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

            [X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
                         SECURITIES EXCHANGE ACT OF 1934
                   For the fiscal year ended December 31, 2001

                                       OR

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

                         Commission file number: 0-22624

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

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

       As of  March  25,  2002,  there  were  1,000  shares  of  Foamex  Capital
Corporation's common stock outstanding.

       Foamex L.P. and Foamex Capital  Corporation meet the conditions set forth
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>

                                   FOAMEX L.P.
                           FOAMEX CAPITAL CORPORATION

                                      INDEX

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

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

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

Part IV
         Item 14.     Exhibits, Financial Statement Schedules
                           and Reports on Form 8-K                                                 29

         Signatures                                                                                38

</TABLE>


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


                                       2

<PAGE>


PART I
ITEM l.  BUSINESS

General

       Foamex L.P.  (referred to in this document as "Foamex L.P., we, us and/or
our"),  a  wholly-owned   subsidiary  of  Foamex   International  Inc.  ("Foamex
International"),  is engaged  primarily in the manufacturing and distribution of
flexible  polyurethane  and advanced  polymer foam products.  As of December 31,
2001,  Foamex  L.P.'s   operations  are  conducted   directly  and  through  its
wholly-owned  subsidiaries,  Foamex Canada Inc. ("Foamex Canada"),  Foamex Latin
America,  Inc. ("Foamex Mexico"),  Foamex Asia, Inc. ("Foamex Asia") and through
Foamex Carpet Cushion, Inc. ("Foamex Carpet").  Foamex Carpet was converted to a
limited liability company and was contributed by Foamex  International to Foamex
L.P. on March 25, 2002. The contribution of Foamex Carpet has been accounted for
as a merger of entities  under common  control and has been recorded in a manner
similar to a pooling of interests.  Accordingly,  all information in this report
on Form 10-K  includes  Foamex  Carpet.  As of December 31, 2001,  Foamex L.P.'s
partners  were  FMXI,  Inc.  ("FMXI")  with a 2%  managing  general  partnership
interest and Foamex International with a 98% limited partnership interest.

Segments

       We are the largest manufacturer and distributor of flexible  polyurethane
and advanced  polymer foam products in North America.  We have been  developing,
manufacturing  and marketing  polyurethane  foam for more than 44 years. We have
numerous manufacturing facilities dedicated to specific product lines as well as
facilities with the capability to support  multiple  product lines.  Each of our
business  segments has a diverse  customer  base. Our senior  executives  direct
sales efforts for each of our business segments.

       Our five business segments are described below.

       Foam Products

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

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

       The development and introduction of value-added  products continues to be
a priority  including  products  incorporating  Reflex(R)  and  viscoelastic  or
"memory" foams for the bedding industry,  which maintain their resiliency better
than other foams and materials.  Reflex(R)  materials  include cushion wraps and
cushion cores and are advanced polymer  cushioning  products designed to improve
comfort,  quality and durability in upholstered  furniture and bedding products.
Reflex(R)  was created  using the VPF(SM)  manufacturing  process.  We also have
introduced high efficiency  thermal management foam products for applications in
work gloves and outerwear.

       Carpet Cushion Products

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

                                       3

<PAGE>

       Automotive Products

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

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

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

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

       Technical Products

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

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

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


                                       4
<PAGE>

       Other

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

Marketing and Sales

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

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

       We have been a leading supplier of automotive products to OEMs, including
DaimlerChrysler,  for more than 30 years.  We are also the  primary  supplier of
automotive  products to certain tier one suppliers,  including  Johnson Controls
and Lear  Corporation.  We compete for new  business  both at the  beginning  of
development of new models and upon the redesign of existing models.  Once a foam
producer has been  designated to supply parts for a new model program,  the foam
producer usually produces parts for the life of the program. Competitive factors
in the market include product quality and reliability,  cost and timely service,
technical  expertise and  development  capability,  new product  innovation  and
customer service.

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

International Operations

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

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

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


                                       5
<PAGE>


Major Customers

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

Manufacturing and Raw Materials

       As of December 31, 2001, we conducted our operations at 62  manufacturing
and  distribution  facilities with a total of  approximately  8.7 million square
feet of  floor  space.  We  believe  that  our  manufacturing  and  distribution
facilities  are  well  suited  for  their  intended  purposes  and  are in  good
condition.  The  manufacturing  and  distribution  facilities are  strategically
located to service our major customers because the high freight cost in relation
to the cost of the foam product  generally  results in  distribution  being most
cost-effective within a 200 to 300 mile radius.

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

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

       Raw  materials  account for a  significant  portion of our  manufacturing
costs.  The  two  principal  chemicals  used  in  the  manufacture  of  flexible
polyurethane foam are toluene  diisocyanate,  or "TDI," and polyol. We generally
have alternative suppliers for each major raw material. We believe that we could
find  alternative  sources of supply should we cease doing business with any one
of our major  suppliers,  although  there may be some delay in replacing a major
supplier, especially a supplier of TDI and/or polyol.

       There  are a limited  number  of major  suppliers  of TDI and  polyol.  A
disruption  in our  ability to obtain TDI and/or  polyol  that  continues  for a
significant  period of time would have a material adverse effect on our business
and results of operations.

       The  prices  of TDI  and  polyol  have  historically  been  cyclical  and
volatile.   The  prices  of  these  raw  materials  are  influenced  by  demand,
manufacturing  capacity and oil prices.  Some of our suppliers of TDI and polyol
have  informed  us that  they  intend  to seek to raise  prices in the first six
months of 2002.  We attempt  to offset  raw  material  price  increases  through
selling  price  increases;  however,  there can be no assurance  that we will be
successful in implementing  selling price increases or that competitive  pricing
pressure will not require us to adjust selling prices.

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

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


                                       6
<PAGE>

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

Employees

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

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

Competition

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

Patents and Trademarks

       We own various patents and trademarks registered in the United States and
in numerous  foreign  countries.  The  registered  processes  and products  were
developed  through  ongoing  research  and  development  activities  to  improve
quality, reduce costs and expand markets through development of new applications
for  flexible  polyurethane  foam  products.  While we consider  our patents and
trademarks  to be a  valuable  asset,  we do not  believe  that our  competitive
position is dependent on patent  protection or that our operations are dependent
upon any individual patent, trademark or tradename.

Research and Development

       We believe we have a leading  research and development  capability in the
flexible  polyurethane  foam  industry.  Our primary  research  and  development
facility is located in Eddystone,  Pennsylvania.  Expenditures  for research and
development  amounted to $3.1  million for 2001,  $2.5 million for 2000 and $3.3
million for 1999.

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

Forward-Looking Information

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


                                       7
<PAGE>

certain forward-looking  statements contained in this Annual Report on Form 10-K
and those  that may be made in the future by or on behalf of Foamex  L.P.  which
are  identified  as  forward-looking,  Foamex L.P.  notes that there are various
factors  that could cause  actual  results to differ  materially  from those set
forth in any such forward-looking  statements,  such as the ability to implement
customer  selling price increases in response to higher raw material costs,  raw
material  price  increases,  general  economic  conditions,  the  interest  rate
environment,  the level of automotive production,  carpet production,  furniture
and  bedding   production,   and  housing  starts,  the  completion  of  various
restructuring/consolidation  plans,  the  achievement of  management's  business
plans,  Foamex L.P.'s capital and debt structure  (including  various  financial
covenants),   litigation   and   changes  in   environmental   legislation   and
environmental  conditions.  The  forward-looking  statements  contained  in this
Annual Report on Form 10-K were prepared by management and are qualified by, and
subject to, significant business,  economic,  competitive,  regulatory and other
uncertainties  and  contingencies,  all of which are  difficult or impossible to
predict and many of which are beyond the control of Foamex L.P.

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

ITEM 2.  PROPERTIES

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

       Foamex L.P. maintains its administrative office in Linwood, Pennsylvania.

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

ITEM 3.  LEGAL PROCEEDINGS

Litigation - Foamex International Shareholders

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

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


                                       8
<PAGE>

its current and former  directors and officers,  Trace  International  Holdings,
Inc. ("Trace International"),  the principal stockholder of Foamex International
at the time, and a Trace International  affiliate. The complaint in the Delaware
Action  alleged,  among other things,  that certain of the  defendants  breached
their fiduciary duties to Foamex  International in connection with an attempt by
Trace  International  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 International
and its  affiliates.  The Delaware  Action sought  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  International  and certain  current and former  directors and officers 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  International  and Marshall S. Cogan,  the chairman of
Foamex  International,  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 the defendants violated the federal securities
laws, an award of money  damages,  and costs and  attorneys',  accountants'  and
experts'  fees. On May 18, 1999, a similar  action  entitled  Thomas W. Riley v.
Foamex  International Inc., et al., was filed in the same court. The two actions
were  consolidated  and a  consolidated  complaint  was  filed.  We refer to the
consolidated suit as the "Federal Action."

       The  Settlements.  On  August  23,  2000,  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 stipulation of settlement  related to the Delaware
Action  (which was approved by the  Delaware  Court on March 20,  2002),  Foamex
International  agreed  that a  special  nominating  committee  of its  Board  of
Directors  would nominate two additional  independent  directors to serve on the
Board.  The  terms  of the  agreement  also  established  the  criteria  for the
independence  of the  directors  and  required  that certain  transactions  with
affiliates be approved by a majority of the disinterested  members of the Board.
On January  9, 2001,  the Court  ordered  the  Watchung  Action  dismissed  with
prejudice only as to the named  plaintiffs  Watchung Road  Associates,  L.P. and
Pyramid  Trading Limited  Partnership.  The dismissal did not have any effect on
the claims asserted in the consolidated action.

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

Litigation - Breast Implants

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


                                       9
<PAGE>

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

Litigation - Other

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

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

Environmental and Health and Safety

       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,  the
discharge or emission of materials into the environment,  and the remediation of
environmental contamination,  and as a result, are from time to time involved in
administrative and judicial  proceedings and inquiries relating to environmental
matters.  As of December 31, 2001, we had accruals of approximately $3.0 million
for environmental matters.

       The Clean Air Act Amendments of 1990 ("1990 CAA Amendments")  provide for
the  establishment  of federal  emission  standards for hazardous air pollutants
including  methylene  chloride,  propylene  oxide and TDI, which are used in the
manufacturing  of foam. The final National  Emission  Standard for Hazardous Air
Pollutants,   or  "NESHAP,"  for  flexible   polyurethane  foam  production  was
promulgated on October 7, 1998. The NESHAP required a reduction of approximately
70% of the  emission  of  methylene  chloride  for the slab stock foam  industry
effective  October  7,  2001.  Through  the  use  of  alternative  technologies,
including  VPF(SM) and carbon  dioxide,  and by shifting  current  production to
facilities  which  use these  alternative  technologies,  we are in  substantial
compliance  with  these  regulations.  On  August 8,  2001,  the  United  States
Environmental  Protection  Agency,  or "EPA,"  proposed  a NESHAP  for  Flexible
Polyurethane  Foam  Fabrication   Operations.   The  proposed  NESHAP  regulates
emissions of methylene chloride and other Hazardous Air Pollutants and restricts


                                       10
<PAGE>

air emissions from flame lamination  sources.  Foamex L.P. does not believe that
this standard, if adopted, will require us to make material expenditures.

       Foamex L.P. has reported to the  appropriate  state  authorities  that we
have found soil and/or groundwater contamination in excess of state standards at
certain locations.  Seven sites are currently in various stages of investigation
or  remediation.  Accordingly,  the  extent of  contamination  and the  ultimate
liability is not known with certainty for all sites. As of December 31, 2001, we
had accruals of $2.5 million for the estimated  cost of  remediation,  including
professional fees and monitoring costs, for these sites. During 2000, we reached
an indemnification agreement with the former owner of the Morristown,  Tennessee
facility.  The  agreement  allocates the incurred and future  remediation  costs
between the former owner and us. The  estimated  allocation  of future costs for
the  remediation  of this  facility is not  significant,  based on current known
information.  The former owner was Recticel  Foam  Corporation,  a subsidiary of
Recticel.

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

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

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

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

       None

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

(a)    Foamex  L.P.  is a  privately  held  limited  partnership.  There  is  no
       established public trading market for its securities.

(b)    As of December 31, 2001,  there were two holders of Foamex  L.P.'s equity
       securities.

(c)    Listed  below are the net cash  receipts in  accordance  with tax sharing
       agreements.  At December  31,  2001,  Foamex  L.P.  has a  receivable  of
       approximately  $0.1 million from its partners in accordance  with the tax
       sharing agreement.


                                       11
<PAGE>



                                            Tax Sharing Distributions
                                               2001              2000
                                            ----------        ---------
                                                    (thousands)
       FMXI                                   $   -            $    -
       Foamex International                     120                 -
                                              -----            ------
                                              $ 120            $    -
                                              =====            ======

       2001 Distribution

       In 2001,  Foamex L.P.  distributed  $3.7  million in cash pro rata to its
partners.

Limitations on Distributions

       The Foamex L.P. credit agreement and the Indentures for the 9 7/8% senior
subordinated  notes due 2007 and the 13 1/2% senior  subordinated notes due 2005
restrict the ability of Foamex L.P. to make distributions to its partners.

ITEM 6.  SELECTED CONSOLIDATED FINANCIAL DATA

       The following  table  presents  selected  consolidated  financial data of
Foamex  L.P.  All of the data gives  retroactive  effect to the  common  control
merger of Foamex L.P. and  subsidiaries  and Foamex Carpet Cushion,  Inc., which
has  been  accounted  for in a manner  similar  to a  pooling  of  interests  as
described  in Note 1 to the  consolidated  financial  statements.  The  selected
consolidated  financial data should be read in conjunction with the consolidated
financial  statements of Foamex L.P. and related notes thereto  included in this
Annual Report on Form 10-K.

<TABLE>
<CAPTION>
                                                                                   Fiscal Year (1)
                                                -----------------------------------------------------------------------------------
                                                  2001 (2)            2000             1999              1998             1997 (6)
                                                -----------       -----------       -----------       -----------       -----------
                                                                                    (thousands)
Statements of Operations Data
<S>                                             <C>               <C>               <C>               <C>               <C>
   Net sales                                    $ 1,252,904       $ 1,257,778       $ 1,294,639       $ 1,260,559       $   945,519
   Income (loss) from continuing
     operations (3)(4)                          $    (2,261)      $    19,603       $    20,061       $   (15,519)      $    11,265

Balance Sheet Data
   Total assets                                 $   767,650       $   753,584       $   783,218       $   863,851       $   834,068
   Long-term debt, classified as current (5)             --                --                --       $   771,092                --
   Long-term debt, excluding current portion    $   648,232       $   687,758       $   725,297                --       $   726,649
   Partners' deficiency                         $  (178,128)      $  (158,503)      $  (160,481)      $  (196,407)      $  (156,302)

<FN>

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

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

(3)    Includes net restructuring,  impairment and other charges  (credits),  as
       discussed in Note 4 to the consolidated  financial statements included in
       this Annual  Report on Form 10-K.  Listed  below are the pre-tax  charges
       (credits).

         2001 - $36.1 million
         2000 - $ 6.3 million
         1999 - $10.5 million
         1998 - $(9.9) million
         1997 - $21.1 million


                                       12
<PAGE>


(4)    The  provision  for income taxes in 2000 and 1999  reflected  the partial
       reversal of the deferred  income tax  valuation  allowance  recognized in
       1998. The 1998 provision for income taxes of $16.0 million for continuing
       operations  consisted primarily of an increase in the valuation allowance
       for deferred income tax assets.

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

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


                                       13
<PAGE>


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

Overview

       Foamex L.P.  operates in the flexible  polyurethane  and advanced polymer
foam products  industry.  As of December 31, 2001, Foamex L.P.'s operations were
conducted  through its wholly-owned  subsidiaries,  Foamex Canada Inc.  ("Foamex
Canada"),  Foamex Latin  America,  Inc.  ("Foamex  Mexico"),  Foamex Asia,  Inc.
("Foamex  Asia") and through  Foamex Carpet  Cushion,  Inc.  ("Foamex  Carpet").
Foamex Carpet was converted to a limited  liability  company and was contributed
by Foamex  International  to Foamex L.P. on March 25, 2002. The  contribution of
Foamex  Carpet  has been  accounted  for as a merger of  entities  under  common
control  and has been  recorded in a manner  similar to a pooling of  interests.
Accordingly,  the  consolidated  financial  statements  include the  accounts of
Foamex  Carpet  for all  periods  presented.  Adjustments  recorded  to  restate
previously  reported financial  statements as of December 31, 2000 and the years
ended  December 31, 2000 and 1999  consisted  of those  necessary to include the
balances and results of Foamex Carpet and to eliminate intercompany balances and
transactions  between  Foamex  L.P.  and Foamex  Carpet.  Financial  information
concerning  the  business  segments of Foamex L.P. is included in Note 11 to the
consolidated financial statements.

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

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

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

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

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

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

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

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

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


                                       14
<PAGE>

Fourth Quarter 2001 Developments and 2002 Subsequent Events

Operational Reorganization

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

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

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

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

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

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

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

Customer Claims

       During  the fourth  quarter of 2001,  Foamex  L.P.  discovered  that some
mattresses  containing foam supplied by Foamex L.P. had a discernible  odor. The
cause  of the  odor was  traced  to  chemicals  from  one  supplier  used in the
manufacture  of the foam. The supplier has advised Foamex L.P. that the odor was
attributable to a change in its chemical  manufacturing process, which has since
been  corrected.  We have  received  claims from some of our customers for costs
purportedly  associated with the odorous foam and we have reached agreement with
this chemical supplier  regarding the terms of and manner in which this supplier
will reimburse Foamex L.P. for certain  obligations we may have to our customers
relating to these claims,  as well as for certain of our internal  costs.  Under
this  agreement,  this  supplier  will  pay  us a  fixed  sum  in  exchange  for
eliminating  certain  future claims we may have against this supplier and we are
obligated to  indemnify  this  supplier  for certain  claims that may be brought
against it by others, including Foamex L.P.'s customers. The ultimate amounts of
these third party claims and the amount of our own internal costs are uncertain.


                                       15
<PAGE>

Foamex  L.P.  cannot be  certain  that this  supplier's  payments  to it will be
sufficient  to  cover  all  payments  that we may be  required  to make to third
parties  in  respect  to their  claims,  to cover all of Foamex  L.P.'s  related
internal  costs  or  that  Foamex  L.P.'s  indemnification  obligations  to this
supplier  will not be material.  Consequently,  there can be no  assurance  that
these  claims  and  costs  will  not  have  a  material  adverse  effect  on our
consolidated financial position, results of operations and cash flows.

Refinancing and Structure

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

Critical Accounting Policies

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

       Accounts Receivable and Allowance for Uncollectible Accounts

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

       Long-Lived Assets

       Foamex L.P. has a significant investment in long-lived assets; consisting
primarily of property,  plant and equipment,  and intangible assets representing
the cost in excess of net assets  acquired  (goodwill)  and  deferred  financing
costs.  Impairment  losses are  recognized  when events  indicate  that  certain
long-lived  assets  may be  impaired  and a  projection  of  future  cash  flows
generated  from the  assets  are less  than the  current  carrying  value of the
assets.  These cash flow  projections are based on the combination of historical
results adjusted for estimated future market  conditions and operating plans. To
the extent that these estimates  change,  impairment  losses could have material
adverse impact on future  results.  See the section below  entitled  "Accounting
Changes" for a discussion on the impact of new accounting statements.

       Environmental Remediation

       Foamex L.P.  has a number of  manufacturing  facilities  and certain idle
facilities that require remediation of soil and/or groundwater contamination. As
required by applicable State and/or Federal compliance  programs,  many of these
sites  are  in  the  monitoring  stage  that  requires   periodic   sampling  of
contamination  levels in  conjunction  with ongoing  assessments  of remediation


                                       16
<PAGE>

actions.  Accordingly,  the recognition of  environmental  liabilities  requires
estimates  concerning  the duration of monitoring and  associated  costs,  often
projected  to extend for a number of years.  To the extent that these  estimates
change,  additional  environmental  costs could have material  adverse impact on
future results. See the section below entitled "Environmental Health and Safety"
for additional information.


RESULTS OF OPERATIONS

<TABLE>
<CAPTION>
                                                      Carpet
                                      Foam           Cushion         Automotive      Technical
                                     Products        Products         Products        Products         Other           Total
                                     --------        --------         --------        --------         -----           -----
2001                                                                   (dollars in thousands)
<S>                                 <C>             <C>              <C>             <C>             <C>             <C>
Net sales                           $  499,668      $  230,965       $  377,753      $  111,043      $   33,475      $1,252,904
Income (loss) from operations       $   66,634      $   (6,572)      $   21,445      $   23,080      $  (39,860)     $   64,727
Depreciation and amortization       $   15,732      $    8,181       $    4,991      $    3,312      $    1,812      $   34,028
Income (loss) from operations
   as a percentage of net sales           13.3%           (2.8)%            5.7%           20.8%        n.m.(a)             5.2%

2000
Net sales                           $  519,197      $  256,439       $  342,386      $  106,697      $   33,059      $1,257,778
Income (loss) from operations       $   55,227      $    2,218       $   22,417      $   29,027      $  (11,506)     $   97,383
Depreciation and amortization       $   17,813      $    7,742       $    5,785      $    2,663      $    2,625      $   36,628
Income (loss) from operations
   as a percentage of net sales           10.6%            0.9%             6.5%           27.2%        n.m.(a)             7.7%

1999
Net sales                           $  527,159      $  285,846       $  361,806      $   92,180      $   27,648      $1,294,639
Income (loss) from operations       $   57,474      $    8,868       $   22,904      $   22,856      $  (17,261)     $   94,841
Depreciation and amortization       $   17,371      $    8,041       $    4,764      $    2,679      $    2,609      $   35,464
Income (loss) from operations
   as a percentage of net sales           10.9%            3.1%             6.3%           24.8%        n.m.(a)             7.3%

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

2001 Compared to 2000

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

       The gross  profit  margin  was 14.4% in 2001  compared  to 13.7% in 2000.
Certain raw  material  cost  reductions  had the effect of  improving  the gross
profit margin percentage in 2001 by approximately 1.4 percentage  points.  These
2001 cost  reductions  are not  anticipated  to continue  in 2002.  See Item 1 -
Business - Manufacturing and Raw Materials.  Selling, general and administrative
expenses were 16.0% higher in 2001.  The increase  included the impact of higher
professional  fees,  including  those  associated  with a change in  independent
accountants,  higher  bad  debt  expense  related  to  economic  conditions  and
increased compensation and benefit costs.

       Income from  operations in 2001 was $64.7  million,  which  represented a
33.5% decrease from the $97.4 million  recorded  during 2000.  Results  included
restructuring,  impairment  and other  charges of $36.1 million in 2001 and $6.3
million in 2000.  Restructuring,  impairment and other charges  recorded  during
2001 are discussed under "Other" below. Excluding the restructuring,  impairment
and other charges for comparison  purposes,  income from  operations  would have
been $100.8  million in 2001 compared to $103.7  million in 2000. On this basis,
income  from  operations  was 8.0% of net  sales  in 2001  and 8.2% in 2000.  In
addition to the raw material cost  reductions  discussed  above,  cost reduction
programs and increases in certain selling prices were also positive factors.


                                       17
<PAGE>


       Foam Products

       Foam Products net sales for 2001  decreased  3.8% to $499.7  million from
$519.2 million in 2000. The decrease  primarily  reflected the domestic economic
slowdown that impacted the markets for  furniture  manufacturers  and other foam
fabricators.  Despite the sales decline, income from operations increased 20.7%,
from $55.2 million in 2000 to $66.6 million in 2001.  The increase was primarily
the impact of raw material cost  reductions,  discussed  above,  which primarily
benefited the Foam Products  segment.  Income from  operations  was 13.3% of net
sales in 2001, up from 10.6% in 2000.

       Carpet Cushion Products

       Carpet  Cushion  Products  net  sales for 2001  decreased  9.9% to $231.0
million  from $256.4  million in 2000.  The sales  decline  continued to reflect
competitive  pressures  that resulted in lower sales volumes  across all product
lines.  Lower selling prices in certain product lines and a lower value shipment
mix also contributed to the sales decline. The factors contributing to the sales
decline translated to a loss from operations of $6.6 million in 2001 compared to
income  from  operations  of $2.2  million  in 2000.  The loss  from  operations
represented  2.8% of net sales in 2001 and income  from  operations  represented
0.9% of net sales in 2000.

       Automotive Products

       Automotive  Products net sales for 2001 increased 10.3% to $377.8 million
from $342.4 million in 2000.  The  improvement  primarily  reflected new product
programs and renewed activity  following  inventory  corrections in the domestic
automotive  industry earlier in the year. Income from operations  declined 4.3%,
from $22.4  million in 2000 to $21.4  million in 2001.  Income  from  operations
represented  5.7% of net sales in 2001 and 6.5% in 2000.  The lower  results  in
2001 were primarily  attributed to intense  pricing  competition  and higher raw
material costs.

       Technical Products

       Net sales for Technical  Products in 2001 were up 4.1% to $111.0  million
from $106.7 million in 2000.  Higher sales  primarily  reflected  sales from the
acquisition of certain assets from General Foam Corporation, discussed in Note 3
to the consolidated financial statements. Income from operations decreased 20.5%
to $23.1  million  in 2001  compared  to $29.0  million  in  2000.  The  decline
reflected a lower value  shipment mix and the impact of an economic  downturn in
the technology  industry,  especially during the first half of 2001. Income from
operations represented 20.8% of net sales in 2001 compared to 27.2% in 2000.

       Other

       Other primarily  consists of certain  manufacturing  operations in Mexico
City,  corporate  expenses not allocated to business  segments and restructuring
and other charges.  Net sales were slightly higher in 2001 compared to 2000. The
loss from  operations  was $39.9  million  in 2001 and  included  restructuring,
impairment  and other  charges  of $36.1  million,  discussed  below.  The $11.5
million loss from  operations in 2000  included  restructuring,  impairment  and
other charges  totaling $6.3 million.  The 2000 loss also included  professional
fees  associated  with the  resolution  of  certain  change  in  control  issues
following  the  Trace  bankruptcy  and the  settlement  of  certain  shareholder
litigation.

Restructuring, Impairment and Other Charges

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

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


                                       18
<PAGE>


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

       Further,  Foamex  L.P.  evaluated  the  recoverability  of certain  other
long-lived  assets  in  accordance  with  SFAS  No.  121,  "Accounting  for  the
Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed".  As a
result,  Foamex L.P.  recorded an impairment  provision of $13.8 million (net of
anticipated  proceeds of $4.6 million) to reduce these assets to their estimated
fair values.  The assets which are held for disposal consist mainly of leasehold
improvements  and machinery and equipment which have a remaining  carrying value
of approximately $19.8 million.

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

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

       In addition,  Foamex L.P. recorded $0.4 million for  restructuring  plans
earlier  in 2001 that  included  severance  for 41  employees  and $1.4  million
related to  executive  severance  recorded as other  charges.  Foamex L.P.  also
recorded  a net  restructuring  credit of $1.2  million  related  to  changes in
estimates to prior restructuring plans.

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

       Interest and Debt Issuance Expense

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

       Income from Equity Interest in Joint Venture

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

       Other Expense, Net

       Other expense, net for 2001 was $1.9 million.  Expense items totaled $2.8
million and included letter of credit fees. Interest income recorded in 2001 was
$0.9 million.

       Other  expense,  net in 2000 totaled $1.6 million and primarily  included
$1.2 million of costs  associated with a buyout proposal and $0.7 million letter
of credit fees offset by $0.6 million of interest income.


                                       19
<PAGE>


       Income Tax Expense

       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 agreement and indentures.

2000 Compared to 1999

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

       Income from  operations in 2000 was $97.4  million,  2.7% higher than the
$94.8 million  recorded during 1999. These results  included  restructuring  and
other charges  (discussed under "Other" below) of $6.3 million in 2000 and $10.5
million in 1999.  Excluding the  restructuring  and other charges for comparison
purposes,  income from  operations  was $103.7  million in 2000,  down 1.6% from
$105.3  million in 1999. On this basis,  income from  operations was 8.2% of net
sales in 2000 compared to 8.1% of net sales in 1999.

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

       Selling,  general  and  administrative  expenses  were  down 8.8% in 2000
compared to 1999. The decrease  primarily  reflected  cost savings  initiatives,
lower  incentive  compensation  expenses and lower selling  expenses.  Partially
offsetting   these   favorable   items  were  increases  to  the  allowance  for
uncollectible accounts receivables and professional fees.

       Foam Products

       Foam Products net sales for 2000  decreased  1.5% to $519.2  million from
$527.2 million in 1999. Lower sales primarily  reflected a volume decline in the
consumer  products  market and the loss of sales from  Foamex  L.P.'s  packaging
business that was sold in 1999.  Income from operations in 2000 was down 3.9% to
$55.2  million  compared  to $57.5  million in 1999.  As  discussed  above,  raw
material  costs  continued  to  increase  during  the year,  and  selling  price
increases  and  improved  operating  efficiencies  did  not  fully  recover  the
increased costs. As a percentage of net sales,  income from operations was 10.6%
of net sales in 2000, down from 10.9% in 1999.

       Carpet Cushion Products

       Carpet  Cushion  Products  net sales for 2000  decreased  10.3% to $256.4
million  from $285.8  million in 1999.  The sales  decline  primarily  reflected
competitive  pressures  that resulted in lower sales volumes  across all product
lines.  Lower selling prices in certain product lines and a lower value shipment
mix also contributed to the sales decline.  As a result,  income from operations
was $2.2 million in 2000 as compared to $8.9 million in 1999.


                                       20
<PAGE>


       Automotive Products

       Automotive  Products  net sales for 2000 were $342.4  million,  down 5.4%
from  $361.8  million  in  1999.  The  decrease  reflected  a slow  down  in the
automotive  industry,  particularly  during the second  half of the year.  Lower
sales  translated  to a 2.1%  decrease  in income  from  operations,  from $22.9
million in 1999 to $22.4  million in 2000.  Results in 2000  benefited  from the
favorable  impact  of  a  selling  price  adjustment.   Income  from  operations
represented 6.5% of net sales in 2000 and 6.3% of net sales in 1999.

       Technical Products

       Technical  Products net sales for 2000 increased  15.7% to $106.7 million
from $92.2  million in 1999.  Income from  operations  increased  27.0% to $29.0
million  in  2000,  up from  $22.9  million  in  1999.  Income  from  operations
represented  27.2%  of net  sales  in  2000  compared  to  24.8%  in  1999.  The
improvement  reflected favorable market conditions that resulted in sales volume
growth and improved operating efficiencies.

       Other

       Other primarily  consists of certain  manufacturing  operations in Mexico
City,  corporate  expenses not allocated to business  segments and restructuring
and other  charges.  The  increase  in net sales  associated  with this  segment
primarily  resulted from an increase in net sales from Foamex L.P.'s Mexico City
operation.  The  loss  from  operations  of $11.5  million  in 2000  included  a
provision of $6.3 million for restructuring and other charges,  discussed above.
The loss from  operations  of $17.3  million in 1999  included  $10.5 million of
restructuring and other charges, discussed below.

       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 $2.4 million
relating to severance  costs in connection  with the first  restructuring  plan.
This plan reduced Foamex L.P.'s salaried work force by 82 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.

       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 117 employees,  $0.1 million of plant closure
and carrying costs and $1.5 million of asset write-downs.

       In connection with the fourth  restructuring plan, Foamex L.P. closed its
New York office (see Note 13 to the consolidated financial  statements).  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
$0.7 million  relating to changes in estimates to prior years' plans,  primarily
for the sale of the  packaging  business  in 1999.  The $0.7  million  charge is
comprised of $0.2 million of severance,  $1.3 million of lease and plant closure
costs, offset by $0.8 million of adjustments for asset write-downs.  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.

       Interest and Debt Issuance Expense

       Interest and debt issuance  expense totaled $75.2 million in 2000,  which
represented a 3.4% increase  from 1999 expense of $72.7  million.  The impact of
higher  effective  interest  rates was partially  offset by the benefit of lower


                                       21
<PAGE>

average debt levels. Higher effective interest rates reflected market conditions
and the impact of a certain  provision of the Foamex L.P.  credit  facility that
required an  incremental  interest  rate  margin,  as discussed in Note 7 to the
consolidated  financial  statements.  Interest capitalized as a component of the
construction costs of plant and equipment totaled $0.8 million in 2000.

       Income from Equity Interest in Joint Venture

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

       Other Expense, Net

       Other  expense,  net in 2000 totaled $1.6 million and primarily  included
$1.2 million of costs  associated with a buyout proposal and $0.7 million letter
of credit fees offset by $0.6 million of interest income.  Other expense, net in
1999  totaled  $0.7  million  and  primarily  included  letter of  credit  fees,
partially offset by interest income.

       Income Tax Expense

       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 agreement and indentures.

Business Outlook

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

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

       o      The successful  implementation  of the Operational  Reorganization
              Plan.

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

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

LIQUIDITY AND CAPITAL RESOURCES

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


                                       22
<PAGE>


       Cash  and  cash  equivalents  totaled  $15.1  million  at the end of 2001
compared to $4.9 million at the end of 2000.  Working capital at the end of 2001
was $63.6 million and the current ratio was 1.3 to 1 compared to working capital
at the end of 2000 of  $105.8  million  and a  current  ratio  of 1.6 to 1.  The
decrease in working  capital is  primarily  due to a $45.9  million  increase in
accounts  payable,  partially  attributable to certain vendor payment terms that
were lengthened in 2001.

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

       Cash Flow from Operating Activities

       Cash provided by operating activities in 2001 was $108.7 million compared
to $52.9  million in 2000.  The  increase  primarily  reflected  an  increase in
accounts  payable  that  contributed  $45.9  million  of the  improvement.  Also
contributing to the 2001 increase was a $15.2 million  reduction in inventories.
As discussed above, results in 2001 included significant  restructuring charges.
Included in the  restructuring  charge were non-cash items for asset  impairment
and at  year-end  2001 there was a net  increase  in the  accrued  restructuring
liability of $15.5 million

       Cash Flow from Investing Activities

       Cash used for investing  activities  totaled $38.1 million for 2001. Cash
requirements  included  capital  expenditures of $22.5 million and $17.6 million
for an acquisition,  see Note 3 to the  consolidated  financial  statements.  In
2000,  cash flow used for  investing  activities  totaled $23.7  million,  which
included $23.6 million of capital expenditures, partially offset by $3.6 million
of proceeds from the sale of assets.  The estimate of capital  expenditures  for
2002 is approximately $24.0 million.

       Cash Flow from Financing Activities

       Cash used in financing  activities was $60.4 million for 2001 compared to
cash used of $30.9  million  in 2000.  The  increase  reflected  higher net debt
payments  compared to 2000, a decrease in cash  overdrafts,  debt issuance costs
and other financing  activity.  During the first half of 2000, the $34.0 million
Foamex/GFI  Note was repaid  with  borrowings  under the Foamex  L.P.  revolving
credit facility.

       Financial Condition

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

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


                                       23
<PAGE>


Foamex L.P. Credit Facility

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

       Amended Credit Facility

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

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

       We used a portion of the net proceeds  from the Senior  Secured  Notes to
repay the existing term loans,  the Term E Loan and the Term F Loan as described
below.  After this repayment,  the term loan facilities under the Amended Credit
Facility  will consist of a $39.3  million  Term B Loan, a $35.7  million Term C
Loan,  a $51.7  million  Term D Loan,  a $16.3  million  Term E Loan and a $19.3
million Term F Loan  (together with the Term B Loan, the Term C Loan, the Term D
Loan and the Term E Loan, the "Term Loans").

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

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

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

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

                                       24
<PAGE>


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

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

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

       The Amended Credit Facility contains  affirmative and negative  covenants
that,  subject  to  certain  exceptions,  are  substantially  similar  to  those
contained in the existing credit facility. The Amended Credit Facility also will
includes the following financial  covenants,  as defined therein:  (1) a minimum
EBDAIT test for the year ended  December 31, 2001; (2) a minimum net worth test;
(3) a minimum ratio of EBDAIT to cash interest  expense;  (4) a minimum ratio of
EBDAIT to fixed charges; and (5) a maximum ratio of funded debt to EBDAIT. These
covenants  will be  substantially  the same as those  contained  in the existing
credit  facility with  appropriate  changes to take into account the issuance of
the Senior  Secured Notes and the  contribution  of Foamex Carpet to Foamex L.P.
Foamex L.P. was in compliance with the revised covenants at December 31, 2001 to
the extent they were  applicable.  The Amended Credit Facility also requires the
refinancing  of the 13 1/2%  senior  subordinated  notes on or prior to March 1,
2005.

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

Foamex Carpet Credit Facility

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

Contractual Obligations and Commercial Commitments

       At December 31, 2001,  Foamex L.P.  had  obligations  to repay a total of
$660.1  million  of  principal  of  long-term  debt  borrowed  under a number of
arrangements with lenders. The amortization schedule for Foamex L.P.'s long-term
debt payments is included in Note 7 to the consolidated financial statements. On
March 25, 2002, Foamex L.P. issued $300.0 million of Senior Secured Notes due on
April 1, 2009. A total of $231.5 million of the proceeds from the Senior Secured
Notes was used to repay debt that would have matured in 2002,  2003 and 2004. At
December 31, 2001,  Foamex L.P. had  outstanding  letters of credit  aggregating
$20.9 million.

                                       25
<PAGE>


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

OTHER

Foamex International 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.  Certain
credit agreements and promissory notes of Foamex  International's  subsidiaries,
pursuant to which  approximately  $401.1  million of debt was  outstanding as of
September  30, 2000,  provided  that a "change of control"  would be an event of
default and could result in the  acceleration of such  indebtedness.  "Change of
control" means, for this purpose, that (i) a person or related group, other than
Trace,  beneficially  owns more than 25% of 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"), a wholly-owned
subsidiary  of Foamex  L.P.,  relating  to senior  subordinated  notes of $248.0
million  contain similar  "change of control"  provisions,  which require Foamex
L.P.  and FCC to tender  for such  notes at a price in cash equal to 101% of the
aggregate principal amount thereof, plus accrued and unpaid interest thereon, if
there is such a "change of control".

       On July 21,  1999,  Foamex  International  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.   Certain  equity
transactions,  primarily the exercise of stock options, have reduced the Bank of
Nova  Scotia's  ownership  percentage  of common  stock to 23.6% at February 15,
2002.

                                       26
<PAGE>


Environmental 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,  the
discharge or emission of materials into the environment,  and the remediation of
environmental contamination,  and as a result, are from time to time involved in
administrative and judicial  proceedings and inquiries relating to environmental
matters.  As of December 31, 2001, we had accruals of approximately $3.0 million
for environmental matters.

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

       Foamex L.P. has reported to the  appropriate  state  authorities  that we
have found soil and/or groundwater contamination in excess of state standards at
certain locations.  Seven sites are currently in various stages of investigation
or  remediation.  Accordingly,  the  extent of  contamination  and the  ultimate
liability is not known with certainty for all sites. As of December 31, 2001, we
had accruals of $2.5 million for the estimated  cost of  remediation,  including
professional fees and monitoring costs, for these sites. During 2000, we reached
an indemnification agreement with the former owner of the Morristown,  Tennessee
facility.  The  agreement  allocates the incurred and future  remediation  costs
between the former owner and us. The  estimated  allocation  of future costs for
the  remediation  of this  facility is not  significant,  based on current known
information.  The former owner was Recticel  Foam  Corporation,  a subsidiary of
Recticel.

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

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

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

                                       27
<PAGE>

Inflation, Raw Material Costs and Other Matters

       On  average,  inflation  rates for the  domestic  economy  continue to be
relatively low. Although long-term  inflation rates are difficult to predict, we
believe we have the flexibility in operations and capital  structure to maintain
a competitive position.  The prices of the two principal chemicals used, TDI and
polyol, are influenced by demand, manufacturing capacity and oil prices. Results
for 2000 were negatively impacted by higher  transportation costs related to oil
price  increases and higher costs for raw  materials.  In 2001, the beginning of
the economic  slowdown resulted in excess  manufacturing  capacity for the major
chemical suppliers.  This, coupled with declining oil prices,  resulted in lower
costs for raw  materials  in 2001.  Some of our TDI and  polyol  suppliers  have
informed Foamex L.P. that they will seek to raise prices in the first six months
of 2002. We attempt to offset raw material cost increases  through selling price
increases;  however,  there can be no assurance  that we will be  successful  in
implementing  selling price increases or that competitive  pricing pressure will
not require us to adjust  selling  prices.  Results of operations  have been and
could be  adversely  affected by delays in  implementing,  or our  inability  to
implement, selling price increases to offset raw material cost increases.

Related Party Transactions

         Foamex L.P. has had a number of related party transactions in the past,
primarily with affiliates of Trace. Such related party  transactions and current
balances  are  discussed  in Note 13 to the  consolidated  financial  statements
included in this report on Form 10-K

Accounting Changes

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

       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  did not have a  significant  impact on the
results of operations or financial position of Foamex L.P.

       During  the third  quarter of 2001,  Statement  of  Financial  Accounting
Standards  No. 141,  "Business  Combinations"  ("SFAS No. 141") and Statement of
Financial  Accounting  Standards No. 142, "Goodwill and Other Intangible Assets"
("SFAS No. 142") were issued.  SFAS No. 141 addresses  financial  accounting and
reporting  for  business  combinations  and limits the  accounting  for business
combinations to the purchase method. The statement is effective for all business
combinations, including the acquisition discussed in Note 3, with an acquisition
date of July 1, 2001, or later. SFAS No. 142 addresses financial  accounting and
reporting for acquired  goodwill and other intangible  assets. A key change as a
result of  implementing  SFAS No. 142 will be that  goodwill  and certain  other
intangibles  will no longer be amortized and there may be more volatility in the
reported results than under the previous standard because  impairment losses are
likely to occur  irregularly and in varying amounts.  Any impairment  losses for
goodwill and  indefinite-lived  intangible  assets that arise due to the initial
application  of SFAS No.  142 will be  reported  as  resulting  from a change in
accounting principle. Any goodwill and intangible assets acquired after June 30,
2001,  including  the  acquisition  discussed  in  Note  3 to  the  consolidated
financial  statements,  will be subject  immediately to the  nonamortization and
amortization  provisions of SFAS No. 142. Foamex L.P. continues to evaluate SFAS
No. 142 and has not yet  determined  the complete  impact,  however  Foamex L.P.
expects  that the  adoption  of SFAS No.  142 will  reduce  annual  amortization
expense by approximately $6.0 million.

       Also during the third quarter of 2001,  Statement of Financial Accounting
Standards No. 143, "Accounting for Asset Retirement Obligations ("SFAS No. 143")
was  issued.  SFAS No. 143  requires  the  recognition  of a  liability  for the
estimated cost of disposal as part of the initial cost of a long-lived asset and
will be effective  in 2003.  In late 2001,  Statement  of  Financial  Accounting


                                       28
<PAGE>

Standards  No. 144,  "Accounting  for the  Impairment  or Disposal of Long-Lived
Assets" ("SFAS No. 144") was issued. SFAS No. 144 will provide a single approach
for measuring the  impairment  of  long-lived  assets,  including a segment of a
business  accounted  for as a  discontinued  operation  or  those  to be sold or
disposed of other than by sale.  SFAS No. 144 will be effective in 2002.  Foamex
L.P. has not yet determined the impact of SFAS No. 143 and SFAS No. 144.

ITEM 7a.  QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

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

ITEM 8.  FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

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

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

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

PART III

       The  information  required  by this Part III (Items 10, 11, 12 and 13) is
not  applicable  since  Foamex  L.P.  is a  wholly-owned  subsidiary  of  Foamex
International.

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

(a)    Financial statements.

<TABLE>
<S>                                                                                                           <C>
       Foamex L.P.  and Subsidiaries
         Independent Auditors' Report                                                                           F-2
         Reports of Independent Accountants                                                                     F-3
         Consolidated Balance Sheets as of December 31, 2001 and 2000                                           F-5
         Consolidated Statements of Operations for the years ended December 31, 2001, 2000 and 1999             F-7
         Consolidated Statements of Cash Flows for the years ended December 31, 2001, 2000 and 1999             F-8
         Consolidated Statements of Partners' Deficiency for the years ended December 31,
           2001, 2000 and 1999                                                                                  F-9
         Notes to Consolidated Financial Statements                                                            F-10

       Foamex Capital Corporation
         Independent Auditors' Report                                                                          F-36
         Report of Independent Accountants                                                                     F-37
         Balance Sheets as of December 31, 2001 and 2000                                                       F-38
         Notes to Balance Sheets                                                                               F-39

       Foamex L.P. and Subsidiaries Financial Statement Schedule
         Schedule II - Valuation and Qualifying Accounts                                                        S-2
</TABLE>


                                       29
<PAGE>

(b)    Reports on Form 8-K.

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

(c)      Exhibits.

2.1(x)        -  Transfer Agreement, dated as of February 27, 1998, by and
                 between Foam Funding LLC and Foamex L.P.
2.2(x)        -  Asset Purchase Agreement, dated as of February 27, 1998, by and
                 among Foamex Carpet Cushion, Inc. ("Foamex Carpet"), Foamex
                 International Inc. ("Foamex International"), Foam Funding LLC
                 and General Felt Industries, Inc. ("General Felt").
3.1(a)        -  Certificate of Limited Partnership of Foamex L.P.
3.2.1(a)      -  Fourth Amended and Restated Agreement of Limited Partnership of
                 Foamex L.P., dated as of December 14, 1993, by and among FMXI,
                 Inc. ("FMXI") and Trace Foam Company, Inc. ("Trace Foam"), as
                 general partners, and Foamex International, as a limited
                 partner (the "Partnership Agreement").
3.2.2(b)      -  First Amendment to the Partnership Agreement, dated June 28,
                 1994.
3.2.3(c)      -  Second Amendment to the Partnership Agreement, dated June 12,
                 1997.
3.2.4(v)      -  Third Amendment to the Partnership Agreement, dated December
                 23, 1997.
3.2.5(x)      -  Fourth Amendment to the Partnership Agreement, dated February
                 27, 1998.
3.3(y)        -  Certificate of Incorporation of FMXI.
3.4(y)        -  By-laws of FMXI.
3.5(k)        -  Certificate of Incorporation of Foamex Capital Corporation
                 ("FCC").
3.6(k)        -  By-laws of FCC.
3.7.1(a)      -  Certificate of Incorporation of Foamex International.
3.7.1(dd)     -  Amendment to Certificate of Incorporation of Foamex
                 International.
3.7.2(cc)     -  Certificate of Incorporation of Foamex Carpet Cushion, Inc.
                 ("Foamex Carpet")
3.8(a)        -  By-laws of Foamex International.
3.8.1(cc)     -  By-laws of Foamex Carpet.
4.1.2(v)      -  First Supplemental Indenture, dated as of December 23, 1997,
                 between Foamex LLC ("FLLC") and The Bank of New York, as
                 trustee, relating to the 9 7/8% Notes.
4.1.3(x)      -  Second Supplemental Indenture, dated as of February 27, 1998,
                 among Foamex L.P. and FCC, as joint and several obligors,
                 General Felt, Foamex Fibers, Inc. ("Foamex Fibers"), and FLLC,
                 as withdrawing guarantors, and The Bank of New York, as
                 trustee, relating to the 9 7/8% Notes.
4.1.4(d)      -  Registration Rights Agreement, dated as of June 12, 1997, by
                 and among Foamex L.P., FCC, General Felt, Foamex Fibers, and
                 all future direct or indirect domestic subsidiaries of Foamex
                 L.P. or FCC, and Donaldson, Lufkin & Jenrette Securities
                 Corporation, Salomon Brothers Inc. and Scotia Capital Markets,
                 as Initial Purchasers.
4.2.1(v)      -  Indenture, dated as of December 23, 1997, by and among Foamex
                 L.P., FCC, the Subsidiary Guarantors, Crain Holdings Corp., as
                 Intermediate Obligator, and The Bank of New York, as trustee,
                 relating to $98,000,000 principal amount of 13 1/2% Senior
                 Subordinated Notes due 2005 (the "13 1/2% Notes"), including
                 the form of Senior Subordinated Note and Subsidiary Guarantee.
4.2.2(x)      -  First Supplemental Indenture, dated as of February 27, 1998,
                 among Foamex L.P. and FCC, as joint and several obligors,
                 General Felt, Foamex Fibers and FLLC, as withdrawing
                 guarantors, Crain Industries, Inc., as withdrawing Intermediate
                 Obligor, and The Bank of New York, as trustee, relating to the
                 13 1/2% Notes.
4.4.2(x)      -  Second Amended and Restated Foamex International Guaranty,
                 dated as of February 27, 1998, made by Foamex International in
                 favor of Citicorp USA, Inc., as Collateral Agent.
4.4.3(x)      -  Amended and Restated Partnership Guaranty, dated as of February
                 27, 1998, made by FMXI in favor of Citicorp USA, Inc., as
                 Collateral Agent.
4.4.4(p)      -  Foamex Guaranty, dated as of June 12, 1997, made by Foamex L.P.
                 in favor of Citicorp USA, Inc., as Collateral Agent.



                                       30
<PAGE>

4.4.5(p)      -  Subsidiary Guaranty, dated as of June 12, 1997, made by Foamex
                 Latin America, Inc. in favor of Citicorp USA, Inc., as
                 Collateral Agent.
4.4.6(p)      -  Subsidiary Guaranty, dated as of June 12, 1997, made by Foamex
                 Mexico, Inc. in favor of Citicorp USA, Inc., as Collateral
                 Agent.
4.4.7(p)      -  Subsidiary Guaranty, dated as of June 12, 1997, made by FCC in
                 favor of Citicorp USA, Inc., as Collateral Agent.
4.4.8(p)      -  Subsidiary Guaranty, dated as of June 12, 1997, made by Foamex
                 Mexico II, Inc. in favor of Citicorp USA, Inc., as Collateral
                 Agent.
4.4.9(p)      -  Subsidiary Guaranty, dated as of June 12, 1997, made by Foamex
                 Asia, Inc. in favor of Citicorp USA, Inc., as Collateral Agent.
4.4.10(p)     -  Subsidiary Pledge Agreement, dated as of June 12, 1997, made by
                 FCC in favor of Citicorp USA, Inc., as Collateral Agent.
4.4.11(p)     -  Subsidiary Pledge Agreement, dated as of June 12, 1997, made by
                 Foamex Latin America, Inc. in favor of Citicorp USA, Inc., as
                 Collateral Agent.
4.4.12(p)     -  Subsidiary Pledge Agreement, dated as of June 12, 1997, made by
                 Foamex Asia, Inc. in favor of Citicorp USA, Inc., as Collateral
                 Agent.
4.4.13(p)     -  Subsidiary Pledge Agreement, dated as of June 12, 1997, made by
                 Foamex Mexico, Inc. in favor of Citicorp USA, Inc., as
                 Collateral Agent.
4.4.14(p)     -  Subsidiary Pledge Agreement, dated as of June 12, 1997, made by
                 Foamex Mexico II, Inc. in favor of Citicorp USA, Inc., as
                 Collateral Agent.
4.4.15(pp)    -  Amended and Restated Foamex Security Agreement, dated as of
                 July 18, 2001, made by Foamex L.P. in favor of Citicorp USA,
                 Inc., as Collateral Agent.
4.4.16(pp)    -  Amended and Restated Subsidiary Security Agreement, dated as of
                 July 18, 2001, made by Foamex Latin America, Inc. in favor of
                 Citicorp USA, Inc., as Collateral Agent.
4.4.17(pp)    -  Amended and Restated Subsidiary Security Agreement, dated as of
                 July 18, 2001, made by Foamex Mexico, Inc. in favor of Citicorp
                 USA, Inc., as Collateral Agent.
4.4.18(pp)    -  Amended and Restated Subsidiary Security Agreement, dated as of
                 July 18, 2001, made by Foamex Mexico II, Inc. in favor of
                 Citicorp USA, Inc., as Collateral Agent.
4.4.19(pp)    -  Amended and Restated Subsidiary Security Agreement, dated as of
                 July 18, 2001, made by Foamex Asia, Inc. in favor of Citicorp
                 USA, Inc., as Collateral Agent.
4.4.20(pp)    -  Amended and Restated Subsidiary Security Agreement, dated as of
                 July 18, 2001, made by FCC in favor of Citicorp USA, Inc., as
                 Collateral Agent.
4.4.21(r)     -  Foamex Pledge Agreement, dated as of June 12, 1997, made by
                 Foamex L.P. in favor of Citicorp USA, Inc., as Collateral
                 Agent.
4.4.22(w)     -  First Amendment to Foamex Pledge Agreement, dated as of
                 December 23, 1997, by Foamex L.P. in favor of Citicorp USA,
                 Inc., as Collateral Agent.
4.4.23(w)     -  First Amendment to Foamex Security Agreement, dated as of
                 December 23, 1997, by Foamex L.P. in favor of Citicorp USA,
                 Inc., as Collateral Agent.
4.4.24(w)     -  First Amendment to Foamex Patent Agreement, dated as of
                 December 23, 1997, by Foamex L.P. in favor of Citicorp USA,
                 Inc., as Collateral Agent.
4.4.25(w)     -  First Amendment to Trademark Security Agreement, dated as of
                 December 23, 1997, by Foamex L.P. in favor of Citicorp USA,
                 Inc., as Collateral Agent.
4.4.26(w)     -  Acknowledgment of Guaranty by each of the guarantors to a
                 Guaranty dated June 12, 1997 in favor of Citicorp USA, Inc.
4.4.27(w)     -  First Amendment to Pledge Agreement, dated as of December 23,
                 1997, by pledgors in favor of Citicorp USA, Inc.
4.4.28(w)     -  Crain Industries, Inc. ("Crain") Guaranty, dated as of December
                 23, 1997, made by Crain in favor of Citicorp USA, Inc.
4.4.29(x)     -  Partnership Pledge Agreement, dated as of February 27, 1998,
                 made by Foamex International and FMXI in favor of Citicorp USA,
                 Inc., as Collateral Agent.
4.4.30(bb)    -  Amendment No. 1 to Second Amended and Restated Foamex
                 International Guaranty, dated March 11, 1999.
4.4.31(bb)    -  Amendment No. 1 to Foamex International Guaranty, dated March
                 12, 1999.


                                       31
<PAGE>

4.4.32(dd)    -  Foamex Patent Agreement, dated as of June 12, 1997, by Foamex
                 L.P. in favor of Citicorp USA, Inc., as Collateral Agent.
4.4.33(dd)    -  Trademark Security Agreement, dated as of June 12, 1997, by
                 Foamex L.P. in favor of Citicorp USA, Inc., as Collateral
                 Agent.
4.4.34(ee)    -  Amended and Restated Foamex Pledge Agreement, dated as of June
                 30, 1999 made by Foamex L.P. in favor of Citicorp U.S.A. Inc.
                 as Collateral Agent.
4.4.35(ee)    -  Amended and Restated Partnership Pledge Agreement, dated as of
                 June 30, 1999 by FMXI, Inc. and Foamex International Inc. in
                 favor of Citicorp USA Inc. as FII Intercreditor Collateral
                 Agent.
4.5 (nn)      -  Commitment Letter and attachment, dated August 8, 2001, from
                 the Bank of Nova Scotia to Foamex Canada Inc. 4.9.1(p) -
                 Promissory Note, dated June 12, 1997, in the aggregate
                 principal amount of $5,000,000, executed by Trace Holdings to
                 Foamex L.P.
4.9.2(p)      -  Promissory Note, dated June 12, 1997, in the aggregate
                 principal amount of $4,794,828, executed by Trace Holdings to
                 Foamex L.P.
4.10.1(x)     -  Credit Agreement, dated as of February 27, 1998, by and among
                 Foamex Carpet, the institutions from time to time party thereto
                 as lenders, the institutions from time to time party thereto as
                 issuing banks and Citicorp USA, Inc. and The Bank of Nova
                 Scotia, as administrative agents.
4.10.2(x)     -  Foamex International Guaranty, dated as of February 27, 1998,
                 made by Foamex International in favor of Citicorp USA, Inc., as
                 Collateral Agent.
4.10.3(x)     -  Foamex International Pledge Agreement, dated as of February 27,
                 1998, made by Foamex International in favor of Citicorp USA,
                 Inc., as Collateral Agent.
4.10.4(x)     -  New GFI Security Agreement, dated as of February 27, 1998, made
                 by Foamex Carpet in favor of Citicorp USA, Inc., as Collateral
                 Agent.
4.10.5(x)     -  New GFI Intercreditor Agreement, dated as of February 27, 1998,
                 by and among Foamex Carpet, The Bank of Nova Scotia, as
                 Administrative Agent, and Citicorp USA, Inc., as Administrative
                 Agent and Collateral Agent.
4.10.6(x)     -  FII Intercreditor Agreement, dated as of February 27, 1998, by
                 and between Foamex International and Citicorp USA, Inc., as
                 Collateral Agent.
4.10.9(dd)    -  Amendment No. 1 to Foamex Carpet Credit Agreement, dated
                 October 30, 1998.
4.10.10(bb)   -  Amendment No. 2 to Foamex Carpet Credit Agreement, dated March
                 12, 1999.
4.10.11(ee)   -  Foamex L.P. Credit Agreement, dated June 12, 1997, as amended
                 and restated as of February 27, 1998 as further amended and
                 restated as of June 29, 1999 among Foamex L.P., FMXI, the
                 institutions from time to time party thereto as lenders, the
                 institutions from time to time party thereto as issuing banks
                 and Citicorp USA, Inc. and the Bank of Nova Scotia as
                 Administrative Agents.
4.10.12(ee)   -  Amendment No. 3 to Foamex Carpet Credit Agreement, dated June
                 30, 1999.
4.10.13(ee)   -  Foamex International Pledge Agreement, dated June 30, 1999,
                 made by Foamex International in favor of Citicorp U.S.A. Inc.
                 as FII Intercreditor Collateral Agent.
4.10.14(ff)   -  Amendment No. 1 to the Foamex L.P. Credit Agreement, dated
                 December 23, 1999, as amended and restated as of February 27,
                 1998 as further amended and restated as of June 29, 1999 among
                 Foamex L.P., FMXI, the institutions from time to time party
                 thereto as lenders, the institutions from time to time party
                 thereto as issuing banks and Citicorp USA, Inc. and the Bank of
                 Nova Scotia as Administrative Agents.
4.10.15(gg)   -  Amendment No. 2 to the Foamex L.P. Credit Agreement, dated
                 February 16, 2000, as amended and restated as of February 27,
                 1998 as further amended and restated as of June 29, 1999 among
                 Foamex L.P., FMXI, the institutions from time to time party
                 thereto as lenders, the institutions from time to time party
                 thereto as issuing banks and Citicorp USA, Inc. and the Bank of
                 Nova Scotia as Administrative Agents.
4.10.16(pp)   -  Amendment No. 3 to Foamex Credit Agreement, dated as of July
                 18, 2001.
4.10.17(pp)   -  Amendment No. 4 to Foamex Credit Agreement, date as of December
                 21, 2001.
4.10.18(gg)   -  Amendment No. 4 to Foamex Carpet Cushion Agreement, dated
                 February 18, 2000.
4.10.19(ll)   -  Amendment No. 5 to Foamex Carpet Cushion Agreement, dated March
                 30, 2001.
4.10.20(pp)   -  Amendment No. 6 to Foamex Carpet Cushion Agreement, dated as of
                 December 21, 2001.


                                       32
<PAGE>

4.11.1(x)     -  Promissory Note of Foamex L.P. in favor of Foam Funding LLC in
                 the principal amount of $34 million, dated February 27, 1998.
4.12.1(x)     -  Promissory Note of Foamex Carpet in favor of Foam Funding LLC
                 in the principal amount of $70.2 million, dated February 27,
                 1998.
4.12.2(bb)    -  Amendment to Promissory Note of Foamex Carpet in favor of Foam
                 Funding LLC dated March 15, 1999.
4.12.3(ee)    -  Amendment to Promissory Note of Foamex L.P. in favor of Foam
                 Funding LLC dated as of June 30, 1999.
4.12.4(ee)    -  Amendment to Promissory Note of Foamex Carpet in favor of Foam
                 Funding LLC dated as of June 30, 1999.
4.12.5(gg)    -  Amendment to Promissory Note of Foamex Carpet in favor of Foam
                 Funding LLC dated as of February 18, 2000.
4.12.6(ll)    -  Amendment to Promissory Note of Foamex Carpet in favor of Foam
                 Funding LLC dated as of March 30, 2001.
4.12.7(pp)    -  Amendment to Promissory Note of Foamex Carpet in favor of Foam
                 Funding LLC, dated as of December 21, 2001.
4.13(dd)      -  Waiver, dated as of April 15, 1999 to the Credit Agreement,
                 dated as of February 27, 1998, among Foamex Carpet, the
                 institutions party thereto as Lenders, the institutions party
                 thereto as Issuing Banks, and Citicorp USA, Inc. and The Bank
                 of Nova Scotia as Administrative Agents.
4.13.1(ff)    -  Waiver, dated as of April 15, 1999 to the Promissory Note,
                 dated as of February 27, 1998, payable by Foamex Carpet to Foam
                 Funding LLC.
4.13.2(ff)    -  Waiver, dated as of May 6, 1999 to the Promissory Note, dated
                 as of February 27, 1998, payable by Foamex Carpet to Foam
                 Funding LLC.
4.14(hh)      -  Letter Agreement, dated as of July 31, 2000, between Foamex
                 International and The Bank of Nova Scotia.
4.14.1(jj)    -  Certificate of Designations of Series B Preferred Stock of
                 Foamex International.
10.2(h)       -  Reimbursement Agreement, dated as of March 23, 1993, between
                 Trace Holdings and General Felt.
10.3(h)       -  Shareholder Agreement, dated December 31, 1992, among Recticel,
                 s.a. ("Recticel"), Recticel Holding Noord B.V., Foamex L.P.,
                 Beamech Group Limited, LME-Beamech, Inc., James Brian
                 Blackwell, and Prefoam AG relating to a foam technology-sharing
                 arrangement.
10.4.1(k)     -  Asset Transfer Agreement, dated as of October 2, 1990, between
                 Trace Holdings and Foamex L.P. (the "Trace Holdings Asset
                 Transfer Agreement").
10.4.2(k)     -  First Amendment, dated as of December 19, 1991, to the Trace
                 Holdings Asset Transfer Agreement. 10.4.3(k) - Amended and
                 Restated Guaranty, dated as of December 19, 1991, made by Trace
                 Foam in favor of Foamex L.P. 10.5.1(k) - Asset Transfer
                 Agreement, dated as of October 2, 1990, between Recticel Foam
                 Corporation ("RFC") and Foamex L.P. (the "RFC Asset Transfer
                 Agreement").
10.5.2(k)     -  First Amendment, dated as of December 19, 1991, to the RFC
                 Asset Transfer Agreement.
10.5.3(k)     -  Schedule 5.03 to the RFC Asset Transfer Agreement (the "5.03
                 Protocol").
10.5.4(h)     -  The 5.03 Protocol Assumption Agreement, dated as of October 13,
                 1992, between RFC and Foamex L.P.
10.5.5(h)     -  Letter Agreement between Trace Holdings and Recticel regarding
                 the Recticel Guaranty, dated as of July 22, 1992.
10.6(l)       -  Supply Agreement, dated June 28, 1994, between Foamex L.P. and
                 Foamex International.
10.7.1(l)     -  First Amended and Restated Tax Sharing Agreement, dated as of
                 December 14, 1993, among Foamex L.P., Trace Foam, FMXI and
                 Foamex International.
10.7.2(d)     -  First Amendment to First Amended and Restated Tax Sharing
                 Agreement, dated as of June 12, 1997, by and among Foamex L.P.,
                 Foamex International, FMXI and Trace Foam.
10.7.3(w)     -  Second Amendment to First Amended and Restated Tax Sharing
                 Agreement, dated as of December 23, 1997, by and among Foamex
                 L.P., Foamex International, FMXI, and Trace Foam.
10.7.4(y)     -  Third Amendment to First Amended and Restated Tax Sharing
                 Agreement, dated as of February 27, 1998, by and between Foamex
                 L.P., Foamex International and FMXI.


                                       33
<PAGE>

10.8.1(m)     -  Tax Distribution Advance Agreement, dated as of December 11,
                 1996, by and between Foamex L.P. and Foamex-JPS Automotive L.P.
10.8.2(d)     -  Amendment No. 1 to Tax Distribution Advance Agreement, dated as
                 of June 12, 1997, by and between Foamex L.P. and Foamex
                 International.
10.10.1(k)    -  Salaried Incentive Plan of Foamex L.P. and Subsidiaries.
10.10.3(k)    -  Equity Growth Participation Program.
10.10.4(o)    -  The Foamex L.P. Salaried Pension Plan (formerly, "The General
                 Felt Industries, Inc. Retirement Plan for Salaried Employees"),
                 effective as of January 1, 1995.
10.10.5(u)    -  The Foamex L.P. Hourly Pension Plan (formerly "The Foamex
                 Products Inc. Hourly Employee Retirement Plan"), as amended
                 December 31, 1995.
10.10.6(u)    -  Foamex L.P. 401(k) Savings Plan effective October 1, 1997.
10.10.7(ii)   -  Foamex International's Amended and Restated 1993 Stock Option
                 Plan.
10.10.8(a)    -  Foamex International's Non-Employee Director Compensation Plan.

10.10.9(oo)   -  Foamex International Inc. Equity Incentive Plan for
                 Non-Employee Directors.
10.10.10 (oo) -  Foamex International Key Employee Incentive Bonus Plan.
10.10.11 (mm) -  Agreement with Consultant, dated April 24, 2001 by and between
                 Robert J. Hay and Foamex L.P.
10.10.12 (pp) -  Foamex Supplemental Executive Retirement Plan, effective as of
                 May 15, 2001.
10.10.13 (pp) -  Split Dollar Life Insurance Agreement Between Foamex
                 International Inc. and Marshall S. Cogan, dated as of December
                 31, 2001.
10.11.1(kk)   -  Employment Agreement, dated as of January 1, 1999, by and
                 between Foamex International and Marshall S. Cogan.
10.11.2(dd)   -  Employment Agreement, dated as of March 16, 1999, by and
                 between Foamex International and John G. Johnson, Jr.
10.11.3(kk)   -  Employment Agreement, amended effective as of January 29, 2001,
                 by and between Foamex International and John Televantos.
10.11.4(ll)   -  Termination and Release Agreement dated as of January 30, 2001
                 by and between Foamex International and Jack G. Johnson.
10.11.5(pp)   -  Termination and Release Agreement dated as of December 6, 2001,
                 by and between the Foamex International and John Televantos.
10.11.6(pp)   -  Employment Offer Letter, dated August 4, 2001, by and between
                 Foamex International and Thomas E. Chorman.
10.11.7(pp)   -  Employment Offer Letter, dated December 5, 2001, by and between
                 Foamex International and Peter W. Johnson.
10.11.8(pp)   -  First Amendment to Employment Agreement, dated as of December
                 31, 2001, by and between Foamex International Inc. and Marshall
                 S. Cogan.
10.14(o)      -  Stock Purchase Agreement, dated as of December 23, 1993, by and
                 between Transformacion de Espumas u Fieltros, S.A., the
                 stockholders which are parties thereto, and Foamex L.P.
10.15.1(r)    -  Asset Purchase Agreement, dated as of August 29, 1997, by and
                 among General Felt, Foamex L.P., Bretlin, Inc. and The Dixie
                 Group.
10.15.2(s)    -  Addendum to Asset Purchase Agreement, dated as of October 1,
                 1997, by and among General Felt, Foamex L.P., Bretlin, Inc. and
                 The Dixie Group.
10.16.1(x)    -  Supply Agreement, dated as of February 27, 1998, by and between
                 Foamex L.P. and General Felt (as assigned to Foamex Carpet).
10.16.2(x)    -  Administrative Services Agreement, dated as of February 27,
                 1998, by and between Foamex L.P. and General Felt (as assigned
                 to Foamex Carpet).
10.17(y)      -  Tax Sharing Agreement, dated as of February 27, 1998, between
                 Foamex International and Foamex Carpet.
10.18.1(pp)   -  Joint Venture Agreement between Hua Kee Company Limited and
                 Foamex Asia, Inc., amended and restated as of December 6, 2001.
10.18.2(w)    -  Loan Agreement between Hua Kee Company Limited and Foamex Asia,
                 Inc., dated as of July 8, 1997.
21            -  Subsidiaries of registrant.

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


                                       34
<PAGE>


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

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

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

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

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

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

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

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


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

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

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

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

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

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

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

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

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

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


                                       35
<PAGE>


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

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

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

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

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

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

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

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

(aa)   Incorporated  herein by reference to the Exhibit to the Current Report on
       Form 8-K of Foamex International reporting an event that occurred on June
       25, 1998.
(bb)   Incorporated  herein by reference to the Exhibit to the Current Report on
       Form 8-K of Foamex  International  reporting  an event that  occurred  on
       March 11, 1999.

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

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

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

(ff)   Incorporated  herein by reference to the Exhibit to the Annual  Report on
       Form 10-K of Foamex  International for the fiscal year ended December 31,
       1999.

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


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

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

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

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


                                       36
<PAGE>


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

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

(nn)   Incorporated herein by reference to the Exhibit to the Form 10-Q of
       Foamex L.P. for the quarterly period ended September 30, 2001.

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

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

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



                                       37
<PAGE>

                                   SIGNATURES

       Pursuant to the requirements of Section 13 of the Securities Exchange Act
of 1934,  the  registrant has duly caused this report to be signed on its behalf
by the undersigned, thereunto duly authorized as of the 29th day of March 2002.

                                       FOAMEX 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       March 29, 2002
---------------------------
     Marshall S. Cogan



/s/ George L. Karpinski          Director of FMXI and FCC       March 29, 2002
--------------------------
     George L. Karpinski





                                       38
<PAGE>


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


<TABLE>
<S>                                                                                                        <C>

Financial Statements of Registrants

  Foamex L.P.
    Independent  Auditors' Report                                                                        F-2
    Reports of Independent Accountants                                                                   F-3
    Consolidated Balance Sheets as of December 31, 2001 and 2000                                         F-5
    Consolidated  Statements of Operations  for the years ended  December
         31, 2001, 2000 and 1999                                                                         F-7
    Consolidated Statements of Cash Flows for the years ended December 31, 2001,
         2000 and 1999                                                                                   F-8
    Consolidated Statements of Partners' Deficiency for the years ended December 31, 2001,
         2000 and 1999                                                                                   F-9
    Notes to Consolidated Financial Statements                                                          F-10

  Foamex Capital Corporation
    Independent Auditors' Report                                                                        F-36
    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>

                          INDEPENDENT AUDITORS' REPORT


To the Partners of Foamex L.P.
Linwood, Pennsylvania

We have audited the accompanying  consolidated  balance sheet of Foamex L.P. and
subsidiaries  (the  "Company"),  an indirect  wholly-owned  subsidiary of Foamex
International  Inc.  as of  December  31,  2001,  and the  related  consolidated
statements of operations,  cash flows and partners' deficiency for the year then
ended. Our audit also included the consolidated  financial statement schedule as
of and for the year ended December 31, 2001 listed in the Index at Item 14a. The
consolidated   financial   statements  and  financial  statement  schedule  give
retroactive  effect to the common control merger of Foamex L.P. and subsidiaries
and  Foamex  Carpet  Cushion,  Inc.,  which has been  accounted  for in a manner
similar to a pooling of interests  as  described  in Note 1 to the  consolidated
financial  statements.  These  consolidated  financial  statements and financial
statement  schedule are the  responsibility  of the  Company's  management.  Our
responsibility  is  to  express  an  opinion  on  these  consolidated  financial
statements and financial statement schedule based on our audit.

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

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

The 2000 and 1999  financial  statements  were  audited  by other  auditors.  We
audited the  adjustments  described  in Note 1 that were applied to restate such
financial  statements to give retroactive effect to the common control merger of
Foamex L.P. and  subsidiaries  and Foamex Carpet  Cushion,  Inc. In our opinion,
such adjustments are appropriate and have been properly applied.



/s/ DELOITTE & TOUCHE LLP

March 25, 2002
Parsippany, New Jersey



                                      F-2
<PAGE>




                        REPORT OF INDEPENDENT ACCOUNTANTS



To the Partners of Foamex L.P.:

In our opinion,  the consolidated  balance sheet as of December 31, 2000 and the
related  consolidated  statements of operations,  partners'  deficiency and cash
flows for each of the two years in the period ended  December 31, 2000 of Foamex
L.P. and its subsidiaries (not presented  separately  herein) present fairly, in
all material respects,  the financial  position,  results of operations and cash
flows of Foamex L.P. and its  subsidiaries  at December 31, 2000 and for each of
the two years in the period ended  December 31, 2000, ( before  giving effect to
the adjustments to give retroactive  effect to the contribution of Foamex Carpet
Cushion,  Inc.,  described in Note 1) in conformity with  accounting  principles
generally accepted in the United States of America. In addition, in our opinion,
the  financial  statement  schedule of Foamex  L.P.  and its  subsidiaries  (not
presented  separately herein) as of and for each of the two years ended December
31, 2000 (before giving effect to the adjustments to give retroactive  effect to
the  contribution  of Foamex  Carpet  Cushion,  Inc.,  described in Note 1) when
considered in relation to the basic consolidated financial statements taken as a
whole,  present  fairly,  in all material  respects,  the  information set forth
therein. These financial statements and the financial statement schedule are the
responsibility of the Company's management;  our responsibility is to express an
opinion on these financial  statements and financial statement schedule 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 7, 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 7.




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



                                      F-3
<PAGE>




                        REPORT OF INDEPENDENT ACCOUNTANTS


To the Stockholders of Foamex Carpet Cushion, Inc.:


In our  opinion,  the  balance  sheet as of  December  31,  2000 and the related
statements of  operations,  stockholder's  equity and cash flows for each of the
two years in the period ended December 31, 2000 of Foamex Carpet  Cushion,  Inc.
(not presented separately herein) present fairly, in all material respects,  the
financial  position,  results  of  operations  and cash  flows of Foamex  Carpet
Cushion,  Inc. at December  31, 2000 and for each of the two years in the period
ended  December 31, 2000, in conformity  with  accounting  principles  generally
accepted in the United States of America.  These  financial  statements  are the
responsibility of the Company'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 5 to the financial statements Foamex Carpet Cushion, Inc.'s
financial debt covenants,  with which Foamex Carpet Cushion, Inc. must comply on
a quarterly basis, become more restrictive. Management's plans in regard to this
matter are also described in Note 5.





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


                                      F-4
<PAGE>


                          FOAMEX L.P. AND SUBSIDIARIES
                           CONSOLIDATED BALANCE SHEETS


<TABLE>
<CAPTION>
                                                                         December 31,      December 31,
                                                                             2001              2000
                                                                          ---------         ---------
ASSETS                                                                            (thousands)
CURRENT ASSETS
<S>                                                                       <C>               <C>
    Cash and cash equivalents                                             $  15,059         $   4,873
    Accounts receivable, net of allowance for doubtful
      accounts and discounts of $10,940 in 2001 and $9,926 in 2000          173,461           170,590
    Inventories                                                              89,430           100,334
    Other current assets                                                     32,685            19,551
                                                                          ---------         ---------

            Total current assets                                            310,635           295,348
                                                                          ---------         ---------

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

            Total                                                           407,204           397,291

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

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

COST IN EXCESS OF NET ASSETS ACQUIRED, net of
accumulated amortization of $35,136 in 2001 and
$29,317 in 2000                                                             209,503           210,484

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

OTHER ASSETS                                                                 33,025            20,139
                                                                          ---------         ---------

TOTAL ASSETS                                                              $ 767,650         $ 753,584
                                                                          =========         =========
</TABLE>

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


                                      F-5
<PAGE>

                          FOAMEX L.P. AND SUBSIDIARIES
                           CONSOLIDATED BALANCE SHEETS

<TABLE>
<CAPTION>
                                                            December 31,       December 31,
                                                                2001              2000
                                                             ---------         ---------
LIABILITIES AND PARTNERS' DEFICIENCY                                 (thousands)
CURRENT LIABILITIES
<S>                                                          <C>               <C>
    Current portion of long-term debt                        $   4,023         $   8,356
    Current portion of long-term debt - related party           14,040            15,795
    Accounts payable                                           128,756            82,889
    Accrued employee compensation and benefits                  25,858            21,853
    Accrued interest                                             8,946             9,198
    Accrued restructuring                                       12,392             4,766
    Accrued customer rebates                                    21,869            23,839
    Cash overdrafts                                              4,073             6,885
    Other accrued liabilities                                   25,405            14,470
    Deferred income taxes                                        1,632             1,511
                                                             ---------         ---------

      Total current liabilities                                246,994           189,562

LONG-TERM DEBT                                                 630,682           656,168

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

ACCRUED EMPLOYEE BENEFITS                                       25,944            18,824

DEFERRED INCOME TAXES                                            1,542               903

ACCRUED RESTRUCTURING                                           12,604             4,681

OTHER LIABILITIES                                               10,462            10,359
                                                             ---------         ---------

    Total liabilities                                          945,778           912,087
                                                             ---------         ---------

COMMITMENTS AND CONTINGENCIES

PARTNERS' DEFICIENCY
    General partner                                           (130,095)         (119,831)
    Limited partner                                                  -                 -
    Accumulated other comprehensive loss                       (36,322)          (24,461)
    Notes and advances receivable from partner                  (2,490)           (4,990)
    Notes receivable from related party                         (9,221)           (9,221)
                                                             ---------         ---------
      Total partners' deficiency                              (178,128)         (158,503)
                                                             ---------         ---------

TOTAL LIABILITIES AND PARTNERS' DEFICIENCY                   $ 767,650         $ 753,584
                                                             =========         =========

</TABLE>

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


                                      F-6
<PAGE>

                          FOAMEX L.P. AND SUBSIDIARIES
                      CONSOLIDATED STATEMENTS OF OPERATIONS


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

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

GROSS PROFIT                                            180,081             172,025             180,308

SELLING, GENERAL AND ADMINISTRATIVE
    EXPENSES                                             79,286              68,374              74,976

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

INCOME FROM OPERATIONS                                   64,727              97,383              94,841

INTEREST AND DEBT ISSUANCE EXPENSE                       63,237              75,229              72,725

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

OTHER EXPENSE, NET                                       (1,853)             (1,550)               (661)
                                                    -----------         -----------         -----------

INCOME BEFORE PROVISION FOR INCOME TAXES                  1,282              22,256              21,967

PROVISION FOR INCOME TAXES                                3,543               2,653               1,906
                                                    -----------         -----------         -----------

NET INCOME (LOSS)                                   $    (2,261)        $    19,603         $    20,061
                                                    ===========         ===========         ===========

</TABLE>

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


                                      F-7
<PAGE>


                          FOAMEX L.P. AND SUBSIDIARIES
                      CONSOLIDATED STATEMENTS OF CASH FLOWS

<TABLE>
<CAPTION>
                                                                          For the Years Ended December 31,
                                                                      2001              2000              1999
                                                                   ---------         ---------         ---------
OPERATING ACTIVITIES                                                              (thousands)
<S>                                                                <C>               <C>               <C>
   Net income (loss)                                               $  (2,261)        $  19,603         $  20,061
   Adjustments to reconcile net income (loss) to net
     cash provided by operating activities:
     Depreciation and amortization                                    34,028            36,628            35,464
     Amortization of debt issuance costs, debt premium
        and debt discount                                              1,288             1,335             1,315
     Asset impairment and other charges                               13,811             2,621               314
     Loss on disposition of assets                                       963             1,654             1,156
     Provision for uncollectible accounts                              5,479             2,838             2,758
     Retirement benefit funding (greater) less than expense           (1,752)           (7,198)            1,865
     Deferred income taxes                                             1,068              (425)              235
     Other, net                                                            2               344               205
   Changes in operating assets and liabilities:
     Accounts receivable                                              (9,578)           (6,857)           15,223
     Inventories                                                      15,177            (2,452)           38,776
     Accounts payable                                                 45,867               252           (63,522)
     Accrued restructuring                                            15,549            (3,352)              849
     Other assets and liabilities                                    (10,937)            7,873            13,889
                                                                   ---------         ---------         ---------

        Net cash provided by operating activities                    108,704            52,864            68,588
                                                                   ---------         ---------         ---------

INVESTING ACTIVITIES
   Capital expenditures                                              (22,482)          (23,593)          (20,080)
   Proceeds from sale of assets                                          600             3,570             1,510
   Repayment of note from Foamex International                         2,500                 -             2,490
   Acquisitions                                                      (17,559)                -                 -
   Increase in revolving loan with Foamex International                    -            (1,814)             (676)
   Other investing activities                                         (1,130)           (1,850)              249
                                                                   ---------         ---------         ---------

        Net cash used in investing activities                        (38,071)          (23,687)          (16,507)
                                                                   ---------         ---------         ---------

FINANCING ACTIVITIES
   Repayments of short-term borrowings                                     -            (1,627)           (1,330)
   Net proceeds from (repayments of) revolving loans                 (20,905)           32,220           (25,753)
   Repayments of long-term debt                                       (8,538)          (20,550)           (8,271)
   Repayments of long-term debt-related party                        (15,795)          (41,898)           (9,652)
   Increase (decrease) in cash overdrafts                             (2,812)            1,029            (1,444)
   Debt issuance costs                                                (2,578)                -            (7,866)
   Repayment of tax distribution advance                                   -                 -            13,618
   Distribution paid to partners                                      (3,861)              (41)          (17,205)
   Other financing activities                                         (5,958)                -                 -
                                                                   ---------         ---------         ---------

        Net cash used in financing activities                        (60,447)          (30,867)          (57,903)
                                                                   ---------         ---------         ---------

Net increase (decrease) in cash and cash equivalents                  10,186            (1,690)           (5,822)

Cash and cash equivalents at beginning of period                       4,873             6,563            12,385
                                                                   ---------         ---------         ---------

Cash and cash equivalents at end of period                         $  15,059         $   4,873         $   6,563
                                                                   =========         =========         =========

</TABLE>


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


                                      F-8
<PAGE>

                          FOAMEX L.P. AND SUBSIDIARIES
                 CONSOLIDATED STATEMENTS OF PARTNERS' DEFICIENCY


<TABLE>
<CAPTION>
                                                                 Accumulated                  Notes
                                                                     Other        Notes    Receivable
                                           General    Limited   Comprehensive  Receivable    Related
                                           Partners   Partners       Loss     from Partners   Party        Total
                                           --------   --------       ----     -------------   -----        -----
                                                                       (thousands)
1999
<S>                                       <C>          <C>        <C>           <C>          <C>         <C>
Balances at January 1, 1999               $(141,796)   $     -    $(26,208)     $(18,608)    $(9,795)    $(196,407)
Net income                                      401     19,660                                              20,061
Minimum pension liability adjustment                                12,331                                  12,331
Foreign currency translation adjustment                              4,954                                   4,954
                                                                                                         ---------
   Comprehensive income                                                                                     37,346
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                 2,587     (2,587)                                                  -
                                          ---------    -------    --------      --------     -------     ---------
Balances at December 31, 1999              (139,161)         -      (8,923)       (3,176)     (9,221)     (160,481)

2000
Net income                                      392     19,211                                              19,603
Minimum pension liability adjustment                               (14,628)                                (14,628)
Foreign currency translation adjustment                               (910)                                   (910)
                                                                                                          --------
   Comprehensive income                                                                                      4,065
Distributions                                   (10)      (471)                                               (481)
Revolving loan with Foamex International                                          (1,814)                   (1,814)
Other                                                      208                                                 208
Offset balance against Limited Partner
   deficit assumed by General Partner        18,948    (18,948)                                                  -
                                          ---------    -------    --------      --------     -------     ---------
Balances at December 31, 2000              (119,831)         -     (24,461)       (4,990)     (9,221)     (158,503)

2001
Net loss                                        (45)    (2,216)                                             (2,261)
Minimum pension liability adjustment                               (10,782)                                (10,782)
Foreign currency translation adjustment                             (1,079)                                 (1,079)
                                                                                                        ----------
   Comprehensive loss                                                                                      (14,122)
Distributions                                  (160)    (7,845)                                             (8,005)
Repayment of note receivable from Foamex
   International                                                                   2,500                     2,500
Other                                                        2                                                   2
Offset balance against Limited Partner
   deficit assumed by General Partner       (10,059)    10,059                                                   -
                                          ---------    -------    --------      --------     -------     ---------
Balances at December 31, 2001             $(130,095)   $     -   $(36,322)      $ (2,490)    $(9,221)    $(178,128)
                                          =========    =======   ========       ========     =======     =========
</TABLE>

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


                                      F-9
<PAGE>

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

1.     ORGANIZATION AND BASIS OF PRESENTATION

       Organization

       Foamex L.P.  operates in the flexible  polyurethane  and advanced polymer
foam products  industry.  As of December 31, 2001, Foamex L.P.'s operations were
conducted  through its wholly-owned  subsidiaries,  Foamex Canada Inc.  ("Foamex
Canada"),  Foamex Latin  America,  Inc.  ("Foamex  Mexico"),  Foamex Asia,  Inc.
("Foamex  Asia") and through  Foamex Carpet  Cushion,  Inc.  ("Foamex  Carpet").
Foamex Carpet was converted to a limited  liability  company and was contributed
by Foamex International Inc. ("Foamex  International"),  to Foamex L.P. on March
25, 2002. The  contribution  of Foamex Carpet has been accounted for as a merger
of entities  under common control and has been recorded in a manner similar to a
pooling of interests. Accordingly, the consolidated financial statements include
the accounts of Foamex Carpet for all periods presented. Adjustments recorded to
restate previously reported financial statements as of December 31, 2000 and the
years ended December 31, 2000 and 1999  consisted of those  necessary to include
the balances and results of Foamex Carpet and to eliminate intercompany balances
and transactions  between Foamex L.P. and Foamex Carpet.  Financial  information
concerning the business segments of Foamex L.P. is included in Note 11.

       The following table  represents  selected  historical  financial data for
Foamex L.P. and subsidiaries and Foamex Carpet Cushion, Inc. and the adjustments
required to affect merger of entities under common control  similar to a pooling
of interests.

<TABLE>
<CAPTION>
                                                                                          Consolidated
                                      Foamex L.P.     Foamex Carpet      Adjustments       Foamex L.P.
                                      -----------     -------------      -----------       -----------
<S>                                  <C>               <C>              <C>               <C>
       2000 Balance Sheet
         Current Assets              $   263,191       $    43,763      $   (11,606)      $   295,348
         Total Assets                $   673,662       $    91,528      $   (11,606)      $   753,584
         Current Liabilities         $   153,713       $    47,455      $   (11,606)      $   189,562
         Long-Term Debt              $   656,168       $    31,590                -       $   687,758
         Partners' Deficiency/
          Stockholder's Equity       $  (168,907)      $    10,404                -       $  (158,503)

       2000 Income Statement
         Net Sales                   $ 1,161,017       $   270,898      $  (174,137)      $ 1,257,778
         Income from Operations      $    84,115       $    13,268                -       $    97,383
         Net Income                  $    13,268       $     6,335                -       $    19,603

       1999 Income Statement
         Net Sales                   $ 1,190,679       $   301,010      $  (197,050)      $ 1,294,639
         Income from Operations      $    83,735       $    11,106                -       $    94,841
         Net Income                  $    15,581       $     4,480                -       $    20,061
</TABLE>

       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.  Certain
credit agreements and promissory notes of Foamex  International's  subsidiaries,
pursuant to which  approximately  $401.1  million of debt was  outstanding as of
September  30, 2000,  provided  that a "change of control"  would be an event of
default and could result in the  acceleration of such  indebtedness.  "Change of
control" means, for this purpose, that (i) a person or related group, other than
Trace,  beneficially  owns more than 25% of 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"), a wholly-owned
subsidiary  of Foamex  L.P.,  relating  to senior  subordinated  notes of $248.0
million  contain similar  "change of control"  provisions,  which require Foamex
L.P. and FCC to tender for such notes at a price in cash equal to 101% of


                                      F-10
<PAGE>
                          FOAMEX L.P. AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

1.     ORGANIZATION AND BASIS OF PRESENTATION (continued)

the  aggregate  principal  amount  thereof,  plus  accrued  and unpaid  interest
thereon, if there is such a "change of control".

       On July 21,  1999,  Foamex  International  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.   Certain  equity
transactions,  primarily the exercise of stock options, have reduced the Bank of
Nova Scotia's common stock ownership percentage to 23.6% at February 15, 2002.

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

Accounting Estimates

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


                                      F-11
<PAGE>
                          FOAMEX L.P. AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

2.       SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)

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.

Revenue Recognition, Discounts and Rebates

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

Cash and Cash Equivalents

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

Accounts Receivable and Allowance for Uncollectible Accounts

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

Fair Value of Financial Instruments

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

       The carrying amount and fair value of long-term debt at December 31, 2001
were $666.3 million and $603.4 million,  respectively,  and at December 31, 2000
were  $711.9  million  and  $595.1  million,  respectively.  The  fair  value of
long-term debt is estimated  using quoted market  prices,  where  available,  or
discounted  cash flows.  Fair value  estimates  are made at a specific  point in
time,  based on relevant  market  information  about the financial  instruments.
These estimates are subjective in nature and involve  uncertainties  and matters
of significant  judgment and  therefore,  cannot be determined  with  precision.
Changes in assumptions could significantly affect the estimates.

Inventories

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

Property, Plant and Equipment

       Property,  plant and  equipment  are  stated at cost and are  depreciated
using the  straight-line  method over the estimated  useful lives of the assets.
The range of useful lives  estimated  for buildings is generally 20 to 35 years,
and


                                      F-12
<PAGE>
                          FOAMEX L.P. AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

2.       SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)

the range for machinery,  equipment and furnishings is 5 to 12 years.  Leasehold
improvements  are  amortized  over the  shorter  of the terms of the  respective
leases or the estimated useful lives of the leasehold improvements. Depreciation
expense  for 2001,  2000 and 1999 was $26.4  million,  $28.7  million  and $27.9
million, respectively.

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

Cost in Excess of Net Assets Acquired

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

Impairment of Long-Lived Assets

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

Debt Issuance Costs

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

Environmental Remediation

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

Comprehensive Income (Loss)

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

Foreign Currency Translation

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


                                      F-13
<PAGE>
                          FOAMEX L.P. AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


2.     SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)

Research and Development

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

Start-Up Costs

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

Income Taxes

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

       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 agreement. See Notes 7 and 15.

Accounting Changes  - Accounting for Derivatives and Hedging Activities

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

       These  statements  create a  foundation  that  addresses  accounting  and
reporting  issues  for  a  wide  range  of  financial   instruments  defined  as
derivatives  and related hedging  activities.  As of December 31, 2001 and 2000,
Foamex  L.P.  did not  have  any  derivatives,  as  defined  in the  statements.
Accordingly,  the  adoption  of the  statements  did not have any  impact on the
results of operations or financial position of Foamex L.P.

Accounting Changes - Business Combinations

       During  2001,  Statement  of  Financial  Accounting  Standards  No.  141,
"Business  Combinations"  ("SFAS No.  141") was issued.  SFAS No. 141  addresses
financial  accounting  and  reporting for business  combinations  and limits the
accounting for business  combinations to the purchase method.  The statement was
effective for all business combinations,  including the acquisition discussed in
Note 3, with an acquisition date of July 1, 2001, or later.


                                      F-14
<PAGE>
                          FOAMEX L.P. AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

2.     SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)

Future Accounting Changes - Goodwill and Other Intangible Assets

       During  2001,  Statement  of  Financial  Accounting  Standards  No.  142,
"Goodwill and Other Intangible Assets" ("SFAS No. 142") was issued. SFAS No. 142
addresses  financial  accounting  and reporting for acquired  goodwill and other
intangible assets. A key change as a result of implementing SFAS No. 142 will be
that goodwill and certain other intangibles will no longer be amortized but will
be  periodically  assessed  for  impairment,  and as a result  there may be more
volatility  in the reported  results than under the  previous  standard  because
impairment  losses are likely to occur  irregularly and in varying amounts.  Any
impairment losses for goodwill and indefinite-lived intangible assets that arise
due to the initial  application  of SFAS No. 142 will be  reported as  resulting
from a change in  accounting  principle.  Any  goodwill  and  intangible  assets
acquired  after June 30, 2001,  including the  acquisition  discussed in Note 3,
will be subject immediately to the  nonamortization and amortization  provisions
of SFAS No. 142. The other  provisions of SFAS No. 142 will be adopted by Foamex
L.P. on January 1, 2002. Foamex L.P.  continues to evaluate SFAS No. 142 and has
not yet determined  the complete  impact,  however Foamex L.P.  expects that the
adoption  of  SFAS  No.  142  will  reduce   annual   amortization   expense  by
approximately $6.0 million.

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

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

Reclassifications

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

3.     ACQUISITION

       On July 25,  2001,  Foamex  L.P.  purchased  certain  assets and  assumed
certain liabilities of General Foam Corporation,  a manufacturer of polyurethane
foam products for the automotive, industrial, and home furnishings markets, at a
total cost of $18.5 million,  which resulted in goodwill of  approximately  $9.0
million.  The  business  was  acquired  due to its synergy  with  Foamex  L.P.'s
existing  business.  The  assets  purchased  primarily  included  inventory  and
machinery and equipment. The results of the acquired business have been included
in the consolidated financial statements since July 25, 2001. The effects of the
acquisition on Foamex L.P.'s consolidated financial statements is not material.


4.     RESTRUCTURING, IMPAIRMENT AND OTHER CHARGES

2001

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


                                      F-15
<PAGE>
                          FOAMEX L.P. AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

4.     RESTRUCTURING, IMPAIRMENT AND OTHER CHARGES (continued)

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

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

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

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

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

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

2000

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

1999

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

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

<TABLE>
<CAPTION>
                                                         Plant Closure    Personnel
                                             Total         and Leases     Reductions       Impairment       Other
                                             -----         ----------     ----------       ----------       -----
       1999                                                               (millions)
<S>                       <C>                <C>             <C>           <C>               <C>            <C>
       Balance at January 1, 1999            $ 6.2           $11.9         $     -           $(5.7)         $    -
       Provision with adjustments             10.5             2.3             7.2             0.7             0.3
       Net cash receipts (spending)           (7.4)           (4.1)           (4.5)            1.5            (0.3)
       Asset impairment                       (0.3)              -               -            (0.3)              -
                                             -----           -----           -----           -----           -----
       Balance at December 31, 1999            9.0            10.1             2.7            (3.8)              -
</TABLE>

                                      F-16
<PAGE>
                          FOAMEX L.P. AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

4.     RESTRUCTURING, IMPAIRMENT AND OTHER CHARGES (continued)

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

       2001
       Provision with adjustments             36.1            10.2             8.0            13.4             4.5
       Net cash receipts (spending)           (6.5)           (3.1)           (2.0)            0.6            (2.0)
       Asset impairment                      (13.8)              -               -           (13.8)              -
                                           -------         -------         -------         -------         -------
       Balance at December 31, 2001        $  25.0         $  14.7         $   7.8         $     -         $   2.5
                                           =======         =======         =======         =======         =======
</TABLE>

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

5.     INVENTORIES

       The components of inventory are listed below.

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

6.     SHORT-TERM BORROWINGS

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


                                      F-17
<PAGE>
                          FOAMEX L.P. AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


7.     LONG-TERM DEBT

       The components of long-term debt are listed below.

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

       Less current portion                                               4,023           8,356
                                                                       --------        --------

       Long-term debt-unrelated parties                                $630,682        $656,168
                                                                       ========        ========
</TABLE>

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

<TABLE>
<CAPTION>
                                                                      December 31,    December 31,
                                                                          2001            2000
                                                                        -------         -------
                                                                              (thousands)
<S>                                                                    <C>             <C>
       Note payable to Foam Funding LLC (3)                             $31,590         $47,385

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

       Long-term debt - related party                                   $17,550         $31,590
                                                                        =======         =======
<FN>
       (1)    Debt of Foamex L.P.,  guaranteed by Foamex International and FMXI,
              Inc.
       (2)    Debt of Foamex L.P. and Foamex Capital Corporation.
       (3)    Debt of Foamex Carpet.
</FN>
</TABLE>

Foamex L.P. Credit Facility

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

       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.


                                      F-18
<PAGE>

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


7.     LONG-TERM DEBT (continued)

       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.  Foamex L.P. was in compliance  with this  agreement at December 31, 2001
and 2000.

       At December 31, 2001,  interest is based on the combination of a variable
rate consisting of the higher of (i) the base rate of The Bank of Nova Scotia or
(ii) the Federal Funds rate plus 0.5% plus a margin.  The margins for revolving,
Term  B,  Term  C and  Term  D  loans  were  2.50%,  2.75%,  3.00%  and  3.125%,
respectively.  At the option of Foamex L.P.,  portions of the outstanding  loans
are convertible into LIBOR based loans consisting of a rate equal to the greater
of (i) 2.50% or (ii)  LIBO rate (as  defined)  plus  1.0%  added to the  margins
identified  above.  The  effective  interest  rates for the Foamex  L.P.  Credit
Facility at December 31, 2001 ranged between 6.20% and 6.63%. Term B, Term C and
Term D loans  mature on June 30,  2005,  June 30, 2006 and  December  29,  2006,
respectively.

       Effective  January 1, 2000, the interest rate on  outstanding  borrowings
under the Foamex L.P.  Credit  Facility  increases  25 basis points each quarter
that Foamex L.P.'s leverage  ratio,  as defined,  exceeds 5.00 to 1.00. Once the
leverage  ratio is reduced  below this level,  the  cumulative  amount of any 25
basis point  adjustments  to the interest  rate on  borrowings is reset to zero.
During 2000, basis point  adjustments were incurred in the first three quarters,
beginning with 25 basis points in the first quarter and ending with a cumulative
impact of 75 basis points by the end of the third  quarter.  There were no basis
point  adjustments  for the fourth  quarter of 2000.  At December 31, 2000,  the
calculated  leverage  ratio was 5.3 to 1.00.  Consequently,  the 25 basis  point
adjustment was applicable following the delivery of the financial statements for
2000 to the lenders, which was early in the second quarter of 2001. At March 31,
2001, the  calculated  leverage ratio was 5.1 to 1.00 and an additional 25 basis
point  adjustment  became  effective in the second  quarter of 2001. At June 30,
2001, the calculated leverage ratio was 5.1 to 1.00. Accordingly,  an additional
25 basis point  adjustment  became  effective  during the third quarter of 2001,
resulting in a 75 basis points cumulative  adjustment to the applicable interest
rate margin. At September 30, 2001, the calculated  leverage ratio was below the
5.00 to 1.00 leverage ratio  covenant and the cumulative  adjustment of 75 basis
points, discussed above, was eliminated. The requirement for an adjustment based
on the December 31, 2001 leverage  ratio was  eliminated  with the amendment and
restatement of the credit agreement on March 25, 2002 (see Note 15).

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

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

Foamex Carpet Credit Facility

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


                                      F-19
<PAGE>

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

7.     LONG-TERM DEBT (continued)

based loans plus 3.25%.

       Borrowings under the Foamex Carpet Credit Facility are  collateralized by
substantially  all of the assets of Foamex Carpet on a pari passu basis with the
Note Payable to Foam Funding LLC (described below). The outstanding  obligations
under the Foamex Carpet Credit Facility were paid and the commitments terminated
in conjunction  with the refinancing that took place on March 25, 2002 (see Note
15).

9 7/8% Senior Subordinated Notes

       The 9 7/8%  Senior  Subordinated  Notes were  issued by Foamex  L.P.  and
Foamex Capital  Corporation  and are due on June 15, 2007.  The notes  represent
uncollateralized  general obligations of Foamex L.P. and are subordinated to all
Senior  Debt,  as  defined in the  Indenture.  Interest  is payable  June 15 and
December 15. The notes may be redeemed at the option of Foamex L.P., in whole or
in part,  at any time on or after June 15, 2002.  The initial  redemption  is at
104.938%  of their  principal  amount,  plus  accrued  and unpaid  interest,  as
defined,  if any,  thereon to the date of redemption  and declining  annually to
100.0% on or after June 15, 2005.

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

13 1/2% Senior Subordinated Notes

       The 13 1/2% Senior  Subordinated  Notes were  issued by Foamex  L.P.  and
Foamex Capital  Corporation  and are due on August 15, 2005. The notes represent
uncollateralized  general obligations of Foamex L.P. and are subordinated to all
Senior Debt, as defined in the Indenture.  Interest is payable  semiannually  on
February  15 and August 15.  The notes may be  redeemed  at the option of Foamex
L.P., in whole or in part, at any time on or after August 15, 2000.  The initial
redemption  is at 106.75% of their  principal  amount,  plus  accrued and unpaid
interest,  if any,  thereon to the date of redemption and declining  annually to
100.0% on or after August 15, 2004. At December 31, 2001 the redemption price is
105.0625% plus accrued and unpaid interest.

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

Industrial Revenue Bonds ("IRBs")

       IRB debt  includes a $1.0  million  bond that  matures in 2005 and a $6.0
million  bond that  matures in 2013.  Interest is based on a variable  rate,  as
defined,  with options  available to Foamex L.P. to convert to a fixed rate.  At
December 31, 2001,  the interest rate was 2.0% on the $1.0 million bond and 1.7%
on the $6.0 million  bond.  The maximum  interest rate for either of the IRBs is
15.0% per annum.

       If Foamex  L.P.  exercises  its  option to  convert  the bonds to a fixed
interest  rate  structure,  the  IRBs  are  redeemable  at  the  option  of  the
bondholders.  The obligations are  collateralized by certain  properties,  which
have an approximate net carrying value of $10.2 million at December 31, 2001.


                                      F-20
<PAGE>

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

7.       LONG-TERM DEBT (continued)

Subordinated Note Payable

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

Other

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

Related Party - Note Payable to Foam Funding LLC

       Foamex  Carpet  entered into a $70.2 million  promissory  note payable to
Foam  Funding  LLC, a  subsidiary  of Trace.  Principal  is payable in quarterly
installments  that began in June 1998 with a final installment in February 2004.
Interest  is based on a variable  rate equal to the sum of 2.25% plus the higher
of: (i) the base rate of The Bank of Nova Scotia or (ii) the Federal  Funds rate
plus 0.5%. At the option of Foamex  Carpet,  interest  payable under the note is
convertible  into LIBOR based loans plus 3.25%.  As of December  31,  2001,  the
interest rate for borrowings was 5.56%.

       Amounts  outstanding  are  collateralized  by all of the assets of Foamex
Carpet on a pari  passu  basis  with the  Foamex  Carpet  Credit  Facility.  All
obligations  under the note  payable to Foam  Funding LLC were paid on March 25,
2002 (see Note 15).

Debt Covenants

       The  indentures,  credit  facilities  and other  indebtedness  agreements
contain certain covenants that limit,  among other things, 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, 2001,  Foamex L.P. was able to distribute to its
partners funds only to the extent to enable its partners to meet its tax payment
liabilities and fund Foamex  International's  normal operating expenses of up to
$1.0 million annually, so long as no event of default has occurred.

       Foamex  L.P.  and  Foamex  Carpet  were in  compliance  with the  various
financial  covenants of their loan agreements as of December 31, 2001.  Business
conditions  in 2001 have  continued  to limit  results and  covenant  compliance
remains a primary focus of Foamex L.P.

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


                                      F-21
<PAGE>

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

7.     LONG-TERM DEBT (continued)

from the  implementation of an improved asset utilization  program are necessary
for compliance with the various financial covenants for 2002 and prospectively.

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

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

Future Obligations on Debt

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

       Year Ending December 31:

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

       The refinancing on March 25, 2002 (see Note 15) had a significant  impact
on maturities of long-term debt. Substantially all payments required in 2002 and
2003 have been extended to later maturities.

8.     RETIREE BENEFIT PLANS

Defined Benefit Pension Plans

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


                                      F-22
<PAGE>

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

8.     RETIREE BENEFIT PLANS (continued)

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

       The components of pension expense are listed below.

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

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

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

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

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

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


                                      F-23
<PAGE>

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

8.     RETIREE BENEFIT PLANS (continued)

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

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

<S>                                                              <C>        <C>         <C>
       Expected long-term rate of return on plan assets          9.0%       10.0%       10.0%
       Discount rate on projected benefit obligations            7.0%       7.25%        7.5%
       Rate of compensation increase (a)                       4.0%-7.0%     4.0%        4.0%
<FN>

       (a) SERP established in 2001 uses a 7.0% assumption.
</FN>
</TABLE>

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

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

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

       Foamex L.P. has not yet determined the amount of any curtailment  gain or
loss as a result of the Operational Reorganization Plan discussed in Note 4.

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 who elect to participate.  Under the terms of the 401(k) Plan,  Foamex
L.P.  partially  matches  certain  employee  contributions.  Expense  for  these
contributions was $1.0 million,  $1.1 million and $1.0 million in 2001, 2000 and
1999, respectively.

Retiree Medical and Life Insurance Benefits

       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.

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


                                      F-24
<PAGE>

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

8.     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 consolidated balance sheets.

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

       Change in Plan Assets
         Fair value of plan assets at beginning of year                       $      -     $         -
         Company contributions                                                     376             405
         Employee contributions                                                     23              28
         Benefits paid                                                            (399)           (433)
                                                                               -------         -------
           Fair value of plan assets at end of year                           $      -     $         -
                                                                               =======         =======

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

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

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

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

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

9.     INCOME TAXES

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

<TABLE>
<CAPTION>
                                                                2001            2000           1999
                                                              -------         -------        -------
                                                                            (thousands)
<S>                                                           <C>             <C>            <C>
       United States                                          $(6,696)        $17,281        $19,032
       Foreign                                                  7,978           4,975          2,935
                                                              -------         -------        -------

       Income (loss) before provision for income taxes        $ 1,282         $22,256        $21,967
                                                              =======         =======        =======
</TABLE>


                                      F-25
<PAGE>

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

9.     INCOME TAXES (continued)

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

<TABLE>
<CAPTION>
                                                          2001             2000           1999
                                                         -------         -------         -------
                                                                       (thousands)
<S>                                                      <C>             <C>             <C>
       Statutory income taxes                            $   449         $ 7,790         $ 7,688
       State income taxes, net of federal benefit           (368)            916           1,020
       Permanent difference on partnership income          2,712          (6,156)         (6,921)
       Increase (decrease) in valuation allowance           (526)         (1,688)         (1,082)
       Non-deductible amortization                         1,391           1,364           1,385
       Other, net                                           (115)            427            (184)
                                                         -------         -------         -------
       Total                                             $ 3,543         $ 2,653         $ 1,906
                                                         =======         =======         =======
</TABLE>

       The provision for income taxes is summarized as follows:

<TABLE>
<CAPTION>
                                                2001             2000            1999
                                               -------         -------         -------
       Current                                               (thousands)
<S>                                        <C>                 <C>             <C>
         Federal                           $         -         $   445         $   364
         State                                     239             142             190
         Foreign                                 2,594           1,566           1,117
                                               -------         -------         -------
           Total current                         2,833           2,153           1,671
                                               -------         -------         -------

       Deferred
         Federal                                   576           2,408           1,798
         State                                     320             221             154
         Foreign                                   340            (441)           (630)
                                               -------         -------         -------
           Total deferred                        1,236           2,188           1,322
                                               -------         -------         -------

       Change in valuation allowance              (526)         (1,688)         (1,087)
                                               -------         -------         -------

       Total provision for income taxes        $ 3,543         $ 2,653         $ 1,906
                                               =======         =======         =======
</TABLE>

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

<TABLE>
<CAPTION>
                                                                December 31,     December 31,
                                                                    2001              2000
                                                                  --------         --------
                                                                          (thousands)
<S>                                                               <C>              <C>
       Intangible asset basis difference                          $  6,931         $  7,647
       Other                                                         4,238            4,061
       Valuation allowance for deferred income tax assets           (9,601)         (10,127)
                                                                  --------         --------
         Deferred income tax assets                                  1,568            1,581
                                                                  --------         --------

       Deferred income tax liabilities
         Basis difference in property, plant and equipment          (2,245)          (2,415)
         Investment in joint venture                                  (771)               -
         Other                                                      (1,726)          (1,630)
                                                                  --------         --------
         Deferred income tax liabilities                            (4,742)          (4,045)
                                                                  --------         --------

       Net deferred income tax liabilities                        $ (3,174)        $ (2,464)
                                                                  ========         ========
</TABLE>


                                      F-26
<PAGE>

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


9.     INCOME TAXES (continued)

       At December 31, 2001,  Foamex L.P. had $1.9 million of net operating loss
carryforwards  in a Mexican  subsidiary  that expire in 2008.  A full  valuation
allowance  has been  recorded at December  31, 2001 and 2000 due to  uncertainty
regarding utilization of the net operating loss carryforwards.

       Cumulative  undistributed  earnings of foreign  subsidiaries for which no
U.S. income or foreign  withholding taxes have been provided,  amounted to $10.6
million and $6.8  million at  December  31,  2001 and 2000,  respectively.  Such
earnings  are deemed to be  permanently  invested by Foamex  L.P..  As such,  no
deferred tax liability has been recognized with regard to the remittance of such
earnings.  Further,  determination  of the amount of  unrecognized  deferred tax
liability with regard to such earnings is not practicable.

10.    PARTNERS' DEFICIENCY

       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, 2001,
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.

Accumulated Other Comprehensive Loss

       The components of accumulated other comprehensive loss are listed below.

<TABLE>
<CAPTION>
                                                        2001              2000            1999
                                                      --------         --------         --------
                                                                      (thousands)
<S>                                                   <C>              <C>              <C>
       Foreign currency translation adjustment        $ (8,000)        $ (6,921)        $ (6,011)
       Minimum pension liability                       (28,322)         (17,540)          (2,912)
                                                      --------         --------         --------
                                                      $(36,322)        $(24,461)        $ (8,923)
                                                      ========         ========         ========
</TABLE>

11.    BUSINESS SEGMENTS

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

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

       The "other" column in the table below  represents  certain  manufacturing
operations in Mexico City,  corporate  expenses not allocated to other  business
segments  and  restructuring  and other  charges (see Note 4). 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.


                                      F-27
<PAGE>

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


11.    BUSINESS SEGMENTS (continued)

       The  accounting  policies  of the  business  segments  are  the  same  as
described in Note 2. Business  segment results  include  revenues and costs that
are specifically  identifiable  and costs shared by business  segments have been
allocated based on  utilization.  Geographic  sales are determined  based on the
location in which the sale originated.

       Sales  to one  customer,  which  are  included  in  Automotive  Products,
accounted for  approximately  15.7%,  12.3% and 11.5% of net sales in 2001, 2000
and 1999,  respectively.  No other customer accounted for more than 10.0% of net
sales during the periods presented.

       Business segment results are presented below.

<TABLE>
<CAPTION>
                                                        Carpet
                                            Foam       Cushion       Automotive     Technical
                                          Products     Products       Products       Products        Other         Total
                                          --------     --------       --------       --------        -----         -----
       2001                                                                 (thousands)
<S>                                     <C>           <C>            <C>           <C>           <C>            <C>
       Net sales                        $  499,668    $  230,965     $  377,753    $  111,043    $   33,475     $1,252,904
       Income (loss) from operations    $   66,634    $   (6,572)    $   21,445    $   23,080    $  (39,860)    $   64,727
       Depreciation and amortization    $   15,732    $    8,181     $    4,991    $    3,312    $    1,812     $   34,028

       2000
       Net sales                        $  519,197    $  256,439     $  342,386    $  106,697    $   33,059     $1,257,778
       Income (loss) from operations    $   55,227    $    2,218     $   22,417    $   29,027    $  (11,506)    $   97,383
       Depreciation and amortization    $   17,813    $    7,742     $    5,785    $    2,663    $    2,625     $   36,628

       1999
       Net sales                        $  527,159    $  285,846     $  361,806    $   92,180    $   27,648     $1,294,639
       Income (loss) from operations    $   57,474    $    8,868     $   22,904    $   22,856    $  (17,261)    $   94,841
       Depreciation and amortization    $   17,371    $    8,041     $    4,764    $    2,679    $    2,609     $   35,464
</TABLE>

       Results by geographical area are presented below.

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

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

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


12.    SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION

<TABLE>
<CAPTION>
                                                                 2001            2000           1999
                                                                -------        --------        -------
                                                                                     (thousands)
<S>                                                             <C>            <C>             <C>
       Cash paid for interest                                   $63,593        $ 75,155        $70,998
                                                                =======        ========        =======

       Cash paid for income taxes, net                          $ 1,870        $  2,870        $ 1,329
                                                                =======        ========        =======

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

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


                                      F-28
<PAGE>

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

13.    RELATED PARTY TRANSACTIONS AND BALANCES

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

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 was repaid during 2001.

       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, 2001
and 2000, Foamex L.P. had a receivable of approximately $2.5 million relating to
the revolving  note. The receivable for both of these notes were classified as a
component of partners' deficiency.

Trace Promissory Notes

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

       The  Trace  notes  are  included  in the  other  component  of  partners'
deficiency.  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 December 31, 2001 and 2000,  operating accounts receivables from Trace
were approximately $2.7 million.  These accounts receivables were fully reserved
for prior to 2000.

Trace Management Agreement

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

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

                                      F-29
<PAGE>


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

13.      RELATED PARTY TRANSACTIONS AND BALANCES (continued)

Foam Funding LLC Debt

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

Foamex GFI Note

       During March of 2000,  Foamex L.P. repaid a $34.0 million note payable to
Foam Funding  LLC, a  subsidiary  of Trace.  Foamex L.P.  paid  interest of $0.6
million on the note in 2000 and $2.1 million in 1999.

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.  In 2001, two members of the Foamex  International
board provided  consulting services to Foamex L.P. for which fees paid were $0.2
million. In 2000 and 1999, one member of the Foamex International Board provided
consulting services totaling $0.1 million and $0.2 million, respectively.

       As discussed in Note 7,  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 in 1999. 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' deficiency.

       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 in 1999.

       Foamex L.P.'s Pico Rivera,  California  facility is owned by Foam Funding
LLC and is leased to Foamex L.P..

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

14.    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


                                      F-30
<PAGE>

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


14.    COMMITMENTS AND CONTINGENCIES (continued)

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, 2001 are (thousands):

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


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

Litigation - Foamex International Shareholders

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

       The  Shareholder  Litigation.  Beginning on March 17, 1998,  six actions,
which  were   subsequently   consolidated   under  the   caption  In  re  Foamex
International Inc. Shareholders Litigation,  were filed in the Court of Chancery
of the State of Delaware, and on August 13, 1999, another action,  Watchung Road
Associates,  L.P., et al. v. Foamex  International  Inc., et al. (the  "Watchung
Action"),  was filed in the same court. The two actions were consolidated on May
3, 2000, into a single action under the caption In re Foamex  International Inc.
Shareholders   Litigation  (the  "Delaware  Action").  The  Delaware  Action,  a
purported  derivative and class action on behalf of Foamex International and its
stockholders,  originally named as defendants Foamex  International,  certain of
its current and former  directors and officers,  Trace  International  Holdings,
Inc. ("Trace International"),  the principal stockholder of Foamex International
at the time, and a Trace International  affiliate. The complaint in the Delaware
Action  alleged,  among other things,  that certain of the  defendants  breached
their fiduciary duties to Foamex  International in connection with an attempt by
Trace  International  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 International
and its  affiliates.  The Delaware  Action sought  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  International  and certain  current and former  directors and officers 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  International  and Marshall S. Cogan,  the chairman of
Foamex  International,  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 the defendants violated the federal securities
laws, an award of money  damages,  and costs and  attorneys',  accountants'  and
experts'  fees. On May 18, 1999, a similar  action  entitled  Thomas W. Riley v.
Foamex  International Inc., et al., was filed in the same court. The two actions
were  consolidated  and a  consolidated  complaint  was  filed.  We refer to the
consolidated suit as the "Federal Action."


                                      F-31
<PAGE>

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

14.      COMMITMENTS AND CONTINGENCIES (continued)

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

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

Litigation - Breast Implants

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

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


                                      F-32
<PAGE>


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

14.      COMMITMENTS AND CONTINGENCIES (continued)

Litigation - Other

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

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

Environmental and Health and Safety

       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,  the
discharge or emission of materials into the environment,  and the remediation of
environmental contamination,  and as a result, are from time to time involved in
administrative and judicial  proceedings and inquiries relating to environmental
matters.  As of December 31, 2001, we had accruals of approximately $3.0 million
for environmental matters.

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

       Foamex L.P. has reported to the  appropriate  state  authorities  that we
have found soil and/or groundwater contamination in excess of state standards at
certain locations.  Seven sites are currently in various stages of investigation
or  remediation.  Accordingly,  the  extent of  contamination  and the  ultimate
liability is not known with certainty for all sites. As of December 31, 2001, we
had accruals of $2.5 million for the estimated  cost of  remediation,  including
professional fees and monitoring costs, for these sites. During 2000, we reached
an indemnification agreement with the former owner of the Morristown,  Tennessee
facility.  The  agreement  allocates the incurred and future  remediation  costs
between the former owner and us. The  estimated  allocation  of future costs for
the  remediation  of this  facility is not  significant,  based on current known
information.  The former owner was Recticel  Foam  Corporation,  a subsidiary of
Recticel.

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

       The Comprehensive Environmental Response, Compensation and Liability Act,
or "CERCLA," and comparable  state laws impose  liability  without fault for the
costs of  cleaning  up  contaminated  sites on certain  classes of persons  that
contributed to the release of hazardous substances into the environment at those
sites, for example, by generating wastes containing  hazardous  substances which
were disposed at such sites. We are currently designated


                                      F-33
<PAGE>


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

14.      COMMITMENTS AND CONTINGENCIES (continued)

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

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

Other

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

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


                                      F-34
<PAGE>


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


15.    SUBSEQUENT EVENTS

       On March 25, 2002,  Foamex L.P.  and Foamex  Capital  Corporation  issued
$300.0  million of 10 3/4% Senior  Secured  Notes due 2009 (the "Senior  Secured
Notes") and  amended  the Foamex  L.P.  Credit  Facility  (the  "Amended  Credit
Facility").  Under the Amended  Credit  Facility,  Foamex L.P.  may borrow up to
$262.2 million,  consisting of $162.2 million of term loans and a $100.0 million
revolving credit facility. Term loans will mature at various dates from June 30,
2005 through December 31, 2006 and revolving loans will mature on June 30, 2005.
Net proceeds from the Senior  Secured Notes of $280.0 million were used to pay a
portion of debt  outstanding  under the Foamex L.P. Credit  Facility.  The $31.6
million note payable to a related  party,  Foam Funding LLC, was repaid with the
initial  proceeds  of a  new  term  loan  under  the  Amended  Credit  Facility.
Additionally,  the financial  covenants contained in the Amended Credit Facility
were  adjusted to reflect  changes in the  capital  structure  and the  business
environment.  Under the covenants  contained in the Senior Secured Notes and the
Amended  Credit  Facility,  Foamex  L.P.  may spend up to $48.5  million  of the
proceeds  from the Senior  Secured  Notes to  repurchase  or redeem  some of its
senior subordinated notes. To the extent that Foamex L.P. spends less than $48.5
million  towards such  repurchase  or  redemption  by September  20, 2002, it is
required to repay a portion of its term loans.

       In connection with the refinancing  transaction  discussed above,  Foamex
International  simplified  its  corporate  structure by changing  Foamex  Carpet
Cushion,  Inc. from a corporation to a limited liability company,  Foamex Carpet
Cushion LLC. Foamex  International then contributed Foamex Carpet Cushion LLC to
Foamex L.P.  Covenants  under the Amended  Credit  Facility will be based on the
combined entities.


                                      F-35
<PAGE>

                          INDEPENDENT AUDITORS' REPORT


To the Board of Directors of
Foamex Capital Corporation
Wilmington, Delaware

We have audited the accompanying  balance sheet of Foamex Capital Corporation (a
wholly-owned subsidiary of Foamex L.P., (the "Company") as of December 31, 2001.
This financial statement is the responsibility of the Company's management.  Our
responsibility is to express an opinion on this financial statement based on our
audit.

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

In our opinion,  such balance sheet presents fairly,  in all material  respects,
the financial  position of the Company at December 31, 2001, in conformity  with
accounting principles generally accepted in the United States of America.




/s/ DELOITTE & TOUCHE LLP

March 25, 2002
Parsippany, New Jersey



                                      F-36
<PAGE>



                        REPORT OF INDEPENDENT ACCOUNTANTS


Board of Directors
Foamex Capital Corporation
Wilmington, Delaware


In our opinion,  the accompanying balance sheet presents 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 in  conformity  with
accounting  principles generally accepted in the United States of America.  This
balance sheet is the  responsibility of FCC's management;  our responsibility is
to  express  an  opinion on this  financial  statement  based on our  audit.  We
conducted  our audit of this  statement 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
statement is free of material  misstatement.  An audit includes examining,  on a
test basis,  evidence  supporting  the amounts and  disclosures in the financial
statement,  assessing the accounting  principles used and significant  estimates
made by management, and evaluating the overall financial statement presentation.
We believe that our audit provide a reasonable basis for our opinion.

As discussed in Note 2, 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 2.




/s/ 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,
                                                                      2001          2000
                                                                     ------        ------

<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.   Certain  equity
transactions,  primarily the exercise of stock options, have reduced the Bank of
Nova Scotia's common stock ownership percentage to 23.6% at February 15, 2002.


                                      F-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  annually to
100.0% on or after June 15, 2005.

       Upon the occurrence of a change of control, as defined,  each holder will
have the right to  require  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  annually to 100.0% on or after August 15, 2004. At
December 31, 2001,  the  redemption  price is 105.0625%  plus accrued and unpaid
interest.

       Upon the occurrence of a change of control, as defined,  each holder will
have the right to  require  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 became more  restrictive  during 2001.  Foamex L.P.  anticipates
that it will continue to comply 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 business  plans is necessary for continued  compliance  with the
various financial covenants.

       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


                                      F-40
<PAGE>


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


2.     COMMITMENTS AND CONTINGENCIES (continued)

could be obtained if  required.  However,  there can be no  assurance  of future
amendments or waivers will be obtained.

3.     SUBSEQUENT EVENTS

       On March 25, 2002,  Foamex L.P.  and Foamex  Capital  Corporation  issued
$300.0  million of 10 3/4% Senior  Secured  Notes due 2009 (the "Senior  Secured
Notes") and  amended  the Foamex  L.P.  Credit  Facility  (the  "Amended  Credit
Facility").  Under the Amended  Credit  Facility,  Foamex L.P.  may borrow up to
$262.2 million,  consisting of $162.2 million of term loans and a $100.0 million
revolving credit facility. Term loans will mature at various dates from June 30,
2005 through December 31, 2006 and revolving loans will mature on June 30, 2005.
Net proceeds from the Senior  Secured Notes of $280.0 million were used to pay a
portion of debt outstanding under the Foamex L.P. Credit Facility. Additionally,
the financial  covenants  contained in the Amended Credit Facility were adjusted
to  reflect  changes  in  the  capital   structure  and  the  current   business
environment.  Under the covenants  contained in the Senior Secured Notes and the
Amended  Credit  Facility,  Foamex  L.P.  may spend up to $48.5  million  of the
proceeds  from the Senior  Secured  Notes to  repurchase  or redeem  some of its
senior subordinated notes. To the extent that Foamex L.P. spends less than $48.5
million  towards such  repurchase  or  redemption  by September  20, 2002, it is
required to repay a portion of its term loans.


                                      F-41
<PAGE>


                                   FOAMEX L.P.
                     INDEX TO FINANCIAL STATEMENT SCHEDULES


       Index to Financial Statement Schedules

       Schedule II - Valuation and Qualifying Accounts

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


                                      S-1

<PAGE>

<TABLE>
<CAPTION>

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

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

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


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

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


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

       Reserve for Discounts                    $ 1,840     $      -     $ 16,846 (1)    $16,611     $ 2,075
                                                =======     ========     ========        =======     =======
<FN>
(1)      Adjustments reflect a reduction in net sales.
</FN>
</TABLE>


                                                     S-2