SECURITIES AND EXCHANGE COMMISSION
                             WASHINGTON, D.C. 20549
                                   FORM 10-K/A
                                 Amendment No. 1

            [X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
                         SECURITIES EXCHANGE ACT OF 1934
                   For the fiscal year ended December 31, 2000
                                       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: 1-11432: 1-11436
                                            ----------------

                                   FOAMEX L.P.
                           FOAMEX CAPITAL CORPORATION
             ------------------------------------------------------
             (Exact Name of registrant as Specified in its Charter)

           Delaware                                          05-0475617
           Delaware                                          22-3182164
-------------------------------                         ----------------------
(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:  None
                                                             ----

     Indicate  by check  mark  whether  Foamex  L.P.  (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 Foamex
L.P. 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 whether Foamex Capital Corporation (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
Foamex Capital  Corporation  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 registrants'  knowledge,  in definitive proxy or information  statements
incorporated  by reference in Part III of this Annual Report on Form 10-K or any
amendment to this Annual Report on Form 10-K. [X]

     None of the voting securities of Foamex L.P. or Foamex Capital  Corporation
are held by non-affiliates.

     As  of  March  2,  2001,   there  were  1,000  shares  of  Foamex   Capital
Corporation's common stock outstanding.

     Foamex L.P. and Foamex Capital  Corporation meet the conditions set for the
in General Instruction  (I)(1)(a) and (b) of this Annual Report on Form 10-K and
are therefore filing this form with reduced disclosure format.

                       DOCUMENTS INCORPORATED BY REFERENCE
                                      None

<PAGE>


                                 Amendment No. 1

Item 8 -  Financial  Statements  and  Supplementary  Data is hereby  amended  to
include  unaudited  1999  quarterly  financial  data presented in Note 20 to the
consolidated financial statements.  This data was included because a restatement
was  required  since Foamex L.P.  subsequently  determined  that certain  fourth
quarter 1999  adjustments  should have been recorded in prior  quarters in 1999.
The consolidated financial statements are included as Exhibit 14(a) in Item 14 -
Exhibits, Financial Statement Schedules and Reports.



                                       2
<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 22nd day of February
2002.

                                            FOAMEX L.P.
                                            By: FMXI, Inc.
                                            General Partner


                                            By: /s/ Michael D. Carlini
                                                ------------------------
                                            Name:  Michael D. Carlini
                                            Title: Senior Vice President


                                            FOAMEX CAPITAL CORPORATION


                                            By: /s/ Michael D. Carlini
                                                ------------------------
                                            Name:  Michael D. Carlini
                                            Title: Senior Vice President


     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 as of the dates indicated:

Signature                       Title                         Date


/s/ Marshall S. Cogan           Director of FMXI and FCC      February 22, 2002
-----------------------
    Marshall S. Cogan



/s/ George L. Karpinski         Director of FMXI and FCC      February 22, 2002
-----------------------
    George L. Karpinski




                                       3
<PAGE>




ITEM 8.  FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

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




                                       4
<PAGE>


                                                                     Item 14(a)
                          FOAMEX L.P. AND SUBSIDIARIES
                   INDEX TO CONSOLIDATED FINANCIAL STATEMENTS


Financial Statements of Registrants

<TABLE>
<CAPTION>
Foamex L.P.
<S>                                                                                                  <C>
   Report of Independent Accountants                                                               F-2
   Consolidated Balance Sheets as of December 31, 2000 and 1999                                    F-3
   Consolidated Statements of Operations for the years 2000, 1999 and 1998                         F-5
   Consolidated Statements of Cash Flows for the years 2000, 1999 and 1998                         F-6
   Consolidated Statements of Partners' Deficit for the years 2000, 1999 and 1998                  F-7
   Notes to Consolidated Financial Statements                                                      F-8

Foamex Capital Corporation
   Report of Independent Accountants                                                               F-37
   Balance Sheets as of December 31, 2000 and 1999                                                 F-38
   Notes to Balance Sheets                                                                         F-39
</TABLE>



                                      F-1
<PAGE>


                        REPORT OF INDEPENDENT ACCOUNTANTS


To the Partners of Foamex L.P.:

In our opinion,  the  accompanying  consolidated  balance sheets and the related
consolidated statements of operations,  partners' deficit and cash flows present
fairly, in all material respects,  the financial position of Foamex L.P. and its
subsidiaries,  an indirect wholly owned subsidiary of Foamex  International Inc.
("Foamex International"), at December 31, 2000 and 1999 and the results of their
operations  and their cash flows for each of the three years in the period ended
December 31, 2000 in conformity with accounting principles generally accepted in
the United States of America.  These financial statements are the responsibility
of Foamex  L.P.'s  management;  our  responsibility  is to express an opinion on
these financial statements 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 12, during the year ending December 31, 2001, Foamex L.P.'s
financial  debt  covenants,  with which  Foamex L.P.  must comply on a quarterly
basis, become more restrictive.  Management's plans in regard to this matter are
also described in Note 12.



PricewaterhouseCoopers LLP
Philadelphia, Pennsylvania
March 30, 2001


                                      F-2
<PAGE>



                          FOAMEX L.P. AND SUBSIDIARIES
                           CONSOLIDATED BALANCE SHEETS


<TABLE>
<CAPTION>
                                                                                    December 31,       December 31,
ASSETS                                                                                 2000                1999
                                                                                    ------------       ------------
                                                                                               (thousands)
CURRENT ASSETS
<S>                                                                                   <C>                 <C>
    Cash and cash equivalents                                                         $  2,887            $  1,573
    Accounts receivable, net of allowance for doubtful
      accounts and discounts of $6,458 and $5,310                                      134,478             128,929
    Accounts receivable from related parties                                            12,483              16,717
    Inventories                                                                         96,673              93,812
    Other current assets                                                                20,569              21,541
                                                                                      --------            --------

            Total current assets                                                       267,090             262,572
                                                                                      --------            --------

PROPERTY, PLANT AND EQUIPMENT
    Land and land improvements                                                           6,805               6,947
    Buildings and leasehold improvements                                                99,312              98,098
    Machinery, equipment and furnishings                                               249,975             246,392
    Construction in progress                                                            21,640              14,598
                                                                                      --------            --------

            Total                                                                      377,732             366,035

    Less accumulated depreciation and amortization                                    (175,260)           (154,720)
                                                                                      --------            --------

       Property, plant and equipment, net                                              202,472             211,315

COST IN EXCESS OF ASSETS ACQUIRED, net of
accumulated amortization of $20,677 in 2000 and
$15,804 in 1999                                                                        178,299             183,481

DEBT ISSUANCE COSTS, net of
accumulated amortization of $8,719 in 2000 and
$5,787 in 1999                                                                          11,491              14,423

OTHER ASSETS                                                                            18,209              26,704
                                                                                      --------            --------

TOTAL ASSETS                                                                          $677,561            $698,495
                                                                                      ========            ========
</TABLE>

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


                                      F-3
<PAGE>



                          FOAMEX L.P. AND SUBSIDIARIES
                           CONSOLIDATED BALANCE SHEETS

<TABLE>
<CAPTION>
                                                                                    December 31,       December 31,
LIABILITIES AND PARTNERS' DEFICIT                                                      2000                1999
                                                                                    ------------       ------------
                                                                                               (thousands)
CURRENT LIABILITIES
<S>                                                                                   <C>                 <C>
    Short-term borrowings                                                             $      -            $  1,627
    Current portion of long-term debt                                                    8,356               7,866
    Accounts payable                                                                    82,756              82,229
    Accrued employee compensation and benefits                                          20,420              16,341
    Accrued interest                                                                     9,133               9,457
    Accrued restructuring                                                                3,831               3,915
    Deferred income taxes                                                                1,511               2,080
    Accrued customer rebates                                                            12,400               9,652
    Other accrued liabilities                                                           19,205              18,864
                                                                                      --------            --------

      Total current liabilities                                                        157,612             152,031

LONG-TERM DEBT                                                                         656,168             646,544

LONG-TERM DEBT - RELATED PARTY                                                               -              34,000

ACCRUED EMPLOYEE BENEFITS                                                               18,366              14,131

ACCRUED RESTRUCTURING                                                                    4,681               7,097

OTHER LIABILITIES                                                                        9,641               9,283
                                                                                      --------            --------

    Total liabilities                                                                  846,468             863,086
                                                                                      --------            --------

COMMITMENTS AND CONTINGENCIES

PARTNERS' DEFICIT
      General partners                                                                (130,235)           (143,271)
      Limited partners                                                                       -                   -
      Accumulated comprehensive loss                                                   (24,461)             (8,923)
      Notes and advances receivable from partner                                        (4,990)             (3,176)
      Notes receivable from related party                                               (9,221)             (9,221)
                                                                                      --------            --------

         Total partners' deficit                                                      (168,907)           (164,591)
                                                                                      --------            --------

TOTAL LIABILITIES AND PARTNERS' DEFICIT                                               $677,561            $698,495
                                                                                      ========            ========
</TABLE>


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


                                      F-4
<PAGE>



                          FOAMEX L.P. AND SUBSIDIARIES
                      CONSOLIDATED STATEMENTS OF OPERATIONS
                        For the Years 2000, 1999 and 1998

<TABLE>
<CAPTION>
                                                               2000                1999                1998
                                                            ----------          ----------         ----------
                                                                                (thousands)
<S>                                                         <C>                 <C>                <C>
NET SALES                                                   $1,161,017          $1,190,679         $1,157,751

COST OF GOODS SOLD                                           1,016,643           1,036,056          1,029,074
                                                            ----------          ----------         ----------

GROSS PROFIT                                                   144,374             154,623            128,677

SELLING, GENERAL AND ADMINISTRATIVE
    EXPENSES                                                    54,240              60,067             73,315

RESTRUCTURING AND OTHER CHARGES (CREDITS)                        6,019              10,821            (10,146)
                                                            ----------          ----------         ----------

INCOME FROM OPERATIONS                                          84,115              83,735             65,508

INTEREST AND DEBT ISSUANCE EXPENSE                              69,259              66,471             66,112

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

OTHER EXPENSE, NET                                              (1,330)               (882)            (4,325)
                                                            ----------          ----------         ----------

INCOME (LOSS) BEFORE PROVISION FOR
    INCOME TAXES                                                15,178              16,894             (4,929)

PROVISION FOR INCOME TAXES                                       1,910               1,313                940
                                                            ----------          ----------         ----------

INCOME (LOSS) BEFORE EXTRAORDINARY LOSS                         13,268              15,581             (5,869)

EXTRAORDINARY LOSS ON EARLY
    EXTINGUISHMENT OF DEBT                                           -                   -             (3,195)
                                                            ----------          ----------         ----------

NET INCOME (LOSS)                                           $   13,268          $   15,581         $   (9,064)
                                                            ==========          ==========         ==========
</TABLE>


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


                                      F-5
<PAGE>


                          FOAMEX L.P. AND SUBSIDIARIES
                      CONSOLIDATED STATEMENTS OF CASH FLOWS
                        For the Years 2000, 1999 and 1998

<TABLE>
<CAPTION>
                                                                         2000           1999            1998
                                                                       ---------      ---------       --------
OPERATING ACTIVITIES                                                                 (thousands)
<S>                                                                    <C>             <C>            <C>
   Net income (loss)                                                   $ 13,268        $ 15,581       $ (9,064)
   Adjustments to reconcile net income (loss) to net
     cash provided by (used for) operating activities:
     Depreciation and amortization                                       33,801          32,590         31,679
     Amortization of debt issuance costs, debt premium, deferred
        swap adjustment and gain, and debt discount                         383             457           (244)
     Asset write-downs and other charges (credits)                        2,822             356         (5,507)
     Extraordinary loss on early extinguishment of debt                       -               -          2,857
     Provision for uncollectible accounts                                 1,736           2,493          2,000
     Retirement benefit funding (greater) less than expense              (6,502)          2,405          1,081
     Deferred income taxes                                                 (646)             81            267
     Other, net                                                           1,717           1,075         (5,274)
   Changes in operating assets and liabilities:
     Accounts receivable and accounts receivable from related parties    (3,051)         12,695        (19,026)
     Inventories                                                         (2,861)         33,824        (20,288)
     Accounts payable and accounts payable to related parties               527         (58,288)        13,530
     Accrued restructuring                                               (2,500)          1,491        (14,183)
     Other assets and liabilities                                         8,003          13,301         (5,610)
                                                                       --------        --------       --------

        Net cash provided by (used for) operating activities             46,697          58,061        (27,782)
                                                                       --------        --------       --------

INVESTING ACTIVITIES
   Capital expenditures                                                 (22,786)        (19,407)       (31,715)
   Proceeds from sale of assets                                           3,995           1,510          2,230
   Repayment of (purchase of) note from Foamex International                  -           2,490         (2,490)
   Redemption of General Felt                                                 -               -        (10,153)
   Increase in revolving loan with Foamex International                  (1,814)           (676)             -
   Other investing activities                                            (1,850)            249           (922)
                                                                       --------        --------       --------

        Net cash used for investing activities                          (22,455)        (15,834)       (43,050)
                                                                       --------        --------       --------

FINANCING ACTIVITIES
   Repayments of short-term borrowings                                   (1,627)         (1,330)        (3,641)
   Net proceeds from (repayments of) revolving loans                     32,220         (25,753)        84,511
   Proceeds from long-term debt                                               -               -        138,810
   Repayments of long-term debt                                         (20,550)         (8,271)      (142,212)
   Repayments of long-term debt - related parties                       (34,000)              -              -
   Increase (decrease) in cash overdrafts                                 1,029          (1,444)         7,300
   Tax distribution repayments                                                -          13,618              -
   Net distribution paid to partners                                          -         (17,296)       (20,293)
   Debt issuance costs                                                        -          (3,370)          (979)
   Other financing activities                                                 -               -          1,123
                                                                       --------        --------       --------

        Net cash provided by (used for) financing activities            (22,928)        (43,846)        64,619
                                                                       --------        --------       --------

Net increase (decrease) in cash and cash equivalents                      1,314          (1,619)        (6,213)

Cash and cash equivalents at beginning of period                          1,573           3,192          9,405
                                                                       --------        --------       --------

Cash and cash equivalents at end of period                             $  2,887        $  1,573       $  3,192
                                                                       ========        ========       ========
</TABLE>


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



                                      F-6
<PAGE>


                          FOAMEX L.P. AND SUBSIDIARIES
                  CONSOLIDATED STATEMENTS OF PARTNERS' DEFICIT
                     For the Years Ended 2000, 1999 and 1998

<TABLE>
<CAPTION>
                                                                      Accumulated                       Notes
                                                                        Other           Notes        Receivable
                                              General     Limited     Comprehensive    Receivable       Related
                                              Partners    Partners        Loss        from Partners      Party         Total
                                              --------    --------    -------------   -------------   ----------     ---------
                                                                       (thousands)
<S>                                           <C>         <C>          <C>              <C>             <C>          <C>
Balances at December 28, 1997                 $(122,304)  $     -      $ (8,085)        $(16,118)       $(9,795)     $(156,302)

Net loss                                           (181)   (8,883)                                                      (9,064)
Minimum pension liability adjustment                                    (11,525)                                       (11,525)
Foreign currency translation adjustment                                  (6,598)                                        (6,598)
                                                                                                                     ---------
   Comprehensive loss                                                                                                  (27,187)
Distributions                                        (8)     (326)                                                        (334)
Distribution associated with the
   GFI Transaction                                 (400)  (19,600)                                                     (20,000)
Equity adjustment associated with the
   GFI Transaction                                  201     9,868                                                       10,069
Purchase of note receivable from Foamex
   International                                                                          (2,490)                       (2,490)
Other                                                         207                                                          207
Deficit balance of Limited Partner assumed
   by General Partner                           (18,734)   18,734                                                            -
                                              ---------   -------      --------         --------        -------      ---------
Balances at December 31, 1998                  (141,426)        -       (26,208)         (18,608)        (9,795)      (196,037)

Net income                                          312    15,269                                                       15,581
Minimum pension liability adjustment                                     12,331                                         12,331
Foreign currency translation adjustment                                   4,954                                          4,954
                                                                                                                     ---------
   Comprehensive income                                                                                                 32,866
Distributions                                        (7)     (321)                                                        (328)
Distribution associated with tax distribution
   advance                                         (346)  (16,967)                                                     (17,313)
Repayment of note receivable from Foamex
   International                                                                           2,490                         2,490
Repayment of tax advance                                                                  13,618                        13,618
Revolving loan with Foamex International                                                    (676)                         (676)
Other                                                         215                                           574            789
Deficit balance of Limited Partner assumed
   by General Partner                            (1,804)    1,804                                                            -
                                              ---------   -------      --------         --------        -------      ---------
Balances at December 31, 1999                  (143,271)        -        (8,923)          (3,176)        (9,221)      (164,591)

Net income                                          265    13,003                                                       13,268
Minimum pension liability adjustment                                    (14,628)                                       (14,628)
Foreign currency translation adjustment                                    (910)                                          (910)
                                                                                                                     ---------
   Comprehensive loss                                                                                                   (2,270)
Distributions                                        (8)     (432)                                                         (440)
Revolving loan with Foamex International                                                  (1,814)                       (1,814)
Other                                                         208                                                           208
Offset balance against Limited Partner deficit
   assumed by General Partner                    12,779   (12,779)                                                            -
                                              ---------   -------      --------         --------        -------      ---------
Balances at December 31, 2000                 $(130,235)  $     -      $(24,461)        $ (4,990)       $(9,221)     $(168,907)
                                              =========   =======      ========         ========        ========     =========
</TABLE>


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


                                      F-7
<PAGE>


                          FOAMEX L.P. AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

1.   ORGANIZATION AND BASIS OF PRESENTATION

     Organization

     Foamex L.P. is a manufacturer and distributor of flexible polyurethane foam
and advanced  polymer foam  products.  As of December  31, 2000,  Foamex  L.P.'s
operations consists of the following operating segments: (i) Foam Products, (ii)
Carpet Cushion Products,  (iii) Automotive Products, (iv) Technical Products and
(v) Other, which primarily consists of certain foreign manufacturing  operations
in Mexico,  corporate expenses not allocated to the other operating segments and
restructuring and other charges. The net sales and income (loss) from operations
of these  operating  segments  for each of the last three years are  included in
Note 15. For periods  prior to February 27,  1998,  the  consolidated  financial
statements  include the  results of  operations  and cash flows of General  Felt
Industries,  Inc.  ("General Felt"). In connection with the GFI Transaction (see
Note 12) the net assets and  operations  of General Felt were  transferred  from
Foamex L.P. and were acquired by Foamex Carpet Cushion,  Inc. ("Foamex Carpet"),
a wholly owned subsidiary of Foamex International Inc. ("Foamex International").

     Foamex L.P. is a Delaware limited partnership. Effective February 27, 1998,
Foamex L.P. became an indirect wholly owned subsidiary of Foamex  International.
FMXI, Inc.  ("FMXI") has a 2% managing  general  partnership  interest in Foamex
L.P. Foamex  International has a 98% limited partnership interest in Foamex L.P.
FMXI is a wholly owned subsidiary of Foamex International.

     Foamex International Shareholder and Change in Control Developments

     Trace International  Holdings,  Inc. ("Trace") is a privately held company,
which  owned  approximately  29% of Foamex  International's  outstanding  voting
common stock at September  30, 2000,  and whose former  Chairman  also serves as
Foamex  International's  Chairman.  Foamex International's common stock owned by
Trace was pledged as  collateral  against  certain of Trace's  obligations.  The
Foamex L.P. credit facility,  pursuant to which approximately  $351.1 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
Foamex  International'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")  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,  Foamex  L.P.  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, Foamex  International  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 Foamex International'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 Foamex International's common stock.


                                      F-8
<PAGE>

                          FOAMEX L.P. AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

1.     ORGANIZATION AND BASIS OF PRESENTATION (continued)

     Under the Exchange  Agreement,  The Bank of Nova Scotia initially  received
1,500,000  shares  of  Foamex   International's  common  stock  from  the  Trace
bankruptcy estate and exchanged these common stock shares for 15,000 shares of a
new  class  of  Foamex  International'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 Foamex  International'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 Foamex International's common stock,
(b) ranks senior to any future  preferred  stock issued by Foamex  International
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 Foamex  International's  common stock when the  remaining
5,697,426 shares of Foamex  International's common stock were transferred to The
Bank of Nova Scotia from the Trace bankruptcy estate.

2.   SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Consolidation

     The consolidated  financial  statements include the accounts of Foamex L.P.
and  all  majority-owned  subsidiaries  where  control  exists.  Investments  in
affiliates  with 20% or greater  ownership  are  accounted  for using the equity
method.  All  significant  intercompany  accounts  and  transactions  have  been
eliminated in consolidation.

Reporting Period

     Effective September 1998, the annual reporting period was changed from a 52
or 53 week fiscal year ending on the Sunday  closest to the end of the  calendar
year to a calendar year ending on December 31. This change was effective for the
third fiscal quarter of 1998, which ended on September 30, 1998.

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 and contingency disclosures. Actual
results could differ from those estimates.

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.  See the section below  entitled  "Accounting
Changes  -  Revenue  Recognition"  regarding  developments   concerning  revenue
recognition requirements.

Cash Equivalents

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

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


                                      F-9
<PAGE>

                          FOAMEX L.P. AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

2.   SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)

the shorter of the terms of the respective  leases or the estimated useful lives
of the leasehold improvements.  Depreciation expense for 2000, 1999 and 1998 was
$27.1 million, $25.9 million and $24.6 million, respectively.

     Maintenance  and repairs are charged to expense as  incurred.  Renewals and
major  improvements  are  capitalized.  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.

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.

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. At each balance sheet date, Foamex L.P.
evaluates  the  recoverability  of cost in excess of net assets  acquired  using
certain  financial  indicators such as historical and future ability to generate
income and cash flows from  operations  based on a going  concern  basis.  If an
impairment  loss has  occurred,  based on expected  future  (undiscounted)  cash
flows,  the loss is  recognized  in the income  statement.  During  1998, a $2.3
million impairment charge was recorded associated with the cost in excess of net
assets acquired related with a foreign facility.

Environmental Remediation

     Environmental  expenditures that relate to current  operations are expensed
or capitalized as appropriate. Expenditures that relate to an existing condition
caused by past  operations,  and which do not  contribute  to  current or future
revenue  generation,  are expensed.  Liabilities are recorded when environmental
assessments and/or remedial efforts are probable and the costs can be reasonably
estimated.

Comprehensive Income

     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 equity, such as currency  translation and
minimum pension liability adjustments.

Foreign Currency Translation

     The financial statements of foreign subsidiaries,  except in countries that
are considered as highly  inflationary as discussed below,  have been translated
into U.S.  dollars  by using the  year-end  exchange  rates for the  assets  and
liabilities  and the average  exchange  rates for the  statements of operations.
Currency  translation  adjustments are included in other partners'  deficit.  In
1998, Mexico was considered a highly inflationary economy. Accordingly,  certain
financial statement amounts for the Mexican operations were translated at either
current  or  historical  exchange  rates,  as  appropriate.   These  translation
adjustments  were  reflected  in the results of  operations.  Transaction  gains
(losses)  are  reflected  in  operations  and are  insignificant.  The effect of
foreign currency exchange rates on cash flows is insignificant.

Start-Up Costs

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


                                      F-10
<PAGE>

                          FOAMEX L.P. AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

2.   SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)

Income Taxes

     Income taxes are accounted for under the asset and liability method.  Under
this  method,  deferred  income taxes are  provided  for  temporary  differences
between  the  financial  reporting  basis and  income  tax  basis of assets  and
liabilities 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.

     Foamex L.P.,  as a limited  partnership,  is not subject to Federal  income
taxes;  therefore no current or deferred  provision  has been  provided for such
taxes. However,  Foamex L.P. has provided for the income taxes of certain states
in which it is subject to taxes and for certain subsidiaries,  which are subject
to  Federal  and state  income  taxes and for  subsidiaries  located  in foreign
jurisdictions  that file  separate  tax returns.  The partners  will provide for
their  respective  shares of income or loss in their Federal or applicable state
income tax returns.  Foamex L.P. has a tax sharing  agreement  that provides for
the payment of  distributions to the partners for amounts that would be required
to be paid if Foamex L.P. were a corporation  filing  separate tax returns.  The
ability of Foamex L.P. to make such distributions is limited by the terms of its
credit agreements and indentures. (See Notes 8 and 12).

Accounting Changes  - Revenue Recognition and Presentation

     The Securities and Exchange  Commission (the "SEC") issued Staff Accounting
Bulletin No. 101, "Revenue Recognition in Financial Statements" ("SAB No. 101").
SAB No. 101, as amended,  was effective as of January 1, 2000 and was adopted in
the fourth quarter of 2000. SAB No. 101 outlines the SEC's position that revenue
should not be recognized until it is realized or realizable. Based on the review
of the  SAB  No.  101  requirements,  no  significant  impact  was  incurred  or
anticipated on the revenue recognition practices of Foamex L.P.

     During  July 2000,  the  Emerging  Issues  Task  Force (the  "EITF") of the
Financial  Accounting Standards Board reached a consensus on an issue concerning
the components of revenue.  EITF No. 00-10 "Accounting for Shipping and Handling
Revenues and Costs"  essentially  requires that shipping and handling costs that
are billed to a customer be included in revenue.  Foamex L.P.  determined that a
portion of shipping costs billed to certain customers prior to February 28, 1998
required a  reclassification  from cost of sales to  revenue.  Accordingly,  net
sales  for  1998  in the  consolidated  statements  of  operations  reflect  the
reclassification  required.  On a segment basis, the Carpet Cushion Products was
the  only  business  segment  impacted  and  net  sales  for  1998  reflect  the
reclassification required. All other shipping and handling costs associated with
product shipments are reported in cost of goods sold.

Reclassifications

     Certain  amounts have been  reclassified to conform with the current year's
presentation.

Future 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") will require the
fair value of  derivatives  be recognized in the  consolidated  balance  sheets.
Changes in the fair value of  derivatives  will be  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 will be effective
for Foamex L.P. in the first quarter of 2001.



                                      F-11
<PAGE>

                          FOAMEX L.P. AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

2.   SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)

     These  statements  create a  foundation  that will address  accounting  and
reporting  issues  for  a  wide  range  of  financial   instruments  defined  as
derivatives and related hedging activities. As of December 31, 2000, Foamex L.P.
did not have any  derivatives,  as defined in the statements.  Accordingly,  the
initial  adoption of the  statements  will not have a significant  impact on the
results of operations  or financial  position of Foamex L.P. The adoption of the
statements will require a reclassification  in the consolidated  balance sheets,
effective in 2001.  Specifically,  $6.1 million  recognized  at year-end 2000 as
liabilities will be reclassified to accumulated other  comprehensive  loss under
partners'  deficit.  The amount  reclassified is the result of certain  interest
rate swaps that were  terminated in prior years,  as discussed in Note 12 to the
consolidated  financial statements.  The amount reclassified will continue to be
amortized, with $0.9 million of amortization anticipated in 2001.

3.   ASSET SALES

     On March 31, 1999,  Foamex  International  sold its corporate  airplane for
$16.3  million.  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,  Foamex  International  was  obligated  to share the net
proceeds  in  excess  of a  specified  amount  defined  in  the  agreement.  The
obligation  was offset against  Trace's two  promissory  notes payable to Foamex
L.P., discussed in Note 17, at Trace's request.

4.   RESTRUCTURING AND OTHER CHARGES (CREDITS)

1998

     Based on business  developments  during  1998,  Foamex L.P.  decided not to
close two facilities originally identified for closure in the 1997 restructuring
plan. One facility remained open to fill lost capacity  resulting from a fire in
April 1998 at the Orlando,  Florida facility,  which returned to full operations
during 1999. The other facility remained open during 1998 due to improved demand
on the West Coast. The 1997  restructuring plan also included the closure of two
facilities associated with Foamex L.P.'s packaging business. During 1998, Foamex
L.P.  modified the plan, and decided to sell the packaging  business and did not
expect to incur the asset write-down and lease costs as originally planned. As a
result, Foamex L.P. recorded a $14.8 million restructuring adjustment associated
with  the  1997  restructuring   plan.  The  components  of  the  $14.8  million
restructuring  adjustment  include:  $10.2 million for fixed asset  write-downs,
$3.5 million for plant closure and operating lease  obligations and $1.1 million
for personnel reductions.

     In addition, Foamex L.P. recorded restructuring and other charges (credits)
of $4.7  million  during 1998 to reserve for  approximately  $2.4 million of net
receivables  due from  Trace and to write  down  approximately  $2.3  million of
impaired  cost in  excess  of net  assets  acquired  associated  with a  foreign
facility.  Also during 1998, Foamex L.P. incurred additional plant closure costs
of $5.2 million and personnel  reduction  costs of $1.2 million  associated with
the closure of the former Crain facilities. The additional costs associated with
the closure of the former  Crain  facilities  resulted in an increase to cost in
excess of net assets acquired.

1999

     During 1999, Foamex L.P. approved and implemented four restructuring  plans
to reduce selling,  general and  administrative  costs and to rationalize  plant
operations.

     Foamex L.P. recorded  restructuring  charges of approximately  $2.3 million
relating to severance costs in connection with the first restructuring plan.
This plan reduced Foamex L.P.'s salaried work force by 78 employees.

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


                                      F-12
<PAGE>


                          FOAMEX L.P. AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

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

     In  connection  with the third  restructuring  plan,  Foamex L.P.  recorded
restructuring  charges of approximately  $1.7 million relating to the closure of
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 115 employees, $0.1 million of lease and plant
closure costs and $1.5 million of asset write-downs.

     In connection with the fourth  restructuring  plan,  Foamex L.P. closed its
New York office (see Note 17). Foamex L.P. 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,  Foamex L.P. recorded  restructuring  charges of approximately
$1.1 million  relating to changes in estimates to prior years' plans,  primarily
for the sale of the  packaging  business  in 1999.  The $1.1  million  charge is
comprised of $0.2 million of severance,  $1.7 million of lease and plant closure
costs, offset by $0.8 million of adjustments for asset write-downs.  Foamex L.P.
also recorded $0.3 million of other charges  relating to rent due from Trace for
the New York office prior to its closure.

2000

     During  2000,   Foamex  L.P.   approved  and   implemented   four  separate
restructuring  plans to  further  rationalize  plant  operations  and to  reduce
selling, general and administrative expenses.

     Foamex L.P.  recorded  restructuring  charges of $1.7 million for severance
costs in connection with the first  restructuring plan. This plan reduced Foamex
L.P.'s  salaried work force by 15  employees,  including  certain  executives of
Foamex L.P.

     The second  restructuring plan was implemented to rationalize certain plant
operations  relating to the  increase in the VPFSM  capacity in North  Carolina.
Foamex L.P. recorded a restructuring charge of $0.7 million associated with this
plan. The restructuring  charge was comprised of $0.1 million of severance costs
in connection with a work force reduction of 12 employees, $0.4 million of lease
and plant closure costs and $0.2 million of asset write-downs.

     The third  restructuring  plan, as amended,  was implemented to exit Foamex
L.P.'s fiber operations in Indiana.  Foamex L.P. recorded a restructuring charge
of $1.1 million in  connection  with this plan which was  comprised of less than
$0.1 million of severance costs for the work force reduction of seven employees,
$0.1  million  of lease  and  plant  closure  costs  and $1.0  million  of asset
write-downs.

     The fourth  restructuring  plan was  implemented for the  consolidation  of
pourline operations and certain product line rationalizations resulting from the
closure  of  facilities  in  Indiana  and  Arkansas.   Foamex  L.P.  recorded  a
restructuring  charge of $2.3 million in connection  with this plan.  The charge
was  comprised  of $0.2  million  of  severance  costs  relating  to work  force
reductions of 65  employees,  $0.8 million for lease and plant closure costs and
$1.3 million for asset write-downs.

     In  addition,  Foamex  L.P.  recorded  a net  restructuring  charge of $0.2
million  associated  with changes in  estimates  to prior  years'  restructuring
plans. The net charge was comprised of $0.3 million for asset write-downs offset
by a credit of $0.1 million relating to severance  costs.  Also during May 2000,
Foamex L.P. sold a facility for net proceeds of $3.6  million.  The facility was
closed as part of the 1997 restructuring plan.


                                      F-13
<PAGE>

                          FOAMEX L.P. AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

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

     The   following   table  sets  forth  the   components   of  Foamex  L.P.'s
restructuring and other charges (credits):

<TABLE>
<CAPTION>
                                                            Asset        Plant Closure      Personnel
                                               Total     Write-downs       and Leases       Reductions       Other
                                             ---------   -----------     -------------      ----------     ---------
                                                                          (millions)
<S>                                            <C>          <C>              <C>               <C>           <C>
       Balance at December 28, 1997            $21.2        $(5.7)           $23.5             $3.4          $  -

       Cash spending                           (15.3)           -            (11.8)            (3.5)            -
       Cash proceeds                             2.1          2.1                -                -             -
       1998 restructuring charge                 4.7          4.7                -                -             -
       Restructuring adjustments               (14.8)       (10.2)            (3.5)            (1.1)            -
       Accruals transferred in connection
         with the GFI Transaction               (3.7)        (0.6)            (3.1)               -             -
       Asset write-off/write-downs              (5.6)        (4.8)            (0.8)               -             -
       Reclassified fixed asset basis
         for restructuring credit                8.8          8.8                -                -             -
       Plant consolidation costs                 6.4            -              5.2              1.2             -
                                               -----        -----            -----             ----          ----
       Balance at December 31, 1998              3.8         (5.7)             9.5                -             -

       Cash spending                            (8.6)           -             (3.9)            (4.4)         (0.3)
       Cash proceeds                             1.5          1.5                -                -             -
       1999 restructuring charge                 9.7          1.5              1.0              6.9           0.3
       Restructuring adjustments                 1.1         (0.8)             1.7              0.2             -
       Asset write-off/write-downs              (0.3)        (0.3)               -                -             -
                                               -----        -----            -----             ----          ----
       Balance at December 31, 1999              7.2         (3.8)             8.3              2.7             -

       Cash spending                            (5.7)           -             (2.8)            (2.9)            -
       Cash proceeds                             3.6          3.6                -                -             -
       2000 restructuring charge                 5.8          2.5              1.3              2.0             -
       Restructuring adjustments                 0.2          0.3                -             (0.1)            -
       Asset write-off/write-downs              (2.8)        (2.8)               -                -             -
                                               -----        -----            -----             ----          ----
       Balance at December 31, 2000            $ 8.3        $(0.2)           $ 6.8             $1.7          $  -
                                               =====        =====            =====             ====          ====
</TABLE>

     As indicated  in the table above,  the balance at December 31, 2000 will be
used for  payments  relating to  severance  and lease and plant  closure  costs,
including runout costs at the facilities. As of December 31, 2000, all employees
subject to the plans have been terminated. The $0.2 million of asset write-downs
relates to estimated proceeds and is included in noncurrent assets.  Foamex L.P.
expects to spend  approximately  $3.8 million during 2001 with the balance to be
spent through 2006, principally for lease runout costs.

5.   RETIREE BENEFIT PLANS

Pensions

     Foamex L.P. 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.  Effective  at the end of
1999, the two defined benefit plans for the salaried and hourly employees in the
United States were merged into a single plan.  Benefits  provided did not change
as a result of the plan merger.

     Certain  employees  in a wholly  owned  Canadian  subsidiary  are  provided
pension and survivor  benefits.  The following  disclosures  include the results
from this foreign plan, which is relatively small compared to the plan discussed
above.


                                      F-14
<PAGE>

                          FOAMEX L.P. AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

5.   RETIREE BENEFIT PLANS (continued)

     The components of pension  expense are listed below.  Included in the table
below are Foamex  Carpet's  allocated net periodic  costs of $0.7 million,  $0.5
million and $0.4 million for 2000, 1999 and 1998, respectively.

                                               2000        1999         1998
                                             --------    --------     --------
                                                       (thousands)
     Service cost                             $3,307      $3,685       $3,064
     Interest cost                             5,667       5,121        4,721
     Expected return on plan assets           (6,371)     (5,708)      (5,953)
     Amortization
       Transition asset                          (75)        (75)         (75)
       Prior service cost                       (240)       (240)        (245)
       (Gains) losses and other                  179         819          111
                                              ------      ------       ------
         Total                                $2,467      $3,602       $1,623
                                              ======      ======       ======

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

<TABLE>
<CAPTION>
                                                                                 December 31,     December 31,
                                                                                    2000              1999
                                                                                 ------------     ------------
       Change in Benefit Obligation                                                        (thousands)
<S>                                                                               <C>               <C>
         Benefit obligations at beginning of year                                 $ 75,220          $ 77,451
         Service cost                                                                3,307             3,685
         Interest cost                                                               5,667             5,121
         Amendments                                                                      -                85
         Benefits paid                                                              (4,207)           (3,933)
         Actuarial loss (gain)                                                       4,833            (7,189)
                                                                                  --------          --------
           Projected benefit obligation at end of year                            $ 84,820          $ 75,220
                                                                                  ========          ========

       Change in Plan Assets
         Fair value of plan assets at beginning of year                            $65,102          $ 58,378
         Actual return on plan assets                                               (3,075)            9,506
         Company contributions                                                       9,299             1,656
         Benefits paid                                                              (4,207)           (3,933)
         Other                                                                        (920)             (505)
                                                                                  --------          --------
           Fair value of plan assets at end of year                               $ 66,199          $ 65,102
                                                                                  ========          ========

       Funded Status
         Plan assets in excess of (less than) benefit obligation                  $(18,621)         $(10,118)
         Unamortized transition (asset) obligation                                    (590)             (665)
         Unamortized prior service cost                                             (1,832)           (2,072)
         Unamortized net (gain) loss                                                22,578             7,565
                                                                                  --------          --------
           Net prepaid assets (accrued liabilities)                               $  1,535          $ (5,290)
                                                                                  ========          ========

       Amounts Recognized in the Consolidated Balance Sheets
         Prepaid benefit costs                                                    $    207          $    114
         Accrued benefit liability                                                 (16,480)           (8,613)
         Intangible assets                                                             268               296
         Accumulated other comprehensive loss (a)                                   17,540             2,913
                                                                                  --------          --------
           Net amount recognized                                                  $  1,535          $ (5,290)
                                                                                  ========          ========
<FN>
(a)  Minimum pension liability.
</FN>
</TABLE>


                                      F-15
<PAGE>


                          FOAMEX L.P. AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

5.   RETIREE BENEFIT PLANS (continued)

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

<TABLE>
<CAPTION>
                                                                       2000         1999        1998
                                                                     --------     --------    --------
<S>                                                                    <C>          <C>         <C>
     Expected long-term rate of return on plan assets (a)              10.0%        10.0%       10.0%
     Discount rate on projected benefit obligations                     7.25%        7.5%        6.5%
     Rate of compensation increase                                      4.0%         4.0%        4.0%

<FN>
(a)  Beginning  in 2001,  the expected  long-term  rate of return on plan assets
     assumption will be lowered to 9.0%.
</FN>
</TABLE>

     Foamex L.P.'s funding policy is to contribute  annually an amount that both
satisfies the minimum  funding  requirements of the Employee  Retirement  Income
Security  Act of 1974 and does not exceed the full  funding  limitations  of the
Internal Revenue Code of 1986, as amended (the "Code").

     At December 31, 2000 and 1999,  included in plan assets were 420,000 shares
of Foamex International's stock. In 1994, 250,000 shares were purchased for $2.5
million,  and in 1995, 170,000 shares were purchased for $1.6 million. The value
of the plan's investment in Foamex  International's stock was approximately $2.3
million and $3.5  million at  December  31,  2000 and 1999,  respectively.  Plan
assets at the end of 1998 included  shares of Trace Global  Opportunities  Fund,
which was a related party to Trace.  The shares were  purchased  during 1995 and
1997, at an aggregate cost of $5.0 million.  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 Foamex  International.  During 1998,  250,000  shares of
United Auto Group  ("UAG"),  which was a related party to Trace,  were purchased
for approximately $4.8 million.  The value of the UAG shares was $2.2 million at
December 31, 1999. During the fourth quarter of 2000, all of the UAG shares were
sold for $1.8 million.

Retiree Medical and Life Insurance Benefits

     Foamex L.P.  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.  Foamex L.P. 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.

                                      2000          1999            1998
                                     ------        ------          ------
                                                (thousands)
     Service cost                     $15           $20             $10
     Interest cost                     57            62              46
     Amortization
       Prior service costs             (6)           (6)            (35)
       (Gains) losses and other       (27)          (21)            (29)
                                      ---           ---             ---
     Total                            $39           $55             $(8)
                                      ===           ===             ===


                                      F-16
<PAGE>


                          FOAMEX L.P. AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

5.   RETIREE BENEFIT PLANS (continued)

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

<TABLE>
<CAPTION>
                                                                                 December 31,     December 31,
                                                                                    2000              1999
                                                                                 ------------     ------------
                                                                                          (thousands)
       Change in Benefit Obligation
<S>                                                                                <C>               <C>
         Benefit obligations at beginning of year                                  $   868           $   651
         Service cost                                                                   15                20
         Interest cost                                                                  57                62
         Employee contributions                                                         28                28
         Benefits paid                                                                (433)             (164)
         Amendments                                                                      -               363
         Actuarial loss (gain)                                                         228               (92)
                                                                                   -------           -------
           Projected benefit obligation at end of year                             $   763           $   868
                                                                                   =======           =======

       Change in Plan Assets
         Fair value of plan assets at beginning of year                            $     -           $     -
         Company contributions                                                         405               136
         Employee contributions                                                         28                28
         Benefits paid                                                                (433)             (164)
                                                                                   -------           -------
           Fair value of plan assets at end of year                                $     -           $     -
                                                                                   =======           =======

       Funded Status of the Plan
         Plan assets in excess of (less than) benefit obligation                   $  (763)          $  (868)
         Unamortized prior service cost                                                (67)              (73)
         Unamortized net (gain) loss                                                  (389)             (644)
                                                                                   -------           -------
           Net prepaid assets (accrued liabilities)                                $(1,219)          $(1,585)
                                                                                   =======           =======
</TABLE>

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

<TABLE>
<CAPTION>
                                                                       2000        1999       1998
                                                                      ------      ------     ------
<S>                                                                    <C>         <C>        <C>
     Discount rates on projected benefit obligations                   7.25%       7.5%       6.5%
     Health care cost increase                                         7.0%        7.5%       6.0%
</TABLE>

     The health care cost increase  assumption was revised during 1999. The rate
will gradually be reduced to 5.0% by 2005. 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.

6.   COMPENSATION PLANS

Incentive Compensation

     Most  of  Foamex  L.P.'s  salaried   employees   participate  in  incentive
compensation  programs.  These programs are based on the consolidated results of
Foamex  L.P.  and on the results of business  segments.  Incentive  compensation
expense was  approximately  $1.5 million in 2000,  $3.0 million in 1999 and $0.3
million in 1998.


                                      F-17
<PAGE>

                          FOAMEX L.P. AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


6.   COMPENSATION PLANS (continued)

Defined Contribution Plan

     Foamex L.P. maintains a defined  contribution plan which is qualified under
Section  401(k)  of the Code  ("401(k)  Plan")  and is  available  for  eligible
employees of Foamex L.P. and Foamex Carpet who elect to  participate.  Under the
terms of the  401(k)  Plan,  Foamex  L.P.  partially  matches  certain  employee
contributions.  Expense  for these  contributions  for  2000,  1999 and 1998 was
approximately $1.0 million, $0.9 million and $0.8 million, respectively.  During
2000,  1999 and 1998,  Foamex  Carpet  contributed  approximately  $0.1  million
annually to the plan for matching contribution expense for its employees.

7.   OTHER EXPENSE, NET

     Other expense, net in 2000 totaled $1.3 million and primarily consisted of:
$1.3  million loss on the disposal of fixed assets and $0.7 million of letter of
credit fees offset by $0.6 million of interest income.

     Other expense, net in 1999 totaled $0.9 million was primarily due to losses
on the  disposal of fixed  assets and letter of credit  fees  related to the GFI
Transaction (see Note 12). Interest income totaled $2.2 million in 1999.

     Other  expense,  net for 1998 totaled $4.3 million and primarily  consisted
of: $3.0 million of foreign currency  translation and transaction  losses;  $1.5
million  of fees  and  $1.0  million  of  continuing  costs  related  to the GFI
Transaction; and other expenses offset by approximately $3.4 million of interest
income.

8.   INCOME TAXES

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

<TABLE>
<CAPTION>
                                                                      2000          1999          1998
                                                                    -------       -------       --------
                                                                               (thousands)
<S>                                                                 <C>           <C>           <C>
     United States                                                  $10,203       $13,959       $ 5,364
     Foreign                                                          4,975         2,935       (10,293)
                                                                    -------       -------       -------

     Income (loss) before provision for income taxes
       and extraordinary loss                                       $15,178       $16,894       $(4,929)
                                                                    =======       =======       =======
</TABLE>

     A  reconciliation  of the  statutory  federal  income tax to the income tax
before extraordinary loss is listed below.

<TABLE>
<CAPTION>
                                                                      2000          1999          1998
                                                                    -------       -------       --------
                                                                               (thousands)
<S>                                                                 <C>           <C>           <C>
     Statutory income taxes                                         $ 5,312       $ 5,913       $(1,725)
     State income taxes, net of federal benefit                         593           794           300
     Permanent difference on partnership income                      (6,156)       (6,921)       (1,570)
     Increase (decrease) in valuation allowance                         720           711             -
     Amortization of cost in excess of assets acquired                1,017         1,038            53
     Limitation on the utilization of foreign tax benefits                -             -         3,800
     Write-off excess cost                                                -             -           770
     Other, net                                                         424          (222)         (688)
                                                                    -------       -------       -------
     Total                                                          $ 1,910       $ 1,313       $   940
                                                                    =======       =======       =======
</TABLE>


                                      F-18
<PAGE>



                          FOAMEX L.P. AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

8.   INCOME TAXES (continued)

     The provision for income taxes is summarized as follows:

<TABLE>
<CAPTION>
                                                                      2000          1999          1998
                                                                    -------       -------       --------
     Current                                                                    (thousands)
<S>                                                                 <C>           <C>           <C>
       Federal                                                      $     -       $     -       $     -
       State                                                             65           115             -
       Foreign                                                        1,566         1,117           673
                                                                    -------       -------       -------
         Total current                                                1,631         1,232           673
                                                                    -------       -------       -------

     Deferred
       Federal                                                            -             -           318
       State                                                              -             -             -
       Foreign                                                         (441)         (630)          (51)
                                                                    -------       -------        ------
         Total deferred                                                (441)         (630)          267
                                                                    -------       -------        ------

     Change in valuation allowance                                      720           711             -
                                                                    -------       -------        ------

     Total provision for income taxes                               $ 1,910       $ 1,313        $  940
                                                                    =======       =======        ======
</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,
                                                                      2000                1999
                                                                   ------------        ------------
                                                                            (thousands)
<S>                                                                  <C>                  <C>
     Deferred income tax assets                                      $ 1,759              $ 1,056
     Valuation allowance for deferred income tax assets               (1,431)                (711)
                                                                     -------              -------

       Deferred income tax assets                                        328                  345
                                                                     -------              -------

     Deferred income tax liabilities
       Basis difference in property, plant and equipment                (903)                (568)
       Other                                                          (1,514)              (2,145)
                                                                     -------              -------

       Deferred income tax liabilities                                (2,417)              (2,713)
                                                                     -------              -------

     Net deferred income tax liabilities                             $(2,089)             $(2,368)
                                                                     =======              =======
</TABLE>

     During 2000 and 1999,  the  increase in  valuation  allowance  for deferred
income tax assets  related to net  operating  loss  carryfowards  from a foreign
subsidiary.

9.   EXTRAORDINARY LOSSES

     In 1998,  extraordinary losses of $3.2 million were recorded.  The loss was
in connection with the GFI Transaction,  and related to the early extinguishment
of  approximately  $125.1  million  of term  loans  under a Foamex  L.P.  credit
facility.  The extraordinary  loss was generated  entirely from the write-off of
debt issuance costs.


                                      F-19
<PAGE>


                          FOAMEX L.P. AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


10.  INVENTORIES

     The components of inventory are listed below.

                                               December 31,      December 31,
                                                  2000               1999
                                               ------------      ------------
                                                        (thousands)
       Raw materials and supplies                $64,801           $65,211
       Work-in-process                            11,437            11,447
       Finished goods                             20,435            17,154
                                                 -------           -------
       Total                                     $96,673           $93,812
                                                 =======           =======

11.  SHORT-TERM BORROWINGS

     Foamex  Canada  Inc.,  a wholly  owned  subsidiary  of Foamex  L.P.,  has a
short-term  credit  facility that  provides for $8.0 million of Canadian  dollar
loans (U.S.  dollar  equivalent of $5.2 million) of which up to $2.0 million are
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 1/2% as of December 31, 2000. On U.S.  dollar loans,  interest
is based on the bank's U.S.  dollar base rate in Canada plus 1/2% as of December
31, 2000. At year-end 2000, there were no short-term borrowings  outstanding and
$5.2 million was available.  The weighted  average  interest rates on short-term
borrowings outstanding at year-end 1999 was 7.3%.

12.  LONG-TERM DEBT

     The components of long-term debt are listed below.

<TABLE>
<CAPTION>
                                                                 December 31,          December 31,
                                                                    2000                   1999
                                                                 ------------          ------------
     Foamex L.P. Credit Facility                                             (thousands)
<S>                <C>                                             <C>                    <C>
       Term Loan B (1)                                             $ 77,136               $ 81,874
       Term Loan C (1)                                               70,124                 74,431
       Term Loan D (1)                                              101,565                107,800
       Revolving credit facility (1)                                145,904                113,685
     9 7/8% Senior subordinated notes due 2007 (2)                  150,000                150,000
     13 1/2% Senior subordinated notes due 2005 (includes
       $8,308 and $10,100 of unamortized debt premium) (2)          106,308                108,100
     Industrial revenue bonds (3)                                     7,000                  7,000
     Subordinated note payable (net of unamortized
       debt discount of $49 and $232) (3)                             2,289                  4,444
     Other                                                            4,198                  7,076
                                                                   --------               --------
                                                                    664,524                654,410

     Less current portion                                             8,356                  7,866
                                                                   --------               --------

     Long-term debt-unrelated parties                              $656,168               $646,544
                                                                   ========               ========
</TABLE>

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

<TABLE>
<CAPTION>
                                                                 December 31,          December 31,
                                                                    2000                   1999
                                                                 ------------          ------------
                                                                             (thousands)
<S>                  <C>                                           <C>                    <C>
     Foamex/GFI Note (3)                                           $      -               $ 34,000
                                                                   ========               ========
</TABLE>


                                      F-20
<PAGE>


                          FOAMEX L.P. AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


12.  LONG-TERM DEBT (continued)

(1)  Debt of Foamex L.P., guaranteed by Foamex International and FMXI.
(2)  Debt of Foamex L.P. and FCC.
(3)  Debt of Foamex L.P.

Foamex L.P. Credit Facility

     At December 31, 2000,  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 $177.5  million and three term loans with an outstanding
balance  totaling $248.8  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 Foamex International,  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 extends through June 2003. On January 2, 2001,
the revolving  credit  facility  commitment  was $175.0  million with the fourth
quarter 2000 reduction applied on January 2nd because the last day of 2000 was a
Sunday.

     Borrowings  under the Foamex L.P.  Credit  Facility are  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 has 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 Foamex International,
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.

     At year-end 2000,  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 2.25%, 2.50%, 2.75% and 2.875%, respectively. At
the option of Foamex L.P.,  portions of the  outstanding  loans are  convertible
into LIBOR  based  loans plus 1.0% added to the margins  identified  above.  The
effective  interest rates for the Foamex L.P. Credit Facility at the end of 2000
ranged  between  10.31% and 10.69%.  Interest  capitalized as a component of the
construction costs of plant and equipment totaled $0.8 million in 2000.

     Effective  January 1, 2000,  the interest  rate on  outstanding  borrowings
under the Foamex L.P.  Credit  Facility  will  increase by 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 was
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 will be applicable for the calculation of interest in 2001, effective
upon delivery of the financial statements to the lenders.

     Available  borrowings  under the revolving  credit  facility  totaled $10.5
million at year-end  2000.  Letters of credit  outstanding  at December 31, 2000
totaled $21.1 million.


                                      F-21
<PAGE>


                          FOAMEX L.P. AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


12.  LONG-TERM DEBT (continued)

     As part of the Foamex L.P.  Credit  Facility,  excess  cash flow  generated
annually,  as defined,  is required to prepay portions of Term B, C and D loans.
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 1999 required payment was made during the second quarter
of 2000.

9 7/8% Senior Subordinated Notes

     The 9 7/8% Senior Subordinated Notes were issued by Foamex L.P. and FCC 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 to 100.0% on or after June 15, 2005.

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

13 1/2% Senior Subordinated Notes

     The 13 1/2% Senior  Subordinated  Notes were issued by Foamex L.P.  and FCC
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 to 100.0% on or after August 15, 2004.

     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 and
to the Subordinated Note Payable (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
the end of 2000,  the interest rate was 4.85% on the $6.0 million bond and 4.65%
on the $1.0 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 $10.6 million at December 31, 2000 and
letters of credit approximating $7.3 million.



                                      F-22
<PAGE>



                          FOAMEX L.P. AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


12.  LONG-TERM DEBT (continued)

Subordinated Note Payable

     This note payable was issued during 1993 to John Rallis, a former President
and Chief  Operating  Officer  of Foamex  International.  The note was issued by
Foamex  L.P. in  connection  with the 1993  acquisition  of Great  Western  Foam
Products Corporation and certain related entities and assets. The note carries a
maximum interest rate of 6.0% and the principal is payable in three equal annual
installments that began in May 1999 and end in May 2001.

Other

     At  year-end  2000,  other  debt  primarily  included a 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 year-end 2000
was 11.11%.

Related Party - Foamex/GFI Note

     As a result of the GFI  Transaction,  discussed  below,  Foamex L.P. owed a
$34.0 million promissory note payable to Foam Funding LLC. Interest was based on
a  variable  rate  equal to 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 L.P.,
the note was convertible to a LIBOR-based interest rate plus 0.75%.

     During  the first  quarter of 2000,  the  Foamex/GFI  Note was repaid  with
borrowings under the Foamex L.P.  revolving  credit facility.  The $34.5 million
letter  of  credit  that  was  outstanding  at  year-end  1999 to  collateralize
principal and interest payable under the Foamex/GFI Note was also terminated. At
year-end 1999, the note was recognized as long-term in the consolidated  balance
sheet because of the ability and intent,  evidenced by the letter of credit,  to
refinance the debt on a long-term basis.

GFI Transaction

     On February  27,  1998,  Foamex  International,  Foamex L.P. and certain of
their affiliates  completed a series of transactions which changed Foamex L.P.'s
structure  (collectively,  the "GFI Transaction").  Prior to the consummation of
the GFI Transaction, Foamex L.P. defeased the $4.5 million outstanding principal
amount of its 9 1/2% senior  secured  notes due 2000.  Foamex  L.P.  settled its
intercompany  payables  to  General  Felt  with  $4.8  million  in cash  and the
Foamex/GFI  Note,  described  above.  The  initial  transaction  resulted in the
transfer  from Foamex  L.P.  to Foam  Funding  LLC,  an  indirect  wholly  owned
subsidiary of Trace, of all of the outstanding  common stock of General Felt, in
exchange for (i) the  assumption by Foam Funding LLC of $129.0 million of Foamex
L.P.'s  indebtedness and (ii) the transfer by Foam Funding LLC to Foamex L.P. of
a 1%  non-managing  general  partnership  interest  in Foamex  L.P. As a result,
General Felt ceased being a subsidiary  of Foamex L.P. and was relieved from all
obligations under Foamex L.P.'s 9 7/8% senior subordinated notes due 2007 and 13
1/2%  senior  subordinated  notes due 2005.  Upon  consummation  of the  initial
transaction,  Foamex  Carpet,  a newly formed wholly owned  subsidiary of Foamex
International,  Foamex International, Foam Funding LLC, and General Felt entered
into an Asset Purchase  Agreement dated February 27, 1998, in which General Felt
sold  substantially  all of its assets (other than cash, the Foamex/GFI Note and
its operating facility in Pico Rivera,  California) to Foamex Carpet in exchange
for (i) $20.0 million in cash and (ii) a promissory note issued by Foamex Carpet
to Foam Funding LLC in the  aggregate  principal  amount of $70.2  million.  The
$20.0 million cash payment was funded with a distribution by Foamex L.P.

     No gain was  recognized on the GFI  Transaction.  The net impact of the GFI
Transaction was an increase in Foamex L.P.'s partners'  deficit of approximately
$10.1  million,  a  distribution  of $20.0 million to Foamex  International  and
approximately  $1.5 million of fees charged to earnings.  The $129.0  million of
debt  assumed  by Foam  Funding  LLC in the GFI  Transaction  was  used to repay
approximately  $125.1 million of term loan  borrowings that was accounted for as
an  extinguishment   of  debt  which  resulted  in  an  extraordinary   loss  of
approximately $3.2 million.  The 1% non-managing  general  partnership  interest
acquired  in  connection  with  the  GFI  Transaction  was  accounted  for  as a
redemption of equity.


                                      F-23
<PAGE>


                          FOAMEX L.P. AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


12.  LONG-TERM DEBT (continued)

Interest Rate Swap Agreements

     Prior to 1999,  Foamex  L.P.  entered  into  interest  rate  swaps to lower
funding costs and/or to manage interest costs and exposure to changing  interest
rates.  Foamex  L.P.  did not hold or issue  financial  instruments  for trading
purposes.

     In connection with a refinancing plan in 1997,  Foamex L.P.'s then existing
interest  rate swap  agreements  with a notional  amount of $300.0  million were
considered  to  be  effectively   terminated   since  the  underlying  debt  was
extinguished.  These  interest rate swap  agreements had an estimated fair value
liability of $8.2 million at the date of the refinancing  plan which is included
in the extraordinary loss on the early extinguishment of debt. In lieu of a cash
payment for the  estimated  fair value of the then  existing  interest rate swap
agreements,  Foamex L.P. entered into an amendment of the then existing interest
rate swap  agreements  resulting  in one  interest  rate swap  agreement  with a
notional  amount of $150.0  million  through  June 2007.  Accordingly,  the $8.2
million fair value  liability has been recorded as a deferred  credit,  which is
being  amortized  as a reduction  in  interest  and debt  issuance  expense on a
straight-line  basis through June 2007. On January 8, 1998,  Foamex L.P. entered
into a new  amendment to its interest  rate swap  agreement.  The new  amendment
provided for an interest rate swap  agreement  with a notional  amount of $150.0
million  through June 2002.  In September  1998,  Foamex L.P.  sold its existing
interest  rate swap  agreement  for a net gain of  approximately  $1.0  million.
Accordingly, the $1.0 million gain has been recorded as a deferred credit, which
is  being  amortized  through  June  2007,  which  is the  maturity  date of the
underlying debt.

     See Future  Accounting  Changes - Accounting  for  Derivatives  and Hedging
Activities included in Note 2, which discusses a balance sheet  reclassification
required in 2001 related to these swap transactions.

     The  effect of the  interest  rate  swaps  was a  favorable  adjustment  to
interest and debt  issuance  expense of $0.7 million in 1998.  The effect of the
amortization of the deferred credits was a favorable  adjustment to interest and
debt issuance expense of $0.9 million for 2000, 1999 and 1998.

Debt Covenants

     The indentures, credit facilities and other indebtedness agreements contain
certain  covenants that will limit,  among other things to varying degrees,  the
ability of Foamex L.P. (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, Foamex L.P. is required under certain
of these  agreements to maintain  specified  financial  ratios of which the most
restrictive are the maintenance of net worth,  interest  coverage,  fixed charge
coverage and leverage  ratios,  as defined.  Under the most  restrictive  of the
distribution  restrictions as of December 31, 2000,  Foamex L.P. was able to pay
Foamex  International funds only to the extent to enable Foamex International to
meet its tax payment liabilities.

     Foamex L.P. was in compliance with its various  financial  covenants of its
loan agreements as of December 31, 2000 and 1999.

     The Foamex  L.P.  Credit  Facility  contains  certain  quarterly  financial
covenants which become more  restrictive  during 2001.  Foamex L.P.  anticipates
that it will  continue  to comply in 2001 with the various  quarterly  financial
covenants in the Foamex L.P. Credit Facility. Management's current business plan
for Foamex L.P.  anticipate  customer  selling  price  increases  in response to
higher raw  material  costs,  improved  working  capital  management,  a reduced
capital expenditure program, declining interest rates, successful implementation
of on-going cost savings  initiatives and improved operating  efficiencies.  The
achievement  of the business plan is necessary for  compliance  with the various
financial covenants in 2001.


                                      F-24
<PAGE>


                          FOAMEX L.P. AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


12.  LONG-TERM DEBT (continued)

     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 Foamex L.P.
Credit Facility, 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,  Foamex L.P.  will seek the  lenders'  approvals of
amendments to, or waivers of, such  financial  covenants.  Historically,  Foamex
L.P. 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.

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

         2001                                      $  8,356
         2002                                         3,936
         2003                                       164,031
         2004                                        50,844
         2005                                       155,273
         Balance                                    273,825
                                                   --------
         Total                                      656,265
         Unamortized debt premium, net                8,259
                                                   --------
         Total                                     $664,524
                                                   ========

13.  FINANCIAL INSTRUMENTS AND CONCENTRATION OF CREDIT RISK

Concentration of Credit Risk

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

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

Fair Value of Financial Instruments

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

     The estimated fair values of Foamex L.P.'s financial instruments are listed
below.

                                                Carrying Amount     Fair Value
                                                ---------------     ----------
     Liabilities:                                          (thousands)
         Total debt - December 31, 2000            $664,524          $547,667
                                                   ========          ========

         Total debt - December 31, 1999            $690,037          $650,057
                                                   ========          ========

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


                                      F-25
<PAGE>


                          FOAMEX L.P. AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

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

     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.

14.  SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION

<TABLE>
<CAPTION>
                                                                   2000            1999           1998
                                                                 --------        --------       --------
                                                                               (thousands)
<S>                                                              <C>             <C>            <C>
     Cash paid for interest                                      $69,939         $65,507        $69,615
                                                                 =======         =======        =======

     Cash paid for income taxes, net                             $ 2,935         $ 1,126        $   884
                                                                 =======         =======        =======

     Non-cash capital expenditures                               $    53         $   456        $    24
                                                                 =======         =======        =======
</TABLE>

15.  BUSINESS SEGMENTS

     The  reportable   business   segments  reflects  Foamex  L.P.'s  management
organization that was structured based on distinct product lines and customers.

     An  executive  vice  president  heads  each  operating  segment.  Each 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  charges.
Foamex L.P.  does not  allocate  restructuring  and other  charges to  operating
segments because many of Foamex L.P.'s facilities  produce products for multiple
segments.

     Foam Products  manufactures and markets foam used by the bedding  industry,
the  furniture  industry  and  the  retail  industry.  Carpet  Cushion  Products
manufactures  and  distributes  prime,  rebond,  sponge  rubber and felt  carpet
cushion to Foamex  Carpet.  Automotive  Products  supplies  foam  primarily  for
automotive interior  applications.  Technical Products  manufactures and markets
reticulated  foams  (foams  that are well suited for  filtration,  reservoiring,
sound  absorption  and sound  transmissions)  and  other  custom  polyester  and
polyether foams for industrial, specialty and consumer and safety applications.

     The "other"  column in the table  below  represents  certain  manufacturing
operations  in  Mexico,  corporate  expenses  not  allocated  to other  business
segments  and  restructuring  and other  charges  (credits).  Asset and  capital
expenditure  information  by business  segment is not  reported  because many of
Foamex L.P.'s facilities  produce products for multiple business  segments.  The
restructuring  and other  charges  (credits)  amounted to $6.0  million in 2000,
$10.8 million in 1999 and $(10.1) million in 1998.

     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.

     During 2000 and 1999,  sales to a customer  which is included in Automotive
Products,  accounted for approximately 13.3% and 12.5%, respectively,  of Foamex
L.P.'s  net  sales.  Sales to  Foamex  Carpet,  reported  under  Carpet  Cushion
Products,  totaled  $165.8  million in 2000,  $187.7  million in 1999 and $185.5
million in 1998. No other unaffiliated customer accounted for more than 10.0% of
Foamex L.P.'s net sales during any of the last three years.


                                      F-26
<PAGE>


                          FOAMEX L.P. AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


15.    BUSINESS SEGMENTS (continued)

<TABLE>
<CAPTION>
                                               Carpet
                                    Foam       Cushion      Automotive      Technical
                                  Products    Products       Products        Products        Other       Total
                                 ---------    ---------     ----------      ----------    ----------  -----------
2000                                                              (thousands)
<S>                              <C>          <C>            <C>             <C>           <C>        <C>
Net sales                        $512,507     $165,783       $342,386        $106,697      $33,644    $1,161,017
Income (loss) from operations      54,929      (11,661)        22,652          29,287      (11,092)       84,115
Depreciation and amortization      17,615        5,238          5,785           2,663        2,500        33,801

1999
Net sales                        $521,377     $187,668       $361,806         $92,180      $27,648    $1,190,679
Income (loss) from operations      54,439          869         22,853          23,048      (17,474)       83,735
Depreciation and amortization      16,390        6,436          4,596           2,564        2,604        32,590

1998
Net sales (a)                    $559,690     $212,146       $285,190         $79,140      $21,585    $1,157,751
Income (loss) from operations      36,253          (58)        17,319          14,919       (2,925)       65,508
Depreciation and amortization      17,418        5,092          4,582           2,615        1,972        31,679
</TABLE>
<TABLE>
<CAPTION>
                                                               United
                                                               States        Canada        Mexico    Consolidated
                                                            ----------       -------      --------   ------------
2000                                                                                     (thousands)
<S>                                                           <C>            <C>          <C>         <C>
Net sales                                                     $927,627       $69,180      $164,210    $1,161,017
Property, plant and equipment, net                             173,207         4,623        24,642       202,472

1999
Net sales                                                     $978,049       $61,486      $151,144    $1,190,679
Property, plant and equipment, net                             182,533         5,406        23,376       211,315

1998
Net sales (a)                                               $1,025,019       $62,529       $70,203    $1,157,751
Property, plant and equipment, net                             190,122         4,998        24,517       219,637

<FN>
(a)  As  discussed  in Note 2, net sales for periods  prior to February 28, 1998
     reflect a  reclassification  of certain  shipping costs that were billed to
     customers.  The  reclassification  impacted Carpet Cushion  Products.  On a
     geographic basis, the reclassification impacted the Untied States net sales
     for periods prior to February 28, 1998.
</FN>
</TABLE>

16.  PARTNERS' DEFICIT

     Foamex L.P. was formed as a Delaware  limited  partnership  on September 5,
1990, and initially capitalized on October 2, 1990, in accordance with a limited
partnership agreement as amended through February 1998. As of December 31, 2000,
the partnership  interests of Foamex L.P. are a 2% managing general  partnership
interest  held by FMXI and a 98%  limited  partnership  interest  held by Foamex
International.

     Net cash distributions in connection with a tax sharing agreement for 2000,
1999 and 1998 were paid (received) as follows:

                                   2000              1999             1998
                                 --------          --------         ----------
                                                (thousands)
     FMXI                          $  -             $ (5)              $  6
     Foamex International             -              (12)               287
                                   ----             ----               ----
       Total                       $  -             $(17)              $293
                                   ====             ====               ====

                                      F-27
<PAGE>



                          FOAMEX L.P. AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


16.  PARTNERS' DEFICIT (continued)

Accumulated Other Comprehensive Loss

     The accumulated other comprehensive loss consists of the following:

<TABLE>
<CAPTION>
                                                                December 31,       December 31,      December 31,
                                                                    2000               1999             1998
                                                                ------------       ------------      ------------
                                                                                   (thousands)
<S>                                                              <C>                  <C>              <C>
     Foreign currency translation adjustment                     $ (6,921)            $(6,011)         $(10,965)
     Minimum pension liability                                    (17,540)             (2,912)          (15,243)
                                                                 --------             -------          --------
                                                                 $(24,461)            $(8,923)         $(26,208)
                                                                 ========             =======          ========
</TABLE>

17.  RELATED PARTY TRANSACTIONS AND BALANCES

     Foamex L.P.  regularly enters into  transactions with its affiliates in the
ordinary course of business.

Supply Agreements

     In  connection  with the GFI  Transaction  (see Note 12),  Foamex L.P.  and
General Felt entered into a supply agreement that was  subsequently  assigned to
Foamex Carpet (the "Supply Agreement"). Pursuant to the Supply Agreement, Foamex
L.P.  will,  at the option of Foamex  Carpet,  supply  finished  carpet  cushion
products to Foamex  Carpet at the lower of: (i) cost,  as defined,  plus 4.7% or
(ii) fair market value,  as defined.  Foamex L.P.  will also supply  various raw
materials used in the manufacture of carpet cushion products to Foamex Carpet at
the lower of cost, as defined,  or fair market value,  as defined.  During 2000,
1999 and 1998,  Foamex L.P. had sales of  approximately  $165.8 million,  $187.7
million and $185.5  million,  respectively,  to Foamex  Carpet  under the Supply
Agreement. In addition, pursuant to the Supply Agreement, Foamex Carpet will, at
the option of Foamex L.P.,  supply various  finished  products to Foamex L.P. at
the lower of: (i) cost,  as defined,  plus 15.0% or (ii) fair market  value,  as
defined.  Foamex Carpet will also supply various raw materials to Foamex L.P. at
the lower of cost,  as defined or fair market  value,  as defined.  During 2000,
1999 and 1998,  Foamex L.P. had purchases of  approximately  $7.8 million,  $9.9
million and $1.3  million,  respectively,  from Foamex  Carpet  under the Supply
Agreement.  The initial term of the Supply  Agreement is until December 31, 2004
at which time the Supply  Agreement  will continue year to year unless notice of
termination  is given by either  party or unless  terminated  earlier  due to an
event of default, as defined.

     Foamex  L.P.  had a supply  agreement  (the  "Foamex  International  Supply
Agreement") with Foamex International pursuant to which, at the option of Foamex
L.P.,  Foamex  International  would purchase  certain raw  materials,  which are
necessary  for the  manufacture  of Foamex  L.P.'s  products,  and  resell  such
materials  to Foamex L.P. at a price  equal to net cost plus  reasonable  out of
pocket expenses.  Management believes that the terms of the Foamex International
Supply Agreement were no less favorable than those, which Foamex L.P. could have
obtained  from an  unaffiliated  third party.  The Foamex  International  Supply
Agreement  was  terminated  in April 1998.  During 1998,  Foamex L.P.  purchased
approximately  $12.6  million of raw  materials  under the Foamex  International
Supply Agreement.

Administrative Services Agreement

     Also, in connection with the GFI Transaction,  Foamex L.P. and General Felt
entered into an administrative services agreement that was subsequently assigned
to Foamex Carpet (the "Services Agreement"). Pursuant to the Services Agreement,
Foamex L.P. will provide Foamex Carpet  administrative and management  services,
as defined,  at cost plus  out-of-pocket  expenses.  During 2000, 1999 and 1998,
Foamex L.P. invoiced  approximately $0.5 million, $0.5 million and $1.8 million,
respectively,  of services to Foamex  Carpet under the Services  Agreement.  The
Services  Agreement can be terminated by either party by giving at least 30 days
written  notice prior to the end of a calendar year. As of December 31, 2000 and
1999,  Foamex L.P. had net receivables  due from Foamex Carpet of  approximately
$11.5  million  and $16.4  million,  respectively,  associated  with the  Supply
Agreement and Services Agreement.


                                      F-28
<PAGE>


                          FOAMEX L.P. AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

17.  RELATED PARTY TRANSACTIONS AND BALANCES (continued)

Partners Distribution

     In 1999,  Foamex  L.P.  distributed  $17.3  million in cash pro rata to its
partners. During 1998, in connection with the GFI Transaction,  Foamex L.P. made
a $20.0 million distribution to Foamex International (see Note 12).

Foamex International Notes

     On December 26, 1997,  Foamex L.P.  entered into a $2.5 million  promissory
note with  Foamex  International.  The note bears  interest at the rate of LIBOR
plus 2 3/8%.  The note and  interest  are payable on demand,  or if no demand is
made, then on December 31, 2001. Also, on December 31, 1998, Foamex L.P. entered
into another  promissory note with Foamex  International with a principal amount
of approximately $2.5 million.  The note bears interest at the rate LIBOR plus 2
3/8%. The note and interest thereon were repaid on March 31, 1999.

     On October 20, 1999,  Foamex L.P. and Foamex  International  entered into a
revolving note that allows Foamex  International  to borrow up to  approximately
$2.5 million  through  October 20, 2004.  The revolving note bears interest at a
rate  equal to  three-month  LIBOR plus 2.5%,  per  annum,  and is payable  upon
demand, or if no demand is made, then on October 20, 2004.

     At  December  31,  2000  and  1999,   Foamex  L.P.  had  a  receivable   of
approximately  $2.5  million  and $0.7  million,  respectively,  relating to the
revolving  note.  The  receivable for both notes is classified as a component of
partners' deficit.

Trace Promissory Notes

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

     Note 3  includes  disclosures  regarding  1999  activity  concerning  Trace
promissory  notes  payable to Foamex L.P.  The Trace  notes are  included in the
other component of partners'  deficit,  which is consistent with the recognition
in prior years.  Based on Trace's financial  position discussed in Note 1, Trace
may not be able to pay the aggregate amount of $9.2 million. Accordingly, Foamex
L.P. did not record interest income on these notes since the Trace bankruptcy.

Trace Accounts Receivables

     At year-end 2000 and 1999,  operating accounts  receivables from Trace were
approximately  $2.7  million.  During  1998,  an  allowance  of $2.4 million was
recorded as a  restructuring  and other  charges  (credits) due to the financial
difficulties  of Trace.  Foamex L.P.  established  an  allowance of $0.3 million
during  1999 for  additional  operating  accounts  receivable  from  Trace.  The
allowance was recorded as a restructuring and other charges (credit).

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.
During June 1997, the management  services agreement was amended to increase the
annual fee from $1.75 million to $3.0 million,  plus  reimbursement  of expenses
incurred. An amendment to the Foamex L.P. Credit


                                      F-29
<PAGE>


                          FOAMEX L.P. AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

17.  RELATED PARTY TRANSACTIONS AND BALANCES (continued)

Facility on June 30, 1999 no longer  permits  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.

Tax Distribution

     On December 11, 1996,  Foamex L.P. entered into a tax distribution  advance
agreement,  pursuant to which its partners are entitled to obtain  advances,  in
the aggregate not to exceed $17.0 million,  against future  distributions  under
Foamex  L.P.'s  tax  distribution   agreement.  On  December  23,  1999,  Foamex
International  repaid the $13.6 million of advances  made in 1997,  plus accrued
interest,  with proceeds received from a $17.3 million  distribution from Foamex
L.P., discussed above.

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.  Foamex L.P. has closed
its New York office and  subleased the premises to a third party at an amount in
excess of its lease commitment.

Foamex/GFI Note

     In connection with the GFI Transaction  (see Note 12), Foamex L.P.  entered
into the  Foamex/GFI  Note with General Felt that was  subsequently  retained by
Foam Funding LLC. As discussed in Note 12, the $34.0 million Foamex/GFI Note was
repaid in March 2000. During 2000, 1999 and 1998, Foamex L.P. paid approximately
$0.6 million,  $2.1 million and $1.7 million,  respectively,  of interest on the
note payable to Foam Funding LLC.

Other

     The general director of Foamex de Mexico S.A. de C.V.  ("Foamex de Mexico")
which is Foamex L.P.'s operating subsidiary in Mexico has a 5% stock interest in
Foamex de Mexico. A member of the board provides  consulting  services to Foamex
L.P.  for which  fees paid to him in 2000 were $0.1  million,  in 1999 were $0.2
million and were $0.1 million in 1998.

     As discussed in Note 12,  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 Foamex International.

     Foamex  L.P.  chartered  an  aircraft,  which was  owned by a wholly  owned
subsidiary of Foamex  International  and incurred  costs of  approximately  $0.1
million and $0.9 million in 1999 and 1998,  respectively.  Foamex  International
sold this  aircraft on March 31,  1999.  The sale of the  aircraft  triggered an
obligation to Trace of  approximately  $0.6 million.  The  obligation was offset
against Trace's two promissory  notes payable to Foamex L.P. The Trace notes are
included in partners' deficit, which is consistent with the recognition in prior
years.

     During 1999,  certain employees of Foamex L.P. were also employed by Trace.
Foamex L.P. paid a portion of the total  compensation of such employees based on
the amount of time  devoted to Foamex  L.P.'s  matters by such  employees in the
aggregate.  All such dual employment  relationships  have been terminated.  Such
payments totaled $1.8 million and $2.2 million in 1999 and 1998, respectively.

     Foamex  L.P.  made  charitable  contributions  to the  Trace  International
Holdings, Inc. Foundation of approximately $0.2 million in 1998.

     Foamex L.P.,  Recticel,  s.a.  ("Recticel"),  a European  polyurethane foam
manufacturer,  whose  subsidiary  was  a  former  partner  of  Foamex  L.P.  and
affiliates of Recticel are current  shareholders  of Foamex  International,  and
Beamech Group Limited,  an unaffiliated third party, have an interest in a Swiss
corporation  that develops new  manufacturing  technology  for the production of
polyurethane foam including the VPFSM manufacturing process.


                                      F-30
<PAGE>


                          FOAMEX L.P. AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

18.  BUYOUT PROPOSALS - HISTORY

     On  February  9,  2000,  Foamex  International  announced  that  it  was in
discussions  with  respect to a proposal  involving  the  acquisition  of all of
Foamex  International's  outstanding common stock for cash. Foamex International
stated that the proposal was subject to a number of  conditions,  including  the
buyer's  due  diligence  and the  execution  of  definitive  agreements.  Foamex
International  agreed to an exclusive  negotiating  period  ending five business
days after  delivery  of its  audited  financial  statements  included in Foamex
International's Annual Report on Form 10-K to the prospective buyer. On April 5,
2000, Foamex  International  announced that discussions with the potential buyer
were  terminated  with no agreement  having been reached.  Foamex  International
subsequently  terminated  the  engagement  of J.P.  Morgan & Company,  Inc. ("JP
Morgan"),  which acted as financial advisor in connection with such transaction.
During the second quarter of 2000, Foamex  International  ended discussions with
JP Morgan concerning an additional engagement.

     On  August  5,  1999,  Foamex  International  announced  that its  Board of
Directors signed a letter of intent with Sorgenti Chemical  Industries,  LLC and
Liberty  Partners  Holdings  20,  LLC  (collectively,  the  "Purchasers")  for a
business  combination   providing  for  $11.50  per  share  for  all  of  Foamex
International's outstanding common stock (the "Sorgenti Transaction"). Under the
terms of the letter of intent, if Foamex  International  entered into a business
combination  with another party,  the Purchasers would be entitled to a break-up
fee of $6.0 million plus  reimbursement of certain expenses,  subject to certain
conditions,  including  the  willingness  of  the  Purchasers  to  enter  into a
definitive  merger agreement  providing for a price of at least $11.50 per share
prior to the expiration of the letter of intent.  The proposed  transaction  was
subject to a number of  conditions,  including  the  negotiation  of  definitive
documents  regarding certain  conditions  relating to the bank credit facilities
and the public debt of Foamex  International's  subsidiaries.  Additional issues
considered included minimum shareholder acceptance,  change of board membership,
and  other   provisions   providing  for  a  higher  break-up  fee  and  expense
reimbursement  if  Foamex  International  entered  into a  business  combination
providing  a  more  favorable   transaction.   On  December  15,  1999,   Foamex
International announced that the letter of intent with the Purchasers, which had
been extended,  expired by its terms. The Purchasers had submitted a revised bid
at a price and on terms that were less  favorable  than those  contained  in the
letter of intent and the Negotiating  Committee of Foamex  International's Board
of Directors rejected the revised bid.

     In 1998, Foamex International  received an unsolicited buyout proposal from
Trace,  Foamex  International's  principal  stockholder.   Foamex  International
entered into two merger agreements, which were subsequently terminated by Trace.

19.  COMMITMENTS AND CONTINGENCIES

Operating Leases

     Foamex L.P. 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   Foamex   L.P.'s   various
restructuring/consolidation  plans) required under operating  leases at December
31, 2000 are:

                                                   Operating
                                                     Leases
                                                   ----------
                                                   (thousands)
       2001                                          $13,317
       2002                                           11,878
       2003                                            9,841
       2004                                            7,239
       2005                                            5,074
       Balance                                        11,010
                                                     -------
       Total                                         $58,359
                                                     =======


                                      F-31
<PAGE>


                          FOAMEX L.P. AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

19.  COMMITMENTS AND CONTINGENCIES (continued)

     Rental expense charged to operations  under operating  leases  approximated
$14.7  million,  $15.4  million  and  $17.7  million  for  2000,  1999 and 1998,
respectively.  Substantially  all such rental  expense  represented  the minimum
rental payments under operating leases.

Litigation - Foamex International Shareholders

     On August 1,  2000,  Foamex  International  announced  that it had  reached
agreements in principle with the plaintiffs in the stockholder actions described
below  providing for the  settlement  and dismissal of such actions,  subject to
certain conditions, including court approval.

     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  Foamex  International  and its  stockholders,
originally named as defendants Foamex International,  certain of its current and
former directors and officers, Trace and a Trace affiliate. The complaint in the
Delaware  Action  alleges,  among other things,  that certain of the  defendants
breached their fiduciary  duties to Foamex  International  in connection with an
attempt by Trace to acquire Foamex International'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 Foamex  International to waste assets in connection
with a variety of transactions  entered into with Trace and its affiliates.  The
Delaware  Action seeks various  remedies,  including  injunctive  relief,  money
damages and the appointment of a receiver for Foamex International.

     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 Foamex International,
Trace  and  certain   current  and  former  officers  and  directors  of  Foamex
International,   on  behalf  of   stockholders   who  bought  shares  of  Foamex
International'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   Foamex
International's   financial  situation  and  operations,   with  the  result  of
artificially  inflating the price of Foamex  International's  stock. The lawsuit
also  alleged  that Trace and Marshall S. Cogan  violated  Section  20(a) of the
Securities Exchange Act of 1934 as controlling persons of Foamex  International.
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,  Foamex  International  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  Foamex
International's insurance carrier on behalf of Foamex International.

     Under the terms of the  agreement  in  principle  to  settle  the  Delaware
Action,  Foamex  International agreed that a special nominating committee of the
Board of Directors,  consisting of Robert J. Hay as chairman, Stuart J. Hershon,
John G.  Johnson,  Jr.,  and  John  V.  Tunney,  will  nominate  two  additional
independent  directors to serve on the Board.  The terms of the  agreement  also
establish  the criteria for the  independence  of the directors and require that
certain   transactions  with  affiliates  be  approved  by  a  majority  of  the
disinterested  members of the Board. On September 28, 2000, Foamex International
announced that Raymond E. Mabus, Jr. was elected to Foamex International's Board
of Directors. On December 21, 2000, Foamex International announced that Virginia
A.


                                      F-32
<PAGE>

                          FOAMEX L.P. AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


19.  COMMITMENTS AND CONTINGENCIES (continued)

Kamsky was elected to Foamex International's Board of Directors. The addition of
Mr. Mabus and Ms.  Kamsky adds two  independent  directors and brought the total
number of  directors  to eight.  The  parties are  negotiating  the terms of the
settlement  agreement and related  documentation.  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  (assuming a definitive  settlement
agreement is reached with  plaintiffs) is subject to court  approval,  which, if
obtained,  will resolve all outstanding  shareholder  litigation  against Foamex
International and its current and former directors and officers. The settlements
of the Federal Action and the Delaware  Action involve no admissions or findings
of  liability or  wrongdoing  by Foamex  International  or any  individuals.  If
management's  assessment  of Foamex  International's  liability  with respect to
these actions is incorrect, such actions could have a material adverse effect on
Foamex International's  consolidated  financial position,  results of operations
and cash flows.

Litigation - Breast Implants

     As of March 21, 2001, Foamex L.P. and Trace were two of multiple defendants
in actions filed on behalf of approximately  2,104 recipients of breast implants
in various  United States  federal and state courts and one Canadian  provincial
court,  some of which  allege  substantial  damages,  but  most of which  allege
unspecified damages for personal injuries of various types. Three of these cases
seek to  allege  claims  on behalf of all  breast  implant  recipients  or other
allegedly  affected parties,  but no class has been approved or certified by the
court.  In addition,  three cases have been filed  alleging  claims on behalf of
approximately  39 residents of  Australia,  New Zealand,  England,  and Ireland.
Foamex L.P. believes that the number of suits and claimants may increase. During
1995,  Foamex L.P. and Trace were granted  summary  judgments  and  dismissed as
defendants  from all cases in the  federal  courts of the United  States and the
state courts of California.  Appeals for these  decisions were withdrawn and the
decisions are final.

     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 Foamex L.P. or Trace.
Neither Foamex L.P. nor Trace  recommended,  authorized,  or approved the use of
its foam for these  purposes.  Foamex L.P. 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 Foamex L.P.'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 Foamex L.P.,
and without  taking  into  account the  indemnification  provided by Trace,  the
coverage provided by Trace's and Foamex L.P.'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 Foamex  L.P.'s  consolidated  financial  position or results of
operations.  If management's  assessment of Foamex L.P.'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 Foamex L.P.

Litigation - Other

     Foamex L.P.  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 Foamex L.P. If management's assessment of Foamex L.P.'s
liability with respect to these actions is incorrect,  such actions could have a
material  adverse  effect  on Foamex  L.P.'s  consolidated  financial  position,
results of operations and cash flows.


                                      F-33
<PAGE>

                          FOAMEX L.P. AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

19.  COMMITMENTS AND CONTINGENCIES (continued)

Environmental and Health and Safety

     Foamex L.P. is subject to extensive and changing federal,  state, local and
foreign environmental laws and regulations, including those relating to the use,
handling,  storage,  discharge  and  disposal of  hazardous  substances  and the
remediation of  environmental  contamination,  and as a result,  is from time to
time involved in administrative and judicial  proceedings and inquiries relating
to environmental  matters.  As of December 31, 2000, Foamex L.P. had accruals of
approximately $3.1 million for environmental  matters.  During 1998, Foamex L.P.
established an allowance of $0.6 million  relating to receivables from Trace for
environmental indemnifications due to the financial difficulties of Trace.

     The Clean Air Act  Amendments of 1990 (the "1990 CAA  Amendments")  provide
for the establishment of federal emission standards for hazardous air pollutants
including  methylene  chloride,  propylene oxide and TDI,  materials used in the
manufacturing  of foam. On December 27, 1996,  the United  States  Environmental
Protection Agency (the "EPA") proposed regulations under the 1990 CAA Amendments
that  will  require  manufacturers  of slab  stock  polyurethane  foam  and foam
fabrication plants to reduce emissions of methylene chloride. The final National
Emission  Standard for  Hazardous  Air  Pollutants  ("NESHAP")  was  promulgated
October 7,  1998.  NESHAP  requires  a  reduction  of  approximately  70% of the
emission  of  methylene  chloride  for the slab  stock foam  industry  effective
October 7, 2001. Foamex L.P. believes that the use of alternative  technologies,
including  VPFSM,  which do not utilize  methylene  chloride  and its ability to
shift  current   production  to  the  facilities  which  use  these  alternative
technologies  will  minimize  the  impact  of  these  regulations.  The 1990 CAA
Amendments also may result in the imposition of additional  standards regulating
air emissions from polyurethane foam manufacturers, but these standards have not
yet been proposed or promulgated.

     Foamex L.P. has reported to the appropriate  state  authorities that it has
found soil and/or groundwater  contamination in excess of state standards at six
facilities.  These sites are in various stages of  investigation or remediation.
Accordingly, the extent of contamination and the ultimate liability is not known
with  certainty for all sites.  Foamex L.P. has accruals of $2.1 million for the
estimated cost of remediation, including professional fees and monitoring costs,
for these sites.  During 2000, Foamex L.P. 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
Foamex L.P. The estimated allocation of future costs for the remediation of this
facility is not  significant,  based on current  information  known.  The former
owner was Recticel Foam Corporation, a subsidiary of Recticel s.a.

     Foamex L.P. has either upgraded or closed all underground  storage tanks at
its facilities in accordance with applicable regulations.

     On November  14, 2000,  the United  States  Occupational  Safety and Health
Administration  ("OSHA")  released the final  ergonomics  standard  ("Ergonomics
Standard"),  which applies to Foamex L.P., as well as all other employers in the
United  States,  with  certain  industry  specific  exclusions.  The  Ergonomics
Standard   addresses   musculoskeletal   disorders,   including  those  commonly
referenced as repetitive motion disorders.

     The  Ergonomics  Standard  is  comprehensive,   covering   essentially  all
employees of Foamex L.P. in the United States. Although the implementation costs
could be significant,  in the present form, Foamex L.P. does not believe it will
have a negative impact on its competitive position within the industry.

     Subsequent to year-end 2000, a joint  resolution by the United States House
of  Representatives  and  Senate  was  approved  that  repealed  the  Ergonomics
Standard.  The repeal has been  submitted to the  President of the United States
for his review and signature.


                                      F-34
<PAGE>

                          FOAMEX L.P. AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


19.  COMMITMENTS AND CONTINGENCIES (continued)

     On April 10, 1997, the OSHA  promulgated new standards  governing  employee
exposure  to  methylene  chloride,  which is used as a blowing  agent in some of
Foamex  L.P.'s  manufacturing  processes.  The  phase-in  of the  standards  was
completed in 1999 and Foamex L.P. has  developed  and  implemented  a compliance
program.  Capital expenditures  required and changes in operating procedures are
not anticipated to significantly impact Foamex L.P.'s competitive position.

     Foamex L.P. has been designated as a Potentially  Responsible Party ("PRP")
by the EPA with  respect  to six sites.  Estimates  of total  cleanup  costs and
fractional  allocations  of liability are  generally  provided by the EPA or the
committee of PRP's with respect to the  specified  site. In each case and in the
aggregate, the liability of Foamex L.P. is not considered to be significant.

     Although it is possible that new information or future  developments  could
require Foamex L.P. to reassess its potential  exposure  relating to all pending
environmental  matters,  including those described herein,  Foamex L.P. believes
that,  based upon all currently  available  information,  the resolution of such
environmental  matters will not have a material  adverse effect on Foamex L.P.'s
operations,  financial position,  capital expenditures or competitive  position.
The possibility  exists,  however,  that new  environmental  legislation  and/or
environmental  regulations may be adopted, or other environmental conditions may
be found to exist, that may require  expenditures not currently  anticipated and
that may be significant.

20.    QUARTERLY FINANCIAL DATA - RESTATED (UNAUDITED)

     Foamex L.P.  recorded  adjustments  in the fourth quarter of 1999 primarily
related to certain  1999  restructuring  plans.  Foamex  L.P.  has  subsequently
determined  that the 1999 quarterly  financial  data should be restated  because
these  fourth  quarter  1999  adjustments  should  have been  recorded  in prior
quarters in 1999.  Additionally,  Foamex L.P. has  subsequently  determined that
other fourth quarter 1999 adjustments, primarily related to results from foreign
subsidiaries, should have been recorded in prior quarters of 1999. The impact of
the 1999 restatement is as follows:

<TABLE>
<CAPTION>
                                                   First         Second            Third        Fourth
                                                  Quarter        Quarter          Quarter       Quarter
                                                 ---------      ---------        ---------     ---------
                                                                         (thousands)
     2000
<S>                                              <C>            <C>              <C>           <C>
       Net sales                                 $305,520       $297,688         $286,371      $271,438
       Gross profit                                36,509         40,434           38,639        28,792
       Net income (a)                               2,137          7,878            3,042           211

     1999 - As Previously Reported
       Net sales                                 $299,877       $292,229         $302,819      $295,754
       Gross profit                                37,461         38,410           41,111        37,641
       Net income                                   2,608          4,807            5,395         2,771

     1999 - Adjustments
       Net sales                                 $      -       $      -         $      -      $      -
       Gross profit (loss) (c)                       (105)           (19)             112            12
       Net income (loss)  (d)                        (331)          (349)              83           597

     1999 - As Restated
       Net sales                                 $299,877       $292,229         $302,819      $295,754
       Gross profit                                37,356         38,391           41,223        37,653
       Net income (a) (b)                           2,277          4,458            5,478         3,368
</TABLE>

                                      F-35
<PAGE>


                          FOAMEX L.P. AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

20.    QUARTERLY FINANCIAL DATA - RESTATED (UNAUDITED) (continued)

(a)  Restructuring and other charges (credits) are discussed in Note 4.

(b)  Fourth  quarter 1999 results were  favorably  impacted by $1.8 million from
     the realization of a business interruption insurance claim.

(c)  Primarily  relates  to  employee  benefit  expenses,  inventory  usage  and
     reported  results from foreign  subsidiaries,  including the recognition of
     foreign currency transactions.

(d)  Primarily  includes  those  identified  in (c)  above  and  adjustments  to
     severance costs originally recorded in the fourth quarter.



                                      F-36
<PAGE>




                        REPORT OF INDEPENDENT ACCOUNTANTS


Board of Directors
Foamex Capital Corporation
Wilmington, Delaware

In our opinion,  the accompanying balance sheets present fairly, in all material
respects, the financial position of Foamex Capital Corporation ("FCC") (a wholly
owned  subsidiary  of Foamex L.P.) at December  31, 2000 and 1999 in  conformity
with accounting  principles  generally accepted in the United States of America.
These  balance  sheets  are  the   responsibility  of  FCC's   management;   our
responsibility  is to express an opinion on these financial  statements 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 2, during the year ending  December 31, 2001,  Foamex L.P.
financial  debt  covenants,  with which  Foamex L.P.  must comply on a quarterly
basis, become more restrictive.  Management's plans in regard to this matter are
also described in Note 2.




PricewaterhouseCoopers LLP

Philadelphia, Pennsylvania
March 30, 2001



                                      F-37
<PAGE>




                           FOAMEX CAPITAL CORPORATION
                   (A Wholly Owned Subsidiary of Foamex L.P.)
                                 BALANCE SHEETS


<TABLE>
<CAPTION>
                                                                 December 31,      December 31,
                                                                    2000               1999
                                                                 ------------      ------------

<S>                                                                 <C>               <C>
CASH                                                                $1,000            $1,000
                                                                    ======            ======

COMMITMENTS AND CONTINGENCIES

STOCKHOLDER'S EQUITY
   Common stock, par value $.01 per share;
       1,000 shares authorized, issued and outstanding              $   10            $   10
   Additional paid-in capital                                          990               990
                                                                    ------            ------
   Total Stockholder's Equity                                       $1,000            $1,000
                                                                    ======            ======
</TABLE>



               The accompanying notes are an integral part of the
                                balance sheets.


                                      F-38
<PAGE>



                           FOAMEX CAPITAL CORPORATION
                   (A Wholly Owned Subsidiary of Foamex L.P.)
                             NOTES TO BALANCE SHEETS

1.   ORGANIZATION

     Foamex Capital  Corporation  ("FCC"),  a wholly-owned  subsidiary of Foamex
L.P., was formed on July 20, 1992 and initially capitalized on July 23, 1992 for
the purpose of obtaining financing from external sources.

2.   COMMITMENTS AND CONTINGENCIES

     Trace International  Holdings,  Inc. ("Trace") is a privately held company,
which  owned   approximately  29%  of  Foamex   International   Inc.'s  ("Foamex
International") outstanding voting common stock at September 30, 2000, and whose
former  Chairman  also  serves  as  Foamex  International's   Chairman.   Foamex
International's  common stock owned by Trace was pledged as  collateral  against
certain of Trace's  obligations.  The Foamex L.P.  credit  facility  pursuant to
which  approximately  $351.1 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 Foamex  International'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 FCC 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,  Foamex  L.P.  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, Foamex  International  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 Foamex International'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 Foamex International's common stock.

     Under the Exchange  Agreement,  The Bank of Nova Scotia initially  received
1,500,000  shares  of  Foamex   International's  common  stock  from  the  Trace
bankruptcy estate and exchanged these common stock shares for 15,000 shares of a
new  class  of  Foamex  International'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 Foamex  International'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 Foamex International's common stock,
(b) ranks senior to any future  preferred  stock issued by Foamex  International
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 Foamex  International's  common stock when the  remaining
5,697,426 shares of Foamex International's common stock were transferred to The
Bank of Nova Scotia from the Trace bankruptcy estate.



                                      F-39
<PAGE>




                           FOAMEX CAPITAL CORPORATION
                   (A Wholly Owned Subsidiary of Foamex L.P.)
                             NOTES TO BALANCE SHEETS

2.   COMMITMENTS AND CONTINGENCIES (continued)

     FCC is a joint obligor and severally liable on the following  borrowings of
Foamex L.P.:

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

     The 9 7/8% Senior  Subordinated  Notes were  issued by Foamex L.P.  and FCC
(the   "Issuers")   and  are  due  on  June  15,  2007.   The  notes   represent
uncollateralized  general obligations of the Issuers 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 the Issuers, 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 to 100.0% on or
after June 15, 2005.

     Upon the  occurrence of a change of control,  as defined,  each holder will
have the right to  require  the  Issuers  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)
and Foamex L.P.'s subordinated note payable.

13  1/2%  Senior  Subordinated  Notes  due  2005,  Series  B  ("13  1/2%  Senior
Subordinated Notes")
--------------------------------------------------------------------------------

     The 13 1/2%  Senior  Subordinated  Notes were issued by the Issuers and are
due on August 15, 2005. The notes represent uncollateralized general obligations
of the  Issuers  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 the Issuers,  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 to 100.0% on or after August 15, 2004.

     Upon the  occurrence of a change of control,  as defined,  each holder will
have the right to  require  the  Issuers  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) and Foamex L.P.'s subordinated note payable.

     The Foamex  L.P.  Credit  Facility  contains  certain  quarterly  financial
covenants which become more  restrictive  during 2001.  Foamex L.P.  anticipates
that it will  continue  to comply in 2001 with the various  quarterly  financial
covenants in the Foamex L.P. Credit Facility. Management's current business plan
for Foamex L.P.  anticipate  customer  selling  price  increases  in response to
higher raw  material  costs,  improved  working  capital  management,  a reduced
capital expenditure program, declining interest rates, successful implementation
of on-going cost savings  initiatives and improved operating  efficiencies.  The
achievement  of the business plan is necessary for  compliance  with the various
financial covenants in 2001.

     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 Foamex L.P.
Credit  Facility and the lenders would be entitled to accelerate the maturity of
the indebtedness  outstanding  thereunder.  If any such default occurs under the
Foamex L.P. Credit Facility,  it would also result in a default under the senior
subordinated notes described above. In the event that such noncompliance appears
likely,  or occurs,  Foamex L.P. will seek the lenders'  approvals of amendments
to, or waivers of, such financial covenants.  Historically, Foamex L.P. 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.


                                      F-40
<PAGE>


                          FOAMEX L.P. AND SUBSIDIARIES
                      INDEX TO FINANCIAL STATEMENT SCHEDULE




Index to Financial Statement Schedule

Schedule II - Valuation and Qualifying Accounts

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



                                      S-1
<PAGE>



                                                                    Schedule II
                          FOAMEX L.P. AND SUBSIDIARIES
                        VALUATION AND QUALIFYING ACCOUNTS
                                   (thousands)

<TABLE>
<CAPTION>
                                             Balance at      Charged to     Charged to                   Balance at
                                            Beginning of     Costs and        other                        End of
                                              Period         Expenses        Accounts     Deductions       Period
                                            ------------     ----------     ----------    ----------     ----------
YEAR ENDED DECEMBER 31, 2000
<S>                                            <C>             <C>            <C>            <C>           <C>
Allowance for Uncollectible Accounts           $4,333          $1,736        $     -         $  857        $5,212
                                               ======          ======        =======         ======        ======

Reserve for Discounts                          $  977          $    -        $ 9,379 (1)     $9,110        $1,246
                                               ======          ======        =======         ======        ======

Deferred Income Tax Asset Valuation Allowance  $  711          $  720        $     -         $    -        $1,431
                                               ======          ======        =======         ======        ======


YEAR ENDED DECEMBER 31, 1999
Allowance for Uncollectible Accounts           $6,349          $2,493        $     -         $4,509        $4,333
                                               ======          ======        =======         ======        ======

Reserve for Discounts                          $  929          $    -        $ 9,365 (1)     $9,317        $  977
                                               ======          ======        =======         ======        ======

Deferred Income Tax Asset Valuation Allowance  $    -          $  711        $     -         $    -        $  711
                                               ======          ======        =======         ======        ======


YEAR ENDED DECEMBER 31, 1998
Allowance for Uncollectible Accounts           $6,844          $2,000        $  (762)(1)(2)  $1,733        $6,349
                                               ======          ======        =======         ======        ======

Reserve for Discounts                          $1,238          $    -        $ 6,889 (1)     $7,198        $  929
                                               ======          ======        =======         ======        ======

Deferred Income Tax Asset Valuation Allowance  $9,097          $    -        $(9,097)(3)     $    -        $    -
                                               ======          ======        =======         ======        ======

<FN>
(1)  Discounts and billing adjustments reflect a reduction in net sales.

(2)  Includes  $3.2  million  of  reserves   transferred  out  due  to  the  GFI
     Transaction.

(3)  Represents valuation allowances transferred out due to the GFI Transaction.
</FN>
</TABLE>

                                      S-2
<PAGE>