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 31, 2001

                                       OR

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

                         Commission file number: 0-22624

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

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

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

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

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

Securities registered pursuant to Section 12(g) of the Act:

                                        Common Stock,  par value $.01 per share,
                                        ----------------------------------------
                                        which is  traded  through  the  National
                                        ----------------------------------------
                                        Association of Securities Dealers,  Inc.
                                        ----------------------------------------
                                        National Market System.
                                        -----------------------

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

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

       The aggregate  market value of the voting stock held by  nonaffiliates of
the registrant as of March 4, 2002, was $85.5 million.

       The number of shares  outstanding of the registrant's  common stock as of
March 15, 2002 was 24,173,443.

                       DOCUMENTS INCORPORATED BY REFERENCE

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

<PAGE>
                         FOAMEX INTERNATIONAL INC.

                                   INDEX

<TABLE>
<CAPTION>
                                                                                Page
                                                                                ----
<S>                                                                            <C>
Part I
         Item  1.  Business                                                        3
         Item  2.  Properties                                                      8
         Item  3.  Legal Proceedings                                               8
         Item  4.  Submission of Matters to a Vote of Security Holders            11

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

Part III
         Item 10.  Directors and Executive Officers of the Registrant             29
         Item 11.  Executive Compensation                                         29
         Item 12.  Security Ownership of Certain Beneficial Owners
                        and Management                                            29
         Item 13.  Certain Relationships and Related Transactions                 29

Part IV
         Item 14.  Exhibits, Financial Statement Schedules
                        and Reports on Form 8-K                                   30

         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 31,
2001,  the  Company's   operations  are  conducted   through  its   wholly-owned
subsidiary,  Foamex L.P. and through  Foamex Canada Inc.,  Foamex Latin America,
Inc. and Foamex Asia,  Inc.  which are  subsidiaries  of Foamex L.P. and through
Foamex Carpet Cushion, Inc. ("Foamex Carpet").  Foamex Carpet was converted into
a limited  liability  company  and was  contributed  to Foamex L.P. on March 25,
2002.  The  Company  was  incorporated  in 1993 to act as a holding  company for
Foamex L.P.

Segments

       We are the largest manufacturer and distributor of flexible  polyurethane
and advanced  polymer foam products in North America.  We have been  developing,
manufacturing  and marketing  polyurethane  foam for more than 44 years. 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 diverse  customer  base. 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 the VPF(SM)  manufacturing  process.  We also have
introduced high efficiency  thermal management foam products for applications in
work gloves and outerwear.

       Carpet Cushion Products

       We manufacture Carpet Cushion Products, which include rebond, prime, felt
and rubber carpet padding.  Prime carpet padding is made from  polyurethane foam
buns.  Rebond carpet  padding is made from various types of scrap foam which are
shredded into small pieces, processed and then bonded using a chemical adhesive.
Rebond  manufacturing  requires  the  management  of a  comprehensive  recycling
business that includes an extensive  collection  network from the automotive and
foam industries on a worldwide basis.

                                       3

<PAGE>

       Automotive Products

       We are one of the largest  suppliers of automotive  foam products for the
North  American  operations  of  original  equipment  manufacturers,  or "OEMs."
Depending on the automotive manufacturer and/or the application, automotive foam
products are supplied by us either directly to the  manufacturers  or indirectly
through tier one suppliers. Automotive Products include foam for trim pads, door
panel parts, headliners and for acoustical purposes. Products also include flame
and  adhesive  laminates  and rolls for  tri-lamination.  Tri-laminated  foam is
applied to automotive  fabrics to form a foam/fabric  composite  that results in
cost savings and aesthetic value for the automotive manufacturer.

       Domestic automotive  manufacturers have narrowed their supply base during
recent years and increased the percentage  and dollar amount of components  that
they purchase from outside suppliers. As a result, a smaller number of companies
are supplying an increasing  percentage of automotive foam products.  Automotive
suppliers are increasingly  offering  integrated systems which lower the overall
cost  and  improve  quality  relative  to  previous  sourcing  methods  in which
individually  sourced  components  were  assembled  and installed by the OEMs. A
continuing  focus  on  new  product   development  and  flexible   manufacturing
capabilities are essential to satisfy changing specifications.

       Examples  of our  ability  to react  to  changing  industry  requirements
include our development of thermoformable  headliners,  tri-laminates,  advanced
cutting  technology and energy absorbing foams. For example,  we have introduced
SMT(R),  which is used to sculpture  the surface of foam,  and CPC(R),  which is
used for vehicle flooring systems.  Also, the use of tri-laminates has increased
due to the manufacturers'  need for significant cost savings and consumer demand
for improved  aesthetics.  We intend to increase our production and distribution
of foam and fabric  components,  such as  tri-laminated  material for automotive
seating.

       Automotive   manufacturers  are  increasingly  requiring  the  production
facilities of their  suppliers to meet certain high quality  standards.  We have
achieved  and expect to maintain  the highest  quality  ratings  awarded to foam
suppliers by automotive  manufacturers.  In addition,  all tier one and tier two
automotive supplier facilities worldwide will eventually be required to meet the
QS-9000  quality  manufacturing  standards set by the United  States  automotive
manufacturers. We were one of the first polyurethane manufacturers to be QS-9000
certified,  which  demonstrates  our commitment to producing the highest quality
products  and  meeting  the  needs of our  customers.  We are both  QS-9000  and
ISO-9001 certified at all of our facilities that supply the automotive industry.

       Technical Products

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

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

       We use  advertising  in  trade  journals  and  related  media in order to
attract  customers  and,  more  generally,  to  increase  an  awareness  of  our
capabilities for Technical Products. In addition,  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.

                                       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

       We  sell  Foam   Products   directly  to  major   bedding  and  furniture
manufacturers  such as Sealy,  Simmons and Berkline 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, such as Wal-Mart, Target, J.C. Penney and Bed Bath &
Beyond. Our foam-based consumer products sales efforts are primarily  regionally
based. The key strategic  elements  supporting growth in these areas are a focus
on marketing and sales efforts, high quality,  cost-competitive products and low
freight costs through  optimal plant  location.  Plant locations are critical in
this regionalized  business where the transportation  cost typically comprises a
significant portion of product cost.

       Carpet Cushion Products sells carpet padding to distributors and to major
floor covering retail chains,  such as Home Depot and Carpet One. A key focus in
2001 was increased marketing efforts to commercial product lines.

       We have been a leading supplier of automotive products to OEMs, including
DaimlerChrysler,  for more than 30 years.  We are also the  primary  supplier of
automotive  products to certain tier one suppliers,  including  Johnson Controls
and Lear  Corporation.  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.

       Our Technical Products are used for filtration and reservoiring in a wide
variety of  applications  by  companies,  such as  Hewlett-Packard,  Lexmark and
Briggs & Stratton. We market most of our Technical Products through a network of
independent  fabrication and distribution companies in North America, the United
Kingdom and South Korea. These fabricators or distributors often further process
or finish  Technical  Products  to meet the  specific  needs of end  users.  Our
specialty  and  technical  foams service  unique end user  requirements  and are
generally sold at relatively high margins.  This business is  characterized by a
diversity and complexity of both customers and applications.

International Operations

       Our international  operations are located in Canada,  Mexico and Asia. We
operate  four  manufacturing  facilities  in Canada to service  our  bedding and
automotive  customers and have seven facilities in Mexico serving the automotive
and cushioning industries.  Six 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
cushioning customers.

       The Company  participates in a joint venture with fabrication  facilities
in Singapore and Thailand.  In December  2001, we increased our  non-controlling
equity  interest  holding in the joint  venture to 70%.  Our income  from equity
interest in the joint  venture was $1.6  million,  $1.7 million and $0.5 million
for the years ended December 31, 2001,  2000 and 1999,  respectively.  The joint
venture expects to install its first pourline during 2002. This pourline,  which
will be entirely  financed by the joint venture entity (on a non-recourse  basis
to the  Company)  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., 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 s.a.

                                       5

<PAGE>

Major Customers

       Sales to Johnson  Controls,  which are included in  Automotive  Products,
accounted for  approximately  15.7% of net sales in 2001,  12.3% of net sales in
2000 and 11.5% of net sales in 1999. No other  unaffiliated  customer  accounted
for more than  10.0% of net sales  during any of the past  three  years.  During
2001, net sales to our five largest  customers  comprised  approximately  $438.2
million,  or 35.0%,  of net sales.  The loss of any one of these customers could
have a material adverse effect on our business.

Manufacturing and Raw Materials

       As of December 31, 2001, we conducted our operations at 62  manufacturing
and  distribution  facilities with a total of  approximately  8.7 million square
feet of  floor  space.  We  believe  that  our  manufacturing  and  distribution
facilities  are  well  suited  for  their  intended  purposes  and  are in  good
condition.  The  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.

       We have identified four  non-VPF(SM)  foam pouring  operations,  six foam
fabrication  operations,  six rebond  carpet  padding  operations  and one fiber
operation  to be closed  during  2002.  In many  cases,  the  volume  from these
facilities will be absorbed by our other existing facilities in order to improve
capacity  utilization.  In  some,  but not all  instances,  our  other  existing
facilities  will have to be upgraded to absorb the  transferred  volume.  We may
lose some revenue due to closing these operations.

       Our fabrication  process  involves  cutting foam buns into various shapes
and sizes to meet customer specifications.  Fabricated foam is sold to customers
and is utilized by us to produce our foam-based  consumer products.  Scrap foam,
generated in connection with the fabrication of foam products,  is used by us 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.  A
disruption  in our  ability to obtain TDI and/or  polyol  that  continues  for a
significant  period of time would 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 and oil prices.  Some of our suppliers of TDI and polyol
have  informed  us that  they  intend  to seek to raise  prices in the first six
months of 2002.  We attempt  to offset  raw  material  price  increases  through
selling  price  increases;  however,  there can be no assurance  that we will be
successful in implementing  selling price increases or that competitive  pricing
pressure will not require us to adjust selling prices.

       A key raw material  used in the  manufacture  of 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.

       We recently  discovered that some mattresses  containing foam supplied by
us had a discernible  odor.  The cause of the odor was traced to chemicals  from
one supplier used in the  manufacture of the foam.  This supplier has advised us
that  the odor  was  attributable  to a  change  in its  chemical  manufacturing
process,  which has since been  corrected.  We have received claims from some of
our customers for costs  purportedly  associated  with the odorous foam,  and we
have reached  agreement with this chemical  supplier  regarding the terms of and
manner in which the supplier will  reimburse us for certain  obligations  we may
have to our customers  relating to these  claims,  as well as for certain of our
internal costs.  Under this agreement,  this supplier will pay us a fixed sum in
exchange for eliminating certain future claims we may have against this supplier
and  obligates us to  indemnify  this  supplier  for certain  claims that may be
brought

                                       6

<PAGE>

against it by others,  including our  customers.  The ultimate  amounts of these
third party claims and the amount of our own internal  costs are  uncertain.  We
cannot be certain  that this  supplier's  payments to us will be  sufficient  to
cover all payments  that we may be required to make to third  parties in respect
to  their  claims,  to  cover  all of our  related  internal  costs  or that our
indemnification obligations to this supplier will not be material.

Employees

       As of  December  31,  2001,  we  employed  approximately  6,100  persons.
Approximately 1,850 of these employees are located outside the United States and
approximately  2,200 employees are covered by collective  bargaining  agreements
with labor  unions.  These  agreements  expire on various dates through 2004. We
consider relations with our employees to be good.

       To reduce  administrative  costs throughout our operations,  we expect to
eliminate  100  salaried  positions  during 2002,  mainly in support  functions,
including information technology, finance, quality, engineering, maintenance and
customer service. In connection with this reduction, we are centralizing some of
our support  functions,  including human  resources,  environmental,  health and
safety,  quality,  purchasing  and  customer  service.  As of March 1, 2002,  79
salaried  positions,  mostly  in  corporate  and  support  functions,  have been
eliminated.

Competition

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

Patents and Trademarks

       We own various patents and trademarks registered in the United States and
in numerous  foreign  countries.  The  registered  processes  and products  were
developed  through  ongoing  research  and  development  activities  to  improve
quality, reduce costs and expand markets through development of new applications
for  flexible  polyurethane  foam  products.  While we consider  our patents and
trademarks  to be a  valuable  asset,  we do not  believe  that our  competitive
position is dependent 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 $3.1  million for 2001,  $2.5 million for 2000 and $3.3
million for 1999.

       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.  The
Company,  Recticel  and their  affiliates  have a  royalty-free  license  to use
technology  developed by the Swiss  corporation.  The Company and Recticel  have
exchanged  know-how,  trade  secrets,   engineering  and  other  data,  designs,
specifications, chemical formulations, technical information, market information
and drawings which are necessary or useful for the  manufacture,  use or sale of
foam products. We anticipate that we will continue to do so in the future.

Forward-Looking Information

       The Private  Securities  Litigation  Reform Act of 1995  provides a "safe
harbor"  for  forward-looking   statements  so  long  as  those  statements  are
identified as  forward-looking  and are  accompanied  by  meaningful  cautionary
statements  identifying  important  factors that could cause  actual  results to
differ  materially from those projected in such  statements.  In connection with
certain forward-looking  statements contained in this Annual Report on Form 10-K

                                       7

<PAGE>

and those  that may be made in the future by or on behalf of the  Company  which
are  identified  as  forward-looking,  the Company  notes that there are various
factors  that could cause  actual  results to differ  materially  from those set
forth in any such forward-looking  statements,  such as 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, the Company's  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 the control of the Company.

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

ITEM 2.  PROPERTIES

       As of December 31, 2001, we conducted our operations at 62  manufacturing
and  distribution  facilities.  Total  floor  space  in  use  at  our  16  owned
manufacturing  and distribution  facilities is approximately  3.3 million square
feet  and  total  floor  space  in  use  at  our  46  leased  manufacturing  and
distribution  facilities is approximately 5.4 million square feet.  Fifty-one of
these  facilities are located  throughout 37 cities in the United  States,  four
facilities are located in Canada and seven facilities are located in Mexico.  We
do not  anticipate  any  problem  in  renewing  or  replacing  any of the leases
expiring in 2002. In addition,  we have approximately 1.3 million square feet of
idle space of which approximately 0.8 million is leased.

       The Company maintains its administrative office in Linwood, Pennsylvania.

       Property  information by business segment is not reported because many of
the Company's facilities produce products for multiple business segments.

ITEM 3.  LEGAL PROCEEDINGS

Litigation - Foamex International Shareholders

       The Company has reached agreements with the plaintiffs in the stockholder
actions  described  below  providing for the  settlement  and dismissal of these
actions.  Court approval of these  settlements  has been obtained  although such
approval may be appealed.

       The  Shareholder  Litigation.  Beginning on March 17, 1998,  six actions,
which  were   subsequently   consolidated   under  the   caption  In  re  Foamex
International Inc. Shareholders Litigation,  were filed in the Court of Chancery
of the State of Delaware, and on August 13, 1999, another action,  Watchung Road
Associates,  L.P., et al. v. Foamex  International  Inc., et al. (the  "Watchung
Action"),  was filed in the same court. The two actions were consolidated on May
3, 2000, into a single action under the caption In re Foamex  International Inc.
Shareholders   Litigation  (the  "Delaware  Action").  The  Delaware  Action,  a
purported  derivative  and  class  action  on  behalf  of the  Company  and  its
stockholders, originally named as defendants the Company, certain of its current
and former directors and officers,  Trace International  Holdings,  Inc. ("Trace
International"),  the principal  stockholder  of the Company at the time,  and a

                                       8

<PAGE>

Trace  International  affiliate.  The complaint in the Delaware  Action alleged,
among other things,  that certain of the  defendants  breached  their  fiduciary
duties to the Company in connection  with an attempt by Trace  International  to
acquire the Company's  publicly  traded common stock as well as with a potential
acquisition  transaction with a group led by Sorgenti  Chemical  Industries LLC,
and that certain of the defendants  breached their  fiduciary  duties by causing
the Company to waste assets in connection with a variety of transactions entered
into with Trace  International  and its  affiliates.  The Delaware Action sought
various remedies, including injunctive relief, money damages and the appointment
of a receiver for the Company.

       On April 26, 1999, a putative securities class action entitled Molitor v.
Foamex International Inc., et al., was filed in the United States District Court
for the Southern  District of New York naming as defendants  the Company,  Trace
International  and certain  current  and former  directors  and  officers of the
Company,  on behalf of  stockholders  who bought shares of the Company's  common
stock during the period from May 7, 1998 through and  including  April 16, 1999.
The lawsuit alleged that the defendants violated Section 10(b) of the Securities
Exchange Act of 1934 and Rule 10b-5 by misrepresenting  and/or omitting material
information  about the Company's  financial  situation and operations,  with the
result of artificially  inflating the price of the Company's  stock. The lawsuit
also alleged that Trace International and Marshall S. Cogan, the chairman of the
Company,  violated  Section  20(a)  of the  Securities  Exchange  Act of 1934 as
controlling persons of the Company. The complaint sought class certification,  a
declaration that the defendants  violated the federal  securities laws, an award
of money damages,  and costs and attorneys',  accountants' and experts' fees. On
May 18, 1999, a similar action entitled Thomas W. Riley v. Foamex  International
Inc., et al., was filed in the same court. The two actions were consolidated and
a consolidated  complaint was filed.  We refer to the  consolidated  suit as the
"Federal Action."

       The  Settlements.  On August 23, 2000,  the Company and the plaintiffs in
the Federal Action entered into a settlement agreement providing that members of
the class of shareholders who purchased shares between May 7, 1998 and April 16,
1999 would receive payments as defined in the agreement.  The court approved the
settlement  and dismissed the action with  prejudice on January 11, 2001, and no
appeals were filed.  Payments to class members and plaintiffs'  lawyers' fees in
the Federal Action have been paid directly by the Company's insurance carrier on
behalf of the Company.

       Under the terms of the stipulation of settlement  related to the Delaware
Action (which was approved by the Delaware Court on March 20, 2002), the Company
agreed  that a special  nominating  committee  of its Board of  Directors  would
nominate two additional  independent  directors to serve on the Board. The terms
of the  agreement  also  established  the criteria for the  independence  of the
directors and required that certain  transactions with affiliates be approved by
a majority of the  disinterested  members of the Board.  On January 9, 2001, the
Court ordered the Watchung Action  dismissed with prejudice only as to the named
plaintiffs   Watchung  Road   Associates,   L.P.  and  Pyramid  Trading  Limited
Partnership. The dismissal did not have any effect on the claims asserted in the
consolidated action.

       The  settlement  of  the  Delaware   Action   resolved  all   outstanding
shareholder  litigation against the Company and its current and former directors
and officers.  In early January 2002, two  shareholders  filed objections to the
settlement.  The  settlement  hearing was held on February 13, 2002, but was not
concluded.  On March 20, 2002,  the  Delaware  Court  concluded  the hearing and
approved  the  settlement.  Approval  of the  settlement  may be appealed by the
objectors. The settlements of the Federal Action and the Delaware Action involve
no  admissions  or findings of  liability  or  wrongdoing  by the Company or any
individuals.

Litigation - Breast Implants

       As of February 28, 2002, we and Trace  International were two of multiple
defendants  in actions  filed on behalf of  approximately  1,725  recipients  of
breast  implants  in various  United  States  federal  and state  courts and one
Canadian provincial court, some of which allege substantial damages, but most of
which allege  unspecified  damages for personal injuries of various types. Three
of these cases seek to allege claims on behalf of all breast implant  recipients
or other allegedly affected parties, but no class has been approved or certified
by the court.  During 1995,  we and Trace  International  were  granted  summary
judgments and dismissed as  defendants  from all cases in the federal  courts of
the  United  States  and the  state  courts  of  California.  Appeals  for these
decisions were withdrawn and the decisions are final.

                                       9

<PAGE>

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

Litigation - Other

       During the  second  quarter  of 2001,  the  Company  was  notified  by an
insurance provider concerning a dispute involving the reimbursement of liability
claims paid on behalf of Trace International before 1990. The insurance provider
is  contending  that the  Company  is liable for  claims of  approximately  $3.0
million.  The Company  intends to strongly  defend this claim and  considers the
claim to be without merit. If management's assessment of the Company's liability
relating to these  actions is  incorrect,  these  actions  could have a material
adverse effect on the financial  position,  results of operations and cash flows
of the Company.

       We are party to various other lawsuits,  both as defendant and plaintiff,
arising in the normal course of business.  It is the opinion of management  that
the  disposition of these lawsuits will not,  individually  or in the aggregate,
have a  material  adverse  effect  on  our  financial  position  or  results  of
operations.  If  management's  assessment  of our  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.

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 31, 2001, we had accruals of approximately $3.0 million
for environmental matters.

       The Clean Air Act Amendments of 1990 ("1990 CAA Amendments")  provide for
the  establishment  of federal  emission  standards for hazardous air pollutants
including  methylene  chloride,  propylene  oxide and TDI, which are used in the
manufacturing  of foam. The final National  Emission  Standard for Hazardous Air
Pollutants,   or  "NESHAP,"  for  flexible   polyurethane  foam  production  was
promulgated on October 7, 1998. The NESHAP required a reduction of approximately
70% of the  emission  of  methylene  chloride  for the slab stock foam  industry
effective  October  7,  2001.  Through  the  use  of  alternative  technologies,
including  VPF(SM) and carbon  dioxide,  and by shifting  current  production to
facilities  which  use these  alternative  technologies,  we are in  substantial
compliance  with  these  regulations.  On  August 8,  2001,  the  United  States
Environmental  Protection  Agency,  or "EPA,"  proposed  a NESHAP  for  Flexible
Polyurethane  Foam  Fabrication   Operations.   The  proposed  NESHAP  regulates
emissions of methylene chloride and other Hazardous Air Pollutants and restricts
air emissions from flame lamination  sources.  The Company does not believe that
this standard, if adopted, will require us to make material expenditures.

       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

                                       10

<PAGE>

remediation. Accordingly, the extent of contamination and the ultimate liability
is not known with  certainty  for all sites.  As of December  31,  2001,  we had
accruals  of $2.5  million  for the  estimated  cost of  remediation,  including
professional fees and monitoring costs, for these sites. During 2000, we reached
an indemnification agreement with the former owner of the Morristown,  Tennessee
facility.  The  agreement  allocates the incurred and future  remediation  costs
between the former owner and us. The  estimated  allocation  of future costs for
the  remediation  of this  facility is not  significant,  based on current known
information.  The former owner was Recticel  Foam  Corporation,  a subsidiary of
Recticel.

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

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

       In 2002,  capital  expenditures for safety and  environmental  compliance
projects  are  anticipated  to be  approximately  $2.0  million.  Although it is
possible that new information or future  developments  could require the Company
to  reassess  the  potential  exposure  relating  to all  pending  environmental
matters,  including those described above,  management believes that, based upon
all currently  available  information,  the  resolution  of these  environmental
matters will not have a material  adverse  effect on 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

       The Company's common stock is traded through the National  Association of
Securities Dealers,  Inc. National Market System (the "NASDAQ") under the symbol
"FMXI".
       The following table sets forth the high and low bid prices for the common
stock.

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

                                       11

<PAGE>

                                                      High               Low
                                                      ----               ---
       2000
       Quarter Ended March 31                        $10.38            $ 7.00
       Quarter Ended June 30                         $ 9.50            $ 4.19
       Quarter Ended September 30                    $ 7.03            $ 5.56
       Quarter Ended December 31                     $ 6.50            $ 4.59

       As of December 31,  2001,  there were 144 holders of record of the common
stock.

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

ITEM 6.  SELECTED CONSOLIDATED FINANCIAL DATA

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

<TABLE>
<CAPTION>
                                                                               Fiscal Year (1)
                                                ----------------------------------------------------------------------------
                                                   2001 (2)         2000            1999            1998          1997 (6)
                                                   --------         ----            ----            ----          --------
                                                          (thousands, except for earnings per share)
<S>                                             <C>             <C>             <C>             <C>             <C>
Statements of Operations Data
   Net sales                                    $ 1,252,904     $ 1,257,778     $ 1,294,639     $ 1,260,559     $   945,519
   Income (loss) from continuing
     operations (3)(4)                          $    (5,612)    $    17,013     $    19,716     $   (69,853)    $     4,131
   Basic earnings (loss) per share from
     continuing operations                      $     (0.24)    $      0.69     $      0.79     $     (2.79)    $      0.16
   Diluted earnings (loss) per share from
continuing operations                           $     (0.24)    $      0.67     $      0.78     $     (2.79)    $      0.16

Balance Sheet Data
   Total assets                                 $   766,962     $   751,581     $   781,313     $   874,965     $   893,623
   Long-term debt, classified as current (5)              -               -               -     $   771,092               -
   Long-term debt, excluding current portion    $   648,232     $   687,758     $   725,297     $     8,240     $   735,724
   Stockholders' deficiency                     $  (180,746)    $  (164,669)    $  (166,381)    $  (204,119)    $  (113,419)
Dividends paid                                            -               -               -     $     1,245               -

<FN>
(1)  The Company changed its fiscal year to the calendar year during 1998. Prior
     to the  change,  the  Company had a 52 or 53 week fiscal year ending on the
     Sunday  closest  to the end of the  calendar  year.  The 1997  fiscal  year
     included the 52 weeks ended December 28, 1997.

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

                                       12

<PAGE>


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

         2001 - $36.1 million
         2000 - $6.3 million
         1999 - $10.5 million
         1998 - $(9.7) million
         1997 - $21.1 million

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

(5)  At December 31, 1998, the Company classified  approximately  $771.1 million
     of  long-term  debt as  current,  in response to  financial  conditions  at
     year-end 1998.

(6)  The balance sheet data included the estimated  fair value of the net assets
     acquired in the acquisition of Crain Industries, Inc. in December 1997. The
     income statement data excludes the results of Crain  Industries,  Inc. from
     the  acquisition   date  of  December  23,  1997,   since  the  effect  was
     insignificant.
</FN>
</TABLE>

                                       13

<PAGE>

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

Overview

       The Company  operates in the flexible  polyurethane  and advanced polymer
foam products industry.  As of December 31, 2001, the Company's  operations were
conducted through its wholly-owned  subsidiaries,  Foamex L.P. and Foamex Carpet
Cushion,  Inc.  ("Foamex  Carpet").  As discussed below in the section  entitled
"Refinancing and Corporate  Structure",  after December 31, 2001,  Foamex Carpet
was converted into a Delaware limited  liability  company and on March 25, 2002,
the Company contributed its equity interest in such limited liability company to
Foamex L.P.  Business  segments are listed below and business segment  financial
information is included in Note 14 to the consolidated financial statements.

       An  executive  vice  president  heads  each  of the  Company's  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. 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 - distributes  automotive foam products and laminates
       to major tier one  suppliers  and original  equipment  manufacturers,  or
       "OEMs".

       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).

       The Company's 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.
The Company typically  experiences two seasonally slow periods during each year,
in  early  July and in late  December,  due to  scheduled  plant  shutdowns  and
holidays.

       In July  2001,  the  Company  acquired  certain  assets of  General  Foam
Corporation,  a former  polyurethane  foam  manufacturer  that had operations in
Pennsylvania and New Jersey.

       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.

Fourth Quarter 2001 Developments and 2002 Subsequent Events

Operational Reorganization

       In December 2001,  the Company  launched a  comprehensive  cost reduction
program and revenue growth initiative (the "Operational  Reorganization  Plan").
The Operational Reorganization Plan covers the components outlined below.

                                       14

<PAGE>


       Plant Rationalizations. To capitalize on achieving operating efficiencies
and the  lower  costs of  manufacturing  associated  with our  national  VPF(SM)
capabilities,   the  Company  has  identified  four   non-VPF(SM)  foam  pouring
operations,   six  foam  fabrication  operations,   six  rebond  carpet  padding
operations and one fiber operation to be closed during 2002. In many cases,  the
volume from these  closed  operations  will be  absorbed  by our other  existing
facilities  in order  to  improve  capacity  utilization.  In some,  but not all
instances,  our  other  existing  facilities  will be  upgraded  to  absorb  the
transferred volume. We anticipate some revenue may be lost due to the closing of
these operations.

       Salaried Headcount Reduction.  To reduce  administrative costs throughout
our  operations,  we expect to  eliminate  100 salaried  positions  during 2002,
mainly in support function areas,  including  information  technology,  finance,
quality, engineering,  maintenance and customer service. In connection with this
reduction,  we are centralizing some of our support  functions,  including human
resources,  environmental,  health and safety, quality,  purchasing and customer
service.  As of March 1, 2002,  79 salaried  positions,  mostly in corporate and
support functions, have been eliminated.

       Purchasing and Logistics Cost Reductions. We have implemented programs to
reduce  costs of  manufacturing  and  distribution,  raw  materials  (other than
toluene  diisocyanate and polyol) and logistics services.  We plan to centralize
our  purchasing  function  and  leverage  our scale to  negotiate  new  national
procurement contracts for supplies and services.

       Sales and Marketing Management.  We have implemented a program to analyze
the  profitability  of our customer base, the efficiency of our sales people and
our ability to  effectively  market to potential new  customers.  Our goal is to
rationalize  our customer base and focus our sales and marketing  efforts on our
more profitable customers.

       Customer  Service  Centralization.   To  reduce  costs  and  improve  the
effectiveness  of our customer service  operations,  we have begun to centralize
the operations in line with each of our business  units.  We are focusing on our
key customers and implementing key support technology to further standardize our
customer service process.

       These actions resulted in restructuring,  impairment and other charges of
approximately  $35.4  million  during  the  fourth  quarter  of  2001,  of which
approximately  $18.4  million was  non-cash.  The Company  estimates  that these
activities will result in incremental  income from  operations of  approximately
$20.0  million  and $30.0  million in 2002 and 2003,  respectively.  The Company
anticipates  that the  majority  of the cash  costs  will be  incurred  in 2002.
Including  the salaried  headcount  reduction  discussed  above,  a total of 746
employees are expected to be terminated.

Customer Claims

       During  the fourth  quarter of 2001,  the  Company  discovered  that some
mattresses  containing foam supplied by the Company had a discernible  odor. The
cause  of the  odor was  traced  to  chemicals  from  one  supplier  used in the
manufacture  of the foam. The supplier has advised the Company that the odor was
attributable to a change in its chemical  manufacturing process, which has since
been  corrected.  We have  received  claims from some of our customers for costs
purportedly  associated with the odorous foam and we have reached agreement with
this chemical supplier  regarding the terms of and manner in which this supplier
will reimburse the Company for certain  obligations we may have to our customers
relating to these claims,  as well as for certain of our internal  costs.  Under
this  agreement,  this  supplier  will  pay  us a  fixed  sum  in  exchange  for
eliminating  certain  future claims we may have against this supplier and we are
obligated to  indemnify  this  supplier  for certain  claims that may be brought
against it by others, including the Company's customers. The ultimate amounts of
these third party claims and the amount of our own internal costs are uncertain.
The  Company  cannot be  certain  that this  supplier's  payments  to it will be
sufficient  to  cover  all  payments  that we may be  required  to make to third
parties  in  respect  to their  claims,  to cover all of the  Company's  related
internal  costs  or  that  the  Company's  indemnification  obligations  to this
supplier will not be material.  Consequently,  there can no assurance that these
claims  and costs will not have a material  adverse  effect on our  consolidated
financial position, results of operations and cash flows.

                                       15

<PAGE>

Refinancing and Corporate Structure

       On March 25, 2002,  Foamex L.P.  and Foamex  Capital  Corporation  issued
$300.0  million of 10 3/4% Senior  Secured  Notes due 2009 (the "Senior  Secured
Notes"),  and amended the Foamex  L.P.  Credit  Facility  (the  "Amended  Credit
Facility") to provide for $162.2  million of term loans,  with maturity dates of
June 30, 2005 through  December 29, 2006, and a $100.0 million  revolving credit
facility  that matures on June 30, 2005.  Net proceeds  from the Senior  Secured
Notes of $280.0 million were used to pay a portion of the debt outstanding under
the Foamex L.P.  Credit  Facility.  The  initial  proceeds of two new term loans
under the  Amended  Credit  Facility  were used to repay a note  payable to Foam
Funding LLC (a related party) and debt outstanding  under the Foamex L.P. Credit
Facility.  Additionally,  the financial debt covenants  contained in the Amended
Credit Facility were adjusted to reflect changes in the capital  structure,  and
the current business  environment at the Company.  Under the covenants contained
in the Senior  Secured Notes  Indenture  and the Amended  Credit  Facility,  the
Company may spend up to $48.5  million of the proceeds  from the Senior  Secured
Notes to  repurchase  or redeem some of its senior  subordinated  notes.  To the
extent that the Company spends less than $48.5 million  towards such  repurchase
or  redemption  by September  20, 2002, it is required to repay a portion of its
term loans.

       In connection  with the  refinancing  transaction  discussed  above,  the
Company simplified its corporate structure, by changing the incorporation status
of Foamex Carpet Cushion,  Inc., a wholly-owned  subsidiary of the Company, to a
limited liability company, Foamex Carpet Cushion LLC, which was then contributed
to Foamex L.P.

Critical Accounting Policies

       We  prepared  the  consolidated  financial  statements  of the Company 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.  The  Company's  significant
accounting policies are fully discussed in Note 2 to the consolidated  financial
statements.  The significant  accounting  policies which we believe are the most
critical to aid in fully  understanding  and evaluating  our reported  financial
results include the following:

       Account Receivable and Allowance for Uncollectible Accounts

       The Company  actively  monitors  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 the  Company's  larger  customers  could have a material  adverse
impact on future results.

       Long-Lived Assets

       The Company has a significant investment in long-lived assets; consisting
primarily of property,  plant and equipment,  and intangible assets representing
the cost in excess of net assets  acquired  (goodwill)  and  deferred  financing
costs.  Impairment  losses are  recognized  when events  indicate  that  certain
long-lived  assets  may be  impaired  and a  projection  of  future  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 material
adverse impact on future  results.  See the section below  entitled  "Accounting
Changes" for a discussion on the impact of new accounting statements.

       Deferred Income Taxes

       The  Company  has 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 of the Company and the realization of the
related  asset must be  continually  evaluated.  Accordingly,  the  Company  has
established  a  valuation   allowance   for  all  Federal  net  operating   loss

                                       16

<PAGE>

carryforwards  available as of December 31, 2001.  In  establishing  a valuation
allowance,  the  Company  is  required  to  evaluate  existing  tax  attributes,
projections of future taxable  income and tax planning  strategies  available to
determine the probability that the Federal net operating loss carryforwards will
be utilized in the future. If the Company determines that it is more likely than
not that the Federal net operating losses will be utilized in future years, then
reported  results in that period will benefit from the reversal of a portion of,
or the entire valuation  allowance.  As a result,  the effective tax rate of the
Company will increase  following any  reversal.  See the section below  entitled
"Income Tax Expense" for additional information.


       Environmental Remediation

       The Company has 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 results. See the section below entitled "Environmental Health and Safety"
for additional information.

RESULTS OF OPERATIONS

<TABLE>
<CAPTION>
                                                    Carpet
                                      Foam         Cushion      Automotive       Technical
                                    Products       Products       Products        Products        Other         Total
                                    --------       --------       --------        --------        -----         -----
2001                                                           (dollars in thousands)
<S>                                <C>            <C>             <C>            <C>            <C>            <C>
Net sales                          $  499,668     $  230,965      $  377,753     $  111,043     $   33,475     $1,252,904
Income (loss) from operations      $   66,312     $   (6,831)     $   21,187     $   22,884     $  (40,079)    $   63,473
Depreciation and amortization      $   15,732     $    8,181      $    4,991     $    3,312     $    1,772     $   33,988
Income (loss) from operations
   as a percentage of net sales          13.3%          (3.0)%           5.6%          20.6%       n.m.(a)            5.1%

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

1999
Net sales                          $  527,159     $  285,846      $  361,806     $   92,180     $   27,648     $1,294,639
Income (loss) from operations      $   57,028     $    8,512      $   22,547     $   22,588     $  (17,617)    $   93,058
Depreciation and amortization      $   17,432     $    8,096      $    4,823     $    2,724     $    2,675     $   35,750
Income (loss) from operations
   as a percentage of net sales          10.8%           3.0%            6.2%          24.5%       n.m.(a)            7.2%
<FN>
(a)  Not meaningful.
</FN>
</TABLE>

2001 Compared to 2000

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

       The gross  profit  margin  was 14.4% in 2001  compared  to 13.7% in 2000.
Certain raw  material  cost  reductions  had the effect of  improving  the gross
profit margin percentage in 2001 by approximately 1.4 percentage  points.  These
2001 cost  reductions  are not  anticipated  to continue  in 2002.  See Item 1 -
Business - Manufacturing and Raw Materials.  Selling, general and administrative

                                       17

<PAGE>

expenses were 16.2% higher in 2001.  The increase  included the impact of higher
professional  fees,  including  those  associated  with a change in  independent
accountants,  higher  bad  debt  expense  related  to  economic  conditions  and
increased compensation and benefit costs.

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

       Foam Products

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

       Carpet Cushion Products

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

       Automotive Products

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

       Technical Products

       Net sales for Technical  Products in 2001 were up 4.1% to $111.0  million
from $106.7 million in 2000.  Higher sales  primarily  reflected  sales from the
acquisition of certain assets from General Foam Corporation, discussed in Note 4
to the consolidated financial statements. Income from operations decreased 20.8%
to $22.9  million  in 2001  compared  to $28.9  million  in  2000.  The  decline
reflected  a lower  value  shipment  mix and the  impact  of a slow  down in the
technology  industry,  especially  during  the first half of 2001.  Income  from
operations represented 20.6% of net sales in 2001 compared to 27.1% in 2000.

       Other

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

                                       18

<PAGE>

following  the  Trace  bankruptcy  and the  settlement  of  certain  shareholder
litigation.

Restructuring, Impairment and Other Charges

       In December 2001, the Company  announced the launching of its Operational
Reorganization Plan to reduce its operating costs and accelerate revenue growth.
The major  initiatives  of the  Operational  Reorganization  Plan included plant
rationalization,  headcount reductions, purchasing and logistics cost reductions
and sales and marketing management.

       In connection with the plant rationalization, we identified a total of 17
plant  operations  to be  closed.  Costs  associated  with  this  aspect  of the
Operational  Reorganization  Plan included lease termination costs and severance
and termination benefits aggregating $14.1 million.

       Additionally,  we  identified  100 salaried  positions to be  eliminated,
mainly in  support  function  areas.  Severance,  termination  and  other  costs
associated with these  positions were estimated to be $4.4 million.  At March 1,
2002,  79  positions,  mostly in  corporate  and  support  functions,  have been
eliminated.

       Further,  the  Company  evaluated  the  recoverability  of certain  other
long-lived  assets,  both  associated  and not associated  with the  Operational
Reorganization  Plan,  in  accordance  with SFAS No.  121,  "Accounting  for the
Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed".  As a
result,  the Company  recorded an impairment  provision of $13.8 million (net of
anticipated  proceeds of $4.6 million) to reduce these assets to their estimated
fair values.  The assets which are held for disposal consist mainly of leasehold
improvements  and machinery and equipment which have a remaining  carrying value
of approximately $19.8 million.

       Other  one-time  period  expenses  during  the fourth  quarter  consisted
primarily of executive  severance of $1.9 million and consulting fees related to
the Operational Reorganization Plan in the amount of $1.2 million.

       Severance  and  termination  benefits  as a  result  of  the  Operational
Reorganization  Plan are expected to be incurred for 746  employees.  Total cash
outlays related to the Operational Reorganization Plan are expected to aggregate
$17.0 million. We expect to complete  implementation before the end of 2002. The
Company  expects  to spend  approximately  $12.4  million  during  2002 with the
balance to be spent through 2012, primarily for lease costs.

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

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

       Interest and Debt Issuance Expense

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

       Income from Equity Interest in Joint Venture

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

                                       19

<PAGE>

       Other Expense, Net

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

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

       Income Tax Expense

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

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

2000 Compared to 1999

       Net sales for 2000  decreased  2.8% to  $1,257.8  million  from  $1,294.6
million in 1999. The decline in sales  primarily  reflected a  deterioration  in
market  conditions  during the second half of 2000. Lower sales were recorded in
the Foam Products,  Carpet Cushion  Products and  Automotive  Products  business
segments. The Technical Products segment continued to report strong sales growth
and certain of the Company's foreign operations  reported in the "Other" segment
also  reported  higher  sales,  which  partially  offset  sales  declines in the
business segments discussed above.

       Income from  operations in 2000 was $96.5  million,  3.7% higher than the
$93.1 million  recorded during 1999. These results  included  restructuring  and
other charges  (discussed under "Other" below) of $6.3 million in 2000 and $10.5
million in 1999.  Excluding the  restructuring  and other charges for comparison
purposes,  income from  operations  was $102.7  million in 2000,  down 0.8% from
$103.5  million in 1999. On this basis,  income from  operations was 8.2% of net
sales in 2000 compared to 8.0% of net sales in 1999.

       The decline in income from operations,  excluding restructuring and other
charges,  was largely  attributable  to the impact of lower sales and higher raw
material  costs offset by improved  operating  efficiencies  and lower  selling,
general  and  administrative  expenses,   discussed  below.  Higher  oil  prices
translated into raw material costs increases in 2000 and these higher costs were
not fully recovered through selling price increases. The gross profit margin was
13.7% for 2000 compared to 13.9% in 1999.

       Selling,  general  and  administrative  expenses  were  down 9.7% in 2000
compared to 1999. The decrease  primarily  reflected  cost savings  initiatives,
lower  incentive  compensation  expenses and lower selling  expenses.  Partially
offsetting   these   favorable   items  were  increases  to  the  allowance  for
uncollectible  accounts receivables and professional fees. The professional fees
were associated with the transfer of the Company's common stock pledged by Trace
to The  Bank of Nova  Scotia  and the  shareholder  litigation  settlements,  as
discussed in the Shareholder and Change in Control Developments section below.

                                       20

<PAGE>

       Foam Products

       Foam Products net sales for 2000  decreased  1.5% to $519.2  million from
$527.2 million in 1999. Lower sales primarily  reflected a volume decline in the
consumer  products  market  and the loss of sales from the  Company's  packaging
business that was sold in 1999.  Income from operations in 2000 was down 3.6% to
$55.0  million  compared  to $57.0  million in 1999.  As  discussed  above,  raw
material  costs  continued  to  increase  during  the year,  and  selling  price
increases  and  improved  operating  efficiencies  did  not  fully  recover  the
increased costs. As a percentage of net sales,  income from operations was 10.6%
of net sales in 2000, down from 10.8% in 1999.

       Carpet Cushion Products

       Carpet  Cushion  Products  net sales for 2000  decreased  10.3% to $256.4
million  from $285.8  million in 1999.  The sales  decline  primarily  reflected
competitive  pressures  that resulted in lower sales volumes  across all product
lines.  Lower selling prices in certain product lines and a lower value shipment
mix also contributed to the sales decline.  As a result,  income from operations
was $2.0 million in 2000 as compared to $8.5 million in 1999.

       Automotive Products

       Automotive  Products  net sales for 2000 were $342.4  million,  down 5.4%
from  $361.8  million  in  1999.  The  decrease  reflected  a slow  down  in the
automotive  industry,  particularly  during the second  half of the year.  Lower
sales  translated  to a 1.4%  decrease  in income  from  operations,  from $22.5
million in 1999 to $22.2  million in 2000.  Results in 2000  benefited  from the
favorable  impact  of  a  selling  price  adjustment.   Income  from  operations
represented 6.5% of net sales in 2000 and 6.2% of net sales in 1999.

       Technical Products

       Technical  Products net sales for 2000 increased  15.7% to $106.7 million
from $92.2  million in 1999.  Income from  operations  increased  27.9% to $28.9
million  in  2000,  up from  $22.6  million  in  1999.  Income  from  operations
represented  27.1%  of net  sales  in  2000  compared  to  24.5%  in  1999.  The
improvement  reflected favorable market conditions that resulted in sales volume
growth and improved operating efficiencies.

       Other

       Other primarily  consists of certain  manufacturing  operations in Mexico
City,  corporate  expenses not allocated to business  segments and restructuring
and other  charges.  The  increase  in net sales  associated  with this  segment
primarily  resulted from an increase in net sales from the Company's Mexico City
operation.  The  loss  from  operations  of $11.7  million  in 2000  included  a
provision of $6.3 million for restructuring and other charges,  discussed above.
The loss also included the  professional  fees that were  associated with equity
transactions and shareholder litigation settlements. The loss from operations of
$17.6 million in 1999 included $10.5 million of restructuring and other charges,
discussed below.

       During 1999,  the Company  approved and  implemented  four  restructuring
plans to reduce  selling,  general and  administrative  costs and to rationalize
plant operations.

       The Company recorded  restructuring charges of approximately $2.4 million
relating to severance  costs in connection  with the first  restructuring  plan.
This plan reduced the Company's salaried work force by 82 employees.

       The Company recorded  restructuring charges of approximately $2.9 million
relating to severance costs in connection with the second restructuring plan for
replacing three of the Company's former  executives,  including its former Chief
Executive Officer.

       In connection  with the third  restructuring  plan, the Company  recorded
restructuring  charges of approximately  $1.7 million relating to the closure of

                                       21

<PAGE>

one facility and certain product line rationalizations.  The $1.7 million charge
was  comprised of  approximately  $0.1 million of severance  costs in connection
with the work force  reductions of 117 employees,  $0.1 million of plant closure
and carrying costs and $1.5 million of asset write-downs.

       In connection with the fourth  restructuring plan, the Company closed its
New York  office (see Note 16 to the  consolidated  financial  statements).  The
Company recorded  approximately $2.5 million of restructuring  charges comprised
of $1.6 million of severance costs for eight employees and $0.9 million of costs
primarily relating to future lease obligations, net of sublease proceeds.

       In addition,  the Company recorded restructuring charges of approximately
$0.7 million  relating to changes in estimates to prior years' plans,  primarily
for the sale of the  packaging  business  in 1999.  The $0.7  million  charge is
comprised of $0.2 million of severance,  $1.3 million of lease and plant closure
costs, offset by $0.8 million of adjustments for asset write-downs.  The Company
also recorded $0.3 million of other charges  relating to rent due from Trace for
the New York office prior to its closure.

       Interest and Debt Issuance Expense

       Interest and debt issuance  expense totaled $75.2 million in 2000,  which
represented a 3.2% increase  from 1999 expense of $72.9  million.  The impact of
higher  effective  interest  rates was partially  offset by the benefit of lower
average debt levels. Higher effective interest rates reflected market conditions
and the impact of a certain  provision of the Foamex L.P.  credit  facility that
required an  incremental  interest  rate  margin,  as discussed in Note 8 to the
consolidated  financial  statements.  Interest capitalized as a component of the
construction costs of plant and equipment totaled $0.8 million in 2000.

       Income from Equity Interest in Joint Venture

       Income from an equity  interest in an Asian joint  venture  totaled  $1.7
million in 2000 compared to $0.5 million in 1999. The improved results reflected
the growth of the joint venture as it moves beyond the start up phase.

       Other Income (Expense), Net

       Other  expense,  net in 2000 totaled $3.0 million.  Expense items totaled
$3.6 million and  significant  components  included the costs  associated with a
buyout  proposal  and letter of credit fees  offset by $0.6  million of interest
income.  During 1999,  other income,  net totaled $1.5 million.  Income items in
1999 included a $4.2 million gain recorded on the sale of the corporate aircraft
and interest income of $0.5 million.  Partially  offsetting income items in 1999
were letter of credit fees.

       Income Tax Expense

       The effective tax rates in 2000 and 1999 reflect the partial  reversal of
the  deferred  income tax asset  valuation  allowance  recognized  in 1998.  The
valuation  allowance  was reduced to reflect  the  utilization  of Federal  loss
carryforwards  that  reduced  the  current  tax  component  of the  Federal  tax
provision.  Additionally,  the valuation allowance was reduced to offset the net
deferred  Federal tax  liability  generated in 2000 and 1999.  The effective tax
rate was higher in 2000  primarily  due to a greater  percentage  of income from
foreign sources and a higher effective tax rate on foreign source income.

Business Outlook

       Results in 2002 are dependent on a number of key factors, including those
discussed below.

       o      The extent of the domestic economic recovery and related impact on
              consumer  spending  in  key  markets  of  the  Company,  including
              automotive,  housing and related  furnishings,  and technology and
              related hardware.

       o      The successful  implementation  of the Operational  Reorganization
              Plan.

                                       22

<PAGE>


       o      The ultimate  resolution of recent claims from customers  relating
              to odors  from  mattresses  containing  foam  manufactured  by the
              Company, as discussed above.

       o      The ability of the Company to implement selling price increases in
              the  event  of  higher  raw  material  costs,   which  comprise  a
              significant  percentage  of the  cost  of  many  of the  Company's
              products.

LIQUIDITY AND CAPITAL RESOURCES

       The principal source of cash for the Company in 2002 is anticipated to be
from  operating  activities  of its  wholly-owned  subsidiary  Foamex  L.P.  The
Company's  operating cash  requirements  consist  principally of working capital
requirements,  scheduled  payments of  principal  and  interest  on  outstanding
indebtedness and capital  expenditures.  During 2002, cash provided by operating
activities  will  be  limited  by  the  cash  requirements  resulting  from  the
Operational Reorganization Plan and related restructuring charge recorded in the
fourth  quarter of 2001.  The  Company  believes  that cash flow from  operating
activities,  cash on hand and  periodic  borrowings  under  its  Amended  Credit
Facility will be adequate to meet its  liquidity  requirements.  Any  unforeseen
decrease in demand for the Company's  products could  significantly  reduce cash
flow from  activities.  The ability of Foamex L.P. to make  distributions to the
Company is restricted by the terms of its financing agreements;  therefore,  the
Company is expected to have only  limited  access to the cash flow  generated by
Foamex L.P. for the foreseeable future.

       Cash  and  cash  equivalents  totaled  $15.1  million  at the end of 2001
compared to $4.9 million at the end of 2000.  Working capital at the end of 2001
was $65.0 million and the current ratio was 1.3 to 1 compared to working capital
at the end of 2000 of  $103.3  million  and a  current  ratio  of 1.5 to 1.  The
decrease in working  capital is  primarily  due to a $45.9  million  increase in
accounts  payable,  partially  attributable to certain vendor payment terms that
were lengthened in 2001.

       Total debt at the end of 2001 was $666.3 million, down $45.6 million from
year-end  2000. As of December 31, 2001,  there were $125.0 million of revolving
credit borrowings, at a weighted average interest rate of 6.2%, under the Foamex
L.P. credit facility with $19.3 million available for additional  borrowings and
$20.7  million of letters of credit  outstanding.  Foamex  Canada Inc.  ("Foamex
Canada") did not have any  outstanding  borrowings as of December 31, 2001 under
Foamex  Canada's  revolving  credit  agreement,   with  unused  availability  of
approximately  $5.0  million.   Foamex  Carpet  did  not  have  any  outstanding
borrowings  under the Foamex Carpet credit  facility at December 31, 2001,  with
unused  availability  of $14.8  million  and $0.2  million  of letters of credit
outstanding.

       On March 25, 2002, the Company  consummated a series of related financing
transactions,  described under the caption "Refinancing and Corporate Structure"
above, designed to strengthen the Company's capital structure.

       Cash Flow from Operating Activities

       Cash provided by operating activities in 2001 was $106.4 million compared
to $51.0  million in 2000.  The  increase  primarily  reflected  an  increase in
accounts  payable  that  contributed  $45.9  million  of the  improvement.  Also
contributing to the 2001 increase was a $15.2 million  reduction in inventories.
As discussed above, results in 2001 included significant  restructuring charges.
Included in the  restructuring  charge were non-cash items for asset impairments
and at  year-end  2001 there was a net  increase  in the  accrued  restructuring
liability of $15.5 million.

       Cash Flow from Investing Activities

       Cash used for investing  activities  totaled $40.6 million for 2001. Cash
requirements  included  capital  expenditures of $22.5 million and $17.6 million
for an acquisition,  see Note 4 to the  consolidated  financial  statements.  In
2000,  cash flow used for  investing  activities  totaled $21.9  million,  which
included $23.6 million of capital expenditures, partially offset by $3.6 million
of proceeds from the sale of assets.  The estimate of capital  expenditures  for
2002 is approximately $24.0 million.

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<PAGE>

       Cash Flow from Financing Activities

       Cash used in financing  activities was $55.7 million for 2001 compared to
cash used of $30.8  million  in 2000.  The  increase  reflected  higher net debt
payments  compared to 2000, a decrease in cash  overdrafts,  debt issuance costs
and other financing activities. During the first half of 2000, the $34.0 million
Foamex/GFI  Note was repaid  with  borrowings  under the Foamex  L.P.  revolving
credit facility.

       Financial Condition

       The  Company  anticipates  that it  will  continue  to  comply  with  the
quarterly  financial  covenants contained in its Amended Credit Facility and its
other debt agreements.  Management's  current business plans anticipate customer
selling price  management  in response to raw material  cost  changes,  improved
working capital management,  comparable capital  expenditures to the prior year,
successful  implementation  of on-going  cost savings  initiatives  and improved
operating   efficiencies.   The  achievement  of  the  business  plans  and  the
realization of proceeds  resulting from the  implementation of an improved asset
utilization  program are necessary  for  compliance  with the various  financial
covenants for 2002 and prospectively.

       The possibility  exists that certain financial  covenants will not be met
if business  conditions are other than as anticipated or other unforeseen events
impact  results.  In the absence of a waiver of or amendment  to such  financial
covenants,  such  noncompliance  would constitute a default under the applicable
debt agreements, and the lenders would be entitled to accelerate the maturity of
the indebtedness  outstanding  thereunder.  In the event that such noncompliance
appears  likely,  or occurs,  the  Company  will seek the  lenders'  approval of
amendments  to, or waivers  of,  such  financial  covenants.  Historically,  the
Company has been able to renegotiate  financial covenants and/or obtain waivers,
as required,  and management  believes such waivers and/or  amendments  could be
obtained if required. However, there can be no assurance of future amendments or
waivers will be obtained.

Foamex L.P. Credit Facility

       At December 31, 2001, Foamex L.P. had a credit facility (the "Foamex L.P.
Credit  Facility") with a group of banks,  which provided for a revolving credit
facility  commitment of $165.0 million and three term loans (Term loans B, C and
D) with an outstanding balance totaling $245.6 million. Included in the group of
banks that provides the Foamex L.P.  Credit Facility is The Bank of Nova Scotia,
which is a shareholder of the Company.

       Amended Credit Facility

       The Amended  Credit  Facility  consists of (1) the new  revolving  credit
facility,  which is a non-amortizing revolving credit facility of $100.0 million
provided by a new syndicate of lenders (the "New  Revolving  Credit  Facility"),
which will provide working capital for the Company and funding for other general
corporate  purposes,  (2) the various  term loan  facilities  under the existing
credit  agreement,  (3) a new Term E Loan in an initial amount of $31.6 million,
the  proceeds  of which were  borrowed  at closing and used to repay in full the
obligations  outstanding  under the note  payable to Foam Funding LLC, and (4) a
new Term F Loan in an initial  amount of $25.0  million,  the  proceeds of which
were borrowed at closing and used to repay  indebtedness  outstanding  under the
existing revolving credit facility. The remaining obligations  outstanding under
the  existing  revolving  credit  facility  were  repaid  with a portion  of the
proceeds from the issuance of Senior Secured Notes as described below.

       The commitments  under the New Revolving Credit Facility are available to
the Company in the form of (1) revolving  credit loans, (2) swing loans (subject
to a $20.0  million  sublimit)  and (3)  letters of credit  (subject  to a $40.0
million sublimit).

       The Company  used a portion of the net proceeds  from its Senior  Secured
Notes to repay a portion of the  existing  term  loans,  the Term E Loan and the
Term F Loan as described below.  After this repayment,  the term loan facilities
under the Amended Credit Facility will consist of a $39.3 million Term B Loan, a

                                       24

<PAGE>

$35.7  million Term C Loan, a $51.7  million Term D Loan, a $16.3 million Term E
Loan and a $19.3 million Term F Loan  (together with the Term B Loan, the Term C
Loan, the Term D Loan and the Term E Loan, the "Term Loans").

       Loans made under the New  Revolving  Credit  Facility will mature and the
commitments  will  terminate on June 30, 2005.  The Term B Loan, the Term E Loan
and the Term F Loan will mature on June 30, 2005, the Term C Loan will mature on
June 30, 2006 and the Term D Loan will mature on December 29, 2006.

       Each of the Term Loans will be subject  to  amortization  on a  quarterly
basis;  however,  after giving  effect to the  prepayments  of the Term Loans as
described above,  quarterly  amortization  payments will commence for the Term B
Loan,  the Term E Loan and the Term F Loan in 2004,  for the Term C Loan in 2005
and for the Term D Loan in 2006.

       Net proceeds  from the issuance of the Senior  Secured Notes were applied
as follows:  (1) $91.5 million was used to repay indebtedness  outstanding under
the existing revolving credit facility;  (2) $91.5 million was used to repay the
Existing  Term Loans and the Term E Loan on a pro rata basis,  which in the case
of the Existing Term Loans, were applied to outstanding  installments thereof in
the order of their earliest maturities;  (3) $48.5 million was used to repay the
Term Loans on a pro rata basis and applied to outstanding  installments  thereof
in the order of their earliest  maturities  and (4) the remaining  $48.5 million
will be used to repurchase or redeem the senior  subordinated  notes, but to the
extent such  proceeds are not used for this purpose by September  20, 2002,  the
proceeds are required to be used to repay the Term Loans on a pro rata basis and
apply the  prepayments  to the  outstanding  installments  in the order of their
earliest maturities.

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

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

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

       Borrowings  under the Amended  Credit  Facility  will bear  interest at a
floating rate based upon (and including a spread over),  at our option,  (1) the
higher of (a) the funding agent's prime rate and (b) 0.50 of 1% in excess of the
Federal Reserve reported  weighted  average  overnight rate for federal funds or
(2) the  higher of (x) 2.50% per annum and (y) the LIBO  rate,  as  defined,  as
determined  by the funding  agent.  Foamex L.P.  will pay  administration  fees,
commitment  fees,  letter of credit fees and certain other  expenses and provide
certain indemnities, all of which are believed to be customary for financings of
this type.

       The Amended Credit Facility contains  affirmative and negative  covenants
that,  subject  to  certain  exceptions,  are  substantially  similar  to  those
contained in the existing credit facility.  The Amended Credit Facility includes
the following financial covenants, as defined therein: (1) a minimum EBDAIT test
for the year ended  December  31,  2001;  (2) a minimum  net worth  test;  (3) a
minimum ratio of EBDAIT to cash interest expense;  (4) a minimum ratio of EBDAIT
to fixed  charges;  and (5) a maximum  ratio of  funded  debt to  EBDAIT.  These
covenants  will be  substantially  the same as those  contained  in the existing

                                       25

<PAGE>

credit  facility with  appropriate  changes to take into account the issuance of
the Senior  Secured Notes and the  contribution  of Foamex Carpet to Foamex L.P.
The Amended Credit  Facility also requires the refinancing of the 13 1/2% senior
subordinated notes on or prior to March 31, 2005.

       The Amended Credit Facility  contains events of default that,  subject to
certain exceptions, are substantially similar to those contained in the existing
credit  facility,  including,  but not  limited  to,  nonpayment  of  principal,
interest, fees or other amounts when due, violation of covenants,  inaccuracy of
representations and warranties in any material respect,  cross default and cross
acceleration  to  certain  other  indebtedness,   bankruptcy,   ERISA,  material
judgments  and change of  control.  The events of default  are  subject to grace
periods and materiality qualifications.

Foamex Carpet Credit Facility

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

Contractual Obligations and Commercial Commitments

       At December 31,  2001,  the Company had  obligations  to repay a total of
$660.1  million  of  principal  of  long-term  debt  borrowed  under a number of
arrangements with lenders. The amortization schedule for the Company's long-term
debt payments is included in Note 8 to the consolidated financial statements. On
March 25, 2002, the Company issued $300.0 million of Senior Secured Notes due on
April 1, 2009. A total of $231.5 million of the proceeds from the Senior Secured
Notes was used to repay debt that would have matured in 2002,  2003 and 2004. At
December 31, 2001,  the Company had  outstanding  letters of credit  aggregating
$20.9 million.

       The Company also has commitments for operating  leases  discussed in Note
17 to the  consolidated  financial  statements  that  require  minimum  payments
totaling $51.3 million, with $44.5 million due through December 31, 2006 and the
balance  in later  years.  The  Company  does not  have  any  other  significant
contractual obligations or commercial commitments.

OTHER

Shareholder and Change in Control Developments

       Trace International Holdings, Inc. ("Trace") is a privately held company,
which owned  approximately 29% of the Company's  outstanding voting common stock
at September  30, 2000,  and whose former  Chairman also serves as the Company's
Chairman.  The  Company's  common stock owned by Trace was pledged as collateral
against certain of Trace's obligations. Certain credit agreements and promissory
notes of the  Company's  subsidiaries,  pursuant to which  approximately  $401.1
million of debt was  outstanding  as of  September  30,  2000,  provided  that a
"change  of  control"  would be an event of  default  and  could  result  in the
acceleration of such indebtedness.  "Change of control" means, for this purpose,
that (i) a person or related  group,  other than Trace,  beneficially  owns more
than 25% of the  Company's  outstanding  voting stock and (ii) such voting stock
constitutes  a  greater   percentage  of  such  voting  stock  than  the  amount
beneficially owned by Trace. Additionally, certain indentures of Foamex L.P. and
Foamex Capital  Corporation  ("FCC"), a wholly-owned  subsidiary of Foamex L.P.,
relating to senior  subordinated notes of $248.0 million contain similar "change
of control"  provisions,  which  require  Foamex L.P. and FCC to tender for such
notes  at a price  in cash  equal  to 101%  of the  aggregate  principal  amount
thereof, plus accrued and unpaid interest thereon, if there is such a "change of
control".

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

                                       26

<PAGE>

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

       Under the Exchange Agreement,  The Bank of Nova Scotia initially received
1,500,000 shares of the Company's common stock from the Trace bankruptcy  estate
and exchanged  these common stock shares for 15,000 shares of a new class of the
Company's non-voting  non-redeemable  convertible preferred stock (the "Series B
Preferred  Stock").  Each share of the Series B Preferred Stock can be converted
into 100 shares of the Company's  common stock but only if such conversion would
not  trigger a "change of  control"  event,  as  discussed  above.  The Series B
Preferred  Stock (a) is entitled to dividends  only if a dividend is declared on
the  Company's  common  stock,  (b) ranks senior to any future  preferred  stock
issued by the Company and (c) is entitled to a  liquidation  preference  of $100
per share.  Following this exchange, The Bank of Nova Scotia became the owner of
24.41%  of the  outstanding  shares  of the  Company's  common  stock  when  the
remaining 5,697,426 shares of the Company's common stock were transferred to The
Bank  of  Nova  Scotia  from  the  Trace  bankruptcy   estate.   Certain  equity
transactions,  primarily the exercise of stock options, have reduced the Bank of
Nova Scotia's common stock ownership percentage to 23.6% at February 15, 2002.

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 31, 2001, we had accruals of approximately $3.0 million
for environmental matters.

       The Clean Air Act Amendments of 1990 ("1990 CAA Amendments")  provide for
the  establishment  of federal  emission  standards for hazardous air pollutants
including  methylene  chloride,  propylene  oxide and TDI, which are used in the
manufacturing  of foam. The final National  Emission  Standard for Hazardous Air
Pollutants,   or  "NESHAP,"  for  flexible   polyurethane  foam  production  was
promulgated on October 7, 1998. The NESHAP required a reduction of approximately
70% of the  emission  of  methylene  chloride  for the slab stock foam  industry
effective  October  7,  2001.  Through  the  use  of  alternative  technologies,
including  VPF(SM) and carbon  dioxide,  and by shifting  current  production to
facilities  which  use these  alternative  technologies,  we are in  substantial
compliance  with  these  regulations.  On  August 8,  2001,  the  United  States
Environmental  Protection  Agency,  or "EPA,"  proposed  a NESHAP  for  Flexible
Polyurethane  Foam  Fabrication   Operations.   The  proposed  NESHAP  regulates
emissions of methylene chloride and other Hazardous Air Pollutants and restricts
air emissions from flame lamination  sources.  The Company does not believe that
this standard, if adopted, will require us to make material expenditures.

       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.  As of December  31,  2001,  we had
accruals  of $2.5  million  for the  estimated  cost of  remediation,  including
professional fees and monitoring costs, for these 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.

                                       27

<PAGE>

       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  Potentially
Responsible  Party, or "PRP," by the EPA or by state  environmental  agencies or
other PRPs,  pursuant to CERCLA or  analogous  state  statutes,  with respect to
eight sites.  Estimates of total cleanup  costs and  fractional  allocations  of
liability are often provided by the EPA, the state  environmental  agency or the
committee of PRPs with respect to the specified  site.  Based on these estimates
(to the  extent  available)  and on known  information,  in each case and in the
aggregate, our liability is not considered to be significant.

       In 2002,  capital  expenditures for safety and  environmental  compliance
projects  are  anticipated  to be  approximately  $2.0  million.  Although it is
possible that new information or future  developments  could require the Company
to  reassess  the  potential  exposure  relating  to all  pending  environmental
matters,  including those described above,  management believes that, based upon
all currently  available  information,  the  resolution  of these  environmental
matters will not have a material  adverse  effect on 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.

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, the
Company  believes it has the flexibility in operations and capital  structure to
maintain a competitive position. The prices of the two principal chemicals used,
TDI and polyol, are influenced by demand, manufacturing capacity and oil prices.
Results for 2000 were negatively impacted by higher transportation costs related
to oil  price  increases  and  higher  costs  for raw  materials.  In 2001,  the
beginning of the economic slowdown resulted in excess manufacturing capacity for
the major chemical suppliers.  This, coupled with declining oil prices, resulted
in lower costs for raw  materials in 2001.  Some TDI and polyol  suppliers  have
informed the Company that they will seek to raise prices in the first six months
of 2002. The Company will attempt to offset raw material cost increases  through
selling price  increases;  however,  there can be no assurance  that the Company
will be successful in implementing  selling price increases or that  competitive
pricing  pressure  will not  require  us to adjust  selling  prices.  Results of
operations have been and could be adversely  affected by delays in implementing,
or the Company's  inability to implement,  selling price increases to offset raw
material cost increases.

Related Party Transactions

       The Company has had a number of related party  transactions  in the past,
primarily with affiliates of Trace. Such related party  transactions and current
balances  are  discussed  in Note 16 to the  consolidated  financial  statements
included in this report on Form 10-K.

Accounting Changes

       Statement of Financial  Accounting  Standards  No. 133,  "Accounting  for
Derivative  Instruments  and Hedging  Activities"  ("SFAS No. 133") requires the
fair value of  derivatives  be recognized in the  consolidated  balance  sheets.
Changes in the fair value of derivatives  are recognized in earnings or in other
comprehensive  loss,  essentially  depending on the structure and the purpose of
the derivatives.  During 2000, SFAS No. 138,  "Accounting for Certain Derivative
Instruments  and Certain  Hedging  Activities",  which amended SFAS No. 133 on a
limited  number of issues,  was issued.  The  statements  were effective for the
Company in the first quarter of 2001.

       These  statements  create a  foundation  that  addresses  accounting  and
reporting  issues  for  a  wide  range  of  financial   instruments  defined  as
derivatives and related hedging activities. As of December 31, 2000, the Company
did not have any  derivatives,  as defined in the statements.  Accordingly,  the
adoption of the  statements did not have any impact on the results of operations
or financial position of the Company.

                                       28

<PAGE>


       During  the third  quarter of 2001,  Statement  of  Financial  Accounting
Standards  No. 141,  "Business  Combinations"  ("SFAS No. 141") and Statement of
Financial  Accounting  Standards No. 142, "Goodwill and Other Intangible Assets"
("SFAS No. 142") were issued.  SFAS No. 141 addresses  financial  accounting and
reporting  for  business  combinations  and limits the  accounting  for business
combinations to the purchase method. The statement is effective for all business
combinations,  including the acquisition discussed in Note 4 to the consolidated
financial  statements,  with an acquisition date of July 1, 2001, or later. SFAS
No. 142 addresses  financial  accounting and reporting for acquired goodwill and
other intangible  assets. A key change as a result of implementing  SFAS No. 142
will be that goodwill and certain other  intangibles will no longer be amortized
and there may be more volatility in the reported results than under the previous
standard  because  impairment  losses  are  likely to occur  irregularly  and in
varying  amounts.  Any  impairment  losses  for  goodwill  and  indefinite-lived
intangible assets that arise due to the initial application of SFAS No. 142 will
be reported as resulting from a change in accounting principle. Any goodwill and
intangible  assets  acquired  after June 30,  2001,  including  the  acquisition
discussed in Note 4 to the consolidated  financial  statements,  will be subject
immediately to the nonamortization and amortization  provisions of SFAS No. 142.
The Company  continues to evaluate SFAS No. 142 and has not yet  determined  the
impact,  however  the  Company  expects  that the  adoption of SFAS No. 142 will
reduce annual amortization expense by approximately $5.9 million.

       Also during the third quarter of 2001,  Statement of Financial Accounting
Standards No. 143, "Accounting for Asset Retirement Obligations ("SFAS No. 143")
was  issued.  SFAS No. 143  requires  the  recognition  of a  liability  for the
estimated cost of disposal as part of the initial cost of a long-lived asset and
will be effective  in 2003.  In late 2001,  Statement  of  Financial  Accounting
Standards  No. 144,  "Accounting  for the  Impairment  or Disposal of Long-Lived
Assets" ("SFAS No. 144") was issued. SFAS No. 144 will provide a single approach
for measuring the  impairment  of  long-lived  assets,  including a segment of a
business  accounted  for as a  discontinued  operation  or  those  to be sold or
disposed  of other than by sale.  SFAS No. 144 will be  effective  in 2002.  The
Company has not yet determined the impact of SFAS No. 143 and SFAS No. 144.

ITEM 7a.  QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

       The Company's debt securities with variable interest rates are subject to
market risk for changes in interest  rates.  On December 31, 2001,  indebtedness
with variable interest rates totaled $410.5 million.  On an annualized basis, if
the interest rates on these debt instruments increased by 1.0%, interest expense
would  increase by  approximately  $4.1  million.  As  discussed  in Item 7, the
Company completed a refinancing on March 25, 2002. The impact of the refinancing
will be to  significantly  reduce the amount of the  Company's  debt  subject to
variable interest rates.

ITEM 8.  FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

       An index to the financial statements and financial statement schedules is
included in Item 14(a).

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

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

PART III

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


                                       29

<PAGE>

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

(a)    Financial statements.

<TABLE>
<S>                                                                                                      <C>
       Foamex International Inc. and Subsidiaries:
         Independent Auditors' Report                                                                     F-2
         Report of Independent Accountants                                                                F-3
         Consolidated Balance Sheets as of December 31, 2001 and 2000                                     F-4
         Consolidated Statements of Operations for the years ended December 31, 2001, 2000 and 1999       F-6
         Consolidated Statements of Cash Flows for the years ended December 31, 2001, 2000 and 1999       F-7
         Consolidated Statements of Stockholders' Deficiency for the years ended December 31,
           2001, 2000 and 1999                                                                            F-8
         Notes to Consolidated Financial Statements                                                       F-9

       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.

          A report  dated  December  26,  2001,  was  filed  for Item 5. - Other
          Events,  concerning a press release announcing the implementation of a
          comprehensive  profit  enhancement  program and related charge against
          earnings in the fourth quarter of 2001.

(c)      Exhibits.

2.1(x)        -  Transfer Agreement, dated as of February 27, 1998, by and
                 between Foam Funding LLC and Foamex L.P.
2.2(x)        -  Asset Purchase Agreement, dated as of February 27, 1998, by and
                 among Foamex Carpet Cushion, Inc. ("Foamex Carpet"), Foamex
                 International Inc. ("Foamex International"), 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. ("FMXI") and Trace Foam Company, Inc. ("Trace Foam"), as
                 general partners, and Foamex International, as a limited
                 partner (the "Partnership Agreement").
3.2.2(b)      -  First Amendment to the Partnership Agreement, dated June 28,
                 1994.
3.2.3(c)      -  Second Amendment to the Partnership Agreement, dated June 12,
                 1997.
3.2.4(v)      -  Third Amendment to the Partnership Agreement, dated December
                 23, 1997.
3.2.5(x)      -  Fourth Amendment to the Partnership Agreement, dated February
                 27, 1998.
3.3(y)        -  Certificate of Incorporation of FMXI.
3.4(y)        -  By-laws of FMXI.
3.5(k)        -  Certificate of Incorporation of Foamex Capital Corporation
                 ("FCC").
3.6(k)        -  By-laws of FCC.
3.7.1(a)      -  Certificate of Incorporation of Foamex International.
3.7.1(dd)     -  Amendment to Certificate of Incorporation of Foamex
                 International.
3.7.2(cc)     -  Certificate of Incorporation of Foamex Carpet Cushion, Inc.
                 ("Foamex Carpet")
3.8(a)        -  By-laws of Foamex International.
3.8.1(cc)     -  By-laws of Foamex Carpet.
4.1.1(d)      -  Indenture, dated as of June 12, 1997, by and among Foamex L.P.,
                 FCC, the Subsidiary Guarantors and The Bank of New York, as
                 trustee, relating to $150,000,000 principal amount of 9 7/8%
                 Senior Subordinated Notes due 2007 (the "9 7/8% Notes"),
                 including the form of Senior Subordinated Note and Subsidiary
                 Guarantee.

                                       30

<PAGE>

4.1.2(v)      -  First Supplemental Indenture, dated as of December 23, 1997,
                 between Foamex LLC ("FLLC") and The Bank of New York, as
                 trustee, relating to the 9 7/8% Notes.
4.1.3(x)      -  Second Supplemental Indenture, dated as of February 27, 1998,
                 among Foamex L.P. and FCC, as joint and several obligors,
                 General Felt, Foamex Fibers, Inc. ("Foamex Fibers"), and FLLC,
                 as withdrawing guarantors, and The Bank of New York, as
                 trustee, relating to the 9 7/8% Notes.
4.2.1(v)      -  Indenture, dated as of December 23, 1997, by and among Foamex
                 L.P., FCC, the Subsidiary Guarantors, Crain Holdings Corp., as
                 Intermediate Obligator, and The Bank of New York, as trustee,
                 relating to $98,000,000 principal amount of 13 1/2% Senior
                 Subordinated Notes due 2005 (the "13 1/2% Notes"), including
                 the form of Senior Subordinated Note and Subsidiary Guarantee.
4.2.2(x)      -  First Supplemental Indenture, dated as of February 27, 1998,
                 among Foamex L.P. and FCC, as joint and several obligors,
                 General Felt, Foamex Fibers and FLLC, as withdrawing
                 guarantors, Crain Industries, Inc., as withdrawing Intermediate
                 Obligor, and The Bank of New York, as trustee, relating to the
                 13 1/2% Notes.
4.4.2(x)      -  Second Amended and Restated Foamex International Guaranty,
                 dated as of February 27, 1998, made by Foamex International in
                 favor of Citicorp USA, Inc., as Collateral Agent.
4.4.3(x)      -  Amended and Restated Partnership Guaranty, dated as of February
                 27, 1998, made by FMXI in favor of Citicorp USA, Inc., as
                 Collateral Agent.
4.4.4(p)      -  Foamex Guaranty, dated as of June 12, 1997, made by Foamex L.P.
                 in favor of Citicorp USA, Inc., as Collateral Agent.
4.4.5(p)      -  Subsidiary Guaranty, dated as of June 12, 1997, made by Foamex
                 Latin America, Inc. in favor of Citicorp USA, Inc., as
                 Collateral Agent.
4.4.6(p)      -  Subsidiary Guaranty, dated as of June 12, 1997, made by Foamex
                 Mexico, Inc. in favor of Citicorp USA, Inc., as Collateral
                 Agent.
4.4.7(p)      -  Subsidiary Guaranty, dated as of June 12, 1997, made by FCC in
                 favor of Citicorp USA, Inc., as Collateral Agent.
4.4.8(p)      -  Subsidiary Guaranty, dated as of June 12, 1997, made by Foamex
                 Mexico II, Inc. in favor of Citicorp USA, Inc., as Collateral
                 Agent.
4.4.9(p)      -  Subsidiary Guaranty, dated as of June 12, 1997, made by Foamex
                 Asia, Inc. in favor of Citicorp USA, Inc., as Collateral Agent.
4.4.10(p)     -  Subsidiary Pledge Agreement, dated as of June 12, 1997, made by
                 FCC in favor of Citicorp USA, Inc., as Collateral Agent.
4.4.11(p)     -  Subsidiary Pledge Agreement, dated as of June 12, 1997, made by
                 Foamex Latin America, Inc. in favor of Citicorp USA, Inc., as
                 Collateral Agent.
4.4.12(p)     -  Subsidiary Pledge Agreement, dated as of June 12, 1997, made by
                 Foamex Asia, Inc. in favor of Citicorp USA, Inc., as Collateral
                 Agent.
4.4.13(p)     -  Subsidiary Pledge Agreement, dated as of June 12, 1997, made by
                 Foamex Mexico, Inc. in favor of Citicorp USA, Inc., as
                 Collateral Agent.
4.4.14(p)     -  Subsidiary Pledge Agreement, dated as of June 12, 1997, made by
                 Foamex Mexico II, Inc. in favor of Citicorp USA, Inc., as
                 Collateral Agent.
4.4.15        -  Amended and Restated Foamex Security Agreement, dated as of
                 July 18, 2001, made by Foamex L.P. in favor of Citicorp USA,
                 Inc., as Collateral Agent.
4.4.16        -  Amended and Restated Subsidiary Security Agreement, dated as of
                 July 18, 2001, made by Foamex Latin America, Inc. in favor of
                 Citicorp USA, Inc., as Collateral Agent.
4.4.17        -  Amended and Restated Subsidiary Security Agreement, dated as of
                 July 18, 2001, made by Foamex Mexico, Inc. in favor of Citicorp
                 USA, Inc., as Collateral Agent.
4.4.18        -  Amended and Restated Subsidiary Security Agreement, dated as of
                 July 18, 2001, made by Foamex Mexico II, Inc. in favor of
                 Citicorp USA, Inc., as Collateral Agent.
4.4.19        -  Amended and Restated Subsidiary Security Agreement, dated as of
                 July 18, 2001, made by Foamex Asia, Inc. in favor of Citicorp
                 USA, Inc., as Collateral Agent.
4.4.20        -  Amended and Restated Subsidiary Security Agreement, dated as of
                 July 18, 2001, made by FCC in favor of Citicorp USA, Inc., as
                 Collateral Agent.
4.4.21(r)     -  Foamex Pledge Agreement, dated as of June 12, 1997, made by
                 Foamex L.P. in favor of Citicorp USA, Inc., as Collateral
                 Agent.

                                       31
<PAGE>

4.4.22(w)     -  First Amendment to Foamex Pledge Agreement, dated as of
                 December 23, 1997, by Foamex L.P. in favor of Citicorp USA,
                 Inc., as Collateral Agent.
4.4.23(w)     -  First Amendment to Foamex Security Agreement, dated as of
                 December 23, 1997, by Foamex L.P. in favor of Citicorp USA,
                 Inc., as Collateral Agent.
4.4.24(w)     -  First Amendment to Foamex Patent Agreement, dated as of
                 December 23, 1997, by Foamex L.P. in favor of Citicorp USA,
                 Inc., as Collateral Agent.
4.4.25(w)     -  First Amendment to Trademark Security Agreement, dated as of
                 December 23, 1997, by Foamex L.P. in favor of Citicorp USA,
                 Inc., as Collateral Agent.
4.4.26(w)     -  Acknowledgment of Guaranty by each of the guarantors to a
                 Guaranty dated June 12, 1997 in favor of Citicorp USA, Inc.
4.4.27(w)     -  First Amendment to Pledge Agreement, dated as of December 23,
                 1997, by pledgors in favor of Citicorp USA, Inc.
4.4.28(w)     -  Crain Industries, Inc. ("Crain") Guaranty, dated as of December
                 23, 1997, made by Crain in favor of Citicorp USA, Inc.
4.4.29(x)     -  Partnership Pledge Agreement, dated as of February 27, 1998,
                 made by Foamex International and FMXI in favor of Citicorp USA,
                 Inc., as Collateral Agent.
4.4.30(bb)    -  Amendment No. 1 to Second Amended and Restated Foamex
                 International Guaranty, dated March 11, 1999.
4.4.31(bb)    -  Amendment No. 1 to Foamex International Guaranty, dated March
                 12, 1999.
4.4.32(dd)    -  Foamex Patent Agreement, dated as of June 12, 1997, by Foamex
                 L.P. in favor of Citicorp USA, Inc., as Collateral Agent.
4.4.33(dd)    -  Trademark Security Agreement, dated as of June 12, 1997, by
                 Foamex L.P. in favor of Citicorp USA, Inc., as Collateral
                 Agent.
4.4.34(ee)    -  Amended and Restated Foamex Pledge Agreement, dated as of June
                 30, 1999 made by Foamex L.P. in favor of Citicorp U.S.A. Inc.
                 as Collateral Agent.
4.4.35(ee)    -  Amended and Restated Partnership Pledge Agreement, dated as of
                 June 30, 1999 by FMXI, Inc. and Foamex International Inc. in
                 favor of Citicorp USA Inc. as FII Intercreditor Collateral
                 Agent.
4.5           -  Commitment Letter and Attachment, dated August 8, 2001, from
                 the Bank of Nova Scotia to Foamex Canada Inc.
4.9.1(p)      -  Promissory Note, dated June 12, 1997, in the aggregate
                 principal amount of $5,000,000, executed by Trace Holdings to
                 Foamex L.P.
4.9.2(p)      -  Promissory Note, dated June 12, 1997, in the aggregate
                 principal amount of $4,794,828, executed by Trace Holdings to
                 Foamex L.P.
4.10.1(x)     -  Credit Agreement, dated as of February 27, 1998, by and among
                 Foamex Carpet, the institutions from time to time party thereto
                 as lenders, the institutions from time to time party thereto as
                 issuing banks and Citicorp USA, Inc. and The Bank of Nova
                 Scotia, as administrative agents.
4.10.2(x)     -  Foamex International Guaranty, dated as of February 27, 1998,
                 made by Foamex International in favor of Citicorp USA, Inc., as
                 Collateral Agent.
4.10.3(x)     -  Foamex International Pledge Agreement, dated as of February 27,
                 1998, made by Foamex International in favor of Citicorp USA,
                 Inc., as Collateral Agent.
4.10.4(x)     -  New GFI Security Agreement, dated as of February 27, 1998, made
                 by Foamex Carpet in favor of Citicorp USA, Inc., as Collateral
                 Agent.
4.10.5(x)     -  New GFI Intercreditor Agreement, dated as of February 27, 1998,
                 by and among Foamex Carpet, The Bank of Nova Scotia, as
                 Administrative Agent, and Citicorp USA, Inc., as Administrative
                 Agent and Collateral Agent.
4.10.6(x)     -  FII Intercreditor Agreement, dated as of February 27, 1998, by
                 and between Foamex International and Citicorp USA, Inc., as
                 Collateral Agent.
4.10.9(dd)    -  Amendment No. 1 to Foamex Carpet Credit Agreement, dated
                 October 30, 1998.
4.10.10(bb)   -  Amendment No. 2 to Foamex Carpet Credit Agreement, dated March
                 12, 1999.
4.10.11(ee)   -  Foamex L.P. Credit Agreement, dated June 12, 1997, as amended
                 and restated as of February 27, 1998 as further amended and
                 restated as of June 29, 1999 among Foamex L.P., FMXI, the
                 institutions from time to time party thereto as lenders, the
                 institutions from time to time party thereto as issuing banks
                 and Citicorp USA, Inc. and the Bank of Nova Scotia as
                 Administrative Agents.

                                       32

<PAGE>


4.10.12(ee)   -  Amendment No. 3 to Foamex Carpet Credit Agreement, dated June
                 30, 1999.
4.10.13(ee)   -  Foamex International Pledge Agreement, dated June 30, 1999,
                 made by Foamex International in favor of Citicorp U.S.A. Inc.
                 as FII Intercreditor Collateral Agent.
4.10.14(ff)   -  Amendment No. 1 to the Foamex L.P. Credit Agreement, dated
                 December 23, 1999, as amended and restated as of February 27,
                 1998 as further amended and restated as of June 29, 1999 among
                 Foamex L.P., FMXI, the institutions from time to time party
                 thereto as lenders, the institutions from time to time party
                 thereto as issuing banks and Citicorp USA, Inc. and the Bank of
                 Nova Scotia as Administrative Agents.
4.10.15(gg)   -  Amendment No. 2 to the Foamex L.P. Credit Agreement, dated
                 February 16, 2000, as amended and restated as of February 27,
                 1998 as further amended and restated as of June 29, 1999 among
                 Foamex L.P., FMXI, the institutions from time to time party
                 thereto as lenders, the institutions from time to time party
                 thereto as issuing banks and Citicorp USA, Inc. and the Bank of
                 Nova Scotia as Administrative Agents.
4.10.16      -  Amendment No. 3 to Foamex Credit Agreement, dated as of July
                 18, 2001.
4.10.17       -  Amendment No. 4 to Foamex Credit Agreement dated as of December
                 21, 2001.
4.10.18(gg)   -  Amendment No. 4 to Foamex Carpet Cushion Agreement, dated
                 February 18, 2000.
4.10.19(ll)   -  Amendment No. 5 to Foamex Carpet Cushion Agreement, dated March
                 30, 2001.
4.10.20       -  Amendment No. 6 to Foamex Carpet Cushion Agreement, dated as of
                 December 21, 2001
4.11.1(x)     -  Promissory Note of Foamex L.P. in favor of Foam Funding LLC in
                 the principal amount of $34 million, dated February 27, 1998.
4.12.1(x)     -  Promissory Note of Foamex Carpet in favor of Foam Funding LLC
                 in the principal amount of $70.2 million, dated February 27,
                 1998.
4.12.2(bb)    -  Amendment to Promissory Note of Foamex Carpet in favor of Foam
                 Funding LLC dated March 15, 1999.
4.12.3(ee)    -  Amendment to Promissory Note of Foamex L.P. in favor of Foam
                 Funding LLC dated as of June 30, 1999.
4.12.4(ee)    -  Amendment to Promissory Note of Foamex Carpet in favor of Foam
                 Funding LLC dated as of June 30, 1999.
4.12.5(gg)    -  Amendment to Promissory Note of Foamex Carpet in favor of Foam
                 Funding LLC dated as of February 18, 2000.
4.12.6(ll)    -  Amendment to Promissory Note of Foamex Carpet in favor of Foam
                 Funding LLC dated as of March 30, 2001.
4.12.7        -  Amendment to Promissory Note of Foamex Carpet in favor of Foam
                 Funding LLC, dated as of December 21, 2001.
4.13(dd)      -  Waiver, dated as of April 15, 1999 to the Credit Agreement,
                 dated as of February 27, 1998, among Foamex Carpet, the
                 institutions party thereto as Lenders, the institutions party
                 thereto as Issuing Banks, and Citicorp USA, Inc. and The Bank
                 of Nova Scotia as Administrative Agents.
4.13.1(ff)    -  Waiver, dated as of April 15, 1999 to the Promissory Note,
                 dated as of February 27, 1998, payable by Foamex Carpet to Foam
                 Funding LLC.
4.13.2(ff)    -  Waiver, dated as of May 6, 1999 to the Promissory Note, dated
                 as of February 27, 1998, payable by Foamex Carpet to Foam
                 Funding LLC.
4.14(hh)      -  Letter Agreement, dated as of July 31, 2000, between the
                 Company and The Bank of Nova Scotia.
4.14.1(jj)    -  Certificate of Designations of Series B Preferred Stock of the
                 Company.
10.2(h)       -  Reimbursement Agreement, dated as of March 23, 1993, between
                 Trace Holdings and General Felt.
10.3(h)       -  Shareholder Agreement, dated December 31, 1992, among Recticel,
                 s.a. ("Recticel"), Recticel Holding Noord B.V., Foamex L.P.,
                 Beamech Group Limited, LME-Beamech, Inc., James Brian
                 Blackwell, and Prefoam AG relating to a foam technology-sharing
                 arrangement.
10.4.1(k)     -  Asset Transfer Agreement, dated as of October 2, 1990, between
                 Trace Holdings and Foamex L.P. (the "Trace Holdings Asset
                 Transfer Agreement").
10.4.2(k)     -  First Amendment, dated as of December 19, 1991, to the Trace
                 Holdings Asset Transfer Agreement.
10.4.3(k)     -  Amended and Restated Guaranty, dated as of December 19, 1991,
                 made by Trace Foam in favor of Foamex L.P.

                                       33

<PAGE>

10.5.1(k)     -  Asset Transfer Agreement, dated as of October 2, 1990, between
                 Recticel Foam Corporation ("RFC") and Foamex L.P. (the "RFC
                 Asset Transfer Agreement").
10.5.2(k)     -  First Amendment, dated as of December 19, 1991, to the RFC
                 Asset Transfer Agreement.
10.5.3(k)     -  Schedule 5.03 to the RFC Asset Transfer Agreement (the "5.03
                 Protocol").
10.5.4(h)     -  The 5.03 Protocol Assumption Agreement, dated as of October 13,
                 1992, between RFC and Foamex L.P.
10.5.5(h)     -  Letter Agreement between Trace Holdings and Recticel regarding
                 the Recticel Guaranty, dated as of July 22, 1992.
10.6(l)       -  Supply Agreement, dated June 28, 1994, between Foamex L.P. and
                 Foamex International.
10.7.1(l)     -  First Amended and Restated Tax Sharing Agreement, dated as of
                 December 14, 1993, among Foamex L.P., Trace Foam, FMXI and
                 Foamex International.
10.7.2(d)     -  First Amendment to First Amended and Restated Tax Sharing
                 Agreement, dated as of June 12, 1997, by and among Foamex L.P.,
                 Foamex International, FMXI and Trace Foam.
10.7.3(w)     -  Second Amendment to First Amended and Restated Tax Sharing
                 Agreement, dated as of December 23, 1997, by and among Foamex
                 L.P., Foamex International, FMXI, and Trace Foam.
10.7.4(y)     -  Third Amendment to First Amended and Restated Tax Sharing
                 Agreement, dated as of February 27, 1998, by and between Foamex
                 L.P., Foamex International and FMXI.
10.8.1(m)     -  Tax Distribution Advance Agreement, dated as of December 11,
                 1996, by and between Foamex L.P. and Foamex-JPS Automotive L.P.
10.8.2(d)     -  Amendment No. 1 to Tax Distribution Advance Agreement, dated as
                 of June 12, 1997, by and between Foamex L.P. and Foamex
                 International.
10.10.1(k)    -  Salaried Incentive Plan of Foamex L.P. and Subsidiaries.
10.10.3(k)    -  Equity Growth Participation Program.
10.10.4(o)    -  The Foamex L.P. Salaried Pension Plan (formerly, "The General
                 Felt Industries, Inc. Retirement Plan for Salaried Employees"),
                 effective as of January 1, 1995.
10.10.5(u)    -  The Foamex L.P. Hourly Pension Plan (formerly "The Foamex
                 Products Inc. Hourly Employee Retirement Plan"), as amended
                 December 31, 1995.
10.10.6(u)    -  Foamex L.P. 401(k) Savings Plan effective October 1, 1997.
10.10.7(ii)   -  Foamex International's Amended and Restated 1993 Stock Option
                 Plan.
10.10.8(a)    -  Foamex International's Non-Employee Director Compensation Plan.
10.10.9(mm)   -  Foamex International Inc. Equity Incentive Plan for
                 Non-Employee Directors.
10.10.10(mm)  -  Foamex International Key Employee Incentive Bonus Plan.
10.10.11(nn)  -  Agreement with Consultant, dated April 24, 2001 by and between
                 Robert J. Hay and Foamex L.P.
10.10.12      -  Foamex Supplemental Executive Retirement Plan, effective as of
                 May 15, 2001.
10.10.13      -  Split dollar Life Insurance Agreement Between Foamex
                 International Inc. and Marshall S. Cogan, dated as of May 1,
                 2001
10.11.1(kk)   -  Employment Agreement, dated as of January 1, 1999, by and
                 between the Company and Marshall S. Cogan.
10.11.2(dd)   -  Employment Agreement, dated as of March 16, 1999, by and
                 between Foamex International and John G. Johnson, Jr.
10.11.3(kk)   -  Employment Agreement, amended effective as of January 29, 2001,
                 by and between Foamex International and John Televantos.
10.11.4(ll)   -  Termination and Release Agreement dated as of January 30, 2001,
                 by and between the Company and Jack G. Johnson.
10.11.5       -  Termination and Release Agreement dated as of December 6, 2001,
                 by and between the Company and John Televantos.
10.11.6       -  Employment Offer Letter, dated August 4, 2001, by and between
                 Foamex International and Thomas E. Chorman
10.11.7       -  Employment Offer Letter, dated December 5, 2001, by and between
                 Foamex International and Peter W. Johnson
10.11.8       -  First Amendment to Employment Agreement, dated as of December
                 31, 2001, by and between the Company and Marshall S. Cogan.

                                       34

<PAGE>

10.14(o)      -  Stock Purchase Agreement, dated as of December 23, 1993, by and
                 between Transformacion de Espumas u Fieltros, S.A., the
                 stockholders which are parties thereto, and Foamex L.P.
10.15.1(r)    -  Asset Purchase Agreement, dated as of August 29, 1997, by and
                 among General Felt, Foamex L.P., Bretlin, Inc. and The Dixie
                 Group.
10.15.2(s)    -  Addendum to Asset Purchase Agreement, dated as of October 1,
                 1997, by and among General Felt, Foamex L.P., Bretlin, Inc. and
                 The Dixie Group.
10.16.1(x)   -  Supply Agreement, dated as of February 27, 1998, by and between
                 Foamex L.P. and General Felt (as assigned to Foamex Carpet).
10.16.2(x)    -  Administrative Services Agreement, dated as of February 27,
                 1998, by and between Foamex L.P. and General Felt (as assigned
                 to Foamex Carpet).
10.17(y)      -  Tax Sharing Agreement, dated as of February 27, 1998, between
                 Foamex International and Foamex Carpet.
10.18.1       -  Joint Venture Agreement between Hua Kee Company Limited and
                 Foamex Asia, Inc. amended and restated as of December 6, 2001.
10.18.2(w)    -  Loan Agreement between Hua Kee Company Limited and Foamex Asia,
                 Inc., dated as of July 8, 1997.
21            -  Subsidiaries of registrant.
23            -  Consent of Independent Accountants, PricewaterhouseCoopers LLP.
23.1          -  Consent of Independent Auditors, Deloitte & Touche LLP.

____________________________

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

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

(c)    Incorporated  herein by reference to the Exhibit to the Current Report on
       Form 8-K of the Company reporting an event that occurred May 28, 1997.

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


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

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

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

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

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

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

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

                                       35

<PAGE>

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

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

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

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

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

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

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

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

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

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

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

(w)    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.

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

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

(z)    Incorporated herein by reference to the Current Report on Form 8-K of the
       Company reporting an event that occurred on November 5, 1998.

(aa)   Incorporated  herein by reference to the Exhibit to the Current Report on
       Form 8-K of the  Company  reporting  an event that  occurred  on June 25,
       1998.

(bb)   Incorporated  herein by reference to the Exhibit to the Current Report on
       Form 8-K of the  Company  reporting  an event that  occurred on March 11,
       1999.

(cc)   Incorporated herein by reference to the Exhibit in the Registration
       Statement of Foamex L.P. and FCC on Form S-4/A, Registration No.
       333-45733, filed May 11, 1998.

                                       36

<PAGE>


(dd)   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.

(ee)   Incorporated  herein by reference to the Exhibit to the Current Report on
       Form 8-K of the  Company  reporting  an event that  occurred  on June 30,
       1999.

(ff)   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, 1999.

(gg)   Incorporated  herein by  reference to the Exhibit to the Form 10-Q of the
       Company for the quarterly period ended March 31, 2000.

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

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

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

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

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

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

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

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

                                       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 29th day of March 2002.

                                 FOAMEX INTERNATIONAL INC.


                                 By:     /s/  Peter W. Johnson
                                         ---------------------------------------
                                 Name:     Peter W. Johnson
                                 Title:    President and Chief Operating Officer
                                           (Principal Executive Officer)



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


                                 By:     /s/  Michael D. Carlini
                                         ---------------------------------------
                                 Name:     Michael D. Carlini
                                 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/ Marshall S. Cogan            Chairman of the Board           March 29, 2002
----------------------------
     Marshall S. Cogan


/s/ John V. Tunney               Vice Chairman and Director      March 29, 2002
----------------------------
    John V. Tunney


/s/ Robert J. Hay                Chairman Emeritus               March 29, 2002
----------------------------
     Robert J. Hay                and Director


/s/ John C. Culver               Director                        March 29, 2002
----------------------------
     John C. Culver


/s/ Julie Nixon Eisenhower       Director                        March 29, 2002
----------------------------
     Julie Nixon Eisenhower


/s/ Stuart J. Hershon            Director                        March 29, 2002
----------------------------
    Stuart J. Hershon


/s/ Virginia A. Kamsky           Director                        March 29, 2002
----------------------------
    Virginia A. Kamsky


/s/ Raymond E. Mabus             Director                        March 29, 2002
----------------------------
    Raymond E. Mabus


/s/ Steven B. Sharpe             Director                        March 29, 2002
----------------------------
    Steven B. Sharpe


                                       39

<PAGE>


                            FOAMEX INTERNATIONAL INC.
                   INDEX TO CONSOLIDATED FINANCIAL STATEMENTS


<TABLE>
<S>                                                                                                     <C>
Foamex International Inc.

    Index to Consolidated Financial Statements                                                           F-1

    Independent Auditors' Report                                                                         F-2

    Report of Independent Accountants                                                                    F-3

    Consolidated Balance Sheets as of December 31, 2001 and 2000                                         F-4

    Consolidated Statements of Operations for the years ended December 31, 2001,
         2000 and 1999                                                                                   F-6

    Consolidated Statements of Cash Flows for the years ended December 31, 2001,
         2000 and 1999                                                                                   F-7

    Consolidated Statements of Stockholders' Deficiency for the years ended December 31, 2001,
         2000 and 1999                                                                                   F-8

    Notes to Consolidated Financial Statements                                                           F-9
</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  sheet  of  Foamex
International Inc. and subsidiaries (the "Company") as of December 31, 2001, and
the related consolidated statements of operations,  cash flows and stockholders'
deficiency  for the year then ended.  Our audit also  included the  consolidated
financial  statement  schedules  as of and for the year ended  December 31, 2001
listed in the Index at Item 14a.  These  consolidated  financial  statements and
financial   statement   schedules  are  the   responsibility  of  the  Company's
management.  Our  responsibility is to express an opinion on these  consolidated
financial statements and financial statement schedules based on our audit.

We conducted our audit in accordance with 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 audit provides 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 31, 2001,
and the results of its  operations and its cash flows for the year then ended in
conformity with accounting principles generally accepted in the United States of
America.  Also,  in our  opinion,  such 2001  consolidated  financial  statement
schedules,  when  considered  in  relation to the basic  consolidated  financial
statements  taken  as a whole,  present  fairly  in all  material  respects  the
information set forth therein.



/s/ DELOITTE & TOUCHE  LLP

March 25, 2002
Parsippany, New Jersey

                                      F-2

<PAGE>


                        REPORT OF INDEPENDENT ACCOUNTANTS



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

In our  opinion,  the  consolidated  financial  statements  listed  in the index
appearing  under Item 14 (a)  present  fairly,  in all  material  respects,  the
financial position of Foamex  International Inc and its subsidiaries at December
31, 2000,  and the results of their  operations and their cash flows for each of
the  two  years  in the  period  ended  December  31,  2000 in  conformity  with
accounting  principles  generally  accepted in the United States of America.  In
addition,  in our opinion, the financial statement schedules listed in the index
appearing  under Item 14 (a)  present  fairly,  in all  material  respects,  the
information  set  forth  therein  when  read in  conjunction  with  the  related
consolidated  financial  statements.  These  financial  statements and financial
statement  schedules are the  responsibility  of the Company's  management;  our
responsibility  is to  express  an opinion  on these  financial  statements  and
financial  statement  schedules based on our audits.  We conducted our audits of
these statements in accordance with auditing standards generally accepted in the
United  States of America,  which  require that we plan and perform the audit to
obtain reasonable  assurance about whether the financial  statements are free of
material  misstatement.  An audit includes examining,  on a test basis, evidence
supporting the amounts and  disclosures in the financial  statements,  assessing
the accounting principles used and significant estimates made by management, and
evaluating the overall  financial  statement  presentation.  We believe that our
audits provide a reasonable basis for our opinion.

As discussed in Note 8, during the year ending  December 31, 2001, the Company's
financial  debt  covenants,  with which the  Company  must comply on a quarterly
basis, become more restrictive.  Management's plans in regard to this matter are
also described in Note 8.


/s/ PricewaterhouseCoopers LLP
Philadelphia, Pennsylvania
March 30, 2001

                                      F-3

<PAGE>

                   FOAMEX INTERNATIONAL INC. AND SUBSIDIARIES
                           CONSOLIDATED BALANCE SHEETS


<TABLE>
<CAPTION>
                                                                            December 31,           December 31,
                                                                                2001                   2000
                                                                             ----------             ----------
ASSETS                                                                                 (thousands)
CURRENT ASSETS
<S>                                                                          <C>                    <C>
    Cash and cash equivalents                                                $   15,064             $    4,890
    Accounts receivable, net of allowance for doubtful
      accounts and discounts of $10,940 in 2001 and $9,926 in 2000              173,461                170,590
    Inventories                                                                  89,430                100,334
    Deferred income taxes                                                           375                      -
    Other current assets                                                         32,935                 18,889
                                                                             ----------             ----------

            Total current assets                                                311,265                294,703
                                                                             ----------             ----------

PROPERTY, PLANT AND EQUIPMENT
    Land and land improvements                                                    7,512                  6,805
    Buildings and leasehold improvements                                        116,232                100,169
    Machinery, equipment and furnishings                                        275,261                268,353
    Construction in progress                                                      8,199                 21,964
                                                                             ----------             ----------

            Total                                                               407,204                397,291

    Less accumulated depreciation and amortization                             (206,407)              (184,760)
                                                                             ----------             ----------

       Property, plant and equipment, net                                       200,797                212,531

COST IN EXCESS OF NET ASSETS ACQUIRED, net of
accumulated amortization of $34,855 in 2001 and
$29,076 in 2000                                                                 208,184                209,125

DEBT ISSUANCE COSTS, net of
accumulated amortization of $14,643 in 2001 and
$10,675 in 2000                                                                  13,690                 15,082

DEFERRED INCOME TAXES                                                                 -                    328

OTHER ASSETS                                                                     33,026                 19,812
                                                                             ----------             ----------

TOTAL ASSETS                                                                   $766,962               $751,581
                                                                             ==========             ==========
</TABLE>


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

                                      F-4

<PAGE>

                   FOAMEX INTERNATIONAL INC. AND SUBSIDIARIES
                           CONSOLIDATED BALANCE SHEETS

<TABLE>
<CAPTION>
                                                                              December 31,           December 31,
                                                                                  2001                  2000
                                                                                ---------            ---------
LIABILITIES AND STOCKHOLDERS' DEFICIENCY                                       (thousands, except share data)
CURRENT LIABILITIES
<S>                                                                             <C>                  <C>
    Current portion of long-term debt                                           $   4,023            $   8,356
    Current portion of long-term debt - related party                              14,040               15,795
    Accounts payable                                                              128,852               82,939
    Accrued employee compensation and benefits                                     25,858               21,853
    Accrued interest                                                                8,946                9,198
    Accrued restructuring                                                          12,392                4,766
    Accrued customer rebates                                                       21,869               23,839
    Cash overdrafts                                                                 4,073                6,885
    Other accrued liabilities                                                      24,551               16,311
    Deferred income taxes                                                           1,612                1,511
                                                                                ---------            ---------

      Total current liabilities                                                   246,216              191,453

LONG-TERM DEBT                                                                    630,682              656,168

LONG-TERM DEBT - RELATED PARTY                                                     17,550               31,590

ACCRUED EMPLOYEE BENEFITS                                                          25,944               18,824

DEFERRED INCOME TAXES                                                               4,171                2,708

ACCRUED RESTRUCTURING                                                              12,604                4,681

OTHER LIABILITIES                                                                  10,541               10,826
                                                                                ---------            ---------

    Total liabilities                                                             947,708              916,250
                                                                                ---------            ---------

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 2001 and 2000                                 15                   15
    Common Stock, par value $.01 per share:
      Authorized 50,000,000 shares
      Issued 27,260,441 shares in 2001 and 27,048,994 shares in 2000
      Outstanding 23,771,441 shares in 2001 and 23,559,994 shares in 2000             273                  270
    Additional paid-in capital                                                     97,668               96,275
    Accumulated deficit                                                          (206,544)            (200,932)
    Accumulated other comprehensive loss                                          (35,157)             (23,296)
    Other:
      Common Stock held in treasury, at cost:
        3,489,000 shares in 2001 and 2000                                         (27,780)             (27,780)
      Shareholder note receivable                                                  (9,221)              (9,221)
                                                                                ---------            ---------

      Total stockholders' deficiency                                             (180,746)            (164,669)
                                                                                ---------            ---------

TOTAL LIABILITIES AND STOCKHOLDERS' DEFICIENCY                                   $766,962             $751,581
                                                                                =========            =========
</TABLE>

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

                                      F-5

<PAGE>

                   FOAMEX INTERNATIONAL INC. AND SUBSIDIARIES
                      CONSOLIDATED STATEMENTS OF OPERATIONS


<TABLE>
<CAPTION>
                                                                        For the Years Ended December 31,
                                                                     2001              2000           1999
                                                                  ----------        ----------     ----------
                                                                      (thousands, except per share amounts)
<S>                                                               <C>               <C>            <C>
NET SALES                                                         $1,252,904        $1,257,778     $1,294,639

COST OF GOODS SOLD                                                 1,072,823         1,085,753      1,114,331
                                                                  ----------        ----------     ----------

GROSS PROFIT                                                         180,081           172,025        180,308

SELLING, GENERAL AND ADMINISTRATIVE
    EXPENSES                                                          80,540            69,286         76,759

RESTRUCTURING, IMPAIRMENT  AND OTHER CHARGES                          36,068             6,268         10,491
                                                                  ----------        ----------     ----------

INCOME FROM OPERATIONS                                                63,473            96,471         93,058

INTEREST AND DEBT ISSUANCE EXPENSE                                    63,237            75,229         72,908

INCOME FROM EQUITY INTEREST IN JOINT VENTURE                           1,645             1,652            512

OTHER INCOME (EXPENSE), NET                                           (2,196)           (3,042)         1,516
                                                                  ----------        ----------     ----------

INCOME (LOSS) BEFORE PROVISION FOR INCOME TAXES                         (315)           19,852         22,178

PROVISION FOR INCOME TAXES                                             5,297             2,839          2,462
                                                                  ----------        ----------     ----------

NET INCOME (LOSS)                                                 $   (5,612)       $   17,013     $   19,716
                                                                  ==========        ==========     ==========


BASIC EARNINGS (LOSS) PER SHARE                                    $   (0.24)     $      0.69      $     0.79
                                                                  ==========        ==========     ==========

DILUTED EARNINGS (LOSS) PER SHARE                                  $   (0.24)     $      0.67      $     0.78
                                                                  ==========        ==========     ==========
</TABLE>


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

                                      F-6

<PAGE>

                   FOAMEX INTERNATIONAL INC. AND SUBSIDIARIES
                      CONSOLIDATED STATEMENTS OF CASH FLOWS

<TABLE>
<CAPTION>
                                                                     For the Years Ended December 31,
                                                                  2001              2000            1999
                                                                --------          --------        --------
OPERATING ACTIVITIES                                                              (thousands)
<S>                                                             <C>               <C>             <C>
   Net income (loss)                                            $ (5,612)         $ 17,013        $ 19,716
   Adjustments to reconcile net income (loss) to net
     cash provided by operating activities:
     Depreciation and amortization                                33,988            36,588          35,750
     Amortization of debt issuance costs, debt premium
        and debt discount                                          1,288             1,335           1,315
     Asset impairment and other charges                           13,811             2,621             314
     Loss (gain) on disposition of assets                            963             1,654          (3,061)
     Provision for uncollectible accounts                          5,479             2,838           2,758
     Retirement benefit funding (greater) less than expense       (1,752)           (7,198)          1,865
     Deferred income taxes                                         1,635               513             807
     Other, net                                                      361               303            (346)
   Changes in operating assets and liabilities:
     Accounts receivable                                          (9,578)           (6,857)         15,829
     Inventories                                                  15,177            (2,452)         38,776
     Accounts payable                                             45,913               262         (62,692)
     Accrued restructuring                                        15,549            (3,352)            849
     Other assets and liabilities                                (10,808)            7,720           6,839
                                                                --------          --------        --------

        Net cash provided by operating activities                106,414            50,988          58,719
                                                                --------          --------        --------

INVESTING ACTIVITIES
   Capital expenditures                                          (22,482)          (23,593)        (20,080)
   Proceeds from sale of assets                                      600             3,570          17,823
   Acquisitions                                                  (17,559)                -               -
   Other investing activities                                     (1,130)           (1,850)            599
                                                                --------          --------        --------

        Net cash used in investing activities                    (40,571)          (21,873)         (1,658)
                                                                --------          --------        --------

FINANCING ACTIVITIES
   Repayments of short-term borrowings                                 -            (1,627)         (1,330)
   Net proceeds from (repayments of) revolving loans             (20,905)           32,220         (25,753)
   Repayments of long-term debt                                   (8,538)          (20,550)        (17,281)
   Repayments of long-term debt-related party                    (15,795)          (41,898)         (9,652)
   Increase (decrease) in cash overdrafts                         (2,812)            1,029          (1,444)
   Debt issuance costs                                            (2,578)                -          (7,866)
   Other financing activities                                     (5,041)               24             270
                                                                --------          --------        --------

        Net cash used in financing activities                    (55,669)          (30,802)        (63,056)

Net increase (decrease) in cash and cash equivalents              10,174            (1,687)         (5,995)

Cash and cash equivalents at beginning of period                   4,890             6,577          12,572
                                                                --------          --------        --------

Cash and cash equivalents at end of period                      $ 15,064          $  4,890       $   6,577
                                                                ========          ========       =========
</TABLE>


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

                                      F-7

<PAGE>

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


<TABLE>
<CAPTION>
                                                                                 Accumulated
                                                        Additional                  Other
                                     Preferred  Common   Paid-in   Accumulated  Comprehensive
                                        Stock    Stock   Capital     Deficit         Loss        Other      Total
                                        ----     ----    -------    ---------     --------     --------  ---------
                                                                        (thousands)
<S>                                     <C>      <C>     <C>        <C>           <C>          <C>       <C>
Balances at January 1, 1999             $  -     $270    $86,990    $(237,661)    $(24,721)    $(28,997) $(204,119)

Net income                                                             19,716                               19,716
Minimum pension liability adjustment                                                12,009                  12,009
Foreign currency translation adjustment                                              4,954                   4,954
                                                                                                         ---------
  Comprehensive income                                                                                      36,679
Stock option compensation                                    215                                               215
Stock options exercised                                      270                                               270
Other                                                                                               574        574
                                        ----     ----    -------    ---------     --------     --------  ---------
Balances at December 31, 1999              -      270     87,475     (217,945)      (7,758)     (28,423)  (166,381)

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

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

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

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

</TABLE>


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

                                      F-8

<PAGE>

                   FOAMEX INTERNATIONAL INC. AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

1.     ORGANIZATION AND BASIS OF PRESENTATION

       Organization

       Foamex International Inc. (the "Company") operates in the flexible
polyurethane and advanced polymer foam products industry. As of December 31,
2001, the Company's operations are primarily conducted through its wholly-owned
subsidiaries, Foamex L.P. and Foamex Carpet Cushion, Inc. ("Foamex Carpet").
Foamex Carpet was converted to a limited liability company and was contributed
to Foamex L.P. on March 25, 2002. Foamex L.P. conducts foreign operation through
Foamex Canada Inc., Foamex Latin America, Inc. and Foamex Asia, Inc. Financial
information concerning the business segments of the Company is included in Note
14.

       Shareholder and Change in Control Developments

       Trace International Holdings, Inc. ("Trace") is a privately held company,
which owned  approximately 29% of the Company's  outstanding voting common stock
at September  30, 2000,  and whose former  Chairman also serves as the Company's
Chairman.  The  Company's  common stock owned by Trace was pledged as collateral
against certain of Trace's obligations. Certain credit agreements and promissory
notes of the  Company's  subsidiaries,  pursuant to which  approximately  $401.1
million of debt was  outstanding  as of  September  30,  2000,  provided  that a
"change  of  control"  would be an event of  default  and  could  result  in the
acceleration of such indebtedness.  "Change of control" means, for this purpose,
that (i) a person or related  group,  other than Trace,  beneficially  owns more
than 25% of the  Company's  outstanding  voting stock and (ii) such voting stock
constitutes  a  greater   percentage  of  such  voting  stock  than  the  amount
beneficially owned by Trace. Additionally, certain indentures of Foamex L.P. and
Foamex Capital  Corporation  ("FCC"), a wholly-owned  subsidiary of Foamex L.P.,
relating to senior  subordinated notes of $248.0 million contain similar "change
of control"  provisions,  which  require  Foamex L.P. and FCC to tender for such
notes  at a price  in cash  equal  to 101%  of the  aggregate  principal  amount
thereof, plus accrued and unpaid interest thereon, if there is such a "change of
control".

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

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

       Under the Exchange Agreement,  The Bank of Nova Scotia initially received
1,500,000 shares of the Company's common stock from the Trace bankruptcy  estate
and exchanged  these common stock shares for 15,000 shares of a new class of the
Company's non-voting  non-redeemable  convertible preferred stock (the "Series B
Preferred  Stock").  Each share of the Series B Preferred Stock can be converted
into 100 shares of the Company's  common stock but only if such conversion would
not  trigger a "change of  control"  event,  as  discussed  above.  The Series B
Preferred  Stock (a) is entitled to dividends  only if a dividend is declared on
the  Company's  common  stock,  (b) ranks senior to any future  preferred  stock
issued by the Company and (c) is entitled to a  liquidation  preference  of $100
per share.  Following this exchange, The Bank of Nova Scotia became the owner of
24.41%  of the  outstanding  shares  of the  Company's  common  stock  when  the
remaining 5,697,426 shares of the Company's common stock were transferred to The
Bank  of  Nova  Scotia  from  the  Trace  bankruptcy   estate.   Certain  equity
transactions,  primarily the exercise of stock options, have reduced the Bank of
Nova Scotia's common stock ownership percentage to 23.6% at February 15, 2002.

                                      F-9

<PAGE>

                   FOAMEX INTERNATIONAL INC. AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

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 that it  increased  its
ownership  to 70% in late 2001.  The  Company  does not have  control due to the
minority shareholders'  substantive  participation rights and therefore uses the
equity  method  of  accounting.   All  significant   intercompany  accounts  and
transactions have been eliminated in consolidation.

Accounting Estimates

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

Concentration of Credit Risk

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

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

Revenue Recognition, Discounts and Rebates

       Revenue from sales,  net of discounts and estimated  returns,  allowances
and rebates,  is recognized when product title passes to the customer,  which is
primarily at the time of shipment.

Cash and Cash Equivalents

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

Accounts Receivable and Allowance for Uncollectible Accounts

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

                                      F-10

<PAGE>

                   FOAMEX INTERNATIONAL INC. AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

2.     SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)

       The carrying amount and fair value of long-term debt at December 31, 2001
were $666.3 million and $603.4 million,  respectively,  and at December 31, 2000
were  $711.9  million  and  $595.1  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 2001,  2000 and 1999 was $26.4 million,  $28.7 million
and $27.9 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.

Cost in Excess of Net Assets Acquired

       The  excess of the  acquisition  cost over the fair  value of net  assets
acquired in business combinations  accounted for as purchases is amortized using
the  straight-line  method over 40 years. See the section below entitled "Future
Accounting Changes - Goodwill and Other Intangible Assets."

Impairment of Long-Lived Assets

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

Debt Issuance Costs

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

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.

                                      F-11

<PAGE>

                   FOAMEX INTERNATIONAL INC. AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

2.     SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)

Comprehensive Income (Loss)

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

Foreign Currency Translation

       The financial  statements of foreign  subsidiaries  have been  translated
into  U.S.  dollars  by using  period-end  exchange  rates  for the  assets  and
liabilities  and the average  exchange  rates for the  statements of operations.
Currency translation adjustments are included in accumulated other comprehensive
loss. Transaction gains (losses) are reflected in operations.

Research and Development

       Research and development costs are expensed as incurred.  Amounts charged
against  income were $3.1 million,  $2.5 million and $3.3 million in 2001,  2000
and 1999, respectively.

Start-Up Costs

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

Income Taxes

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

Stock Options

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

Accounting Changes  - Accounting for Derivatives and Hedging Activities

       Statement of Financial Accounting Standards No. 133, "Accounting for
Derivative Instruments and Hedging Activities" ("SFAS No. 133") requires the
fair value of derivatives to be recognized in the consolidated balance sheet.
Changes in the fair value of derivatives are recognized in earnings or in other
comprehensive loss, essentially depending on the structure and the purpose of
the derivatives. During 2000, SFAS No. 138, "Accounting for Certain Derivative
Instruments and Certain Hedging Activities", which amended SFAS No. 133 on a
limited number of issues, was issued. The statements were effective for the
Company in the first quarter of 2001.

       These  statements  create a  foundation  that  addresses  accounting  and
reporting  issues  for  a  wide  range  of  financial   instruments  defined  as
derivatives  and related hedging  activities.  As of December 31, 2001 and 2000,
the

                                      F-12

<PAGE>

                   FOAMEX INTERNATIONAL INC. AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

2.     SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)

Company did not have any derivatives, as defined in the statements. Accordingly,
the  adoption  of the  statements  did not have any  impact  on the  results  of
operations or financial position of the Company.

Accounting Changes - Business Combinations

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

Future Accounting Changes - Goodwill and Other Intangible Assets

       During  2001,  Statement  of  Financial  Accounting  Standards  No.  142,
"Goodwill and Other Intangible Assets" ("SFAS No. 142") was issued. SFAS No. 142
addresses  financial  accounting  and reporting for acquired  goodwill and other
intangible assets. A key change as a result of implementing SFAS No. 142 will be
that goodwill and certain other intangibles will no longer be amortized but will
be  periodically  assessed  for  impairment,  and as a result  there may be more
volatility  in the reported  results than under the  previous  standard  because
impairment  losses are likely to occur  irregularly and in varying amounts.  Any
impairment losses for goodwill and indefinite-lived intangible assets that arise
due to the initial  application  of SFAS No. 142 will be  reported as  resulting
from a change in  accounting  principle.  Any  goodwill  and  intangible  assets
acquired  after June 30, 2001,  including the  acquisition  discussed in Note 4,
will be subject immediately to the  nonamortization and amortization  provisions
of SFAS No.  142.  The other  provisions  of SFAS No. 142 will be adopted by the
Company on January 1, 2002.  The Company  continues to evaluate SFAS No. 142 and
has not yet determined the complete impact, however the Company expects that the
adoption  of  SFAS  No.  142  will  reduce   annual   amortization   expense  by
approximately $5.9 million.

Future Accounting Changes - Asset Retirement Obligations and Impairment or
Disposal of Long-Lived Assets

       During 2001, Statement of Financial Accounting Standards No. 143,
"Accounting for Asset Retirement Obligations ("SFAS No. 143") was issued. SFAS
No. 143 requires the recognition of a liability for the estimated cost of
disposal as part of the initial cost of a long-lived asset and will be effective
in 2003. Subsequent to the third quarter of 2001, Statement of Financial
Accounting Standards No. 144, "Accounting for the Impairment or Disposal of
Long-Lived Assets" ("SFAS No. 144") was issued. SFAS No. 144 will provide a
single approach for measuring the impairment of long-lived assets, including a
segment of a business accounted for as a discontinued operation or those to be
sold or disposed of other than by sale. SFAS No. 144 will be effective in 2002.
The Company continues to evaluate the statements and has not yet determined the
impact of SFAS No. 143 and SFAS No. 144.

Reclassifications

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

3.     EARNINGS (LOSS) PER SHARE

       The  calculation  of earnings  (loss) per share is presented in the table
below.

<TABLE>
<CAPTION>
                                               2001         2000         1999
                                             --------     --------    --------
                                            (thousands, except per share amounts)
       Basic earnings (loss) per share
<S>                                          <C>          <C>         <C>
         Net income (loss)                   $ (5,612)    $ 17,013    $ 19,716
                                             ========     ========    ========

         Average common stock outstanding      23,599       24,814      25,053
                                             ========     ========    ========

       Basic earnings (loss) per share       $  (0.24)    $   0.69    $   0.79
                                             ========     ========    ========
</TABLE>

                                      F-13

<PAGE>

                   FOAMEX INTERNATIONAL INC. AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

3.     EARNINGS (LOSS) PER SHARE (continued)

<TABLE>
<CAPTION>
                                              2001 (a)      2000         1999
                                              --------     --------    --------
                                             (thousands, except per share amounts)
       Diluted earnings (loss) per share
<S>                                           <C>          <C>         <C>
         Net income (loss)                    $ (5,612)    $ 17,013    $ 19,716
                                              ========     ========    ========

         Average common stock outstanding       23,599       24,814      25,053
         Incremental shares resulting from
           Stock options (b)                         -          149         203
           Warrants (c)                              -            -           -
           Convertible preferred stock (d)           -          245           -
                                              --------     --------    --------

         Adjusted weighted average shares       23,599       25,208      25,256
                                              ========     ========    ========

       Diluted earnings (loss) per share      $  (0.24)    $   0.67    $   0.78
                                              ========     ========    ========
<FN>
       (a)    There is no dilution resulting from potential incremental shares
              in 2001, because the Company has a net loss 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 totaled 1,715,000 and
              849,000 in 2000 and 1999, respectively.

       (c)    All warrants expired without being exercised in 1999, as discussed
              in Note 13.

       (d)    Series B Preferred Stock was issued during the fourth quarter of
              2000 (see Note 13) and 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  $9.0
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 July 25, 2001. The effects of the
acquisition on the Company's consolidated financial statements is not material.

5.     RESTRUCTURING, IMPAIRMENT AND OTHER CHARGES

2001

       In December 2001, the Company  announced the launching of its Operational
Reorganization Plan to reduce its operating costs and accelerate revenue growth.
The major  initiatives  of the  Operational  Reorganization  Plan included plant
rationalization,  salaried headcount  reductions,  purchasing and logistics cost
reductions and sales and marketing management.

       In connection with the plant rationalization, we identified a total of 17
plant  operations  to be  closed.  Costs  associated  with  this  aspect  of the
Operational  Reorganization  Plan included lease termination costs and severance
and termination benefits aggregating $14.1 million.

                                      F-14

<PAGE>

                   FOAMEX INTERNATIONAL INC. AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

5.     RESTRUCTURING, IMPAIRMENT AND OTHER CHARGES (continued)

       Additionally,  we  identified  100 salaried  positions to be  eliminated,
mainly in  support  function  areas.  Severance,  termination  and  other  costs
associated with these positions were estimated to be $4.4 million.

       Further,  the  Company  evaluated  the  recoverability  of certain  other
long-lived  assets,  both  associated  and not associated  with the  Operational
Reorganization  Plan,  in  accordance  with SFAS No.  121,  "Accounting  for the
Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed".  As a
result,  the Company  recorded an impairment  provision of $13.8 million (net of
anticipated  proceeds of $4.6 million) to reduce these assets to their estimated
fair values.  The assets which are held for disposal consist mainly of leasehold
improvements  and machinery and equipment which have a remaining  carrying value
of approximately $19.8 million.

       Other  one-time  period  expenses  during  the fourth  quarter  consisted
primarily of executive  severance of $1.9 million and consulting fees related to
the Operational Reorganization Plan in the amount of $1.2 million.

       Severance  and  termination  benefits  as a  result  of  the  Operational
Reorganization  Plan are expected to be incurred for 746  employees.  Total cash
outlays related to the Operational Reorganization Plan are expected to aggregate
$17.0 million. We expect to complete implementation before the end of 2002.

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

2000

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

1999

       During 1999, the Company  recorded $9.8 million for  restructuring  plans
that  included  severance  for 210  employees.  The Company also  recorded a net
restructuring  charge of  approximately  $0.7  million  related  to  changes  in
estimates to prior years'  restructuring  plans.  Also during 1999,  the Company
received  $1.5  million  of net  proceeds  from the sale of  assets  related  to
restructuring plans.

       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
                                            -----       ----------        ----------      ----------         -----
       1999                                                               (millions)
<S>                                        <C>             <C>             <C>             <C>              <C>
       Balance at January 1, 1999          $   6.2         $  11.9         $     -         $  (5.7)         $    -
       Provision with adjustments             10.5             2.3             7.2             0.7             0.3
       Net cash receipts (spending)           (7.4)           (4.1)           (4.5)            1.5            (0.3)
       Asset impairment                       (0.3)              -               -            (0.3)              -
                                           -------         -------         -------         -------          ------
       Balance at December 31, 1999            9.0            10.1             2.7            (3.8)              -

       2000
       Provision with adjustments              6.3             1.4             2.3             2.6               -
       Net cash receipts (spending)           (3.5)           (3.9)           (3.2)            3.6               -
       Asset impairment                       (2.6)              -               -            (2.6)              -
                                           -------         -------         -------         -------          ------
       Balance at December 31, 2000            9.2             7.6             1.8            (0.2)              -
</TABLE>

                                      F-15

<PAGE>

                   FOAMEX INTERNATIONAL INC. AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

5.     RESTRUCTURING, IMPAIRMENT AND OTHER CHARGES (continued)

<TABLE>
<CAPTION>
                                                      Plant Closure       Personnel
                                            Total       and Leases        Reductions      Impairment         Other
                                            -----       ----------        ----------      ----------         -----
       1999                                                               (millions)
<S>                                        <C>             <C>             <C>             <C>              <C>
       Provision with adjustments             36.1            10.2             8.0            13.4             4.5
       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
                                             =====           =====           =====         =======           =====
</TABLE>

       The Company expects to spend approximately $12.4 million during 2002 with
the balance to be spent through 2012, primarily for lease costs.

6.     INVENTORIES

       The components of inventory are listed below.

                                             December 31,         December 31,
                                                 2001                 2000
                                                -------            ---------
                                                         (thousands)
       Raw materials and supplies               $53,398            $  66,690
       Work-in-process                           12,476               11,580
       Finished goods                            23,556               22,064
                                                -------             --------
       Total                                    $89,430             $100,334
                                                =======             ========

7.     SHORT-TERM BORROWINGS

       Foamex  Canada Inc.  ("Foamex  Canada") is a  wholly-owned  subsidiary of
Foamex L.P. and has a short-term  credit facility that provides for $8.0 million
of Canadian dollar loans (U.S. dollar  equivalent of approximately  $5.0 million
as of December 31, 2001) of which up to $2.0 million is available in U.S. dollar
loans. The amount of borrowings  available is based on a combination of accounts
receivable  and  inventory,  as  defined  in the credit  facility.  Interest  on
Canadian dollar  borrowings is based on the bank's prime lending rate plus 1 1/2
%. On U.S.  dollar loans,  interest is based on the bank's U.S. dollar base rate
in Canada plus 1 1/2 %. At December 31, 2001 and 2000,  there were no short-term
borrowings  outstanding and approximately $5.0 million was available at December
31, 2001.

8.     LONG-TERM DEBT

       The components of long-term debt are listed below.

<TABLE>
<CAPTION>
                                                                      December 31,    December 31,
                                                                          2001           2000
                                                                       --------        --------
       Foamex L.P. Credit Facility                                            (thousands)
<S>                                                                    <C>             <C>
         Term Loan B (1)                                               $ 76,139        $ 77,136
         Term Loan C (1)                                                 69,218          70,124
         Term Loan D (1)                                                100,259         101,565
         Revolving credit facility (1)                                  125,000         145,904
       9 7/8% Senior subordinated notes due 2007 (2)                    150,000         150,000
       13 1/2% Senior subordinated notes due 2005 (includes
         $6,515 and $8,308 of unamortized debt premium) (2)             104,515         106,308
       Industrial revenue bonds (3)                                       7,000           7,000
       Subordinated note payable (net of unamortized
         debt discount of $49 in 2000) (3)                                    -           2,289
       Other (net of unamortized debt discount of $281 in 2001)           2,574           4,198
                                                                       --------        --------
                                                                        634,705         664,524
</TABLE>

                                      F-16

<PAGE>

                   FOAMEX INTERNATIONAL INC. AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

8.     LONG-TERM DEBT (continued)

<TABLE>
<CAPTION>
                                                                      December 31,    December 31,
                                                                          2001           2000
                                                                       --------        --------
                                                                              (thousands)
<S>                                                                       <C>             <C>
       Less current portion                                               4,023           8,356
                                                                       --------        --------

       Long-term debt-unrelated parties                                $630,682        $656,168
                                                                       ========        ========

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

                                                                      December 31,    December 31,
                                                                          2001           2000
                                                                       --------        --------
                                                                              (thousands)
       Note payable to Foam Funding LLC (4)                            $ 31,590        $ 47,385

       Less current portion                                              14,040          15,795
                                                                       --------        --------

       Long-term debt - related party                                  $ 17,550        $ 31,590
                                                                       ========        ========
</TABLE>

       (1)    Subsidiary debt of Foamex L.P., guaranteed by the Company and
              FMXI, Inc.
       (2)    Subsidiary debt of Foamex L.P. and FCC.
       (3)    Subsidiary debt of Foamex L.P.
       (4)    Subsidiary debt of Foamex Carpet.

Foamex L.P. Credit Facility

       At December 31, 2001, Foamex L.P. had a credit facility (the "Foamex L.P.
Credit  Facility") with a group of banks,  which provided for a revolving credit
facility  commitment of $165.0 million and three term loans (Term loans B, C and
D) with an outstanding balance totaling $245.6 million. Included in the group of
banks that provided the Foamex L.P. Credit Facility was The Bank of Nova Scotia,
which is a  shareholder  of the Company,  as discussed in Note 1.  Amendments in
1998 provided for a $2.5 million quarterly  reduction of the availability  under
the revolving credit facility, which extended through June 2003.

       Borrowings under the Foamex L.P. Credit Facility were  collateralized  by
substantially  all of the assets of Foamex  L.P.  on a pari passu basis with the
IRBs  (described  below);  however,  the rights of the holders of the applicable
issue of the IRBs to receive  payment  upon the  disposition  of the  collateral
securing such issue of the IRBs had been preserved.

       In response to financial conditions at year-end 1998,  amendments to debt
agreements were executed during the first half of 1999. As a result,  the Foamex
L.P.  Credit  Facility,  which was amended and  restated in February  1998,  was
further amended and restated in June 1999 to modify financial  covenants for net
worth,  interest  coverage,  fixed charge  coverage and leverage  ratios through
December 2006. The agreement was also amended to no longer permit Foamex L.P. to
make certain cash payments, including the payment of an annual management fee of
$3.0 million to a subsidiary of Trace and  distributions to the Company,  and to
limit future investments in foreign subsidiaries and joint ventures. The "change
of control"  definition  under the agreement was also modified to conform to the
definition  discussed  in "change of control" in Note 1. Changes in the interest
rate  structure,  effective  in 2000,  were also made and are  discussed  below.
Foamex L.P. was in compliance with this agreement at December 31, 2001 and 2000.

       At December 31, 2001, interest was based on the combination of a variable
rate consisting of the higher of (i) the base rate of The Bank of Nova Scotia or
(ii) the Federal Funds rate plus 0.5% plus a margin.  The margins for revolving,
Term  B,  Term  C and  Term  D  loans  were  2.50%,  2.75%,  3.00%  and  3.125%,
respectively.  At the option of Foamex L.P.,  portions of the outstanding  loans
were  convertible  into  LIBOR  based  loans  consisting  of a rate equal to the
greater  of (i)  2.50% or (ii)  LIBO rate (as  defined)  plus 1.0%  added to the
margins identified above. The

                                      F-17

<PAGE>

                   FOAMEX INTERNATIONAL INC. AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

8.     LONG-TERM DEBT (continued)

effective  interest  rates for the Foamex L.P.  Credit  Facility at December 31,
2001 ranged  between 6.20% and 6.63%.  Term B, Term C and Term D loans mature on
June 30, 2005, June 30, 2006 and December 31, 2006, respectively.

       Effective  January 1, 2000, the interest rate on  outstanding  borrowings
under the Foamex L.P.  Credit  Facility  increases  25 basis points each quarter
that Foamex L.P.'s leverage  ratio,  as defined,  exceeds 5.00 to 1.00. Once the
leverage  ratio is reduced  below this level,  the  cumulative  amount of any 25
basis point  adjustments  to the interest  rate on  borrowings is reset to zero.
During 2000, basis point  adjustments were incurred in the first three quarters,
beginning with 25 basis points in the first quarter and ending with a cumulative
impact of 75 basis points by the end of the third  quarter.  There were no basis
point  adjustments  for the fourth  quarter of 2000.  At December 31, 2000,  the
calculated  leverage  ratio was 5.3 to 1.00.  Consequently,  the 25 basis  point
adjustment was applicable following the delivery of the financial statements for
2000 to the lenders, which was early in the second quarter of 2001. At March 31,
2001, the  calculated  leverage ratio was 5.1 to 1.00 and an additional 25 basis
point  adjustment  became  effective in the second  quarter of 2001. At June 30,
2001, the calculated leverage ratio was 5.1 to 1.00. Accordingly,  an additional
25 basis point  adjustment  became  effective  during the third quarter of 2001,
resulting in a 75 basis points cumulative  adjustment to the applicable interest
rate margin. At September 30, 2001, the calculated  leverage ratio was below the
5.00 to 1.00 leverage ratio  covenant and the cumulative  adjustment of 75 basis
points, discussed above, was eliminated. The requirement for an adjustment based
on the December 31, 2001 leverage  ratio was  eliminated  with the amendment and
restatement of the credit agreement on March 25, 2002 (see Note 18).

       Available  borrowings  under the revolving  credit facility totaled $19.3
million at December  31,  2001.  Letters of credit  outstanding  at December 31,
2001, totaled $20.7 million.

       As part of the Foamex L.P.  Credit  Facility,  excess cash flow generated
annually,  as defined,  is  required  to prepay  portions of the Term B, C and D
loans. The requirement for a prepayment at year-end 2001 was eliminated with the
amendment and  restatement  of the credit  agreement on March 25, 2002 (see Note
18). There was no required  prepayment at year-end  2000. The prepayment  amount
determined for 1999 was $13.3 million and was financed  through  revolving loans
under the facility. The required 1999 prepayment was made during 2000.

Foamex Carpet Credit Facility

       Foamex Carpet had a revolving  credit facility (the "Foamex Carpet Credit
Facility"),  which provides a commitment of $15.0 million through February 2004.
There were no borrowings  outstanding  under the credit facility at December 31,
2001 and available  borrowings totaled $14.8 million, net of outstanding letters
of credit of $0.2 million.  The interest rate is based on the  combination  of a
variable rate plus a margin. The variable rate is the same as the one defined in
the Foamex L.P. Credit  Facility,  discussed  above, and the margin is 2.25%. At
the option of Foamex Carpet,  portions of any outstanding  loans are convertible
into LIBOR based loans plus 3.25%.

       Borrowings under the Foamex Carpet Credit Facility are  collateralized by
substantially  all of the assets of Foamex Carpet on a pari passu basis with the
Note Payable to Foam Funding LLC (described below). The outstanding  obligations
under the Foamex Carpet Credit Facility were paid and the commitments terminated
in conjunction  with the refinancing that took place on March 25, 2002 (see Note
18).

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,  as
defined,  if any,  thereon to the date of redemption  and declining  annually to
100.0% on or after June 15, 2005.

                                      F-18

<PAGE>

                   FOAMEX INTERNATIONAL INC. AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

8.     LONG-TERM DEBT (continued)

       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  is at 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 31, 2001 the redemption price is
105.0625% 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 31, 2001,  the interest rate was 2.0% on the $1.0 million bond and 1.7%
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 $10.2 million at December 31, 2001.

Subordinated Note Payable

       The subordinated  note payable was issued during 1993 to a former officer
of the  Company.  The note was  issued  by Foamex  L.P.  in  connection  with an
acquisition.  The note carried a maximum interest rate of 6.0% and the principal
was payable in three equal  annual  installments  that began in May 1999 and was
fully repaid in May 2001.

Other

       Other debt  includes a $1.3  million  term loan held by a  majority-owned
Mexican  subsidiary.  Quarterly  principal  payments  are due on the  term  loan
through its  maturity in May 2002.  The  interest  rate at December 31, 2001 was
6.61%.  Also included in other debt is a non-interest  bearing  promissory  note
with a principal amount of $1.4 million issued in connection with increasing the
Company's interest in an Asian joint venture to 70% in 2001. The promissory note
had unamortized discount of $0.3 million at December 31, 2001.

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.  Principal  is payable in quarterly
installments that began in June 1998 with a final installment in February

                                      F-19

<PAGE>

                   FOAMEX INTERNATIONAL INC. AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


8.     LONG-TERM DEBT (continued)

2004.  Interest  is 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 is convertible  into LIBOR based loans plus 3.25%. As of December 31, 2001,
the interest rate for borrowings was 5.56%.

       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 (see Note 18).

Debt Covenants

       The  indentures,  credit  facilities  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  Interest,  as defined,  (iv) to merge,
consolidate or sell all or substantially  all of its assets or (v) to enter into
certain  transactions with affiliates or related persons.  In addition,  certain
agreements  contain provisions that, in the event of a defined change of control
or the occurrence of an undefined  material adverse change in the ability of the
obligor to perform its obligations,  the indebtedness must be repaid, in certain
cases,  at the  option of the  holder.  Also,  the  Company's  subsidiaries  are
required  under  certain of these  agreements  to maintain  specified  financial
ratios of which the most restrictive are the maintenance of net worth,  interest
coverage,  fixed charge coverage and leverage ratios, as defined. Under the most
restrictive of the distribution  restrictions,  the Company could be paid by its
subsidiaries,  as of December 31,  2001,  funds only to the extent to enable the
Company to meet its tax payment liabilities and its normal operating expenses of
up to $1.0 million annually, so long as no event of default has occurred.

       Foamex L.P. and Foamex Carpet, the principal subsidiaries of the Company,
were in compliance with the various financial covenants of their loan agreements
as of  December  31,  2001.  Business  conditions  in 2001  limited  results and
covenant compliance remained a primary focus of the Company.

       Certain Foamex L.P. debt agreements contained certain quarterly financial
covenants,  which became more restrictive  during 2001. Foamex L.P.  anticipates
that it will  continue to comply with the quarterly  financial  covenants in the
applicable debt agreements.  Management's current business plans for Foamex L.P.
anticipate  customer  selling price  management in response to raw material cost
changes, improved working capital management, comparable capital expenditures to
the prior year,  successful  implementation of on-going cost savings initiatives
and improved operating  efficiencies.  The achievement of the business plans and
the  realization of proceeds  resulting from the  implementation  of an improved
asset  utilization  program  are  necessary  for  compliance  with  the  various
financial covenants for 2002 and prospectively.

       Various  Foamex  Carpet  debt  agreements   contained  certain  quarterly
financial  covenants,  which became more restrictive  during 2001. Foamex Carpet
anticipates  that it will  continue  to  comply  with  the  quarterly  financial
covenants in the applicable debt agreements. Management's current business plans
for Foamex Carpet  anticipate  customer  selling price management in response to
raw material cost  changes,  improved  working  capital  management,  comparable
capital  expenditures to the prior year,  successful  implementation of on-going
cost savings initiatives and improved operating efficiencies. The achievement of
the  business  plans  and  the  realization  of  proceeds   resulting  from  the
implementation  of an  improved  asset  utilization  program are  necessary  for
compliance with the various financial covenants for 2002 and prospectively.  The
Foamex Carpet debt agreements were terminated in connection with the refinancing
took place on March 25, 2002 (see Note 18).

       The possibility  exists that certain financial  covenants will not be met
if business  conditions are other than as anticipated or other unforeseen events
impact  results.  In the absence of a waiver of or amendment  to such  financial
covenants,  such  noncompliance  would constitute a default under the applicable
debt agreements, and the lenders would be entitled to accelerate the maturity of
the indebtedness outstanding thereunder. In the event that such

                                      F-20

<PAGE>

                   FOAMEX INTERNATIONAL INC. AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

8.     LONG-TERM DEBT (continued)

noncompliance  appears  likely,  or occurs,  the Company  will seek the lenders'
approval  of   amendments   to,  or  waivers  of,  such   financial   covenants.
Historically,  the  Company  has been able to  renegotiate  financial  covenants
and/or obtain waivers, as required,  and management believes such waivers and/or
amendments  could be obtained if  required.  However,  there can be no assurance
that future amendments or waivers will be obtained.

Future Obligations on Debt

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

       Years Ending December 31:

         2002                                               $  18,063
         2003                                                 157,202
         2004                                                  54,347
         2005                                                 156,623
         2006                                                 117,826
         Balance                                              156,000
                                                             --------
         Total                                                660,061
         Unamortized debt premium/discount, net                 6,234
                                                             --------
         Total                                               $666,295
                                                             ========

       The refinancing on March 25, 2002 (see Note 18) had a significant  impact
on maturities of long-term debt. Substantially all payments required in 2002 and
2003 have been extended to later maturities.

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.  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.  Following the
merger of the two defined benefit plans for salaried and hourly  participants at
the end of 1999, the pension  benefits are provided  through a single  qualified
pension plan (the "Qualified Pension Plan"). Certain employees in a wholly-owned
Canadian subsidiary are provided pension and survivor benefits.

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

       The components of pension expense are listed below.

<TABLE>
<CAPTION>
                                              2001            2000            1999
                                             -------         -------         -------
                                                          (thousands)
<S>                                          <C>             <C>             <C>
       Service cost                          $ 3,666         $ 3,307         $ 3,685
       Interest cost                           6,158           5,667           5,121
       Expected return on plan assets         (5,829)         (6,371)         (5,708)
       Amortization
         Transition asset                        (75)            (75)            (75)
         Prior service cost                     (177)           (240)           (240)
         Losses and other                      1,163             179             819
                                             -------         -------         -------
           Total                             $ 4,906         $ 2,467         $ 3,602
                                             =======         =======         =======
</TABLE>

                                      F-21

<PAGE>

                   FOAMEX INTERNATIONAL INC. AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

9.     RETIREE BENEFIT PLANS (continued)

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

<TABLE>
<CAPTION>
                                                                   December 31,     December 31,
                                                                      2001              2000
                                                                    --------         --------
                                                                           (thousands)
<S>                                                                 <C>              <C>
       Change in Benefit Obligation
         Benefit obligation at beginning of year                    $ 84,820         $ 75,220
         Service cost                                                  3,666            3,307
         Interest cost                                                 6,158            5,667
         Amendments, including SERP                                    1,059                -
         Benefits paid                                                (4,525)          (4,207)
         Actuarial loss                                                4,784            4,833
                                                                    --------         --------
           Projected benefit obligation at end of year              $ 95,962         $ 84,820
                                                                    ========         ========

       Change in Plan Assets
         Fair value of plan assets at beginning of year             $ 66,199         $ 65,102
         Actual return on plan assets                                 (2,269)          (3,075)
         Company contributions                                         6,347            9,299
         Benefits paid                                                (4,525)          (4,207)
         Other                                                          (238)            (920)
                                                                    --------         --------
           Fair value of plan assets at end of year                 $ 65,514         $ 66,199
                                                                    ========         ========

       Funded Status
         Plan assets less than benefit obligation                   $(30,448)        $(18,621)
         Unrecognized transition asset                                  (515)            (590)
         Unrecognized prior service cost                                (733)          (1,832)
         Unrecognized net losses                                      34,656           22,578
                                                                    --------         --------
           Net prepaid assets                                       $  2,960         $  1,535
                                                                    ========         ========

       Amounts Recognized in the Consolidated Balance Sheets
         Prepaid benefit costs                                      $    389         $    207
         Accrued benefit liability                                   (26,363)         (16,480)
         Intangible assets                                               612              268
         Accumulated other comprehensive loss                         28,322           17,540
                                                                    --------         --------
           Net amount recognized                                    $  2,960         $  1,535
                                                                    ========         ========
</TABLE>

       Significant  assumptions  used in the  calculation of pension expense and
obligations are listed below.

<TABLE>
<CAPTION>
                                                                 2001            2000            1999
                                                                 ----            ----            ----

<S>                                                                <C>           <C>             <C>
       Expected long-term rate of return on plan assets            9.0%          10.0%           10.0%
       Discount rate on projected benefit obligations              7.0%          7.25%            7.5%
       Rate of compensation increase (a)                       4.0%-7.0%          4.0%            4.0%
<FN>
       (a) SERP established in 2001 uses a 7.0% assumption.
</FN>
</TABLE>

       The  Company's  funding  policy  for  the  Qualified  Pension  Plan is to
contribute an amount that both satisfies the minimum funding requirements of the
Employee  Retirement  Income  Security  Act of 1974 and does not exceed the full
funding  limitations  of the  Internal  Revenue  Code of 1986,  as amended  (the
"Code").

                                      F-22

<PAGE>

                   FOAMEX INTERNATIONAL INC. AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

9.     RETIREE BENEFIT PLANS (continued)

       At  December  31, 2001 and 2000,  included  in plan  assets were  420,000
shares  of the  Company's  stock.  The  value of the  Plan's  investment  in the
Company's stock was approximately  $3.4 million and $2.3 million at December 31,
2001 and 2000, respectively.

       Plan  assets  at  the  end  of  1998  included  shares  of  Trace  Global
Opportunities  Fund, which was a related party to Trace. The value of the Plan's
investment in Trace Global Opportunities Fund, was approximately $4.3 million at
December  31,  1998.  In 1999,  Trace  divested its interest in the Trace Global
Opportunities  Fund.  The fund changed its name to the GLS Global  Opportunities
Fund, which is not a related party to the Company.  During 1998,  250,000 shares
of United Auto Group ("UAG"), which was a related party to Trace, were purchased
for  approximately  $4.8 million.  During the fourth quarter of 2000, all of the
UAG shares were sold for $1.8 million.

       The Company has not yet determined the amount of any curtailment  gain or
loss as a result of the Operational Reorganization Plan discussed in Note 5.

Defined Contribution Plan

       The Company  maintains a defined  contribution  plan,  which is qualified
under Section  401(k) of the Code ("401(k)  Plan") and is available for eligible
employees  who elect to  participate.  Under the terms of the 401(k)  Plan,  the
Company  partially  matches certain  employee  contributions.  Expense for these
contributions was $1.0 million,  $1.1 million and $1.0 million in 2001, 2000 and
1999, respectively.

Retiree Medical and Life Insurance Benefits

       The Company  provides  postretirement  health care and life insurance for
eligible  employees,  limited  primarily  to one  manufacturing  facility in the
United States.  These plans are unfunded and benefits are paid as the claims are
submitted.  The Company retains the right,  subject to existing  agreements,  to
modify or eliminate these benefits.

       The components of retiree medical and life insurance benefits expense are
listed below.

                                    2001         2000         1999
                                    ----         ----         ----
                                              (thousands)
       Service cost                 $ 19         $ 15         $ 20
       Interest cost                  60           57           62
       Amortization
         Prior service costs          (6)          (6)          (6)
         Losses and other             (8)         (27)         (21)
                                    ----         ----         ----
       Total                        $ 65         $ 39         $ 55
                                    ====         ====         ====

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

<TABLE>
<CAPTION>
                                                                           December 31,   December 31,
                                                                                2001          2000
                                                                               -----         -----
                                                                                   (thousands)
<S>                                                                            <C>           <C>
       Change in Benefit Obligation
         Benefit obligations at beginning of year                              $ 763         $ 868
         Service cost                                                             19            15
         Interest cost                                                            60            57
         Employee contributions                                                   23            28
         Benefits paid                                                          (399)         (433)
         Actuarial loss                                                          158           228
                                                                               -----         -----
           Accumulated postretirement benefit obligation at end of year        $ 624         $ 763
                                                                               =====         =====
</TABLE>

                                      F-23

<PAGE>

                   FOAMEX INTERNATIONAL INC. AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

9.     RETIREE BENEFIT PLANS (continued)

<TABLE>
<CAPTION>
                                                             December 31,     December 31,
                                                                 2001            2000
                                                              --------         -------
                                                                     (thousands)
       Change in Plan Assets
<S>                                                           <C>              <C>
         Fair value of plan assets at beginning of year       $      -         $     -
         Company contributions                                     376             405
         Employee contributions                                     23              28
         Benefits paid                                            (399)           (433)
                                                              --------         -------
           Fair value of plan assets at end of year           $      -         $     -
                                                              ========         =======

       Funded Status of the Plan
         Plan assets less than benefit obligation             $   (624)        $  (763)
         Unrecognized prior service cost                           (60)            (67)
         Unrecognized net gains                                   (224)           (389)
                                                              --------         -------
           Net accrued liabilities                            $   (908)        $(1,219)
                                                              ========         =======
</TABLE>

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

<TABLE>
<CAPTION>
                                                                 2001           2000            1999
                                                                 ----           ----            ----
<S>                                                               <C>           <C>              <C>
       Discount rates on projected benefit obligations            7.0%          7.25%            7.5%
       Health care cost increase                                  9.0%           7.0%            7.5%
</TABLE>

       The health care cost  increase  assumption  will  gradually be reduced to
5.0% by 2009.  Increasing or decreasing the weighted average assumed health care
cost trend rates by one percentage point would not have a significant  impact on
the  accumulated  postretirement  benefit  obligation or on service and interest
costs.

10.    STOCK OPTION PLANS

       The 1993 stock  option  plan,  as amended,  provides  for the issuance of
nonqualified  and  incentive  stock  options  for common  stock of the  Company.
Officers and  executives of the Company,  its  subsidiaries  and  affiliates are
eligible to participate. At the Annual Meeting of Stockholders on June 30, 2000,
stockholders  approved  amendments to the 1993 stock option plan that  increased
from  3,000,000 to 4,750,000 the number of shares of the Company's  common stock
that  may  be  issued,   and  to  allow  future  option  grants  to  qualify  as
"performance-based  compensation"  for purposes of the Internal  Revenue Code of
1986, as amended.  The price and terms of each such option is at the  discretion
of the Company, except that the term cannot exceed ten years.

       At the Annual  Meeting  of  Stockholders  on August 3,  2001,  the Foamex
International  Inc. 2001 Equity Incentive Plan for  Non-Employee  Directors (the
"Directors Plan") was approved.  The Directors Plan provides for the issuance of
nonqualified  stock options for up to 1,500,000  shares of the Company's  common
stock.  Options  outstanding  under the Directors Plan are included in the stock
activity disclosure below and the options carry the same terms and conditions as
options  granted to  employees  under the 1993 stock  option  plan,  as amended.
During 2001, the chief  executive  officer was granted  100,000  options with an
annual   vesting  rate  of  33.33%  in  the  third,   fourth  and  fifth  years.
Additionally,  the chief  executive  officer was granted  250,000  options  with
either  (i)  100%  vesting  at the end of  three  years  contingent  on  certain
performance measures, or (ii) 100% vesting at the end of seven years, regardless
of the  performance  measures  identified  in (i). In December  2001,  the chief
executive  officer resigned from the Company.  During 2001, the terms of 750,450
options (granted in 1999 with a three-year vesting period) were modified as part
of a severance  agreement.  The terms were  modified to provide for 100% vesting
and the extension of the period provided to exercise;  including 250,000 options
until January 31, 2006 and 500,450  options  until  January 31, 2002.  All other
options  outstanding at December 31, 2001 were granted with a five-year  vesting
period and a ten-year term.


                                      F-24

<PAGE>

                   FOAMEX INTERNATIONAL INC. AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

10.    STOCK OPTION PLANS (continued)

       A summary of stock option activity is presented below.

<TABLE>
<CAPTION>
                                                           2001                         2000                           1999
                                                  -----------------------       ----------------------       ----------------------
                                                               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         2,980,110       $7.35         2,299,649       $7.94         1,388,916       $7.02
       Granted                                    2,104,576        6.42           885,250        5.93         1,067,950        6.11
       Exercised                                   (163,125)       5.62            (3,514)       6.88           (39,728)       6.88
       Forfeited                                 (1,456,019)       7.32          (201,275)       7.79          (117,489)       9.08
                                                  ---------       -----         ---------       -----         ---------       -----
       Outstanding at end of period               3,465,542       $6.88         2,980,110       $7.35         2,299,649       $7.94
                                                  =========       =====         =========       =====         =========       =====

       Exercisable at end of period               1,431,489       $7.03         1,145,727       $8.16           803,303       $8.36
                                                  =========       =====         =========       =====           =======       =====
</TABLE>

       Listed  below  is  a  summary  of  the  stock  options   outstanding  and
exercisable at December 31, 2001.

<TABLE>
<CAPTION>
       Outstanding
                                                                  Weighted                   Weighted
                      Exercise                                     Average                    Average
                        Price                                      Exercise                  Remaining
                        Range             Options                   Price                    Life-Years
                        -----             -------                   -----                    ----------
<S>              <C>                    <C>                       <C>                        <C>
                 $ 5.00 -  5.44            889,976                   $5.23                      8.48
                 $ 5.75 -  6.56            874,575                   $6.44                      7.88
                 $ 6.88 -  7.88          1,424,658                   $7.36                      8.13
                 $ 8.50 - 13.25            276,333                  $11.12                      6.11
                                         ---------
                                         3,465,542
                                         =========
<CAPTION>
       Exercisable
                                                                  Weighted                   Weighted
                      Exercise                                     Average                    Average
                        Price                                      Exercise                  Remaining
                        Range             Options                   Price                    Life-Years
                        -----             -------                   -----                    ----------
<S>              <C>                    <C>                       <C>                        <C>
                 $ 5.06 - 5.75             310,020                   $5.39                      7.55
                 $ 6.06 - 6.56             498,545                   $6.48                      7.43
                 $ 6.88                    416,958                   $6.88                      4.55
                 $ 7.88 -13.25             205,966                  $11.12                      6.03
                                         ---------
                                         1,431,489
                                         =========
</TABLE>

       Except as noted below,  all options  were granted with an exercise  price
equal  to the fair  market  value at the  date of  grant.  Compensation  expense
related to options  granted in 1996 with an  exercise  price  below fair  market
value  resulted in  approximately  $0.2 million of expense in the years 2000 and
1999, respectively.

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

       The Company has elected the intrinsic-value method of expense recognition
for stock option grants to employees and directors. If compensation cost for the
option plans discussed above were determined  using the fair-value  method,  the
Company's results would be reduced to the pro forma amounts indicated below.

                                      F-25

<PAGE>

                   FOAMEX INTERNATIONAL INC. AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


10.    STOCK OPTION PLANS (continued)

<TABLE>
<CAPTION>
                                                    2001              2000             1999
                                                ----------        ----------        ----------
                                                     (thousands, except per share data)
       Net income (loss)
<S>                                             <C>               <C>               <C>
         As reported                            $   (5,612)       $   17,013        $   19,716
                                                ==========        ==========        ==========
         Pro forma                              $   (6,901)       $   15,750        $   18,719
                                                ==========        ==========        ==========
       Basic earnings (loss) per share
         As reported                            $    (0.24)       $     0.69        $     0.79
                                                ==========        ==========        ==========
         Pro forma                              $    (0.29)       $     0.63        $     0.75
                                                ==========        ==========        ==========
       Diluted earnings (loss) per share
         As reported                            $    (0.24)       $     0.67        $     0.78
                                                ==========        ==========        ==========
         Pro forma                              $    (0.29)       $     0.62        $     0.74
                                                ==========        ==========        ==========
</TABLE>

       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 $2.95 per option in 2001,
$2.52 per option in 2000 and $2.30 per option in 1999.

                                         2001            2000            1999
                                        ------          ------          ------
       Expected life in years             3.0             3.0             3.0
       Risk-free interest rate           4.41%           6.11%           5.21%
       Volatility                       61.85%          55.00%          48.00%
       Dividend yield                    0.00%           0.00%           0.00%

11.    INCOME TAXES

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

<TABLE>
<CAPTION>
                                                                2001           2000            1999
                                                              -------         -------        -------
                                                                           (thousands)
<S>                                                           <C>             <C>            <C>
       United States                                          $(8,293)        $14,877        $19,243
       Foreign                                                  7,978           4,975          2,935
                                                              -------         -------        -------

       Income (loss) before provision for income taxes        $  (315)        $19,852        $22,178
                                                              =======         =======        =======
</TABLE>

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

<TABLE>
<CAPTION>
                                                          2001             2000             1999
                                                         -------         -------         -------
                                                                       (thousands)
<S>                                                      <C>             <C>             <C>
       Statutory income taxes                            $  (110)        $ 6,948         $ 7,762
       State income taxes, net of federal benefit           (135)            825           1,060
       Increase (decrease) in valuation allowance          1,400          (6,939)         (7,300)
       Non-deductible amortization                         1,391           1,364           1,385
       Alternative minimum tax                               350               -             285
       Use of acquired tax benefits                        1,550               -           1,640
       Foreign tax rate differential                         142             874            (887)
       Other, net                                            709            (233)         (1,483)
                                                         -------         -------         -------
       Total                                             $ 5,297         $ 2,839         $ 2,462
                                                         =======         =======         =======
</TABLE>

                                      F-26

<PAGE>

                   FOAMEX INTERNATIONAL INC. AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

11.    INCOME TAXES (continued)

       The provision for income taxes is summarized as follows:

<TABLE>
<CAPTION>
                                                2001            2000             1999
                                               -------         ------          -------
       Current                                              (thousands)
<S>                                            <C>             <C>             <C>
         Federal                               $   924         $     -         $   300
         State                                     262             160             238
         Foreign                                 2,594           2,541           1,117
                                               -------         ------          -------
           Total current                         3,780           2,701           1,655
                                               -------         ------          -------

       Deferred
         Federal                                   174           6,083           8,247
         State                                    (397)            920             837
         Foreign                                   340              74            (977)
                                               -------         ------          -------
           Total deferred                          117           7,077           8,107
                                               -------         ------          -------

       Change in valuation allowance             1,400          (6,939)         (7,300)
                                               -------         ------          -------

       Total provision for income taxes        $ 5,297         $ 2,839         $ 2,462
                                               =======         =======         =======
</TABLE>

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

<TABLE>
<CAPTION>
                                                                  December 31,       December 31,
                                                                      2001               2000
                                                                   ---------         ---------
       Deferred income tax assets                                          (thousands)
<S>                                                                <C>               <C>
         Inventory basis differences                               $   1,436         $     777
         Employee benefit accruals                                    13,869            12,561
         Allowances and contingent liabilities                         8,231             8,225
         Restructuring and plant closing accruals                     10,522             3,590
         Intangible asset basis differences                            7,393            12,832
         Other                                                         9,118            10,609
         Net operating loss carryforwards                             61,485            69,229
         Capital loss carryforwards                                    1,333             2,105
         Valuation allowance for deferred income tax assets         (100,695)          (95,634)
                                                                   ---------         ---------
         Deferred income tax assets                                   12,692            24,294
                                                                   ---------         ---------

       Deferred income tax liabilities
         Basis difference in property, plant and equipment           (15,937)          (19,249)
         Other                                                        (2,163)           (8,936)
                                                                   ---------         ---------
         Deferred income tax liabilities                             (18,100)          (28,185)
                                                                   ---------         ---------

       Net deferred income tax liabilities                         $  (5,408)        $  (3,891)
                                                                   =========         =========
</TABLE>

       The 2001 income tax  provision  includes  an  increase  in the  valuation
allowance to reduce the Company's  deferred tax assets to an amount that is more
likely  than not to be  realized.  Effective  tax  rates  for 2000 and 1999 were
reduced by the  partial  reversal  of the  deferred  income tax asset  valuation
allowance recognized in 1998. The valuation allowance was reduced to reflect the
realization of Federal loss  carryforwards that offset the current tax component
of the Federal and Mexican tax provision.  Additionally, the valuation allowance
was reduced to offset the net  deferred  Federal tax  liability  generated.  The
valuation  allowance  has also been adjusted by $3.8 million and $4.3 million in
2001 and 2000, respectively, to give effect to the deferred tax assets resulting
from the recognition of a minimum pension liability.

                                      F-27

<PAGE>

                   FOAMEX INTERNATIONAL INC. AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

11.      INCOME TAXES (continued)

       The Company has  determined  that it will be more likely than not to have
insufficient  future income to utilize its net operating loss  carryforwards and
realize  other  deferred  income tax assets.  In  addition,  the Company did not
recognize the tax benefits  associated with net operating loss  carryforwards in
Mexico since it appears  likely that the net operating loss  carryforwards  will
not be able to be realized in the near future.

       The  Company  will  continually  review  the  adequacy  of the  valuation
allowance and recognize benefits only as reassessment  indicates that it is more
likely than not that the benefits  will be realized.  At December 31, 2001,  the
Company had approximately $164.4 million of net operating loss carryforwards for
federal  income tax purposes  expiring  from 2010 to 2020.  Also at December 31,
2001, there were $1.0 million of alternative minimum tax credits  carryforwards.
In addition,  the Company has had an ownership  change as defined in IRC Section
382.  Accordingly,  the Company  may be limited  (on an annual  basis) as to the
amount of its net operating loss utilization.

       At December 31, 2001,  the Company had $1.9 million of net operating loss
carryforwards  in a Mexican  subsidiary  that expire in 2008.  A full  valuation
allowance  has been  recorded at December  31, 2001 and 2000 due to  uncertainty
regarding utilization of the 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 $10.6
million and $6.8  million at  December  31,  2001 and 2000,  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.    OTHER INCOME (EXPENSE), NET

       During the first  quarter of 1999, a $4.2 million gain was  recognized on
the sale of the  corporate  aircraft.  Interest  income  totaled $0.5 million in
1999. Letter of credit fees partially offset these income items.

       The  sale  of  the  airplane  resulted  in  an  obligation  to  Trace  of
approximately  $0.6  million.  Under  the  terms  of  the  aircraft  acquisition
agreement  with Trace,  the Company was  obligated  to share the net proceeds in
excess of a specified amount defined in the agreement. The obligation was offset
against Trace's promissory notes payable to Foamex L.P., discussed in Note 16.

13.    STOCKHOLDERS' DEFICIENCY

Preferred Stock

       The Company has 5.0 million shares of preferred stock, par value of $1.00
per share,  authorized  for  issuance.  As discussed in Note 1, 15,000 shares of
Series B Preferred Stock were issued in exchange for 1,500,000  shares of common
stock during the fourth quarter of 2000. Series B Preferred Stock is non-voting,
non-redeemable  and convertible  into 100 shares of the Company's  common stock.
The conversion  feature is only available if the conversion  would not trigger a
"change of control"  event, as discussed in Note 1. The Series B Preferred Stock
is non  cumulative  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 31, 2001, there were 6.3 million shares of common
stock reserved for issuance in connection with stock option plans,  discussed in
Note 10. Included in the Consolidated Statements of Stockholders'  Deficiency is
the compensation for the Company's directors paid in common stock.

                                      F-28

<PAGE>

                   FOAMEX INTERNATIONAL INC. AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

13.      STOCKHOLDERS' DEFICIENCY (continued)

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

Treasury Stock

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

       The Board of Directors has  authorized  the purchase of up to 3.0 million
shares of the Company's common stock. As of December 31, 2001,  1,989,000 shares
have been purchased under this program.

Warrants

       On July 1, 1999,  116,745 warrants for an aggregate of 0.6 million shares
of common stock expired  without having been exercised.  All remaining  warrants
outstanding  to purchase 1.2 million  shares of common stock  expired on October
12, 1999, without being exercised.

Accumulated Other Comprehensive Loss

       The components of accumulated other comprehensive loss are listed below.

<TABLE>
<CAPTION>
                                                    December 31,      December 31,     December 31,
                                                        2001              2000            1999
                                                      --------         --------         --------
                                                                     (thousands)
<S>                                                   <C>              <C>              <C>
       Foreign currency translation adjustment        $ (8,000)        $ (6,921)        $ (6,011)
       Minimum pension liability                       (27,157)         (16,375)          (1,747)
                                                      --------         --------         --------
                                                      $(35,157)        $(23,296)        $ (7,758)
                                                      ========         ========         ========
</TABLE>

14.    BUSINESS SEGMENTS

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

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

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

                                      F-29

<PAGE>

                   FOAMEX INTERNATIONAL INC. AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

14.    BUSINESS SEGMENTS (continued)

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

       The  accounting  policies  of the  business  segments  are  the  same  as
described in Note 2. Business  segment results  include  revenues and costs that
are specifically  identifiable  and costs shared by business  segments have been
allocated based on  utilization.  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  15.7%,  12.3% and 11.5% of net sales in 2001, 2000
and 1999,  respectively.  No other customer accounted for more than 10.0% of net
sales during the periods presented.

       Business segment results are presented below.

<TABLE>
<CAPTION>
                                                    Carpet
                                       Foam         Cushion         Automotive      Technical
                                     Products       Products          Products      Products          Other            Total
                                     --------       --------          --------      --------          -----            -----
2001                                                                       (thousands)
<S>                                <C>             <C>              <C>             <C>             <C>              <C>
Net sales                          $  499,668      $  230,965       $  377,753      $  111,043      $   33,475       $1,252,904
Income (loss) from operations      $   66,312      $   (6,831)      $   21,187      $   22,884      $  (40,079)      $   63,473
Depreciation and amortization      $   15,732      $    8,181       $    4,991      $    3,312      $    1,772       $   33,988

2000

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

1999
Net sales                          $  527,159      $  285,846       $  361,806      $   92,180      $   27,648       $1,294,639
Income (loss) from operations      $   57,028      $    8,512       $   22,547      $   22,588      $  (17,617)      $   93,058
Depreciation and amortization      $   17,432      $    8,096       $    4,823      $    2,724      $    2,675       $   35,750
</TABLE>


       Results by geographical area are presented below.

<TABLE>
<CAPTION>
                                            United
                                            States           Canada             Mexico         Consolidated
                                            ------           ------             ------         ------------
2001                                                                 (thousands)
<S>                                       <C>               <C>               <C>               <C>
Net sales                                 $  966,614        $   65,179        $  221,111        $1,252,904
Property, plant and equipment, net        $  172,456        $    4,006        $   24,335        $  200,797

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

1999
Net sales                                 $1,082,009        $   61,486        $  151,144        $1,294,639
Property, plant and equipment, net        $  193,051        $    5,406        $   23,376        $  221,833
</TABLE>


                                      F-30

<PAGE>

                   FOAMEX INTERNATIONAL INC. AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


15.    SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION

<TABLE>
<CAPTION>
                                                                     2001           2000          1999
                                                                   -------        -------        -------
                                                                                (thousands)
<S>                                                                <C>            <C>            <C>
Cash paid for interest                                             $63,593        $75,155        $71,182
                                                                   =======        =======        =======

Cash paid for income taxes, net                                    $ 1,990        $ 2,962        $ 1,032
                                                                   =======        =======        =======

Non cash - capital leases                                          $   299        $    53        $   456
                                                                   =======        =======        =======

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

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


16.    RELATED PARTY TRANSACTIONS AND BALANCES

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

Trace Promissory Notes

       Prior to 1999,  Trace borrowed $5.0 million pursuant to a promissory note
issued to Foamex L.P.  during 1997. The  promissory  note was due and payable on
demand or, if no demand was made, on July 7, 2001,  and carried an interest rate
of 2 3/8% plus  three-month  LIBOR,  as defined,  payable  quarterly in arrears.
Another  promissory note of $4.2 million was due and payable on demand or, if no
demand was made,  on July 7, 2001,  and carried an interest  rate of 2 3/8% plus
three-month LIBOR, as defined, payable quarterly in arrears.

       The Trace notes  discussed  above are included in the other  component of
stockholders' deficiency.  Based on Trace's financial position discussed in Note
1, it is unlikely  that Trace will be able to pay the  aggregate  amount of $9.2
million.  Accordingly, the Company did not record interest income on these notes
since the Trace bankruptcy.

Trace Accounts Receivables

       At December 31, 2001 and 2000,  operating accounts receivables from Trace
were approximately $3.4 million.  These accounts receivables were fully reserved
for prior to 2000.

Trace Global Opportunities Fund

       In 1999, an investment in Trace Global  Opportunities  Fund,  which was a
related party to Trace, was sold for $0.9 million.

Trace Management Agreement

       Foamex L.P. had a management service agreement with a subsidiary of Trace
pursuant to which general managerial services of a financial,  technical, legal,
commercial,  administrative  and/or advisory nature were provided to Foamex L.P.
The management  services  agreement  provided for an annual fee of $3.0 million,
plus reimbursement of expenses incurred.  An amendment to the Foamex L.P. Credit
Facility on June 30, 1999 no longer  permitted Foamex L.P. to pay the management
fee. On July 29, 1999, Foamex L.P. submitted formal notice of the termination of
the management agreement.

                                      F-31

<PAGE>

                   FOAMEX INTERNATIONAL INC. AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS



16.    RELATED PARTY TRANSACTIONS AND BALANCES (continued)

Trace New York Sublease

       Prior to September 30, 1999, Foamex L.P. subleased to Trace approximately
5,900 square feet of general, executive and administrative office space in New
York, New York. The terms of the lease were substantially the same terms as
Foamex L.P. leased such space from a third party lessor. The Company closed the
New York office and Foamex L.P. subleased the premises to a third party at an
amount in excess of Foamex L.P.'s lease commitment.

Foam Funding LLC Debt

       Subsidiaries  of the  Company  paid  interest  on notes  payable  to Foam
Funding LLC of $2.8  million,  $5.8 million and $7.4  million in 2001,  2000 and
1999, respectively.  Subsidiaries of the Company paid principal on notes payable
to Foam Funding LLC of $15.8  million,  $41.9  million and $9.7 million in 2001,
2000 and 1999, respectively.

Other

       The  general  director  of Foamex  de Mexico  S.A.  de C.V.  ("Foamex  de
Mexico")  which is the Company's  operating  subsidiary in Mexico has a 5% stock
interest  in  Foamex de  Mexico.  In 2001,  two  members  of the board  provided
consulting  services to the Company  for which fees paid were $0.2  million.  In
2000 and 1999, one member of the board  provided  consulting  services  totaling
$0.1 million and $0.2  million,  respectively.  As discussed in Note 10,  25,000
common  stock  options of the Company  were  granted to a member of the board in
consideration of consulting services.

       As discussed in Note 8,  included in the group of banks that provides the
Foamex L.P. Credit  Facility is The Bank of Nova Scotia,  which is a shareholder
of the Company.

       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 current shareholders of the Company.

       During  1999,  certain  employees  of the Company  were also  employed by
Trace.  The Company paid a portion of the total  compensation  of such employees
based on the amount of time devoted to the Company's  matters by such  employees
in the aggregate, totaling $1.8 million in 1999.

       The Company's Pico Rivera,  California  facility is owned by Foam Funding
LLC and is leased to the Company.

       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.

17.    COMMITMENTS AND CONTINGENCIES

Operating Leases

       The Company is obligated under various noncancelable lease agreements for
rental of facilities,  vehicles and other equipment.  Many of the leases contain
renewal  options  with  varying  terms and  escalation  clauses that provide for
increased  rentals based upon increases in the Consumer Price Index, real estate
taxes  and  lessors'  operating  expenses.   Total  minimum  rental  commitments
(excluding commitments accrued as part of the Company's various

                                      F-32

<PAGE>

                   FOAMEX INTERNATIONAL INC. AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

17.    COMMITMENTS AND CONTINGENCIES (continued)

restructuring/consolidation  plans) required under operating  leases at December
31, 2001 are (thousands):

         2002                                       $13,345
         2003                                        11,774
         2004                                         8,416
         2005                                         6,346
         2006                                         4,605
         Balance                                      6,854
                                                    -------
         Total                                      $51,340
                                                    =======

       Rental expense charged to operations under operating leases  approximated
$20.2  million,  $16.3  million  and  $16.9  million  in 2001,  2000  and  1999,
respectively.  Substantially  all such rental  expense  represented  the minimum
rental payments under operating leases.

Litigation - Shareholders

       The Company has reached agreements with the plaintiffs in the stockholder
actions  described  below  providing  for the  settlement  and dismissal of such
actions.  Court approval of these  settlements  has been obtained  although such
approval may be appealed.

       The  Shareholder  Litigation.  Beginning on March 17, 1998,  six actions,
which  were   subsequently   consolidated   under  the   caption  In  re  Foamex
International Inc. Shareholders Litigation,  were filed in the Court of Chancery
of the State of Delaware, and on August 13, 1999, another action,  Watchung Road
Associates,  L.P., et al. v. Foamex  International  Inc., et al. (the  "Watchung
Action"),  was filed in the same court. The two actions were consolidated on May
3, 2000, into a single action under the caption In re Foamex  International Inc.
Shareholders   Litigation  (the  "Delaware  Action").  The  Delaware  Action,  a
purported  derivative  and  class  action  on  behalf  of the  Company  and  its
stockholders, originally named as defendants the Company, certain of its current
and former directors and officers,  Trace International Holdings, Inc. ("Trace")
and a Trace affiliate. The complaint in the Delaware Action alleged, among other
things,  that certain of the defendants  breached their fiduciary  duties to the
Company in connection with an attempt by Trace to acquire the Company's publicly
traded common stock as well as with a potential  acquisition  transaction with a
group  led  by  Sorgenti  Chemical  Industries  LLC,  and  that  certain  of the
defendants  breached  their  fiduciary  duties by causing  the  Company to waste
assets in connection with a variety of transactions  entered into with Trace and
its  affiliates.   The  Delaware  Action  sought  various  remedies,   including
injunctive  relief,  money  damages and the  appointment  of a receiver  for the
Company.

       On April 26, 1999, a putative securities class action entitled Molitor v.
Foamex International Inc., et al., was filed in the United States District Court
for the Southern  District of New York naming as defendants  the Company,  Trace
and certain current and former officers and directors of the Company,  on behalf
of  stockholders  who bought  shares of the  Company's  common  stock during the
period  from May 7, 1998  through  and  including  April 16,  1999.  The lawsuit
alleged that the defendants  violated  Section 10(b) of the Securities  Exchange
Act  of  1934  and  Rule  10b-5  by  misrepresenting  and/or  omitting  material
information  about the Company's  financial  situation and operations,  with the
result of artificially  inflating the price of the Company's  stock. The lawsuit
also alleged that Trace and Marshall S. Cogan, Chairman of the Company, violated
Section 20(a) of the Securities  Exchange Act of 1934 as controlling  persons of
the Company.  The  complaint  sought class  certification,  a  declaration  that
defendants violated the federal securities laws, an award of money damages,  and
costs and attorneys', accountants' and experts' fees. On May 18, 1999, a similar
action entitled Thomas W. Riley v. Foamex  International Inc., et al., was filed
in the  same  court.  The  two  actions  were  consolidated  and a  consolidated
complaint was filed; the consolidated suit is referred to herein as the "Federal
Action."

       The  Settlements.  On August 23, 2000,  the Company and the plaintiffs in
the Federal Action entered into a settlement agreement providing that members of
the class of shareholders who purchased shares between May 7, 1998 and April 16,
1999 would receive payments as defined in the agreement.  The court approved the
settlement  and dismissed the action with  prejudice on January 11, 2001, and no
appeals were filed. Payments to class members

                                      F-33

<PAGE>

                   FOAMEX INTERNATIONAL INC. AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


17.    COMMITMENTS AND CONTINGENCIES (continued)

and  plaintiffs'  lawyers' fees in the Federal Action have been paid directly by
the Company's insurance carrier on behalf of the Company.

       Under the terms of the stipulation of settlement  related to the Delaware
Action (which was approved by the Delaware Court on March 20, 2002), the Company
agreed  that a special  nominating  committee  of the Board of  Directors  would
nominate two additional  independent  directors to serve on the Board. The terms
of the  agreement  also  established  the criteria for the  independence  of the
directors and required that certain  transactions with affiliates be approved by
a majority of the  disinterested  members of the Board.  On January 9, 2001, the
Court ordered the Watchung Action  dismissed with prejudice only as to the named
plaintiffs   Watchung  Road   Associates,   L.P.  and  Pyramid  Trading  Limited
Partnership. The dismissal did not have any effect on the claims asserted in the
consolidated action.

       The  settlement  of  the  Delaware   Action   resolved  all   outstanding
shareholder  litigation against the Company and its current and former directors
and officers.  In early January 2002, two  shareholders  filed objections to the
settlement.  The  settlement  hearing was held on February 13, 2002, but was not
concluded.  On March 20, 2002,  the  Delaware  Court  concluded  the hearing and
approved  the  settlement.  Approval  of the  settlement  may be appealed by the
objectors. The settlements of the Federal Action and the Delaware Action involve
no  admissions  or findings of  liability  or  wrongdoing  by the Company or any
individuals.

         Litigation - Breast Implants

       As of  February  28,  2002,  the  Company  and Trace were two of multiple
defendants  in actions  filed on behalf of  approximately  1,725  recipients  of
breast  implants  in various  United  States  federal  and state  courts and one
Canadian provincial court, some of which allege substantial damages, but most of
which allege  unspecified  damages for personal injuries of various types. Three
of these cases seek to allege claims on behalf of all breast implant  recipients
or other allegedly affected parties, but no class has been approved or certified
by the court.  During 1995, the Company and Trace were granted summary judgments
and dismissed as defendants  from all cases in the federal  courts of the United
States and the state  courts of  California.  Appeals for these  decisions  were
withdrawn and the decisions are final.

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

Litigation - Other

       During the  second  quarter  of 2001,  the  Company  was  notified  by an
insurance provider concerning a dispute involving the reimbursement of liability
claims paid on behalf of Trace before 1990. The insurance provider is contending
that the Company is liable for the claims of  approximately  $3.0  million.  The
Company  intends to  strongly  defend this claim and  considers  the claim to be
without merit. If management's assessment of the

                                      F-34

<PAGE>

                   FOAMEX INTERNATIONAL INC. AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


17.    COMMITMENTS AND CONTINGENCIES (continued)

Company's  liability  with respect to these actions is  incorrect,  such actions
could have a  material  adverse  effect on the  financial  position,  results of
operations and cash flows of the Company.

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

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 31, 2001, we had accruals of approximately $3.0 million
for environmental matters.

       The Clean Air Act Amendments of 1990 ("1990 CAA Amendments")  provide for
the  establishment  of federal  emission  standards for hazardous air pollutants
including  methylene  chloride,  propylene  oxide and TDI, which are used in the
manufacturing  of foam. The final National  Emission  Standard for Hazardous Air
Pollutants,   or  "NESHAP,"  for  flexible   polyurethane  foam  production  was
promulgated on October 7, 1998. The NESHAP required a reduction of approximately
70% of the  emission  of  methylene  chloride  for the slab stock foam  industry
effective  October  7,  2001.  Through  the  use  of  alternative  technologies,
including  VPF(SM) and carbon  dioxide,  and by shifting  current  production to
facilities  which  use these  alternative  technologies,  we are in  substantial
compliance  with  these  regulations.  On  August 8,  2001,  the  United  States
Environmental  Protection  Agency,  or "EPA,"  proposed  a NESHAP  for  Flexible
Polyurethane  Foam  Fabrication   Operations.   The  proposed  NESHAP  regulates
emissions of methylene chloride and other Hazardous Air Pollutants and restricts
air emissions from flame lamination  sources.  The Company does not believe that
this standard, if adopted, will require us to make material expenditures.

       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.  As of December  31,  2001,  we had
accruals  of $2.5  million  for the  estimated  cost of  remediation,  including
professional fees and monitoring costs, for these sites. During 2000, we reached
an indemnification agreement with the former owner of the Morristown,  Tennessee
facility.  The  agreement  allocates the incurred and future  remediation  costs
between the former owner and us. The  estimated  allocation  of future costs for
the  remediation  of this  facility is not  significant,  based on current known
information.  The former owner was Recticel  Foam  Corporation,  a subsidiary of
Recticel.

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

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

                                      F-35

<PAGE>

                   FOAMEX INTERNATIONAL INC. AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


17.      COMMITMENTS AND CONTINGENCIES (continued)

       In 2002,  capital  expenditures for safety and  environmental  compliance
projects  are  anticipated  to be  approximately  $2.0  million.  Although it is
possible that new information or future  developments  could require the Company
to  reassess  the  potential  exposure  relating  to all  pending  environmental
matters,  including those described above,  management believes that, based upon
all currently  available  information,  the  resolution  of these  environmental
matters will not have a material  adverse  effect on our  operations,  financial
position,  capital expenditures or competitive position. The possibility exists,
however, that new environmental legislation and/or environmental regulations may
be  adopted,  or other  environmental  conditions,  including  the  presence  of
previously  unknown  environmental  contamination,  may be  found  to exist or a
reassessment of the potential exposure to pending  environmental  matters may be
necessary  due to new  information  or  future  developments,  that may  require
expenditures not currently anticipated and that may be material.

Other

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

       During  the fourth  quarter of 2001,  the  Company  discovered  that some
mattresses  containing foam supplied by the Company had a discernible  odor. The
cause  of the  odor was  traced  to  chemicals  from  one  supplier  used in the
manufacture  of the foam. The supplier has advised the Company that the odor was
attributable to a change in its chemical  manufacturing process, which has since
been corrected. The Company received claims from some of its customers for costs
purportedly associated with the odorous foam, and we have reached agreement with
this chemical supplier  regarding the terms of and manner in which this supplier
will reimburse the Company for certain  obligations we may have to our customers
relating to these claims,  as well as for certain of our internal  costs.  Under
this  agreement,  this  supplier  will  pay  us a  fixed  sum  in  exchange  for
eliminating  certain  future  claims we may have against  this  supplier and the
Company is obligated to indemnify  this supplier for certain  claims that may be
brought against it by others,  including the Company's  customers.  The ultimate
amounts of these third party claims and the amount of our own internal costs are
uncertain.  The Company cannot be certain that this supplier's  payments will be
sufficient  to cover all payments it may be required to make to third parties in
respect of their claims, to cover all of the Company's related internal costs or
that the  Company's  indemnification  obligations  to this  supplier will not be
material.  Consequently,  there can be no assurance  that these claims and costs
will not have a material adverse effect on our consolidated  financial position,
results of operations and cash flows.

18.    SUBSEQUENT EVENTS

       On March 25, 2002,  Foamex L.P.  and Foamex  Capital  Corporation  issued
$300.0  million of 10 3/4% Senior  Secured  Notes due 2009 (the "Senior  Secured
Notes") and amended the Foamex L.P. Credit Facility ("Amended Credit Facility").
Under the Amended Credit Facility,  the Company may borrow up to $262.2 million,
consisting of $162.2 million of term loans and a $100.0 million revolving credit
facility.  Term loans will mature at various  dates from June 30,  2005  through
December 29, 2006 and revolving loans, if any, will mature on June 30, 2005. Net
proceeds  from the Senior  Secured  Notes of $280.0  million  were used to pay a
portion of the debt outstanding under the Foamex L.P. Credit Facility. The $31.6
million note payable to a related  party,  Foam Funding LLC, was repaid with the
initial  proceeds  of a  new  term  loan  under  the  Amended  Credit  Facility.
Additionally,  the financial  covenants contained in the Amended Credit Facility
were  adjusted  to reflect  changes in the  capital  structure  and the  current
business environment at the Company. Under the covenants contained in the Senior
Secured Notes and the Amended Credit Facility, the Company may spend up to $48.5
million of the proceeds  from the Senior  Secured  Notes to repurchase or redeem
some of its senior  subordinated  notes.  To the extent that the Company  spends
less than $48.5 million  towards such  repurchase or redemption by September 20,
2002, it is required to repay a portion of its term loans.

                                      F-36

<PAGE>

                   FOAMEX INTERNATIONAL INC. AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


18.      SUBSEQUENT EVENTS (continued)

         In connection with the refinancing  transaction  discussed  above,  the
Company  simplified its corporate  structure by changing  Foamex Carpet Cushion,
Inc. from a corporation to a limited  liability  company,  Foamex Carpet Cushion
LLC.  The Company  then  contributed  Foamex  Carpet  Cushion LLC to Foamex L.P.
Covenants  under  the  Amended  Credit  Facility  will be based on the  combined
entities  and the Company  was in  compliance  with such  revised  covenants  at
December 31, 2001 to the extent they were applicable.

19.    QUARTERLY FINANCIAL DATA (UNAUDITED)

<TABLE>
<CAPTION>
                                          First           Second            Third           Fourth
                                         Quarter          Quarter          Quarter          Quarter
                                        ---------        ---------        ---------        ---------
                                                   (thousands, except per share amounts)
        2001
<S>                                     <C>              <C>              <C>              <C>
         Net sales                      $ 301,907        $ 314,261        $ 326,166        $ 310,570
         Gross profit                      41,176           49,896           47,409           41,600
         Net income (loss) (a)              5,893           10,620            7,267          (29,392)
         Earnings (loss) per share
           Basic                             0.25             0.45             0.31            (1.24)
           Diluted                           0.24             0.42             0.28            (1.24)

        2000
         Net sales                      $ 329,119        $ 322,721        $ 309,666        $ 296,272
         Gross profit                      42,936           47,773           44,729           36,587
         Net income (a)                     1,783            7,986            3,785            3,459
         Earnings per share
           Basic (b)                         0.07             0.32             0.15             0.14
           Diluted                           0.07             0.32             0.15             0.14

<FN>
       (a)    Restructuring, impairment and other charges (credits) are
              discussed in Note 5.

       (b)    During the fourth quarter of 2000, 1,500,000 shares of common
              stock were exchanged for a new preferred stock series, as
              discussed in Note 1.
</FN>
</TABLE>


                                      F-37

<PAGE>

                            FOAMEX INTERNATIONAL INC.
                     INDEX TO FINANCIAL STATEMENT SCHEDULES


       Index to Financial Statement Schedules

       Schedule I - Condensed Financial Information of Registrant

       Schedule II - Valuation and Qualifying Accounts

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



                                      S-1

<PAGE>

<TABLE>
<CAPTION>
                                                                                                         Schedule I
                                   FOAMEX INTERNATIONAL INC. AND SUBSIDIARIES
                                 CONDENSED FINANCIAL INFORMATION OF REGISTRANT
                                                 BALANCE SHEETS

                                                                                December 31,      December 31,
                                                                                    2001              2000
                                                                                 ---------         ---------
ASSETS                                                                          (thousands, except share data)
CURRENT ASSETS
<S>                                                                              <C>               <C>
    Cash and cash equivalents                                                    $       2         $      15
    Intercompany receivables                                                           716               308
    Deferred taxes                                                                     375                --
    Other current assets                                                             1,086               215
                                                                                 ---------         ---------
            Total current assets                                                     2,179               538

OTHER ASSETS                                                                             1                 1
                                                                                 ---------         ---------

TOTAL ASSETS                                                                     $   2,180         $     539
                                                                                 =========         =========

LIABILITIES AND STOCKHOLDERS' DEFICIENCY
CURRENT LIABILITIES
    Accounts payable                                                             $      96         $      50
    Other accrued liabilities                                                          369             2,717
                                                                                 ---------         ---------
      Total current liabilities                                                        465             2,767

LONG-TERM LIABILITIES
    Notes payable to consolidated subsidiary                                         2,490             4,990
    Deficit in consolidated subsidiaries                                           176,023           154,287
    Deferred income taxes                                                            2,629             1,805
    Other liabilities                                                                1,319             1,359
                                                                                 ---------         ---------
      Total liabilities                                                            182,926           165,208
                                                                                 ---------         ---------

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 2001 and 2000                                  15                15
    Common Stock, par value $.01 per share:
      Authorized 50,000,000 shares
      Issued 27,260,441 in 2001 and 27,048,994 shares in 2000;
      Outstanding 23,771,441 shares in 2001 and 23,559,994 shares in 2000              273               270
    Additional paid-in capital                                                      97,668            96,275
    Accumulated deficit                                                           (206,544)         (200,932)
    Accumulated other comprehensive loss                                           (35,157)          (23,296)
    Other:
      Common Stock held in treasury, at cost:
        3,489,000 shares in 2001 and 2000                                          (27,780)          (27,780)
      Shareholder note receivable                                                   (9,221)           (9,221)
                                                                                 ---------         ---------

    Total stockholders' deficit                                                   (180,746)         (164,669)
                                                                                 ---------         ---------
      TOTAL LIABILITIES AND STOCKHOLDERS' DEFICIENCY                             $   2,180         $     539
                                                                                 =========         =========

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

                                                      S-2

</TABLE>

<PAGE>

<TABLE>
<CAPTION>

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


                                               2001              2000             1999
                                             --------         --------         --------
                                          (amounts in thousands except per share amounts)
<S>                                          <C>              <C>              <C>
SELLING, GENERAL AND
    ADMINISTRATIVE EXPENSES                  $  1,254         $    961         $  1,417
                                             --------         --------         --------

LOSS FROM OPERATIONS                           (1,254)            (961)          (1,417)

EQUITY IN EARNINGS (LOSS) OF
    CONSOLIDATED SUBSIDIARIES                  (2,261)          19,652           24,091

INTEREST EXPENSE                                  343              444            2,042

OTHER INCOME (EXPENSE)                             --           (1,047)               2
                                             --------         --------         --------

    INCOME (LOSS) BEFORE INCOME TAXES          (3,858)          17,200           20,634

INCOME TAX PROVISION                            1,754              187              918
                                             --------         --------         --------

NET INCOME (LOSS)                            $ (5,612)        $ 17,013         $ 19,716
                                             ========         ========         ========

BASIC EARNINGS (LOSS) PER SHARE              $  (0.24)        $   0.69         $   0.79
                                             ========         ========         ========

DILUTED EARNINGS (LOSS) PER SHARE            $  (0.24)        $   0.67         $   0.78
                                             ========         ========         ========


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

                                           S-3

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<PAGE>

<TABLE>
<CAPTION>

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

                                                                         2001            2000              1999
                                                                      --------         --------         --------
OPERATING ACTIVITIES                                                                 (thousands)
<S>                                                                   <C>              <C>              <C>
    Net income (loss)                                                 $ (5,612)        $ 17,013         $ 19,716
    Adjustments to reconcile net income (loss) to
      net cash used for operating activities:
      Deferred income taxes                                                567              665              164
      Equity in (earnings) losses of consolidated subsidiaries           2,261          (19,652)         (24,091)
      Other                                                                319               88              (34)
    Changes in operating assets and liabilities,
      net of acquisitions:
      Intercompany receivables                                            (408)              74            4,241
      Accounts payable                                                      46               10               40
      Other assets and liabilities                                         536              (34)          (3,176)
                                                                      --------         --------         --------
         Net cash used for operating activities                         (2,291)          (1,836)          (3,140)
                                                                      --------         --------         --------

INVESTING ACTIVITIES
    Distribution from subsidiaries                                       3,861               --           17,204
    Other                                                                   --               --              924
                                                                      --------         --------         --------
    Net cash provided by investing activities                            3,861               --           18,128
                                                                      --------         --------         --------

FINANCING ACTIVITIES
    Proceeds from (repayments of) note payable to consolidated
      subsidiary                                                        (2,500)           1,814           (1,814)
    Repayments of tax distribution advance                                  --               --          (13,618)
    Proceeds from exercise of stock options                                917               24              270
                                                                      --------         --------         --------
         Net cash  provided by (used for) financing activities          (1,583)           1,838          (15,162)
                                                                      --------         --------         --------

NET INCREASE (DECREASE) IN CASH AND
    CASH EQUIVALENTS                                                       (13)               2             (174)

CASH AND CASH EQUIVALENTS AT
    BEGINNING OF PERIOD                                                     15               13              187
                                                                      --------         --------         --------

CASH AND CASH EQUIVALENTS AT
    END OF PERIOD                                                     $      2         $     15         $     13
                                                                      ========         ========         ========


Note:  During 1999, the Company paid to its consolidated subsidiaries distributions of $0.1 million in accordance
       with tax sharing agreements. Also, during 1999, the Company received a special distribution from its
       subsidiaries of $17.3 million. The proceeds were used to repay the tax distribution advance and accrued
       interest to Foamex L.P.

       Also during 2001, the Company received a special distribution from its subsidiaries of $3.7 million. The
       proceeds were used to repay the note and interest payable to Foamex L.P.


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

                                                        S-4

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<PAGE>

<TABLE>
<CAPTION>
                                                                                                        Schedule II
                   FOAMEX INTERNATIONAL INC. AND SUBSIDIARIES
                        VALUATION AND QUALIFYING ACCOUNTS
                                   (thousands)

                                          Balance at     Charged to     Charged to                     Balance at
                                         Beginning of    Costs and        Other                          End of
                                            Period        Expenses       Accounts       Deductions       Period
                                            ------        --------       --------       ----------       ------
YEAR ENDED DECEMBER 31, 2001
----------------------------
<S>                                         <C>            <C>            <C>            <C>             <C>
Allowance for Uncollectible Accounts        $ 7,693        $ 5,479        $    88        $ 4,540         $ 8,720
                                            =======        =======        =======        =======         =======

Reserve for Discounts                       $ 2,233        $    --        $15,198    (1) $15,211         $ 2,220
                                            =======        =======        =======        =======         =======


YEAR ENDED DECEMBER 31, 2000
----------------------------
Allowance for Uncollectible Accounts        $ 7,474        $ 2,838        $    --        $ 2,619         $ 7,693
                                            =======        =======        =======        =======         =======

Reserve for Discounts                       $ 2,075        $    --        $15,823    (1) $15,665         $ 2,233
                                            =======        =======        =======        =======         =======


YEAR ENDED DECEMBER 31, 1999
----------------------------
Allowance for Uncollectible Accounts        $ 9,790        $ 2,758        $    --        $ 5,074         $ 7,474
                                            =======        =======        =======        =======         =======

Reserve for Discounts                       $ 1,840        $    --        $16,846    (1) $16,611         $ 2,075
                                            =======        =======        =======        =======         =======


(1)    Adjustments reflect a reduction in net sales.



                                                        S-5
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