary of Recticel s.a.

       The Company has either upgraded or closed all  underground  storage tanks
at its 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.  The  Company  is  currently  designated  as  a
Potentially  Responsible  Party, or "PRP," by the EPA or by state  environmental
agencies or other PRPs,  pursuant to CERCLA or analogous  state  statutes,  with
respect  to  eight  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.

       In 2003,  capital  expenditures for safety and  environmental  compliance
projects  are  anticipated  to be  approximately  $1.5  million.  Although it is
possible that new information or future  developments  could require the Company
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 its  operations,  financial
position, capital

                                      F-38
<PAGE>


                   FOAMEX INTERNATIONAL INC. AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

17.    COMMITMENTS AND CONTINGENCIES (continued)

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 October 2001, the Company experienced a fire at one of its
manufacturing facilities. Costs relating to the fire aggregated approximately
$1.2 million. The Company has filed a claim with its insurance carrier and
believes it will recover substantially all costs in excess of a deductible of
$0.2 million.
<TABLE>
<CAPTION>

18.    QUARTERLY FINANCIAL DATA (UNAUDITED)

                                                  First         Second       Third         Fourth
                                                 Quarter        Quarter      Quarter       Quarter
                                                 -------        -------      -------       -------
<S>                                             <C>           <C>          <C>           <C>
                                                        (thousands, except per share amounts)
2002
  Net sales                                       $ 314,062     $ 345,898    $ 340,823     $ 327,311
  Gross profit                                    $  38,238     $  45,386    $  30,088     $  27,713
  Income (loss) before extraordinary items
    and cumulative effect of accounting changes   $   7,337     $  79,863    $  (8,071)    $ (16,388)
  Net income (loss)                               $ (67,514)    $  81,445    $  (7,242)    $ (16,388)

  Earnings (loss) per share
   Basic:
    Income (loss) before extraordinary items and
     cumulative effect of accounting changes      $    0.30     $    3.29    $   (0.33)    $   (0.67)
    Net income (loss)                             $   (2.80)    $    3.35    $   (0.30)    $   (0.67)
   Diluted:
    Income (loss) before extraordinary items and
     cumulative effect of accounting changes      $    0.28     $    2.98    $   (0.33)    $   (0.67)
    Net income (loss)                             $   (2.56)    $    3.04    $   (0.30)    $   (0.67)

2001
  Net sales                                       $ 301,907     $ 314,261    $ 326,166     $ 310,570
  Gross profit                                    $  41,176     $  49,896    $  47,409     $  41,600
  Net income (loss)                               $   5,893     $  10,620    $   7,267     $ (29,392)

  Earnings (loss) per share
   Basic                                          $    0.25     $    0.45    $    0.31     $   (1.24)
   Diluted                                        $    0.24     $    0.42    $    0.28     $   (1.24)


</TABLE>

                                      F-39
<PAGE>

<TABLE>
<CAPTION>



                        FOAMEX ASIA COMPANY LIMITED AND SUBSIDIARY
                        CONSOLIDATED BALANCE SHEET (unaudited)
                                AS AT DECEMBER 31, 2002
                                        (BAHT)

<S>                                                                                        <C>
ASSETS
CURRENT ASSETS
   Cash and deposits at financial institutions                                                 118,137,666
   Accounts receivable - net                                                                   404,451,863
   Inventories - net                                                                           203,772,938
   Receivable from insurance claim                                                              86,924,106
   Amounts due from related companies                                                            9,127,728
   Other current assets                                                                         63,783,893
                                                                                           ---------------
     Total Current Assets                                                                      886,198,194

LOANS TO EMPLOYEE AND DIRECTORS                                                                 32,914,538
PLANT AND EQUIPMENT - NET                                                                      229,065,082
INTANGIBLE ASSETS - NET                                                                         13,895,417
DEPOSITS AT FINANCIAL INSTITUTIONS USED AS COLLATERAL                                           13,506,547
OTHER NONCURRENT ASSETS - DEPOSITS                                                               5,563,835
                                                                                            --------------

TOTAL ASSETS                                                                                 1,181,143,613
                                                                                             =============

LIABILITIES AND SHAREHOLDERS' EQUITY

CURRENT LIABILITIES
   Short-term borrowings from financial institutions                                           117,516,433
   Accounts payable                                                                            203,364,853
   Amounts due to related companies                                                             82,013,287
   Accrued expenses                                                                             80,169,890
   Current portion of financial leases                                                           3,312,163
   Other current liabilities                                                                     5,153,006
                                                                                          ----------------
     Total Current Liabilities                                                                 491,529,632

LONG TERM BORROWINGS FROM FINANCIAL INSTITUTIONS                                                62,000,000
LOANS FROM SHAREHOLDERS                                                                        274,191,480
LONG TERM PORTION OF FINANCE LEASES                                                              2,013,983
                                                                                          ----------------

TOTAL LIABILITIES                                                                              829,735,095
                                                                                            --------------

SHAREHOLDERS' EQUITY
SHARE CAPITAL
   Registered share capital
     10,500,000 ordinary shares of Baht 10 each                                                105,000,000
                                                                                            ==============

   Issued and paid-up share capital
     10,500,000 ordinary shares of Baht 10 each, fully paid                                    105,000,000

PREMIUM ON SHARE CAPITAL                                                                        18,990,504
CURRENCY TRANSLATION DIFFERENCES                                                                14,851,178
RETAINED EARNINGS
   Unappropriated                                                                              212,566,836
                                                                                            --------------
   Total Shareholders' Equity                                                                  351,408,518
                                                                                            --------------

TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY                                                   1,181,143,613
                                                                                             =============

Notes to the consolidated financial statements form an integral part of these statements

</TABLE>
                                      F-40
<PAGE>
<TABLE>
<CAPTION>


                        FOAMEX ASIA COMPANY LIMITED AND SUBSIDIARY
                        CONSOLIDATED STATEMENT OF INCOME (unaudited)
                                FOR THE YEAR ENDED DECEMBER 31, 2002
                                         (BAHT)

<S>                                                                                         <C>
REVENUES
   Revenues from sales                                                                       1,848,468,563
   Other revenue                                                                                15,222,321
                                                                                           ---------------
     Total Revenues                                                                          1,863,690,884
                                                                                             -------------

EXPENSES
   Cost of sales                                                                             1,359,906,153
   Gain on exchange rate                                                                        (3,398,552)
   Selling and administrative expenses                                                         328,812,408
   Interest expense                                                                             18,157,567
   Income tax                                                                                   43,181,696
                                                                                           ---------------
     Total Expenses                                                                          1,746,659,272

PROFIT FROM ORDINARY ACTIVITIES                                                                117,031,612

Extraordinary item - net                                                                        10,990,492
                                                                                           ---------------

NET INCOME                                                                                     106,041,120
                                                                                           ==============

EARNINGS PER SHARE
   Profit from ordinary activities                                                                   11.15
   Extraordinary item - net                                                                          (1.05)
                                                                                           ----------------
   Net Profit                                                                                        10.10
                                                                                           ===============

WEIGHTED AVERAGE NUMBER OF ORDINARY SHARES                                                      10,500,000
                                                                                           ===============


Notes to the consolidated financial statements form an integral part of these statements
</TABLE>

                                      F-41
<PAGE>
<TABLE>
<CAPTION>


                                FOAMEX ASIA COMPANY LIMITED AND SUBSIDIARY
                        CONSOLIDATED STATEMENT OF SHAREHOLDERS' EQUITY (unaudited)
                                    FOR THE YEAR ENDED DECEMBER 31, 2002
                                                (BAHT)

<S>                                                                                         <C>
ISSUED AND PAID-UP SHARE CAPITAL
   Beginning balance                                                                           105,000,000
   Addition                                                                                              -
                                                                                              ------------
   Ending balance                                                                              105,000,000
                                                                                               -----------

PREMIUM ON SHARE CAPITAL
   Beginning balance                                                                            18,990,504
   Addition                                                                                              -
                                                                                              ------------
   Ending balance                                                                               18,990,504
                                                                                              ------------

RETAINED EARNINGS
   Unappropriated
     Beginning balance                                                                         106,525,716
     Addition                                                                                  106,041,120
                                                                                              ------------
     Ending balance                                                                            212,566,836
                                                                                              ------------

CURRENCY TRANSLATION DIFFERENCES
   Beginning balance                                                                             6,546,185
   Addition                                                                                      8,304,993
                                                                                              ------------
   Ending balance                                                                               14,851,178
                                                                                              ------------

TOTAL SHAREHOLDERS' EQUITY                                                                     351,408,518
                                                                                               ===========

Notes to the consolidated financial statements form an integral part of these statements
</TABLE>
                                      F-42

<PAGE>
<TABLE>
<CAPTION>


                                FOAMEX ASIA COMPANY LIMITED AND SUBSIDIARY
                            CONSOLIDATED STATEMENT OF CASH FLOWS (unaudited)
                                    FOR THE YEAR ENDED DECEMBER 31, 2002
                                                 (BAHT)

<S>                                                                                               <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net profit                                                                                     106,041,120
Reconciliation of net profit to net cash from operating activities
   Depreciation and amortization                                                                25,886,337
   Allowance for doubtful accounts                                                                 917,814
   Provision for obsolete stock                                                                  2,058,184
   Unrealized loss on exchange rate - net                                                       (2,000,610)
   Loss on involuntary conversion of assets                                                     15,700,847
   Gain on disposal of plant and equipment                                                        (135,464)
                                                                                            ---------------
Operating income before change in operating assets and liabilities                             148,468,228

Operating assets (increase) decrease
   Accounts receivable                                                                          (1,242,763)
   Amounts due from related companies                                                          (44,469,283)
   Inventories                                                                                  (6,617,349)
   Receivable from insurance claim                                                             (86,924,106)
   Other current assets                                                                         13,220,058
   Other assets                                                                                    100,422

Operating liabilities increase (decrease)
   Accounts payable                                                                            (73,667,829)
   Amounts due to related companies                                                              7,764,198
   Accrued expenses                                                                             14,260,793
   Current portion of finance leases                                                             1,927,468
   Other current liabilities                                                                   (23,697,558)
                                                                                            ---------------

     Net cash used in operating activities                                                     (50,877,721)

CASH FLOWS FROM INVESTING ACTIVITIES
   Purchases of plant and equipment                                                           (165,579,340)
   Proceeds from disposal of plant and equipment                                                 6,326,207
   Proceeds from insurance claim                                                                50,000,000
   Increase in purchase price of acquired business                                             (14,232,483)
   (Increase) decrease in deposits at bank used as collateral                                    7,480,010
   Increase in loans to employee and directors                                                    (139,383)
                                                                                            ---------------

     Net cash used in investing activities                                                    (116,144,989)
                                                                                            ---------------

CASH FLOWS FROM FINANCING ACTIVITIES
   Increase in short-term borrowings from financial institutions                                87,516,433
   Increase in long-term borrowings from financial institutions                                 62,000,000
   Increase in loans from shareholders                                                          13,246,024
   Decrease in long term portion of finance leases                                                (542,917)
                                                                                            ---------------

     Net cash provided by financing activities                                                 162,219,540
                                                                                            ---------------

NET EFFECT OF CURRENCY TRANSLATION
DIFFERENCES IN CASH AND DEPOSITS AT FINANCIAL INSTITUTIONS                                       5,569,230
                                                                                            ---------------

Net increase in cash and deposits at financial institutions                                        766,060
Cash and deposits at financial institutions at January 1,                                      117,371,606
                                                                                            ---------------
Cash and deposits at financial institutions at December 31,                                    118,137,666
                                                                                            ===============

Notes to the consolidated financial statements form an integral part of these statements
</TABLE>
                                      F-43

<PAGE>




FOAMEX ASIA COMPANY LIMITED AND SUBSIDIARY
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEAR ENDED DECEMBER 31, 2002 (unaudited)

1.     ECONOMIC TURMOIL IN THE ASIA-PACIFIC REGION

       Thailand and many Asia-Pacific countries continue to experience severe
economic difficulties since 1997. The accompanying financial statements reflect
management's current assessment of the possible impact of the economic
conditions on the financial position of the Company.

2.     OPERATIONS AND BASIS FOR PREPARATION OF THE CONSOLIDATED FINANCIAL
       STATEMENTS

       These financial statements have been prepared using generally accepted
accounting principles in Thailand and are unaudited. Foamex Asia Company Limited
was registered in the Kingdom of Thailand on June 5, 1997 with its head office
located at 175 Sathorn City Tower, 20th Floor, South Sathorn Road, Sathorn,
Bangkok 10120. The Company's plants are located at 665 Moo 2 Bangpoo Mung,
Samutprakarn 10540 and 133 Moo 1, Banpo Bangprain, Pranakornsriayuthaya 13160.
The major shareholder of the Company and its subsidiary is Foamex Asia, Inc., a
company incorporated in the United States of America. The Company's principal
objective is to fabricate technical foam, films and adhesives.

       As at December 31, 2002, the Company had a total of 405 staff persons.
The staff cost for the year ended December 31, 2002 was Baht 113 million.

       2.1    The Company prepares its statutory financial statements in
              conformity with accounting and practices generally accepted in
              Thailand.

       2.2    The consolidated financial statements include the accounts of
              Foamex Asia, LLC, the Company's branch incorporated in the United
              States of America, and Foamtec (Singapore) Pte. Ltd., a subsidiary
              incorporated in the Republic of Singapore, with its head office
              located at 6 Sungei Kadut Crescent, Singapore 728689. The Company
              has direct and indirect ownership percentages as follows:

                                                          % of Shareholding
Subsidiary                                                        2002

         Directly owned:
           Foamtec (Singapore) Pte. Ltd.                           99.99%
         Indirectly owned:
           Foamex (Malaysia) Sdn. Bhd.                             99.99%
           Foamex Asia (Wuxi) Co., Ltd.                            99.99%

       As at December 31, 2002, the Company's subsidiary had a total of 179
staff persons. The staff costs for the year ended December 31, 2002, were Baht
121.2 million.

       The major intercompany transactions between the Company and its
subsidiary included in the consolidated financial statements have been
eliminated.

       The financial statements of Foamex Asia, LLC, which are included in the
Company's financial statements, have been prepared in U.S. Dollars. For
consolidation purposes, these financial statements have been translated into
Thai Baht as follows:

     a.   All monetary items are translated using the closing rate announced by
          the Bank of Thailand as at the balance sheet date.

                                      F-44
<PAGE>


     b.   All non-monetary items, which are carried in terms of historical cost,
          and translated using the rate announced by the Bank of Thailand at the
          transaction date.

       The functional currency of Foamex Asia, LLC is the U.S. dollar. Net
exchange gain or loss from translation is recognized as income and expense in
the statement of income.

       The financial statements of Foamtec (Singapore) Pte. Ltd. and its
subsidiaries have been prepared in Singapore dollars. For consolidation
purposes, these financial statements have been translated into Thai Baht as
follows:

     a.   All assets and liabilities using the rates announced by the Bank of
          Thailand at the balance sheet date.

     b.   Revenue and expenses using the average exchange rate for the year as
          announced by the Bank of Thailand.

       The functional currency of Foamtec (Singapore) Pte. Ltd. and its
subsidiaries is the applicable local currency. Net exchange gain or loss from
translation is presented as "Cumulative Translation Differences" under
"Shareholders' Equity" in the balance sheet.

       In December 2001, the Institute of Certified Accountants and Auditors of
Thailand issued an Announcement regarding the "Exemption of Accounting Standards
for Non-public Limited Companies". Accordingly, the Company has elected to
discontinue the application of Thai Accounting Standard No. 47 "Related Parties
Disclosure" and No. 48 "Financial Instruments Disclosure and Presentation". The
Company's financial statements for the year ended December 31, 2002 reflect this
election.

3.     SIGNIFICANT ACCOUNTING POLICIES

3.1    Cash and deposits at financial institutions

       Cash and deposits at financial  institutions with original  maturities of
       three months or less.

3.2    Allowance for doubtful accounts

       An allowance for doubtful  accounts of the Company and its  subsidiary is
       provided at the estimated collection losses on receivables,  based on the
       Company's  collection  experience  together  with a review of the current
       financial position of each existing receivable.

3.3    Inventories

       Inventories are valued at the lower of cost or net realizable value. Cost
       is determined as follows:

                  Finished  goods       at standard cost which approximates the
                                        weighted average cost basis or net
                                        realizable value, whichever is lower
                  Work in process       at standard cost which approximates the
                                        weighted average cost basis
                  Raw materials         weighted average cost basis

       Inventories  of  subsidiaries  are  stated  at the  lower  of cost or net
       realizable value. Cost is calculated on the first-in first-out basis.

3.4     Plant and equipment

        Plant and equipment are stated at cost less accumulated depreciation.


                                      F-45
<PAGE>

       Depreciation  is calculated  by the  straight-line  method,  based on the
       estimated useful lives of the assets as follows:


                  Leasehold improvements                   5-10 years
                  Machinery and equipment                  3-10 years
                  Vehicles                                    5 years
                  Furniture and office equipment           3-10 years

3.5    Impairment of assets

       The Company  reviews the impairment of assets for plant and equipment and
       other assets whenever events indicate that the carrying value of an asset
       exceeds its  recoverable  amount.  In case that the carrying  value of an
       asset  exceeds  its  recoverable   amount,  the  Company  recognizes  the
       impairment losses in the statement of income.

3.6    Foreign currency transactions

       Transactions  denominated in foreign currencies  incurred during the year
       are  translated  into Baht at the rates of  exchange  at the  transaction
       dates.  At  the  end  of  the  year,   monetary  assets  and  liabilities
       denominated  in  foreign  currencies  are  translated  into  Baht  at the
       reference rates as determined by the Bank of Thailand at that date. Gains
       and losses on foreign exchange arising on settlements and translation are
       recognized as income or expense when incurred.

3.7    Recognition of revenues

       Sales are  recognized  upon  delivery  of goods to the  customers.  Other
       income is recognized on the accrual basis of accounting.

3.8    Income tax

       Income tax expense is calculated  from taxable  income and recorded based
       on tax paid and accrued for the year.

       The  consolidated  financial  statements  included the audited  financial
       statements of a subsidiary. Such subsidiary records its income tax by the
       deferred income tax method, which is different from the accounting method
       used by the Company. The Company,  therefore,  adjusts the accounting for
       income  tax  of  such  subsidiary  to be  the  same  with  the  Company's
       accounting method.

3.9    Diluted earnings per share

       Diluted  earnings per share are  calculated by dividing net income by the
       weighted average number of ordinary shares  outstanding  during the year.
       In case of a capital increase, the number of shares is weighted according
       to time of registration of such increase.

3.10   Use of accounting estimates

       Preparation of financial statements in conformity with generally accepted
       accounting   principles   requires   management  to  make  estimates  and
       assumptions  that  affect the  reported  amounts of  revenues,  expenses,
       assets  and   liabilities   and  disclosure  of  contingent   assets  and
       liabilities. Actual results may differ from those estimates.


                                      F-46
<PAGE>


4.     SUPPLEMENTAL DISCOSURE OF CASH FLOWS INFORMATION

       4.1    Cash paid for the year ended  December 31, for interest and income
              tax is as follows:



                                               2002 (Baht)
                                               -----------
              Interest                            5,211,583
              Income tax                         35,380,564

5.     CASH AND DEPOSITS AT FINANCIAL INSTITUTIONS

       As at  December  31,  2002  cash at  financial  institutions  of Baht 8.0
million are used as collateral  for a bank guarantee  (Note 15.2).  In addition,
cash  at  financial  institutions  of  subsidiary  of SGD  715,971  is  used  as
collateral for short-term loan from bank.

       As at December  31,  2002,  cash at  financial  institutions  of Baht 5.1
million is used to guarantee letters of credit. (Note 15.2)

6.     ACCOUNTS RECEIVABLE, NET

       Accounts receivable - net as at December 31, consists of the following:

                                                                 2002 (Baht)
                                                                 -----------
              Accounts receivable                                  406,926,492
              Less  Allowance for doubtful accounts                 (2,474,629)
              ----                                                ------------
                                                                   404,451,863

7.     INVENTORIES - NET

       Inventories - net as of December 31, consist of the following:

                                                               2002 (Baht)
                                                               -----------
              Finished goods                                      53,342,973
              Work in process                                     14,521,221
              Raw materials                                       94,785,855
              Goods in transit                                    48,684,161
                                                                ------------
                                                                 211,334,210
              Less  Provision for obsolete stock                  (7,561,272)
              ----                                              ------------
                                                                 203,772,938

8.     RECEIVABLE FROM INSURANCE CLAIM

       On July 14, 2002, the Company's  fabrication  and  contamination  control
specialty foam factory in  Samutprakarn,  Thailand was destroyed by fire. All of
the Company's  inventory  and most of the machinery and equipment  maintained in
the factory were lost.  The  carrying  value of the  inventory  and the net book
value of the  machinery  and  equipment  at the date of the fire  were Baht 84.0
million and Baht 65.1  million,  respectively.  The  Company  filed a claim with
their  insurance  carrier for the  inventory  and machinery and equipment in the
amount of Baht  70.0  million  and  107.8  million,  respectively.  The  Company
recorded an extraordinary loss in 2002 of Baht 9.8 million, net of taxes of Baht
4.2 million, for the underinsured inventory and an additional Baht 1.19 million,
net of taxes of Baht 0.32 million, for other fire related expenses.


                                      F-47
<PAGE>


       The Company  received an interim payment from their insurance  carrier in
the amount of Baht 50 million on  December  27, 2002 and an  additional  Baht 50
million  on  February  7,  2003.  Full and  final  settlement  of the  Company's
insurance claim is still pending,  however,  the Company's management believes a
gain will ultimately be realized.

9.     LOANS TO EMPLOYEE AND DIRECTORS

       Loans to  employee  and  directors  as at  December  31,  consist  of the
following:

                                                                   2002 (Baht)
                                                                   -----------
          Loan to employee                                           1,820,000
          Loans to directors                                        31,494,538
                                                                    ----------
                                                                    33,314,538
          Less:  Current portion of loan to employee                   400,000
                                                                  ------------
                                                                    32,914,538
                                                                  ============

       As  at  December  31,  2002,   the  loan  to  employee   represented   an
interest-free Thai Baht denominated loan, which is guaranteed by another person.
The loan is repayable in monthly installments beginning January 2002 and matures
in December 2006.

       As at December 31, 2002, loans to directors  represented foreign currency
denominated loans totaling US $700,000.  These loans are secured by a grant of a
security  interest of the director's  percentage right in a major  shareholder's
interest in the Company as specified in the loan agreement,  carry interest at a
rate of 4% per annum and are due in December 2021.

10.    PLANT AND EQUIPMENT - NET
<TABLE>
<CAPTION>

       Plant and equipment - net consist of the following:

                               Balance as at                                          Currency       Balance as at
                               December 31,                                           translation    December 31,
                                  2001       Additions    Disposals    Transfers     differences         2002
                                  Baht          Baht         Baht         Baht           Baht            Baht
Cost:
<S>                             <C>           <C>          <C>                           <C>           <C>
   Leasehold improvement        14,328,062    3,871,512    (9,227,837)           -       200,058       9,171,795
   Machinery and equipment     161,779,885   68,689,166   (89,097,384)   2,700,537     2,670,887     146,743,091
   Vehicles                     22,883,734    8,345,681      (111,828)           -        83,004      31,200,590
   Furniture and office
     equipment                  25,291,877    8,720,713    (8,897,174)           -       555,652      25,671,068
   Construction in progress and
     machinery under
     installation               3,090,537    75,952,268                 (2,700,537)           -       76,342,268
                               ----------- ------------ --------------- -------------- ------------  -------------
                               227,374,095  165,579,340  (107,334,224)           -     3,509,601     289,128,812
                               ----------- ------------ --------------- -------------- ------------  -------------

Accumulated depreciation:
   Leasehold improvement        (7,156,012)  (1,639,198)    6,412,050            -       (87,317)     (2,470,477)
   Machinery and equipment     (40,923,398) (14,313,244)   25,749,677            -      (925,722)    (30,412,687)
   Vehicles                    (11,310,026)  (4,597,859)            -            -       (60,791)    (15,968,676)
   Furniture and office
     equipment                 (10,331,337)  (4,436,197)      3,868,577          -      (312,933)    (11,211,890)
                               ----------- ------------ --------------- -------------- ------------  -------------
                               (69,720,773) (24,986,498)     36,030,304          -    (1,386,763)    (60,063,730)
                               ----------- ------------ --------------- -------------- ------------  -------------

Plant and equipment - net      157,653,322                                                           229,065,082
                               ===========                                                           ===========

Depreciation for the year
   2002                                                                                               24,986,498
                                                                                                    ============

</TABLE>
                                      F-48
<PAGE>


11.    INTANGIBLE ASSETS - NET

       Intangible assets as at December 31, consist of the following:

                                                                   2002 (Baht)
                                                                   -----------
              Goodwill on acquisitions                              13,895,417
                                                                    ==========

       On April 26, 2000, the Company  entered into an Asset Purchase  Agreement
("Agreement")  with Wilshire  Technologies,  Inc.  ("Wilshire") to acquire their
contamination control division,  which later became the Company's branch. As per
the Agreement,  the Company is required to make  quarterly  payments to Wilshire
equal to a percentage  of sales on  applicable  contamination  control  products
("covered products") sold by the Company until June 30, 2003 or the total of all
payments made equal US $2.5 million,  whichever occurs first. As at December 31,
2002,  the goodwill  related to this  transaction  resulted from purchase  price
contingencies now being realized through the sales of the covered products.  The
amount of  amortization  expense for the year ended  December  31, 2002 was Baht
899,840.

12.    SHORT-TERM BORROWINGS FROM FINANCIAL INSTITUTIONS

       Short-term borrowings from financial institutions as at December 31,
consist of the following:

                                                                 2002 (Baht)
                                                                 -----------
              Loans from banks                                     98,000,000
              Trust receipt                                        19,516,433
                                                                 ------------
                                                                  117,516,433
                                                                 ============

       As at December 31, 2002, short-term Thai Baht denominated loan from banks
of  Baht 98  million,  carried  interest  at a rate  of MLR  per  annum  and was
repayable  within one year from the balance sheet date. As discussed  more fully
in Note 13, the Company  entered  into a new credit  facility on May 16, 2002. A
portion of the outstanding  trust receipts as of December 31, 2002 is related to
the Term Loan  Facility,  which is subject to  interest  at a rate of 6.375% per
annum. The remaining trust receipts are related to the Revolving  Facility which
is subject to interest at current money market rates.  The average interest rate
for this  portion of the  outstanding  trust  receipts was 3.61% at December 31,
2002.

13.    LONG-TERM BORROWINGS FROM FINANCIAL INSTITUTIONS

       Long-term  borrowings  from  financial  institutions  as at December  31,
consist of the following:

                                                                    2002 (Baht)
                                                                    -----------
       Loans from banks                                              62,000,000
                                                                    ===========

       On May 16, 2002, the Company entered into a new credit facility with a
financial institution. The new credit facility ("New Credit Facility") provides
for borrowings in the aggregate amount of Baht 300 million and is composed of:
(i) a Baht 150 million term loan and non-revolving letter of credit/trust
receipts facility (the "Term Loan Facility") and (ii) a Baht 150 million
revolving working capital facility (the "Revolving Facility"), both maturing on
August 30, 2007. The New Term Loan Facility is to be repaid in eight equal
semi-annual installments with the first repayment to be made in February 2004.

       The interest for the term loan portion of the Term Loan Facility is
6.375% per annum in relation to the first two years after August 30, 2002, and
then the higher of (i) financial institution's minimum lending rate (MLR) minus
1.25%, and (ii) another local commercial bank's MLR minus 0.5% per annum for the
remainder of the loan. The Company shall pay a commercial letter of opening fee
at a rate of 1/12% per quarter and interest on the trust receipts at the rate of
6.375% per annum. The interest for the Revolving Facility is at the money market
rate on each relevant maturity date. Interest is due and payable every three
calendar months beginning on November 30, 2002.

                                      F-49
<PAGE>

       The Company is required to pay a commitment  fee at the rate of 0.25% per
annum on the daily undrawn  balance of the Term Loan  calculated  from the first
anniversary  date of the  agreement,  May 16, 2003, up to and including the last
day of the Availability Period, which ends on the earlier of (i) August 16, 2003
or (ii) the date on which the Term Loan  Facility is fully  drawn,  cancelled or
terminated under the provisions of the Agreement.

       The collateral  required for the New Credit Facility is the assignment of
the land leasehold  right,  mortgage of the  newly-constructed  factory,  office
building and machinery,  pledge of inventory and  receivables and the assignment
of construction and operational  insurance proceeds to the financial institution
as  beneficiary.  The Company is also  required to meet various debt  covenants,
including maintaining certain financial ratios.

14.    LOANS FROM SHAREHOLDERS

       Loans from shareholders as at December 31, consist of the following:

                                                                    2002 (Baht)
                                                                    -----------
       Loans from shareholders                                      259,823,400
       Interest of the loans                                         14,368,080
                                                                   ------------
                                                                    274,191,480
                                                                   ============

       On December 3, 2001, the Company received loans from its shareholders
totaling US $6 million. These loans are unsecured and carry interest at the rate
of LIBOR + 3.25% per annum, and mature on December 3, 2008. Interest accrues
quarterly beginning at the inception of the loan, however, the first interest
payment is not due until December 3, 2005 ("First Interest Payment Date") and
then quarterly thereafter beginning March 1, 2006. The accrued interest for the
first three years of the loan is not due until maturity. The accrued interest
for the fourth year of the loan is due entirely on the First Interest Payment
Date.

15.    COMMITMENTS AND CONTINGENCIES

       15.1 The Company has commitments for land, buildings and vehicle lease
            agreement as follows:

                                                            Annual Lease
              Period                                      Payment (Baht)
                                                          --------------
              2003                                            11,768,770
              2004                                            10,071,753
              2005                                             8,126,544
              2006-2018                                       63,035,169

       15.2   The Company  had  contingent  liabilities  to banks for letters of
              guarantee of Baht 10.31 million at December 31, 2002 (Note 5).

       15.3   The Company had  commitments to a bank for unused letter of credit
              of Baht 1.3 million at December 31, 2002.

       15.4   The  Company  had  one  construction   contract  with  outstanding
              commitments of Baht 27.3 million at December 31, 2002.

16.    REVENUE REPORTING OF A PROMOTED INDUSTRY

       To comply  with the  Announcement  of the Board of  Investment  No.  Por.
14/2541 (1998) dated December 30, 1998 regarding revenue reporting of a promoted
industry, the Company is required to report the revenues from domestic sales and
export sales  separately and to report  separately  between the promoted and the
non-promoted   businesses.   For  the  year  ended  December  31,  the  required
information is as follows:


                                      F-50
<PAGE>


       2002         Promoted Business   Non-Promoted Business         Total
                         Baht                     Baht                Baht
       Sales                  -               1,212,912,552       1,212,912,552

       The  information  to present local sales and export sales  separately was
not available.

17.    INVESTMENT PROMOTION PRIVILEGES

       In 1998-2001, the Company was granted certain rights and privileges (No.
       1377/2541 (1998), 6453/2541 (1998), 4650/2543 (2000), 5026/2543 (2000),
5153/2543 (2000) and 6235/2544 (2001)) as a promoted industry under the
Investment Promotion Act of B.E. 2520 (1977), which included an exemption from
customs duties for machinery imported for production as approved by the Board of
Investment until August 14, 2002 and an exemption from custom duties for raw
materials until May 19, 2002.

       The  Company  has to comply  with  certain  conditions  contained  in the
investment  promotion  certificate  including  the  size of its  operations  and
amounts of investments and annual export sales volume.

18.    EMPLOYEES' PROVIDENT FUND

       The Company has  established  a registered  provident  fund  covering all
employees.  This fund was  registered  with the  Ministry  of Finance  under the
Provident Fund Act. B.E. 2530.  Membership is voluntary upon attaining permanent
status.  Under the regulation of the fund,  members and the Company are required
to make monthly contributions to the fund at a percentage of the employees' base
salaries, depending on the length of employment.

       The  Company's  contribution  charged to  operations  for the years ended
December 31, 2002 and 2001 amounted to Baht 970,965 and 546,470, respectively.

       The Company's  subsidiary  has  established a defined  contribution  plan
covering all  employees,  and its  contributions  charged to operations  for the
years ended  December  31, 2002 and 2001  amounted to Baht  12,008,000  and Baht
9,809,638, respectively.

19.    SUMMARY OF SIGNIFICANT DIFFERENCES BETWEEN ACCOUNTING PRINCIPLES FOLLOWED
       BY THE COMPANY AND ACCOUNTING PRINCIPLES GENERALLY ACCEPTED IN THE UNITED
       STATES OF AMERICA (U.S. GAAP)

       The Company's  consolidated  financial  statements  have been prepared in
accordance  with  generally  accepted  accounting  principles  in the Kingdom of
Thailand ("Thai GAAP"), which differs in certain respects from U.S. GAAP.

       The differences,  as they affect the financial statements,  are reflected
in the amounts  provided in Note 20 and arise due to the items  discussed in the
following paragraphs:

       Accounting for Income Taxes

       Under U.S. GAAP, SFAS No. 109,  Accounting for Income Taxes,  requires an
enterprise to record deferred tax assets or liabilities  based on the difference
between the financial  statement and income tax basis of assets and  liabilities
using the enacted tax rate. Deferred income tax expenses or credits are based on
the changes in the assets or  liabilities  from period to period.  Deferred  tax
assets are reduced by a valuation  allowance  if it is more likely than not that
some or all of the deferred tax assets will not be realized.

       Thai GAAP does not address the reporting or disclosure of deferred income
taxes.

       Amortization of Goodwill



                                      F-51
<PAGE>

       Under Thai GAAP,  goodwill should be amortized to expense on a systematic
basis over its useful life.  The  amortization  period  should  reflect the best
estimate of the period  during  which future  economic  benefits are expected to
flow to the enterprise.  The amortization method used should reflect the pattern
in which the future economic  benefits  arising from goodwill are expected to be
consumed.  The straight-line method should be adopted unless there is persuasive
evidence that another method is more appropriate in the circumstances.

       Under U.S.  GAAP,  SFAS No. 142,  Goodwill and Other  Intangible  Assets,
goodwill and certain other intangible  assets are no longer amortized but are to
be periodically assessed for impairment.

       Reporting Comprehensive Income

       Under  Thai GAAP,  a company  is given the option to present a  statement
showing (i) all changes in equity;  or (ii)  changes in equity  other than those
arising from capital  transactions  with owners and  distributions  owners (i.e.
statement  of  comprehensive  income).  The  Company  has chosen to present  all
changes in equity.

       Under U.S. GAAP, SFAS No. 130, Reporting  Comprehensive Income,  requires
an enterprise to display an amount representing total  comprehensive  income for
each period of operations presented in the financial  statements.  Comprehensive
income  comprises  of  net  income  and  other  comprehensive  income,  such  as
unrealized  gains  and  losses  on  securities,   foreign  currency  translation
adjustments  and  minimum  pension  liability   adjustments.   In  addition,  an
enterprise is required to classify items of other comprehensive  income by their
nature in a financial  statement  and display the  accumulated  balance of other
comprehensive  income  separately  from  retained  earnings and premium on share
capital  in  the  equity   section  of  a  statement  of   financial   position.
Reclassification  of  financial  statement  for  earlier  periods  provided  for
comparative purposes is also required.

       Extraordinary item, net

       The  extraordinary  item,  net would be  classified  within  profit  from
ordinary activities under U.S. GAAP.

20. RECONCILIATION BETWEEN NET INCOME AND SHAREHOLDERS' EQUITY UNDER THAI GAAP
    AND U.S. GAAP
<TABLE>
<CAPTION>

                                                                            Baht
<S>                                                                              <C>

     Net income according to financial statements prepared under
         Thai GAAP                                                            106,041,120
     U.S. GAAP adjustments
     Increase (decrease) due to:
         Deferred tax accounting                                                 (567,859)
         Amortization of goodwill   (Note 14)                                     346,231
                                                                         -------------------
     Net income in accordance with U.S. GAAP                                  105,819,492
                                                                         ===================

     Basic and Diluted Earnings Per Share                                           10.08
     Basic and diluted weighted average number of shares                       10,500,000

     Shareholders' equity according to financial statements prepared
       under Thai GAAP                                                        351,408,518
     U.S. GAAP adjustments
     Increase (decrease) due to:
         Loans to directors    (Note 12)                                      (31,494,538)
         Deferred tax accounting                                               (8,842,497)
         Amortization of goodwill                                                 348,159
         Currency translation difference   (Note 2.2)                            (911,336)
                                                                         -------------------
     Shareholders' equity in accordance with U.S. GAAP                        310,508,306
                                                                         ===================
</TABLE>
                                      F-52
<PAGE>

       With regard to the balance  sheet,  the  following  significant  captions
determined under U.S. GAAP would have been:

     Loans to employee - non-current asset                       1,420,000

     Intangible assets - net                                     14,241,648

     Other liabilities                                           10,321,692

       The  following  table  presents  comprehensive  income for the year ended
December 31, 2001:

                                                                  Baht

     Net income (U.S. GAAP)                                         105,819,492
     Foreign currency translation adjustments                         7,393,657
                                                               -----------------
     Comprehensive income                                           113,213,149
                                                               =================
21. ADDITIONAL FINANCIAL STATEMENT DISCLOSURES REQUIRED UNDER U.S. GAAP
<TABLE>
<CAPTION>

       21.1   Income Taxes

              The sources of income before the provision for income taxes for
              the year ended December 31, 2002 are as follows:
                                                                                    Baht
<S>                                                                                    <C>
              Thailand                                                                 72,382,370
              Foreign                                                                  72,130,235
                                                                                 -------------------
              Income before provision for income taxes                                144,512,605
                                                                                 ===================

              The provision for income taxes for the year ended December 31,
              2002 is summarized as follows:
                                                                                    Baht

              Current
                Thailand                                                               25,800,115
                Foreign                                                                13,342,453
                                                                                 -------------------
              Total current                                                            39,142,568
                                                                                 -------------------

              Deferred
                Thailand                                                                         -
                Foreign                                                                   567,859
                                                                                 -------------------
              Total deferred                                                              567,859
                                                                                 -------------------
              Approximate provision for income taxes in accordance
               with U.S. GAAP                                                          39,710,427
                                                                                 ===================


              As at December 31, 2002, in providing for applicable  deferred income taxes under U.S. GAAP, the tax
              effect of  significant  temporary  differences  that give rise to  deferred  income  tax  assets and
              liabilities are listed below.

                                                                                                 Baht

              Deferred income tax assets resulted from:
                 Inventory basis differences                                                         828,792
</TABLE>
                                      F-53
<PAGE>
<TABLE>
<CAPTION>


<S>                                                                                                  <C>
                 Allowance for doubtful accounts                                                     604,031
                 Valuation allowance                                                              (1,432,823)
                                                                                              -----------------
                     Total deferred income tax assets                                                      -
                                                                                              -----------------

              Deferred income tax liabilities resulted from:
                 Property, plant and equipment basis differences                                  10,321,692
                                                                                              -----------------
                     Total deferred income tax liabilities                                        10,321,692
                                                                                              -----------------
              Net deferred income tax liabilities                                                 10,321,692
                                                                                              =================
</TABLE>

              Deferred income taxes have not been provided on approximately Baht
              171.3  million of  undistributed  earnings  of foreign  affiliated
              companies,  which are considered to be permanently reinvested.  It
              is not  practicable  to  estimate  the amount of tax that might be
              payable on the eventual remittance of such earnings.

      21.2    Transactions with Related Parties

              A portion of the  Company's  assets,  revenues and expenses  arose
              from  transactions  with  related  parties,  which  occur  in  the
              ordinary  course of  business  on terms  equivalent  to those with
              third parties.  The  relationship  may be by  shareholding  or the
              companies  may have the same group of  shareholders  or directors.
              The Company's  management  believes that the Company does not have
              significant  influence over the related parties.  The accompanying
              financial  statements  reflect the  effects of these  transactions
              determined on the basis of  commitments  and  conditions as in the
              normal course of business.
<TABLE>
<CAPTION>

              Significant balances and transactions are as follows:

<S>                                                                                                  <C>
                                                             Relationship                  Balance at
                                                                                           December 31,
                                                                                           2002
                                                                                           Baht

              Amounts due from related companies
                 Foamex L.P.                                 Affiliated Company                      278,645
                 Foamex Asia, Inc.                           Major Shareholder                     8,849,084

              Amounts due to related companies
                 Foamex L.P.                                 Affiliated Company                   82,013,287

                                                             Relationship                  Balance for the
                                                                                           year ended
                                                                                           December 31,
                                                                                           2002
                                                                                           Baht

              Reimbursement of expenses
                 Foamex L.P.                                 Affiliated Company                   30,230,917

              Foamex Asia, Inc.                              Major Shareholder                    18,069,036

              Purchases
                 Foamex L.P.                                 Affiliated Company                  218,190,503
</TABLE>

       21.3   Estimated Fair Values of Financial Instruments


                                      F-54
<PAGE>

      The fair values have been estimated by the Company using available  market
      information and appropriate valuation methodologies.

      As at December 31, the carrying  amounts of financial assets and financial
      liabilities  which were  different  from the estimated fair values were as
      follows:
<TABLE>
<CAPTION>

                                                                 Carrying Value          Fair Value
                                                                 Baht                    Baht

<S>                                                                         <C>                <C>
      Loans to employee and directors                                       33,314,538         16,305,922

      Loans from shareholders                                              259,823,400        222,131,206

      Long-term borrowings from financial institutions                      62,000,000         70,903,616
</TABLE>

      The  following  methods  and  assumptions  were  used  by the  Company  in
      estimating fair value of financial instruments as disclosed herein:

      Financial  assets - The fair  values of  financial  assets for which their
      remaining  terms to  maturity  are  within 90 days are  based on  carrying
      value. For those with remaining terms to maturity greater than 90 days are
      estimated by using a discounted  cash flow  analysis  based on the minimum
      leading rate of a commercial  bank at December 31, 2002 for the  remaining
      years to maturity.

      Financial liabilities - The fair values of financial liabilities for which
      their remaining terms to maturity are within 90 days are based on carrying
      value. For those with remaining terms to maturity greater than 90 days are
      estimated by using a discounted  cash flow  analysis  based on the minimum
      leading rate of a commercial  bank at December 31, 2002 for the  remaining
      years to maturity.



                                      F-55
<PAGE>



              REPORT OF THE INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS

TO THE BOARD OF DIRECTORS
FOAMEX ASIA COMPANY LIMITED

We have audited the  consolidated  balance sheet of Foamex Asia Company  Limited
and its  subsidiary  as at  December  31,  2001,  and the  related  consolidated
statements  of income,  changes in  shareholders'  equity and cash flows for the
year then  ended.  These  financial  statements  are the  responsibility  of the
Company's   management  as  to  their   correctness  and   completeness  of  the
presentation.  Our  responsibility  is to express an opinion on these  financial
statements based on our audit.

We conducted our audit in accordance with auditing standards  generally accepted
in the  United  States of  America.  Those  standards  require  that we plan and
perform the audit to obtain  reasonable  assurance  as to 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 in the first
paragraph present fairly, in all material  respects,  the financial  position of
Foamex Asia Company  Limited and its subsidiary as at December 31, 2001, and the
results  of its  operations  and its cash  flows  for the year  then  ended,  in
conformity with generally accepted accounting principles in Thailand.

As discussed in Note 4 to the financial  statements,  the Company has elected to
discontinue  the  application  of certain  accounting  standards for the current
year's financial statements.

Generally accepted accounting  principles in Thailand do not conform to those in
the United  States of America.  A  description  of the  significant  differences
between these two generally accepted  accounting  principles and the approximate
effects of these  differences  on net income  and  shareholders'  equity are set
forth in Notes 18 and 19 to the consolidated financial statements.




                                                  Wimolporn Boonyusthian
                                          Certified Public Accountant (Thailand)
BANGKOK                                            Registration No. 4067
February 22, 2002                             DELOITTE TOUCHE TOHMATSU JAIYOS
(March 5, 2003 as to Notes 2, 18, 19, 20, 21)


                                      F-56
<PAGE>
<TABLE>
<CAPTION>



                                FOAMEX ASIA COMPANY LIMITED AND SUBSIDIARY
                                        CONSOLIDATED BALANCE SHEET
                                          AS AT DECEMBER 31, 2001
                                                  BAHT
<S>                                <C>                                                         <C>

ASSETS
CURRENT ASSETS
   Cash in hand and at banks                                                                   138,358,163
   Accounts receivable - net (Note 7)                                                          408,060,820
   Inventories - net (Note 8)                                                                  219,051,180
   Amounts due from related companies                                                            2,502,334
   Other current assets                                                                         19,134,610
                                                                                               -----------
     Total Current Assets                                                                      787,107,107
                                                                                               -----------

LOANS TO EMPLOYEE AND DIRECTORS (Note 9)                                                        32,955,155

PLANT AND EQUIPMENT - NET (Note 10)                                                            157,653,322

OTHER ASSETS (Note 11)                                                                           6,217,866
                                                                                               -----------

TOTAL ASSETS                                                                                   983,933,450
                                                                                               ===========

LIABILITIES AND SHAREHOLDERS' EQUITY

CURRENT LIABILITIES
   Loans from bank (Note 12)                                                                    30,000,000
   Accounts payable                                                                            297,040,040
   Amounts due to related companies                                                             43,100,301
   Accrued expenses                                                                             46,292,992
   Other current liabilities                                                                    35,428,948
                                                                                              ------------
     Total Current Liabilities                                                                 451,862,281
                                                                                               -----------

LOANS FROM SHAREHOLDERS (Note 13)                                                              266,158,200

OTHER LIABILITIES (Note 14)                                                                     28,850,564
                                                                                               -----------

TOTAL LIABILITIES                                                                              746,871,045
                                                                                               ===========

SHAREHOLDERS' EQUITY
SHARE CAPITAL (Note 15)
   Registered share capital
     10,500,000 ordinary shares of Baht 10 each                                                105,000,000
                                                                                               ===========

     10,500,000 ordinary shares of Baht 10 each, fully paid                                    105,000,000

PREMIUM ON SHARE CAPITAL                                                                        18,990,504

CURRENCY TRANSLATION DIFFERENCES                                                                 6,546,185

RETAINED EARNINGS
   Unappropriated                                                                              106,525,716
                                                                                               -----------
   Total Shareholders' Equity                                                                  237,062,405
                                                                                               -----------

TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY                                                     983,933,450
                                                                                               ===========

Notes to the financial statements form an integral part of these statements

</TABLE>
                                      F-57
<PAGE>



                   FOAMEX ASIA COMPANY LIMITED AND SUBSIDIARY
                        CONSOLIDATED STATEMENT OF INCOME
                      FOR THE YEAR ENDED DECEMBER 31, 2001
                                      BAHT

REVENUES
   Sales                                                     1,461,757,023
   Other income                                                 25,175,124
                                                           ---------------
     Total Revenues                                          1,486,932,147
                                                             -------------

EXPENSES
   Cost of sales                                             1,103,005,580
   Selling and administrative expenses                         197,207,253
   Loss on exchange rate                                         1,723,772
   Interest expense                                              9,778,202
   Income tax expense                                           32,763,373
                                                           ---------------
     Total Expenses                                          1,344,478,180
                                                             -------------

NET INCOME                                                     142,453,967
                                                            ==============

BASIC EARNINGS PER SHARE                                              24.31

WEIGHTED AVERAGE NUMBER OF ORDINARY SHARES                       5,859,721
                                                        ---------=========

Notes to the financial statements form an integral part of these statements

                                      F-58
<PAGE>


                   FOAMEX ASIA COMPANY LIMITED AND SUBSIDIARY
                 CONSOLIDATED STATEMENT OF SHAREHOLDERS' EQUITY
                      FOR THE YEAR ENDED DECEMBER 31, 2001
                                      BAHT


ISSUED AND PAID-UP SHARE CAPITAL
   Beginning balance                                               54,087,120
   Addition                                                        50,912,880
                                                                 ------------
   Ending balance                                                 105,000,000
                                                                  -----------

PREMIUM ON SHARE CAPITAL
   Beginning balance                                                        -
   Addition                                                        18,990,504
                                                                 ------------
   Ending balance                                                  18,990,504
                                                                 ------------

RETAINED EARNINGS (DEFICIT)
   Unappropriated (Deficit)
     Beginning balance                                            (35,928,251)
     Addition                                                     142,453,967
                                                                 ------------
     Ending balance                                               106,525,716
                                                                 ------------

CURRENCY TRANSLATION DIFFERENCES
   Beginning balance                                               13,781,075
   Deduction during the year                                       (7,234,890)
                                                                -------------
   Ending balance                                                   6,546,185
                                                                -------------

TOTAL SHAREHOLDERS' EQUITY                                        237,062,405
                                                                  ===========

Notes to the financial statements form an integral part of these statements


                                      F-59
<PAGE>
<TABLE>
<CAPTION>


                                    FOAMEX ASIA COMPANY LIMITED AND SUBSIDIARY
                                         CONSOLIDATED STATEMENT OF CASH FLOWS
                                         FOR THE YEAR ENDED DECEMBER 31, 2001
                                                         BAHT
<S>                                                                                            <C>

CASH FLOWS FROM OPERATING ACTIVITIES
Net income                                                                                     142,453,967
Reconciliation of net income to net cash from operating activities
   Depreciation and amortization                                                                25,378,127
   Allowance for doubtful accounts                                                                 (66,071)
   Provision for obsolete stock                                                                   (525,220)
   Unrealized loss on exchange rate - net                                                        6,052,891
   Loss on disposal of plant and equipment                                                          40,587
                                                                                          ----------------
Operating income before change in operating assets and liabilities                             173,334,281

Operating assets (increase) decrease
   Accounts receivable                                                                        (128,422,075)
   Inventories                                                                                 (39,958,875)
   Other current assets                                                                         (2,365,216)
   Amounts due from related companies                                                           (2,502,334)
   Other assets                                                                                 (4,945,848)

Operating liabilities increase (decrease)
   Accounts payable                                                                             31,845,283
   Amounts due to related companies                                                           (217,875,904)
   Accrued expenses                                                                             (5,737,192)
   Other current liabilities                                                                    30,157,608
                                                                                             -------------

     Net cash used in operating activities                                                    (166,470,272)
                                                                                              ------------

CASH FLOWS FROM INVESTING ACTIVITIES
   Purchases of plant and equipment                                                            (61,178,177)
   Proceeds from disposal of plant and equipment                                                 1,433,111
   Increase in deposits at bank used as collateral                                             (15,282,248)
   Increase in loans to employee and directors                                                 (32,955,155)
                                                                                             -------------

     Net cash used in investing activities                                                    (107,982,469)
                                                                                              ------------

CASH FLOWS FROM FINANCING ACTIVITIES
   Cash receipt from share capital increase                                                     69,903,384
   Cash receipt from loans from shareholders                                                   264,761,400
   Cash payment for loans from shareholders                                                    (36,366,340)
   Increase in loan from bank                                                                   15,000,000
   Increase in long term accounts payable                                                       (6,855,945)
                                                                                            --------------

     Net cash provided by financing activities                                                 306,442,499
                                                                                              ------------

NET EFFECT OF CURRENCY TRANSLATION
DIFFERENCES IN CASH AND CASH EQUIVALENTS                                                        (4,859,666)
                                                                                              ------------

Net increase in cash and cash equivalents                                                       27,130,092
Cash and cash equivalents at January 1,                                                         90,241,514
                                                                                              ------------
Cash and cash equivalents at December 31,                                                      117,371,606
                                                                                               ===========

Notes to the financial statements form an integral part of these statements

</TABLE>
                                      F-60
<PAGE>


FOAMEX ASIA COMPANY LIMITED AND SUBSIDIARY
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEAR ENDED DECEMBER 31, 2001

1.  ECONOMIC TURMOIL IN THE ASIA-PACIFIC REGION

       Thailand and many  Asia-Pacific  countries  continue to experience severe
economic difficulties since 1997. The accompanying  financial statements reflect
management's   current  assessment  of  the  possible  impact  of  the  economic
conditions on the financial position of the Company.

2.  COMPANY'S OPERATIONS AND BASIS FOR PREPARATION OF THE CONSOLIDATED FINANCIAL
    STATEMENTS

       Foamex Asia Company  Limited was registered in the Kingdom of Thailand on
June 5, 1997 with its head office located at 175 Sathorn City Tower, 20th Floor,
South Sathorn Road,  Sathorn,  Bangkok 10120.  The Company's plant is located at
51/2 Bangna-trad Road KM22,  Samutprakarn 10540 (see Note 21.2). The Company and
its Subsidiary are members of Foamex  International,  Inc. and Hau Kee Group and
the Company's  principal  objective is to fabricate  technical  foam,  films and
adhesives.

       As at December  31, 2001,  the Company had a total of 520 staff  persons.
The staff costs for the year ended December 31, 2001 were Baht 198 million.

     2.1  The Company prepares its statutory financial  statements in conformity
          with accounting and practices generally accepted in Thailand.

     2.2  The consolidated  financial  statements include the accounts of Foamex
          Asia, LLC, the Company's  branch  incorporated in the United States of
          America, and Foamtec (Singapore) Pte. Ltd., a subsidiary  incorporated
          in the  Republic of  Singapore.  The  Company has direct and  indirect
          ownership percentages as follows:


       Subsidiary                                              % of Shareholding
         Directly owned:
           Foamtec (Singapore) Pte. Ltd.                                 99.99%

         Indirectly owned:
           Foamex (Malaysia) Sdn. Bhd.                                   99.99%

       The  major  intercompany   transactions   between  the  Company  and  its
Subsidiary  included  in  the  consolidated   financial   statements  have  been
eliminated.

       The  financial  statements  of  Foamtec  (Singapore)  Pte.  Ltd.  and its
subsidiary have been prepared in Singapore dollars. For consolidation  purposes,
these financial statements have been translated into Thai Baht as follows:

     a.All assets and liabilities using the rates announced by the Bank of
         Thailand at the balance sheet date.

     b.Revenues and expenses using the average exchange rates for the year as
         announced by the Bank of Thailand.

       Net  exchange  gain or loss from  translation  is  presented as "Currency
Translation Differences" under "Shareholders' Equity" in the balance sheet.



                                      F-61
<PAGE>

3.   SIGNIFICANT ACCOUNTING POLICIES

     3.1  Cash and cash equivalents

          Cash and cash equivalents  consist of cash in hand,  deposits at banks
          and financial  institutions  with  original  maturities of 3 months or
          less.

     3.2  Allowance for doubtful accounts

          An allowance for doubtful  accounts of the Company and its  subsidiary
          is provided at the estimated  collection losses on receivables,  based
          on the Company's  collection  experience together with a review of the
          current financial position of each existing receivable.

     3.3  Inventories

          Inventories  are valued at the lower of cost or net realizable  value.
          Cost is determined as follows:

<TABLE>
<CAPTION>

                        <S>                               <C>
                  Finished goods                     at  standard cost which approximates actual cost or net realizable value,
                                                     whichever is lower
                  Work in process                    at standard cost which approximates actual cost
                  Raw materials                      weighted average cost basis
</TABLE>

          Inventories  of  subsidiaries  are  stated at the lower of cost or net
          realizable value. Cost is calculated on the first-in first-out basis.

     3.4  Plant and equipment

          Plant and equipment are stated at cost less accumulated depreciation.

          Depreciation is calculated by the straight-line method, based on the
          estimated useful lives of the assets as follows:

                  Leasehold improvements                              5-10 years
                  Machinery and equipment                             3-10 years
                  Vehicles                                               5 years
                  Furniture and office equipment                      3-10 years

     3.5  Impairment of assets

          The Company  reviews the impairment of assets for plant and equipment,
          investment in subsidiary  and other assets  whenever  events  indicate
          that the carrying value of an asset exceeds its recoverable amount. In
          case  that the  carrying  value of an asset  exceeds  its  recoverable
          amount,  the Company recognizes the impairment losses in the statement
          of income.

     3.6  Foreign currency transactions

          Transactions  denominated in foreign  currencies  incurred  during the
          year  are  translated  into  Baht  at the  rates  of  exchange  at the
          transaction  dates.  At the  end  of the  year,  monetary  assets  and
          liabilities denominated in foreign currencies are translated into Baht
          at the  reference  rates as determined by the Bank of Thailand at that
          date.  Gains and losses on foreign exchange arising on settlements and
          translation are recognized as income or expense when incurred.

                                      F-62
<PAGE>


     3.7  Recognition of revenues

          Sales are recognized  upon delivery of goods to the  customers.  Other
          income is recognized on the accrual basis of accounting.

     3.8  Income tax

          Income tax expense is  calculated  from  taxable  income and  recorded
          based on tax paid and accrued for the year.

          The consolidated  financial  statements included the audited financial
          statements of a subsidiary.  Such subsidiary records its income tax by
          the deferred income tax method, which is different from the accounting
          method  used by the  Company.  The  Company,  therefore,  adjusts  the
          accounting  for income tax of such  subsidiary to be the same with the
          Company's accounting method.

     3.9  Basic earnings per share

          Basic  earnings per share are calculated by dividing net income by the
          weighted  average  number of ordinary  shares  outstanding  during the
          year. In case of a capital increase,  the number of shares is weighted
          according to time of registration of such increase.

     3.10 Use of accounting estimates

          Preparation  of financial  statements  in  conformity  with  generally
          accepted  accounting  principles requires management to make estimates
          and  assumptions   that  affect  the  reported  amounts  of  revenues,
          expenses,  assets and liabilities and disclosure of contingent  assets
          and liabilities. Actual results may differ from those estimates.

4.     ACCOUNTING CHANGES

       In December 2001, the Institute of Certified  Accountants and Auditors of
Thailand issued an Announcement regarding "Exemption of Accounting Standards for
Non-public  Limited  Companies".   Accordingly,   the  Company  has  elected  to
discontinue the application of Thai Accounting  Standard No. 47 "Related Parties
Disclosure" and No. 48 "Financial Instruments Disclosure and Presentation".

5.     SUPPLEMENTAL DISCLOSURES OF CASH FLOWS INFORMATION
<TABLE>
<CAPTION>

          5.1 Cash paid for interest and income tax are as follows:

                                                                                        Baht
<S>                                                                                    <C>
                    Interest                                                           22,609,801
                                                                                     ============
                    Income tax                                                          2,016,304
                                                                                     ============

          5.2 Cash and cash equivalents consist of the following:

                                                                                        Baht
                    Cash on hand and in banks                                         138,358,163
                    Less  Deposit at banks used as collateral                         (20,986,557)
                    ----                                                              -----------
                    Cash and cash equivalents                                         117,371,606
                                                                                      ===========
</TABLE>



                                      F-63
<PAGE>



6.     CASH IN HAND AND AT BANKS

       As at December 31, 2001 cash at banks of Baht 2.86  million,  are used as
collateral  for a bank  guarantee  (Note  16.2).  In  addition,  cash at bank of
subsidiary of SGD 759,359 is used as collateral for short-term loan from bank.

7.   ACCOUNTS RECEIVABLE - NET
<TABLE>
<CAPTION>

     Accounts receivable - net consist of the following:

                                                                                        Baht
<S>                                                                                   <C>
              Accounts receivable                                                     409,617,635
              Less  Allowance for doubtful accounts                                    (1,556,815)
              ----                                                                  -------------
                                                                                      408,060,820
                                                                                    =============

8.   INVENTORIES - NET

     Inventories - net consist of the following:

                                                                                        Baht
                  Finished goods                                                        69,187,121
                  Work in process                                                       11,935,231
                  Raw materials                                                        112,978,963
                  Goods in transit                                                      30,452,955
                                                                                      ------------
                                                                                       224,554,270
                  Less  Provision for obsolete stock                                    (5,503,090)
                  ----                                                                ------------
                                                                                       219,051,180
                                                                                      ============

9.   LOANS TO EMPLOYEE AND DIRECTORS

     Loans to employee and directors consist of the following:

                                                                                        Baht
              Loan to employee                                                          2,000,000
              Loans to directors                                                       30,955,155
                                                                                       ----------
                                                                                       32,955,155
                                                                                       ==========
</TABLE>

       As at December 31, 2001,  loan to employee  represented an  interest-free
Thai Baht loan, which is guaranteed by another person.  The loan is repayable in
monthly installments beginning January 2002 to December 2006.

       As at December 31, 2001, loans to directors  represented foreign currency
denominated  loans  totaling  US$  700,000.  These  loans  are  secured  by  the
director's  interest in the Company as  specified in the loan  agreement,  carry
interest at a rate of 4% per annum and are due in December 2021.






                                      F-64
<PAGE>

10.  PLANT AND EQUIPMENT - NET

     Plant and equipment - net consist of the following:
<TABLE>
<CAPTION>

                               Balance as at                                           Currency      Balance as at
                               December 31,                                            translation   December 31,
                                   2000       Additions      Disposals    Transfers    difference        2001
                                   Baht          Baht          Baht         Baht          Baht           Baht
       Cost:
<S>                               <C>          <C>            <C>                        <C>          <C>
       Leasehold improvement      13,525,671   1,296,811      (303,160)           -      (191,260)    14,328,062
       Machinery and
         equipment               118,696,605  20,124,029      (154,302)  25,545,944    (2,432,391)   161,779,885
       Vehicles                   13,508,582   9,456,120             -            -       (80,968)    22,883,734
       Furniture and office
         equipment                20,921,934   5,000,313      (101,455)           -      (528,915)    25,291,877
       Construction in progress and
         machinery in transit      4,334,970  25,300,904      (999,393) (25,545,944)            -      3,090,537
                               -------------  ----------   -----------  ----------- --------------- --------------
                                 170,987,762  61,178,177    (1,558,310)           -     3,233,534)   227,374,095
                               -------------  ----------   -----------  ----------- --------------- --------------

       Accumulated depreciation:
       Leasehold improvement      (4,969,650) (2,301,817)      57,248             -        58,207     (7,156,012)
       Machinery and
         equipment               (27,176,683)(14,362,401)      19,831             -       595,855    (40,923,398)
       Vehicles                   (7,712,437) (3,636,974)           -             -        39,385    (11,310,026)
       Furniture and office
         equipment                (6,091,131)  (4,412,606)      7,533             -       164,867    (10,331,337)
                               -------------  ----------   -----------  ----------- --------------- --------------
                                 (45,949,901)(24,713,798)      84,612             -       858,314    (69,720,773)
                               -------------  ----------   -----------  ----------- --------------- --------------

       Plant and equipment - net125,037,861                                                          157,653,322
                                ===========                                                          ===========

       Depreciation for the year
         2001                                                                                         24,713,798
                                                                                                    ============
</TABLE>

11.    OTHER ASSETS

       Other assets of the following:

                                                                     Baht
              Technical license - net                                  553,609
              Deposits                                               5,664,257
                                                                     ---------
                                                                     6,217,866

12.    LOANS FROM BANKS

       Loans from banks consist of the following:

                                                                     Baht
              Loans from banks                                      30,000,000
                                                                    ----------
                                                                    30,000,000

       As at December 31, 2001, short-term Thai Baht denominated loan from banks
of  Baht 15  million,  carried  interest  at a rate  of MLR  per  annum  and was
repayable within one year from the balance sheet date.


                                      F-65
<PAGE>


       As at December 31, 2001,  short-term Thai Baht denominated loan from bank
of Baht 15 million, was secured by cash at bank of subsidiary in the Republic of
Singapore,  carried  interest at rate of MLR per annum and was repayable  within
one year from the balance sheet date.

13.  LOANS FROM SHAREHOLDERS

     Loans from shareholders as at December 31, consist of the following:

                                                                     Baht
     Loans from shareholders                                       266,158,200
                                                                   -----------
                                                                   266,158,200
                                                                   ============

       On December 3, 2001,  the Company  received  loans from its  shareholders
totaling US$ 6 million. These loans are unsecured, carry interest at the rate of
LIBOR + 3.25% per  annum,  and mature on  December  3,  2008.  Interest  accrues
quarterly  beginning at the  inception of the loan,  however the first  interest
payment  is not due  until  December  3,  2005  and  then  quarterly  thereafter
beginning March 1, 2006.

14.    OTHER LIABILITIES

       On April 26, 2000, the Company  entered into an Asset Purchase  Agreement
("Agreement")  with Wilshire  Technologies,  Inc.  ("Wilshire") to acquire their
contamination control division,  which later became the Company's branch. As per
the agreement,  the Company is required to make  quarterly  payments to Wilshire
equal to a percentage of sales on applicable contamination control products sold
by the Company  until June 30, 2003 or the total of all payments  made equal US$
2.5 million, whichever occurs first.

15.    SHARE CAPITAL

       On November 9, 2001,  the  extraordinary  shareholders'  meeting passed a
special resolution to increase the authorized share capital from Baht 54,087,120
to Baht 105,000,000 through the issuance of 5,091,288 additional ordinary shares
of  Baht  10  par  value  each.  The  Company  called  and  fully  received  the
subscriptions,  and  registered  the increase in share capital with Registrar of
Partnerships and Companies on December 28, 2001.

16.    COMMITMENTS AND CONTINGENCIES

     16.1 The Company has commitments for vehicle lease agreements as follows:

                    Period                                      Baht
                    2002                                        1,667,964
                    2003                                        1,667,964
                    2004                                        1,089,203

     16.2 The  Company  has  contingent  liabilities  to banks  for  letters  of
          guarantee of Baht 2.86 million at December 31, 2001 (Note 6).

17.    INVESTMENT PROMOTION PRIVILEGES

       In 1998-2001, the Company was granted certain rights and privileges (No.
1377/2541 (1998), 6453/2541 (1998), 4650/2543 (2000), 5026/2543 (2000),
5153/2543 (2000) and 6235/2544 (2001)) as a promoted industry under the
Investment Promotion Act of B.E. 2520 (1977), which included exemption from
customs duties for machinery imported for production as approved by the Board of
Investment until August 14, 2002 and exemption from custom duties for raw
materials until May 19, 2002.

       The Company has to comply with certain conditions contained in the
investment promotion certificate including the size of its operations and
amounts of investments and annual export sales volume.



                                      F-66
<PAGE>

18.    SUMMARY OF SIGNIFICANT DIFFERENCES BETWEEN ACCOUNTING PRINCIPLES FOLLOWED
       BY THE COMPANY AND ACCOUNTING PRINCIPLES GENERALLY ACCEPTED IN THE UNITED
       STATES OF AMERICA (U.S. GAAP)

       The Company's  consolidated  financial  statements  have been prepared in
accordance  with  generally  accepted  accounting  principles  in the Kingdom of
Thailand ("Thai GAAP"), which differs in certain respects from U.S. GAAP.

       The differences,  as they affect the financial statements,  are reflected
in the amounts  provided in Note 19 and arise due to the items  discussed in the
following paragraphs:

       Accounting for Income Taxes

       Under U.S. GAAP, SFAS No. 109,  Accounting for Income Taxes,  requires an
enterprise to record deferred tax assets or liabilities  based on the difference
between the financial  statement and income tax basis of assets and  liabilities
using the enacted tax rate. Deferred income tax expenses or credits are based on
the changes in the assets or  liabilities  from period to period.  Deferred  tax
assets are reduced by a valuation  allowance  if it is more likely than not that
some or all of the deferred tax assets will not be realized.

       Thai GAAP does not address the reporting or disclosure of deferred income
taxes.

       Reporting Comprehensive Income

       Under  Thai GAAP,  a company  is given the option to present a  statement
showing (i) all changes in equity;  or (ii)  changes in equity  other than those
arising from capital  transactions  with owners and  distributions  owners (i.e.
statement  of  comprehensive  income.)  The  Company  has chosen to present  all
changes in equity.

       Under U.S. GAAP, SFAS No. 130, Reporting  Comprehensive Income,  requires
an enterprise to display an amount representing total  comprehensive  income for
each period of operations presented in the financial  statements.  Comprehensive
income  comprises  of  net  income  and  other  comprehensive  income,  such  as
unrealized  gains  and  losses  on  securities,   foreign  currency  translation
adjustments  and  minimum  pension  liability   adjustments.   In  addition,  an
enterprise is required to classify items of other comprehensive  income by their
nature in a financial  statement  and display the  accumulated  balance of other
comprehensive  income  separately  from  retained  earnings and premium on share
capital  in  the  equity   section  of  a  statement  of   financial   position.
Reclassification  of  financial  statement  for  earlier  periods  provided  for
comparative purposes is also required.

19. RECONCILIATION BETWEEN NET INCOME AND SHAREHOLDERS' EQUITY UNDER THAI GAAP
    AND U.S. GAAP
<TABLE>
<CAPTION>

                                                                                        Baht
<S>                                                                                   <C>
       Net income according to financial statements prepared under
         Thai GAAP                                                                    142,453,967
       U.S. GAAP adjustments
       Increase (decrease) due to:
         Deferred tax accounting                                                       (1,276,823)
                                                                                     ------------
       Net income in accordance with U.S. GAAP                                        141,177,144
                                                                                      ===========


       Diluted Earnings Per Share                                                              24.09
       Weight average number of shares

         Diluted                                                                        5,859,721



                                      F-67
<PAGE>

       Shareholders' equity accounting to financial statements prepared
         Under Thai GAAP                                                              237,062,405
       U.S. GAAP adjustments
       Increase (decrease) due to:
         Loans to directors                                                           (30,955,155)
         Deferred tax accounting                                                       (8,821,423)
         Currency translation difference                                                 (524,843)
                                                                                    -------------
       Approximate shareholders' equity in accordance with U.S. GAAP                  196,760,984
                                                                                      ===========

       With regard to the balance sheet, the following significant captions
determined under U.S. GAAP would have been:

       Loans to employee                                                                2,000,000
                                                                                      ===========
       Other non-current assets - Deposits at banks used as collateral                 20,986,557
                                                                                       ==========
       Other liabilities                                                               38,196,830
                                                                                       ==========

       The following table presents comprehensive income for the year ended
December 31, 2001:

                                                                                        Baht
Net income (U.S. GAAP)                                                                141,177,144
Foreign currency translation adjustments                                               (7,759,733)
                                                                                     ------------
Comprehensive income                                                                  133,417,411
                                                                                      ===========
</TABLE>

20. ADDITIONAL FINANCIAL STATEMENT DISCLOSURES REQUIRED UNDER U.S. GAAP
<TABLE>
<CAPTION>

       20.1   Income Taxes

       The sources of income before the provision for income taxes for the year
       ended December 31, 2001 are as follows:

                                                                                  Baht
<S>                                                                            <C>
      Thailand                                                                 76,500,742
      Foreign                                                                  98,716,597
                                                                             ------------
      Income before provision for income taxes                                175,217,339
                                                                              ===========

      The provision for income taxes for the year ended December 31,
      2001 is summarized as follows:

                                                                                Baht
      Current
        Thailand                                                               12,003,128
        Foreign                                                                20,760,245
                                                                               ----------
      Total current                                                            32,763,373
                                                                               ----------

      Deferred
        Thailand                                                                        -
        Foreign                                                                 1,276,823
                                                                              -----------
      Total deferred                                                            1,276,823
                                                                              -----------

      Approximate provision for income taxes in accordance with U.S. GAAP      34,040,169
                                                                               ==========

</TABLE>
                                      F-68
<PAGE>




       As at December 31, 2001,  in providing  for  applicable  deferred  income
taxes under U.S. GAAP, the tax effect of significant  temporary differences that
give rise to deferred income tax assets and liabilities are listed below.
<TABLE>
<CAPTION>

                                                                                        Baht
<S>                                                                                        <C>
              Deferred income tax assets resulted from:
                Inventory basis differences                                                821,369
                Allowance for doubtful accounts                                            324,151
                Valuation allowance                                                     (1,145,520)
                                                                                        ----------
                  Total deferred income tax assets                                               -
                                                                                       -----------

              Deferred income tax liabilities resulted from:
                Property, plant and equipment basis differences                         9,346,266
                                                                                       ----------
                  Total deferred income tax liabilities                                 9,346,266
                                                                                       ----------
              Net deferred income tax liabilities                                       9,346,266
                                                                                       ==========
</TABLE>

       Deferred income taxes have not been provided on approximately  Baht 105.3
       million of undistributed earnings of foreign affiliated companies,  which
       are considered to be  permanently  reinvested.  It is not  practicable to
       estimate  the  amount  of tax  that  might  be  payable  on the  eventual
       remittance of such earnings.

20.2 Transactions with Related Parties

       A portion of the  Company's  assets,  revenues  and  expenses  arose from
       transactions   with  related   parties.   The   relationship  may  be  by
       shareholding  or the companies may have the same group of shareholders or
       directors.  The Company's  management  believes that the Company does not
       have  significant  influence over the related  parties.  The accompanying
       financial statements reflect the effects of these transactions determined
       on the basis of  commitments  and  conditions  as in the normal course of
       business.

       Significant balances and transactions are as follows:
<TABLE>
<CAPTION>

                                                                                            Balance at
                                                                                        December 31, 2001
                                                                  Relationship                 Baht
<S>                                                                <C>                           <C>
              Amounts due from related companies
                Foamex L.P.                                   Affiliated Company               2,502,334

              Amounts due to related companies
                Foamex L.P.                                   Affiliated Company              74,801,526

                                                                                        Balance for the
                                                                                        year ended
                                                                                        December 31, 2001
                                                                  Relationship                 Baht
              Reimbursement of expenses
                Foamex L.P.                                   Affiliated Company               2,587,980

              Purchases
                Foamex L.P.                                   Affiliated Company             176,363,932
</TABLE>

20.3 Estimated Fair Values of Financial Instruments

       The fair values have been estimated by the Company using available market
       information and appropriate valuation methodologies.

                                      F-69
<PAGE>

       As at December  31, 2001 the  carrying  amounts of  financial  assets and
       financial liabilities which were different from the estimated fair values
       were as follows:

                                              Carrying Value        Fair Value
                                                     Baht               Baht
       Loans to employee and directors            32,955,155         16,058,215
                                                ============       ============
       Loans from shareholders                   266,158,200        227,388,396
                                                 ===========        ===========

       The  following  methods  and  assumptions  were  used by the  Company  in
       estimating fair value of financial instruments as disclosed herein:

       Financial  assets - The fair values of  financial  assets for which their
       remaining  terms to  maturity  are  within 90 days are based on  carrying
       value.  For those with remaining  terms to maturity  greater than 90 days
       are  estimated  by using a  discounted  cash flow  analysis  based on the
       historical minimum leading rate of a commercial bank at December 31, 2001
       for the remaining years to maturity.

       Financial  liabilities  - The fair values of  financial  liabilities  for
       which  their  remaining  terms to  maturity  within  90 days are based on
       carrying value.  For those with remaining terms to maturity  greater than
       90 days are estimated by using a discounted  cash flow analysis  based on
       current for the remaining years to maturity.

21.    SUBSEQUENT EVENTS

21.1 New Credit Facility

       On May 16, 2002,  the Company  entered into a new credit  facility with a
       financial  institution.  The new credit facility ("New Credit  Facility")
       provides for  borrowings in the aggregate  amount of Baht 300 million and
       is composed of: (i) a Baht 150 million term loan and non-revolving letter
       of credit/trust  receipts  facility (the "Term Loan Facility") and (ii) a
       Baht 150 million  revolving  working  capital  facility  (the  "Revolving
       Facility"),  both maturing on August 30, 2007. The New Term Loan Facility
       is to be repaid in eight equal  semi-annual  installments  with the first
       repayment to be made in February 2004.

       The  interest  for the term loan  portion  of the Term Loan  Facility  is
       6.375%  per annum in  relation  to the first two years  after  August 30,
       2002, and then the higher of (i) financial  institution's minimum lending
       rate (MLR) minus 1.25%, and ii) another local  commercial  bank's minimum
       lending  rate (MLR) minus 0.5% per annum for the  remainder  of the loan.
       The  Company  shall pay a  commercial  letter of opening fee at a rate of
       1/12% per  quarter  and  interest  on the trust  receipts  at the rate of
       6.375% per annum. The interest for the Revolving Facility is at the money
       market rate on each relevant  maturity date.  Interest is due and payable
       every three-calendar months beginning on November 30, 2002.

       The Company is required to pay a commitment  fee at the rate of 0.25% per
       annum of the daily undrawn  balance of the Term Loan  calculated from the
       first  anniversary  date  of  the  agreement,  May  16,  2003,  up to and
       including  the last day of the  Availability  Period,  which  ends on the
       earlier of (i)  August 16,  2003 and (ii) the date on which the Term Loan
       Facility is fully drawn,  cancelled or terminated under the provisions of
       the agreement.

       The collateral  required for the New Credit Facility is the assignment of
       the land leasehold  right,  mortgage of the constructed  factory,  office
       building and  machinery,  pledge of  inventory  and  receivables  and the
       assignment of  construction  and  operational  insurance  proceeds to the
       financial  institution  as  beneficiary.  The Company is also required to
       meet various debt  covenants,  including  maintaining  certain  financial
       ratios.


                                      F-70
<PAGE>

21.2 Thailand Plant Fire

       On July 14, 2002, the Company's  fabrication  and  contamination  control
       specialty foam plant in Samutprakarn, Thailand was destroyed by fire. All
       the  Company's   inventory  and  most  of  the  machinery  and  equipment
       maintained in the factory were lost.  The carrying value of the inventory
       and the net book value of the  machinery and equipment at the date of the
       fire were Baht 84.0  million  and Baht 65.1  million,  respectively.  The
       Company filed a claim with their insurance  carrier for the inventory and
       machinery  and  equipment in the amount of Baht 70 million and Baht 107.8
       million,  respectively.  The Company recorded a loss in 2002 of Baht 14.0
       million for the underinsured inventory and an additional Baht 1.7 million
       for other fire related expenses.

       The Company  received an interim payment from their insurance  carrier in
       the amount of Baht 50 million on December 27, 2002 and an additional Baht
       50  million  on  February  7,  2003.  Full and  final  settlement  of the
       Company's  insurance  claim  is still  pending,  however,  the  Company's
       management believes a gain will ultimately be realized.



                                      F-71
<PAGE>
<TABLE>
<CAPTION>


                   FOAMEX ASIA COMPANY LIMITED AND SUBSIDIARY
                     CONSOLIDATED BALANCE SHEET (unaudited)
                             AS AT DECEMBER 31, 2000
                                      BAHT

<S>                                                                                             <C>
ASSETS
CURRENT ASSETS
   Cash in hand and at banks                                                                    95,945,823
   Accounts receivable - net                                                                   275,513,126
   Inventories - net                                                                           178,567,086
   Amounts due from subsidiary and related companies                                                     -
   Other current assets                                                                         16,769,394
                                                                                              ------------
     Total Current Assets                                                                      566,795,429
                                                                                               -----------

PLANT AND EQUIPMENT - NET                                                                      125,037,861

OTHER ASSETS                                                                                     1,936,348
                                                                                             -------------

TOTAL ASSETS                                                                                   693,769,638
                                                                                               ===========

LIABILITIES AND SHAREHOLDERS' EQUITY

CURRENT LIABILITIES
   Loans from bank                                                                              15,000,000
   Accounts payable                                                                            265,381,615
   Amounts due to subsidiary and related companies                                             252,073,707
   Accrued expenses                                                                             52,030,184
   Other current liabilities                                                                     5,271,340
                                                                                             -------------
     Total Current Liabilities                                                                 589,756,846
                                                                                               -----------

LOANS FROM SHAREHOLDERS                                                                         36,366,340

OTHER LIABILITIES                                                                               35,706,508
                                                                                              ------------

TOTAL LIABILITIES                                                                              661,829,694
                                                                                               ===========

SHAREHOLDERS' EQUITY
SHARE CAPITAL
   Registered share capital
     5,408,712 ordinary shares of Baht 10 each                                                  54,087,120
                                                                                               ===========
   Issuance and paid-up share capital
     5,408,712 ordinary shares of Baht 10 each, fully paid                                      54,087,120

PREMIUM TO SHARE CAPITAL                                                                                 -

CURRENCY TRANSLATION DIFFERENCES                                                                13,781,075

RETAINED EARNINGS (DEFICIT)
   Unappropriated (deficit)                                                                    (35,928,251)
                                                                                              ------------
   Total Shareholders' Equity                                                                   31,939,944
                                                                                              ------------

TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY                                                     693,769,638
                                                                                               ===========

Notes to the financial statements form an integral part of these statements

</TABLE>
                                      F-72
<PAGE>
<TABLE>
<CAPTION>


                   FOAMEX ASIA COMPANY LIMITED AND SUBSIDIARY
                  CONSOLIDATED STATEMENT OF INCOME (unaudited)
                      FOR THE YEAR ENDED DECEMBER 31, 2000
                                      BAHT

<S>                                                              <C>

REVENUES
   Sales                                                         945,993,433
   Other income                                                    4,590,118
                                                               -------------
     Total Revenues                                              950,583,551
                                                                 -----------

EXPENSES
   Cost of sales                                                 669,223,817
   Selling and administrative expenses                           207,568,554
   Loss on exchange rate                                          25,154,911
   Interest expense                                                7,529,054
   Income tax expense                                             10,756,152
                                                                ------------
     Total Expenses                                              920,242,488
                                                                 -----------

NET INCOME                                                        30,341,063
                                                                ============

BASIC EARNINGS PER SHARE                                                 5.61

WEIGHTED AVERAGE NUMBER OF ORDINARY SHARES                         5,408,712

Notes to the financial statements form an integral part of these statements
</TABLE>

                                      F-73
<PAGE>


                   FOAMEX ASIA COMPANY LIMITED AND SUBSIDIARY
           CONSOLIDATED STATEMENT OF SHAREHOLDERS' EQUITY (unaudited)
                      FOR THE YEAR ENDED DECEMBER 31, 2000
                                      BAHT


ISSUED AND PAID-UP SHARE CAPITAL
   Beginning balance                                                 54,087,120
   Addition                                                                   -
                                                                     ----------
   Ending balance                                                    54,087,120
                                                                     ----------

PREMIUM ON SHARE CAPITAL
   Beginning balance                                                          -
   Addition                                                                   -
                                                                     ----------
   Ending balance                                                             -
                                                                     ----------

RETAINED EARNINGS (DEFICIT)
   Unappropriated (Deficit)
     Beginning balance                                              (66,269,314)
     Addition                                                        30,341,063
                                                                     ----------
     Ending balance                                                 (35,928,251)
                                                                     ----------

CURRENCY TRANSLATION DIFFERENCES
   Beginning balance                                                  2,884,574
   Addition during the year                                          10,896,501
                                                                     ----------
   Ending balance                                                    13,781,075
                                                                     ----------

TOTAL SHAREHOLDERS' EQUITY                                           31,939,944
                                                                     ==========

Notes to the financial statements form an integral part of these statements

                                      F-74
<PAGE>
<TABLE>
<CAPTION>


                   FOAMEX ASIA COMPANY LIMITED AND SUBSIDIARY
                CONSOLIDATED STATEMENT OF CASH FLOWS (unaudited)
                      FOR THE YEAR ENDED DECEMBER 31, 2000
                                      BAHT
<S>                                                                                             <C>

CASH FLOWS FROM OPERATING ACTIVITIES
Net income                                                                                      30,341,063
Reconciliation of net income to net cash from operating activities
   Depreciation and amortization                                                                18,167,983
   Allowance for doubtful accounts                                                               3,475,811
   Provision for obsolete stock                                                                  5,994,558
   Unrealized loss on exchange rate - net                                                       25,583,498
   Loss on disposal of plant and equipment                                                         480,267
                                                                                            --------------
Operating income before change in operating assets and liabilities                              84,043,180

Operating assets (increase) decrease
   Accounts receivable                                                                         (95,625,024)
   Inventories                                                                                 (73,930,114)
   Other current assets                                                                        (10,484,432)
   Amounts due from subsidiary and related companies                                                10,414
   Other assets                                                                                   (247,793)

Operating liabilities increase (decrease)
   Accounts payable                                                                             25,904,166
   Amounts due to subsidiary and related companies                                              57,343,449
   Accrued expenses                                                                             29,683,139
   Other current liabilities                                                                     4,813,207
                                                                                              ------------

     Net cash provided by operating activities                                                  21,510,192
                                                                                               -----------

CASH FLOWS FROM INVESTING ACTIVITIES
   Purchases of plant and equipment                                                            (45,282,189)
   Proceeds from disposal of plant and equipment                                                   115,125
   (Increase) decrease in deposits at bank used as collateral                                   (4,393,909)
   Increase in loan to subsidiary                                                                        -
   Increase in loans to employee and directors                                                           -
                                                                                              ------------

     Net cash provided by investing activities                                                 (49,560,973)
                                                                                               -----------

CASH FLOWS FROM FINANCING ACTIVITIES
   Increase in long term accounts payable                                                       35,439,262
                                                                                               -----------

     Net cash provided by financing activities                                                  35,439,262
                                                                                               -----------

NET EFFECT OF CURRENCY TRANSLATION
DIFFERENCES IN CASH AND CASH EQUIVALENTS                                                        10,815,307
                                                                                               -----------

Net increase in cash and cash equivalents                                                       18,203,788
Cash and cash equivalents at January 1,                                                         72,037,726
                                                                                               -----------
Cash and cash equivalents at December 31,                                                       90,241,514
                                                                                               ===========

Notes to the financial statements form an integral part of these statements

</TABLE>
                                      F-75
<PAGE>


FOAMEX ASIA COMPANY LIMITED AND SUBSIDIARY
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (unaudited)
FOR THE YEAR ENDED DECEMBER 31, 2000

1.   ECONOMIC TURMOIL IN THE ASIA-PACIFIC REGION

       Thailand and many  Asia-Pacific  countries  continue to experience severe
economic difficulties since 1997. The accompanying  financial statements reflect
management's   current  assessment  of  the  possible  impact  of  the  economic
conditions on the financial position of the Company.

2.  COMPANY'S OPERATIONS AND BASIS FOR PREPARATION OF THE CONSOLIDATED FINANCIAL
    STATEMENTS

       Foamex Asia Company  Limited was registered in the Kingdom of Thailand on
June 5, 1997 with its head office located at 175 Sathorn City Tower, 20th Floor,
South Sathorn Road,  Sathorn,  Bangkok 10120.  The Company's plant is located at
51/2 Bangna-trad Road KM22,  Samutprakarn 10540 (see Note 21.2). The Company and
its Subsidiary are members of Foamex  International,  Inc. and Hau Kee Group and
the Company's  principal  objective is to fabricate  technical  foam,  films and
adhesives.

       As at December  31, 2000,  the Company had a total of 395 staff  persons.
The staff costs for the year ended December 31, 2000 were Baht 152 million.

     2.1  The Company prepares its statutory financial  statements in conformity
          with accounting and practices generally accepted in Thailand.

     2.2  The consolidated  financial  statements include the accounts of Foamex
          Asia, LLC, the Company's  branch  incorporated in the United States of
          America, and Foamtec (Singapore) Pte. Ltd., a subsidiary  incorporated
          in the  Republic of  Singapore.  The  Company has direct and  indirect
          ownership percentages as follows:


       Subsidiary                                           % of Shareholding
         Directly owned:
           Foamtec (Singapore) Pte. Ltd.                              99.9%

         Indirectly owned:
           Foamex (Malaysia) Sdn. Bhd.                                99.9%

       The  major  intercompany   transactions   between  the  Company  and  its
Subsidiary  included  in  the  consolidated   financial   statements  have  been
eliminated.

       The financial  statements  of Foamex Asia,  LLC which are included in the
Company's  financial   statements  have  been  prepared  in  U.S.  Dollars.  For
consolidation  purposes,  these  financial  statements have been translated into
Thai Baht as follows:

     a.   All monetary items are translated  using the closing rate announced by
          the Bank of Thailand as at the balance sheet date.

     b.   All non-monetary items, which are carried in terms of historical cost,
          are translated using the rate announced by the Bank of Thailand of the
          transaction date.

       Net exchange  gain or loss from  translation  is recognized as income and
expense in the statement of income.


                                      F-76
<PAGE>

       The  financial  statements  of  Foamtec  (Singapore)  Pte.  Ltd.  and its
subsidiary have been prepared in Singapore dollars. For consolidation  purposes,
these financial statements have been translated into Thai Baht as follows:

     a.   All assets and  liabilities  using the rates  announced by the Bank of
          Thailand at the balance sheet date.

     b.   Revenues and expenses using the average exchange rates for the year as
          announced by the Bank of Thailand.

       Net  exchange  gain or loss from  translation  is  presented as "Currency
Translation Differences" under "Shareholders' Equity" in the balance sheet.

3.     SIGNIFICANT ACCOUNTING POLICIES

     3.1  Cash and cash equivalents

          Cash and cash equivalents  consist of cash in hand,  deposits at banks
          and financial  institutions  with  original  maturities of 3 months or
          less.

     3.2  Allowance for doubtful accounts

          An allowance for doubtful  accounts of the Company and its  subsidiary
          is provided at the estimated  collection losses on receivables,  based
          on the Company's  collection  experience together with a review of the
          current financial position of each existing receivable.

     3.3  Inventories

          Inventories  are valued at the lower of cost or net realizable  value.
          Cost is determined as follows:
<TABLE>
<CAPTION>

<S>                                                <C>
                  Finished goods                     at  standard  cost  which  approximates actual cost or net realizable value,
                                                     whichever is lower
                  Work in process                    at standard cost which approximates actual cost
                  Raw materials                      weighted average cost basis
</TABLE>

          Inventories  of  subsidiaries  are  stated at the lower of cost or net
          realizable value. Cost is calculated on the first-in first-out basis.

     3.4  Plant and equipment

          Plant and equipment are stated at cost less accumulated depreciation.

          Depreciation is calculated by the straight-line  method,  based on the
          estimated useful lives of the assets as follows:

                  Leasehold improvements                            5-10 years
                  Machinery and equipment                           3-10 years
                  Vehicles                                             5 years
                  Furniture and office equipment                    3-10 years

     3.5  Impairment of assets

          The Company  reviews the impairment of assets for plant and equipment,
          investment in subsidiary  and other assets  whenever  events  indicate
          that the carrying value of an asset exceeds its recoverable amount. In
          case  that the  carrying  value of an asset  exceeds  its  recoverable
          amount,  the Company recognizes the impairment losses in the statement
          of income.


                                      F-77
<PAGE>

     3.6  Foreign currency transactions

          Transactions  denominated in foreign  currencies  incurred  during the
          year  are  translated  into  Baht  at the  rates  of  exchange  at the
          transaction  dates.  At the  end  of the  year,  monetary  assets  and
          liabilities denominated in foreign currencies are translated into Baht
          at the  reference  rates as determined by the Bank of Thailand at that
          date.  Gains and losses on foreign exchange arising on settlements and
          translation are recognized as income or expense when incurred.

     3.7  Recognition of revenues

          Sales are recognized  upon delivery of goods to the  customers.  Other
          income is recognized on the accrual basis of accounting.

     3.8  Income tax

          Income tax expense is  calculated  from  taxable  income and  recorded
          based on tax paid and accrued for the year.

          The consolidated  financial  statements included the audited financial
          statements of a subsidiary.  Such subsidiary records its income tax by
          the deferred income tax method, which is different from the accounting
          method  used by the  Company.  The  Company,  therefore,  adjusts  the
          accounting  for income tax of such  subsidiary to be the same with the
          Company's accounting method.

     3.9  Basic earnings per share

          Basic  earnings per share are calculated by dividing net income by the
          weighted  average  number of ordinary  shares  outstanding  during the
          year. In case of a capital increase,  the number of shares is weighted
          according to time of registration of such increase.

     3.10 Use of accounting estimates

          Preparation  of financial  statements  in  conformity  with  generally
          accepted  accounting  principles requires management to make estimates
          and  assumptions   that  affect  the  reported  amounts  of  revenues,
          expenses,  assets and liabilities and disclosure of contingent  assets
          and liabilities. Actual results may differ from those estimates.

4.   SUPPLEMENTAL DISCLOSURES OF CASH FLOWS INFORMATION

     4.1  Cash paid for interest and income tax are as follows:
<TABLE>
<CAPTION>

                                                                                        Baht
<S>                                                                                     <C>
                    Interest                                                            1,598,998
                                                                                        =========
                    Income tax                                                             12,868
                                                                                      ===========

     4.2  Cash and cash equivalents consist of the following:

                                                                                        Baht
                    Cash on hand and in banks                                          95,945,823
                    Less  Deposit at banks used as collateral                          (5,704,309)
                    ----                                                              -----------
                    Cash and cash equivalents                                          90,241,514
                                                                                       ==========
</TABLE>


                                      F-78
<PAGE>



5.   CASH IN HAND AND AT BANKS

       As at  December  31,  2000 cash at banks of Baht 2  million,  are used as
collateral for a bank guarantee.  In addition, cash at bank of subsidiary of SGD
759,359 is used as collateral for short-term loan from bank.

       As at  December  31,  2000,  cash at bank of Baht 3.7  million is used to
guarantee letters of credit.

6.   ACCOUNTS RECEIVABLE - NET

       Accounts receivable - net consist of the following:
<TABLE>
<CAPTION>

                                                                                        Baht
<S>                                                                                   <C>
              Accounts receivable                                                     277,136,012
              Less  Allowance for doubtful accounts                                    (1,622,886)
              ----                                                                  -------------
                                                                                      275,513,126
                                                                                    =============

7.   INVENTORIES - NET

              Inventories - net consist of the following:

                                                                                        Baht
                Finished goods                                                         47,204,194
                Work in process                                                         8,189,470
                Raw materials                                                          94,200,747
                Goods in transit                                                       35,000,983
                                                                                     ------------
                                                                                      184,595,394
                Less  Provision for obsolete stock                                     (6,028,308)
                ----                                                                 ------------
                                                                                      178,567,086
                                                                                    =============
</TABLE>
<TABLE>
<CAPTION>

8.   PLANT AND EQUIPMENT - NET

     Plant and equipment - net consist of the following (in thousands Baht) :

                               Balance as at                                          Currency      Balance as at
                               January 1,                                             translation   December 31,
                                      2000     Additions    Disposals    Transfers    difference           2000
                                      Baht         Baht         Baht         Baht          Baht            Baht
       Cost:
<S>                                  <C>          <C>                                       <C>         <C>
         Leasehold improvement       9,240        3,849             -            -          437         13,526
         Machinery and equipment    88,123       25,800           627            -        5,401        118,697
         Vehicles                   11,524        1,808             -            -          177         13,509
         Furniture and office
           equipment                10,063        9,926           134            -        1,067         20,922
       Construction in progress and
           machinery in transit        435        3,899             -            -            -          4,334
                                ----------      -------        ------     --------    ---------      ---------
                                   119,385       45,282           761            -        7,082        170,988
                                   -------       ------           ---     --------        -----        -------

       Accumulated depreciation:
         Leasehold improvement       2,978        1,875             -            -          116          4,969
         Machinery and equipment    16,072       10,052           144            -        1,197         27,177
         Vehicles                    5,057        2,580             -            -           76          7,713
         Furniture and office
           equipment                 3,238        2,554            22            -          321          6,091
                                 ---------     --------          ----     --------       ------      ---------
                                    27,345       17,061           166            -        1,710         45,950
                                  --------      -------           ---     --------        -----       --------

       Plant and equipment - net    92,040       28,221           595            -        5,372        125,038
                                  ========       ======           ===     ========        =====        =======
</TABLE>
                                      F-79

<PAGE>

9.     OTHER ASSETS

       Other assets consist of the following:

                                                                      Baht
       Technical license - net                                        1,217,938
       Deposits                                                         718,410
                                                                     ----------
                                                                      1,936,348
10.    LOANS FROM BANKS

       Loans from banks consist of the following:

                                                                      Baht
              Loans from banks                                       15,000,000
                                                                     ----------
                                                                     15,000,000

       As at December 31, 2000, short-term Thai Baht denominated loan from banks
of  Baht 15  million,  carried  interest  at a rate  of MLR  per  annum  and was
repayable within one year from the balance sheet date.

11.  LOANS FROM SHAREHOLDERS

     Loans from shareholders consist of the following:

                                                                     Baht
       Loans from shareholders                                      36,366,340
                                                                    ----------
                                                                    36,366,340

       As at December 31, 2000, loans from  shareholders  represented  unsecured
Thai Baht loans and carried fixed interest at 10% per annum.  The loans were due
within 36 months.

12.  OTHER LIABILITIES

       On April 26, 2000, the Company  entered into an Asset Purchase  Agreement
("Agreement")  with Wilshire  Technologies,  Inc.  ("Wilshire") to acquire their
contamination control division,  which later became the Company's branch. As per
the agreement,  the Company is required to make  quarterly  payments to Wilshire
equal to a percentage of sales on applicable contamination control products sold
by the Company  until June 30, 2003 or the total of all payments  made equal US$
2.5 million, whichever occurs first.

13.  COMMITMENTS AND CONTINGENCIES


     13.1 The  Company  has  contingent  liabilities  to banks  for  letters  of
          guarantee of Baht 2 million at December 31, 2000 (Note 6).

     13.2 The Company has  commitments  to banks for unused letters of credit of
          Baht 3.7 million at December 31, 2000 (Note 6).

14.  INVESTMENT PROMOTION PRIVILEGES

       In 1998-2000,  the Company was granted certain rights and privileges (No.
1377/2541  (1998),  6453/2541 (1998),  4650/2543 (2000),  5026/2543 (2000) and ,
5153/2543 (2000)) as a promoted  industry under the Investment  Promotion Act of
B.E. 2520 (1977),  which  included  exemption  from customs duties for machinery
imported for production as approved by the Board of Investment  until August 14,
2002 and exemption from custom duties for raw materials until May 19, 2002.




                                      F-80
<PAGE>

       The  Company  has to comply  with  certain  conditions  contained  in the
investment  promotion  certificate  including  the  size of its  operations  and
amounts of investments and annual export sales volume.



                                      F-81

<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>

<TABLE>
<CAPTION>

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

                                                                             December 29,         December 31,
                                                                                 2002                 2001
                                                                            -------------------  -------------------
<S>                                                                             <C>              <C>
ASSETS                                                                        (thousands, except share data)
CURRENT ASSETS
    Cash and cash equivalents                                                   $   158          $         2
    Intercompany receivables                                                      1,093                  716
    Deferred taxes                                                                1,040                  375
    Other current assets                                                              -                1,086
                                                                         --------------           ----------
            Total current assets                                                  2,291                2,179

DEFERRED INCOME TAXES                                                           133,099                    -

OTHER ASSETS                                                                          -                    1
                                                                         --------------           ----------

TOTAL ASSETS                                                                   $135,390             $  2,180
                                                                               ========             ========

LIABILITIES AND STOCKHOLDERS' DEFICIENCY
CURRENT LIABILITIES
    Accounts payable                                                      $           6           $       96
    Other accrued liabilities                                                     3,170                  369
                                                                         --------------           ----------
      Total current liabilities                                                   3,176                  465

LONG-TERM LIABILITIES
    Notes payable to consolidated subsidiary                                          -                2,490
    Deficit in consolidated subsidiaries                                        305,941              176,023
    Deferred income taxes                                                        16,006                2,629
    Other liabilities                                                                 -                1,319
                                                                         --------------           ----------
      Total liabilities                                                         325,123              182,926
                                                                         --------------           ----------

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 2002 and 2001                               15                 15
    Common Stock, par value $.01 per share:
      Authorized 50,000,000 shares
      Issued 27,839,658 shares in 2002 and 27,260,441 shares in 2001;
      Outstanding 24,350,658 shares in 2002 and 23,771,441 shares in 2001           278                  273
    Additional paid-in capital                                                  101,972               97,668
    Accumulated deficit                                                        (216,243)            (206,544)
    Accumulated other comprehensive loss                                        (38,754)             (35,157)
    Other:
      Common Stock held in treasury, at cost:
        3,489,000 shares in 2002 and 2001                                       (27,780)             (27,780)
      Shareholder note receivable                                                (9,221)              (9,221)
                                                                         --------------           ----------

    Total stockholders' deficit                                                (189,733)            (180,746)
                                                                         --------------           ----------

      TOTAL LIABILITIES AND STOCKHOLDERS' DEFICIENCY                           $135,390            $   2,180
                                                                         ==============            =========

</TABLE>

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

                                      S-2
<PAGE>
<TABLE>
<CAPTION>


                                                                                                         Schedule I

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


                                                                  2002              2001             2000
                                                              -----------       ------------     ------------
<S>                                                             <C>             <C>            <C>
                                                              (amounts in thousands except per share amounts)
SELLING, GENERAL AND
    ADMINISTRATIVE EXPENSES                                     $  418          $ 1,254        $      961
                                                              --------          -------        ----------

LOSS FROM OPERATIONS                                              (418)          (1,254)             (961)

EQUITY IN EARNINGS (LOSS) OF
    CONSOLIDATED SUBSIDIARIES                                  (24,413)          (2,261)           19,652

INTEREST EXPENSE                                                    33              343               444

OTHER EXPENSE                                                        -                -            (1,047)
                                                           -----------      -----------         ---------

INCOME (LOSS) BEFORE PROVISION
    (BENEFIT) FOR INCOME TAXES                                 (24,864)          (3,858)           17,200

PROVISION (BENEFIT) FOR
    INCOME TAXES                                               (87,605)           1,754               187
                                                               -------         --------        ----------

INCOME (LOSS) BEFORE EXTRAORDINARY ITEMS
    AND CUMULATIVE EFFECT OF ACCOUNTING                         62,741           (5,612)           17,013

EXTRAORDINARY ITEMS                                             (1,793)               -                 -

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

NET INCOME (LOSS)                                              $(9,699)         $(5,612)          $17,013
                                                               =======          =======           =======

EARNINGS PER SHARE - BASIC

   INCOME (LOSS) BEFORE EXTRAORDINARY ITEMS AND
     CUMULATIVE EFFECT OF ACCOUNTING CHANGES                 $   2.58      $      (0.24)       $    0.69
   EXTRAORDINARY ITEMS, NET OF INCOME TAXES                     (0.07)               -                 -
   CUMULATIVE EFFECT OF ACCOUNTING CHANGES                      (2.91)               -                 -
                                                           -----------      -----------         ---------
   NET INCOME (LOSS)                                         $  (0.40)     $      (0.24)       $    0.69
                                                             ========      ============        =========

EARNINGS PER SHARE - DILUTED
   INCOME (LOSS) BEFORE EXTRAORDINARY ITEMS AND
     CUMULATIVE EFFECT OF ACCOUNTING CHANGES                 $   2.39       $     (0.24)       $    0.67
   EXTRAORDINARY ITEMS, NET OF INCOME TAXES                     (0.07)              -                  -
   CUMULATIVE EFFECT OF ACCOUNTING CHANGES                      (2.69)              -                  -
                                                                -----               -                  -
   NET INCOME (LOSS)                                          $ (0.37)      $     (0.24)       $    0.67
                                                              =======       ===========        =========

Extraordinary items and cumulative effect of accounting changes include equity
in subsidiaries of $(2.8) million and $(72.0) million, respectively.

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

                                      S-3
<PAGE>
<TABLE>
<CAPTION>


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

                                                                  2002               2001              2000
                                                              ------------       ------------      ------------
<S>                                                           <C>                  <C>                <C>
OPERATING ACTIVITIES                                                             (thousands)
    Net income (loss)                                         $ (9,699)            $(5,612)           $17,013
    Adjustments to reconcile net income (loss) to
      net cash used for operating activities:
      Deferred income taxes                                    (90,681)                567                665
      Equity in (earnings) losses of consolidated subsidiaries  24,413               2,261            (19,652)
      Extraordinary items                                        1,793                   -                  -
      Cumulative effect of accounting change                    70,647                   -                  -
      Other                                                        219                 319                 88
    Changes in operating assets and liabilities:
      Intercompany receivables                                    (377)               (408)                74
      Accounts payable                                             (90)                 46                 10
      Other assets and liabilities                               2,968                 536                (34)
                                                              --------          ----------          ---------
         Net cash used for operating activities                   (807)             (2,291)            (1,836)
                                                              --------           ---------            -------

INVESTING ACTIVITIES
    Distribution from (to) subsidiaries                           (105)              3,861                  -
    Other                                                            -                   -                  -
                                                           -----------        ------------         ----------
    Net cash provided by (used for) investing activities          (105)              3,861                  -
                                                              --------            --------         ----------

FINANCING ACTIVITIES
    Proceeds from (repayments of) note payable to consolidated
      subsidiary                                                (2,490)             (2,500)             1,814
    Proceeds from exercise of stock options                      3,494                 917                 24
    Increase in cash overdraft                                      64                   -                  -
                                                              --------          ----------         ----------
         Net cash  provided by (used for) financing activities   1,068              (1,583)             1,838
                                                               -------            --------            -------

NET INCREASE (DECREASE) IN CASH AND
    CASH EQUIVALENTS                                               156                 (13)                 2

CASH AND CASH EQUIVALENTS AT
    BEGINNING OF PERIOD                                              2                  15                 13
                                                             ---------         -----------          ---------

CASH AND CASH EQUIVALENTS AT
    END OF PERIOD                                               $  158         $         2           $     15
                                                                ======         ===========           ========

</TABLE>



Note:During  2001,  the  Company  received  a  special   distribution  from  its
     subsidiaries of $3.7 million.  The proceeds were used to repay the note and
     interest payable to Foamex L.P.


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


                                      S-4
<PAGE>
<TABLE>
<CAPTION>


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

                                             Balance at      Charged to    Charged to                     Balance at
                                            Beginning of     Costs and          Other                       End of
                                                 Period       Expenses       Accounts     Deductions         Period
                                                 ------       --------       --------     ----------         ------
<S>                                           <C>              <C>       <C>                <C>             <C>
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
                                              ========     ===========      ========        ========        ========


YEAR ENDED DECEMBER 31, 2001
Allowance for Uncollectible Accounts          $  7,693         $ 5,479    $       88        $  4,540        $  8,720
                                              ========         =======    ==========        ========        ========

Reserve for Discounts                         $  2,233     $         -       $15,198 (1)    $ 15,211        $  2,220
                                              ========     ===========       ========       ========        ========


YEAR ENDED DECEMBER 31, 2000
Allowance for Uncollectible Accounts          $  7,474         $ 2,838  $          -        $  2,619        $  7,693
                                              ========         =======  ============        ========        ========

Reserve for Discounts                         $  2,075     $         -       $15,823 (1)     $15,665        $  2,233
                                              ========     ===========       =======         =======        ========


(1) Adjustments reflect a reduction in net sales.

</TABLE>



                                      S-5