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

            [X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
                         SECURITIES EXCHANGE ACT OF 1934
                   For the fiscal year ended December 28, 2003

                                       OR

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

                         Commission file number: 0-22624

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

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

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

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

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

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

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

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

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

     The aggregate market value of the voting stock held by nonaffiliates of the
registrant as of June 27, 2003, was $28.9 million.

     The number of shares  outstanding  of the  registrant's  common stock as of
February 27, 2004 was 24,443,463.

                       DOCUMENTS INCORPORATED BY REFERENCE

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

<PAGE>


                            FOAMEX INTERNATIONAL INC.

                                      INDEX

<TABLE>
<CAPTION>
                                                                                                               Page
Part I
<S>                                                                                                              <C>
         Item  1.     Business                                                                                    3
         Item  2.     Properties                                                                                 10
         Item  3.     Legal Proceedings                                                                          10
         Item  4.     Submission of Matters to a Vote of Security Holders                                        12

Part II
         Item  5.     Market for Registrant's Common Equity and
                           Related Stockholder Matters                                                           12
         Item  6.     Selected Financial Data                                                                    13
         Item  7.     Management's Discussion and Analysis of
                           Financial Condition and Results of Operations                                         15
         Item  7a.    Quantitative and Qualitative Disclosures about Market Risk                                 30
         Item  8.     Financial Statements and Supplementary Data                                                30
         Item  9.     Changes in and Disagreements with Accountants
                           on Accounting and Financial Disclosure                                                30
         Item 9a.     Controls and Procedures                                                                    31

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

Part IV
         Item 15.     Exhibits, Financial Statement Schedules
                           and Reports on Form 8-K                                                               31

         Signatures                                                                                              38
</TABLE>


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


                                       2
<PAGE>


PART I
ITEM l.  BUSINESS

General

     Foamex  International  Inc.  (referred to in this document as the "Company,
we, us and/or our") is engaged  primarily in the  manufacturing and distribution
of flexible  polyurethane and advanced polymer foam products. As of December 28,
2003, our operations are conducted through our wholly-owned  subsidiary,  Foamex
L.P.,  and through  Foamex Canada Inc.,  Foamex Latin  America,  Inc. and Foamex
Asia,  Inc.,  which  are  wholly-owned  subsidiaries  of  Foamex  L.P.  We  were
incorporated in 1993 to act as a holding company for Foamex L.P.

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

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

Segments

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

     Our five business segments are described below.

     Foam Products

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

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

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


                                       3
<PAGE>


     Carpet Cushion Products

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

     Automotive Products

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

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

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

     Technical Products

     We are one of the foam industry's  prime  innovators and producers of foams
used for industrial,  specialty, consumer and transportation applications, which
we refer to as "Technical  Products."  Technical Products consist of reticulated
foams and other custom  polyester and polyether  foams  specially  formulated to
meet the needs of technical  customers.  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.  Other post processes such as felting,  coating or laminating to
other foams or materials give these composites specific properties.

     Reticulated foams particularly are well suited for fluid management such as
filtration,  reservoiring and sound attenuation;  non-reticulated foams are used
for energy  management  applications  such as sound  absorption  and  gasketing.
Industrial   applications   include  carburetors,   computer  cabinets,   inkpad
reservoirs,  high-speed inkjet printers and speaker grills. Medical applications
include  oxygenators  for  cardiopulmonary   surgery,   instrument  holders  for
sterilization, pre-op scrubbers impregnated with anti-microbial agents and foams
used in x-rays.  Other Technical  Products have unique  characteristics  such as
flame  retardancy  and fluid  absorption.  Additional  products sold within this
group include foams for refrigerated  supermarket  produce counters,  mop heads,
paint brushes and cosmetic applications.

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


                                       4
<PAGE>

     Other

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

Marketing and Sales

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

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

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

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

International Operations

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

     We participate in a joint venture with fabrication  facilities in Singapore
and Thailand. In December 2001, we increased our non-controlling equity interest
in the joint venture to 70%. The joint venture installed its first foam pourline
during 2003.  This  pourline,  which was entirely  financed by the joint venture
entity, will reduce foam shipping costs for sales to the region and increase the
range of markets served.

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

Major Customers

     Sales to Johnson  Controls,  which are  included  in  Automotive  Products,
accounted  for  approximately  16.3% of our net sales in 2003,  17.3% of our net
sales in 2002, and 15.7% of our net sales in 2001. No other  customer  accounted
for more than 10.0% of our net sales  during any of the past  three  years.  Net
sales to our five largest  customers  comprised  approximately  34.7% of our net
sales in 2003,  33.8% of our net  sales in 2002,  and  35.0% of our net sales in
2001.  The loss of any one of these  customers  could  have a  material  adverse
effect on our business.


                                       5
<PAGE>

Manufacturing and Raw Materials

     Our manufacturing and distribution  facilities are strategically located to
service our major  customers  because the high  freight  cost in relation to the
cost  of  the  foam  product  generally  results  in  distribution   being  most
cost-effective  within a 200 to 300 mile radius.  During 2003, we closed certain
carpet padding  operations,  a foam pouring  operation,  and a foam  fabrication
operation.

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

     Raw materials account for a significant portion of our manufacturing costs.
The two principal  chemicals used in the  manufacture  of flexible  polyurethane
foam  are  toluene  diisocyanate,  or  "TDI,"  and  polyol.  We  generally  have
alternative suppliers for each major raw material. We believe that we could find
alternative sources of supply should we cease doing business with any one of our
major suppliers, although there may be some delay in replacing a major supplier,
especially a supplier of TDI and/or polyol.  There are a limited number of major
suppliers  of TDI and polyol.  Although we have not  experienced  a  significant
shortage  of  available  materials,  a  disruption  in our ability to obtain TDI
and/or polyol that continues for a significant  period of time could cause us to
suspend our manufacturing operations, which could have a material adverse effect
on our business and results of operations.

     The prices of TDI and polyol have  historically been cyclical and volatile.
The  prices of these raw  materials  are  influenced  by  demand,  manufacturing
capacity, oil prices and the current geopolitical  instability and its impact on
oil production and prices. We experienced increases in the average prices of raw
materials from major chemical  manufacturers in the year ended December 28, 2003
from the prior year. We attempt to offset raw material price  increases  through
selling price increases and manufacturing process efficiencies, but we were only
partially able to do so in the year ended  December 28, 2003. In the future,  we
may not be successful in  implementing  selling price increases to fully recover
raw material cost increases. Competitive pricing pressure may also require us to
adjust our selling prices or lose volume.

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

Employees

     As  of  December  28,  2003,  we  employed   approximately  5,100  persons.
Approximately 1,300 of these employees are located outside the United States and
approximately  1,700 employees are covered by collective  bargaining  agreements
with labor  unions.  These  agreements  expire on various dates through 2006. We
consider relations with our employees to be good.

Competition

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

Patents and Trademarks

     We own various  patents and trademarks  registered in the United States and
in numerous  foreign  countries.  The  registered  processes  and products  were
developed  through  ongoing  research  and  development  activities  to  improve
quality, reduce costs and expand markets through development of new applications
for  flexible  polyurethane  foam  products.  While we consider  our patents and
trademarks  to be a  valuable  asset,  we do not  believe


                                       6
<PAGE>


that our  competitive  position is  dependent on patent  protection  or that our
operations are dependent upon any individual patent, trademark or tradename.

Research and Development

     We believe we have a leading  research and  development  capability  in the
flexible  polyurethane  foam  industry.  Our primary  research  and  development
facility is located in Eddystone,  Pennsylvania.  Expenditures  for research and
development  amounted to $3.6  million for 2003,  $4.8 million for 2002 and $3.1
million for 2001.

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

Risk Factors

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

Our substantial debt could impair our financial condition.

     We  continue  to be highly  leveraged  and have  substantial  debt  service
obligations.  As of December 28, 2003,  our total  long-term  debt and revolving
credit  borrowings  were  approximately  $745.6  million  and our  shareholders'
deficiency was  approximately  $203.1  million.  As of December 28, 2003, we had
approximately  $46.8 million in revolving loan  availability  and  approximately
$20.9 million in  outstanding  letters of credit.  We may also incur  additional
debt in the  future,  subject  to  certain  limitations  contained  in our  debt
instruments.

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

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

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

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

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

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

     On August 18,  2003,  Foamex L.P.  and its bank  lenders  executed a $240.0
million Senior Secured Credit Facility (the "240.0 Million Senior Secured Credit
Facility")  and an $80.0  million  Secured  Term Loan with  another  lender (the
"Secured Term Loan"), which, among other things,  requires Foamex L.P. to meet a
financial  covenant.  Under the Senior Secured  Credit  Facility and the Secured
Term Loan,  Foamex L.P. is subject to a fixed charge


                                       7
<PAGE>


coverage  ratio,  as  defined,  of 1.00.  If we are  unable to  comply  with the
financial  covenant,  the bank lenders could cause all amounts outstanding under
the $240.0 Million  Senior  Secured Credit  Facility and Secured Term Loan to be
due and payable immediately. In addition, any event of default or declaration of
acceleration  under one debt instrument could also result in an event of default
under one or more of Foamex L.P.'s other debt instruments, which unless cured or
waived,  would have a material adverse effect on us and could impair our ability
to continue as a going concern.

We may not generate sufficient taxable income to utilize our deferred income tax
assets.

     We have net deferred  income tax assets  aggregating  approximately  $123.3
million that  primarily  represent the benefit of future tax  deductions and net
operating  loss  carryforwards  available to offset future taxable income in the
U.S.

     If we are unable to generate  sufficient  taxable income to utilize the net
operating loss  carryforwards on a timely basis, some or all of our deferred tax
assets will be required  to be written  off  through a charge to  operations  in
future years. Our net operating loss  carryforwards  begin to expire in the year
2010.  We evaluate  the  realizability  of deferred  tax assets on an annual and
quarterly basis or if there is a significant  change in  circumstances  that may
cause a change in our judgment about  realizability of deferred tax assets.  Any
valuation  allowance  that may be required to be established as a result of this
evaluation  process  could  have a  material  adverse  effect  on our  financial
position and results of operations.

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

     Our  ability  to  generate  sufficient  cash flow from  operations  to make
scheduled  payments on our debt  service  obligations  will depend on our future
financial  performance,   which  will  be  affected  by  a  range  of  economic,
competitive and business factors,  many of which are outside of our control. Our
annual debt service  obligations will increase by $2.3 million per year for each
1%  increase  in interest  rates,  based on the  balance of  variable  rate debt
outstanding as of December 28, 2003.  Our estimated debt service  obligation for
2004 is $81.1  million,  based on levels of debt and interest rates in effect at
December 28, 2003. In addition,  Foamex L.P.'s 13 1/2% senior subordinated notes
(the "13 1/2% Senior Subordinated Notes"), currently in the face amount of $51.6
million,  are due on August 15, 2005. If we do not generate sufficient cash flow
from  operations  to  satisfy  our  debt  service  obligations,  we may  have to
undertake  alternative financing plans, such as refinancing or restructuring our
debt,  selling assets,  reducing or delaying  capital  investments or seeking to
raise  additional  capital.  We may not be able to refinance or restructure  our
debt  or  sell  assets  on a  timely  basis,  on  acceptable  terms  or at  all.
Furthermore,  the proceeds of any  refinancing,  restructuring or asset sale may
not  generate  sufficient  cash flow to meet our debt  service  obligations.  In
addition, we may not be able to obtain additional financing on acceptable terms,
if at all, or may not be  permitted  to obtain  additional  financing  under the
terms of our various debt instruments then in effect.  Our inability to generate
sufficient  cash flow to satisfy our debt service  obligations,  or to refinance
our obligations on commercially  reasonable terms, would have a material adverse
effect on our business, financial condition and results of operations.

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

     We and  our  subsidiaries  may be  able  to  incur  substantial  additional
indebtedness in the future.  The $240.0 Million Senior Secured Credit  Facility,
Secured Term Loan and the  indentures  relating to Foamex  L.P.'s 10 3/4% senior
secured notes due 2009, 9 7/8% Senior  Subordinated  Notes due 2007 (the "9 7/8%
Senior  Subordinated  Notes")  and 13 1/2%  Senior  Subordinated  Notes due 2005
restrict Foamex L.P. and its subsidiaries in incurring additional  indebtedness,
but do not fully prohibit Foamex L.P. and its subsidiaries from doing so. If new
debt is added to our and our  subsidiaries'  current  debt  levels,  the related
risks,  including  those  described  above,  that we and  they  now  face  could
intensify, which could have a material adverse effect on us.


                                       8
<PAGE>


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

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

     We attempt to offset raw material  price  increases  through  selling price
increases and manufacturing process efficiencies,  but we were not able to fully
do so in 2003. Our suppliers of TDI and polyol,  as well as our other suppliers,
may  increase  raw  material  prices  in the  future  and we may  not be able to
implement  additional  selling price increases to fully offset raw material cost
increases. This could have a material adverse effect on our business,  financial
condition and results of operations.

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

     There are a limited number of major  suppliers of TDI and polyol.  Although
we have not  experienced  a  significant  shortage  of  available  materials,  a
disruption  in our  ability to obtain TDI and/or  polyol  that  continues  for a
significant  period  of  time  could  cause  us  to  suspend  our  manufacturing
operations,  which  could have a material  adverse  effect on our  business  and
results of operations.

We must effectively manage our other operating expenses.

     In  addition  to our  ability to  effectively  increase  selling  prices in
response to raw material  cost  increases,  we must manage and control our other
operating  expenses.  If we are unable to achieve  reductions in other operating
expenses and in our selling,  general and  administrative  expenses,  this could
have a material adverse effect on our business,  financial condition and results
of operations.

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

     A few of our customers are material to our business and  operations.  Sales
to our five largest customers together accounted for approximately  34.7% of our
net sales in 2003, 33.8% of our net sales in 2002, and 35.0% of our net sales in
2001. Sales to Johnson Controls,  our largest  customer,  accounted for 16.3% of
our net  sales in 2003,  17.3% of our net  sales in 2002,  and  15.7% of our net
sales in 2001. The loss, or a substantial  decrease in the amount,  of purchases
by any of our major customers could adversely affect our financial  position and
results of operations.

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

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

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

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


                                       9
<PAGE>


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

     Our past and present business operations and the past and present ownership
and  operation  of our real  property  are  subject to  extensive  and  changing
federal, state, local and foreign environmental laws and regulations,  including
those  relating  to the  use,  handling,  storage,  discharge  and  disposal  of
hazardous   substances,   the  discharge  or  emission  of  materials  into  the
environment and the remediation of environmental contamination. We are currently
remediating  soil and groundwater  contamination in excess of state standards at
several  of our  current  and  former  facilities.  Further,  we  are  currently
designated  a  Potentially  Responsible  Party,  or "PRP," by the United  States
Environmental Protection Agency, or "EPA", or by state environmental agencies or
by other PRPs  relating to 11 sites.  We have  accrued our  estimated  costs for
remediation of these sites.  If there are additional  sites or our estimates are
not correct, there could be a material adverse effect on our financial condition
and results of operations.  We cannot predict what environmental  legislation or
regulations  will be enacted  in the  future,  how  existing  or future  laws or
regulations will be administered or interpreted or what environmental conditions
may be found to exist on our properties.  Compliance with more stringent laws or
regulations,  as well as more vigorous  enforcement  policies of the  regulatory
agencies or stricter  interpretation  of existing  laws,  and  discovery  of new
conditions  may  require  us to  make  additional  expenditures,  which  may  be
material.

Our business is cyclical.

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

ITEM 2.  PROPERTIES

     As of December 28, 2003, we maintained 56  manufacturing  and  distribution
facilities.  Total  floor  space  in  use  at our  17  owned  manufacturing  and
distribution facilities is approximately 3.4 million square feet and total floor
space in use at our 39  leased  manufacturing  and  distribution  facilities  is
approximately  4.5 million  square feet.  Forty-seven  of these  facilities  are
located  throughout 33 cities in the United States,  four facilities are located
in Canada,  and five facilities are located in Mexico. We have approximately 1.9
million square feet of idle space of which approximately 1.1 million is leased.

     The lease for one of our foam  pouring  facilities  expires in 2004.  It is
conceivable  that this  lease may not be  extended  or  renewed.  Like any other
lease, if we are unable to extend or renew this lease, the costs associated with
a relocation  could have a material  adverse  effect on our business,  financial
condition, cash flow and results of operations. Except as described above, we do
not anticipate  any problem in renewing or replacing any of the leases  expiring
in 2004.

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

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

ITEM 3.  LEGAL PROCEEDINGS

     Litigation--Breast Implants

     As of February 24, 2004, Foamex L.P. and Trace International Holdings, Inc.
("Trace")  were two of multiple  defendants  in 529  actions  filed on behalf of
approximately  652 recipients of breast implants in various United States courts
and one Canadian provincial court, some of which allege substantial damages, but
most of which allege unspecified damages for personal injuries of various types.
Three of these  cases  seek to allege  claims on  behalf of all  breast  implant
recipients or other allegedly  affected parties,  but no class has been approved
or certified by the courts.  During 1995, we, Foamex L.P. and Trace were granted
summary  judgments  and  dismissed as  defendants  from all cases in the federal
courts of the United  States and the state  courts of  California.  Appeals  for
these


                                       10
<PAGE>


decisions  were  withdrawn and the  decisions  are final.  The number of pending
cases has steadily  declined  over the last  several  years from a peak of 3,486
cases on behalf of  approximately  5,766  individuals.  Despite the 1995 Summary
Judgment,  some cases have been filed  against  Foamex L.P. and Trace in federal
courts.  These have been dismissed and, in many cases, the actions were re-filed
in state courts. No cases relating to breast implants are pending against Foamex
L.P. or Trace in federal courts at this time.  None of Foamex L.P., we, or Trace
nor any of our  carriers  has paid to  settle  any  claims  relating  to  breast
implants,  and no judgment has ever been entered against Foamex L.P.,  Trace, or
us or any of our carriers in respect of these matters.

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

     Litigation--Other

     We and our  subsidiaries are party to various  lawsuits,  both as defendant
and  plaintiff,  arising in the normal course of business.  It is the opinion of
management that the  disposition of these lawsuits will not,  individually or in
the  aggregate,  have a material  adverse  effect on our  financial  position or
results of operations.  If management's  assessment of the liability relating to
these actions is incorrect,  these actions could have a material  adverse effect
on our consolidated financial position, results of operations and cash flows. As
of December 28, 2003, we have accrued approximately $1.1 million for litigation,
claims  and  other  legal  matters  in  addition  to the  environmental  matters
discussed below.

Environmental and Health and Safety

     We are subject to extensive and changing federal,  state, local and foreign
environmental  laws  and  regulations,  including  those  relating  to the  use,
handling, storage, discharge and disposal of hazardous substances, the discharge
or  emission  of  materials  into  the  environment,   and  the  remediation  of
environmental contamination,  and as a result, are from time to time involved in
administrative and judicial  proceedings and inquiries relating to environmental
matters.  As of December 28, 2003, we had accruals of approximately $2.5 million
for  environmental  matters,  including  approximately  $2.3 million  related to
remediating and monitoring soil and groundwater  contamination and approximately
$0.2 million relating to PRP sites and other matters.

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

     We have reported to the appropriate  state  authorities  that we have found
soil and/or  groundwater  contamination  in excess of state standards at certain
locations.  Seven sites are  currently  in various  stages of  investigation  or
remediation. Accordingly, the extent of contamination and the ultimate liability
is not  known  with  certainty  for  all  sites.  During  2000,  we  reached  an
indemnification  agreement  with the former owner of the  Morristown,  Tennessee
facility.  The  agreement  allocates the incurred and future  remediation  costs
between the

                                       11
<PAGE>



former  owner  and  us.  The  estimated  allocation  of  future  costs  for  the
remediation  of  this  facility  is not  significant,  based  on  current  known
information.  The former owner was Recticel  Foam  Corporation,  a subsidiary of
Recticel.

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

     The Comprehensive  Environmental Response,  Compensation and Liability Act,
or "CERCLA," and comparable  state laws impose  liability  without fault for the
costs of  cleaning  up  contaminated  sites on certain  classes of persons  that
contributed to the release of hazardous substances into the environment at those
sites, for example, by generating wastes containing  hazardous  substances which
were disposed at such sites. We are currently  designated as a PRP by the EPA or
by state  environmental  agencies or other PRPs, pursuant to CERCLA or analogous
state statutes,  with respect to 11 sites.  Estimates of total cleanup costs and
fractional  allocations  of liability  are often  provided by the EPA, the state
environmental  agency or the  committee  of PRPs with  respect to the  specified
site.  Based  on  these  estimates  (to  the  extent  available)  and  on  known
information,  in each case and in the  aggregate,  we do not  expect  additional
costs, if any, to be material to our results of operations,  financial  position
or cash flows.

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

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

     None

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

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

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

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

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

     As of  December  28,  2003,  there were 133 holders of record of the common
stock.

                                       12
<PAGE>


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

Equity Compensation Plan Information

     The following table summarizes  information about the Foamex  International
Inc. 1993 Stock Option Plan and the Foamex  International  Inc. 2002 Stock Award
Plan for Directors, Executive Officers and Key Employees. This information is as
of December 28, 2003.

<TABLE>
<CAPTION>
                                                               Number of      Weighted       Number of Securities
                                                           Securities to be    Average      Available for Future
                                                             Issued Upon       Exercise     Issuance Under Equity
                                                              Exercise of      Price of     Compensation Plans
                                                             Outstanding     Outstanding   (Excluding Securities
                     Plan Category                            Options          Options           Outstanding)
------------------------------------------------------     ----------------  -----------   ----------------------
<S>                                                           <C>                 <C>              <C>
Equity compensation plans approved by stockholders            4,177,431           $6.11            1,399,959
Equity compensation plans not approved by stockholders                -             N/A                    -
                                                              ---------           -----            ---------
Total                                                         4,177,431           $6.11            1,399,959
                                                              =========           =====            =========
</TABLE>

ITEM 6.  SELECTED FINANCIAL DATA

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

<TABLE>
<CAPTION>
                                                                           Fiscal Year (1)
                                                -----------------------------------------------------------------
                                                    2003          2002        2001 (2)       2000        1999
                                                ----------     ----------   ----------    ----------  -----------
                                                          (thousands, except for earnings per share)
Statements of Operations Data
<S>                                             <C>            <C>          <C>           <C>         <C>
   Net sales                                    $1,304,560     $1,328,094   $1,252,904    $1,257,778  $1,294,639
   Income (loss) from continuing
     operations (3)(4)(5)                       $  (21,489)    $   60,948   $   (5,612)   $   17,013  $   19,716
   Basic earnings (loss) per share from
     continuing operations                      $    (0.88)    $     2.51   $    (0.24)   $     0.69  $     0.79
   Diluted earnings (loss) per share from
continuing operations                           $    (0.88)    $     2.32   $    (0.24)   $     0.67  $     0.78

Balance Sheet Data
   Total assets                                 $  789,906     $  813,577   $  766,962    $  751,581  $  781,313
   Long-term debt, classified as current (6)    $   96,065              -            -             -           -
   Long-term debt, excluding current portion    $  640,621     $  738,540   $  648,232    $  687,758  $  725,297
   Stockholders' deficiency                     $ (203,116)    $ (189,733)  $ (180,746)   $ (164,669) $ (166,381)
</TABLE>

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

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


                                       13
<PAGE>


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

         2003 - $(1.8) million
         2002 - $ 4.8 million
         2001 - $36.1 million
         2000 - $ 6.3 million
         1999 - $10.5 million

(4)  The  provision  for income  taxes in 2000 and 1999  reflected  the  partial
     reversal of the deferred income tax valuation allowance recognized in 1998.


(5)  During 2002,  we  determined  that it was more likely than not that our net
     deferred  tax assets  would be  realized  in the  future.  Accordingly,  we
     reversed a previously  recorded valuation  allowance which increased income
     from continuing operations by $77.3 million.

(6)  Revolving  credit  borrowings  under Foamex  L.P.'s $240.0  Million  Senior
     Secured  Credit  Facility are classified as current as required by Emerging
     Issues  Task  Force  Issue No.  95-22,  "Balance  Sheet  Classification  of
     Borrowings  Outstanding Under Revolving Credit Agreements that Include both
     a  Subjective  Acceleration  Clause  and a Lockbox  Arrangement  ("EITF No.
     95-22").



                                       14
<PAGE>


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

FORWARD-LOOKING STATEMENTS

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

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

EXECUTIVE SUMMARY
Overview

     We operate in the flexible  polyurethane and advanced polymer foam products
industry.  Our  operations  are  primarily  conducted  through our  wholly-owned
subsidiary,  Foamex L.P. Business segments are listed below and business segment
financial  information  is  included  in Note 13 to the  consolidated  financial
statements.  Please  see  Part  I,  Item  1,  "Business"  for  a  more  complete
description of the activities of our business segments.

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

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

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

     Automotive Products - distributes automotive foam products and laminates to
     major Tier 1 suppliers  and original  equipment  manufacturers,  or "OEMs".



                                       15
<PAGE>

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

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

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

     A small  number of major  customers  produce a  significant  portion of our
sales.  In 2003,  our largest  customer  provided 16.3% of our net sales and our
five largest customers  provided 34.7% of our net sales. Two of the five largest
customers  are  customers  of the  Automotive  Products  segment  and  three are
customers of the Foam Products segment.

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

     Operations

     The  following  table  includes  key elements of our  financial  statements
expressed as a percentage of net sales for the years 1999 through  2003,  except
for net cash provided by (used for) operating  activities  which is expressed in
millions of dollars.

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

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

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

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

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

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

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

     As demonstrated by the table above,  our results in the last two years have
significantly  deteriorated  when  compared to the prior three years.  Our gross
profit margin has been reduced by approximately  three  percentage  points while
selling  general and  administrative  expenses and  interest  and debt  issuance
expense have both increased as a percentage of net sales, as well as in absolute
dollar terms. Net sales dollars have been relatively flat over the 5 year period
with 2003 representing an increase of less than one percent compared to 1999.

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

     o    Managing raw material costs.

                                       16
<PAGE>

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

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

     o    Developing  new and more  consumer-focused  products  and entering new
          markets with increased profit potential.

     Our  major  chemical  suppliers  increased  the  cost of our raw  materials
several  times in late 2002.  Prices  stabilized  during 2003,  but average unit
prices  for 2003 were  higher  than for 2002.  There  can be no  assurance  that
chemical  prices will not  increase  in 2004.  We manage raw  material  costs by
seeking  alternative  sources of supply,  locking in prices  when  possible  and
negotiating discounts and rebates for volume purchases.

     We have been only partially successful in raising selling prices to recover
raw material and other cost increases. Selling price increases, reduced cost and
increased mix of higher profit products are the major factors in restoring gross
profit margin  percentage to the 14% level experienced in 1999-2001 from the 11%
level of 2002 and 2003.

     We are  focused on reducing  both  manufacturing  costs and  administrative
expenses.  We  believe  that  our  manufacturing   operations  are  now  of  the
appropriate  scale and  location to meet demand for our  products as a result of
closing several facilities in 2002 and 2003. We believe that manufacturing costs
can be further  reduced  by  emphasizing  efficiency  and  better  supply  chain
management.  Our focus areas for further  reductions in administrative  expenses
are employee related costs and professional service fees. Effective February 10,
2004, our Chairman resigned by mutual agreement with the Board of Directors.  As
a result  of this  resignation,  we may  close  our New York  office,  which was
primarily used by the former Chairman.

     In late  2003,  we began to market  an all foam  mattress  product  that is
vacuum packed in a box and designed to be carried home and self-installed by the
consumer.  We believe this product  provides the consumer with  convenience  and
price  advantages  when compared to  traditional  bedding  products.  We plan to
develop  and  market  additional  consumer  products  and enter  other  consumer
markets.  We  believe  that we can  achieve  higher  net sales and gross  profit
through this  approach.  We will also  continue our  development  efforts in our
other product offerings, especially our Technical Products.

     If we can  restore  our gross  profit  margin to 14% or more and reduce and
control  administrative costs, we may be able to restore operating income to the
level  experienced  in 1999 and 2000 and cash flow from  operations to the level
experienced in 1999,  2000 and 2001. At those levels we should be able to reduce
borrowings  and also  cash  interest  expense.  Our  next  large  required  debt
repayment is $51.6 million  principal of our 13 1/2% Senior  Subordinated  Notes
due August 15, 2005.

     Financing

     On August 18,  2003,  Foamex  L.P.  entered  into a $240.0  Million  Senior
Secured Credit Facility with a new group of lenders and a Secured Term Loan with
another lender.  Proceeds borrowed under these new facilities were used to repay
all  outstanding  balances under the Foamex L. P. Amended  Credit  Facility (the
"Amended  Credit  Facility")  which was  terminated  as of August 18,  2003.  In
addition,  Foamex  Canada's  revolving  credit  facility  that  did not have any
outstanding  borrowings and had availability of  approximately  $5.9 million was
terminated as of August 18, 2003. The termination of the Amended Credit Facility
resulted in a write off of debt issuance costs of $12.9 million.

     The $240.0 Million Senior Secured Credit  Facility  consists of a revolving
credit facility with a maximum availability of $190.0 million and a term loan of
$50.0 million.  The revolving credit facility  includes a $50.0 million sublimit
for  letters of credit and  availability  is limited  to  eligible  amounts,  as
defined, of accounts receivable and inventory. At December 28, 2003, Foamex L.P.
had available  borrowings of  approximately  $46.8 million and letters


                                       17
<PAGE>


of  credit  outstanding  of $20.9  million.  Borrowings  under the term loan are
limited  to  eligible  amounts,  as  defined,  of  equipment  and  real  estate.
Substantially  all the assets of Foamex L.P. and its domestic  subsidiaries  and
Foamex Canada are pledged as collateral for the related  borrowings.  Borrowings
under the revolving  credit facility and the term loan bear interest at floating
rates based upon and  including a margin  over either  LIBOR or a Base Rate,  as
defined.  At December 28, 2003, the weighted  average  interest rates were 4.53%
and 4.42% for the revolving loans and the term loan, respectively. The term loan
requires  quarterly  installment  payments of  approximately  $1.8 million.  All
borrowings  under the $240.0 Million Senior Secured Credit  Facility will mature
on April 30, 2007. The $240.0 Million  Senior Secured Credit  Facility  includes
both a subjective  acceleration  clause and a lockbox arrangement which requires
all lockbox receipts be used to repay revolving credit borrowings.  Accordingly,
borrowings  under the revolving credit facility are classified as current in the
accompanying  balance  sheet as of  December  28,  2003 as  required by EITF No.
95-22.

     The Secured Term Loan will mature on April 30, 2007.  Borrowings under this
facility  will bear  interest  at a rate that is 9.25%  plus the  greater of the
Reference Rate, as defined, or 4.25%. The minimum rate, which is in effect as of
December 28,  2003,  is 13.50%.  In addition,  Foamex L.P. is subject to a 1.00%
facility fee which is payable annually on the anniversary date. Borrowings under
the Secured Term Loan are  collateralized  by the same  collateral as the $240.0
Million Senior Secured Credit Facility.  An intercreditor  agreement governs the
distribution  of collateral  among the lenders under the $240.0  Million  Senior
Secured Credit Facility and the Secured Term Loan.

     Under the $240.0 Million  Senior  Secured  Credit  Facility and the Secured
Term Loan,  Foamex L.P. is subject to a minimum fixed charge  coverage ratio, as
defined,  of 1.00. For the two quarters  ended December 28, 2003,  Foamex L.P.'s
fixed charge  coverage ratio was 1.09.  Foamex L.P. is also subject to a maximum
annual  capital  expenditure  amount which was $17.7  million for the year ended
December 28, 2003 and will be $36.0 million for the year ending January 2, 2005.

     Our 13 1/2% Senior  Subordinated  Notes with a face value of $51.6  million
are due on August 15, 2005. We must generate sufficient cash flow to repay these
notes or we must obtain additional  financing.  We cannot determine at this time
if we will be able to obtain  financing at a reasonable  cost, or at all. The 13
1/2% Senior  Subordinated  Notes will be required to be  classified as a current
liability on our  consolidated  balance sheet  beginning in the third quarter of
2004.

CRITICAL ACCOUNTING POLICIES

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

     Revenue Recognition

     We record  net sales  when  product  title  and the  risks and  rewards  of
ownership passes to the customer,  the sales price is fixed and determinable and
collection is reasonably  assured.  Products are shipped FOB shipping point. Net
sales are reduced by allowances  for estimated  discounts,  returns and customer
rebates  based on our  experience.  Balances  for  allowances  and  rebates  are
reviewed at least quarterly and are adjusted if warranted.

     Accounts Receivable and Allowance for Uncollectible Accounts

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


                                       18
<PAGE>


     Long-Lived Assets

     We have a significant  investment in long-lived assets consisting primarily
of property,  plant and equipment.  Impairment losses are recognized when events
indicate  that certain  long-lived  assets may be impaired  and a projection  of
future  undiscounted  cash  flows  generated  from the  assets are less than the
current  carrying value of the assets.  These cash flow projections are based on
the  combination  of historical  results  adjusted for  estimated  future market
conditions  and  operating  plans.  To the extent that these  estimates  change,
impairment  losses  could have a  material  adverse  impact on future  financial
results.

     Goodwill

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

     Deferred Income Taxes

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

     Self Insurance

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

     Retiree Benefit Plans

     We provide  defined benefit pension plans that cover most of our employees.
Projected  benefit  obligations,  pension expense and amounts  included in other
comprehensive income are impacted by a number of assumptions.  These assumptions
include the discount  rate on projected  benefit  obligations,  and the expected
long-term rate of return on plan assets.  The discount rate on projected benefit
obligations enables us to state expected future cash flows at a present value on
the  measurement  date. We have little latitude in selecting this rate, as it is
required to represent the market rate for high-quality fixed income investments.
We  assumed  weighted  average  discount  rates of  7.25%,  7.00%  and  6.50% to
calculate  pension  expense  for  2001,  2002 and  2003,  respectively.  A 0.50%
reduction in this  assumption  would increase the interest  component of pension
expense by approximately $0.6 million.  To determine the expected long-term rate
of return on pension  plan assets,  we consider  the current and expected  asset
allocations, as well as historical and expected returns on various categories of
plan assets. We assumed that long-term returns on our pension plans were 9.0% in
2003, 2002 and 2001. A 0.50% reduction in this assumption would increase pension
expense  by  approximately  $0.4  million.  Amortization  of losses has been and
continues to be a significant component of pension expense and this amortization
is expected to increase by  approximately  $0.4 million in 2004. The losses have
resulted from actual returns that were less than the expected return assumption,


                                       19
<PAGE>


particularly  over the 2000-2002  period,  and funding levels that have not been
sufficient to offset the growth in benefit obligations.  In 2003, actual returns
were  significantly  higher than the expected  return  assumption  and we expect
pension  expense to decrease by $1.4 million to $1.8  million in 2004  primarily
because of the growth in plan assets.  We  anticipate  funding  $11.8 million to
retiree benefit plans in 2004.

     Claims and Litigation

     We receive claims for damages that are outside of our insurance  coverages.
Management  evaluates these claims and records its estimate of liabilities  when
such  liabilities are considered  probable and an amount or reasonable range can
be estimated.

     Environmental Remediation

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

LIQUIDITY AND CAPITAL RESOURCES

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

     Foamex L.P.'s cash requirements consist principally of accounts receivable,
inventory and accounts payable requirements,  scheduled payments of interest and
principal  on  outstanding  indebtedness,  capital  expenditures,  and  employee
benefit  plans.  We  believe  that  cash  flow  from  Foamex  L.P.'s   operating
activities,  cash on hand and periodic borrowings under its credit facility will
be adequate to meet its liquidity requirements for the next 12 months. Scheduled
principal  payments on Foamex L.P.'s debt are not  significant  until the second
half of  2005.  The  ability  of  Foamex  L.P.  to make  distributions  to us is
restricted  by the  terms of its  financing  agreements.  We expect to have only
limited  access to the cash flow  generated by Foamex L.P.  for the  foreseeable
future.

     Cash and cash  equivalents  were $6.6 million at December 28, 2003 compared
to $4.5 million at December 29, 2002.  Working  capital at December 28, 2003 was
$31.1 million and the current ratio was 1.11 to 1 compared to working capital at
December  29,  2002 of  $136.7  million  and a  current  ratio of 1.68 to 1. The
decrease in working  capital is  primarily  due to the  requirement  to classify
$96.1 million of borrowings  under the revolving credit portion of Foamex L.P.'s
$240.0 Million Senior Secured Credit Facility as current in accordance with EITF
No. 95-22 (see Note 8 to the consolidated financial statements).

     Total long-term debt and revolving  credit  borrowings at December 28, 2003
were $745.6  million,  a $7.0 million  increase  from  December 29, 2002.  As of
December 28, 2003, there were revolving credit borrowings of $96.1 million under
the $240.0 Million Senior Secured Credit  Facility with $46.8 million  available
for  borrowings  and $20.9 million of letters of credit  outstanding.  Revolving
credit borrowings at December 28, 2003 reflect working capital requirements.

     On  November  15,  2002,  Foamex  L.P.  and its bank  lenders  executed  an
amendment to the Amended Credit Facility.  Under the amendment,  Foamex L.P. was
subject to minimum net worth,  minimum EBDAIT,  as defined,  and maximum capital
expenditure  covenants  through  periods  ended  December 28, 2003.  The minimum
EBDAIT  covenant was tested  monthly,  on a  cumulative  basis,  beginning  with
December  2002.  Foamex L.P.  was in  compliance  with the revised  covenants at
December  29, 2002 and  throughout  2003 until the Amended  Credit  Facility was
terminated on August 18, 2003.


                                       20
<PAGE>

     On August 18,  2003,  Foamex  L.P.  entered  into a $240.0  Million  Senior
Secured Credit Facility with a new group of lenders and an $80.0 million Secured
Term Loan  facility  with  another  lender.  Proceeds  borrowed  under these new
facilities  were used to repay all  outstanding  balances under the Foamex L. P.
Amended Credit Facility. In addition,  Foamex Canada's revolving credit facility
that  did  not  have  any  outstanding   borrowings  and  had   availability  of
approximately $5.9 million was terminated. The termination of the Amended Credit
Facility  resulted  in a write off of debt  issuance  costs of $12.9  million in
2003.

     The $240.0 Million Senior Secured Credit  Facility  consists of a revolving
credit facility with a maximum availability of $190.0 million and a term loan of
$50.0 million.  The revolving credit facility  includes a $50.0 million sublimit
for  letters of credit and  availability  is limited  to  eligible  amounts,  as
defined,  of accounts  receivable and inventory.  Borrowings under the term loan
are limited to eligible  amounts,  as defined,  of  equipment  and real  estate.
Substantially  all the assets of Foamex L.P. and its domestic  subsidiaries  and
Foamex Canada are pledged as collateral for the related  borrowings.  Borrowings
under the revolving  credit facility and the term loan bear interest at floating
rates based upon and  including a margin  over either  LIBOR or a Base Rate,  as
defined.  At December 28, 2003, the weighted  average  interest rates were 4.53%
and 4.42% for the revolving loans and the term loan, respectively. The term loan
requires  quarterly  installment  payments of  approximately  $1.8 million.  All
borrowings  under the $240.0 Million Senior Secured Credit  Facility will mature
on April 30, 2007.

     The  $80.0  million  Secured  Term Loan  will  mature  on April  30,  2007.
Borrowings  under this  facility  bear interest at a rate that is 9.25% plus the
greater of Reference Rate, as defined,  or 4.25%.  The minimum rate, which is in
effect as of December 28, 2003, is 13.50%.  In addition,  Foamex L.P. is subject
to a 1.00%  facility  fee which is payable  annually  on the  anniversary  date.
Borrowings under the Secured Term Loan are collateralized by the same collateral
as the $240.0 Million Senior Secured Credit Facility. An intercreditor agreement
governs  the  distribution  of  collateral  among the  lenders  under the $240.0
Million Senior Secured Credit Facility and the Secured Term Loan.

     Under the $240.0 Million  Senior  Secured  Credit  Facility and the Secured
Term Loan,  Foamex L.P. is subject to a minimum fixed charge  coverage ratio, as
defined,  of 1.00. For the two quarters  ended December 28, 2003,  Foamex L.P.'s
fixed charge  coverage ratio was 1.09.  Foamex L.P. is also subject to a maximum
annual  capital  expenditure  amount which was $17.7  million for the year ended
December 28, 2003 and will be $36.0 million for the year ending January 2, 2005.

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

     As discussed above, our 13 1/2% Senior Subordinated Notes with a face value
of $51.6 million are due on August 15, 2005. We must  generate  sufficient  cash
flow to repay these notes or obtain additional financing.  We may not be able to
obtain financing at a reasonable cost, or at all.

     Cash Flow from Operating Activities

     Cash provided by operating activities in 2003 was $17.5 million compared to
cash used of $50.4  million  in 2002.  Cash  provided  by  operating  activities
consisted  principally of  depreciation  and  amortization  of $26.0 million and
amortization  and write off of $17.4  million  of costs  associated  with  debt,
reduced  by our net loss of  $21.5  million.  We also  had  cash  costs of $11.3
million to pay restructuring liabilities.


                                       21
<PAGE>

     Cash Flow from Investing Activities

     Cash used for  investing  activities  totaled $8.6  million for 2003.  Cash
requirements  included  capital  expenditures  of $6.5  million and  capitalized
software  development costs of $3.3 million.  Cash used for investing activities
in 2002 included capital  expenditure of $15.6 million and capitalized  software
development costs of $7.0 million.  Estimated capital  expenditures for 2004 are
approximately $10.0 million. In addition,  we expect to spend approximately $4.2
million for  internally  developed  software in 2004,  a portion of which may be
capitalized.

     Cash Flow from Financing Activities

     Cash used for  financing  activities  was $6.8 million in 2003  compared to
cash provided of $63.4 million in 2002. During 2003, Foamex L.P. utilized $130.0
million of  proceeds  from new term loans and an increase  in  revolving  credit
borrowings  of $44.2  million to repay  $162.2  million of term loans  under its
former Amended Credit Facility and to pay $11.9 million of debt issuance costs.

     Contractual Obligations

     Our  contractual  obligations  as of  December  28,  2003 are  shown in the
following table:

<TABLE>
<CAPTION>
                                                           Payment due by Period
                                        -----------------------------------------------------------------
Contractual Obligations                  Total      2004      2005-06        2007-08      2009 and beyond
-----------------------                 -------   -------   -----------    ------------   ---------------
                                                              (millions of dollars)
<S>                                     <C>       <C>         <C>            <C>    <C>      <C>
Long-Term Debt, including
   Capital Leases                       $732.2    $  8.9      $ 67.7         $349.6 (1)      $306.0
Interest (2)                            $297.5    $ 72.2      $135.8         $ 73.0          $ 16.5
Operating Leases                        $ 44.9    $ 14.1      $ 16.7         $  8.2          $  5.9
Purchase Obligations (3)                $592.5    $224.7      $125.9         $122.9          $119.0
Restructuring Liabilities               $  9.7    $  3.9      $  1.9         $  1.3          $  2.6
Employee Benefits and Other (4)
</TABLE>

(1)  Includes  $96.1  million of  revolving  credit  borrowings  due in 2007 but
     classified as current in the consolidated balance sheet to comply with EITF
     95-22. See Note 8 to the consolidated financial statements.

(2)  Includes interest applicable only to borrowings outstanding at December 28,
     2003  computed  using  interest  rates in effect as of  December  28,  2003
     through  the due  dates of the  borrowings  as  defined  by the  applicable
     financing agreements.

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

(4)  We have obligations to provide employee benefits  including those under our
     defined benefit and defined  contribution  retirement plans and our medical
     benefit plan. In addition,  we are partially  self-insured  for a number of
     risks including  workers'  compensation,  automobile and general liability.
     Due to the many  variables  involved,  accurate  estimates  of these future
     obligations  cannot  be  made.  In 2003,  payments  for  these  obligations
     aggregated approximately $34.6 million.


                                       22
<PAGE>


RESULTS OF OPERATIONS

<TABLE>
<CAPTION>
                                                Carpet
                                     Foam       Cushion       Automotive      Technical
                                   Products     Products       Products       Products        Other         Total
                                   --------     --------      ----------      ----------    --------     -----------
2003                                                        (dollars in thousands)
<S>                                <C>          <C>            <C>            <C>           <C>          <C>
Net sales                          $507,586     $208,855       $447,068       $117,450      $ 23,601     $1,304,560
Income (loss) from operations      $ 43,983     $  5,395       $ 33,399       $ 32,115      $(52,031)    $   62,861
Depreciation and amortization      $ 11,002     $  3,275       $  2,815       $  2,931      $  6,022     $   26,045
Income (loss) from operations
   as a percentage of net sales         8.7%         2.6%           7.5%          27.3%      n.m.(a)            4.8%

2002
Net sales                          $471,005     $234,001       $466,718       $124,124      $ 32,246     $1,328,094
Income (loss) from operations      $ 45,466     $  1,239       $ 34,146       $ 35,185      $(71,877)    $   44,159
Depreciation and amortization      $ 13,632     $  5,904       $  3,721       $  2,815      $  5,520     $   31,592
Income (loss) from operations
   as a percentage of net sales         9.7%         0.5%           7.3%          28.3%      n.m.(a)            3.3%

2001
Net sales                          $499,668     $230,965       $377,753       $111,043      $ 33,475     $1,252,904
Income (loss) from operations      $ 81,144     $  7,422       $ 27,040       $ 32,692      $(86,387)    $   61,911
Depreciation and amortization      $ 11,018     $  5,390       $  4,150       $  2,670      $ 10,760     $   33,988
Income (loss) from operations
   as a percentage of net sales        16.2%         3.2%           7.2%          29.4%      n.m.(a)            4.9%
</TABLE>

(a)  Not meaningful.

     Business  segment results include  revenues and costs that are specifically
identifiable and costs shared by business  segments have been allocated based on
utilization.  At the end of 2003,  we changed our  measure of segment  operating
income to exclude an  allocation  of corporate  overhead,  as our  management no
longer evaluates the performance of our segments using this  allocation.  Rather
we now  attempt  to manage  and  control  these  costs  independent  of  segment
performance.  Segment  results  for 2002 and 2001 have been  adjusted to reflect
this change for comparative purposes.

2003 Compared to 2002

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

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

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

                                       23
<PAGE>


     Foam Products

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

     Carpet Cushion Products

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

     Automotive Products

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

     Technical Products

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

     Other

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

     Restructuring, Impairment and Other Charges

     In 2003, we recorded  restructuring credits of $1.8 million consisting of a
$3.2 million reduction in the liability  primarily for severance and termination
benefits no longer required as the actions  contemplated under the related plans
have been substantially  completed,  and a charge of $1.1 million for additional
lease  termination  costs for a closed  facility  as a result of changes in real
estate market conditions. Additionally, we recorded a $0.3 million


                                       24
<PAGE>


restructuring  charge  reported in the Other  segment as a result of an employee
termination plan for  approximately 300 employees at our Mexico City operations.
The actions under this plan were substantially completed in 2003.

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

     Interest and Debt Issuance Expense

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

     Income from Equity Interest in Joint Ventures

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

     Other Income (Expenses), Net

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

     Benefit for Income Taxes

     The  effective  tax  benefit  rate was 21.8% for 2003.  The  effective  tax
benefit  rate for 2003,  included a $3.1  million  provision  that  reduced  the
effective tax benefit  rate.  The $3.1 million of tax expense was related to the
Foamex L.P.  $240.0 Million  Senior  Secured Credit  Facility and the collateral
provisions that pledged the stock of Foamex Canada. This collateral pledge under
the U.S. Internal Revenue Code resulted in a deemed  distribution of accumulated
earnings,  as defined, of Foamex Canada.  Because we will not be able to utilize
any  Canadian  tax credits  associated  with the deemed  distribution,  the full
amount of the  distribution  was subject to U.S.  taxation  and will result in a
reduction in the amount of the U.S. net operating loss carryforwards  available.
Without this  adjustment,  the  effective tax benefit rate would have been 33.1%
for 2003. Effective tax rates are impacted by annual income from equity in joint
ventures,  which is  considered  to be  permanently  invested.  Accordingly,  no
deferred tax liabilities are recognized on such income.

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

     We have net deferred  income tax assets  aggregating  $123.3  million as of
December 28, 2003 that primarily  represent the benefit of future tax deductions
and net operating loss  carryforwards  available to offset future taxable income
in the U.S.  In order to  realize  these  assets,  we must  generate  sufficient
taxable  income  to  offset  our  U.S.  net


                                       25
<PAGE>


operating loss  carryforwards  of  approximately  $267.3 million at December 28,
2003  expiring  from  2010 to  2023.  Approximately  $111.5  million  of the net
operating loss  carryforwards,  related to $39.0 million of deferred tax assets,
expire in the years 2010 to 2012 with the remainder  principally expiring in the
2018-2023  period.  Our actual results for 2002 were essentially  similar to the
results we  projected  when we reversed  the  valuation  allowance  in 2002,  as
discussed above. Our projections as of December 29, 2002 included tax losses for
2003 and 2004 that can be carried  forward to 2023 and 2024.  Our actual results
for 2003 were  essentially  similar to our  projection.  Our  projections  as of
December  28,  2003  continue  to include a tax loss in 2004 that can be carried
forward to 2024.  We continue to project  that we will have  sufficient  taxable
income in the years 2005 to 2012 to utilize all of the  expiring  net  operating
loss  carryforwards.  We have had an ownership  change as defined in IRC Section
382 and accordingly,  we are limited (on an annual basis) to approximately $21.0
million of operating loss carryforward utilization.

     If we are unable to generate  sufficient  taxable income to utilize the net
operating loss  carryforwards on a timely basis, some or all of our deferred tax
assets will be required  to be written  off  through a charge to  operations  in
future years. We evaluate the  realizability of deferred tax assets on an annual
and quarterly basis or if there is a significant  change in  circumstances  that
may cause a change in our judgment about  realizability  of deferred tax assets.
Any valuation  allowance  that may be required to be  established as a result of
this evaluation  process could have a material  adverse effect on future results
of operations.

     Cumulative Effect of Accounting Changes

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

2002 Compared to 2001

     Net sales for 2002 increased 6% to $1,328.1  million from $1,252.9  million
in 2001.  The  increase  was  primarily  attributable  to improved  sales in the
Automotive  Products and  Technical  Products  segments,  partially  offset by a
decrease  in the Foam  Products  segment.  The  improvement  in sales  partially
reflected the impact of sales related to the acquisition  discussed in Note 4 to
the consolidated financial statements.

     The gross profit margin was $143.7  million,  or 10.8%, in 2002 compared to
$178.5 million, or 14.2%, in 2001 primarily as a result of increases in the cost
of our major  chemical raw materials  during the second half of 2002.  The gross
profit margin was further reduced by higher  manufacturing  costs principally in
the Foam Products segment,  unfavorable yields,  higher  manufacturing  overhead
expenses and unfavorable  production mix. We are seeking to improve gross profit
margins  through  customer  selling price  increases,  selective  elimination of
unprofitable  customer  accounts and products,  and reductions in  manufacturing
overhead expenses.

     Income from operations for 2002 was $44.2 million,  which represented a 29%
decrease from the $61.9 million  reported for 2001.  Income from  operations was
3.3% of net sales in 2002 compared to 4.9% of net sales in 2001. The decrease is
attributable  to the  reduced  gross  profit  margins  as  discussed  above.  In
addition,  selling,  general  and  administrative  expenses  increased  by $14.2
million,  or 18%,  which  included  $3.6  million  of  organizational  costs  in
connection  with  a  proposed   public  offering  of  a  subsidiary   which  was
subsequently  terminated.  Selling,  general and  administrative  expenses  also
included $1.3 million of transaction  costs associated with the proposed sale of
our Carpet  Cushion  Products  segment which was  subsequently  terminated.  The
remainder of the increase was primarily due to higher professional  service fees
for  information   technology  and  accounting  services  and  employee  related
expenses,  partially offset by reduced goodwill  amortization and lower bad debt
expense.  Partially  offsetting  the  decrease  in gross  profit  and  increased
selling,  general and administrative  expenses was a decline of $31.3 million in
restructuring, impairment and other charges which is more fully discussed below.

     Foam Products

     Foam Products net sales for 2002 decreased 6% to $471.0 million from $499.7
million in 2001. The decrease primarily  reflected  reduction in business from a
major  bedding  manufacturer  and the slow recovery of sales after an


                                       26
<PAGE>


odor issue caused by  defective  chemicals  from a major  supplier in late 2001.
Foam Products  gross profit  margin was 12.3% in 2002,  down from 18.8% in 2001.
Income  from  operations  decreased  44%,  to $45.5  million  in 2002 from $81.1
million in 2001,  primarily due to increased raw material costs, lower net sales
and higher  manufacturing costs. Income from operations was 9.7% of net sales in
2002 and 16.2% of net sales in 2001.

     Carpet Cushion Products

     Carpet  Cushion  Products net sales for 2002 increased 1% to $234.0 million
from $231.0  million in 2001. We were able to increase our market share in spite
of market  weakness and overcome the loss of sales to one large retail  customer
that exited the carpet  business.  Income  from  operations,  which  principally
reflected higher raw material and other operating costs during 2002 and included
expenses  of $1.3  million  in 2002  associated  with the  proposed  sale of the
business which was  subsequently  terminated,  represented  0.5% of net sales in
2002 and 3.2% of net sales in 2001.

     Automotive Products

     Automotive Products net sales for 2002 increased 24% to $466.7 million from
$377.8 million in 2001.  The  improvement  primarily  reflected a continued high
build rate for new cars and new  product  programs.  We were  informed  that our
largest  customer intends to reduce its purchases of certain products from us in
2003 to diversify its supply base.  Automotive  Products gross profit margin was
8.4% in 2002 and 2001 and  reflects  the  impact of higher  raw  material  costs
offsetting the  contribution  from increased net sales.  Income from  operations
represented 7.3% of net sales in 2002 and 7.2% of net sales in 2001.

     Technical Products

     Net sales for Technical  Products in 2002  increased 12% to $124.1  million
from $111.0 million in 2001.  Higher sales  partially  reflected  sales from the
acquisition  of  General  Foam  Corporation  in  July  2001  (see  Note 4 to the
consolidated financial statements). Income from operations increased 8% to $35.2
million in 2002 compared to $32.7 million in 2001. The contribution  from higher
net  sales was  partially  offset by  higher  raw  material  costs and the costs
related to a proposed public offering of a subsidiary as described above. Income
from operations represented 28.3% of net sales in 2002 and 29.4% of net sales in
2001.

     Other

     Other  primarily  consists of certain  manufacturing  operations  in Mexico
City,  corporate  expenses not allocated to business segments and restructuring,
impairment and other charges.  The 4% decrease in net sales associated with this
segment  primarily  resulted  from the  Mexico  City  operation.  The loss  from
operations was $71.9 million in 2002 and included restructuring,  impairment and
other charges of $4.8 million, discussed below. The loss from operations in 2001
was $86.4  million,  including  restructuring,  impairment  and other charges of
$36.1 million,  discussed below.  Corporate overhead expenses and employee costs
increased $14.8 million in 2002.

     Restructuring, Impairment and Other Charges

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

     In 2001, we recorded  restructuring,  impairment and other charges of $36.1
million, primarily related to our 2001 Operational Reorganization Plan including
plant facility  closures,  reductions in management and support  personnel,  and
cost  reductions in purchasing and logistics.  The charge included an impairment
charge of $13.8


                                       27
<PAGE>


million (net of anticipated  proceeds of $4.6 million) to reduce certain assets,
primarily leasehold improvement and equipment, included within the Foam Products
and  Carpet  Cushion   Products   segments  to  their   estimated  fair  values.
Approximately 700 employee terminations including plant personnel, support staff
and executives  and  management  were  originally  planned  pursuant to the 2001
Operational  Reorganization  Plan.  The  subsequent  reevaluation  of facilities
closures  reduced  the  number of planned  terminations  to  approximately  500.
Approximately 340 employees were terminated in 2002.

     Interest and Debt Issuance Expense

     Interest  and debt  issuance  expense  was  $69.7  million  in 2002,  which
represented a 10% increase from 2001 expense of $63.2 million.  The increase was
attributable  to higher  amortization  and write off of debt issuance  costs. We
capitalized interest of $0.3 million in 2002 compared to $1.4 million in 2001.

     Income from Equity Interest in Joint Ventures

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

     Provision (Benefit) for Income Taxes

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

     We had deferred income tax assets aggregating $116.5 million as of December
29, 2002 that  primarily  represent the benefit of future tax deductions and net
operating  loss  carryforwards  available to offset future taxable income in the
U.S. In order to realize  these  assets,  we must  generate  sufficient  taxable
income to offset our U.S. net  operating  loss  carryforwards  of  approximately
$217.9  million at December 29, 2002 expiring  from 2010 to 2022.  Approximately
$111.5 million of the net operating loss carryforwards, related to $39.0 million
of  deferred  tax  assets,  expire in the years 2010 to 2012 with the  remainder
principally  expiring in the  2018-2022  period.  During  2002,  we  projected a
taxable loss for 2002 and small amounts of taxable  income in 2003 and 2004, and
taxable  income in the years 2005  through  2012 which  would be  sufficient  to
utilize all of the net  operating  loss  carryforwards  that expire in the years
2010 to 2012.  Our  actual  results  for 2002 were  essentially  similar  to the
results we projected  when we reversed  the  valuation  allowance  in 2002.  Our
projections  as of December  29, 2002  included tax losses in 2003 and 2004 that
can be carried  forward to 2023-24.  We  continue  to project  that we will have
sufficient  taxable  income  in the  years  2005 to 2012 to  utilize  all of the
expiring net operating loss  carryforwards.  We have had an ownership  change as
defined in IRC Section 382 and accordingly,  we are limited (on an annual basis)
to approximately $21.0 million of operating loss carryforward utilization.

     If we are unable to generate  sufficient  taxable income to utilize the net
operating loss  carryforwards on a timely basis, some or all of our deferred tax
assets will be required  to be written  off  through a charge to  operations  in
future years. We evaluate the  realizability of deferred tax assets on an annual
and quarterly basis or if there is a significant  change in  circumstances  that
may cause a change in our judgment about  realizability  of deferred tax assets.
Any valuation  allowance  that may be required to be  established as a result of
this evaluation  process could have a material  adverse effect on future results
of operations.

     Cumulative Effect of Accounting Changes

     The  cumulative  effect of  accounting  changes in 2002 includes a goodwill
impairment  charge of $72.0  million as a result of the adoption of Statement of
Financial  Accounting  Standards No. 142, "Goodwill and Other Intangible


                                       28
<PAGE>


Assets"  ("SFAS  No.  142")  and the  write  off of a $1.3  million  unamortized
deferred credit as a result of the adoption of Statement of Financial Accounting
Standards No. 141, "Business Combinations" ("SFAS No. 141").

OTHER

Environmental Health and Safety

     We are subject to extensive and changing federal,  state, local and foreign
environmental  laws  and  regulations,  including  those  relating  to the  use,
handling, storage, discharge and disposal of hazardous substances, the discharge
or  emission  of  materials  into  the  environment,   and  the  remediation  of
environmental contamination,  and as a result, are from time to time involved in
administrative and judicial  proceedings and inquiries relating to environmental
matters.  As of December 28, 2003, we had accruals of approximately $2.5 million
for  environmental  matters  including  approximately  $2.3  million  related to
remediating and monitoring soil and groundwater  contamination and approximately
$0.2 million  relating to sites where we had been  designated  as a  Potentially
Responsible  Party or "PRP" by the EPA or a state  authority and other  matters.
Additional  losses,  if any, in excess of amounts currently  accrued,  cannot be
reasonably  estimated at this time.  If there are  additional  matters or if any
current estimates are incorrect, there could be a material adverse effect on our
financial position, results of operations and cash flows.

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

     We have reported to the appropriate  state  authorities  that we have found
soil and/or  groundwater  contamination  in excess of state standards at certain
locations.  Seven sites are  currently  in various  stages of  investigation  or
remediation. Accordingly, the extent of contamination and the ultimate liability
is not  known  with  certainty  for  all  sites.  During  2000,  we  reached  an
indemnification  agreement  with the former owner of the  Morristown,  Tennessee
facility.  The  agreement  allocates the incurred and future  remediation  costs
between the former owner and us. The  estimated  allocation  of future costs for
the  remediation  of this  facility is not  significant,  based on current known
information.  The former owner was Recticel  Foam  Corporation,  a subsidiary of
Recticel.

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

     The CERCLA and comparable state laws impose liability without fault for the
costs of  cleaning  up  contaminated  sites on certain  classes of persons  that
contributed to the release of hazardous substances into the environment at those
sites, for example, by generating wastes containing  hazardous  substances which
were disposed at such sites. We are currently  designated as a PRP by the EPA or
by state  environmental  agencies or other PRPs, pursuant to CERCLA or analogous
state statutes,  with respect to 11 sites.  Estimates of total cleanup costs and
fractional  allocations  of liability  are often  provided by the EPA, the state
environmental  agency or the  committee  of PRPs with  respect to the  specified
site.  Based  on  these  estimates  (to  the  extent  available)  and  on  known
information,  in each case and in the  aggregate,  we do not  expect  additional
costs, if any, to be material to results of operations,  cash flows or financial
position.

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


                                       29
<PAGE>


Claims and Litigation

     We and our  subsidiaries are party to various  lawsuits,  both as defendant
and  plaintiff,  arising in the normal course of business.  It is the opinion of
management that the  disposition of these lawsuits will not,  individually or in
the aggregate, have a material adverse effect on our financial position, results
of  operations or cash flows.  If  management's  assessment  is incorrect,  such
actions  could  have a material  adverse  effect on our  consolidated  financial
position,  results of operations and cash flows. As of December 28, 2003, we had
accrued  approximately  $1.1  million  for  litigation,  claims and other  legal
matters in addition to the environmental matters discussed above.

Inflation, Raw Material Costs and Other Matters

     On  average,  inflation  rates  for the  domestic  economy  continue  to be
relatively low. Although long-term  inflation rates are difficult to predict, we
believe we have the flexibility in operations and capital  structure to maintain
a competitive position.  The prices of the two principal chemicals used by us in
manufacturing,  TDI and  polyol,  are  influenced  by demand  and  manufacturing
capacity. In addition, the prices of TDI and polyol are significantly influenced
by  crude  oil  production  and  prices  and  by  world  political  instability,
particularly  in the  Middle  East.  Results  for 2003 and 2002 were  negatively
impacted by higher  average costs for raw  materials.  In 2001, the beginning of
the economic  slowdown resulted in excess  manufacturing  capacity for the major
chemical suppliers.  This, coupled with declining oil prices,  resulted in lower
costs for raw materials in 2001.  We  experienced  significant  increases in the
prices of raw material from major chemical  manufacturers during 2002. We sought
to recover these cost increases through  manufacturing  process efficiencies and
selling price  increases,  but were only partially able to do so during 2003 and
2002. We may not be successful in  implementing  further selling price increases
to fully recover raw material cost increases and  competitive  pricing  pressure
may require us to adjust  selling  prices or lose volume.  Results of operations
have  been and  could be  adversely  affected  by  delays  in  implementing,  or
inability  to  implement,  additional  selling  price  increases  to offset  raw
material  cost  increases.  Additionally,  we must  reduce and control our other
operating and corporate expenses  including selling,  general and administrative
expenses  to offset raw  material  cost  increases.  A failure  to recover  cost
increases  could result in debt  covenant  violations  which may lead to lenders
demanding  immediate  payment of our outstanding  debt and impair our ability to
continue as a going concern.

     The lease for one of our foam  pouring  facilities  expires in 2004.  It is
conceivable  that this  lease may not be  extended  or  renewed.  Like any other
lease, if we are unable to extend or renew this lease, the costs associated with
a relocation  could have a material  adverse  effect on our business,  financial
condition, cash flow and results of operations.

ITEM 7a.  QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

     Our debt securities with variable interest rates are subject to market risk
for changes in interest rates. On December 28, 2003,  indebtedness with variable
interest rates totaled $231.3 million.  On an annualized  basis, if the interest
rates on these  debt  instruments  increased  by 1.0%,  interest  expense  would
increase by approximately $2.3 million.

ITEM 8.  FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

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

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

     None.

                                       30
<PAGE>


ITEM 9a.  CONTROLS AND PROCEDURES

     Evaluation of Disclosure Controls

     The Company  maintains  disclosure  controls and  procedures (as defined in
Rule 13a-14(c) and 15d-14(c) of the Securities  Exchange Act of 1934, as amended
(the "Exchange Act")) that are designed to ensure that  information  required to
be disclosed in reports  filed under the Exchange  Act, is recorded,  processed,
summarized  and reported  within the specified  time  periods.  In designing and
evaluating the disclosure  controls and procedures,  management  recognizes that
any controls and  procedures,  no matter how well  designed  and  executed,  can
provide only reasonable assurance of achieving the desired control objectives.

     The Company  carried out an evaluation,  under the supervision and with the
participation  of management,  including the Chief  Executive  Officer and Chief
Financial  Officer,  on the  effectiveness  of the design and  operation  of the
Company's  disclosure  controls and procedures pursuant to the Exchange Act rule
as of the end of the fiscal  period  covered by this report on Form 10-K.  Based
upon that  evaluation,  each of the Chief Executive  Officer and Chief Financial
Officer  concluded  that the Company's  disclosure  controls and  procedures are
effective in providing  reasonable  assurance that material information required
to be included in the Company's Exchange Act reports is made known to management
on a timely  basis  during the period when the  Company's  periodic  reports are
being prepared.

     Changes in Internal Controls

     The Company  determined during the fourth quarter of 2003 that the value of
certain  in-transit  raw material  inventory was overstated due to a calculation
error made during a transition to a new module of an enterprise wide transaction
processing  software  package in February  2003.  This error was reported to the
Company's  auditors  and to  the  audit  committee  of the  Company's  Board  of
Directors.  As a result, the Company restated its financial  statements for each
of the three  quarters of 2003 for this error and other  adjustments  previously
identified by management that were not individually or in the aggregate material
to the respective  periods.  The Company has instituted  procedures  intended to
ensure  that  the  value  of the  in-transit  raw  material  inventory  is  more
effectively monitored.

     Except as  discussed  above,  there  have been no  significant  changes  in
internal  control over  financial  reporting  that  occurred  during the quarter
covered by this report that has materially  affected or is reasonably  likely to
materially affect, our internal control over financial reporting.

PART III

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

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

(a) Financial statements.

<TABLE>
<CAPTION>
       Foamex International Inc. and Subsidiaries:
<S>                                                                                                            <C>
         Independent Auditors' Report                                                                           F-2
         Consolidated Balance Sheets as of December 28, 2003 and December 29, 2002                              F-3
         Consolidated Statements of Operations for the years ended December 28, 2003,
           December 29, 2002 and December 31, 2001                                                              F-5
         Consolidated Statements of Cash Flows for the years ended December 28, 2003,
           December 29, 2002 and December 31, 2001                                                              F-6
         Consolidated Statements of Stockholders' Deficiency for the years ended December 28, 2003,
         December 29, 2002 and December 31, 2001                                                                F-7
         Notes to Consolidated Financial Statements                                                             F-8


                                       31
<PAGE>

       Information Required by Rule 3-09
       Foamex Asia Company Limited
         Consolidated Financial Statements of Foamex Asia Company Limited and Subsidiary
           for the year ended December 31, 2003 (unaudited)                                                    F-37
         Consolidated Financial Statements of Foamex Asia Company Limited and Subsidiary
           for the year ended December 31, 2002 (unaudited)                                                    F-55
         Consolidated Financial Statements of Foamex Asia Company Limited and Subsidiary
           for the year ended December 31, 2001, including Report of the Independent Certified Public
           Accountants                                                                                         F-71

       Foamex International Inc. and Subsidiaries Financial Statement Schedules:
         Schedule I - Condensed Financial Information of Registrant                                             S-2
         Schedule II - Valuation and Qualifying Accounts                                                        S-5
</TABLE>

(b)  Reports on Form 8-K.

     On  September  29,  2003,  a report was filed  under Item 5, Other  Events,
     reporting  that the  Bankruptcy  Trustee  for Trace and  Marshall  S. Cogan
     lawsuit had been settled.

     On  November  12,  2003,  a report  was filed  under  Item 12,  Results  of
     Operations and Financial  Condition  furnishing a copy of the  Registrant's
     press release relating to its 2003 third quarter consolidated earnings.

     On  November  13,  2003,  a report  was filed  under  Item 12,  Results  of
     Operations and Financial  Condition  furnishing a copy of the  Registrant's
     transcript relating to its quarterly earnings conference call.

(c)  Exhibits.

2.1(l)       - Transfer Agreement, dated as of February 27, 1998, by and between
               Foam Funding LLC and Foamex L.P.
2.2(l)       - Asset  Purchase  Agreement,  dated as of  February 27,  1998,  by
               and among Foamex Carpet Cushion, Inc. ("Foamex Carpet"),   Foamex
               International  Inc.  ("Foamex International"  or  the "Company"),
               Foam  Funding  LLC  and  General  Felt Industries, Inc. ("General
               Felt").
3.1(a)       - Certificate of Limited Partnership of Foamex L.P.
3.2.1(a)     - Fourth  Amended and  Restated  Agreement of Limited  Partnership
               of Foamex L.P., dated as of December 14, 1993, by and among FMXI,
               Inc. and  Trace Foam  Company, Inc.,  as  general  partners,  and
               Foamex International, Inc. as a limited partner (the "Partnership
               Agreement").
3.2.2(b)     - First  Amendment  to  the  Partnership  Agreement, dated June 28,
               1994.
3.2.3(c)     - Second  Amendment  to  the  Partnership Agreement, dated June 12,
               1997.
3.2.4(i)     - Third Amendment to the Partnership Agreement,  dated December 23,
               1997.
3.2.5(l)     - Fourth Amendment to the Partnership Agreement, dated February 27,
               1998.
3.2.6(t)     - Fifth  Amendment  to  the  Partnership Agreement, dated March 26,
               2002.
3.3(j)       - Certificate of Incorporation of FMXI.
3.4(j)       - By-laws of FMXI.
3.5(e)       - Certificate of Incorporation of Foamex Capital Corporation.
3.6(e)       - By-laws of Foamex Capital Corporation.
3.7.1(a)     - Certificate of Incorporation of Foamex International.
3.7.1(g)     - Amendment to Certificate of Incorporation of Foamex
               International.
3.8(a)       - By-laws of Foamex International.
3.9(u)       - Certificate of Incorporation of Foamex Asia, Inc.
3.10(u)      - By-laws of Foamex Asia, Inc.
3.11(u)      - Certificate of Incorporation of Foamex Latin America, Inc.
3.12(u)      - By-laws of Foamex Latin America, Inc.
3.13(u)      - Certificate of Incorporation of Foamex Mexico, Inc.
3.14(u)      - By-laws of Foamex Mexico, Inc.
3.15(u)      - Certificate of Incorporation of Foamex Mexico II, Inc.

                                       32
<PAGE>


3.16(u)      - By-laws of Foamex Mexico II, Inc.
4.1(c)       - Indenture, dated as of  June  12, 1997, by and among Foamex L.P.,
               FCC,  the  subsidiary  guarantors and The  Bank of New  York,  as
               trustee, relating  to  $150,000,000 principal  amount  of  9 7/8%
               Senior  Subordinated  Notes   due   2007, including  the form  of
               Senior Subordinated Note and Subsidiary Guarantee.
4.1.3(i)     - First  Amendment  to  Indenture, dated  as  of December 23, 1997,
               between Foamex LLC and The Bank of New York, as trustee, relating
               to the 9 7/8% Senior Subordinated Notes due 2007.
4.1.3(l)     - Second  Supplemental  Indenture,  dated  as of February 27, 1998,
               among Foamex  L.P.  and Foamex  Capital Corporation, as joint and
               several obligors,  General Felt  Industries, Inc., Foamex Fibers,
               Inc., and Foamex LLC, as withdrawing  guarantors, and The Bank of
               New York, as trustee, relating to the 9 7/8% Senior  Subordinated
               Notes due 2007.
4.1.4(t)     - Third   Supplemental  Indenture,  dated  as  of  March  25, 2002,
               between Foamex  Carpet  Cushion  LLC and  The  Bank of New  York,
               as trustee, relating to the 9 7/8% Senior  Subordinated Notes due
               2007.
4.2.3(t)     - Second  Supplemental  Indenture,  dated  as  of  March  25, 2002,
               between Foamex  Carpet Cushion LLC and The  Bank of New  York, as
               trustee,  relating  to  the 13 1/2% Senior Subordinated Notes due
               2005.
4.3.1(i)     - Indenture,  dated as of December 23, 1997, by  and  among  Foamex
               L.P., Foamex  Capital Corporation,  the   subsidiary  guarantors,
               Crain Holdings Corp., as intermediate  obligator,  and  The  Bank
               of New York, as trustee, relating to $98,000,000 principal amount
               of 13 1/2% Senior  Subordinated  Notes  due  2005, including  the
               form of Senior Subordinated Note and Subsidiary Guarantee.
4.3.1(l)     - First Supplemental  Indenture,  dated  as  of  February 27, 1998,
               among Foamex  L.P. and Foamex Capital  Corporation,  as joint and
               several obligors, General Felt Industries,  Inc., Foamex  Fibers,
               Inc. and Foamex LLC, as withdrawing guarantors, Crain Industries,
               Inc., as withdrawing intermediate obligor,  and  The  Bank of New
               York,  as  trustee,  relating  to the 13 1/2% Senior Subordinated
               Notes due 2005.
4.3.1(t)     - Indenture, dated as of March 25, 2002, among Foamex L.P.,  Foamex
               Capital  Corporation, the Guarantors party thereto  and U.S. Bank
               National Association, as trustee, including  as exhibits thereto,
               the form of note, relating to  $300,000,000  principal  amount of
               10 3/4% Senior Secured Notes  due 2009, including  form of Senior
               Secured Note and Subsidiary Guaranty.
4.3.2(t)     - Pledge  and  Security Agreement, dated as of March 25, 2002, made
               by  Foamex L.P. and U.S. Bank National Association, as collateral
               agent.
4.3.3(t)     - Patent Security  Agreement, dated as of March 25, 2002, by Foamex
               L.P. in favor of  U.S. Bank  National  Association, as collateral
               agent.
4.3.4(t)     - Trademark  Security  Agreement,  dated  as  of March 25, 2002, by
               Foamex  L.P.  in favor  of  U.S. Bank  National  Association,  as
               collateral agent.
4.3.5(t)     - Copyright  Security  Agreement,  dated  as  of March 25, 2002, by
               Foamex L.P.  in  favor  of  U.S. Bank  National  Association,  as
               collateral agent.
4.3.6(t)     - Registration Rights Agreement, dated as of March 25, 2002,  among
               Foamex  L.P., Foamex  Capital  Corporation, the  Guarantor  party
               thereto and Credit Suisse First Boston Corporation, Salomon Smith
               Barney Inc., Scotia Capital (USA) Inc., Bear, Stearns & Co. Inc.,
               and Jefferies & Company, Inc., as initial purchasers.
4.9.1(m)     - Promissory  Note, dated June 12, 1997, in the aggregate principal
               amount of $5,000,000, executed by Trace Holdings to Foamex L.P.
4.9.2(m)     - Promissory  Note, dated June 12, 1997, in the aggregate principal
               amount of $4,794,828, executed by Trace Holdings to Foamex L.P.
4.15.1(x)    - Credit Agreement,  dated as of August 18, 2003, among Foamex L.P.
               as a Borrower and Guarantor,  Foamex  International  Inc.,  FMXI,
               Inc., Foamex  Canada  Inc.,  Foamex  Capital Corporation,  Foamex
               Latin America, Inc., Foamex Mexico, Inc., Foamex Mexico II, Inc.,
               Foamex Asia, Inc. and Foamex  Carpet Cushion LLC  as  Guarantors,
               the financial  institutions  party  thereto  from time to time as
               lenders and Bank of America, N.A. as the Administrative Agent.


                                       33
<PAGE>


4.15.2(x)    - Pledge and Security Agreement, dated as of August 18, 2003, among
               Foamex L.P. and Bank of America, N.A. as Administrative Agent.
4.15.3*      - Amendment  No. 1  to  Credit  Agreement,  dated as of December 1,
               2003, among Foamex L.P., as Borrower, the affiliates  of Borrower
               party  hereto,  the  lenders  party hereto, and Bank of  America,
               N.A.  as Administrative Agent.
4.16.1(x)    - Credit Agreement,  dated as of August 18, 2003, among Foamex L.P.
               as a Borrower and  Guarantor,  Foamex  International  Inc., FMXI,
               Inc., Foamex Canada Inc.,  Foamex  Capital  Corporation,   Foamex
               Latin America, Inc., Foamex Mexico, Inc., Foamex Mexico II, Inc.,
               Foamex Asia, Inc. and Foamex  Carpet  Cushion LLC as  Guarantors,
               the financial institutions  party  thereto  from  time to time as
               lenders  and Silver  Point  Finance,  LLC  as  the Administrative
               Agent.
4.16.2(x)    - Pledge  and  Security  Agreement,  dated  as  of August 18, 2003,
               among Foamex L.P. and Silver Point Finance, LLC as Administrative
               Agent.
4.16.3*      - Amendment  No.  1  to  Credit Agreement, dated as  of December 1,
               2003, among Foamex L.P., as Borrower, the affiliates  of Borrower
               party hereto, the lenders party hereto, and Silver Point Finance,
               LLC as Administrative Agent.
4.17.1(x)    - Intercreditor Agreement, dated as  of August 18, 2003, among Bank
               of  America,  N.A.,  as Senior  Bank  Agent and Senior Collateral
               Agent, Silver Point Finance, LLC, as Senior Term Loan B Agent and
               as future Senior Collateral  Agent  after  a Discharge  of Senior
               Bank Lender Claims has occurred, U.S. Bank  National Association,
               as  trustee and  collateral  agent under the  Indenture  referred
               to below,  and Foamex L.P., a Delaware limited partnership.
10.1(d)      - Reimbursement  Agreement,  dated  as of  March 23,  1993, between
               Trace Holdings and General Felt Industries, Inc.
10.2(d)      - Shareholder Agreement, dated  December 31, 1992,  among Recticel,
               s.a. ("Recticel"),  Recticel  Holding   Noord  B.V., Foamex L.P.,
               Beamech Group Limited,  LME-Beamech, Inc., James Brian Blackwell,
               and Prefoam AG relating to a foam technology-sharing arrangement.
10.3(e)      - Asset  Transfer  Agreement,  dated as of October 2, 1990, between
               Trace  International Holdings, Inc. ("Trace Holdings") and Foamex
               L.P. (the "Trace Holdings Asset Transfer Agreement").
10.4(e)      - First Amendment, dated  as of  December  19,  1991, to the  Trace
               Holdings  Asset  Transfer  Agreement.
10.5(e)      - Amended  and  Restated  Guaranty,  dated as of December 19, 1991,
               made  by  Trace  Foam  Company,  Inc. ("Trace Foam") in  favor of
               Foamex L.P.
10.6(e)      - Asset Transfer Agreement, dated as of October  2,  1990,  between
               Recticel Foam Corporation ("RFC") and Foamex L.P. (the "RFC Asset
               Transfer Agreement").
10.7(e)      - First Amendment, dated as of December 19, 1991,  to the RFC Asset
               Transfer Agreement.
10.10.5(g)   - The  Foamex  L.P.  Hourly  Pension  Plan  (formerly  "The  Foamex
               Products  Inc.  Hourly  Employee  Retirement  Plan"),  as amended
               December 31, 1995.
10.10.6(g)+  - Foamex L.P. 401(k) Savings Plan effective October 1, 1997.
10.10.12(s)+ - Foamex Supplemental  Executive  Retirement Plan,  effective as of
               May 15, 2001.
10.10.13(s)+ - Split   Dollar   Life    Insurance   Agreement   Between   Foamex
               International  Inc. and  Marshall S. Cogan,  dated as of December
               31, 2001.
10.11.4(p)+  - Termination and Release Agreement dated as of January 30, 2001 by
               and between Foamex International and John G. Johnson, Jr.
10.11.5(s)+  - Termination and Release Agreement  dated  as of December 6, 2001,
               by and between the Foamex International and John Televantos.
10.11.1(o)+  - Employment Agreement, dated as of January 1, 1999, by and between
               Foamex International and Marshall S. Cogan.
10.11.8(s)+  - First Amendment to Employment Agreement, dated as of December 31,
               2001,  by and  between Foamex  International Inc. and Marshall S.
               Cogan.
10.11.10(w)+ - Severance  Agreement and Release,  dated as of November 23, 2002,
               by and between Foamex International and Theodore J. Kall.
10.11.11(w)+ - Severance Agreement and Release, dates as of January 31, 2003, by
               and between Foamex International and Pratt W. Wallace, Jr.
10.11.13+*   - Amended  and  Restated  Employment  Agreement,  dated January 27,
               2004, by and between Foamex International and Thomas E. Chorman.


                                       34
<PAGE>


10.11.14+*   - Amended  and  Restated  Employment  Agreement,  dated January 26,
               2004, by and between Foamex International and K. Douglas Ralph.
10.16.1(l)   - Supply Agreement, dated as of February 27,  1998,  by and between
               Foamex L.P. and General Felt (as assigned to Foamex Carpet).
10.16.2(l)   - Administrative Services Agreement, dated as of February 27, 1998,
               by  and  between  Foamex L.P.  and  General  Felt (as assigned to
               Foamex Carpet).
10.17(e)+    - Salaried Incentive Plan of Foamex L.P. and Subsidiaries.
10.18(e)+    - Equity Growth Participation Program.
10.19(f)+    - The Foamex L.P.  Salaried  Pension Plan (formerly,  "The  General
               Felt  Industries,  Inc. Retirement Plan for Salaried Employees"),
               effective as of January 1, 1995.
10.22(n)+    - Foamex International Amended and Restated 1993 Stock Option Plan.
10.23(a)+    - Foamex International Non-Employee Director Compensation Plan.
10.24(q)+    - Foamex  International  Equity  Incentive  Plan  for  Non-Employee
               Directors.
10.25(q)+    - Foamex International Key Employee Incentive Bonus Plan.
10.26(r)+    - Agreement with Consultant,  dated  April 24,  2001 by and between
               Robert J. Hay and Foamex L.P.
10.29(v)+    - Foamex International 2002 Stock Award Plan.
10.17.2(k)   - Loan Agreement between  Hua Kee Company  Limited and Foamex Asia,
               Inc., dated as of July 8, 1997.
10.18.1(r)   - Joint  Venture  Agreement  between  Hua  Kee  Company Limited and
               Foamex Asia, Inc. amended and restated as of December 3, 2001.
10.44(u)+    - Agreement with  Consultant, dated  August 8, 2002, by and between
               Raymond E. Mabus, Jr. and Foamex International.
21*          - Subsidiaries of Foamex L.P.
23*          - Consent of Independent Auditors, Deloitte & Touche LLP.
23.1*        - Consent of Independent Auditors, Deloitte Touche Tohmatsu Jaiyos
31.1*        - Certification of Chief Executive  Officer pursuant to Section 302
               of the Sarbanes-Oxley Act of 2002.
31.2*        - Certification of Chief Financial  Officer pursuant to Section 302
               of the Sarbanes-Oxley Act of 2002.
32.1*        - Certification of Chief Executive  Officer pursuant to Section 906
               of the Sarbanes-Oxley Act of 2002.
32.2*        - Certification of Chief Financial  Officer pursuant to Section 906
               of the Sarbanes-Oxley Act of 2002.

----------------------

*    Filed herewith.

+    Management contract or compensatory plan or arrangement.

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

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

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

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

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


                                       35
<PAGE>


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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

(v)  Incorporated  herein by reference  to Appendix C to Foamex  International's
     definitive proxy statement dated April 30, 2002.

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


                                       36
<PAGE>

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

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


                                       37
<PAGE>


                                   SIGNATURES

     Pursuant to the  requirements of Section 13 of the Securities  Exchange Act
of 1934,  the  registrant has duly caused this report to be signed on its behalf
by the undersigned, thereunto duly authorized as of the 5th day of March 2004.

                           FOAMEX INTERNATIONAL INC.


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


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


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




                                       38
<PAGE>


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

Signature                           Title                         Date


/s/ Raymond E. Mabus, Jr.           Chairman of the Board         March 5, 2004
----------------------------
Raymond E. Mabus


/s/ John V. Tunney                  Vice Chairman and Director    March 5, 2004
-----------------------------
John V. Tunney


/s/ Robert J. Hay                   Chairman Emeritus             March 5, 2004
-----------------------------
Robert J. Hay                        and Director


/s/ Thomas E. Chorman               President, Chief Executive    March 5, 2004
-----------------------------
Thomas E. Chorman                    Officer and Director


/s/ S. Dennis N. Belcher            Director                      March 5, 2004
-----------------------------
S. Dennis N. Belcher


/s/ Luis J. Echarte                 Director                      March 5, 2004
-----------------------------
Luis J. Echarte


/s/ Stuart J. Hershon               Director                      March 5, 2004
-----------------------------
Stuart J. Hershon


/s/ Henry Tang                      Director                      March 5, 2004
-----------------------------
Henry Tang


/s/ Raul J. Valdes- Fauli           Director                      March 5, 2004
-----------------------------
Raul J. Valdes-Fauli



                                       39
<PAGE>



<PAGE>



                            FOAMEX INTERNATIONAL INC.
                   INDEX TO CONSOLIDATED FINANCIAL STATEMENTS


       Foamex International Inc.

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

           Independent Auditors' Report                                                                         F-2

           Consolidated Balance Sheets as of December 28, 2003 and December 29, 2002                            F-3

           Consolidated Statements of Operations for the years ended December 28, 2003,
                December 29, 2002 and December 31, 2001                                                         F-5

           Consolidated Statements of Cash Flows for the years ended December 28, 2003,
                December 29, 2002 and December 31, 2001                                                         F-6

           Consolidated Statements of Stockholders' Deficiency for the years
                ended December 28, 2003, December 29, 2002 and December 31, 2001                                F-7

           Notes to Consolidated Financial Statements                                                           F-8

       Information Required by Rule 3-09

       Foamex Asia Company Limited

           Consolidated Financial Statements of Foamex Asia Company Limited and Subsidiary
              for the year ended December 31, 2003 (unaudited)                                                 F-37

           Consolidated Financial Statements of Foamex Asia Company Limited and Subsidiary
              for the year ended December 31, 2002 (unaudited)                                                 F-55

           Consolidated Financial Statements of Foamex Asia Company Limited and Subsidiary
              for the year ended December 31, 2001, including Report of Independent
              Certified Public Accountants                                                                     F-71

</TABLE>




                                      F-1
<PAGE>



                          INDEPENDENT AUDITORS' REPORT


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

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

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

In our opinion,  such consolidated  financial  statements present fairly, in all
material  respects,  the financial  position of the Company at December 28, 2003
and December 29, 2002,  and the results of its operations and its cash flows for
each of the three years in the period ended December 28, 2003 in conformity with
accounting principles generally accepted in the United States of America.  Also,
in our opinion, such consolidated financial statement schedules, when considered
in relation to the basic  consolidated  financial  statements  taken as a whole,
present fairly in all material respects the information set forth therein.

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



/s/ DELOITTE & TOUCHE LLP

March 9, 2004
Parsippany, New Jersey



                                      F-2
<PAGE>



                   FOAMEX INTERNATIONAL INC. AND SUBSIDIARIES
                           CONSOLIDATED BALANCE SHEETS


<TABLE>
<CAPTION>
                                                                              December 28,           December 29,
                                                                                 2003                   2002
                                                                             -------------          -------------
ASSETS                                                                                  (thousands)
CURRENT ASSETS
<S>                                                                            <C>                    <C>
    Cash and cash equivalents                                                  $  6,613               $  4,524
    Accounts receivable, net of allowance for doubtful
      accounts and discounts of $10,505 in 2003 and $10,311 in 2002             181,288                191,546
    Inventories                                                                  95,882                 98,010
    Deferred income taxes                                                        15,676                 21,011
    Other current assets                                                         27,116                 22,558
                                                                               --------               --------

            Total current assets                                                326,575                337,649
                                                                               --------               --------

PROPERTY, PLANT AND EQUIPMENT
    Land and land improvements                                                    6,818                  7,272
    Buildings and leasehold improvements                                        117,265                119,582
    Machinery, equipment and furnishings                                        289,528                287,847
    Construction in progress                                                      1,069                  3,868
                                                                               --------               --------

            Total                                                               414,680                418,569

    Less accumulated depreciation and amortization                             (251,830)              (236,531)
                                                                               --------               --------

       Property, plant and equipment, net                                       162,850                182,038

GOODWILL                                                                        126,258                125,321

DEBT ISSUANCE COSTS, net of accumulated
amortization of $10,648 in 2003 and $14,079 in 2002                              27,195                 36,827

DEFERRED INCOME TAXES                                                           109,658                 97,341

SOFTWARE COSTS, net of accumulated amortization of $3,603
    in 2003 and $2,634 in 2002                                                    9,767                  8,254

INVESTMENTS IN AND ADVANCES TO AFFILIATES                                        14,503                 13,109

OTHER ASSETS                                                                     13,100                 13,038
                                                                               --------               --------

TOTAL ASSETS                                                                   $789,906               $813,577
                                                                               ========               ========
</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,
                                                                                    2003                2002
                                                                                -------------       -------------
LIABILITIES AND STOCKHOLDERS' DEFICIENCY                                         (thousands, except share data)
CURRENT LIABILITIES
<S>                                                                              <C>                 <C>
    Revolving credit borrowings                                                  $ 96,065            $        -
    Current portion of long-term debt                                               8,937                   46
    Accounts payable                                                               98,319               87,400
    Accrued employee compensation and benefits                                     28,331               26,330
    Accrued interest                                                               12,376               14,173
    Accrued restructuring                                                           3,911               14,424
    Accrued customer rebates                                                       18,077               18,813
    Cash overdrafts                                                                12,692               17,801
    Other accrued liabilities                                                      16,558               20,093
    Deferred income taxes                                                             163                1,864
                                                                                 --------            ---------

      Total current liabilities                                                   295,429              200,944

LONG-TERM DEBT                                                                    640,621              738,540

ACCRUED EMPLOYEE BENEFITS                                                          43,348               48,022

ACCRUED RESTRUCTURING                                                               5,837                8,347

OTHER LIABILITIES                                                                   7,787                7,457
                                                                                 --------            ---------

    Total liabilities                                                             993,022            1,003,310
                                                                                 --------            ---------

COMMITMENTS AND CONTINGENCIES

STOCKHOLDERS' DEFICIENCY
    Preferred Stock, par value $1.00 per share:
      Authorized 5,000,000 shares
      Issued 15,000 shares - Series B (liquidation
      preference $1.5 million) in 2003 and 2002                                        15                   15
    Common Stock, par value $.01 per share:
      Authorized 50,000,000 shares
      Issued 27,898,149 in 2003 and 27,839,658 shares in 2002
      Outstanding 24,409,149 shares in 2003 and 24,350,658 shares in 2002             279                  278
    Additional paid-in capital                                                    102,155              101,972
    Accumulated deficit                                                          (237,732)            (216,243)
    Accumulated other comprehensive loss                                          (30,832)             (38,754)
    Other:
      Common Stock held in treasury, at cost:
        3,489,000 shares in 2003 and 2002                                         (27,780)             (27,780)
      Shareholder note receivable                                                  (9,221)              (9,221)
                                                                                 --------            ---------

      Total stockholders' deficiency                                             (203,116)            (189,733)
                                                                                 --------            ---------

TOTAL LIABILITIES AND STOCKHOLDERS' DEFICIENCY                                   $789,906            $ 813,577
                                                                                 ========            =========
</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 ENDED

<TABLE>
<CAPTION>
                                                                  December 28,      December 29,     December 31,
                                                                     2003              2002             2001
                                                                  ------------      ------------     ------------
                                                                       (thousands, except per share amounts)
<S>                                                               <C>               <C>              <C>
NET SALES                                                         $1,304,560        $1,328,094       $1,252,904

COST OF GOODS SOLD                                                 1,160,870         1,184,392        1,074,385
                                                                  ----------        ----------       ----------

GROSS PROFIT                                                         143,690           143,702          178,519

SELLING, GENERAL AND ADMINISTRATIVE
    EXPENSES                                                          82,588            94,744           80,540

RESTRUCTURING, IMPAIRMENT AND OTHER
    CHARGES (CREDITS)                                                 (1,759)            4,799           36,068
                                                                  ----------        ----------       ----------

INCOME FROM OPERATIONS                                                62,861            44,159           61,911

INTEREST AND DEBT ISSUANCE EXPENSE                                    88,374            69,679           63,237

INCOME FROM EQUITY INTEREST IN JOINT VENTURES                          1,466             1,734            1,645

OTHER EXPENSE, NET                                                    (3,446)           (2,078)            (634)
                                                                  ----------        ----------       ----------

LOSS BEFORE PROVISION (BENEFIT) FOR INCOME TAXES
    AND CUMULATIVE EFFECT OF ACCOUNTING CHANGES                      (27,493)          (25,864)            (315)

PROVISION (BENEFIT) FOR INCOME TAXES                                  (6,004)          (86,812)           5,297
                                                                  ----------        ----------       ----------

INCOME (LOSS) BEFORE CUMULATIVE EFFECT OF
    ACCOUNTING CHANGES                                               (21,489)           60,948           (5,612)

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

NET LOSS                                                          $  (21,489)       $   (9,699)      $   (5,612)
                                                                  ==========        ==========       ==========

EARNINGS PER SHARE - BASIC
   INCOME (LOSS) BEFORE CUMULATIVE EFFECT OF
     ACCOUNTING CHANGES                                           $    (0.88)       $     2.51       $    (0.24)
   CUMULATIVE EFFECT OF ACCOUNTING CHANGES                                 -             (2.91)               -
                                                                  ----------        ----------       ----------

   NET LOSS                                                       $    (0.88)       $    (0.40)      $    (0.24)
                                                                  ==========        ==========       ==========

EARNINGS PER SHARE - DILUTED
   INCOME (LOSS) BEFORE CUMULATIVE EFFECT OF
     ACCOUNTING CHANGES                                           $    (0.88)       $     2.32       $    (0.24)
   CUMULATIVE EFFECT OF ACCOUNTING CHANGES                                 -             (2.69)               -
                                                                  ----------        ----------       ----------
   NET LOSS                                                       $    (0.88)       $    (0.37)      $    (0.24)
                                                                  ==========        ==========        =========
</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 ENDED

<TABLE>
<CAPTION>
                                                                  December 28,      December 29,     December 31,
                                                                     2003              2002             2001
                                                                  ------------      ------------     ------------
OPERATING ACTIVITIES                                                                (thousands)
<S>                                                                <C>               <C>              <C>
   Net loss                                                        $(21,489)         $ (9,699)        $ (5,612)
   Adjustments to reconcile net loss to net
     cash provided by (used for) operating activities:
     Cumulative effect of accounting changes                              -            70,647                -
     Depreciation and amortization                                   26,045            31,592           33,988
     Amortization of debt issuance costs, debt premium
        and debt discount                                             4,458             3,280            1,288
     Write off of debt issuance costs                                12,928             4,892                -
     Asset impairment and other charges                                   -             2,503           13,811
     Loss  on disposition of assets                                      30                 -              963
     Provision for uncollectible accounts                             2,115             2,336            5,479
     Retirement benefit funding greater than expense                   (892)           (1,604)          (1,752)
     Deferred income taxes                                           (7,488)          (92,400)           1,635
     Other, net                                                         184               266              361
   Changes in operating assets and liabilities:
     Accounts receivable                                              8,143           (20,421)          (9,578)
     Inventories                                                      2,128            (8,580)          15,177
     Accounts payable                                                10,919           (41,452)          45,913
     Accrued restructuring                                          (13,023)           (2,225)          15,549
     Other assets and liabilities                                    (6,567)           10,440          (10,808)
                                                                   --------          --------         --------

        Net cash provided by (used for) operating activities         17,491           (50,425)         106,414
                                                                   --------          --------         --------

INVESTING ACTIVITIES
   Capital expenditures                                              (6,543)          (15,582)         (22,482)
   Proceeds from sale of assets                                       1,237                21              600
   Acquisitions                                                           -                 -          (17,559)
   Other investing activities                                        (3,329)           (7,990)          (1,130)
                                                                   --------          --------         --------

        Net cash used for investing activities                       (8,635)          (23,551)         (40,571)
                                                                   --------          --------         --------

FINANCING ACTIVITIES
   Net proceeds from (repayments of) revolving loans                 44,242           (73,176)         (20,905)
   Proceeds from long-term debt                                     130,000           356,590                -
   Repayments of long-term debt                                    (164,020)         (190,450)          (8,538)
   Repayments of long-term debt-related party                             -           (31,590)         (15,795)
   Increase (decrease) in cash overdrafts                            (5,109)           13,728           (2,812)
   Debt issuance costs                                              (11,880)          (29,981)          (2,578)
   Deferred credit on interest rate swaps                                 -            14,821                -
   Other financing activities                                             -             3,494           (5,041)
                                                                   --------          --------         --------

        Net cash provided by (used for) financing activities         (6,767)           63,436          (55,669)
                                                                   --------          --------         --------

Net increase (decrease) in cash and cash equivalents                  2,089           (10,540)          10,174

Cash and cash equivalents at beginning of period                      4,524            15,064            4,890
                                                                   --------          --------         --------

Cash and cash equivalents at end of period                         $  6,613          $  4,524         $ 15,064
                                                                   ========          ========         ========
</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' DEFICIENCY

<TABLE>
<CAPTION>
                                                                                             Accumulated
                                                                   Additional                    Other
                                             Preferred    Common     Paid-in    Accumulated  Comprehensive
                                               Stock      Stock      Capital     Deficit          Loss       Other       Total
                                             ---------    ------   ----------   -----------  -------------  --------   ---------
                                                                            (thousands)
<S>                                            <C>         <C>      <C>          <C>           <C>          <C>        <C>
Balances at January 1, 2001                    $15         $270     $ 96,275     $(200,932)    $(23,296)    $(37,001)  $(164,669)

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

Balances at December 31, 2001                   15          273       97,668      (206,544)     (35,157)     (37,001)   (180,746)

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

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

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

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

     Organization

     Foamex   International  Inc.  (the  "Company")  operates  in  the  flexible
polyurethane  and  advanced  polymer  foam  products  industry.   The  Company's
operations are primarily conducted through its wholly-owned  subsidiary,  Foamex
L.P. Foamex Carpet Cushion,  Inc.  ("Foamex  Carpet") was converted to a limited
liability  company and was  contributed  to Foamex L.P.  on March 25,  2002.  On
December 30, 2002, Foamex Carpet distributed certain assets, liabilities and its
business to Foamex L.P. Foamex L.P. conducts foreign  operations  through Foamex
Canada Inc. ("Foamex Canada"),  Foamex Latin America, Inc. and Foamex Asia, Inc.
Financial  information  concerning  the  business  segments  of the  Company  is
included in Note 13.

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

     The Bank of Nova  Scotia  owns  approximately  5.8  million  shares  of the
Company's  outstanding  common stock, or  approximately  23.6%. The Bank of Nova
Scotia also owns 15,000 shares of the Company's non-voting non-redeemable Series
B convertible preferred stock. Each share of the Series B Preferred Stock can be
converted  into 100  shares  of the  Company's  common  stock,  but only if such
conversion  would not trigger a "change of control"  event as defined by certain
debt agreements of the Company's subsidiaries. Ownership of more than 25% of the
common stock would constitute a "change of control".

2.   SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Consolidation

     The consolidated  financial  statements include the accounts of the Company
and all  majority-owned  subsidiaries where control exists. The equity method of
accounting  is used  for  investments  in  which  the  Company  has  significant
influence, generally this represents ownership of at least 20% and not more than
50%. The Company has a joint venture in Asia in which it increased its ownership
to 70% in late 2001. The Company does not have control of this joint venture due
to the minority  shareholders'  substantive  participation  rights and therefore
uses the equity method of accounting.  All significant intercompany accounts and
transactions have been eliminated in consolidation.

Accounting Estimates

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

Concentration of Credit Risk

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

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



                                      F-8
<PAGE>

                   FOAMEX INTERNATIONAL INC. AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

2.   SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)

Revenue Recognition, Discounts and Rebates

     Revenue from sales, net of discounts and estimated returns,  allowances and
customer rebates,  is recognized when product title and the risks and rewards of
ownership passes to the customer,  the sales price is fixed and determinable and
collection is reasonably assured. Products are shipped FOB shipping point.

Cash and Cash Equivalents

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

Accounts Receivable and Allowance for Uncollectible Accounts

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

Fair Value of Financial Instruments

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

     The carrying  amount and fair value of long-term debt and revolving  credit
borrowings  at  December  28,  2003 were  $745.6  million  and  $683.3  million,
respectively,  and at December 29, 2002 were $738.6 million and $490.3  million,
respectively.  The fair value of long-term debt is estimated using quoted market
prices, where available, or discounted cash flows. Fair value estimates are made
at a specific  point in time,  based on relevant  market  information  about the
financial  instruments.  These  estimates  are  subjective in nature and involve
uncertainties  and matters of  significant  judgment  and  therefore,  cannot be
determined with precision. Changes in assumptions could significantly affect the
estimates.

Inventories

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

Property, Plant and Equipment

     Property,  plant and equipment are stated at cost and are depreciated using
the  straight-line  method over the  estimated  useful lives of the assets.  The
range of useful lives  estimated for buildings is generally 20 to 35 years,  and
the range for machinery,  equipment and furnishings is 5 to 12 years.  Leasehold
improvements  are  amortized  over the  shorter  of the terms of the  respective
leases or the estimated useful lives of the leasehold improvements. Depreciation
expense  for 2003,  2002 and 2001 was $24.1  million,  $29.1  million  and $26.4
million, respectively.

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

Goodwill

     The Company adopted  Statement of Financial  Accounting  Standards No. 142,
"Goodwill and Other Intangible  Assets" ("SFAS No. 142") on January 1, 2002 with
certain  provisions  adopted as of July 1, 2001. SFAS No.142 address the initial
recognition  and measurement of intangible  assets  acquired  outside a business
combination and the



                                      F-9
<PAGE>

                   FOAMEX INTERNATIONAL INC. AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

2.   SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)

recognition and measurement of goodwill and other intangible  assets  subsequent
to their acquisition.  Under SFAS No. 142, goodwill is no longer amortized,  but
is  subject  to  annual  impairment  tests.  The  goodwill  resulting  from  the
acquisition discussed in Note 4 is not amortized.

     The goodwill  that arose from business  combinations  prior to July 1, 2001
was  amortized  through 2001 on a  straight-line  basis over 40 years.  Goodwill
amortization expense was $6.0 million in 2001.

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

     Goodwill at December 28, 2003 increased $0.9 million from December 29, 2002
as a result of  foreign  currency  translation  adjustments  reflected  below as
Other.

     Goodwill balances include:

                                    Balance                        Balance
           Segments            December 29, 2002    Other      December 28, 2003
     -----------------------   -----------------   -------     -----------------
                               (thousands)
     Foam Products                $ 74,269          $362           $ 74,631
     Carpet Cushion Products         2,497             -              2,497
     Automotive Products            34,686           575             35,261
     Technical Products             13,869             -             13,869
                                  --------          ----           --------
         Total                    $125,321          $937           $126,258
                                  ========          ====           ========

Debt Issuance Costs

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

Software Costs

     The Company  expenses  costs incurred in the  preliminary  project stage of
developing or obtaining internal use software,  such as research and feasibility
studies, as well as costs incurred in the post-implementation/operational stage,
such as maintenance and training.  Capitalization of software  development costs
occurs  only  after  the  preliminary  project  stage  is  complete,  management
authorizes  the project,  and it is probable  that the project will be completed
and the software will be used for the function  intended.  The Company is in the
process of  replacing  its  primary  financial  and  operating  information  and
transaction   processing   systems  and   anticipates   this   project  will  be
substantially  completed in 2005.  Capitalized  software costs  aggregated  $3.4
million, $7.0 million and $0.9 million in 2003, 2002 and 2001, respectively. The
capitalized  costs are  amortized on a  straight-line  basis over the  estimated
useful life of the software, which is generally five years or less.



                                      F-10
<PAGE>

                   FOAMEX INTERNATIONAL INC. AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

2.   SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)

Long-Lived Assets

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

Environmental Remediation

     Environmental  expenditures that relate to current operations are expensed.
Expenditures that relate to an existing condition caused by past operations, and
which do not contribute to current or future revenue  generation,  are expensed.
Liabilities are recorded when environmental  assessments and/or remedial efforts
are probable and the costs can be reasonably estimated.  Amounts charged against
income were $0.5 million,  $1.1 million and $0.2 million in 2003, 2002 and 2001,
respectively.

Comprehensive Income (Loss)

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

Foreign Currency Translation

     The financial  statements of foreign subsidiaries have been translated into
U.S. dollars by using  period-end  exchange rates for the assets and liabilities
and the  average  exchange  rates for the  statements  of  operations.  Currency
translation  adjustments are included in accumulated other  comprehensive  loss.
Transaction  gains  (losses)  are  reflected  in other  income  (expense) in the
consolidated  statements  of  operations  and included  $(2.7)  million,  $(2.3)
million, and $1.6 million in 2003, 2002 and 2001, respectively.

Research and Development

     Research and  development  costs are expensed as incurred.  Amounts charged
against  income were $3.6 million,  $4.8 million and $3.1 million in 2003,  2002
and 2001, respectively.

Self Insurance

     The Company is partially  self-insured  for a number of risks up to certain
limits  including  workers'  compensation,   medical,   automobile  and  general
liability.  Commercial  insurance  policies are carried for amounts in excess of
the  self-insured  amounts.  Amounts  charged against income were $24.9 million,
$31.2 million and $25.6 million in 2003, 2002 and 2001, respectively.

Claims and Litigation

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

Income Taxes

     Income taxes are accounted for under the asset and liability method.  Under
this  method,  deferred  income taxes are  provided  for  temporary  differences
between  the  financial  reporting  basis and  income  tax  basis of assets  and
liabilities and for net operating loss carryforwards using the income tax rates,
under existing legislation, expected to



                                      F-11
<PAGE>

                   FOAMEX INTERNATIONAL INC. AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

2.   SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)

be in effect at the date such  temporary  differences  are  expected to reverse.
Deferred  income tax assets are  reduced  by a  valuation  allowance  when it is
considered more likely than not that a portion of the deferred income tax assets
will  not  be  realized  in a  future  period.  The  estimates  utilized  in the
recognition  of  deferred  income tax assets are  subject to  revision in future
periods.

Stock Options

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

     The following table includes as reported and proforma  information required
by  Statement  of  Financial  Accounting  Standards  No.  148,  "Accounting  for
Stock-Based  Compensation-Transition  and Disclosure ("SFAS No. 148").  Proforma
information is based on the fair value method under SFAS No. 123. Fair values of
options granted were estimated using the  Black-Scholes  option pricing model as
discussed in Note 10.

<TABLE>
<CAPTION>
                                                                2003               2002             2001
                                                              ---------          ---------        ---------
                                                                  (thousands, except per share data)
<S>                                                           <C>                <C>               <C>
     Net loss as reported                                     $(21,489)          $ (9,699)         $(5,612)
     Add:  Stock-based employee compensation
        expense included in reported net loss,
        net of tax benefit                                           2                 30                8
     Deduct:  Stock-based employee compensation
        expense determined under fair value
        based method, net of tax benefit                        (1,343)            (1,345)          (1,297)
                                                              --------           --------          -------
     Proforma net loss                                        $(22,830)          $(11,014)         $(6,901)
                                                              ========           ========          =======

     Basic loss per share
        As reported                                           $  (0.88)          $  (0.40)         $ (0.24)
        Proforma                                              $  (0.94)          $  (0.45)         $ (0.29)

     Diluted loss per share
        As reported                                           $  (0.88)          $  (0.37)         $ (0.24)
        Proforma                                              $  (0.94)          $  (0.42)         $ (0.29)
</TABLE>

Accounting Changes

     In April 2002, the FASB issued Statement of Financial  Accounting Standards
No. 145,  "Rescission of FASB  Statements  No. 4, 44, and 64,  Amendment of FASB
Statement No. 13, and Technical Corrections" ("SFAS No. 145"). The provisions of
SFAS No. 145  related to the  rescission  of  Statement  4 are applied in fiscal
years beginning after May 15, 2002. Any gain or loss on  extinguishment  of debt
that was  classified as an  extraordinary  item in prior periods  presented that
does not meet the criteria in Opinion 30 for  classification as an extraordinary
item is reclassified.  The Company has reclassified the extraordinary  charge of
$1.8 million previously reported in 2002.

     In June 2001, the FASB issued Statement of Financial  Accounting  Standards
No. 143,  "Accounting for Asset  Retirement  Obligations"  ("SFAS No. 143"). The
provisions  of SFAS No. 143 relate to financial  accounting  and  reporting  for
obligations associated with the retirement of tangible long-lived assets and the
associated  asset  retirement  costs.  The Company  adopted  SFAS No. 143 at the
beginning of 2003 and the impact on the Company's  financial  statements was not
material.


                                      F-12
<PAGE>

                   FOAMEX INTERNATIONAL INC. AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

2.   SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)

     In June 2002, the FASB issued Statement of Financial  Accounting  Standards
No. 146,  "Accounting  for Costs  Associated  with Exit or Disposal  Activities"
("SFAS No.  146").  The  provisions of SFAS No. 146 require that a liability for
the cost associated with an exit or disposal activity be recognized and measured
initially at fair value only when the liability is incurred. The Company adopted
SFAS No. 146 at the beginning of 2003,  but since the Company had no significant
exit or disposal activities in 2003, SFAS No. 146 had no impact on the financial
statements.

     In May 2003, the FASB issued  Statement of Financial  Accounting  Standards
No. 150,  "Accounting for Certain Financial  Instruments with Characteristics of
both  Liabilities  and Equity" ("SFAS No. 150").  The provisions of SFAS No. 150
require that certain financial  instruments be classified as liabilities instead
of equity.  The Company does not have any financial  instruments  subject to the
requirements of SFAS No. 150.

     In November 2002, the FASB issued FASB  Interpretation No. 45, "Guarantor's
Accounting  and  Disclosure  Requirements  for  Guarantees,  Including  Indirect
Guarantees Of  Indebtedness of Others" ("FIN No. 45"). The provisions of FIN No.
45 clarify  the  requirements  of SFAS No. 5.  "Accounting  for  Contingencies,"
relating to the guarantor's accounting for and disclosure of certain guarantees.
The initial recognition and measurement  provisions of FIN No. 45 are applicable
to  guarantees  issued or modified  after  December 31, 2002 and the  disclosure
requirements are effective for financial statements of interim or annual periods
ended  after  December  15,  2002.  The  adoption of FIN No. 45 did not have any
impact on the results of operations or financial  position of the Company and it
does not have any disclosure obligations under FIN No. 45 at December 28, 2003.

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

Reclassifications

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

3.   EARNINGS (LOSS) PER SHARE

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

<TABLE>
<CAPTION>
                                                               2003 (a)         2002             2001 (a)
                                                              ----------       --------          ---------
                                                                   (thousands, except per share amounts)
<S>                                                            <C>             <C>                <C>
       Income (loss) before cumulative effect of
         accounting changes                                    $(21,489)       $60,948            $(5,612)
       Cumulative effect of accounting changes                        -        (70,647)                 -
                                                               --------        -------            -------
       Net loss                                                $(21,489)       $(9,699)           $(5,612)
                                                               ========        =======            =======

       Weighted average common stock outstanding                 24,394         24,275             23,599
                                                               ========        =======            =======

       Income (loss) per share before cumulative effect
         of accounting changes                                 $  (0.88)       $  2.51            $ (0.24)
       Cumulative effect of accounting changes per share              -          (2.91)                 -
                                                               --------        -------            -------
       Net loss per share                                      $  (0.88)       $ (0.40)           $ (0.24)
                                                               ========        =======            =======
</TABLE>


                                      F-13
<PAGE>

                   FOAMEX INTERNATIONAL INC. AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

3.   EARNINGS (LOSS) PER SHARE (continued)

     The following  table shows the amounts used in computing  diluted  earnings
(loss) per share.
<TABLE>
<CAPTION>
                                                               2003 (a)          2002             2001 (a)
                                                              ----------       --------          ---------
                                                                   (thousands, except per share amounts)
<S>                                                            <C>             <C>                <C>
       Income (loss) before cumulative effect of
         accounting changes                                    $(21,489)       $60,948            $(5,612)
       Cumulative effect of accounting changes                        -        (70,647)                 -
                                                               --------        -------            -------
       Net loss                                                $(21,489)       $(9,699)           $(5,612)
                                                               ========        =======            =======

       Weighted average common stock outstanding                 24,394         24,275             23,599

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

       Adjusted weighted average shares                          24,394         26,304             23,599
                                                               ========        =======            =======

       Income (loss) per share before cumulative effect of
         accounting changes                                    $  (0.88)       $  2.32            $ (0.24)
       Cumulative effect of accounting changes per share              -          (2.69)                 -
                                                               --------        -------            -------
       Net loss per share                                      $  (0.88)       $ (0.37)           $ (0.24)
                                                               ========        =======            =======
<FN>
(a)  There is no dilution resulting from potential incremental shares in 2003 or
     2001,  because  the  Company  had net losses  before  cumulative  effect of
     accounting changes, and the inclusion of potential incremental shares would
     be antidilutive.

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

(c)  Series B Preferred  Stock issued in 2000 (see Note 12) is convertible  into
     1,500,000 common shares.
</FN>
</TABLE>

4.   ACQUISITION

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

5.   CUMULATIVE EFFECT OF ACCOUNTING CHANGES

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

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


                                      F-14
<PAGE>

                   FOAMEX INTERNATIONAL INC. AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

6.   RESTRUCTURING, IMPAIRMENT AND OTHER CHARGES

2003

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

2002

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

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

2001

     During  2001,  the Company  recorded  restructuring,  impairment  and other
charges of $36.1  million,  primarily  related to its December 2001  Operational
Reorganization Plan. Included in the Operational  Reorganization Plan were plant
facility closures,  reductions in support function personnel and cost reductions
in purchasing and logistics.  The  Operational  Reorganization  Plan  originally
included  severance and termination  benefits for approximately 700 employees at
plants, in support functions and in executive management.  A reevaluation of the
plan in 2002 reduced the number of  facilities  to be closed and as a result the
number of employees  planned to be terminated was reduced to approximately  500.
Approximately  340 of these  employees were terminated in 2002 and the remainder
in 2003.  Restructuring,  impairment  and other  charges  included an impairment
provision of $13.8  million  (net of  anticipated  proceeds of $4.6  million) to
reduce certain  leasehold  improvements and machinery and equipment  included in
the Foam Products and Carpet Cushion  Products  segments to their estimated fair
values.

     The 2001 Operational  Reorganization  Plan was  substantially  completed in
early 2003 and the Company completed all of the remaining  facility closures and
personnel  reductions  related  to its  2002  restructuring  plan  during  2003.
Terminations of approximately 300 employees for both plans took place in 2003.

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

<TABLE>
<CAPTION>
                                                       Plant Closure     Personnel
                                             Total       and Leases      Reductions     Impairment        Other
                                             -----     -------------     ----------     ----------      ---------
       2001                                                         (millions)
<S>                                            <C>            <C>            <C>             <C>            <C>
       Balance at January 1, 2001            $ 9.2          $ 7.6          $ 1.8           $(0.2)         $   -
       2001 Operational Reorganization
         Plan                                 35.4           10.6            8.3            13.4            3.1
       Adjustments and other                   0.7           (0.4)          (0.3)              -            1.4


                                      F-15
<PAGE>

                   FOAMEX INTERNATIONAL INC. AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

6.   RESTRUCTURING, IMPAIRMENT AND OTHER CHARGES (continued)

                                                       Plant Closure     Personnel
                                             Total       and Leases      Reductions     Impairment        Other
                                             -----     -------------     ----------     ----------      ---------
                                                                    (millions)
       Net cash receipts (spending)           (6.5)          (3.1)          (2.0)            0.6           (2.0)
       Asset impairment                      (13.8)            -               -           (13.8)             -
                                             -----          -----          -----           -----          -----
       Balance at December 31, 2001           25.0           14.7            7.8               -            2.5

       2002
       2002 Restructuring Plan                10.0            2.2            4.5             2.5            0.8
       Adjustments and other                  (5.2)          (4.4)          (1.4)              -            0.6
       Net cash receipts (spending)           (4.5)           0.1           (2.7)              -           (1.9)
       Asset impairment                       (2.5)            -               -            (2.5)             -
                                             -----          -----          -----           -----          -----
       Balance at December 29, 2002           22.8           12.6            8.2               -            2.0

       2003
       Adjustments                            (1.8)           0.2           (1.8)              -           (0.2)
       Cash spending                         (11.3)          (4.8)          (5.5)              -           (1.0)
                                             -----          -----          -----           -----          -----
       Balance at December 28, 2003          $ 9.7          $ 8.0          $ 0.9           $   -          $ 0.8
                                             =====          =====          =====           =====          =====
</TABLE>

     The Company  expects to spend  approximately  $3.9 million during 2004 with
the balance to be spent through 2012, primarily for lease costs.

7.   INVENTORIES

     The components of inventory are listed below.

                                         December 28,       December 29,
                                            2003               2002
                                         ------------       -----------
                                                   (thousands)
     Raw materials and supplies            $61,855             $60,588
     Work-in-process                        16,484              16,737
     Finished goods                         17,543              20,685
                                           -------             -------
     Total                                 $95,882             $98,010
                                           =======             =======

8.   LONG-TERM DEBT AND REVOLVING CREDIT BORROWINGS

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

<TABLE>
<CAPTION>
                                                                       December 28,          December 29,
                                                                          2003                  2002
                                                                       ------------          ------------
     Foamex L.P. Senior Secured Credit Facility                                   (thousands)
<S>                                                                    <C>                   <C>
     Term Loan (1)                                                      $ 48,214              $      -
     Foamex L.P. Secured Term Loan (1)                                    80,000                     -
     Foamex L.P. Amended Credit Facility
       Term Loan B (2)                                                         -                39,262
       Term Loan C (2)                                                         -                35,693
       Term Loan D (2)                                                         -                51,700
       Term Loan E (2)                                                         -                16,290
       Term Loan F (2)                                                         -                19,243
       Revolving credit facility (2)                                           -                51,823
     10 3/4% Senior secured notes due 2009 (3) (5)                       311,950               314,237
     9 7/8% Senior subordinated notes due 2007 (3)                       148,500               148,500



                                      F-16
<PAGE>

                   FOAMEX INTERNATIONAL INC. AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

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

                                                                       December 28,          December 29,
                                                                          2003                  2002
                                                                       ------------          ------------
                                                                                  (thousands)
     13 1/2% Senior Subordinated Notes due 2005 (includes
       $1,543 and $2,486 of unamortized debt premium) (3)                 53,128                54,071
     Industrial revenue bonds (4)                                          7,000                 7,000
     Other (net of unamortized debt discount of $93 in 2003
       and $137 in 2002)                                                     766                   767
                                                                        --------              --------
                                                                         649,558               738,586

     Less current portion                                                  8,937                    46
                                                                        --------              --------

     Long-term debt                                                     $640,621              $738,540
                                                                        ========              ========

     Revolving credit borrowings (1)                                    $ 96,065              $      -
                                                                        ========              ========
<FN>

(1)  Subsidiary debt of Foamex L.P.,  guaranteed by the Company,  FMXI, Inc. and
     Foamex Canada.
(2)  Subsidiary debt of Foamex L.P., guaranteed by the Company and FMXI, Inc.
(3)  Subsidiary debt of Foamex L.P. and Foamex Capital Corporation.
(4)  Subsidiary debt of Foamex L.P.
(5)  Includes  $12.0  million  in 2003 and  $14.2  million  in 2002 of  deferred
     credits on interest rate swap transactions.
</FN>
</TABLE>

Senior Secured Credit Facility

     On August 18,  2003,  Foamex  L.P.  entered  into a $240.0  Million  Senior
Secured  Credit  Facility  with a new group of lenders and an $80.0 million term
loan facility with another lender.  Proceeds borrowed under these new facilities
were used to repay all  outstanding  balances  under  the  Foamex L. P.  Amended
Credit Facility which was terminated as of August 18, 2003. In addition,  Foamex
Canada's revolving credit facility that did not have any outstanding  borrowings
and had availability of  approximately  $5.9 million was terminated as of August
18, 2003. The termination of the Amended Credit Facility resulted in a write off
of debt issuance costs of $12.9 million recorded in 2003.

     The $240.0 Million Senior Secured Credit  Facility  consists of a revolving
credit facility with a maximum availability of $190.0 million and a term loan of
$50.0 million.  The revolving credit facility  includes a $50.0 million sublimit
for  letters of credit and  availability  is limited  to  eligible  amounts,  as
defined, of accounts receivable and inventory. At December 28, 2003, Foamex L.P.
had available  borrowings of  approximately  $46.8 million and letters of credit
outstanding  of $20.9  million.  Borrowings  under the term loan are  limited to
eligible amounts,  as defined,  of equipment and real estate.  Substantially all
the assets of Foamex L.P. and its domestic  subsidiaries  and Foamex  Canada are
pledged as collateral for the related borrowings. Borrowings under the revolving
credit facility and the term loan bear interest at floating rates based upon and
including a margin over either LIBOR or a Base Rate, as defined. At December 28,
2003, the weighted average interest rates were 4.53% and 4.42% for the revolving
loans  and the  term  loan,  respectively.  The  term  loan  requires  quarterly
installment payments of approximately $1.8 million, which commenced on September
30, 2003. All borrowings under the $240.0 Million Senior Secured Credit Facility
will mature on April 30, 2007. The $240.0 Million Senior Secured Credit Facility
includes both a subjective  acceleration  clause and a lockbox arrangement which
requires  all lockbox  receipts be used to repay  revolving  credit  borrowings.
Accordingly,  borrowings  under the revolving  credit facility are classified as
current in the accompanying  consolidated  balance sheet as of December 28, 2003
as required  by Emerging  Issues  Task Force  Issue No.  95-22,  "Balance  Sheet
Classification of Borrowings  Outstanding Under Revolving Credit Agreements that
Include both a Subjective  Acceleration  Clause and a Lockbox Arrangement ("EITF
No. 95-22").


                                      F-17
<PAGE>

                   FOAMEX INTERNATIONAL INC. AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

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

     The $80.0  million term loan facility (the "Secured Term Loan") will mature
on April 30, 2007.  Borrowings  under this facility will bear interest at a rate
that is 9.25% plus the greater of the Reference Rate, as defined,  or 4.25%. The
minimum  rate,  which is in  effect as of  December  28,  2003,  is  13.50%.  In
addition,  Foamex  L.P.  is  subject  to a 1.00%  facility  fee which is payable
annually on the  anniversary  date.  Borrowings  under the Secured Term Loan are
collateralized  by the same  collateral  as the $240.0  Million  Senior  Secured
Credit  Facility.  An  intercreditor   agreement  governs  the  distribution  of
collateral  among the lenders under the $240.0  Million  Senior  Secured  Credit
Facility and the Secured Term Loan.

10 3/4% Senior Secured Notes

     The 10 3/4% Senior  Secured  Notes were  issued by Foamex  L.P.  and Foamex
Capital Corporation on February 25, 2002 and are due on April 1, 2009. The notes
are guaranteed on a senior basis by all of Foamex L.P.'s  domestic  subsidiaries
that guarantee the $240.0 Million Senior Secured Credit Facility.  The notes are
secured on a second-priority basis (subject to permitted liens) on substantially
the same collateral that secures the obligations under the $240.0 Million Senior
Secured Credit  Facility and the Secured Term Loan.  The notes rank  effectively
junior to all senior  indebtedness  that is secured by first  priority liens and
senior in right of payment to all subordinated indebtedness. Interest is payable
April 1 and October 1. The notes may be  redeemed at the option of Foamex  L.P.,
in whole  or in  part,  at any time on or  after  April  1,  2006.  The  initial
redemption  is at 105.375% of their  principal  amount,  plus accrued and unpaid
interest,  if any,  thereon to the date of redemption and declining  annually to
100.0% on or after April 1, 2008.  Additionally,  on or before April 1, 2005, up
to 35.0% of the  principal  amount of the notes may be redeemed at a  redemption
price  equal to  110.750%  of the  principal  amount,  plus  accrued  and unpaid
interest, if any, thereon to the date of redemption with the net proceeds of one
or more equity offerings.

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

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

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

9 7/8% Senior Subordinated Notes

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


                                      F-18
<PAGE>

                   FOAMEX INTERNATIONAL INC. AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

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

redemption  and  declining  annually  to 100.0% on or after  June 15,  2005.  At
December 28, 2003,  the  redemption  price was 103.292%  plus accrued and unpaid
interest.

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

13 1/2% Senior Subordinated Notes

     The 13 1/2% Senior Subordinated Notes were issued by Foamex L.P. and Foamex
Capital  Corporation  and  are due on  August  15,  2005.  The  notes  represent
uncollateralized  general obligations of Foamex L.P. and are subordinated to all
Senior Debt, as defined in the Indenture.  Interest is payable  semiannually  on
February  15 and August 15.  The notes may be  redeemed  at the option of Foamex
L.P., in whole or in part, at any time on or after August 15, 2000.  The initial
redemption  was  106.75% of their  principal  amount,  plus  accrued  and unpaid
interest,  if any,  thereon to the date of redemption and declining  annually to
100.0% on or after August 15, 2004. At December 28, 2003, the  redemption  price
was 101.6875% plus accrued and unpaid interest.

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

Industrial Revenue Bonds ("IRBs")

     IRB debt  includes  a $1.0  million  bond that  matures  in 2005 and a $6.0
million  bond that  matures in 2013.  Interest is based on a variable  rate,  as
defined,  with options  available to Foamex L.P. to convert to a fixed rate.  At
December  28,  2003,  the  interest  rate was 1.20% on the $1.0 million bond and
1.32% on the $6.0 million bond. The maximum interest rate for either of the IRBs
is 15.0% per annum.

     If  Foamex  L.P.  exercises  its  option  to  convert  the bonds to a fixed
interest  rate  structure,  the  IRBs  are  redeemable  at  the  option  of  the
bondholders.  The obligations are  collateralized by certain  properties,  which
have an approximate net carrying value of $10.7 million at December 28, 2003.

Other

     Other debt includes a non-interest bearing promissory note with a principal
amount of $0.9 million at December 28, 2003 issued in connection with increasing
the  Company's  interest  in an Asian  joint  venture  to  70.0%  in  2001.  The
promissory note had unamortized discount of $0.1 million at December 28, 2003.

Related Party - Note Payable to Foam Funding LLC

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


                                      F-19
<PAGE>

                   FOAMEX INTERNATIONAL INC. AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


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

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

Debt Covenants

     The indentures and other indebtedness  agreements contain certain covenants
that limit, among other things, the ability of the Company's subsidiaries (i) to
pay distributions or redeem equity interests,  (ii) to make certain  restrictive
payments  or  investments,  (iii)  to  incur  additional  indebtedness  or issue
Preferred Equity Interests,  as defined, (iv) to merge,  consolidate or sell all
or substantially  all of its assets,  or (v) to enter into certain  transactions
with affiliates or related  persons.  In addition,  certain  agreements  contain
provisions  that, in the event of a defined  change of control or the occurrence
of an undefined material adverse change in the ability of the obligor to perform
its  obligations,  the  indebtedness  must be repaid,  in certain cases,  at the
option  of  the  holder.   Under  the  most   restrictive  of  the  distribution
restrictions,  the Company could be paid by its subsidiaries, as of December 28,
2003,  funds only to the extent to enable  the  Company to meet its tax  payment
liabilities and its normal operating expenses of up to $1.5 million annually, so
long as no default or event of default has occurred.

     On  November  15,  2002,  Foamex  L.P.  and its bank  lenders  executed  an
amendment to the Amended Credit Facility.  Under the amendment,  Foamex L.P. was
subject to minimum net worth,  minimum EBDAIT,  as defined,  and maximum capital
expenditure  covenants  through  periods  ending  December 28, 2003. The minimum
EBDAIT  covenant was tested  monthly,  on a  cumulative  basis,  beginning  with
December  2002.  Foamex L.P.  was in  compliance  with the revised  covenants at
December  29, 2002 and  throughout  2003 until the Amended  Credit  Facility was
terminated on August 18, 2003.  Under the $240.0  Million  Senior Secured Credit
Facility  and the Secured Term Loan,  Foamex L.P. is subject to a minimum  fixed
charge coverage ratio, as defined,  of 1.00. For the two quarters ended December
28, 2003,  Foamex L.P.'s fixed charge  coverage  ratio was 1.09.  Foamex L.P. is
also  subject to a maximum  annual  capital  expenditure  amount which was $17.7
million for the year ended  December 28, 2003 and will be $36.0  million for the
year ending January 2, 2005.

Maturities of Long-Term Debt

     Scheduled  maturities  of long-term  debt as of December 28, 2003 are shown
below (thousands):

     2004                                                         $  8,937
     2005                                                           60,578
     2006                                                            7,143
     2007                                                          253,500
     2008                                                                -
     Thereafter                                                    306,000
                                                                  --------
                                                                   636,158

     Unamortized debt premium/discount and fair value
         adjustment, net                                            13,400
                                                                  --------

     Total                                                        $649,558
                                                                  ========

9.   RETIREE BENEFIT PLANS

Defined Benefit Pension Plans

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


                                      F-20
<PAGE>

                   FOAMEX INTERNATIONAL INC. AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


9.   RETIREE BENEFIT PLANS (continued)

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

Retiree Medical and Life Insurance Benefits

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

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


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

<TABLE>
<CAPTION>
                                                         Pension Benefits                Other Benefits
                                                     ------------------------        -----------------------
                                                        2003         2002              2003           2002
                                                     ----------   ----------         --------       --------
     Change in Benefit Obligations                                        (thousands)
<S>                                                   <C>          <C>               <C>            <C>
       Benefit obligations at beginning of year       $107,390     $ 95,962          $ 1,248        $   624
       Service cost                                      4,300        3,866               29             29
       Interest cost                                     7,086        6,556               76             82
       Amendments                                          257          157                -              -
       Benefits paid                                    (5,392)      (5,003)            (139)          (144)
       Plan participants' contributions                      -            -               15             19
       Actuarial loss                                   10,461        6,466                5            638
       Foreign currency exchange rate changes              950           46                -              -
       Curtailment                                           -         (660)               -              -
                                                      --------     --------          -------        -------
       Benefit obligation at end of year              $125,052     $107,390          $ 1,234        $ 1,248
                                                      ========     ========          =======        =======

     Change in Plan Assets
       Fair value of plan assets at
          beginning of year                           $ 60,085     $ 65,514          $     -        $     -
       Actual return on plan assets                     15,240       (7,350)               -              -
       Employer contribution                             9,564        7,464              124            125
       Plan participants' contributions                      -            -               15             19
       Benefits paid                                    (5,392)      (5,003)            (139)          (144)
       Plan administrative expenses                       (438)        (591)               -              -
       Foreign currency exchange rate changes              827           51                -              -
                                                      --------     --------          -------        -------
       Fair value of plan assets at end of year       $ 79,886     $ 60,085          $     -        $     -
                                                      ========     ========          =======        =======

     Funded Status and Net Amounts Recognized
     in Consolidated Balance Sheets
       Funded status                                  $(45,166)    $(47,305)         $(1,234)       $(1,248)
       Unrecognized transition asset                      (365)        (440)               -              -
       Unrecognized prior service cost (benefit)            92         (265)             (47)           398
       Unrecognized net actuarial loss (gain)           50,997       52,573              387            (53)
                                                      --------     --------          -------        -------
       Net amount recognized in consolidated
          balance sheets                              $  5,558     $  4,563          $  (894)       $  (903)
                                                      ========     ========          =======        =======


                                      F-21
<PAGE>

                   FOAMEX INTERNATIONAL INC. AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


9.   RETIREE BENEFIT PLANS (continued)

                                                         Pension Benefits                Other Benefits
                                                    ------------------------         -----------------------
     Amounts Recognized in the Consolidated             2003         2002              2003           2002
     Balance Sheets                                  ----------   ----------         --------       --------
                                                                           (thousands)
       Prepaid benefit costs                          $    224     $    194          $     -        $     -
       Accrued benefit liability                       (39,896)     (42,983)            (894)          (903)
       Intangible assets                                   674          763                -              -
       Accumulated other comprehensive loss*            44,556       46,589                -              -
                                                      --------     --------          -------        -------
       Net amount recognized                          $  5,558     $  4,563          $  (894)       $  (903)
                                                      ========     ========          =======        =======
</TABLE>

*    Before related income tax benefit.

     The accumulated benefit obligation for all defined benefit plans was $119.5
million at year-end 2003 and $102.6  million at year-end 2002.  Information  for
defined benefit plans with an accumulated  benefit  obligation in excess of plan
assets is listed below.

<TABLE>
<CAPTION>
                                                                  December 31, 2003          December 31, 2002
                                                                  -----------------          -----------------
                                                                                   (thousands)
<S>                                                                     <C>                       <C>
     Projected benefit obligation                                       $121,381                  $104,843
     Accumulated benefit obligation                                     $116,767                  $101,004
     Fair value of plan assets                                          $ 76,871                  $ 58,021
</TABLE>

     Components of Net Periodic Benefit Plan Cost

<TABLE>
<CAPTION>
                                                           Pension Benefits                  Other Benefits
                                                     ---------------------------      --------------------------
                                                      2003       2002      2001        2003      2002      2001
                                                     ------     ------    ------      ------    ------    ------
                                                                             (thousands)
<S>                                                  <C>        <C>       <C>          <C>       <C>        <C>
     Service cost                                    $4,300     $3,866    $3,666       $ 29      $ 29       $19
     Interest cost                                    7,086      6,556     6,158         76        82        60
     Expected return on plan assets                  (5,611)    (5,823)   (5,829)         -         -         -
     Amortization of transition assets                  (75)       (75)      (75)         -         -         -
     Amortization of prior service benefit             (109)      (140)     (177)        (6)       (6)       (6)
     Amortization of net loss (gain)                  3,090      1,643     1,163         16        15        (8)
     Curtailment                                          -       (162)        -         -         -          -
                                                     ------     ------    ------       ----      ----       ---

     Net periodic benefit plan cost                  $8,681     $5,865    $4,906       $115      $120       $65
                                                     ======     ======    ======       ====      ====       ===
</TABLE>

     Additional Information

<TABLE>
<CAPTION>
                                                       Pension Benefits                    Other Benefits
                                                   ------------------------       -----------------------
                                                      2003         2002             2003           2002
                                                   ----------   ----------        --------       --------
                                                                         (thousands)
<S>                                                  <C>          <C>
     Increase (decrease) in minimum liability
       included in other comprehensive loss*         $(2,033)     $18,267              N/A            N/A
</TABLE>

*    Before related income tax benefit.


                                      F-22
<PAGE>

                   FOAMEX INTERNATIONAL INC. AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


9.   RETIREE BENEFIT PLANS (continued)

<TABLE>
<CAPTION>
                                                       Pension Benefits                 Other Benefits
                                                   -----------------------        ------------------------
     Weighted-Average Assumptions Used                   December 31,                  December 31,
     to Determine Benefit Obligations                 2003         2002             2003           2002
     ----------------------------------------      ----------   ----------        --------       --------
<S>                                                     <C>          <C>             <C>             <C>
     Discount rate                                      6.0%         6.5%            6.0%            6.5%
     Expected long-term return on plan assets*          9.0%         9.0%            N/A             N/A
     Rate of compensation increase                 3.5%-5.0%    4.0%-5.0%            N/A             N/A

     Weighted-Average Assumptions Used                 Pension Benefits                 Other Benefits
                                                   ------------------------       -----------------------
     to Determine Annual Net Benefit Cost             2003         2002             2003           2002
     ------------------------------------          ----------   ----------        --------       --------
     Discount rate                                      6.5%         7.0%            6.5%            7.0%
     Expected long-term return on plan assets*          9.0%         9.0%            N/A             N/A
     Rate of compensation increase                 4.0%-5.0%    4.0%-7.0%            N/A             N/A
</TABLE>

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

<TABLE>
<CAPTION>
                                                                                             Other Benefits
                                                                                ----------------------------------------
                                                                                December 31, 2003      December 31, 2002
     Assumed Health Care Cost Trend Rates                                       -----------------      -----------------
<S>                                                                                   <C>                     <C>
     Health care cost trend rate assumed for next year                                12.0%                   13.0%
     Rate to which the cost trend rate is assumed to
       decline (ultimate trend rate)                                                   5.0%                    5.0%
     Year that the rate reaches the ultimate trend rate                               2011                    2011
</TABLE>

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

<TABLE>
<CAPTION>
     Assumed Health Care Cost Trend                                           1% Point Increase         1% Point Decrease
                                                                              -----------------         -----------------
                                                                                              (thousands)
<S>                                                                                  <C>                      <C>
     Effect on total of service cost and interest cost                               $ 9                      $ (8)
     Effect on postretirement benefit obligation                                     $90                      $(79)
</TABLE>

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

     Pension plan assets are primarily  comprised of equity and debt securities,
including both U.S. and foreign  securities.  At year-end 2003,  common stock of
the Company  totaled  $2.1  million,  or 2.8% of the assets.  At year-end  2002,
common stock of the Company totaled $1.3 million, or 2.4% of the assets. Pension
plan assets from pension plans in Canada totaled $5.5 million, or 6.9% of assets
at year-end 2002 and $3.8 million, or 6.4% of assets, at year-end 2002.

                                               U. S. Plan Assets
                                    ---------------------------------------
                                    December 31, 2003     December 31, 2002
                                    -----------------     -----------------
     Equity securities                     64%                   58%
     Debt securities                       30                    33
     Other                                  6                     9
                                          ---                   ---

     Total                                100%                  100%
                                          ===                   ===

     The  Company's  funding  policy  for  the  Qualified  Pension  Plan  is  to
contribute an amount that both satisfies the minimum funding requirements of the
Employee  Retirement  Income  Security  Act of 1974 and does not exceed the full
funding  limitations  of the U.S.  Internal  Revenue  Code.  Funding  in 2004 is
estimated to be $11.8 million.


                                      F-23
<PAGE>

                   FOAMEX INTERNATIONAL INC. AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


9.   RETIREE BENEFIT PLANS (continued)

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

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

Defined Contribution Plan

     The Company maintains a defined contribution plan, which is qualified under
Section 401(k) of the Internal Revenue Code ("401(k) Plan") and is available for
eligible employees who elect to participate. Under the terms of the 401(k) Plan,
the Company partially matches certain employee contributions.  Expense for these
contributions was $0.9 million,  $1.0 million and $1.0 million in 2003, 2002 and
2001, respectively.

10.    STOCK OPTION PLANS

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

     o    expanded    participant     eligibility    to    include    employees,
          employee-directors  and  consultants  to the  Company,  including  its
          subsidiaries and affiliates;

     o    expanded the types of awards that may be granted to include  incentive
          stock options,  phantom stock units and  performance  share units,  in
          addition to nonqualified options provided for under the existing plan;

     o    increased  the number of shares of Common Stock that are available for
          awards by 600,000; and

     o    renamed  the plan to the Foamex  International  Inc.  2002 Stock Award
          Plan (the "2002 Stock Award Plan").

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

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

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



                                      F-24
<PAGE>

                   FOAMEX INTERNATIONAL INC. AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

10.  STOCK OPTION PLANS (continued)

     Option Grants

     Options granted in 2003 included the following terms:

     o    141,750  options  with a  three-year  pro-rata  vesting  period  and a
          six-year term.
     o    40,000  options with a five-year  vesting  period and a six-year term.
          The vesting  provisions  may be  accelerated  to  three-year  pro-rata
          vesting in either 25%, 50%, or 100%  increments,  depending on certain
          financial  measures in fiscal 2003,  as defined.  These goals were not
          attained.
     o    All other options were granted with five-year  pro-rata vesting period
          and a ten-year term.

     Options granted in 2002 included the following terms:

     o    210,000  options  with a  three-year  pro-rata  vesting  period  and a
          ten-year term.
     o    270,500  options with a five-year  vesting period and a ten-year term.
          The vesting  provisions may be accelerated in 50% or 100%  increments,
          depending on the average closing price of the Company common stock, as
          defined.
     o    100,000  options  with a  three-year  pro-rata  vesting  period  and a
          six-year term.
     o    756,250  options with a five-year  vesting period and a six-year term.
          The  vesting  provisions  included  accelerated   three-year  pro-rata
          vesting features in either 25%, 50%, or 100% increments,  depending on
          attainment  of certain  financial  goals in fiscal  2003,  as defined.
          These goals were not attained.
     o    All other options were granted with five-year  pro-rata vesting period
          and a ten-year term.

     Option grants in 2001 included the following terms:

     o    100,000 options with pro-rata  vesting in years three through five and
          a ten-year term.
     o    250,000 options with a seven-year  vesting period and a ten-year term.
          The vesting  provisions  can be  accelerated to full vesting in at the
          end  of  a  three-year  period  depending  on  attainment  of  certain
          financial performance goals, as defined.
     o    All other options were granted with five-year  pro-rata vesting period
          and a ten-year term.

     All options were  granted  with an exercise  price equal to the fair market
value at the date of the grant, except for certain options that were repriced in
1996 with an exercise price below the fair market value on the revaluation date.

     Option Modifications

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

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

     As  provided  in certain  severance  agreements  during  2001,  the Company
extended  by three  months the  exercise  period for 57,200  options  beyond the
exercise  period   provided  for  under  the  option  plans   discussed   above.
Compensation  expense of $0.1  million was recorded for the fair market value in
excess of the exercise price on the  modification  date. Also in 2001, the terms
of 750,450  options were  modified to provide for 100% vesting and the extension
of the period provided to exercise;  including 250,000 options until January 31,
2006 and 500,450 options


                                      F-25
<PAGE>

                   FOAMEX INTERNATIONAL INC. AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


10.  STOCK OPTION PLANS (continued)

until January 31, 2002. The Company did not recognize any  compensation  expense
in connection  with these  modifications  because the fair market value was less
than the exercise price on the modification date.

     A summary of stock option activity is presented below.

<TABLE>
<CAPTION>
                                            2003                    2002                   2001
                                    --------------------    -------------------   ---------------------
                                                Weighted               Weighted                Weighted
                                                Average                Average                 Average
                                                Exercise               Exercise                Exercise
                                       Shares     Price       Shares    Price        Shares     Price
                                     ---------  --------    ---------  --------   ----------   --------
<S>                                  <C>          <C>       <C>          <C>       <C>           <C>
Outstanding at beginning of period   4,528,650    $6.42     3,465,542    $6.88     2,980,110     $7.35
Granted                                312,583     3.29     2,234,311     5.87     2,104,576      6.42
Exercised                                    -        -      (551,352)    6.33      (163,125)     5.62
Forfeited                             (663,802)    6.93      (619,851)    7.07    (1,456,019)     7.32
                                     ---------    -----     ---------    -----    ----------     -----
Outstanding at end of period         4,177,431    $6.11     4,528,650    $6.42     3,465,542     $6.88
                                     =========    =====     =========    =====    ==========     =====

Exercisable at end of period         1,480,265    $7.38     1,365,852    $7.34     1,431,489     $7.03
                                     =========    =====     =========    =====     =========     =====
</TABLE>

     Listed below is a summary of the stock options  outstanding and exercisable
at December 28, 2003.

     Outstanding
                                               Weighted         Weighted
            Exercise                           Average          Average
              Price                            Exercise         Remaining
              Range         Options             Price          Life-Years
         --------------    ---------          ---------        ----------
         $ 1.20 -  2.61      970,083            $2.17              5.4
         $ 3.07 -  5.75      826,650            $4.98              5.7
         $ 6.22 -  7.88    1,346,882            $7.05              6.9
         $ 8.18 - 13.25    1,033,816            $9.49              7.3
                           ---------
                           4,177,431

     Exercisable

           Exercise                            Average
              Price                            Exercise
              Range         Options             Price
         --------------    ---------          ---------
         $ 1.20 - 2.61        38,334            $2.43
         $ 3.07 - 5.75       405,500            $5.30
         $ 6.22 - 7.88       606,482            $7.04
         $ 8.18 -13.25       429,949           $10.26
                           ---------
                           1,480,265

     For purposes of the disclosure  required under SFAS No. 148 and as included
in Note 2, the fair value of each option was  estimated  on the grant date using
the Black-Scholes  option-pricing  model. Based on the assumptions listed below,
the weighted average fair value of options granted was $2.12 per option in 2003,
$3.74 per option in 2002 and $2.95 per option in 2001.

                                         2003           2002           2001
                                       -------        --------      ----------
     Expected life in years               3.0            3.0            3.0
     Risk-free interest rate             2.22%          2.82%          4.41%
     Volatility                        101.73%         97.66%         61.85%
     Dividend yield                      0.00%          0.00%          0.00%


                                      F-26
<PAGE>

                   FOAMEX INTERNATIONAL INC. AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


11.  INCOME TAXES

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

<TABLE>
<CAPTION>
                                                                    2003            2002             2001
                                                                ------------   ------------     ------------
                                                                                (thousands)
<S>                                                               <C>            <C>                <C>
     United States                                                $(28,467)      $(30,609)          $(8,293)
     Foreign                                                           974          4,745             7,978
                                                                  --------       --------           -------
     Loss before provision  (benefit) for income taxes            $(27,493)      $(25,864)          $  (315)
                                                                  ========       ========           =======
</TABLE>

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

<TABLE>
<CAPTION>
                                                                    2003            2002             2001
                                                                ------------    ------------     ------------
                                                                              (thousands)
<S>                                                               <C>            <C>                <C>
     Statutory income taxes                                       $(9,623)       $ (9,052)          $  (110)
     State income taxes, net of federal benefit                      (876)         (1,089)             (135)
     Increase (decrease) in valuation allowance                       649         (75,371)            1,400
     Non-deductible amortization                                        -               -             1,391
     Deemed distributions of foreign earnings to U.S.               3,109               -                 -
     Alternative minimum tax                                            -            (200)              350
     Use of acquired tax benefits                                       -               -             1,550
     Foreign tax rate differential                                    (10)            192               142
     Impact of tax rate changes                                        85               -                 -
     Other, net                                                       662          (1,292)              709
                                                                  -------      ----------           -------
     Total                                                        $(6,004)       $(86,812)          $ 5,297
                                                                  =======        ========           =======
</TABLE>

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

<TABLE>
<CAPTION>
                                                                    2003            2002             2001
                                                                ------------    ------------     ------------
     Current                                                                (thousands)
<S>                                                               <C>            <C>                <C>
       Federal                                                    $     -        $  3,004           $   924
       State                                                           39             160               262
       Foreign                                                      1,286           2,423             2,594
                                                                  -------        --------           -------
         Total current                                              1,325           5,587             3,780
                                                                  -------        --------           -------

     Deferred
       Federal                                                     (6,562)        (14,577)              174
       State                                                         (915)         (1,779)             (397)
       Foreign                                                       (501)           (672)              340
                                                                  -------        --------           -------
         Total deferred                                            (7,978)        (17,028)              117
                                                                  -------        --------           -------

     Change in valuation allowance                                    649         (75,371)            1,400
                                                                  -------        --------           -------

     Total provision (benefit) for income taxes                   $(6,004)       $(86,812)          $ 5,297
                                                                  =======        ========           =======
</TABLE>

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


                                      F-27
<PAGE>

                   FOAMEX INTERNATIONAL INC. AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


11.  INCOME TAXES (continued)

<TABLE>
<CAPTION>
                                                                             December 28,          December 29,
                                                                                2003                  2002
                                                                             ------------          -----------
     Deferred income tax assets                                                         (thousands)
<S>                                                                            <C>                  <C>
       Inventory basis differences                                             $  1,804             $    757
       Employee benefit accruals                                                 21,749               22,006
       Allowances and contingent liabilities                                      9,740               10,459
       Restructuring and plant closing accruals                                   3,704                8,786
       Intangible asset basis differences                                             -                4,901
       Other                                                                      7,201               12,329
       Net operating loss carryforwards                                          99,432               77,873
       Capital loss carryforwards                                                   394                  325
       Valuation allowance for deferred income tax assets                        (2,560)              (1,911)
                                                                               --------             --------
       Deferred income tax assets                                               141,464              135,525
                                                                               --------             --------

     Deferred income tax liabilities
       Basis difference in property, plant and equipment                        (13,538)             (12,953)
       Other                                                                     (4,673)              (6,084)
                                                                               --------             --------
       Deferred income tax liabilities                                          (18,211)             (19,037)
                                                                               --------             --------

     Net deferred income tax assets (liabilities)                              $123,253             $116,488
                                                                               ========             ========
</TABLE>

     The effective tax benefit rate for 2003,  included a $3.1 million provision
that reduced the effective tax benefit rate. The $3.1 million of tax expense was
related to the Foamex L.P. $240.0 Million Senior Secured Credit Facility and the
collateral  provisions that pledged the stock of Foamex Canada.  This collateral
pledge under the U.S. Internal Revenue Code resulted in a deemed distribution of
accumulated earnings, as defined, of Foamex Canada. Because the Company will not
be able  to  utilize  any  Canadian  tax  credits  associated  with  the  deemed
distribution,  the full amount of the distribution was subject to U.S.  taxation
and will  result in a reduction  in the amount of the U.S.  net  operating  loss
carryforwards available.

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

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

     The Company has net deferred income tax assets  aggregating  $123.3 million
as of  December  28,  2003 that  primarily  represent  the benefit of future tax
deductions  and net  operating  loss  carryforwards  available to offset  future
taxable  income in the U.S. In order to realize these  assets,  the Company must
generate  sufficient  taxable  income  to offset  its U.S.  net  operating  loss
carryforwards of approximately $267.3 million at December 28, 2003 expiring from
2010  to  2023.   Approximately   $111.5  million  of  the  net  operating  loss
carryforwards,  related to $39.0  million of deferred tax assets,  expire in the
years 2010 to 2012 with the  remainder  principally  expiring  in the  2018-2023
period.  The Company projects that it will have sufficient taxable income in the
years  2005  to  2012  to  utilize  all  of  the  expiring  net  operating  loss
carryforwards. The Company has had an ownership change as defined in IRC Section


                                      F-28
<PAGE>


                   FOAMEX INTERNATIONAL INC. AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


11.  INCOME TAXES (continued)

382  and   accordingly,   the  Company  is  limited  (on  an  annual  basis)  to
approximately $21.0 million of net operating loss carryforward utilization.

     At December 28, 2003,  the Company had $3.4 million of net  operating  loss
carryforwards  in a Mexican  subsidiary that expire in 2006 through 2013. A full
valuation allowance has been recorded due to uncertainty  regarding  utilization
of these net operating loss carryforwards.

     Cumulative undistributed earnings of foreign subsidiaries for which no U.S.
income or foreign withholding taxes have been provided, amounted to $5.2 million
at December 28, 2003 and $13.4 million at December 29, 2002, respectively.  Such
earnings  are deemed to be  permanently  invested by the  Company.  As such,  no
deferred tax liability has been recognized with regard to the remittance of such
earnings.  Further,  determination  of the amount of  unrecognized  deferred tax
liability with regard to such earnings is not practicable.

12.  STOCKHOLDERS' DEFICIENCY

Preferred Stock

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

Common Stock

     The  Company  has 50  million  shares of common  stock,  par value $.01 per
share,  authorized.  At December 28, 2003, there were 24.4 million shares issued
and  outstanding  and 5.6 million  shares of common stock reserved for potential
issuance in connection  with stock option plans,  discussed in Note 10. Included
in the  Consolidated  Statements of  Stockholders'  Deficiency is the portion of
compensation  for the Company's  directors  that is paid in common stock.  There
were no cash  dividends  paid by the Company on its common stock during the past
three fiscal years.  The payment of any future  dividends  will be determined by
the Board of Directors  in light of  conditions  then  existing,  including  the
Company's  earnings,  financial  condition  and  requirements,  restrictions  in
financing  agreements,  business conditions and other factors.  The Company is a
holding company whose assets consist  primarily of its wholly-owned  subsidiary,
Foamex L.P.  Consequently,  the Company's  ability to pay dividends is dependent
upon the earnings of Foamex L.P. and any future  subsidiaries of the Company and
the  distribution  of those  earnings  to the  Company  and loans or advances by
Foamex L.P.  and any such future  subsidiaries  to the  Company.  The ability of
Foamex L.P. to make  distributions  is  restricted by the terms of its financing
agreements.  Due to such  restrictions,  the  Company is  expected  to have only
limited  access to the cash flow  generated by Foamex L.P.  for the  foreseeable
future.

Treasury Stock

     The Board of  Directors  has  authorized  the  purchase of up to  3,000,000
million shares of the Company's common stock,  however the $240.0 Million Senior
Secured  Credit  Facility  limits the  Company's  ability to purchase its common
stock. As of December 28, 2003,  1,989,000 shares have been purchased under this
program.


                                      F-29
<PAGE>

                   FOAMEX INTERNATIONAL INC. AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


12.  STOCKHOLDERS' DEFICIENCY (continued)

Accumulated Other Comprehensive Loss

     The components of accumulated other comprehensive loss are listed below.

<TABLE>
<CAPTION>
                                                      December 28,       December 29,      December 31,
                                                          2003               2002              2001
                                                      ------------       ------------      ------------
                                                                         (thousands)
<S>                                                     <C>                <C>                <C>
     Foreign currency translation adjustment            $ (3,257)          $ (9,869)          $ (8,000)
     Minimum pension liability (a)                       (27,575)           (28,885)           (27,157)
                                                        --------           --------           --------
                                                        $(30,832)          $(38,754)          $(35,157)
                                                        ========           ========           ========
</TABLE>

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

13.  BUSINESS SEGMENTS

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

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

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

     The "other"  column in the table  below  represents  certain  manufacturing
operations in Mexico City,  corporate  expenses not allocated to other  business
segments and restructuring, impairment and other charges (credits) (see Note 6).
Asset and capital  expenditure  information by business  segment is not reported
because many of the Company's  facilities produce products for multiple business
segments.

     The accounting  policies of the business segments are the same as described
in Note 2.  Business  segment  results  include  revenues  and  costs  that  are
specifically  identifiable  and costs  shared  by  business  segments  have been
allocated  based on  utilization.  At the end of 2003,  the Company  changed its
measure of segment operating income to exclude allocation of corporate overhead,
as  management  no longer  evaluates  the  performance  of  segments  using this
allocation.  Rather,  the Company  attempts  to manage and  control  these costs
independent of segment performance.  Segment results for 2002 and 2001 have been
adjusted to reflect this change for comparative  purposes.  Geographic sales are
determined based on the location in which the sale originated.

     Sales to one customer, which are included in Automotive Products, accounted
for  approximately  16.3%,  17.3% and 15.7% of net sales in 2003, 2002 and 2001,
respectively.  No other  customer  accounted  for more  than  10.0% of net sales
during the periods presented.


                                      F-30
<PAGE>

                   FOAMEX INTERNATIONAL INC. AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


13.  BUSINESS SEGMENTS (continued)

     Business segment results are presented below.

<TABLE>
<CAPTION>
                                                 Carpet
                                   Foam         Cushion       Automotive      Technical
                                 Products       Products       Products       Products       Other         Total
                                 --------       --------      ----------      ---------    ---------     ----------
2003                                                              (thousands)
<S>                              <C>            <C>            <C>            <C>          <C>           <C>
Net sales                        $507,586       $208,855       $447,068       $117,450     $ 23,601      $1,304,560
Income (loss) from operations    $ 43,983       $  5,395       $ 33,399       $ 32,115     $(52,031)     $   62,861
Depreciation and amortization    $ 11,002       $  3,275       $  2,815       $  2,931     $  6,022      $   26,045

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

2001
Net sales                        $499,668       $230,965       $377,753       $111,043     $ 33,475      $1,252,904
Income (loss) from operations    $ 81,144       $  7,422       $ 27,040       $ 32,692     $(86,387)     $   61,911
Depreciation and amortization    $ 11,018       $  5,390       $  4,150       $  2,670     $ 10,760      $   33,988
</TABLE>

     Geographical information is presented below.

<TABLE>
<CAPTION>
                                                        United
                                                        States        Canada           Mexico      Consolidated
                                                       --------      --------         --------     ------------
2003                                                                         (thousands)
<S>                                                    <C>            <C>              <C>          <C>
Net sales                                              $989,075       $67,542          $247,943     $1,304,560
Property, plant and equipment, net                     $142,602       $ 5,003          $ 15,245     $  162,850

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

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

14.  SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION

<TABLE>
<CAPTION>
                                                                           2003           2002             2001
                                                                        --------       --------          -------
                                                                                     (thousands)
<S>                                                                      <C>            <C>              <C>
Cash paid for interest                                                   $72,785        $56,583          $63,593
                                                                         =======        =======          =======

Cash paid for income taxes, net                                          $ 2,349        $ 2,222          $ 1,990
                                                                         =======        =======          =======

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

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



                                      F-31
<PAGE>

                   FOAMEX INTERNATIONAL INC. AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

15.  RELATED PARTY TRANSACTIONS AND BALANCES

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

Trace Promissory Notes

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

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

Trace Accounts Receivable

     At December 28, 2003 and December 29, 2002,  operating accounts  receivable
from Trace were approximately $3.4 million. These accounts receivable were fully
reserved for prior to 2001.

Foam Funding LLC Debt

     Subsidiaries  of the Company paid interest on notes payable to Foam Funding
LLC  of  $0.7  million  and  $2.8  million  in  2002  and  2001,   respectively.
Subsidiaries  of the Company paid principal on notes payable to Foam Funding LLC
of $31.6 million and $15.8 million in 2002 and 2001, respectively. This debt was
fully repaid in 2002 (see Note 8).

Other

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

     In 2001, two members of the board of directors provided consulting services
to the Company for which fees paid were $0.2 million. Also in 2001, one of these
directors  received a loan of $0.2 million from the  Company's  joint venture in
Asia. The loan was evidenced by a 20-year  non-recourse  promissory note bearing
interest at 4.0% per annum secured by the director's  5.0% interest in the value
of the Company's  equity interest in the joint venture in Asia. The Company also
maintains an apartment used by this director. Rent expense for this facility was
$0.2 million in 2003, 2002 and 2001.

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


                                      F-32
<PAGE>

                   FOAMEX INTERNATIONAL INC. AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


15.  RELATED PARTY TRANSACTIONS AND BALANCES (continued)

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

     During December 2001, the Company entered into an agreement that guarantees
two promissory notes, totaling $0.7 million, payable to a foreign affiliate that
the Company  accounts for under the equity  method.  The  promissory  notes were
issued to a director of the Company and an employee of Foamex L.P.

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

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

16.  COMMITMENTS AND CONTINGENCIES

Operating Leases

     The Company is obligated under various  noncancelable  lease agreements for
rental of facilities,  vehicles and other equipment.  Many of the leases contain
renewal  options  with  varying  terms and  escalation  clauses that provide for
increased  rentals based upon increases in the Consumer Price Index, real estate
taxes and lessors' operating expenses. Total minimum rental commitments required
under operating leases at December 28, 2003 are (thousands):

       2004                                              $14,076
       2005                                               10,191
       2006                                                6,472
       2007                                                4,930
       2008                                                3,321
       Balance                                             5,925
                                                         -------
       Total                                             $44,915
                                                         =======

     Rental expense charged to operations  under operating  leases  approximated
$18.8  million,  $23.4  million  and  $20.2  million  in 2003,  2002  and  2001,
respectively.  Substantially  all such rental  expense  represented  the minimum
rental payments under operating leases.

Contractual Commitments

     The Company has entered into contracts for information  technology services
and certain raw materials that have minimum  purchase  commitments  estimated at
$105.2  million in 2004,  $57.1 million in 2005,  $66.4  million in 2006,  $63.4
million in 2007 and $59.5 million for each of the years 2008, 2009 and 2010.


                                      F-33
<PAGE>

                   FOAMEX INTERNATIONAL INC. AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

16.  COMMITMENTS AND CONTINGENCIES (continued)

Litigation

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

     As of December 28, 2003, the Company had accrued approximately $1.1 million
for litigation,  claims and other legal matters in addition to the environmental
matters discussed below.

Environmental and Health and Safety

     The Company is subject to extensive and changing federal,  state, local and
foreign environmental laws and regulations, including those relating to the use,
handling, storage, discharge and disposal of hazardous substances, the discharge
or  emission  of  materials  into  the  environment,   and  the  remediation  of
environmental contamination,  and as a result, are from time to time involved in
administrative and judicial  proceedings and inquiries relating to environmental
matters. As of December 28, 2003, the Company had accruals of approximately $2.5
million for environmental matters,  including approximately $2.3 million related
to  remediating   and  monitoring  soil  and   groundwater   contamination   and
approximately  $0.2 million  related to sites where it has been  designated as a
Potentially  Responsible  Party, or "PRP", by the EPA or a state authority,  and
other  matters.  Additional  losses,  if any,  in  excess of  amounts  currently
accrued,  cannot be reasonably  estimated at this time. If there are  additional
matters or if our current  estimates  are  incorrect,  there could be a material
adverse effect on the Company's  financial  position,  results of operations and
cash flows.

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

     The Company reported to the appropriate state authorities that it had found
soil and/or  groundwater  contamination  in excess of state standards at certain
locations.  Seven sites are  currently  in various  stages of  investigation  or
remediation. Accordingly, the extent of contamination and the ultimate liability
is not known with certainty for all sites.  During 2000, the Company  reached an
indemnification  agreement  with the former owner of the  Morristown,  Tennessee
facility.  The  agreement  allocates the incurred and future  remediation  costs
between the former owner and the Company.  The  estimated  allocation  of future
costs for the remediation of this facility is not significant,  based on current
known information.  The former owner was Recticel Foam Corporation, a subsidiary
of Recticel s.a.

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

     The Comprehensive  Environmental Response,  Compensation and Liability Act,
or "CERCLA," and comparable  state laws impose  liability  without fault for the
costs of  cleaning  up  contaminated  sites on certain  classes of persons  that
contributed to the release of hazardous substances into the environment at those
sites, for example, by generating wastes containing  hazardous  substances which
were disposed at such sites. The Company is currently designated as a PRP by the
EPA or by state  environmental  agencies  or other  PRPs,  pursuant to CERCLA or
analogous state statutes,  with respect to 11 sites.  Estimates of total cleanup
costs and fractional allocations of liability are often provided by the EPA, the
state  environmental  agency  or the  committee  of  PRPs  with  respect  to the
specified site. Based on these estimates (to the extent  available) and on known
information,  in each case and in the  aggregate,  the  Company  does not expect
additional costs, if any, to be material to liquidity,  results of operations or
financial position.


                                      F-34
<PAGE>

                   FOAMEX INTERNATIONAL INC. AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


16.  COMMITMENTS AND CONTINGENCIES (continued)

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

17.  QUARTERLY FINANCIAL DATA (UNAUDITED)

     At the end of 2003,  the Company  changed its measure of segment  operating
income to exclude an  allocation  of  corporate  overhead as its  management  no
longer  evaluates the  performance  of segments using the  allocation.  Adjusted
segment operating income for the quarters of 2003 and 2002 is shown below.

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

       Earnings (loss) per share
         Basic                                             $  (0.43)    $   0.14     $  (0.45)   $  (0.14)
         Diluted                                           $  (0.43)    $   0.13     $  (0.45)   $  (0.14)

       Income (loss) from operations:
         Foam Products                                     $  6,937     $ 10,929     $ 14,659    $ 11,458
         Carpet Cushion Products                               (616)       1,620        1,771       2,620
         Automotive Products                                  9,437        9,423        7,564       6,975
         Technical Products                                   8,932        9,794        6,182       7,207
         Other                                              (15,052)     (10,856)     (12,538)    (13,585)
                                                           --------      -------     --------    --------
            Total                                          $  9,638     $ 20,910     $ 17,638    $ 14,675
                                                           ========     ========     ========    ========

     2002
       Net sales                                           $314,062     $345,898     $340,823    $327,311
       Gross profit                                        $ 37,678     $ 46,947     $ 30,814    $ 28,263
       Income (loss) before cumulative effect
        of accounting changes                              $  3,133     $ 81,445     $ (7,242)   $(16,388)
       Net income (loss)                                   $(67,514)    $ 81,445     $ (7,242)   $(16,388)

       Earnings (loss) per share Basic:
            Income (loss) before cumulative
              effect of accounting changes                 $   0.13     $   3.35     $  (0.30)   $  (0.67)
            Net income (loss)                              $  (2.80)    $   3.35     $  (0.30)   $  (0.67)
         Diluted:
            Income (loss) before cumulative
              effect of accounting changes                 $   0.12     $   3.04     $  (0.30)   $  (0.67)
            Net income (loss)                              $  (2.56)    $   3.04     $  (0.30)   $  (0.67)
</TABLE>


                                      F-35
<PAGE>

                   FOAMEX INTERNATIONAL INC. AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


17.  QUARTERLY FINANCIAL DATA (UNAUDITED) (continued)

<TABLE>
<CAPTION>
                                                             First      Second       Third       Fourth
                                                            Quarter     Quarter      Quarter     Quarter
                                                            -------     -------      -------     -------
                                                               (thousands, except per share amounts)
       Income (loss) from operations:
<S>                                                        <C>          <C>          <C>         <C>
         Foam Products                                     $ 13,682     $ 18,462     $  5,091    $  8,231
         Carpet Cushion Products                             (1,217)       1,380          474         602
         Automotive Products                                  9,865       10,730        7,331       6,220
         Technical Products                                   8,284       10,421        8,250       8,230
         Other                                               (9,081)     (15,842)     (16,432)    (30,522)
                                                           --------     --------     --------    --------
            Total                                          $ 21,533     $ 25,151     $  4,714    $ (7,239)
                                                           ========     ========     ========    ========
</TABLE>

18.  SUBSEQUENT EVENT

     Effective  February 10, 2004, the Company's  Chairman resigned his position
by mutual agreement with the Company's Board of Directors.

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


                                      F-36
<PAGE>




                   FOAMEX ASIA COMPANY LIMITED AND SUBSIDIARY
                     CONSOLIDATED BALANCE SHEET (unaudited)
                             AS AT DECEMBER 31, 2003
                                (Amounts in BAHT)

<TABLE>
<CAPTION>
ASSETS
CURRENT ASSETS
<S>                                                                                          <C>
   Cash and deposits at financial institutions                                               139,702,650
   Current investment - fixed deposits                                                        13,520,374
   Accounts receivable - net (Note 5)                                                        359,005,764
   Inventories - net (Note 6)                                                                326,576,773
   Accounts receivable from Revenue Department                                                31,629,984
   Other current assets                                                                       21,791,991
                                                                                           -------------
     Total Current Assets                                                                    892,227,536

NON-CURRENT ASSETS
   Loans to employee and directors (Note 8)                                                   31,137,862
   Plant and Equipment - net (Note 9)                                                        417,638,273
   Intangible assets - net (Note 10)                                                          22,192,528
   Deposits at financial institutions used as collateral (Note 4)                             16,232,488
   Other non-current assets                                                                    7,053,002
                                                                                           -------------
     Total Non-Current Assets                                                                494,254,153
                                                                                           -------------

TOTAL ASSETS                                                                               1,386,481,689
                                                                                           =============
</TABLE>



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




                                      F-37
<PAGE>

                   FOAMEX ASIA COMPANY LIMITED AND SUBSIDIARY
                     CONSOLIDATED BALANCE SHEET (unaudited)
                             AS AT DECEMBER 31, 2003
                                (Amounts in BAHT)

LIABILITIES AND SHAREHOLDERS' EQUITY

<TABLE>
<CAPTION>
CURRENT LIABILITIES
<S>                                                        <C>                              <C>
   Short-term borrowings from financial institutions (Note 11)                              139,248,766
   Accounts payable                                                                         132,852,183
   Payable for purchases of fixed assets                                                      6,733,181
   Amounts due to related companies                                                         178,763,377
   Accrued expenses                                                                         117,386,258
   Current portion of long-term borrowings from financial institutions (Note 12)             37,500,000
   Current portion of finance leases                                                          2,166,482
   Other current liabilities                                                                  5,672,804
                                                                                          -------------
     Total Current Liabilities                                                              620,323,051

NON-CURRENT LIABILITIES
   Loans from shareholders (Note 13)                                                        262,400,487
   Long-term borrowings from financial institutions (Note 12)                               105,400,000
   Long-term portion of finance leases                                                          713,189
                                                                                          -------------
     Total Non-Current Liabilities                                                          368,513,676
                                                                                          -------------
TOTAL LIABILITIES                                                                           988,836,727
                                                                                          -------------

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

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

ADDITIONAL PAID IN CAPITAL
   Premium on ordinary shares                                                                18,990,504
CURRENCY TRANSLATION DIFFERENCES                                                             (2,018,051)
RETAINED EARNINGS
   Appropriated                                                                              10,500,000
   Unappropriated                                                                           265,172,509
                                                                                          -------------
   Total Shareholders' Equity                                                               397,644,962
                                                                                          -------------

TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY                                                1,386,481,689
                                                                                          =============
</TABLE>

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



                                      F-38
<PAGE>



                   FOAMEX ASIA COMPANY LIMITED AND SUBSIDIARY
                  CONSOLIDATED STATEMENT OF INCOME (unaudited)
                      FOR THE YEAR ENDED DECEMBER 31, 2003
                                (Amounts in BAHT)

<TABLE>
<CAPTION>
REVENUES
<S>                                                                                  <C>
   Revenues from sales                                                               1,554,399,572
   Gain on exchange rate                                                                11,304,673
   Other revenue                                                                         3,371,679
                                                                                     -------------
     Total Revenues                                                                  1,569,075,924
                                                                                     -------------

EXPENSES
   Cost of sales                                                                     1,104,937,206
   Selling and administrative expenses                                                 371,533,090
                                                                                     -------------
     Total Expenses                                                                  1,476,470,296

INCOME BEFORE INTEREST AND INCOME TAX EXPENSES                                          92,605,628
INTEREST EXPENSE                                                                        19,498,687
INCOME TAX EXPENSE                                                                      21,678,574
                                                                                     -------------
INCOME FROM ORDINARY ACTIVITIES                                                         51,428,367

EXTRAORDINARY GAIN - NET OF TAX (Note 7)                                                16,997,355
                                                                                     -------------

NET INCOME                                                                              68,425,722
                                                                                     =============

EARNINGS PER SHARE
   Income from ordinary activities                                                             4.90
   Extraordinary item - net (Note 7)                                                           1.62
                                                                                     --------------
   Net income                                                                                  6.52
                                                                                     ==============

WEIGHTED AVERAGE NUMBER OF ORDINARY SHARES                                              10,500,000
                                                                                     =============
</TABLE>


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




                                      F-39
<PAGE>



                   FOAMEX ASIA COMPANY LIMITED AND SUBSIDIARY
           CONSOLIDATED STATEMENT OF SHAREHOLDERS' EQUITY (unaudited)
                      FOR THE YEAR ENDED DECEMBER 31, 2003
                                (Amounts in BAHT)

<TABLE>
<CAPTION>
                                      Issue and      Premium                                      Currency
                                      paid-up        on share          Retained earnings         translation
                                    share capital    capital      Appropriated   Unappropriated   difference        Total
                                    -------------   ----------    ------------   --------------  ------------   -----------

<S>                                   <C>             <C>                           <C>             <C>           <C>
Beginning balance, January 1, 2003  105,000,000     18,990,504              -     212,496,787     14,848,617    351,335,908
Dividend payment (Note 15)                    -              -              -      (5,250,000)             -     (5,250,000)
Increase during the year                      -              -     10,500,000               -              -     10,500,000
Decrease during the year                      -              -              -     (10,500,000)   (16,866,668)   (27,366,668)
Net income                                    -              -              -      68,425,722              -     68,425,722
                                    -----------     ----------     ----------    ------------    -----------    -----------
Ending balance, December 31, 2003   105,000,000     18,990,504     10,500,000     265,172,509     (2,018,051)   397,644,962
                                    ===========     ==========     ==========     ===========    ===========    ===========
</TABLE>




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



                                      F-40
<PAGE>




                   FOAMEX ASIA COMPANY LIMITED AND SUBSIDIARY
                CONSOLIDATED STATEMENT OF CASH FLOWS (unaudited)
                      FOR THE YEAR ENDED DECEMBER 31, 2003
                                (Amounts in BAHT)

<TABLE>
<CAPTION>
CASH FLOWS FROM OPERATING ACTIVITIES
<S>                                                                                         <C>
Net income                                                                                   68,425,722
Reconciliation of net income to net cash used in operating activities
   Depreciation and amortization                                                             36,109,905
   Allowance for doubtful accounts                                                              596,772
   Provision for obsolete stock                                                                 609,976
   Unrealized (gain) loss on exchange rate - net                                            (21,672,505)
   Unpaid interest to shareholder                                                            11,290,147
   Loss on disposal of fixed assets                                                             129,731
                                                                                           ------------
Operating income before change in operating assets and liabilities                           95,489,748

Operating assets (increase) decrease
   Accounts receivable                                                                       39,353,979
   Amounts due from subsidiary and related companies                                          9,127,728
   Inventories                                                                             (123,413,811)
   Receivable from insurance claim                                                           86,924,106
   Accounts receivable from revenue department                                               (9,930,973)
   Deposits pledged as collateral and guarantee                                              (2,725,941)
   Other current assets                                                                      20,321,524
   Other non-current assets                                                                  (1,489,167)

Operating liabilities increase (decrease)
   Accounts payable                                                                         (42,958,477)
   Amounts due to subsidiary and related companies                                           99,281,204
   Accrued expenses                                                                          37,172,859
   Other current liabilities                                                                    519,795
                                                                                           ------------

     Net cash provided by operating activities                                              207,672,574

CASH FLOWS FROM INVESTING ACTIVITIES
   Purchases of plant and equipment                                                        (243,876,637)
   Proceeds from disposal of plant and equipment                                              3,238,436
   Increase in purchase price of acquired business                                           (9,663,650)
   Increase in loss on translation of financial statements of foreign subsidiary            (16,866,668)
   Increase in loan to subsidiary
   Decrease in loans to employee and directors                                                1,776,676
                                                                                           ------------

     Net cash used in investing activities                                                 (265,391,843)
                                                                                           ============
</TABLE>


                                      F-41
<PAGE>



                   FOAMEX ASIA COMPANY LIMITED AND SUBSIDIARY
          CONSOLIDATED STATEMENT OF CASH FLOWS (continued) (unaudited)
                      FOR THE YEAR ENDED DECEMBER 31, 2003
                                (Amounts in BAHT)

<TABLE>
<CAPTION>
CASH FLOWS FROM FINANCING ACTIVITIES
<S>                                                                                          <C>
   Increase in bank overdrafts and loan from bank                                            21,732,333
   Increase in long-term borrowings from financial institutions                              80,900,000
   Dividends paid                                                                            (5,250,000)
   Cash payment for finance leases                                                           (4,559,414)
                                                                                           ------------
     Net cash provided by financing activities                                               92,822,919
                                                                                           ------------

Net increase (decrease) in cash and deposits at financial institutions                       35,103,650
Cash and deposits at financial institutions at January 1,                                   118,119,374
                                                                                           ------------
Cash and deposits at financial institutions at December 31,                                 153,223,024
                                                                                           ============
</TABLE>

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


                                      F-42
<PAGE>




FOAMEX ASIA COMPANY LIMITED AND SUBSIDIARIES
NOTES TO THE FINANCIAL STATEMENTS
FOR THE YEAR ENDED DECEMBER 31, 2003 (unaudited)

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

     Foamex Asia Company  Limited was  registered  in the Kingdom of Thailand on
     June 5, 1997 with its head office  located at 175 Sathorn City Tower,  20th
     Floor, South Sathorn Road, Sathorn, Bangkok 10120. The Company's plants are
     located at 665 Moo 2, Bangpoo,  Mung Samutprakarn,  Samutprakarn 10280, 133
     Moo 1, Banpo, Bangpain, Ayuthaya 13160 and 259 Moo 3, Toongsukla, Sriracha,
     Chonburi 20230. The major  shareholder of the Company is Foamex Asia, Inc.,
     a company  incorporated in the United States of America.  The Company's and
     the  subsidiaries'  principal  objectives are to fabricate  technical foam,
     films and adhesives.

     As at December 31, 2003, the Company had a total of 416 staff persons. The
     staff costs for the year ended December 31, 2003 was Baht 167 million.

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

     1.2  The consolidated  financial  statements include the accounts of Foamex
          Asia, LLC, the Company's  branch  incorporated in the United States of
          America,  Foamex Asia Phils.,  Inc., a subsidiary  incorporated in the
          Philippines,  with its head office located at Unit 903, Alpap Building
          II, Trade Street Cor, Investment Drive,  Madrigal Business Park, Ayala
          Alabang,  Muntinlupa City,  Philippines,  and Foamtec (Singapore) Pte.
          Ltd., a subsidiary incorporated in the Republic of Singapore, with its
          head office located at 6 Sungei Kadut Crescent,  Singapore 728689, and
          its indirectly owned subsidiaries. The Company has direct and indirect
          ownership percentages as follows:

<TABLE>
<CAPTION>

       Subsidiaries                                                                            % of Shareholding
         Directly owned:
<S>                                                                                                     <C>
           Foamtec (Singapore) Pte. Ltd.                                                                99.99
           Foamex Asia Phils., Inc.                                                                     99.99
         Indirectly owned:
           Foamex (Malaysia) Sdn. Bhd.                                                                  99.99
           Foamex Asia (Wuxi) Co., Ltd.                                                                 99.99
           Foamex Asia Manufacturing (Wuxi) Co., Ltd.                                                   99.99
</TABLE>

          As at December 31, 2003, the Company's subsidiaries, both directly and
          indirectly  owned,  had a total of 211 staff persons.  The staff costs
          for the year ended December 31, 2003 was Baht 122 million.

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

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

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

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



                                      F-43
<PAGE>

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

          The  financial  statements  of Foamtec  (Singapore)  Pte. Ltd. and its
          subsidiaries have been prepared in Singapore Dollars and the financial
          statements of Foamex Asia Phils.,  Inc. has been prepared in Peso. For
          consolidation   purposes,   these   financial   statements  have  been
          translated into Thai Baht as follows:

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

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

          The  functional  currencies of Foamex Asia Phils.,  Inc.,  and Foamtec
          (Singapore)  Pte. Ltd. and its  subsidiaries  are the applicable local
          currencies. Net exchange gain or loss from translation is presented as
          "Currency Translation Differences" under "Shareholders' Equity" in the
          balance sheet.

     1.3  The  financial   statements  are  presented  in  accordance  with  the
          Notification of the Department of Commercial  Registration  (currently
          the  Department  of Business  Development)  dated  September 14, 2001,
          regarding  "The Brief  Particulars  in the financial  statements  B.E.
          2544".

     1.4  In December 2001, the Institute of Certified  Accountants and Auditors
          of  Thailand  issued  an  Announcement  re:  Exemption  of  Accounting
          Standards for  Non-public  Limited  Companies  which was  subsequently
          approved by the Board of  Supervision  of Auditing  Practices in 2002.
          Accordingly,  the Company has elected to be exempted  from  Accounting
          Standards  No. 47 "Related  Party  Disclosures"  and No. 48 "Financial
          Instruments: Disclosure and Presentation".

2.   SIGNIFICANT ACCOUNTING POLICIES

     2.1  Cash and deposit at financial institutions

          Cash and deposit at  financial  institutions  consist of cash in hand,
          deposit at banks and financial  institutions with original  maturities
          of three months or less.

     2.2  Allowance for doubtful accounts

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

     2.3  Inventories

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

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

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


                                      F-44
<PAGE>

     2.4  Plant and equipment

          Plant and equipment are stated at cost less accumulated depreciation.

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


                Leasehold improvements                   5-10  Years
                Building                                 Lease period (15 years)
                Machinery and equipment                  3-20  Years
                Vehicles                                    5  Years
                Furniture and office equipment            3-5  Years

          No depreciation is provided for land, machinery under installation and
          construction in progress.

          Borrowing  costs  incurred  during  the  period  of  construction  and
          installation  are capitalized as part of the plant under  construction
          and machinery under installation until its completion.  Borrowing cost
          subsequently incurred is recognized as expense for the period.

     2.5  Impairment of assets

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

     2.6  Goodwill

          Goodwill,   presented  as  an   intangible   asset  in  the  financial
          statements, is the excess of consideration paid for an investment in a
          branch over the net assets  acquired and  amortization of the goodwill
          is  recognized  as expense in the statement of income within 10 years,
          by the straight-line method.

     2.7  Foreign currency transactions

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

     2.8  Recognition of revenues

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

     2.9  Income tax

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

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


                                      F-45
<PAGE>

     2.10 Earnings per share

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

          As at December 31, 2003,  the Company did not have any ordinary  share
          equivalents  outstanding  which  would have had a  dilutive  effect on
          earnings per share.

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

3.   SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION

     3.1  Cash paid for the year ended  December  31,  2003,  for  interest  and
          income tax are as follows:

                                                   (Baht)
          Interest                              9,856,315
          Income tax                           47,144,312

4.   DEPOSITS AT FINANCIAL INSTITUTIONS

     As at December 31, 2003,  deposits at financial  institutions  of Baht 15.9
     million are used as collateral for trust receipts of USD 106,920 (Note 11),
     letters of guarantee of Baht 7.3 million and letter of credit of USD 11,500
     (Note 16.2).

     In addition, as at December 31, 2003, deposits at financial institutions of
     a subsidiary of Peso 956,133 is used as collateral for short-term loan from
     bank.

5.   ACCOUNTS RECEIVABLE - NET

     Accounts  receivable  -  net  as at  December  31,  2003,  consist  of  the
     following:

                                                                    (Baht)
     Accounts receivable                                        362,077,165
     Less Allowance for doubtful accounts                        (3,071,401)
     ----                                                       -----------
                                                                359,005,764
                                                                ===========

6.   INVENTORIES - NET

     Inventories - net as at December 31, 2003, consist of the following:

                                                                    (Baht)
     Finished goods                                              104,528,008
     Work in process                                              22,524,827
     Raw materials                                               128,957,246
     Goods in transit                                             78,737,939
                                                                ------------
                                                                 334,748,020
     Less  Provision for obsolete stock                           (8,171,247)
     ----                                                        -----------
                                                                 326,576,773
                                                                 ===========


                                      F-46
<PAGE>

7.   RECEIVABLE FROM INSURANCE CLAIM

     On July 14, 2002,  the  Company's  fabrication  and  contamination  control
     specialty foam factory in Samutprakarn, Thailand was destroyed by fire. All
     of the  Company's  inventory  and  most  of  the  machinery  and  equipment
     maintained  in the factory were lost.  The carrying  value of the inventory
     and the net book value of the  machinery  and  equipment at the date of the
     fire were Baht  84.0  million  and Baht  65.1  million,  respectively.  The
     Company  filed a claim with their  insurance  carrier for the inventory and
     machinery  and  equipment in the amount of Baht 70.0 million and Baht 107.8
     million,  respectively.  The Company recorded an extraordinary loss in 2002
     of Baht 9.8 million, net of taxes of Baht 4.2 million, for the underinsured
     inventory  and an  additional  Baht 1.2  million,  net of taxes of Baht 0.5
     million, for other fire related expenses. On December 27, 2002, the Company
     received an interim payment from their  insurance  carrier in the amount of
     Baht 50 million.

     In February  2003,  total  amount of Baht 52.2 million was received and the
     final  amount of Baht 67.2  million  was  subsequently  received on May 14,
     2003. As a result, the Company recorded  extraordinary gain in 2003 of Baht
     17.0 million, net of taxes of Baht 7.3 million.

8.   LOANS TO EMPLOYEE AND DIRECTORS

     Loans to employee and  directors  as at December  31, 2003,  consist of the
     following:

                                                                    (Baht)
     Loan to employee                                             1,625,127
     Loans to directors                                          30,008,142
                                                                 ----------
                                                                 31,633,269
     Less Current portion of loan to employee                      (495,407)
     ----                                                        ----------
                                                                 31,137,862
                                                                 ==========

     As at December 31, 2003, the loan to employee  represented an interest-free
     Thai Baht denominated loan, which is guaranteed by another person. The loan
     is repayable in monthly installments  beginning January 2003 and matures in
     December 2006.

     As at  December  31,  2003,  the  loans to  directors  represented  foreign
     currency denominated loans totaling US$ 700,000. These loans are secured by
     a grant of a security  interest  of the  director's  percentage  right in a
     major  shareholder's  interest  in the  Company  as  specified  in the loan
     agreement, carry interest at a rate of 4% per annum and are due in December
     2021.

9.   PROPERTY, PLANT AND EQUIPMENT - NET

     Property, plant and equipment - net as at December 31, 2003, consist of the
     following:

<TABLE>
<CAPTION>
                                    Balance as at                                          Currency        Balance as at
                                    December 31,                                          translation      December 31,
                                        2002       Additions    Disposals   Transfers     differences          2003
                                        Baht         Baht         Baht         Baht           Baht             Baht
Cost:
<S>                                  <C>          <C>                        <C>            <C>             <C>
   Leasehold improvement             9,171,795    11,955,965            -    7,549,923      (533,681)       28,144,002
   Building                                  -    30,901,962            -   51,771,031             -        82,672,993
   Machinery and equipment         146,743,093   170,140,677   (3,435,358)  15,670,183    (5,462,076)      323,656,519
   Vehicles                         31,200,590       975,522            -      110,990      (241,339)       32,045,763
   Furniture and office
     equipment                      25,671,067    17,267,324   (1,140,895)     (43,859)   (1,233,480)       40,520,157
   Construction in progress and
     machinery under installation   76,342,268       292,086            -  (75,058,268)            -         1,576,086
                                   -----------   -----------   ----------  -----------    ----------       -----------
                                   289,128,813   231,533,536   (4,576,253)           -    (7,470,576)      508,615,520
                                   -----------   -----------   ----------  -----------    ----------       -----------

                                      F-47
<PAGE>

Accumulated depreciation:
   Leasehold improvement           (2,470,480)    (3,268,548)           -            -       165,521        (5,573,507)
   Building                                 -     (1,842,211)           -            -             -        (1,842,211)
   Machinery and equipment        (30,437,521)   (19,646,213)     369,661            -     1,777,953       (47,936,120)
   Vehicles                       (15,968,683)    (4,358,634)           -            -       113,918       (20,213,399)
   Furniture and office
     equipment                    (11,242,516)    (5,627,756)     838,424            -       619,839       (15,412,009)
                                  -----------    -----------   ----------  -----------    ----------       -----------
                                  (60,119,200)   (34,743,362)   1,208,085            -     2,677,231       (90,977,247)
                                  -----------    -----------   ----------  -----------    ----------       -----------

Plant and equipment - net         229,009,613                                                              417,638,273
                                  ===========                                                              ===========

Depreciation for the year
   Ended December 31, 2003                                                                                  34,743,362
                                                                                                           ===========
</TABLE>

10.  INTANGIBLE ASSETS - NET

     Intangible assets - net as at December 31, 2003, consist of the following:

<TABLE>
<CAPTION>
                                      Balance as at                          Currency              Balance as at
                                      December 31,                           translation           December 31,
                                          2002          Additions            differences               2003
                                          Baht            Baht                  Baht                   Baht
     Goodwill
<S>                                    <C>             <C>                   <C>                    <C>
         Cost                          14,241,648      11,248,988            (1,610,395)            23,880,241
         Accumulated                     (346,231)     (1,366,544)               25,062             (1,687,713)
                                       ----------      ----------            ----------             ----------
                                       13,895,417       9,882,444            (1,585,333)            22,192,528
                                       ==========      ==========            ==========             ==========
</TABLE>

     Amortization for the year ended December 31, 2003               1,366,544
                                                                     =========

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

11.  SHORT-TERM BORROWINGS FROM FINANCIAL INSTITUTIONS

     Short-term borrowings from financial  institutions as at December 31, 2003,
     consist of the following:

                                                                   Baht
     Loans from financial institution                         135,000,000
     Trust receipts                                             4,248,766
                                                              -----------
                                                              139,248,766

     As at December  31, 2003,  short-term  Thai Baht  denominated  loans from a
     financial  institution  of Baht 135 million,  carrying  interest at current
     money market rates and was repayable within one year from the balance sheet
     date.

     As at December  31,  2003,  trust  receipts of USD 106,920 from a financial
     institution,  carrying  interest  at fixed  rate of 5.75% per  annum,  were
     guaranteed by deposits at that financial institution (Note 4).


                                      F-48
<PAGE>


12.  LONG-TERM BORROWINGS FROM FINANCIAL INSTITUTIONS

     Long-term  borrowings from financial  institutions as at December 31, 2003,
     consist of the following:

                                                                     Baht
     Loans from financial institutions                          142,900,000
     Less current portion of long-term borrowings               (37,500,000)
                                                                -----------
                                                                105,400,000

     On May  16,  2002,  the  Company  entered  into a  credit  facility  with a
     financial institution. The credit facility ("Credit Facility") provides for
     borrowings in the aggregate  amount of Baht 300 million and is composed of:
     (i) a Baht 150 million term loan and  non-revolving  letter of credit/trust
     receipts  facility (the "Term Loan  Facility")  and (ii) a Baht 150 million
     revolving  working  capital  facility  (the  "Revolving  Facility"),   both
     maturing on August 30, 2007 (see Note 14). The Term Loan  Facility is to be
     repaid in eight equal semi-annual  installments with the first repayment to
     be made in February 2004. Interest is due and payable every  three-calendar
     months beginning on November 30, 2002.

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

     The Company is required  to pay a  commitment  fee at the rate of 0.25% per
     annum on the daily  undrawn  balance of the Term Loan  calculated  from the
     first anniversary date of the agreement,  May 16, 2002, up to and including
     the last day of the Availability  Period,  which ends on the earlier of (i)
     November 16, 2003 or (ii) the date on which the Term Loan Facility is fully
     drawn, cancelled or terminated under the provisions of the agreement.

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

13.  LOANS FROM SHAREHOLDERS

     Loans from shareholders as at December 31, 2003, consist of the following:

                                                        Baht
     Loans from shareholders                       238,426,800
     Accrued interest on loans                      23,973,687
                                                  ------------
                                                   262,400,487

     On  December  3, 2002,  the Company  received  loans from its  shareholders
     totaling US$ 6 million. These loans are unsecured and carry interest at the
     rate of LIBOR + 3.25% per annum,  and mature on December 3, 2008.  Interest
     accrues  quarterly  beginning at the  inception of the loan,  however,  the
     first interest  payment is not due until December 3, 2005 ("First  Interest
     Payment Date") and then quarterly  thereafter  beginning March 1, 2006. The
     accrued  interest  for the first  three  years of the loan is not due until
     maturity.  The  accrued  interest  for the  fourth  year of the loan is due
     entirely on the First Interest Payment Date.

14.  LEGAL RESERVE

     The Company set up a legal reserve in accordance with the provisions of the
     Civil and Commercial Code which requires that the Company must  appropriate
     to a  reserve  fund at each  distribution  of  dividend  at least 5% of the


                                      F-49
<PAGE>



     profit  arising  from the  business of the Company  until the reserve  fund
     reaches 10% of authorized  capital.  Such reserve fund is not available for
     dividend distribution.

15.  DIVIDEND PAID

     During 2003, the Company paid interim  dividend to the shareholders at Baht
     0.5  per  share  or  approximately  Baht  5.25  million  according  to  the
     resolution  of the Board of  Directors'  meetings  on April 22,  2003.  The
     Company will propose such resolution to the  shareholders'  meeting,  which
     will be held in 2004.

16.  COMMITMENTS AND CONTINGENCIES

     16.1 As at  December  31,  2003,  the  Company  has  commitments  for land,
          building  and vehicle  lease  agreements  with  minimum  annual  lease
          payments as follows:

                                                              2003
           Year                                               Baht
           2004                                            18,650,467
           2005                                            12,273,147
           2006                                             6,174,776
           2007                                             4,926,830
           2008                                             4,848,859
           2009-2018                                       48,488,591

     16.2 As at December 31, 2003, the Company had  contingent  liabilities to a
          financial institution for letters of guarantee of Baht 7.3 million and
          letter of credit of USD 11,500,  which were  guaranteed by deposits at
          that  financial   institution  (Note  4),  and  to  another  financial
          institution  for letters of  guarantee of Baht 8.3 million and letters
          of credit of USD 207,084,  which are a portion of credit facilities as
          discussed more fully in Note 13.

     16.3 As at December 31, 2003,  the Company had  commitments  to a financial
          institution for unused letters of credit of Baht 7.8 million.

17.  REVENUE REPORTING OF A PROMOTED INDUSTRY

     To comply with the Announcement of the Board of Investment No. Por. 14/2541
     (1998) dated  December 30, 1998 regarding  revenue  reporting of a promoted
     industry,  the  Company is required to report the  revenues  from  domestic
     sales and export sales separately and to report separately between promoted
     and  non-promoted  businesses.  For the year ended  December 31, 2003,  the
     required information is as follows:

                                Promoted Business
                             Exemption          Non-Exemption
                          From Income Tax       From Income Tax        Total
                               Baht                  Baht               Baht
     Sales                       -              1,554,399,572      1,554,399,572

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

18.  INVESTMENT PROMOTION PRIVILEGES

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


                                      F-50
<PAGE>


     exemption  from  custom  duties  for raw  materials  until  May  19,  2002.
     Subsequently  in 2003,  the  Company was  approved to extend the  exemption
     periods, for a period of 2 years.

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

19.  EMPLOYEES' PROVIDENT FUND

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

     The  Company's  contributions  charged to the  statements of income for the
     year ended December 31, 2003 amounted to Baht 1.5 million.

     The Company's  subsidiaries  have established a defined  contribution  plan
     covering all employees,  and its contributions charged to the statements of
     income for the year ended December 31, 2003 amounted to Baht 11.3 million.

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

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

     The differences,  as they affect the financial statements, are reflected in
     the amounts provided in Note 21 and arise due to the items discussed in the
     following paragraphs:

     Accounting for Income Taxes

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

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

     Amortization of Goodwill

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

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


                                      F-51
<PAGE>


     Reporting Comprehensive Income

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

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

21.  RECONCILIATION  BETWEEN NET INCOME AND SHAREHOLDERS' EQUITY UNDER THAI GAAP
     AND U.S. GAAP

<TABLE>
<CAPTION>
                                                                                          Baht
     Net income according to financial statements prepared under
<S>                                                                                    <C>
       Thai GAAP                                                                       68,425,722
     U.S. GAAP adjustments Increase due to:
       Deferred tax accounting                                                             48,784
       Amortization of goodwill (Note 10)                                               1,366,544
                                                                                      -----------
     Net income in accordance with U.S. GAAP                                           69,841,050
                                                                                      ===========

     Basic and diluted earnings per share                                                    6.65
     Basic and diluted weighted average number of shares                               10,500,000

     Shareholders' equity according to financial statements prepared
       Under Thai GAAP                                                                397,644,962
     U.S. GAAP adjustments
     Increase (decrease) due to:
       Loans to directors (Note 8)                                                    (30,008,142)
       Deferred tax accounting                                                         (9,485,962)
       Amortization of goodwill                                                         1,366,544
       Currency translation difference (Note 1.2)                                        (187,776)
                                                                                      -----------
     Shareholders' equity in accordance with U.S. GAAP                                359,329,626
                                                                                      ===========
</TABLE>

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

                                                                     Baht
     Loans to employee - non-current asset                        1,129,720
     Intangible assets - net                                     22,192,528
     Other liabilities                                           10,034,917

     The  following  table  presents  comprehensive  income  for the year  ended
     December 31, 2003:


                                      F-52
<PAGE>



                                                                   Baht
     Net income (U.S. GAAP)                                      69,841,050
     Foreign currency translation adjustments                   (17,054,444)
                                                                -----------
     Comprehensive income                                        52,786,606
                                                                ===========

22.  ADDITIONAL FINANCIAL STATEMENT DISCLOSURES REQUIRED UNDER U.S. GAAP

     22.1 Income Taxes

     The sources of income  before the  provision  for income taxes for the year
     ended December 31, 2003 are as follows:

                                                                   Baht
      Thailand                                                  43,290,374
      Foreign                                                   55,465,047
                                                                ----------
       Income before provision for income taxes                 98,755,421
                                                                ==========

     The  provision  for income  taxes for the year ended  December  31, 2003 is
     summarized as follows:

                                                                  Baht
      Current
         Thailand                                              14,235,603
         Foreign                                               14,727,552
                                                               ----------
      Total current                                            28,963,155
                                                               ==========

      Deferred
         Thailand                                                       -
         Foreign                                                  (48,784)
                                                               ----------
      Total deferred                                              (48,784)
                                                               ----------

      Approximate provision for income taxes
         in accordance with U.S. GAAP                          28,914,371
                                                               ==========

     As at December 31, 2003, in providing for applicable  deferred income taxes
     under U.S. GAAP, the tax effect of significant  temporary  differences that
     give rise to deferred income tax assets and liabilities are listed below.

                                                                    Baht
       Deferred income tax assets resulted from:
         Inventory basis differences                               760,475
         Allowance for doubtful accounts                           921,420
         Valuation allowance                                    (1,681,895)
                                                                ----------
           Total deferred income tax assets                              -
                                                                ==========

       Deferred income tax liabilities resulted from:
         Goodwill amortization                                     409,963
         Property, plant and equipment basis differences         9,624,954
                                                                ----------
           Total deferred income tax liabilities                10,034,917
                                                                ----------
       Net deferred income tax liabilities                      10,034,917
                                                                ==========

     Deferred  income taxes have not been provided on  approximately  Baht 205.4
     million of undistributed  earnings of foreign affiliated  companies,  which
     are  considered to be  permanently  reinvested.  It is not  practicable  to
     estimate the amount of tax that might be payable on the eventual remittance
     of such earnings.


                                      F-53
<PAGE>


     22.2 Transactions with Related Parties

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

     Significant balances as at December 31, 2003, are as follows:

                                               Relationship             Baht
     Amounts due to related companies
        Foamex L.P.                          Affiliated company      172,113,989


     Significant  transactions  for the year ended  December  31,  2003,  are as
     follows:

                                          Relationship                 Baht
      Reimbursement of expenses
         Foamex L.P.                   Affiliated company          24,732,132
         Foamex Asia, Inc.             Major shareholder            6,714,128

      Purchases
         Foamex L.P.                   Affiliated company         358,220,765

     22.3 Estimated Fair Values of Financial Instruments

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

     As at December 31,  2003,  the  carrying  amounts of  financial  assets and
     financial  liabilities  which were different from the estimated fair values
     were as follows:

<TABLE>
<CAPTION>
                                                         Carrying Value       Fair Value
                                                            Baht                Baht
<S>                                                       <C>                <C>
     Loans to employee and director                       31,137,862         24,815,624
     Loans from shareholders                             262,400,487        243,146,809
     Long-term borrowings from financial institutions    142,900,000        140,294,279
</TABLE>

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

     Financial  assets - The fair  values of  financial  assets for which  their
     remaining terms to maturity are within 90 days are based on carrying value.
     For  those  with  remaining  terms  to  maturity  greater  than 90 days are
     estimated by using a  discounted  cash flow  analysis  based on the minimum
     leading  rate of a commercial  bank at December 31, 2003 for the  remaining
     years to maturity.

     Financial  liabilities - The fair values of financial liabilities for which
     their  remaining terms to maturity are within 90 days are based on carrying
     value.  For those with remaining terms to maturity greater than 90 days are
     estimated by using a  discounted  cash flow  analysis  based on the minimum
     leading  rate of a commercial  bank at December 31, 2003 for the  remaining
     years to maturity.



                                      F-54
<PAGE>



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

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

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

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

LIABILITIES AND SHAREHOLDERS' EQUITY

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

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

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

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

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

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

TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY                                                 1,181,143,613
                                                                                           =============
</TABLE>

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



                                      F-55
<PAGE>



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

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

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

PROFIT FROM ORDINARY ACTIVITIES                                                        117,031,612

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

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

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

WEIGHTED AVERAGE NUMBER OF ORDINARY SHARES                                              10,500,000
                                                                                     =============
</TABLE>


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


                                      F-56
<PAGE>




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

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

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

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

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

TOTAL SHAREHOLDERS' EQUITY                                                            351,408,518
                                                                                      ===========
</TABLE>

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




                                      F-57
<PAGE>



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

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

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

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

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

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

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

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

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

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

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

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



                                      F-58
<PAGE>


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

1.   ECONOMIC TURMOIL IN THE ASIA-PACIFIC REGION

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

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

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

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

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

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

                                                             % of Shareholding
Subsidiary                                                         2002

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

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

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

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

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



                                      F-59
<PAGE>



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

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

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

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

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

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

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

3.   SIGNIFICANT ACCOUNTING POLICIES

     3.1  Cash and deposits at financial institutions

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

     3.2  Allowance for doubtful accounts

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

     3.3  Inventories

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

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

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

     3.4  Plant and equipment

     Plant and equipment are stated at cost less accumulated depreciation.



                                      F-60
<PAGE>



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


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

     3.5  Impairment of assets

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

     3.6  Foreign currency transactions

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

     3.7  Recognition of revenues

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

     3.8  Income tax

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

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

     3.9  Diluted earnings per share

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

     3.10 Use of accounting estimates

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



                                      F-61
<PAGE>



4.   SUPPLEMENTAL DISCOSURE OF CASH FLOWS INFORMATION

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

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

5.   CASH AND DEPOSITS AT FINANCIAL INSTITUTIONS

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

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

6.   ACCOUNTS RECEIVABLE, NET

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

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

7.   INVENTORIES - NET

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

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

8.   RECEIVABLE FROM INSURANCE CLAIM

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



                                      F-62
<PAGE>


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

9.   LOANS TO EMPLOYEE AND DIRECTORS

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

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

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

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

10.  PLANT AND EQUIPMENT - NET

     Plant and equipment - net consist of the following:

<TABLE>
<CAPTION>
                                   Balance as at                                                Currency       Balance as at
                                    December 31,                                               translation      December 31,
                                       2001         Additions       Disposals     Transfers    differences         2002
                                       Baht            Baht            Baht          Baht           Baht           Baht
Cost:
<S>                                 <C>              <C>            <C>                            <C>           <C>
   Leasehold improvement            14,328,062       3,871,512      (9,227,837)            -       200,058       9,171,795
   Machinery and equipment         161,779,885      68,689,166     (89,097,384)    2,700,537     2,670,887     146,743,091
   Vehicles                         22,883,734       8,345,681        (111,829)            -        83,004      31,200,590
   Furniture and office
     equipment                      25,291,877       8,720,713      (8,897,174)            -       555,652      25,671,068
   Construction in progress and
     machinery under installation    3,090,537      75,952,268                    (2,700,537)            -      76,342,268
                                   -----------     -----------    ------------    ----------     ---------     -----------
                                   227,374,095     165,579,340    (107,334,224)            -     3,509,601     289,128,812
                                   -----------     -----------    ------------    ----------    ----------     -----------

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

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

Depreciation for the year
   2002                                                                                                         24,986,498

                                                                                                               ===========
</TABLE>
                                      F-63
<PAGE>


11.  INTANGIBLE ASSETS - NET

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

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

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

12.  SHORT-TERM BORROWINGS FROM FINANCIAL INSTITUTIONS

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

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

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

13.  LONG-TERM BORROWINGS FROM FINANCIAL INSTITUTIONS

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

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

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

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


                                      F-64
<PAGE>


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

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

14.  LOANS FROM SHAREHOLDERS

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

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

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

15.  COMMITMENTS AND CONTINGENCIES

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

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

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

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

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

16.  REVENUE REPORTING OF A PROMOTED INDUSTRY

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


                                      F-65
<PAGE>


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

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

17.  INVESTMENT PROMOTION PRIVILEGES

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

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

18.  EMPLOYEES' PROVIDENT FUND

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

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

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

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

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

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

       Accounting for Income Taxes

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

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


                                      F-66
<PAGE>


     Amortization of Goodwill

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

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

     Reporting Comprehensive Income

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

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

     Extraordinary item, net

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

20.  RECONCILIATION  BETWEEN NET INCOME AND SHAREHOLDERS' EQUITY UNDER THAI GAAP
     AND U.S. GAAP

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


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

     Shareholders' equity according to financial statements prepared
       under Thai GAAP                                                            351,408,518
     U.S. GAAP adjustments
     Increase (decrease) due to:
         Loans to directors    (Note 12)                                          (31,494,538)


                                      F-67
<PAGE>


         Deferred tax accounting                                                   (8,842,497)
         Amortization of goodwill                                                     348,159
         Currency translation difference   (Note 2.2)                                (911,336)
                                                                                  -----------
     Shareholders' equity in accordance with U.S. GAAP                            310,508,306
                                                                                  ===========
</TABLE>

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

     Loans to employee - non-current asset              1,420,000
     Intangible assets - net                            14,241,648
     Other liabilities                                  10,321,692

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

                                                           Baht

     Net income (U.S. GAAP)                             105,819,492
     Foreign currency translation adjustments             7,393,657
                                                        -----------
     Comprehensive income                               113,213,149
                                                        ===========

21.  ADDITIONAL FINANCIAL STATEMENT DISCLOSURES REQUIRED UNDER U.S. GAAP

     21.1 Income Taxes

     The sources of income  before the  provision  for income taxes for the year
     ended December 31, 2002 are as follows:

<TABLE>
<CAPTION>
                                                                                    Baht

<S>                                                                                <C>
     Thailand                                                                      72,382,370
     Foreign                                                                       72,130,235
                                                                                ------------
     Income before provision for income taxes                                   144,512,605
                                                                                ============

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

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

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


                                      F-68
<PAGE>


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

                                                                     Baht

       Deferred income tax assets resulted from:
          Inventory basis differences                             828,792
          Allowance for doubtful accounts                         604,031
          Valuation allowance                                  (1,432,823)
                                                               ----------
              Total deferred income tax assets                          -
                                                               ----------

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

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

     21.2 Transactions with Related Parties

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

     Significant balances and transactions are as follows:

<TABLE>
<CAPTION>
                                                    Relationship                  Balance at
                                                                                  December 31,
                                                                                      2002
                                                                                      Baht

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

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



                                      F-69
<PAGE>

                                                    Relationship                  Balance for the
                                                                                  year ended
                                                                                  December 31,
                                                                                      2002
                                                                                      Baht

      Reimbursement of expenses
         Foamex L.P.                                 Affiliated Company            30,230,917
         Foamex Asia, Inc.                           Major Shareholder             18,069,036

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

     21.3 Estimated Fair Values of Financial Instruments

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

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

<TABLE>
<CAPTION>
                                                          Carrying Value          Fair Value
                                                                Baht                Baht

<S>                                                         <C>                  <C>
     Loans to employee and directors                        33,314,538           16,305,922
     Loans from shareholders                               259,823,400          222,131,206
     Long-term borrowings from financial institutions       62,000,000           70,903,616
</TABLE>

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

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

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



                                      F-70
<PAGE>



              REPORT OF THE INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS

TO THE BOARD OF DIRECTORS
FOAMEX ASIA COMPANY LIMITED

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

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

In our opinion,  the consolidated  financial statements referred to in the first
paragraph present fairly, in all material  respects,  the financial  position of
Foamex Asia Company  Limited and its subsidiary as at December 31, 2001, and the
results  of its  operations  and its cash  flows  for the year  then  ended,  in
conformity with generally accepted accounting principles in Thailand.

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

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




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


                                      F-71
<PAGE>

                   FOAMEX ASIA COMPANY LIMITED AND SUBSIDIARY
                           CONSOLIDATED BALANCE SHEET
                             AS AT DECEMBER 31, 2001
                                (Amounts in BAHT)

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

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

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

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

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

LIABILITIES AND SHAREHOLDERS' EQUITY

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

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

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

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

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

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

PREMIUM ON SHARE CAPITAL                                                                       18,990,504

CURRENCY TRANSLATION DIFFERENCES                                                                6,546,185

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

TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY                                                    983,933,450
                                                                                              ===========
</TABLE>

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


                                      F-72
<PAGE>



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

<TABLE>
<CAPTION>
REVENUES
<S>                                                                                        <C>
   Sales                                                                                   1,461,757,023
   Other income                                                                               25,175,124
                                                                                           -------------
     Total Revenues                                                                        1,486,932,147
                                                                                           -------------

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

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

BASIC EARNINGS PER SHARE                                                                           24.31

WEIGHTED AVERAGE NUMBER OF ORDINARY SHARES                                                     5,859,721
                                                                                           =============
</TABLE>

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


                                      F-73
<PAGE>


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


<TABLE>
<CAPTION>
ISSUED AND PAID-UP SHARE CAPITAL
<S>                                                                                           <C>
   Beginning balance                                                                          54,087,120
   Addition                                                                                   50,912,880
                                                                                             -----------
   Ending balance                                                                            105,000,000
                                                                                             -----------

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

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

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

TOTAL SHAREHOLDERS' EQUITY                                                                   237,062,405
                                                                                             ===========
</TABLE>

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


                                      F-74
<PAGE>


                   FOAMEX ASIA COMPANY LIMITED AND SUBSIDIARY
                      CONSOLIDATED STATEMENT OF CASH FLOWS
                      FOR THE YEAR ENDED DECEMBER 31, 2001
                                (Amounts in BAHT)

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

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

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

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

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

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

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

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

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

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

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


                                      F-75
<PAGE>


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

1.   ECONOMIC TURMOIL IN THE ASIA-PACIFIC REGION

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

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

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

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

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

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


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

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

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

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

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

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

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


                                      F-76
<PAGE>

3.   SIGNIFICANT ACCOUNTING POLICIES

     3.1  Cash and cash equivalents

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

     3.2  Allowance for doubtful accounts

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

     3.3  Inventories

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


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

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

     3.4  Plant and equipment

     Plant and equipment are stated at cost less accumulated depreciation.

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

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

     3.5  Impairment of assets

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

     3.6  Foreign currency transactions

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


                                      F-77
<PAGE>


     3.7  Recognition of revenues

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

     3.8  Income tax

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

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

     3.9  Basic earnings per share

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

     3.10 Use of accounting estimates

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

4.   ACCOUNTING CHANGES

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

5.   SUPPLEMENTAL DISCLOSURES OF CASH FLOWS INFORMATION

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

                                                       Baht
     Interest                                       22,609,801
                                                    ==========
     Income tax                                      2,016,304
                                                    ==========

     5.2  Cash and cash equivalents consist of the following:

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

                                      F-78
<PAGE>



6.   CASH IN HAND AND AT BANKS

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

7.   ACCOUNTS RECEIVABLE - NET

     Accounts receivable - net consist of the following:

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

8.   INVENTORIES - NET

     Inventories - net consist of the following:

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

9.   LOANS TO EMPLOYEE AND DIRECTORS

     Loans to employee and directors consist of the following:

                                                              Baht
     Loan to employee                                      2,000,000
     Loans to directors                                   30,955,155
                                                          ----------
                                                          32,955,155

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

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


                                      F-79
<PAGE>


10.  PLANT AND EQUIPMENT - NET

     Plant and equipment - net consist of the following:

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

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

     Plant and equipment - net       125,037,861                                                           157,653,322
                                     ===========                                                           ===========

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

11.  OTHER ASSETS

     Other assets of the following:

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

12.  LOANS FROM BANKS

     Loans from banks consist of the following:

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

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


                                      F-80
<PAGE>


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

13.  LOANS FROM SHAREHOLDERS

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

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

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

14.  OTHER LIABILITIES

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

15.  SHARE CAPITAL

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

16.  COMMITMENTS AND CONTINGENCIES

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

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

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

17.  INVESTMENT PROMOTION PRIVILEGES

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

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


                                      F-81
<PAGE>


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

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

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

     Accounting for Income Taxes

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

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

     Reporting Comprehensive Income

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

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

19.  RECONCILIATION  BETWEEN NET INCOME AND SHAREHOLDERS' EQUITY UNDER THAI GAAP
     AND U.S. GAAP

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


     Diluted Earnings Per Share                                                           24.09
     Weight average number of shares

       Diluted                                                                        5,859,721


                                      F-82
<PAGE>

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

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

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

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

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

20.  ADDITIONAL FINANCIAL STATEMENT DISCLOSURES REQUIRED UNDER U.S. GAAP

     20.1 Income Taxes

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

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

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

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

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

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


                                      F-83
<PAGE>



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

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

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

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

     20.2 Transactions with Related Parties

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

          Significant balances and transactions are as follows:

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

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

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

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

       20.3       Estimated Fair Values of Financial Instruments

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


                                      F-84
<PAGE>

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

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

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

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

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

21.  SUBSEQUENT EVENTS

     21.1 New Credit Facility

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

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

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

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


                                      F-85
<PAGE>


     21.2 Thailand Plant Fire

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

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


                                      F-86
<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,
                                                                                  2003                 2002
                                                                              ------------         -------------
ASSETS                                                                          (thousands, except share data)
CURRENT ASSETS
<S>                                                                             <C>                  <C>
    Cash and cash equivalents                                                   $      -             $    158
    Intercompany receivables                                                         141                1,093
    Deferred taxes                                                                15,676               21,011
                                                                                --------             --------
            Total current assets                                                  15,817               22,262

DEFERRED INCOME TAXES                                                            109,243               97,122
                                                                                --------             --------


TOTAL ASSETS                                                                    $125,060             $119,384
                                                                                ========             ========

LIABILITIES AND STOCKHOLDERS' DEFICIENCY
CURRENT LIABILITIES
    Accounts payable                                                            $      9             $      6
    Other accrued liabilities                                                      3,051                3,170
                                                                                --------             --------
      Total current liabilities                                                    3,060                3,176

LONG-TERM LIABILITIES
    Deficit in consolidated subsidiaries                                         325,116              305,941
                                                                                --------             --------
      Total liabilities                                                          328,176              309,117
                                                                                --------             --------

COMMITMENTS AND CONTINGENCIES

STOCKHOLDERS' DEFICIENCY
    Preferred Stock, par value $1.00 per share:
      Authorized 5,000,000 shares
      Issued 15,000 shares - Series B in 2003 and 2002                                15                   15
    Common Stock, par value $.01 per share:
      Authorized 50,000,000 shares
      Issued 27,898,149 shares in 2003 and 27,839,658 shares in 2002;
      Outstanding 24,409,149 shares in 2003 and 24,350,658 shares in 2002            279                  278
    Additional paid-in capital                                                   102,155              101,972
    Accumulated deficit                                                         (237,732)            (216,243)
    Accumulated other comprehensive loss                                         (30,832)             (38,754)
    Other:
      Common Stock held in treasury, at cost:
        3,489,000 shares in 2003 and 2002                                        (27,780)             (27,780)
      Shareholder note receivable                                                 (9,221)              (9,221)
                                                                                --------            ----------

    Total stockholders' deficit                                                 (203,116)            (189,733)
                                                                                --------             --------

      TOTAL LIABILITIES AND STOCKHOLDERS' DEFICIENCY                            $125,060             $119,384
                                                                                ========             ========
</TABLE>

                 See notes to consolidated financial statements,
                             beginning on Page F-8.
                                   (continued)


                                      S-2
<PAGE>

                                                                     Schedule I

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

<TABLE>
<CAPTION>
                                                                2003              2002             2001
                                                              ---------       ------------     ------------
                                                              (amounts in thousands except per share amounts)
<S>                                                           <C>              <C>                <C>
SELLING, GENERAL AND
    ADMINISTRATIVE EXPENSES                                   $  1,574         $    418           $ 1,254
                                                              --------         --------           -------

LOSS FROM OPERATIONS                                            (1,574)            (418)           (1,254)

EQUITY IN EARNINGS (LOSS) OF
    CONSOLIDATED SUBSIDIARIES                                  (27,416)         (27,208)           (2,261)

INTEREST EXPENSE                                                     -               33               343
                                                              --------         --------           -------

LOSS BEFORE PROVISION (BENEFIT) FOR
    INCOME TAXES AND CUMULATIVE EFFECT
    OF ACCOUNTING CHANGES                                      (28,990)         (27,659)           (3,858)

PROVISION (BENEFIT) FOR INCOME TAXES                            (7,501)         (88,607)            1,754
                                                              --------         --------           -------

INCOME (LOSS) BEFORE CUMULATIVE EFFECT OF
    ACCOUNTING CHANGES                                         (21,489)          60,948            (5,612)

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

NET LOSS                                                      $(21,489)        $ (9,699)          $(5,612)
                                                              ========          =======           =======

EARNINGS PER SHARE - BASIC

   INCOME (LOSS) BEFORE CUMULATIVE EFFECT
    OF ACCOUNTING CHANGES                                     $  (0.88)        $   2.51           $ (0.24)
   CUMULATIVE EFFECT OF ACCOUNTING CHANGES                           -            (2.91)                -
                                                              --------         --------           -------
   NET LOSS                                                   $  (0.88)        $  (0.40)          $  0.24)
                                                              ========         ========           =======

EARNINGS PER SHARE - DILUTED
   INCOME (LOSS) BEFORE CUMULATIVE EFFECT
     OF ACCOUNTING CHANGES                                    $  (0.88)        $   2.39           $ (0.24)
   CUMULATIVE EFFECT OF ACCOUNTING CHANGES                           -            (2.69)                -
                                                              --------         --------           -------
   NET LOSS                                                   $  (0.88)        $  (0.37)          $ (0.24)
                                                              ========         ========           =======
</TABLE>

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

                 See notes to consolidated financial statements,
                             beginning on Page F-8.
                                   (continued)


                                      S-3
<PAGE>

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

<TABLE>
<CAPTION>
                                                                2003               2002                2001
                                                            ------------       ------------        ------------
OPERATING ACTIVITIES                                                           (thousands)
<S>                                                           <C>                 <C>                 <C>
    Net loss                                                  $(21,489)           $ (9,699)           $(5,612)
    Adjustments to reconcile net loss to
      net cash used for operating activities:
      Deferred income taxes                                     (7,509)            (90,681)               567
      Equity in losses of consolidated subsidiaries             27,416              24,413              2,261
      Cumulative effect of accounting changes                        -              70,647                  -
      Other                                                        180               2,012                319
    Changes in operating assets and liabilities:
      Intercompany receivables                                     952                (377)              (408)
      Accounts payable                                               3                 (90)                46
      Other assets and liabilities                                (164)              2,968                536
                                                              --------            --------            -------
         Net cash used for operating activities                   (611)               (807)            (2,291)
                                                              --------            --------            -------

INVESTING ACTIVITIES
    Distribution from (to) subsidiaries                            513                (105)             3,861
    Other                                                            -                   -                  -
                                                              --------            --------            -------
    Net cash provided by (used for) investing activities           513                (105)             3,861
                                                              --------            --------            -------

FINANCING ACTIVITIES
    Repayments of note payable to consolidated
      subsidiary                                                     -              (2,490)            (2,500)
    Proceeds from exercise of stock options                          -               3,494                917
    Increase (decrease) in cash overdraft                          (60)                 64                  -
                                                              --------            --------            -------
         Net cash  provided by (used for) financing activities     (60)              1,068             (1,583)
                                                              --------            --------            -------

NET INCREASE (DECREASE) IN CASH AND
    CASH EQUIVALENTS                                              (158)                156                (13)

CASH AND CASH EQUIVALENTS AT
    BEGINNING OF PERIOD                                            158                   2                 15
                                                              --------            --------            -------

CASH AND CASH EQUIVALENTS AT
    END OF PERIOD                                             $      -            $    158            $     2
                                                              ========            ========            =======
</TABLE>


Note: During  2001, the  Company  received  a  special   distribution  from  its
      subsidiaries of $3.7 million. The proceeds were used to repay the note and
      interest payable to Foamex L.P.


                 See notes to consolidated financial statements,
                             beginning on Page F-8.


                                      S-4
<PAGE>



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

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

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

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


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

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


YEAR ENDED DECEMBER 31, 2001
Allowance for Uncollectible Accounts          $  7,693        $ 5,479       $    88         $ 4,540          $ 8,720
                                              ========        =======       =======         =======          =======

Reserve for Discounts                         $  2,233        $     -       $15,198 (1)     $15,211          $ 2,220
                                              ========        =======       =======         ========         =======
</TABLE>


(1)  Adjustments reflect a reduction in net sales.




                                      S-5
<PAGE>