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 31, 1998

                                       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 Annual Report on Form
10-K or any amendment to this Form 10-K. [ ]

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

       As  of  May  3,  1999,   there  were  1,000  shares  of  Foamex   Capital
Corporation's common stock outstanding.

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

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

<TABLE>
<CAPTION>
                                                       INDEX

                                                                                                               Page
Part I
<S>            <C>                                                                                             <C>
       Item  1.   Business                                                                                       3
       Item  2.   Properties                                                                                    10
       Item  3.   Legal Proceedings                                                                             11
       Item  4.   Submission of Matters to a Vote
                      of Security Holders                                                                       15
Part II

       Item  5.   Market for Registrant's Common Equity and
                      Related Stockholder Matters                                                               15
       Item  6.   Selected Consolidated Financial Data                                                          15
       Item  7.   Management's Discussion and Analysis
                      of Financial Condition and Results
                      of Operations                                                                             17
       Item  8.   Financial Statements and Supplementary Data                                                   28
       Item  9.   Changes in and Disagreements with Accountants
                      on Accounting and Financial Disclosure                                                    28

Part III

       Item 10.   Directors and Executive Officers of the Registrant                                            28
       Item 11.   Executive Compensation                                                                        28
       Item 12.   Security Ownership of Certain Beneficial Owners
                      and Management                                                                            28
       Item 13.   Certain Relationships and Related Transactions                                                28

Part IV

       Item 14.   Exhibits, Financial Statement Schedules
                      and Reports on Form 8-K                                                                   28

       Signatures                                                                                               36
</TABLE>

       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.
<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 flexible polyurethane and advanced polymer foam products. As of
December 31, 1998, Foamex L.P.'s  operations are conducted  directly and through
its wholly owned  subsidiaries,  Foamex Canada Inc.  ("Foamex  Canada"),  Foamex
Latin America,  Inc. ("Foamex Mexico") and Foamex Asia, Inc. ("Foamex Asia") and
consist of the following  operating  segments:  (i) foam  products,  (ii) carpet
cushion products,  (iii) automotive  products,  (iv) technical  products and (v)
other,  which primarily  consists of certain foreign  manufacturing  operations,
corporate   expenses  not  allocated  to  the  other   operating   segments  and
restructuring and other charges. The net sales and income (loss) from operations
of these  operating  segments  for each of the last three years are  included in
Note 15 to the  consolidated  financial  statements.  As of December  31,  1998,
Foamex L.P.'s  partners  were FMXI,  Inc.  ("FMXI")  with a 2% managing  general
partnership  interest and Foamex  International  with a 98% limited  partnership
interest. FMXI is a wholly owned subsidiary of Foamex International.

       On March 16, 1999, Foamex International  announced that it had hired John
G. Johnson,  Jr. as President,  Chief  Executive  Officer and director of Foamex
International  following the  resignation of Andrea Farace from the positions of
Chairman  of  the  Board,   Chief  Executive  Officer  and  director  of  Foamex
International.  Foamex  International also announced that it had hired JP Morgan
Securities  Inc. as a financial  advisor to explore  strategic  alternatives  to
maximize shareholder value.

       On March  16,  1998,  Foamex  International  announced  that its Board of
Directors  received an  unsolicited  buyout  proposal  from Trace  International
Holdings, Inc. ("Trace"),  Foamex International's  principal stockholder.  Trace
proposed to acquire all of the outstanding common stock of Foamex  International
not owned by Trace and its  subsidiaries  (the "Public Shares") for a cash price
of  $17.00  per  share.  As of  March  16,  1998,  Trace  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's offer,
Foamex  International's  Board of  Directors  appointed a special  committee  to
determine  the  advisability  and  fairness  of the  proposed  buyout  to Foamex
International's stockholders other than Trace and its subsidiaries.

       On June  25,  1998,  Trace,  Trace  Merger  Sub,  Inc.,  a  wholly  owned
subsidiary of Trace ("Merger  Sub"),  and Foamex  International  entered into an
Agreement  and Plan of Merger (the "First  Merger  Agreement").  Pursuant to the
terms of the First Merger Agreement,  Merger Sub would have been merged with and
into Foamex  International  (the "First Merger") and each  outstanding  share of
common  stock,  other  than  common  stock  held by Trace and its  subsidiaries,
treasury  shares,  and common stock with respect to which appraisal rights would
have been perfected,  would have been converted into the right to receive $18.75
per share in cash.  On  November  5, 1998,  Trace  terminated  the First  Merger
Agreement,  pursuant  to its terms,  due to the  failure  of  certain  financing
conditions.

       On November 5, 1998, Trace, Merger Sub and Foamex  International  entered
into a second  Agreement  and Plan of Merger (the  "Second  Merger  Agreement").
Pursuant to the terms of the Second Merger Agreement, Merger Sub would have been
merged  with  and into  Foamex  International  (the  "Second  Merger")  and each
outstanding share of common stock, other than common stock held by Trace and its
subsidiaries,  treasury shares, and common stock with respect to which appraisal
rights would have been  perfected,  would have been  converted into the right to
receive  $12.00  per  share  in  cash.   Trace  delivered  a  letter  to  Foamex
International, dated January 8, 1999 (the "Notice of Termination"),  terminating
the  Second  Merger  Agreement,  pursuant  to its terms,  due to the  failure of
certain financing conditions.

       In  connection  with the First  Merger  Agreement  and the Second  Merger
Agreement,  Foamex L.P.  commenced but did not close a debt tender offer, a debt
exchange offer, and an internal  corporate  restructuring  and refinancing.  The
costs of these offerings were paid by Foamex International.

                                       3
<PAGE>
       On February 27, 1998,  Foamex  International,  Foamex L.P. and certain of
their  affiliates  completed a series of  transactions  designed to simplify the
structure  of  Foamex  International  and  Foamex  L.P.  and to  provide  future
operational  flexibility  (collectively,  the "GFI  Transaction").  Prior to the
consummation  of these  transactions;  (i) Foamex L.P. and Foamex  L.P.'s wholly
owned subsidiary,  General Felt Industries, Inc. ("General Felt") entered into a
Supply Agreement and an Administrative  Services  Agreement and (ii) 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  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 Foam  Funding  LLC,  an  indirect  wholly  owned
subsidiary of Trace, of all of the outstanding  common stock of General Felt, in
exchange for (i) the  assumption by Foam Funding LLC of $129.0 million of Foamex
L.P.'s  indebtedness and (ii) the transfer by Foam Funding LLC to Foamex L.P. of
a 1%  non-managing  general  partnership  interest  in Foamex  L.P. As a result,
General Felt ceased being a subsidiary  of Foamex L.P. and was relieved from all
obligations under Foamex L.P.'s 9 7/8% senior subordinated notes due 2007 and 13
1/2%  senior  subordinated  notes due 2005.  Upon  consummation  of the  initial
transaction,  Foamex Carpet  Cushion,  Inc.  ("Foamex  Carpet"),  a newly formed
wholly owned  subsidiary of Foamex  International,  Foamex  International,  Foam
Funding LLC and General  Felt  entered into an Asset  Purchase  Agreement  dated
February 27, 1998,  in which General Felt sold  substantially  all of its assets
(other than cash, the Foamex/GFI Note and its operating facility in Pico Rivera,
California)  to Foamex Carpet in exchange for (i) $20.0 million in cash and (ii)
a promissory  note issued by Foamex  Carpet to Foam Funding LLC in the aggregate
principal  amount of $70.2  million.  The $20.0  million cash payment was funded
with a  distribution  by Foamex L.P. to Foamex  International.  As part of these
transactions,  Foamex Fibers, Inc. ("Foamex Fibers"),  a wholly owned subsidiary
of General  Felt,  was merged  with and into  General  Felt,  and Foamex LLC was
merged  into  its  parent  entity  Foamex  L.P.  In  addition,  FMXI  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. Foamex Carpet
conducts the carpet cushion business previously conducted by General Felt.

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

       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 the ability of Foamex L.P.
to  negotiate  amendments  of its debt  agreements,  Foamex  L.P.'s  ability  to
continue  operations as a viable going concern,  raw material  price  increases,
general economic conditions, the level of automotive production,  carpet cushion
production     and    housing     starts,     the    completion    of    various
restructuring/consolidation  plans,  Foamex L.P.'s  capital and debt  structure,
litigation  and  changes  in   environmental   legislation   and   environmental
conditions.  The forward-looking  statements  contained in this Annual Report on
Form 10-K were  prepared by  management  and are  qualified  by, and subject to,
significant business, economic, competitive,  regulatory and other uncertainties
and contingencies,  all of which are difficult or impossible to predict and many
of which are beyond  the  control of Foamex  L.P.  Accordingly,  there can be no
assurance that the forward-looking statements contained in this Annual Report on
Form 10-K will be  realized  or that actual  results  will not be  significantly
higher  or lower.  The  forward-looking  statements  have not been  audited  by,
examined by,  compiled by or subjected to agreed-upon  procedures by independent
accountants,  and no  third-party  has  independently  verified or reviewed such
statements.  Readers of this Annual  Report on Form 10-K should  consider  these
facts in evaluating the information contained herein. In addition,  the business
and  operations of Foamex L.P. are subject to  substantial  risks which increase
the uncertainty  inherent in the  forward-looking  statements  contained in this
Annual  Report on Form 10-K.  The  inclusion of the  forward-looking  statements


                                       4
<PAGE>
contained  in this  Annual  Report  on Form 10-K  should  not be  regarded  as a
representation   by  Foamex   L.P.   or  any  other   person  that  any  of  the
forward-looking  statements contained in this Annual Report on Form 10-K will be
achieved. In light of the foregoing,  readers of this Annual Report on Form 10-K
are  cautioned  not to place undue  reliance on the  forward-looking  statements
contained herein.

       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 or applicable, its subsidiaries.




                                       5
<PAGE>
Flexible Polyurethane Foam and Advanced Polymer Foam Products

       Foamex L.P.  is one of the  largest  manufacturers  and  distributors  of
flexible  polyurethane  and  advanced  polymer foam  products in North  America.
Foamex L.P.'s operating segments include:  (i) foam products,  consisting of (a)
cushioning foams for bedding, furniture,  packaging and health care applications
and (b) foam-based consumer products such as futons, pillows,  mattress pads and
juvenile furniture,  (ii) carpet cushion products,  consisting of carpet padding
and related products, (iii) automotive products,  consisting of automotive trim,
laminates and other products, (iv) technical products, consisting of reticulated
and other  specialty  foams used for  reservoiring,  filtration,  gasketing  and
sealing  applications and (v) other, which primarily consists of certain foreign
manufacturing  operations,   corporate  expenses  not  allocated  to  the  other
operating  segments  and  restructuring  and other  charges.  See Note 15 to the
consolidated financial statements for further discussion of operating segments.

       Foamex  L.P.  has a  diverse  customer  base  in  each  of its  principal
operating  segments.  Foam products  such as cushioning  foams are sold to major
bedding and furniture  manufacturers  such as Sealy,  Simmons and  Berkline.  In
addition,  foam-based consumer products such as futons,  pillows,  mattress pads
and  juvenile  furniture  are sold to retailers  such as Wal-Mart,  Kmart and JC
Penney.  Carpet  cushion  products  such as carpet  underlay  are sold to Foamex
Carpet,  which in turn sells to distributors and major floor covering  retailers
such as Sears, CarpetMax and Home Depot.  Automotive products such as automotive
foam  products  and  laminates  are  sold to  original  equipment  manufacturers
("OEMs"), including Ford, General Motors and DaimlerChrysler, and major tier one
suppliers such as Lear Corporation and Johnson Controls. Technical products such
as specialty and technical  foams which consist of  reticulated  foams and other
customized polyester and polyether foams used for filtration and reservoiring in
a wide variety of applications are sold by companies such as Hewlett-Packard and
Briggs & Stratton.

       Foam Products

       Foamex L.P.  distributes  foam  products  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,  the
furniture  industry  for seating  products  and the retail  industry for a broad
range of products  such as leisure  furniture,  futons,  bean bag chairs,  floor
pillows and pet beds. The foam products are generally sold in large volumes on a
regional basis because of high shipping costs.

       Foamex L.P.'s bedding products are sold to mattress manufacturers such as
Sealy,  Simmons,  Serta,  and Spring Air, both directly and indirectly,  through
independent fabrication  operations.  Foamex L.P. also supplies cut-to-size seat
cushions, back cushions and other pieces to the furniture industry, including to
Berkline, Action, and Schnadig. The consumer products group, acquired as part of
the acquisition of Crain in 1997 (the "Crain  Acquisition"),  sells  therapeutic
sleep  products  such as  mattress  pads and bed pillows for the health care and
consumer  markets  and a broad line of home  furnishing  products  to  retailers
throughout the United States.

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

       Carpet Cushion Products

       Foamex L.P.  manufactures  and  distributes  carpet  cushion  products to
Foamex  Carpet  which  include  prime,  bonded,  sponge  rubber and felt  carpet
cushion.  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 accordance with a supply agreement with Foamex Carpet, if requested by Foamex
Carpet,  Foamex L.P. is required to supply all of Foamex  Carpet's  requirements
for  carpet  cushion  products.  (See  Note  13 to  the  consolidated  financial
statements.)  Foamex Carpet's carpet cushion products are marketed through floor
covering retailers such as Sears, Carpet Max and Home Depot.


                                       6
<PAGE>
       Automotive Products

       Foamex L.P. is one of the largest  suppliers of automotive  foam products
for  the  North  American  operations  of  OEMs.  Depending  on  the  automotive
manufacturer  and/or the  application,  automotive foam products are supplied by
Foamex  L.P.  either  directly  to  the  manufacturers  or  indirectly   through
sub-suppliers.  Automotive  products  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.

       Domestic automotive  manufacturers have narrowed their supply base during
recent years,  and increased the percentage and dollar amount of components that
they purchase from outside suppliers. As a result, a smaller number of companies
are  supplying an  increasing  percentage  of  automotive  foam  products  since
automotive  suppliers are increasingly  offering  integrated systems which lower
the overall cost and improve quality  relative to previous  sourcing  methods in
which individually sourced components were assembled and installed by the OEMs.

       Foamex  L.P.'s  new  product   development  and  flexible   manufacturing
capabilities  allow it to produce  quality  automotive  foam products to satisfy
changing specifications.  Examples of Foamex L.P.'s ability to react to changing
industry  requirements  include its  development of  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(R), made from rigid polyurethane foam. In addition, Foamex
L.P. recently introduced Isoguard(TM), which is a rubber gasket material for the
automotive and household  appliance  industries.  Also, the use of tri-laminates
has  increased  due to  manufacturers'  need for  significant  cost  savings and
consumer  demand for improved  aesthetics.  Foamex L.P.  intends to increase its
production and distribution of foam and fabric components, such as tri-laminated
material for automotive seating.

       Automotive   manufacturers  are  increasingly  requiring  the  production
facilities  of their  suppliers to meet certain high quality  standards.  Foamex
L.P. has achieved and expects to maintain the highest quality ratings awarded to
foam suppliers by automotive  manufacturers.  In addition, all tier one and tier
two automotive supplier facilities worldwide will eventually be required to meet
the QS-9000 quality manufacturing  standards set by the United States automotive
manufacturers. 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.

       Technical Products

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

       Reticulated  foams are well suited for  filtration,  reservoiring,  sound
absorption and sound transmission.  Industrial applications include carburetors,
computer  cabinets,  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 Technical
Products  have  unique  characteristics  such  as  flame  retardancy  and  fluid
absorption.  Additional  products  sold  within  this  group  include  foams for
refrigerated supermarket produce counters, mop heads, paint brushes, diapers and
cosmetic applications.

       Foamex L.P. uses advertising in trade journals and related media in order
to attract  customers  and,  more  generally,  to increase an  awareness  of its
capabilities for Technical Products. In addition,  due to the highly specialized
nature of most  Technical  Products,  Foamex  L.P.'s  research  staff works with

                                       7
<PAGE>
customers to design,  develop and  manufacture  each  product to  specification.
Foamex L.P.'s Technical Products customers include  Hewlett-Packard and Briggs &
Stratton.

       Other

       Other consists  primarily of certain  foreign  manufacturing  operations,
corporate   expenses  not  allocated  to  the  other   operating   segments  and
restructuring  and  other  charges.  See Note 15 to the  consolidated  financial
statements.

       Marketing and Sales

       As of December 31, 1998,  Foamex L.P. has a marketing  and sales force of
approximately  120 employees.  Foamex L.P.'s  executive vice  presidents  direct
sales efforts for each operating segment.

       Foam  products  are sold  directly by Foamex  L.P.  to major  bedding and
furniture  manufacturers  such as Sealy,  Simmons and  Berkline and also through
third party  independent  fabricators.  In  addition,  Foamex  L.P.  distributes
foam-based consumer products such as futons, pillows, mattress pads and juvenile
furniture to  retailers  such as Wal-Mart,  Kmart and JC Penney.  Foamex  L.P.'s
foam-based  consumer products sales efforts are primarily  regionally based with
salespersons  selling to local accounts.  The key strategic elements  supporting
growth in these areas are a focus on marketing and sales efforts,  high quality,
cost-competitive  products and low freight costs through optimal plant location.
Plant  locations are critical in this  regionalized  line of business  where the
transportation cost typically comprises a significant portion of product cost.

       Carpet cushion products are sold to Foamex Carpet, which in turn sells to
distributors  and major floor covering  retailers  such as Sears,  CarpetMax and
Home Depot.

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

       Foamex L.P.'s Technical Products are used for filtration and reservoiring
in a wide variety of  applications  by  companies  such as  Hewlett-Packard  and
Briggs & Stratton.  Foamex L.P. markets most of its Technical Products 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 Technical  Products or finish such products to meet the specific
needs of end user.  Foamex L.P.'s  specialty and technical  foams service unique
end user  requirements  and are generally sold at relatively high margins.  This
line  of  business  is  characterized  by a  diversity  and  complexity  of both
customers and applications.

       International Operations and Export Sales

       Foamex  L.P.'s  net sales for its  foreign  based  operations  and export
sales,  primarily  in Canada and Mexico,  for 1998,  1997,  and 1996 were $122.4
million  (10.6% of net sales),  $85.0  million  (9.1% of net  sales),  and $76.0
million (8.2% of net sales), respectively. Foamex L.P.'s remaining net sales are
primarily from customers located in the United States.

       Customers

       During 1998,  sales to Foamex Carpet accounted for  approximately  $139.2
million of Foamex L.P.'s net sales.  However,  other than Foamex Carpet,  no one
customer  accounted  for more than 10.0% of Foamex  L.P.'s net sales  during the
past  three  years.  Customers  that  represent  more  than 10% of an  operating
segment's net sales are Sealy in foam products,  Foamex Carpet in carpet cushion
products,  and Lear Corporation and Johnson Controls in automotive products. The
loss of any one of these  customers  would  have a  material  adverse  effect on

                                       8
<PAGE>
Foamex  L.P.  During the year ended  December  31,  1998,  net sales to the five
largest  customers,  excluding  Foamex Carpet,  comprised  approximately  $272.0
million or 23.5% of Foamex L.P.'s net sales.

       Manufacturing and Raw Materials

       As  of  December  31,  1998,  Foamex  L.P.  conducted  operations  at  63
manufacturing  and  distribution  facilities with a total of  approximately  8.4
million square feet of floor space.  Foamex L.P. believes that its manufacturing
and distribution  facilities are well suited for their intended purposes and are
in  good  condition.   The   manufacturing   and  distribution   facilities  are
strategically  located to service Foamex L.P.'s major customers because the high
freight  cost in relation to the cost of the foam product  generally  results in
distribution being most cost effective within a 200 to 300 mile radius.

       Foamex L.P.'s fabrication process involves cutting foam buns into various
shapes and sizes to meet customer  specifications.  Fabrication  foam is sold to
customers  and is utilized by Foamex  L.P.  to produce its  foam-based  consumer
products.  Scrap foam,  generated in  connection  with the  fabrication  of foam
products,  is used by Foamex L.P. to produce  rebond  carpet  cushion or sold to
Foamex Carpet in connection with a supply agreement.

       Raw  materials  account for a  significant  portion of the  manufacturing
costs of Foamex L.P.  and,  historically,  the price of raw  materials  has been
cyclical and volatile.  Foamex L.P. generally has alternative 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.  Foamex L.P.  attempts to offset raw material cost increases  through
selling price  increases;  however,  there can be no assurance  that Foamex L.P.
will be successful in implementing  selling price increases or that  competitive
pricing pressure will not require Foamex L.P. to adjust selling prices.  Results
of  operations  have  been  and  could  be  adversely   affected  by  delays  in
implementing,  or the  inability  of Foamex L.P.  to  implement,  selling  price
increases to offset raw material  cost  increases.  For example,  Foamex  L.P.'s
results of  operations  in 1998,  1997 and 1996 were  adversely  affected by net
unrecovered  raw material  costs.  Furthermore,  there can be no assurance  that
chemical or other  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.

       The  two  principal   chemicals  used  in  the  manufacture  of  flexible
polyurethane foam are TDI and polyol. Lyondell Chemical Company (formerly,  ARCO
Chemical  Company),  BASF  Corporation,  Bayer  Corporation and The Dow Chemical
Company are Foamex L.P.'s largest suppliers of TDI and polyol.  The price of TDI
and polyol is influenced by demand,  manufacturing  capacity and oil and natural
gas prices. Since September 1994, suppliers of TDI and polyol have increased the
price of these raw materials several times.  Significant  increases in these raw
material prices could have a material adverse effect on the financial  condition
or results of operations of Foamex L.P.

       A key raw material  used in the  manufacture  of carpet  cushion is scrap
foam. Foamex L.P.  internally  generates a substantial portion of the scrap foam
used in the  production  of rebond  carpet  cushion  from its other  operations.
Historically,  the market price of rebond carpet cushion has fluctuated with the
market price of scrap foam. Thus, while Foamex L.P.'s gross margins with respect
to the portion of rebond carpet  cushion  produced with scrap foam  purchased on
the open market are fairly constant, Foamex L.P.'s gross margins with respect to
the portion of rebond carpet cushion  produced with  internally  generated scrap
foam are subject to  significant  variation  based on the market price of rebond
carpet cushion.

       Employees

       As of  December  31,  1998,  Foamex  L.P.  employed  approximately  5,675
persons,  with  5,170  of  such  employees  involved  in  manufacturing,  385 in
administration  and 120 involved in sales and marketing  (these numbers  include
approximately  240  employees  terminated  during  the first  quarter  of 1999).
Approximately  1,200 of these  employees are located  outside the United States.
Also,   approximately  1,050  of  these  employees  are  covered  by  collective
bargaining  agreements  with labor unions,  which  agreements  expire on various
dates from 1999 through 2002. Foamex L.P. considers relations with its employees
to be good.

                                       9
<PAGE>
       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  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 Future Foam, Inc. None of such  competitors  compete in all of the operating
segments in which Foamex L.P. does business.

       Patents and Trademarks

       Foamex L.P. owns various patents and trademarks  registered in the United
States and in numerous foreign countries.  The registered processes and products
were developed  through ongoing  research and development  activities to improve
quality, reduce costs and expand markets through development of new applications
for flexible polyurethane foam products. While 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.  Foamex L.P.'s primary research and
development facility is located in Eddystone,  Pennsylvania. Foamex L.P. employs
approximately 41 full-time research and development employees.  Expenditures for
research  and  development  amounted to $3.3  million,  $2.4  million,  and $2.5
million for 1998, 1997, and 1996, respectively,  excluding expenditures by Crain
for research and development prior to its acquisition.

       Foamex L.P. and Recticel, s.a. ("Recticel"), a European polyurethane foam
manufacturer and former partner in Foamex L.P., 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,  have an
interest in a Swiss corporation that develops new  manufacturing  technology for
the production of polyurethane foam including the VPF(R) 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 31,  1998,  Foamex L.P.  conducted  its  operations  at 63
manufacturing  and  distribution  facilities,  including five  facilities  which
Foamex  L.P.  intends  to  close  as  part  of  its  restructuring/consolidation
activities  primarily  associated with the Crain  Acquisition,  of which 18 were
owned and 45 were  leased.  Total floor space in use at the owned  manufacturing
and distribution  facilities is approximately  3.3 million square feet and total
floor space in use at the leased  manufacturing  and distribution  facilities is
approximately  5.1 million  square  feet.  Fifty-five  of these  facilities  are
located in 36 cities  throughout the United States,  four facilities are located
in two  cities in Canada and four  facilities  are  located  in three  cities in
Mexico.  The 1999 annual base rental with respect to such leased  facilities  is
approximately  $8.8 million under leases expiring from 1999 to 2007. Foamex L.P.
does not  anticipate  any problem in renewing  or  replacing  any of such leases
expiring in 1999. In addition,  Foamex L.P. has approximately 1.1 million square
feet of idle space of which approximately 0.5 million is leased.

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

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<PAGE>
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 1998,  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
31,  1998,   Foamex  L.P.  had  accruals  of  approximately   $3.5  million  for
environmental matters. During 1998, Foamex L.P. established an allowance of $0.6
million relating to receivables from Trace for environmental indemnification due
to the financial  difficulties  of Trace (see Note 1 to  consolidated  financial
statements).

       The Clean Air Act Amendments of 1990 (the "1990 CAA Amendments")  provide
for the establishment of federal emission standards for hazardous air pollutants
including  methylene  chloride,  propylene oxide and TDI,  materials used in the
manufacturing  of foam. On December 27, 1996,  the United  States  Environmental
Protection Agency (the "EPA") proposed regulations under the 1990 CAA Amendments
that  will  require  manufacturers  of slab  stock  polyurethane  foam  and foam
fabrication plants to reduce emissions of methylene chloride. The final National
Emission  Standard for  Hazardous  Air  Pollutants  ("NESHAP")  was  promulgated
October 7,  1998.  NESHAP  requires  a  reduction  of  approximately  70% of the
emission  of  methylene  chloride  for the slab  stock foam  industry  effective
October 7, 2001.  Foamex L.P. does not believe  implementation of the regulation
will  require  it to make  material  expenditures  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  such  alternative
technologies.  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 federal regulatory requirements,  state laws have resulted
or could result in more stringent  regulations regarding the use and emission of
certain  chemicals.  For example,  in California,  methylene  chloride usage was
phased  out at the end of  1995,  while  in Kent,  Washington,  a  former  Crain
facility,  pursuant to consent  decrees as well as applicable  laws, must over a
period of time phase out methylene chloride usage. Foamex L.P. believes that use
of methylene chloride in certain applications can be reduced to be in compliance
with certain state and federal laws.  Specifically,  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  and  various  carbon  dioxide
processes, Foamex L.P. believes that it can reduce its methylene chloride usage.
Foamex  L.P.  has  installed  the  Enviro-Cure(R)  process at its  manufacturing
facilities in Compton,  California; San Leandro,  California;  Elkhart, Indiana;
Tupelo,  Mississippi;  and Conover, North Carolina and carbon dioxide systems at
its Compton,  California;  Eddystone,  Pennsylvania;  Kent,  Washington;  Corry,
Pennsylvania;  and Orlando,  Florida plants.  There can be no assurance however,
that each of these  processes  can  successfully  reduce  emissions of methylene
chloride in every  product  formulation  to levels within  applicable  state and
federal  standards or that future  changes in  regulations  governing the use or
emissions of specific chemicals will not have a material impact on Foamex L.P.

       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;  and at a former facility in Dallas, Texas and groundwater
contamination  in  excess  of  state  standards  at the  Orlando,  Conover,  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.  has  accruals of $2.5
million for the estimated cost of completing  remediation  at these  facilities.
Foamex L.P.  is in the  process of  addressing  potential  contamination  at the
Morristown,  Tennessee facility,  and has submitted a sampling plan to the State
of Tennessee.  The extent of the contamination and responsible  parties, if any,
has not yet been  determined.  A former  owner may be liable for cleanup  costs;
nevertheless, the cost of remediation, if any, is not expected to be material.

                                       11
<PAGE>
       Federal  regulations  required  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 upgraded all  operating  tanks at its  facilities in
accordance  with these  regulations.  Foamex L.P.  believes that its USTs do not
pose a significant risk of  environmental  liability.  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 to comply with these new standards.

       Foamex  L.P.  has been  designated  as a  Potentially  Responsible  Party
("PRP") by the EPA with respect to eight sites with an estimated total liability
to Foamex L.P. for the eight sites of less than $1.0 million. Estimates of total
cleanup costs and fractional  allocations of liability are generally provided by
the EPA or the  committee of PRP's with respect to the  specified  site. In each
case, the liability of Foamex L.P. is not considered to be material.

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

Legal Proceedings

       Stockholder Litigation

       Beginning  on or about  March 17,  1998,  six actions  (collectively  the
"Stockholder  Litigation")  were filed in the Court of  Chancery of the State of
Delaware,   New  Castle  County  (the  "Court"),   by   stockholders  of  Foamex
International. The Stockholder Litigation,  purportedly brought as class actions
on  behalf  of  all   stockholders   of  Foamex   International,   named  Foamex
International,  certain of its  directors,  certain of its  officers,  Trace and
Merger Sub as defendants  alleging that they had breached their fiduciary duties
to the plaintiffs and other  stockholders of Foamex  International  unaffiliated
with Trace in  connection  with the  original  proposal  of Trace to acquire the
publicly traded outstanding common stock of Foamex  International for $17.00 per
share.  The  complaints  sought,  among other  things,  class  certification,  a
declaration  that the  defendants  have breached their  fiduciary  duties to the
class,  preliminary  and permanent  injunctions  barring  implementation  of the
proposed transaction, rescission of the transaction if consummated,  unspecified
compensatory  damages,  and costs and attorneys'  fees. A stipulation  and order
consolidating  these six actions  under the  caption In re Foamex  International
Inc. Stockholders Litigation, Consolidated Civil Action, No. 16259NC was entered
by the  Court on May 28,  1998.  Foamex  L.P.  is not  party to the  Stockholder
Litigation.

       The parties to the  Stockholder  Litigation  entered into a Memorandum of
Understanding,  dated June 25,  1998 (the  "Memorandum  of  Understanding"),  to
settle the  Stockholder  Litigation,  subject  to,  inter alia,  execution  of a
definitive  Stipulation  of  Settlement  between the parties and approval by the
Court  following  notice  to  the  class  and  a  hearing.   The  Memorandum  of
Understanding  provided that as a result of, among other things, the Stockholder
Litigation and  negotiations  among counsel for the parties to the Memorandum of
Understanding,  a special meeting of stockholders would be held to vote upon and
approve the First Merger Agreement which provided,  among other things,  for the
Public Shares owned by stockholders of Foamex  International  unaffiliated  with
Trace and its subsidiaries (the "Public  Stockholders") to be converted into the
right to receive $18.75 in cash, without interest.

       The  Memorandum of  Understanding  also provided for  certification  of a
class, for settlement purposes only, consisting of the Public Stockholders,  the
dismissal of the  Stockholder  Litigation  with prejudice and the release by the
plaintiffs  and all members of the class of all claims and causes of action that
were or could have been asserted  against Trace,  Foamex  International  and the

                                       12
<PAGE>
individual  defendants in the  Stockholders  Litigation or that arise out of the
matters  alleged by  plaintiffs.  Following the  completion of the  confirmatory
discovery  which  was  provided  for  in the  Memorandum  of  Understanding,  on
September  9,  1998,  the  parties  entered  into a  definitive  Stipulation  of
Settlement and the Court set a hearing to consider whether the settlement should
be approved for October 27, 1998 (the "Settlement Hearing").  In connection with
the  proposed  settlement,  the  plaintiffs  intended  to apply  for an award of
attorney's fees and litigation expenses in an amount not to exceed $925,000, and
the  defendants  agreed not to oppose  this  application.  Additionally,  Foamex
International  agreed  to pay  the  cost,  if  any,  of  sending  notice  of the
settlement  to the Public  Stockholders.  On  September  24,  1998,  a Notice of
Pendency of Class Action,  Proposed  Settlement  of Class Action and  Settlement
Hearing was mailed to the members of the settlement  class. On October 20, 1998,
the parties to the  Stockholder  Litigation  requested that the Court cancel the
Settlement  Hearing in light of the  announcement  made by Trace on October  16,
1998,  that it had  been  unable  to  obtain  the  necessary  financing  for the
contemplated  acquisition by Trace of Foamex  International's  common stock at a
price  of  $18.75  per  share  which  was the  subject  matter  of the  proposed
settlement.  This  request was  approved by the Court on October 21,  1998,  and
Foamex International issued a press release on October 21, 1998, announcing that
the Court had cancelled the Settlement Hearing.

       On  November  10,  1998,  counsel for  certain of the  defendants  in the
Stockholder  Litigation  gave notice  pursuant to the  Stipulation of Settlement
that such  defendants  were  withdrawing  from the  Stipulation of Settlement in
light of the  notice  given by Trace to  Foamex  International  and the  special
committee of the Board of Directors on November 5, 1998 whereby Trace terminated
the First Merger  Agreement on the grounds that the  financing  condition in the
First Merger Agreement was incapable of being satisfied.

       On November 12, 1998, the plaintiffs in the Stockholder  Litigation filed
an Amended  Class  Action  Complaint  (the  "Amended  Complaint").  The  Amended
Complaint named Foamex International,  Trace, Merger Sub, Mr. Marshall S. Cogan,
Mr. Andrea Farace, Dr. Stuart Hershon, Mr. John Tunney, and Mr. Etienne Davignon
as defendants,  alleging that they breached their fiduciary duties to plaintiffs
and the other Public Stockholders in connection with the Second Merger, that the
proposal  to acquire  the Public  Shares  for  $12.00  per share  lacked  entire
fairness,  that the  individual  defendants  violated  8 Del.  Code  ss.  251 in
approving  the Second Merger  Agreement,  and that Trace and Merger Sub breached
the Stipulation of Settlement.  On December 2, 1998,  plaintiffs served a motion
for a  preliminary  injunction,  seeking  an Order to  preliminarily  enjoin the
defendants from proceeding with,  consummating or otherwise effecting the merger
contemplated by the Second Merger Agreement.

       The  defendants  have  denied,  and  continue  to deny,  that  they  have
committed or have  threatened to commit any violation of law or breaches of duty
to  plaintiffs  or the  purported  class or any  breach  of the  Stipulation  of
Settlement.   The  defendants   intend  to  vigorously  defend  the  Stockholder
Litigation.

       In addition,  on or about  November 18, 1998, a putative class action was
filed in the United States  District Court for the Eastern  District of New York
on behalf of all  persons who  purchased  common  stock of Foamex  International
between  March 16, 1998 and October 19,  1998,  naming  Trace as  defendant  and
alleging that Trace  breached a contract  between the putative class members and
Trace.  By order dated January 8, 1999, the Court  transferred the action to the
United States District Court for the Southern District of New York. Trace made a
motion to dismiss the action on February 8, 1999, which motion is pending before
the Court, and the Court has stayed all discovery in the action until the motion
is decided. Neither Foamex International,  Foamex L.P. nor any of the individual
directors of Foamex International are named as defendants in this litigation.

       On April 26, 1999, a putative securities class action entitled Molitor v.
Foamex  International  Inc., et al., 99 Civ. 3004 (DC),  was filed in the United
States District court for the Southern District of New York naming as defendants
Foamex  International,  Trace  and  certain  officers  and  directors  of Foamex
International   on  behalf  of   stockholders   who  bought   shares  of  Foamex
International's  common  stock  during the period  from May 7, 1998  through and
including  April 16, 1999.  Foamex L.P. is not a party to such suit. The lawsuit
alleges that the defendants  violated  Section 10(b) of the Securities  Exchange
Act  of  1934  and  Rule  10b-5  by  misrepresenting  and/or  omitting  material
information  about Foamex  International's  financial  situation and operations,
with the result of  artificially  inflating the price of Foamex  International's
stock.  The lawsuit  also  alleges  that Trace and  Marshall  S. Cogan  violated
Section 20(a) of the Securities  Exchange Act of 1934 as controlling  persons of
Foamex  International.  The compliant seeks class  certification,  a declaration
that defendants  violated the federal securities law, an award of money damages,
and costs and attorneys',  accountants' and experts' fees. The defendants intend

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to vigorously  defend the action. To date, no response to the complaint has been
made and no discovery or other proceedings have taken place.

       Breast Implant Litigation

       As of April  16,  1999,  Foamex  L.P.  and  Trace  were  two of  multiple
defendants  in actions  filed on behalf of  approximately  4,321  recipients  of
breast  implants  in various  United  States  federal  and state  courts and one
Canadian provincial court, some of which allege substantial damages, but most of
which allege  unspecified  damages for personal injuries of various types. Three
of these cases seek to allege claims on behalf of all breast implant  recipients
or other allegedly affected parties, but no class has been approved or certified
by the court. In addition, three cases have been filed alleging claims on behalf
of approximately 39 residents of Australia,  New Zealand,  England, and Ireland.
Foamex L.P. believes that the number of suits and claimants may increase. During
1995,  Foamex L.P. and Trace were granted  summary  judgments  and  dismissed as
defendants  from all cases in the  federal  courts of the United  States and the
state courts of California.  Appeals for these  decisions were withdrawn and the
decisions are final.

       Although  breast  implants  do not contain  foam,  certain  silicone  gel
implants  were  produced  using  a  polyurethane  foam  covering  fabricated  by
independent  distributors  or  fabricators  from bulk foam purchased from Foamex
L.P.  or Trace.  Neither  Foamex  L.P.  nor Trace  recommended,  authorized,  or
approved the use of its foam for these purposes. Foamex L.P. is also indemnified
by Trace for any such liabilities relating to foam manufactured prior to October
1990.  Although  Trace has paid Foamex L.P.'s  litigation  expenses to date from
insurance proceeds Trace received,  there can be no assurance that Trace will be
able to continue 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, and without taking into account the  indemnification  provided
by Trace, the coverage provided by Trace's and Foamex L.P.'s liability insurance
and potential  indemnity from the  manufacturers of polyurethane  covered breast
implants,  management  believes that the disposition of 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's  consolidated  financial
position or results of operations.  If management's  assessment of Foamex L.P.'s
liability with respect to these actions is incorrect,  such actions could have a
material  adverse  effect on the financial  position,  results of operations and
cash flows of Foamex L.P.

       Other Litigation

       On April 14, 1999, Foamex International received communications addressed
to its Board of Directors  from certain of Foamex  International's  stockholders
regarding  aspects of the relationship  between Trace and Foamex  International.
Such stockholders  questioned the propriety of certain relationships and related
transactions   between  Trace,  Foamex  International  and  Foamex  L.P.,  which
previously  have been  disclosed  in Foamex  International's  and Foamex  L.P.'s
periodic filings.  Foamex  International's  Board of Directors,  in consultation
with its special  counsel,  is in the process of evaluating such  communications
and what actions, if any, to take with respect thereto.

       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.  Such action could have a
material  adverse  effect on the financial  position,  results of operations and
cash flows of Foamex L.P.

       Foamex L.P. is party to various  other  lawsuits,  both as defendant  and
plaintiff, arising in the normal course of business. It is the opinion of Foamex
L.P. 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.

                                       14
<PAGE>
ITEM 4.  SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS

       None

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

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

     b)   As of  December  31,  1998,  there were two  holders of Foamex  L.P.'s
          equity securities.

     c)   During  1998 and 1997,  Foamex  L.P.  made net cash  distributions  in
          accordance with tax sharing  agreements of approximately  $0.3 million
          and $8.8 million,  respectively, at December 31, 1998, Foamex L.P. has
          a  receivable  of  approximately  $1.2  million  from its  partners in
          accordance with the tax sharing agreement.
<TABLE>
<CAPTION>
                                                                         Tax Sharing Distributions     
                                                                        1998                    1997  
                                                                      --------                --------
                                                                                (thousands)
<S>                                                                   <C>                   <C>     
       FMXI, Inc.                                                        $  6                 $   80
       Foamex International Inc.                                          287                  8,371
       Trace Foam Company, Inc.                                             -                     80
       Foamex-JPS Automotive L.P.                                           -                    306
                                                                         ----                 ------
                                                                         $293                 $8,837
                                                                         ====                 ======
</TABLE>

       1998 Distributions

       On February 27, 1998,  Foamex L.P.  distributed $20.0 million in cash pro
rata to its partners,  such  distribution  was funded with borrowings  under the
Foamex L.P. credit facility.

       1997 Distributions

       In connection with the June 1997 refinancing  plan,  Foamex L.P. made the
following distributions: a $2.0 million promissory note of Foamex International,
a $56.2 million  aggregate  principal amount ($35.6 million accreted value) note
of Foamex-JPS  Automotive L.P. ("FJPS") and $116.7 million  aggregate  principal
amount of FJPS  discount  debentures  were  distributed  pro rata to FJPS (a 98%
limited  partner)  and to FMXI (a 1% managing  general  partner).  Concurrently,
Foamex  L.P.  distributed  approximately  $1.5  million  in cash to  Trace  Foam
Company, Inc. (a 1% non-managing general partner).

       Limitations on Distributions

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

ITEM 6.  SELECTED CONSOLIDATED FINANCIAL DATA

       The following table presents selected 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.

                                       15
<PAGE>
<TABLE>
<CAPTION>
                                                                        Fiscal Year(1)(2)    
                                                  1998(3)(4)     1997(6)     1996(7)      1995(8)      1994  
                                                  ----------    ---------   ---------    --------    --------
                                                                          (thousands)
Statements of Operations Data:
<S>                                              <C>             <C>         <C>          <C>         <C>     
     Net sales                                   $1,155,918      $931,095    $926,351     $862,834    $833,660
     Income (loss) from continuing operations        (5,869)       11,265      53,661      (48,126)     38,011
     Net income (loss)                               (9,064)      (37,294)      9,699      (53,243)     39,241

Balance Sheet Data (at period end):
     Total assets                                  $768,528      $834,068    $586,157     $605,892    $654,176
     Long-term debt, classified as current (5)      723,478        12,161      13,735        8,511      12,123
     Long-term debt                                       -       726,649     392,617      433,956     441,757
     Partners' equity (deficit)                    (196,037)     (156,302)     12,832      (12,604)     52,548
<FN>
(1)  Foamex L.P. changed its fiscal year to the calendar year during 1998. Prior
     to the change,  Foamex  L.P.  had a 52 or 53 week fiscal year ending on the
     Sunday closest to the end of the calendar year.  Each fiscal year presented
     prior to 1998 was comprised of 52 weeks.

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

(3)  Includes net  restructuring  and other credits of $10.1 million (see Note 4
     to the consolidated financial statements).

(4)  The 1998 financial  statements have been prepared assuming Foamex L.P. will
     continue as a going  concern.  As discussed  in Note 1 to the  consolidated
     financial  statements,  Foamex L.P. was not in compliance with certain debt
     covenants  and is seeking  amendments;  however,  there can be no assurance
     that such  amendments  will be  obtained  and  therefore  Foamex  L.P.  has
     reclassified  the majority of its long-term  debt as current,  which raises
     substantial  doubt  about  Foamex  L.P.'s  ability to  continue  as a going
     concern. In addition, Foamex L.P. has been informed by Trace that Trace has
     substantial  debt  obligations and may not have the financial  resources to
     pay these obligations when due within the near future.  As a result,  Trace
     creditors could foreclose or otherwise attach Foamex International's stock.
     Such an event may result in the acceleration of substantially all of Foamex
     L.P.'s debt. Management's plans in regard to these matters are described in
     Note 1 to the consolidated  financial statements.  The financial statements
     do not include any adjustments  that might result from the outcome of these
     uncertainties.

(5)  Included in  long-term  debt,  current  portion as of December  31, 1998 is
     approximately  $715.8  million of  long-term  debt that was  classified  as
     current.  Foamex L.P. is in the process of  negotiating  amendments  to the
     debt  covenants  described in (4) above to become  compliant  with its debt
     agreements. There can be no assurance,  however, that the covenants will be
     amended. See Note 1 to the consolidated financial statements.

(6)  The Statements of Operations Data includes  restructuring and other charges
     of $21.1 million,  (see Note 4 to the 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  included the estimated  fair value of the net assets  acquired in the
     Crain Acquisition.

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

(8)  Includes restructuring and other charges of $39.2 million.
</FN>
</TABLE>

                                       16
<PAGE>
ITEM 7.  MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
         OF OPERATIONS

       Foamex L.P.  operates in the flexible  polyurethane  and advanced polymer
foam  products  industry.  As of December 31,  1998,  Foamex  L.P.'s  operations
consist of the following  operating  segments:  (i) foam  products,  (ii) carpet
cushion products,  (iii) automotive  products,  (iv) technical  products and (v)
other,  which primarily  consists of certain foreign  manufacturing  operations,
corporate   expenses  not  allocated  to  the  other   operating   segments  and
restructuring and other charges. The net sales and income (loss) from operations
of these  operating  segments  for each of the last three years are  included in
Note 15 to the consolidated financial statements.  For periods prior to February
27, 1998, the consolidated financial statements included the operations and cash
flows of General  Felt.  Foamex  L.P.  entered  into the GFI  Transaction  which
transferred  these  operations  to  Foamex  International.  (See  Note  9 to the
consolidated   financial  statements  for  further  discussion.)  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.

       The accompanying  financial statements have been prepared assuming Foamex
L.P.  will  continue  as a  going  concern.  As  discussed  in  Note  1  to  the
consolidated  financial  statements and under "Liquidity and Capital  Resources"
below,  Foamex  L.P.  is not in  compliance  with  certain  financial  covenants
contained in the agreements  governing  approximately  $415.4 million  principal
amount of  indebtedness.  Such  non-compliance  provides  that the lenders under
those  agreements,  upon the  notice and lapse of time can  declare  all of such
indebtedness  to be due. To date the lenders have not exercised  such rights and
have granted Foamex L.P.  waivers of such covenants  through May 5, 1999,  which
has been  extended  through June 30, 1999, to enable Foamex L.P. to negotiate an
amendment of such covenants; there can be no assurance that such amendments will
be obtained and therefore such  indebtedness  has been  classified as current on
Foamex L.P.'s financial  statements.  Were the lenders under those agreements to
accelerate  the  maturity  of  their   indebtedness,   such  acceleration  would
constitute an event of default, and substantially all of Foamex L.P.'s long-term
debt would become due.  Therefore,  Foamex L.P. has  reclassified  approximately
$715.8  million  of  long-term  debt  as  current.  Such  classification  raises
substantial doubt about Foamex L.P.'s ability to continue as a going concern. In
addition, Foamex L.P. has been informed by Trace that Trace had substantial debt
obligations  that  were  due at the end of  December  1998  and did not have the
financial  resources  to pay those  obligations.  Subsequently,  Trace  informed
Foamex L.P. that waivers  and/or  modifications  of such  indebtedness  had been
obtained for at least the near future;  however,  there can be no assurance that
such  waivers  and/or  modifications  will remain in effect prior to obtaining a
permanent  resolution.  If Trace were to default on its indebtedness  secured by
Foamex  International's common stock or other Trace creditors were to take steps
constituting  a default under such  indebtedness  (such as filing an involuntary
bankruptcy  petition),  and if the holders of such secured  indebtedness were to
foreclose on Foamex International's common stock held by Trace, such event could
trigger  the  acceleration  and put rights of  substantially  all of the debt of
Foamex L.P. as described above.  Although management believes that all such debt
obligations  would be  refinanced  under  such  circumstances,  there  can be no
assurance  that  Foamex  L.P.  or  its  subsidiaries  would  be  able  to do so.
Management's  plans in regard to these  matters are  described  in Note 1 to the
consolidated  financial statements.  In December 1998, Foamex L.P. established a
reserve of $2.4  million  against  operating  receivables  due from  Trace.  The
financial  statements do not include any further  adjustments  that might result
from the outcome of these uncertainties.

       On March 16, 1999, Foamex International  announced that it had hired John
G. Johnson,  Jr. as President,  Chief  Executive  Officer and director of Foamex
International  following the  resignation of Andrea Farace from the positions of
Chairman  of  the  Board,   Chief  Executive  Officer  and  director  of  Foamex
International.  Foamex  International also announced that it had hired JP Morgan
Securities  Inc. as a financial  advisor to explore  strategic  alternatives  to
maximize shareholder value.

       In 1998,  Foamex  International  received an unsolicited  buyout proposal
from Trace, Foamex International's  principal stockholder.  Foamex International
entered into the First Merger  Agreement  and the Second Merger  Agreement  that
were subsequently terminated by Trace. See "Business - General".

                                       17
<PAGE>
       Acquisitions and Disposition

       On February 27, 1998,  Foamex  International,  Foamex L.P. and certain of
its affiliates  completed the GFI  Transaction.  See "Business - General".  As a
result of the GFI Transaction,  General Felt was transferred to Foam Funding LLC
in exchange for the assumption of $129.0 million of Foamex L.P.'s  indebtedness,
and the transfer to Foamex L.P. of Foam Funding  LLC's 1%  non-managing  general
partnership   interest,   and  Foamex  L.P.  recorded  transaction  expenses  of
approximately  $1.5 million as other expense and an extraordinary  loss on early
extinguishment  of  debt  in  the  amount  of  approximately  $3.2  million.  In
connection with the GFI Transaction,  Foamex L.P.  distributed  $20.0 million in
cash pro rata to its  partners,  such  distribution  was funded with  borrowings
under the Foamex L.P. Credit Agreement.

       On December 23, 1997, Foamex  International  acquired Crain pursuant to a
merger  agreement with Crain Holdings  Corp.  ("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)  and  contributed  all of the  assets  of Crain,
subject to all of the liabilities of Crain, to Foamex L.P. In addition, fees and
expenses associated with the Crain Acquisition were approximately $13.2 million.
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 during 1997 relating to the restructuring
of Foamex L.P.'s operations in connection with the Crain Acquisition and related
transactions.  In addition,  during 1997 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 facilities acquired in the Crain
Acquisition.

       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 an existing  credit  facility by  approximately  $38.8
million.  Foamex L.P. incurred an extraordinary loss on early  extinguishment of
debt of approximately $0.9 million.

       On  June  12,  1997,  Foamex  International   substantially  completed  a
refinancing  plan (the  "1997  Refinancing  Plan")  designed  to  reduce  Foamex
International's  interest  expense and increase its financing  flexibility.  The
1997  Refinancing Plan included a tender offer by Foamex L.P. to purchase $373.0
million of Foamex L.P.'s existing public debt and  approximately  $116.7 million
principal  amount of FJPS discount  debentures.  Also, the 1997 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 FJPS discount  debentures under the tender
offer and incurred an extraordinary loss on the early  extinguishment of debt of
approximately  $44.5  million.  The 1997  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 1997  Refinancing  Plan,  Foamex L.P.'s
total  long-term  debt  increased by $150.1  million.  Foamex L.P. has increased
interest expense as compared to the debt structure prior to the 1997 Refinancing
Plan.  However,  the  1997  Refinancing  Plan  reduced  Foamex   International's
consolidated  interest  expense  even  after  giving  effect  to the  additional
borrowings.  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 1997 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. In connection with the 1997 Refinancing Plan,
Foamex L.P. made the distributions described under Item 5 above.

       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 1997 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
1997 Refinancing Plan was defeased in February 1998 and redeemed in June 1998.


                                       18
<PAGE>
       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 include 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).

       General

       Foamex L.P.'s automotive foam customers are  predominantly  OEMs 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 1999 are  expected  to be  influenced  by various
internal and external factors.  These factors include,  among other things,  (i)
Foamex L.P.'s debt structure and Foamex L.P.'s ability to successfully amend its
Credit  Facility and certain  other  indebtedness,  (ii) Foamex  L.P.'s  capital
structure,  (iii) continued implementation of the consolidation plan with Crain,
(iv) additional raw material cost  increases,  if any, by Foamex L.P.'s chemical
suppliers,  (v) Foamex  L.P.'s  success in passing on to its  customers  selling
price   increases  to  recover  such  raw  material  cost   increases  and  (vi)
fluctuations in interest rates.

RESULTS OF OPERATIONS

       In the fourth quarter of 1998 Foamex L.P. adopted  Statement of Financial
Accounting  Standards No. 131  "Disclosure  about  Segments of an Enterprise and
Restatement  Information"  ("SFAS No. 131"). SFAS No. 131 requires  companies to
report  information  about their business  segments on the basis of how they are
managed  and  evaluated  by the  chief  operating  decision-makers.  Each of the
operating  segments is headed by an executive  vice president who is responsible
for developing plans and directing the operations of the segment.

       Foamex L.P.'s  reportable  business  segments are foam  products,  carpet
cushion products,  automotive products and technical products. The foam products
segment  manufactures and markets foam used by the bedding  industry,  furniture
industry and the retail  industry.  The carpet  cushion  products  segment sells
prime, rebond,  sponge rubber and felt carpet cushion to Foamex Carpet through a
Supply  Agreement.  The automotive  products segment supplies foam primarily for
automotive interior applications to automotive manufacturers and to industry sub
suppliers.  The Technical Products segment  manufactures and markets reticulated
foams and other custom  polyester and polyether foams for industrial,  specialty
and consumer and safety applications.

       The  "other"  column  in  the  table  below  represents  certain  foreign
manufacturing  operations  in Mexico and Asia that do not meet the  quantitative
threshold for determining reportable segments,  corporate expenses not allocated
to the other operating segments and restructuring and other charges. Total asset
information by operating  segment is not reported  because many of Foamex L.P.'s
facilities produce products for multiple operating  segments.  Data for 1997 and
1996 has been restated to reflect the implementation of SFAS No. 131.
<TABLE>
<CAPTION>
                                                 Carpet
                                   Foam         Cushion     Automotive      Technical
                                 Products       Products       Products      Products        Other         Total
1998
<S>                              <C>          <C>            <C>              <C>          <C>        <C>       
Net sales                        $559,690     $210,313       $285,190         $79,140      $21,585    $1,155,918
Income (loss) from operations      36,253          (58)        17,319          14,919       (2,925)       65,508
Depreciation and amortization      17,418        5,092          4,582           2,615        1,972        31,679

1997
Net sales                        $334,900     $273,920       $225,892         $76,254      $20,129      $931,095
Income (loss) from operations      30,974        8,795         24,885          18,071      (26,393)       56,332
Depreciation and amortization      10,237        4,166          3,309           2,290          880        20,882



                                       19
<PAGE>

                                                 Carpet
                                   Foam         Cushion     Automotive      Technical
                                 Products       Products       Products      Products        Other         Total

1996
Net sales                        $325,067     $291,338       $227,151         $70,325      $12,470      $926,351
Income from operations             32,431       18,813         28,707          18,208        4,710       102,869
Depreciation and amortization      10,683        4,198          2,874           2,232        1,145        21,132
</TABLE>

1998 Compared to 1997

       Net sales for 1998 were $1,155.9 million as compared to $931.1 million in
1997, an increase of $224.8 million or 24.1%.  Income from operations  increased
$9.2 million or 16.3% to $65.5 million for 1998 from $56.3 million in 1997.  The
increase in net sales and income from operations were primarily  associated with
the Crain Acquisition in December 1997,  restructuring and other credits and the
increase in automotive  lamination products during the latter part of 1998 which
were  offset by the  impact of the GFI  Transaction  in  February  1998 by which
General Felt ceased to be a consolidated  subsidiary of Foamex L.P. During 1998,
selling,  general and  administrative  expenses increased $7.4 million primarily
due to costs  associated  with the  integration  of Crain and Foamex  L.P.  (the
"Transition").  Also during 1998,  Foamex L.P.  recorded income of $14.8 million
for the reversal of 1997  restructuring  charges and recorded  other  charges of
$4.7 million  associated  with the impairment of goodwill on the Montreal Canada
operations ($2.3 million), and an allowance for receivables due from Trace ($2.4
million).

       Foam Products

       Foam products net sales for 1998  increased  67.1% to $559.7 million from
$334.9  million  in 1997 and income  from  operations  increased  17.0% to $36.3
million  (6.5%  of net  sales)  from  $31.0  million  (9.2% of net  sales).  The
increases in net sales and income from operations were primarily associated with
the Crain  Acquisition in December 1997. The decrease in income from  operations
as a  percentage  of net sales  was  primarily  the  result of (i) costs of $4.0
million  associated with the  Transition,  including  inventory  adjustments for
facilities  affected by the  consolidation  of  manufacturing  facilities;  (ii)
operating  inefficiencies and logistic costs of $2.5 million associated with the
sales of juvenile and other  consumer  products sold through mass  merchandisers
and discount stores;  (iii) operating losses and  inefficiencies of $1.0 million
resulting from the fires at Orlando, Florida and Cornelius, North Carolina; (iv)
selling  price  decreases of $0.5 million  resulting  from  competitive  pricing
pressures due to market share challenges from competitors and (v) the inherently
lower  margins of Crain when compared to Foamex L.P.'s  historical  margins.  In
addition,  operating  margins  decreased in 1998 since  Foamex L.P.  carried the
operating costs of both companies during the Transition.

       Carpet Cushion Products

       Carpet  cushion  products  net sales for 1998  decreased  23.2% to $210.3
million from $273.9 million in 1997 primarily due to the GFI Transaction  offset
by an increase in net sales  associated  with the Crain  Acquisition in December
1997. Income (loss) from operations decreased to a loss of $0.1 million (0.0% of
net sales) from income of $8.8 million (3.2% of net sales).  The decreases  were
primarily  associated  with  the GFI  Transaction  and  increased  costs of $1.0
million  associated with the Orlando fire and costs related to the Transition of
$0.9 million.

       Automotive Products

       Automotive  products net sales for 1998 increased 26.2% to $285.2 million
from $225.9 million in 1997 and income from operations  decreased 30.5% to $17.3
million  (6.1% of net  sales)  from  $24.9  million  (11.0% of net  sales).  The
increase  in net sales  was  associated  with  increased  volume  of  lamination
products. Income from operations decreased principally as a result of (i) higher
costs of $3.0  million  incurred  during  the  start up phase of new  lamination
business at the Mexican border,  (ii) contract price reductions of approximately
$1.1 million and (iii) losses of $1.0 million  associated with the production of
thermoformable headliners.


                                       20
<PAGE>
       Technical Products

       Technical  Products net sales for 1998  increased  3.8% to $79.1  million
from $76.3 million in 1997 and income from  operations  decreased 17.4% to $14.9
million  (18.9% of net  sales)  from $18.0  million  (23.7% of net  sales).  The
increased net sales were  primarily  associated  with Foamex  L.P.'s  industrial
gasketing  and sealing  products.  The  decrease in income from  operations  was
primarily  associated with a higher mix of lower margin industrial  products and
production inefficiencies on certain products.

       Other

       Other  primarily  consists of certain foreign  manufacturing  operations,
corporate   expenses  not  allocated  to  the  other   operating   segments  and
restructuring  and other charges.  The increase in net sales was associated with
the  facility in Mexico City that began  operations  in the second half of 1997.
The increase in income from operations was principally  from a reversal of $14.8
million  of  restructuring  charges  primarily  established  in 1997,  offset by
accounts  receivable  and inventory  problems of $8.5 million at the Mexico City
facility,  start up costs of $2.5  million for Foamex  L.P.'s  investment  in an
Asian  joint-venture and duplicate  administrative  costs incurred in connection
with the Transition.

       Income (Loss) from Continuing Operations

       Income  (loss) from  continuing  operations  decreased  to a loss of $5.9
million for 1998 as compared to income of $11.3 million in 1997. The decrease is
primarily due to the reasons discussed above, an increase of approximately $21.9
million in interest  and debt  issuance  expense and a decrease in other  income
(expense) of approximately $6.3 million.  The decrease in other income (expense)
is primarily due to costs associated with (i) the GFI Transaction,  (ii) foreign
currency losses in Mexico and Canada and (iii) decreased  interest income during
1998 as compared to 1997. The increase in interest and debt issuance  expense is
primarily  due to the  additional  debt  incurred in  connection  with the Crain
Acquisition  and the 1997  Refinancing  Plan  offset  by the net debt  reduction
associated with the GFI Transaction.

       Income Taxes

       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 certain state
income  taxes of Foamex L.P.  and 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.

       Extraordinary Loss

       The  extraordinary  loss on early  extinguishment of debt in 1998 of $3.2
million was primarily  associated  with the write-off of debt issuance  costs in
connection  with  the  GFI  Transaction.   The   extraordinary   loss  on  early
extinguishment  of debt  in  1997 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.

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%.  The  increase  in net sales was
primarily  associated with the foam products  segment due to higher sales volume
of bedding related  products and expansion of facilities in Mexico City.  Income
from  operations  was $56.3  million for 1997 as  compared to $102.9  million in
1996. The decrease was primarily due to unrecovered raw material cost increases,
product  mix  change to lower  margin  products,  1997  restructuring  and other
charges of $21.1 million as compared to a  restructuring  credit of $6.4 million
in 1996, and an increase in selling, general and administrative expenses of $9.1
million for 1997 as compared to 1996. The 1997  restructuring  and other charges

                                       21
<PAGE>
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.

       Foam Products

       Foam products net sales for 1997  increased  3.0% to $334.9  million from
$325.1 million in 1996 primarily due to increased net sales volume from both new
and  existing  customers of bedding  related  products.  Income from  operations
decreased 4.5% to $31.0 million (9.2% of net sales) from $32.4 million (10.0% of
net sales).  The decreases were primarily  associated with unrecovered  material
cost increases offset by an increase in net sales.

       Carpet Cushion Products

       Carpet  cushion  products  net  sales for 1997  decreased  6.0% to $273.9
million from $291.3 million in 1996.  Income from operations  decreased 53.2% to
$8.8 million  (3.2% of net sales) from $18.8  million  (6.5% of net sales).  The
decrease was  primarily  associated  (i) the sale in October 1997 of the Dalton,
Georgia  facility  which  manufactured   needlepunch,   tufted  carpeting,   and
artificial grass products and 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.

       Automotive Products

       Automotive  products net sales for 1997  decreased 0.6% to $225.9 million
from $227.2 million in 1996.  Income from  operations  decreased  13.3% to $24.9
million  (11.0% of net  sales)  from $28.7  million  (12.6% of net  sales).  The
decrease  in  operating  margin was  associated  with a shift in product  mix to
increased  volume of lower margin  lamination  products  from higher margin roll
goods.

       Technical Products

       Technical  Products net sales for 1997  increased  8.5% to $76.3  million
from $70.3  million  in 1996  primarily  due to  increased  net sales  volume of
commercial and industrial products. Income from operations decreased slightly to
$18.1 million  (23.7% of net sales) in 1997 as compared to $18.2 million  (25.9%
of net sales) in 1996.  The decrease in percentage of income from  operations to
net sales was primarily  associated with a higher mix of lower margin industrial
products in 1997 as compared to higher margin commercial products in 1996.

       Other

       Other  primarily  consists of certain foreign  manufacturing  operations,
corporate   expenses  not  allocated  to  the  other   operating   segments  and
restructuring  and other  charges.  The  increase  in net  sales  was  primarily
associated  with the  expansion of  facilities  in Mexico City.  The decrease in
income from operations was primarily associated with the start up in Mexico City
and $21.1 million of restructuring and other charges in 1997 as compared to $6.4
million of restructuring and other credits in 1996.

       Income (Loss) from Continuing Operations

       Income from continuing  operations was $11.3 million for 1997 as compared
to $53.7  million in 1996.  The decrease is primarily  due to the reasons  cited
above and an increase in interest and debt issuance expense of $1.0 million.

       Income Taxes

       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.

                                       22
<PAGE>
       Extraordinary Loss

       The extraordinary  loss on early  extinguishment of debt in 1997 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.

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.  Foamex L.P.  believes that
cash flow from Foamex  L.P.'s  operating  activities,  cash on hand and periodic
borrowings under the Credit Facility,  if necessary,  (provided that such Credit
Facility is successfully  amended,  as described below) will be adequate to meet
Foamex  L.P.'s  liquidity  requirements.  The  ability  to meet  such  liquidity
requirements  could be impaired  if Foamex L.P.  were to fail to comply with any
covenants  contained in the Credit Facility and such noncompliance was not cured
by Foamex L.P. or waived by the lenders. Foamex L.P. amended its Credit Facility
in March 1999. The amendment adjusted financial  covenants,  among other things,
as of December 31, 1998 and provided for future measurement  periods taking into
account Foamex L.P.'s estimated  operating  results and financial  condition for
1998 and management  expectations  regarding future measurement  periods. As the
Foamex L.P. actual 1998 net loss was greater than originally estimated, on April
15,  1999,  Foamex L.P.  obtained a waiver  through May 5, 1999,  which has been
extended  through June 30, 1999,  of the  financial  covenants  contained in the
Credit  Facility  and  certain  events of  default  arising  out of its  Mexican
operations, in order to enable it to negotiate a further amendment of the Credit
Facility. There can be no assurance that such an amendment will be obtained, and
the failure to obtain such an amendment would have a material  adverse effect on
Foamex L.P. and Foamex International.

       Certain credit agreements and promissory notes of Foamex L.P. pursuant to
which  approximately  $440.2 million of debt has been issued contain  provisions
that would  result in the  acceleration  of such  indebtedness  if Trace were to
cease  to  own  at  least  30%  of  the  outstanding   common  stock  of  Foamex
International.  Similarly,  certain indentures of Foamex L.P. and Foamex Capital
Corporation  relating to  approximately  $248.0  million of senior  subordinated
notes contain  provisions  that provide the holders of such senior  subordinated
notes with the right to require the issuers  thereof to  repurchase  such senior
subordinated  notes at a price in cash equal to 101% of the aggregate  principal
amount thereof,  plus accrued and unpaid interest thereon,  if Trace falls below
certain  specified  ownership  levels of common stock and other persons or group
owns a greater  percentage  of common  stock than  Trace.  Trace had  previously
informed Foamex L.P. that it had substantial  debt  obligations that were due at
the end of December 1998 and did not have the  financial  resources to pay these
obligations.  Subsequently,  Trace  informed  Foamex L.P.  that  waivers  and/or
modifications  of such  indebtedness  had been  obtained  for at least  the near
future;   however,   there  can  be  no  assurance   that  such  waivers  and/or
modifications  will remain in effect prior to obtaining a permanent  resolution.
If  Trace  were  to  default  on  its  indebtedness  collaterialized  by  Foamex
International's  common  stock  or  other  Trace  creditors  were to take  steps
constituting  a default under such  indebtedness  (such as filing an involuntary
bankruptcy  petition),  and if the holders of such  collateralized  indebtedness
were to foreclose  on Foamex  International's  common stock held by Trace,  such
event could trigger the acceleration and put rights of substantially  all of the
debt of Foamex L.P. as described above.  Although  management  believes that all
such debt obligations would be refinanced under such circumstances, there can be
no assurance that Foamex L.P. would be able to do so.

       The accompanying  financial statements have been prepared assuming Foamex
L.P.  will  continue  as a  going  concern.  As  discussed  in  Note  1  to  the
consolidated financial statements, Foamex L.P. is not in compliance with certain
financial covenants contained in the agreements  governing  approximately $415.4
million  principal  amount of  indebtedness.  Such  non-compliance  provides the
lenders  under those  agreements,  with the right,  upon the notice and lapse of
time to declare all of such indebtedness to be due. To date the lenders have not
exercised  such rights and have granted  Foamex L.P. a waiver of such  covenants
through May 5, 1999,  which has been  extended  through June 30, 1999, to enable
Foamex  L.P.  to  negotiate  an  amendment  of such  covenants;  there can be no
assurance that such amendments will be obtained and therefore such  indebtedness
has been classified as current on Foamex L.P.'s financial  statements.  Were the
lenders under those agreements to accelerate the maturity of their indebtedness,
such acceleration would constitute an event of default, and substantially all of
Foamex  L.P.'s  long-term  debt would  become due.  Therefore,  Foamex L.P.  has
reclassified  approximately  $715.8 million of long-term  debt as current.  Such
classification  raises substantial doubt about Foamex L.P.'s ability to continue
as a going  concern.  In addition,  Foamex L.P. has been  informed by Trace that
Trace had substantial debt obligations that were due at the end of December 1998

                                       23
<PAGE>
and did not have the financial resources to pay those obligations. Subsequently,
Trace  informed   Foamex  L.P.  that  waivers  and/or   modifications   of  such
indebtedness had been obtained for at least the near future;  however, there can
be no assurance  that such waivers  and/or  modifications  will remain in effect
prior to  obtaining  a  permanent  resolution.  If Trace  were to default on its
indebtedness  collateralized  by Foamex  International's  common  stock or other
Trace   creditors  were  to  take  steps   constituting  a  default  under  such
indebtedness  (such as filing an involuntary  bankruptcy  petition),  and if the
holders  of  such  collateralized  indebtedness  were  to  foreclose  on  Foamex
International's  common  stock  held by Trace,  such  event  could  trigger  the
acceleration and put rights of  substantially  all of the debt of Foamex L.P. as
described  above.  Although  management  believes that all such debt obligations
would be refinanced  under such  circumstances,  there can be no assurance  that
Foamex L.P. would be able to do so. In December 1998, Foamex L.P.  established a
reserve of $2.4  million  against  operating  receivables  due from  Trace.  The
financial  statements do not include any adjustments  that might result from the
outcome of these uncertainties.

       Foamex  L.P.  has  reclassified  all of its debt from  long-term  debt to
reflect such debt as current  liabilities.  If, however,  Foamex L.P. is able to
amend the  relevant  covenants  in its  credit  agreements  and other  financial
arrangements, Foamex L.P. may be able to reclassify the liabilities as long-term
debt. However, there can be no assurance that Foamex L.P. will be able to obtain
the  necessary  amendments,  or if obtained,  that it will once again be able to
classify such liabilities as long-term.

       Cash and cash  equivalents  decreased  $6.2  million  during 1998 to $3.2
million at December  31, 1998 as compared to $9.4  million at December  28, 1997
primarily due to the loss from operations.  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 the decrease in operating  results
offset by less cash used for the operating assets and liabilities. Excluding the
reclassification  of other long-term debt to current,  working capital decreased
$11.3  million  during 1998 to $114.8  million at December  31, 1998 from $126.1
million at December  28, 1997  primarily  due to a  reduction  in net  operating
assets and an increase in accrued  liabilities,  offset by a decrease in accrued
restructuring   and  plant   consolidation   costs.  Net  operating  assets  and
liabilities (comprised of accounts receivable,  accounts receivable from related
parties, inventories,  accounts payable and accounts payable to related parties)
decreased  $16.1  million to $148.0  million at December 31, 1998 as compared to
$164.1  million at December 28, 1997.  The decrease was  primarily due to: (i) a
net decrease in accounts  receivable and accounts  receivable  related party and
(ii) a net  increase  in accounts  payable and  accounts  payable  from  related
parties offset by (iii) an increase in inventories. The net decrease in accounts
receivable and accounts receivable related parties was primarily associated with
the GFI Transaction by which General Felt ceased to be a consolidated subsidiary
of Foamex  L.P.  The  increase  in  inventories  was  primarily  due to year-end
purchases of raw materials to maintain favorable pricing with chemical suppliers
and  projected  net  sales  during  the  first  quarter  of 1999.  In  addition,
inventories  increased  because of lower than anticipated sales during the month
of December  1998.  The net increase in accounts  payable and  accounts  payable
related  parties is  primarily  associated  with the  year-end  purchase  of raw
material  inventories and the termination of a supply  agreement  between Foamex
L.P. and Foamex  International.  The decrease in accrued restructuring and plant
consolidation  costs is  primarily  associated  with the  payment  of costs  for
closure of facilities  during 1998 and the reversal during 1998 of restructuring
charges previously  recorded in 1997. The increase in other accrued  liabilities
is primarily associated with an increase in workers compensation liabilities and
$7.3 million of checks issued to be funded under the Credit Facility,  offset by
other general decreases.  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  of  cash  and  cash  equivalents  and  accrued
restructuring   and  plant   consolidation   costs.  Net  operating  assets  and
liabilities (comprised of accounts receivable,  accounts receivable from related
parties,  inventories  and  accounts  payable  and  accounts  payable to related
parties)  increased  $21.5 million during 1997 to $164.1 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 were primarily  associated with the Crain  Acquisition.  Foamex
L.P.'s  restructuring/consolidation plan includes accruals of approximately $9.5
million of cash  charges of which $2.5  million is  expected  to be paid  during
1999.

                                       24
<PAGE>
       As of December 31, 1998,  there were $139.4  million of revolving  credit
borrowings at an average  interest rate of 7.89% under the Credit  Facility with
$6.5 million available for borrowings and approximately $49.1 million associated
with letters of credit  outstanding  which are supported by the Credit Facility.
Borrowings by Foamex Canada Inc. as of December 31, 1998 were approximately $2.9
million,  at an interest rate of 7.25%,  under Foamex  Canada  Inc.'s  revolving
credit agreement with unused availability of approximately $2.3 million.

       Cash Flow from Operating Activities

       Cash flow from  continuing  operations was a negative $27.8 million and a
positive $22.0 million and $36.7 million in 1998, 1997, and 1996,  respectively.
Cash flow from  continuing  operations  decreased  in 1998 as  compared  to 1997
primarily  as a result  of the loss from  continuing  operations,  as  described
above, cash used for restructuring and plant consolidations and an increased use
of cash by the  operating  assets  and  liabilities.  Cash flow from  continuing
operations  decreased  in 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.

       Cash Flow from Investing Activities

       From the beginning of 1996 through 1998, Foamex L.P. spent  approximately
$88.2  million on  capital  improvements.  The  expenditures  included:  (i) the
construction  of a facility  in Mexico  City,  Mexico to  improve  manufacturing
efficiencies  and to meet the growing local demand for foam  products;  (ii) the
expansion  and  modernization  of a  facility  in  Orlando,  Florida  to improve
manufacturing efficiencies, (iii) installation of more efficient foam production
line systems and fabricating  equipment in a number of manufacturing  facilities
and (iv)  installation  of flame  laminators to support the increased  volume of
automotive   laminated   products.   Foamex  L.P.   expects  to  reduce  capital
expenditures from historical levels for the foreseeable future.

       During 1998, the GFI Transaction used cash of approximately $10.2 million
consisting of the $4.8 million  payment on the Foamex/GFI  Note and the fees and
other costs.

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

       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.

       Cash Flow from Financing Activities

       In connection  with the GFI  Transaction  in February  1998,  Foamex L.P.
extinguished  approximately  $125.1  million  of term  loans  under  the  Credit
Facility funded with $129.0 million of cash proceeds from  borrowings  under new
term loan  agreements  which were  subsequently  assumed by Foam Funding LLC. In
connection with the GFI Transaction,  Foamex L.P.  distributed  $20.0 million in
cash pro rata to its  partners,  such  distribution  was funded with  borrowings
under the Foamex L.P. Credit Agreement. See Note 9 to the consolidated financial
statements.

       On June 12, 1997, Foamex International  substantially  completed the 1997
Refinancing Plan designed to reduce Foamex International's  interest expense and
increase its financing flexibility.  The 1997 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 FJPS  discount  debentures.  Also,  the  1997

                                       25
<PAGE>
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  principal  amount of
FJPS discount  debentures  under the tender offer and incurred an  extraordinary
loss on the early  extinguishment  of debt of approximately  $44.5 million.  The
1997  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  1997
Refinancing  Plan,  Foamex  L.P.'s  total  long-term  debt  increased  by $150.1
million.  Foamex L.P.  expects the 1997  Refinancing Plan to result in increased
interest expense as compared to the debt structure prior to the 1997 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 1997 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. In
connection with the 1997 Refinancing  Plan,  Foamex L.P. made the  distributions
described under Item 5 above.

       On October 1, 1997, Foamex L.P. redeemed  approximately  $26.2 million of
the  approximately  $30.7  million of its  outstanding  public debt that was not
tendered as part of the 1997  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 $4.5
million that was not tendered as part of the 1997  Refinancing Plan was defeased
in February 1998 and redeemed in June 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.  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.

       Foamex L.P. made cash  distributions  to its partners,  pursuant to a tax
sharing agreement,  of approximately $0.3 million, $8.8 million and $3.5 million
in  1998,  1997  and  1996,  respectively.  Also,  in  connection  with  the GFI
Transaction in February 1998,  Foamex L.P. made a $20.0 million  distribution to
its partners. In connection with the 1997 Refinancing Plan, Foamex L.P. made the
distributions  described  under  Item 5 above.  See Note 14 to the  consolidated
financial statements.

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 31, 1998 was $3.5 million.  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,  Foamex  L.P.  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. See "Legal Proceedings -
Environmental Matters."

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;  however, during 1998, 1997 and
1996,  Foamex  L.P.'s  results of  operations  were  adversely  affected  by raw
material  cost  increases.  Foamex  L.P.  attempts to offset raw  material  cost
increases  through selling price increases;  however,  there can be no assurance
that Foamex L.P. will be successful in  implementing  selling price increases or

                                       26
<PAGE>
that competitive pricing pressure will not require Foamex L.P. to adjust selling
prices.  Results of  operations  have been and could be  adversely  affected  by
delays in  implementing,  or the inability of Foamex L.P. to implement,  selling
price  increases  to offset raw material  cost  increases.  For example,  Foamex
L.P.'s results of operations in 1998,  1997 and 1996 were adversely  affected by
net unrecovered raw material costs. 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.

Year 2000 Compliance

       Foamex  L.P.  uses  numerous  business  information  systems  as  well as
manufacturing support systems that could be impacted by the "Year 2000 Problem".
The Year 2000 Problem arises from computer  programs that were written using two
digits rather than four to designate the year. In connection  with the Year 2000
Problem, date-sensitive computer software may recognize a date using "00" as the
year 1900 rather  than the year 2000.  This could  result in system  failures or
miscalculations which would cause significant operational disruptions.

       Foamex  L.P.  has  a  Year  2000  Executive  Sponsor  Team  comprised  of
representatives of Foamex L.P. The Year 2000 Executive Sponsor Team is providing
direction to and receiving  reports from the Year 2000 Steering  Committee  (the
"Steering  Committee")  within the  organization.  The  Steering  Committee  has
completed an assessment of the state of readiness of the Information  Technology
("IT") and  non-IT  systems  of Foamex  L.P.  These  assessments  cover  desktop
computers,  environmental  systems,  manufacturing systems (including laboratory
information systems), field instrumentation,  and significant third party vendor
and supplier  systems,  which  include  employee  compensation  and benefit plan
maintenance  systems. The Steering Committee is also in the process of assessing
the readiness of Foamex L.P.'s significant customers and suppliers.

       The Year  2000  assessment  process  for  each  facility  consists  of an
inventory  of Year 2000  sensitive  equipment,  an  assessment  of the impact of
possible failures,  determination of required  remediation  actions, if any, and
testing  and  implementation  of these  solutions.  The  inventory,  assessment,
remediation and testing phases were completed at the end of 1998, with fail safe
testing and final implementation currently taking place in 1999. The progress of
these phases as of March 31, 1999 is summarized as follows.

       Foamex L.P.  completed the inventory and assessment phases of the project
by  December  31,  1998.  These  phases  consisted  of a visit to each  critical
location  by team  members to promote  awareness  of the  project and verify the
initial inventory  provided by the contact at each facility.  Testing plans were
developed which included correspondence with suppliers regarding  date-sensitive
devices.  In  addition,   local  management  was  advised  of  their  roles  and
responsibilities in connection with the Year 2000 Problem.

       Foamex L.P.  completed the remediation  and testing of critical  business
information  computer  systems as of December 31, 1998.  The completion of these
phases  included the  modification  of several million lines of system code, the
conversion of the systems acquired from Crain to standard  business  information
computer  systems,  upgrading  system  hardware and operating  system  software,
testing  of the  applicable  systems  in a  development  testing  area,  and the
migration of the remediated systems into the production environment.

       Foamex L.P.  estimates it will spend $2.0 million in connection  with the
Year 2000  Problem.  The  spending  estimate  will be  refined  as phases of the
project  are  completed.  Spending  on the Year 2000  Problem  is funded by cash
generated from operations.

       Management  believes that all  significant  systems  controlled by Foamex
L.P.  will be Year 2000 ready in the  latter  half of 1999.  While the  Steering
Committee is communicating readiness to third party customers, as requested, and
is assessing the readiness of critical suppliers, there can be no assurance that
third parties with a significant  business  relationship will successfully test,
reprogram,  and replace all of their IT and non-IT systems on a timely basis. As
part of the  overall  response to the Year 2000  Problem,  Foamex L.P. is in the
process of developing contingency plans in the event of Year 2000 non-compliance
of certain systems or third parties.  Details of such contingency  plans will be
determined  after the Steering  Committee has  completed  its  assessment of its
supply chain, other third parties and the potential for possible failures.

                                       27
<PAGE>
       There is inherent  uncertainty  in connection  with the Year 2000 Problem
due to the  possibility of  unanticipated  failures by third party customers and
suppliers.  Accordingly,  Foamex  L.P.  is unable,  at this time,  to assess the
extent and resulting materiality of the impact of possible Year 2000 failures on
its  operations,  liquidity or  financial  position.  The Year 2000  assessment,
remediation,  and testing process  continues to provide  information in order to
reduce the level of  uncertainty  regarding the impact of the Year 2000 Problem.
Management believes that if Foamex L.P.'s solutions to the Year 2000 Problem are
completed as scheduled  such  solutions  may help  minimize the  possibility  of
significant disruptions to Foamex L.P.'s operations.

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) is
not  applicable  since  Foamex  L.P.  is a wholly  owned  subsidiary  of  Foamex
International.

PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
<TABLE>
<CAPTION>
<S>                                                                                                            <C>
   (a) Financial Statements and Schedules
       Foamex L.P. and Subsidiaries:
         Report of Independent Accountants                                                                      F-2
         Consolidated Balance Sheets as of December 31, 1998 and December 28, 1997                              F-3
         Consolidated Statements of Operations for the years ended 1998, 1997 and 1996                          F-5
         Consolidated Statements of Cash Flows for the years ended 1998, 1997 and 1996                          F-6
         Consolidated Statements of Partners' Equity (Deficit) for the years ended 1998, 1997 and 1996          F-7
         Notes to Consolidated Financial Statements                                                             F-8
       Foamex Capital Corporation:
         Report of Independent Accountants                                                                     F-37
         Balance Sheets as of December 31, 1998 and December 28, 1997                                          F-38
         Notes to Balance Sheets                                                                               F-39
       Foamex L.P. and Subsidiaries Financial Statement Schedule:
         Schedule II - Valuation and Qualifying Accounts                                                        S-2
</TABLE>

   (b) Reports on Form 8-K

               Form 8-K, dated October 16, 1998 reporting the termination of the
                First Merger Agreement.

               Form 8-K,  dated  November 4, 1998 reporting the change in fiscal
                year from 52-53 week to calendar year for Foamex  International,
                Foamex L.P., and Foamex Capital Corporation.

               Form 8-K,  dated  November 5, 1998  reporting  the signing of the
                Second Merger Agreement.

               Form 8-K, dated January 8, 1999 reporting the  termination of the
                Second Merger Agreement.

               Form 8-K, dated March 11, 1999 reporting press release  involving
                preliminary  earnings,  appointment of John G. Johnson,  Jr. and
                amendments to credit agreements, guarantee and promissory notes.

               Form 8-K,  dated April 20, 1999  reporting  update to preliminary
                earnings.

                                       28
<PAGE>
   (c) Exhibits

2.1(x)         - Transfer  Agreement,  dated as of  February  27,  1998,  by and
               between Foam Funding LLC and Foamex L.P.

2.2(x)         - Asset Purchase Agreement, dated as of February 27, 1998, by and
               among Foamex  Carpet  Cushion,  Inc.  ("Foamex  Carpet"),  Foamex
               International Inc. ("Foamex International"), Foam Funding LLC and
               General Felt Industries, Inc. ("General Felt").

2.3(z)         - Agreement and Plan of Merger,  dated as of November 5, 1998, by
               and among Foamex  International,  Trace  International  Holdings,
               Inc. and Trace Merger Sub Corp.

2.4(aa)        - Agreement and Plan of Merger, dated as of June 25, 1998, by and
               among Trace International Holdings,  Inc., Trace Merger Sub, Inc.
               and Foamex International Inc.

2.5(z)         - Notice of termination of Agreement and Plan of Merger, dated as
               of November 5, 1998, from Trace International  Holdings,  Inc. to
               Foamex International Inc.

3.1(a)         - Certificate of Limited Partnership of Foamex L.P.

3.2.1(a)       - Fourth Amended and Restated Agreement of Limited Partnership of
               Foamex L.P.,  dated as of December  14, 1993,  by and among FMXI,
               Inc.  ("FMXI") and Trace Foam Company,  Inc.  ("Trace Foam"),  as
               general partners, and Foamex International,  as a limited partner
               (the "Partnership Agreement").

3.2.2(b)       - First  Amendment to the Partnership  Agreement,  dated June 28,
               1994.

3.2.3(c)       - Second Amendment to the Partnership  Agreement,  dated June 12,
               1997.

3.2.4(v)       - Third  Amendment to the Partnership  Agreement,  dated December
               23, 1997.

3.2.5(x)       - Fourth Amendment to the Partnership  Agreement,  dated February
               27, 1998.

3.3(y)         - Certificate of Incorporation of FMXI.

3.4(y)         - By-laws of FMXI.

3.5(k)         - Certificate  of  Incorporation  of Foamex  Capital  Corporation
               ("FCC").

3.6(k)         - By-laws of FCC.

3.7.1(a)       - Certificate of Incorporation of Foamex International.

3.7.1(dd)      -  Amendment   to   Certificate   of   Incorporation   of  Foamex
               International.

3.7.2(cc)      - Certificate of  Incorporation  of Foamex Carpet  Cushion,  Inc.
               ("Foamex Carpet")

3.8(a)         - By-laws of Foamex International.

3.8.1(cc)      - By-laws of Foamex Carpet.

4.1.1(d)       - Indenture, dated as of June 12, 1997, by and among Foamex L.P.,
               FCC,  the  Subsidiary  Guarantors  and The Bank of New  York,  as
               trustee,  relating  to  $150,000,000  principal  amount of 9 7/8%
               Senior   Subordinated  Notes  due  2007  (the  "9  7/8%  Notes"),
               including  the form of Senior  Subordinated  Note and  Subsidiary
               Guarantee.

4.1.2(v)       - First  Supplemental  Indenture,  dated as of December 23, 1997,
               between Foamex LLC ("FLLC") and The Bank of New York, as trustee,
               relating to the 9 7/8% Notes.

4.1.3(x)       - Second Supplemental  Indenture,  dated as of February 27, 1998,
               among Foamex L.P. and FCC, as joint and several obligors, General
               Felt,  Foamex  Fibers,  Inc.  (`Foamex  Fibers"),  and  FLLC,  as
               withdrawing  guarantors,  and The Bank of New York,  as  trustee,
               relating to the 9 7/8% Notes.

4.1.4(d)       - Registration  Rights  Agreement,  dated as of June 12, 1997, by
               and among Foamex L.P., FCC, General Felt, Foamex Fibers,  and all
               future direct or indirect domestic subsidiaries of Foamex L.P. or
               FCC, and  Donaldson,  Lufkin & Jenrette  Securities  Corporation,
               Salomon  Brothers  Inc. and Scotia  Capital  Markets,  as Initial
               Purchasers.

4.2.1(v)       - Indenture,  dated as of December 23, 1997,  by and among Foamex
               L.P.,  FCC, the Subsidiary  Guarantors,  Crain Holdings Corp., as
               Intermediate  obligator,  and The Bank of New York,  as  trustee,
               relating  to  $98,000,000  principal  amount  of 13  1/2%  Senior
               Subordinated Notes due 2005 (the "13 1/2% Notes"),  including the
               form of Senior Subordinated Note and Subsidiary Guarantee.

                                       29
<PAGE>
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.

4.4.1.2(bb)    - Amendment No. 2 to Foamex L.P.  Credit  Agreement,  dated March
               11, 1999.

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.

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(r)      - Foamex  Pledge  Agreement,  dated as of June 12, 1997,  made by
               Foamex L.P. in favor of Citicorp USA, Inc., as Collateral Agent.

                                       30
<PAGE>
4.4.22(w)      -  First  Amendment  to  Foamex  Pledge  Agreement,  dated  as of
               December 23, 1997, by Foamex L.P. in favor of Citicorp USA, Inc.,
               as Collateral Agent.

4.4.23(w)      - First  Amendment  to  Foamex  Security  Agreement,  dated as of
               December 23, 1997, by Foamex L.P. in favor of Citicorp USA, Inc.,
               as Collateral Agent.

4.4.24(w)      -  First  Amendment  to  Foamex  Patent  Agreement,  dated  as of
               December 23, 1997, by Foamex L.P. in favor of Citicorp USA, Inc.,
               as Collateral Agent.

4.4.25(w)      - First Amendment to Trademark  Security  Agreement,  dated as of
               December 23, 1997, by Foamex L.P. in favor of Citicorp USA, Inc.,
               as Collateral Agent.

4.4.26(w)      -  Acknowledgment  of  Guaranty  by each of the  guarantors  to a
               Guaranty dated June 12, 1997 in favor of Citicorp USA, Inc.

4.4.27(w)      - First Amendment to Pledge  Agreement,  dated as of December 23,
               1997, by pledgors in favor of Citicorp USA, Inc.

4.4.28(w)      - Crain Industries Guaranty,  dated as of December 23, 1997, made
               by Crain in favor of Citicorp USA, Inc.

4.4.29(x)      - Partnership  Pledge  Agreement,  dated as of February 27, 1998,
               made by Foamex  International  and FMXI in favor of Citicorp USA,
               Inc., as Collateral Agent.

4.4.30(bb)     -  Amendment  No.  1  to  Second  Amended  and  Restated   Foamex
               International Guaranty, dated March 11, 1999.

4.4.31(bb)     - Amendment No. 1 to Foamex International  Guaranty,  dated March
               12, 1999.

4.4.32         - Foamex Patent  Agreement,  dated as of June 12, 1997, by Foamex
               L.P. in favor of Citicorp USA, Inc., as Collateral Agent.

4.4.33         - Trademark  Security  Agreement,  dated as of June 12, 1997,  by
               Foamex L.P. in favor of Citicorp USA, Inc., as Collateral Agent.

4.5(u)         - Commitment  letter,  dated July 17, 1997, from The Bank of Nova
               Scotia to Foamex Canada Inc.

4.6(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").

4.7(a)         - Marely Loan  Commitment  Agreement,  dated as of  December  14,
               1993, by and between Foamex L.P. and Marely s.a. ("Marely").

4.8(a)         - DLJ Loan Commitment  Agreement,  dated as of December 14, 1993,
               by and between Foamex L.P. and DLJ Funding, Inc. ("DLJ Funding").

4.9.1(p)       -  Promissory  Note,  dated  June  12,  1997,  in  the  aggregate
               principal  amount of  $5,000,000,  executed by Trace  Holdings to
               Foamex L.P.

4.9.2(p)       -  Promissory  Note,  dated  June  12,  1997,  in  the  aggregate
               principal  amount of  $4,794,828,  executed by Trace  Holdings to
               Foamex L.P.

4.10.1(x)      - Credit  Agreement,  dated as of February 27, 1998, by and among
               Foamex Carpet,  the institutions  from time to time party thereto
               as lenders,  the institutions  from time to time party thereto as
               issuing banks and Citicorp USA, Inc. and The Bank of Nova Scotia,
               as administrative agents.

4.10.2(x)      - Foamex International  Guaranty,  dated as of February 27, 1998,
               made by Foamex  International  in favor of Citicorp USA, Inc., as
               Collateral Agent.

4.10.3(x)      - Foamex International Pledge Agreement, dated as of February 27,
               1998,  made by Foamex  International  in favor of  Citicorp  USA,
               Inc., as Collateral Agent.

4.10.4(x)      - New GFI Security Agreement, dated as of February 27, 1998, made
               by Foamex  Carpet in favor of Citicorp  USA,  Inc., as Collateral
               Agent.

4.10.5(x)      - New GFI Intercreditor Agreement, dated as of February 27, 1998,
               by  and  among  Foamex  Carpet,  The  Bank  of  Nova  Scotia,  as
               Administrative  Agent, and Citicorp USA, Inc., as  Administrative
               Agent and Collateral Agent.

4.10.6(x)      - FII Intercreditor Agreement,  dated as of February 27, 1998, by
               and between  Foamex  International  and Citicorp  USA,  Inc.,  as
               Collateral Agent.

4.10.7(dd)     - Amendment No. 1 to Foamex L.P.  Credit  Agreement,  dated as of
               October 30, 1998.

4.10.8(bb)     - Amendment No. 2 to Foamex L.P.  Credit  Agreement,  dated March
               12, 1999.

4.10.9(dd)     -  Amendment  No.  1  to  Foamex  Carpet  Cushion,   Inc.  Credit
               Agreement, dated October 30, 1998.

4.10.10(bb)    -  Amendment  No.  2  to  Foamex  Carpet  Cushion,   Inc.  Credit
               Agreement, dated March 12, 1999.

                                       31
<PAGE>
4.11.1(x)      - Promissory  Note of Foamex L.P. in favor of Foam Funding LLC in
               the principal amount of $34 million, dated February 27, 1998.

4.12.1(x)      - Promissory  Note of Foamex  Carpet in favor of Foam Funding LLC
               in the  principal  amount of $70.2  million,  dated  February 27,
               1998.

4.12.2(bb)     - Amendment to Promissory Note, dated March 15, 1999.

4.13(dd)       - Waiver,  dated as of April 15,  1999 to the  Credit  Agreement,
               dated as of February 27, 1998, among Foamex Carpet Cushion, Inc.,
               the institutions party thereto as Lenders, the institutions party
               thereto as Issuing Banks,  and Citicorp USA, Inc. and The Bank of
               Nova Scotia as Administrative Agents.

10.1.1(p)      -  Amendment  to  Master  Agreement,  dated  as of June 5,  1997,
               between Citibank, N.A. and Foamex L.P.

10.1.2(p)      -  Amended  Confirmation,  dated  as of June  13,  1997,  between
               Citibank, N.A. and Foamex L.P.

10.1.3(w)      - Amended  Confirmation,  dated as of February  2, 1998,  between
               Citibank, N.A. and Foamex L.P.

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  L.P.  (the  "Trace  Holdings  Asset
               Transfer Agreement").

10.4.2(k)      - First  Amendment,  dated as of December 19, 1991,  to the Trace
               Holdings  Asset  Transfer  Agreement.  10.4.3(k)  -  Amended  and
               Restated  Guaranty,  dated as of December 19, 1991, made by Trace
               Foam in favor of Foamex L.P.

10.5.1(k)      - Asset Transfer Agreement,  dated as of October 2, 1990, between
               Recticel Foam Corporation ("RFC") and Foamex L.P. (the "RFC Asset
               Transfer Agreement").

10.5.2(k)      - First  Amendment,  dated as of December  19,  1991,  to the RFC
               Asset  Transfer  Agreement.  

10.5.3(k)      - Schedule 5.03 to the RFC Asset  Transfer  Agreement  (the "5.03
               Protocol").

10.5.4(h)      - The 5.03 Protocol Assumption Agreement, dated as of October 13,
               1992, between RFC and Foamex L.P.

10.5.5(h)      - Letter Agreement between Trace Holdings and Recticel  regarding
               the Recticel Guaranty, dated as of July 22, 1992.

10.6(l)        - Supply Agreement,  dated June 28, 1994, between Foamex L.P. and
               Foamex International.

10.7.1(l)      - First Amended and Restated Tax Sharing  Agreement,  dated as of
               December 14, 1993, among Foamex L.P., Trace Foam, FMXI and Foamex
               International.

10.7.2(d)      - First  Amendment  to First  Amended  and  Restated  Tax Sharing
               Agreement,  dated as of June 12, 1997,  by and among Foamex L.P.,
               Foamex International, FMXI and Trace Foam.

10.7.3(w)      - Second  Amendment  to First  Amended and  Restated  Tax Sharing
               Agreement,  dated as of December  23,  1997,  by and among Foamex
               L.P., Foamex International, FMXI, and Trace Foam.

10.7.4(y)      - Third  Amendment  to First  Amended  and  Restated  Tax Sharing
               Agreement,  dated as of February 27, 1998, by and between  Foamex
               L.P., Foamex International and FMXI.

10.8.1(m)      - Tax Distribution  Advance  Agreement,  dated as of December 11,
               1996, by and between Foamex L.P. 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
               International.

10.9.1(h)      - Trace Foam Management  Agreement  between Foamex L.P. 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 L.P. and Trace Foam.

10.9.3(d)      - First Amendment to Management  Agreement,  dated as of June 12,
               1997, by and between Foamex L.P. and Trace Foam.

10.10.1(k)     - Salaried Incentive Plan of Foamex L.P. and Subsidiaries.

10.10.2(k)     - Trace Holdings 1987 Nonqualified Stock Option Plan.

10.10.3(k)     - Equity Growth Participation Program.

                                       32
<PAGE>
10.10.4(o)     - The Foamex L.P.  Salaried  Pension Plan  (formerly  the General
               Felt Industries,  Inc.  Retirement Plan for Salaried  Employees),
               effective as of January 1, 1995.

10.10.5(u)     - The Foamex  L.P.  Hourly  Pension  Plan  (formerly  "The Foamex
               Products  Inc.  Hourly  Employee  Retirement  Plan),  as  amended
               December 31, 1995.

10.10.6(u)     - Foamex L.P. 401(k) Savings Plan effective October 1, 1997.

10.10.7(a)     - Foamex L.P.'s 1993 Stock Option Plan.

10.10.8(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.

10.11.2(dd)    -  Employment  Agreement,  dated as of  March  16,  1999,  by and
               between Foamex International and John G. Johnson, Jr.

10.12.1(a)     - Warrant Exchange  Agreement,  dated as of December 14, 1993, by
               and between Foamex L.P. and Marely.

10.12.2(a)     - Warrant Exchange  Agreement,  dated as of December 14, 1993, by
               and between Foamex L.P. and DLJ Funding.

10.13(t)       - Warrant  Agreement,  dated as of June 28, 1994,  by and between
               Foamex International and Shawmut Bank.

10.14(o)       - Stock Purchase Agreement, dated as of December 23, 1993, by and
               between   Transformacion   de  Espumas  u  Fieltros,   S.A.,  the
               stockholders which are parties thereto, and Foamex L.P.

10.15.1(r)     - Asset Purchase  Agreement,  dated as of August 29, 1997, by and
               among  General  Felt,  Foamex L.P.,  Bretlin,  Inc. and The Dixie
               Group.

10.15.2(s)     - Addendum to Asset  Purchase  Agreement,  dated as of October 1,
               1997, by and among General Felt, Foamex L.P.,  Bretlin,  Inc. and
               The Dixie Group.

10.16.1(x)     - Supply Agreement, dated as of February 27, 1998, by and between
               Foamex L.P. and General Felt (as assigned to Foamex Carpet).

10.16.2(x)     -  Administrative  Services  Agreement,  dated as of February 27,
               1998, by and between Foamex L.P. and General Felt (as assigned to
               Foamex Carpet).

10.17(y)       - Tax Sharing  Agreement,  dated as of February 27, 1998, between
               Foamex International and Foamex Carpet.

10.18.1(w)     - Joint  Venture  Agreement  between Hua Kee Company  Limited and
               Foamex Asia, Inc., dated as of July 8, 1997.

10.18.2(w)     - Loan Agreement between Hua Kee Company Limited and Foamex Asia,
               Inc., dated as of July 8, 1997.

27             - Financial Data Schedule for the year ended December 31, 1998.
----------------------------

(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
     International for the fiscal year ended January 1, 1995.

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

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

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

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

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

(h)  Incorporated  herein by reference to the Exhibit to the Form 10-K Statement
     of Foamex L.P. 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 L.P. and FCC on Form S-1,  Registration  Nos.  33-49976
     and 33-49976-01.

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

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

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

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

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

(q)  Incorporated  herein by reference to the Exhibit to the 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.

(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 L.P. and FCC on Form S-4,  Registration No.  333-45733,
     filed February 6, 1998.

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

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

                                       34
<PAGE>
(z)  Incorporated  herein  by  reference  to the  Current  Report on Form 8-K of
     Foamex International reporting an event that occurred on November 5, 1998.

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

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

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

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

       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.



                                       35
<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 7th day of May 1999.

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


                                  By: /s/ John A. Feenan
                                      John A. Feenan
                                      Vice President, Treasurer, Chief
                                      Financial Officer and Assistant Secretary

                                  FOAMEX CAPITAL CORPORATION


                                  By: /s/ John A. Feenan
                                      John A. Feenan
                                      Vice President, Treasurer and Chief
                                      Financial Officer

       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:
<TABLE>
<CAPTION>
Signatures                                        Title                                           Date

<S>                                              <C>                                            <C>
 /s/ Marshall S. Cogan                            Director of FMXI and FCC                        May 7, 1999
----------------------------
Marshall S. Cogan



 /s/ Philip N. Smith, Jr.                         Director of FMXI                                May 7, 1999
---------------------------
Philip N. Smith, Jr.



 /s/ Robert H. Nelson                             Director of FCC                                 May 7, 1999
---------------------------------
Robert H. Nelson



 /s/ Barry Zimmerman                              Director of FCC                                 May 7, 1999
-------------------------------
Barry Zimmerman
</TABLE>



                                       36
<PAGE>
                          FOAMEX L.P. AND SUBSIDIARIES
                   INDEX TO CONSOLIDATED FINANCIAL STATEMENTS

<TABLE>
<CAPTION>
<S>                                                                                                            <C>
Financial Statements of Registrants:
Foamex L.P.:
   Report of Independent Accountants                                                                            F-2
   Consolidated Balance Sheets as of December 31, 1998 and December 28, 1997                                    F-3
   Consolidated Statements of Operations for the years ended 1998, 1997 and 1996                                F-5
   Consolidated Statements of Cash Flows for the years ended 1998, 1997 and 1996                                F-6
   Consolidated Statements of Partners' Equity (Deficit) for the years ended 1998, 1997 and 1996                F-7
   Notes to Consolidated Financial Statements                                                                   F-8

Foamex Capital Corporation:
   Report of Independent Accountants                                                                           F-37
   Balance Sheets as of December 30, 1998 and December 28, 1997                                                F-38
   Notes to Balance Sheets                                                                                     F-39



</TABLE>

                                      F-1
<PAGE>
                        REPORT OF INDEPENDENT ACCOUNTANTS


To the Partners of Foamex L.P.:

In our opinion,  the  accompanying  consolidated  balance sheets and the related
consolidated statements of operations, partners' equity (deficit) and cash flows
present fairly, in all material respects,  the financial position of Foamex L.P.
and its subsidiaries at December 31, 1998 and December 28, 1997, and the results
of their  operations  and their  cash  flows for each of the three  years in the
period ended December 31, 1998, in conformity with generally accepted accounting
principles.  In addition, in our opinion, the financial statement schedule as of
and for each of the three  years in the  period  ended  December  31,  1998 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.  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  based on our  audits.  We
conducted our audits of these  statements in accordance with generally  accepted
auditing  standards  which  require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement.  An audit includes examining, on a test basis, evidence supporting
the  amounts  and  disclosures  in  the  financial  statements,   assessing  the
accounting  principles  used and significant  estimates made by management,  and
evaluating the overall  financial  statement  presentation.  We believe that our
audits provide a reasonable basis for the opinion expressed above.

The accompanying  financial  statements have been prepared  assuming Foamex L.P.
will  continue as a going  concern.  As discussed in Note 1 to the  accompanying
financial  statements,  during  1998  Foamex  L.P.  had a loss  from  continuing
operations,  net cash used by operating activities and a working capital deficit
since it violated  certain debt  covenants  for which it is seeking  amendments;
however,  there can be no assurance  that such  amendments  will be obtained and
therefore  all  long-term  debt is  classified  as current.  These matters raise
substantial doubt about Foamex L.P.'s ability to continue as a going concern. In
addition,  Foamex L.P. has been informed by Trace International  Holdings,  Inc.
("Trace")  that  Trace has  substantial  debt  obligations  and may not have the
financial resources to pay these obligations when due within the near future. As
a  result,   Trace  creditors   could  foreclose  or  otherwise   attach  Foamex
International  Inc.'s common stock. Such an event may result in the acceleration
of  substantially  all of Foamex  L.P.'s debt.  Management's  plans in regard to
these matters are described in Note 1 to the accompanying  financial statements.
The financial  statements do not include any adjustments  that might result from
the outcome of these uncertainties.




PricewaterhouseCoopers LLP

Philadelphia, Pennsylvania 
April 22, 1999, except as to the
information presented in Note 1, 
Note 7 and Note 17, for which the 
date is May 5, 1999


                                      F-2
<PAGE>
                                           FOAMEX L.P. AND SUBSIDIARIES
                                            CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
                                                                             December 31,        December 28,
ASSETS                                                                          1998                  1997 
                                                                            ----------            ----------
                                                                                      (thousands)
CURRENT ASSETS:
<S>                                                                         <C>                   <C>       
   Cash and cash equivalents                                                $    3,192            $    9,405
   Accounts receivable, net of allowance for
     doubtful accounts of $7,278 and $8,082                                    143,301               174,959
   Accounts receivable from related parties                                     17,533                 1,680
Inventories                                                                    127,636               120,299
   Deferred income taxes                                                             -                 6,850
   Other current assets                                                         33,849                39,024
                                                                            ----------            ----------

       Total current assets                                                    325,511               352,217
                                                                             ---------             ---------

PROPERTY, PLANT AND EQUIPMENT:
   Land and land improvements                                                    7,142                 9,054
   Buildings and leasehold improvements                                         97,996                79,876
   Machinery, equipment and furnishings                                        223,449               219,164
   Construction in progress                                                     24,132                23,331
                                                                             ---------             ---------

       Total                                                                   352,719               331,425

   Less accumulated depreciation and
     Amortization                                                              133,082               110,151
                                                                             ---------              --------

     Property, plant and equipment, net                                        219,637               221,274

   COST IN EXCESS OF ASSETS ACQUIRED, NET                                      188,205               219,699

   DEBT ISSUANCE COSTS, NET                                                     13,946                18,889

   OTHER ASSETS                                                                 21,229                21,989
                                                                             ---------             ---------

TOTAL ASSETS                                                                  $768,528              $834,068
                                                                              ========              ========
</TABLE>

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

                                      F-3
<PAGE>
                          FOAMEX L.P. AND SUBSIDIARIES
                           CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
                                                                             December 31,          December 28,
LIABILITIES AND PARTNERS' EQUITY (DEFICIT)                                      1998                   1997
                                                                                        (thousands)
CURRENT LIABILITIES:
<S>                                                                          <C>                   <C>      
   Short-term borrowings                                                     $   2,957             $   6,598
   Current portion of long-term debt                                           689,478                12,161
   Current portion of long-term debt - related party                            34,000                     -
   Accounts payable                                                            139,726               121,147
   Accounts payable to related parties                                             791                11,662
   Accrued employee compensation                                                 6,750                10,827
   Accrued interest                                                              7,396                10,655
   Accrued restructuring and plant consolidation                                 2,552                15,644
   Deferred income taxes                                                         1,098                     -
   Other accrued liabilities                                                    41,753                37,449
                                                                             ---------             ---------

     Total current liabilities                                                 926,501               226,143

LONG-TERM DEBT                                                                       -               726,649

DEFERRED INCOME TAXES                                                              991                 2,529

ACCRUED RESTRUCTURING AND
   PLANT CONSOLIDATION                                                           6,969                11,252

OTHER LIABILITIES                                                               30,104                23,797
                                                                             ---------             ---------

     Total liabilities                                                         964,565               990,370
                                                                              --------              --------

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

PARTNERS' EQUITY (DEFICIT)
   General partners                                                           (141,426)             (122,304)
   Limited partners                                                                  -                     -
   Accumulated comprehensive income (loss)                                     (26,208)               (8,085)
   Notes and advances receivable from partner                                  (18,608)              (16,118)
   Notes receivable from related party                                          (9,795)               (9,795)
                                                                            ----------            ----------

     Total partners' equity (deficit)                                         (196,037)             (156,302)
                                                                              --------              --------

TOTAL LIABILITIES AND PARTNERS' EQUITY (DEFICIT)                              $768,528              $834,068
                                                                              ========              ========
</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 1998, 1997 and 1996
<TABLE>
<CAPTION>
                                                               December 31,       December 28,     December 29,
                                                                   1998               1997             1996       
                                                                ----------          --------        --------
                                                                                  (thousands)
<S>                                                             <C>                  <C>             <C>     
NET SALES                                                       $1,155,918           $931,095        $926,351

COST OF GOODS SOLD                                               1,027,241            787,756         773,119
                                                                ----------           --------        --------

GROSS PROFIT                                                       128,677            143,339         153,232

SELLING, GENERAL AND ADMINISTRATIVE
   EXPENSES                                                         73,315             65,907          56,778

RESTRUCTURING AND OTHER CHARGES (CREDITS)                          (10,146)            21,100          (6,415)
                                                                ----------          ---------      ----------

INCOME FROM OPERATIONS                                              65,508             56,332         102,869

INTEREST AND DEBT ISSUANCE EXPENSE                                  66,112             44,181          43,211

OTHER INCOME (EXPENSE), NET                                         (4,325)             2,009           1,705
                                                              ------------         ----------      ----------

INCOME (LOSS) FROM CONTINUING OPERATIONS
   BEFORE PROVISION FOR INCOME TAXES                                (4,929)            14,160          61,363

PROVISION FOR INCOME TAXES                                             940              2,895           7,702
                                                             -------------         ----------      ----------

INCOME (LOSS) FROM CONTINUING OPERATIONS                            (5,869)            11,265          53,661
                                                              ------------          ---------       ---------

DISCONTINUED OPERATIONS:

LOSS FROM DISCONTINUED OPERATIONS,
   NET OF INCOME TAXES                                                   -                  -            (230)

LOSS ON DISPOSAL OF DISCONTINUED OPERATIONS,
   INCLUDING PROVISION FOR OPERATING LOSSES
   DURING THE PHASE-OUT PERIOD, NET OF
   INCOME TAXES                                                          -                  -         (41,820)
                                                          ----------------      -------------      ----------

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

INCOME (LOSS) BEFORE EXTRAORDINARY
   LOSS                                                             (5,869)            11,265          11,611

EXTRAORDINARY LOSS ON EARLY
   EXTINGUISHMENT OF DEBT                                           (3,195)           (48,559)         (1,912)
                                                              ------------          ---------      ----------

NET INCOME (LOSS)                                              $    (9,064)          $(37,294)      $   9,699
                                                               ===========           ========       =========
</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 1998, 1997 and 1996
<TABLE>
<CAPTION>
                                                                December 31,      December 28,     December 29,
                                                                        1998          1997              1996
OPERATING ACTIVITIES:                                                              (thousands)
<S>                                                              <C>              <C>               <C>      
   Net income (loss)                                             $  (9,064)       $  (37,294)       $   9,699
   Adjustments to reconcile net income (loss) to net
     cash provided by (used for) operating activities:
     Depreciation and amortization                                  31,679            20,882           21,132
     Amortization of debt issuance costs and debt discount            (244)            2,307            2,919
     Net loss on disposal of discontinued operations                     -                 -           40,551
     Net loss from discontinued operations                               -                 -            1,499
     Asset writedowns and other charges (credits)                   (5,507)           12,041           (7,364)
     Extraordinary loss on early extinguishment of debt              2,857            24,182            1,217
     Provision for uncollectible accounts                            2,000             2,295              704
     Deferred income taxes                                             267              (568)           6,010
     Other, net                                                     (5,274)           (5,977)          (5,804)
   Changes  in  operating  assets  and  liabilities, 
       net  of  acquisitions  
       and discontinued operations:
     Accounts receivable and accounts receivable from
        related parties                                            (19,026)         (4,038)         (13,130)
     Inventories                                                   (20,288)           12,882          (13,078)
     Accounts payable and accounts payable to related parties       13,530            14,359            5,035
     Accrued restructuring and plant consolidation                 (14,183)            5,701           (7,000)
     Other assets and liabilities                                   (4,529)          (24,763)          (5,724)
                                                                 ---------         ---------        ---------

     Net cash provided by (used for) continuing operations         (27,782)           22,009           36,666
     Net cash used for discontinued operations                           -                 -             (486)
                                                              ------------     -------------       ----------
     Net cash provided by (used for) operating activities          (27,782)           22,009           36,180
                                                                  --------         ---------         --------

INVESTING ACTIVITIES:
   Capital expenditures                                            (31,715)          (33,117)         (23,344)
   Acquisitions, net of cash acquired                                    -          (119,065)            (841)
   Proceeds from sale of assets                                      2,230            40,169                -
   Proceeds from sale of discontinued operations                         -                 -           42,650
   Purchase of note from related party                                   -            (5,000)               -
   Repayment of (purchase of) note from partner                     (2,490)           (2,500)          18,623
   Redemption of General Felt                                      (10,153)                -                -
   Decrease (increase) in restricted cash                                -            12,143          (12,143)
   Capital expenditures for discontinued operations                      -                 -             (919)
   Other investing activities                                         (922)              112           (1,276)
                                                                ----------       -----------        ---------

     Net cash provided by (used for) investing activities          (43,050)         (107,258)          22,750
                                                                 ---------          --------        ---------

FINANCING ACTIVITIES:
   Net proceeds from (repayments of) short-term borrowings          (3,641)            2,894            1,493
   Net proceeds from (repayments of) revolving loans                84,511            54,928                -
   Proceeds from long-term debt                                    138,810           594,499            1,500
   Repayments of long-term debt                                   (142,212)         (430,593)         (38,116)
   Cash overdraft                                                    7,300                 -                -
   Purchase of FJPS senior secured discount debentures                   -          (105,829)               -
   Tax distribution advances                                             -           (13,618)               -
   Distributions to partners                                       (20,293)          (10,283)          (3,487)
   Debt issuance costs                                                (979)          (18,410)               -
   Other financing activities                                        1,123                98               10
                                                                ----------      ------------     ------------

     Net cash provided by (used for) financing activities           64,619            73,686          (38,600)
                                                                 ---------         ---------        ---------

Net increase (decrease) in cash and cash equivalents                (6,213)          (11,563)          20,330

Cash and cash equivalents at beginning of period                     9,405            20,968              638
                                                                ----------         ---------       ----------

Cash and cash equivalents at end of period                       $   3,192         $   9,405         $ 20,968
                                                                 =========         =========         ========
</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 1998, 1997 and 1996
<TABLE>
<CAPTION>
                                                                               Accumulated      Notes
                                                                     Notes          Other    Receivable
                                           General    Limited     Receivable  Comprehensive    Related
                                           Partners   Partners  from Partners  Income (Loss)    Party       Total  
                                                                         (thousands)
<S>                                       <C>        <C>         <C>             <C>          <C>         <C>      
Balances at December 31, 1995             $    404   $ 46,036    $(46,444)       $(8,227)     $(4,373)    $(12,604)
Net income                                     184      9,515                                                9,699
Additional pension liability                                                       2,372                     2,372
Foreign currency translation adjustment                                              (46)                      (46)
                                                                                                         ---------
   Comprehensive income (loss)                                                                              12,025
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
                                          --------   --------   --------       ---------      -------    --------- 
Balances at December 29, 1996                  632     57,654     (35,180)        (5,901)      (4,373)      12,832

Net loss                                      (746)   (36,548)                                             (37,294)
Additional pension liability                                                      (1,311)                   (1,311)
Foreign currency translation adjustment                                             (873)                     (873)
                                                                                                         ---------
   Comprehensive income (loss)                                                                             (39,478)
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)
Increase in note receivable from Trace                                                         (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)        (8,085)      (9,795)    (156,302)

Net loss                                      (181)    (8,883)                                              (9,064)
Additional pension liability                                                     (11,525)                  (11,525)
Foreign currency translation adjustment                                           (6,598)                   (6,598)
                                                                                                          --------
   Comprehensive income (loss)                                                                             (27,187)
Distributions                                   (8)      (326)                                                (334)
Distribution associated with the
   GFI Transaction                            (400)   (19,600)                                             (20,000)
Equity adjustment associated with the
   GFI Transaction                             201      9,868                                               10,069
Purchase of note receivable from Foamex
   International                                                   (2,490)                                  (2,490)
Other                                                     207                                                  207
Deficit balance of Limited Partners assumed
   by General Partners                     (18,734)    18,734                                                   --
                                          --------   --------   --------       ---------      -------    --------- 
Balances at December 31, 1998            $(141,426)  $      -   $(18,608)       $(26,208)     $(9,795)   $(196,037)
                                         =========   ========   ========       =========      =======    =========
</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.  As of December 31, 1998, Foamex L.P.'s
operations consists of the following operating segments: (i) foam products, (ii)
carpet cushion products,  (iii) automotive products, (iv) technical products and
(v) other, which primarily consists of certain foreign manufacturing operations,
corporate   expenses  not  allocated  to  the  other   operating   segments  and
restructuring and other charges. The net sales and income (loss) from operations
of these  operating  segments  for each of the last three years are  included in
Note 15 of the consolidated financial statements.  For periods prior to February
27, 1998, the consolidated  financial statements include the financial position,
results of operations and cash flows of General Felt Industries,  Inc. ("General
Felt").  In connection  with the GFI  Transaction  (as discussed  below) the net
assets and operations of General Felt were transferred from Foamex L.P. and were
acquired by Foamex  Carpet  Cushion,  Inc.  ("Foamex  Carpet"),  a wholly  owned
subsidiary of Foamex International Inc. ("Foamex International").

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

       The accompanying  financial statements have been prepared assuming Foamex
L.P. will  continue as a going  concern.  For the year ended  December 31, 1998,
Foamex L.P. had a loss from continuing operations, a working capital deficit and
was not in  compliance  with  certain  debt  covenants  for which it is  seeking
amendments.  Such  non-compliance  provides the lenders under those  agreements,
which have an aggregate  outstanding  principal amount of  approximately  $415.4
million,  with the right,  upon the  notice and lapse of time to declare  all of
such  indebtedness to be due. To date, the lenders have not executed such rights
and have  granted  Foamex L.P. a waiver of such  covenants  through May 5, 1999,
which has been  extended  through  June 30,  1999,  to  enable  Foamex  L.P.  to
negotiate an amendment of such  covenants;  there can be no assurance  that such
amendments will be obtained and therefore such  indebtedness has been classified
as current in Foamex L.P.'s financial  statements.  Were the lenders under those
agreements to accelerate the maturity of their  indebtedness,  such acceleration
would  constitute  an event of default and  substantially  all of Foamex  L.P.'s
long-term  debt would  become  due.  Therefore,  Foamex  L.P.  has  reclassified
approximately  $715.8 million of long-term debt as current.  Such classification
raises  substantial  doubt about  Foamex  L.P.'s  ability to continue as a going
concern.  In  addition,  Foamex L.P.  has been  informed by Trace  International
Holdings,  Inc.  ("Trace") that Trace had substantial debt obligations that were
due at the end of December 1998 and did not have the financial  resources to pay
those obligations.  Subsequently, Trace informed Foamex L.P. that waivers and/or
modifications  of such  indebtedness  had been  obtained  for at least  the near
future;   however,   there  can  be  no  assurance   that  such  waivers  and/or
modifications  will remain in effect prior to obtaining a permanent  resolution.
If Trace were to default on its indebtedness  secured by Foamex  International's
common stock or other Trace creditors were to take steps  constituting a default
under such indebtedness (such as filing an involuntary bankruptcy petition), and
if the  holders  of such  secured  indebtedness  were  to  foreclose  on  Foamex
International's  common  stock  held by Trace,  such  event  could  trigger  the
acceleration and put rights of  substantially  all of the debt of Foamex L.P. as
described  below.  Although  management  believes that all such debt obligations
would be refinanced  under such  circumstances,  there can be no assurance  that
Foamex L.P. would be able to do so. The financial  statements do not include any
adjustments that might result from the outcome of these uncertainties.

       Certain credit agreements and promissory notes of Foamex L.P. pursuant to
which  approximately  $440.2 million of debt has been issued contain  provisions
that would  result in the  acceleration  of such  indebtedness  if Trace were to
cease  to  own  at  least  30%  of  the  outstanding   common  stock  of  Foamex
International.  Similarly,  certain indentures of Foamex L.P. and Foamex Capital
Corporation  relating to  approximately  $248.0  million of senior  subordinated
notes contain  provisions  that provide the holders of such senior  subordinated
notes with the right to require the issuers  thereof to  repurchase  such senior
subordinated  notes at a price in cash equal to 101% of the aggregate  principal
amount thereof,  plus accrued and unpaid interest thereon,  if Trace falls below
certain specified

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

1. ORGANIZATION AND BASIS OF PRESENTATION (continued)

ownership  levels of common  stock and  other  persons  or group  owns a greater
percentage of common stock than Trace.

       On March  16,  1998,  Foamex  International  announced  that its Board of
Directors   received  an  unsolicited   buyout   proposal  from  Trace,   Foamex
International's  principal  stockholder.  Trace  proposed  to acquire all of the
outstanding  common  stock of  Foamex  International  not owned by Trace and its
subsidiaries  (the "Public  Shares") for a cash price of $17.00 per share. As of
March 16, 1998,  Trace 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's offer,  Foamex  International's  Board of
Directors  appointed a special  committee  to  determine  the  advisability  and
fairness of the proposed  buyout to Foamex  International's  stockholders  other
than Trace and its subsidiaries.

       On June 25,  1998,  Trace,  Trace  Merger Sub,  Inc.  ("Merger  Sub"),  a
Delaware   corporation  and  wholly  owned   subsidiary  of  Trace,  and  Foamex
International  entered into an Agreement  and Plan of Merger (the "First  Merger
Agreement").  Pursuant to the terms of the First  Merger  Agreement,  Merger Sub
would have been merged with and into Foamex  International  (the "First Merger")
and each  outstanding  share of common  stock,  other than common  stock held by
Trace and its  subsidiaries,  treasury shares,  and common stock with respect to
which appraisal rights would have been perfected, would have been converted into
the right to  receive  $18.75 per share in cash.  On  November  5,  1998,  Trace
terminated the First Merger Agreement, pursuant to its terms, due to the failure
of certain financing conditions contained in the First Merger Agreement.

       On November 5, 1998, Trace, Merger Sub and Foamex  International  entered
into a second  Agreement  and Plan of Merger (the  "Second  Merger  Agreement").
Pursuant to the terms of the Second Merger Agreement, Merger Sub would have been
merged  with  and into  Foamex  International  (the  "Second  Merger")  and each
outstanding share of common stock, other than common stock held by Trace and its
subsidiaries,  treasury shares, and common stock with respect to which appraisal
rights would have been  perfected,  would have been  converted into the right to
receive  $12.00  per  share  in  cash.   Trace  delivered  a  letter  to  Foamex
International, dated January 8, 1999 (the "Notice of Termination"),  terminating
the  Second  Merger  Agreement,  pursuant  to its terms,  due to the  failure of
certain financing conditions.

       On December 23, 1997,  Foamex  International  acquired Crain  Industries,
Inc.  ("Crain")  pursuant to a merger  agreement with Crain Holdings Corp. for a
purchase price of approximately $213.7 million,  which was primarily funded with
$118.0 million of bank  borrowings  under the Foamex L.P.  credit  facility (the
"Credit Facility") and the assumption of debt with a face value of approximately
$98.6 million (and an estimated fair value of approximately  $112.3 million) and
contributed  all of the assets of Crain,  subject to all of the  liabilities  of
Crain, to Foamex L.P. (the "Crain Acquisition").  In addition, fees and expenses
associated with the Crain Acquisition were approximately $13.2 million.

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

       Effective September 1998, management of Foamex L.P. decided to change the
year-end  reporting  requirement  of Foamex L.P. from a fifty-two or fifty-three
week fiscal year ending on the Sunday closest to the end of the calendar year to
a  calendar  year  ending  December  31st  to  improve  the  internal  reporting
requirements  of Foamex L.P.  This  change was  effective  for the third  fiscal
quarter of 1998 which ended on September  30, 1998 and resulted in a 1998 fiscal
year end of December 31, 1998 as compared to January 3, 1999.  Fiscal years 1997
and 1996 were  composed of  fifty-two  weeks and ended on December  28, 1997 and
December 29, 1996, respectively.


                                      F-9
<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  and
contingent  assets  and  contingent  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.

       Revenue Recognition

       Revenue from sales is recognized  when products are shipped at which time
title passes to the customer.

       Sales Discounts

       A reduction  in sales  revenue is  recognized  for sales  discounts  when
product is invoiced.

       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.

       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 1998, 1997 and
1996 was $24.6  million,  $17.6  million and $17.9  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.

       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 31,
1998 and December  28, 1997 was  approximately  $2.9  million and $1.4  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 and cash flows from operations  based
on a going concern basis.  Accumulated  amortization as of December 31, 1998 and
December 28, 1997 was

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

2.     SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)

approximately $10.6 million and $12.0 million, respectively. During 1998, Foamex
L.P.  recorded  a  reduction  of  cost  in  excess  of net  assets  acquired  of
approximately $2.3 million associated with a Montreal Canada facility.

       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.

       Comprehensive Income

       As of December  28,  1997,  Foamex L.P.  adopted  Statement  of Financial
Accounting Standards No. 130, "Reporting Comprehensive Income" ("SFAS No. 130"),
issued in June  1997.  SFAS No.  130  requires  the  reporting  and  display  of
comprehensive  income,  which is composed of net income and other  comprehensive
income or loss items,  in a full set of general  purpose  financial  statements.
Other  comprehensive  income or loss  items are  revenues,  expenses,  gains and
losses that under generally accepted accounting principles are excluded from net
income and reflected as a component of equity, such as currency  translation and
minimum pension liability adjustments.

       Foreign Currency Accounting

       The  financial  statements of foreign  subsidiaries,  except in countries
treated as highly inflationary (Mexico),  have been translated into U.S. dollars
by using the year end exchange rates for the 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,  such as Mexico  for 1998 and 1997,  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.  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.  Effective in the
first quarter of 1999, the financial results of the Mexican  operations will not
be accounted for as highly inflationary.

       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.

       Income Taxes

       Income taxes are accounted for under the asset and 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.

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

2.     SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)

Foamex L.P., as a limited  partnership,  is not subject to federal income taxes;
therefore  no current or deferred  provision  has been  provided for such taxes.
However,  Foamex L.P. has  provided  for the income  taxes of certain  states in
which it is subject to taxes and for certain  subsidiaries  which are subject to
federal  and  state  income  taxes  and  for  subsidiaries  located  in  foreign
jurisdictions  that file  separate  tax returns.  The partners  will provide for
their  respective  shares of income or loss in their federal or applicable state
income tax returns.  Foamex L.P. has a tax sharing  agreement  that provides for
the payment of  distributions to the partners for amounts that would be required
to be paid if Foamex L.P. were a corporation  filing  separate tax returns.  The
ability of Foamex L.P. to make such distributions is limited by the terms of its
credit agreements and indentures. (See Note 7).

       Reclassifications

                      Certain   amounts  in  the  1997  and  1996   consolidated
financial statements have been reclassified to conform with the current
year's presentation.

3.     ACQUISITIONS

       On December 23, 1997, Foamex  International  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) and  contributed  all of the assets of Crain,  subject to all of
the  liabilities  of Crain,  to  Foamex  L.P.  In  addition,  fees and  expenses
associated  with the Crain  Acquisition  were  approximately  $13.2 million.  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 in 1997 relating to the restructuring of
Foamex L.P.'s  operations in connection  with the Crain  Acquisition and related
transactions.  In  addition,  in 1997 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 facilities acquired in the Crain
Acquisition. (See Note 4.)

       The Crain  Acquisition was accounted for as a purchase and the operations
of Crain have been included in the  consolidated  statements  of operations  and
cash flows from its date of  acquisition.  However,  Crain's  operations for the
period from December 24, 1997 to December 28, 1997 have not been included in the
1997 consolidated  statements of operations or cash flows since the effect would
be  insignificant.  The cost of the Crain  Acquisition has been allocated on the
basis of the fair  value of the assets  acquired  and the  liabilities  assumed.
During 1998, Foamex L.P. increased the cost in excess of the net assets acquired
by  approximately  $11.2  million as a result of the  finalization  of the fixed
asset appraisal and updated  estimates of certain former Crain  facilities.  The
excess of the  purchase  price over the  estimated  fair value of the net assets
acquired of $164.2 million is being  amortized  using the  straight-line  method
over forty years.

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
better position itself to achieve its strategic growth  objectives.  Foamex L.P.
recorded  restructuring  and other charges of $39.2 million which were 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  represented severance and employee benefit costs
associated with the elimination of manufacturing and administrative personnel.

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

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

       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 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 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,  during 1997, Foamex L.P.  approved a consolidation  plan to
integrate the acquired Crain facilities into Foamex L.P.'s existing  facilities.
Foamex L.P. 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.

       During 1998, Foamex L.P. determined to continue to operate two facilities
originally  identified for closure in the 1997 restructuring  plan. One facility
remained open to fill lost capacity  resulting  from a fire in April 1998 at the
Orlando  facility,  which is expected to be at full production during the second
quarter of 1999.  The other  facility  remained open during 1998 due to improved
demand on the West Coast. The 1997  restructuring plan also included the closure
of two facilities associated with the packaging business. Foamex L.P. intends to
sell the packaging  business  during 1999 and does not expect to incur the asset
write-down  and lease  costs as  originally  planned.  As a result,  Foamex L.P.
recorded  a  $14.8  million   restructuring  credit  associated  with  the  1997
restructuring  plan.  The components of the $14.8 million  restructuring  credit
include:  $10.2  million for fixed  asset  write-downs,  $3.5  million for plant
closure  and  operating  lease   obligations  and  $1.1  million  for  personnel
reductions.

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

       Except as discussed  above,  the 1997 and 1996  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:


                                      F-13


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

4.     RESTRUCTURING AND OTHER CHARGES (CREDITS) (continued)
<TABLE>
<CAPTION>
                                                       Asset        Plant Closure       Personnel
                                        Total      Writedowns         and Leases       Reductions        Other   
                                                                                        (millions)
<S>                                    <C>           <C>               <C>               <C>             <C>
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              -
                                        ------        ------             -----            -----         ------

Balances at December 28, 1997             21.2          (5.7)             23.5              3.4              -
Cash spending                            (15.3)           -              (11.8)            (3.5)             -
Cash proceeds                              2.1           2.1                 -                -              -
1998 restructuring charge                  4.7           4.7                 -                -              -
1998 restructuring credit                (14.8)        (10.2)             (3.5)            (1.1)             -
Accruals transferred in connection
   with the GFI Transaction               (3.7)         (0.6)             (3.1)               -              -
Asset write-off/writedowns                (5.6)         (4.8)             (0.8)               -              -
Reclassified fixed asset basis
   for restructuring credit                8.8           8.8                 -                -              -
Plant consolidation costs                  6.4             -               5.2              1.2              -
                                        ------        ------             -----            -----         ------

Balances at December 31, 1998            $ 3.8        $ (5.7)            $ 9.5          $     -         $    -
                                         =====        ======             =====          =======         ======
</TABLE>

       As  indicated  in the table above,  the accrued  restructuring  and plant
consolidation balance at December 31, 1998 will be used for payments relating to
plant closures and leases  including  rundown costs at the facilities.  The $5.7
million of asset  writedowns  relates  to  estimated  proceeds  from the sale of
assets  and is  included  in  noncurrent  assets.  Foamex  L.P.  expects  to pay
approximately  $2.5 million of costs during 1999 with the remaining $7.0 million
to be paid through 2006.

5.     INVENTORIES

       Inventories consists of:
<TABLE>
<CAPTION>
                                                                    December 31, 1998        December 28, 1997
                                                                                  (thousands)
<S>                                                                     <C>                       <C>      
         Raw materials and supplies                                     $  93,241                 $  75,487
         Work-in process                                                   12,087                    15,620
         Finished goods                                                    22,308                    29,192
                                                                       ----------                ----------
         Total                                                           $127,636                  $120,299
                                                                         ========                  ========
</TABLE>

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

6.     SHORT-TERM BORROWINGS

       Short-term  borrowings represent  borrowings  outstanding under a line of
credit facility for Foamex Canada Inc. ("Foamex Canada") bearing interest at the
bank's prime rate (6.75% at December 31, 1998) plus 1/2%.  The weighted  average
interest rates on Foamex Canada's  short-term  borrowings  outstanding for 1998,
1997 and 1996 were 7.3%, 5.4% and 5.9%,  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 $17.7 million as of December 31, 1998. The unused amount under
this line of credit totaled approximately $2.3 million as of December 31, 1998.

7.     CURRENT PORTION OF LONG-TERM DEBT, LONG-TERM DEBT AND EXTRAORDINARY LOSS

       For the year  ended  December  31,  1998,  Foamex  L.P.  had a loss  from
continuing operations,  a working capital deficit and was not in compliance with
certain debt covenants for which it is seeking  amendments.  Such non-compliance
provides the lenders under those agreements, which have an aggregate outstanding
principal amount of approximately $415.4 million,  upon notice and lapse of time
to declare all of such indebtedness to be due.  Notwithstanding the fact that to
date the lenders  have not  executed  such rights and have  granted  Foamex L.P.
waivers of such covenants  through May 5, 1999,  which has been extended through
June 30,  1999,  to  enable  Foamex  L.P.  to  negotiate  an  amendment  of such
covenants;  however,  there can be no  assurance  that such  amendments  will be
obtained and  therefore  such  indebtedness  has been  classified  as current in
Foamex L.P.'s financial  statements.  Were the lenders under those agreements to
accelerate  the  maturity  of  their   indebtedness,   such  acceleration  would
constitute an event of default and  substantially all of Foamex L.P.'s long-term
debt would become due.  Therefore,  Foamex L.P. has  reclassified  approximately
$715.8  million  of  long-term  debt  as  current.  Such  classification  raises
substantial doubt about Foamex L.P.'s ability to continue as a going concern.

       Current portion of long-term debt and long-term debt consists of:
<TABLE>
<CAPTION>
                                                                         December 31,         December 28,
                                                                              1998                 1997
                                                                          -----------            ----------
       Credit Facility:                                                                     (thousands)
<S>                                                                      <C>                     <C>      
         Term Loan A (1)                                                  $         -             $  76,700
         Term Loan B (1)                                                       82,714               109,725
         Term Loan C (1)                                                       75,194                99,750
         Term Loan D (1)                                                      108,900               110,000
         Revolving credit facility (1)                                        139,438                54,928
       9 7/8% Senior subordinated notes due 2007 (2)                          150,000               150,000
       13 1/2% Senior subordinated notes due 2005 (includes
         $11,893 and $13,720 of unamortized debt premium) (2)                 109,893               111,720
       9 1/2% Senior secured notes due 2000 (3)                                     -                 4,523
       Industrial revenue bonds (4)                                             7,000                 7,000
       Subordinated note payable (net of unamortized
         debt discount of $523 and $1,198) (4)                                  6,491                 6,129
       Other                                                                    9,848                 8,335
                                                                          -----------              --------
                                                                              689,478               738,810

       Less current portion                                                   689,478                12,161
                                                                          -----------              --------

       Long-term debt-unrelated parties                                   $         -              $726,649
                                                                          ===========              ========

       Current portion of long-term debt - related party consists of:

       Foamex/GFI Note (4)                                                $    34,000              $      -
                                                                          ===========              ========
</TABLE>

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

7.     CURRENT PORTION OF LONG-TERM DEBT, LONG-TERM DEBT AND EXTRAORDINARY LOSS

(1)  Debt of Foamex L.P.,  guaranteed by Foamex International and Foamex Capital
     Corporation ("FCC")
(2)  Debt of Foamex L.P. and FCC.
(3)  Debt of Foamex L.P. and FCC, guaranteed by Foamex International.
(4)  Debt of Foamex L.P.

       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 December 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: (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.

       In connection with the GFI Transaction  (See Note 9), Foamex L.P. amended
its  agreements  with the  lenders  under the Credit  Facility,  which  included
additional borrowings of $129.0 million under new term loan agreements that were
subsequently  assumed by Foam Funding LLC and  borrowings of $32.0 million under
the  existing  revolving  credit  facility.  These  funds were used to (i) repay
approximately $125.1 million of existing term loans and accrued interest thereon
of approximately $0.9 million,  (ii) deposit $4.8 million into an escrow account
in order to redeem the senior  secured notes during June 1998,  (iii) repay $4.8
million  of  indebtedness  owed to  General  Felt,  (iv) fund the $20.0  million
distribution  to  Foamex   International  and  (v)  pay  fees  and  expenses  of
approximately  $5.4 million.  Also,  this amendment  increased the  availability
under the  revolving  credit  facility  from $150.0  million to $200.0  million,
subject to a $2.5  million  quarterly  reduction of the  availability  under the
revolving  credit facility  effective  September 30, 1998, with $34.5 million of
the increased availability used for a letter of credit to support the Foamex/GFI
Note (described below).

       Borrowings under the Credit Facility are  collateralized by substantially
all of the assets of Foamex L.P. on a pari passu basis with the IRBs  (described
below);  however,  the rights of the holders of the applicable  issue of IRBs to
receive  payment upon the  disposition of the collateral  securing such issue of
IRBs 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 ("Base  Rate  Interest
Loans").  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. Pursuant to a March 11, 1999 amendment to the Credit
Facility,  the applicable margin for revolving loans as Base Rate Interest Loans
as determined  based on the total net debt to EBDAIT ratio will range from 1.50%
per annum to 2.25% per annum and the  applicable  margins for Term B, Term C and
Term D as Base Rate Interest  Loans will be fixed at 2.50% per annum,  2.75% per
annum and 2.875% per annum, respectively.  The applicable margin for LIBOR based
loans will equal the  applicable  margin for Base Rate Interest  Loans plus 1.0%
per annum.  As of December 31, 1998, the interest rate for revolver  borrowings,
Term B, Term C and Term D were 7.80%, 8.00%, 8.25% and 8.4375%, respectively.

       Foamex  L.P.  had  a  credit  agreement  (the  "Foamex  L.P.  Old  Credit
Facility")  with a group of banks that provided for loans of up to $85.0 million
of which up to $40.0  million was available as a term loan and $45.0 million was
available under a revolving line of credit.  During 1997,  Foamex L.P. used $3.8
million of net proceeds from the Perfect Fit  Industries,  Inc.  ("Perfect Fit")
sale to repay term loan borrowings.  The term loan was repaid in connection with
the refinancing plan (described below).

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

7.   CURRENT PORTION OF LONG-TERM DEBT,  LONG-TERM DEBT AND  EXTRAORDINARY  LOSS
     (continued)

       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 1997  Refinancing  Plan.  The  Senior  Subordinated  Notes
represent   uncollateralized   general   obligations  of  Foamex  L.P.  and  are
subordinated  to all  Senior  Debt (as  defined  in the  Indenture).  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, 2007. 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 13  1/2%  Senior  Subordinated  Notes  and  the  Subordinated  Note  Payable
(described below).

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

       The 13 1/2% Senior  Subordinated Notes were issued by Foamex L.P. and FCC
in connection with the Crain Acquisition.  The 13 1/2% Senior Subordinated Notes
represent   uncollateralized   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 bear interest at the rate of 13 1/2% per annum payable
semiannually on each February 15 and August 15. The 13 1/2% Senior  Subordinated
Notes mature on August 15, 2005.  The 13 1/2% Senior  Subordinated  Notes may be
redeemed at the option of Foamex  L.P.,  in whole or in part,  at any time on or
after August 15,  2000,  initially at 106.75% of their  principal  amount,  plus
accrued  interest,  if any,  thereon to the date of redemption  and declining to
100.0% on or after August 15, 2004.  Upon the occurrence of a change of control,
as defined,  each holder of the 13 1/2% Senior  Subordinated Notes will have the
right to require Foamex L.P. to repurchase the 13 1/2% 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 13 1/2%  Senior
Subordinated  Notes  are  subordinated  in right of the  payment  of all  senior
indebtedness  and are pari passu in right of payment to the Senior  Subordinated
Notes and to the Subordinated Note Payable (described below).

       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 and redeemed in June 1998.

       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 $11.1  million at
December 31, 1998 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 4.0% and 3.4% at
December   31,  1998  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

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

7.   CURRENT PORTION OF LONG-TERM DEBT,  LONG-TERM DEBT AND  EXTRAORDINARY  LOSS
     (continued)

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.

       Subordinated Note Payable

       This note payable was issued to John 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. 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  31, 1998,  other debt is  comprised  primarily of capital
lease obligations and borrowings by Foamex Mexico.

       Foamex/GFI Note

       In connection with the transfer of General Felt's common stock in the GFI
Transaction (see Note 9), Foamex L.P. entered into the $34.0 million  Foamex/GFI
Note to settle an existing  intercompany note payable to General Felt, which was
retained by Foam Funding LLC in connection with the asset purchase agreement for
the GFI  Transaction.  The  principal  and current  interest  payable  under the
Foamex/GFI Note are secured by a $34.5 million letter of credit issued under the
Credit Facility. The principal amount is due upon maturity in March 2000.

       Pursuant to the terms of the Foamex/GFI Note, the note will bear interest
at a floating  rate equal to the higher of (i) the base rate of the  Holder,  as
defined,  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. At the option of
Foamex L.P.,  interest  payable  under the note is converted  into a LIBOR based
interest  rate at a  floating  rate equal to the sum of 0.75% per annum plus the
average  LIBOR,  as defined.  As of December  31, 1998,  the  interest  rate for
borrowings was 6.3125%.

       Refinancing Plan

       On  June  12,  1997,  Foamex  International   substantially  completed  a
refinancing plan (the"1997  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 1997 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  Foamex-JPS   Automotive  L.P.'s  ("FJPS")  senior  secured  discount
debentures due 2004 (the "Discount  Debentures") and repaid $5.2 million of term
loan borrowings under the Foamex L.P. Old Credit Facility.  The 1997 Refinancing
Plan was funded by $347.0  million of borrowings  under Credit  Facility and the
net proceeds from the issuance of $150.0 million of Senior Subordinated Notes.

       In connection with the 1997  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 1997  Refinancing  Plan,  Foamex L.P. repaid
$5.2 million in term loan  borrowings  under the Foamex L.P. Old Credit Facility
and purchased  approximately  $459.0  million of aggregate  principal  amount of
public debt comprised of:

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

7.   CURRENT PORTION OF LONG-TERM DEBT,  LONG-TERM DEBT AND  EXTRAORDINARY  LOSS
     (continued)

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%.

       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 1997 Refinancing  Plan. These  redemptions were funded from 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.

       Early Extinguishment of Debt - Other

       In   connection   with  the  GFI   Transaction,   Foamex  L.P.   incurred
extraordinary  losses of  approximately  $3.2 million  associated with the early
extinguishment  of  approximately  $125.1 million of term loans under the Credit
Facility funded with $129.0 million of new term loan agreements  assumed by Foam
Funding LLC (see Note 9). The extraordinary loss was generated entirely from the
write-off of debt issuance costs.

       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 the Foamex L.P. 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.

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

7.   CURRENT PORTION OF LONG-TERM DEBT,  LONG-TERM DEBT AND  EXTRAORDINARY  LOSS
     (continued)

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

       The effect of the interest rate swaps  resulted in a decrease in interest
and debt  issuance  expense of $0.7  million,  $2.2 million and $3.7 million for
1998, 1997 and 1996, respectively.

       Debt Restrictions and Covenants

       The indentures, Credit Facility and other indebtedness agreements contain
certain covenants that limit, among other things to varying degrees, the ability
of Foamex L.P. (i) to pay distributions or redeem partnership interests, (ii) to
make certain  restrictive  payments or  investments,  (iii) to incur  additional
indebtedness  or issue Preferred  Equity  Interest,  as defined,  (iv) to merge,
consolidate or sell all or substantially all of its assets, or (v) to enter into
certain  transactions with affiliates or related persons.  In addition,  certain
agreements contain a provision that, in the event of a defined change of control
or the occurrence of an undefined  material adverse change in the ability of the
obligor to perform its obligations,  the indebtedness must be repaid, in certain
cases at the option of the holder  (see Note 1).  Also,  Foamex L.P. is required
under certain of these  agreements  to maintain  specified  financial  ratios of
which the most restrictive are the maintenance of net worth and interest,  fixed
charge and leverage 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.

       Foamex L.P.  amended the Credit Facility on March 11, 1999. The amendment
adjusted  financial  covenants,  among other things, as of December 31, 1998 and
provided  for future  measurement  periods  taking into  account  Foamex  L.P.'s
estimated  operating  results and financial  condition  for 1998 and  management
expectations  regarding future  measurement  periods.  As the Foamex L.P. actual
1998 net loss was greater than originally  estimated,  on April 15, 1999, Foamex
L.P. obtained a waiver through May 5, 1999, which has been extended through June
30,  1999,  of the  financial  covenants  contained  in the Credit  Facility and
certain  events of default  arising out of its Mexican  operations,  in order to
enable Foamex L.P. to negotiate a further amendment of the Credit Facility.


                                      F-20

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

7.   CURRENT PORTION OF LONG-TERM DEBT,  LONG-TERM DEBT AND  EXTRAORDINARY  LOSS
     (continued)

       Future Obligations on Debt

       Scheduled maturities of total long-term debt and long-term debt - related
party prior to reclassification as current are shown below (thousands):
<TABLE>
<CAPTION>
         Year Ended                                                                      Long-Term Debt
         ----------                                                                      --------------
<S>                                                                                       <C>
         1999                                                                               $   7,668
         2000                                                                                   7,944
         2001                                                                                   7,944
         2002                                                                                   4,122
         2003                                                                                 192,517
         Thereafter                                                                           491,913
                                                                                             --------
            Total                                                                             712,108

         Unamortized debt premium, net                                                         11,370
                                                                                             --------
              Total                                                                          $723,478
                                                                                             ========
</TABLE>

8.     EMPLOYEE BENEFIT PLANS

       Foamex L.P.  adopted,  during the fourth  quarter of 1998,  Statement  of
Financial Accounting Standards No. 132, "Employees  Disclosure about Pension and
Other  Postretirement  Benefits"  ("SFAS No.  132") which  revised the  required
disclosures about pension and other postretirement benefit plans.

       Defined Benefit Pension Plans

       Foamex L.P. maintains  noncontributory defined benefit pension plans (the
"Plans")  for salaried  and certain  hourly  employees of Foamex L.P. and Foamex
Carpet.  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:
<TABLE>
<CAPTION>
                                                                            1998        1997           1996   
                                                                         ----------  ----------     ----------
                                                                                       (thousands)
<S>                                                                        <C>         <C>             <C>   
       Service cost                                                        $2,833      $2,229          $2,471
       Interest cost                                                        4,517       4,273           3,997
       Expected return on plan assets                                      (5,758)     (5,357)         (4,205)
       Amortization of:
         Transition (asset/obligation)                                        (75)        (75)            (75)
         Prior service cost                                                  (245)       (245)           (245)
         (Gain)/Losses and other                                              104          72             327
                                                                           ------     -------          ------
           Total                                                           $1,376     $   897          $2,270
                                                                           ======     =======          ======
</TABLE>

       Foamex L.P.'s  funding  policy is to  contribute  annually an amount that
both  satisfies  the minimum  funding  requirements  of the Employee  Retirement
Income Security Act of 1974 and does not exceed the full funding  limitations of
the Internal  Revenue Code of 1986,  as amended (the  "Code").  Foamex  Carpet's
allocated net periodic  costs was  approximately  $0.4 million  during 1998. The
Plans purchased 250,000 shares of Foamex  International's stock in 1994 for $2.5
million and  150,000  shares in 1995 for $1.5  million.  The value of the Plans'
investment in Foamex  International's  stock was approximately  $5.2 million and
$4.6 million at December 31, 1998 and 1997,  respectively.  The Plans  purchased
approximately  $2.5 million of shares of Trace Global  Opportunities Fund during
each of 1995 and  1997.  The  value of the  Plans'  investment  in Trace  Global
Opportunities Fund, which primarily

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

8.   EMPLOYEE BENEFIT PLANS (continued)

invests in companies  organized  or  operating  outside the G-7 markets and is a
related  party to Trace,  is  approximately  $4.3  million  and $8.7  million at
December  31, 1998 and 1997,  respectively.  During  1998,  the Plans  purchased
234,000  shares of United  Auto  Group  ("UAG")  stock  for  approximately  $4.8
million.  The value of the Plans' investment in UAG, which is a related party to
Trace,  is $2.3  million at December 31, 1998.  The Plans'  investments  consist
primarily of corporate equity and debt  securities,  mutual life insurance funds
and cash equivalents.

       During 1998, the discount rate was adjusted to 6.5%. 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 31,
1998 and December 28, 1997:
<TABLE>
<CAPTION>
                                                                                December 31,         December 28,
                                                                                    1998                 1997 
                                                                                          (thousands)
       Change in Benefit Obligation:
<S>                                                                                <C>                 <C>    
         Benefit obligations at end of prior year                                  $65,948             $58,775
         Service cost                                                                2,833               2,229
         Interest cost                                                               4,517               4,273
         Benefits paid (annuities and lump sums)                                    (4,043)             (3,636)
         Actuarial loss/(gain)                                                       5,334               4,307
                                                                                 ---------            --------
           Projected benefit obligation                                            $74,589             $65,948
                                                                                 =========            ========

       Change in Plan Assets:
         Fair value of plan assets at end of prior year                            $58,952             $53,734
         Actual return on plan assets                                                  439               6,308
         Company contributions                                                         200               2,546
         Benefits paid                                                              (4,043)             (3,636)
         Other                                                                          (2)                  -
                                                                                 ---------            --------
           Fair value of plan assets                                               $55,546             $58,952
                                                                                 =========            ========

       Funded Status of the Plan:
         Plan assets in excess of/(less than) benefit obligation                  $(19,042)           $ (6,996)
         Unamortized transition (asset) obligation                                    (740)               (815)
         Unamortized prior service cost                                             (2,397)             (2,642)
         Unamortized net (gains)/losses                                             18,711               8,160
                                                                                 ---------            --------
         Net prepaid assets/(accrued liabilities)                                $  (3,468)           $ (2,293)
                                                                                 =========            ========

       Total Recognized Amounts in the Statement of Financial Position:
         Prepaid benefit costs                                                   $   1,200            $  1,749
                                                                                 ---------            --------
         Accrued benefit liability                                                 (20,150)             (6,275)
         Intangible assets                                                             239                 263
         Accumulated other comprehensive income                                     15,243               1,970
                                                                                 ---------            --------
           Net amount recognized                                                 $  (3,468)           $ (2,293)
                                                                                 =========            ========

       Significant  assumptions used in determining the plans' funded status are
as follows:

                                                                                December 31,     December 28,
                                                                                    1998              1997  
       Expected long-term rates of return on plan assets                           10.00%           10.00%
       Discount rates on projected benefit obligations                              6.50%            7.00%
</TABLE>

                                      F-22
<PAGE>
                          FOAMEX L.P. AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

8.     EMPLOYEE BENEFIT PLANS (continued)

       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 of
Foamex L.P. and Foamex  Carpet 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 its
employees'  contributions  up to 4% of eligible  compensation.  Foamex L.P. also
provides an additional  25% match of its  employees'  contributions  up to 4% of
eligible  compensation  made to a fund which  invests in Foamex  International's
common  stock.  In addition,  Foamex L.P. may make  discretionary  contributions
amounting to a 25% match of its  employees'  contributions  up to 4% of eligible
compensation.  The expense for these  contributions  for 1998, 1997 and 1996 was
approximately $0.8 million, $0.9 million and $0.8 million, respectively.  During
1998,  Foamex  Carpet  contributed  approximately  $0.1  million to the plan for
matching contribution expense for its employees.

       Postretirement Benefits

       In  addition  to  providing  pension   benefits,   Foamex  L.P.  provides
postretirement  health care and life  insurance  for eligible  employees.  These
plans are  unfunded  and Foamex  L.P.  retains  the right,  subject to  existing
agreements, to modify or eliminate these benefits.

       The components of 1998, 1997 and 1996 expense for postretirement benefits
are as follows:
<TABLE>
<CAPTION>
                                                                        1998          1997            1996 
                                                                       ------        ------          ------
                                                                                   (thousands)
<S>                                                                      <C>         <C>             <C>  
       Service costs                                                     $10         $   9           $  12
       Interest cost                                                      46            71              67
       Amortization of:
         Prior service costs                                             (35)          (35)            (27)
         (Gains)/losses and other                                        (29)          (21)            (26)
       Special termination/curtailment loss                                -            74             576
                                                                        ----          ----            ----

       Net periodic postretirement benefit cost                         $ (8)         $ 98            $602
                                                                        ====          ====            ====
</TABLE>

       During  1996,  certain  employees  accepted an early  retirement  program
resulting in a special termination loss of $0.6 million.

       The  following  table  sets  forth the  funded  status  of Foamex  L.P.'s
postretirement plans and the amounts recognized in the accompanying consolidated
balance sheets as of December 31, 1998 and December 28, 1997:
<TABLE>
<CAPTION>
                                                                                December 31,         December 28,
                                                                                     1998                1997  
                                                                                          (thousands)
       Change in Benefit Obligation:
<S>                                                                                <C>                 <C>    
         Benefit obligations at end of prior year                                  $   927             $ 1,012
         Service cost                                                                   10                   9
         Interest cost                                                                  46                  71
         Employee contributions                                                         27                  28
         Benefits paid (annuities and lump sums)                                      (312)               (220)
         Actuarial Loss/(Gain)                                                         (47)                (47)
         Special termination benefits                                                    -                  74
                                                                                   -------             -------
           Projected benefit obligation                                            $   651             $   927
                                                                                   =======             =======
</TABLE>

                                      F-23
<PAGE>
                          FOAMEX L.P. AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

8.     EMPLOYEE BENEFIT PLANS (continued)
<TABLE>
<CAPTION>
                                                                                December 31,        December 28,
                                                                                   1998                 1997 
                                                                                           (thousands)
       Change in Plan Assets:
<S>                                                                             <C>                 <C>       
         Fair value of plan assets at end of prior year                         $       -           $        -
         Company contributions                                                         285                 192
         Employee contributions                                                         27                  28
         Benefits paid (annuities and lump sums)                                      (312)               (220)
                                                                                ----------          ----------
           Fair value of plan assets                                            $        -          $        -
                                                                                ==========          ==========

       Funded Status of the Plan:
         Plan assets in excess of/(less than) benefit obligation                $     (651)         $     (927)
         Unamortized prior service cost                                               (442)               (477)
         Unamortized net (gains)/losses                                               (573)               (555)
                                                                                ----------          ----------
         Net prepaid assets/(accrued liabilities)                               $   (1,666)         $   (1,959)
                                                                                ==========          ==========
</TABLE>

       The net accrued  benefit  liability  recognized  at December 31, 1998 and
December 28, 1997  resulted in an unfunded  obligation  of $1.7 million and $2.0
million, respectively.

       A 6% and 8% annual rate of  increase  in the per capita  costs of covered
health care benefits was assumed for each of 1998 and 1997,  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 6.5% and
7.0% as of December 31, 1998 and December 28, 1997, 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 31, 1998 and December 28, 1997,
Foamex L.P.'s liability for  postemployment  benefits was insignificant for each
period.

9.     DISCONTINUED OPERATIONS AND DIVESTITURES

       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 the 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.

       Divestitures

       On February 27, 1998,  Foamex  International,  Foamex L.P. and certain of
their  affiliates  completed a series of  transactions  designed to simplify the
structure  of  Foamex  International  and  Foamex  L.P.  and to  provide  future
operational  flexibility  (collectively,  the "GFI  Transaction").  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 and (ii) 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  promissory  note  supported by a $34.5  million
letter of credit under the

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

9.   DISCONTINUED OPERATIONS AND DIVESTITURES (continued)

Credit Facility (the "Foamex/GFI Note"). The initial transaction resulted in the
transfer  from Foamex  L.P.  to Foam  Funding  LLC,  an  indirect  wholly  owned
subsidiary of Trace, of all of the  outstanding  common stock of General Felt in
exchange for (i) the  assumption by Foam Funding LLC of $129.0 million of Foamex
L.P.'s  indebtedness and (ii) the transfer by Foam Funding LLC to Foamex L.P. of
a 1%  non-managing  general  partnership  interest  in Foamex  L.P. As a result,
General Felt ceased being a subsidiary  of Foamex L.P. and was relieved from all
obligations under Foamex L.P.'s 9 7/8% senior subordinated notes due 2007 and 13
1/2%  senior  subordinated  notes due 2005.  Upon  consummation  of the  initial
transaction,  Foamex  Carpet,  a newly formed wholly owned  subsidiary of Foamex
International,  Foamex International,  Foam Funding LLC and General Felt entered
into an Asset Purchase  Agreement dated February 27, 1998, in which General Felt
sold  substantially  all of its assets (other than cash, the Foamex/GFI Note and
its operating facility in Pico Rivera,  California) to Foamex Carpet in exchange
for (i) $20.0 million in cash and (ii) a promissory note issued by Foamex Carpet
to Foam Funding LLC in the  aggregate  principal  amount of $70.2  million.  The
$20.0  million  cash  payment was funded with a  distribution  by Foamex L.P. to
Foamex International. As part of these transactions, 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. Foamex Carpet conducts the carpet cushion business previously
conducted by General Felt.

       No gain has been recognized on the GFI Transaction. The impact of the GFI
Transaction  was an increase in Foamex  L.P.'s  partners'  capital  (deficit) of
approximately   $10.1  million,  a  distribution  of  $20.0  million  to  Foamex
International  and approximately  $1.5 million of fees charged to earnings.  The
$129.0  million of debt assumed by Foam Funding LLC in the GFI  Transaction  was
used to repay  approximately  $125.1  million of term loan  borrowings  that was
accounted for as an  extinguishment  of debt which resulted in an  extraordinary
loss of  approximately  $3.2 million.  The 1% non-managing  general  partnership
interest  acquired in connection with the GFI Transaction was accounted for as a
redemption  of equity.  The GFI  Transaction  used cash of  approximately  $10.2
million. The non-cash portion was insignificant.

10.    OTHER INCOME

       Other income  (expense),  net for 1998  primarily  consists,  among other
things,  $3.0 million of foreign  currency  translation and transaction  losses,
$1.5 million of fees and $1.0  million of  continuing  costs  related to the GFI
Transaction, and other expenses offset by approximately $3.4 million of interest
income.

       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.

11.    INCOME TAXES

       Income  (loss) from  continuing  operations  before  provision for income
taxes consists of the following:
<TABLE>
<CAPTION>

                                                                       1998             1997              1996 
                                                                                    (thousands)
<S>                                                                 <C>               <C>               <C>    
       United States                                                $  5,364          $15,076           $58,277
       Foreign                                                       (10,293)            (916)            3,086
                                                                     --------      ----------         ---------
       Income (loss) from continuing operations
          before provision (benefit) for income taxes                $(4,929)         $14,160           $61,363
                                                                     ========         =======           =======
</TABLE>


                                      F-25

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

11.    INCOME TAXES (continued)

       The components of the total consolidated  provision  (benefit) for income
taxes are summarized as follows:
<TABLE>
<CAPTION>
                                                                       1998             1997              1996    
                                                                   ------------     ------------      -----------
                                                                                    (thousands)
<S>                                                                   <C>            <C>               <C>     
       Continuing operations                                          $  940         $  2,895          $  7,702
       Discontinued operations                                             -                -            (2,606)
                                                                      ------         --------          --------
       Total consolidated provision (benefit)
          for income taxes                                            $  940         $  2,895          $  5,096
                                                                      ======         ========          ========

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

                                                                       1998             1997              1996    
                                                                   ------------     ------------      ------------
       Current:                                                                     (thousands)
         Federal                                                   $       -         $  1,958         $     220
         State                                                             -            1,007               686
         Foreign                                                         673              498               786
                                                                      ------         --------          --------
             Total current                                               673            3,463             1,692
                                                                      ------         --------          --------

       Deferred:
         Federal                                                         318             (247)            1,665
         State                                                             -              (87)            1,248
         Foreign                                                         (51)            (234)              491
                                                                      ------         --------          --------
             Total deferred                                              267             (568)            3,404
                                                                      ------         --------          --------

         Total consolidated provision (benefit) for income taxes       $ 940         $  2,895           $ 5,096
                                                                      ======         ========          ========
</TABLE>

       The tax effect of the temporary differences that give rise to significant
deferred tax assets and liabilities are:
<TABLE>
<CAPTION>
                                                                                December 31,       December 28,
                                                                                   1998                 1997
       Deferred tax assets:                                                               (thousands)
<S>                                                                               <C>                  <C>    
         Inventory basis differences                                              $     -              $   422
         Employee benefit accruals                                                      -                  860
         Allowances and contingent liabilities                                          -                2,968
         Restructuring and plant closing accruals                                       -                2,514
         Other                                                                          -                  373
         Net operating loss carryforwards                                               -                    -
         Capital loss carryforwards                                                     -                9,097
         Valuation allowance for deferred tax assets                                    -               (9,097)
                                                                                 --------             --------

       Deferred tax assets                                                              -                7,137
                                                                                 --------             --------

       Deferred tax liabilities:
         Basis difference in property, plant and equipment                            991                2,623
         Other                                                                      1,098                  193
                                                                                 --------             --------

       Deferred tax liabilities                                                     2,089                2,816
                                                                                 --------              -------

       Net deferred tax assets (liabilities)                                      $(2,089)             $ 4,321
                                                                                 ========              =======
</TABLE>


                                      F-26

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

11.    INCOME TAXES (continued)

       During  1998,  the  valuation  allowance  for deferred tax assets and net
deferred tax assets decreased by $9.1 million  primarily due to the reduction of
capital loss carryforwards associated with the transfer of General Felt's common
stock in connection with the GFI Transaction (see Note 9). In addition, deferred
tax assets  were  decreased  by $6.1  million  associated  with the  transfer of
General Felt net assets in connection with the GFI Transaction.

       A  reconciliation  of  the  statutory  federal  income  tax  rate  to the
effective income tax rate on continuing operations is as follows:
<TABLE>
<CAPTION>
                                                                           1998            1997            1996 
                                                                                       (thousands)
<S>                                                                      <C>             <C>             <C>    
       Statutory income taxes                                            $(1,725)        $ 4,956         $21,477
       State income taxes, net of federal                                    300             785           1,288
       Permanent difference on partnership income                         (1,570)         (2,119)        (11,714)
       Limitation on the utilization of tax benefits                       3,800               -               -
       Write-off of excess cost                                              770           4,305               -
       Valuation allowance                                                     -          (5,028)         (4,823)
       Cost in excess of assets acquired                                      53             419             551
       Other                                                                (688)           (423)            923
                                                                        --------        --------        --------

         Total                                                          $    940         $ 2,895         $ 7,702
                                                                        ========         =======         =======
</TABLE>

12.    COMMITMENTS AND CONTINGENCIES

       Operating Leases

       Foamex L.P. is obligated under various noncancelable lease agreements for
rental of facilities,  vehicles and other equipment.  Many of the leases contain
renewal  options  with  varying  terms and  escalation  clauses that provide for
increased  rentals based upon increases in the Consumer Price Index, real estate
taxes  and  lessors'  operating  expenses.   Total  minimum  rental  commitments
(excluding    commitments   accrued   as   part   of   Foamex   L.P.'s   various
restructuring/consolidation  plans) required under operating  leases at December
31, 1998 are:
<TABLE>
<CAPTION>
                                                                               Operating
                                                                                  Leases    
                                                                               (thousands)
<S>                                                                             <C>
       1999                                                                       $11,845
       2000                                                                         9,027
       2001                                                                         7,467
       2002                                                                         6,506
       2003                                                                         5,591
       Thereafter                                                                   5,312
                                                                                  -------
         Total                                                                    $45,748
</TABLE>

       Rental expense charged to operations under operating leases  approximated
$17.8  million,  $10.1  million  and  $9.6  million  for  1998,  1997  and  1996
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  for 1996  under  leases  with  related
parties.


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

13.    RELATED PARTY TRANSACTIONS AND BALANCES

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

         In connection  with the GFI  Transaction  (see Note 9), Foamex L.P. and
General Felt entered into a supply agreement that was  subsequently  assigned to
Foamex Carpet (the "Supply Agreement"). Pursuant to the Supply Agreement, Foamex
L.P.  will,  at the option of Foamex  Carpet,  supply  finished  carpet  cushion
products to Foamex  Carpet at the lower of: (i) cost,  as defined,  plus 4.7% or
(ii) fair market value,  as defined.  Foamex L.P.  will also supply  various raw
materials used in the manufacture of carpet cushion products to Foamex Carpet at
the lower of cost, as defined,  or fair market value,  as defined.  During 1998,
Foamex L.P. had sales of approximately $139.2 million to Foamex Carpet under the
Supply Agreement. In addition,  pursuant to the Supply Agreement,  Foamex Carpet
will, at the option of Foamex L.P.,  supply various finished  products to Foamex
L.P.  at the lower of: (i) cost,  as  defined,  plus  15.0% or (ii) fair  market
value,  as defined.  Foamex  Carpet will also supply  various raw  materials  to
Foamex L.P. at the lower of cost, as defined or fair market  value,  as defined.
During 1998, Foamex L.P. had purchases of approximately $1.3 million from Foamex
Carpet under the Supply  Agreement.  The initial term of the Supply Agreement is
until December 31, 2004 at which time the Supply Agreement will continue year to
year unless notice of termination is given by either party or unless  terminated
earlier due to an event of default, as defined.

       Also, in  connection  with the GFI  Transaction,  Foamex L.P. and General
Felt entered into an  administrative  services  agreement that was  subsequently
assigned to Foamex Carpet (the "Services  Agreement").  Pursuant to the Services
Agreement,  Foamex L.P. will provide Foamex Carpet administrative and management
services, as defined, at cost plus out-of-pocket  expenses.  During 1998, Foamex
L.P. invoiced  approximately $1.8 million of services to Foamex Carpet under the
Services Agreement.  The Services Agreement can be terminated by either party by
giving at least 30 days written  notice prior to the end of a calendar  year. As
of December 31, 1998,  Foamex L.P. had a net  receivable due from Carpet Cushion
of approximately $16.8 million associated with the Supply Agreement and Services
Agreement.

       Also, in connection with the GFI  Transaction,  Foamex L.P.  entered into
the  Foamex/GFI  Note with General Felt that was  subsequently  retained by Foam
Funding LLC (see Note 7).

       Also, in connection  with the GFI  Transaction,  Foamex L.P. made a $20.0
million distribution to Foamex International (see Note 9).

       On July 1, 1997,  Trace  borrowed  $5.0 million  pursuant to a promissory
note with an aggregate principal amount of $5.0 million issued to Foamex L.P. on
June 12, 1997. The promissory note is due and payable on demand or, if no demand
is made, on July 7, 2001, and bears interest at 2 3/8% plus  three-month  LIBOR,
as defined,  per annum payable quarterly in arrears  commencing October 1, 1997.
On June 12, 1997, another promissory note issued to Foamex L.P. by Trace in July
1996 was amended.  The amended  promissory  note is an extension of a promissory
note of Trace that was due in July 1997. The aggregate  principal  amount of the
amended  promissory  note was  increased to  approximately  $4.8 million and the
maturity of the promissory  note was extended.  The  promissory  note is due and
payable on demand or, if no demand is made, on July 7, 2001,  and bears interest
at 2 3/8% plus  three-month  LIBOR, as defined,  per annum payable  quarterly in
arrears.  The promissory  notes are included in the other component of partners'
equity (deficit).  Based on Trace's financial position, Trace may not be able to
pay the aggregate amount of $9.8 million.

       Foamex L.P. has current operating  receivables from Trace at December 31,
1998 of approximately $2.4 million, for which an allowance has been provided for
in  operations  as  restructuring   and  other  charges  due  to  the  financial
difficulties of Trace (see Note 1).  Additionally,  as described  above,  Foamex
L.P. continues to include in the other components of partners' equity (deficit),
notes receivable from Trace.

       In  connection  with the 1997  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.

                                      F-28
<PAGE>
                          FOAMEX L.P. AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

13.    RELATED PARTY TRANSACTIONS AND BALANCES (continued)

       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 1997  Refinancing  Plan,  Foamex L.P. made a cash
distribution of approximately  $1.5 million to Trace Foam Company,  Inc. ("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.

       Foamex L.P.  had a supply  agreement  (the "Foamex  International  Supply
Agreement") with Foamex International pursuant to which, at the option of Foamex
L.P.,  Foamex  International  would purchase  certain raw  materials,  which are
necessary  for the  manufacture  of Foamex  L.P.'s  products,  and  resell  such
materials  to Foamex L.P. at a price  equal to net cost plus  reasonable  out of
pocket expenses.  Management believes that the terms of the Foamex International
Supply  Agreement were no less favorable than those which Foamex L.P. could have
obtained  from an  unaffiliated  third party.  The Foamex  International  Supply
Agreement was terminated in April 1998.  During 1998, 1997 and 1996, Foamex L.P.
purchased  approximately  $12.6  million,  $138.6  million  and $129.7  million,
respectively,  of raw materials under the Foamex International Supply Agreement.
As  of  December  28,  1997,   Foamex  L.P.  had  accounts   payable  to  Foamex
International  of  approximately   $11.7  million  associated  with  the  Foamex
International 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  $0.9  million,  $1.2 million and $1.4  million in 1998,  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. Also, on December 31, 1998, Foamex L.P. entered
into another  promissory note with Foamex  International with a principal amount
of approximately $2.5 million.  The note bears interest at the rate LIBOR plus 2
3/8%. The note and interest thereon were repaid on March 31, 1999.

       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.

       Foamex L.P. has a management  service agreement with Trace Foam, a wholly
owned  subsidiary  of Trace,  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, the management  services
agreement  was  amended to  increase  the annual fee from $1.75  million to $3.0
million,  plus  reimbursement of expenses  incurred.  Trace 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.  Also,  certain  employees of Trace
are also employees of Foamex International.  Additionally,  certain employees of
Trace  and its  affiliates  provide  services  to Foamex  International.  Foamex
International  pays a portion of the  salaries  of such  employees  based on the
amount of time devoted to Foamex International's matters by such employees. Such
payments totaled approximately $2.0 million per year.

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

13.    RELATED PARTY TRANSACTIONS AND BALANCES (continued)

       During 1997, Foamex L.P.  purchased  approximately  $1.9 million 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, the latest of 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 1998, 1997 and
1996.

       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 31, 1998, 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 February 1998. As of December 31, 1998,
the partnership  interests of Foamex L.P. are held by FMXI, 2% managing  general
partnership   interest  and  Foamex  International  a  98%  limited  partnership
interest.

       Cash  distributions in connection with a tax sharing  agreement for 1998,
1997 and 1996 were paid (received) as follows:
<TABLE>
<CAPTION>
                                                                     1998               1997             1996    
                                                                 ------------       ------------     ------------
                                                                                    (thousands)
<S>                                                                <C>               <C>               <C>     
       FMXI                                                        $     6           $     80          $   (35)
       Foamex International                                            287              8,371                -
       Trace Foam                                                        -                 80               45
       FJPS                                                              -                306            3,477
                                                                   -------            -------           ------
         Total                                                     $   293             $8,837           $3,487
                                                                   =======             ======           ======
</TABLE>

       On February 27, 1998,  Foamex L.P.  distributed $20.0 million in cash pro
rata to its partners,  such  distribution  was funded with borrowings  under the
Credit Facility.

       Accumulated Other Comprehensive Income (Loss)

       The  accumulated  other  comprehensive  income  (loss)  consists  of  the
following:
<TABLE>
<CAPTION>
                                                             December 31,          December 28,      December 29,
                                                                 1998                  1997              1996  
                                                                                    (thousands)
<S>                                                            <C>                  <C>               <C>      
       Foreign currency translation adjustment                 $(10,965)            $ (4,367)         $ (3,494)
       Additional pension liability                             (15,243)              (3,718)           (2,407)
                                                              ---------             --------         ---------
         Total                                                 $(26,208)             $(8,085)          $(5,901)
                                                               ========              =======           =======
</TABLE>

15.    OPERATING SEGMENT AND RELATED DATA

       In the fourth quarter of 1998 Foamex L.P. adopted  Statement of Financial
Accounting  Standards No. 131  "Disclosure  about  Segment of an Enterprise  and
Restatement  Information  ("SFAS No. 131").  SFAS No. 131 requires  companies to
report  information  about their business  segments on the basis of how they are
managed  and  evaluated  by the  chief  operating  decision-makers.  Each of the
operating  segments is headed by an executive  vice president who is responsible
for developing plans and directing the operations of the segment.

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

15.    OPERATING SEGMENT AND RELATED DATA (continued)

       Foamex L.P.'s  reportable  business  segments are foam  products,  carpet
cushion products,  automotive products and technical products. The foam products
segment  manufactures and markets foam used by the bedding  industry,  furniture
industry and the retail  industry.  The carpet  cushion  products  segment sells
prime,  rebond,  sponge  rubber and felt carpet  cushion  principally  to Foamex
Carpet.  The automotive  products segment supplies foam primarily for automotive
interior applications to automotive manufacturers and to industry sub suppliers.
The technical  products segment  manufactures and markets  reticulated foams and
other  custom  polyester  and  polyether  foams for  industrial,  specialty  and
consumer and safety applications.

       The  "other"  column  in  the  table  below  represents  certain  foreign
manufacturing  operations  that  do not  meet  the  quantitative  threshold  for
determining  reportable segments,  corporate expenses not allocated to the other
operating segments and restructuring and other charges.  Total asset information
by operating  segment is not reported  because many of Foamex L.P.'s  facilities
produce  products for multiple  operating  segments.  Data for 1997 and 1996 has
been restated to reflect the implementation of SFAS No. 131.

       The  accounting  policies  of the  operating  segments  are  the  same as
described  in the "Summary of  Significant  Accounting  Policies"  (see Note 2).
Revenues and costs have been included in operating  segments where  specifically
identified.  Costs shared by operating segments have been allocated on the basis
of the amount utilized.
<TABLE>
<CAPTION>
                                                 Carpet
                                   Foam         Cushion     Automotive      Technical
                                 Products       Products       Products      Products        Other         Total
1998
<S>                              <C>          <C>            <C>              <C>          <C>        <C>       
Net sales                        $559,690     $210,313       $285,190         $79,140      $21,585    $1,155,918
Income (loss) from operations      36,253          (58)        17,319          14,919       (2,925)       65,508
Depreciation and amortization      17,418        5,092          4,582           2,615        1,972        31,679

1997
Net sales                        $334,900     $273,920       $225,892         $76,254      $20,129      $931,095
Income (loss) from operations      30,974        8,795         24,885          18,071      (26,393)       56,332
Depreciation and amortization      10,237        4,166          3,309           2,290          880        20,882

1996
Net sales                        $325,067     $291,338       $227,151         $70,325      $12,470      $926,351
Income from operations             32,431       18,813         28,707          18,208        4,710       102,869
Depreciation and amortization      10,683        4,198          2,874           2,232        1,145        21,132

                                                United
                                                 States        Canada          Mexico     Elimination  Consolidated
1998
Net sales                                   $1,049,012        $64,498         $57,718     $(15,310)   $1,155,918
Income (loss) from operations                   69,197           (310)         (3,379)           -        65,508
Identifiable assets                            703,537         26,606          48,782      (10,397)      768,528

1997
Net sales                                     $844,663        $60,545         $31,472      $(5,585)     $931,095
Income (loss) from operations                   56,015            977            (660)           -        56,332
Identifiable assets                            783,512         33,595          39,328      (22,367)      834,068

1996
Net sales                                     $845,916        $57,541         $26,583      $(3,689)     $926,351
Income (loss) from operations                   99,129          1,982           1,758            -       102,869
Identifiable assets                            543,975         29,841          25,736      (13,395)      586,157
</TABLE>

                                      F-31

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

16.    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 1998,  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
31,  1998,   Foamex  L.P.  has  accruals  of  approximately   $3.5  million  for
environmental matters. During 1998, Foamex L.P. established an allowance of $0.6
million relating to receivables from Trace for environmental indemnification due
to the financial difficulties of Trace.

       The Clean Air Act Amendments of 1990 (the "1990 CAA Amendments")  provide
for the establishment of federal emission standards for hazardous air pollutants
including  methylene  chloride,  propylene oxide and TDI,  materials used in the
manufacturing  of foam. On December 27, 1996,  the United  States  Environmental
Protection Agency (the "EPA") proposed regulations under the 1990 CAA Amendments
that  will  require  manufacturers  of slab  stock  polyurethane  foam  and foam
fabrication plants to reduce emissions of methylene chloride. The final National
Emission  Standard for  Hazardous  Air  Pollutants  ("NESHAP")  was  promulgated
October 7,  1998.  NESHAP  requires  a  reduction  of  approximately  70% of the
emission  of  methylene  chloride  for the slab  stock foam  industry  effective
October 7, 2001.  Foamex L.P. does not believe  implementation of the regulation
will  require  it to make  material  expenditures  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  such  alternative
technologies.  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 three
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.  Foamex L.P. has accruals of $2.5 million
for the estimated  cost of completing  remediation at these  facilities.  Foamex
L.P. is in the process of addressing potential  contamination at the Morristown,
Tennessee facility, and has submitted a sampling plan to the State of Tennessee.
The extent of the  contamination  and responsible  parties,  if any, has not yet
been determined.  A former owner may be liable for cleanup costs;  nevertheless,
the cost of remediation, if any, is not expected to be material.

       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 upgraded all  operating  tanks at its  facilities in
accordance  with these  regulations.  Foamex L.P.  believes that its USTs do not
pose a significant risk of  environmental  liability.  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 to comply with these new standards.

       Foamex  L.P.  has been  designated  as a  Potentially  Responsible  Party
("PRP") by the EPA with respect to eight sites with an estimated total liability
to Foamex L.P.  for the eight  sites of less than  approximately  $1.0  million.
Estimates of total cleanup  costs and  fractional  allocations  of liability are
generally  provided  by the EPA or the  committee  of PRP's with  respect to the
specified  site. In each case, the liability of Foamex L.P. is not considered to
be material.

                                      F-32
<PAGE>
                          FOAMEX L.P. AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

16.    ENVIRONMENTAL MATTERS (continued)

       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.

17.    LITIGATION

       Beginning  on or about  March 17,  1998,  six actions  (collectively  the
"Stockholder  Litigation")  were filed in the Court of  Chancery of the State of
Delaware,   New  Castle  County  (the  "Court"),   by   stockholders  of  Foamex
International. The Stockholder Litigation,  purportedly brought as class actions
on  behalf  of  all   stockholders   of  Foamex   International,   named  Foamex
International,  certain of its  directors,  certain of its officers and Trace as
defendants  alleging  that  they had  breached  their  fiduciary  duties  to the
plaintiffs and other  stockholders  of Foamex  International  unaffiliated  with
Trace in connection with the original  proposal of Trace to acquire the publicly
traded  outstanding  common stock of Foamex  International for $17.00 per share.
The complaints sought, among other things,  class  certification,  a declaration
that  the  defendants  have  breached  their  fiduciary  duties  to  the  class,
preliminary and permanent  injunctions  barring  implementation  of the proposed
transaction,   rescission  of  the  transaction  if   consummated,   unspecified
compensatory  damages,  and costs and  attorneys'  fee. A stipulation  and order
consolidating  these six actions  under the  caption In re Foamex  International
Inc. Stockholders  Litigation Consolidated Civil Action, No. 16259NC was entered
by the  Court on May 28,  1998.  Foamex  L.P.  is not  party to the  Stockholder
Litigation.

       The parties to the  Stockholder  Litigation  entered into a Memorandum of
Understanding,  dated June 25,  1998 (the  "Memorandum  of  Understanding"),  to
settle the  Stockholder  Litigation,  subject  to,  inter alia,  execution  of a
definitive  stipulation  of  settlement  between the parties and approval by the
Court  of  filing  notice  to  the  class  and  a  hearing.  The  Memorandum  of
Understanding  provided that as a result of, among other things, the Stockholder
Litigation and  negotiations  among counsel for the parties to the Memorandum of
Understanding,  a special meeting of stockholders would be held to vote upon and
approve the First Merger Agreement which provided,  among other things,  for the
Public Shares owned by stockholders of Foamex  International  unaffiliated  with
Trace and its subsidiaries (the "Public  Stockholders") to be converted into the
right to receive $18.75 in cash, without interest.

       The  Memorandum of  Understanding  also provided for  certification  of a
class, for settlement purposes only, consisting of the Public Stockholders,  the
dismissal of the  Stockholder  Litigation  with prejudice and the release by the
plaintiffs  and all members of the class of all claims and causes of action that
were or could have been asserted  against Trace,  Foamex  International  and the
individual  defendants in the  Stockholders  Litigation or that arise out of the
matters  alleged by  plaintiffs.  Following the  completion of the  confirmatory
discovery which was proved for in the Memorandum of Understanding,  on September
9, 1998, the parties entered into a definitive Stipulation of Settlement and the
Court set a hearing to consider  whether the  settlement  should be approved for
October 27, 1998 (the  "Settlement  Hearing").  In connection  with the proposed
settlement, the plaintiffs intended to apply for an award of attorney's fees and
litigation  expenses  in an amount not to exceed  $925,000,  and the  defendants
agreed not to oppose this application. Additionally, Foamex International agreed
to pay the cost,  if any,  of  sending  notice of the  settlement  to the Public
Stockholders.  On  September  24,  1998,  a Notice of Pendency of Class  Action,
Proposed  Settlement  of Class Action and  Settlement  Hearing was mailed to the
members  of the  settlement  class.  On October  20,  1998,  the  parties to the
Stockholder Litigation requested that the Court cancel the Settlement Hearing in
light of the  announcement  made by Trace on October 16, 1998,  that it had been
unable to obtain the necessary  financing for the  contemplated  acquisition  by
Trace of Foamex  International's  common  stock at a price of  $18.75  per share
which was the  subject  matter of the  proposed  settlement.  This  request  was
approved by the Court on October 21,  1998,  and Foamex  International  issued a
press release on October 21, 1998,  announcing  that the Court had cancelled the
Settlement Hearing.

                                      F-33
<PAGE>
                          FOAMEX L.P. AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

17.    LITIGATION (continued)

       On  November  10,  1998,  counsel for  certain of the  defendants  in the
Stockholder  Litigation  gave notice  pursuant to the  Stipulation of Settlement
that such  defendants  were  withdrawing  from the  Stipulation of Settlement in
light of the  notice  given by Trace to  Foamex  International  and the  special
committee of the Board of Directors on November 5, 1998 whereby Trace terminated
the First Merger  Agreement on the grounds that the  financing  condition in the
First Merger Agreement was incapable of being satisfied.

       On November 12, 1998, the plaintiffs in the Stockholder  Litigation filed
an Amended  Class  Action  Complaint  (the  "Amended  Complaint").  The  Amended
Complaint named Foamex International,  Trace, Merger Sub, Mr. Marshall S. Cogan,
Mr. Andrea Farace, Dr. Stuart Hershon, Mr. John Tunney, and Mr. Etienne Davignon
as defendants,  alleging that they breached their fiduciary duties to plaintiffs
and  the  other  Public  Stockholders  in  connection  with  the  Second  Merger
Agreement,  that the proposal to acquire the Public  Shares for $12.00 per share
lacked entire fairness,  that the individual defendants violated 8 Del. Code ss.
251 in  approving  the Second  Merger  Agreement,  and that Trace and Merger Sub
breached the Stipulation of Settlement. On December 2, 1998, plaintiffs served a
motion for a preliminary  injunction,  seeking an Order to preliminarily  enjoin
the defendants from  proceeding  with,  consummating or otherwise  effecting the
merger contemplated by the Second Merger Agreement.

       The  defendants  have  denied,  and  continue  to deny,  that  they  have
committed or have  threatened to commit any violation of law or breaches of duty
to  plaintiffs  or the  purported  class or any  breach  of the  stipulation  of
settlement.   The  defendants   intend  to  vigorously  defend  the  Stockholder
Litigation. If the Stockholder Litigation is adversely determined, it could have
a material adverse effect on the financial  position,  results of operations and
cash flows of Foamex International.

       In addition,  on or about  November 18, 1998, a putative class action was
filed in the United States  District Court for the Eastern  District of New York
on behalf of all  persons who  purchased  common  stock of Foamex  International
between  March 16, 1998 and October 19,  1998,  naming  Trace as  defendant  and
alleging that Trace  breached a contract  between the putative class members and
Trace.  By order dated January 8, 1999, the Court  transferred the action to the
United States District Court for the Southern District of New York. Trace made a
motion to dismiss the action on February 8, 1999, which motion is pending before
the Court, and the Court has stayed all discovery in the action until the motion
is decided. Neither Foamex International,  Foamex L.P. nor any of the individual
directors of Foamex International are named as defendants in this litigation.

       On April 26, 1999, a putative securities class action entitled Molitor v.
Foamex  International  Inc., et al., 99 Civ. 3004 (DC),  was filed in the United
States District court for the Southern District of New York naming as defendants
Foamex  International,  Trace  and  certain  officers  and  directors  of Foamex
International   on  behalf  of   stockholders   who  bought   shares  of  Foamex
International's  common  stock  during the period  from May 7, 1998  through and
including  April 16, 1999.  Foamex L.P. is not a party to such suit. The lawsuit
alleges that the defendants  violated  Section 10(b) of the Securities  Exchange
Act  of  1934  and  Rule  10b-5  by  misrepresenting  and/or  omitting  material
information  about Foamex  International's  financial  situation and operations,
with the result of  artificially  inflating the price of Foamex  International's
stock.  The lawsuit  also  alleges  that Trace and  Marshall  S. Cogan  violated
Section 20(a) of the Securities  Exchange Act of 1934 as controlling  persons of
Foamex  International.  The compliant seeks class  certification,  a declaration
that defendants violated the federal securities laws, an award of money damages,
and costs and attorneys',  accountants' and experts' fees. The defendants intend
to vigorously  defend the action. To date, no response to the complaint has been
made and no discovery or other proceedings have taken place.

       As of April  16,  1999,  Foamex  L.P.  and  Trace  were  two of  multiple
defendants  in actions  filed on behalf of  approximately  4,321  recipients  of
breast  implants  in various  United  States  federal  and state  courts and one
Canadian provincial court, some of which allege substantial damages, but most of
which allege  unspecified  damages for personal injuries of various types. Three
of these cases seek to allege claims on behalf of all breast implant  recipients
or other allegedly affected parties, but no class has been approved or certified
by the court. In addition, three cases have been filed alleging claims on behalf
of approximately 39 residents of Australia,  New Zealand,  England, and Ireland.
Foamex L.P. believes that the number of suits and claimants may increase. During
1995,  Foamex L.P. and Trace were granted  summary  judgments  and  dismissed as
defendants from all cases in the federal

                                      F-34
<PAGE>
                          FOAMEX L.P. AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

17.  LITIGATION (continued)

courts of the United  States and the state  courts of  California.  Appeals  for
these decisions were withdrawn and the decisions are final.

       Although  breast  implants  do not contain  foam,  certain  silicone  gel
implants  were  produced  using  a  polyurethane  foam  covering  fabricated  by
independent  distributors  or  fabricators  from bulk foam purchased from Foamex
L.P.  or Trace.  Neither  Foamex  L.P.  nor Trace  recommended,  authorized,  or
approved the use of its foam for these purposes. Foamex L.P. is also indemnified
by Trace for any such liabilities relating to foam manufactured prior to October
1990.  Although  Trace has paid Foamex L.P.'s  litigation  expenses to date from
insurance proceeds Trace received,  there can be no assurance that Trace will be
able to continue 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,  and without taking into account  indemnification  provided by
Trace, the coverage provided by Trace and Foamex L.P.'s liability  insurance and
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's  consolidated  financial
position or results of operations.  If management's  assessment of Foamex L.P.'s
liability with respect to these actions is incorrect,  such actions could have a
material  adverse  effect on the financial  position,  results of operations and
cash flows of Foamex L.P.

       On April 14, 1999, Foamex International received communications addressed
to its Board of Directors  from certain of Foamex  International's  stockholders
regarding  aspects of the relationship  between Trace and Foamex  International.
Such stockholders  questioned the propriety of certain relationships and related
transactions   between  Trace,  Foamex  International  and  Foamex  L.P.,  which
previously  have been  disclosed  in Foamex  International's  and Foamex  L.P.'s
periodic filings.  Foamex  International's  Board of Directors,  in consultation
with its special  counsel,  is in the process of evaluating such  communications
and what actions, if any, to take with respect thereto.

       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.  Such action could have a
material  adverse  effect on the financial  position,  results of operations and
cash flows of Foamex L.P.

       Foamex L.P. is party to various  other  lawsuits,  both as defendant  and
plaintiff,  arising  in the  normal  course of  business.  It is the  opinion of
management that the  disposition of these lawsuits will not,  individually or in
the  aggregate,  have a material  adverse  effect on 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.

18.    FINANCIAL INSTRUMENTS AND CONCENTRATION OF CREDIT RISK

       Concentration of Credit Risk

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

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

                                      F-35
<PAGE>
                          FOAMEX L.P. AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

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

       During 1998,  sales to Foamex Carpet accounted for  approximately  $139.2
million of Foamex L.P.'s net sales.  However,  other than Foamex Carpet,  no one
customer  accounted  for more than 10.0% of Foamex  L.P.'s net sales  during the
past  three  years.  Customers  that  represent  more  than 10% of an  operating
segment's net sales are Sealy in foam products,  Foamex Carpet in carpet cushion
products,  and Lear Corporation and Johnson Controls in automotive products. The
loss of any one of these  customers  would  have a  material  adverse  effect on
Foamex  L.P.  During the year ended  December  31,  1998,  net sales to the five
largest  customers,  excluding  Foamex Carpet,  comprised  approximately  $272.0
million or 23.5% of Foamex L.P.'s net sales.

       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 31, 1998 are as follows:
<TABLE>
<CAPTION>
                                                             Carrying Amount              Fair Value
     Liabilities:                                                           (thousands)
<S>                                                              <C>                         <C>     
         Debt and debt - related party                           $723,478                    $724,998
                                                                 ========                    ========
</TABLE>

       As of April 22, 1999, the estimated fair value of Foamex L.P.'s financial
instruments was approximately $590.2 million.

       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 debt and related  party debt is estimated  using quoted
market prices, where available, or discounted cash flows.

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

19.    SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION
<TABLE>
<CAPTION>
                                                                            1998            1997          1996   
                                                                         ----------      ----------    ----------
                                                                                         (thousands)
<S>                                                                       <C>             <C>           <C>    
       Cash paid for interest                                             $  69,615       $ 45,330      $43,378
                                                                          =========       ========      =======

       Cash paid for income taxes                                         $     884       $  4,504     $  1,533
                                                                          =========       ========      =======

       Non-cash capital expenditures                                      $      24       $    167    $     165
                                                                          =========       ========      =======

       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-36
<PAGE>
                        REPORT OF INDEPENDENT ACCOUNTANTS


Board of Directors
Foamex Capital Corporation
Wilmington, Delaware

In our opinion, the accompanying  consolidated balance sheets present fairly, in
all material  respects,  the financial  position of Foamex  Capital  Corporation
("FCC") (a wholly  owned  subsidiary  of Foamex  L.P.) at December  31, 1998 and
December  28,  1997.  These  balance  sheets  are the  responsibility  of  FCC's
management;  our  responsibility  is to express  an  opinion on these  financial
statements  based on our audits.  We conducted our audits of these statements in
accordance with generally accepted auditing standards which require that we plan
and perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement.  An audit includes examining, on a
test basis,  evidence  supporting  the amounts and  disclosures in the financial
statements,  assessing the accounting  principles used and significant estimates
made by management, and evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for the opinion  expressed
above.

The  accompanying  financial  statements  have been  prepared  assuming FCC will
continue  as a  going  concern.  As  discussed  in  Note 2 to  the  accompanying
financial  statements,  Foamex L.P. had a loss from continuing  operations,  net
cash  used by  operating  activities  and a  working  capital  deficit  since it
violated  certain debt  covenants for which it is seeking  amendments;  however,
there can be no assurance  that such  amendments  will be obtained and therefore
all long-term  debt is classified  as current.  These matters raise  substantial
doubt about FCC's ability to continue as a going concern.  In addition,  FCC has
been informed by Trace  International  Holdings,  Inc.  ("Trace") that Trace has
substantial  debt  obligations  and may not have the financial  resources to pay
these obligations when due within the near future. As a result,  Trace creditors
could foreclose or otherwise  attach Foamex  International  Inc.'s common stock.
Such an event may result in the  acceleration  of all of Foamex  L.P.'s debt, of
which FCC is a joint obligor.  Management's plans in regard to these matters are
described in Note 2 to the  accompanying  financial  statements.  The  financial
statements do not include any adjustments  that might result from the outcome of
these uncertainties.




PricewaterhouseCoopers LLP

Philadelphia, Pennsylvania 
April 22, 1999, except as to the
information presented in Note 2, 
for which the date is May 5, 1999

                                      F-37
<PAGE>
                           FOAMEX CAPITAL CORPORATION
                   (A Wholly Owned Subsidiary of Foamex L.P.)
                                 BALANCE SHEETS

<TABLE>
<CAPTION>
                                                              December 31,    December 28,
                                                                 1998            1997      
                                                                ------          ------
<S>                                                             <C>             <C>   
CASH                                                            $1,000          $1,000
                                                                ======          ======

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

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









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

                                      F-38
<PAGE>
                           FOAMEX CAPITAL CORPORATION
                   (A Wholly Owned Subsidiary of Foamex L.P.)
                             NOTES TO BALANCE SHEETS

1.     ORGANIZATION

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

2.     COMMITMENTS AND CONTINGENCIES

       For the year  ended  December  31,  1998,  Foamex  L.P.  had a loss  from
continuing operations,  a working capital deficit and was not in compliance with
certain debt covenants for which it is seeking  amendments.  Such non-compliance
provides the lenders under those agreements, which have an aggregate outstanding
principal amount of approximately $415.4 million,  upon notice and lapse of time
to declare all of such indebtedness to be due.  Notwithstanding the fact that to
date the lenders  have not executed  such rights and have granted  Foamex L.P. a
waiver of such covenants  through May 5, 1999,  which has been extended  through
June 30,  1999,  to  enable  Foamex  L.P.  to  negotiate  an  amendment  of such
covenants;  however,  there can be no  assurance  that such  amendments  will be
obtained and  therefore  such  indebtedness  has been  classified  as current in
Foamex L.P.'s financial  statements.  Were the lenders under those agreements to
accelerate  the  maturity  of  their   indebtedness,   such  acceleration  would
constitute an event of default and  substantially all of Foamex L.P.'s long-term
debt would become due.  Therefore,  Foamex L.P. has  reclassified  approximately
$715.8  million  of  long-term  debt  as  current.  Such  classification  raises
substantial concern about Foamex L.P.'s ability to continue as a going concern.

       FCC is a joint obligor and severally  liable 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 1997  Refinancing  Plan.  The  Senior  Subordinated  Notes
represent   uncollateralized   general   obligations  of  Foamex  L.P.  and  are
subordinated  to all  Senior  Debt (as  defined  in the  Indenture).  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, 2007. 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 13 1/2% Senior  Subordinated  Notes and to Foamex L.P.'s  subordinated  note
payable.

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

       The 13 1/2% Senior  Subordinated Notes were issued by Foamex L.P. and FCC
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 bear  interest at the rate of 13 1/2% per annum  payable  semiannually  on
each February 15 and August 15. The 13 1/2% Senior  Subordinated Notes mature on
August 15, 2005.  The 13 1/2% Senior  Subordinated  Notes may be redeemed at the
option of Foamex L.P.,  in whole or in part,  at any time on or after August 15,
2000,  initially at 106.75% 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 August 15, 2004. Upon the occurrence of a change
of control, as

                                      F-39
<PAGE>
                           FOAMEX CAPITAL CORPORATION
                   (A Wholly Owned Subsidiary of Foamex L.P.)
                             NOTES TO BALANCE SHEETS

2.     COMMITMENTS AND CONTINGENCIES (continued)

defined,  each  holder of the 13 1/2%  Senior  Subordinated  Notes will have the
right to require Foamex L.P. to repurchase the 13 1/2% 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 13 1/2%  Senior
Subordinated  Notes  are  subordinated  in right of the  payment  of all  senior
indebtedness  and are pari passu in right of payment to the Senior  Subordinated
Notes and to Foamex L.P.'s subordinated note payable.







                                      F-40
<PAGE>
                          FOAMEX L.P. AND SUBSIDIARIES
                      INDEX TO FINANCIAL STATEMENT SCHEDULE




Index to Financial Statement Schedule

Schedule II - Valuation and Qualifying Accounts

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





                                      S-1
<PAGE>
<TABLE>
<CAPTION>
                                                                                                        Schedule II
                                           FOAMEX L.P. AND SUBSIDIARIES
                                         VALUATION AND QUALIFYING ACCOUNTS
                                                    (thousands)
                                             Balance at   Charged to     Charged to                     Balance at
                                         Beginning of     Costs and         other                         End of
                                            Period         Expenses      Accounts(1)      Deductions       Period
YEAR ENDED DECEMBER 31, 1998
<S>                                        <C>              <C>           <C>       <C>    <C>           <C>     
Allowance for Uncollectible Accounts       $  6,844         $ 2,000       $   (762) (1)(2) $  1,733      $  6,349
                                           ========         =======       ========         ========      ========

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

Deferred Tax Asset Valuation Allowance     $  9,097         $      -      $ (9,097) (4)    $      -      $      -
                                           ========         =======       ========         ========      ========


YEAR ENDED DECEMBER 28, 1997
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
                                           ========         =======       ========         ========      ========

Deferred Tax Asset Valuation Allowance     $ 15,988         $(5,028)      $ (1,863) (3)    $      -      $  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
                                           ========         =======       ========         ========      ========

Deferred Tax Asset Valuation Allowance     $ 13,473         $ 9,370       $ (6,855) (3)    $      -      $ 15,988
                                           ========         =======       ========         ========      ========
</TABLE>

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

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

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

(4)  Represents valuation allowances transferred out due to the GFI Transaction.


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