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 (Fee Required)

                   For the fiscal year ended December 28, 1997

                                       OR

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

                         Commission file number: 0-22624

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

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

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

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

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

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

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

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

     The aggregate market value of the voting stock held by nonaffiliates of the
registrant as of April 6, 1998 was $228,650,566.

     The number of shares  outstanding  of the  registrant's  common stock as of
April 6, 1998 was 25,003,475.

                       DOCUMENTS INCORPORATED BY REFERENCE

     The  information  required by Part III of this Form 10-K shall be contained
in an amendment to this Form 10-K to be filed by April 27, 1998.
<PAGE>
                            FOAMEX INTERNATIONAL INC.

                                      INDEX

                                                                            Page
Part I
         Item  1.     Business                                               3
         Item  2.     Properties                                            11
         Item  3.     Legal Proceedings                                     11
         Item  4.     Submission of Matters to a Vote                       14
                            of Security Holders

Part II
         Item  5.     Market for Registrant's Common Equity and             14
                            Related Stockholder Matters
         Item  6.     Selected Consolidated Financial Data                  15
         Item  7.     Management's Discussion and Analysis                  17
                            of Financial Condition and Results
                            of Operations
         Item  8.     Financial Statements and Supplementary Data           25
         Item  9.     Changes in and Disagreements with Accountants         25
                            on Accounting and Financial Disclosure

Part III
         Item 10.     Directors and Executive Officers of the Registrant    25
         Item 11.     Executive Compensation                                25
         Item 12.     Security Ownership of Certain Beneficial Owners       25
                            and Management
         Item 13.     Certain Relationships and Related Transactions        25

Part IV
         Item 14.     Exhibits, Financial Statement Schedules               26
                            and Reports on Form 8-K

         Signatures                                                         32


          The  Registrant  will  furnish a copy of any exhibit to this 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. (the  "Company") is a holding  company which is
engaged  primarily in the business of  manufacturing  and  distributing  quality
flexible  polyurethane  foam and advanced polymer foam products.  As of April 6,
1998,  the  Company's   operations  are  conducted   through  its   wholly-owned
subsidiaries, Foamex L.P. and Foamex Carpet Cushion, Inc. ("Foamex Carpet"). The
Company was incorporated in 1993 and is the successor of Foamex L.P.

     On March 16,  1998,  the  Company  announced  that its  Board of  Directors
received an unsolicited buyout proposal from Trace International  Holdings, Inc.
("Trace Holdings"), the Company's principal stockholder. Trace Holdings proposed
to acquire all of the  outstanding  common  stock of the  Company not  currently
owned by Trace  Holdings  and its  subsidiaries  for a cash  price of $17.00 per
share.  Also, Trace Holdings  informed the Board of Directors that financing for
the buyout  transaction would be arranged through  Donaldson,  Lufkin & Jenrette
Securities Corporation and The Bank of Nova Scotia/Scotia Capital Markets. As of
March  16,  1998,  Trace  Holdings  and  its  subsidiaries   beneficially  owned
approximately  11,475,000 shares or approximately 46% of the outstanding  common
stock of the Company.  In response to Trace Holding's offer, the Company's Board
of Directors has appointed a special committee to determine the advisability and
fairness of the proposed buyout to the Company's  stockholders  other than Trace
Holdings and its subsidiaries.  Trace Holding's  proposed buyout is subject to a
number of conditions,  including the negotiations of definitive documents (which
are  expected  to  contain  customary  closing  conditions);  the  filing  of  a
disclosure  statement  and other  documents  with the  Securities  and  Exchange
Commission; regulatory filings; and approval of the transaction by a majority of
the Company's stockholders.

     On February 27, 1998, the Company and certain of its affiliates completed a
series of  transactions  designed to simplify  the  Company's  structure  and to
provide  future  operational  flexibility.  Prior to the  consummation  of these
transactions, the Company defeased the $4.5 million outstanding principal amount
of  its  9  1/2%  senior  secured  notes  due  2000.  Foamex  L.P.  settled  its
intercompany  payables to General Felt  Industries,  Inc.  ("General Felt") with
$4.8  million  in cash and a $34.0  million  principal  amount  promissory  note
supported  by a $34.5  million  letter of credit  under the Foamex  L.P.  credit
facility  (the  "Foamex/GFI  Note").  The  initial  transaction  resulted in the
transfer  from Foamex L.P.  to Trace Foam LLC of all of the  outstanding  common
stock of General Felt,  in exchange for (i) the  assumption by Trace Foam LLC of
$129.0 million of Foamex L.P.'s indebtedness and (ii) the transfer by Trace Foam
LLC to Foamex L.P. of a 1% non-managing  general partnership  interest in Foamex
L.P. As a result,  General Felt ceased being a subsidiary of Foamex L.P. and was
relieved from all  obligations  under Foamex  L.P.'s 9 7/8% senior  subordinated
notes due 2007 and 13 1/2% senior subordinated notes due 2005. Upon consummation
of  the  initial  transaction,   Foamex  Carpet,  a  newly  formed  wholly-owned
subsidiary of the Company, the Company, Trace Foam LLC, and General Felt entered
into an Asset Purchase  Agreement dated February 27, 1998, in which General Felt
sold  substantially  all of its assets (other than the  Foamex/GFI  Note and its
operating facility in Pico Rivera,  California) to Foamex Carpet in exchange for
(i) $20.0 million in cash and (ii) a promissory  note issued by Foamex Carpet to
Trace Foam LLC in the amount of $70.2  million.  The $20.0  million cash payment
was  funded  with a  distribution  by Foamex  L.P.  Upon  consummation  of these
transactions contemplated by the Asset Purchase Agreement, Foamex Carpet entered
into a credit agreement with these institutions from time to time party thereto,
as issuing  banks,  and  Citicorp  USA,  Inc.  and The Bank of Nova  Scotia,  as
administrative  agents,  which  provides  for up to $20.0  million in  revolving
credit borrowings.  These transactions were accounted for in a manner similar to
a pooling of interests  since the entities  were under  common  control.  Foamex
Carpet will conduct the carpet cushion business previously  conducted by General
Felt.  Also,  Trace Foam LLC has  retained  ownership  of one of General  Felt's
operating  facilities  which is being  leased  to  Foamex  Carpet  and the $34.0
million Foamex/GFI Note.

                                       3
<PAGE>

     On December 23, 1997, the Company acquired Crain Industries, Inc. ("Crain")
pursuant to a merger agreement with Crain Holdings Corp. for a purchase price of
approximately $213.7 million, including the assumption of debt with a face value
of  approximately  $98.6 million (and an estimated  fair value of  approximately
$112.3  million)  (the "Crain  Acquisition").  In  addition,  fees and  expenses
associated with the Crain Acquisition are approximately $13.2 million. The Crain
Acquisition provided a fully integrated manufacturer, fabricator and distributor
of a broad range of flexible  polyurethane foam and foam products which are sold
to a diverse  customer base,  principally  in the furniture,  bedding and carpet
cushion markets. In connection with the Crain Acquisition,  the Company approved
a  restructuring/consolidation  plan for the two entities.  The Company recorded
restructuring  charges of $21.1 million relating to restructuring  the Company's
operations in connection with the Crain Acquisition and related transactions. In
addition,  the Company  recorded  approximately  $1.5 million of  severance  and
related  costs  and $8.5  million  for costs  associated  with the shut down and
consolidation of certain acquired facilities.

     On October 6, 1997,  the Company  sold its  needlepunch  carpeting,  tufted
carpeting and artificial grass products business,  located in Dalton, Georgia to
Bretlin,  Inc.,  a  subsidiary  of The Dixie  Group,  Inc.  The sales  price was
approximately  $41.0  million,  net  of  post-closing   adjustments  which  were
finalized  in December  1997.  The Company  used the net proceeds of the sale to
reduce  borrowings under the Foamex L.P. credit facility by approximately  $38.8
million.

     On June 12, 1997, the Company  substantially  completed a refinancing  plan
(the "Refinancing  Plan") designed to reduce the Company's  interest expense and
increase its financing flexibility. The Refinancing Plan included a tender offer
to purchase  $489.7  million of the Company's  public debt,  the payment of $5.2
million of Foamex L.P.'s term loan borrowings  under an existing credit facility
and the payment of related  fees and  expenses.  In  addition,  the tender offer
included  amending the existing  indentures to remove  substantially  all of the
restrictive covenants. The Company purchased $459.0 million of public debt under
the tender offer and incurred an extraordinary loss on the early  extinguishment
of debt of  approximately  $42.0  million  (net of income  tax  benefit of $25.7
million).  The Refinancing Plan was funded by $347.0 million of borrowings under
a new credit  facility  (the "Credit  Facility")  and the net proceeds  from the
issuance of $150.0 million principal amount of senior  subordinated  notes. As a
result of the Refinancing  Plan, the Company's total long-term debt increased by
$63.9 million.  The Company expects the Refinancing  Plan to result in decreased
interest  expense as compared  to the debt  structure  prior to the  Refinancing
Plan,  assuming no material  changes in interest  rates.  The  Company's  future
interest expense will vary based on a variety of factors, including fluctuations
in interest rates in general. As a result of the Refinancing Plan, variable rate
debt comprised a larger percentage of the Company's overall indebtedness than in
the past,  and as a result,  future  fluctuations  in interest rates will have a
greater impact on the Company's interest expense than in the past.

     On October 1, 1997, the Company redeemed approximately $26.2 million of the
approximately  $30.7 million of the Company's  outstanding  public debt that was
not tendered as part of the Refinancing Plan. These redemptions were funded with
borrowings under the Credit Facility. In connection with these redemptions,  the
Company incurred an extraordinary  loss on the early  extinguishment  of debt of
approximately  $1.3 million (net of income  taxes).  The  remaining  outstanding
public debt of  approximately  $4.5 million that was not tendered as part of the
Refinancing Plan was defeased in February 1998.

     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 the  Company  which
are  identified  as  forward-looking,  the Company  notes 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 raw  material  price
increases,  general  economic  conditions,  the level of automotive  production,
carpet  cushion  production  and  housing  starts,  the  implementation  of  the
restructuring/consolidation  plan and changes in  environmental  legislation and
environmental  conditions.  The  forward-looking  statements  contained  in this
Annual Report on Form 10-K were 

                                       4
<PAGE>

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  the  control  of the  Company.  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,  the business
and  operations of the Company 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 the  Company  or any other  person  that 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.

     The principal executive offices of the Company are located at 1000 Columbia
Avenue, Linwood, Pennsylvania 19061 and its telephone number is (610) 859-3000.

     References in this Annual Report on Form 10-K to the "Company"  mean Foamex
International Inc. and, where relevant, its subsidiaries.


                                       5

<PAGE>

Flexible Polyurethane Foam Products

     The  Company  is  a  manufacturer   and  distributor  of  quality  flexible
polyurethane  foam and advanced  polymer foam  products  designed to satisfy the
specific  needs of  customers.  The  Company's  manufacturing  and  distribution
facilities enable it to source production  efficiently and meet the needs of its
customers  throughout  North  America.  Such  facilities  are also important for
satisfying all of the foam requirements of large national  customers in a timely
and cost effective manner.

     The Company  operates in the foam products  business segment with net sales
being  derived from six major product  categories:  carpet  cushion,  cushioning
foams,  furniture foams,  automotive foams,  consumer products and specialty and
technical foams. The Company added the consumer  products category in connection
with the December 23, 1997 Crain Acquisition,  therefore,  historical operations
will not include the consumer  products  category.  Management's  Discussion and
Analysis of Financial  Condition and Results of Operations provides net sales by
product category for the past three fiscal years.

     The introduction of new products and new applications for existing products
is an integral  component  of the  Company's  growth  strategy.  During the last
several years,  the Company  introduced  ReflexJ for the bedding,  furniture and
other cushioning  industries using patented variable pressure foaming technology
("VPF(TM)").  The Company also introduced  Plushlife(TM)  for the carpet cushion
markets and Powerthane(TM) for automotive applications. In addition, the Company
developed  new  automotive  foam  applications,  including  thermoformable  foam
headliners and energy  absorbing  foams.  The Company's  relationships  with its
customers  allow the Company to work with customers  during the design phase for
new products and new applications for existing products,  thereby increasing the
likelihood that the Company will be a principal supplier for these products.

     Carpet Cushion

     The Company is one of the largest  manufacturers and distributors of prime,
bonded,  sponge rubber and felt carpet  cushion in North  America.  Prime carpet
cushion is made from  polyurethane  foam buns,  whereas bonded carpet cushion is
made from  various  types of scrap foam which are  shredded  into small  pieces,
processed  and then bonded  using a chemical  adhesive.  In February  1997,  the
Company introduced  Plushlife(TM),  a proprietary bonded carpet cushion product,
which combines two cushions into a single structure to absorb the energy of foot
traffic and enhance comfort.

     The Company's  carpet cushion  products are marketed through floor covering
retailers such as Sears, Shaw Industries and Home Depot.

     Cushioning Foams

     The  Company is one of the largest  manufacturers  of  cushioning  foams in
North America. The Company manufactures and sells flexible polyurethane foam and
polyester fiber to bedding and other cushioning  manufacturers both directly and
indirectly through independent fabrication  operations.  These foams are used by
the bedding industry in quilts,  toppers, cores and border rolls for mattresses.
Cushioning foams are generally sold in large volumes on a regional basis because
of high  shipping  costs.  Due to its size  and the  strategic  location  of its
production  facilities,  the  Company  believes  it  will  continue  to  have an
advantage over regional  producers in supplying large national accounts with all
of their foam requirements.

     The development and introduction of value added products  continues to be a
priority of the Company and has included (i)  Relex(TM)  discussed  below,  (ii)
viscoelastic  or "memory" foams for the bedding  industry,  which maintain their
resiliency  better than other foams and  materials and (iii) Latex  Plus(TM),  a
urethane-based  replacement for latex, a material used in bedding products.  One
of the  Company's  most  recent  product  introductions  is  Reflex(TM)  for the
cushioning  and  furniture  industries  which  was  created  using  the  VPF(TM)
manufacturing  process.  Reflex(TM)  materials,  which include cushion wraps and
cushion cores,  are advanced  polymer  cushioning  products  designed to improve
comfort, quality and durability.

                                       6
<PAGE>

     The Company's  cushioning  foams for bedding  products are sold to mattress
customers,  such as Sealy, Simmons, Serta, and Spring Air Company, both directly
and indirectly  through  independent  fabrication  operations located across the
United  States.  The Company also sells  cushioning  foam for use in a number of
other markets.

     Furniture Foams

     The Company manufactures and sells flexible polyurethane foam and polyester
fiber  to  furniture   manufacturers   both  directly  and  indirectly   through
independent  fabrication  operations.  These  foams  are  used by the  furniture
industry for seating  products.  These foams are generally sold in large volumes
on a regional  basis  because of high  shipping  costs.  Due to its size and the
strategic  location of its production  facilities,  the Company believes it will
continue  to have an  advantage  over  regional  producers  in  supplying  large
national accounts with all of their foam requirements.

     The development and introduction of value added products  continues to be a
priority of the Company and has included  Reflex(TM)  materials,  which  include
cushion  wraps and cushion  cores,  are  advanced  polymer  cushioning  products
designed to improve comfort, quality and durability in upholstered furniture.

     The Company supplies  cut-to-size  seat cushions,  back and other pieces to
the furniture industry,  including to Berkline, Action, and Schnadig. The use of
these foams also include  packaging  materials for products such as computer and
electronic  components and applications in certain sporting good products and in
recreational vehicles.

     Automotive Foams

     The Company is one of the largest  suppliers of foam  requirements  for the
North  American  operations  of  automotive  manufacturers.   Depending  on  the
automotive manufacturer and/or the application,  foam is supplied by the Company
either  directly  to  the  manufacturer  or  indirectly  through  sub-suppliers.
Automotive  foams  are  used  for  trim  pads,  door  panel  parts,  headliners,
acoustical purposes,  flame and adhesive laminates and rolls for tri-lamination.
Tri-laminated  foam is  applied  to  automotive  fabrics  to form a  foam/fabric
composite  that results in cost savings and aesthetic  value for the  automotive
manufacturer.

     The  domestic  automotive  manufacturers  have  narrowed  their supply base
during recent years,  increasing  the percentage and dollar amount of components
that they  purchase from outside  suppliers.  As a result,  a smaller  number of
companies are supplying an increasing  percentage of these manufacturers' needs.
The Company  believes it has benefited from this trend,  which favors  suppliers
with quality  facilities  and products,  cost  efficient  plants,  long-standing
relationships,  strong  design,  technical and product  development  support and
broad  product  lines.  Also,  automotive  suppliers are  increasingly  offering
integrated  systems which lower the overall cost and improve quality relative to
previous  sourcing  methods  in  which  individually   sourced  components  were
assembled and installed.

     The Company has a strategic  alliance with Recticel,  s.a.  ("Recticel") to
design, manufacture and market polyurethane products for the automotive industry
in order to meet the  worldwide  requirements  of automotive  manufacturers  and
major tier one suppliers such as Lear Corporation,  Johnson Controls,  Inc., and
Delphi Interiors and Lighting.  Under this alliance, both companies will jointly
supply the automotive suppliers,  with products manufactured in North America by
the Company and in Europe by Recticel.

     The  Company's   new  product   development   and  flexible   manufacturing
capabilities   allow  it  to  produce  quality   products  to  satisfy  changing
specifications.  Examples of the Company's ability to react to changing industry
requirements include thermoformable headliners,  tri-laminates, advanced cutting
technology and energy absorbing  foams.  For example,  the Company is one of the
first suppliers to introduce a  thermoformable  headliner,  Customfit(TM),  made
from  rigid   polyurethane   foam.   Also,  the  Company   intends  to  continue
manufacturing  and supplying foam and fabric  components,  such as tri-laminated
material  for  automotive   seating.   The  use  of  tri-laminates   has  become
increasingly  prevalent due to significant  cost savings for  manufacturers  and
improved  aesthetics for consumers.  

                                       7
<PAGE>

Automotive manufacturers are increasingly requiring the production facilities of
their suppliers to meet certain high quality  standards.  For example,  all tier
one and tier two automotive  supplier  facilities  worldwide will  eventually be
required to meet the QS-9000 quality  manufacturing  standards set by the United
States  automotive  manufacturers.  In 1996, the Company  completed  QS-9000 and
ISO-9001  certification  for its eight  domestic  facilities  which  supply  the
automotive industry. The Company was one of the first polyurethane manufacturers
to be QS-9000  certified  which  demonstrates  its  commitment  to producing the
highest quality products and meeting the needs of its customers.

     Specialty and Technical Foams

     Specialty and technical foams 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.

     Reticulated  foams are well  suited  for  filtration,  reservoiring,  sound
absorption and sound transmission.  Industrial applications include carburetors,
computer  cabinets,  ink pad 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 specialty
and technical  foams have unique  characteristics  such as flame  retardancy and
fluid  absorption.  In  addition,  felting  and  lamination  with other foams or
materials give these composites  specific  properties.  Additional products sold
within this group include foams for refrigerated  supermarket  produce counters,
mop heads, paint brushes, diapers and cosmetic applications.

     Consumer Products

     The Company sells flexible polyurethane foam and polyester fiber for use in
therapeutic  sleep  products  such as mattress  pads and bed pillows,  which are
manufactured  for the  health  care  and  consumer  markets.  The  Company  also
manufacturers and markets a broad line of home furnishing  products to retailers
throughout the United States.  The Company's home furnishing  products include a
broad range of products such as leisure furniture, futon sofas, bean bag chairs,
floor pillows and pet beds.

     Marketing and Sales

     As of December  28,  1997,  the Company has a marketing  and sales force of
approximately  208  employees.  The marketing and sales force are directed by an
executive vice president for each product category. The Company's  relationships
with its customers  allow the Company to work with  customers  during the design
phase for new  products and new  applications  for  existing  products,  thereby
increasing  the  likelihood  that the Company  will be a principal  supplier for
these products.

     The  Company's  carpet  cushion   marketing   program  includes  the  broad
distribution of products to both the retail and wholesale  levels.  Furthermore,
promotions,  marketing and advertising expenditures are important in positioning
the Company's carpet cushion as a premium, trade branded product.

     Cushioning  foams  and  furniture  foams are  primarily  sold  directly  to
customers and also through third party independent fabricators.  Plant locations
are critical in this regionalized line of business where the transportation cost
typically comprises a significant portion of product cost.

     Automotive foam products are predominantly  sold directly through a bidding
process in which each customer's  requirements  for a particular time period are
awarded to a foam supplier.  The Company has consistently been awarded contracts
with  manufacturers  and  major  tier one  suppliers  such as Lear  Corporation,
Johnson Controls, Inc., and Delphi Interiors and Lighting.

                                       8
<PAGE>

     The Company  markets most of its specialty  and  technical  foams through a
network of independent  fabrication and distribution companies in North America,
the United Kingdom,  and South Korea.  Such  fabricators or  distributors  often
further  process or finish  these  products  to meet the  specific  needs of the
end-user.  The Company utilizes  advertising in trade journals and related media
in order to attract customers and, more generally, to create an awareness of its
capabilities for specialty and technical  foams. In addition,  due to the highly
specialized nature of most specialty and technical foams, the Company's research
staff works with customers to design,  develop and  manufacture  each product to
specification.

     The Company's  consumer  products  sales  efforts are primarily  regionally
based with each  salesperson  selling to local  accounts.  The Company sells its
consumers  products to major  retailers  throughout the United States  including
Wal-Mart.

     Customers

     During the past three fiscal years, no one customer accounted for more than
10.0% of the Company's net sales.

     Raw Materials

     The  Company's  primary raw  material  manufacturing  cost  consists of two
principal  chemicals  (i)  toluene  diisocyanate  ("TDI") and (ii)  polyol.  The
Company's largest suppliers of these raw materials are The Dow Chemical Company,
Arco  Chemical,  and  BASF.  The  Company  generally  has  alternative  chemical
suppliers  for each major raw  material and the Company  believes  that it could
find  alternative  sources of supply should it cease doing business with any one
of its major  suppliers.  The price of TDI and polyol is  influenced  by demand,
manufacturing capacity and oil and natural gas prices.

     The  Company's   principal   suppliers  of  raw   materials   used  in  the
manufacturing  of foam  increased the price of raw materials  several times over
the past several years. In response, the Company increases selling prices, where
possible.  (See "Management  Discussion and Analysis of Financial  Condition and
Results  of  Operations").  The  Company is  unaware  of any  significant  price
increases in the near future;  however,  there can be no assurance that chemical
suppliers will not increase raw material costs in the future or that the Company
will be able to  implement  selling  price  increases  to  offset  any  such raw
material cost increases.

     Manufacturing

     The Company is committed to the highest quality standards for its products,
a standard  maintained  in part by  continuous  improvements  to its  production
processes  and upgrades and  investments  to its  manufacturing  equipment.  The
Company  maintains  quality  assurance  and  testing  equipment  to  ensure  the
manufactured products will consistently meet customer quality requirements.

     As of December 28, 1997, the Company  manufactured  and/or  fabricated foam
products at 61 locations  in North  America  with a total of  approximately  8.4
million  square feet of floor space  (excluding  16  locations  with 2.6 million
square  feet of floor  space that are  planned to close in  connection  with the
restructuring/consolidation   plan).  Management  believes  that  the  Company's
manufacturing  facilities are well suited for their intended purposes and are in
good   condition   (see   "Properties").   The   manufacturing   facilities  are
strategically  located to service their major  customers since high freight cost
in relation to the cost of the foam product  generally  results in  distribution
being most cost effective within 200 to 300 miles from each facility.

     Automotive   manufacturers   are  increasingly   requiring  the  production
facilities  of their  suppliers  to meet certain  high  quality  standards.  For
example, all tier one and tier two automotive supplier facilities worldwide will
eventually be required to meet the QS-9000 quality  manufacturing  standards set
by United  States  automotive  manufacturers.  In 1996,  the  Company  completed
QS-9000 and ISO-9001  certification  for its eight  facilities  which supply the
automotive industry. The Company was one of the first polyurethane manufacturers
to be QS-9000 

                                       9
<PAGE>

certified  which  demonstrates  its commitment to producing the highest  quality
products and meeting the needs of its customers.

     The Company is subject to  extensive  and changing  environmental  laws and
regulations.  See "Legal Proceedings -- Environmental Matters" and "Management's
Discussion  and Analysis of Financial  Condition  and Results of  Operations  --
Environmental Matters."

     Employees

     As of December 28, 1997, the Company employed 6,414 persons,  with 5,704 of
such employees involved in manufacturing, 502 in administration and 208 involved
in sales and marketing (including 640 position that are being eliminated as part
of the restructuring/consolidation plan). Approximately 1,095 of these employees
are  located  outside  the United  States.  Also,  approximately  1,450 of these
employees are covered by  collective  bargaining  agreements  with labor unions,
which  agreements  expire on various dates from 1998 through  2001.  The Company
considers relations with its employees to be good.

     Competition

     The flexible polyurethane foam industry is highly competitive. With respect
to flexible polyurethane foam,  competition is based primarily on price, quality
of products and service.  The Company's  larger  competitors in the polyurethane
foam industry  include E. R. Carpenter  Company,  Hickory Springs  Manufacturing
Company, Vitafoam, Inc., General Foam Corporation, Flexible Foam Products, Inc.,
and Crest Foam Industries,  Inc. None of such competitors  compete in all of the
product categories in which the Company does business.

     International and Domestic Operations and Export Sales

     The Company has manufacturing  operations in the United States, Canada, and
Mexico.  Net sales to customers in foreign  markets in 1997,  1996 and 1995 were
$85.0 million  (9.1% of net sales),  $76.0 million (8.2% of net sales) and $73.3
million (8.5% of net sales), respectively.

     Patents and Trademarks

     The Company owns various patents and trademarks registered domestically and
in numerous  foreign  countries.  The  registered  processes  and products  were
developed  through  on-going  research  and  development  activities  to improve
quality,  reduce  costs  and  expand  markets  through  the  development  of new
applications  for  flexible  polyurethane  foam  products.   While  the  Company
considers its patents and trademarks to be a valuable asset, it does not believe
that its  competitive  position is  dependent on patent  protection  or that its
operations are dependent upon any individual patent, trademark or tradename.

     Research and Development

     The Company believes it has a leading  research and development  capability
in the flexible polyurethane foam industry.  This capability gives the Company a
significant  advantage  in the  on-going  development  of new  products  and new
applications  for  existing   products.   The  Company's  primary  research  and
development facility is located in Eddystone,  Pennsylvania. The Company employs
approximately 35 full-time research and development employees.  Expenditures for
research and development amounted to $2.4 million, $2.5 million and $3.2 million
for  1997,  1996 and 1995,  respectively,  excluding  expenditures  by Crain for
research and development prior to the Crain Acquisition.

     The  Company  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 and it is anticipated
that they will  continue  to do so in the future.  The  Company,  Recticel,  and
Beamech Group Limited, an unaffiliated third party 

                                       10

<PAGE>

("Beamech"),  have  an  interest  in  a  Swiss  corporation  that  develops  new
manufacturing  technology for the production of polyurethane  foam including the
VPFJ manufacturing  process. The Company,  Recticel, and their affiliates have a
royalty-free license to use technology developed by the Swiss corporation.

ITEM 2.  PROPERTIES

     As of  December  28,  1997,  the Company  conducted  its  operations  at 67
manufacturing and distribution facilities which includes 22 facilities that were
acquired  on  December  23,  1997 in  connection  with  the  Crain  Acquisition,
excluding  22  facilities  that will be closed in  connection  with the  various
restructuring/consolidation   plan.  As  of  December  28,  1997,  19  of  these
facilities were owned and 48 were leased.  Total floor space in use at the owned
manufacturing  and distribution  facilities is approximately  3.4 million square
feet and total floor space in use at the leased  manufacturing  and distribution
facilities  is  approximately  5.1  million  square  feet.  Fifty-nine  of these
facilities  are  located  in  thirty-nine  cities  in the  United  States,  five
facilities are located in two cities in Canada and three  facilities are located
in three  cities in Mexico.  The 1998 annual  base  rental with  respect to such
leased facilities is approximately  $8.7 million under leases expiring from 1998
to 2007.  The Company does not  anticipate  any problem in renewing or replacing
any of such leases expiring in 1998. In addition,  the Company has approximately
1.0  million  square  feet of idle space of which  approximately  0.2 million is
leased.

     The  Company  maintains   administrative  and  sales  offices  in  Linwood,
Pennsylvania;  St. Louis, Missouri;  Chicago,  Illinois;  Southfield,  Michigan;
Atlanta, Georgia; and New York, New York.

ITEM 3. LEGAL PROCEEDINGS

     Environmental Matters

     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  and the
remediation of  environmental  contamination,  and as a result,  is from time to
time involved in administrative and judicial  proceedings and inquiries relating
to  environmental  matters.  During 1997,  expenditures  in connection  with the
Company's compliance with federal,  state, local and foreign  environmental laws
and  regulations  did  not  have a  material  adverse  effect  on the  Company's
operations, financial position, capital expenditures or competitive position. As
of December 28, 1997, the Company has  environmental  accruals of  approximately
$9.3 million for environmental  matters.  In addition,  as of December 28, 1997,
the  Company  has  receivables  of   approximately   $1.1  million  relating  to
indemnification   for  environmental   liabilities,   net  of  an  allowance  of
approximately  $1.0 million  relating to potential  disagreements  regarding the
scope of the  indemnification.  The Company believes that realization of the net
receivables established for indemnification is probable.

     The Clean Air Act  Amendments of 1990 (the "1990 CAA  Amendments")  provide
for the establishment of federal emission standards for hazardous air pollutants
including  methylene  chloride,  propylene oxide and TDI,  materials used in the
manufacturing  of foam. On December 27, 1996,  the United  States  Environmental
Protection Agency (the "EPA") proposed regulations under the 1990 CAA Amendments
that  will  require  manufacturers  of slab  stock  polyurethane  foam  and foam
fabrication  plants to reduce  emissions of methylene  chloride.  Because  these
regulations  are subject to change  prior to  finalization,  the Company  cannot
accurately predict the actual cost of their implementation. The Company does not
believe  implementation  of the  regulations  will  require it to make  material
expenditures  at  facilities  owned  prior  to  December  23,  1997,  due to the
Company's  use of  alternative  technologies  which does not  utilize  methylene
chloride and its ability to shift current production to the facilities which use
these alternative  technologies;  however, material expenditures may be required
at the facilities  formerly  operated by Crain. The 1990 CAA Amendments also may
result in the imposition of additional  standards  regulating air emissions from
polyurethane foam manufacturers,  but these standards have not yet been proposed
or promulgated.

     In addition to general regulatory requirements, state laws have resulted or
will result in more  stringent  regulations  regarding  the use and  emission of
methylene  chloride.  Several former Crain facilities have been 

                                       11

<PAGE>

required to meet greater state  restrictions  regarding  emission  limits and/or
quantities used of this chemical. For example, in California, methylene chloride
usage was phased out at the end of 1995, while in Kent, Washington,  and Easton,
Pennsylvania,  the former Crain facilities,  pursuant to consent decrees as well
as  applicable  laws,  must over a period of time phase out  methylene  chloride
usage. Through the development of the Enviro-Cure(R) process, which uses ambient
or  refrigerated  air to remove  the heat of  reaction  during  the foam  curing
process, the Company anticipates that methylene chloride usage can be reduced by
up to 90 percent and, when used in conjunction  with the  Vertifoam(R)  process,
completely.  Crain has installed the Enviro-Cure(R) process at its manufacturing
facilities in Ft. Smith, Arkansas; Compton, California; San Leandro, California;
Elkhart,  Indiana;  Tupelo,  Mississippi;  and Conover,  North  Carolina.  Where
regulations require the elimination of methyl-chloroform and methylene chloride,
Crain  has  installed  a  CARDIO(R)   system,   which   eliminates  the  use  of
methyl-chloroform.  During 1996,  Crain  installed the  CARDIO(R)  system at its
Compton, California; Easton, Pennsylvania; and Kent, Washington plants. However,
see "Legal Proceedings" below.

     The Company has reported to appropriate state authorities that it has found
soil  contamination  in excess of state  standards  at  facilities  in  Orlando,
Florida; La Porte, Indiana; Conover, North Carolina;  Cornelius, North Carolina;
Fort Wayne,  Indiana;  Philadelphia,  Pennsylvania;  and at a former facility in
Dallas, Texas and groundwater  contamination in excess of state standards at the
Orlando, Conover,  Philadelphia, and Cornelius facilities. The Company has begun
remediation  and is  conducting  further  investigations  into the extent of the
contamination  at  these  facilities  and,   accordingly,   the  extent  of  the
remediation  that may ultimately be required.  The actual cost and the timetable
of any such remediation cannot be predicted with any degree of certainty at this
time.  The Company,  based on engineering  estimates of the remaining  potential
remediation  costs for these  facilities,  has  accruals of $8.7 million for the
estimated  cost of completing  remediation  and  established a net receivable of
$1.1  million on the basis of  indemnifications  by Trace  Holdings and Recticel
Foam  Corporation  ("RFC")  associated with the partnership  formation of Foamex
L.P. The Company has completed  remediation  of soil  contamination  at a former
Trenton,  New  Jersey  manufacturing  facility  closed  in  October  1993 and is
awaiting final closure approvals from the New Jersey Department of Environmental
Protection  regarding the  remediation of soil  contamination  and monitoring of
groundwater  at the former  Trenton  facility.  Also,  the Company has completed
remediation  at its Mesquite,  Texas  facility and is awaiting a certificate  of
completion under the Texas Voluntary Clean-Up Program.

     Federal regulations require that by the end of 1998 all underground storage
tanks  ("USTs")  be  removed  or  upgraded  in all  states  to  meet  applicable
standards.  The  Company  has six USTs that will  require  removal or  permanent
in-place closure by the end of 1998. Due to the age of these tanks,  leakage may
have  occurred  resulting in soil and possibly  groundwater  contamination.  The
Company  has accrued  $0.1  million for the  estimated  removal and  remediation
costs,  if any,  associated  with  these  USTs.  However,  the  full  extent  of
contamination,  and accordingly, the actual cost of such remediation,  including
at the former Crain facilities, cannot be predicted with any degree of certainty
at this time. The Company  believes that its USTs do not pose a significant risk
of  environmental  liability  because of its  monitoring  practices for USTs and
conditional  approval  for the  permanent  in-place  closure for  certain  USTs.
However,  there  can  be no  assurances  that  such  USTs  will  not  result  in
significant environmental liability in the future.

     On April 10,  1997,  the  Occupational  Health  and  Safety  Administration
promulgated new standards  governing  employee  exposure to methylene  chloride,
which  is used  as a  blowing  agent  in  some  of the  Company's  manufacturing
processes.  The Company  does not  believe  that it will be required to make any
material  expenditures at facilities  owned prior to December 23, 1997 to comply
with these new standards due to its use of alternative  technologies  which does
not use  methylene  chloride and its ability to shift  production  to facilities
which use these technologies;  however, material expenditures may be required at
the facilities formerly operated by Crain.

     The Company has been designated as a Potentially  Responsible Party ("PRP")
by the United States Environmental Protection Agency (the "EPA") with respect to
thirteen sites with an estimated total liability to the Company for the thirteen
sites of less than approximately $0.5 million. Estimates of total clean-up costs
and fractional allocations of liability are generally provided by the EPA or the
committee  of PRP's  with  respect to the  specified  site.  In each  case,  the
participation  of the Company is  considered to be  immaterial.  

                                       12
<PAGE>

     On May 5,  1997,  there  was an  accidental  spill at one of the  Company's
manufacturing facilities.  The spill was contained on site and cleaned-up for an
approximate  cost of $0.6 million.  Although it is possible that new information
or future  developments  could  require the Company to  reassess  its  potential
exposure  relating  to  all  pending  environmental  matters,   including  those
described herein,  management  believes that, based upon all currently available
information,  the  resolution  of such  environmental  matters  will  not have a
material adverse effect on the Company's 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  may  be  found  to  exist,  that  may  require
expenditures not currently anticipated and that may be material.

     Legal Proceedings

     As of March 4, 1998,  the Company and Trace  Holdings  were two of multiple
defendants  in actions  filed on behalf of  approximately  5,000  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. In addition, three cases have been filed alleging claims on behalf
of approximately 700 residents of Australia, New Zealand,  England, and Ireland.
The Company believes that the number of suits and claimants may increase. During
1995,  the  Company  and Trace  Holdings  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
Holdings.  Neither the Company nor Trace Holdings  recommended,  authorized,  or
approved the use of its foam for these purposes. The Company is also indemnified
by Trace Holdings for any such liabilities  relating to foam manufactured  prior
to October  1990.  Although  Trace  Holdings has paid the  Company's  litigation
expenses to date pursuant to such  indemnification and management believes Trace
Holdings  likely will be in a position to continue to pay such  expenses,  there
can be no absolute  assurance  that Trace  Holdings will be able to provide such
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 Trace  Holdings,  and
without  taking into account  indemnification  provided by Trace  Holdings,  the
coverage  provided by Trace Holdings and the Company's  liability  insurance and
potential  indemnity  from the  manufacturers  of  polyurethane  covered  breast
implants,  management  believes that the disposition of matters that are pending
or that may reasonably be anticipated to be asserted  should not have a material
adverse effect on either the Company's or Trace Holdings' consolidated financial
position or results of operations.  If management's  assessment of the Company's
liability with respect to these actions is incorrect,  such actions could have a
material adverse effect on the Company.

     In November 1997, a complaint was filed in the United States District Court
for the Southern District of Texas alleging that various  defendants,  including
Crain  through the use of the  CARDIO(R)  process  licensed  from a third party,
infringed on a patent held by  plaintiff.  The Company is  negotiating  with the
licensor of the process for the  assumption  of the defense of the action by the
licensor;  however, the action is in the preliminary stages, and there can be no
assurance as to the ultimate outcome of the action.

     On or about March 17, 1998, five purported class action lawsuits were filed
in the  Delaware  Chancery  Court,  New  Castle  County,  against  the  Company,
directors of the Company,  Trace Holdings, and individual officers and directors
of Trace Holdings:

       Brickell Partners v. Marshall S. Cogan, et al.,  No. 16260NC;
       Mimona Capital v. Salvatore J. Bonanno, et al.,  No. 16259NC;
       Daniel Cohen v. Foamex International Inc.,  No. 16263;
       Eileen Karisinki v. Foamex International Inc., et al.,  No. 16261NC and

                                       13

<PAGE>

       John E. Funky Trust v. Salvatore J. Bonanno, et al., No. 16267.

     A  sixth  purported   class  action  lawsuit,   Barnett  Stepak  v.  Foamex
International  Inc.,  et al.,  No.  16277,  was filed on or about March 23, 1998
against the same  defendants.  The complaints in the six actions  allege,  among
other things,  that the defendants have violated  fiduciary and other common law
duties  purportedly  owned to the Company's  shareholders in connection with the
Trace  Holdings  proposal to acquire all of the shares of the  Company's  common
stock.  The  complaints  seek,  among  other  things,  class  certification,   a
declaration  that the  defendants  have breached their  fiduciary  duties to the
class,  preliminary  and  permanent  injunctions  baring  implementation  of the
proposed transaction, rescission of the transaction if consummated,  unspecified
compensatory damages, and costs and attorneys' fees.

     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  financial  position or
results  of  operations  of  the  Company.  If  management's  assessment  of the
Company's  liability  with respect to these actions is  incorrect,  such actions
could have a material  adverse  effect on the Company's  consolidated  financial
position.

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.

     The Company's  common stock is traded  through the National  Association of
Securities  Dealers,  Inc.  National  Market System (the "NMS") under the symbol
"FMXI".

     On March 16,  1998,  the  Company  announced  that its  Board of  Directors
received an  unsolicited  buyout  proposal  from Trace  Holdings,  the Company's
principal stockholder. Trace Holdings proposed to acquire all of the outstanding
common  stock of the  Company  not  currently  owned by Trace  Holdings  and its
subsidiaries for a cash price of $17.00 per share. Also, Trace Holdings informed
the Board of  Directors  that  financing  for the  buyout  transaction  would be
arranged through  Donaldson,  Lufkin & Jenrette  Securities  Corporation and The
Bank of Nova Scotia/Scotia Capital Markets. As of March 16, 1998, Trace Holdings
and its  subsidiaries  beneficially  owned  approximately  11,475,000  shares or
approximately 46% of the outstanding common stock of the Company. In response to
Trace Holding's  offer, the Company's Board of Directors has appointed a special
committee to determine the  advisability  and fairness of the proposed buyout to
the Company's stockholders other than Trace Holdings and its subsidiaries. Trace
Holding's  proposed  buyout is subject to a number of conditions,  including the
negotiations of definitive  documents  (which are expected to contain  customary
closing  conditions);  the filing of a disclosure  statement and other documents
with the Securities and Exchange Commission; regulatory filings; and approval of
the transaction by a majority of the Company's stockholders.

     The  following  table sets forth the high and low bid prices for the common
stock on the NMS based on information supplied by NASDAQ.

                                                    High              Low
       1998
       Quarter Ended March 29, 1998                18 3/8           10 7/8

       1997
       Quarter Ended December 28, 1997             14 3/4            9 3/8
       Quarter Ended September 28, 1997            15 1/4            9 1/2
       Quarter Ended June 29, 1997                 15 7/8           12
       Quarter Ended March 30, 1997                22 1/8           15

                                       14

<PAGE>

                                                    High              Low

       1996
       Quarter Ended December 29, 1996             17 5/8           12 5/8
       Quarter Ended September 29, 1996            16 7/8           11 1/4
       Quarter Ended June 30, 1996                 12 7/8            9
       Quarter Ended March 31, 1996                 9 7/8            6 3/8

     As of April 6, 1998, there were  approximately 200 holders of record of the
common stock.

     In December 1997,  the Board of Directors  approved a dividend of $0.05 per
share for  holders of record as of January 9, 1998;  and was paid on January 19,
1998.  This was the only cash  dividend  paid by the Company on its 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  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
subsidiaries Foamex L.P. and Foamex Carpet. Consequently,  the Company's ability
to pay dividends is dependent upon the earnings of Foamex L.P. and Foamex Carpet
and any  future  subsidiaries  of the  Company  and the  distribution  of  those
earnings to the Company and loans or advances by Foamex L.P.,  Foamex Carpet and
any such future  subsidiaries  of the  Company.  The ability of Foamex L.P.  and
Foamex  Carpet  to make  distributions  is  restricted  by the  terms  of  their
respective financing  agreements.  Due to such restrictions,  the Company is not
expected to have  access to the cash flow  generated  by Foamex L.P.  and Foamex
Carpet for the foreseeable future.

ITEM 6. SELECTED CONSOLIDATED FINANCIAL DATA

     The following table presents  selected  historical  consolidated  financial
data of the Company.  The results of operations of acquired businesses (as noted
below)  are  included  from  the  dates of their  respective  acquisitions.  The
financial data should be read in conjunction  with the financial  statements and
related notes thereto of the Company included elsewhere in this Annual Report on
Form 10-K.

<TABLE>
<CAPTION>
                                                                      Fiscal Year (1) (2)
                                               1997 (3)       1996 (4)     1995 (5)        1994          1993 (6)
                                                      (thousands except for earnings per share)
<S>                                            <C>            <C>          <C>           <C>            <C>     
Statements of Operations Data:
   Net sales                                   $931,095       $926,351     $862,834      $833,660       $684,310
   Income (loss) from continuing
   operations                                     4,131         32,492      (50,750)       22,211         (5,440)
   Basic earnings per share from
   continuing operations (7) (8)                   0.16           1.28         1.92          0.83              -
   Diluted earnings per share from
         continuing operations (7) (8)             0.16           1.26         1.92          0.83              -

Balance Sheet Data (at period end):
   Total assets                                $898,623       $619,846     $748,242      $786,895       $612,124
   Long-term debt                               735,724        483,344      514,954       502,980        414,445
   Stockholders' equity (deficit)              (113,419)       (58,103)      29,383        92,145         64,306
<FN>
(1)  The Company has a 52 or 53 week fiscal year ending on the Sunday closest to
     the end of the calendar  year.  Each fiscal year presented was comprised of
     52 weeks.

(2)  Fiscal years 1993 through 1995 were restated for discontinued operations.

                                       15
<PAGE>

(3)  The Statements of Operations Data includes  restructuring and other charges
     of $21.1 million (see Note 4 to the consolidated financial statements), but
     does not  include  the results of  operations  of Crain which was  acquired
     December 23, 1997 since the effect is insignificant. The Balance Sheet Data
     includes the estimated  fair value of the net assets  acquired in the Crain
     Acquisition.

(4)  Includes  restructuring  credits  of  $6.5  million  (see  Note  4  to  the
     consolidated financial statements).

(5)  Includes  restructuring  and other  charges of $41.4 million (see Note 4 to
     the consolidated financial statements).

(6)  Includes the results of  operations  of General Felt and Great Western Foam
     Products Corporation from March 23, 1993 and May 1, 1993, respectively, and
     thus may not be comparable to other periods.

(7)  In December  1993,  the Company  completed  an initial  public  offering of
     common  stock,  therefore,  earnings  (loss)  per  share  for  1993  is not
     applicable.

(8)  As of December 28, 1997, the Company  adopted SFAS 128 "Earnings Per Share"
     and has restated all prior periods presented.
</FN>
</TABLE>

                                       16
<PAGE>

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

     The Company  operates in the flexible  polyurethane  foam and foam products
industry.  The  following  discussion  should  be read in  conjunction  with the
consolidated  financial  statements  and  related  notes  thereto of the Company
included in this Annual Report to Form 10-K.

     The  Company  is the  largest  manufacturer  and  distributor  of  flexible
polyurethane and advanced  polymer foam products in North America.  During 1997,
1996  and  1995,  the  Company's   products  were  utilized  primarily  in  five
end-markets;  (i) carpet  cushion and other  carpet  products,  (ii)  cushioning
foams,  including  bedding  products,  (iii)  furniture  products for  furniture
manufacturers and distributors, (iv) automotive applications, including trim and
accessories,  and (v) specialty and technical applications,  including those for
filtration,  gasketing and sealing.  As a result of the Crain  Acquisition,  the
Company  has  added a sixth end  market:  consumer  products.  The  Company  has
recently  refocused  its  business on the  flexible  polyurethane  and  advanced
polymer  foam  business  by the  Crain  Acquisition  in  December  1997  and the
divesting of non-foam business segments. Management believes that a focus in the
foam business will allow the Company to  concentrate  management,  financial and
operational  resources  and will  position  the  Company  to pursue  its  growth
strategy of  developing  new  products,  improving  profitability  and expanding
internationally.

     On March 16,  1998,  the  Company  announced  that its  Board of  Directors
received an  unsolicited  buyout  proposal  from Trace  Holdings,  the Company's
principal stockholder. Trace Holdings proposed to acquire all of the outstanding
common  stock of the  Company  not  currently  owned by Trace  Holdings  and its
subsidiaries for a cash price of $17.00 per share. Also, Trace Holdings informed
the Board of  Directors  that  financing  for the  buyout  transaction  would be
arranged through  Donaldson,  Lufkin & Jenrette  Securities  Corporation and The
Bank of Nova Scotia/Scotia Capital Markets. As of March 16, 1998, Trace Holdings
and its  subsidiaries  beneficially  owned  approximately  11,475,000  shares or
approximately 46% of the outstanding common stock of the Company. In response to
Trace Holding's  offer, the Company's Board of Directors has appointed a special
committee to determine the  advisability  and fairness of the proposed buyout to
the Company's stockholders other than Trace Holdings and its subsidiaries. Trace
Holding's  proposed  buyout is subject to a number of conditions,  including the
negotiations of definitive  documents  (which are expected to contain  customary
closing  conditions);  the filing of a disclosure  statement and other documents
with the Securities and Exchange Commission; regulatory filings; and approval of
the transaction by a majority of the Company's stockholders.

     On February 27, 1998, the Company and certain of its affiliates completed a
series of  transactions  designed to simplify  the  Company's  structure  and to
provide  future  operational  flexibility.  Prior to the  consummation  of these
transactions, the Company defeased the $4.5 million outstanding principal amount
of  its  9  1/2%  senior  secured  notes  due  2000.  Foamex  L.P.  settled  its
intercompany  payables  to  General  Felt with $4.8  million in cash and a $34.0
million  principal amount promissory note supported by a $34.5 million letter of
credit  under the Foamex L.P.  credit  facility  (the  "Foamex/GFI  Note").  The
initial transaction  resulted in the transfer from Foamex L.P. to Trace Foam LLC
of all of the outstanding  common stock of General Felt, in exchange for (i) the
assumption by Trace Foam LLC of $129.0 million of Foamex L.P.'s indebtedness and
(ii) the transfer by Trace Foam LLC to Foamex L.P. of a 1% non-managing  general
partnership  interest in Foamex L.P. As a result,  General  Felt ceased  being a
subsidiary  of Foamex L.P. and was relieved  from all  obligations  under Foamex
L.P.'s 9 7/8% senior subordinated notes due 2007 and 13 1/2% senior subordinated
notes due 2005. Upon consummation of the initial  transaction,  Foamex Carpet, a
newly formed  wholly-owned  subsidiary of the Company,  the Company,  Trace Foam
LLC, and General Felt entered into an Asset  Purchase  Agreement  dated February
27, 1998, in which General Felt sold substantially all of its assets (other than
the Foamex/GFI  Note and its operating  facility in Pico Rivera,  California) to
Foamex  Carpet in exchange  for (i) $20.0  million in cash and (ii) a promissory
note issued by Foamex  Carpet to Trace Foam LLC in the amount of $70.2  million.
The $20.0 million cash payment was funded by a distribution  by Foamex L.P. Upon
consummation of these transactions contemplated by the Asset Purchase Agreement,
Foamex Carpet entered into a credit agreement with the institutions from time to
time party  thereto,  as issuing  banks,  and Citicorp USA, Inc. and The Bank of
Nova Scotia, as administrative agents, which provides for up to $20.0 million in
revolving credit  borrowings.  These transactions were accounted for in a manner
similar to a pooling of interests  since the entities were under common 

                                       17

<PAGE>

control.  Foamex  Carpet will  conduct the carpet  cushion  business  previously
conducted by General Felt. Also, Trace Foam LLC has retained ownership of one of
General Felt's  operating  facilities which is being leased to Foamex Carpet and
the $34.0 million Foamex/GFI Note.

     On December 23, 1997, the Company acquired Crain Industries, Inc. ("Crain")
pursuant to a merger agreement with Crain Holdings Corp. for a purchase price of
approximately $213.7 million, including the assumption of debt with a face value
of  approximately  $98.6 million (and an estimated  fair value of  approximately
$112.3  million)  (the "Crain  Acquisition").  In  addition,  fees and  expenses
associated with the Crain Acquisition are approximately $13.2 million. The Crain
Acquisition provided a fully integrated manufacturer, fabricator and distributor
of a broad range of flexible  polyurethane foam and foam products which are sold
to a diverse  customer base,  principally  in the furniture,  bedding and carpet
cushion markets.  Management believes that the Crain Acquisition (i) strengthens
the Company's  market  position as the leading North  American  producer of foam
products,  (ii) offers increased  penetration in the Company's  existing product
lines and adds  complementary  product  lines such as consumer  products,  (iii)
strengthens  the Company's  operations  geographically,  (iv)  provides  several
proprietary  foam-producing  processes  which serve to lower overall  production
costs  and are  environmentally  friendly,  and  (v)  offers  opportunities  for
significant   overhead  cost   reductions   and   purchasing  and  freight  cost
efficiencies.  In connection with the Crain Acquisition,  the Company approved a
restructuring/consolidation  plan for the two  entities.  The  Company  recorded
restructuring  charges of $21.1  million  relating to the  restructuring  of the
Company's  operations  in  connection  with the Crain  Acquisition  and  related
transactions.  In addition,  the Company recorded  approximately $1.5 million of
severance and related costs and $8.5 million for costs  associated with the shut
down and consolidation of certain acquired facilities.

     On October 6, 1997,  the Company  sold its  needlepunch  carpeting,  tufted
carpeting and artificial grass products business,  located in Dalton, Georgia to
Bretlin,  Inc.,  a  subsidiary  of The Dixie  Group,  Inc.  The sales  price was
approximately  $41.0  million,  net  of  post-closing   adjustments  which  were
finalized  in December  1997.  The Company  used the net proceeds of the sale to
reduce borrowings under the Credit Facility by approximately $38.8 million.  The
Company  incurred  an  extraordinary  loss on  early  extinguishment  of debt of
approximately $0.6 million (net of income taxes).

     On June 12, 1997, the Company  substantially  completed a refinancing  plan
(the "Refinancing  Plan") designed to reduce the Company's  interest expense and
increase its financing flexibility. The Refinancing Plan included a tender offer
to purchase  $489.7  million of the Company's  public debt,  the payment of $5.2
million of Foamex L.P.'s term loan borrowings  under an existing credit facility
and the payment of related  fees and  expenses.  In  addition,  the tender offer
included  amending the existing  indentures to remove  substantially  all of the
restrictive covenants. The Company purchased $459.0 million of public debt under
the tender offer and incurred an extraordinary loss on the early  extinguishment
of debt of  approximately  $42.0  million  (net of income tax  benefits of $25.7
million).  The Refinancing Plan was funded by $347.0 million of borrowings under
a new credit  facility  (the "Credit  Facility")  and the net proceeds  from the
issuance of $150.0 million principal amount of senior  subordinated  notes. As a
result of the Refinancing  Plan, the Company's total long-term debt increased by
$63.9 million.  The Company expects the Refinancing  Plan to result in decreased
interest  expense as compared  to the debt  structure  prior to the  Refinancing
Plan,  assuming  no material  change in interest  rates.  The  Company's  future
interest expense will vary based on a variety of factors, including fluctuations
in interest rates in general. As a result of the Refinancing Plan, variable rate
debt comprised a larger percentage of the Company's overall indebtedness than in
the past,  and as a result,  future  fluctuations  in interest rates will have a
greater impact on the Company's interest expense than in the past.

     On October 1, 1997, the Company redeemed approximately $26.2 million of the
approximately  $30.7 million of the Company's  outstanding  public debt that was
not tendered as part of the Refinancing Plan. These redemptions were funded with
borrowings under the Credit Facility. In connection with these redemptions,  the
Company incurred an extraordinary  loss on the early  extinguishment  of debt of
approximately  $1.3 million (net of income  taxes).  The  remaining  outstanding
public debt of  approximately  $4.5 million that was not tendered as part of the
Refinancing Plan was defeased in February 1998.

                                       18

<PAGE>

     During 1996, the Company sold Perfect Fit Industries,  Inc. ("Perfect Fit")
and JPS Automotive  L.P.  ("JPS  Automotive")  which  comprised the home comfort
products and automotive textile business segments, respectively, of the Company.
The  consolidated   financial  statements  of  the  Company  were  restated  for
discontinued  operations and includes a net loss of $113.9 million (net of $34.9
million  income tax benefit) on the disposal of these business  segments,  which
includes  provisions for operating losses during the phase-out period. (See Note
9 to the consolidated financial statements for further discussion).

     The  Company's  automotive  foam  customers  are  predominantly  automotive
original  equipment  manufacturers or other automotive  suppliers.  As such, the
sales of these  product  lines are  directly  related  to the  overall  level of
passenger car and light truck  production in North America.  Also, the Company's
sales are  sensitive  to sales of new and  existing  homes,  changes in personal
disposable  income  and  seasonality.  The  Company  typically  experiences  two
seasonally  slow periods  during each year, in early July and in late  December,
due to scheduled plant shutdowns and holidays.

     Operating  results  for 1998  are  expected  to be  influenced  by  various
internal and external factors.  These factors include,  among other things,  (i)
consolidation of the Crain  Acquisition,  (ii) continued  implementation  of the
continuous  improvement  program to improve the Company's  profitability,  (iii)
additional  raw  material  cost  increases,  if any, by the  Company's  chemical
suppliers,  (iv) the Company's  success in passing on to its  customers  selling
price increases to recover such raw material cost increases and (v) fluctuations
in interest rates.

RESULTS OF OPERATIONS

1997 Compared to 1996

     Net sales for 1997 were $931.1  million as  compared  to $926.4  million in
1996,  an increase of $4.7  million or 0.5%.  Carpet  cushion net sales for 1997
decreased  6.0% to $273.9  million from $291.3  million in 1996 primarily due to
(i) the sale in early October 1997 of a facility which manufactured needlepunch,
tufted  carpeting,  and  artificial  grass  products  which  had  net  sales  of
approximately  $8.3  million in the fourth  quarter of 1996,  (ii)  reduction in
rebond carpet cushion selling prices due to lower trim material costs, and (iii)
a shift in product mix from higher  price  carpet  cushion to lower price carpet
cushion.  Cushioning  foam net sales for 1997  increased  6.2% to $225.0 million
from $211.9  million in 1996  primarily  due to increased  net sales volume from
both new and existing customers of bedding related products. Automotive foam net
sales for 1997  increased  1.0% to $234.2  million  from $231.9  million in 1996
primarily due to increased selling prices for certain products  initiated at the
beginning of 1997.  Furniture net sales for 1997 were constant $121.7 million as
compared to $121.0 million for 1996.  Specialty and technical foam net sales for
1997 increased 8.5% to $76.3 million from $70.3 million in 1996 primarily due to
increased net sales volume.

     Gross profit as a percentage of net sales  decreased to 15.4% for 1997 from
16.5% in 1996  primarily due to unfavorable  impact of unrecovered  raw material
cost  increases,  product mix change to lower  margin  products  and the sale in
early  October  1997  of  a  facility  which  manufactured  needlepunch,  tufted
carpeting and artificial grass products.

     Income  from  operations  was $55.1  million for 1997 as compared to $101.4
million in 1996.  The decrease was  primarily  due to a decrease in gross profit
margins as discussed above,  1997  restructuring  and other charges (credits) of
$21.1 million as compared to a restructuring credit of $6.5 million in 1996, and
an increase in selling,  general and administrative expenses of $8.8 million for
1997 as compared to 1996. The 1997  restructuring  and other charges  related to
the  restructuring  of the Company's  operations  in  connection  with the Crain
Acquisition. The increase in selling, general and administrative expenses is the
result of  increases  in the  provision  for  uncollectible  accounts,  employee
compensation  and  incentives,  research and development  costs,  and travel and
promotion costs associated with the launching of new products and  international
expansion.

     Income  from  continuing  operations  was $4.1  million  or  $0.16  diluted
earnings  per share  for 1997 as  compared  to $32.5  million  or $1.26  diluted
earnings per share in 1996.  The decrease is primarily  due to the reasons cited
above  offset by an  decrease  in  interest  and debt  issuance  expense of $3.3
million.  The decrease in 

                                       19

<PAGE>

interest and debt issuance  expense is primarily due to the favorable  impact of
the 1997 Refinancing Plan.

     The  1997  effective   income  tax  rate  for  continuing   operations  was
approximately  38.0% as  compared  to 33.9%  for  1996.  The 1996  income  taxes
included  a net  benefit  of  approximately  $3.0  million  associated  with the
reversal of valuation  allowances offset by the impact of permanent  differences
and other  matters.  The reversal of the  valuation  allowances  resulted from a
determination  in 1996 that a subsidiary that files separate  federal income tax
returns would more likely than not have sufficient taxable income to utilize its
net  operating  loss  carryforwards  and other  deferred  income tax assets as a
result of improved continuing  operations which are expected to continue and its
divestiture of a subsidiary that historically incurred taxable losses.

     The loss from discontinued  operations of $2.0 million (net of $1.3 million
income tax benefit) in 1997 relates to the final  post-closing  settlement  with
Collins & Aikman  regarding the December 1996 sale of JPS  Automotive.  The loss
from  discontinued  operations of $114.5 million in 1996 relates to the net loss
on the 1996 sale of the home comfort  products and automotive  textile  business
segments  which  consisted  primarily  of the net assets of Perfect  Fit and JPS
Automotive,  respectively,  and the  operating  income  (loss) of both  entities
through their respective closing dates. See Note 9 to the consolidated financial
statements for further discussion.

     The  extraordinary  loss on early  extinguishment  of debt of $44.5 million
(net of $27.3 million income tax benefit)  primarily relates to the write-off of
debt  issuance  costs  and  redemption   premiums   associated  with  the  early
extinguishment of long-term debt in connection with the 1997 Refinancing Plan.

1996 Compared to 1995

     Net sales for 1996 were $926.4  million as  compared  to $862.8  million in
1995,  an increase of $63.6 million or 7.4%.  Carpet  cushion net sales for 1996
increased  7.5% to $291.3  million from $271.0  million in 1995 primarily due to
increased  selling prices initiated during the second quarter of 1996 as well as
increased volume of shipments due to improved carpet sales.  Combined cushioning
foam and furniture foam net sales for 1996 increased 7.4% to $332.9 million from
$310.0 million in 1995 primarily due to increased net sales volume from both new
and existing  customers of bedding related  products,  increased  selling prices
initiated  at the  beginning  of 1996 and a full year of  results  for a company
acquired in April 1995 which manufactures  cushioning products.  Automotive foam
net sales for 1996  increased 5.5% to $231.9 million from $219.8 million in 1995
primarily  due  to a  continued  increase  in net  sales  of  tri-laminates  and
composite  headliners and increased selling prices initiated at the beginning of
1996.  Specialty and technical foam net sales for 1996 increased  13.4% to $70.3
million from $62.0 million in 1995 primarily due to increased selling prices and
increased net sales volume.

     Gross profit as a percentage of net sales  increased to 16.5% for 1996 from
11.7% in 1995 primarily due to selling price increases and improved material and
production efficiencies,  which includes (i) selling price increases during 1996
to offset the adverse  affect of the 1995 and 1994 raw material cost  increases,
(ii)  reductions  in  customer  deductions  for  pricing  disputes,  promotional
programs and other matters and (iii)  reductions in salaries and other  overhead
costs associated with the implementation of the 1995 restructuring plan.

     Income (loss) from  operations was $101.4 million for 1996 as compared to a
loss from operations of $10.6 million in 1995. The increase was primarily due to
an  increase  in  gross  profit  margins  as  discussed  above,  a  decrease  in
restructuring  and other  charges  (credits) of $47.9  million and a decrease in
selling,  general  and  administrative  expenses  of $11.6  million  for 1996 as
compared to 1995. The decrease in restructuring  and other charges  (credits) is
comprised of the $41.4  million  charge for  restructuring  and other charges in
1995 plus the net  restructuring  credit of $6.5  million in 1996.  The 1996 net
restructuring credit is comprised of a $11.3 million credit due to the Company's
decision not to close a facility which was part of the 1995  restructuring  plan
and $1.8 million of credits relating  primarily to the favorable  termination of
lease  agreements  and other matters  relating to the 1995  restructuring  plan,
offset  by  $6.6  million  of   restructuring   charges  relating  to  the  1996
restructuring  plan which  primarily  consists of the closure of two  facilities
during 1997. The decrease in selling, general and administrative expenses is the
result  of  reductions  in  the   provision   for   uncollectible   accounts  of
approximately  $3.9 million,  salaries and employee costs of approximately  $5.9
million and a reduction of approximately $2.0 

                                       20
<PAGE>

million in  environmental  accruals  offset by  increases  in  selling  expenses
associated with the increased net sales volume.

     Income from  continuing  operations  was $32.5 million or $1.26 diluted per
share for 1996 as compared to a loss from continuing operations of $50.8 million
or $1.92  diluted loss per share in 1995.  The increase is primarily  due to the
reasons cited above and a decrease in the average  weighted  shares  outstanding
resulting  from the purchase of treasury stock offset by an increase in interest
and debt  issuance  expense of $1.0  million.  The increase in interest and debt
issuance  expense is  primarily  due to (i) the amount of interest  allocated to
discontinued  operations  in  1996  as  compared  to  1995  (see  Note  9 to the
consolidated  financial statements) and (ii) an increase in the accretion of the
Foamex-JPS  Automotive L.P. senior secured discount  debentures offset by a $2.3
million increased benefit from interest rate swap agreements.

     The  1996  effective   income  tax  rate  for  continuing   operations  was
approximately  33.9% which included a net benefit of approximately  $3.0 million
associated  with the  reversal of valuation  allowances  offset by the impact of
permanent   differences  and  other  matters.  The  reversal  of  the  valuation
allowances  resulted from a  determination  in 1996 that a subsidiary that files
separate  federal income tax returns would more likely than not have  sufficient
taxable  income  to  utilize  its net  operating  loss  carryforwards  and other
deferred income tax assets as a result of improved  continuing  operations which
are expected to continue and its  divesture  of a subsidiary  that  historically
incurred taxable losses.

     The loss  from  discontinued  operations  of $114.5  million  (net of $35.1
million  income tax  benefit) in 1996 relates to the net loss on the sale of the
home comfort products and automotive  textile business  segments which consisted
primarily of the net assets of Perfect Fit and JPS Automotive, respectively, and
the operating income (loss) of both entities  through their  respective  closing
dates.  See  Note  9  to  the  consolidated  financial  statements  for  further
discussion.

     The extraordinary loss on early extinguishment of debt of $1.1 million (net
of $0.8 million income tax benefit)  primarily  relates to the write-off of debt
issuance costs and redemption premiums associated with the early  extinguishment
of $30.6 million of long-term  debt.  See Note 7 to the  consolidated  financial
statements for further discussion.

Liquidity and Capital Resources

     Liquidity

     The  Company  is a holding  company  whose  operations,  as a result of the
February  27,  1998   transactions,   are  conducted   through  two  wholly-owed
subsidiaries,  Foamex L.P. and Foamex Carpet. The liquidity  requirements of the
Company  consist  primarily  of the  operating  cash  requirements  of  its  two
principal  subsidiaries.  Prior to February 27, 1998,  substantially  all of the
Company's operations were conducted through Foamex L.P., which at the time was a
99% owned subsidiary, hence the discussion of historical trends of liquidity and
capital resources related primarily to Foamex L.P.

     Foamex L.P.'s operating cash  requirements  consist  principally of working
capital   requirements,   scheduled   payments  of  principal  and  interest  on
outstanding  indebtedness  and capital  expenditures.  The Company believes that
cash flow from Foamex  L.P.'s  operating  activities,  cash on hand and periodic
borrowings  under the Credit  Facility,  if necessary,  will be adequate to meet
Foamex  L.P.'s  liquidity  requirements.  The  ability  to meet  such  liquidity
requirements  could be impaired  if Foamex L.P.  were to fail to comply with any
covenants  contained in the Credit Facility and such noncompliance was not cured
by Foamex L.P. or waived by the lenders.  Foamex L.P. was in compliance with the
covenants in the Credit Facility as of December 28, 1997 and the Company expects
Foamex L.P. to be in compliance with such covenants for the foreseeable  future.
The ability of Foamex L.P. to make distributions to the Company is restricted by
the terms of its financing agreements; therefore, neither the Company nor Foamex
Carpet is expected to have access to the cash flow  generated by Foamex L.P. for
the foreseeable future.

                                       21

<PAGE>

     Foamex Carpet's operating cash requirements  consist principally of working
capital requirements, schedule payments of principal and interest on outstanding
indebtedness and capital expenditures.  The Company believes that cash flow from
Foamex Carpet's operating activities, cash on hand and periodic borrowings under
Foamex  Carpet's  credit  facility  (the "Foamex  Carpet Credit  Facility"),  if
necessary, will be adequate to meet Foamex Carpet's liquidity requirements.  The
ability to meet such liquidity  requirements  could be impaired if Foamex Carpet
were to fail to comply with any covenants  contained in the Foamex Carpet Credit
Facility and such  noncompliance was not cured by Foamex Carpet or waived by the
lenders.  The  Company  expects  Foamex  Carpet  to be in  compliance  with such
covenants  for the  foreseeable  future.  The  ability of Foamex  Carpet to make
distributions  to the  Company  is  restricted  by the  terms  of its  financing
agreements;  therefore,  neither the Company nor Foamex L.P. is expected to have
access to the cash flow generated by Foamex Carpet for the foreseeable future.

     Cash and cash  equivalents  decreased  $10.2  million  during 1997 to $12.0
million at December 28, 1997 from $22.2  million at December 29, 1996  primarily
due to the decrease in net cash provided by operating activities.  Cash and cash
equivalents increased $18.9 million during 1996 to $22.2 million at December 29,
1996 from $3.3 million at December 31, 1995  primarily  due to net sale proceeds
received from the sale of JPS Automotive and improved operating results,  offset
by the increased use of cash and cash  equivalents  by the operating  assets and
liabilities of the Company, capital expenditures,  scheduled debt repayments and
the purchase of treasury stock.  Working  capital  increased $1.9 million during
1997 to $138.5  million at December 28, 1997 from $136.6 million at December 29,
1996 primarily due to the increase in operating assets. Net operating assets and
liabilities (comprised of accounts receivable, inventories and accounts payable)
increased  $21.4 million during 1997 to $164.3 million at December 28, 1997 from
$142.9  million at December  29, 1996  primarily  due to  increases  in accounts
receivable  and  inventories  offset by an increase in accounts  payable.  These
increases are primarily  associated with the Crain Acquisition.  Working capital
increased  $45.0 million during 1996 to $136.6 million at December 29, 1996 from
$91.6 million at December 31, 1995 primarily due to improved  operating  results
and the net sale  proceeds  received from the sale of JPS  Automotive  offset by
working capital used for capital  expenditures  and purchases of treasury stock.
Net  operating  assets  and  liabilities   (comprised  of  accounts  receivable,
inventories and accounts  payable)  increased $19.9 million to $142.9 million at
December  29, 1996 as  compared to $123.0  million at  December  31,  1995.  The
increase was primarily due to increases in accounts  receivable and  inventories
offset by an increase in accounts payable.  The increases in accounts receivable
and inventories are primarily  associated with the improved operating results of
the Company. In addition,  raw material  inventories  increased due to increased
year end purchases associated with a potential cost increase that did not occur.
The increase in accounts payable is primarily  associated with year end purchase
of raw material  inventories.  The  Company's  restructuring/consolidation  plan
includes accruals of approximately  $26.9 million of cash charges of which $15.6
million is expected to be paid during 1998.

     As of December  28,  1997,  there were $54.9  million of  revolving  credit
borrowings  under the Credit Facility with unused  availability of approximately
$73.9 million which includes approximately $16.0 million associated with letters
of credit outstanding which are supported by the Credit Facility.  Borrowings by
Foamex  Canada,  Inc. as of December  28, 1997 were $3.6  million  under  Foamex
Canada  Inc.'s   revolving   credit   agreement  with  unused   availability  of
approximately $2.0 million at an interest rate of 6.50%.

     Cash Flow from Operating Activities

     Cash flow from  continuing  operations was $0.4 million,  $41.3 million and
$25.5 million in 1997,  1996 and 1995,  respectively.  Cash flow from continuing
operations  decreased  in 1997 as compared to 1996  primarily as a result of the
use of  approximately  $44.0  million of cash for premiums and costs  associated
with the debt  extinguishment  during  1997  offset by  decreased  cash used for
operating assets and liabilities. Cash flow from continuing operations increased
in 1996 as compared to 1995 primarily as a result of improved  operating results
from continuing  operations  offset by an increased use of cash by the operating
assets and liabilities.

                                       22
<PAGE>

     Cash Flow from Investing Activities

     From the  beginning of 1995 through 1997,  the Company spent  approximately
$79.2  million  on  capital  improvements.   The  expenditures   included:   (i)
installation of new variable pressure foaming technology ("VPFJ") in the Orange,
California facility;  (ii) the construction of a facility in Mexico City, Mexico
to improve  manufacturing  efficiencies and to meet the growing local demand for
foam products;  (iii) the expansion and  modernization of a facility in Orlando,
Florida to improve  manufacturing  efficiencies,  and (iv)  installation of more
efficient foam production line systems and fabricating  equipment in a number of
manufacturing  facilities.  The Company expects to increase capital expenditures
for  the  foreseeable  future  as a  result  of the  Crain  Acquisition  and the
installation of VPFJ manufacturing process.

     On December  23,  1997,  the Company  acquired  Crain  pursuant to a merger
agreement  with Crain  Holdings  for a purchase  price of  approximately  $213.7
million,  including the  assumption  of debt with a face value of  approximately
$98.6 million (and an estimated fair value of approximately $112.3 million).  In
addition,   fees  and  expenses   associated  with  the  Crain  Acquisition  are
approximately  $13.2 million.  The Crain  Acquisition was primarily  funded with
$118.0 million of bank borrowings under the Credit Facility.

     On October 6, 1997,  Foamex L.P.  sold its  needlepunch  carpeting,  tufted
carpeting and artificial grass products business,  located in Dalton, Georgia to
Bretlin,  Inc.,  a  subsidiary  of The Dixie  Group,  Inc.  The sales  price was
approximately  $41.0  million,  net  of  post-closing   adjustments  which  were
finalized in December 1997.

     During 1996, the Company received net sale proceeds of approximately  $59.5
million in connection  with the sale of Perfect Fit ($42.7 million) and the sale
of JPS Automotive  ($16.8  million).  The Perfect Fit sale was finalized in 1996
and the net sale  proceeds were used to  repurchase  long-term  debt and for the
payment of  certain  retained  liabilities.  The JPS  Automotive  sale price was
finalized in December 1997.

     During  1995,  the Company  acquired  certain  assets and  assumed  certain
liabilities of manufacturers  of synthetic  fabrics for the carpet and furniture
industries  for  an  aggregate  consideration  of  approximately  $8.0  million,
including  related  fees and expenses of  approximately  $0.3  million,  with an
initial cash payment of $7.2 million.

     During 1994,  the Company  acquired  Transformacion  De Espumas Y Fieltros,
S.A. de C.V. ("TEFSA") which required the purchase price to be paid over a three
year  period.  During  1997,  1996 and 1995,  the Company  made  scheduled  cash
payments  of  approximately  $0.8  million in each year in  accordance  with the
purchase agreement. The final payment was made in April 1997.

     Cash Flow from Financing Activities

     On June 12, 1997, the Company substantially  completed the Refinancing Plan
designed to reduce the  Company's  interest  expense and increase its  financing
flexibility.  The  Refinancing  Plan included a tender offer to purchase  $489.7
million of the  Company's  public  debt,  the payment of $5.2  million of Foamex
L.P.'s term loan borrowings under an existing credit facility and the payment of
related fees and expenses.  In addition,  the tender offer included amending the
existing  indentures to remove  substantially all of the restrictive  covenants.
The Company  purchased  $459.0 million of public debt under the tender offer and
incurred  an  extraordinary  loss  on  the  early   extinguishment  of  debt  of
approximately  $42.0 million (net of income tax benefit of $25.7  million).  The
Refinancing  Plan was funded by $347.0  million of  borrowings  under the Credit
Facility and the net  proceeds  from the  issuance of $150.0  million  principal
amount of senior  subordinated  notes. As a result of the Refinancing  Plan, the
Company's total  long-term debt increased by $63.9 million.  The Company expects
the Refinancing Plan to result in decreased  interest expense as compared to the
debt structure prior to the Refinancing  Plan,  assuming no material  changes in
interest  rates.  The  Company's  future  interest  expense will vary based on a
variety of factors,  including  fluctuations in interest rates in general.  As a
result of the Refinancing Plan, variable rate debt comprised a larger percentage
of the Company's overall indebtedness than in the past, and as a result,  future
fluctuations  in  interest  rates  will have a greater  impact on the  Company's
interest expense than in the past.

                                       23

<PAGE>

     On October 1, 1997, the Company redeemed approximately $26.2 million of the
approximately  $30.7 million of the Company's  outstanding  public debt that was
not tendered as part of the  Refinancing  Plan.  The  redemption was funded with
borrowings under the Credit Facility. In connection with these redemptions,  the
Company incurred an extraordinary  loss on the early  extinguishment  of debt of
approximately $1.3 million (net of income tax). The remaining outstanding public
debt of $4.5 million that was not tendered as part of the  Refinancing  Plan was
defeased in February 1998.

     On October 6, 1997,  the Company  sold its  needlepunch  carpeting,  tufted
carpeting and artificial grass products business,  located in Dalton, Georgia to
Bretlin,  Inc.,  a  subsidiary  of The Dixie  Group,  Inc.  The sales  price was
approximately  $41.0  million,  net  of  post-closing   adjustments  which  were
finalized  in December  1997.  The Company  used the net proceeds of the sale to
reduce long-term debt.

     During  1997  and  1996,   the  Company   repurchased   long-term  debt  of
approximately $42.4 million with the net proceeds from the sale of Perfect Fit.

     During  1997,  1996 and 1995,  the Company  purchased  shares of its common
stock,  respectively,  for an aggregate  cost of $5.7 million,  $6.3 million and
$7.2 million, respectively,  under programs authorized by the Board of Directors
to purchase up to 3.0 million shares of the Company's common stock.

Interest Rate Swap Agreements

     The Company  enters into  interest rate swaps to lower funding costs and/or
to manage interest costs and exposure to changing  interest  rates.  The Company
does not hold or issue financial instruments for trading purposes.

     In connection with the Refinancing  Plan, the Company's  existing  interest
rate swap agreements with a notional amount of $300.0 million were considered to
be effectively  terminated  since the underlying  debt was  extinguished.  These
interest  rate swap  agreements  had an estimated  fair value  liability of $8.2
million  at  the  date  of  the  Refinancing  Plan  which  is  included  in  the
extraordinary  loss  on the  early  extinguishment  of  debt.  In lieu of a cash
payment  for the  estimated  fair  value  of the  existing  interest  rate  swap
agreements,  the Company entered into an amendment of the existing interest rate
swap  agreements  resulting in one interest rate swap  agreement with a notional
amount of $150.0 million through June 2007.  Accordingly,  the $8.2 million fair
value  liability has been recorded as a deferred  credit which will be amortized
as a reduction in interest and debt issuance  expense on a  straight-line  basis
through June 2007. On January 8, 1998, the Company  entered into a new amendment
to its interest rate swap agreement.  The new amendment provides for an interest
rate swap agreement with a notional  amount of $150.0 million through June 2002.
Under the new  amendment,  the Company is  obligated  to make fixed  payments of
5.78% per annum through  December 1998 and variable  payments  based on LIBOR at
the  beginning of each six month period for the remainder of the  agreement,  in
exchange for fixed  payments by the swap partner at 6.44% per annum for the life
of the agreement,  payable  semiannually in arrears.  The newly amended interest
rate swap agreement can be terminated by the swap partner at the end of each six
month period commencing December 1999.

     The Company is exposed to credit loss in the event of a  nonperformance  by
the swap partner; however, the occurrence of this event is not anticipated.  The
effect of interest  rate swaps was a favorable  adjustment  to interest and debt
issuance  expense of $2.2 million,  $3.7 million and $1.4 million for 1997, 1996
and 1995, respectively.

Environmental Matters

     The Company is subject to  extensive  and changing  environmental  laws and
regulations.  Expenditures to date in connection  with the Company's  compliance
with  such  laws and  regulations  did not have a  material  adverse  effect  on
operations,  financial position,  capital expenditures or competitive  position.
The  amount  of  liabilities   recorded  by  the  Company  in  connection   with
environmental  matters as of December 28, 1997 was $9.3 million. In addition, as
of December 28, 1997,  the Company has net  receivables  of  approximately  $1.1
million for indemnification of environmental liabilities from former owners, net
of  approximately  $1.0 million  allowance  

                                       24

<PAGE>

relating to potential  disagreements regarding the scope of the indemnification.
Although  it is  possible  that new  information  or future  developments  could
require  the  Company  to  reassess  its  potential   exposure  to  all  pending
environmental  matters,  including  those  described  in  the  footnotes  to the
Company's  consolidated  financial  statements,  management believes that, based
upon all currently  available  information,  the  resolution of all such pending
environmental  matters will not have a material  adverse effect on the Company's
operations, financial position, capital expenditures or competitive position.

Inflation and Other Matters

     There was no significant impact on the Company's  operations as a result of
inflation during the prior three year period.  See "Results of Operations" for a
discussion of the impact of raw material price increases. In some circumstances,
market  conditions  or  customer  expectations  may  prevent  the  Company  from
increasing the price of its products to offset the  inflationary  pressures that
may increase its costs in the future.

     The  Company  has and will  continue  to make  certain  investments  in its
software  systems and applications to ensure the Company is Year 2000 compliant.
The Company plans to continue to make  modifications to the identified  software
during  1998 and test the  changes  during  1998.  The  financial  impact to the
Company has not been and is not  anticipated  to be  material  to its  financial
position or results of operation in any given year.

New Standards

     Statement  of  Financial  Accounting  Standards  No. 128 ("SFAS No.  128"),
"Earnings Per Share," was issued by the Financial  Accounting Standards Board in
February  1997.  The  Company  adopted  SFAS  No.  128  effective  with the 1997
financial statements.

     Statement  of  Financial  Accounting  Standards  No. 130 ("SFAS No.  130"),
"Reporting  Comprehensive  Income,"  was  issued  by  the  Financial  Accounting
Standards Board in June 1997.  This  statements  requires all items that must be
recognized under accounting  standards as components of comprehensive  income to
be reported in a financial  statement that is displayed with the same prominence
as other financial statements. The Company will adopt SFAS No. 130 for 1998.

     Statement  of  Financial  Accounting  Standards  No. 131 ("SFAS No.  131"),
"Disclosures  about  Segments of an Enterprise  and Restated  Information,"  was
issued by the Financial  Accounting Standards Board in June 1997. This statement
establishes  standards for reporting  information  about  operating  segments in
annual  financial  statements  and  requires  reporting  of  selected  financial
information  about  operating  segments in interim  financial  reports issued to
stockholders.  It also  establishes  standards  for  related  disclosures  about
products and services,  geographic areas, and major customers.  The Company will
adopt SFAS No. 131 for year ended 1998  reporting.  Management is evaluating the
impact,  if any,  the  standard  will  have  on the  Company's  present  segment
reporting.

ITEM 8.  FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

     An index to the financial  statements and the required financial  statement
schedules is set forth in Item 14.

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

     Not applicable.

PART III

     The  information  required by this Part III (Items 10, 11, 12 and 13) shall
be contained in an amendment to this Form 10-K to be filed by April 27, 1998.

                                       25
<PAGE>
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K

(a)    Financial statements

       Foamex International Inc. and Subsidiaries:
         Report of Independent Accountants                                 F-2
         Consolidated  Balance  Sheets as of December  28, 1997
          and December 29, 1996                                            F-3
         Consolidated  Statements of Operations for the years 
          ended 1997, 1996, and 1995                                       F-5
         Consolidated  Statements of Cash Flows for the years
          ended 1997, 1996, and 1995                                       F-6
         Consolidated Statements of Stockholders' Equity (Deficit)
          for the years ended 1997, 1996, and 1995                         F-7
         Notes to Consolidated Financial Statements                        F-8

       Foamex International Inc. and Subsidiaries Financial Statement Schedules:
         Schedule I - Condensed Financial Information of Registrant        S-2
         Schedule II - Valuation and Qualifying Account                    S-5

(b) Reports on Form 8-K.

         Form 8-K,  dated  October 6, 1997,  reporting the sale of the Company's
         needlepunch  carpeting,  tufted carpeting and artificial grass products
         business.

         Form 8-K, dated December 23, 1997,  reporting the  acquisition of Crain
         Industries, Inc.

         Form  8-K/A,  dated  March  9,  1998,  providing  pro  forma  financial
         information relating to the acquisition of Crain Industries, Inc.

         Form 8-K,  dated  February  28,  1998,  reporting a change in corporate
         structure.

(c) Exhibits

2.1(x)    - Transfer  Agreement,  dated as of February 27, 1998,  by and between
            Trace Foam LLC and Foamex L.P.
2.2(x)    - Asset  Purchase  Agreement,  dated as of February 27,  1998,  by and
            among  Foamex  Carpet  Cushion,   Inc.  ("Foamex  Carpet"),   Foamex
            International,  Trace Foam LLC and  General  Felt  Industries,  Inc.
            ("General Felt").
3.1(a)    - Certificate of Limited Partnership of Foamex L.P.
3.2.1(a)  - Fourth  Amended and  Restated  Agreement of Limited  Partnership  of
            Foamex L.P.,  dated as of December 14, 1993, by and among FMXI, Inc.
            ("FMXI") and Trace Foam Company,  Inc.  ("Trace  Foam"),  as general
            partners, and Foamex International Inc. ("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(v)  - Third Amendment to the Partnership Agreement, dated 
               December 23, 1997.
3.2.5(x)  - Fourth Amendment to the Partnership Agreement, dated 
               February 27, 1998.
3.3       - Certificate of Incorporation of FMXI.
3.4       - By-laws of FMXI.
3.5(k)    - Certificate of Incorporation of Foamex Capital Corporation ("FCC").
3.6(k)    - By-laws of FCC.
3.7(a)    - Certificate of Incorporation of Foamex International.
3.8(a)    - By-laws of Foamex International.

                                       26
<PAGE>
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(v)  - 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(x)  - Second 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,  and The Bank of
            New York, as trustee, relating to the 9 7/8% Notes.
4.1.4(d)  - Registration  Rights  Agreement,  dated as of June 12, 1997,  by and
            among Foamex L.P., FCC, General Felt, Foamex Fibers,  and all future
            direct or indirect domestic  subsidiaries of Foamex L.P. or FCC, and
            Donaldson,   Lufkin  &  Jenrette  Securities  Corporation,   Salomon
            Brothers Inc. and Scotia Capital Markets, as Initial Purchasers.
4.2.1(v)  - 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(x)  - 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.
4.3(x)    - Discharge of Indenture,  dated as of February 27, 1998, by and among
            Foamex L.P.,  General Felt,  Foamex  International  and State Street
            Bank and Trust  Company,  as trustee,  relating to the 9 1/2% Senior
            Secured Notes due 2000.
4.4.1(x)  - Credit Agreement, dated as of June 12, 1997, as amended and restated
            as of February 27, 1998,  by and among  Foamex L.P.,  and FMXI,  the
            institutions  from  time to  time  party  thereto  as  lenders,  the
            institutions  from time to time party thereto as issuing banks,  and
            Citicorp  USA, Inc. and The Bank of Nova Scotia,  as  Administrative
            Agents.
4.4.2(x)  - Second Amended and Restated Foamex International Guaranty,  dated as
            of  February  27,  1998,  made by Foamex  International  in favor of
            Citicorp USA, Inc., as Collateral Agent.
4.4.3(x)  - Amended and Restated Partnership Guaranty,  dated as of February 27,
            1998,  made by FMXI in favor of Citicorp  USA,  Inc.,  as Collateral
            Agent.
4.4.4(p)  - Foamex  Guaranty,  dated as of June 12, 1997,  made by Foamex
            L.P. in favor of Citicorp USA, Inc., as Collateral Agent.
4.4.5(p)  - Subsidiary  Guaranty,  dated  as of June 12,  1997,  made by
            Foamex Latin  America,  Inc. in favor of Citicorp USA, Inc., as
            Collateral Agent.
4.4.6(p)  - Subsidiary  Guaranty,  dated  as of June 12,  1997,  made by
            Foamex  Mexico,  Inc.  in  favor  of  Citicorp  USA,  Inc.,  as
            Collateral Agent.
4.4.7(p)  - Subsidiary  Guaranty,  dated as of June 12, 1997, made by FCC
            in favor of Citicorp USA, Inc., as Collateral Agent.
4.4.8(p)  - Subsidiary  Guaranty,  dated  as of June 12,  1997,  made by
            Foamex  Mexico II,  Inc.  in favor of Citicorp  USA,  Inc.,  as
            Collateral Agent.
4.4.9(p)  - Subsidiary  Guaranty,  dated  as of June 12,  1997,  made by
            Foamex Asia, Inc. in favor of Citicorp USA, Inc., as Collateral
            Agent.
4.4.10(p) - Subsidiary Pledge Agreement,  dated as of June 12, 1997, made
            by FCC in favor of Citicorp USA, Inc., as Collateral Agent.
4.4.11(p) - Subsidiary Pledge Agreement,  dated as of June 12, 1997, made
            by Foamex Latin  America,  Inc. in favor of Citicorp USA, Inc.,
            as Collateral Agent.
4.4.12(p) - Subsidiary Pledge Agreement,  dated as of June 12, 1997, made
            by  Foamex  Asia,  Inc.  in favor of  Citicorp  USA,  Inc.,  as
            Collateral Agent.
4.4.13(p) - Subsidiary Pledge Agreement,  dated as of June 12, 1997, made
            by Foamex  Mexico,  Inc. in favor of  Citicorp  USA,  Inc.,  as
            Collateral Agent.
4.4.14(p) - Subsidiary Pledge Agreement,  dated as of June 12, 1997, made
            by Foamex  Mexico II, Inc. in favor of Citicorp  USA,  Inc., as
            Collateral Agent.

                                       27
<PAGE>
4.4.15(p) - Foamex Security Agreement, dated as of June 12, 1997, made by
            Foamex L.P.  in favor of  Citicorp  USA,  Inc.,  as  Collateral
            Agent.
4.4.16(p) - Subsidiary  Security  Agreement,  dated as of June 12, 1997,
            made by Foamex Latin  America,  Inc. in favor of Citicorp  USA,
            Inc., as Collateral Agent.
4.4.17(p) - Subsidiary  Security  Agreement,  dated as of June 12, 1997,
            made by Foamex Mexico,  Inc. in favor of Citicorp USA, Inc., as
            Collateral Agent.
4.4.18(p) - Subsidiary  Security  Agreement,  dated as of June 12, 1997,
            made by Foamex Mexico II, Inc. in favor of Citicorp USA,  Inc.,
            as Collateral Agent.
4.4.19(p) - Subsidiary  Security  Agreement,  dated as of June 12, 1997,
            made by Foamex Asia,  Inc. in favor of Citicorp  USA,  Inc., as
            Collateral Agent.
4.4.20(p) - Subsidiary  Security  Agreement,  dated as of June 12, 1997,
            made by FCC in favor  of  Citicorp  USA,  Inc.,  as  Collateral
            Agent.
4.4.21    - Intentionally omitted.
4.4.22(w) - First  Amendment  to  Foamex  Pledge  Agreement,  dated as of
            December  23,  1997,  by Foamex L.P. in favor of Citicorp  USA,
            Inc., as Collateral Agent.
4.4.23(w) - First  Amendment to Foamex  Security  Agreement,  dated as of
            December  23,  1997,  by Foamex L.P. in favor of Citicorp  USA,
            Inc., as Collateral Agent.
4.4.24(w) - First  Amendment  to  Foamex  Patent  Agreement,  dated as of
            December  23,  1997,  by Foamex L.P. in favor of Citicorp  USA,
            Inc., as Collateral Agent.
4.4.25(w) - First Amendment to Trademark Security Agreement,  dated as of
            December  23,  1997,  by Foamex L.P. in favor of Citicorp  USA,
            Inc., as Collateral Agent.
4.4.26(w) - Acknowledgment  of Guaranty by each of the  guarantors to a Guaranty
            dated June 12, 1997 in favor of Citicorp USA, Inc.
4.4.27(w) - First Amendment to Pledge Agreement, dated as of December 23,
            1997, by pledgors in favor of Citicorp USA, Inc.
4.4.28(w) - Crain  Industries  Guaranty,  dated as of December  23, 1997,
            made by Crain in favor of Citicorp USA, Inc.
4.4.29(x) - Partnership Pledge Agreement,  dated as of February 27, 1998,
            made by Foamex International and FMXI in favor of Citicorp USA,
            Inc., as Collateral Agent.
4.5(u)    - Commitment letter, dated July 17, 1997, from The Bank of Nova Scotia
            to Foamex Canada Inc.
4.6(a)    - Subordinated  Promissory  Note,  dated as of May 6, 1993, in the
            original principal amount of $7,014,864 executed by Foamex L.P. to
            John Rallis ("Rallis").
4.7(a)    - Marely Loan Commitment Agreement, dated as of December 14, 1993, by
            and between Foamex L.P. and Marely s.a. ("Marely").
4.8(a)    - DLJ Loan Commitment Agreement, dated as of December 14, 1993, by and
            between Foamex L.P. and DLJ Funding, Inc. ("DLJ Funding").
4.9.1(p)  - 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(p)  - Promissory  Note,  dated  June 12,  1997,  in the  aggregate
            principal  amount of $4,794,828,  executed by Trace Holdings to
            Foamex L.P.
4.10.1(x) - Credit Agreement, dated as of February 27, 1998, by and among
            Foamex Carpet, the institutions from time to time party thereto
            as lenders, the institutions from time to time party thereto as
            issuing  banks  and  Citicorp  USA,  Inc.  and The Bank of Nova
            Scotia, as administrative agents.
4.10.2(x) - Foamex International Guaranty, dated as of February 27, 1998,
            made by Foamex International in favor of Citicorp USA, Inc., as
            Collateral Agent.
4.10.3(x) - Foamex International  Pledge Agreement,  dated as of February
            27,  1998,  made by Foamex  International  in favor of Citicorp
            USA, Inc., as Collateral Agent.
4.10.4(x) - New GFI  Security  Agreement,  dated as of February 27, 1998,
            made by  Foamex  Carpet  in favor of  Citicorp  USA,  Inc.,  as
            Collateral Agent.
4.10.5(x) - New GFI  Intercreditor  Agreement,  dated as of February  27,
            1998, by and among Foamex Carpet,  The Bank of Nova Scotia,  as
            Administrative Agent, and Citicorp USA, Inc., as Administrative
            Agent and Collateral Agent.
4.10.6(x) - FII Intercreditor  Agreement,  dated as of February 27, 1998,
            by and between Foamex  International and Citicorp USA, Inc., as
            Collateral Agent.

                                       28
<PAGE>
4.11.1(x) - Promissory  Note of Foamex  L.P.  in favor of Trace  Foam LLC in the
            principal amount of $34 million, dated February 27, 1998.
4.12.1(x) - Promissory  Note of Foamex  Carpet in favor of Trace Foam LLC in the
            principal amount of $70.2 million, dated February 27, 1998.
10.1.1(p) - Amendment  to Master  Agreement,  dated as of June 5, 1997,  between
            Citibank, N.A. and Foamex L.P.
10.1.2(p) - Amended  Confirmation,  dated as of June 13, 1997, between Citibank,
            N.A. and Foamex L.P.
10.2(h)   - Reimbursement  Agreement,  dated as of March 23, 1993, between Trace
            Holdings and General Felt.
10.3(h)   - 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 foam technology sharing arrangement.
10.4.1(k) - 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(k) - First  Amendment,  dated  as of  December  19,  1991,  to the  Trace
            Holdings Asset Transfer Agreement.  
10.4.3(k) - Amended and Restated Guaranty, dated as of December 19, 1991, made
            by Trace Foam in favor of Foamex L.P.
10.5.1(k) - 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(k) - First  Amendment,  dated as of December 19,  1991,  to the RFC Asset
            Transfer Agreement.
10.5.3(k) - Schedule  5.03  to the  RFC  Asset  Transfer  Agreement  (the  "5.03
            Protocol").
10.5.4(h) - The 5.03  Protocol  Assumption  Agreement,  dated as of October  13,
            1992, between RFC and Foamex L.P.
10.5.5(h) - Letter Agreement  between Trace Holdings and Recticel  regarding the
            Recticel Guaranty, dated as of July 22, 1992.
10.6(l)   - Supply  Agreement,  dated June 28,  1994,  between  Foamex L.P.  and
            Foamex International.
10.7.1(l) - 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 Amended and  Restated  Tax Sharing  Agreement of
            Foamex L.P.,  dated as of June 12,  1997,  by and among Foamex L.P.,
            Foamex International, FMXI and Trace Foam.
10.7.3(w) - Second  Amendment to Amended and  Restated Tax Sharing  Agreement of
            Foamex  L.P.,  dated as of December  23,  1997,  by and among Foamex
            L.P., Foamex International, FMXI, and Trace Foam.
10.7.4    - Third  Amendment to Amended and  Restated  Tax Sharing  Agreement of
            Foamex L.P.,  dated as of February 27, 1998,  by and between  Foamex
            L.P., Foamex International and FMXI.
10.8.1(m) - Tax Distribution  Advance Agreement,  dated as of December 11, 1996,
            by and between Foamex L.P. and Foamex-JPS Automotive.
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.
10.9.1(h) - Trace Foam Management  Agreement between Foamex L.P. and Trace Foam,
            dated as of October 13, 1992.
10.9.2(l) - Affirmation Agreement re: Management Agreement, dated as of December
            14, 1993, between Foamex L.P. and Trace Foam.
10.9.3(d) - First Amendment to Management Agreement,  dated as of June 12, 1997,
            by and between Foamex L.P. and Trace Foam.
10.10.1(k)- Salaried Incentive Plan of Foamex L.P. and Subsidiaries.
10.10.2(k)- Trace Holdings 1987 Nonqualified Stock Option Plan.
10.10.3(k)- Equity Growth Participation Program.
10.10.4(o)- 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(u)- The Foamex L.P.  Hourly  Pension Plan  (formerly  "The Foamex
            Products Inc.  Hourly  Employee  Retirement  Plan),  as amended
            December 31, 1995.
10.10.6(u)- Foamex L.P. 401(k) Savings Plan effective October 1, 1997.

                                       29
<PAGE>

10.10.7(a)- Foamex L.P.'s 1993 Stock Option Plan.
10.10.8(a)- Foamex L.P.'s Non-Employee Director Compensation Plan.
10.11.1(o)- Employment  Agreement,  dated as of February 1, 1994, by and between
            Foamex L.P. and William H. Bundy.
10.12.1(a)- Warrant  Exchange  Agreement,  dated as of December 14, 1993, by and
            between Foamex L.P. and Marely.
10.12.2(a)- Warrant  Exchange  Agreement,  dated as of December 14, 1993, by and
            between Foamex L.P. and DLJ Funding.
10.13(t)  - Warrant Agreement,  dated as of June 28, 1994, by and between Foamex
            International and Shawmut Bank.
10.14(o)  - 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(r)- 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(s)- 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.

10.16.1(x)- Supply  Agreement,  dated as of February  27,  1998,  by and between
            Foamex L.P. and General Felt (as assigned to Foamex Carpet).

10.16.2(x)- Administrative Services Agreement, dated as of February 27, 1998, by
            and between  Foamex L.P.  and  General  Felt (as  assigned to Foamex
            Carpet).

10.17     - Tax Sharing Agreement, dated as of February 27, 1998, between Foamex
            International and Foamex Carpet.

27        -  Financial Data Schedule for the year ended December 28, 1997.
----------------------------

(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 Form 10-K of Foamex
     for the fiscal year ended January 1, 1995.

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

(e)  Incorporated  herein  by  reference  to the  Exhibit  to  the  Registration
     Statement of Foamex and FCC on Form S-4, Registration No. 33-65158.

(f)  Incorporated  herein by reference to the Exhibit to the Form 10-Q of Foamex
     for the quarterly period ended June 30, 1996.

(g)  Incorporated  herein  by  reference  to the  Exhibit  to  the  Registration
     Statement of Foamex,  FCC and General Felt on Form S-1,  Registration  Nos.
     33-60888, 33-60888-01, and 33-60888-02.

                                       30
<PAGE>

(h)  Incorporated  herein by reference to the Exhibit to the Form 10-K Statement
     of Foamex and FCC for fiscal 1992.

(i)  Incorporated  herein by reference to the Exhibit to the Form 10-K of Foamex
     L.P. for fiscal 1994.

(j)  Incorporated  herein by reference to the Exhibit to the Form 10-Q of Foamex
     for the quarterly period ended September 30, 1996.

(k)  Incorporated  herein  by  reference  to the  Exhibit  to  the  Registration
     Statement  of Foamex and FCC on Form S-1,  Registration  Nos.  33-49976 and
     33-49976-01.

(l)  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.

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

(n)  Incorporated  herein by reference to the Exhibit to the Form 10-Q of Foamex
     for the quarterly period ended July 2, 1995.

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

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

(q)  Incorporated  herein by reference to the Exhibit to the Form 10-K of Foamex
     L.P. for the fiscal year ended December 31, 1995.

(r)  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.

(s)  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.

(t)  Incorporated  by  reference  to the  Exhibit  to the  Form  10-Q of  Foamex
     International for the quarterly period ended July 3, 1994.

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

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

(w)  Incorporated  herein  by  reference  to the  Exhibit  in  the  Registration
     Statement of Foamex on Form S-4, Registration No. 333-45733.

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

         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.

                                       31
<PAGE>


<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 on the 13th day of April, 1998.

                                            FOAMEX INTERNATIONAL INC.


                                            By: /s/ Andrea Farace
                                            Andrea Farace
                                            Chairman of the Board and
                                            Chief Executive Officer

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

Signature                               Title                           Date


/s/ Andrea Farace                 Chairman of the Board,          April 13, 1998
    Andrea Farace                 Chief Executive Officer
                                  and Director


/s/ Robert J. Hay                 Chairman Emeritus               April 13, 1998
    Robert J. Hay                 and Director


/s/ Marshall S. Cogan             Vice Chairman                   April 13, 1998
    Marshall S. Cogan             of the Board


/s/ Kenneth R. Fuette             Executive Vice President        April 13, 1998
    Kenneth R. Fuette             (Chief Financial Officer and
                                  Chief Administrative Officer)


/s/ Etienne Davignon              Director                        April 13, 1998
    Etienne Davignon


                                       32
<PAGE>

/s/ John H. Gutfreund             Director                        April 13, 1998
    John H. Gutfreund





/s/ Stuart J. Hershon             Director                        April 13, 1998
    Stuart J. Hershon




/s/ John V. Tunney                Director                        April 13, 1998
    John V. Tunney


                                       33
<PAGE>

                            FOAMEX INTERNATIONAL INC.
                   INDEX TO CONSOLIDATED FINANCIAL STATEMENTS


Foamex International Inc.

     Index to Consolidated Financial Statements                              F-1

     Report of Independent Accountants                                       F-2

     Consolidated  Balance  Sheets as of December 28, 1997 and 
     December 29, 1996                                                       F-3

     Consolidated  Statements of Operations for the years ended 
     1997,  1996, and 1995                                                   F-5

     Consolidated  Statements of Cash Flows for the years ended 1997,  
     1996, and 1995                                                          F-6

     Consolidated  Statements of  Stockholders'  Equity  
     (Deficit) for the years ended 1997, 1996, and 1995                      F-7

     Notes to Consolidated Financial Statements                              F-8

                                      F-1
<PAGE>

                        REPORT OF INDEPENDENT ACCOUNTANTS


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

We  have  audited  the  accompanying   consolidated  balance  sheets  of  Foamex
International  Inc. and subsidiaries (the "Company") as of December 28, 1997 and
December 29, 1996, and the related consolidated  statements of operations,  cash
flows and  stockholders'  equity  (deficit)  for each of the three  years in the
period ended December 28, 1997. Our audits also included the financial statement
schedules as of and for each of the three years in the period ended December 28,
1997.  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 audits.

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

In our opinion,  the financial  statements  referred to above present fairly, in
all material respects,  the consolidated financial position of the Company as of
December 28, 1997 and December 29, 1996, and the  consolidated  results of their
operations  and their cash flows for each of the three years in the period ended
December 28, 1997 in conformity with generally accepted  accounting  principles.
In addition,  in our opinion,  the  financial  statement  schedules  referred to
above,  when  considered  in  relation  to  the  basic  consolidated   financial
statements taken as a whole,  presents  fairly,  in all material  respects,  the
information required to be included therein.




COOPERS & LYBRAND L.L.P.

2400 Eleven Penn Center  
Philadelphia,  Pennsylvania 
March 4, 1998, except as to
the information presented in 
Note 1 and Note 17, for which 
the date is March 23, 1998.

                                      F-2
<PAGE>
                   FOAMEX INTERNATIONAL INC. AND SUBSIDIARIES
                           CONSOLIDATED BALANCE SHEETS


<TABLE>
<CAPTION>
                                                      December 28,         December 29,
ASSETS                                                   1997                 1996
                                                                           (thousands)
<S>                                                    <C>                 <C>      
CURRENT ASSETS:
    Cash and cash equivalents                          $  12,044           $  22,203
    Restricted cash                                           --              12,143
    Accounts receivable, net of allowance for
      doubtful accounts of $8,082 and $6,328             175,684             126,573
    Inventories                                          120,299             101,220
    Deferred income taxes                                 22,853              21,765
    Due from related parties                               1,755               1,866
    Other current assets                                  38,293              21,334
                                                       ---------           ---------

            Total current assets                         370,928             307,104
                                                       ---------           ---------

PROPERTY, PLANT AND EQUIPMENT:
    Land and land improvements                             9,054               9,674
    Buildings and leasehold improvements                  79,876              78,082
    Machinery, equipment and furnishings                 234,229             199,993
    Construction in progress                              23,331              20,784
                                                       ---------           ---------

            Total                                        346,490             308,533

    Less accumulated depreciation and
      amortization                                      (113,055)           (113,160)
                                                       ---------           ---------

       Property, plant and equipment, net                233,435             195,373

COST IN EXCESS OF ASSETS ACQUIRED, NET                   223,219              82,471

DEBT ISSUANCE COSTS, NET                                  18,889              18,628

DEFERRED INCOME TAXES                                     27,911                  --

OTHER ASSETS                                              24,241              16,270
                                                       ---------           ---------

TOTAL ASSETS                                           $ 898,623           $ 619,846
                                                       =========           =========
</TABLE>


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

                                      F-3
<PAGE>
                   FOAMEX INTERNATIONAL INC. AND SUBSIDIARIES
                           CONSOLIDATED BALANCE SHEETS

<TABLE>
<CAPTION>
                                                                          December 28,         December 29,
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)                                1997                 1996
                                                                            (thousands except share data)
<S>                                                                       <C>                   <C>        
CURRENT LIABILITIES:
    Short-term borrowings                                                 $     6,598           $     3,692
    Current portion of long-term debt                                          12,931                14,505
    Accounts payable                                                          131,689                84,930
    Accrued employee compensation                                              10,827                 7,302
    Accrued interest                                                           10,716                 9,012
    Accrued restructuring and plant consolidation                              15,644                 6,300
    Other accrued liabilities                                                  44,042                44,782
                                                                          -----------           -----------

      Total current liabilities                                               232,447               170,523

LONG-TERM DEBT                                                                735,724               483,344

DEFERRED INCOME TAXES                                                           2,529                 6,290

ACCRUED RESTRUCTURING AND
    PLANT CONSOLIDATION                                                        11,252                 4,043

OTHER LIABILITIES                                                              30,090                13,749
                                                                          -----------           -----------

    Total liabilities                                                       1,012,042               677,949
                                                                          -----------           -----------

COMMITMENTS AND CONTINGENCIES                                                      --                    --
                                                                          -----------           -----------

STOCKHOLDERS' EQUITY (DEFICIT):
    Preferred Stock, par value $1.00 per share:
      Authorized 5,000,000 shares - none issued                                    --                    --
    Common Stock, par value $.01 per share:
      Authorized 50,000,000 shares
      Issued 26,908,680 and 26,753,262 shares, respectively;
      Outstanding 24,919 680 and 25,198,862 shares, respectively                  269                   267
    Additional paid-in capital                                                 86,025                84,579
    Retained earnings (accumulated deficit)                                  (164,118)             (120,174)
    Other                                                                     (16,393)               (9,312)
                                                                          -----------           -----------
                                                                              (94,217)              (44,640)
    Common Stock held in treasury, at cost:
      1,989,000 shares and 1,554,400, respectively                            (19,202)              (13,463)
                                                                          -----------           -----------

      Total stockholders' equity (deficit)                                   (113,419)              (58,103)
                                                                          -----------           -----------

TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)                      $   898,623           $   619,846
                                                                          ===========           ===========
</TABLE>

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

                                      F-4
<PAGE>
                   FOAMEX INTERNATIONAL INC. AND SUBSIDIARIES
                      CONSOLIDATED STATEMENTS OF OPERATIONS
                       For the Years 1997, 1996, and 1995
<TABLE>
<CAPTION>
                                                     1997                1996                1995
                                                        (thousands except per share amounts)
<S>                                                <C>                 <C>                 <C>      
NET SALES                                          $ 931,095           $ 926,351           $ 862,834

COST OF GOODS SOLD                                   787,756             773,119             762,085
                                                   ---------           ---------           ---------

GROSS PROFIT                                         143,339             153,232             100,749

SELLING, GENERAL AND ADMINISTRATIVE
    EXPENSES                                          67,139              58,329              69,913

RESTRUCTURING AND OTHER CHARGES (CREDITS)             21,100              (6,541)             41,417
                                                   ---------           ---------           ---------

INCOME (LOSS) FROM OPERATIONS                         55,100             101,444             (10,581)

INTEREST AND DEBT ISSUANCE EXPENSE                    50,570              53,900              52,878

OTHER INCOME, NET                                      2,126               1,617                 461
                                                   ---------           ---------           ---------

INCOME (LOSS) FROM CONTINUING OPERATIONS
    BEFORE PROVISION (BENEFIT) FOR
    INCOME TAXES                                       6,656              49,161             (62,998)

PROVISION (BENEFIT) FOR INCOME TAXES                   2,525              16,669             (12,248)
                                                   ---------           ---------           ---------

INCOME (LOSS) FROM CONTINUING OPERATIONS               4,131              32,492             (50,750)
                                                   ---------           ---------           ---------

LOSS FROM DISCONTINUED OPERATIONS,
    NET OF INCOME TAXES                               (1,994)           (114,480)             (2,370)

EXTRAORDINARY LOSS ON EARLY
    EXTINGUISHMENT OF DEBT,
    NET OF INCOME TAXES                              (44,482)             (1,147)                 --
                                                   ---------           ---------           ---------

NET INCOME (LOSS)                                  $ (42,345)          $ (83,135)          $ (53,120)
                                                   =========           =========           =========

BASIC EARNINGS (LOSS) PER SHARE:

   CONTINUING OPERATIONS                           $    0.16           $    1.28           $   (1.92)
                                                   =========           =========           =========

   NET EARNINGS (LOSS) PER SHARE                   $   (1.68)          $   (3.28)          $   (2.01)
                                                   =========           =========           =========

DILUTED EARNINGS (LOSS) PER SHARE:

   CONTINUING OPERATIONS                           $    0.16           $    1.26           $   (1.92)
                                                   =========           =========           =========

   NET EARNINGS (LOSS) PER SHARE                   $   (1.65)          $   (3.23)          $   (2.01)
                                                   =========           =========           =========
</TABLE>

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

                                      F-5
<PAGE>
                   FOAMEX INTERNATIONAL INC. AND SUBSIDIARIES
                      CONSOLIDATED STATEMENTS OF CASH FLOWS
                       For the Years 1997, 1996, and 1995
<TABLE>
<CAPTION>
                                                                     1997             1996            1995
OPERATING ACTIVITIES:                                                             (thousands)
<S>                                                                <C>             <C>             <C>       
   Net income (loss)                                               $ (42,345)      $ (83,135)      $ (53,120)
   Adjustments to reconcile  net income (loss) to net
    cash provided by operating activities:
     Depreciation and amortization                                    22,047          22,353          23,302
     Amortization of debt issuance costs and debt discount             7,783          13,903          12,192
     Net loss on disposal of discontinued operations                   1,994         110,137              --
     Net loss (income) from discontinued operations                       --           4,343           2,370
     Asset writedowns and other charges (credits)                     16,041          (7,364)         16,677
     Provision for uncollectible accounts                              2,291             704           4,627
     Deferred income taxes                                            (1,496)         14,903         (10,667)
     Other, net                                                       (4,874)         (3,642)            (72)
   Changes in operating assets and liabilities,
    net of acquisitions and discontinued operations:
     Accounts receivable                                              (4,037)        (13,723)         (1,604)
     Inventories                                                      12,882         (11,688)         14,146
     Accounts payable                                                 12,733           4,306          (2,726)
     Accrued restructuring and plant consolidation charges             1,701          (7,405)         17,284
     Other assets and liabilities                                    (24,342)         (2,438)          3,048
                                                                   ---------       ---------       ---------

        Net cash provided by continuing operations                       378          41,254          25,457
        Net cash provided by discontinued operations                      --          16,491           4,133
                                                                   ---------       ---------       ---------
        Net cash provided by operating activities                        378          57,745          29,590
                                                                   ---------       ---------       ---------

INVESTING ACTIVITIES:
   Capital expenditures                                              (33,537)        (23,344)        (22,348)
   Acquisitions, net of cash acquired                               (119,065)           (841)         (8,113)
   Proceeds from sale (settlement) of discontinued operations        (13,556)         59,452              --
   Proceeds from sale of assets                                       40,169              --              --
   Purchase of note from related party                                (5,000)             --              --
   Decrease (increase) in restricted cash                             12,143         (12,143)             --
   Discontinued operations investing activities                           --          (5,490)        (19,411)
   Other investing activities                                         (1,888)         (1,276)          2,495
                                                                   ---------       ---------       ---------

        Net cash provided by (used for) investing activities        (120,734)         16,358         (47,377)
                                                                   ---------       ---------       ---------

FINANCING ACTIVITIES:
   Net proceeds from (repayments of) short-term borrowings             2,894           1,493          (1,685)
   Net proceeds from (repayments of) revolving loans                  54,928              --          (3,000)
   Proceeds from long-term debt                                      594,499           1,500              --
   Repayments of long-term debt                                     (517,549)        (38,887)         (9,356)
   Debt issuance costs                                               (18,410)             --            (184)
   Purchase of treasury stock                                         (5,739)         (6,296)         (7,167)
   Discontinued operations financing activities                           --         (12,406)          1,674
   Other financing activities                                           (426)           (626)             --
                                                                   ---------       ---------       ---------

        Net cash provided by (used for) financing activities         110,197         (55,222)        (19,718)
                                                                   ---------       ---------       ---------

Net increase (decrease) in cash and cash equivalents                 (10,159)         18,881         (37,505)

Cash and cash equivalents at beginning of period                      22,203           3,322          40,827
                                                                   ---------       ---------       ---------

Cash and cash equivalents at end of period                         $  12,044       $  22,203       $   3,322
                                                                   =========       =========       =========
</TABLE>

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

                                      F-6
<PAGE>
                   FOAMEX INTERNATIONAL INC. AND SUBSIDIARIES
            CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY (DEFICIT)
                       For the Years 1997, 1996, and 1995
<TABLE>
<CAPTION>
                                                                                        Retained
                                                                        Additional      Earnings
                                                  Common Stock            Paid-in     (Accumulated                   Treasury
                                              Shares         Amount       Capital       Deficit)        Other          Stock
                                                                            (thousands)
<S>                                         <C>         <C>           <C>           <C>            <C>            <C> 

Balances at January 1, 1995                    26,684      $     267     $  83,624     $  16,081      $  (7,827)

Issuance of common stock                           32             --           316
Stock option compensation                                                       75
Increase in note receivable from
    principal stockholder                                                                                (1,373)
Additional pension liability                                                                             (1,974)
Foreign currency translation adjustment                                                                     481
Purchase of treasury stock                                                                                           $  (7,167)
Net loss                                                                                 (53,120)
                                            ---------      ---------     ---------     ---------      ---------      --------- 

Balances at December 31, 1995                  26,716            267        84,015       (37,039)       (10,693)        (7,167)

Issuance of common stock                           22             --           165
Stock option compensation                                                      297
Stock options exercised                            15             --           102
Additional pension liability                                                                              1,427
Foreign currency translation adjustment                                                                     (46)
Purchase of treasury stock                                                                                              (6,296)
Net loss                                                                                 (83,135)
                                            ---------      ---------     ---------     ---------      ---------      --------- 
Balances at December 29, 1996                  26,753            267        84,579      (120,174)        (9,312)       (13,463)


Issuance of common stock                           10             --           161
Stock option compensation                                                      282
Stock options exercised                           145              2         1,003
Additional pension liability                                                                               (786)
Foreign currency translation adjustment                                                                    (873)
Purchase of treasury stock                                                                                              (5,739)
Net loss                                                                                 (42,345)
Increase in note receivable from
    principal stockholder                                                                                (5,422)
Distribution to principal stockholder                                                     (1,599)
                                            ---------      ---------     ---------     ---------      ---------      --------- 

Balances at December 28, 1997                  26,908      $     269     $  86,025     $(164,118)     $ (16,393)     $ (19,202)
                                            =========      =========     =========     =========      =========      =========
</TABLE>

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

                                      F-7
<PAGE>
                   FOAMEX INTERNATIONAL INC. AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

1.   ORGANIZATION AND BASIS OF PRESENTATION

     Foamex International Inc. (the "Company") is a manufacturer and distributor
of  flexible  polyurethane  foam and  advanced  polymer  foam  products in North
America.  During 1997,  1996 and 1995,  the  Company's  products  were  utilized
primarily in five end markets (i) carpet cushion and other carpet products, (ii)
cushioning foams,  including bedding  products,  (iii) automotive  applications,
including  trim  and   accessories,   (iv)  furniture   products  for  furniture
manufacturers  and  distributors,  and (v) specialty and technical  applications
including, those for filtration, gasketing and sealing.

     On December 23, 1997, the Company acquired Crain Industries, Inc. ("Crain")
pursuant to a merger agreement with Crain Holdings Corp. for a purchase price of
approximately   $213.7  million,   including  the  assumption  of  debt  ("Crain
Acquisition").  In  addition,  fees  and  expenses  associated  with  the  Crain
Acquisition are approximately  $13.2 million.  The Crain Acquisition  provides a
fully  integrated  manufacturer,  fabricator and distributor of a broad range of
flexible  polyurethane  foam  and foam  products  which  are  sold to a  diverse
customer base, principally in the furniture, bedding and carpet cushion markets.
In   connection   with  the  Crain   Acquisition,   the   Company   approved   a
restructuring/consolidation  plan for the two  entities.  The  Company  recorded
restructuring  charges of $21.1  million  relating to the  restructuring  of the
Company's  operations in connection  with the Crain  Acquisition and the related
transactions.  In addition,  the Company recorded  approximately $1.5 million of
severance and related costs and $8.5 million for costs  associated with the shut
down and consolidation of certain acquired facilities.

     On March 16,  1998,  the  Company  announced  that its  Board of  Directors
received an unsolicited buyout proposal from Trace International  Holdings, Inc.
("Trace Holdings"), the Company's principal stockholder. Trace Holdings proposed
to acquire all of the  outstanding  common  stock of the  Company not  currently
owned by Trace  Holdings  and its  subsidiaries  for a cash  price of $17.00 per
share.  Also, Trace Holdings  informed the Board of Directors that financing for
the buyout  transaction would be arranged through  Donaldson,  Lufkin & Jenrette
Securities Corporation and The Bank of Nova Scotia/Scotia Capital Markets. As of
March  16,  1998,  Trace  Holdings  and  its  subsidiaries   beneficially  owned
approximately  11,475,000 shares or approximately 46% of the outstanding  common
stock of the Company.  In response to Trace Holding's offer, the Company's Board
of Directors has appointed a special committee to determine the advisability and
fairness of the proposed buyout to the Company's  stockholders  other than Trace
Holdings and its subsidiaries. Trace's proposed buyout is subject to a number of
conditions,  including  the  negotiations  of  definitive  documents  (which are
expected to contain  customary closing  conditions);  the filing of a disclosure
statement  and other  documents  with the  Securities  and Exchange  Commission;
regulatory  filings;  and  approval  of the  transaction  by a  majority  of the
Company's stockholders.

2.   SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

     Consolidation

     The consolidated  financial  statements include the accounts of the Company
and all subsidiaries  that the Company directly or indirectly  controls,  either
through majority ownership or otherwise.  Intercompany accounts and transactions
for continuing operations have been eliminated in consolidation.

     Fiscal Year

     The Company's  fiscal year ends on the Sunday  closest to the  thirty-first
day of  December.  Fiscal years 1997,  1996 and 1995 were  composed of fifty-two
weeks and ended on December 28,  1997,  December 29, 1996 and December 31, 1995,
respectively.

                                      F-8
<PAGE>
                   FOAMEX INTERNATIONAL INC. AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

2.   SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)

     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 at the
date of the  financial  statements  and the  reported  amounts of  revenues  and
expenses  during the reported  period.  Actual  results  could differ from those
estimates.  (See  Notes 3, 4, 8, 11,  16,  17 and 18 and Cost in  Excess  of Net
Assets Acquired below.)

     Revenue Recognition

     Revenue from sales is recognized when products are shipped.

     Discounts and Billing Adjustments

     A reduction in sales revenue is recognized for sales discounts when product
is invoiced or for other billing adjustments.

     Cash Equivalents

     The  Company  considers  all highly  liquid  investments  with an  original
maturity  of three  months or less when  purchased  to be cash  equivalents.  On
December 28, 1997 and December 29, 1996, cash and cash equivalents included $2.7
million and $19.6 million, respectively, of repurchase agreements collateralized
by U.S. Government securities.

     Restricted Cash

     As of December 29, 1996, the Company had restricted  cash of  approximately
$12.1 million. This cash was derived from the net sales proceeds relating to the
sale of Perfect Fit  Industries,  Inc. (See Note 9) and was restricted by Foamex
L.P.'s debt  agreements.  During 1997 and 1996,  the Company used the restricted
cash to repurchase approximately $11.8 million of outstanding indebtedness.

     Inventories

     Inventories  are  stated  at the lower of cost or  market.  The cost of the
inventories 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 twenty to thirty-five
years, and the range for machinery,  equipment and furnishings is five to twelve
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 the years ended 1997, 1996 and 1995 was $18.8 million,
$19.1 million and $19.1  million,  respectively.  For income tax  purposes,  the
Company uses accelerated depreciation methods.

     Cost of maintenance and repairs is charged to expense as incurred. Renewals
and improvements are capitalized.  Upon retirement or other disposition of items
of plant  and  equipment,  the cost and  related  accumulated  depreciation  are
removed from the accounts and any gain or loss is included in operations.

                                      F-9
<PAGE>
                   FOAMEX INTERNATIONAL INC. AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

2.   SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)

     Debt Issuance Costs

     Debt  issuance  costs  consist of amounts  incurred in obtaining  long-term
financing.  These costs are being  amortized  over the term of the related  debt
using the effective interest method. Accumulated amortization as of December 28,
1997 and December  29, 1996 was  approximately  $1.4  million and $8.8  million,
respectively.

     Cost in Excess of Net Assets Acquired

     The  excess  of the  acquisition  cost  over the fair  value of net  assets
acquired in business combinations  accounted for as purchases is amortized using
the  straight-line  method over a forty year period.  At each balance sheet date
the  Company  evaluates  the  recoverability  of cost in  excess  of net  assets
acquired  using  certain  financial  indicators  such as  historical  and future
ability to  generate  income from  operations  based on a going  concern  basis.
Accumulated  amortization  as of  December  28, 1997 and  December  29, 1996 was
approximately $12.0 million and $11.6 million, respectively.

     Environmental Matters

     Environmental  expenditures that relate to current  operations are expensed
or capitalized as appropriate. 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.

     Postretirement and Postemployment Benefits

     The Company  accrues  postretirement  benefits  throughout  the  employees'
active service  periods until they attain full  eligibility  for those benefits.
Also, the Company accrues postemployment  benefits when it becomes probable that
such  benefits  will be paid  and when  sufficient  information  exists  to make
reasonable estimates of the amounts to be paid.

     Foreign Currency Accounting

     The  financial  statements  of foreign  subsidiaries,  except in  countries
treated as highly inflationary,  have been translated into U.S. dollars by using
the year end exchange rates for the assets and liabilities and average  exchange
rates for the statements of operations.  Currency  translation  adjustments  are
included  in  other   stockholders'   equity   (deficit)  until  the  entity  is
substantially sold or liquidated.  For operations in countries treated as highly
inflationary,  certain financial  statement amounts are translated at historical
exchange  rates,  with all other assets and  liabilities  translated at year end
exchange rates.  These  translation  adjustments are reflected in the results of
operations  and are  insignificant  for all  periods  presented.  Also,  foreign
currency  transaction  gains  and  losses  are  insignificant  for  all  periods
presented.  The effect of foreign  currency  exchange rates on cash flows is not
material.

     Interest Rate Swap Agreement

     The  differential  to be paid or  received  under  an  interest  rate  swap
agreement is recognized  as an adjustment to interest and debt issuance  expense
in the current period as interest rates change.

     Income Taxes

     Income  taxes  are  accounted  for  under the  liability  method,  in which
deferred  income  taxes are  provided  for  temporary  differences  between  the
financial  reporting  and income tax basis of assets and  liabilities  using the
income tax rates,  under existing  legislation,  expected to be in effect at the
date  such  temporary  differences  are  expected  to  reverse.  

                                      F-10

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

2.   SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)

     Earnings (Loss) Per Share

     Earnings  (loss) per share  amounts for 1996 and 1995 have been restated to
give effect to the  application of Statement of Financing  Accounting  Standards
("SFAS")  No.  128,  "Earnings  Per  Share").  SFAS  No.  128  requires  a  dual
presentation of basic and diluted earnings per share for all periods  presented.
(See Note 19.)

     Reclassifications

     Certain amounts in the 1996 and 1995 consolidated financial statements have
been reclassified to conform with the current year's presentation.

     New Accounting Standards

     Statement  of  Financial  Accounting  Standards  No. 130 ("SFAS No.  130"),
"Reporting  Comprehensive  Income,"  was  issued  by  the  Financial  Accounting
Standards Board in June 1997.  This  statements  requires all items that must be
recognized under accounting  standards as components of comprehensive  income to
be reported in a financial  statement that is displayed with the same prominence
as other financial statements. The Company will adopt SFAS No. 130 for 1998.

     Statement  of  Financial  Accounting  Standards  No. 131 ("SFAS No.  131"),
"Disclosures  about  Segments of an Enterprise  and Restated  Information,"  was
issued by the Financial  Accounting Standards Board in June 1997. This statement
establishes  standards for reporting  information  about  operating  segments in
annual  financial  statements  and  requires  reporting  of  selected  financial
information  about  operating  segments in interim  financial  reports issued to
stockholders.  It also  establishes  standards  for  related  disclosures  about
products and services,  geographic areas, and major customers.  The Company will
adopt SFAS No. 131 for year ended 1998  reporting.  Management is evaluating the
impact,  if any,  the  standard  will  have  on the  Company's  present  segment
reporting.

3.   ACQUISITIONS

     On December  23,  1997,  the Company  acquired  Crain  pursuant to a merger
agreement with Crain Holdings Corp. for a purchase price of approximately $213.7
million,  including  the  assumption  of debt.  In  addition,  fees and expenses
associated with the Crain Acquisition are approximately $13.2 million. The Crain
Acquisition provides a fully integrated manufacturer, fabricator and distributor
of a broad range of flexible  polyurethane foam and foam products which are sold
to a diverse  customer base,  principally  in the furniture,  bedding and carpet
cushion markets. The acquisition was funded by $118.0 million in bank borrowings
by Foamex L.P.  under the Credit  Facility and the  assumption of  approximately
$98.6 million of  indebtedness  with an estimated fair value of $112.3  million.
The excess of the purchase price over the estimated fair value of the net assets
acquired  was  approximately  $157.5  million.  In  connection  with  the  Crain
Acquisition,  the Company approved a plan to close certain facilities. As of the
acquisition date, the Company established accruals of approximately $1.5 million
of severance  and related costs and $8.5 million for costs  associated  with the
shut down and consolidation of certain acquired facilities.

     In April 1995,  the Company  acquired  certain  assets and assumed  certain
liabilities of manufacturers  of synthetic  fabrics for the carpet and furniture
industries for aggregate consideration of approximately $8.0 million,  including
related fees and expenses of  approximately  $0.3 million,  with an initial cash
payment of $7.2  million.  The excess of the purchase  price over the  estimated
fair value of the net assets acquired was approximately $3.9 million.

During 1994, the Company acquired  Transformaci\n  De Espumas Y FiJltros S.A. de
C.V.  ("TEFSA") for an aggregate purchase price of approximately $4.5 million to
be paid over a three-year  period with an initial cash payment of $1.7  million.
During 1997, 1996 and 1995, the Company made scheduled cash payments of

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

3.   ACQUISITIONS (continued)

approximately  $0.9  million,  $0.8 million and $0.8 million,  respectively,  in
accordance with the purchase agreement.

     The acquisitions  were accounted for as purchases and the operations of the
acquired companies are included in the consolidated statements of operations and
cash  flows  from  their  respective  dates  of  acquisition.  However,  Crain's
operations  for the period from  December 24, 1997 to December 28, 1997 have not
been included in the  consolidated  statements of operations or cash flows since
the  affect  would  be  insignificant.  The  cost of each  acquisition  has been
allocated  on the  basis  of the  fair  value  of the  assets  acquired  and the
liabilities  assumed.  The excess of the purchase  price over the estimated fair
value of the net assets  acquired  is being  amortized  using the  straight-line
method over forty years.  The  allocation  of the  purchase  price for the Crain
Acquisition is based upon  preliminary  estimates and assumptions and is subject
to revision once  appraisals,  valuations and other studies of the fair value of
the acquired assets and liabilities  have been completed.  The pro forma results
listed below are unaudited and assume that the Crain Acquisition occurred at the
beginning of each year presented.

                                                          1997            1996
                                                          (thousands, except 
                                                             per share data)
     Net sales                                            1,256.7       1,271.3
     Income  (loss) from  continuing  operations             (2.4)         27.8
     Pro forma  basic  earnings  (loss) per share           (0.10)         1.09
     Pro forma diluted  earnings  (loss) per share          (0.10)         1.08

     The pro forma  results are not  necessarily  indicative  of what would have
occurred  if the Crain  Acquisition  had been in effect for the  entire  periods
presented nor are they necessarily indicative of future consolidated results.

4.   RESTRUCTURING AND OTHER CHARGES (CREDITS)

     In 1995, the Company approved a restructuring plan (the "1995 restructuring
plan") to consolidate thirteen foam production,  fabrication or branch locations
to concentrate  resources as a result of industry conditions and better position
itself  to  achieve  its  strategic  growth  objectives.  The  Company  recorded
restructuring  and other  charges of $41.4  million which was comprised of $35.6
million associated with the consolidation of the foam production, fabrication or
branch  locations,  $2.2  million  associated  with  the  completion  of a  1993
restructuring  plan and $3.6  million  associated  with  merger and  acquisition
activities of the Company.  The  components  of the $35.6 million  restructuring
charge include:  $16.7 million for fixed asset writedowns (net of estimated sale
proceeds),  $15.1 million for plant closure and operating lease  obligations and
$3.8 million for  personnel  reductions.  The $3.8  million  cost for  personnel
reductions  primarily represents severance and employee benefit costs associated
with the elimination of manufacturing and administrative personnel.

     In  1996,  the  Company  determined  to  continue  to  operate  one  of the
facilities  originally  identified  for closure in the 1995  restructuring  plan
because  of  improved  economics  and the lack of synergy  to be  achieved  from
relocating the manufacturing  process. In addition,  the Company approved a plan
to  close  two  facilities  that  were  not  originally  identified  in the 1995
restructuring  plan. As a result of these changes to the 1995 restructuring plan
and the favorable termination of certain lease agreements and other matters, the
Company  recorded a $6.5  million  net  restructuring  credit  which  included a
restructuring credit of $11.3 million associated with the Company's decision not
to close the facility identified as part of the 1995 restructuring plan and $1.8
million of restructuring credits relating primarily to the favorable termination
of certain lease agreements and other matters relating to the 1995 restructuring
plan, offset by $6.6 million of restructuring charges relating to the closure of
the two facilities during 1997 (the "1996 restructuring plan").

                                      F-12
<PAGE>
                   FOAMEX INTERNATIONAL INC. AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

4.   RESTRUCTURING AND OTHER CHARGES (CREDITS) (continued)

     During December 1997, the Company approved a restructuring  plan (the "1997
restructuring plan") to consolidate nine foam production,  fabrication or branch
locations in connection  with the Crain  Acquisition.  (See Note 3.) The Company
recorded restructuring and other charges of $21.1 million which was comprised of
$23.0  million  associated  with  the  consolidation  of  the  foam  production,
fabrication or branch locations offset by $1.9 million of restructuring  credits
due primarily to the favorable termination of certain lease agreements and other
matters relating to the 1996 and 1995 restructuring plans. The components of the
$23.0  million  restructuring  charge  include:  $12.1  million for fixed assets
writedowns (net of estimated sale proceeds),  $9.8 million for plant closure and
operating lease obligations and $1.1 million for personnel reductions.

     As  discussed  above,  the 1996  and 1995  restructuring  plans  have  been
implemented  as  originally  contemplated.  The  following  table sets forth the
components of the Company's restructuring and other charges:

<TABLE>
<CAPTION>
                                                       Asset        Plant Closure       Personnel
                                        Total      Writedowns         and Leases       Reductions        Other
                                                                      (millions)
<S>                                     <C>           <C>               <C>              <C>           <C>   
       1995 restructuring charge         $41.4         $16.7             $15.1            $ 3.8           $ 5.8
       Asset write-off/writedowns        (25.1)        (20.9)                -                -            (4.2)
       Cash spending                      (0.4)           -               (0.3)            (0.1)             -
                                         -----       -------            ------            -----          ------

       Balances at December 31, 1995      15.9          (4.2)             14.8              3.7             1.6
       Cash spending                      (9.9)           -               (6.6)            (2.0)           (1.3)
       Cash proceeds                       1.0           1.0                 -                -              -
       1996 restructuring charge           6.6           2.4               4.1              0.1              -
       Restructuring credits             (13.1)         (9.7)             (2.8)            (0.4)           (0.2)
       Asset adjustment for
         restructuring credits             8.0           8.7              (0.6)               -            (0.1)
                                         -----         -----             -----            -----           -----

       Balances at December 29, 1996       8.5          (1.8)              8.9              1.4              -
       Cash spending                      (2.3)           -               (1.4)            (0.9)             -
       1997 restructuring charge          23.0          12.1               9.8              1.1              -
       Restructuring credits              (1.9)          0.1              (2.3)             0.3              -
       Asset write-off/writedowns        (16.1)        (16.1)               -                -               -
       Plant consolidation costs          10.0            -                8.5              1.5              -
                                        ------       -------            ------            -----         -------

       Balance at December 28, 1997      $21.2         $(5.7)            $23.5            $ 3.4         $    -
                                         =====         =====             =====            =====         =======
</TABLE>

       As  indicated  in the table above,  the accrued  restructuring  and plant
consolidation  balance at December 28, 1997, will be used for payments  relating
to plant closure and leases including rundown costs at the facilities.  The $5.7
million of asset  writedowns  relates to  estimated  proceeds and is included in
noncurrent assets. The Company expects to incur  approximately  $15.6 million of
charges  during 1998 with the  remaining  $11.3  million to be incurred  through
2001.  As of December 28, 1997,  the Company has  terminated  all 270  employees
associated with the 1996 and 1995 restructuring plans and notified approximately
640 employees in the manufacturing and  administrative  areas of their impending
termination in connection with the 1997  restructuring  and plant  consolidation
plans.

                                      F-13

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

5.   INVENTORIES

     Inventories consists of:

                                  December 28,   December 29,
                                      1997           1996
                                          (thousands)
     Raw materials and supplies     $ 75,487     $ 60,169
     Work-in process                  15,620       13,453
     Finished goods                   29,192       27,598
                                    --------     --------
     Total                          $120,299     $101,220
                                    ========     ========

6.   SHORT-TERM BORROWINGS

     Short-term borrowings include borrowings outstanding under a line of credit
facility for Foamex Canada Inc. ("Foamex Canada") bearing interest at the bank's
prime rate (6.0% at December 28, 1997) plus 1/2%. The weighted  average interest
rates on Foamex Canada's  short-term  borrowings  outstanding for 1997, 1996 and
1995 were 5.4%, 5.9% and 8.0%,  respectively.  Borrowings  under Foamex Canada's
credit facility are due on demand and are collateralized by accounts receivable,
property and  inventories  of Foamex Canada having an  approximate  net carrying
value of $20.0  million as of December  28, 1997.  The unused  amount under this
line of credit totaled $2.0 million as of December 28, 1997.

7.   LONG-TERM DEBT AND EXTRAORDINARY LOSS

     Long-term debt consists of:

<TABLE>
<CAPTION>
                                                                         December 28,         December 29,
                                                                              1997                1996
       Credit Facility:                                                              (thousands)
<S>                                                                          <C>                   <C>     
         Term Loan A (1)   $  76,700                                     $          -
         Term Loan B (1)   109,725                                                  -
         Term Loan C (1)   99,750                                                   -
         Term Loan D (1)   110,000                                                  -
         Revolving credit facility (2)                                         54,928                     -
       9.875% Senior subordinated notes due 2007 (3)                          150,000                     -
       13.5% Senior subordinated notes due 2005 (includes
         $13,720 million of unamortized debt premium) (3)                     111,720                     -
       9 1/2% Senior secured notes due 2000 (4)                                 4,523               106,793
       11 1/4% Senior notes due 2002 (4)                                            -               141,400
       11 7/8% Senior subordinated debentures due 2004 (net of
         unamortized debt discount of $769) (4)                                     -               125,056
       Senior secured discount debentures due 2004, Series B
         (net of unamortized debt discount of $35,864)                              -                80,881
       11 7/8% Senior subordinated debentures due 2004, Series B (5)                -                 7,000
       Industrial revenue bonds (6)                                             7,000                 7,000
       Foamex L.P. term loan (8.54% interest rate as of
         December 28, 1997) (6)                                                     -                11,000
       Subordinated note payable (net of unamortized
         debt discount of $1,198 and $1,475 (5)                                 6,129                 5,817
       Other                                                                   18,180                12,902
                                                                             --------              --------
                                                                              748,655               497,849

       Less current portion                                                    12,931                14,505
                                                                             --------              --------

       Long-term debt-unrelated parties                                      $735,724              $483,344
                                                                             ========              ========
</TABLE>

                                      F-14
<PAGE>
                   FOAMEX INTERNATIONAL INC. AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

7.     LONG-TERM DEBT AND EXTRAORDINARY LOSS (continued)

(1)  Subsidiary debt of Foamex L.P., guaranteed by the Company, General Felt and
     Foamex Fibers.
(2)  Subsidiary debt of Foamex L.P. and General Felt,  guaranteed by the Company
     and Foamex Fibers.
(3)  Subsidiary debt of Foamex L.P. and Foamex Capital  Corporation,  guaranteed
     by General Felt and Foamex Fibers.
(4)  Subsidiary  debt of Foamex L.P.  and Foamex  Capital  Corporation  ("FCC"),
     guaranteed by the Company and General Felt.
(5)  Subsidiary  debt  of  Foamex  L.P.  and  Foamex  Capital   Corporation  and
     guaranteed by General Felt.
(6)  Subsidiary debt of Foamex L.P.
(7)  Subsidiary  debt  of  Foamex  L.P.  and  Foamex  Capital   Corporation  and
     guaranteed by the Company.

     Refinancing Plan

     On June 12, 1997, the Company  substantially  completed a refinancing  plan
(the  "Refinancing  Plan") that included the  refinancing  of certain  long-term
indebtedness  to reduce the  Company's  interest  expense and improve  financing
flexibility.  In connection with the  Refinancing  Plan,  Foamex L.P.  purchased
approximately  $342.3 million of aggregate  principal  amount of its public debt
and  approximately  $116.7 million of aggregate  principal  amount of Foamex-JPS
Automotive   L.P.'s  ("FJPS")  senior  secured  discount   debentures  due  2004
("Discount Debentures") and repaid $5.2 million of term loan borrowings under an
existing credit  facility.  The Company  incurred an  extraordinary  loss on the
early   extinguishment   of  debt  associated  with  the  Refinancing   Plan  of
approximately  $42.0 million (net of income  taxes).  The  Refinancing  Plan was
funded by  $347.0  million  of  borrowings  under a new  $480.0  million  credit
facility  (the  "Credit  Facility")  and the net  proceeds  from the issuance of
$150.0 million of 9 7/8% senior subordinated notes due 2007.

     In  addition,  on  October  1,  1997,  the  Company  redeemed  all  of  the
outstanding: (i) 11 1/4% senior notes due 2002, (ii) 11 7/8% senior subordinated
debentures  due 2004 and (iii) the 11 7/8% senior  subordinated  debentures  due
2004,  Series B, constituting  approximately  $26.0 million of the approximately
$30.0  million of  outstanding  public debt that was not tendered as part of the
Refinancing  Plan. The redemption  was funded with  borrowings  under the Credit
Facility.   In  connection  with  this  redemption,   the  Company  incurred  an
extraordinary  loss on the early  extinguishment  of debt of approximately  $1.6
million (net of income taxes).

     Credit Facility

     On June 12, 1997, Foamex L.P. entered into the Credit Facility with a group
of banks that  provides  for term loans which expire from June 2003 to June 2006
and  borrowings of up to $150.0  million under a revolving  line of credit which
expires in June 2003.  The term loans are  comprised of a (i) term A loan ("Term
A"),  (ii) term B loan ("Term B"),  (iii) term C loan ("Term C") and (iv) term D
loan ("Term D").

     Borrowings  under the Credit Facility are  collateralized  by substantially
all of the assets of Foamex L.P., General Felt and Foamex Fibers on a pari passu
basis with the 9 1/2% senior secured notes due 2000 and the  industrial  revenue
bonds  (collectively,  the "Notes");  however,  the rights of the holders of the
applicable  issue of the Notes to receive  payment upon the  disposition  of the
collateral securing such issue of Notes has been preserved.

Pursuant to the terms of the Credit Facility,  borrowed funds will bear interest
at a floating rate equal to an applicable margin, as defined, plus the higher of
(i) the base rate of The Bank of Nova  Scotia,  in effect from time to time,  or
(ii) a rate  that is equal to 0.5% per  annum  plus the  federal  funds  rate in
effect from time to time. The applicable margin is determined based on the total
net debt to EBDAIT ratio, as defined,  and can range from no margin up to 1.125%
per annum for Term A and  revolving  loans,  from 0.875% per annum to 1.375% per
annum for Term B, from  1.125% per annum to 1.625% per annum for Term C and from
1.250% per annum to 1.750%  per annum for Term D. At the option of Foamex  L.P.,
portions of the outstanding loans under the Credit Facility are convertible into
LIBOR based loans which bear  interest at a floating rate equal to an applicable
margin for LIBOR based loans,  as defined,  plus the average LIBOR,  as defined.
The applicable margin for LIBOR based

                                      F-15
<PAGE>
                   FOAMEX INTERNATIONAL INC. AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

7.   LONG-TERM DEBT AND EXTRAORDINARY LOSS (continued)

loans is a rate  that will  generally  equal the  applicable  margin  (discussed
above) plus 1.0% per annum.

     Foamex L.P. had a credit agreement (the "Foamex L.P. Credit Facility") with
a group of banks that  provided for loans of up to $85.0  million of which up to
$40.0  million was  available as a term loan  payable in twenty equal  quarterly
installments commencing October 1994 and up to $45.0 million was available under
a revolving line of credit which expired in June 1999. In 1994,  Foamex L.P. and
General Felt entered into a $40.0 million term loan under the Foamex L.P. Credit
Facility.  During 1997 and 1996,  Foamex L.P. and General Felt used $3.8 million
and $12.0 million,  respectively,  of the net proceeds from the Perfect Fit sale
to repay term loan  borrowings.  The Foamex L.P.  Credit Facility was repaid and
terminated in connection with the Refinancing Plan.

     9 7/8% Senior Subordinated Notes due 2007 ("Senior Subordinated Notes")

     The  Senior  Subordinated  Notes  were  issued  by Foamex  L.P.  and FCC in
connection  with the  Refinancing  Plan.  The  Senior  Subordinated  Notes  bear
interest at the rate of 9 7/8% per annum  payable  semiannually  on each June 15
and December 15,  commencing  December 15, 1997. The Senior  Subordinated  Notes
mature on June 15, 2007.  The Senior  Subordinated  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, initially at 104.938% of their principal amount, plus accrued interest and
liquidated  damages,  as defined,  if any, thereon to the date of redemption and
declining to 100.0% on or after June 15, 2005. In addition, at any time prior to
June 15, 2000,  Foamex L.P. may on one or more  occasions  redeem up to 35.0% of
the initially outstanding principal amount of the Senior Subordinated Notes at a
redemption  price  equal to  109.875%  of the  principal  amount,  plus  accrued
interest and liquidated  damages, if any, thereon to the date of redemption with
the cash proceeds of one or more Public Equity Offerings,  as defined.  Upon the
occurrence  of  a  change  of  control,  as  defined,   each  holder  of  Senior
Subordinated  Notes will have the right to require Foamex L.P. to repurchase the
Senior  Subordinated  Notes at a price equal to 101.0% of the principal  amount,
plus accrued interest and liquidated damages, if any, to the date of repurchase.
The Senior Subordinated Notes are subordinated in right of payment to all senior
indebtedness and are pari passu in right of payment to the subordinated note.

     13 1/2% Senior  Subordinated  Notes due 2005 ("13 1/2% Senior  Subordinated
     Notes")

     The 13 1/2% Senior  Subordinated  Notes were issued in a private  placement
under the Securities Act of 1933, as amended, on December 23, 1997 in connection
with the Crain  Acquisition.  The 13 1/2% Senior  Subordinated  Notes  represent
unsecured general  obligations of Foamex L.P. and are subordinated to all Senior
Debt (as defined in the Indenture).

     The 13 1/2% Senior  Subordinated Notes mature on August 15, 2005.  Interest
on the 13  1/2%  Senior  Subordinated  Notes  is  payable  semiannually  on each
February 15 and August 15. The 13 1/2% Senior  Subordinated  Notes bear interest
at the rate of 13 1/2% per annum. The 13 1/2% Senior  Subordinated Notes may not
be redeemed prior to August 15, 2000, except in the event of a Change of Control
(as defined) or Foamex L.P. may,  subject to certain  requirements (as defined),
on or prior to August 15,  1998 redeem up to 33 1/3% of the  aggregate  original
principal amount with proceeds from an Equity Offering (as defined).

     Foamex  L.P.  has filed a  registration  statement  relating to an exchange
offer  in  which  Foamex  L.P.  will  offer  to  exchange  the  13  1/2%  Senior
Subordinated  Notes issued in the private  placement for new notes. The terms of
the new  notes  will  be  substantially  identical  in all  respects  (including
principal  amount,  interest rate,  maturity and ranking) to the terms of the 13
1/2% Senior  Subordinated  Notes, except that the new notes will be transferable
by holders  thereof  without  further  registration  under the Securities Act of
1933, as amended (except in the case of 13 1/2% Senior  Subordinated  Notes held
by affiliates of Foamex L.P. and FCC and for certain other holders), and are not
subject to any covenant regarding registration under the Securities Act of 1933,
as amended.

                                      F-16

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

7.   LONG-TERM DEBT AND EXTRAORDINARY LOSS (continued)

     9 1/2% Senior Secured Notes due 2000 ("Senior Secured Notes")

     The Senior  Secured  Notes were issued on June 3, 1993 with interest at the
rate of 9 1/2%  payable  semiannually  on each June 1 and December 1. The Senior
Secured Notes had a maturity date of mature on June 1, 2000.  The Senior Secured
Notes were  collateralized by a first-priority  lien on substantially all of the
assets of Foamex L.P.  except for  receivables,  real estate and  fixtures.  The
Senior Secured Notes were defeased in February 1998.

     11 1/4% Senior Notes due 2002 ("Senior Notes")

     The Senior Notes had an interest  rate of 11 1/4% payable  semiannually  on
each April 1 and October 1. The Senior  Notes had a maturity  date of October 1,
2002.

     11 7/8% Senior Subordinated Debentures due 2004 ("Subordinated Debentures")

     The  Subordinated  Debentures  had an  interest  rate  of 11  7/8%  payable
semiannually  on each April 1 and October 1. The  Subordinated  Debentures had a
maturity date of October 1, 2004.

     Senior Secured Discount Debentures due 2004 ("Discount Debentures")

     The  Discount  Debentures,  in the  aggregate  principal  amount  of $116.7
million  ($57.0  million  initial  cash  proceeds)  were  issued  during 1994 by
Foamex-JPS Automotive L.P. ("FJPS") and Foamex-JPS Capital Corporation ("FJCC").
In connection  with this issuance,  the Company  issued  warrants to acquire 0.6
million  shares of the Company's  common stock to the purchasers of the Discount
Debentures (see Note 15). The original issue discount of $59.7 million was being
amortized  using the  weighted  average to maturity  method over the life of the
issue.  The  Discount  Debentures  were  repaid in full in  connection  with the
Refinancing Plan.

     11 7/8% Senior Subordinated Debentures, Series B ("Series B Debentures")

     The Series B  Debentures  were issued July 30,  1993,  by Foamex L.P. in an
exchange offer to holders of senior subordinated debentures issued in connection
with the  acquisition of General Felt on March 23, 1993. The Series B Debentures
had terms substantially similar to the Subordinated Debentures.

     Industrial Revenue Bonds ("IRBs")

     Two bond issues in the  principal  amount of $1.0 million and $6.0 million,
maturing  in  2005  and  2013,  respectively,   are  collateralized  by  certain
properties  which have an  approximate  net carrying  value of $11.4  million at
December 28, 1997 and letters of credit  approximating  $7.3  million.  The IRBs
bear  interest  at a variable  rate with  options  available  to Foamex  L.P. to
convert to a fixed rate.  The interest rates on the IRBs were 4.15% and 3.85% at
December   28,  1997  for  the  $6.0  million  and  $1.0  million  bond  issues,
respectively.  The interest  rate on the $6.0  million bond issue varies  weekly
based on an interest rate that is indicative of current  bidside  yields on high
quality  short-term,  tax-exempt  obligations,  or if such  interest rate is not
available,  70.0% of the interest rate for thirteen week United States  Treasury
Bills.  The maximum  interest rate for either of the IRBs is 15.0% per annum. At
the time of a conversion to a fixed interest rate and upon  appropriate  notice,
the IRBs are redeemable at the option of the bondholders.

     Subordinated Note Payable

     This note  payable was issued to John Rallis  ("Rallis"),  the former Chief
Operating  Officer of the Company,  on May 6, 1993 by Foamex L.P. in  connection
with the  acquisition  of Great  Western Foam Products  Corporation  and certain
related  entities and assets  (collectively,  "Great  Western").  The note bears
interest at a maximum rate of 6% per annum and the  principal  amount is payable
in three equal annual installments  beginning May 6, 1999. 

                                      F-17

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

7.   LONG-TERM DEBT AND EXTRAORDINARY LOSS (continued)

     Other

     As of December 28, 1997, other debt is comprised primarily of capital lease
obligations,  equipment financing  associated with an aircraft and borrowings by
Foamex Mexico.

     Early Extinguishment of Debt - Refinancing Plan

     In  connection  with  the  Refinancing   Plan,  the  Company   incurred  an
extraordinary  loss on the early  extinguishment of debt of approximately  $42.0
million (net of income tax benefits of $25.7 million). The extraordinary loss is
comprised of  approximately  $39.0 million for premium and consent fee payments,
approximately  $16.2 million for the  write-off of debt issuance  costs and debt
discount,  approximately $8.2 million for the loss associated with the effective
termination and amendment of the interest rate swap agreements and approximately
$4.3  million of  professional  fees and other  costs.  In  connection  with the
Refinancing  Plan, the Company repaid $5.2 million in term loan borrowings under
the Foamex L.P.  Credit Facility and purchased  approximately  $459.0 million of
aggregate principal amount of public debt comprised of:

o    $99.8 million of aggregate  principal  amount of its 9 1/2% senior  secured
     notes due 2000 for an aggregate consideration of 104.193% of principal plus
     accrued interest, comprised of a tender price of 102.193% and a consent fee
     of 2.0%;

o    $130.1  million of aggregate  principal  amount of its 11 1/4% senior notes
     due 2002 for an  aggregate  consideration  of  105.709% of  principal  plus
     accrued interest, comprised of a tender price of 103.709% and a consent fee
     of 2.0%;

o    $105.5  million  of  aggregate  principal  amount  of  its 11  7/8%  senior
     subordinated debentures due 2004 for an aggregate consideration of 107.586%
     of principal plus accrued interest, comprised of a tender price of 105.586%
     and a consent fee of 2.0%;

o    $6.9  million  of  aggregate   principal  amount  of  its  11  7/8%  senior
     subordinated debentures,  series B, due 2004 for an aggregate consideration
     of 107.586% of principal plus accrued interest, comprised of a tender price
     of 105.586% and a consent fee of 2.0%; and

o    $116.7 million of aggregate principal amount of the Discount Debentures for
     an aggregate  consideration of 90.0% of principal amount,  which represents
     approximately  116.2%  of the  accreted  book  value as of June  12,  1997,
     comprised of a tender price of 88.0% and a consent fee of 2.0%.

     Early Extinguishment of Debt - Other

     In  addition,  during 1997 the  Company  incurred  extraordinary  losses of
approximately  $0.6  million  (net of  income  tax  benefits  of  $0.4  million)
associated  with the early  extinguishment  of  approximately  $11.8  million of
long-term  debt funded with  approximately  $12.1  million of the  remaining net
proceeds  from the sale of Perfect Fit. The  extraordinary  loss is comprised of
approximately  $0.4 million of premium payments and  approximately  $0.6 million
for the write-off of debt issuance costs. The long-term debt was comprised of:

o    $2.5 million of  aggregate  principal  amount of its 9 1/2% senior  secured
     notes due 2000.

o    $5.5 million of aggregate  principal amount of its 11 1/4% senior notes due
     2002.

o    Bank term loan  borrowings  of $3.8 million  under Foamex L.P.'s old credit
     facility.

                                      F-18
<PAGE>
                   FOAMEX INTERNATIONAL INC. AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

7.   LONG-TERM DEBT AND EXTRAORDINARY LOSS (continued)

     During 1996,  the Company used $31.3  million of the net proceeds  from the
sale of Perfect Fit to extinguish debt of $30.6 million and redemption  premiums
of $0.6  million.  The Company  wrote-off  $1.2 million of debt  issuance  costs
associated with the early  extinguishment of debt and incurred transaction costs
of $0.1 million.  The early  extinguishment of debt resulted in an extraordinary
loss of $1.1 million (net of $0.8 million income tax benefit).

     Interest Rate Swap Agreements

     The Company  enters into  interest rate swaps to lower funding costs and/or
to manage interest costs and exposure to changing  interest  rates.  The Company
does not hold or issue financial instruments for trading purposes.

     In connection with the Refinancing  Plan, the Company's  existing  interest
rate swap agreement with a notional  amount of $300.0 million were considered to
be effectively  terminated  since the underlying  debt was  extinguished.  These
interest  rate swap  agreement  had an  estimated  fair value  liability of $8.2
million  at  the  date  of  the  Refinancing  Plan  which  is  included  in  the
extraordinary  loss  on the  early  extinguishment  of  debt.  In lieu of a cash
payment  for the  estimated  fair  value  of the  existing  interest  rate  swap
agreement,  the Company entered into an amendment of the existing  interest rate
swap  agreements  resulting in one interest rate swap  agreement with a notional
amount of $150.0 million through June 2007.  Accordingly,  the $8.2 million fair
value  liability has been recorded as a deferred  credit which will be amortized
as a reduction in interest and debt issuance  expense on a  straight-line  basis
through June 2007. On January 8, 1998,  Foamex L.P. entered into a new amendment
to its interest rate swap agreement.  The new amendment provides for an interest
rate swap agreement with a notional  amount of $150.0 million through June 2002.
Under the new  amendment,  Foamex L.P. is  obligated  to make fixed  payments of
5.78% per annum through  December 1998 and variable  payments  based on LIBOR at
the  beginning of each six month period for the remainder of the  agreement,  in
exchange for fixed  payments by the swap partner at 6.44% per annum for the life
of the agreement,  payable  semiannually in arrears.  The newly amended interest
rate swap agreement can be terminated by the swap partner at the end of each six
month period commencing December 1999.

     The Company is exposed to credit loss in the event of a  nonperformance  by
the swap partner; however, the occurrence of this event is not anticipated.  The
effect  interest  rate swaps was a favorable  adjustment  to  interest  and debt
issuance  expense of $2.2 million,  $3.7 million and $1.4 million for 1997, 1996
and 1995, respectively.

     Debt Restrictions and Covenants

     The indentures,  credit facility and other indebtedness  agreements contain
certain  covenants  that will limit,  among other things,  the ability of Foamex
L.P. (i) to pay  distributions  or redeem  partnership  interests,  (ii) to make
certain  restrictive   payments  or  investments,   (iii)  to  incur  additional
indebtedness  or issue Preferred  Equity  Interest,  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  a  provision  that,  in the  event of a  defined  change of
control, 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
is the maintenance of net worth and interest coverage ratios, as defined.  Under
the most restrictive of the distribution restrictions, the Company was available
to be paid to by its  subsidiaries  as of December 28, 1997,  funds necessary to
meet operating expenses.

     As of December 28, 1997,  the Company was in compliance  with the covenants
of the indentures, credit facility and other indebtedness agreements and expects
to be in compliance with these covenants for the foreseeable future.

                                      F-19
<PAGE>
                   FOAMEX INTERNATIONAL INC. AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

7.   LONG-TERM DEBT AND EXTRAORDINARY LOSS (continued)

     Future Obligations on Long-Term Debt

     Scheduled maturities of long-term debt are shown below (thousands):

       Year End                                       Long-Term Debt
       1998                                              $ 12,931
       1999                                                18,672
       2000                                                26,938
       2001                                                19,941
       2002                                                24,018
       Thereafter                                         633,321
                                                         --------
       Total                                              735,821
       Unamortized debt premium, net                       12,834
                                                         --------

       Total                                             $748,655
                                                         ========

8.   EMPLOYEE BENEFIT PLANS

     Defined Benefit Pension Plans

     The Company  maintains  noncontributory  defined  benefit pension plans for
salaried and certain hourly employees.  The salaried plan provides benefits that
are based  principally on years of credited  service and level of  compensation.
The hourly plans provide  benefits that are based  principally on stated amounts
for each year of credited service.

     Net periodic pension cost included the following components:

                                                1997        1996        1995
                                                         (thousands)
       Service cost                            $2,229      $2,471      $2,087
       Interest cost                            4,273       3,997       3,742
       Actual return on plan assets            (6,308)     (8,841)     (5,682)
       Net amortization and deferral              703       4,643       1,807
                                              -------      ------      ------
         Total                                $   897      $2,270      $1,954
                                              =======      ======      ======

     The Company's funding policy is to contribute  annually 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"). Plan investments consist
primarily of corporate equity and debt  securities,  mutual life insurance funds
and cash  equivalents.  During 1998, the discount rate was adjusted to 7.0%. The
following table sets forth the funded status of the Company's  underfunded plans
and the amounts recognized in the accompanying consolidated balance sheets as of
December 28, 1997 and December 29, 1996:

                                      F-20
<PAGE>
                   FOAMEX INTERNATIONAL INC. AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

8.   EMPLOYEE BENEFIT PLANS (continued)

                                                  December 28,   December 29,
                                                      1997           1996
                                                        (thousands)
     Actuarial present value of accumulated
      benefit obligations:
       Vested benefits                              $ 61,188      $ 55,336
       Nonvested benefits                              3,112         2,137
                                                    --------      --------

     Accumulated benefit obligations                $ 64,300      $ 57,473
                                                    ========      ========

     Total projected benefit obligations            $ 65,948      $ 58,775
     Fair value of plan assets                        58,952        53,734
                                                    --------      --------
     Projected benefit obligations in excess
       of plan assets                                 (6,996)       (5,041)

     Unrecognized net loss from past experience
       difference from that assumed and effect
       of changes in assumptions                       4,704         1,099
     Additional minimum liability                     (3,982)       (2,694)
                                                    --------      --------

     Accrued pension cost                           $ (6,274)     $ (6,636)
                                                    ========      ========

     Significant assumptions used in determining the plans' funded status are as
follows:

<TABLE>
<CAPTION>
                                                                               December 28,     December 29,
                                                                                    1997             1996
<S>                                                                                <C>               <C>  
       Expected long-term rates of return on plan assets                           10.00%            9.50%
       Discount rates on projected benefit obligations                              7.00%            7.50%
       Rates of increase in compensation levels (where applicable)                  4.00%            4.00%
</TABLE>

     Defined Contribution Plan

     The Company maintains a defined  contribution plan which is qualified under
Section 401(k) of the Code and is available for eligible  employees who elect to
participate  in the plan.  Employee  contributions  are voluntary and subject to
certain  limitations as imposed by the Code. The Company provides  contributions
amounting  to a 25%  match  of  employees'  contributions  up to 4% of  eligible
compensation.  The Company also provides an  additional  25% match of employees'
contributions up to 4% of eligible  compensation made to a fund which invests in
the Company's  common  stock.  In addition,  the Company may make  discretionary
contributions  amounting to a 25% match of employees'  contributions up to 4% of
eligible  compensation.  The expense for these  contributions for 1997, 1996 and
1995  was   approximately   $0.9   million,   $0.8  million  and  $0.7  million,
respectively.

     Postretirement Benefits

     In  addition  to  providing   pension   benefits,   the  Company   provides
postretirement  health care and life  insurance for eligible  employees.  During
1996,  certain  employees  accepted an early retirement  program  resulting in a
special  termination  loss of $0.6  million.  During 1995,  changes were made to
postretirement  benefits  offered  to  certain  employees  which  resulted  in a
curtailment  loss of $0.6  million.  These  plans are  unfunded  and the Company
retains the right, subject to existing agreements,  to modify or eliminate these
benefits.

                                      F-21

<PAGE>

                   FOAMEX INTERNATIONAL INC. AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

8.   EMPLOYEE BENEFIT PLANS (continued)

     The components of 1997, 1996 and 1995 expense for  postretirement  benefits
are as follows:

                                                  1997       1996        1995
                                                          (thousands)
     Service costs for benefits earned            $   9      $  12      $  24
     Interest cost on liability                      71         67         83
     Net amortization and deferral                  (56)       (53)       (13)
     Special termination/curtailment loss            74        576        619
                                                  -----      -----      -----

     Net periodic postretirement benefit cost     $  98      $ 602      $ 713
                                                  =====      =====      =====

     The accumulated  postretirement benefit obligation at December 28, 1997 and
December 29, 1996  resulted in an unfunded  obligation  of $2.0 million and $2.1
million, respectively.

     An 8% and 9% annual  rate of  increase  in the per capita  costs of covered
health care benefits was assumed for each of 1997 and 1996,  respectively.  This
rate was assumed to gradually  decrease to 5% by the year 2000.  Increasing  the
weighted  average  assumed health care cost trend rates by one percentage  point
would have an  insignificant  impact on the accumulated  postretirement  benefit
obligation  and service and interest  cost. The discount rate used was 7.00% and
7.50% as of December 28, 1997 and December 29, 1996, respectively.

     Postemployment Benefits

     The Company provides certain postemployment  benefits to former or inactive
employees and their dependents  during the time period following  employment but
before  retirement.  At December 28, 1997 and December 29, 1996,  the  Company's
liability for postemployment benefits was insignificant for each period.

9.   DISCONTINUED OPERATIONS

     On December 11, 1996,  the Company  sold its  partnership  interests in JPS
Automotive  for a sale  price of  approximately  $220.1  million  including  the
assumption of $200.1 million of JPS Automotive's indebtedness. The sale included
substantially all of the net assets of the automotive textiles business segment.
Actual  and  estimated  transaction  expenses  related to the sale  amounted  to
approximately $8.9 million.

     During 1996, the Company  recorded a net loss on the sale of JPS Automotive
of approximately $70.9 million (net of $34.2 million income tax benefit),  which
includes  the  loss on  disposal  and a net  loss of $1.3  million  (net of $0.7
million  income tax benefit)  relating to operating  losses during the phase-out
period.  In  December  1997,  the  Company  recorded  a loss  from  discontinued
operations of approximately  $2.0 million (net of income taxes) which relates to
the  final  post-closing  settlement  regarding  the  December  1996 sale of JPS
Automotive.

     During 1996, the Company finalized the sale of the outstanding common stock
of  Perfect  Fit,  a  wholly-owned  subsidiary,  for an  adjusted  sale price of
approximately  $44.2  million.  The sale included  substantially  all of the net
assets of the home comfort products  segment.  Actual and estimated  transaction
expenses related to the sale amounted to approximately $1.5 million. The Company
has recorded a loss on the sale of Perfect Fit of  approximately  $43.0 million,
which  includes  the loss on  disposal  and a loss of $2.4  million  relating to
operating  losses during the phase-out  period.  A valuation  allowance has been
provided  for the  capital  loss  relating  to the sale of Perfect Fit since the
Company has  determined  that capital  gain  taxable  income is not likely to be
sufficient  to recognize  the  deferred  tax asset  relating to the capital loss
carryforward.

                                      F-22
<PAGE>
                   FOAMEX INTERNATIONAL INC. AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

9.   DISCONTINUED OPERATIONS (continued)

     The   Company's   financial   statements   were  restated  to  reflect  the
discontinuation  of the home comfort  products and automotive  textile  business
segments.  In  addition  to  the  interest  and  debt  issuance  expense  of JPS
Automotive,  interest and debt issuance  expense was  allocated to  discontinued
operations  based on the estimated debt to be retired from the net proceeds from
the sale of Perfect Fit and JPS Automotive.

10.  SALE OF ASSETS

     On October 6, 1997, the Company sold substantially all of the net assets of
its  needlepunch  carpeting,  tufted  carpeting and  artificial  grass  products
business  located at its facilities in Dalton,  Georgia to Bretlin,  Inc. for an
aggregate sale price of  approximately  $41.0 million.  The Company  realized an
insignificant  gain on the sale in 1997.  The Company used $38.8  million of the
net sale proceeds to repay  outstanding  term loan  borrowings  under the Credit
Facility.   In  connection  with  this  repayment,   the  Company   incurred  an
extraordinary  loss on the early  extinguishment  of debt of approximately  $0.6
million (net of income tax benefits) during 1997.

11.  INCOME TAXES

     Income (loss) from continuing  operations before provision for income taxes
consists of the following:

<TABLE>
<CAPTION>
                                                         1997          1996          1995
                                                                    (thousands)
<S>                                                    <C>           <C>          <C>      
     United States                                     $  7,572      $ 46,075     $(62,015)
     Foreign                                               (916)        3,086         (983)
                                                       --------      --------     --------

     Income (loss) from continuing operations
       before provision (benefit) for income taxes     $  6,656      $ 49,161     $(62,998)
                                                       ========      ========     ========
</TABLE>

     The  components of the total  consolidated  provision  (benefit) for income
taxes are summarized as follows:

<TABLE>
<CAPTION>
                                                       1997         1996           1995
                                                                 (thousands)
<S>                                                 <C>           <C>           <C>      
     Continuing operations                          $  2,525      $ 16,669      $(12,248)

     Discontinued operations                          (1,330)      (35,129)        1,691

     Extraordinary loss on early extinguishment
       of debt                                       (27,400)         (765)           --
                                                    --------      --------      --------

     Total consolidated provision (benefit) for
       income taxes                                 $(26,205)     $(19,225)     $(10,557)
                                                    ========      ========      ========
</TABLE>

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

                              1997        1996         1995
                                       (thousands)
     Current:
       Federal               $ 1,958     $   220     $(2,038)
       State                   1,248         760          --
       Foreign                   498         786         457
                             -------     -------     -------
           Total current       3,704       1,766      (1,581)
                             -------     -------     -------

                                      F-23
<PAGE>
                   FOAMEX INTERNATIONAL INC. AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

11.    INCOME TAXES (continued)

<TABLE>
<CAPTION>
                                                  1997          1996           1995
                                                             (thousands)
     Deferred:
<S>                                              <C>           <C>            <C>    
       Federal                                   (27,013)      (24,211)       (9,543)
       State                                      (2,662)        2,729           856
       Foreign                                      (234)          491          (289)
                                                --------      --------      --------
           Total deferred                        (29,909)      (20,991)       (8,976)
                                                --------      --------      --------

     Total consolidated provision (benefit)
       for income taxes                         $(26,205)     $(19,225)     $(10,557)
                                                ========      ========      ========
</TABLE>

       The tax effect of the temporary differences that give rise to significant
deferred tax assets and liabilities are:
<TABLE>
<CAPTION>
                                                            December 31,  December 31,
                                                                1997          1996
                                                                   (thousands)
     Deferred tax assets:
<S>                                                          <C>           <C>     
       Inventory basis differences                           $  1,252      $  1,209
       Employee benefit accruals                                5,405         6,247
       Allowances and contingent liabilities                    3,600         3,616
       Restructuring and plant closing accruals                14,436         8,323
       Other                                                    5,778         6,301
       Net operating loss carryforwards                        49,795        37,483
       Capital loss carryforwards                              11,202        16,561
       Valuation allowance for deferred tax assets            (13,407)      (23,064)
                                                             --------      --------
       Deferred tax assets                                     78,061        56,676
                                                             --------      --------

     Deferred tax liabilities:
       Basis difference in property, plant and equipment       27,544        36,257
       Other                                                    2,282         4,944
                                                             --------      --------
       Deferred tax liabilities                                29,826        41,201
                                                             --------      --------

     Net deferred tax assets (liabilities)                   $ 48,235      $ 15,475
                                                             ========      ========
</TABLE>

     The Company has determined  that taxable  capital gains in the  foreseeable
future for  subsidiaries  that file a separate  federal  income tax return  will
likely not be sufficient to recognize the deferred tax asset associated with the
capital loss carryforward.  Accordingly, a valuation allowance has been provided
for the deferred tax asset associated with the capital loss carryforward. During
1997, the valuation  allowance for deferred tax assets decreased by $9.7 million
which  included a $5.0  million  decrease  for the  utilization  of capital loss
carryforwards associated with the sale of a facility (see Note 10), $1.9 million
decrease due to reversal of preacquisition  temporary differences,  $2.8 million
was applied to deferred tax assets that will not be  utilized.  The $1.9 million
reversal  of  preacquisition  temporary  differences  was used to reduce cost in
excess of assets acquired.  At December 28, 1997, the Company has $130.9 million
of regular tax net operating loss  carryforwards for federal income tax purposes
expiring  from 2003 to 2011.  In  addition,  the  Company  has $28.9  million of
capital loss carryforwards that expire in 2001.

     The  Company  has  recorded  net  deferred  tax  assets  of $48.2  million.
Realization is dependent on generating  sufficient taxable income to utilize the
deferred  tax  assets  primarily   representing  loss  carryforwards.   Although
realization is not assured,  management believes it is more likely than not that
all of the deferred tax assets will be realized.  The amount of the deferred tax
asset  considered  realizable,  however,  could be reduced in the near term,  if
estimates of future taxable income during the carryforward period are reduced.

     A reconciliation  of the statutory federal income tax rate to the effective
income tax rate on continuing operations is as follows:

                                      F-24
<PAGE>
                   FOAMEX INTERNATIONAL INC. AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

11.  INCOME TAXES (continued)

<TABLE>
<CAPTION>
                                                         1997          1996           1995
                                                                   (thousands)
<S>                                                    <C>           <C>           <C>      
     Statutory income taxes                            $  2,330      $ 17,206      $(22,049)
     State income taxes, net of federal                     260         1,864        (2,095)
     Limitation on the utilization of tax benefits           --            --         7,695
     Valuation allowance                                     --        (3,621)           --
     Cost in excess of assets acquired                      553           644         1,010
     Write-off excess cost                                4,305            --            --
     Utilization of capital loss carryforwards           (5,028)           --            --
     Other                                                  105           576         3,191
                                                       --------      --------      --------
     Total                                             $  2,525      $ 16,669      $(12,248)
                                                       ========      ========      ========
</TABLE>

12.  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
(excluding     commitments     accrued     as    part    of    the     Company's
restructuring/consolidation  plan) required under  operating  leases at December
28, 1997 are:

                                                               Operating
                                                                 Leases
                                                              (thousands)
       1998                                                     $11,375
       1999                                                      10,255
       2000                                                       8,430
       2001                                                       6,485
       2002                                                       6,524
       Thereafter                                                17,322
                                                                -------
       Total                                                    $60,391
                                                                =======

     Rental expense charged to operations  under operating  leases  approximated
$10.1  million,  $9.6  million  and  $10.5  million  for  1997,  1996 and  1995,
respectively.  Substantially  all such rental  expense  represented  the minimum
rental payments under operating leases. In addition, the Company incurred rental
expense  of  approximately  $1.7  million  and $3.5  million  for 1996 and 1995,
respectively, under leases with related parties.

13.  RELATED PARTY TRANSACTIONS AND BALANCES

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

     On July 1,  1997,  Trace  Holdings  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 is due and payable on demand
or, if no demand is 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,  a promissory  note issued to Foamex L.P. by
Trace  Holdings  in July 1996 was  amended.  The amended  promissory  note is an
extension of a promissory  note of Trace Holdings 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  promissory  note is due and payable on demand or, if no demand is 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 promissory note is included in the
other  components  of  stockholders'   equity   (deficit).   

                                      F-25

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

13.  RELATED PARTY TRANSACTIONS AND BALANCES (continued)

     In  connection  with  the  Refinancing   Plan,  Foamex  L.P.  made  a  cash
distribution of  approximately  $1.5 million to Trace Foam as a result of Foamex
L.P.'s  distribution to FJPS and FMXI, Inc. of the Discount  Debentures,  a note
with a principal  amount of  approximately  $56.2 million (net of  approximately
$20.6 million of original issue discount) due from FJPS and a promissory note in
the  aggregate  principal  amount  of $2.0  million  due from the  Company.  The
distribution to Trace Foam reduced retained  earnings  (accumulated  deficit) of
the Company.

     Foamex  L.P.  was party to a lease  agreement  for an  airplane  with Trace
Aviation Corp. ("Trace Aviation"), a subsidiary of Trace Holdings.  During 1995,
Foamex L.P. paid Trace  Aviation $1.6 million  pursuant to the lease  agreement.
The lease  agreement also provided for the use of the airplane by Trace Holdings
with  remuneration  to Foamex L.P.  based on actual  usage of the plane.  During
1995, Trace Holdings paid to Foamex L.P. $0.6 million pursuant to the agreement.
During August 1995, Foamex Aviation Inc. ("Aviation"), a wholly-owned subsidiary
of the Company,  acquired the aircraft  from Trace  Holdings for $3.0 million in
cash and the assumption of $11.7 million of related debt. In connection with the
acquisition  of the aircraft,  the Foamex L.P. lease and other  agreements  were
terminated.

     Foamex L.P. has a management  service  agreement  with Trace Foam  Company,
Inc.  ("Trace Foam"), a wholly-owned  subsidiary of Trace Holdings,  pursuant to
which Trace Foam provides general managerial services of a financial, technical,
legal,  commercial,  administrative and/or advisory nature to Foamex L.P. During
June 1997, the management  services agreement was amended to increase the annual
fee from $1.75 million to $3.0 million, plus reimbursement of expenses incurred.
Trace Holdings rents approximately  5,900 square feet of general,  executive and
administrative  office  space  in  New  York,  New  York  from  Foamex  L.P.  on
substantially the same terms as Foamex L.P. leases such space from a third party
lessor.

     During 1997 and 1995, the Company purchased  approximately $1.9 million and
$2.5 million,  respectively,  of scrap  material from Recticel Foam  Corporation
("RFC"), a former partner of Foamex L.P. and whose chairman is a director of the
Company, under various agreements, the latest which expired in March 1998.

14.  STOCK OPTION PLAN

     The  Company's  1993  Stock  Option  Plan  provides  for  the  granting  of
nonqualified  ("NQSOs") and incentive stock options for up to 3.0 million shares
of common  stock to  officers  and  executive  employees  of the Company and its
subsidiaries  and affiliates,  the price and terms of each such option is at the
discretion of the Company,  except that the term cannot exceed ten years.  As of
December 28,  1997,  the stock  options  issued under the 1993 Stock Option Plan
vest equally over a five year period with a term of ten years.

     In accordance  with  Statement of Financial  Accounting  Standards No. 123,
"Accounting for Stock-Based  Compensation") ("FAS No. 123"), which was effective
as of January 1, 1996,  the fair value of option grants is estimated on the date
of grant using the  Black-Scholes  option  pricing model for pro forma  footnote
purposes  with the  following  assumptions  used for  grants  in all  years;  no
dividend yield,  risk-free  interest rates of 5.69% to 6.39% and expected option
life of three years. Expected volatility was assumed to be 40% in 1997 and 1996.

                                      F-26
<PAGE>
                   FOAMEX INTERNATIONAL INC. AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

14.  STOCK OPTION PLAN (continued)

       A summary of stock option activity is as follows:
<TABLE>
<CAPTION>
                                              1997                                  1996            1995
                                                Weighted                    Weighed                     Weighted
                                                Average                     Average                     Average
                                                Exercise                    Exercise                    Exercise
                                    Shares        Price         Shares        Price       Shares          Price
<S>                                  <C>        <C>               <C>         <C>         <C>             <C>   
Outstanding at beginning of year     967,476    $ 6.97            951,343     $ 7.64      2,033,800       $17.28
Granted                              625,833     11.52            202,240       7.06        150,000         9.95
Exercised                           (145,195)     6.88            (14,914)      6.88              -           -
Forfeited                             (9,065)     6.88           (171,193)     10.80       (145,956)       14.59
Canceled     -                             -         -                  -          -     (1,924,700)       17.15
Granted in exchange offer                  -         -                  -          -        838,199         6.88
                                   ---------    ------            --------    ------     ----------      -------

Outstanding at end of year         1,439,049      7.08             967,476    $ 6.97        951,343      $  7.64
                                   =========    ======            ========    ======     ==========      =======

Exercisable at end of year           467,460      7.04             431,863    $ 6.94         20,140      $14.62
                                   =========    ======            ========    ======     ==========      ======
</TABLE>

     The options  outstanding  at December 28, 1997 have an exercise price range
of $6.875 to $14.00.  During 1997, the Company  granted  625,833  options with a
weighted  average  market price on the date of grant of $3.91.  During 1996, the
Company granted 202,240 options with a weighted average market price on the date
of grant of $6.52.  The 1996  aggregate  difference of $1.1 million  between the
fair  market  value  ("FMV") of the  options at the date of grant and the option
price is being  charged to expense  over the vesting  period (five years) of the
options.  During  1995,  the Company  granted a total of 150,000  options  which
include (i) 15,000  options with a weighted  average market price on the date of
grant of $9.50,  (ii) 85,000 options with a weighted average market price on the
date of grant of $8.29 and (iii) 50,000  options with a weighted  average market
price on the date of grant of  $9.50.  Upon  completion  of the  initial  public
offering (the "IPO") in December 1993,  options were granted to purchase 248,600
shares of common stock at $13.50 per share and 1,750,000  shares of common stock
at prices ranging from $15.00 to $22.50 per share.  The aggregate  difference of
$0.4 between the FMV ($15 per share) of the options at the date of grant and the
$13.50  option price is being  charged to expense over the vesting  period (five
years) of the options.  Total compensation  expense relating to options amounted
to approximately $0.3 million, $0.3 million and $0.1 million,  respectively,  in
each of 1997, 1996 and 1995, respectively.

     In December 1995,  the Stock Option Plan Committee  approved a stock option
exchange program which permitted optionees of record as of that date to exchange
all  options  previously  granted  for  options  priced at the FMV share  price,
$6.875, as of the close of business on that date. The number of new options (the
"New  Options")  to be  exchanged  for  previously  granted  options  (the  "Old
Options")  was  determined  on the basis of the ratio of the FMV on  December 6,
1995 to the FMV or the discount  share value of the Old Options when  originally
granted.  New Options could not be exercised  until  December 6, 1996 and expire
upon the same terms as the Old Options.

     The weighted average remaining  contractual lives of outstanding options at
December 28, 1997 was approximately 7.0 years.

     The Company applies the provisions of Accounting  Principles  Board Opinion
No. 25 ("Accounting for Stock Issued to Employees") and related  interpretations
("APB 25") in accounting for its stock-based  compensation  plans.  Accordingly,
compensation   expense  has  been  recognized  in  the  consolidated   financial
statements  with  respect  to the above  plans in  accordance  with APB 25.  Had
compensation  costs for the above plans been determined  based on the fair value
of the options at the grant dates under those plans  consistent with the methods
under Statement of Financial Accounting Standards No. 123 ("Accounting for Stock
Based  Compensation"),  the  Company's  income from  continuing  operations  and
earnings (loss) per share would not have been significantly affected.

                                      F-27

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

15.  STOCKHOLDERS' EQUITY (DEFICIT)

     Preferred Stock

     The Company is  authorized to issue 5.0 million  shares of preferred  stock
with a par value of $1.00 per share, none of which has been issued. The Board of
Directors has the power to establish the powers, preferences, and rights of each
series which may afford the holders of any preferred stock  preferences,  powers
and rights  (including  voting  rights)  senior to the rights of the  holders of
common stock.

     Common Stock

     At December 28, 1997, the Company had an aggregate of 4.8 million of common
stock shares reserved for issuance in connection with its stock option plan (3.0
million) and outstanding warrants (1.8 million).

     Warrants

In June 1994, in connection  with the issuance of the Discount  Debentures,  the
Company issued 116,745  warrants to purchase 0.6 million shares of common stock.
Each  warrant is  exercisable  on or before July 1, 1999 for 5.1394  shares at a
cash  price of $11.52 per share  upon  exercise.  The  warrants  were  valued by
projecting  the  Company's  financial  results for five years.  These  financial
results  were  discounted  at a rate of 18% to 20% and,  with a projected  price
earnings  ratio of 10-11x  after five  years,  yielded a value of  approximately
$25.70 per warrant or $3.0  million in total.  Accordingly,  additional  paid in
capital was increased for the cash received attributable to the warrants and the
associated  debt reduced,  with such  reduction to be amortized over the life of
the debt.

     In addition, the Company has outstanding warrants to purchase approximately
1.2 million shares of common stock at an exercise price of approximately  $12.30
per share at any time prior to October 1999.

     Treasury Stock

     During 1997,  1996 and 1995,  the Company  purchased  434,600,  624,700 and
929,700 shares of its common stock, respectively,  for an aggregate cost of $5.7
million, $6.3 million and $7.2 million, respectively,  under programs authorized
by the Board of Directors to purchase up to 3.0 million  shares of the Company's
common stock.

     Other

     The other  component  of  stockholders'  equity  (deficit)  consists of the
following:
<TABLE>
<CAPTION>
                                                        December 28, December 29,  December 31,
                                                            1997         1996        1995
                                                                     (thousands)
<S>                                                        <C>         <C>         <C>    
     Foreign currency translation adjustment               $ 4,367     $ 3,494     $ 3,448
     Additional pension liability, net of income taxes       2,231       1,445       2,872
     Note receivable from Trace Holdings                     9,795       4,373       4,373
                                                           -------     -------     -------
                                                           $16,393     $ 9,312     $10,693
                                                           =======     =======     =======
</TABLE>

                                      F-28
<PAGE>
                   FOAMEX INTERNATIONAL INC. AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

16.  ENVIRONMENTAL MATTERS

     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  and the
remediation of  environmental  contamination,  and as a result,  is from time to
time involved in administrative and judicial  proceedings and inquiries relating
to  environmental  matters.  During 1997,  expenditures  in connection  with the
Company's compliance with federal,  state, local and foreign  environmental laws
and  regulations  did  not  have a  material  adverse  effect  on the  Company's
operations, financial position, capital expenditures or competitive position. As
of December 28, 1997, the Company has  environmental  accruals of  approximately
$9.3 million for environmental  matters.  In addition,  as of December 28, 1997,
the  Company has net  receivables  of  approximately  $1.1  million  relating to
indemnification   for  environmental   liabilities,   net  of  an  allowance  of
approximately  $1.0 million  relating to potential  disagreements  regarding the
scope of the  indemnification.  The Company believes that realization of the net
receivables established for indemnification is probable.

     The Clean Air Act  Amendments of 1990 (the "1990 CAA  Amendments")  provide
for the establishment of federal emission standards for hazardous air pollutants
including  methylene  chloride,  propylene oxide and TDI,  materials used in the
manufacturing  of foam. On December 27, 1996,  the United  States  Environmental
Protection Agency (the "EPA") proposed regulations under the 1990 CAA Amendments
that  will  require  manufacturers  of slab  stock  polyurethane  foam  and foam
fabrication  plants to reduce  emissions of methylene  chloride.  Because  these
regulations  are subject to change  prior to  finalization,  the Company  cannot
accurately predict the actual cost of their implementation. The Company does not
believe  implementation  of the  regulations  will  require it to make  material
expenditures  at  facilities  owned  prior  to  December  23,  1997,  due to the
Company's  use  of  alternative  technologies  which  do not  utilize  methylene
chloride and its ability to shift current production to the facilities which use
these alternative  technologies;  however, material expenditures may be required
at the facilities  formerly  operated by Crain. The 1990 CAA Amendments also may
result in the imposition of additional  standards  regulating air emissions from
polyurethane foam manufacturers,  but these standards have not yet been proposed
or promulgated.

     The Company has reported to appropriate state authorities that it has found
soil  and  groundwater  contamination  in  excess  of  state  standards  at four
facilities and soil  contamination  in excess of state  standards at three other
facilities.  The  Company  has  begun  remediation  and  is  conducting  further
investigations  into the extent of the  contamination  at these  facilities and,
accordingly,  the extent of the remediation that may ultimately be required. The
actual cost and the timetable of any such  remediation  cannot be predicted with
any degree of certainty at this time.  As of December 28, 1997,  the Company has
environmental accruals of approximately $8.7 million for the remaining potential
remediation costs for these facilities based on engineering estimates.

     Federal regulations require that by the end of 1998 all underground storage
tanks  ("USTs")  be  removed  or  upgraded  in all  states  to  meet  applicable
standards.  The  Company  has six USTs that will  require  removal or  permanent
in-place closure by the end of 1998. Due to the age of these tanks,  leakage may
have  occurred  resulting in soil and possibly  groundwater  contamination.  The
Company has accrued $0.1 million for the estimated  removal and remediation,  if
any, associated with these USTs. However,  the full extent of contamination and,
accordingly,  the actual cost of such  remediation  cannot be predicted with any
degree of certainty at this time. The Company believes that its USTs do not pose
a  significant  risk  of  environmental   liability  because  of  the  Company's
monitoring  practices  for  USTs  and  conditional  approval  for the  permanent
in-place closure for certain USTs. However,  there can be no assurance that such
USTs will not result in significant environmental liability in the future.

     The Company has been designated as a Potentially  Responsible Party ("PRP")
by the United States Environmental Protection Agency (the "EPA") with respect to
thirteen sites with an estimated total liability to the Company for the thirteen
sites of less than approximately $0.5 million.  Estimates of total cleanup costs
and fractional allocations of liability are generally provided by the EPA or the
committee  of PRP's  with  respect to the  specified  site.  In each  case,  the
participation of the Company is considered to be immaterial.

                                      F-29
<PAGE>
                   FOAMEX INTERNATIONAL INC. AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

16.  ENVIRONMENTAL MATTERS (continued)

     On May 5,  1997,  there  was an  accidental  spill at one of the  Company's
manufacturing facilities.  The spill was contained on site and cleaned-up for an
approximate  cost of $0.6 million.  Although it is possible that new information
or future  developments  could  require the Company to  reassess  its  potential
exposure  relating  to  all  pending  environmental  matters,   including  those
described herein,  management  believes that, based upon all currently available
information,  the  resolution  of such  environmental  matters  will  not have a
material adverse effect on the Company's 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  may  be  found  to  exist,  that  may  require
expenditures not currently anticipated and that may be material.

17.  LITIGATION

     As of March 4, 1998,  the Company and Trace  Holdings  were two of multiple
defendants  in actions  filed on behalf of  approximately  5,000  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. In addition, three cases have been filed alleging claims on behalf
of approximately 700 residents of Australia, New Zealand,  England, and Ireland.
During 1995, the Company and Trace Holdings 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.  In addition,  two of the cases filed on
behalf of 903 foreign  plaintiffs  were  dismissed on the grounds that the cases
could not be brought in the United  States  courts.  This decision is subject to
appeal.  The  Company  believes  that the  number  of suits  and  claimants  may
increase.  The  Company  believes  that the  number of suits and  claimants  may
increase.  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 Holdings.  Neither the Company nor Trace Holdings  recommended,
authorized or approved the use of its foam for these  purposes.  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 Trace Holdings, and without taking into
account  potential  indemnity from the  manufacturers  of  polyurethane  covered
breast  implants,  management  believes that the disposition of matters that are
pending or that may reasonably be  anticipated to be asserted  should not have a
material adverse effect on either the Company's or Trace Holdings'  consolidated
financial  position or results of operations.  In addition,  the Company is also
indemnified  by  Trace  Holdings  for  any  such  liabilities  relating  to foam
manufactured  prior  to  October  1990.  Although  Trace  Holdings  has paid the
Company's  litigation  expenses  to date  pursuant to such  indemnification  and
management  believes Trace Holdings  likely will be in a position to continue to
pay such expenses,  there can be no absolute  assurance that Trace Holdings will
be able to provide such indemnification.  Based on information available at this
time with respect to the potential  liability,  and without  taking into account
the  indemnification  provided by Trace  Holdings and the  coverage  provided by
Trace Holdings' and the Company's liability insurance, the Company believes that
the proceedings  should not ultimately result in any liability that would have a
material  adverse  effect on the financial  position or results of operations of
the Company. If management's  assessment of the Company's liability with respect
to these actions is incorrect, such actions could have a material adverse effect
on the Company.

     In November 1997, a complaint was filed in the United States District Court
for the Southern District of Texas alleging that various  defendants,  including
Crain  through the use of the  CARDIO(R)  process  licensed  from a third party,
infringed on a patent held by  plaintiff.  The Company is  negotiating  with the
licensor of the process for the  assumption  of the defense of the action by the
licensor;  however, the action is in the preliminary stages, and there can be no
assurance as to the ultimate outcome of the action.

                                      F-30
<PAGE>
                   FOAMEX INTERNATIONAL INC. AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

17.  LITIGATION (continued)

     On or about March 17, 1998, five purported class action lawsuits were filed
in the  Delaware  Chancerty  Court,  New Castle  County,  against  the  Company,
directors of the Company,  Trace Holdings, and individual officers and directors
of Trace Holdings:

       Brickell Partners v. Marshall S. Cogan, et al.,  No. 16260NC;
       Mimona Capital v. Salvatore J. Bonanno, et al.,  No. 16259NC;
       Daniel Cohen v. Foamex International Inc.,  No. 16263;
       Eileen Karisinki v. Foamex International Inc., et al.,  No. 16261NC and
       John E. Funky Trust v. Salvatore J. Bonanno, et al., No. 16267.

     A  sixth  purported   class  action  lawsuit,   Barnett  Stepak  v.  Foamex
International  Inc.,  et al.,  No.  16277,  was filed on or about March 23, 1998
against the same  defendants.  The complaints in the six actions  allege,  among
other things,  that the defendants have violated  fiduciary and other common law
duties  purportedly owed to the Company's  shareholders in connection with Trace
Holdings  proposal to acquire all of the shares of the  Company's  common stock.
The complaints seek, among other things, class certification, a declaration that
the defendants  have breached their fiduciary  duties to the class,  preliminary
and permanent  injunctions  baring  implementation of the proposed  transaction,
rescission of the transaction if consummated,  unspecified compensatory damages,
and costs and attorneys' fees.

     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  financial  position or
results  of  operations  of  the  Company.  If  management's  assessment  of the
Company's  liability  with respect to these actions is  incorrect,  such actions
could have a material  adverse  effect on the Company's  consolidated  financial
position.

18.  FINANCIAL INSTRUMENTS AND CONCENTRATION OF CREDIT RISK

     Interest Rate Swap Agreements

     The Company has an interest rate swap  agreement  involving the exchange of
fixed and  floating  interest  payment  obligations  without the exchange of the
underlying principal amounts. At December 28, 1997, the total notional principal
amount of the interest rate swap agreement was $150.0 million.  The counterparty
to the agreement is a large international  financial  institution.  The interest
rate swap agreement subjects the Company to financial risk that will vary during
the life of the agreement in relation to market interest rates.

     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.

     Disclosure about Fair Value of Financial Instruments

     The following  disclosures  of the  estimated  fair value amounts have been
determined based on the Company's assessment of available market information and
appropriate valuation methodologies.

                                      F-31

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

18.  FINANCIAL INSTRUMENTS AND CONCENTRATION OF CREDIT RISK (continued)

     The estimated  fair values of the  Company's  financial  instruments  as of
December 28, 1997 are as follows:

                                 Carrying Amount      Fair Value
                                            (thousands)
     Liabilities:
       Long-term debt             $     748,655        $751,143
                                  =============        ========

       Interest rate swaps        $          --        $  1,015
                                  =============        ========

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

     The fair value of long-term  debt is estimated  using quoted market prices,
where available, or discounted cash flows.

     The fair  value of  interest  rate swap is based on the amount at which the
Company would pay if the swap was settled, as determined by an estimate obtained
from dealers.

     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.

19.  EARNINGS (LOSS) PER SHARE

     The following table shows the amounts used in computing  earnings per share
and the effect on income and the weighted  average  number of shares of dilutive
potential common stock.
<TABLE>
<CAPTION>
                                                                  1997             1996             1995
                                                                  (thousands, except per share amounts)
     Basic earnings (loss) per share:
<S>                                                             <C>              <C>              <C>      
            Net income (loss)                                   $(42,345)        $(83,135)        $(53,120)
                                                                ========         ========         ========

            Average common stock outstanding                      25,189           25,389           26,472
                                                                ========         ========         ========

            Basic earnings (loss) per share                     $  (1.68)        $  (3.28)        $  (2.01)
                                                                ========         ========         ========

     Diluted earnings per share:
            Net income (loss) available for common stock
               and dilutive securities                          $(42,345)        $(83,135)        $(53,120)
                                                                ========         ========         ========

            Average common stock outstanding                      25,189           25,389           26,472

            Additional common shares resulting
               from stock options                                    511              351               --
                                                                --------         --------         --------

            Average common stock and dilutive
               stock outstanding                                  25,700           25,740           26,472
                                                                ========         ========         ========

            Diluted earnings (loss) per share                   $  (1.65)        $  (3.23)        $  (2.01)
                                                                ========         ========         ========
</TABLE>

                                      F-32
<PAGE>
                   FOAMEX INTERNATIONAL INC. AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

19.  EARNINGS (LOSS) PER SHARE (continued)

     Earnings  (loss)  per  share  attributable  to  continuing  operations  and
discontinued  operations and extraordinary loss on early  extinguishment of debt
are:
<TABLE>
<CAPTION>
                                                             1997          1996           1995
     Earnings (loss) per common share - basic:
<S>                                                        <C>           <C>           <C>      
            Continuing operations                          $   0.16      $   1.28      $  (1.92)

            Discontinued operations                           (0.08)        (4.51)        (0.09)

            Extraordinary loss                                (1.76)        (0.05)           --
                                                           --------      --------      --------

            Net loss                                       $  (1.68)     $  (3.28)     $  (2.01)
                                                           ========      ========      ========

     Earnings (loss) per common share - assuming dilution:

            Continuing operations                          $   0.16      $   1.26      $  (1.92)

            Discontinued operations                           (0.08)        (4.45)        (0.09)

            Extraordinary loss                                (1.73)        (0.04)           --
                                                           --------      --------      --------

            Net loss                                       $  (1.65)     $  (3.23)     $  (2.01)
                                                           ========      ========      ========
</TABLE>
                                      F-33

<PAGE>

20.    SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION
<TABLE>
<CAPTION>
                                                                        1997           1996           1995
                                                                                   (thousands)

<S>                                                                    <C>           <C>             <C>    
       Cash paid for interest                                          $46,323       $44,472         $47,333
                                                                       =======       =======         =======

       Cash paid (received) for income taxes, net                      $ 3,579       $(2,855)       $  3,024
                                                                       =======       =======        ========

       Noncash capital expenditures                                   $    167      $    165       $     378
                                                                      ========      ========       =========
</TABLE>

21.  QUARTERLY FINANCIAL DATA (UNAUDITED)
<TABLE>
<CAPTION>
                                                       First        Second         Third         Fourth
                                                     Quarter        Quarter       Quarter       Quarter
                                                            (thousands except per share amounts)
       1997
<S>                                                   <C>             <C>           <C>           <C>     
         Net sales                                    $229,120        $239,887      $233,434      $228,654
         Gross profit                                   42,797          44,780        38,039        17,723
         Net income (loss)                               7,726         (32,719)        6,515       (23,867)
         Basic earnings (loss) per share                  0.31          (1.29)         0.26          (0.96)
         Diluted earnings (loss) per share                0.29          (1.26)         0.26          (0.96)
</TABLE>

                                      F-33
<PAGE>
                   FOAMEX INTERNATIONAL INC. AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

21.  QUARTERLY FINANCIAL DATA (UNAUDITED) (continued)
<TABLE>
<CAPTION>
                                                       First        Second         Third         Fourth
                                                     Quarter        Quarter       Quarter       Quarter
                                                            (thousands except per share amounts)
       1996
<S>                                                   <C>           <C>             <C>           <C>     
         Net sales                                    $219,131      $240,447        $236,766      $230,007
         Gross profit                                   36,031        38,167          39,960        39,074
         Net income (loss)                               6,137       (31,707)        (66,623)        9,058
         Basic earning (loss) per share                   0.24         (1.25)         (2.64)          0.36
         Diluted earnings (loss) per share                0.24         (1.24)         (2.64)          0.35
</TABLE>

     During  1997,  the  Company  recorded  an  extraordinary  loss on the early
extinguishment   of  debt  of  approximately   $42.2  million  relating  to  the
Refinancing  Plan (see Note 7) which is reflected in the second quarter of 1997.
During  the  fourth  quarter  of 1997,  the  Company  recorded  a $21.1  million
restructuring  charge which is  described  in Note 4 and recorded  approximately
$20.0 million of special charges and changes in estimates  relating to inventory
writedowns,  customer deductions,  start-up of operations and other items. These
charges decreased gross profit by $15.6 million and increased  selling,  general
and administrative expenses by $4.4 million.

     During 1996, the Company recorded a net loss on the disposal of Perfect Fit
including  operating losses during the phase-out  period of approximately  $43.0
million of which $39.3  million is reflected in the second  quarter of 1996 (see
Note 9). Also,  during 1996 the Company  recorded an  estimated  net loss on the
disposal of JPS  Automotive  including  operating  losses  during the  phase-out
period of approximately $70.9 million of which $69.7 million is reflected in the
third  quarter  of 1996 (see Note 9).  During the  fourth  quarter of 1996,  the
Company recorded a $6.5 million net restructuring  credit, which is described in
Note 4.

22.  SUBSEQUENT EVENT

     On February 27, 1998, the Company and certain of its affiliates completed a
series of  transactions  designed to simplify  the  Company's  structure  and to
provide  future  operational  flexibility.  Prior to the  consummation  of these
transactions, the Company defeased the $4.5 million outstanding principal amount
of  its  9  1/2%  Senior  Secured  Notes  due  2000.  Foamex  L.P.  settled  its
intercompany  payables  to  General  Felt with $4.8  million in cash and a $34.0
million  principal  amount  promissory  note  supported  by  the  $34.5  million
Foamex/GFI  Note. The initial  transaction  resulted in the transfer from Foamex
L.P. to Trace Foam LLC of all of the  outstanding  common stock of General Felt,
in exchange for (i) the assumption by Trace Foam LLC of $129.0 million of Foamex
L.P.'s  indebtedness and (ii) the transfer by Trace Foam LLC to Foamex L.P. of a
1% non-managing general partnership interest in Foamex L.P. As a result, General
Felt  ceased  being a  subsidiary  of  Foamex  L.P.  and was  relieved  from all
obligations under Foamex L.P.'s 9 7/8% Senior Subordinated Notes due 2007 and 13
1/2%  Senior  Subordinated  Notes due 2005.  Upon  consummation  of the  initial
transaction,  Foamex  Carpet,  a newly  formed  wholly-owned  subsidiary  of the
Company,  the  Company,  Trace Foam LLC,  and General Felt entered into an Asset
Purchase  Agreement  dated  February  27,  1998,  in  which  General  Felt  sold
substantially  all of its  assets  (other  than  the  Foamex/GFI  Note  and  its
operating facility in Pico Rivera,  California) to Foamex Carpet in exchange for
(i) $20.0 million in cash and (ii) a promissory  note issued by Foamex Carpet to
Trace Foam LLC in the amount of $70.2  million.  The $20.0  million cash payment
was  funded  with a  distribution  by Foamex  L.P.  Upon  consummation  of these
transactions contemplated by the Asset Purchase Agreement, Foamex Carpet entered
into a Credit Agreement with the  institutions  from time to time party thereto,
as issuing  banks,  and  Citicorp  USA,  Inc.  and The Bank of Nova  Scotia,  as
administrative  agents,  which  provides  for up to $20.0  million in  revolving
credit borrowings.  These transactions were accounted for in a manner similar to
a pooling of interests  since the entities  were under  common  control.  Foamex
Carpet will conduct the carpet cushion business previously  conducted by General
Felt.  Also,  Trace Foam LLC has  retained  ownership  of one of General  Felt's
operating  facilities  which is being  leased  to  Foamex  Carpet  and the $34.0
million Foamex/GFI Note.

                                      F-34
<PAGE>
                            FOAMEX INTERNATIONAL INC.
                     INDEX TO FINANCIAL STATEMENT SCHEDULES


       Index to Financial Statement Schedules

       Schedule I - Condensed Financial Information of Registrant

       Schedule II - Valuation and Qualifying Accounts

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





                                      S-1
<PAGE>
                                                                      Schedule I

                   FOAMEX INTERNATIONAL INC. AND SUBSIDIARIES
                  CONDENSED FINANCIAL INFORMATION OF REGISTRANT
                                 BALANCE SHEETS
<TABLE>
<CAPTION>
                                                                  December 28,         December 29,
                                                                      1997                 1996
ASSETS                                                                      (thousands)
CURRENT ASSETS:
<S>                                                                 <C>                 <C>      
    Cash and cash equivalents                                       $   2,639           $   1,232
    Intercompany receivables                                           14,542              10,516
    Deferred income taxes                                              42,935              15,045
    Other current assets                                                  181               1,053
                                                                    ---------           ---------
            Total current assets                                       60,297              27,846

OTHER ASSETS                                                              772                 353
                                                                    ---------           ---------

TOTAL ASSETS                                                        $  61,069           $  28,199
                                                                    =========           =========

LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)
CURRENT LIABILITIES:
    Accounts payable                                                $  10,542           $   9,309
    Other accrued liabilities                                           5,056               4,937
                                                                    ---------           ---------
      Total current liabilities                                        15,598              14,246

LONG-TERM LIABILITIES:
    Notes payable to consolidated subsidiaries I                        2,500               8,000
    Tax distribution advance payable                                   13,618                  --
    Deficit in consolidated subsidiaries                              142,772              62,429
    Deferred income taxes                                                  --               1,627
                                                                    ---------           ---------
      Total liabilities                                               174,488              86,302
                                                                    ---------           ---------

COMMITMENTS AND CONTINGENCIES                                              --                  --
                                                                    ---------           ---------

STOCKHOLDERS' EQUITY (DEFICIT):
    Preferred Stock, par value $1.00 per share:
      Authorized 5,000,000 shares - none issued                            --                  --
    Common Stock, par value $.01 per share:
      Authorized 50,000,000 shares
      Issued 26,908,680 and 26,753,262
         shares, respectively
      Outstanding 24,919,680 and 25,198,862
         shares, respectively                                             269                 267
    Additional paid-in capital                                         86,025              84,579
    Retained earnings (accumulated deficit)                          (164,118)           (120,174)
    Other                                                             (16,393)             (9,312)
                                                                    ---------           ---------
                                                                      (94,217)            (44,640)
    Common Stock held in Treasury, at cost:
      1,989,000 shares and 1,554,400, respectively                    (19,202)            (13,463)
                                                                    ---------           ---------
      Total stockholders' equity (deficit)                           (113,419)            (58,103)
                                                                    ---------           ---------

      TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)          $  61,069           $  28,199
                                                                    =========           =========
<FN>
(1)  During  1997,   FJGP,   Inc.'s,   a   wholly-owned   subsidiary  of  Foamex
     International,   distributed   its   assets  and   liabilities   to  Foamex
     International. FJGP Inc.'s assets primarily consisted of its 1% partnership
     interest  in  FJPS  and  a  $6.0  million   demand  note  due  from  Foamex
     International.
</FN>
</TABLE>

                 See notes to consolidated financial statements.
                                   (continued)

                                      S-2
<PAGE>
                                                                      Schedule I

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

<TABLE>
<CAPTION>
                                                   1997                  1996                1995
                                                  (amounts in thousands except per share amounts)
<S>                                              <C>                 <C>                 <C>      
INTERCOMPANY SALES                               $ 123,355           $ 179,791           $ 197,066

COST OF GOODS SOLD                                 123,355             179,791             197,066
                                                 ---------           ---------           ---------

GROSS PROFIT                                            --                  --                  --

SELLING, GENERAL AND
    ADMINISTRATIVE EXPENSES                            486                 709               5,004

RESTRUCTURING AND OTHER CHARGES                         --                (126)              2,168
                                                 ---------           ---------           ---------

INCOME (LOSS) FROM OPERATIONS                         (486)               (583)             (7,172)

EQUITY IN EARNINGS (LOSS) OF
    CONSOLIDATED SUBSIDIARIES                        4,954              42,097             (57,904)

INTEREST EXPENSE                                       153                 196                  13

INTEREST INCOME                                        204                  78                 679
                                                 ---------           ---------           ---------

INCOME (LOSS) BEFORE INCOME TAX
    AND EXTRAORDINARY LOSS                           4,519              41,396             (64,410)

INCOME TAX PROVISION (BENEFIT)                         388               8,904             (13,660)
                                                 ---------           ---------           ---------

INCOME (LOSS) FROM CONTINUING
    OPERATIONS                                       4,131              32,492             (50,750)

EQUITY IN DISCONTINUED OPERATIONSI                  (1,994)           (114,480)             (2,370)
                                                 ---------           ---------           ---------

INCOME (LOSS) BEFORE EXTRAORDINARY LOSS              2,137             (81,988)            (53,120)

EQUITY IN EXTRAORDINARY LOSSI                      (44,482)             (1,147)                 --
                                                 ---------           ---------           ---------

NET INCOME (LOSS)                                $ (42,345)          $ (83,135)          $ (53,120)
                                                 =========           =========           =========

BASIC EARNINGS (LOSS) PER SHARE:
    CONTINUING OPERATIONS                        $    0.16           $    1.28           $   (1.92)
                                                 =========           =========           =========
    EARNINGS (LOSS) PER SHARE                    $   (1.68)          $   (3.28)          $   (2.01)
                                                 =========           =========           =========

DILUTED EARNINGS (LOSS) PER SHARE:
    CONTINUING OPERATIONS                        $    0.16           $    1.26           $   (1.92)
                                                 =========           =========           =========

    EARNINGS (LOSS) PER SHARE                    $   (1.65)          $   (3.23)          $   (2.01)
                                                 =========           =========           =========
<FN>
(1)  Equity in discontinued  operation  includes allocated income tax provisions
     (benefits) of Foamex  International of $(1.3) million,  $(32.5) million and
     $4.3 million for 1997, 1996 and 1995, respectively.

(2)  Equity in  extraordinary  loss  includes  allocated  income tax benefits of
     $27.3 million and $0.8 million for 1997 and 1996, respectively.
</FN>
</TABLE>

                 See notes to consolidated financial statements.
                                   (continued)

                                      S-3
<PAGE>
                                                                      Schedule I

                   FOAMEX INTERNATIONAL INC. AND SUBSIDIARIES
                  CONDENSED FINANCIAL INFORMATION OF REGISTRANT
                            STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
                                                                         1997           1996           1995
OPERATING ACTIVITIES:                                                                (thousands)
<S>                                                                   <C>            <C>            <C>       
    Net income (loss)                                                 $ (42,345)     $ (83,135)     $ (53,120)
    Adjustments to reconcile net income (loss) to
     net cash provided by operating activities:
      Deferred income taxes                                                (387)         8,904        (11,622)
      Equity in earnings of discontinued operations                       1,994        114,480          2,370
      Equity in earnings of extraordinary loss                           44,482          1,147             --
      Equity in earnings of consolidated subsidiaries                    (4,954)       (42,097)        57,904
      Other                                                                  61            357             35
    Changes in operating assets and liabilities,
     net of acquisitions:
      Intercompany receivables                                           (4,026)         2,702          4,049
      Accounts payable                                                    1,233         (3,844)        (7,393)
      Other assets and liabilities                                          764          4,346         (3,541)
                                                                      ---------      ---------      ---------
         Net cash provided by (used for) operating activities            (3,178)         2,860        (11,318)
                                                                      ---------      ---------      ---------

INVESTING ACTIVITIES:
    Investment in consolidated subsidiaries                                  --             --         (4,025)
    Proceeds from (settlement of) sale of discontinued operations       (13,556)           179             --
    Other                                                                 6,757          1,707          2,379
                                                                      ---------      ---------      ---------
    Net cash provided by (used for) investing activities                 (6,799)         1,886         (1,646)
                                                                      ---------      ---------      ---------

FINANCING ACTIVITIES:
    Note payable to consolidated subsidiary                               2,500             --          2,000
    Tax advance distribution                                             13,618             --             --
    Purchase of treasury stock                                           (5,739)        (6,296)        (7,167)
    Proceeds from exercise of stock options                               1,005            102             --
                                                                      ---------      ---------      ---------
         Net cash provided by (used for) financing activities            11,384         (6,194)        (5,167)
                                                                      ---------      ---------      ---------

NET INCREASE (DECREASE) IN CASH AND
    CASH EQUIVALENTS                                                      1,407         (1,448)       (18,131)

CASH AND CASH EQUIVALENTS AT
    BEGINNING OF PERIOD                                                   1,232          2,680         20,811
                                                                      ---------      ---------      ---------

CASH AND CASH EQUIVALENTS AT
    END OF PERIOD                                                     $   2,639      $   1,232      $   2,680
                                                                      =========      =========      =========
</TABLE>


Note:  During 1997, 1996 and 1995, the Company received  distributions  from its
consolidated  subsidiaries  of $8.8  million,  $1.7  million  and $2.4  million,
respectively, in accordance with tax sharing agreements.

                 See notes to consolidated financial statements.
                                   (continued)

                                      S-4
<PAGE>
                   FOAMEX INTERNATIONAL INC. AND SUBSIDIARIES
                        VALUATION AND QUALIFYING ACCOUNTS
                                   (thousands)
<TABLE>
<CAPTION>
                                        Balance at     Charged to      Charged to                     Balance at
                                       Beginning of    Costs and         other                         End of
                                          Period        Expenses       Accounts(1)      Deductions     Period

YEAR ENDED DECEMBER 28, 1997
<S>                                      <C>          <C>             <C>              <C>           <C>     
Allowance for Uncollectible Accounts     $  3,060     $     2,295     $  2,898         $   1,409     $  6,844
                                         ========     ===========     ========         =========     ========

Reserve for Discounts                    $  3,268     $        --     $ 10,182         $  12,212     $  1,238
                                         ========     ===========     ========         =========     ========

Valuation Allowance                      $ 23,064     $    (5,028)    $ (1,829)        $   2,800     $ 13,408
                                         ========     ===========     ========         =========     ========


YEAR ENDED DECEMBER 29, 1996
Allowance for Uncollectible Accounts     $  4,839     $       704     $    292         $   2,775     $  3,060
                                         ========     ===========     ========         =========     ========

Reserve for Discounts                    $  4,299     $        --     $ 12,190         $  13,221     $  3,268
                                         ========     ===========     ========         =========     ========

Valuation Allowance                      $ 16,979     $    12,940     $ (6,855)(3)     $      --     $ 23,064
                                         ========     ===========     ========         =========     ========


YEAR ENDED DECEMBER 31, 1995(2)
Allowance for Uncollectible Accounts     $  2,324     $     4,627     $    324         $   2,436     $  4,839
                                         ========     ===========     ========         =========     ========

Reserve for Discounts                    $  1,382     $        --     $ 15,056         $  12,139     $  4,299
                                         ========     ===========     ========         =========     ========

Valuation Allowance                      $ 13,172     $     7,695     $ (3,888)(3)     $-            $ 16,979
                                         ========     ===========     ========         =========     ========
<FN>
(1)  Discounts and billing adjustments reflect a reduction in net sales.

(2)  Fiscal years 1995 and 1994 were restated for discontinued operations.

(3)  Represents an  adjustment  to cost in excess of net assets  relating to the
     utilization of preacquisition deferred tax assets of General Felt.
</FN>
</TABLE>
                                       S-5