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

            [X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
                 SECURITIES EXCHANGE ACT OF 1934 (Fee Required)

                   For the fiscal year ended December 28, 1997

                                       OR

            [ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d) OF
                       THE SECURITIES EXCHANGE ACT OF 1934

         For the transition period from ........... to ................
                    Commission file numbers: 1-11432; 1-11436

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

            Delaware                                     05-0475617
            Delaware                                     22-3182164
(State or other jurisdiction of                     (I.R.S. Employer
incorporation or organization)                      Identification Number)

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

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

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

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

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

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

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

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

     As  of  April  6,  1998,   there  were  1,000  shares  of  Foamex   Capital
Corporation's common stock outstanding.

     Foamex L.P., Foamex Capital Corporation, General Felt Industries, Inc., and
Foamex  Fibers,  Inc.  meets  the  condition  set forth in  General  Instruction
(J)(1)(a)  and (b) of Form  10-K and is  therefore  filing  this  form  with the
reduced disclosure format.

                       DOCUMENTS INCORPORATED BY REFERENCE
                                      None
<PAGE>
                                   FOAMEX L.P.
                           FOAMEX CAPITAL CORPORATION


                                      INDEX

                                                                            Page
Part I

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

       Item  5.   Market for Registrant's Common Equity and
                      Related Stockholder Matters                           14
       Item  6.   Selected Consolidated Financial Data                      14
       Item  7.   Management's Discussion and Analysis
                      of Financial Condition and Results
                      of Operations                                         16
       Item  8.   Financial Statements and Supplementary Data               24
       Item  9.   Changes in and Disagreements with Accountants
                      on Accounting and Financial Disclosure                24

Part III

       Item 10.   Directors and Executive Officers of the Registrant        24
       Item 11.   Executive Compensation                                    24
       Item 12.   Security Ownership of Certain Beneficial Owners
                      and Management                                        24
       Item 13.   Certain Relationships and Related Transactions            24

Part IV

       Item 14.   Exhibits, Financial Statement Schedules
                      and Reports on Form 8-K                               24

       Signatures                                                           31

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

                                       2
<PAGE>
PART I
ITEM l.  BUSINESS

General

     Foamex  L.P.,  a  wholly-owned  subsidiary  of  Foamex  International  Inc.
("Foamex International"),  is engaged primarily in the business of manufacturing
and distributing  quality flexible  polyurethane  foam and advanced polymer foam
products.  During 1997, 1996 and 1995,  Foamex L.P.'s  operations were conducted
together  with its  wholly-owned  subsidiaries,  General Felt  Industries,  Inc.
("General  Felt"),  Foamex Fibers,  Inc. ("Foamex  Fibers"),  Foamex Canada Inc.
("Foamex  Canada"),  and Foamex Latin America,  Inc.  ("Foamex  Mexico").  As of
December 28, 1997,  Foamex L.P.'s  partners were FMXI,  Inc.  ("FMXI") with a 1%
managing general partnership  interest,  Trace Foam Company, Inc. ("Trace Foam")
with a 1% non-managing  general  partnership  interest,  Crain Industries,  Inc.
("Crain") with a 1% general partnership interest and Foamex International with a
97%  limited  partnership  interest.   FMXI  and  Crain  are  both  wholly-owned
subsidiaries of Foamex International.

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

     On February 27, 1998, Foamex International,  Foamex L.P. and certain of its
affiliates  completed  a series of  transactions  designed  to  simplify  Foamex
International's  structure and to provide future operational flexibility.  Prior
to the  consummation  of these  transactions,  (i) Foamex L.P. and Foamex L.P.'s
wholly-owned  subsidiary,  General Felt,  entered into a Supply Agreement and an
Administrative  Services  Agreement,  (ii) Foamex L.P.  settled its intercompany
payables to General Felt with $4.8 million in cash and a $34.0 million principal
amount  promissory  note supported by a $34.5 million letter of credit under the
Foamex  L.P.  credit  facility  (the  "Foamex/GFI  Note") and (iii)  Foamex L.P.
defeased  the $4.5  million  outstanding  principal  amount of its 9 1/2% senior
secured notes due 2000.  The initial  transaction  resulted in the transfer from
Foamex L.P. to Trace Foam LLC of all of the outstanding  common stock of General
Felt, in exchange for (i) the  assumption by Trace Foam LLC of $129.0 million of
Foamex  L.P.'s  indebtedness  and (ii) the  transfer by Trace Foam LLC to Foamex
L.P.  of a 1%  non-managing  general  partnership  interest  in Foamex L.P. As a
result,  General Felt ceased being a subsidiary  of Foamex L.P. and was relieved
from all obligations  under Foamex L.P.'s 9 7/8% senior  subordinated  notes due
2007 ("Senior  Subordinated  Notes") and 13 1/2% senior  subordinated  notes due
2005. Upon consummation of the initial transaction, Foamex Carpet Cushion, Inc.,
a  newly  formed  wholly-owned   subsidiary  of  Foamex  International  ("Foamex
Carpet"), Foamex International, Trace Foam LLC, and General Felt entered into an
Asset  Purchase  Agreement  dated  February 27, 1998, in which General Felt sold
substantially  all of its  assets  (other  than  the  Foamex/GFI  Note  and  its
operating facility in Pico Rivera,  California) to Foamex Carpet in exchange for
(i) $20.0 million in cash and (ii) a promissory  note issued by Foamex Carpet to
Trace Foam LLC in the amount of $70.2  million.  The $20.0  million cash payment
was funded with a  distribution  by Foamex  L.P. As part of these  transactions,
Foamex Fibers,  a  wholly-owned  subsidiary of General Felt, was merged with and
into General Felt and Foamex LLC, a wholly-owned  subsidiary of Foamex L.P., was
merged with and into Foamex L.P. In addition,  FMXI and Crain, both wholly-owned
subsidiaries of Foamex  International  and general partners of Foamex L.P., were
merged and Crain, as the surviving corporation, 

                                       3

<PAGE>

subsequently  changed its name to FMXI. Upon consummation of these  transactions
contemplated  by the Asset  Purchase  Agreement,  Foamex  Carpet  entered into a
credit  agreement  with the  institutions  from time to time  party  thereto  as
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, which
provides  for  up  to  $20.0  million  in  revolving  credit  borrowings.  These
transactions  will be  accounted  for as a  divestiture  and future  Foamex L.P.
financial  statements will exclude the operations of General Felt. Foamex Carpet
will conduct the carpet cushion business  previously  conducted by General Felt.
Also,  Trace Foam LLC has retained  ownership of one of General Felt's operating
facilities  which is  being  leased  to  Foamex  Carpet  and the  $34.0  million
Foamex/GFI Note.

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

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

     On  June  12,  1997,  Foamex   International   substantially   completed  a
refinancing   plan  (the   "Refinancing   Plan")   designed  to  reduce   Foamex
International's  interest  expense and increase its financing  flexibility.  The
Refinancing  Plan included a tender offer to purchase  $373.0  million of Foamex
L.P.'s  existing  public  debt and  approximately  $116.7  million of  aggregate
principal  amount  of  Foamex-JPS  Automotive  L.P.'s  senior  secured  discount
debentures due 2004 (the "Discount  Debentures").  Also,  the  Refinancing  Plan
included the payment of $5.2 million of term loan  borrowings  under an existing
credit facility,  and the payment of related fees and expenses. In addition, the
tender offer included amending the existing  indentures to remove  substantially
all of the restrictive  covenants.  Foamex L.P.  purchased $342.3 million of its
public debt and the $116.7 million of Discount Debentures under the tender offer
and incurred an extraordinary  loss on the early  extinguishment  of its debt of
approximately  $44.5 million.  The Refinancing Plan was funded by $347.0 million
of borrowings  under a new credit  facility (the "Credit  Facility") and the net
proceeds  from the  issuance  of  $150.0  million  principal  amount  of  Senior
Subordinated Notes. As a result of the Refinancing Plan, Foamex L.P.'s long-term
debt increased by $150.1 million.  Foamex L.P.  expects the Refinancing  Plan to
result in increased  interest expense as compared to the debt structure prior to
the Refinancing  Plan,  assuming no material  changes in interest rates.  Foamex
L.P.'s future interest expense will vary based on a variety of factors including
fluctuations in interest rates in general.  As a result of the Refinancing Plan,
variable  rate debt  comprised  a larger  percentage  of Foamex  L.P.'s  overall
indebtedness than in the past, and as a result,  future fluctuations in interest
rates will have a greater impact on Foamex L.P.'s  interest  expense than in the
past.

     On October 1, 1997, Foamex L.P. redeemed approximately $26.2 million of the
approximately  $30.7 million of Foamex L.P.'s  outstanding  public debt that was
not tendered as part of the Refinancing Plan. These redemptions were funded with
borrowings  under the Credit  Facility.  In connection  with these  redemptions,
Foamex  L.P.   incurred   an   additional   extraordinary   loss  on  the  early
extinguishment of debt of approximately $2.1 million. The remaining  outstanding
public debt of  approximately  $4.5 million that was not tendered as part of the
Refinancing Plan was defeased in February 1998.

                                       4

<PAGE>

     The  Private  Securities  Litigation  Reform  Act of 1995  provides a "safe
harbor"  for  forward-looking   statements  so  long  as  those  statements  are
identified as  forward-looking  and are  accompanied  by  meaningful  cautionary
statements  identifying  important  factors that could cause  actual  results to
differ  materially from those projected in such  statements.  In connection with
certain forward-looking  statements contained in this Annual Report on Form 10-K
and those  that may be made in the future by or on behalf of 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 raw  material  price
increases,  general  economic  conditions,  the level of automotive  production,
carpet  cushion  production  and  housing  starts,  the  implementation  of  the
restructuring/consolidation  plans 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 the
forward-looking  statements contained in this Annual Report on Form 10-K will be
achieved. In light of the foregoing,  readers of this Annual Report on Form 10-K
are  cautioned  not to place undue  reliance on the  forward-looking  statements
contained herein.

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

     References  in this Annual  Report on Form 10-K to Foamex L.P.  mean Foamex
L.P. and, where relevant, its subsidiaries.

                                       5
<PAGE>
Flexible Polyurethane Foam Products

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

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

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

     Carpet Cushion

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

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

     Cushioning Foams

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

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

                                       6

<PAGE>

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

     Furniture Foams

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

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

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

     Automotive Foams

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

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

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

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

                                       7

<PAGE>

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

     Specialty and Technical Foams

     Specialty and technical foams consist of reticulated foams and other custom
polyester and polyether foams, which are sometimes combined with other materials
to yield specific  properties.  Reticulation is the thermal or chemical  process
used to remove the membranes from the  interconnecting  cells within foam.  This
leaves a porous,  skeletal  structure allowing for the free flow of gases and/or
liquids.

     Reticulated  foams are well  suited  for  filtration,  reservoiring,  sound
absorption and sound transmission.  Industrial applications include carburetors,
computer  cabinets,  ink pad reservoirs,  high speed inkjet printers and speaker
grills.  Medical applications  include oxygenators for cardiopulmonary  surgery,
instrument  holders  for  sterilization,   pre-op  scrubbers   impregnated  with
anti-microbial  agents and EKG pads containing  conductive gels. Other specialty
and technical  foams have unique  characteristics  such as flame  retardancy and
fluid  absorption.  In  addition,  felting  and  lamination  with other foams or
materials give these composites  specific  properties.  Additional products sold
within this group include foams for refrigerated  supermarket  produce counters,
mop heads, paint brushes, diapers and cosmetic applications.

     Consumer Products

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

     Marketing and Sales

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

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

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

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

                                       8

<PAGE>

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

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

     Customers

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

     Raw Materials

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

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

     Manufacturing

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

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

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

                                       10
<PAGE>

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

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

     Employees

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

     Competition

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

     International and Domestic Operations and Export Sales

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

     Patents and Trademarks

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

     Research and Development

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

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

                                       10

<PAGE>

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

ITEM 2.  PROPERTIES

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

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

ITEM 3. LEGAL PROCEEDINGS

     Environmental Matters

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

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

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

                                       11

<PAGE>

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

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

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

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

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

                                       12
<PAGE>

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

     Legal Proceedings

     As of March 4, 1998,  Foamex L.P. and Trace  Holdings  were two of multiple
defendants  in actions  filed on behalf of  approximately  5,000  recipients  of
breast  implants  in various  United  States  federal  and state  courts and one
Canadian provincial court, some of which allege substantial damages, but most of
which allege  unspecified  damages for personal injuries of various types. Three
of these cases seek to allege claims on behalf of all breast implant  recipients
or other allegedly affected parties, but no class has been approved or certified
by the court. In addition, three cases have been filed alleging claims on behalf
of approximately 700 residents of Australia, New Zealand,  England, and Ireland.
Foamex L.P. believes that the number of suits may increase.  During 1995, Foamex
L.P.  and Trace  Holdings  were  granted  summary  judgments  and  dismissed  as
defendants  from all cases in the  federal  courts of the United  States and the
state courts of California.  Appeals for these  decisions were withdrawn and the
decisions are final.

     Although breast implants do not contain foam, certain silicone gel implants
were  produced  using a  polyurethane  foam covering  fabricated by  independent
distributors  or fabricators  from bulk foam purchased from Foamex L.P. or Trace
Holdings.  Neither Foamex L.P. nor Trace Holdings  recommended,  authorized,  or
approved the use of its foam for these purposes. Foamex L.P. is also indemnified
by Trace Holdings for any such liabilities  relating to foam manufactured  prior
to October  1990.  Although  Trace  Holdings has paid Foamex  L.P.'s  litigation
expenses to date pursuant to such  indemnification and management believes Trace
Holdings  likely will be in a position to continue to pay such  expenses,  there
can be no absolute  assurance  that Trace  Holdings will be able to provide such
indemnification. While it is not feasible to predict or determine the outcome of
these actions, based on management's present assessment of the merits of pending
claims,  after  consultation  with the general  counsel of Trace  Holdings,  and
without  taking into account  indemnification  provided by Trace  Holdings,  the
coverage  provided by Trace Holdings and Foamex L.P.'s  liability  insurance and
the potential  indemnity from the  manufacturers of polyurethane  covered breast
implants,  management  believes that the disposition of matters that are pending
or that may reasonably be anticipated to be asserted  should not have a material
adverse effect on either Foamex L.P.'s or Trace Holdings' consolidated financial
position or results of operations.  If management's  assessment of Foamex L.P.'s
liability with respect to these actions is incorrect,  such actions could have a
material adverse effect on Foamex L.P.

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

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

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

                                       13
<PAGE>
       John E. Funky Trust v. Salvatore J. Bonanno, et al., No. 16267.

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

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

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  28,  1997,  there were four  holders of Foamex  L.P.'s
          equity securities.

     c)   During  1997 and 1996,  Foamex  L.P.  made net cash  distributions  in
          accordance with tax sharing  agreements of approximately  $8.8 million
          and $3.5 million,  respectively,  and has $1.3 million of distribution
          receivables in accordance with tax sharing  agreements at December 28,
          1997 as follows:

                                       Distributions
                                     1997         1996
                                         (thousands)
     FMXI, Inc.                     $    80     $   (35)
     Trace Foam Company, Inc.            80          45
     Foamex-JPS Automotive L.P.         306       3,477
     Foamex International Inc.        8,371          --
                                    -------     -------
                                    $ 8,837     $ 3,487
                                    =======     =======

ITEM 6. SELECTED CONSOLIDATED FINANCIAL DATA

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

                                       14
<PAGE>
<TABLE>
<CAPTION>
                                                                           Fiscal Year(1)(2)
                                                    1997(3)       1996(4)        1995(5)         1994        1993(6)
                                                                          (thousands)
Statements of Operations Data:
<S>                                               <C>            <C>           <C>            <C>           <C>      
     Net sales                                    $ 931,095      $ 926,351     $ 862,834      $ 833,660     $ 684,310
     Income (loss) from continuing operations        11,265         53,661       (48,126)        38,011        (7,926)
     Net income (loss)                              (37,294)         9,699       (53,243)        39,241       (17,653)

Balance Sheet Data (at period end):
     Total assets                                 $ 839,068      $ 586,157     $ 605,892      $ 654,176     $ 575,528
     Long-term debt                                 726,649        392,617       433,956        441,757       414,445
     Partners' equity (deficit)                    (156,302)        12,832       (12,604)        52,548        49,386
<FN>
(1)  Foamex L.P.  has a 52-53 week  fiscal year ending on the Sunday  closest to
     the end of the calendar  year.  Each fiscal year presented was comprised of
     52 weeks.

(2)  Fiscal years 1993 through 1995 were  restated for  discontinued  operations
     and fiscal years 1994 and 1995 were restated for the contribution of Foamex
     Mexico.

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

(4)  Includes  restructuring credits of $6.4 million (see Note 4 to consolidated
     financial statements).

(5)  Includes  restructuring  and other  charges of $39.2 million (see Note 4 to
     the consolidated financial statements)

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


                                       15
<PAGE>
ITEM 7.   MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND 
          RESULTS OF OPERATIONS

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

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

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

     On February 27, 1998, Foamex International,  Foamex L.P. and certain of its
affiliates  completed  a series of  transactions  designed  to  simplify  Foamex
International's  structure and to provide future operational flexibility.  Prior
to the  consummation  of these  transactions,  (i) Foamex L.P. and Foamex L.P.'s
wholly-owned  subsidiary,  General Felt,  entered into a Supply Agreement and an
Administrative  Services  Agreement,  (ii)  Foamex L.P.  repaid its  outstanding
indebtedness  to  General  Felt with $4.8  million  in cash and a $34.0  million
two-year  promissory  note and  (iii)  Foamex  L.P.  defeased  the $4.5  million
outstanding principal amount of its 9 1/2% Senior Secured Notes due 2000. Foamex
L.P. settled its intercompany payables to General Felt with $4.8 million in cash
and a $34.0  million  principal  amount  promissory  note  supported  by a $34.5
million letter of credit under the Foamex L.P. credit facility (the  "Foamex/GFI
Note").  The initial  transaction  resulted in the transfer  from Foamex L.P. to
Trace  Foam LLC of all of the  outstanding  common  stock of  General  Felt,  in
exchange for (i) the  assumption  by Trace Foam LLC of $129.0  million of Foamex
L.P.'s  indebtedness and (ii) the transfer by Trace Foam LLC to Foamex L.P. of a
1% non-managing general partnership interest in Foamex L.P. As a result, General
Felt  ceased  being a  subsidiary  of  Foamex  L.P.  and was  relieved  from all
obligations under the Senior  Subordinated Notes and 13 1/2% Senior Subordinated
Notes due 2005. Upon consummation of the initial  transaction,  Foamex Carpet, a
newly  formed   wholly-owned   subsidiary   of  Foamex   International,   Foamex
International,  Trace Foam LLC, and General Felt entered into an Asset  Purchase
Agreement dated February 27, 1998, in which General Felt sold  substantially all
of its assets (other than the Foamex/GFI Note and its operating facility in Pico
Rivera,  California)  to Foamex Carpet in exchange for (i) $20.0 million in cash
and (ii) a  promissory  note  issued by Foamex  Carpet to Trace  Foam LLC in the
amount  of $70.2  million.  The  $20.0  million  cash  payment  was  funded by a
distribution  by Foamex L.P. As part of these  transactions,  Foamex  Fibers,  

                                       16

<PAGE>

a wholly-owned subsidiary of General Felt, was merged with and into General Felt
and Foamex LLC, a  wholly-owned  subsidiary of Foamex L.P.,  was merged with and
into Foamex L.P. In addition, FMXI and Crain, both wholly-owned  subsidiaries of
Foamex International and general partners of Foamex L.P., were merged and Crain,
as the  surviving  corporation,  subsequently  changed  its name to  FMXI.  Upon
consummation of the transactions  contemplated by the Asset Purchase  Agreement,
Foamex Carpet entered into a Credit Agreement with 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,  which  provides  for up to $20.0  million in  revolving
credit borrowings. These transactions will be accounted for as a divestiture and
future Foamex L.P.  financial  statements will exclude the operations of General
Felt.  Foamex  Carpet  will  conduct  the  carpet  cushion  business  previously
conducted by General Felt. Also, Trace Foam LLC has retained ownership of one of
General Felt's  operating  facilities which is being leased to Foamex Carpet and
the $34.0 million Foamex/GFI Note.

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

     On October 6, 1997,  Foamex L.P.  sold its  needlepunch  carpeting,  tufted
carpeting and artificial grass products business,  located in Dalton, Georgia to
Bretlin,  Inc.,  a  subsidiary  of The  Dixie  Group,  Inc.  The sale  price was
approximately  $41.0  million,  net  of  post-closing   adjustments  which  were
finalized  in December  1997.  Foamex L.P.  used the net proceeds of the sale to
reduce  borrowings  under the Credit  Facility by  approximately  $38.8 million.
Foamex L.P. incurred an extraordinary  loss on the early  extinguishment of debt
of approximately $0.9 million.

     On  June  12,  1997,  Foamex   International   substantially   completed  a
refinancing   plan  (the   "Refinancing   Plan")   designed  to  reduce   Foamex
International's  interest  expense and increase its financing  flexibility.  The
Refinancing  Plan included a tender offer to purchase  $373.0  million of Foamex
L.P.'s  existing  public  debt and  approximately  $116.7  million  of  Discount
Debentures.  Also, the Refinancing  Plan included the payment of $5.2 million of
term loan  borrowings  under an  existing  credit  facility,  and the payment of
related fees and expenses.  In addition,  the tender offer included amending the
existing  indentures to remove  substantially all of the restrictive  covenants.
Foamex L.P.  purchased  $342.3 million of its public debt and the $116.7 million
of Discount Debentures under the tender offer and incurred an extraordinary loss
on the early  extinguishment  of its debt of  approximately  $44.5 million.  The
Refinancing  Plan was funded by $347.0  million of  borrowings  under the Credit
Facility and the net  proceeds  from the  issuance of $150.0  million  principal
amount of Senior Subordinated Notes. As a result of the Refinancing Plan, Foamex
L.P.'s  long-term  debt  increased by $150.1  million.  Foamex L.P.  expects the
Refinancing Plan to result in increased interest expense as compared to the debt
structure  prior to the  Refinancing  Plan,  assuming  no  material  changes  in
interest  rates.  Foamex  L.P.'s  future  interest  expense will vary based on a
variety of factors,  including  fluctuations in interest rates in general.  As a
result of the Refinancing Plan, variable rate debt comprised a larger percentage
of Foamex L.P.'s overall indebtedness than in the past, and

                                       17
<PAGE>
as a result, future fluctuations in interest rates will have a greater impact on
Foamex L.P.'s interest expense than in the past.

     On October 1, 1997, Foamex L.P. redeemed approximately $26.2 million of the
approximately  $30.7 million of Foamex L.P.'s  outstanding  public debt that was
not tendered as part of the Refinancing Plan. These redemptions were funded with
borrowings  under the Credit  Facility.  In connection  with these  redemptions,
Foamex L.P. incurred an extraordinary  loss on the early  extinguishment of debt
of  approximately  $2.1  million.  The  remaining  outstanding  public  debt  of
approximately $4.5 million that was not tendered as part of the Refinancing Plan
was defeased in February 1998.

     During 1996, Foamex L.P. sold Perfect Fit Industries,  Inc. ("Perfect Fit")
which comprised the home comfort  products  business segment of Foamex L.P.. The
consolidated  financial statements of Foamex L.P. were restated for discontinued
operations  and includes a net loss of $41.8 million (net of $1.2 million income
tax benefit) on the disposal of this business segment, which includes provisions
for  operating  losses  during  the  phase-out  period.   (See  Note  9  to  the
consolidated financial statements for further discussion).

     Foamex  L.P.'s  automotive  foam  customers  are  predominantly  automotive
original  equipment  manufacturers or other automotive  suppliers.  As such, the
sales of these  product  lines are  directly  related  to the  overall  level of
passenger car and light truck production in North America.  Also,  Foamex L.P.'s
sales are  sensitive  to sales of new and  existing  homes,  changes in personal
disposable  income  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.

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

RESULTS OF OPERATIONS

1997 Compared to 1996

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

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

     Income  from  operations  was $56.3  million for 1997 as compared to $102.9
million in 1996.  The decrease was  primarily  due to a decrease in gross profit
margins  as  discussed  above,  1997  restructuring  and other  charges of $21.1
million as compared to a  restructuring  credit of $6.5 million in 1996,  and an
increase in selling,  general 

                                       18
<PAGE>

and  administrative  expenses of $9.1 million for 1997 as compared to 1996.  The
1997  restructuring and other charges are related to the restructuring of Foamex
L.P.'s  operations in  connection  with the Crain  Acquisition.  The increase in
selling,  general and administrative  expenses is the result of increases in the
provision for  uncollectible  accounts,  employee  compensation  and incentives,
research and development  costs,  and travel and promotion costs associated with
the launching of new products and international expansion.

     Income from  continuing  operations  before  provision for income taxes was
$14.2  million for 1997 as compared to $61.4  million in 1996.  The  decrease is
primarily due to the reasons cited above. Interest and debt issuance expense was
fairly constant at $44.2 million in 1997 as compared to $43.2 million in 1996.

     Foamex  L.P.,  as a limited  partnership,  is not  subject to  federal  and
certain state income  taxes.  However,  the  consolidated  financial  statements
include a provision for income taxes which primarily  relates to the federal and
state income taxes of corporate subsidiaries and subsidiaries located in foreign
jurisdictions  that  file  separate  income  tax  returns.  See  Note  11 to the
consolidated financial statements for further discussion.

     The  extraordinary  loss on early  extinguishment  of debt of $48.6 million
primarily  relates  to the  write-off  of debt  issuance  costs  and  redemption
premiums  associated  with  the  early   extinguishment  of  long-term  debt  in
connection with the 1997 Refinancing Plan.

1996 Compared to 1995

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

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

     Income (loss) from  operations was $102.9 million for 1996 as compared to a
loss from  operations of $2.0 million in 1995. The increase was primarily due to
an  increase  in  gross  profit  margin  as  discussed   above,  a  decrease  in
restructuring  and other  charges  (credits) of $45.7  million and a decrease in
selling,  general  and  administrative  expenses  of $6.7  million  for  1996 as
compared to 1995. The decrease in restructuring  and other charges  (credits) is
comprised of the $39.2  million  charge for  restructuring  and other charges in
1995 plus the net  restructuring  credit of $6.4  million in 1996.  The 1996 net
restructuring  credit is  comprised  of an $11.3  million  credit  due to Foamex
L.P.'s decision not to close a facility which was part of the 1995 restructuring
plan (as defined  below) and $1.7 million of credits  relating  primarily to the
favorable termination of lease agreements and other matters relating to the 1995
restructuring plan, offset by $6.6 million of restructuring  charges relating to
the 1996  restructuring  plan  which  primarily  consist  of the  closure of two
facilities  during  1997.  The decrease in selling,  general and  administrative
expenses is the result of reductions in the provision for uncollectible accounts
of approximately $3.9 million, salaries and employee costs of approximately $3.7
million and a reduction of approximately $2.0 million in environmental  accruals
offset by increases in selling expenses  associated with the increased net sales
volume and management realignment in connection with a 1995 restructuring plan.

                                       19
<PAGE>

     Income from  continuing  operations  before  provision for income taxes was
$61.4 million for 1996 as compared to a loss from continuing  operations  before
provision for income taxes of $46.7  million in 1995.  The increase is primarily
due to the reasons  cited above and a decrease  in  interest  and debt  issuance
expense of $1.3 million.  The decrease in interest and debt issuance  expense is
primarily  due to a $2.3  million  increased  benefit  from  interest  rate swap
agreements offset by the amount of interest allocated to discontinued operations
in 1996 as compared to 1995.

     Foamex  L.P.,  as a limited  partnership,  is not  subject to  federal  and
certain state income  taxes.  However,  the  consolidated  financial  statements
include a provision for income taxes which primarily  relates to the federal and
state income taxes of corporate subsidiaries and subsidiaries located in foreign
jurisdictions  that  file  separate  income  tax  returns.  See  Note  11 to the
consolidated financial statements for further discussion.

     The loss from discontinued operations of $42.1 million (net of $2.6 million
income  tax  benefit)  in 1996  relates  to the net loss on the sale of the home
comfort products business segment which consisted primarily of the net assets of
Perfect Fit and the operating  loss of Perfect Fit through the closing date. See
Note 9 to the consolidated financial statements for further discussion.

Foamex Capital Corporation ("FCC")

     FCC is solely a co-issuer  of certain  indebtedness  of Foamex L.P. and FCC
has no other material operations.

Liquidity and Capital Resources

     Liquidity

     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 of the operating subsidiaries.
Foamex L.P. believes that cash flow from operating activities,  cash on hand and
periodic borrowings under the Credit Facility, if necessary, will be adequate to
meet  operating  cash  requirements.  The  ability  to meet the  operating  cash
requirements  of Foamex L.P.  could be  impaired  if Foamex L.P.  was to fail to
comply  with any of the  covenants  contained  in the Credit  Facility  and such
noncompliance was not cured by Foamex L.P. or waived by the lenders. Foamex L.P.
was in compliance  with the covenants in the Credit  Facility as of December 28,
1997 and expects to be in  compliance  with the  covenants  for the  foreseeable
future.

     Cash and cash  equivalents  decreased  $11.6  million  during  1997 to $9.4
million at December 28, 1997 from $21.0  million at December 29, 1996  primarily
due to a  decrease  in  operating  results  offset  by less  cash  used  for the
operating  assets and  liabilities.  Cash and cash  equivalents  increased $20.4
million  during 1996 to $21.0  million at December 29, 1996 from $0.6 million at
December 31, 1995  primarily due to a $18.4 million  payment  received on a note
from a partner and improved  operating  results,  offset by the increased use of
cash and cash  equivalents  by the operating  assets and  liabilities  of Foamex
L.P.,  capital  expenditures  and scheduled  debt  repayments.  Working  capital
decreased  $11.0 million during 1997 to $126.1 million at December 28, 1997 from
$137.1  million at December 29, 1996  primarily  due to the decrease in cash and
cash  equivalent and accrued  restructuring/consolidation  costs.  Net operating
assets and liabilities (comprised of accounts receivable,  inventories, accounts
payable and accounts  payable from  affiliates)  increased  $19.8 million during
1997 to $162.4  million at December 28, 1997 from $142.6 million at December 29,
1996 primarily due to increases in accounts receivable and inventories offset by
an increase in accounts payable.  These increases are primarily  associated with
the Crain  Acquisition.  Working capital  increased $65.8 million during 1996 to
$137.1  million at  December  29, 1996 from $71.3  million at December  31, 1995
primarily  due to (i)  improved  operating  results,  (ii) an  increase  in cash
resulting  from the  payment  received  on a note  with a  partner  and (iii) an
increase in net operating  assets and  liabilities,  which was offset by working
capital  used  for  capital  expenditures  and  schedule  debt  repayments.  Net
operating assets and liabilities (comprised of accounts receivable, inventories,
accounts payable and accounts  payable from affiliates)  increased $18.5 million
during  1996 to $142.6  million at  December  29,  1996 from  $124.1  million at
December 31, 1995 primarily due to increased accounts receivable and inventories

                                       20

<PAGE>

offset by an increase in accounts payable.  The increase in accounts  receivable
and inventories are primarily  associated with the improved operating results of
Foamex L.P. In addition,  raw material  inventories  increased  due to increased
year end purchases associated with a potential cost increase that did not occur.
The  increase  in accounts  payable is  primarily  associated  with the year end
purchase of raw material inventories. Foamex L.P.'s  restructuring/consolidation
plan  includes  accruals of  approximately  $26.9  million cash charges of which
$15.6 million is expected to be paid during 1998.

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

     Cash Flow from Operating Activities

     Cash flow from continuing  operations was $22.0 million,  $36.7 million and
$36.5 million in 1997,  1996 and 1995,  respectively.  Cash flow from continuing
operations  decreased for 1997 as compared to 1996  primarily as a result of the
use of  approximately  $24.4  million of cash for payments and costs  associated
with the debt extinguishment during 1997 and reduced operating results offset by
a  decreased  use of cash by the  operating  assets and  liabilities  by reduced
operating results.  Cash flow from continuing operations remained consistent for
1996 as compared to 1995  primarily  as a result of improved  operating  results
from continuing  operations  offset by an increased use of cash by the operating
assets and liabilities.

     Cash Flow from Investing Activities

     From the beginning of 1995 through 1997,  Foamex L.P.  spent  approximately
$75.8  million  on  capital  improvements.   The  expenditures   included:   (i)
installation of new variable pressure foaming technology ("VPFJ") in the Orange,
California facility;  (ii) the construction of a facility in Mexico City, Mexico
to improve  manufacturing  efficiencies and to meet the growing local demand for
foam products;  (iii) the expansion and  modernization of a facility in Orlando,
Florida to improve  manufacturing  efficiencies,  and (iv)  installation of more
efficient foam production line systems and fabricating  equipment in a number of
manufacturing  facilities.  Foamex L.P. expects to increase capital expenditures
at the  current  levels  for the  foreseeable  future  as a result  of the Crain
Acquisition and the installation of the VPFJ manufacturing process.

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

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

     During 1996, Foamex L.P. received net sale proceeds of approximately  $42.7
million in connection  with the sale of Perfect Fit which was finalized in 1996.
The net sale proceeds were used to repurchase long-term debt and for the payment
of certain retained liabilities.

     During 1996, FJPS, a former limited  partner,  repaid $18.4 million under a
promissory  note and a waiver  payment  of $0.2  million  using a portion of the
proceeds from the sale of its  partnership  interest in JPS  Automotive  L.P. in
exchange for certain waivers and amendments of the promissory note.

     During  1995,  Foamex L.P.  acquired  certain  assets and  assumed  certain
liabilities of manufacturers  of synthetic  fabrics for the carpet and furniture
industries  for  an  aggregate  consideration  of  approximately  $8.0  

                                       21
<PAGE>

million, including related fees and expenses of approximately $0.3 million, with
an initial cash payment of $7.2 million.

     During 1994,  Foamex  International  acquired  Transformacion  De Espumas Y
Fieltros,  S.A. de C.V.  ("TEFSA")  which required the purchase price to be paid
over a three year period.  During 1996,  Foamex  International  contributed  its
interest in Foamex Mexico to Foamex L.P. During 1997, 1996 and 1995, Foamex L.P.
made scheduled  cash payments of  approximately  $0.9 million,  $0.8 million and
$0.8 million, respectively, in accordance with the purchase agreement. The final
payment was made in 1997.

     Cash Flow from Financing Activities

     On  June  12,  1997,  Foamex  International   substantially  completed  the
Refinancing Plan designed to reduce Foamex International's  interest expense and
increase its financing flexibility. The Refinancing Plan included a tender offer
to  purchase   $373.0  million  of  Foamex  L.P.'s   existing  public  debt  and
approximately $116.7 million of the Discount  Debentures.  Also, the Refinancing
Plan  included  the  payment of $5.2  million of term loan  borrowings  under an
existing  credit  facility,  and the payment of related  fees and  expenses.  In
addition,  the tender offer included amending the existing  indentures to remove
substantially  all of the restrictive  covenants.  Foamex L.P.  purchased $342.3
million of its public debt and the $116.7 million of Discount  Debentures  under
the tender offer and incurred an extraordinary loss on the early  extinguishment
of debt of  approximately  $44.5  million.  The  Refinancing  Plan was funded by
$347.0 million of borrowings under the Credit Facility and the net proceeds from
the issuance of $150.0 million principal amount of Senior Subordinated Notes. As
a result of the  Refinancing  Plan,  Foamex L.P.'s  long-term  debt increased by
$150.1 million.  Foamex L.P. expects the Refinancing Plan to result in increased
interest  expense as compared  to the debt  structure  prior to the  Refinancing
Plan,  assuming no material  changes in interest  rates.  Foamex  L.P.'s  future
interest expense will vary based on a variety of factors including  fluctuations
in interest rates in general. As a result of the Refinancing Plan, variable rate
debt comprised a larger percentage of Foamex L.P.'s overall indebtedness than in
the past,  and as a result,  future  fluctuations  in interest rates will have a
greater impact on Foamex L.P.'s interest expense than in the past.

     During 1997, in connection with the Refinancing Plan, Foamex L.P. purchased
all of the Discount Debentures for approximately $105.8 million,  including fees
and expenses and subsequently distributed the discount debentures to FJPS.

     During 1997,  Foamex L.P. made a tax distribution  advance of approximately
$13.6 million to Foamex  International  pursuant to a tax  distribution  advance
agreement.

     On October 1, 1997, Foamex L.P. redeemed approximately $26.2 million of the
approximately  $30.7 million of Foamex L.P.'s  outstanding  public debt that was
not tendered as part of the Refinancing Plan. These redemptions were funded with
borrowings  under the Credit  Facility.  In connection  with these  redemptions,
Foamex L.P. incurred an extraordinary  loss on the early  extinguishment of debt
of  approximately  $2.1  million.  The  remaining  outstanding  public  debt  of
approximately $4.5 million that was not tendered as part of the Refinancing Plan
was defeased in February 1998.

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

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

                                       22

<PAGE>

     Foamex L.P.  made cash  distributions  to its  partners,  pursuant to a tax
sharing agreement,  of approximately $8.8 million, $3.5 million and $2.4 million
in 1997, 1996 and 1995, respectively. Also, Foamex L.P. made a cash distribution
during 1997 of  approximately  $1.5 million to a partner in connection  with the
Refinancing Plan.

Interest Rate Swap Agreements

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

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

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

Environmental Matters

     Foamex L.P. is subject to  extensive  and changing  environmental  laws and
regulations.  Expenditures to date in connection  with Foamex L.P.'s  compliance
with  such  laws and  regulations  did not have a  material  adverse  effect  on
operations,  financial position,  capital expenditures or competitive  position.
The  amount  of  liabilities   recorded  by  Foamex  L.P.  in  connection   with
environmental  matters as of December 28, 1997 was $9.3 million. In addition, as
of  December  28,  1997  Foamex L.P.  has net  receivables  of $1.1  million for
indemnification  of environmental  liabilities from former owners, net of a $1.0
million allowance relating to potential disagreements regarding the scope of the
indemnification.  Although  it  is  possible  that  new  information  or  future
developments could require Foamex L.P. to reassess its potential exposure to all
pending  environmental  matters,  including  those described in the footnotes to
Foamex L.P.'s consolidated financial statements, management believes that, based
upon all currently  available  information,  the  resolution of all such pending
environmental  matters will not have a material  adverse effect on Foamex L.P.'s
operations, financial position, capital expenditures or competitive position.

Inflation and Other Matters

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

                                       23

<PAGE>

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

New Accounting Standards

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

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

ITEM 8.   FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

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

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

     Not applicable.

PART III

       The information  required by this Part III (Items 10, 11, 12, and 13) are
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 and Schedules
       Foamex L.P. and Subsidiaries:
         Report of Independent Accountants                                  F-2
         Consolidated Balance Sheets as of December 28, 1997 and 
          December 29, 1996                                                 F-3
         Consolidated Statements of Operations for the years ended 1997,
          1996 and 1995                                                     F-5
         Consolidated Statements of Cash Flows for the years ended 1997, 
          1996 and 1995                                                     F-6
         Consolidated Statements of Partners' Equity (Deficit) for the years
          ended 1997, 1996 and 1995                                         F-7
         Notes to Consolidated Financial Statements                         F-8
       Foamex Capital Corporation:
         Report of Independent Accountants                                  F-33
         Balance Sheets as of December 28, 1997 and December 29, 1996       F-34
         Notes to Balance Sheets                                            F-35
       General Felt Industries, Inc.:
         Report of Independent Accountants                                  F-36
         Consolidated Balance Sheets as of December 28, 1997 and 
          December 29, 1996                                                 F-37
         Consolidated Statements of Operations for the years ended 1997, 
          1996 and 1995                                                     F-39

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<PAGE>

         Consolidated Statements of Cash Flows for the years ended 1997,
          1996 and 1995                                                     F-40
         Consolidated Statements of Stockholder's Equity for the years 
          ended 1997, 1996 and 1995                                         F-41
         Notes to Consolidated Financial Statements                         F-42
       Foamex Fibers, Inc.:
         Report of  Independent  Accountants                                F-52
         Balance Sheets as of December 28, 1997 and December 29, 1996       F-53
         Statements of  Operations  for the years ended 1997, 1996 and 
          for the period from April 13, 1995 to December  31, 1995 and
          the period from  January 1, 1995 to April 12,  1995               F-54
         Statements  of Cash  Flows for the years ended 1997, 1996 and
          for the period from April 13, 1995 to December  31, 1995 and
          the period from  January 1, 1995 to April 12, 1995                F-55
         Statements of Stockholder's  Equity for the years ended 1997,
          1996 and for the period from April 13, 1995 to December 31,
          1995 and the period from January 1, 1995 to April 12, 1995        F-56
         Notes to Financial Statements                                      F-57
       Foamex L.P. and Subsidiaries Financial Statement Schedule:
         Schedule II - Valuation and Qualifying Accounts                     S-2

   (b) Reports on Form 8-K

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

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

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

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

   (c) Exhibits

3.1(a)        -  Certificate of Limited Partnership of Foamex L.P. ("Foamex")
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 L.P., 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.
4.1.1(d)      -  Indenture,  dated as of June 12,  1997,  by and among Foamex
                 L.P., FCC, the Subsidiary  Guarantors and The Bank of New York,
                 as Trustee, relating to $150,000,000 principal amount of 9 7/8%
                 Senior  Subordinated  Notes  due  2007,  including  the form of
                 Senior Subordinated Note and Subsidiary Guarantee.
4.1.2(v)      -  First Supplemental Indenture,  dated as of December 23, 1997,
                 between  Foamex  LLC  ("FLLC")  and The  Bank of New  York,  as
                 trustee, relating to the 9 7/8% Notes.
4.1.3(x)      -  Second Supplemental Indenture, dated as of February 27, 1998,
                 among  Foamex  L.P.  and FCC,  as joint and  several  obligors,
                 General  Felt,   Foamex   Fibers,   and  FLLC,  as  withdrawing
                 guarantors,  and The Bank of New York, as trustee,  relating to
                 the 9 7/8% Notes.

                                       25
<PAGE>
4.1.4(d)      -  Registration Rights Agreement,  dated as of June 12, 1997, by
                 and among Foamex,  FCC,  General Felt,  Foamex Fibers,  and all
                 future direct or indirect  domestic  subsidiaries  of Foamex or
                 FCC, and Donaldson,  Lufkin & Jenrette Securities  Corporation,
                 Salomon  Brothers Inc. and Scotia Capital  Markets,  as Initial
                 Purchasers.
4.2.1(v)      -  Indenture, dated as of December 23, 1997, by and among Foamex
                 L.P., FCC, the Subsidiary Guarantors,  Crain Holdings Corp., as
                 Intermediate  obligator,  and The Bank of New York, as trustee,
                 relating  to  $98,000,000  principal  amount of 13 1/2%  Senior
                 Subordinated  Notes due 2005 (the "13 1/2%  Notes"),  including
                 the form of Senior Subordinated Note and Subsidiary Guarantee.
4.2.2(x)      -  First Supplemental Indenture,  dated as of February 27, 1998,
                 among  Foamex  L.P.  and FCC,  as joint and  several  obligors,
                 General  Felt,   Foamex   Fibers  and  FLLC,   as   withdrawing
                 guarantors, Crain Industries, Inc., as withdrawing intermediate
                 obligor, and The Bank of New York, as trustee,  relating to the
                 13 1/2% Notes.
4.3(x)        -  Discharge of Indenture, dated as of February 27, 1998, by and
                 among Foamex L.P., General Felt, Foamex International and State
                 Street Bank and Trust  Company,  as trustee,  relating to the 9
                 1/2% Senior Secured Notes due 2000.
4.4.1(x)      -  Credit  Agreement,  dated as of June 12, 1997, as amended and
                 restated as of February 27, 1998, by and among Foamex L.P., and
                 FMXI,  the  institutions  from time to time  party  thereto  as
                 lenders,  the  institutions  from time to time party thereto as
                 issuing  banks,  and  Citicorp  USA,  Inc. and The Bank of Nova
                 Scotia, as Administrative Agents.
4.4.2(x)      -  Second Amended and Restated  Foamex  International  Guaranty,
                 dated as of February 27, 1998, made by Foamex  International in
                 favor of Citicorp USA, Inc., as Collateral Agent.
4.4.3(x)      -  Amended  and  Restated  Partnership  Guaranty,  dated  as of
                 February 27, 1998, made by FMXI in favor of Citicorp USA, Inc.,
                 as Collateral Agent.
4.4.4(p)      -  Foamex  Guaranty,  dated as of June 12, 1997,  made by Foamex
                 L.P. in favor of Citicorp USA, Inc., as Collateral Agent.
4.4.5(p)      -  Subsidiary  Guaranty,  dated  as of June 12,  1997,  made by
                 Foamex Latin  America,  Inc. in favor of Citicorp USA, Inc., as
                 Collateral Agent.
4.4.6(p)      -  Subsidiary  Guaranty,  dated  as of June 12,  1997,  made by
                 Foamex  Mexico,  Inc.  in  favor  of  Citicorp  USA,  Inc.,  as
                 Collateral Agent.
4.4.7(p)      -  Subsidiary  Guaranty,  dated as of June 12, 1997, made by FCC
                 in favor of Citicorp USA, Inc., as Collateral Agent.
4.4.8(p)      -  Subsidiary  Guaranty,  dated  as of June 12,  1997,  made by
                 Foamex  Mexico II,  Inc.  in favor of Citicorp  USA,  Inc.,  as
                 Collateral Agent.
4.4.9(p)      -  Subsidiary  Guaranty,  dated  as of June 12,  1997,  made by
                 Foamex Asia, Inc. in favor of Citicorp USA, Inc., as Collateral
                 Agent.
4.4.10(p)     -  Subsidiary Pledge Agreement,  dated as of June 12, 1997, made
                 by FCC in favor of Citicorp USA, Inc., as Collateral Agent.
4.4.11(p)     -  Subsidiary Pledge Agreement,  dated as of June 12, 1997, made
                 by Foamex Latin  America,  Inc. in favor of Citicorp USA, Inc.,
                 as Collateral Agent.
4.4.12(p)     -  Subsidiary Pledge Agreement,  dated as of June 12, 1997, made
                 by  Foamex  Asia,  Inc.  in favor of  Citicorp  USA,  Inc.,  as
                 Collateral Agent.
4.4.13(p)     -  Subsidiary Pledge Agreement,  dated as of June 12, 1997, made
                 by Foamex  Mexico,  Inc. in favor of  Citicorp  USA,  Inc.,  as
                 Collateral Agent.
4.4.14(p)     -  Subsidiary Pledge Agreement,  dated as of June 12, 1997, made
                 by Foamex  Mexico II, Inc. in favor of Citicorp  USA,  Inc., as
                 Collateral Agent.
4.4.15(p)     -  Foamex Security Agreement, dated as of June 12, 1997, made by
                 Foamex L.P.  in favor of  Citicorp  USA,  Inc.,  as  Collateral
                 Agent.
4.4.16(p)     -  Subsidiary  Security  Agreement,  dated as of June 12, 1997,
                 made by Foamex Latin  America,  Inc. in favor of Citicorp  USA,
                 Inc., as Collateral Agent.
4.4.17(p)     -  Subsidiary  Security  Agreement,  dated as of June 12, 1997,
                 made by Foamex Mexico,  Inc. in favor of Citicorp USA, Inc., as
                 Collateral Agent.
4.4.18(p)     -  Subsidiary  Security  Agreement,  dated as of June 12, 1997,
                 made by Foamex Mexico II, Inc. in favor of Citicorp USA,  Inc.,
                 as Collateral Agent.

                                       26
<PAGE>

4.4.19(p)     -  Subsidiary  Security  Agreement,  dated as of June 12, 1997,
                 made by Foamex Asia,  Inc. in favor of Citicorp  USA,  Inc., as
                 Collateral Agent.
4.4.20(p)     -  Subsidiary  Security  Agreement,  dated as of June 12, 1997,
                 made by FCC in favor  of  Citicorp  USA,  Inc.,  as  Collateral
                 Agent.
4.4.21        -  Intentionally omitted.
4.4.22(w)     -  First  Amendment  to  Foamex  Pledge  Agreement,  dated as of
                 December  23,  1997,  by Foamex L.P. in favor of Citicorp  USA,
                 Inc., as Collateral Agent.
4.4.23(w)     -  First  Amendment to Foamex  Security  Agreement,  dated as of
                 December  23,  1997,  by Foamex L.P. in favor of Citicorp  USA,
                 Inc., as Collateral Agent.
4.4.24(w)     -  First  Amendment  to  Foamex  Patent  Agreement,  dated as of
                 December  23,  1997,  by Foamex L.P. in favor of Citicorp  USA,
                 Inc., as Collateral Agent.
4.4.25(w)     -  First Amendment to Trademark Security Agreement,  dated as of
                 December  23,  1997,  by Foamex L.P. in favor of Citicorp  USA,
                 Inc., as Collateral Agent.
4.4.26(w)     -  Acknowledgment  of  Guaranty  by  each of the  guarantors  to a
                 Guaranty dated June 12, 1997 in favor of Citicorp USA, Inc.
4.4.27(w)     -  First Amendment to Pledge Agreement, dated as of December 23,
                 1997, by pledgors in favor of Citicorp USA, Inc.
4.4.28(w)     -  Crain  Industries  Guaranty,  dated as of December  23, 1997,
                 made by Crain in favor of Citicorp USA, Inc.
4.4.29(x)     -  Partnership Pledge Agreement,  dated as of February 27, 1998,
                 made by Foamex International and FMXI in favor of Citicorp USA,
                 Inc., as Collateral Agent.
4.6(j)        -  Commitment  letter,  dated July 9, 1996,  from The Bank of Nova
                 Scotia to Foamex Canada Inc.
4.7(a)        -  Subordinated  Promissory  Note, dated as of May 6, 1993, in the
                 original principal amount of $7,014,864 executed by Foamex L.P.
                 to John Rallis ("Rallis").
4.8(a)        -  Marely Loan  Commitment  Agreement,  dated as of  December  14,
                 1993, by and between Foamex L.P. and Marely s.a. ("Marely").
4.9(a)        -  DLJ Loan Commitment  Agreement,  dated as of December 14, 1993,
                 by  and  between  Foamex  L.P.  and  DLJ  Funding,  Inc.  ("DLJ
                 Funding").
4.10(p)       -  Promissory   Note,  dated  June  12,  1997,  in  the  aggregate
                 principal  amount of $5,000,000,  executed by Trace Holdings to
                 Foamex.
4.10.1(p)     -  Promissory  Note,  dated  June 12,  1997,  in the  aggregate
                 principal  amount of $4,794,828,  executed by Trace Holdings to
                 Foamex.
4.11.1(x)     -  Promissory  Note of Foamex  L.P.  in favor of Trace Foam LLC in
                 the principal amount of $34 million, dated February 27, 1998.
10.1.1(p)     -  Amendment  to  Master  Agreement,  dated  as of June  5,  1997,
                 between Citibank, N.A. and Foamex.
10.1.2(p)     -  Amended  confirmation,  dated  as of  June  13,  1997,  between
                 Citibank, N.A. and Foamex.
10.2(h)       -  Reimbursement  Agreement,  dated as of March 23, 1993,  between
                 Trace Holdings and General Felt.
10.3(h)       -  Shareholder Agreement, dated December 31, 1992, among Recticel,
                 s.a.  ("Recticel"),  Recticel Holding Noord B.V.,  Foamex L.P.,
                 Beamech  Group   Limited,   LME-Beamech,   Inc.,   James  Brian
                 Blackwell,  and Prefoam AG relating to foam technology  sharing
                 arrangement.
10.4.1(k)     -  Asset  Transfer  Agreement,  dated  as of  October  2,  1990,
                 between Trace  Holdings and Foamex (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   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.

                                       27
<PAGE>
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,  Trace Foam,  FMXI and Foamex
                 L.P.
10.7.2(d)     -  First  Amendment to Amended and Restated Tax Sharing  Agreement
                 of  Foamex,  dated as of June 12,  1997,  by and among  Foamex,
                 Foamex L.P., FMXI, Inc. and Trace Foam.
10.7.3(w)     -  Second   Amendment  to  Amended  and  Restated  Tax  Sharing
                 Agreement of Foamex L.P., dated as of December 23, 1997, by and
                 among Foamex L.P., Foamex International, FMXI, and Trace Foam.
10.7.4(y)     -  Third Amendment to Amended and Restated Tax Sharing Agreement
                 of Foamex L.P.,  dated as of February 27, 1998,  by and between
                 Foamex L.P., Foamex International and FMXI.
10.8.1(m)     -  Tax Distribution Advance Agreement,  dated as of December 11,
                 1996, by and between Foamex and Foamex-JPS Automotive.
10.8.2(d)     -  Amendment No. 1 to Tax Distribution Advance Agreement, dated as
                 of June 12, 1997, by and between Foamex L.P. and Foamex.
10.9.1(h)     -  Trace Foam Management  Agreement between Foamex and Trace Foam,
                 dated as of October 13, 1992.
10.9.2(l)     -  Affirmation  Agreement re:  Management  Agreement,  dated as of
                 December 14, 1993, between Foamex and Trace Foam.
10.9.3(d)     -  First Amendment to Management Agreement, dated as of June 12,
                 1997, by and between Foamex and Trace Foam.
10.10.1(k)    -  Salaried Incentive Plan of Foamex and Subsidiaries.
10.10.2(k)    -  Trace Holdings 1987 Nonqualified Stock Option Plan.
10.10.3(k)    -  Equity Growth Participation Program.
10.10.4(e)(o) -  Foamex L.P.  Salaried  Retirement  Plan (formerly  known as the
                 Foamex L.P. Products,  Inc. Salaried Employee Retirement Plan),
                 as amended, effective July 1, 1994.
10.10.5(u)    -  Foamex L.P. 401(k) Savings Plan effective October 1, 1997.
10.10.6(a)    -  Foamex L.P.'s 1993 Stock Option Plan.
10.10.7(a)    -  Foamex L.P.'s Non-Employee Director Compensation Plan.
10.11.1(o)    -  Employment  Agreement,  dated as of  February  1, 1994,  by and
                 between Foamex L.P. and William H. Bundy.
10.12(a)      -  Warrant Exchange  Agreement,  dated as of December 14, 1993, by
                 and between Foamex L.P. and Marely.
10.13(a)      -  Warrant Exchange  Agreement,  dated as of December 14, 1993, by
                 and between Foamex L.P. and DLJ Funding.
10.14(o)      -  Stock Purchase Agreement, dated as of December 23, 1993, by and
                 between Transformacion de
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).
27            -  Financial Data Schedule for the year ended December 28, 1997.
----------------------------
(a)  Incorporated   herein  by  reference  to  the  Exhibit  to  Foamex   L.P.'s
     Registration Statement on Form S-1, Registration No. 33-69606.

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

                                       28
<PAGE>

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

                                       29
<PAGE>
(v)  Incorporated  herein by reference  to the Exhibit to the Current  Report on
     Form  8-K  of  Foamex  L.P.,   Foamex   Capital   Corporation   and  Foamex
     International reporting an event that occurred December 23, 1997.

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

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

(y)  Incorporated  herein by reference to the Exhibit to the Form 10-K of Foamex
International for fiscal 1997.

       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.

       (b) Foamex L.P. filed the following Current Reports on Form 8-K:

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

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

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

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

                                       30
<PAGE>





<PAGE>


                                   SIGNATURES

     Pursuant to the  requirements  of Section 15(d) of the Securities  Exchange
Act of 1934,  the  registrant  has duly  caused  this report to be signed on its
behalf by the  undersigned,  thereunto duly authorized on the 13th day of April,
1998

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


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

                                              FOAMEX CAPITAL CORPORATION


                                              By: /s/ Andrea Farace
                                              Andrea Farace
                                              Chairman of the Board and
                                              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 on the dates indicated:

Signatures                           Title                             Date

/s/ Marshall S. Cogan        Vice Chairman of the Board           April 13, 1998
Marshall S. Cogan            and Director of FMXI and
                             Director of FCC


/s/ Robert J. Hay            Chairman Emeritus of                 April 13, 1998
Robert J. Hay                Foamex L.P.


/s/ Kenneth R. Fuette        Senior Vice President of Finance     April 13, 1998
Kenneth R. Fuette            (Chief Financial Officer and Chief
                             Administrative Officer) of Foamex L.P.,
                             Vice President and Director of FMXI,
                             and Vice President, Treasurer, Chief
                             Financial Officer and Chief Accounting
                             Officer and Director of FCC

                                       31
<PAGE>

/s/ Andrea Farace            Director of FCC                      April 13, 1998
Andrea Farace


/s/ Robert H. Nelson         Director of FCC                      April 13, 1998
Robert H. Nelson


/s/ Barry Zimmerman          Director of FCC                      April 13, 1998
Barry Zimmerman

                                       32
<PAGE>
                          FOAMEX L.P. AND SUBSIDIARIES
                   INDEX TO CONSOLIDATED FINANCIAL STATEMENTS

<TABLE>
<S>                                                                                                           <C>   
Financial Statements of Registrants:
Foamex L.P.:
   Report of Independent Accountants                                                                            F-2
   Consolidated Balance Sheets as of December 28, 1997 and December 29, 1996                                    F-3
   Consolidated Statements of Operations for the years ended 1997, 1996 and 1995                                F-5
   Consolidated Statements of Cash Flows for the years ended 1997, 1996 and 1995                                F-6
   Consolidated Statements of Partners' Equity (Deficit) for the years ended 1997, 1996 and 1995                F-7
   Notes to Consolidated Financial Statements                                                                   F-8

Foamex Capital Corporation:
   Report of Independent Accountants                                                                           F-33
   Balance Sheets as of December 28, 1997 and December 29, 1996                                                F-34
   Notes to Balance Sheets                                                                                     F-35

Financial Statements of Guarantors:
General Felt Industries, Inc.
   Report of Independent Accountants                                                                           F-36
   Consolidated Balance Sheets as of December 28, 1997 and December 29, 1996                                   F-37
   Consolidated Statements of Operations for the years ended 1997, 1996 and 1995                               F-39
   Consolidated Statements of Cash Flows for the years ended 1997, 1996 and 1995                               F-40
   Consolidated Statements of Stockholder's Equity for the years ended 1997, 1996 and 1995                     F-41
   Notes to Consolidated Financial Statements                                                                  F-42

Foamex Fibers, Inc.
   Report of Independent Accountants F-52 Balance Sheets as of December 28, 1997
     and December 29, 1996                                                                                     F-53
   Statements of Operations for the years ended 1997, 1996 and for the period from
     April 13, 1995 to December  31, 1995 and the period from January 1, 1995 to
     April 12, 1995                                                                                            F-54
   Statements of Cash Flows for the years ended 1997, 1996 and for the period from
     April 13, 1995 to December  31, 1995 and the period from January 1, 1995 to
     April 12, 1995                                                                                            F-55
   Statements of  Stockholder's  Equity for the years ended 1997, 1996 and for the period from
     April 13, 1995 to December 31, 1995 and the period from January 1, 1995 to April 12, 1995                 F-56
   Notes to Financial Statements                                                                               F-57
</TABLE>

                                      F-1
<PAGE>

                        REPORT OF INDEPENDENT ACCOUNTANTS


To the Partners of Foamex L.P.:

We have audited the accompanying  consolidated balance sheets of Foamex L.P. and
subsidiaries  ("Foamex L.P.") as of December 28, 1997 and December 29, 1996, and
the related  consolidated  statements  of  operations,  cash flows and partners'
equity  (deficit)  for each of the three years in the period ended  December 28,
1997.  Our audits also included the financial  statement  schedule as of and for
each of the three years in the period ended December 28, 1997.  These  financial
statements and financial  statement  schedule are the  responsibility  of Foamex
L.P.'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  in  accordance  with  generally   accepted  auditing
standards.  Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement.  An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements.  An audit also includes
assessing the  accounting  principles  used and  significant  estimates  made by
management,  as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.

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




COOPERS & LYBRAND L.L.P.

2400 Eleven Penn Center
Philadelphia, Pennsylvania
March 4, 1998, except as to
the information presented in
Note 1 and Note 16, for which
the date is March 23, 1998.

                                      F-2
<PAGE>
                          FOAMEX L.P. AND SUBSIDIARIES
                           CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
                                                      December 28,        December 29,
ASSETS                                                   1997                1996
                                                               (thousands)
CURRENT ASSETS:
<S>                                                   <C>                 <C>      
   Cash and cash equivalents                          $   9,405           $  20,968
   Restricted cash                                           --              12,143
   Accounts receivable, net of allowance for
     doubtful accounts of $8,082 and $6,328             174,959             125,847
   Inventories                                          120,299             101,220
   Deferred income taxes                                  6,850               6,720
   Due from related parties                               1,680               1,791
   Other current assets                                  39,024              20,231
                                                      ---------           ---------

       Total current assets                             352,217             288,920
                                                      ---------           ---------

PROPERTY, PLANT AND EQUIPMENT:
   Land and land improvements                             9,054               9,674
   Buildings and leasehold improvements                  79,876              78,082
   Machinery, equipment and furnishings                 219,164             185,348
   Construction in progress                              23,331              20,784
                                                      ---------           ---------

       Total                                            331,425             293,888

   Less accumulated depreciation and
     amortization                                      (110,151)           (111,461)
                                                      ---------           ---------

     Property, plant and equipment, net                 221,274             182,427

   COST IN EXCESS OF ASSETS ACQUIRED, NET               224,699              83,991

   DEBT ISSUANCE COSTS, NET                              18,889              14,902

   OTHER ASSETS                                          21,989              15,917
                                                      ---------           ---------

       TOTAL ASSETS                                   $ 839,068           $ 586,157
                                                      =========           =========
</TABLE>


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

                                      F-3
<PAGE>
                          FOAMEX L.P. AND SUBSIDIARIES
                           CONSOLIDATED BALANCE SHEETS

<TABLE>
<CAPTION>
                                                         December 28,          December 29,
LIABILITIES AND PARTNERS' EQUITY (DEFICIT)                   1997                  1996
                                                                     (thousands)
CURRENT LIABILITIES:
<S>                                                        <C>                 <C>      
   Short-term borrowings                                   $   6,598           $   3,692
   Current portion of long-term debt                          12,161              13,735
   Accounts payable                                          121,147              75,621
   Accounts payable to related parties                        11,662               8,803
   Accrued employee compensation                              10,827               7,302
   Accrued interest                                           10,655               8,871
   Accrued restructuring and plant consolidation              15,644               6,300
   Other accrued liabilities                                  37,449              27,506
                                                           ---------           ---------

     Total current liabilities                               226,143             151,830

LONG-TERM DEBT                                               726,649             392,617

DEFERRED INCOME TAXES                                          2,529               4,663

ACCRUED RESTRUCTURING AND
   PLANT CONSOLIDATION                                        11,252               4,043

OTHER LIABILITIES                                             28,797              20,172
                                                           ---------           ---------

     Total liabilities                                       995,370             573,325
                                                           ---------           ---------

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

PARTNERS' EQUITY (DEFICIT)
   General partners                                         (122,304)                632
   Limited partners                                               --              57,654
   Notes and advances due receivable from partner            (16,118)            (35,180)
   Other                                                     (17,880)            (10,274)
                                                           ---------           ---------

     Total partners' equity (deficit)                       (156,302)             12,832
                                                           ---------           ---------

TOTAL LIABILITIES AND PARTNERS' EQUITY (DEFICIT)           $ 839,068           $ 586,157
                                                           =========           =========
</TABLE>

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

                                      F-4
<PAGE>
                          FOAMEX L.P. AND SUBSIDIARIES
                      CONSOLIDATED STATEMENTS OF OPERATIONS
                     For the Years Ended 1997, 1996 and 1995
<TABLE>
<CAPTION>
                                                  December 28,        December 29,        December 31,
                                                      1997                1996                1995
                                                                      (thousands)
<S>                                                <C>                 <C>                 <C>      
NET SALES                                          $ 931,095           $ 926,351           $ 862,834

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

GROSS PROFIT                                         143,339             153,232             100,749

SELLING, GENERAL AND ADMINISTRATIVE
   EXPENSES                                           65,907              56,778              63,466

RESTRUCTURING AND OTHER CHARGES (CREDITS)             21,100              (6,415)             39,249
                                                   ---------           ---------           ---------

INCOME (LOSS) FROM OPERATIONS                         56,332             102,869              (1,966)

INTEREST AND DEBT ISSUANCE EXPENSE                    44,181              43,211              44,550

OTHER INCOME (EXPENSE), NET                            2,009               1,705                (205)
                                                   ---------           ---------           ---------

INCOME (LOSS) FROM CONTINUING OPERATIONS
   BEFORE PROVISION FOR INCOME TAXES                  14,160              61,363             (46,721)

PROVISION FOR INCOME TAXES                             2,895               7,702               1,405
                                                   ---------           ---------           ---------

INCOME (LOSS) FROM CONTINUING OPERATIONS              11,265              53,661             (48,126)

LOSS FROM DISCONTINUED OPERATIONS,
   NET OF INCOME TAXES                                    --             (42,050)             (5,117)

EXTRAORDINARY LOSS ON EARLY
   EXTINGUISHMENT OF DEBT                            (48,559)             (1,912)                 --
                                                   ---------           ---------           ---------

NET INCOME (LOSS)                                  $ (37,294)          $   9,699           $ (53,243)
                                                   =========           =========           =========
</TABLE>

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

                                      F-5
<PAGE>
                          FOAMEX L.P. AND SUBSIDIARIES
                      CONSOLIDATED STATEMENTS OF CASH FLOWS
                     For the Years Ended 1997, 1996 and 1995

<TABLE>
<CAPTION>
                                                                   December 28,       December 29,         December 31,
                                                                       1997               1996                 1995
OPERATING ACTIVITIES:                                                                 (thousands)
<S>                                                                 <C>                 <C>                 <C>       
   Net income (loss)                                                $ (37,294)          $   9,699           $ (53,243)
   Adjustments to reconcile  net income (loss) to net
    cash provided by operating activities:
     Depreciation and amortization                                     20,882              21,132              22,905
     Amortization of debt issuance costs and debt discount              2,307               2,919               2,729
     Net loss on disposal of discontinued operations                       --              40,551                  --
     Net loss from discontinued operations                                 --               1,499               5,117
     Asset writedowns and other charges (credits)                      12,041              (7,364)             16,677
     Extraordinary loss on early extinguishment of debt                24,182               1,217                  --
     Provision for uncollectible accounts                               2,295                 704               4,627
     Deferred income taxes                                               (568)              6,010                 659
     Other, net                                                        (5,977)             (5,804)               (706)
     Changes in operating assets and liabilities,
       net of acquisitions and discontinued operations:
     Accounts receivable                                               (4,038)            (13,130)             (1,472)
     Inventories                                                       12,882             (13,078)             14,146
     Accounts payable and accounts payable related parties             14,359               5,035                 823
     Accrued restructuring charges                                      5,701              (7,000)             16,834
     Other assets and liabilities                                     (24,763)             (5,724)              7,415
                                                                    ---------           ---------           ---------

     Net cash provided by continuing operations                        22,009              36,666              36,511
     Net cash used for discontinued operations                             --                (486)             (9,175)
                                                                    ---------           ---------           ---------
     Net cash provided by operating activities                         22,009              36,180              27,336
                                                                    ---------           ---------           ---------

INVESTING ACTIVITIES:
   Capital expenditures                                               (33,117)            (23,344)            (19,348)
   Acquisitions, net of cash acquired                                (119,065)               (841)             (7,272)
   Proceeds from sale of assets                                        40,169                  --                  --
   Proceeds from sale of discontinued operations                           --              42,650                  --
   Purchase of note from related party                                 (5,000)                 --              (2,000)
   Repayment of (purchase of) note from partner                        (2,500)             18,623                  --
   Decrease (increase) in restricted cash                              12,143             (12,143)                 --
   Capital expenditures for discontinued operations                        --                (919)             (4,429)
   Other investing activities                                             112              (1,276)              2,495
                                                                    ---------           ---------           ---------

     Net cash provided by (used for) investing activities            (107,258)             22,750             (30,554)
                                                                    ---------           ---------           ---------

FINANCING ACTIVITIES:
   Net proceeds from (repayments of) short-term borrowings              2,894               1,493              (1,685)
   Net proceeds from (repayments of) revolving loans                   54,928                  --              (3,000)
   Proceeds from long-term debt                                       594,499               1,500                  --
   Repayments of long-term debt                                      (430,593)            (38,116)             (9,099)
   Purchase of FJPS senior secured discount debentures               (105,829)                 --                  --
   Tax distribution advances                                          (13,618)                 --                  --
   Distributions to partners                                          (10,283)             (3,487)             (2,379)
   Debt issuance costs                                                (18,410)                 --                  --
   Other financing activities                                              98                  10                  --
                                                                    ---------           ---------           ---------

     Net cash provided by (used for) financing activities              73,686             (38,600)            (16,163)
                                                                    ---------           ---------           ---------

Net increase (decrease) in cash and cash equivalents                  (11,563)             20,330             (19,381)

Cash and cash equivalents at beginning of period                       20,968                 638              20,019
                                                                    ---------           ---------           ---------

Cash and cash equivalents at end of period                          $   9,405           $  20,968           $     638
                                                                    =========           =========           =========
</TABLE>

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

                                      F-6
<PAGE>
                          FOAMEX L.P. AND SUBSIDIARIES
              CONSOLIDATED STATEMENTS OF PARTNERS' EQUITY (DEFICIT)
                     For the Years Ended 1997, 1996 and 1995

<TABLE>
<CAPTION>
                                                                                     Note
                                                      General       Limited       Receivable
                                                      Partners      Partners     from Partner        Other         Total
                                                                                  (thousands)
<S>                                                  <C>           <C>           <C>             <C>            <C>   
Balances at January 1, 1995                             1,448         97,686        (38,167)        (8,419)        52,548
Net loss                                               (1,044)       (52,199)            --             --        (53,243)
Distributions                                            (125)        (5,603)            --             --         (5,728)
Purchase of note receivable from
   Foamex International                                    --             --         (2,000)            --         (2,000)
Increase in note receivable from
   Trace Holdings                                          --             --             --         (1,373)        (1,373)
Accretion of note receivable from partner                 125          6,152         (6,277)            --             --
Additional pension liability                               --             --             --         (3,290)        (3,290)
Foreign currency translation adjustment                    --             --             --            482            482
                                                    ---------      ---------      ---------      ---------      ---------
Balances at December 31, 1995                             404         46,036        (46,444)       (12,600)       (12,604)

Net income                                                184          9,515             --             --          9,699
Distributions                                            (104)        (5,108)            --             --         (5,212)
Accretion of note receivable from partner                 144          7,031         (7,175)            --             --
Repayment of note receivable from partner                  --             --         18,439             --         18,439
Repayment premium on note receivable
   from partner                                             4            180             --             --            184
Additional pension liability                               --             --             --          2,372          2,372
Foreign currency translation adjustment                    --             --             --            (46)           (46)
                                                    ---------      ---------      ---------      ---------      ---------
Balances at December 29, 1996                             632         57,654        (35,180)       (10,274)        12,832

Net loss                                                 (746)       (36,548)            --             --        (37,294)
Distributions                                             (23)        (1,099)            --             --         (1,122)
Accretion of note receivable from partner                  48          2,339         (2,387)            --             --
Distributions associated with the June 1997
   Refinancing Plan                                    (2,896)      (141,947)        37,567             --       (107,276)
Additional pension liability                               --             --             --         (1,311)        (1,311)
Foreign currency translation adjustment                    --             --             --           (873)          (873)
Increase in note receivable from Trace Holdings            --             --             --         (5,422)        (5,422)
Purchase of note receivable from Foamex
   International                                           --             --         (2,500)            --         (2,500)
Tax distribution advance                                   --             --        (13,618)            --        (13,618)
Other                                                      --            282             --             --            282
Deficit balance of Limited Partners assumed
   by General Partners                               (119,319)       119,319             --             --             --
                                                    ---------      ---------      ---------      ---------      ---------

Balances at December 28, 1997                       $(122,304)     $      --      $ (16,118)     $ (17,880)     $(156,302)
                                                    =========      =========      =========      =========      =========
</TABLE>

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

                                      F-7
<PAGE>
                          FOAMEX L.P. AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

1.   ORGANIZATION AND BASIS OF PRESENTATION

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

     During 1997, 1996 and 1995,  Foamex L.P., a Delaware  limited  partnership,
was an indirect, majority-owned subsidiary of Foamex International Inc. ("Foamex
International").  Effective February 27, 1998, Foamex L.P. became a wholly-owned
subsidiary of Foamex International (See Note 19).

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

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

2.   SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

     Consolidation

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

     Fiscal Year

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

                                      F-8
<PAGE>
                          FOAMEX L.P. AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

2.   SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)

     Accounting Estimates

     The  preparation  of financial  statements  in  conformity  with  generally
accepted  accounting  principles  requires  management  to  make  estimates  and
assumptions  that affect the reported  amounts of assets and  liabilities at the
date of the  financial  statements  and the  reported  amounts of  revenues  and
expenses  during the reported  period.  Actual  results  could differ from those
estimates.  (See  Notes 3, 4, 8, 11,  15,  16 and 17 and Cost in  Excess  of Net
Assets Acquired below.)

     Revenue Recognition

     Revenue from sales is recognized when products are shipped.

     Discounts and Billing Adjustments

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

     Cash and Cash Equivalents

     Foamex  L.P.  considers  all highly  liquid  investments  with an  original
maturity of three months or less when purchased to be cash equivalents.

     Restricted Cash

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

     Inventories

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

     Property, Plant and Equipment

     Property,  plant and equipment are stated at cost and are depreciated using
the  straight-line  method over the  estimated  useful lives of the assets.  The
range of useful lives estimated for buildings is generally twenty to thirty-five
years and the range for machinery,  equipment and  furnishings is five to twelve
years. Leasehold improvements are amortized over the shorter of the terms of the
respective  leases or the estimated useful lives of the leasehold  improvements.
Depreciation  expense for the years ended 1997, 1996 and 1995 was $17.6 million,
$17.9 million and $18.7 million,  respectively.  For income tax purposes, Foamex
L.P. uses accelerated depreciation methods.

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

                                      F-9
<PAGE>
                          FOAMEX L.P. AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

2.   SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)

     Debt Issuance Costs

     Debt  issuance  costs  consist of amounts  incurred in obtaining  long-term
financing.  These costs are being  amortized  over the term of the related  debt
using the effective interest method. Accumulated amortization as of December 28,
1997 and December  29, 1996 was  approximately  $1.4  million and $7.5  million,
respectively.

     Cost in Excess of Net Assets Acquired

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

     Environmental Matters

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

     Postretirement and Postemployment Benefits

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

     Foreign Currency Accounting

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

     Interest Rate Swap Agreement

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

                                      F-10

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

2.   SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)

     Income Taxes

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

     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.  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.  was a  corporation  filing  separate  tax  returns.  The
ability of Foamex L.P. to make such distributions is limited by the terms of its
credit agreements and indentures. (See Note 7).

     Reclassifications

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

     New Accounting Standards

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

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

3.   ACQUISITIONS

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

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

3.   ACQUISITIONS (continued)

of  approximately  $1.5 million of severance  and related costs and $8.5 million
for costs  associated with the shut down and  consolidation  of certain acquired
facilities.

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

     During 1994, Foamex L.P. acquired  Transformacio De Espumas Y Fieltros S.A.
de C.V.  ("TEFSA") for an aggregate purchase price of approximately $4.5 million
to be paid  over a  three-year  period  with an  initial  cash  payment  of $1.7
million. During 1997, 1996 and 1995, Foamex L.P. made scheduled cash payments of
$0.9 million,  $0.8 million and $0.8 million,  respectively,  in accordance with
the purchase agreement.

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

                                                     1997            1996
                                                         (thousands)
     Net sales                                    $1,256,712     $1,271,315
                                                  ==========     ==========

     Income (loss) from continuing operations     $    2,904     $   45,881
                                                  ==========     ==========

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

4.   RESTRUCTURING AND OTHER CHARGES (CREDITS)

     In 1995, Foamex L.P. approved a restructuring plan (the "1995 restructuring
plan") to consolidate thirteen foam production,  fabrication or branch locations
to  concentrate  resources  as a result  of  industry  conditions  and to better
position itself to achieve its strategic growth objectives. Foamex L.P. recorded
restructuring  and other  charges of $39.2  million which was comprised of $35.6
million associated with the consolidation of the foam production, fabrication or
branch  locations,  $2.2  million  associated  with  the  completion  of a  1993
restructuring  plan and $1.4  million  associated  with  merger and  acquisition
activities  of Foamex L.P. The  components  of the $35.6  million  restructuring
charge include:  $16.7 million for fixed asset writedowns (net of estimated sale
proceeds),  $15.1 million for plant closure and operating lease  obligations and
$3.8 million for  personnel  reductions.  The $3.8  million  cost for  personnel
reductions  primarily represents severance and employee benefit costs associated
with the elimination of manufacturing and administrative personnel.

     In  1996,  Foamex  L.P.  determined  to  continue  to  operate  one  of the
facilities  originally  identified  for closure in the 1995  restructuring  plan
because  of  improved  economics  and the lack of synergy  to be  achieved  from
relocating the

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

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

manufacturing  process.  In addition,  Foamex L.P.  approved a plan to close two
facilities that were not originally  identified in the 1995 restructuring  plan.
As a result of these  changes to the 1995  restructuring  plan and the favorable
termination of certain lease agreements and other matters,  Foamex L.P. recorded
a $6.4 million net restructuring credit which included a restructuring credit of
$11.3 million  associated  with Foamex L.P.'s decision not to close the facility
identified  as  part  of  the  1995  restructuring  plan  and  $1.7  million  of
restructuring credits relating primarily to the favorable termination of certain
lease  agreements  and other matters  relating to the 1995  restructuring  plan,
offset by $6.6 million of  restructuring  charges relating to the closure of the
two facilities during 1997 (the "1996 restructuring plan").

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

     In addition,  Foamex L.P.  approved a  consolidation  plan to integrate the
acquired Crain  facilities into Foamex L.P.'s existing  facilities.  The Company
recorded  approximately  $1.5  million of severance  and related  costs and $8.5
million for costs associated with the shut down of certain acquired facilities.

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

<TABLE>
<CAPTION>
                                                             Asset        Plant Closure   Personnel
                                             Total         Writedowns       and Leases    Reductions        Other
                                                                                          (millions)
<S>                                         <C>             <C>             <C>             <C>            <C>   
1995 restructuring charge                   $  39.2         $  16.7         $  15.1         $  3.8         $  3.6
Asset writeoff/writedowns                     (23.3)          (20.9)             --             --           (2.4)
Cash spending                                  (0.4)             --            (0.3)          (0.1)            --
                                            -------         -------         -------         ------         ------

Balances at December 31, 1995                  15.5            (4.2)           14.8            3.7            1.2
Cash spending                                  (9.7)             --            (6.6)          (2.0)          (1.1)
Cash proceeds                                   1.0             1.0              --             --             --
1996 restructuring charge                       6.6             2.4             4.1            0.1             --
Restructuring credits                         (13.0)           (9.7)           (2.8)          (0.4)          (0.1)
Asset adjustment for restructuring
   credits                                      8.1             8.7            (0.6)            --             --
                                            -------         -------         -------         ------         ------

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

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

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

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

     As  indicated  in the table  above,  the  accrued  restructuring  and plant
consolidation balance at December 28, 1997 will be used for payments relating to
plant  closure and leases for the closed  facilities.  The $5.7 million of asset
writedowns  relates to estimated  proceeds and is included in noncurrent assets.
Foamex L.P. expects to incur  approximately $15.6 million of charges during 1998
with the remaining $11.3 million to be incurred through 2004. As of December 28,
1997, Foamex L.P. has terminated all 270 employees  associated with the 1996 and
1995  restructuring  plans  and  notified  approximately  640  employees  in the
manufacturing  and  administrative  areas  of  their  impending  termination  in
connection with the 1997 restructuring and plant consolidation plans.

5.   INVENTORIES

     Inventories consists of:

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

6.   SHORT-TERM BORROWINGS

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

7.   LONG-TERM DEBT AND EXTRAORDINARY LOSS

     Long-term debt consists of:
<TABLE>
<CAPTION>
                                                                          December 28,       December 29,
                                                                               1997              1996
     Credit Facility:                                                                (thousands)
<S>                                                                         <C>               <C>     
       Term Loan A (1)                                                      $ 76,700          $     --
       Term Loan B (1)                                                       109,725                --
       Term Loan C (1)                                                        99,750                --
       Term Loan D (1)                                                       110,000                --
       Revolving credit facility (2)                                          54,928                --
     9 7/8% Senior subordinated notes due 2007 (3)                           150,000                --
     13 1/2% Senior subordinated notes due 2005 (includes
       $13,720 of unamortized debt premiums) (3)                             111,720                --
     9 1/2% Senior secured notes due 2000 (4)                                  4,523           106,793
     11 1/4% Senior notes due 2002 (4)                                            --           141,400
     11 7/8% Senior subordinated debentures due 2004 (net of
       unamortized debt discount of $769)                                         --           125,056
     11 7/8% Senior subordinated debentures due 2004, Series B (5)                --             7,000
     Industrial revenue bonds (6)                                              7,000             7,000
</TABLE>

                                      F-14

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

7.   LONG-TERM DEBT AND EXTRAORDINARY LOSS (continued)
<TABLE>
<CAPTION>
                                                             December 28,       December 29,
                                                                 1997               1996
                                                                       (thousands)
<S>                                                            <C>               <C>     
     Foamex L.P. term loan (8.54% interest rate as of
       December 29, 1996) (6)                                        --            11,000
     Subordinated note payable (net of unamortized
       debt discount of $886 and $1,198) (5)                      6,129             5,817
     Other                                                        8,335             2,286
                                                               --------          --------
                                                                738,810           406,352

     Less current portion                                        12,161            13,735
                                                               --------          --------

     Long-term debt-unrelated parties                          $726,649          $392,617
                                                               ========          ========
<FN>

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

     Refinancing Plan

     On  June  12,  1997,  Foamex   International   substantially   completed  a
refinancing  plan (the  "Refinancing  Plan") that  included the  refinancing  of
certain long-term indebtedness to reduce Foamex International's interest expense
and improve  financing  flexibility.  In connection with the  Refinancing  Plan,
Foamex L.P. purchased approximately $342.3 million of aggregate principal amount
of its public  debt and  approximately  $116.7  million of  aggregate  principal
amount of FJPS's senior  secured  discount  debentures  due 2004 (the  "Discount
Debentures")  and repaid $5.2 million of term loan borrowings  under an existing
credit  facility.  Foamex  L.P.  incurred  an  extraordinary  loss on the  early
extinguishment  of debt associated with the  Refinancing  Plan of  approximately
$44.5 million.  The Refinancing  Plan was funded by $347.0 million of borrowings
under a new $480.0 million credit  facility (the "Credit  Facility") and the net
proceeds from the issuance of $150.0 million of 9 7/8% senior subordinated notes
due 2007.

     In  addition,  on  October  1,  1997,  Foamex  L.P.  redeemed  all  of  the
outstanding: (i) 11 1/4% senior notes due 2002, (ii) 11 7/8% senior subordinated
debentures  due 2004 and (iii) the 11 7/8% senior  subordinated  debentures  due
2004,  Series B, constituting  approximately  $26.2 million of the approximately
$30.7  million of its  outstanding  public debt that was not tendered as part of
the  Refinancing  Plan. The redemption was funded from the Credit  Facility.  In
connection with this redemption,  Foamex L.P. incurred an extraordinary  loss on
the early extinguishment of debt of approximately $2.1 million.

     Credit Facility

     On June 12, 1997, Foamex L.P. entered into the Credit Facility with a group
of banks that provides for term loans of up to $440.0  million which expire from
June 2003 to June 2006 and  borrowings of up to $150.0 million under a revolving
line of credit which expires in June 2003. The term loans are comprised of a (i)
term A loan ("Term A") which provides up to $120.0  million of borrowings,  (ii)
term B loan ("Term B") of $110.0 million, (iii) term C loan ("Term C") of $100.0
million and (iv) term D loan ("Term D") of $110.0  million 

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

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

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

     Pursuant  to the terms of the  Credit  Facility,  borrowed  funds will bear
interest at a floating rate equal to an applicable margin, as defined,  plus the
higher of (i) the base rate of The Bank of Nova  Scotia,  in effect from time to
time, or (ii) a rate that is equal to 0.5% per annum plus the federal funds rate
in effect from time to time.  The applicable  margin is determined  based on the
total net debt to EBDAIT ratio,  as defined,  and can range from no margin up to
1.125% per annum for Term A and revolving loans, from 0.875% per annum to 1.375%
per annum for Term B, from  1.125%  per annum to 1.625% per annum for Term C and
from  1.250%  per annum to 1.750%  per annum for Term D. At the option of Foamex
L.P.,   portions  of  the  outstanding  loans  under  the  Credit  Facility  are
convertible  into LIBOR based loans which bear interest at a floating rate equal
to an  applicable  margin for LIBOR based  loans,  as defined,  plus the average
LIBOR,  as defined.  The applicable  margin for LIBOR based loans is a rate that
will  generally  equal the  applicable  margin  (discussed  above) plus 1.0% per
annum.

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

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

     The  Senior  Subordinated  Notes  were  issued  by Foamex  L.P.  and FCC in
connection  with the  Refinancing  Plan.  The  Senior  Subordinated  Notes  bear
interest at the rate of 9 7/8% per annum  payable  semiannually  on each June 15
and December 15,  commencing  December 15, 1997. The Senior  Subordinated  Notes
mature on June 15, The Senior  Subordinated  Notes may be redeemed at the option
of Foamex  L.P.,  in whole or in part,  at any time on or after  June 15,  2002,
initially  at 104.938% of their  principal  amount,  plus  accrued  interest and
liquidated  damages,  as defined,  if any, thereon to the date of redemption and
declining to 100.0% on or after June 15, 2005. In addition, at any time prior to
June 15, 2000,  Foamex L.P. may on one or more  occasions  redeem up to 35.0% of
the initially outstanding principal amount of the Senior Subordinated Notes at a
redemption  price  equal to  109.875%  of the  principal  amount,  plus  accrued
interest and liquidated  damages, if any, thereon to the date of redemption with
the cash proceeds of one or more Public Equity Offerings,  as defined.  Upon the
occurrence  of  a  change  of  control,  as  defined,   each  holder  of  Senior
Subordinated  Notes will have the right to require Foamex L.P. to repurchase the
Senior  Subordinated  Notes at a price equal to 101.0% of the principal  amount,
plus accrued interest and liquidated damages, if any, to the date of repurchase.
The Senior Subordinated Notes are subordinated in right of payment to all senior
indebtedness and are pari passu in right of payment to the subordinated note.

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

     The 13 1/2% Senior Subordinated Notes were issued by Foamex L.P. and FCC in
a private  placement  under Rule 144A of the Securities Act of 1933, as amended,
on  December  23, 1997 in  connection  with the Crain  Acquisition.  The 13 1/2%
Senior Subordinated Notes represent unsecured general obligations of Foamex L.P.
and are subordinated to all Senior Debt (as defined in the Indenture).

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

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

     The 13 1/2% Senior  Subordinated Notes mature on August 15, 2005.  Interest
on the 13  1/2%  Senior  Subordinated  Notes  is  payable  semiannually  on each
February 15 and August 15. The 13 1/2% Senior  Subordinated  Notes bear interest
at the rate of 13 1/2% per annum. The 13 1/2% Senior  Subordinated  Notes may be
redeemed  prior to August 15,  2002,  except in the event of a Change of Control
(as defined) or Foamex L.P. may,  subject to certain  requirements (as defined),
on or prior to August 15,  1998 redeem up to 33 1/3% of the  aggregate  original
principal amount with proceeds from an Equity Offering (as defined).

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

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

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

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

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

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

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

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

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

     Industrial Revenue Bonds ("IRBs")

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

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

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

     Subordinated Note Payable

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

     Other

     As of December 28, 1997, other debt is comprised primarily of capital lease
obligations and borrowings by Foamex Mexico.

     Early Extinguishment of Debt - Refinancing Plan

     In  connection  with  the  Refinancing   Plan,   Foamex  L.P.  incurred  an
extraordinary  loss on the early  extinguishment of debt of approximately  $44.5
million.  The extraordinary loss is comprised of approximately $20.2 million for
premium and consent fee payments,  approximately $12.6 million for the write-off
of debt issuance  costs and debt  discount,  approximately  $8.2 million for the
loss  associated  with the effective  termination  and amendment of the interest
rate swap agreements and  approximately  $3.5 million of  professional  fees and
other costs. In connection with the  Refinancing  Plan,  Foamex L.P. repaid $5.2
million  in term loan  borrowings  under the Foamex  L.P.  Credit  Facility  and
purchased  approximately  $459.0 million of aggregate principal amount of public
debt comprised of:

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

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

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

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

     o    $116.7  million  of  aggregate   principal   amount  of  the  Discount
          Debentures  for an  aggregate  consideration  of  90.0%  of  principal
          amount,  which  represents  approximately  121.9% of the accreted book
          value as of June 12,  1997,  comprised  of a tender  price of 88.0% of
          principal amount and a consent fee of 2.0%.

                                      F-18
<PAGE>
                          FOAMEX L.P. AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

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

     Early Extinguishment of Debt - Other

     In  addition,  during  1997 Foamex L.P.  incurred  extraordinary  losses of
approximately  $1.0  million   associated  with  the  early   extinguishment  of
approximately  $11.8 million of long-term debt funded with  approximately  $12.1
million  of the  remaining  net  proceeds  from the  sale of  Perfect  Fit.  The
extraordinary  loss is  comprised  of  approximately  $0.4  million  of  premium
payments  and  approximately  $0.6 million for the  write-off  of debt  issuance
costs. The long-term debt was comprised of:

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

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

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

     During 1996,  Foamex L.P.  used $31.3  million of the net proceeds from the
sale of Perfect Fit to extinguish debt of $30.6 million and redemption  premiums
of $0.6  million.  Foamex L.P.  wrote off $1.2  million of debt  issuance  costs
associated with the early  extinguishment of debt and incurred transaction costs
of $0.1 million.  The early  extinguishment of debt resulted in an extraordinary
loss of $1.9 million.

     Interest Rate Swap Agreements

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

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

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

     Debt Restrictions and Covenants

     The indentures,  credit facility and other indebtedness  agreements contain
certain covenants that limit, among other things, the ability of Foamex L.P. (i)
to pay distributions or redeem partnership interests, (ii) to

                                      F-19
<PAGE>
                          FOAMEX L.P. AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

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

make certain  restrictive  payments or  investments,  (iii) to incur  additional
indebtedness  or issue Preferred  Equity  Interest,  as defined,  (iv) to merge,
consolidate or sell all or substantially all of its assets, or (v) to enter into
certain  transactions with affiliates or related persons.  In addition,  certain
agreements  contain  a  provision  that,  in the  event of a  defined  change of
control,  the indebtedness must be repaid, in certain cases at the option of the
holder.  Also,  Foamex L.P. is required  under  certain of these  agreements  to
maintain  specified  financial  ratios  of  which  the most  restrictive  is the
maintenance of net worth and interest  coverage  ratios,  as defined.  Under the
most  restrictive  of  the  distribution  restrictions,  Foamex  L.P.  can  make
distributions  to Foamex  International  only to the  extent  to  enable  Foamex
International to meet its operating and debt obligations.

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

     Future Obligations on Long-Term Debt

     Scheduled maturities of long-term debt are shown below:

         Year Ended                                          Long-Term Debt
                                                               (thousands)
         1998                                                   $ 12,161
         1999                                                     17,902
         2000                                                     26,168
         2001                                                     19,171
         2002                                                     23,248
         Thereafter                                              627,326
                                                                --------
                                                                 725,976
         Unamortized debt premium, net                            12,834
                                                                --------
              Total                                             $738,810
                                                                ========

8.   EMPLOYEE BENEFIT PLANS

     Defined Benefit Pension Plans

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

     Net periodic pension cost included the following components:

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

                                      F-20

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

8.   EMPLOYEE BENEFIT PLANS (continued)

     Foamex L.P.'s funding policy is to contribute  annually an amount that both
satisfies the minimum  funding  requirements of the Employee  Retirement  Income
Security  Act of 1974 and does not exceed the full  funding  limitations  of the
Internal Revenue Code of 1986, as amended (the "Code"). Plan investments consist
primarily of corporate equity and debt  securities,  mutual life insurance funds
and cash  equivalents.  During 1997, the discount rate was adjusted to 7.0%. The
following table sets forth the funded status of Foamex L.P.'s  underfunded plans
and the amounts recognized in the accompanying consolidated balance sheets as of
December 28, 1997 and December 29, 1996:
<TABLE>
<CAPTION>
                                                                         December 28,  December 29,
                                                                            1997           1996
                                                                               (thousands)
     Actuarial present value of accumulated benefit obligations:
<S>                                                                       <C>           <C>     
     Vested benefits                                                      $ 61,188      $ 55,336
     Nonvested benefits                                                      3,112         2,137
                                                                          --------      --------
     Accumulated benefit obligations                                      $ 64,300      $ 57,473
                                                                          ========      ========

     Total projected benefit obligations                                  $ 65,948      $ 58,775
     Fair value of plan assets                                              58,952        53,734
                                                                          --------      --------
     Projected benefit obligations in excess of plan assets                 (6,996)       (5,041)
     Unrecognized net loss from past experience difference
               from that assumed and effect of changes in assumptions        4,704         1,099
     Additional minimum liability                                           (3,982)       (2,694)
                                                                          --------      --------
     Accrued pension cost                                                 $ (6,274)     $ (6,636)
                                                                          ========      ========
</TABLE>

     Significant assumptions used in determining the plans' funded status are as
follows:
<TABLE>
<CAPTION>
                                                                     December 28, December 29,
                                                                        1997         1996
<S>                                                                     <C>          <C>  
     Expected long-term rates of return on plan assets                  10.00%       9.50%
     Discount rates on projected benefit obligations                     7.00%       7.50%
     Rates of increase in compensation levels (where applicable)         4.00%       4.00%
</TABLE>

     Defined Contribution Plan

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

     Postretirement Benefits

     In  addition  to  providing   pension   benefits,   Foamex  L.P.   provides
postretirement  health care and life  insurance for eligible  employees.  During
1996,  certain  employees  accepted an early retirement  program  resulting in a
special  termination  loss of $0.6  million.  During 1995,  changes were made to
postretirement benefits offered

                                      F-21
<PAGE>
                          FOAMEX L.P. AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

8.   EMPLOYEE BENEFIT PLANS (continued)

to certain employees which resulted in a curtailment loss of $0.6 million. These
plans are  unfunded  and Foamex  L.P.  retains  the right,  subject to  existing
agreements, to modify or eliminate these benefits.

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

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

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

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

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

     Postemployment Benefits

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

9.   DISCONTINUED OPERATIONS

     During 1996, Foamex L.P. finalized the sale of the outstanding common stock
of  Perfect  Fit,  a  wholly-owned  subsidiary,  for an  adjusted  sale price of
approximately  $44.2 million.  The sale included all of the net assets of Foamex
L.P.'s home comfort products segment.  Actual and estimated transaction expenses
related to the sale totaled  approximately $1.5 million.  Foamex L.P. recorded a
net  loss on the sale of  Perfect  Fit of  approximately  $41.8  million,  which
includes  the  loss on  disposal  and a net  loss of $1.3  million  (net of $1.2
million  income tax benefit)  relating to operating  losses during the phase-out
period.  Interest  and debt  issuance  expense  was  allocated  to  discontinued
operations  based on the  estimated  debt to be retired from the net proceeds of
the sale.

10.  SALE OF ASSETS

     On October 6, 1997, Foamex L.P. sold substantially all of the net assets of
its  needlepunch  carpeting,  tufted  carpeting and  artificial  grass  products
business  located at its facilities in Dalton,  Georgia to Bretlin,  Inc. for an
aggregate sale price of  approximately  $41.0 million.  Foamex L.P.  realized an
insignificant  gain on the sale in 1997.  Foamex L.P.  used $38.8 million of the
net sale proceeds to repay  outstanding  term loan  borrowings  under the Credit
Facility.   In  connection  with  this  repayment,   Foamex  L.P.   incurred  an
extraordinary  loss on the early  extinguishment  of debt of approximately  $0.9
million during 1997.

                                      F-22

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

11.  INCOME TAXES

     Income (loss) from continuing  operations before provision for income taxes
consists of the following:
<TABLE>
<CAPTION>
                                                             1997             1996            1995
                                                                          (thousands)
<S>                                                        <C>              <C>             <C>      
     United States                                         $ 15,076         $ 58,277        $(45,738)
     Foreign                                                   (916)           3,086            (983)
                                                           --------         --------        --------
     Income (loss) from continuing operations
        before provision (benefit) for income taxes        $ 14,160         $ 61,363        $(46,721)
                                                           ========         ========        ========
</TABLE>

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

<TABLE>
<CAPTION>
                                                    1997            1996            1995
                                                                (thousands)
<S>                                                <C>            <C>             <C>    
     Continuing operations                         $ 2,895        $ 7,702         $ 1,405
     Discontinued operations                            --         (2,606)         (2,640)
                                                   -------        -------         -------
     Total consolidated provision (benefit)
        for income taxes                           $ 2,895        $ 5,096         $(1,235)
                                                   =======        =======         =======
</TABLE>

     The total consolidated  provision  (benefit) for income taxes is summarized
as follows:
<TABLE>
<CAPTION>
                                                                       1997             1996           1995
       Current:                                                                     (thousands)
<S>                                                                   <C>             <C>            <C>    
       Federal                                                        $ 1,958         $   220        $    --
       State                                                            1,007             686            266
       Foreign                                                            498             786            480
                                                                      -------         -------        -------
           Total current                                                3,463           1,692            746
                                                                      -------         -------        -------

     Deferred:
       Federal                                                           (247)          1,665         (1,424)
       State                                                              (87)          1,248           (268)
       Foreign                                                           (234)            491           (289)
                                                                      -------         -------        -------
       Total deferred                                                    (568)          3,404         (1,981)
                                                                      -------         -------        -------

       Total consolidated provision (benefit) for income taxes        $ 2,895         $ 5,096        $(1,235)
                                                                      =======         =======        =======
</TABLE>

     The tax effect of the temporary  differences  that give rise to significant
deferred tax assets and liabilities are:
<TABLE>
<CAPTION>
                                                         December 28,     December 29,
                                                             1997             1996
     Deferred tax assets:                                        (thousands)
<S>                                                       <C>              <C>     
       Inventory basis differences                        $    422         $    415
       Employee benefit accruals                               860              714
       Allowances and contingent liabilities                 2,968            2,548
       Restructuring and plant closing accruals              2,514            3,632
       Other                                                   373              221
       Net operating loss carryforwards                         --            5,154
       Capital loss carryforwards                            9,097           14,193
       Valuation allowance for deferred tax assets          (9,097)         (15,988)
                                                          --------         --------

     Deferred tax assets                                     7,137           10,889
                                                          --------         --------
</TABLE>

                                      F-23

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

11.  INCOME TAXES (continued)
<TABLE>
<CAPTION>
                                                             December 28,   December 29,
                                                                 1997           1996
     Deferred tax liabilities:                                      (thousands)
<S>                                                              <C>           <C>  
       Basis difference in property, plant and equipment         2,623         7,644
       Other                                                       193         1,188
                                                                ------        ------

     Deferred tax liabilities                                    2,816         8,832
                                                                ------        ------

     Net deferred tax assets (liabilities)                      $4,321        $2,057
                                                                ======        ======
</TABLE>

     Foamex L.P. has determined  that taxable  capital gains in the  foreseeable
future for a  subsidiary  that files a separate  federal  income tax return will
likely not be sufficient to recognize the deferred tax asset associated with the
capital loss carryforward of that subsidiary. Accordingly, a valuation allowance
has been  provided for the deferred tax asset  associated  with the capital loss
carryforward.  During  1997,  the  valuation  allowance  for deferred tax assets
decreased by $6.9 million which  included a $5.0 million for the  utilization of
the capital loss carryforward in connection with the sale of a facility and $1.9
million  decrease  due to  reversal  of General  Felt  preacquisition  temporary
differences.  The $1.9 million reversal of preacquisition  temporary differences
was used to reduce  cost in excess of assets  acquired.  At December  28,  1997,
General  Felt has $26.0  million of capital  loss  carryforwards  that expire in
2001.

     A reconciliation  of the statutory federal income tax rate to the effective
income tax rate on continuing operations is as follows:
<TABLE>
<CAPTION>
                                                             1997            1996             1995
                                                                         thousands)
<S>                                                       <C>              <C>              <C>      
     Statutory income taxes                               $  4,956         $ 21,477         $(16,352)
     State income taxes, net of federal                        785            1,288              266
     Permanent difference on partnership income             (2,119)         (11,714)          12,233
     Limitation on the utilization of tax benefits              --               --            4,929
     Write-off of excess cost                                4,305               --               --
     Valuation allowance                                    (5,028)          (4,823)              --
     Cost in excess of assets acquired                         419              551              554
     Other                                                    (423)             923             (225)
                                                          --------         --------         --------

       Total                                              $  2,895         $  7,702         $  1,405
                                                          ========         ========         ========
</TABLE>

12.  COMMITMENTS AND CONTINGENCIES

     Operating Leases

     Foamex L.P. is obligated under various  noncancellable lease agreements for
rental of facilities,  vehicles and other equipment.  Many of the leases contain
renewal  options  with  varying  terms and  escalation  clauses that provide for
increased  rentals based upon increases in the Consumer Price Index, real estate
taxes  and  lessors'  operating  expenses.   Total  minimum  rental  commitments
(excluding  commitments  accrued  as part of the 1997  restructuring  and  plant
consolidation  plans  and 1996  and 1995  restructuring  plans)  required  under
operating leases at December 28, 1997 are:

                                      F-24
<PAGE>
                          FOAMEX L.P. AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

12.  COMMITMENTS AND CONTINGENCIES (continued)

                                                      Operating
                                                        Leases
                                                     (thousands)
       1998                                            $11,098
       1999                                              9,970
       2000                                              8,338
       2001                                              6,483
       2002                                              6,524
       Thereafter                                       17,322
                                                       -------

         Total                                         $59,735
                                                       =======

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

13.  RELATED PARTY TRANSACTIONS AND BALANCES

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

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

     In  connection   with  the   Refinancing   Plan,   Foamex  L.P.   purchased
approximately   $116.7  million  of  aggregate   principal  amount  of  Discount
Debentures for  approximately  $105.8  million  including  transaction  costs of
approximately $0.8 million.  Foamex L.P.  subsequently  distributed the Discount
Debentures to FJPS and FMXI.

     Also on June 12, 1997, Foamex L.P.  distributed its $56.2 million aggregate
principal amount note, as amended,  due 2006 (the "FJPS Note") from FJPS with an
accreted  value  as of June 12,  1997 of $35.6  million  to FJPS and  FMXI.  The
accretion  of the  original  issue  discount of $2.4 million for the period from
December  30, 1996 to June 12, 1997 was  reflected  as a direct  increase in the
FJPS  Note  and  partners'  capital  account,  and  thereby  excluded  from  the
consolidated statements of operations.

     In  connection  with  the  Refinancing   Plan,  Foamex  L.P.  made  a  cash
distribution of  approximately  $1.5 million to Trace Foam as a result of Foamex
L.P.'s distribution to FJPS and FMXI of the Discount  Debentures,  the FJPS Note
and the $2.0 million aggregate  principal amount promissory note due from Foamex
International.

                                      F-25
<PAGE>
                          FOAMEX L.P. AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

13.  RELATED PARTY TRANSACTIONS AND BALANCES (continued)

     Foamex L.P. has a supply  agreement  (the "Supply  Agreement")  with Foamex
International   pursuant  to  which,  at  the  option  of  Foamex  L.P.,  Foamex
International  will purchase certain raw materials,  which are necessary for the
manufacture of Foamex L.P.'s products,  and resell such materials to Foamex L.P.
at a price equal to net cost plus reasonable out of pocket expenses.  Management
believes that the terms of the Supply Agreement are no less favorable than those
which Foamex L.P. could have obtained from an unaffiliated  third party.  During
1997, 1996 and 1995, Foamex L.P. purchased  approximately $138.6 million, $129.7
million and $105.1  million,  respectively,  of raw  materials  under the Supply
Agreement.  As of December  28, 1997 and  December  29,  1996,  Foamex L.P.  had
accounts payable to Foamex International of approximately $11.7 million and $8.8
million, respectively, associated with the Supply Agreement.

     Foamex  L.P.  chartered  an  aircraft  (which  is owned  by a  wholly-owned
subsidiary of Foamex International)  through a third party and incurred costs of
approximately $1.2 million and $1.4 million in 1997 and 1996, respectively.

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

     During  April 1996,  Foamex  International  contributed  the foam  products
operations of Foamex Mexico to Foamex L.P. The contribution was accounted for in
a manner similar to a pooling of interests  since the entities were under common
control.  Accordingly,  all prior periods presented were restated to reflect the
results of operations and financial  position of Foamex Mexico.  The restatement
of prior periods was insignificant to the consolidated financial statements.

     In December 1995,  Foamex L.P. entered into a $2.0 million  promissory note
with Foamex International.  The note bears interest at a rate per annum equal to
six months LIBOR plus 4.0% and is payable semiannually in June and December. The
note was distributed to FJPS and FMXI on June 12, 1997.

     In connection with the  acquisition of Great Western,  Foamex L.P. issued a
promissory  note to Rallis (see Note 7) and entered into lease  agreements  (see
Note 12) with Rallis and an affiliate of Rallis,  for the rental of former Great
Western  manufacturing  facilities  located  in  Orange,  Ontario  and  Hayward,
California  and a warehouse  facility  in Tigard,  Oregon.  Foamex L.P.  has the
option to purchase each of these properties from Rallis or such affiliate.

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

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

                                      F-26
<PAGE>

13.  RELATED PARTY TRANSACTIONS AND BALANCES (continued)

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

     Foamex  L.P.  made  charitable  contributions  to the  Trace  International
Holding, Inc. Foundation of approximately $0.2 million in each of 1997, 1996 and
1995.

     On December 11, 1996,  Foamex L.P. entered into a Tax Distribution  Advance
Agreement,  pursuant to which its partners are entitled to obtain  advances,  in
the aggregate not to exceed $17.0 million,  against future  distributions  under
Foamex L.P.'s tax  distribution  agreement.  As of December 28, 1997, there were
$13.6 million of advances to Foamex International under this agreement.

14.  PARTNERS' EQUITY (DEFICIT)

     Foamex L.P. was formed as a Delaware  limited  partnership  on September 5,
1990, and initially capitalized on October 2, 1990, in accordance with a limited
partnership agreement as amended through December 1997. As of December 28, 1997,
the  partnership  interests of Foamex L.P. are held by FMXI, Inc.  ("FMXI"),  1%
managing  general  partnership  interest,  Trace Foam a 1%  general  partnership
interest, Crain a 1% general partnership interest and Foamex International a 97%
limited partnership interest. (See Note 19 for subsequent event.)

     Cash  distributions  in connection  with a tax sharing  agreement for 1997,
1996 and 1995 were paid (received) as follows:

                                  1997            1996             1995
                                              (thousands)
     FMXI                        $    80        $   (35)        $    12
     Trace Foam                       80             45              --
     Foamex International          8,371             --              --
     FJPS                            306          3,477           2,367
                                 -------        -------         -------

       Total                     $ 8,837        $ 3,487         $ 2,379
                                 =======        =======         =======

     Other

     The  other  component  of  partners'  equity  (deficit)   consists  of  the
following:
<TABLE>
<CAPTION>
                                                  December 28,    December 29,   December 31,
                                                      1997           1996           1995
                                                                (thousands)

<S>                                                 <C>            <C>            <C>    
     Foreign currency translation adjustment        $ 4,367        $ 3,494        $ 3,448
     Additional pension liability                     3,718          2,407          4,779
     Note receivable from Trace Holdings              9,795          4,373          4,373
                                                    -------        -------        -------

                                                    $17,880        $10,274        $12,600
                                                    =======        =======        =======
</TABLE>

                                      F-27
<PAGE>
                          FOAMEX L.P. AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

15.  ENVIRONMENTAL MATTERS

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

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

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

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

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

                                      F-28

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

15.  ENVIRONMENTAL MATTERS (continued)

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

16.  LITIGATION

     As of March 4, 1998,  Foamex L.P. and Trace  Holdings  were two of multiple
defendants  in actions  filed on behalf of  approximately  5,000  recipients  of
breast  implants  in various  United  States  federal  and state  courts and one
Canadian provincial court, some of which allege substantial damages, but most of
which allege  unspecified  damages for personal injuries of various types. Three
of these cases seek to allege claims on behalf of all breast implant  recipients
or other allegedly affected parties, but no class has been approved or certified
by the court. In addition, three cases have been filed alleging claims on behalf
of approximately 700 residents of Australia, New Zealand,  England, and Ireland.
During 1995,  Foamex L.P. and Trace Holdings were granted summary  judgments and
dismissed  as  defendants  from all cases in the  federal  courts of the  United
States and the state  courts of  California.  Appeals for these  decisions  were
withdrawn and the decisions  are final.  In addition,  two of the cases filed on
behalf of 903 foreign  plaintiffs  were  dismissed on the grounds that the cases
could not be brought in the United  States  courts.  This decision is subject to
appeal.  Foamex  L.P.  believes  that the  number  of suits  and  claimants  may
increase.  Although  breast implants do not contain foam,  certain  silicone gel
implants  were  produced  using  a  polyurethane  foam  covering  fabricated  by
independent  distributors  or  fabricators  from bulk foam purchased from Foamex
L.P. or Trace  Holdings.  Neither  Foamex L.P. nor Trace  Holdings  recommended,
authorized or approved the use of its foam for these  purposes.  While it is not
feasible  to  predict  or  determine  the  outcome  of these  actions,  based on
management's   present  assessment  of  the  merits  of  pending  claims,  after
consultation with the general counsel of Trace Holdings, and without taking into
account  potential  indemnity from the  manufacturers  of  polyurethane  covered
breast  implants,  management  believes that the disposition of matters that are
pending or that may reasonably be  anticipated to be asserted  should not have a
material adverse effect on either Foamex L.P.'s or Trace Holdings'  consolidated
financial  position or results of operations.  In addition,  Foamex L.P. is also
indemnified  by  Trace  Holdings  for  any  such  liabilities  relating  to foam
manufactured  prior to October  1990.  Although  Trace  Holdings has paid Foamex
L.P.'s  litigation  expenses  to  date  pursuant  to  such  indemnification  and
management  believes Trace Holdings  likely will be in a position to continue to
pay such expenses,  there can be no absolute  assurance that Trace Holdings will
be able to provide such indemnification.  Based on information available at this
time with respect to the potential  liability,  and without  taking into account
the  indemnification  provided by Trace  Holdings and the  coverage  provided by
Trace Holdings' and Foamex L.P.'s liability insurance, Foamex L.P. believes that
the proceedings  should not ultimately result in any liability that would have a
material  adverse  effect on the financial  position or results of operations of
Foamex L.P. If management's  assessment of Foamex L.P.'s  liability with respect
to these actions is incorrect, such actions could have a material adverse effect
on Foamex L.P.

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

                                      F-29
<PAGE>
                          FOAMEX L.P. AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

16.  LITIGATION (continued)

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

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

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

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

17.  FINANCIAL INSTRUMENTS AND CONCENTRATION OF CREDIT RISK

     Interest Rate Swap Agreements

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

     Concentration of Credit Risk

     Financial  instruments which potentially subject 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.

                                      F-30
<PAGE>
                          FOAMEX L.P. AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

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

     Disclosure about Fair Value of Financial Instruments

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

     The estimated  fair values of Foamex  L.P.'s  financial  instruments  as of
December 28, 1997 are as follows:

                                 Carrying Amount      Fair Value
                                             (thousands)

     Liabilities:
       Long-term debt             $     738,810        $741,298
                                  =============        ========

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

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

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

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

     Fair  value  estimates  are made at a  specific  point  in  time,  based on
relevant market information about the financial instruments. These estimates are
subjective  in nature and  involve  uncertainties  and  matters  of  significant
judgment  and  therefore,  cannot  be  determined  with  precision.  Changes  in
assumptions could significantly affect the estimates.

18.  SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION

<TABLE>
<CAPTION>
                                                                 1997             1996               1995
                                                                              (thousands)
<S>                                                            <C>             <C>                 <C>     
     Cash paid for interest                                    $ 45,330        $     43,378        $ 47,282
                                                               ========        ============        ========

     Cash paid for income taxes                                $  4,504        $      1,533        $    634
                                                               ========        ============        ========

     Noncash capital expenditures                              $    167        $        165        $    378
                                                               ========        ============        ========

     Non-cash distribution of FJPS note                        $ 35,567        $         --        $     --
                                                               ========        ============        ========

     Non-cash distribution of Foamex International note        $  2,000        $         --        $     --
                                                               ========        ============        ========

     Non-cash distribution of investment in FJPS senior
       subordinated discount debentures                        $105,829        $         --        $     --
                                                               ========        ============        ========
</TABLE>

                                      F-31

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

19.  SUBSEQUENT EVENT

     On February 27, 1998, Foamex International,  Foamex L.P. and certain of its
affiliates  completed  a series of  transactions  designed  to  simplify  Foamex
International's  structure and to provide future operational flexibility.  Prior
to the  consummation  of these  transactions,  (i) Foamex L.P. and Foamex L.P.'s
wholly-owned  subsidiary,  General Felt,  entered into a Supply Agreement and an
Administrative  Services  Agreement,  (ii)  Foamex L.P.  repaid its  outstanding
indebtedness  to  General  Felt with $4.8  million  in cash and a $34.0  million
two-year  promissory  note and  (iii)  Foamex  L.P.  defeased  the $4.5  million
outstanding principal amount of its 9 1/2% Senior Secured Notes due 2000. Foamex
L.P. settled its intercompany payables to General Felt with $4.8 million in cash
and a $34.0  million  principal  amount  promissory  note  supported  by a $34.5
million letter of credit under the Foamex L.P. credit facility (the  "Foamex/GFI
Note").  The initial  transaction  resulted in the transfer  from Foamex L.P. to
Trace  Foam LLC of all of the  outstanding  common  stock of  General  Felt,  in
exchange for (i) the  assumption  by Trace Foam LLC of $129.0  million of Foamex
L.P.'s  indebtedness and (ii) the transfer by Trace Foam LLC to Foamex L.P. of a
1% non-managing general partnership interest in Foamex L.P. As a result, General
Felt  ceased  being a  subsidiary  of  Foamex  L.P.  and was  relieved  from all
obligations under Foamex L.P.'s 9 7/8% Senior Subordinated Notes due 2007 and 13
1/2%  Senior  Subordinated  Notes due 2005.  Upon  consummation  of the  initial
transaction,  Foamex Carpet,  a newly formed  wholly-owned  subsidiary of Foamex
International,  Foamex  International,  Trace Foam LLC, and General Felt entered
into an Asset Purchase  Agreement dated February 27, 1998, in which General Felt
sold  substantially  all of its assets (other than the  Foamex/GFI  Note and its
operating facility in Pico Rivera,  California) to Foamex Carpet in exchange for
(i) $20.0 million in cash and (ii) a promissory  note issued by Foamex Carpet to
Trace Foam LLC in the amount of $70.2  million.  The $20.0  million cash payment
was funded with a  distribution  by Foamex  L.P. As part of these  transactions,
Foamex Fibers,  a  wholly-owned  subsidiary of General Felt, was merged with and
into General Felt and Foamex LLC, a wholly-owned  subsidiary of Foamex L.P., was
merged with and into Foamex L.P. In addition,  FMXI and Crain, both wholly-owned
subsidiaries of Foamex  International  and general partners of Foamex L.P., were
merged and Crain, as the surviving corporation, subsequently changed its name to
FMXI,  Inc. Upon  consummation of these  transactions  contemplated by the Asset
Purchase  Agreement,  Foamex  Carpet  entered into a Credit  Agreement  with the
institutions  from time to time party thereto as 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,  which provides for up to $20.0
million in revolving credit borrowings. These transactions will be accounted for
as a divestiture  and future Foamex L.P.  financial  statements will exclude the
operations  of General  Felt.  Foamex  Carpet will  conduct  the carpet  cushion
business previously conducted by General Felt. Also, Trace Foam LLC has retained
ownership of one of General Felt's operating facilities which is being leased to
Foamex Carpet and the $34.0 million Foamex/GFI Note.

     As of December 28, 1997 and December 29, 1996 and for the years then ended,
General Felt's consolidated financial information included in Foamex L.P. was as
follows:

                                                        1997             1996
     Balance Sheet:
            Current assets                           $  59,278        $  92,201
            Total assets                               110,766          177,681
            Current liabilities                         39,358           61,772
            Total liabilities                           46,445           80,662
            Equity64,321                                97,019

     Statement of Operations:
            Net sales                                $ 286,261        $ 302,648
            Income from continuing operations            6,102           18,465
            Net income (loss)                            6,102          (27,261)

                                      F-32
<PAGE>
                        REPORT OF INDEPENDENT ACCOUNTANTS


Board of Directors
Foamex Capital Corporation
Wilmington, Delaware

We have audited the  accompanying  balance sheets of Foamex Capital  Corporation
("FCC") (a  wholly-owned  subsidiary of Foamex L.P.) as of December 28, 1997 and
December  29,  1996.  These  balance  sheets  are the  responsibility  of  FCC's
management.  Our responsibility is to express an opinion on these balance sheets
based on our audits.

We  conducted  our  audits  in  accordance  with  generally   accepted  auditing
standards.  Those standards require that we plan and perform the audit to obtain
reasonable  assurance  about  whether  the  balance  sheets are 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 audits of the balance sheets provide a reasonable basis for our
opinion.

In our opinion,  the balance  sheets  referred to above present  fairly,  in all
material  respects,  the  financial  position  of FCC at  December  28, 1997 and
December 29, 1996, in conformity with generally accepted accounting principles.




COOPERS & LYBRAND L.L.P.

2400 Eleven Penn Center
Philadelphia, Pennsylvania
March 4, 1998

                                      F-33
<PAGE>
                           FOAMEX CAPITAL CORPORATION
                   (A Wholly-Owned Subsidiary of Foamex L.P.)
                                 BALANCE SHEETS


<TABLE>
<CAPTION>
                                                              December 28,    December 29,
                                                                 1997            1996

<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-34
<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

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

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

     The  Senior  Subordinated  Notes  were  issued  by Foamex  L.P.  and FCC in
connection  with the  Refinancing  Plan.  The  Senior  Subordinated  Notes  bear
interest at the rate of 9 7/8% per annum  payable  semiannually  on each June 15
and December 15,  commencing  December 15, 1997. The Senior  Subordinated  Notes
mature on June 15, The Senior  Subordinated  Notes may be redeemed at the option
of Foamex  L.P.,  in whole or in part,  at any time on or after  June 15,  2002,
initially  at 104.938% of their  principal  amount,  plus  accrued  interest and
liquidated  damages,  as defined,  if any, thereon to the date of redemption and
declining to 100.0% on or after June 15, 2005. In addition, at any time prior to
June 15, 2000,  Foamex L.P. may on one or more  occasions  redeem up to 35.0% of
the initially outstanding principal amount of the Senior Subordinated Notes at a
redemption  price  equal to  109.875%  of the  principal  amount,  plus  accrued
interest and liquidated  damages, if any, thereon to the date of redemption with
the cash proceeds of one or more Public Equity Offerings,  as defined.  Upon the
occurrence  of  a  change  of  control,  as  defined,   each  holder  of  Senior
Subordinated  Notes will have the right to require Foamex L.P. to repurchase the
Senior  Subordinated  Notes at a price equal to 101.0% of the principal  amount,
plus accrued interest and liquidated damages, if any, to the date of repurchase.
The Senior Subordinated Notes are subordinated in right of payment to all senior
indebtedness and are pari passu in right of payment to the subordinated note.

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

     The 13 1/2% Senior Subordinated Notes were issued by Foamex L.P. and FCC in
a private  placement  under Rule 144A of the Securities Act of 1933, as amended,
on  December  23, 1997 in  connection  with the Crain  Acquisition.  The 13 1/2%
Senior Subordinated Notes represent unsecured general obligations of Foamex L.P.
and are subordinated to all Senior Debt (as defined in the Indenture).

     The 13 1/2% Senior  Subordinated Notes mature on August 15, 2005.  Interest
on the 13  1/2%  Senior  Subordinated  Notes  is  payable  semiannually  on each
February 15 and August 15. The 13 1/2% Senior  Subordinated  Notes bear interest
at the rate of 13 1/2% per annum. The 13 1/2% Senior  Subordinated Notes may not
be redeemed prior to August 15, 2002, except in the event of a Change of Control
(as defined) or Foamex L.P. may,  subject to certain  requirements (as defined),
on or prior to August 15,  1998 redeem up to 33 1/3% of the  aggregate  original
principal amount with proceeds from an Equity Offering (as defined).

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

                                      F-35
<PAGE>
                        REPORT OF INDEPENDENT ACCOUNTANTS


To the Stockholder of
General Felt Industries, Inc.:

We have audited the  accompanying  consolidated  balance  sheets of General Felt
Industries,  Inc. and subsidiaries  ("General Felt") as of December 28, 1997 and
December 29, 1996, and the related consolidated  statements of operations,  cash
flows and  stockholder's  equity for each of the three years in the period ended
December 28, 1997. These financial  statements are the responsibility of General
Felt's  management.  Our  responsibility  is to  express  an  opinion  on  these
financial statements based on our audits.

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

In our opinion,  the financial  statements  referred to above present fairly, in
all material respects, the consolidated financial position of General Felt as of
December 28, 1997 and December 29,  1996,  and the  consolidated  results of its
operations  and its cash flows for each of the three  years in the period  ended
December 28, 1997, in conformity with generally accepted accounting principles.




COOPERS & LYBRAND L.L.P.

2400 Eleven Penn Center
Philadelphia, Pennsylvania
March 4, 1998

                                      F-36
<PAGE>
                 GENERAL FELT INDUSTRIES, INC. AND SUBSIDIARIES
                           CONSOLIDATED BALANCE SHEETS

<TABLE>
<CAPTION>
                                                      December 28,        December 29,
ASSETS                                                   1997                 1996
                                                               (thousands)
CURRENT ASSETS:
<S>                                                    <C>                 <C>      
   Cash                                                $     423           $     336
   Restricted cash                                            --              12,143
   Accounts receivable, net of allowance for
       doubtful accounts of $3,773 and $4,453             36,388              44,973
   Inventories                                             8,205              25,314
   Deferred income taxes                                   6,850               6,342
   Other current assets                                    7,412               3,093
                                                       ---------           ---------

       Total current assets                               59,278              92,201
                                                       ---------           ---------

PROPERTY, PLANT AND EQUIPMENT:
   Land and land improvements                              2,891               3,491
   Buildings and leasehold improvements                    1,465               5,896
   Machinery, equipment and furnishings                   17,189              29,354
   Construction in progress                                   96               1,957
                                                       ---------           ---------

       Total                                              21,641              40,698

   Less accumulated depreciation
       and amortization                                   (6,072)             (8,950)
                                                       ---------           ---------

       Property, plant and equipment, net                 15,569              31,748

COST IN EXCESS OF ASSETS ACQUIRED, NET                    35,176              50,574

OTHER ASSETS                                                 743               3,158
                                                       ---------           ---------

       TOTAL ASSETS                                    $ 110,766           $ 177,681
                                                       =========           =========
</TABLE>


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

                                      F-37
<PAGE>
                 GENERAL FELT INDUSTRIES, INC. AND SUBSIDIARIES
                           CONSOLIDATED BALANCE SHEETS

<TABLE>
<CAPTION>
                                                             December 28,       December 29,
LIABILITIES & STOCKHOLDER'S EQUITY                               1997                1996
                                                                      (thousands)
CURRENT LIABILITIES:
<S>                                                           <C>                 <C>      
   Current portion of long-term debt - related party          $      --           $  12,143
   Accounts payable                                              10,943              13,719
   Accounts payable to related party                             11,614              17,987
   Accrued employee compensation                                    538               1,434
   Accrued restructuring charges                                    827               2,279
   Other accrued liabilities                                     15,436              14,210
                                                              ---------           ---------

       Total current liabilities                                 39,358              61,772

LONG-TERM DEBT - RELATED PARTY                                      585               9,260

DEFERRED INCOME TAXES                                             1,473               3,273

ACCRUED RESTRUCTURING - NONCURRENT                                2,440               2,308

OTHER LIABILITIES                                                 2,589               4,049
                                                              ---------           ---------

       Total liabilities                                         46,445              80,662
                                                              ---------           ---------

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

STOCKHOLDER'S EQUITY:
   Common stock, $.01 par value; authorized,
      issued and outstanding 1,000 shares                            --                  --
   Additional paid-in capital                                   143,965             143,965
   Retained earnings (accumulated deficit)                      (40,844)            (46,946)
   Note receivable from Foamex L.P.                             (38,800)                 --
                                                              ---------           ---------
       Total stockholder's equity                                64,321              97,019
                                                              ---------           ---------

       TOTAL LIABILITIES AND STOCKHOLDER'S EQUITY             $ 110,766           $ 177,681
                                                              =========           =========
</TABLE>

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

                                      F-38
<PAGE>
                 GENERAL FELT INDUSTRIES, INC. AND SUBSIDIARIES
                      CONSOLIDATED STATEMENTS OF OPERATIONS
                     for the years ended 1997, 1996 and 1995

<TABLE>
<CAPTION>
                                                  December 28,        December 29,      December 31,
                                                     1997                1996               1995
                                                                     (thousands)

<S>                                               <C>                 <C>                 <C>      
NET SALES                                         $ 286,261           $ 302,648           $ 279,123

COST OF GOODS SOLD                                  260,239             263,316             252,591
                                                  ---------           ---------           ---------

GROSS PROFIT                                         26,022              39,332              26,532

SELLING, GENERAL AND
   ADMINISTRATIVE EXPENSES                           18,445              18,819              22,312

RESTRUCTURING CHARGES (CREDITS)                      (1,004)             (5,460)             14,156
                                                  ---------           ---------           ---------

INCOME (LOSS) FROM OPERATIONS                         8,581              25,973              (9,936)

INTEREST EXPENSE                                        899               2,179               1,164

OTHER INCOME, NET                                     1,339               1,015                  52
                                                  ---------           ---------           ---------

INCOME (LOSS) FROM CONTINUING
   OPERATIONS BEFORE PROVISION
   FOR INCOME TAXES                                   9,021              24,809             (11,048)

PROVISION FOR INCOME TAXES                            2,919               6,344                 962
                                                  ---------           ---------           ---------

INCOME (LOSS) FROM CONTINUING OPERATIONS              6,102              18,465             (12,010)
                                                  ---------           ---------           ---------

DISCONTINUED OPERATIONS:

OPERATING LOSS FROM DISCONTINUED
   OPERATIONS, NET OF INCOME TAXES                       --              (3,389)            (11,040)

LOSS ON DISPOSAL OF DISCONTINUED
   OPERATIONS INCLUDING PROVISION FOR
   OPERATING LOSSES DURING THE PHASE-
   OUT PERIOD, NET OF INCOME TAXES                       --             (42,337)                 --
                                                  ---------           ---------           ---------

LOSS FROM DISCONTINUED OPERATIONS,
   NET OF INCOME TAXES                                   --             (45,726)            (11,040)
                                                  ---------           ---------           ---------

NET INCOME (LOSS)                                 $   6,102           $ (27,261)          $ (23,050)
                                                  =========           =========           =========
</TABLE>


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

                                      F-39
<PAGE>
                 GENERAL FELT INDUSTRIES, INC. AND SUBSIDIARIES
                      CONSOLIDATED STATEMENTS OF CASH FLOWS
                     for the years ended 1997, 1996 and 1995
<TABLE>
<CAPTION>
                                                                December 28,     December 29,      December 31,
                                                                    1997             1996             1995
OPERATING ACTIVITIES:                                                           (thousands)
<S>                                                               <C>              <C>              <C>      
Net income (loss)                                                 $  6,102         $(27,261)        $(23,050)
Adjustments to reconcile net income (loss)
  to net cash provided by (used for) operating activities:
   Depreciation and amortization                                     4,112            4,564            4,476
   Net loss on disposal of discontinued operations                      --           40,551               --
   Net loss from discontinued operations                                --            5,175           11,040
   Asset writedowns and other charges (credits)                       (107)          (6,769)           8,505
   Provision for uncollectible accounts                              1,405              967            2,992
   Deferred income taxes                                               (46)           5,519              962
   Other operating activities, net                                    (967)              --               --
   Changes in operating assets and liabilities,
     net of acquisitions and discontinued operations:
   Accounts receivable                                               5,883          (10,358)             721
   Inventories                                                       9,431           (6,829)             157
   Accounts payable and accounts payable to
       related party                                                (9,314)           8,009           (6,309)
   Accrued restructuring charges                                    (1,318)             280            3,424
   Other assets and liabilities                                     (6,652)          (1,813)          (2,328)
                                                                  --------         --------         --------

   Net cash provided by continued operations                         8,529           12,035              590
   Net cash used for discontinued operations                            --             (524)         (12,617)
                                                                  --------         --------         --------
   Net cash provided by (used for) operating activities              8,529           11,511          (12,027)
                                                                  --------         --------         --------

INVESTING ACTIVITIES:
Capital expenditures                                                (1,258)          (2,442)          (1,604)
Proceeds from sale of assets                                        40,169               --               --
Proceeds from sale of subsidiary                                        --           42,650               --
Purchase of note receivable from Foamex L.P.                       (38,800)              --               --
Acquisition, net of cash acquired                                       --               --           (7,272)
Increase in restricted cash                                         12,143          (12,143)              --
Capital expenditures for discontinued operations                        --             (919)          (4,429)
Other investing activities                                             122           (2,149)              10
                                                                  --------         --------         --------

   Net cash provided by (used for) investing activities             12,376           24,997          (13,295)
                                                                  --------         --------         --------

FINANCING ACTIVITIES:
   Net proceeds from (repayments of) revolving loans                    --               --           (3,000)
   Net proceeds from (repayments of) Foamex L.P. 
       notes payable                                               (20,818)         (26,903)          14,742
   Payments on long-term debt - unrelated party                         --          (11,250)          (3,000)
   Net financing activities of discontinued operations                  --            1,443           17,046
                                                                  --------         --------         --------

   Net cash (used for) provided by financing activities            (20,818)         (36,710)          25,788
                                                                  --------         --------         --------

NET INCREASE (DECREASE) IN CASH                                         87             (202)             466

CASH AT BEGINNING OF PERIOD                                            336              538               72
                                                                  --------         --------         --------

CASH AT END OF PERIOD                                             $    423         $    336         $    538
                                                                  ========         ========         ========
</TABLE>

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

                                      F-40
<PAGE>
                 GENERAL FELT INDUSTRIES, INC. AND SUBSIDIARIES
                 CONSOLIDATED STATEMENTS OF STOCKHOLDER'S EQUITY

<TABLE>
<CAPTION>
                                                                                    Retained          Note
                                                                  Additional        Earnings       Receivable
                                              Common Stock          Paid-In       (Accumulated        From
                                             Shares   Amount        Capital         Deficit)       Foamex L.P.
                                                                         (thousands)
<S>                                        <C>          <C>        <C>             <C>              <C>     
Balances at January 1, 1995                       1        -        $ 67,036        $  3,365         $     --

Assumption of pension liability
   by Foamex L.P.                                --        -           2,158              --               --

Net loss                                         --        -              --         (23,050)              --
                                           --------      ---        --------        --------         --------

Balances at December 31, 1995                     1        -          69,194         (19,685)              --

Net loss                                         --        -              --         (27,261)              --

Contribution by Foamex L.P. of
   intercompany notes in connection
   with sale of Perfect Fit                      --        -          74,771              --               --
                                           --------      ---        --------        --------         --------

Balances at December 29, 1996                     1        -         143,965         (46,946)              --

Purchase of note receivable
   from Foamex L.P.                              --        -              --              --          (38,800)

Net income                                       --        -              --           6,102               --
                                           --------      ---        --------        --------         --------

Balances at December 28, 1997                     1        -        $143,965        $(40,844)        $(38,800)
                                           ========      ===        ========        ========         ========
</TABLE>


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

                                      F-41
<PAGE>
                 GENERAL FELT INDUSTRIES, INC. AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

1.   ORGANIZATION AND BASIS OF PRESENTATION

     General Felt Industries,  Inc. and subsidiaries  ("General Felt") is one of
the largest  distributors and  manufacturers of carpet cushion in North America.
In addition,  Foamex Fibers, Inc. ("Foamex Fibers"), a wholly-owned  subsidiary,
manufactures  various  nonwoven textile fiber products used primarily for carpet
padding and in the furniture industry.

     General Felt is a wholly-owned subsidiary of Foamex L.P. which in turn is a
wholly-owned subsidiary of Foamex International Inc. ("Foamex International").

     During 1996, General Felt sold Perfect Fit Industries, Inc. ("Perfect Fit")
which  comprised  the  home  comfort  products  segment  of  General  Felt.  The
consolidated  financial  statement  of  General  Felt  have  been  restated  for
discontinued operations and includes a net loss of $42.3 million, which includes
the loss on disposal and a net loss of $1.8 million (net of $1.2 million  income
tax benefit) relating to operating losses during the phase-out period.

2.   SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

     Consolidation

     The consolidated financial statements include the accounts of General Felt,
other  than  the home  comfort  products  segment,  which  is  accounted  for as
discontinued  operations.  Intercompany accounts and transactions for continuing
operations have been eliminated in consolidation.

     Fiscal Year

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

     Accounting Estimates

     The  preparation  of financial  statements  in  conformity  with  generally
accepted  accounting  principles  requires  management  to  make  estimates  and
assumptions  that affect the reported  amounts of assets and  liabilities at the
date of the financial  statements and reported  amounts of revenues and expenses
during the reported period. Actual results could differ from those estimates.  (
See Notes 4, 9, 10, 11 and 14 and Cost in Excess of Net Assets Acquired below).

     Revenue Recognition

     Revenue from sales is recognized when products are shipped.

     Discounts and Billing Adjustments

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

     Restricted Cash

     As of December 29, 1996,  General Felt had restricted cash of approximately
$12.1 million. This cash was derived from the net sales proceeds relating to the
sale of Perfect Fit and was  restricted by Foamex L.P.'s debt  agreements.  This
restricted  cash was used to reduce  long-term  debt - related party with Foamex
L.P. during

                                      F-42
<PAGE>
                 GENERAL FELT INDUSTRIES, INC. AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

2.   SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)

1997;  accordingly,  a corresponding amount of long-term debt - related party as
of December 29, 1996 was classified as current in the accompanying  consolidated
balance sheets.

     Inventories

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

     Property, Plant and Equipment

     Property,  plant and equipment are stated at cost and are depreciated using
the  straight-line  method over the  estimated  useful lives of the assets.  The
range of useful lives  estimated  for  buildings  and building  improvements  is
generally  ten to  forty  years  and the  range  for  machinery,  equipment  and
furnishings is five to twelve years.  Leasehold  improvements are amortized over
the shorter of the terms of the respective lease or the estimated useful life of
the improvement,  whichever is shorter. Depreciation expense for the years ended
1997,  1996  and  1995  was  $2.6  million,   $3.0  million  and  $2.8  million,
respectively.   For  income  tax   purposes,   General  Felt  uses   accelerated
depreciation methods.

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

     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 by the  purchase  method is
amortized  using the  straight-line  method  over a forty year  period.  At each
balance sheet date General Felt evaluates the  recoverability  of cost in excess
of net assets acquired using certain financial indicators such as historical and
future  ability to generate  income  from  operations  based on a going  concern
basis.  Accumulated  amortization  as of December 28, 1997 and December 29, 1996
was approximately $5.6 million and $5.9 million, respectively.

     Environmental Matters

     Environmental  expenditures that relate to current  operations are expensed
or capitalized as appropriate. Expenditures that relate to an existing condition
caused by past operations,  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 cost can be reasonably
estimated.

     Income Taxes

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

3.   DISCONTINUED OPERATIONS

     During 1996,  General Felt  finalized  the sale of the  outstanding  common
stock of Perfect Fit, a wholly-owned  subsidiary,  for an adjusted sale price of
approximately $44.2 million. The sale included all of the net assets of the home
comfort products segment with an adjusted net book value of approximately  $84.5
million  after  Foamex  L.P.   contributed   Perfect  Fit's  intercompany  notes
receivable and accrued interest thereon

                                      F-43
<PAGE>
                 GENERAL FELT INDUSTRIES, INC. AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

3.   DISCONTINUED OPERATIONS (continued)

with  Foamex  L.P.  to  General  Felt.   Actual  related  to  the  sale  totaled
approximately  $1.5 million.  General Felt recorded a net loss for  discontinued
operations of approximately  $42.3 million,  which includes the loss on disposal
and a net loss of $1.8 million (net of $1.2 million income tax benefit) relating
to operating losses during the phase-out period.

4.   RESTRUCTURING CHARGES

     In  1995,   General  Felt   approved  a   restructuring   plan  (the  "1995
restructuring  plan") to consolidate two foam production,  fabrication or branch
locations to concentrate resources as a result of industry conditions and better
position  itself to  achieve  its  strategic  growth  objectives.  General  Felt
recorded  restructuring  charges of $14.2  million  which was comprised of $13.1
million charge  associated with the  consolidation  of the two foam  production,
fabrication or branch  locations and a $1.1 million charge  associated  with the
completion of a 1993  restructuring  plan.  The  components of the $13.1 million
restructuring  charge include:  $8.5 million for fixed asset  writedowns (net of
estimated  sale  proceeds),  $3.8 million for plant closure and operating  lease
obligations and $0.8 million for personnel reductions. The $0.8 million cost for
personnel  reductions  primarily represents severance and employee benefit costs
associated with the elimination of manufacturing and administrative personnel.

     In  1996,  General  Felt  determined  to  continue  to  operate  one of the
facilities  originally  identified  for closure in the 1995  restructuring  plan
because  of  improved  economics  and the lack of synergy  to be  achieved  from
relocating the manufacturing  process. In addition,  General Felt has approved a
plan  to  close a  facility  that  was not  originally  identified  in the  1995
restructuring plan. As a result of these changes to the 1995 restructuring plan,
General Felt recorded a $5.5 million net  restructuring  credit which included a
restructuring  credit of $11.3 million  associated  with General Felt's decision
not to close the  facility  identified  as part of the 1995  restructuring  plan
offset by $5.8  million of  restructuring  charges  relating to the closure of a
facility during 1997 (the "1996 restructuring  plan"). During 1997, General Felt
recorded a net restructuring  credit of approximately $1.0 million primarily due
to plant closure savings.

     Generally,  the 1996 and 1995 restructuring  plans have been implemented as
originally  contemplated.  The  following  table  sets forth the  components  of
General Felt's restructuring and other charges:

<TABLE>
<CAPTION>
                                                          Asset    Plant Closure  Personnel
                                            Total      Writedowns    and Leases   Reductions     Other
                                                                    (millions)
<S>                                        <C>           <C>          <C>          <C>          <C>   
1995 restructuring charge                  $  14.2       $  8.5       $  3.8       $  0.8       $  1.1
Asset writeoff/writedowns                    (11.3)        (9.9)        (0.3)          --         (1.1)
                                           -------       ------       ------       ------       ------
Balances at December 31, 1995                  2.9         (1.4)         3.5          0.8           --

Cash spending                                 (1.0)          --         (0.5)        (0.5)          --
1996 restructuring charge                      5.8          1.6          3.9          0.3           --
Restructuring credits                        (11.3)        (8.4)        (2.7)        (0.2)          --
Asset adjustments for restructuring
   credits                                     8.2          8.2           --           --           --
                                           -------       ------       ------       ------       ------
Balances at December 29, 1996                  4.6         --            4.2          0.4           --

Cash spending                                 (0.3)         0.1         (0.1)        (0.3)          --
1997 restructuring credit                     (1.0)        (0.1)        (0.9)          --           --
                                           -------       ------       ------       ------       ------

Balances at December 28, 1997              $   3.3       $   --       $  3.2       $  0.1       $   --
                                           =======       ======       ======       ======       ======
</TABLE>

                                      F-44

<PAGE>
                 GENERAL FELT INDUSTRIES, INC. AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

4.   RESTRUCTURING CHARGES (continued)

     As  indicated  in the table  above,  the accrued  restructuring  balance at
December  28,  1997,  will be used for  payments  relating to plant  closure and
leases including rundown costs at the facilities.  General Felt expects to incur
approximately  $0.8  million  of charges  during  1998 with the  remaining  $2.5
million to be incurred  through 2001. As of December 28, 1997,  General Felt has
terminated 61 employees in the manufacturing and administrative areas.

5.   ACQUISITIONS

     In April 1995,  Foamex Fibers  acquired  certain assets and assumed certain
liabilities of GS Industries,  Inc. and Pontotoc Fibers, Inc.,  manufacturers of
various nonwoven textile fiber products used primarily for carpet padding and in
the  furniture  industry  for  aggregate  consideration  of  approximately  $8.0
million, including related fees and expenses of approximately $0.3 million, with
an initial cash payment of $7.2 million.  The excess of the purchase  price over
the  estimated  fair value of the net assets  acquired  was  approximately  $3.9
million.  The  acquisition was accounted for as a purchase and the operations of
the acquired companies are included in the consolidated statements of operations
and cash flows from the date of  acquisition.  The cost of the  acquisition  has
been  allocated  on the basis of the fair value of the assets  acquired  and the
liabilities  assumed.  The excess of the purchase  price over the estimated fair
value of the net assets  acquired  is being  amortized  using the  straight-line
method over forty years.

6.   INVENTORIES

     Inventories consist of:

                                    December 28, 1997   December 29, 1996
                                               (thousands)
     Raw material and supplies          $ 5,416          $12,795
     Work in process                        214            1,120
     Finished goods                       2,575           11,399
                                        -------          -------
       Total                            $ 8,205          $25,314
                                        =======          =======

7.   SALE OF ASSETS

     On October 6, 1997,  General Felt sold  substantially all of the net assets
of its needlepunch  carpeting,  tufted  carpeting and artificial  grass products
business  located at its facilities in Dalton,  Georgia to Bretlin,  Inc. for an
aggregate sale price of  approximately  $41.0 million.  General Felt realized an
insignificant  gain on the sale (net of income  taxes) in the fourth  quarter of
1997.  General Felt used net sale  proceeds of $38.8  million to purchase a note
receivable  from  Foamex  L.P.  which  has been  classified  as a  reduction  of
stockholder's equity.

8.   LONG-TERM DEBT - RELATED PARTY

     General Felt has two revolving  promissory notes with Foamex L.P. to borrow
up to a  maximum  of $64.0  million.  During  1997 and 1996,  General  Felt used
approximately $12.1 million and $22.5 million, respectively, of the net proceeds
from the sale of Perfect Fit to reduce these  promissory  notes with Foamex L.P.
The notes are due on  demand,  however,  the  remaining  net  proceeds  of $12.1
million  from the sale of Perfect  Fit was used to paydown the notes with Foamex
L.P.  during 1997 and was  classified as a current  liability as of December 29,
1996.  Interest is payable  quarterly at 8.5% as of December  28, 1997.  General
Felt's cash receipts  reduce the outstanding  balance and the cash  requirements
increase the outstanding  balance on a daily basis. On February 27, 1998, Foamex
L.P.  contributed the outstanding  loan balance of $1.0 million to General Felt.
(See Note 16)

                                      F-45

<PAGE>
                 GENERAL FELT INDUSTRIES, INC. AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

8.   LONG-TERM DEBT - RELATED PARTY (continued)

     Term and Revolving Loans

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

     As of December  28, 1997,  Foamex L.P. and General Felt were in  compliance
with the  covenants  of the Foamex  L.P.  Credit  Facility  and expects to be in
compliance with the covenants for the foreseeable future.

9.   EMPLOYEE BENEFIT PLANS

     Prior to  December  31,  1996,  General  Felt had  noncontributory  defined
benefit  pension  plans (the  "Plans")  for  eligible  salaried  employees  (the
"Salaried  Plan") and certain  hourly  employees  at the Trenton and Pico Rivera
manufacturing  facilities  (the "Trenton  Plan" and the "Pico Plan").  The Plans
provided benefits based principally on years of credited service and the highest
level of compensation earned during a specified period before retirement for the
Salaried  Plan and stated  amounts  for each year of  credited  service  for the
Trenton Plan and the Pico Plan.  General Felt  accounted  for such pension plans
pursuant to SFAS No. 87, "Employer's Accounting for Pensions".

     General  Felt's  funding policy was to make no less than the minimum annual
contributions  required  based upon  actuarial  methods  allowable by applicable
governmental  regulations.  Effective  January 1, 1995,  General Felt merged the
Salaried  Plan and the Trenton Plan with the defined  benefit  salaried  pension
plan of Foamex  L.P.  During  1995,  General  Felt merged the Pico Plan with the
defined benefit hourly pension plan of Foamex L.P.  Consequently,  the aggregate
pension liability of approximately $2.2 million as of December 31, 1995 relating
to these plans has been included in additional paid-in capital since Foamex L.P.
has  assumed all future  obligations  under the plans.  General  Felt will incur
pension  expense  for future  periods to the extent it  provides  funding to the
plans. During 1997 and 1996, General Felt funded  approximately $0.4 million and
$0.1 million, respectively to the plans.

     In   addition   certain   employees   of  General   Felt  are   covered  by
union-sponsored  collectively  bargained,  multi-employer pension plans. General
Felt  contributed and charged to expense $0.1 million related to these plans for
each of the years 1997, 1996 and 1995.

     During 1995, General Felt merged its defined  contribution plan with Foamex
L.P.  Foamex  L.P.  is  the  plan  sponsor,   however,  General  Felt  incurs  a
contribution  expense for its  employees.  The plan is qualified  under  Section
401(k) of the Internal  Revenue Code (the "Code") and covers eligible  employees
who elect to participate in the plan.  Employee  contributions are voluntary and
subject to certain limitations as imposed by the Code. During 1995, General Felt
provided contributions  amounting to a 25% match of employees'  contributions up
to 4% of eligible  compensation.  General Felt also provides an  additional  25%
match of employees'  contributions up to 4% of eligible  compensation  made to a
fund which invests in Foamex  International  common stock. In addition,  General
Felt may make discretionary contributions amounting to a 25% match of employees'
contributions  up  to  4%  of  eligible  compensation.  The  expense  for  these
contributions  was $0.2  million for 1997 and $0.1 million for each of the years
1996 and 1995.

                                      F-45
<PAGE>
                 GENERAL FELT INDUSTRIES, INC. AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

10.  INCOME TAXES

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

<TABLE>
<CAPTION>
                                                      1997             1996              1995
                                                                     (thousands)
<S>                                                  <C>              <C>               <C>    
     Continuing operations                           $ 2,919          $ 6,344           $   962
     Discontinued operations                              --           (2,558)           (2,654)
                                                     -------          -------           -------
     Total consolidated provision (benefit)
       for income taxes                              $ 2,919          $ 3,786           $(1,692)
                                                     =======          =======           =======
</TABLE>

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

<TABLE>
<CAPTION>
                                                             1997             1996            1995
     Current:                                                             (thousands)
<S>                                                        <C>               <C>              <C>    
       Federal                                             $ 1,958           $   220          $    --
       State                                                 1,007               605               --
                                                           -------           -------          -------
           Total current                                     2,965               825               --
                                                           -------           -------          -------

     Deferred:
       Federal                                                (247)            1,666           (1,424)
       State                                                   201             1,295             (268)
                                                           -------           -------          -------
           Total deferred                                      (46)            2,961           (1,692)
                                                           -------           -------          -------

           Total consolidated provision (benefit)
              for income taxes                             $ 2,919           $ 3,786          $(1,692)
                                                           =======           =======          =======
</TABLE>

     The  components of the temporary  differences  that give use to significant
deferred tax assets and liabilities are:
<TABLE>
<CAPTION>
                                                             December 28,       December 29,
                                                                1997               1996
                                                                      (thousands)
     Deferred tax assets:
<S>                                                          <C>                <C>     
       Inventory basis differences                           $    422           $    415
       Employee benefit accruals                                  860                714
       Allowances and contingent liabilities                    2,968              2,548
       Restructuring and plant closing accruals                 2,514              3,632
       Other                                                      373                139
       Net operating loss carryforward                             --              5,154
       Capital loss carryforwards                               9,097             14,193
       Valuation allowance                                     (9,097)           (15,988)
                                                             --------           --------

     Deferred tax assets                                        7,137             10,807
                                                             --------           --------

     Deferred tax liabilities:
       Difference between book and tax depreciation             1,567              6,722
       Other                                                      193              1,016
                                                             --------           --------

     Deferred tax liabilities                                   1,760              7,738
                                                             --------           --------

     Net deferred tax asset (liabilities)                    $  5,377           $  3,069
                                                             ========           ========
</TABLE>

                                      F-47

<PAGE>

                 GENERAL FELT INDUSTRIES, INC. AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

10.  INCOME TAXES (continued)

     General Felt has determined  that taxable  capital gains in the foreseeable
future  will  likely not be  sufficient  to  recognize  the  deferred  tax asset
associated  with  the  capital  loss  carryforward.   Accordingly,  a  valuation
allowance  has been  provided  for the deferred  tax asset  associated  with the
capital loss carryforward. During 1997, the valuation allowance for deferred tax
assets  decreased by $6.9 million which included a $5.0 million decrease for the
utilization of the capital loss  carryforward  in connection  with the sale of a
facility  (see  Note  7) and a $1.9  million  decrease  due to the  reversal  of
preacquisition  net operating loss  carryforwards.  The $1.9 million reversal of
preacquisition temporary differences was used to reduce cost in excess of assets
acquired.  At December 28, 1997,  General Felt has $26.0 million of capital loss
carryforwards that expire in 2001.

     A reconciliation  of the statutory federal income tax rate to the effective
income tax rate on continuing operations is as follows:
<TABLE>
<CAPTION>
                                            1997              1996                1995
                                                           (thousands)
<S>                                        <C>               <C>               <C>     
     Statutory income taxes                $ 3,157           $ 8,683           $(3,867)
     State income taxes,
       net of federal                          785             1,235              (648)
     Limitation on utilization of
       tax benefits                             --                --             4,929
     Amortization of excess cost               419               517               554
     Write-off of excess cost                4,305                --                --
     Valuation allowance                    (5,028)           (4,823)               --
     Other                                    (719)              732                (6)
                                           -------           -------           -------
     Tax provision                         $ 2,919           $ 6,344           $   962
                                           =======           =======           =======
</TABLE>

11.  ENVIRONMENTAL MATTERS

     During 1997, expenditures in connection with General Felt's compliance with
federal,  state,  and local  environmental  laws and  regulations did not have a
material  adverse  effect on  General  Felt's  operations,  financial  position,
capital expenditures or competitive  position.  As of December 28, 1997, General
Felt has environmental  accruals of approximately $1.2 million for environmental
matters.

     General  Felt has reported to  appropriate  state  authorities  that it has
found  soil and  groundwater  contamination  in excess of state  standards  at a
facility  located in  Philadelphia.  General Felt has begun  remediation  and is
conducting further  investigations  into the extent of the contamination at this
facility and, accordingly,  the extent of the remediation that may ultimately be
required.  The actual cost and the timetable of any such  remediation  cannot be
predicted  with any degree of certainty  at this time.  As of December 28, 1997,
General Felt has  environmental  accruals of approximately  $1.1 million for the
remaining potential  remediation costs for these facilities based on engineering
estimates.

     Federal regulations require that by the end of 1998 all underground storage
tanks  ("USTs")  be  removed  or  upgraded  in all  states  to  meet  applicable
standards.  General  Felt has six USTs that will  require  removal or  permanent
in-place closure by the end of 1998. Due to the age of these tanks,  leakage may
have occurred resulting in soil and possibly groundwater contamination.  General
Felt has accrued $0.1 million for the estimated removal and remediation, if any,
associated  with these  USTs.  However,  the full extent of  contamination  and,
accordingly,  the actual cost of such  remediation  cannot be predicted with any
degree of certainty at this time.  General  Felt  believes  that its USTs do not
pose a significant risk of environmental liability because of General

                                      F-48
<PAGE>
                 GENERAL FELT INDUSTRIES, INC. AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

11.  ENVIRONMENTAL MATTERS (continued)

Felt's monitoring  practices for USTs and conditional approval for the permanent
in-place closure for certain USTs. However,  there can be no assurance that such
USTs will not result in significant environmental liability in the future.

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

12.  COMMITMENTS AND CONTINGENCIES

     Operating Leases

     General Felt is obligated,  under various  noncancellable lease agreements,
for rental of facilities and machinery and 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 the lessors'  operating  expenses.  Total  minimum  rental  commitment
(excluding  commitments accrued as part of the 1996 restructuring plan) required
under operating leases at December 28, 1997 was:

       1998                                                       $  409
       1999                                                          475
       2000                                                          461
       2001                                                          438
       2002                                                          420
       Thereafter                                                  1,023
                                                                  ------
         Total minimum lease payments                             $3,226
                                                                  ======

     Total rent expense for all operating  leases for the years ended 1997, 1996
and 1995  were  approximately  $1.9  million,  $2.1  million  and $2.8  million,
respectively.

     Guarantor

     General  Felt has pledged  their stock as  collateral  for certain  debt of
Foamex L.P. and is a co-guarantor of the borrowings outstanding under the Foamex
L.P. Credit Facility and Foamex L.P. bond  indentures,  which as of December 28,
1997,  had principal  amounts  outstanding of  approximately  $451.1 million and
$248.0 million, respectively.

13.  RELATED PARTY TRANSACTIONS AND BALANCES

     General Felt purchased $146.3 million, $154.0 million and $141.2 million of
carpet cushion foam from Foamex L.P. during 1997, 1996 and 1995, respectively.

     In  connection  with the  consolidation  of General  Felt's  administrative
functions  with  those of Foamex  L.P.,  General  Felt paid  approximately  $2.1
million  and $1.4  million to Foamex L.P.  in 1997 and 1996,  respectively,  for
direct  costs  incurred  by Foamex  L.P.  on  General  Felt's  behalf and for an
allocation of shared services and facilities.

                                      F-49

<PAGE>

                 GENERAL FELT INDUSTRIES, INC. AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

14.  FINANCIAL INSTRUMENTS AND CONCENTRATION OF CREDIT RISK

     Concentration of Credit Risk

     General Felt's financial  instruments  subject to credit risk are primarily
trade  accounts  receivable.  Accounts  receivable are  concentrated  with large
retail  customers.  General Felt  performs  ongoing  credit  evaluations  of its
customers financial conditions and, generally,  requires no collateral.  General
Felt maintains  allowance  accounts for potential  credit losses and such losses
have been within management's expectations.  During the past three years, no one
customer accounted for more than 10% of General Felt's net sales.

     Disclosure about Fair Value of Financial Instruments

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

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

     The carrying value of long-term debt  approximates  fair value based on the
borrowing  rate  available to General Felt for bank loans with similar terms and
maturities.

     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.

15.  SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION

       Supplemental disclosures of cash flow information:

                                      1997            1996             1995
                                                  (thousands)

     Interest paid                   $  899          $4,434          $5,300
                                     ======          ======          ======

     Income taxes paid, net          $3,286          $  596          $  183
                                     ======          ======          ======

16.  SUBSEQUENT EVENT

     On February 27, 1998, Foamex International,  Foamex L.P. and certain of its
affiliates  completed  a series of  transactions  designed  to  simplify  Foamex
International's  structure and to provide future operational flexibility.  Prior
to the  consummation  of these  transactions,  (i) Foamex L.P. and Foamex L.P.'s
wholly-owned  subsidiary,  General Felt,  entered into a Supply Agreement and an
Administrative  Services  Agreement,  (ii)  Foamex L.P.  repaid its  outstanding
indebtedness  to  General  Felt with $4.8  million  in cash and a $34.0  million
two-year  promissory  note and  (iii)  Foamex  L.P.  defeased  the $4.5  million
outstanding principal amount of its 9 1/2% Senior Secured Notes due 2000. Foamex
L.P. settled its intercompany payables to General Felt with $4.8 million in cash
and a $34.0  million  principal  amount  promissory  note  supported  by a $34.5
million letter of credit under the Foamex L.P. credit facility (the  "Foamex/GFI
Note").  The initial  transaction  resulted in the transfer  from Foamex L.P. to
Trace  Foam LLC of all of the  outstanding  common  stock of  General  Felt,  in
exchange for (i) the  assumption  by Trace Foam LLC of $129.0  million of Foamex
L.P.'s  indebtedness and (ii) the transfer by Trace Foam LLC to Foamex L.P. of a
1% non-managing general partnership interest in Foamex L.P. As a result,

                                      F-50
<PAGE>
                 GENERAL FELT INDUSTRIES, INC. AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

16.  SUBSEQUENT EVENT (continued)

General Felt ceased being a subsidiary  of Foamex L.P. and was relieved from all
obligations under Foamex L.P.'s 9 7/8% Senior Subordinated Notes due 2007 and 13
1/2%  Senior  Subordinated  Notes due 2005.  Upon  consummation  of the  initial
transaction, Foamex Carpet Cushion, Inc., a newly formed wholly-owned subsidiary
of Foamex International ("Foamex Carpet"), Foamex International, Trace Foam LLC,
and General Felt entered into an Asset  Purchase  Agreement  dated  February 27,
1998, in which General Felt sold substantially all of its assets (other than the
Foamex/GFI Note and its operating facility in Pico Rivera, California) to Foamex
Carpet in  exchange  for (i) $20.0  million in cash and (ii) a  promissory  note
issued by Foamex  Carpet to Trace Foam LLC in the amount of $70.2  million.  The
$20.0 million cash payment was funded with a distribution by Foamex L.P. As part
of these transactions, Foamex Fibers, a wholly-owned subsidiary of General Felt,
was merged with and into General Felt and Foamex LLC, a wholly-owned  subsidiary
of Foamex L.P., was merged with and into Foamex L.P. In addition, FMXI, Inc. and
Crain  Industries  Inc.  ("Crain"),  both  wholly-owned  subsidiaries  of Foamex
International and general partners of Foamex L.P., were merged and Crain, as the
surviving  corporation,  subsequently  changed  its  name  to  FMXI,  Inc.  Upon
consummation of the transactions  contemplated by the Asset Purchase  Agreement,
Foamex Carpet entered into a Credit Agreement with 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,  which  provides  for up to $20.0  million in  revolving
credit  borrowings.  Foamex  Carpet  will  conduct the carpet  cushion  business
previously  conducted  by  General  Felt.  Also,  Trace  Foam  LLC has  retained
ownership of one of General Felt's operating facilities which is being leased to
Foamex Carpet and the $34.0 million Foamex/GFI Note.

                                      F-51

<PAGE>


                        REPORT OF INDEPENDENT ACCOUNTANTS


To the Stockholder of
Foamex Fibers, Inc.:

We have audited the accompanying  balance sheets of Foamex Fibers, Inc. ("Foamex
Fibers")   (successor  to  GS  Industries,   Inc.  and  Pontotoc  Fibers,   Inc.
(collectively,  the "Predecessor Company")) as of December 28, 1997 and December
29, 1996, and the related statements of operations, cash flows and stockholder's
equity for the years ended  December 28, 1997 and December 29, 1996,  the period
from April 13, 1995 to December  31, 1995 and the period from January 1, 1995 to
April 12, 1995  (Predecessor  Company),  the combined  statements of operations,
cash  flows  and  stockholder's  equity.  These  financial  statements  are  the
responsibility of Foamex Fibers' management. Our responsibility is to express an
opinion on these financial statements based on our audits.

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

In our opinion,  the financial  statements  referred to above present fairly, in
all material  respects,  the financial  position of Foamex Fibers as of December
28, 1997 and December 29, 1996,  and the results of its  operations and its cash
flows for the years ended December 28, 1997 and December 29, 1996 and the period
from April 13, 1995 to December  31, 1995 and the period from January 1, 1995 to
April 12, 1995  (Predecessor  Company),  in conformity  with generally  accepted
accounting principles.

       As discussed in Note 8, on February  27, 1998,  Foamex  Fibers was merged
into General  Felt and  following  several  related  transactions,  General Felt
substantially became Foamex Carpet Cushion, Inc.



COOPERS & LYBRAND L.L.P.


Charlotte, North Carolina
March 4, 1998

                                      F-52
<PAGE>
                               FOAMEX FIBERS, INC.
                                 BALANCE SHEETS
                                   (thousands)
<TABLE>
<CAPTION>
                                                                 December 28,        December 29,
                                                                     1997                1996
ASSETS                                                                   (thousands)

CURRENT ASSETS:
<S>                                                                <C>                <C>     
     Cash                                                          $    129           $    156
     Accounts receivable, net of allowance for doubtful
       accounts of $27 and $39, respectively                            843                707
       Inventories                                                      925                972
     Other current assets                                               283                181
                                                                   --------           --------
       Total current assets                                           2,180              2,016
                                                                   --------           --------

PLANT AND EQUIPMENT:

     Machinery, equipment and furnishings                             3,471              2,666
     Less accumulated depreciation and amortization                    (607)              (340)
                                                                   --------           --------
     Plant and equipment, net                                         2,864              2,326

ACCOUNTS RECEIVABLE FROM GENERAL FELT                                 8,035              5,092

COST IN EXCESS OF ASSETS ACQUIRED, NET                                3,779              3,880
                                                                   --------           --------

TOTAL ASSETS                                                       $ 16,858           $ 13,314
                                                                   ========           ========

LIABILITIES AND STOCKHOLDER'S EQUITY

CURRENT LIABILITIES:
     Accounts payable                                              $  1,352           $  1,236
     Other accrued liabilities                                          459                466
                                                                   --------           --------
       Total current liabilities                                      1,811              1,702

INCOME TAXES DUE TO GENERAL FELT                                      2,727              1,566
                                                                   --------           --------

       Total liabilities                                              4,538              3,268
                                                                   --------           --------

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

STOCKHOLDER'S EQUITY:
     Common stock, $.01 par value; authorized, issued and
       outstanding 1,000 shares                                          --                 --
     Additional paid-in capital                                       7,272              7,272
     Retained earnings                                                5,048              2,774
                                                                   --------           --------
       Total stockholder's equity                                    12,320             10,046
                                                                   --------           --------

TOTAL LIABILITIES AND STOCKHOLDER'S EQUITY                         $ 16,858           $ 13,314
                                                                   ========           ========
</TABLE>

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

                                      F-53
<PAGE>
                               FOAMEX FIBERS, INC.
                            STATEMENTS OF OPERATIONS
            for the year ended December 28, 1997, for the year ended
            December 29, 1996, for the period from April 13, 1995 to
                      December 31, 1995 and for the period
          from January 1, 1995 to April 12, 1995 (Predecessor Company)
<TABLE>
<CAPTION>
                                                                                     Predecessor Company
                                    December 28,     December 29,   April 13 1995 to  January 1, 1995
                                       1997              1996        December 1995    to April 12, 1995
                                                             (thousands)
<S>                                   <C>              <C>              <C>              <C>    
NET SALES                             $23,201          $21,410          $14,112          $ 5,577

COST OF GOODS SOLD                     18,656           16,843           11,948            4,580
                                      -------          -------          -------          -------

GROSS PROFIT                            4,545            4,567            2,164              997

SELLING, GENERAL AND
     ADMINISTRATIVE EXPENSES              936            1,257              980              336
                                      -------          -------          -------          -------

INCOME FROM OPERATIONS                  3,609            3,310            1,184              661

OTHER EXPENSE, NET                          5                7               12                6
                                      -------          -------          -------          -------

INCOME BEFORE PROVISION
     FOR INCOME TAXES                   3,604            3,303            1,172              655

PROVISION FOR INCOME TAXES              1,330            1,232              469               --
                                      -------          -------          -------          -------

NET INCOME                            $ 2,274          $ 2,071          $   703          $   655
                                      =======          =======          =======          =======
</TABLE>

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

                                      F-54
<PAGE>
                               FOAMEX FIBERS, INC.
                            STATEMENTS OF CASH FLOWS
            for the year ended December 28, 1997, for the year ended
             December 29,1996, for the period from April 13, 1995 to
                      December 31, 1995 and for the period
          from January 1, 1995 to April 12, 1995 (Predecessor Company)

<TABLE>
<CAPTION>
                                                                                                            Predecessor Company
                                                          Year Ended      Year Ended                          January 1, 1995
                                                          December 28,    December 29,    April 13, 1995 to          to
                                                             1997             1996        December 31, 1995    April 12, 1995
                                                                                   (thousands)
OPERATING ACTIVITIES:
<S>                                                        <C>               <C>               <C>               <C>    
   Net income                                              $ 2,274           $ 2,071           $   703           $   655
   Adjustments to reconcile net income to
     net cash provided by operating activities:
   Depreciation and amortization                               380               314               195               143
   Income taxes due to General Felt                          1,161             1,156               410                --
   Changes in operating assets and
     liabilities, net of acquisitions:
   Accounts receivable                                        (136)              178               573              (210)
   Accounts receivable from General Felt                    (2,943)           (3,703)             (837)               --
   Inventories                                                  47               310              (117)              106
   Other assets and liabilities                                  7                30              (267)              278
                                                           -------           -------           -------           -------

     Net cash provided by operating activities                 790               356               660               972
                                                           -------           -------           -------           -------

INVESTING ACTIVITIES:
   Capital expenditures                                       (817)             (669)             (191)             (587)
   Acquisition, net of cash acquired                            --                --            (7,272)               --
                                                           -------           -------           -------           -------

     Net cash used for investing activities                   (817)             (669)           (7,463)             (587)
                                                           -------           -------           -------           -------

FINANCING ACTIVITIES:
   Proceeds from long-term debt                                 --                --                --             1,000
   Repayment of advances from former stockholders               --                --                --              (102)
   Repayment of long-term debt                                  --                --                --              (531)
   Distribution to former stockholders                          --                --                --              (150)
   Cash retained by former owners                               --                --                --            (1,622)
   Capital contributions                                        --                --             7,272                --
                                                           -------           -------           -------           -------

     Net cash provided by (used for)
       financing activities                                     --                --             7,272            (1,405)
                                                           -------           -------           -------           -------

Net increase (decrease) in cash                                (27)             (313)              469            (1,020)

Cash at beginning of period                                    156               469                --             1,020
                                                           -------           -------           -------           -------

Cash at end of period                                      $   129           $   156           $   469           $    --
                                                           =======           =======           =======           =======

Supplemental disclosure of cash flow information:

Cash paid for state income taxes                           $   150           $    10           $    60
                                                           =======           =======           =======
</TABLE>

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

                                      F-55
<PAGE>
                               FOAMEX FIBERS, INC.
                       STATEMENTS OF STOCKHOLDER'S EQUITY
            for the year ended December 28, 1997, for the year ended
            December 29, 1996, for the period from April 13, 1995 to
                      December 31, 1995 and for the period
          from January 1, 1995 to April 12, 1995 (Predecessor Company)
<TABLE>
<CAPTION>
                                                                                                               Retained
                                                                                              Additional       Earnings
                                                                   Common Stock                Paid-In       (Accumulated
                                                            Shares            Amount           Capital          Deficit)
                                                                                    (thousands)
<S>                                                       <C>           <C>               <C>              <C>    
Balances at December 31, 1994                                  110           $   200           $    --          $   764

Net income for the period from January 1, 1995 to
   April 12, 1995                                               --                --                --              655

Distributions to former stockholders                            --                --                --             (150)

Acquisition adjustment                                        (110)             (200)               --           (1,269)
                                                           -------           -------           -------          -------

Balances at April 12, 1995                                      --                --                --               --

Capital Contribution by General Felt                             1                --             7,272               --

Net income for the period from April 13, 1995
   to December 31, 1995                                         --                --                --              703
                                                           -------           -------           -------          -------

Balances at December 31, 1995                                    1                --             7,272              703

Net income                                                      --                --                --            2,071
                                                           -------           -------           -------          -------

Balances at December 29, 1996                                    1                --             7,272            2,774

Net income                                                      --                --                --            2,274
                                                           -------           -------           -------          -------

Balances at December 28, 1997                                    1                --           $ 7,272          $ 5,048
                                                           =======           =======           =======          =======
</TABLE>

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

                                      F-56
<PAGE>
                               FOAMEX FIBERS, INC.
                          NOTES TO FINANCIAL STATEMENTS

1.   ORGANIZATION AND BASIS OF PRESENTATION

     Foamex Fibers, Inc. ("Foamex Fibers") manufactures various nonwoven textile
fiber products used primarily for carpet padding and in the furniture industry.

     Foamex  Fibers was formed on March 29,  1995 for the  purpose of  acquiring
certain  assets and assuming  certain  liabilities  of GS  Industries,  Inc. and
Pontotoc Fibers,  Inc. On April 13, 1995, Foamex Fibers acquired such assets and
assumed such liabilities for an aggregate  purchase price of approximately  $8.0
million. (See Note 3 for further discussion.)

     Foamex Fibers is a wholly-owned subsidiary of General Felt Industries, Inc.
("General  Felt")  which in turn is a  wholly-owned  subsidiary  of Foamex  L.P.
Foamex L.P. is a wholly-owned  subsidiary of Foamex  International Inc. ("Foamex
International").

     The balance  sheets as of December  28, 1997 and  December 29, 1996 and the
statements of operations, cash flows and stockholder's equity for the year ended
December  28, 1997 and  December 29, 1996 and for the period from April 13, 1995
to December 31, 1995 pertain to Foamex Fibers.

     The  accompanying  combined  statements  of  operations,   cash  flows  and
stockholder's  equity for the  period  from  January  1, 1995 to April 12,  1995
include the combined individual  operations of GS Industries,  Inc. and Pontotoc
Fibers, Inc. (collectively, the "Predecessor Company").

2.   SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

     Fiscal Year

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

     Accounting Estimates

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

     Revenue Recognition

     Revenue from sales is recognized when products are shipped.

     Discounts and Billing Adjustments

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

     Inventories

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

                                      F-57
<PAGE>
                               FOAMEX FIBERS, INC.
                          NOTES TO FINANCIAL STATEMENTS

2.   SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)

     Plant and Equipment

     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  machinery,  equipment and  furnishings  is five to
twelve years. Leasehold improvements are amortized over the shorter of the terms
of the  respective  lease  or the  estimated  useful  life  of the  improvement,
whichever is shorter. Depreciation expense for the years ended December 28, 1997
and December  29, 1996,  the period from April 13, 1995 to December 31, 1995 and
for the period  from  January 1, 1995 to April 12, 1995 was $0.3  million,  $0.2
million, $0.1 million and $0.1 million,  respectively.  For income tax purposes,
Foamex Fibers uses accelerated depreciation methods.

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

     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 by the  purchase  method is
amortized  using the  straight-line  method  over a forty year  period.  At each
balance sheet date Foamex Fibers evaluates the  recoverability of cost in excess
of net assets acquired using certain financial indicators such as historical and
future  ability to generate  income  from  operations  based on a going  concern
basis.  Accumulated  amortization  as of December 28, 1997 and December 29, 1996
was approximately $0.3 million and $0.2 million, respectively.

     Environmental Matters

     Environmental  expenditures that relate to current  operations are expensed
or capitalized as appropriate. Expenditures that relate to an existing condition
caused by past operations,  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 cost can be reasonably
estimated.

     Income Taxes

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

     Foamex Fibers joins with General Felt in the filing of a consolidated  U.S.
Federal  income tax return.  Foamex Fiber's policy is to provide for Federal and
state income taxes on a separate return basis.  As of December 28, 1997,  Foamex
Fibers  does not have a tax  sharing  agreement  with  General  Felt.  Therefore
current and deferred  Federal  income taxes payable are classified as noncurrent
and are  included in Income  Taxes Due to General  Felt.  Net  deferred  Federal
income tax liabilities  amounting to approximately $0.4 million and $0.3 million
at December  28, 1997 and  December 29, 1996 are included in Income Taxes Due to
General Felt and consist  primarily of  accelerated  depreciation  for plant and
equipment and  accelerated  amortization  for costs in excess of assets acquired
for income tax  purposes  offset by deferred  tax assets  relating to  allowance
accounts and accrued liabilities not deductible for income tax purposes.

     The  stockholders  of the  Predecessor  Company had  elected S  Corporation
status under the provision of the Internal Revenue Code, which provided that, in
lieu of corporate income taxes,  the stockholders  were taxed on the Predecessor
Company's taxable income.

                                      F-58
<PAGE>
                               FOAMEX FIBERS, INC.
                          NOTES TO FINANCIAL STATEMENTS

2.   SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)

     Reclassifications

     Certain amounts in the 1996 financial  statements have been reclassified to
conform with the present years presentation.

3.   ACQUISITIONS

     On April 13,  1995,  Foamex  Fibers  acquired  certain  assets and  assumed
certain  liabilities  of GS  Industries,  Inc.  and  Pontotoc  Fibers,  Inc. for
aggregate  consideration of approximately  $8.0 million,  including related fees
and expenses of approximately $0.3 million, with an initial cash payment of $7.2
million.  The purchase price was funded by General Felt in the form of a capital
contribution.  The excess of the purchase price over the estimated fair value of
the net assets  acquired was  approximately  $3.9 million.  The  acquisition was
accounted for as a purchase.  The cost of the  acquisition has been allocated on
the basis of the fair value of the assets acquired and the liabilities  assumed.
The excess of the purchase price over the estimated fair value of the net assets
acquired is being amortized using the straight-line method over forty years.

4.   INVENTORIES

     Inventories consist of:

                                     December 28,  December 29,
                                       1997           1996
                                            (thousands)
     Raw material and supplies          $700          $700
     Finished goods                      225           272
                                        ----          ----
       Total                            $925          $972
                                        ====          ====

5.   INCOME TAXES

     The components of the provision for income taxes are summarized as follows:
<TABLE>
<CAPTION>
                                                                                Period from
                                            Year Ended        Year Ended     April 13, 1995 to
                                           December 28,       December 29,      December 31,
                                              1997               1996              1995
                                                             (thousands)
<S>                                          <C>               <C>               <C>   
     Federal                                 $1,161            $1,156            $  410
     State                                      169                76                59
                                             ------            ------            ------
       Provision for income taxes            $1,330            $1,232            $  469
                                             ======            ======            ======
</TABLE>

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

<TABLE>
<CAPTION>
                                                                                        Period from
                                                  Year Ended           Year Ended     April 13, 1995 to
                                                  December 28,        December 29,      December 31,
                                                     1997                1996               1995
                                                                      (thousands)
<S>                                                <C>                 <C>                <C>    
     Statutory income taxes                        $ 1,261             $ 1,156            $   410
     State income taxes, net of federal                169                  76                 59
     Other                                            (100)                 --                 --
                                                   -------             -------            -------
       Provision for income taxes                  $ 1,330             $ 1,232            $   469
                                                   =======             =======            =======
</TABLE>

                                      F-59

<PAGE>

                               FOAMEX FIBERS, INC.
                          NOTES TO FINANCIAL STATEMENTS

6.   COMMITMENTS AND CONTINGENCIES

     Guarantee of Foamex L.P. Indebtedness

     Foamex  Fibers is a joint  obligor on $248.0  million  principal  amount of
Foamex L.P.'s public debt and  approximately  $451.1 million of outstanding bank
borrowings under Foamex L.P.'s credit facility.

     Operating Leases

     Foamex Fibers is obligated,  under various  noncancelable lease agreements,
for rental of facilities and machinery and 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 the lessors'  operating  expenses.  Total minimum  rental  commitments
required under operating leases at December 28, 1997 (thousands) was:

       1998                                               $   328
       1999                                                   318
       2000                                                   318
       2001                                                   318
       2002                                                   318
       Thereafter                                             732
                                                           ------
         Total minimum lease payments                      $2,332
                                                           ======

     Total rent expense for all  operating  leases for the years ended  December
28, 1997 and December  29, 1996,  for the period from April 13, 1995 to December
31,  1995  and for the  period  from  January  1,  1995 to  April  12,  1995 was
approximately  $0.5  million,  $0.3  million,  $0.2  million  and $0.1  million,
respectively,

7.   RELATED PARTY TRANSACTIONS AND BALANCES

     General Felt purchased $10.9 million,  $10.1 million, $6.4 million and $0.8
million of carpet  cushion from Foamex  Fibers for the years ended  December 28,
1997 and December 29, 1996,  the period from April 13, 1995 to December 31, 1995
and for the period from January 1, 1995 to April 12, 1995,  respectively.  As of
December 28, 1997 and December 29, 1996,  Foamex Fibers had accounts  receivable
from General Felt of approximately $8.0 million and $5.1 million,  respectively.
During 1997,  Foamex L.P. paid  approximately  $0.2 million for  consulting  and
travel expenses on behalf of Foamex Fibers.

8.   SUBSEQUENT EVENT

     On  February  27,  1998,  Foamex  Fibers was merged into  General  Felt and
following several related  transactions,  General Felt substantially sold all of
its assets to Foamex Carpet Cushion, Inc.

                                      F-60
<PAGE>
                          FOAMEX L.P. AND SUBSIDIARIES
                      INDEX TO FINANCIAL STATEMENT SCHEDULE




Index to Financial Statement Schedule

Schedule II - Valuation and Qualifying Accounts

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



                                      S-1
<PAGE>
                                                                     Schedule II

                          FOAMEX L.P. AND SUBSIDIARIES
                        VALUATION AND QUALIFYING ACCOUNTS
                                   (thousands)
<TABLE>
<CAPTION>
                                             Balance at     Charged to      Charged to                       Balance at
                                            Beginning of    Costs and         other                           End of
                                               Period       Expenses       Accounts(1)         Deductions     Period
     YEAR ENDED DECEMBER 28, 1997
<S>                                           <C>         <C>             <C>                 <C>             <C>    
     Allowance for Uncollectible Accounts     $ 3,060     $     2,295     $     2,898         $     1,409     $ 6,844
                                              =======     ===========     ===========         ===========     =======

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

     Valuation Allowance                      $15,988     $    (5,028)    $    (1,863)        $        --     $ 9,097
                                              =======     ===========     ===========         ===========     =======


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

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

     Valuation Allowance                      $13,473     $     9,370     $    (6,855)(3)     $        --     $15,988
                                              =======     ===========     ===========         ===========     =======


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

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

     Valuation Allowance                      $12,432     $     4,929     $    (3,888)(3)     $        --     $13,473
                                              =======     ===========     ===========         ===========     =======
<FN>
(1)  Discounts and billing adjustments reflect a reduction in net sales.

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

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


                                      S-2