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 29, 1996

                                       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 [ ] NO [X] (The
Foamex Capital Corporation Exchange Act reports were timely transmitted to the
Securities and Exchange Commission, but contained incorrect electronic codes;
therefore, such reports may not be deemed to have been timely filed.)

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

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

     As of April 7, 1997, there were 1,000 shares of Foamex Capital
Corporation's common stock outstanding.

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

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


                                      INDEX

                                                                            Page
Part I

       Item  1.   Business                                                   3
       Item  2.   Properties                                                11
       Item  3.   Legal Proceedings                                         11
       Item  4.   Submission of Matters to a Vote
                  of Security Holders                                       13
Part II

       Item  5.   Market for Registrant's Common Equity and
                  Related Stockholder Matters                               13
       Item  6.   Selected Consolidated Financial Data                      13
       Item  7.   Management's Discussion and Analysis
                  of Financial Condition and Results
                  of Operations                                             15
       Item  8.   Financial Statements and Supplementary Data               22
       Item  9.   Changes in and Disagreements with Accountants
                  on Accounting and Financial Disclosure                    22

Part III

       Item 10.   Directors and Executive Officers of the Registrant        22
       Item 11.   Executive Compensation                                    24
       Item 12.   Security Ownership of Certain Beneficial Owners
                  and Management                                            28
       Item 13.   Certain Relationships and Related Transactions            29

Part IV

       Item 14.   Exhibits, Financial Statement Schedules
                  and Reports on Form 8-K                                   33

       Signatures                                                           40

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

                                        2
<PAGE>

PART I
ITEM l.  BUSINESS

General

       Foamex   L.P.,   an   indirect-majority   owned   subsidiary   of  Foamex
International  Inc.  ("Foamex  International"),  is engaged in the  business  of
manufacturing  and  distributing  quality  flexible  polyurethane  foam and foam
products.  As of December  29,  1996,  Foamex  L.P.'s  partners  were FMXI,  Inc
("FMXI") with a 1% managing general  partnership  interest,  Trace Foam Company,
Inc. ("Trace Foam") with a 1% non-managing  general  partnership  interest,  and
Foamex-JPS  Automotive L.P.  ("FJPS") with a 98% limited  partnership  interest.
FMXI and FJPS are both wholly-owned subsidiaries of Foamex International. Foamex
L.P.'s  operations are conducted  together with its  wholly-owned  subsidiaries,
General Felt Industries,  Inc.  ("General Felt"),  Foamex Fibers,  Inc. ("Foamex
Fibers"),  Foamex Canada Inc. ("Foamex Canada"),  and Foamex Latin America, Inc.
("Foamex Mexico").

       In  1995,   Foamex  L.P.   announced  an  operational   plan  to  improve
profitability.  The  operational  plan  consisted  of  (i)  reducing  layers  of
management through  organizational  realignment,  (ii) the consolidation of foam
production,  fabrication  or branch  locations,  (iii)  implementing  additional
procedures  to  reduce  manufacturing  costs,   including  process  redesign  to
eliminate  non-value  added  operations,  (iv)  reducing  selling,  general  and
administrative  expenses  through cost  containment  and (v) reducing  inventory
levels through improved forecasting and the effect of plant  consolidations.  In
December 1995,  Foamex L.P.  recorded  restructuring  and other charges of $39.2
million  relating  to  (i)  the   consolidation  of  thirteen  foam  production,
fabrication or branch  locations  (the "1995  restructuring  plan"),  (ii) other
charges,  primarily relating to merger and acquisition activities of Foamex L.P.
and (iii) the completion of a 1993 restructuring  plan. During 1996, Foamex L.P.
completed the  consolidation  of twelve foam  production,  fabrication or branch
locations; however, one of the facilities originally identified for closure will
continue to operate because of improved  economics and the lack of synergy to be
achieved from relocating the manufacturing process. In addition, Foamex L.P. has
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
associated  with  the  1995  restructuring  plan,  offset  by  $6.6  million  of
restructuring charges relating to the closure of two facilities during 1997 (the
"1996 restructuring  plan").  There can be no assurance that Foamex L.P. will be
able to successfully complete its restructuring plans.

       During  1996,  Foamex  L.P.   completed  the  sale  of  its  Perfect  Fit
Industries,  Inc.  ("Perfect Fit") subsidiary.  Perfect Fit operated in the home
comfort  products  business  segment and was acquired in November 1993 for $69.1
million which  included  364,820 shares of Foamex  International's  common stock
valued at $5.5 million.  The  consolidated  financial  statements of Foamex L.P.
have  been  restated  for  discontinued  operations  and  include  a net loss of
approximately  $41.8  million (net of a $1.2 million  income tax benefit) on the
disposal of Perfect Fit which includes  provisions  for operating  losses during
the phase-out  period.  As of February 26, 1997,  Foamex L.P. has utilized $39.7
million of the net  proceeds  from the sale of Perfect  Fit to reduce  long-term
debt by $38.6 million.

       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 have been restated to reflect
the results of operations and financial position of Foamex Mexico.

       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


                                        3
<PAGE>

are  identified  as  forward-looking,  Foamex L.P.  notes that there are various
factors  that could cause  actual  results to differ  materially  from those set
forth  in any  such  forward-looking  statements,  such  as raw  material  price
increases,  general  economic  conditions,  the level of automotive  production,
carpet cushion  production and housing starts,  the implementation and estimated
annualized  savings  of  the  operational  plan  and  changes  in  environmental
legislation  and  environmental  conditions.  The  forward-  looking  statements
contained in this Annual Report on Form 10-K were prepared by management and are
qualified  by, and  subject to,  significant  business,  economic,  competitive,
regulatory and other uncertainties and contingencies, all of which are difficult
or impossible to predict and many of which are beyond the control of Foamex L.P.
Accordingly,  there  can be no  assurance  that the  forward-looking  statements
contained  in this  Annual  Report on Form 10-K will be  realized or that actual
results  will  not  be  significantly   higher  or  lower.  The  forward-looking
statements  have not been audited by,  examined by,  compiled by or subjected to
agreed-upon  procedures  by  independent  accountants,  and no  third-party  has
independently  verified  or  reviewed  such  statements.  Readers of this Annual
Report on Form 10-K should  consider these facts in evaluating  the  information
contained  herein.  In addition,  the business and operations of Foamex L.P. are
subject to  substantial  risks which  increase the  uncertainty  inherent in the
forward-looking  statements  contained in this Annual  Report on Form 10-K.  The
inclusion of the forward-looking  statements  contained in this Annual Report on
Form 10-K should not be regarded as a representation by Foamex L.P. or any other
person that the  forward-looking  statements  contained in this Annual Report on
Form 10-K will be achieved.  In light of the  foregoing,  readers of this Annual
Report  on  Form  10-K  are  cautioned  not  to  place  undue  reliance  on  the
forward-looking statements contained herein.

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

       References  in this Annual Report on Form 10-K to Foamex L.P. mean Foamex
L.P. and, where relevant,  its  subsidiaries.  The diagram on the following page
depicts the  relationships  between Foamex L.P. and certain of its affiliates as
of December 29, 1996.


                                        4
<PAGE>

                                 DIAGRAM OMITTED



A description of the diagram is as follows:

Trace  International  Holdings  Inc. and  subsidiaries  has a 44.7%  interest in
Foamex International Inc. and a 1% non- managing general partnership interest in
Foamex L.P.

Foamex  International Inc. has a 99% limited partnership  interest in Foamex-JPS
Automotive  L.P. and a 100% corporate  interest in FJGP Inc. and FMXI, Inc. FJGP
Inc. has a 1% managing  general  partnership  interest in Foamex-JPS  Automotive
L.P. and FMXI,  Inc. has a 1% managing  general  partnership  interest in Foamex
L.P.

Foamex-JPS Automotive L.P. has a 98% limited partnership interest in Foamex L.P.
and a 100% corporate interest in Foamex-JPS Capital Corporation.

Foamex L.P.  has a 100%  corporate  interest in General Felt  Industries,  Inc.,
Foamex Canada Inc., Foamex Capital Corporation and Foamex Latin America, Inc.

General Felt  Industries,  Inc. has a 100%  corporate  interest in Foamex Fibers
Inc.

Foamex Latin America, Inc. has a 100% corporate interest in Grupo Foamex Mexico,
S.A.  de C.V.,  Foamex De Mexico  S.A.  de C.V and  Transformacion  De Espumas Y
Fieltros, S.A. de C.V.



                                        5

<PAGE>
Flexible Polyurethane Foam Products

       Foamex  L.P.  is a  manufacturer  and  distributor  of  quality  flexible
polyurethane  foam and foam products to satisfy the specific needs of customers.
Foamex L.P.'s foam manufacturing and distribution facilities enable it to source
production  efficiently  and meet the needs of its  customers  throughout  North
America.  Such  facilities  are also  important for  satisfying  all of the foam
requirements of large national  customers in a timely and cost effective manner.
Foamex  L.P.'s   operations  are  conducted   together  with  its   wholly-owned
subsidiaries General Felt, Foamex Fibers, Foamex Canada, and Foamex Mexico.

       Foamex L.P. operates in the foam products business segment with net sales
being derived from four major product  categories:  carpet  cushion,  cushioning
foams,  automotive  foams  and  technical  foams.  Management's  Discussion  and
Analysis of Financial  Condition and Results of Operations provides net sales by
product category for the past three fiscal years.

       Foamex L.P.  supplies  cushioning  foams to major  bedding and  furniture
manufacturers such as Sealy,  Simmons,  and Ethan Allen. Foamex L.P.'s packaging
foams are supplied to  distributors  and  manufacturers  of computers  and other
electronic  devices,  including  Seagate  Technology  and  CompUSA.  Foamex L.P.
distributes  its automotive  foam products to original  equipment  manufacturers
("OEMs")  and  major  tier  one  suppliers  such  as Lear  Corporation,  Johnson
Controls,  Inc., and Delphi Interiors and Lighting.  Many of these relationships
allow  Foamex  L.P.  to work with  customers  during  the  design  phase for new
products and new  applications  for existing  products,  thereby  increasing the
likelihood that Foamex L.P. will be a principal supplier for these products.

       The  introduction  of new  products  and new  applications  for  existing
products is an integral component of Foamex L.P.'s growth strategy. During 1996,
Foamex L.P. introduced Reflex(TM) and Nexol(TM) for the cushioning and packaging
industries,  respectively.  These products were created using patented  variable
pressure foaming technology  ("VPF(TM)").  Reflex(TM)  materials,  which include
cushion  wraps and cushion  cores,  are  advanced  polymer  cushioning  products
designed to improve  comfort,  quality and durability in upholstered  furniture.
Nexol(TM)  expands Foamex L.P.'s  capabilities in meeting the special  packaging
requirements  of sensitive and fragile  products such as electronic  components.
Also,  during the past few years,  Foamex L.P.  developed  new  automotive  foam
applications,  including  thermoformable  foam  headliners and energy  absorbing
foams, and introduced  ComfortWear(TM),  a branded, high resilience prime carpet
cushion. In addition,  Foamex L.P. has developed,  and is the exclusive producer
of, a  reticulated  foam for the  precise  metering  of ink for  Hewlett-Packard
inkjet printers and the attendant replacement ink cartridges.

       Carpet Cushion

       Foamex L.P.  is one of the  largest  manufacturers  and  distributors  of
prime,  bonded,  sponge rubber and felt carpet cushion in North America.  Foamex
L.P. also  manufactures  synthetic  "grass" turf,  primarily for the residential
market. Synthetic turf is tufted from polypropylene yarn in a variety of colors,
textures and  qualities.  In  addition,  Foamex L.P.  manufactures  a variety of
textured   carpeting  and  wall   coverings   primarily   using   solution  dyed
polypropylene staple fiber. Such needlepunch carpets have generally been used as
indoor/outdoor floor covering but, through the development of patterned products
and stylized color lines,  have found increasing  acceptance in both residential
and commercial applications.

       Foamex L.P.  developed  ComfortWear(TM),  a quality prime carpet cushion,
which was introduced in February 1994 in conjunction with  significant  consumer
and  trade  promotions.  ComfortWear(TM)  currently  is sold in  retail  outlets
throughout the United States. ComfortWear(TM) is marketed through floor covering
retailers  in the  United  States  such as Sears,  New York  Carpet  World,  and
Carpetland USA.

                                        6
<PAGE>

       Cushioning Foams

       Foamex L.P. is one of the largest  manufacturers  of cushioning  foams in
North America. These foams are used by the bedding industry in quilts,  toppers,
cores and border rolls for mattresses and by the furniture  industry for seating
products.  Cushioning  foams are  generally  sold in large volumes on a regional
basis because of high shipping costs. Due to its size and the strategic location
of its production  facilities,  Foamex L.P. believes it will continue to have an
advantage over small  regional  producers in supplying  large national  accounts
with all of their foam requirements.

       The development and introduction of value added products  continues to be
a  priority  of Foamex  L.P.  and has  included  (i)  Reflex(TM)  and  Nexol(TM)
discussed below,  (ii)  viscoelastic or "memory" foams for the bedding industry,
which maintain their resiliency  better than other foams and materials and (iii)
Latex Plus, a  urethane-based  replacement for latex, a material used in bedding
products.   Foamex  L.P.'s  most  recent  product  introductions  have  included
Reflex(TM)  and  Nexol(TM)  for  the   cushioning   and  packaging   industries,
respectively,  which  were  created  using the  VPF(TM)  manufacturing  process.
Reflex(TM)  materials,  which  include  cushion  wraps and  cushion  cores,  are
advanced polymer  cushioning  products designed to improve comfort,  quality and
durability  in   upholstered   furniture.   Nexol(TM)   expands   Foamex  L.P.'s
capabilities  in meeting the special  packaging  requirements  of sensitive  and
fragile products such as electronic components.

       Foamex L.P.'s  cushioning foams for bedding products are sold to mattress
customers,  such as Sealy Mattress Co., Simmons,  Serta, and Spring Air Company,
both directly and through independent  fabrication  operators located across the
United States. Also, Foamex L.P. supplies  cut-to-size seat cushions,  backs and
other pieces to the  furniture  industry,  including to  Berkline,  Action,  and
Schnadig.

       Automotive Foams

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

       The domestic  automotive  manufacturers  have narrowed  their supply base
during recent years,  increasing  the percentage and dollar amount of components
that they  purchase from outside  suppliers.  As a result,  a smaller  number of
companies are supplying an increasing  percentage of these manufacturers' needs.
Foamex L.P.  believes it has benefited from this trend,  which favors  suppliers
with quality  facilities  and products,  cost  efficient  plants,  long-standing
relationships,  strong  design,  technical and product  development  support and
broad product lines.  Management  believes this outsourcing trend will continue,
particularly  for components such as foam, trim and accessories that represent a
small portion of the overall cost of a vehicle.

       During 1996, Foamex L.P. entered into a strategic alliance with Recticel,
s.a.  ("Recticel") to design,  manufacture and market polyurethane  products for
the automotive industry in order to meet the worldwide  requirements of the OEMs
and the major tier one suppliers  such as Lear  Corporation,  Johnson  Controls,
Inc., and Delphi  Interiors and Lighting.  Under this  alliance,  both companies
will jointly supply the automotive suppliers with products manufactured in North
America by Foamex L.P. and in Europe by Recticel.

       Foamex L.P.  believes  that the  automotive  manufacturers'  just-in-time
inventory requirements will provide Foamex L.P. with a competitive advantage due
to the  quality of Foamex  L.P.'s  foam  products,  its  flexible  manufacturing
capacity and its  strategically  located  manufacturing  facilities  that enable
Foamex L.P. to minimize shipping time and costs. In addition, management expects
foam  usage  per  vehicle  to  increase  because  manufacturers  have  generally
increased their investment in upgrading  automobile and light truck interiors to
improve comfort, attractiveness, safety and noise absorption capabilities.

                                        7

<PAGE>

       Foamex  L.P.'s  new  product   development  and  flexible   manufacturing
capabilities   allow  it  to  produce  quality   products  to  satisfy  changing
specifications.  Examples of Foamex L.P.'s ability to react to changing industry
requirements  include  thermoformable   headliners,   tri-laminates  and  energy
absorbing  foams.  For  example,  Foamex L.P. is one of the first  suppliers  to
introduce  a  thermoformable   headliner,   Custom  Fit(TM),   made  from  rigid
polyurethane  foam.  The use of foam  headliners is expected to continue to grow
due to concerns for automotive workers' safety caused by fiberglass  processing.
Foamex L.P.  intends to continue  manufacturing  and  supplying  foam and fabric
components,  such as tri-laminated  material for automotive seating.  The use of
tri-laminates has become increasingly  prevalent due to significant cost savings
for manufacturers and improved  aesthetics for consumers.  Automotive  suppliers
are  increasingly  offering  integrated  systems  which lower  overall  cost and
improve  quality  relative to previous  sourcing  methods in which  individually
sourced components were assembled and installed by the OEMs.

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

       Technical Foams

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

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

       Foamex L.P.  utilizes  advertising in trade journals and related media in
order to attract  customers and, more  generally,  to create an awareness of its
capabilities  for technical  foams. In addition,  due to the highly  specialized
nature  of most  technical  foams,  Foamex  L.P.'s  research  staff  works  with
customers to design, develop and manufacture each product to specification.

       Marketing and Sales

       Foamex  L.P.  has a  marketing  and  sales  force  of  approximately  194
employees.  Product  business  managers direct sales efforts towards each of the
end-user markets (i.e., carpet cushion,  cushioning foams,  automotive foams and
technical foams).

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

                                        8
<PAGE>

       Bedding  and  furniture  products  are sold  directly  by Foamex  L.P. to
customers  and  also  through  third  party  independent  fabricators.  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.

       Foamex L.P. has been a leading  supplier of  automotive  foam products to
the  automotive  industry for more than 30 years.  Automotive  foam products are
predominantly  sold directly  through a bidding process in which each customer's
requirements for a particular time period are awarded to a foam supplier. Foamex
L.P.  has  consistently  been  awarded  contracts  with OEM's and major tier one
suppliers such as Lear Corporation, Johnson Controls, Inc.
and Delphi Interiors and Lighting.

       Foamex L.P.  markets  most of its  technical  foams  through a network of
independent  fabrication and distribution companies in North America, the United
Kingdom, and South Korea. Such fabricators or distributors often further process
or finish these  products to meet the  specific  needs of the  end-user.  Foamex
L.P.'s  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.

       Customers

       During the past three fiscal  years,  no one customer  accounted for more
than  10.0% of Foamex  L.P.'s  net  sales.  However,  1996 net sales to the five
largest customers  comprised $225.4 million or 24.3% of Foamex L.P.'s net sales,
including  net sales to Lear  Corporation,  Johnson  Controls,  Inc.,  and Sealy
Mattress Co. of approximately $62.0 million,  $57.7 million and $42.1 million or
approximately 6.7%, 6.2% and 4.5% of net sales, respectively.

       Manufacturing and Raw Materials

       Foamex L.P. produces bulk and fabricated flexible polyurethane foam at 46
locations in North America with a total of approximately 6.8 million square feet
of floor space. Management believes that Foamex L.P.'s manufacturing  facilities
are well  suited for their  intended  purposes  and are in good  condition  (see
"Properties"). The manufacturing facilities are strategically located to service
their major  customers  since high  freight  cost in relation to the cost of the
foam product generally results in distribution  being most cost effective within
200 to 300 miles from each facility.

       In  1996,  raw  materials   accounted  for   approximately   74%  of  the
manufacturing  costs of Foamex L.P. The two principal  chemicals in polyurethane
foam, toulene diisocyanate  ("TDI") and polyol,  accounted for approximately 52%
of raw material cost. Foamex L.P.'s largest supplier of raw materials is The Dow
Chemical Company.  Foamex L.P. generally has alternative  chemical suppliers for
each major raw material and Foamex L.P.  believes that it could find alternative
sources  of supply  should  it cease  doing  business  with any one of its major
suppliers.  The price of TDI and polyol is influenced  by demand,  manufacturing
capacity and oil and natural gas prices.

       Foamex  L.P.'s   principal   suppliers  of  raw  materials  used  in  the
manufacturing  of the foam  increased the price of raw  materials  several times
during 1995 and 1994. In response,  Foamex L.P. increased selling prices,  where
possible,  for cushioning,  automotive and technical foam products  depending on
the  product.  The 1995 results of  operations  were  adversely  affected by the
delays in, or the inability  to,  implement  selling  price  increases to offset
these  raw  material  cost  increases.   Foamex  L.P.  did  not  experience  any
significant price increases during 1996; however, there can be no assurance that
chemical  suppliers  will not increase raw material  costs in the future or that
Foamex L.P. will be able to implement selling price increases to offset any such
raw material cost increases.

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

                                        9
<PAGE>

       Employees

       As of December 29, 1996, Foamex L.P.  employed 4,453 persons,  with 3,972
of such  employees  involved in  manufacturing,  287 in  administration  and 194
involved  in sales  and  marketing.  Approximately  728 of these  employees  are
located outside the United States. Also,  approximately 1,338 of these employees
are  covered  by  collective  bargaining  agreements  with labor  unions,  which
agreements expire on various dates from 1997 through 2001. Foamex L.P. considers
relations with its employees to be good.

       Competition

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

       International and Domestic Operations and Export Sales

       Foamex L.P. has  manufacturing  operations in the United States,  Canada,
and Mexico.  Net sales to  customers in foreign  markets in 1996,  1995 and 1994
were $76.0  million  (8.2% of net sales),  $73.3 million (8.5% of net sales) and
$66.6 million (8.0% of net sales), respectively.

       Patents and Trademarks

       Foamex L.P. owns various patents and trademarks  registered  domestically
and in numerous foreign  countries.  The registered  processes and products were
developed  through  on-going  research  and  development  activities  to improve
quality,  reduce  costs  and  expand  markets  through  the  development  of new
applications for flexible  polyurethane foam products.  Foamex L.P. uses several
trademarks and tradenames for product identification,  the majority of which are
used in the carpet  cushion  and  technical  foams  product  lines.  Foamex L.P.
believes its business is not dependent upon any individual patent,  trademark or
tradename.

       Research and Development

       Foamex L.P. believes it has a leading research and development capability
in the flexible polyurethane foam industry.  This capability gives Foamex L.P. a
significant  advantage  in the  on-going  development  of new  products  and new
applications  for existing  products.  Foamex L.P. has research and  development
facilities  located in Hayward,  California;  Dalton,  Georgia;  and  Eddystone,
Pennsylvania  employing  approximately 28 full-time employees.  Expenditures for
research and development amounted to $2.5 million, $3.2 million and $2.7 million
for 1996, 1995 and 1994, respectively.

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


                                       10

<PAGE>

ITEM 2.  PROPERTIES

       As of December 29, 1996, Foamex L.P.  conducted its operations through 59
manufacturing  and  distribution  facilities,  of which 18 are  owned and 41 are
leased.  Total floor space in use at the owned  manufacturing  and  distribution
facilities is approximately 3.7 million square feet and total floor space in use
at the leased  manufacturing  and distribution  facilities is approximately  3.5
million square feet.  Fifty-one of these  facilities are located in 36 cities in
the United States, five facilities are located in two cities in Canada and three
facilities  are located in three  cities in Mexico.  The 1997 annual base rental
with respect to such leased  facilities  is  approximately  $7.4  million  under
leases  expiring from 1997 to 2005.  Foamex L.P. does not anticipate any problem
in  renewing or  replacing  any of such leases  expiring in 1997.  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; Hayward, California; Chicago, Illinois; and New York, New York.

ITEM 3.  LEGAL PROCEEDINGS

       Environmental Matters

       Foamex L.P. is subject to extensive and changing  federal,  state,  local
and foreign environmental laws and regulations,  including those relating to the
use, handling,  storage,  discharge and disposal of hazardous substances and the
remediation of  environmental  contamination,  and as a result,  is from time to
time involved in administrative and judicial  proceedings and inquiries relating
to environmental  matters.  During 1996,  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 its operations,  financial
position, capital expenditures or competitive position. As of December 29, 1996,
Foamex  L.P.  has  environmental  accruals  of  approximately  $4.1  million for
environmental  matters.  In addition,  as of December 29, 1996,  Foamex L.P. has
receivables  of  approximately  $0.9  million  relating to  indemnification  for
environmental  liabilities,  net of an allowance of  approximately  $1.0 million
relating to potential  disagreements regarding the scope of the indemnification.
Foamex L.P.  believes that  realization of the net  receivables  established for
indemnification is probable.

       The Clean Air Act Amendments of 1990 (the "1990 CAA Amendments")  provide
for the establishment of federal emission standards for hazardous air pollutants
including  methylene  chloride  and TDI,  principal  raw  materials  used in the
manufacturing   of  foam.   Foamex  L.P.   completely   eliminated  the  use  of
chlorofluorocarbons  and  methylchloroform  by the end of  1995.  The  1990  CAA
Amendments  also  may  result  in the  imposition  of more  stringent  standards
regulating air emissions from the use of these  chemicals by  polyurethane  foam
manufacturers, but these standards have not yet been promulgated.

       Foamex L.P. has reported to  appropriate  state  authorities  that it has
found soil  contamination in excess of state standards at facilities in Orlando,
Florida; La Porte, Indiana; Conover, North Carolina;  Cornelius, North Carolina;
Fort Wayne,  Indiana;  Philadelphia,  Pennsylvania;  and at a former facility in
Dallas, Texas and groundwater  contamination in excess of state standards at the
Orlando, Conover,  Philadelphia, and Cornelius facilities. Foamex L.P. has begun
remediation  and is  conducting  further  investigations  into the extent of the
contamination  at  these  facilities  and,   accordingly,   the  extent  of  the
remediation  that may ultimately be required.  The actual cost and the timetable
of any such remediation cannot be predicted with any degree of certainty at this
time.  Foamex L.P.,  based on engineering  estimates of the remaining  potential
remediation  costs for these  facilities,  has  accruals of $3.2 million for the
estimated  cost of completing  remediation  and  established a net receivable of
$0.9 million on the basis of indemnifications  by Trace International  Holdings,
Inc. ("Trace  Holdings") and Recticel Foam Corporation  ("RFC")  associated with
the partnership  formation of Foamex L.P. Foamex L.P. has completed  remediation
of soil  contamination at a former Trenton,  New Jersey  manufacturing  facility
closed in October  1993 and is awaiting  final  closure  approvals  from the New
Jersey Department of Environmental  Protection regarding the remediation of soil
contamination  and monitoring of  groundwater  at the former  Trenton  facility.

                                       11

<PAGE>

Also, Foamex L.P. has completed remediation at its Mesquite,  Texas facility and
is awaiting a  certificate  of  completion  under the Texas  Voluntary  Clean Up
program.

         Federal  regulations  require  that by the end of 1998 all  underground
storage tanks  ("USTs") be removed or upgraded in all states to meet  applicable
standards.  Foamex  L.P.  has six USTs that will  require  removal or  permanent
in-place closure by the end of 1998. Due to the age of these tanks,  leakage may
have occurred resulting in soil and possibly groundwater  contamination.  Foamex
L.P. has accrued $0.4 million for the estimated  removal and remediation  costs,
if any, associated with these USTs.  However,  the full extent of contamination,
and accordingly,  the actual cost of such  remediation  cannot be predicted with
any degree of certainty at this time.  Foamex L.P. believes that its USTs do not
pose a significant  risk of  environmental  liability  because of its monitoring
practices for USTs and conditional  approval for the permanent  in-place closure
for certain  USTs.  However,  there can be no assurance  that such USTs will not
result in significant environmental liability in the future.

       Foamex  L.P.  has been  designated  as a  Potentially  Responsible  Party
("PRP") by the United States  Environmental  Protection  Agency (the "EPA") with
respect to thirteen sites with an estimated  total  liability to Foamex L.P. for
the thirteen sites of less than approximately  $0.5 million.  Estimates of total
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 participation of Foamex L.P. is considered to be immaterial.

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

       Legal Proceedings

       As of March 21, 1997, Foamex L.P. and Trace Holdings were two of multiple
defendants  in actions  filed on behalf of  approximately  5,000  recipients  of
breast  implants  in various  United  States  federal  and state  courts and one
Canadian provincial court, some of which allege substantial damages, but most of
which allege unspecified damages for personal injuries of various types. Five of
these cases seek to allege claims on behalf of all breast implant  recipients or
other allegedly affected parties, but no class has been approved or certified by
the court. In addition, three cases have been filed alleging claims on behalf of
approximately  700 residents of Australia,  New Zealand,  England,  and Ireland.
During 1995, Foamex L.P. and Trace Holdings were granted summary  judgements and
dismissed  as  defendants  from all cases in the  federal  courts of the  United
States and the state  courts of  California.  Appeals for these  decisions  were
withdrawn and the decisions  are final.  In addition,  two of the cases filed on
behalf of the 903 foreign  plaintiffs  were  dismissed  on the grounds  that the
cases could not be brought in the United States courts. This decision is subject
to appeal.  Foamex  L.P.  believes  that the number of suits and  claimants  may
increase.  Although  breast implants do not contain foam,  certain  silicone gel
implants  were  produced  using  a  polyurethane  foam  covering  fabricated  by
independent  distributors  or  fabricators  from bulk foam purchased from Foamex
L.P. or Trace  Holdings.  Neither  Foamex L.P. nor Trace  Holdings  recommended,
authorized,  or approved the use of its foam for these purposes. While it is not
feasible  to  predict  or  determine  the  outcome  of these  actions,  based on
management's   present  assessment  of  the  merits  of  pending  claims,  after
consultation with the general counsel of Trace Holdings, and without taking into
account  potential  indemnity from the  manufacturers  of  polyurethane  covered
breast  implants,  management  believes that the disposition of matters that are
pending or that may reasonably be  anticipated to be asserted  should not have a
material adverse effect on either Foamex L.P.'s or Trace Holdings'  consolidated
financial  position or results of operations.  In addition,  Foamex L.P. is also
indemnified  by  Trace  Holdings  for  any  such  liabilities  relating  to foam
manufactured  prior to October  1990.  Although  Trace  Holdings has paid Foamex

                                       12

<PAGE>
L.P.'s  litigation  expenses  to  date  pursuant  to  such  indemnification  and
management  believes Trace Holdings  likely will be in a position to continue to
pay such expenses,  there can be no absolute  assurance that Trace Holdings will
be able to provide such indemnification.  Based on information available at this
time with respect to the potential  liability,  and without  taking into account
the  indemnification  provided by Trace  Holdings and the  coverage  provided by
Trace Holdings' and Foamex L.P.'s liability insurance, Foamex L.P. believes that
the proceedings  should not ultimately result in any liability that would have a
material  adverse  effect on the financial  position or results of operations of
Foamex L.P. If management's  assessment of Foamex L.P.'s  liability with respect
to these actions is incorrect, such actions could have a material adverse effect
on Foamex L.P.

     During 1996, the Richard Lee Cobble et al. v. Steve Canslers et al. lawsuit
                      --------------------------------------------------
was settled without liability to 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.

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)     There are three holders of Foamex L.P.'s equity securities.

       c)     During 1996 and 1995,  Foamex L.P. made net cash  distributions in
              accordance  with tax  sharing  agreements  of  approximately  $3.5
              million and $2.4  million,  respectively,  and has $6.4 million of
              accrued distributions in accordance with tax sharing agreements at
              December 29, 1996 as follows:

                                         Distributions
                                        1996         1995
                                           (thousands)
       FMXI, Inc.                     $   (35)     $    12
       Trace Foam Company, Inc.            45           --
       Foamex-JPS Automotive L.P.       3,477        2,367
                                      -------      -------

                                      $ 3,487      $ 2,379
                                      =======      =======

       See "Certain  Relationships and Related Transactions - Distributions" for
further information concerning these distributions.

ITEM 6.  SELECTED CONSOLIDATED FINANCIAL DATA

       The following table presents selected historical  consolidated  financial
data of Foamex L.P.  and  subsidiaries  after being  restated  for  discontinued
operations for all periods  presented (see Note 3 to the consolidated  financial
statements).  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.

                                       13

<PAGE>

<TABLE>
<CAPTION>
                                                                           Fiscal Year(1)(2)
                                                   1996(3)       1995(4)          1994         1993(5)        1992
                                                                               (thousands)
<S>                                               <C>           <C>            <C>           <C>           <C>      
Statements of Operations Data:
     Net sales                                    $ 926,351     $ 862,834      $ 833,660     $ 684,310     $ 501,751
     Income (loss) from continuing operations        53,661       (48,126)        38,011        (7,926)       22,011
     Net income (loss)                                9,699       (53,243)        39,241       (17,653)       22,011

Balance Sheet Data (at period end):
     Total assets                                 $ 586,517       605,892        654,176       575,528       340,900
     Long-term debt                                 392,617       433,956        441,757       414,757       285,762
     Partners' equity (deficit)                      12,832       (12,604)        52,548        49,386       (39,061)
<FN>
--------------------------------------------------------------------------------

(1)    Foamex L.P. has a 52-53 week fiscal year ending on the Sunday  closest to
       the end of the calendar  year.  Each fiscal year  presented  was 52 weeks
       with the exception of 1992 which was 53 weeks.

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

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

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

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

                                       14
<PAGE>

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

       Foamex L.P. operates in the flexible  polyurethane foam and foam products
industry, together with its wholly- owned subsidiaries, General Felt Industries,
Inc. ("General Felt"), Foamex Fibers, Inc. ("Foamex Fibers"), Foamex Canada Inc.
("Foamex  Canada"),  and Foamex  Latin  America,  Inc.  ("Foamex  Mexico").  The
following  discussion  should  be  read in  conjunction  with  the  consolidated
financial  statements and related notes thereto of Foamex L.P.  included in this
report.

       On April 7, 1997, Foamex International announced that it has initiated an
evaluation of its current capital  structure,  which includes the long-term debt
of Foamex L.P.,  with the intention of reducing  interest  expense and improving
financing flexibility.  There can be no assurance however, that the Company will
be  able  to  successfully   reduce  interest   expense  or  improve   financing
flexibility.  Also, the affect of any change in the current capital structure on
the  consolidated  financial  statements of Foamex L.P. can not be determined at
this time.

       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.  have been restated for
discontinued  operations and includes a net loss of $41.8 million (net of a $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 3
to the consolidated  financial statements for further discussion).  In addition,
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  have been  restated  to reflect the
results of operations and financial position of Foamex Mexico.

       Foamex  L.P.'s  results  of  operations  have been  affected  by  various
factors,  including the implementation of an operational plan in 1995 to improve
profitability  and  unrecovered  raw material cost  increases  during 1995.  The
operational  plan  consisted  of  (i)  reducing  layers  of  management  through
organizational   realignment,   (ii)  the   consolidation  of  foam  production,
fabrication or branch locations,  (iii)  implementing  additional  procedures to
reduce  manufacturing  costs,  including process redesign to eliminate non-value
added operations,  (iv) reducing selling,  general and  administrative  expenses
through cost  containment  and (v) reducing  inventory  levels through  improved
forecasting  and the effect of plant  consolidations.  In December 1995,  Foamex
L.P.  recorded  restructuring and other charges of $39.2 million relating to (i)
the  consolidation of thirteen foam production,  fabrication or branch locations
(the "1995  restructuring  plan"),  (ii) other  charges,  primarily  relating to
merger and  acquisition  activities of Foamex L.P. and (iii) the completion of a
1993 restructuring plan. During 1996, Foamex L.P. completed the consolidation of
twelve foam production,  fabrication or branch  locations;  however,  one of the
facilities originally identified for closure in the 1995 restructuring plan will
continue to operate because of improved  economics and the lack of synergy to be
achieved from relocating the manufacturing process. In addition, Foamex L.P. has
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
associated  with  the  1995  restructuring  plan,  offset  by  $6.6  million  of
restructuring charges relating to the closure of two facilities during 1997 (the
"1996 restructuring  plan").  There can be no assurance that Foamex L.P. will be
able to successfully complete its restructuring plans.

       Foamex L.P.'s  automotive  foam  customers are  predominantly  automotive
original  equipment  manufacturers or other automotive  suppliers.  As such, the
sales of these  product  lines are  directly  related  to the  overall  level of
passenger car and light truck production in North America.  Also,  Foamex L.P.'s
sales are  sensitive  to sales of new and  existing  homes,  changes in personal
disposable  income  and  seasonality.  Foamex  L.P.  typically  experiences  two
seasonally  slow periods  during each year, in early July and in late  December,
due to scheduled plant shutdowns and holidays.

                                       15

<PAGE>

RESULTS OF OPERATIONS

1996 Compared to 1995

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

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

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

       Income from continuing  operations  before provision for income taxes was
$61.4 million for 1996 as compared to a loss from continuing  operations  before
provision for income taxes of $46.7  million in 1995.  The increase is primarily
due to the reasons  cited above and a decrease  in  interest  and debt  issuance
expense of $1.3 million.  The decrease in interest and debt issuance  expense is
primarily  due to a $2.3  million  increased  benefit  from  interest  rate swap
agreements offset by the amount of interest allocated to discontinued operations
in  1996  as  compared  to  1995  (See  Note  3 to  the  consolidated  financial
statements for further discussion).  

       Foamex  L.P.,  as a limited  liability  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
10 to the consolidated financial statements for further discussion.

                                       16

<PAGE>
       The loss  from  discontinued  operations  of $42.1  million  (net of $2.6
million  income tax  benefit) in 1996 relates to the net loss on the sale of the
home comfort  products  business  segment which  consisted  primarily of the net
assets of Perfect Fit and the operating  loss of Perfect Fit through the closing
date.  See  Note  3  to  the  consolidated   financial  statements  for  further
discussion.

       The  extraordinary  loss on early  extinguishment of debt of $1.9 million
primarily  relates  to the  write-off  of debt  issuance  costs  and  redemption
premiums associated with the early  extinguishment of $30.6 million of long-term
debt.  See  Note  11  to  the  consolidated  financial  statements  for  further
discussion.

       Operating  results  in 1997 are  expected  to be  influenced  by  various
internal and external factors.  These factors include,  among other things,  (i)
continued  implementation  of the  operational  plan to  improve  Foamex  L.P.'s
profitability,  (ii) the completion of Foamex International's  evaluation of the
capital structure of Foamex L.P., (iii) raw material price increases, if any, by
Foamex L.P.'s chemical suppliers and (iv) Foamex L.P.'s success in passing on to
its  customers  selling  price  increases  to  recover  such raw  material  cost
increases,  if any. Also, effective in January 1997, Foamex L.P.'s operations in
Mexico became subject to highly inflationary  accounting for financial reporting
purposes.  Translation  adjustments  resulting from fluctuations in the exchange
rate  between  the Mexican  Peso and the U.S.  dollar will be included in Foamex
L.P.'s  consolidated  statement of  operations  as compared to partners'  equity
(deficit).  Large  fluctuations  in the Mexican Peso exchange rate could have an
adverse impact on Foamex L.P.'s results of operations.

1995 Compared to 1994

          Net sales for 1995 were $862.8  million as compared to $833.7  million
in 1994, an increase of $29.1 million or 3.5%. Carpet cushion net sales for 1995
decreased  7.4% to $271.0  million from $292.5  million in 1994 primarily due to
reduced net sales volume of certain carpet cushion products  resulting from weak
carpet sales and a change in product mix to carpet  cushion  with lower  selling
prices.  In addition,  carpet cushion selling prices were under pressure from an
excess supply of low priced scrap foam,  the primary  component of rebond carpet
cushion.  Cushioning  foam net sales for 1995  increased  7.2% to $310.0 million
from $289.2  million in 1994  primarily due to the April 1995  acquisition  of a
company which  manufactures  cushioning  products and increased  selling  prices
offset by a reduction in net sales volume due to competitive  pricing  pressures
and reduced demand for certain  cushioning  foam products.  Automotive  foam net
sales for 1995  increased  11.0% to $219.8  million from $198.0  million in 1994
primarily  due to increased  net sales  volume of  tri-laminates  and  composite
headliner products offset by a reduction in net sales volume of other automotive
foam  products.  Technical  foam net  sales  for 1995  increased  14.8% to $62.0
million from $54.0 million in 1994 primarily due to increased selling prices and
increased net sales volume.

          Gross profit as a percentage of net sales  decreased to 11.7% for 1995
from 17.1% for 1994.  This  unfavorable  relationship  was  primarily due to net
unrecovered  raw material cost increases of  approximately  $25.0 million during
1995. In addition,  the decrease in gross profit margins for 1995 as compared to
1994 was also  associated  with (i)  approximately  $7.7  million  of  increased
customer deductions for pricing disputes,  promotion programs and other matters,
(ii)   approximately  $3.5  million  of  increased  employee  benefits  accruals
associated  with  insurance  and  pension  plans  and  other   accruals,   (iii)
approximately  $1.5 million of inventory  write-offs  associated with scrap foam
inventory and discontinued or slow moving product lines, (iv) an increase in net
sales of automotive  tri- laminates,  which have a lower-margin  than other foam
products,  (v) under-utilization of manufacturing  capacities due to reduced net
sales volume of certain  product lines and (vi) carpet  cushion  selling  prices
remaining  under  pressure from an excess  supply of low priced scrap foam,  the
primary component of rebond carpet cushion.

          A loss  from  operations  of $2.0  million  was  incurred  for 1995 as
compared  to income of $85.3  million  for 1994.  The  decrease  in income  from

                                       17

<PAGE>
operations  was primarily due to (i) the reduction in gross profit  margins as a
percentage of net sales as discussed above, (ii) an increase in selling, general
and  administrative  expenses  of $6.4  million  for  1995 as  compared  to 1994
including  an  increase  of $3.7  million  in the  provision  for  uncollectible
accounts  and  (iii)  restructuring  and  other  charges  of $39.2  million  (as
discussed below).

          In  1995,  Foamex  L.P.  approved  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 charges
of $35.6  million  associated  with the  consolidation  of the foam  production,
fabrication or branch locations,  $2.2 million associated with the completion of
the  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,  $15.1
million for plant closure and operating  lease  obligations and $3.8 million for
personnel  reductions.  The $3.8 million cost for personnel reductions primarily
represents  severance and employee benefit costs associated with the elimination
of manufacturing  and  administrative  personnel (See Note 4 to the consolidated
financial statements for further discussion).

          A net loss of $53.2  million was  incurred for 1995 as compared to net
income of $39.2  million  for 1994.  The  decrease is  primarily  due to (i) the
reasons cited above and (ii) an increase in interest and debt  issuance  expense
of $3.0  million.  The  increase  in  interest  and debt  issuance  expense  was
primarily associated with (i) a decrease of $1.6 million in the benefit received
from  interest  rate swap  agreements  in 1995 as  compared  to 1994 and (ii) an
increase in term loan interest  expense due to a full year of borrowings in 1995
as compared to 1994.

          Foamex L.P., as a limited  partnership,  is not subject to federal and
certain state income  taxes.  However,  the  consolidated  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  10 to the
consolidated financial statements for further discussion.

Foamex Capital Corporation ("FCC")

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

Liquidity and Capital Resources

          Liquidity

          Foamex L.P.'s  operating  cash  requirements  consist  principally  of
working capital  requirements,  scheduled  payments of principal and interest on
outstanding  indebtedness and capital  expenditures.  Foamex L.P.  believes that
cash flow from operating activities,  cash on hand and periodic borrowings under
its revolving credit agreement, if necessary, will be adequate to meet operating
cash requirements.  The ability to meet the operating cash requirements could be
impaired  if  Foamex  L.P.  was to  fail to  comply  with  any of the  covenants
contained in the Foamex L.P. credit facility (the "Foamex L.P. Credit Facility")
and such  noncompliance  was not cured by Foamex L.P. or waived by the  lenders.
Foamex L.P.  was in  compliance  with the  covenants  in the Foamex L.P.  Credit
Facility  as of  December  29,  1996 and  expects to be in  compliance  with the
covenants for the foreseeable future.

          Cash and cash equivalents increased $20.4 million during 1996 to $21.0
million at December 29, 1996 from $0.6  million at December  31, 1995  primarily
due to a $18.4 million payment received on a note from a partner (see Note 13 to
the consolidated financial statements) and improved operating results, offset by
the  increased  use of cash and cash  equivalents  by the  operating  assets and
liabilities of Foamex L.P., capital  expenditures and scheduled debt repayments.
Cash and cash equivalents decreased $19.4 million during 1995 to $0.6 million at
December 31, 1995 from $20.0 million at January 1, 1995 primarily due to capital
expenditures, scheduled debt repayments and the acquisition of  a  manufacturing

                                       18
<PAGE>
company in April 1995.  Working  capital  increased $65.8 million during 1996 to
$137.1  million at  December  29, 1996 from $71.3  million at December  31, 1995
primarily  due to (i)  improved  operating  results,  (ii) an  increase  in cash
resulting  from the  payment  received  on a note  with a  partner  and (iii) an
increase in net  operating  assets and  liabilities  which was offset by working
capital  used for  capital  expenditures  and  scheduled  debt  repayments.  Net
operating assets and liabilities (comprised of accounts receivable,  inventories
and accounts  payable)  increased $19.9 million during 1996 to $144.0 million at
December  29, 1996 from $124.1  million at December  31, 1995  primarily  due to
increased accounts  receivable and inventories offset by an increase in accounts
payable.  The increase in accounts  receivable  and  inventories  are  primarily
associated with the improved  operating results of Foamex L.P. In addition,  raw
material  inventories  increased due to increased year end purchases  associated
with a potential  cost  increase  that did not occur.  The  increase in accounts
payable is  primarily  associated  with the year end  purchase  of raw  material
inventories.  Working  capital  decreased  $57.1 during 1995 to $71.3 million at
December 31, 1995 from $128.4  million at January 1, 1995  primarily  due to (i)
the  reduction  of cash and cash  equivalents  as  discussed  above  and (ii) an
increase in accrued restructuring  charges. Net operating assets and liabilities
(comprised of accounts  receivable,  inventories and accounts payable) decreased
$12.1  million to $124.1  million at  December  31,  1995 as  compared to $136.2
million at January 1, 1995.  The  decrease  was  primarily  due to a decrease in
inventories.  The 1996 and 1995 restructuring plans include  approximately $16.6
million of cash charges of which $10.1  million has been incurred as of December
29, 1996.

       As of December 29, 1996, there were no revolving credit  borrowings under
the Foamex L.P. Credit Facility with unused  availability of approximately $33.3
million which includes  approximately  $11.7 million  associated with letters of
credit  outstanding  which are  supported  by the Foamex L.P.  Credit  Facility.
Borrowings  by Foamex  Canada as of December  29, 1996 were $3.7  million  under
Foamex  Canada's   revolving  credit  agreement  with  unused   availability  of
approximately $0.7 million at an interest rate of 5.25%.

       Cash Flow from Operating Activities

       Cash flow from continuing operations was $36.7 million, $36.5 million and
$50.6 million in 1996,  1995 and 1994,  respectively.  Cash flow from continuing
operations  remained  consistent  for 1996 as  compared to 1995  primarily  as a
result of improved  operating  results from continuing  operations  offset by an
increased use of cash by the operating  assets and  liabilities.  Cash flow from
continuing  operations  decreased  in 1995 as  compared to 1994  primarily  as a
result of the reduction in operating results from continuing operations.

       Cash Flow from Investing Activities

       From the beginning of 1994 through 1996, Foamex L.P. spent  approximately
$63.9  million  on  capital  improvements.   The  expenditures   included:   (i)
installation  of new variable  pressure  foaming  technology  ("VPF(TM)") in the
Verona,  Mississippi and Orange,  California facilities;  (ii) initiation of the
construction  of a facility  in Mexico  City,  Mexico to  improve  manufacturing
efficiencies  and to meet the  growing  demand  for  foam  products;  and  (iii)
installation  of more efficient  foam  production  line systems and  fabricating
equipment  in a number of  manufacturing  facilities.  Foamex  L.P.  expects  to
maintain capital  expenditures at the current levels for the foreseeable  future
by focusing spending  primarily on the maintenance of existing  equipment and on
the installation of the VPF(TM) manufacturing process.

       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 (see Note 11
to the  consolidated  financial  statements)  and for  the  payment  of  certain
retained liabilities,  with the remainder held as restricted cash as of December
29, 1996 for the  repurchase  of  additional  long-term  debt during 1997. As of
February 26, 1997,  Foamex L.P. has  repurchased  approximately  $8.0 million of
long-term debt with restricted cash.

                                       19
<PAGE>
          On June 28, 1994,  Foamex L.P.  purchased an $87.9  million  principal
amount note due 2006 from its 98% limited  partner  Foamex-JPS  Automotive  L.P.
("FJPS")  for  $35.3  million  (the  "FJPS  Note").  The FJPS  Note will not pay
interest  until July 2000.  Instead,  principal  will accrete  (from the initial
purchase price of $35.3 million) on a daily basis and compound  semiannually  at
the rate of 15.50%  per annum  through  June 1996;  15.75% per annum  thereafter
through June 1997; and 16.00% per annum thereafter  through June 2000.  Interest
will be due  semiannually in cash at 16.00% per annum from July 2000 through the
maturity date. In December 1996 in exchange for certain waivers and amendment of
the FJPS Note,  FJPS repaid $18.4 million of the FJPS Note and a waiver  payment
of $0.2 million using a portion of the proceeds from the sale of its partnership
interest in JPS  Automotive  L.P.  FJPS has the right to reborrow  such  amount,
subject  to  limitations  in the Foamex  L.P.  Credit  Facility,  solely for the
purpose of funding a purchase price  adjustment  payment,  if any, in connection
with the JPS Automotive L.P. sale. The intercompany  note has been classified in
partners' equity  (deficit) and the accreted  principal of $16.3 million for the
period  from June 28, 1994 to  December  29, 1996 has been  included in the FJPS
Note.  The FJPS Note may be redeemed at the option of FJPS, in whole or in part,
at any time at the redemption  prices  (expressed as percentages of the Accreted
Value (as defined) if on or prior to July 1, 2000, and thereafter,  expressed as
percentages  of  the  principal   amount)   initially  equal  to  108%  for  the
twelve-month  period  commencing July 1, 1994 declining to 100% on or after July
1,  2005.  If FJPS  does not  repay  indebtedness  with at least  85% of the net
proceeds of any Equity  Offering (as  defined),  the rate at which the FJPS Note
accretes and the interest rate on the FJPS Note will increase.

          In April 1995, Foamex L.P. acquired certain assets and assumed certain
liabilities of manufacturers  of synthetic  fabrics for the carpet and furniture
industries  for  an  aggregate  consideration  of  approximately  $8.0  million,
including  related  fees and expenses of  approximately  $0.3  million,  with an
initial cash payment of $7.2 million.

          In March 1994, Foamex International acquired Transformacion De Espumas
Y Fieltros,  S.A. de C.V.  ("TEFSA")  for an  aggregate  purchase  price of $4.5
million,  including related fees and expenses of approximately $0.4 million,  to
be paid over a three year period with an initial cash  payment of $1.7  million.
During 1996, Foamex  International  contributed its interest in Foamex Mexico to
Foamex L.P.  Also,  during 1996 Foamex  L.P.  made a scheduled  cash  payment of
approximately $0.8 million in accordance with the purchase agreement.  The final
payment of approximately $0.8 million will be made in April 1997.

          Cash Flow from Financing Activities

          As of December 29, 1996, Foamex L.P. had repurchased long-term debt of
approximately  $30.6 million with the net proceeds from the sale of Perfect Fit.
In addition,  Foamex L.P. had repurchased  long-term debt of approximately  $8.0
million  through  February  26,  1997  with  restricted  cash.

          During 1996,  Foamex Mexico borrowed $1.5 million under two promissory
notes that bear  interest at LIBOR  (5.69% at December  29,  1996) plus 3/8% and
mature on June 30, 1997.

          Foamex L.P. made cash distributions to its partners, pursuant to a tax
sharing agreement,  of approximately $3.5 million, $2.4 million and $3.3 million
in 1996, 1995 and 1994, respectively.

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.  Foamex
L.P. has an interest rate swap agreement,  as amended, with a notional amount of
$150.0 million through December 2001. Under the swap agreement,  Foamex L.P. has

                                       20

<PAGE>
made variable  payments based on LIBOR through December 1996 and is obligated to
make fixed  payments at 5.30% per annum for the twelve  months ended in December
1997 and  variable  payments at a rate equal to LIBOR for the  remainder  of the
agreement, in exchange for fixed payments by the swap partner at 5.81% per annum
through  December  1996, and 6.50% per annum for the remainder of the agreement,
payable  semiannually in arrears.  The swap partner has the ability to terminate
the swap agreement after the December 1997 payment if the LIBOR rate Foamex L.P.
is to pay for any  period  thereafter  is equal to or less than 4.50% per annum.
Interest expense will be subject to fluctuations in LIBOR during the term of the
swap agreement except during 1997.  Foamex L.P. is exposed to credit loss in the
event of  nonperformance  by the swap partner;  however,  the occurrence of this
event is not anticipated.

          Also, Foamex L.P. has an interest rate swap agreement, as amended, for
a notional  amount of $150.0  million  through  December  2001.  Under this swap
agreement,  Foamex L.P. has made variable  payments based on LIBOR with a cap of
5.50% per annum and a floor of 4.75% per annum for the six months  ended in June
1995,  variable  payments based on LIBOR with a floor of 4.75% per annum for the
six months ended in December  1995,  fixed payments at a rate of 5.81% per annum
for the twelve  months  ended in December  1996 and is  obligated  to make fixed
payments  at a rate of 5.30% per annum for the twelve  months  ended in December
1997 and variable payments based on LIBOR for the remainder of the agreement, in
exchange  for  variable  payments by the swap  partner at the rate of LIBOR plus
0.80% per annum for the six  months  ended in June  1995,  LIBOR  plus 0.72% per
annum for the six months ended in December 1995,  LIBOR plus 2.45% per annum for
the six months ended in June 1996, LIBOR plus 2.39% per annum for the six months
ended in December  1996 and fixed  payments at 6.50% per annum for the remainder
of the term of the agreement,  payable semiannually in arrears. The swap partner
has the ability to terminate the swap agreement  after the December 1997 payment
if the LIBOR rate Foamex L.P. is to pay for any period thereafter is equal to or
less than 4.50% per annum. Foamex L.P. is exposed to credit loss in the event of
nonperformance by the swap partner; however, the occurrence of this event is not
anticipated.  Interest  expense will be subject to  fluctuations in LIBOR during
the term of the  swap  agreement  except  during  1997.  The  effect  of the two
interest  rate swaps  described  above was a  favorable  adjustment  to interest
expense of $3.7 million,  $1.4 million and $3.0 million for 1996, 1995 and 1994,
respectively.

Environmental Matters

          Foamex L.P. is subject to extensive  and changing  environmental  laws
and  regulations.   Expenditures  to  date  in  connection  with  Foamex  L.P.'s
compliance with such laws and regulations did not have a material adverse effect
on operations, financial position, capital expenditures or competitive position.
The  amount  of  liabilities   recorded  by  Foamex  L.P.  in  connection   with
environmental  matters as of December 29, 1996 was $4.1 million. In addition, as
of  December  29,  1996  Foamex L.P.  has net  receivables  of $0.9  million for
indemnification  of environmental  liabilities from former owners, net of a $1.0
million allowance relating to potential disagreements regarding the scope of the
indemnification.  Although  it  is  possible  that  new  information  or  future
developments could require Foamex L.P. to reassess its potential exposure to all
pending  environmental  matters,  including  those described in the footnotes to
Foamex L.P.'s consolidated financial statements, management believes that, based
upon all currently  available  information,  the  resolution of all such pending
environmental  matters will not have a material  adverse effect on Foamex L.P.'s
operations, financial position, capital expenditures or competitive position.

Inflation and Other Matters

          There  was no  significant  impact on Foamex  L.P.'s  operations  as a
result of  inflation  during  the prior  three  year  period.  See  "Results  of
Operations  1995 versus  1994" 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.

New Accounting Pronouncement

          In  October  1996,   the  American   Institute  of  Certified   Public
Accountants   issued   Statement  of  Position   ("SOP")  96-1,   "Environmental
Remediation Liabilities",  which provides guidance on specific accounting issues
that are present in the  recognition,  measurement,  display and  disclosure  of
environmental  remediation  liabilities.  SOP 96-1 is effective for fiscal years
beginning after December 15, 1996. Accordingly,  Foamex L.P. will adopt SOP 96-1
during the first quarter of 1997.  Management believes that the adoption of this
statement  will not have a  material  impact on its  results  of  operations  or
financial position.

                                       21

<PAGE>
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
ITEM 10.  DIRECTORS & EXECUTIVE OFFICERS

Executive Officers of Foamex L.P.

       The executive officers of Foamex L.P. are as follows:
<TABLE>
<CAPTION>
       Name                                 Age                             Position(s) Held
<S>                                         <C>                             <C>
       Marshall S. Cogan                    59                              Chairman and Chief Executive Officer
       Robert J. Hay                        71                              Chairman Emeritus
       Salvatore J. Bonnano                 56                              President
       Kenneth R. Fuette                    52                              Senior Vice President of Finance, Chief
                                                                             Financial Officer and Chief Accounting
                                                                             Officer
       William H. Bundy                     56                              Senior Vice President of Manufacturing
                                                                             Operations
       Paul A. Haslanger                    50                              Senior Vice President of Strategic
                                                                             Planning and the Technical Products
                                                                             Segment Group
       Barry Zimmerman                      58                              Senior Vice President of Productivity
                                                                             and Quality
       Philip N. Smith, Jr.                 54                              Vice President, Secretary and General
                                                                             Counsel
       Theodore J. Kall                     56                              President of General Felt Industries, Inc.
</TABLE>

       Marshall S. Cogan has been the  Chairman of the Board and Chairman of the
Executive  Committee of Foamex  International  since its  inception in September
1993 and Chief  Executive  Officer since January 1994.  Mr. Cogan served as Vice
Chairman of Foamex L.P. from January 1993 until January 1994. Mr. Cogan has been
a director of Trace Foam  Company,  Inc.  (formerly  known as `21' Foam Company,
Inc.)  ("Trace  Foam")  since  December  1991 and the  Chairman of the Board and
President  of Trace  Foam  since  January  1992.  Mr.  Cogan has been  principal
stockholder, Chairman or Co-Chairman of the Board and Chief Executive Officer or
Co-Chief  Executive  Officer of Trace  Holdings  since 1974.  He has also been a
member of the Board of Directors of Recticel s.a. since February 1993. Mr. Cogan
served as chairman  and  director  of other  companies  formerly  owned by Trace
Holdings,  including Color Tile,  Inc.,  General Felt  Industries,  Inc.,  Knoll
International,  Inc.  and  Sheller-Globe  Corporation.  Prior to  forming  Trace
Holdings,  he  was  senior  partner  at  Cogan,  Berlind,  Weill  &  Levitt  and
subsequently  CBWL - Hayden Stone,  Inc.  Additionally,  Mr. Cogan serves on the
Board of  Directors of American  Friends of the Israel  Museum and serves on the
Board of Trustees of the Museum of Modern Art,  the Boston  Latin School and New
York University  Medical Center.  Mr. Cogan also serves on several committees of
Harvard University.

       Mr. Hay has been Chairman  Emeritus of Foamex L.P. since January 1994 and
Chairman Emeritus and a director of Foamex  International  since September 1993.
Mr. Hay was Chairman  and Chief  Executive  Officer of Foamex L.P.  from January
1993 to January 1994.  Mr. Hay was President of Foamex L.P. and its  predecessor
from 1972 through 1992. Mr. Hay began his career as a chemist with The Firestone
Tire and Rubber Company, a predecessor of Foamex L.P., in 1948.

       Mr. Bonnano has been Executive Vice President of Manufacturing, Corporate
Planning of Foamex  International  and President of Foamex L.P.  since July 1995
and a director of Foamex  International  since February  1996.  Prior to joining
Foamex L.P.,  Mr.  Bonanno was employed  with  Chrysler  Corporation  for thirty
years,   most  recently   serving  as  the  General  Manager  of   International
Manufacturing Operations.

                                       22

<PAGE>

       Mr. Fuette has been the Senior Vice President - Finance,  Chief Financial
Officer and Chief  Accounting  Officer of Foamex  International  and Foamex L.P.
since  January  1996.  Prior to that Mr.  Fuette  served as a Vice  President of
Foamex  International  from 1993 to 1995.  Mr.  Fuette  served as  controller of
Foamex L.P. or its predecessor from 1977 to 1995.

       Mr.  Bundy has been Senior Vice  President of Foamex L.P.  since  January
1994.  Mr. Bundy was President and Chief  Operating  Officer of Foamex L.P. from
January  1993 to January  1994.  Mr.  Bundy has been a Senior Vice  President of
Foamex  International  since March 1994. Mr. Bundy served as President and Chief
Operating  Officer of Foamex  International  from  September  1993 until January
1994. Mr. Bundy was Senior Vice President of  Manufacturing  of Foamex L.P. from
1984 through  1992.  Mr. Bundy began his career as a production  manager for the
predecessor to Foamex L.P. in 1967.

       Mr.  Haslanger has been Senior Vice President of  Manufacturing of Foamex
L.P. since  February  1993. Mr.  Haslanger has been the Senior Vice President of
Manufacturing  of Foamex  International  since its inception in September  1993.
Prior thereto,  Mr. Haslanger was Vice President of Manufacturing of Foamex L.P.
and its predecessor from 1984 through January 1993. He began his career with the
predecessor to Foamex L.P. in 1969.

       Mr.  Zimmerman  has been the Senior Vice  President of  Productivity  and
Quality of Foamex L.P. since October 1995 and Chairman, President and a director
of Foamex Latin America,  Inc. since  September  1993. Mr.  Zimmerman has been a
Senior Vice President or Vice President and Managing  Director of Trace Holdings
since  October  1986.  Prior to  that,  Mr.  Zimmerman  held  several  executive
positions within Trace Holdings beginning in August 1978. Mr. Zimmerman has been
a  director  of Trace Foam  since  October  1990.  Mr.  Zimmerman  has served as
director of General Felt since March 1993 and Foamex Capital  Corporation  since
July 1992.

       Mr.  Smith has been Vice  President,  Secretary  and  General  Counsel of
Foamex  International  since its inception in September 1993. Mr. Smith has been
the  Secretary  of Trace Foam  since its  inception  in October  1990 and a Vice
President of Trace Foam since December 1991. Mr. Smith has been a Vice President
or Senior Vice President and the Secretary and General Counsel of Trace Holdings
since  January 1988 and has overseen and been actively  involved in  transaction
negotiations, litigation, stockholder and director relations and other corporate
legal matters. Prior to joining Trace Holdings, he was the sole shareholder of a
professional  corporation  which was a partner of Akin, Gump,  Strauss,  Hauer &
Feld, L.L.P.

       Mr. Kall was appointed  President of General Felt in April 1995. Mr. Kall
previously  served as General Felt's National  Accounts Manager since July 1993.
Mr. Kall has served in various sales, marketing and product management positions
including  Vice President of Sales and Marketing from 1980 to 1993. He began his
career with General Felt in 1974.

Managing General Partner

       Pursuant  to  the  Fourth  Amended  and  Restated  Agreement  of  Limited
Partnership of Foamex L.P. (the "Fourth Partnership Agreement"),  Foamex L.P. is
managed  by its  managing  general  partner,  FMXI.  All of  the  directors  and
executive   officers  of  FMXI  are  employees  of  Foamex  L.P.  and/or  Foamex
International  and are not  compensated  by FMXI for their services as directors
and executive officers of FMXI.

       The directors and executive officers of FMXI are as follows:
<TABLE>
<CAPTION>
       Name                                 Age                             Position(s) Held
<S>                                         <C>                             <C>
       Marshall S. Cogan                    59                              Chairman of the Board, Chief Executive
                                                                             Officer
       Robert J. Hay                        71                              Chairman Emeritus and Director
       John Rallis                          59                              President, Chief Operating Officer
                                                                             and Director
       William H. Bundy                     56                              Senior Vice President and Director
       Kenneth R. Fuette                    52                              Senior Vice President of Finance,
                                                                             Chief Financial Officer and Chief
                                                                             Accounting Officer
       Paul A. Haslanger                    50                              Senior Vice President of Manufacturing
</TABLE>

                                       23
<PAGE>

       John  Rallis  has been a  Director  of  Foamex  International  since  its
inception  in  September  1993 and has been the  President  and Chief  Operating
Officer  of Foamex  International  since  January  1994.  Mr.  Rallis  served as
President and Chief  Operating  Officer of Foamex L.P. from January 1994 to July
1995.  Prior to that,  Mr.  Rallis  served as a Senior Vice  President of Foamex
International from September 1993 until January 1994. He held various managerial
and executive  positions with The General Tire & Rubber Company starting in 1964
prior to becoming  President of the foam  operations of that company in 1977. In
1980, Mr. Rallis became  Chairman and Chief  Executive  Officer of Great Western
Foam Products  Corporation and certain related  entities.  Mr. Rallis has been a
director of JPSGP Inc. since October 1994.

       See "Executive Officers of Foamex L.P." for a description of the business
experience of the other directors and officers of FMXI.

ITEM 11.  EXECUTIVE COMPENSATION

       The summary  compensation  table below  contains  information  concerning
annual and long-term  compensation  provided to the Chief Executive  Officer and
the four next most highly compensated  executive officers of Foamex L.P. in 1996
for services  rendered in all capacities  during the fiscal years 1996, 1995 and
1994. The officers of FCC are not compensated for their services as such.

<TABLE>
<CAPTION>
                                          SUMMARY COMPENSATION TABLE (1)
                                                        Annual Compensation         Long-Term Compensation
                                                                                  Awards
                                                                                  Securities       All
                                                                                  Underlying       Other
                                                                                  Options\         Compen-
                                            Year        Salary       Bonus        SARs(2)          sation(3)
<S>                                         <C>         <C>        <C>             <C>            <C>
Marshall S. Cogan                           1996        $750,000           -         100,000              -
 Chief Executive Officer                    1995         750,000           -         229,167              -
                                            1994         750,000           -               -              -

Salvatore J. Bonanno (4)                    1996        $201,850    $250,000          25,000         $1,500
 President of Foamex L.P.                   1995          77,308     100,000          49,590            700
                                            1994               -           -               -              -

Barry Zimmerman                             1996        $306,730    $ 50,000               -         $1,500
 Senior Vice President of                   1995         300,000           -          17,569          1,500
 Productivity and Quality                   1994         300,000      85,000               -          1,500

Philip N. Smith, Jr.                        1996        $265,000           -               -          1,500
  Vice President, Secretary                 1995         315,000           -           7,028          1,500
   and General Counsel                      1994         315,000     110,000               -          1,500

Theodore Kall                               1996        $260,885    $  4,545           7,616          1,500
 President and Chief                        1995         228,885      33,600           7,384          1,500
 Executive Officer of                       1994         175,000           -               -          1,450
 General Felt Industries, Inc.

                                       24
<PAGE>
<FN>
       (1)    As none of the above executive  officers  received  perquisites in
              excess of the lesser of $50,000  or 10% of their  reported  salary
              and bonus, any other annual compensation  required to be reported,
              any restricted stock awards, or any long-term compensation payouts
              information relating to "Other Annual  Compensation",  "Restricted
              Stock Awards" and "LTIP Payouts" is inapplicable and has therefore
              been omitted from the table.

       (2)    The 1995 options  represent  options  granted in connection with a
              repricing of the options under the stock option  exchange  program
              discussed below.

       (3)    The amounts shown represent Foamex L.P.'s matching contribution to
              Foamex L.P.'s 401(k) plan on behalf of Mr. Bonanno, Mr. Zimmerman,
              Mr. Smith, and Mr. Kall. Mr. Cogan did not participate in a 401(k)
              plan.

       (4)    Salvatore J. Bonanno became President of Foamex L.P. in June 1995.
</FN>
</TABLE>

Employment Agreements

       On June 26, 1995,  Foamex L.P. entered into an employment  agreement with
Salvatore J.  Bonanno,  President of Foamex L.P.  The  agreement  provides for a
three-year  employment term commencing on June 26, 1995, which employment may be
automatically  extended for two  additional  one-year  terms unless either party
gives written notice as set forth therein.  The  employment  agreement  provides
that as compensation for all services  rendered by Mr. Bonanno,  he will receive
an annual  salary at the rate of $150,000 per annum for the period from June 26,
1995 through June 30, 1996; and at a rate of $250,000 per annum commencing as of
July 1, 1996.  In addition,  Mr.  Bonanno will be paid a bonus of $100,000 on or
before December 31, 1995 and a bonus of $150,000 on or before June 30, 1996. Mr.
Bonanno will be eligible to earn an additional  bonus of $100,000 based upon the
attainment  of  company  performance  targets  (including  but not  limited  to,
earnings  target) for that  period,  which  targets are  required to be mutually
established in good faith between Foamex L.P. and Mr. Bonanno. Also, Mr. Bonanno
will  participate in certain  employee  benefit plans and receive  certain other
perquisites.  The employment agreement further provides that upon termination of
the  employment  agreement (i) by Foamex L.P. for "cause",  (ii) by Mr.  Bonanno
other than for "good  reason"  (as such terms are  defined  therein) or (iii) by
reason of either  party's  election  not to extend the  employment  agreement as
provided therein,  Foamex L.P. shall pay Mr. Bonanno, in addition to any amounts
earned but not yet paid, an amount equal to one-year's  then current base salary
(payable in twelve  equal  monthly  installments).  In the event the  employment
agreement is terminated (i) by Foamex L.P. other than for "cause" or (ii) by Mr.
Bonanno for "good  reason," Mr. Bonanno shall be entitled to receive the greater
of (a)  one-year's  then  current  base salary or (b)  continued  payment of Mr.
Bonanno's  then  current  base  salary  for  the  remainder  of the  term of the
agreement,  subject to certain  provisions set forth therein  (payable in twelve
equal  monthly  installments).  Additionally,  during  the  period for which Mr.
Bonanno is receiving  continued  payment of base salary,  Mr.  Bonanno  would be
entitled to receive  health care  benefits,  to continue to participate in other
employee benefit plans to the extent permissible under such plans and to receive
a supplemental  annual pension  benefit equal to (i) the annual pension  benefit
that  would have been  payable  to Mr.  Bonanno  under the  Retirement  Plan (as
defined  therein) had Mr. Bonanno  continued to earn credited  service under the
Retirement  Plan  until  February  1, 1999,  reduced by (ii) the annual  pension
benefit  payable  to Mr.  Bonanno  under the  Retirement  Plan.  The  employment
agreement prohibits Mr. Bonanno from owning any controlling or substantial stock
or other beneficial  interest in any business enterprise which is engaged in, or
competitive  with,  any  business  engaged in by Foamex L.P.  Additionally,  the
employment  agreement  provides  that for a period  of one  year  following  his
termination  date,  Mr.  Bonanno  may not,  among  other  things,  engage in any
business activities  reasonably determined by Foamex L.P. to be competitive with
any substantial type or kind of business activities  conducted by Foamex L.P. at
the time of termination.

Foamex International Stock Option Plan

       Foamex   International   and  its   stockholders   adopted   the   Foamex
International  Inc. 1993 Stock Option Plan (the "Stock Option Plan") authorizing
the issuance of up to 3,000,000  shares of Foamex  International's  common stock
pursuant to options that may be granted  under the Stock Option Plan to officers
and  executive  employees  of  Foamex  International  and its  subsidiaries  and
affiliates.

                                       25

<PAGE>
           Foamex International Option Grants In Last Fiscal Year (1)
<TABLE>
<CAPTION>
                        Number of    Percent of
                        Securities   Total                                                     Potential Realized
                        Underlying   Options/SARs  Exercise                   Market           Value at Assumed
                        Options/     Granted to    or Base                    Price on    Annual Rate of Appreciation
                        SAR's        Employees in  Price        Expiration    date of          for Option Term (2)
Name                    Granted (#)  Fiscal Year    ($/Sh)          Date       Grant          5%           10%
<S>                       <C>          <C>         <C>           <C>          <C>         <C>          <C>      
Marshall S. Cogan         100,000      49.4%       $6.875        05/17/06     $12.125     1,814,017    3,114,691

Salvatore J. Bonanno       25,000      12.4%        6.875        05/17/06      12.125       453,504      778,673

Theodore Kall               7,616       3.8%        6.875        05/17/06      12.125       138,156      237,215
<FN>


(1)    Mr.  Zimmerman  and Mr.  Smith are not  included  in this table  since no
       options were granted to them during 1996.

(2)    Based on December  29, 1996 market value of Foamex  International  common
       stock of $16 1/8 per share.
</FN>
</TABLE>

Trace Holdings Stock Option Plan

   In 1987,  Trace Holdings  established a  Nonqualified  Stock Option Plan (the
"Trace Holdings Option Plan"), under which options for the purchase of shares of
common  stock of Trace  Holdings  may be  granted  to  officers,  directors  and
employees of Trace Holdings or its  affiliates.  Under the Trace Holdings Option
Plan, options may generally be granted for a term not to exceed eleven years and
are exercisable at the cumulative rate of one-third per year on the fifth, sixth
and seventh  anniversaries of the date of grant. Under the Trace Holdings Option
Plan,  the  option  exercise  price of an  option  may not be less than the fair
market value of the common stock of Trace  Holdings as of the date of grant.  In
1988,  Trace  Holdings  granted  options to Mr.  Smith to purchase 120 shares of
common stock of Trace Holdings. The options expire eleven years from the date of
grant and have an exercise  price of $1,450.00  per share.  No options have been
subsequently granted to named executive officers of Foamex International.

Aggregate Option Values

   The following table sets forth as of December 29, 1996, the number of options
and the value of the  unexercised  options held by Foamex L.P.'s named executive
officers listed on the Summary Compensation Table.

                 Aggregated Option Exercises in Last Fiscal Year
                          and FY-End Option Values (1)
<TABLE>
<CAPTION>
                      Number of Securities Underlying Unexer-                Value of Unexercised In-the-Money
Name                   cised Options at Fiscal Year End(2)                      Options at Fiscal Year End(3)
                        Exercisable       Unexercisable                        Exercisable      Unexercisable
<S>                     <C>               <C>                                   <C>                <C>      
Marshall S. Cogan       157,500           171,667                               1,456,875          1,587,920

Salvatore J. Bonanno     14,918             59,672                                137,992            551,966

Barry Zimmerman           7,791              9,778                                 72,067             90,447

Philip N. Smith, Jr.      3,117              3,911                                 28,832             36,177
                            120  (4)             -                                     (5)                (5)

Theodore Kall             4,853             10,147                                 44,890             43,860

                                       26

<PAGE>

<FN>
(1)    No stock options were  exercised in 1996 and SARs are not included in the
       table since none were outstanding during 1996.

(2)    Except as otherwise  noted,  these options are for common stock of Foamex
       International and were granted pursuant to the Foamex International Stock
       Option Plan.

(3)    As of December 29, 1996, the market value of Foamex  International common
       stock was $16 1/8 per share.

(4)    These  options are for common  stock of Trace  Holdings  and were granted
       pursuant to the Trace Holdings Option Plan.

(5)    Trace Holdings is a privately-held company. There is no public market for
       its  securities  and no  valuation  of Trace  Holdings for the purpose of
       ascertaining the value of stock options has been undertaken.
</FN>
</TABLE>

Pension Plans

       Effective   December  31,  1994,  the  Foamex  L.P.  Salaried   Employees
Retirement  Plan (the "Foamex  Plan")  merged with the General Felt  Industries,
Inc.  Retirement  Plan for Salaried  Employees and the General Felt  Industries,
Inc.  Pension  Plan  for  Bargaining  Unit  Employees  National  Sponge  Cushion
Division.  The  surviving  plan is called the Foamex  Group  Salaried  Employees
Pension Plan (the "Retirement  Plan").  The Retirement Plan is a defined benefit
pension plan that is  qualified  under the  Internal  Revenue  Code of 1986,  as
amended (the "Internal Revenue Code"),  and in which the executive  officers are
eligible to participate.

       The following  table  illustrates  estimated  annual  pensions  under the
Retirement Plan for various compensation levels and periods of credited service,
assuming present  compensation  rates at all points in the past and until Normal
Retirement  Date (as  defined  in the  Retirement  Plan) and a  constant  Social
Security Wage Base ($65,400 in 1997).  The pension amount is expressed as a life
annuity with certain benefits continuing to the spouse.

<TABLE>
<CAPTION>
                                                                 Pension Plan Table
                                                             Years of Credited Service

                                              15            20           25            30             35
<S>                                       <C>           <C>           <C>           <C>            <C>    
Current Compensation:
$125,000                                  $25,400       $33,867       $42,334       $50,801        $59,267
$160,000 and above                        $31,607       $41,742       $52,178       $62,613        $73,049
</TABLE>

       The Retirement  Plan is a career pay plan. The Retirement Plan formula is
1.25% of annual  compensation  up to the Social  Security Wage Base and 1.75% of
annual  compensation in excess of the Social  Security Wage Base,  subject to an
annual  compensation  limit of $160,000.  Prior to September 1, 1994, the Foamex
Plan was a final average pay plan, with retirement  benefits based upon earnings
for the five consecutive years within the last ten years which yield the highest
average   yearly  salary   ("Final   Average   Compensation").   Annual  benefit
calculations  under the Foamex Plan for service  prior to June 1, 1994,  will be
the years of credited  service  multiplied  by the sum of 2.0% of Final  Average
Compensation and 0.4% of Final Average  Compensation in excess of the average of
the Social  Security  Wage Bases over the 35 year period ending with the year an
employee reaches age 65 (such 35 year average referred to herein as the "Covered
Compensation").  For service subsequent to May 31, 1994, but before September 1,
1994,  annual  benefit  calculations  will  be the  years  of  credited  service
multiplied  by the sum of 1.1% of Final Average  Compensation  and 0.4% of Final
Average  Compensation  in  excess  of  Covered  Compensation.   The  actuarially
determined  cost of providing  benefits under the Retirement Plan is provided by
Foamex  L.P.  The  participants  are  neither  required  nor  permitted  to make
contributions.

       The compensation used as a basis for computing pension is primarily based
on salaries set forth in the Summary Compensation Table and excludes bonuses set
forth therein.  In 1996 and 1995, the compensation used as a basis for computing
the pension of each of the executive officers named in the Summary  Compensation

                                       27
<PAGE>

Table was as follows:  Mr.  Cogan,  $150,000  and  $150,000,  respectively;  Mr.
Bonanno, $150,000 in 1996; Mr. Zimmerman,  $150,000 and $150,000,  respectively;
Mr.  Smith,  $150,000  and  $150,000,  respectively;  and Mr. Kall  $150,000 and
$150,000, respectively. Mr. Bonanno was not a plan participant in 1995.

       The  estimated  annual  benefit  under the  Retirement  Plan  payable  on
retirement  at normal  retirement  age, or  immediately  if the  individual  has
reached normal  retirement  age, for each of the employees  named in the Summary
Compensation Table is as follows: Mr. Cogan, $23,250; Mr. Bonanno,  $24,050; Mr.
Zimmerman,  $22,100;  Mr. Smith,  $35,260;  and Mr. Kall $43,550.  These amounts
assume the  employees  continue  their  employment  with  Foamex L.P. at present
salary  levels  until  normal  retirement  age. As of  December  29,  1996,  the
employees named in the Summary  Compensation  Table had been credited with years
of service under the  Retirement  Plan as follows:  Mr. Cogan,  2.50 years;  Mr.
Bonanno,  0.50 years; Mr. Zimmerman,  2.83 years; Mr. Smith, 2.83 years; and Mr.
Kall 22.08 years.

       General

       Under the Internal  Revenue Code, a participant's  compensation in excess
of $150,000 (as adjusted to reflect cost of living increases) is disregarded for
purposes of determining pension benefits.  Benefits accrued for plan years prior
to 1994 on the basis of  compensation  in excess of $150,000 are  preserved.  In
addition,  as  required  by  law,  the  maximum  annual  pension  payable  to  a
participant under a qualified pension plan in 1995 is $120,000, in the form of a
qualified joint and survivor annuity, although certain benefits accrued prior to
1995 in excess of $120,000 are not subject to such limitation.  Such limits have
been included in the  calculation  of estimated  annual  benefit  amounts listed
above  for each of the  executive  officers  named in the  Summary  Compensation
Table. Foamex L.P. does not have a non-qualified defined benefit plan to provide
payments in excess of limits imposed by the Internal Revenue Service.

Compensation Committee Interlocks and Insider Participation

       The  executive  officers of FCC are not  compensated  for serving in such
capacity,  thus  information  regarding  compensation  committee  interlocks and
insider participation with respect to FCC has been omitted.

       In accordance  with the terms of the Fourth  Partnership  Agreement,  the
compensation  of Foamex L.P.'s  officers is  determined by FMXI, a  wholly-owned
subsidiary   of  Foamex   International.   FMXI  has   agreed   to  accept   the
recommendations of the Compensation Committee of Foamex International's Board of
Directors  regarding the compensation of Foamex L.P.'s executive  officers.  The
members of Foamex  International's  Compensation  Committee are: Messrs. John V.
Tunney, who serves as Chairman, and Stuart J. Hershon.

       The Securities and Exchange  Commission  requires issuers to disclose the
existence  of any  relationship  where an  executive  officer of the  registrant
serves  (i) on the  compensation  committee  of  another  entity,  one of  whose
executive officers served on the compensation committee of the registrant,  (ii)
as a director of another entity,  one of whose executive  officers served on the
compensation  committee  of  the  registrant,  and  (iii)  on  the  compensation
committee  of  another  entity,  one of whose  executive  officers  served  as a
director of the registrant.  Foamex L.P. is not aware of any such relationships.
Foamex   International's   Compensation   Committee  is  comprised  entirely  of
independent outside directors. No employee of Foamex L.P., Foamex International,
or FMXI serves on Foamex International's Compensation Committee.

ITEM 12.  SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS

       The  following  table and the  accompanying  footnotes  set forth,  as of
December 29, 1996,  the  beneficial  ownership of the  partnership  interests of
Foamex L.P.  by (i) each person who is known to Foamex L.P. to own  beneficially
more than 5.0% of any class of Foamex L.P.'s  partnership  interests,  (ii) each
director of FMXI (the managing  general  partner of Foamex L.P.) and FCC,  (iii)
each  executive  officer listed in the summary  compensation  table and (iv) all
officers  and  directors  of Foamex  L.P.,  FMXI,  and FCC as a group.  FCC is a
wholly-owned subsidiary of Foamex L.P.

                                       28
<PAGE>

<TABLE>
<CAPTION>
                                                          Partnership Interests Owned
Name and Address                                Type of              % of                % of
of Beneficial Owners                            Interest             Profits             Class
<S>                                            <C>                   <C>                 <C>  
FMXI, Inc. (1)                                  General Partner       1.00                50.00
1000 Columbia Avenue
Linwood, Pennsylvania 19061

Trace Foam Company, Inc. (2)                    General Partner       1.00                50.00
375 Park Avenue, 11th Floor
New York, New York 10152

Foamex-JPS Automotive L.P. (1)                  Limited Partner      98.00               100.00
1000 Columbia Avenue
Linwood, Pennsylvania 19061

Marshall S. Cogan (2)                           General Partner       1.00                50.00
375 Park Avenue, 11th Floor
New York, New York 10152

All officers and directors as                   General Partner       1.00                50.00
a group (11 persons) (2), (3)
<FN>
----------------------
(1)    FMXI and  Foamex-JPS  Automotive,  L.P. are each  wholly-owned  by Foamex
       International.

(2)    Trace Foam is a wholly-owned  subsidiary of Trace  Holdings.  Marshall S.
       Cogan, a director of FMXI, Foamex  International,  and Trace Foam, is the
       majority  stockholder of Trace Holdings.  Mr. Cogan disclaims  beneficial
       ownership of the partnership interest owned by Trace Foam. The disclosure
       of  Marshall  S.  Cogan's  beneficial  ownership  does  not  include  the
       beneficially owned partnership interests of Foamex  International.  Trace
       Holdings is the  beneficial  owner of 42.4% of the common stock of Foamex
       International.

(3)    The disclosure of beneficial ownership of officers and directors does not
       include  any  beneficial  ownership  arising  solely  by  virtue  of such
       person's  position  with  FMXI,  Foamex-JPS  Automotive  L.P.,  or Foamex
       International.
</FN>
</TABLE>

ITEM 13.  CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

       Foamex L.P.  regularly  enters into  transactions  with its affiliates on
terms it believes to be no less favorable to Foamex L.P. than those which Foamex
L.P. could have obtained from unaffiliated third parties. Payments to affiliates
by Foamex L.P. and its subsidiaries in connection with any such transactions are
governed by the  provisions  of the  indentures  for Foamex  L.P.'s  public debt
securities which generally provide that such transactions be on terms comparable
to those generally available in equivalent transactions with third parties.

                                       29
<PAGE>

       Technology Sharing Arrangements

       In December  1992,  Foamex  L.P.,  Recticel,  and Beamech  Group  Limited
("Beamech"),  an unaffiliated third party, formed a Swiss corporation to develop
new  manufacturing  technology for the production of polyurethane  foam. Each of
Foamex L.P.,  Recticel,  and Beamech  contributed or caused to be contributed to
such  corporation a combination of cash and  technology  valued at $1.5 million,
$3.0 million and $1.5  million,  respectively,  for a 25%, 50% and 25% interest,
respectively,  in the corporation.  Foamex L.P., Recticel,  and other affiliates
have been granted a  royalty-free  license to use certain  technology  and it is
expected that the corporation  will license use of such technology to other foam
producers in exchange for royalty payments.

       Tax Sharing Agreement

       In  1992,  Foamex  L.P.  and  its  partners  entered  into a tax  sharing
agreement,  as amended (the "Tax Sharing  Agreement"),  pursuant to which Foamex
L.P.  agreed to make  quarterly  distributions  to its  partners  which,  in the
aggregate,  will equal the tax liability  that Foamex L.P. would have paid if it
had been a Delaware  corporation  filing  separate  tax  returns  rather  than a
Delaware partnership.  In connection with Foamex International's  initial public
offering in 1993 and the attendant  reallocation of partnership  interests,  the
Foamex  L.P.  Tax  Sharing  Agreement  was  amended to  provide  that 99% of the
payments will be made to Foamex International and its subsidiaries and 1% of the
payments  would be made to Trace Foam.  In 1996,  Foamex L.P.  made  payments of
approximately $3.5 million pursuant to the terms of the Tax Sharing Agreement to
Foamex International and its subsidiaries.

       Tax Distribution Advance Agreement

       On  December  11,  1996,   Foamex  L.P.  and  FJPS  entered  into  a  Tax
Distribution Advance Agreement pursuant to which FJPS has the right to obtain up
to $17.0 million of advances  against  future  distributions  to the Tax Sharing
Agreement.  Any such  advances will bear interest at a rate equal to the greater
of 13.25% per annum or the yield to maturity of the FJPS Senior Secured Discount
Debentures  plus one hundred  twenty-five  basis  points.  All advances  must be
repaid by  December  31,  1999,  and FJPS is  obligated  to use 50.0% of any tax
distribution to prepay the outstanding  advances. As of December 29, 1996, there
were no advances under the agreement.

       Management Services Agreement

       In 1992,  Foamex L.P. and Trace Foam  entered into a management  services
agreement  pursuant  to which  Trace Foam  provides  Foamex  L.P.  with  general
managerial services of a financial, technical, legal, commercial, administrative
and/or advisory nature for an annual fee of $1.75 million and  reimbursement  of
expenses incurred.  Management  believes that the agreement is no less favorable
to Foamex L.P. than that which Foamex L.P. could have obtained from unaffiliated
third parties.

       Indemnification Regarding Environmental Matters

       Pursuant to an Asset Transfer  Agreement between Foamex L.P. and RFC (the
"RFC Asset  Transfer  Agreement"),  Foamex  L.P. is  indemnified  by RFC for any
liabilities  incurred by Foamex L.P.  arising out of or  resulting  from,  among
other things, the ownership or use of any of the assets transferred  pursuant to
the RFC Asset Transfer  Agreement or the conduct of the transferred  business on
or prior to October 2, 1990,  including,  without limitation,  any loss actually
arising out of or resulting  from any events,  occurrences,  acts or  activities
occurring  before  October  2, 1990 or  occurring  after  October 2, 1990 to the
extent  resulting  from  conditions  existing  on or prior to  October  2, 1990,
relating to (i)  injuries to or the  contraction  of any  diseases by any person
resulting  from  exposure to hazardous  substances  (as defined in the RFC Asset
Transfer  Agreement)  without regard to when such injuries or diseases are first
manifested, (ii) the generation, processing, handling, storage or disposition of
or  contamination  by any waste or  hazardous  substance,  whether on or off the
premises  from which the  transferred  business has been  conducted or (iii) any
pollution  or other damage or injury to the  environment,  whether on or off 

                                       30

<PAGE>

the premises from which the transferred business has been conducted. Foamex L.P.
is also indemnified by RFC for any liabilities  arising under Environmental Laws
(as defined in the RFC Asset Transfer  Agreement)  relating to current or former
RFC  assets  and for any  liability  relating  to  products  of the  transferred
business  shipped  on or prior to October 2,  1990.  Foamex  L.P.  has agreed to
assume  certain  known   environmental   liabilities   relating  to  the  assets
transferred by RFC to Foamex L.P.,  with an estimated  remediation  cost of less
than  $0.5  million,  in  exchange  for a cash  payment  by RFC to  Foamex  L.P.
approximately equal to the remediation cost for such environmental liabilities.

       Pursuant to the Asset Transfer Agreement, dated as of October 2, 1990, as
amended,  between  Trace  Holdings and Foamex L.P.  (the "Trace  Holdings  Asset
Transfer  Agreement"),  Foamex L.P. is  indemnified  by Trace  Holdings  for any
liabilities  incurred by Foamex L.P.  arising out of or  resulting  from,  among
other things, the ownership or use of any of the assets transferred  pursuant to
the Trace Holdings Asset  Transfer  Agreement or the conduct of the  transferred
business on or prior to October 2, 1990, including, without limitation, any loss
actually  arising  out of or  resulting  from any events,  occurrences,  acts or
activities  occurring  after  October 2,  1990,  to the  extent  resulting  from
conditions  existing on or prior to October 2, 1990, relating to (i) injuries to
or the  contraction  of any diseases by any person  resulting  from  exposure to
Hazardous Substances (as defined in the Trace Holdings Asset Transfer Agreement)
without regard to when such injuries or diseases are first manifested,  (ii) the
generation,  processing, handling, storage or disposition of or contamination by
any waste or Hazardous Substance,  whether on or off the premises from which the
transferred  business has been  conducted or (iii) any pollution or other damage
or injury to the  environment,  whether  on or off the  premises  from which the
transferred  business has been  conducted.  Foamex L.P. is also  indemnified  by
Trace Holdings for any liabilities  arising under Environmental Laws (as defined
in the Trace Holdings Asset  Transfer  Agreement)  relating to current or former
Trace  Holdings  assets  and for  any  liability  relating  to  products  of the
transferred business shipped on or prior to October 2, 1990.

       Certain Transactions Relating to the Acquisition of Great Western

       In connection with the  acquisition of Great Western in May 1993,  Foamex
L.P.   entered  into  lease   agreements  dated  May  1993,  with  John  Rallis,
individually,  or an affiliate,  relating to former Great Western  manufacturing
facilities.  Aggregate  lease payments in 1996 were $1.7 million.  In connection
therewith,  Foamex L.P. has the option to purchase each of the properties at any
time after April 2001 at a price equal to fair market value.

       Part of the aggregate consideration paid by Foamex L.P. for the assets of
Great  Western  was in the form of a  subordinated  promissory  note  payable to
Rallis in the principal  amount of $7,014,864  that bears  interest at a maximum
rate of 6.0% per annum payable semiannually.

       FJPS Note

       On June 28, 1994, Foamex L.P. purchased an $87.9 million principal amount
note due 2006 from its 98% limited partner FJPS for $35.3 million. The FJPS Note
will not pay interest until July 2000. Instead, principal will accrete (from the
initial  purchase  price  of  $35.3  million)  on a  daily  basis  and  compound
semiannually at the rate of 15.50% per annum through June 1996; 15.75% per annum
thereafter through June 1997; and 16.00% per annum thereafter through June 2000.
Interest  will be due  semiannually  in cash at 16.00%  per annum from July 2000
through the maturity date. In December 1996 in exchange for certain  waivers and
amendment  of the FJPS Note,  FJPS repaid  $18.4  million of the FJPS Note and a
waiver  payment of $0.2 million using a portion of the proceeds from the sale of
its  partnership  interest in JPS Automotive L.P. FJPS has the right to reborrow
such amount,  subject to limitations in the Foamex L.P. Credit Facility,  solely
for the  purpose of funding a purchase  price  adjustment  payment,  if any,  in
connection  with the JPS Automotive  L.P. sale. The  intercompany  note has been
classified in partners'  equity  (deficit)  and the accreted  principal of $16.3
million for the period from June 28, 1994 to December 29, 1996 has been included
in the FJPS Note.  The FJPS Note may be redeemed at the option of FJPS, in whole
or in part, at any time at the  redemption  prices  (expressed as percentages of
the Accreted Value (as defined) if on or prior to July 1, 2000, and  thereafter,
expressed as percentages of the principal  amount)  initially  equal to 108% for

                                       31
<PAGE>

the  twelve-month  period  commencing July 1, 1994 declining to 100% on or after
July 1, 2005. If FJPS does not repay  indebtedness  with at least 85% of the net
proceeds of any Equity  Offering (as  defined),  the rate at which the FJPS Note
accretes and the interest rate on the FJPS Note will increase.

       Foamex International Supply Agreement

       In June 1994,  Foamex L.P.  also  entered  into a supply  agreement  with
Foamex  International  (the  "Supply  Agreement").  Pursuant to the terms of the
Supply  Agreement,  at the  option of Foamex  L.P.,  Foamex  International  will
purchase certain raw materials which are necessary for the manufacture of Foamex
L.P.'s  products,  and resell such raw materials to Foamex L.P. at a price equal
to net cost plus reasonable out of pocket expenses. Management believes that the
terms of the Supply Agreement are no less favorable than those which Foamex L.P.
could have obtained from an unaffiliated  third party.  During 1996, Foamex L.P.
purchased $129.7 million in raw materials under the Supply Agreement.

       Other Transactions

       Foamex L.P.  made  charitable  contributions  to the Trace  International
Holdings,  Inc.  Foundation (the  "Foundation") in the amount of $0.2 million in
1996. The Foundation is a Delaware  tax-exempt private  foundation.  Marshall S.
Cogan,  Chairman and Chief Executive Officer of Foamex  International and Foamex
L.P., is the sole director of the Foundation.

       In July 1996, Foamex L.P. and Trace Holdings agreed to extend the term of
the $4.4 million  principal amount  promissory note of Trace Holdings dated July
8, 1995,  payable to Foamex L.P.,  for an additional  year and a new  promissory
note was executed.  The note provides for interest of 9.5% and is due on demand,
or if no demand is made,  on July 7, 1997 and is  included in  partners'  equity
(deficit). Interest is due and payable quarterly.

       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  matures  in  December  1997.  The note has been  classified  in the  other
component of partners' equity (deficit).

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

       Trace  Holdings  rents   approximately  5,900  square  feet  of  general,
executive and administrative office space in New York, New York from Foamex L.P.
on  substantially  the same terms as Foamex L.P.  leases such space from a third
party lessor.  The lease  commenced  October 1, 1993 with the occupancy and rent
payments  commencing on October 1, 1994.  The lease provides for an initial term
of 11 years and  expires on  September  30,  2004.  The lease  provides  for two
optional  five-year  renewal  periods  at the fair  market  rental  value of the
property on the first day of such renewal term. The annual rental for the period
October 1, 1994 through September 30, 2004 is approximately $0.7 million.  Under
the lease,  Foamex L.P. is required to pay certain  excess real estate taxes and
operating  expenses incurred by the lessor relating to the property for which it
will be proportionally  reimbursed by Trace Holdings.  The rental terms were the
result of  arm-length  negotiations  between  Foamex  L.P.  and the third  party
lessor.  Trace Holdings will reimburse,  through increased rent, Foamex L.P. for
the cost of any leasehold improvements  applicable to the space occupied for the
benefit of Trace Holdings.

                                       32
<PAGE>

PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
<TABLE>
<S>                                                                                                          <C>

   (a)    Financial Statements and Schedules
     Foamex L.P. and Subsidiaries:
      Report of Independent Accountants                                                                         F-2
      Consolidated Balance Sheets as of December 29, 1996 and December 31, 1995                                 F-3
      Consolidated Statements of Operations for the years ended 1996, 1995 and 1994                             F-5
      Consolidated Statements of Cash Flows for the years ended 1996, 1995 and 1994                             F-6
      Consolidated Statements of Partners' Equity (Deficit) for the years ended 1996, 1995 and 1994             F-7
      Notes to Consolidated Financial Statements                                                                F-8
     Foamex Capital Corporation:
      Report of Independent Accountants                                                                        F-30
      Balance Sheets as of December 29, 1996 and December 31, 1995                                             F-31
      Notes to Balance Sheets                                                                                  F-32
     General Felt Industries, Inc.:
      Report of Independent Accountants                                                                        F-33
      Consolidated Balance Sheets as of December 29, 1996 and December 31, 1995                                F-34
      Consolidated Statements of Operations for the years ended 1996, 1995 and 1994                            F-36
      Consolidated Statements of Cash Flows for the years ended 1996, 1995 and 1994                            F-37
      Consolidated Statements of Stockholder's Equity for the years ended 1996, 1995 and 1994                  F-38
      Notes to Consolidated Financial Statements                                                               F-39
     Foamex International Inc. and Subsidiaries:
      Report of Independent Accountants                                                                        F-51
      Consolidated Balance Sheets as of December 29, 1996 and December 31, 1995                                F-52
      Consolidated Statements of Operations for the years ended 1996, 1995 and 1994                            F-54
      Consolidated Statements of Cash Flows for the years ended 1996, 1995 and 1994                            F-55
      Consolidated Statements of Stockholders' Equity (Deficit) for the years ended 1996, 1995 and 1994        F-56
      Notes to Consolidated Financial Statements                                                               F-57
     Foamex L.P. and Subsidiaries Financial Statement Schedule:
      Schedule II - Valuation and Qualifying Accounts                                                           S-2
</TABLE>

   (b)    Reports on Form 8-K

          None

   (c)    Exhibits

3.1(a)        -  Restated Certificate of Incorporation of Foamex International.
3.2(a)        -  By-laws of Foamex International.
3.3(a)           - Fourth Amended and Restated Agreement of Limited  Partnership
                 of Foamex L.P.,  dated as of December  14,  1993,  by and among
                 FMXI  and  Trace  Foam,   as  general   partners,   and  Foamex
                 International,   as  a  limited   partner   (the   "Partnership
                 Agreement").
3.4(n)           -  First  Amendment  to  the  Fourth   Amendment  and  Restated
                 Agreement of Limited Partnership of Foamex L.P., dated June 28,
                 1994.
3.5(a)        -  Certificate of Incorporation of FMXI.
3.6(a)        -  By-laws of FMXI.
3.7(e)        -  Certificate of Incorporation of FCC.
3.8(e)        -  By-laws of FCC.
3.9(c)        -  Certificate of Incorporation of GFI Acquisition Corp.
3.10(c)       -  Certificate of Amendment to the Certificate of Incorporation of
                 GFI Acquisition Corp.

                                       33
<PAGE>

3.11(c)       - Certificate of Amendment to the Certificate of  Incorporation of
              General Felt.
4.1(b)        - Indenture,  dated as of June 3, 1993, among Foamex L.P. and FCC,
              as joint and several  obligors,  General Felt,  as Guarantor,  and
              Shawmut  Bank,  National  Association  ("Shawmut"),   as  trustee,
              relating to $160,000,000 principal amount of 9 1/2% Senior Secured
              Notes due 2000, including form of Senior Secured Note.
4.2(a)        - First  Supplemental  Indenture,  dated as of November  18, 1993,
              among Foamex  International and FCC, as Issuers,  General Felt and
              Perfect Fit, as Guarantors  and Shawmut,  as trustee,  relating to
              the Senior Secured Notes.
4.3(a)        - Second  Supplemental  Indenture,  dated as of December 14, 1993,
              among  Foamex  L.P.  and FCC, as  Issuers,  Foamex  International,
              General  Felt and  Perfect  Fit, as  Guarantors  and  Shawmut,  as
              trustee, relating to the Senior Secured Notes.
4.3.1(s)      - Third Supplemental Indenture, dated as of August 1, 1996, by and
              among Foamex L.P. and FCC, as Issuers,  Foamex  International,  as
              parent  guarantor,  General Felt,  as  guarantor,  Perfect Fit, as
              withdrawing  guarantor,  and Fleet  National  Bank  ("Fleet"),  as
              trustee relating to the Senior Secured Notes.
4.4(b)        - Company  Pledge  Agreement,  dated as of June 3, 1993, by Foamex
              L.P. in favor of Shawmut, as trustee for the holders of the Senior
              Secured Notes.
4.5(b)        - Company  Pledge  Agreement,  dated as of June 3, 1993, by FCC in
              favor of Shawmut, as trustee for the holders of the Senior Secured
              Notes.
4.6(b)        -  Subsidiary  Pledge  Agreement,  dated  as of June 3,  1993,  by
              General  Felt in favor of  Shawmut,  as trustee for the holders of
              the Senior Secured Notes.
4.7(b)        - Company Security Agreement,  dated as of June 3, 1993, by Foamex
              L.P.  and FCC in favor of  Shawmut,  as trustee for the holders of
              the Senior Secured Notes.
4.8(b)        -  Subsidiary  Security  Agreement,  dated as of June 3, 1993,  by
              General  Felt in favor of  Shawmut,  as trustee for the holders of
              the Senior Secured Notes.
4.9(b)        - Collateral  Assignment  of Patents and  Trademarks,  dated as of
              June 3, 1993,  by Foamex L.P. in favor of Shawmut,  as trustee for
              the holders of the Senior Secured Notes.
4.10(b)       - Collateral  Assignment  of Patents and  Trademarks,  dated as of
              June 3,  1993,  by FCC in favor of  Shawmut,  as  trustee  for the
              holders of the Senior Secured Notes.
4.11(b)       - Collateral  Assignment  of Patents and  Trademarks,  dated as of
              June 3, 1993, by General Felt in favor of Shawmut,  as trustee for
              the holders of the Senior Secured Notes.
4.12(c)       - Indenture,  dated as of October 13, 1992, among Foamex L.P., FCC
              and  The  Connecticut  National  Bank,  as  trustee,  relating  to
              $150,000,000  principal  amount of 11 1/4% Senior  Notes due 2002,
              including form of Senior Note.
4.13(d)       - First Supplemental Indenture,  dated as of March 23, 1993, among
              Foamex L.P. and FCC, as joint and several obligors,  General Felt,
              as Guarantor,  and Shawmut Bank Connecticut,  National Association
              (formerly The Connecticut National Bank ("Shawmut  Connecticut")),
              as trustee, relating to the Senior Notes.
4.14(a)       - Second  Supplemental  Indenture,  dated as of November 18, 1993,
              among  Foamex L.P.  and FCC, as Issuers,  General Felt and Perfect
              Fit, as Guarantors and Shawmut Connecticut,  as trustee,  relating
              to the Senior Notes.
4.15(a)       - Third  Supplemental  Indenture,  dated as of December  14, 1993,
              among  Foamex  L.P.  and FCC, as  Issuers,  Foamex  International,
              General  Felt  and  Perfect  Fit,  as   Guarantors,   and  Shawmut
              Connecticut, as trustee, relating to the Senior Notes.
4.16(m)       - Fourth  Supplemental  Indenture,  dated as of October 31,  1994,
              among  Foamex L.P.  and FCC as Issuers,  Foamex  International  as
              Parent  Guarantor,  General Felt and Perfect Fit as Guarantors and
              Shawmut Connecticut, as Trustee, relating to the Senior Notes.
4.17(t)       - Fifth Supplemental Indenture, dated as of August 1, 1996, by and
              among  Foamex  L.P.  and  FCC  as   guarantors,   Perfect  Fit  as
              withdrawing  guarantor,  and  Fleet,  as trustee  relating  to the
              Senior Notes.
4.18(c)       - Indenture,  dated as of October 13, 1992, among Foamex L.P., FCC
              and Shawmut, as trustee, relating to $126,000,000 principal amount
              of 117/8% Senior Subordinated  Debentures due 2004, including form
              of Senior Subordinated Debenture.

                                       34
<PAGE>

4.19(d)       - First Supplemental Indenture,  dated as of March 23, 1993, among
              Foamex L.P. and FCC, as joint and several obligors,  General Felt,
              as  Guarantor,  and  Shawmut,  as trustee,  relating to the Senior
              Subordinated Debentures.
4.20(a)       - Second  Supplemental  Indenture,  dated as of November 18, 1993,
              among  Foamex L.P.  and FCC, as Issuers,  General Felt and Perfect
              Fit, as  Guarantors,  and  Shawmut,  as  trustee,  relating to the
              Senior Subordinated Debentures.
4.21(b)       - Third  Supplemental  Indenture,  dated as of December  14, 1993,
              among  Foamex  L.P.  and FCC, as  Issuers,  Foamex  International,
              General  Felt and  Perfect  Fit, as  Guarantors  and  Shawmut,  as
              trustee, relating to the Senior Subordinated Debentures.
4.22(t)       - Fourth Supplemental Indenture, dated as of August 1, 1996, among
              Foamex L.P. and FCC, as Issuers,  Foamex International,  as Parent
              Guarantor, General Felt, as Guarantor, Perfect Fit, as withdrawing
              guarantor,   and  Fleet,  as  Trustee,   relating  to  the  Senior
              Subordinated Debentures.
4.23(i)       - Indenture,  dated as of June 28, 1994,  among FJPS and FJCC,  as
              Issuers,   Foamex   International,   as  guarantor,   and  Shawmut
              Connecticut, as trustee, relating to $116,745,000 principal amount
              of Senior Secured Discount Debentures due 2004,  including form of
              Senior Secured Discount Debenture.
4.24(m)       - Pledge  Agreement,  dated as of June 28,  1994,  made by FJPS in
              favor of  Shawmut,  as  collateral  agent for the  holders  of the
              Senior Secured Discount Debentures.
4.25(i)       - Senior Note,  dated June 28, 1994,  in the  aggregate  principal
              amount of  $87,943,103.14  due July 1, 2006,  executed  by FJPS to
              Foamex L.P.
4.26          - Consent,  Waiver and  Amendment  Agreement,  dated  December 11,
              1996, between FJPS and Foamex L.P.
4.27(t)       -  Commitment  letter,  dated July 9, 1996,  from The Bank of Nova
              Scotia to Foamex Canada Inc.
4.28(t)       - Third Amended and Restated  Credit  Agreement,  dated as of July
              30, 1996,  among Foamex L.P.,  General  Felt,  Trace Foam Company,
              Inc. ("Trace Foam"), FMXI, Inc. ("FMXI"), Citibank, N.A., The Bank
              of Nova Scotia, the institutions from time to time parties thereto
              as lenders,  the institutions parties thereto as issuing banks and
              Citibank,  N.A.  and The Bank of Nova  Scotia,  as  Administrative
              Agents (the "Credit Agreement").
4.29(t)       - First Amendment to Third Amended and Restated Credit  Agreement,
              dated September 30, 1996,  among Foamex L.P.,  General Felt, Trace
              Foam,  FMXI,  Citibank,   N.A.,  The  Bank  of  Nova  Scotia,  the
              institutions  from time to time  parties  thereto as lenders,  the
              institutions  parties thereto as issuing banks and Citibank,  N.A.
              and The Bank of Nova Scotia, as Administrative Agents.
4.30          - Second Amendment to Third Amended and Restated Credit Agreement,
              dated as of November 27, 1996,  among Foamex L.P.,  General  Felt,
              Trace Foam,  FMXI,  Citibank,  N.A., The Bank of Nova Scoria,  the
              institutions  from time to time  parties  thereto as lenders,  the
              institutions  parties thereto as issuing banks and Citibank,  N.A.
              and The Bank of Nova Scotia, as Administrative Agents.
4.31(a)       - Guaranties,  dated November 18, 1993, executed by each of Foamex
              L.P., General Felt and Perfect Fit, as guarantor, respectively, in
              favor of Citibank,  N.A., as Administrative Agent, for the ratable
              benefit of the  lenders and the issuing  banks,  guaranteeing  the
              obligations of one another under the Credit Agreement.
4.32(a)       - Guaranty,  dated November 18, 1993,  executed by FCC in favor of
              Citibank,  N.A., as Administrative  Agent, for the ratable benefit
              of the lenders and the issuing banks, guaranteeing the obligations
              of Foamex  L.P.,  General  Felt and  Perfect  Fit under the Credit
              Agreement.
4.33(i)       -  Amended  and  Restated  Guaranty,  dated as of June  28,  1994,
              executed by Foamex  International  in favor of Citibank,  N.A. and
              The Bank of Nova Scotia, as Administrative Agents, for the ratable
              benefit of the  lenders  and the  issuing  banks  under the Credit
              Agreement.
4.34(q)       - First Amendment to Amended and Restated Guaranty, dated June 30,
              1995, executed by Foamex International in favor of Citibank,  N.A.
              and The Bank of Nova Scotia,  as  Administrative  Agents,  for the
              ratable  benefit of the lenders  and the  issuing  banks under the
              Credit Agreement.
4.35(q)       -  Second  Amendment  to  Amended  and  Restated  Guaranty,  dated
              February 27, 1996,  executed by Foamex  International  in favor of
              Citibank,  N.A.  and The Bank of Nova  Scotia,  as  Administrative
              Agents,  for the  ratable  benefit of the  lenders and the issuing
              banks under the Credit Agreement.

                                       35
<PAGE>

4.36(t)       - Third Amendment to Amended and Restated Guaranty, dated November
              27, 1996,  executed by Foamex  International in favor of Citibank,
              N.A. as Collateral  Agent,  for the ratable benefit of the lenders
              and the issuing banks under the Credit Agreement.
4.37(a)       - Security  Agreements,  dated November 18, 1993, executed by each
              of Foamex L.P., General Felt,  Perfect Fit and FCC,  respectively,
              and Citibank N.A., as Administrative Agent for the lenders and the
              issuing banks under the Credit Agreement.
4.38(i)       - Amendatory  Agreement,  dated as of June 28, 1994,  among Foamex
              L.P.,  General  Felt,  Perfect Fit,  FCC and  Citibank,  N.A.,  as
              collateral agent under the Credit Agreement.
4.39(s)       - Amendatory  Agreement,  dated as of July 30, 1996,  among Foamex
              L.P.,  General Felt, FCC, and Citibank,  N.A., as collateral agent
              under the Credit Agreement.
4.40(a)       - Intercreditor  Agreement,  dated as of November 18, 1993, by and
              between Citibank,  N.A., as Administrative  Agent under the Credit
              Agreement  and Shawmut,  as trustee  under the Foamex L.P.  Senior
              Secured Note Indenture.
4.41(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").
4.42(a)       - Marely Loan Commitment Agreement, dated as of December 14, 1993,
              by and between Foamex International and Marely s.a. ("Marely").
4.43(a)       - DLJ Loan Commitment Agreement, dated as of December 14, 1993, by
              and between  Foamex  International  and DLJ  Funding,  Inc.  ("DLJ
              Funding").
4.44(s)       - Promissory Note, dated July 7, 1996, in the aggregate  principal
              amount of $4,372,516, executed by Trace Holdings to Foamex L.P.
10.1          - Revised  Confirmation Letter Agreements,  dated as of January 7,
              1997, by and between Foamex L.P. and Citibank, N.A.
10.2          -  Assignment  Agreement,  dated as of December  16,  1996,  among
              Foamex L.P., FCC and Solomon Holdings, Inc. ("Solomon Holdings").
10.3(d)       -  Reimbursement  Agreement,  dated as of March 23, 1993,  between
              Trace Holdings and General Felt.
10.4(d)       - 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 Blackell and
              Prefoam AG relating to foam technology sharing arrangement.
10.5(e)       - Asset Transfer  Agreement,  dated as of October 2, 1990, between
              Trace Holdings and Foamex L.P. (the "Trace Holdings Asset Transfer
              Agreement").
10.6(e)       - First  Amendment,  dated as of December 19,  1991,  to the Trace
              Holdings Asset Transfer Agreement.
10.7(e)       - Amended and  Restated  Guaranty,  dated as of December 19, 1991,
              made by Trace Foam in favor of Foamex L.P.
10.8(e)       - Asset Transfer  Agreement,  dated as of October 2, 1990, between
              RFC and Foamex L.P. (the "RFC Asset Transfer Agreement").
10.9(e)       - First Amendment, dated as of December 19, 1991, to the RFC Asset
              Transfer Agreement.
10.10(e)      - Schedule  5.03 to the RFC Asset  Transfer  Agreement  (the "5.03
              Protocol").
10.11(d)      - The 5.03 Protocol Assumption Agreement,  dated as of October 13,
              1992, between RFC and Foamex L.P.
10.12(d)      - Letter Agreement  between Trace Holdings and Recticel  regarding
              the Recticel guaranty, dated as of July 22, 1992.
10.13(i)      - Supply Agreement,  dated June 28, 1994,  between Foamex L.P. and
              Foamex International.
10.14(i)      - First  Amended and Restated Tax Sharing  Agreement,  dated as of
              December 14, 1993,  among Foamex L.P., Trace Foam, FMXI and Foamex
              International.

                                       36
<PAGE>

10.15(i)      - Tax Sharing Agreement, dated as of June 28, 1994, among FJPS and
              Foamex   International.   
10.16         - Tax  Distribution  Advance  Agreement,  dated as of December 11,
              1996, by and between Foamex L.P. and FJPS.
10.17(d)      - Trace Foam  Management  Agreement  between Foamex L.P. and Trace
              Foam, dated as of October 13, 1992.
10.18(i)      - Affirmation  Agreement  re:  Management  Agreement,  dated as of
              December 14, 1993 between Foamex L.P. and Trace Foam.
10.19(e)(p)   - Salaried Incentive Plan of Foamex L.P. and Subsidiaries.
10.20(e)(p)   - Trace Holdings 1987 Nonqualified Stock Option Plan.
10.21(e)(p)   -Equity Growth Participation Program.
10.22(j)(o)   -  General  Felt  Industries,  Inc.  Retirement  Savings  Plan for
              Salaried Employees, effective as of January 1, 1995.
10.23(e)(o)   -Foamex  L.P.  Salaried  Retirement  Plan  (formerly  known as the
              Foamex L.P. Products,  Inc. Salaried Employee Retirement Plan), as
              amended, effective July 1, 1984.
10.24(e)(p)   - Foamex L.P. 401(k) Savings Plan dated January 1, 1989.
10.25(o)      - Foamex/GFI 401(k) Savings Plan dated July 1, 1995.
10.26(a)(p)   - Foamex International's 1993 Stock Option Plan.
10.27(a)(p)   - Foamex International's Non-Employee Director Compensation Plan.
10.28(a)(p)   - Employment  Agreement,  dated as of May 6, 1993,  by and between
              Foamex L.P. and Rallis.
10.29(f)(p)   -  Employment  Agreement,  dated as of  February  1, 1994,  by and
              between Foamex L.P. and William H. Bundy.
10.30(p)      - Employment Agreement,  dated as of July 26, 1995, by and between
              Foamex L.P. and Salvatore J. Bonanno.
10.31(a)      - 1993 Recticel Master Agreement, dated as of November 4, 1993, by
              and among Trace Holdings,  Trace Foam, RFC, Foamex  International,
              Recticel s.a., MGM, FCD Sub and Foamex L.P.
10.32(a)      -  Exchange  Agreement,  dated as of  December  14,  1993,  by and
              between Foamex International and RFC.
10.33(a)      - Withdrawal  Agreement,  dated as of December  14,  1993,  by and
              between Foamex L.P. and RFC.
10.34(a)      - 1993  Agreement of Terms,  dated as of November 4, 1993,  by and
              among  Trace   Holdings,   Trace   Foam,   Foamex   L.P.,   Foamex
              International and GBNY.
10.35(a)      - 1993 Marely Master  Agreement,  dated as of November 4, 1993, by
              and among Foamex International, Trace Holdings, Trace Foam, Foamex
              L.P. and Marely.
10.36(a)      -  Exchange  Agreement,  dated as of  December  14,  1993,  by and
              between Foamex International and Marely.
10.37(a)      - Warrant  Exchange  Agreement,  dated as of December 14, 1993, by
              and between Foamex International and Marely.
10.38(a)      - Redemption  and Withdrawal  Agreement,  dated as of December 14,
              1993, by and between Foamex L.P. and Marely.
10.39(a)      - 1993 DLJ Master Agreement,  dated as of November 4, 1993, by and
              among  Foamex  International,  Trace  Holdings,  Trace  Foam,  DLJ
              Funding and Foamex L.P.
10.40(a)      -  Exchange  Agreement,  dated as of  December  14,  1993,  by and
              between Foamex International and DLJ Funding.
10.41(a)      - Warrant  Exchange  Agreement,  dated as of December 14, 1993, by
              and between Foamex International and DLJ Funding.
10.42(a)      - Redemption  and Withdrawal  Agreement,  dated as of December 14,
              1993, by and between Foamex L.P. and DLJ Funding.

                                       37
<PAGE>
10.43(a)      - 1993 Rallis Master  Agreement,  dated as of November 4, 1993, by
              and among Foamex International, Trace Holdings, Trace Foam, Rallis
              and Foamex L.P.
10.44(a)      -  Exchange  Agreement,  dated as of  December  14,  1993,  by and
              between Foamex International and Rallis.
10.45(a)      - Partial Redemption Agreement,  dated as of December 14, 1993, by
              and between Foamex L.P. and Rallis.
10.46(c)      - Exchange  Agreement  Regarding  Admission of Limited Partner and
              Put  Option,  dated  as of  May 1,  1993,  among  Rallis,  Pegasus
              Properties, Foamex L.P. and Trace Holdings.
10.47(a)      - Amended and Restated Put Option Agreement,  dated as of December
              14, 1993, by and between Trace Holdings and Rallis.
10.48(a)      -  Exchange  Agreement,  dated as of  December  14,  1993,  by and
              between Foamex International and Trace Holdings.
10.49(a)      - Redemption  and Withdrawal  Agreement,  dated as of December 14,
              1993, by and between Foamex L.P. and Trace Holdings.
10.50(a)      -  Exchange  Agreement,  dated as of  December  14,  1993,  by and
              between Foamex International and Trace Foam.
10.51(a)      - Withdrawal  Agreement,  dated as of December  14,  1993,  by and
              between Foamex L.P. and Trace Foam.
10.52(a)      -  Exchange  Agreement,  dated as of  December  14,  1993,  by and
              between Foamex International and FCD Sub.
10.53(a)      - Redemption  and Withdrawal  Agreement,  dated as of December 14,
              1993, by and between Foamex L.P. and FCD Sub.
10.54(a)      - Release and  Termination  Agreement,  dated as of  December  14,
              1993, by and among Trace Holdings,  Trace Foam,  Foamex L.P., RFC,
              Marely,   DLJ,  MGM,  FCD  Sub,  Recticel  s.a.,  SGB,  GBNY,  and
              Wilmington Trust Company.
10.55(f)      - Stock Purchase Agreement,  dated as of December 23, 1993, by and
              between   Transformacion  de  Espumas  y  Fieltros,   S.  A.,  the
              stockholders which are parties thereto, and Foamex L.P.
10.56(r)      - Agreement and Plan of Merger,  as amended,  dated as of June 11,
              1996, by and among PFI Subsidiary,  Inc., PFI  Acquisition  Corp.,
              Jody B. Vitale, Perfect Fit, General Felt, and Foamex L.P.
21            - Subsidiaries of the Registrant.

_________

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

(b)           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.

(c)           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.

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

(e)           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.

(f)           Incorporated  herein by  reference to the Exhibit to the Form 10-K
              of Foamex International for fiscal 1993.

                                       38

<PAGE>

(g)           Incorporated   herein  by   reference   to  the   Exhibit  to  JPS
              Automotive's  Registration Statement on Form S-1, Registration No.
              33-75510.

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

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

(j)           Incorporated  herein by reference to the Exhibit to the  quarterly
              report  on Form 10-Q of JPS  Automotive  L.P.  and JPS  Automotive
              Products Corp. for the fiscal quarter ended October 2, 1994.

(k)           Incorporated  herein by reference to the Exhibit to the  quarterly
              report  on Form  10-Q of  Foamex  L.P.  and  Foamex  L.P.  Capital
              Corporation,  and General  Felt  Industries,  Inc.  for the fiscal
              quarter ended October 2, 1994.

(l)           Incorporated   herein  by   reference   to  the   Exhibit  to  the
              Registration  Statement  on  Form  S-1  of  Foamex  International,
              Registration No. 33-85488.

(m)           Incorporated  herein by  reference to the Exhibit to the Form 10-K
              of Foamex International for fiscal 1994.

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

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

(p)           A management contract or compensatory plan or arrangement required
              to be filed as an Exhibit pursuant to Item 14(c) of this report.

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

(r)           Incorporated herein by reference to the Exhibit to the Form 8-K of
              Foamex L.P. dated June 11, 1996.

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

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

              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.

(d)           Schedules

              The  schedules  listed  in the  accompanying  Index  to  Financial
              Statement  Schedules  are filed as part of this  Annual  Report on
              Form 10-K.

                                       39

<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 April,
1997

                                             FOAMEX L.P.

                                             By:  FMXI, Inc.
                                                  General Partner


                                             By: /s/ Marshall S. Cogan
                                                 Marshall S. Cogan
                                                 Chairman of the Board and
                                                 Chief Executive Officer

                                             FOAMEX CAPITAL CORPORATION

                                             By: /s/ Marshall S. Cogan
                                                 Marshall S. Cogan
                                                 Chairman of the Board and
                                                 President

     Pursuant to the  requirements of the Securities  Exchange Act of 1934, this
report  has been  signed  below by the  following  persons  on its behalf by the
registrant and in the capacities and on the dates indicated:

Signatures                          Title                              Date

/s/ Marshall S. Cogan         Chairman of the Board, Chief         April 7, 1997
-------------------------     Executive Officer and Director
Marshall S. Cogan             of FMXI and Chairman of the
                              Board, President and Director
                              of FCC


/s/ Robert J. Hay             Chairman Emeritus and Director       April 7, 1997
-------------------------     of FMXI
Robert J. Hay                                     




/s/ Salvatore J. Bonanno      President (Principal Executive       April 7, 1997
-------------------------     Officer) of Foamex L.P.
Salvatore J. Bonanno                              



                                       40
<PAGE>

/s/ Kenneth R. Fuette         Senior Vice President of Finance     April 7, 1997
-------------------------     (Chief Financial Officer and Chief
Kenneth R. Fuette             Accounting Officer) of Foamex L.P.
                              and FMXI and Treasurer, Chief
                              Financial Officer and Chief Accounting
                              Officer of FCC


/s/ William H. Bundy          Senior Vice President of Foamex      April 7, 1997
-------------------------     L.P. and Senior Vice President 
William H. Bundy of FMXI      and Director


/s/ John Rallis               President, Chief Operating Officer   April 7, 1997
-------------------------     and Director of FMXI
John Rallis 


/s/ Andrea Farace             Director of FCC                      April 7, 1997
-------------------------
Andrea Farace


/s/ Frederick Marcus          Director of FCC                      April 7, 1997
-------------------------
Frederick Marcus


/s/ Robert H. Nelson          Director of FCC                      April 7, 1997
-------------------------
Robert H. Nelson


/s/ Barry Zimmerman           Director of FCC                      April 7, 1997
-------------------------
Barry Zimmerman


                                       41

<PAGE>

                          FOAMEX L.P. AND SUBSIDIARIES
                          INDEX TO FINANCIAL STATEMENTS

<TABLE>
<S>                                                                                                            <C>

Financial Statements of Registrants:
Foamex L.P.:
   Report of Independent Accountants                                                                            F-2
   Consolidated Balance Sheets as of December 29, 1996  and December 31, 1995                                   F-3
   Consolidated Statements of Operations for the years ended 1996, 1995, and 1994                               F-5
   Consolidated Statements of Cash Flows for the years ended 1996, 1995 and 1994                                F-6
   Consolidated Statements of Partners' Equity (Deficit) for the years ended 1996, 1995, and 1994               F-7
   Notes to Consolidated Financial Statements                                                                   F-8

Foamex Capital Corporation:
   Report of Independent Accountants                                                                           F-30
   Balance Sheets as of December 29, 1996 and December 31, 1995                                                F-31
   Notes to Balance Sheets                                                                                     F-32

Financial Statements of Guarantors:
General Felt Industries, Inc.
   Report of Independent Accountants                                                                           F-33
   Consolidated Balance Sheets as of December 29, 1996 and December 31, 1995                                   F-34
   Consolidated Statements of Operations for the years ended 1996, 1995 and 1993                               F-36
   Consolidated Statements of Cash Flows for the years ended 1996, 1995 and 1994                               F-37
   Consolidated Statements of Stockholder's Equity for the years ended 1996, 1995 and 1994                     F-38
   Notes to Consolidated Financial Statements                                                                  F-39

Foamex International Inc.
   Report of Independent Accountants                                                                           F-51
   Consolidated Balance Sheets as of December 29, 1996 and December 31, 1995                                   F-52
   Consolidated Statements of Operations for the years ended 1996, 1995 and 1994                               F-54
   Consolidated Statements of Cash Flows for the years ended 1996, 1995 and 1994                               F-55
   Consolidated Statements of Stockholders' Equity (Deficit) for the years ended 1996, 1995 and 1994           F-56
   Notes to Consolidated Financial Statements                                                                  F-57
</TABLE>

                                       F-1

<PAGE>
                        REPORT OF INDEPENDENT ACCOUNTANTS




To the Partners of Foamex L.P.:

We have audited the accompanying  consolidated balance sheets of Foamex L.P. and
subsidiaries  ("Foamex L.P.") as of December 29, 1996 and December 31, 1995, and
the related  consolidated  statements  of  operations,  cash flows and partners'
equity  (deficit)  for each of the three years in the period ended  December 29,
1996.  Our audits also included the financial  statement  schedule as of and for
each of the three years in the period ended December 29, 1996.  These  financial
statements and financial  statement  schedule are the  responsibility  of Foamex
L.P.'s  management.  Our  responsibility  is to  express  an  opinion  on  these
financial statements and financial statement schedule based on our audits.

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

In our opinion,  the financial  statements  referred to above present fairly, in
all material  respects,  the consolidated  financial position of Foamex L.P. and
subsidiaries as of December 29, 1996 and December 31, 1995, and the consolidated
results of their  operations and their cash flows for each of the three years in
the period  ended  December  29,  1996 in  conformity  with  generally  accepted
accounting  principles.  In addition,  in our opinion,  the financial  statement
schedule   referred  to  above,   when  considered  in  relation  to  the  basic
consolidated  financial  statements taken as a whole,  presents  fairly,  in all
material respects, the information required to be included therein.





COOPERS & LYBRAND L.L.P.


2400 Eleven Penn Center
Philadelphia, Pennsylvania
February 26, 1997





                                      F-2

<PAGE>

                          FOAMEX L.P. AND SUBSIDIARIES
                           CONSOLIDATED BALANCE SHEETS

<TABLE>
<CAPTION>
                                                              December 29,       December 31,
ASSETS                                                            1996               1995
                                                                         (thousands)
<S>                                                            <C>                 <C>      
         CURRENT ASSETS:
            Cash and cash equivalents                          $  20,968           $     638
            Restricted cash                                       12,143                  --
            Accounts receivable, net of allowance for
              doubtful accounts of $6,328 and $9,138             125,847             113,583
            Inventories                                          102,610              89,952
            Deferred income taxes                                  6,720                  --
            Due from related parties                               1,791               1,569
            Other current assets                                  18,841              19,784
                                                               ---------           ---------

                Total current assets                             288,920             225,526
                                                               ---------           ---------

         PROPERTY, PLANT AND EQUIPMENT:
            Land and land improvements                             9,674               4,632
            Buildings and leasehold improvements                  78,082              78,169
            Machinery, equipment and furnishings                 185,348             176,019
            Construction in progress                              20,784               7,985
                                                               ---------           ---------

                Total                                            293,888             266,805

            Less accumulated depreciation and
              amortization                                      (111,461)            (97,739)
                                                               ---------           ---------

              Property, plant and equipment, net                 182,427             169,066

            COST IN EXCESS OF ASSETS ACQUIRED, NET                83,991              91,165

            DEBT ISSUANCE COSTS, NET                              14,902              18,703

            NET ASSETS OF DISCONTINUED OPERATIONS                     --              85,073

            OTHER ASSETS                                          15,917              16,359
                                                               ---------           ---------

                TOTAL ASSETS                                   $ 586,157           $ 605,892
                                                               =========           =========
</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 29,          December 31,
LIABILITIES AND PARTNERS' EQUITY (DEFICIT)                          1996                  1995
                                                                            (thousands)
<S>                                                               <C>                 <C>      
CURRENT LIABILITIES:
   Short-term borrowings                                          $   3,692           $   2,199
   Current portion of long-term debt - unrelated parties             13,735               8,511
   Accounts payable                                                  75,621              67,658
   Accounts payable to related parties                                8,803              11,731
   Accrued employee compensation                                      7,302               8,116
   Accrued interest                                                   8,871               9,591
   Accrued restructuring charges                                      6,300              15,882
   Other accrued liabilities                                         27,506              30,516
                                                                  ---------           ---------

     Total current liabilities                                      151,830             154,204

LONG-TERM DEBT - UNRELATED PARTIES                                  386,800             428,416

LONG-TERM DEBT - RELATED PARTIES                                      5,817               5,540

DEFERRED INCOME TAXES                                                 4,663               1,394

ACCRUED RESTRUCTURING CHARGES                                         4,043               3,773

OTHER LIABILITIES                                                    20,172              25,169
                                                                  ---------           ---------

     Total liabilities                                              573,325             618,496
                                                                  ---------           ---------

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

PARTNERS' EQUITY (DEFICIT)
   General partners                                                     632                 404
   Limited partners                                                  57,654              46,036
   Note receivable from partner                                     (33,180)            (44,444)
   Other                                                            (12,274)            (14,600)
                                                                  ---------           ---------

     Total partners' equity (deficit)                                12,832             (12,604)
                                                                  ---------           ---------

TOTAL LIABILITIES AND PARTNERS' EQUITY (DEFICIT)                  $ 586,157           $ 605,892
                                                                  =========           =========
</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 1996, 1995 and 1994
<TABLE>
<CAPTION>
                                                  December 29,     December 31,      January 1,
                                                     1996             1995              1995
                                                                  (thousands)
<S>                                                <C>              <C>              <C>      
NET SALES                                          $ 926,351        $ 862,834        $ 833,660

COST OF GOODS SOLD                                   773,119          762,085          691,265
                                                   ---------        ---------        ---------

GROSS PROFIT                                         153,232          100,749          142,395

SELLING, GENERAL AND ADMINISTRATIVE
   EXPENSES                                           56,778           63,466           57,059

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

INCOME (LOSS) FROM OPERATIONS                        102,869           (1,966)          85,336

INTEREST AND DEBT ISSUANCE EXPENSE                    43,211           44,550           41,532

OTHER INCOME (EXPENSE), NET                            1,705             (205)             732
                                                   ---------        ---------        ---------

INCOME (LOSS) FROM CONTINUING OPERATIONS
   BEFORE PROVISION FOR INCOME TAXES                  61,363          (46,721)          44,536

PROVISION FOR INCOME TAXES                             7,702            1,405            6,525
                                                   ---------        ---------        ---------

INCOME (LOSS) FROM CONTINUING OPERATIONS              53,661          (48,126)          38,011
                                                   ---------        ---------        ---------

DISCONTINUED OPERATIONS:

INCOME (LOSS) FROM DISCONTINUED OPERATIONS,
   NET OF INCOME TAXES                                  (230)          (5,117)           1,230

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

INCOME (LOSS) FROM DISCONTINUED OPERATIONS,
   NET OF INCOME TAXES                               (42,050)          (5,117)           1,230
                                                   ---------        ---------        ---------

INCOME (LOSS) BEFORE EXTRAORDINARY LOSS               11,611          (53,243)          39,241

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

NET INCOME (LOSS)                                  $   9,699        $ (53,243)       $  39,241
                                                   =========        =========        =========
</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 1996, 1995 and 1994
<TABLE>
<CAPTION>
                                                               December 29,    December 31,     January 1,
                                                                   1996           1995             1995
OPERATING ACTIVITIES:                                                          (thousands)
<S>                                                              <C>             <C>             <C>     
   Net income (loss)                                             $  9,699        $(53,243)       $ 39,241
   Adjustments to reconcile  net income (loss) to net
     cash provided by operating activities:
     Depreciation and amortization                                 21,132          22,905          22,108
     Amortization of debt issuance costs and debt discount          2,919           2,729           2,116
     Net loss on disposal of discontinued operations               40,551              --              --
     Net (income) loss from discontinued operations                 1,499           5,117          (1,230)
     Asset writedowns and other charges (credits)                  (7,364)         16,677              --
     Extraordinary loss on early extinguishment of debt             1,217              --              --
     Provision for uncollectible accounts                             704           4,627             878
     Deferred income taxes                                          6,010             659           5,520
     Other, net                                                    (5,804)           (706)              6
     Changes in operating assets and liabilities, net of
       acquisitions and discontinued operations:
     Accounts receivable                                          (13,130)         (1,472)        (24,677)
     Inventories                                                  (13,078)         14,146         (21,790)
     Accounts payable and accounts payable related parties          5,035             823          28,491
     Accrued restructuring charges                                 (7,000)         16,834          (3,469)
     Other assets and liabilities                                  (5,724)          7,415           3,414
                                                                 --------        --------        --------

     Net cash provided by continuing operations                    36,666          36,511          50,608
     Net cash used for discontinued operations                       (486)         (9,175)           (323)
                                                                 --------        --------        --------
     Net cash provided by operating activities                     36,180          27,336          50,285
                                                                 --------        --------        --------

INVESTING ACTIVITIES:
   Capital expenditures                                           (23,344)        (19,348)        (21,201)
   Acquisitions, net of cash acquired                                (841)         (7,272)             --
   Proceeds from sale of discontinued operations                   42,650              --              --
   Purchase of note from related party                                 --          (2,000)             --
   Repayment of (purchase of) note from partner                    18,623              --         (35,300)
   Increase in restricted cash                                    (12,143)             --              --
   Capital expenditures for discontinued operations                  (919)         (4,429)         (6,565)
   Other investing activities                                      (1,276)          2,495          (1,412)
                                                                 --------        --------        --------

     Net cash provided by (used for) investing activities          22,750         (30,554)        (64,478)
                                                                 --------        --------        --------

FINANCING ACTIVITIES:
   Net proceeds from (repayments of) short-term borrowings          1,493          (1,685)            537
   Net proceeds from (repayments of) revolving loans                   --          (3,000)          3,000
   Proceeds from long-term debt-unrelated parties                   1,500              --          40,000
   Repayments of long-term debt-unrelated parties                 (38,116)         (9,099)         (3,256)
   Distributions and redemptions to partners                       (3,487)         (2,379)         (3,257)
   Debt issuance costs                                                 --              --          (4,816)
   Other financing activities                                          10              --          (1,974)
                                                                 --------        --------        --------

     Net cash provided by (used for) financing activities         (38,600)        (16,163)         30,234
                                                                 --------        --------        --------

Net increase (decrease) in cash and cash equivalents               20,330         (19,381)         16,041

Cash and cash equivalents at beginning of period                      638          20,019           3,978
                                                                 --------        --------        --------

Cash and cash equivalents at end of period                       $ 20,968        $    638        $ 20,019
                                                                 ========        ========        ========
</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 1996, 1995 and 1994

<TABLE>
<CAPTION>
                                                                                          Note
                                                         General         Limited       Receivable
                                                         Partners        Partners     from Partner         Other        Total
                                                                                      (thousands)
<S>                                                     <C>             <C>             <C>             <C>             <C>     
Balances at January 2, 1994                             $ 11,338        $ 45,199        $     --        $ (7,151)       $ 49,386
Net income                                                 1,377          37,864              --              --          39,241
Distributions                                               (117)         (4,487)             --              --          (4,604)
Note receivable from partner                                  --              --         (35,300)             --         (35,300)
Accretion of note receivable
   from partner                                               58           2,809          (2,867)             --              --
Transfer of partnership interests                        (11,208)         11,208              --              --              --
Contribution of Foamex Latin America, Inc.                    --           5,093              --            (453)          4,640
Additional pension liability                                  --              --              --             168             168
Foreign currency translation adjustment                       --              --              --            (983)           (983)
                                                        --------        --------        --------        --------        --------
Balances at January 1, 1995                                1,448          97,686         (38,167)         (8,419)         52,548

Net loss                                                  (1,044)        (52,199)             --              --         (53,243)
Distributions                                               (125)         (5,603)             --              --          (5,728)
Purchase of note receivable from
   Foamex International                                       --              --              --          (2,000)         (2,000)
Increase in note receivable from
   Trace Holdings                                             --              --              --          (1,373)         (1,373)
Accretion of note receivable from partner                    125           6,152          (6,277)             --              --
Additional pension liability                                  --              --              --          (3,290)         (3,290)
Foreign currency translation adjustment                       --              --              --             482             482
                                                        --------        --------        --------        --------        --------
Balances at December 31, 1995                                404          46,036         (44,444)        (14,600)        (12,604)

Net income                                                   184           9,515              --              --           9,699
Distributions                                               (104)         (5,108)             --              --          (5,212)
Accretion of note receivable from partner                    144           7,031          (7,175)             --              --
Repayment of note receivable from partner                     --              --          18,439              --          18,439
Repayment premium on note receivable from partner              4             180              --              --             184
Additional pension liability                                  --              --              --           2,372           2,372
Foreign currency translation adjustment                       --              --              --             (46)            (46)
                                                        --------        --------        --------        --------        --------
Balances at December 29, 1996                           $    632        $ 57,654        $(33,180)       $(12,274)       $ 12,832
                                                        ========        ========        ========        ========        ========
</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.,  a  Delaware  limited   partnership,   is  an  indirect,
majority-owned subsidiary of Foamex International Inc. ("Foamex International").
Foamex L.P. is a significant  manufacturer and marketer of flexible polyurethane
foam and foam products in North America. Foamex L.P.'s products include (i) foam
for  carpet  cushion  and  other  carpet  products,  (ii)  cushioning  foams for
furniture,  bedding,  packaging and health care, (iii) foams for automotive trim
and accessories and (iv) technical foams for filtration,  consumer  products and
packaging.

          During 1996, Foamex L.P. sold Perfect Fit Industries,  Inc.  ("Perfect
Fit") which  comprised  the home  comfort  products  segment of Foamex L.P.  The
consolidated  financial  statements  of  Foamex  L.P.  have  been  restated  for
discontinued  operations  and includes a net loss of $41.8  million (net of $1.2
million  income tax  benefit) on the  disposal of this  business  segment  which
includes  provisions for operating losses during the phase-out period. (See Note
3 for further discussion).  In addition,  during April 1996 Foamex International
contributed the foam products operations of Foamex Latin America,  Inc. ("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  have been  restated  to reflect the
results of operations and financial position of Foamex Mexico.

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,  other than the home comfort
products segment which is accounted for as discontinued operations. Intercompany
accounts and  transactions  for continuing  operations  have been  eliminated in
consolidation.

          The   consolidated   financial   statements  have  been  restated  for
discontinued operations.  The accompanying notes present amounts related only to
continuing operations.

          Fiscal Year

          Foamex  L.P.'s  fiscal  year  ends  on  the  Sunday   closest  to  the
thirty-first day of December.  Fiscal years 1996, 1995 and 1994 were composed of
fifty-two weeks and ended on December 29, 1996, December 31, 1995 and January 1,
1995, respectively.

          Accounting Estimates

          The  preparation of financial  statements in conformity with generally
accepted  accounting  principles  requires  management  to  make  estimates  and
assumptions  that affect the reported  amounts of assets and  liabilities at the
date of the  financial  statements  and the  reported  amounts of  revenues  and
expenses  during the reported  period.  Actual  results  could differ from those
estimates.  (See  Notes 4, 9, 10, 15, 16 and 17 and Cost in Excess of Net Assets
Acquired below.)

          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.  On
December  29,  1996,  cash  and  cash  equivalents  included  $18.4  million  of
repurchase agreements collateralized by U.S. Government securities.

                                      F-8

<PAGE>

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


2.        SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)

          Restricted Cash

          As  of  December  29,  1996,   Foamex  L.P.  had  restricted  cash  of
approximately  $12.1 million.  This cash was derived from the net sales proceeds
relating  to the sale of Perfect  Fit and is  restricted  by Foamex  L.P.'s debt
agreements.  As of February 26, 1997,  Foamex L.P. has used  approximately  $8.4
million of the  restricted  cash to  repurchase  approximately  $8.0  million of
outstanding indebtedness.

          Inventories

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

          Property, Plant and Equipment

          Property,  plant and equipment are stated at cost and are  depreciated
using the  straight-line  method over the estimated  useful lives of the assets.
The range of  useful  lives  estimated  for  buildings  is  generally  twenty to
thirty-five years and the range for machinery, equipment and furnishings is five
to twelve years.  Leasehold  improvements  are amortized over the shorter of the
terms of the  respective  leases or the estimated  useful lives of the leasehold
improvements.  Depreciation  expense for the years ended 1996, 1995 and 1994 was
$17.9  million,  $18.7 million and $16.8 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 interest method.  Accumulated amortization as of December 29, 1996 and
December 31, 1995 was approximately $7.5 million and $5.7 million, respectively.

          Cost in Excess of Net Assets Acquired

          The excess of the  acquisition  cost over the fair value of net assets
acquired in business combinations  accounted for as purchases is amortized using
the  straight-line  method over a forty year period.  At each balance sheet date
Foamex  L.P.  evaluates  the  recoverability  of cost in  excess  of net  assets
acquired  using  certain  financial  indicators  such as  historical  and future
ability to  generate  income from  operations  based on a going  concern  basis.
Accumulated  amortization  as of  December  29, 1996 and  December  31, 1995 was
approximately $11.6 million and $9.1 million, respectively.

          Environmental Matters

          Environmental  expenditures  that  relate to  current  operations  are
expensed or capitalized as appropriate.  Expenditures that relate to an existing
condition caused by past operations, and which do not contribute to current or 

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


2.        SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)

future  revenue  generation,   are  expensed.   Liabilities  are  recorded  when
environmental assessments and/or remedial efforts are probable and the costs can
be reasonably estimated.

          Postretirement and Postemployment Benefits

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

          Foreign Currency Accounting

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

          Interest Rate Swap Agreement

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

          Income Taxes

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

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

          Reclassifications

          Certain amounts in the 1995 and 1994 consolidated financial statements
have been reclassified to conform with the current year's presentation.

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



3.        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  substantially  all of the net
assets of Foamex  L.P.'s home comfort  products  segment.  Actual and  estimated
transaction  expenses  related to the sale totaled  approximately  $1.5 million.
Foamex L.P. has 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. A valuation  allowance  has been  provided for the capital
loss  relating  to the sale of Perfect Fit since  future  capital  gain  taxable
income is not  likely to be  sufficient  to  recognize  the  deferred  tax asset
relating to the capital loss carryforward.

          Foamex L.P.'s  financial  statements have been restated to reflect the
discontinuation of the home comfort products segment. A summary of the operating
results for the discontinued operations is as follows:
<TABLE>
<CAPTION>
                                                                       1996  (1)          1995           1994
                                                                                      (thousands)
<S>                                                                   <C>             <C>             <C>     
Sales                                                                 $ 50,097        $ 98,464        $ 95,381
Gross profit                                                             8,065          14,946          18,200
Income (loss) from operations                                            1,123          (3,058)          4,170
Interest and debt issuance expense                                       2,384           4,699           3,671
Other expense                                                              348              --              --
Income (loss) from discontinued operations before income taxes          (1,609)         (7,757)            499
Provision (benefit) for income taxes                                    (1,379)         (2,640)           (731)
Income (loss) from discontinued operations, net of income taxes           (230)         (5,117)          1,230
<FN>
(1)      Foamex  L.P.'s  discontinued  operations  includes  the  operations  of
         Perfect Fit through June 1996.
</FN>
</TABLE>

          Net assets of  discontinued  operations  (excluding  intercompany  net
assets) at December 31, 1995 were as follows:

                                                           1995
                                                        (thousands)
Current assets                                            $31,925
Property, plant and equipment, net                         21,672
Cost in excess of assets acquired, net                     40,333
Other assets                                                2,219
                                                          -------
   Total assets                                            96,149
                                                          -------

Current liabilities                                        11,076
                                                          -------
   Total liabilities                                       11,076
                                                          -------

Net assets                                                $85,073
                                                          =======

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

4.       RESTRUCTURING AND OTHER CHARGES (CREDITS)

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

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

         Generally,   the  1995  restructuring  plan  has  been  implemented  as
originally contemplated. The following table sets forth the components of Foamex
L.P.'s restructuring and other charges:

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

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

Balances at December 29, 1996             $   8.5       $  (1.8)      $   8.9       $  1.4       $   --
                                          =======       =======       =======       ======       ======
</TABLE>

         As indicated in the table above, the accrued  restructuring  balance at
December 29, 1996 will be used for payments relating to plant closure and leases
including rundown costs at the facilities.  The $1.8 million of asset writedowns
relates to estimated proceeds and is included in noncurrent assets.  Foamex L.P.
expects to incur  approximately  $6.3  million of charges  during  1997 with the
remaining  $4.0 million to be incurred  through  2001.  As of December 29, 1996,
Foamex  L.P.  has   terminated   approximately   270   employees   and  notified
approximately  40 employees in the  manufacturing  and  administrative  areas of
their impending  termination in connection with the 1996 and 1995  restructuring
plans.

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

5.       ACQUISITIONS

         In April 1995,  Foamex L.P. acquired certain assets and assumed certain
liabilities of manufacturers  of synthetic  fabrics for the carpet and furniture
industries for aggregate consideration of approximately $8.0 million,  including
related fees and expenses of  approximately  $0.3 million,  with an initial cash
payment of $7.2  million.  The excess of the purchase  price over the  estimated
fair  value of the net assets  acquired  was  approximately  $3.9  million.  The
acquisition  was accounted for as a purchase and the  operations of the acquired
company are included in the consolidated statements of operations and cash flows
from the date of its  acquisition.  The  excess of the  purchase  price over the
estimated  fair value of the net assets  acquired is being  amortized  using the
straight-line method over forty years.

6.       INVENTORIES

         Inventories consists of:

                                       December 29, 1996   December 31, 1995
                                                    (thousands)
         Raw materials and supplies          $ 61,559          $ 49,963
         Work-in process                       13,453            14,451
         Finished goods                        27,598            25,538
                                             --------          --------

         Total                               $102,610          $ 89,952
                                             ========          ========

7.       SHORT-TERM BORROWINGS

         Short-term  borrowings include  borrowings  outstanding under a line of
credit facility for Foamex Canada Inc. ("Foamex Canada") bearing interest at the
bank's prime rate (4.75% at December 29, 1996) plus 1/2%.  The weighted  average
interest rates on Foamex Canada's  short-term  borrowings  outstanding for 1996,
1995 and 1994 were 5.9%, 8.0% and 7.3%,  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 $17.1 million as of December 29, 1996. The unused amount under
this line of credit totaled $0.7 million as of December 29, 1996.


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

8.       LONG-TERM DEBT

         Long-term debt consists of:
<TABLE>
<CAPTION>
                                                                    December 29, 1996  December 31, 1995
                                                                                 (thousands)
<S>                                                                      <C>               <C>     
         Unrelated parties:
         9 1/2% Senior secured notes due 2000                             $106,793          $116,667
         11 1/4% Senior notes due 2002                                     141,400           150,000
         11 7/8% Senior subordinated debentures due 2004 (net of
             unamortized debt discount of $769 and $827)                   125,056           125,173
         11 7/8% Senior subordinated debentures due 2004,
             Series B                                                        7,000             7,000
         Industrial revenue bonds                                            7,000             7,000
         Foamex L.P. term loan (8.54% interest rate as of
             December 29, 1996)                                             11,000            30,000
         Other                                                               2,286             1,087
                                                                          --------          --------

             Total                                                         400,535           436,927

         Less current portion                                               13,735             8,511
                                                                          --------          --------

         Long-term debt--unrelated parties                                $386,800          $428,416
                                                                          ========          ========

         Related parties:
         Subordinated note payable (net of unamortized
             debt discount of $1,198 and $1,475)                          $  5,817          $  5,540
                                                                          ========          ========
</TABLE>

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

         The Senior  Secured Notes were issued on June 3, 1993 and bear interest
at the rate of 9 1/2%  payable  semiannually  on each June 1 and December 1. The
Senior  Secured  Notes  mature on June 1,  2000.  The Senior  Secured  Notes are
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 may be redeemed at the option of Foamex L.P.,  in whole or in part, at any
time on or after June 1, 1998,  initially at 101.583% of their principal amount,
plus  accrued  interest,  and  declining  to 100% on or after June 1, 1999.  The
Senior Secured Notes have been guaranteed,  on a senior secured basis by General
Felt Industries, Inc. ("General Felt") and on a senior unsecured basis by Foamex
International.  During  1996,  Foamex L.P.  repurchased  $9.9  million of Senior
Secured Notes with the net proceeds from the sale of Perfect Fit (see Note 11).

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

         The  Senior  Notes  bear  interest  at  the  rate  of 11  1/4%  payable
semiannually  on each April 1 and October 1. The Senior  Notes mature on October
1, 2002. The Senior Notes may be redeemed at the option of Foamex L.P., in whole
or in part,  at any time on or after  October 1, 1997,  initially at 104.219% of

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

8.       LONG-TERM DEBT (continued)

their principal amount, plus accrued interest, and declining to 100% on or after
October 1, 2000. In October 1994,  Foamex L.P. provided certain real property as
collateral  for the  Senior  Notes,  with a net book  value of $37.8  million at
December 29, 1996. The Senior Notes have been guaranteed,  on a senior basis, by
General Felt and Foamex International. During 1996, Foamex L.P. repurchased $8.6
million of Senior Notes with the net proceeds  from the sale of Perfect Fit (see
Note 11).

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

         The  Subordinated  Debentures  bear  interest  at the  rate  of 11 7/8%
payable semiannually on each April 1 and October 1. The Subordinated  Debentures
mature on October 1, 2004.  The  Subordinated  Debentures may be redeemed at the
option of Foamex L.P.,  in whole or in part,  at any time on or after October 1,
1997,  initially at 105.938% of their principal  amount,  plus accrued interest,
and declining to 100% on or after October 1, 2002. The  Subordinated  Debentures
are subordinated in right of payment to all senior  indebtedness,  including the
Senior Secured Notes and the Senior Notes. The Subordinated Debentures have been
guaranteed,  on  a  senior  subordinated  basis,  by  General  Felt  and  Foamex
International. During 1996, Foamex L.P. repurchased $0.1 million of Subordinated
Debentures with the net proceeds from the sale of Perfect Fit (see Note 11).

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

         The Series B Debentures were issued July 30, 1993, by Foamex L.P. in an
exchange offer to holders of senior subordinated debentures issued in connection
with the  acquisition of General Felt on March 23, 1993. The Series B Debentures
have terms  substantially  similar to the Subordinated  Debentures,  except that
holders of the Series B  Debentures  are  entitled to receive  proceeds  from an
asset sale only if any  proceeds  remain after an offer to  repurchase  has been
made to the holders of the Subordinated Debentures. The Series B Debentures have
been guaranteed on a senior subordinated basis by General Felt.

         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 $11.3  million at
December 29, 1996 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 4.85% and 4.0% at
December   29,  1996  for  the  $6.0  million  and  $1.0  million  bond  issues,
respectively.  The interest  rate on the $6.0  million bond issue varies  weekly
based on an interest rate that is indicative of current  bidside  yields on high
quality  short-term,  tax-exempt  obligations,  or if such  interest rate is not
available,  70.0% of the interest rate for thirteen week United States  Treasury
Bills.  The maximum  interest rate for either of the IRBs is 15.0% per annum. At
the time of a conversion to a fixed interest rate and upon  appropriate  notice,
the IRBs are redeemable at the option of the bondholders.

         Term and Revolving Loans

         Foamex L.P. has a credit agreement (the "Foamex L.P. Credit  Facility")
with a group of banks that provide for loans of up to $85.0  million of which up
to $40.0 million was available as a term loan payable in twenty equal  quarterly
installments  commencing October 1994 and up to $45.0 million is available under
a revolving line of credit which expires in June 1999. In 1994,  Foamex L.P. and

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

8.       LONG-TERM DEBT (continued)

General Felt entered into a $40.0 million term loan under the Foamex L.P. Credit
Facility; no further term loan borrowings are available thereunder. During 1996,
Foamex L.P. and General Felt used $12.0 million of net proceeds from the Perfect
Fit sale to repay term loan borrowings.  Borrowings under the Foamex L.P. Credit
Facility  are  collateralized  by the  accounts  receivable  of Foamex L.P.  and
General Felt. Pursuant to the terms of the Foamex L.P. Credit Facility, borrowed
funds will bear  interest  at a  floating  rate equal to 1.0% per annum plus the
highest of (i) the base rate of The Bank of Nova Scotia,  as in effect from time
to time, (ii) a rate that is, generally,  0.5% per annum plus a fluctuating rate
generally equal to the rate on three month  certificates of deposit,  subject to
certain  adjustments,  plus a  fluctuating  rate  generally  equal to the annual
assessment rate paid by The Bank of Nova Scotia to the Federal Deposit Insurance
Corporation  or (iii) 0.5% per annum plus the federal  funds rate in effect from
time to time.  At the option of Foamex L.P.,  portions of the  outstanding  loan
under the Foamex L.P. Credit  Facility will be convertible  into Eurodollar rate
loans  bearing  interest at a rate  generally  equal to 3.0% per annum above the
average LIBOR rate of Citibank, N.A. and The Bank of Nova Scotia. As of December
29,  1996,  there  were  approximately   $11.7  million  in  letters  of  credit
outstanding  under the Foamex L.P.  Credit  Facility.  As of December  29, 1996,
there was unused  availability of  approximately  $33.3 million under the Foamex
L.P. Credit Facility.

         Subordinated Note Payable

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

         Other

         As of December 29, 1996,  other debt is comprised  primarily of capital
lease obligations and borrowings by Foamex Mexico.

         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.  Foamex
L.P. has an interest rate swap agreement,  as amended, with a notional amount of
$150.0 million through December 2001. Under the swap agreement,  Foamex L.P. has
made variable  payments based on LIBOR through December 1996 and is obligated to
make fixed  payments at 5.30% per annum for the twelve  months ended in December
1997 and variable payments based on LIBOR for the remainder of the agreement, in
exchange  for fixed  payments  by the swap  partner  at 5.81% per annum  through
December 1996,  and 6.50% per annum for the remainder of the agreement,  payable
semiannually in arrears.  The swap partner has the ability to terminate the swap
agreement  after the  December  1997 payment if the LIBOR rate Foamex L.P. is to
pay for any period thereafter is equal to or less than 4.50% per annum. Interest
expense  will be subject to  fluctuations  in LIBOR  during the term of the swap
agreement except during 1997. Foamex L.P. is exposed to credit loss in the event
of nonperformance by the swap partner;  however, the occurrence of this event is
not anticipated.

         Also, Foamex L.P. has an interest rate swap agreement,  as amended, for
a notional  amount of $150.0  million  through  December  2001.  Under this swap
agreement,  Foamex L.P. has made variable  payments based on LIBOR with a cap of
5.50% per annum and a floor of 4.75% per annum for the six months  ended in June

                                      F-16

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

8.       LONG-TERM DEBT (continued)

1995,  variable  payments based on LIBOR with a floor of 4.75% per annum for the
six months ended in December  1995,  fixed payments at a rate of 5.81% per annum
for the twelve  months  ended in December  1996 and is  obligated  to make fixed
payments at a rate of 5.30% per annum for the twelve months in December 1997 and
variable payments based on LIBOR for the remainder of the agreement, in exchange
for  variable  payments by the swap  partner at the rate of LIBOR plus 0.80% per
annum for the six months ended in June 1995,  LIBOR plus 0.72% per annum for the
six months ended in December 1995, LIBOR plus 2.45% per annum for the six months
ended in June  1996,  LIBOR  plus  2.39% per annum for the six  months  ended in
December  1996 and fixed  payments at 6.50% per annum for the  remainder  of the
term of the agreement, payable semiannually in arrears. The swap partner has the
ability to terminate the swap  agreement  after the December 1997 payment if the
LIBOR rate Foamex L.P. is to pay for any period  thereafter  is equal to or less
than  4.50% per annum.  Foamex  L.P.  is exposed to credit  loss in the event of
nonperformance by the swap partner; however, the occurrence of this event is not
anticipated.  Interest  expense will be subject to  fluctuations in LIBOR during
the term of the  swap  agreement  except  during  1997.  The  effect  of the two
interest  rate swaps  described  above was a  favorable  adjustment  to interest
expense of $3.7 million,  $1.4 million and $3.0 million for 1996, 1995 and 1994,
respectively.

         Debt Restrictions and Covenants

         The  indentures,  credit  agreement and other  indebtedness  agreements
contain various covenants,  including  restrictions on payments of distributions
by Foamex L.P. to its partners, the incurrence of additional  indebtedness,  the
sale of assets, mergers and consolidations and transactions with affiliates.  In
addition, certain agreements contain a provision that, in the event of a defined
change of control,  the  indebtedness  must be repaid,  in certain  cases at the
option of the holder.  Also,  Foamex L.P.  is  required  under  certain of these
agreements to maintain specified  financial ratios of which the most restrictive
is the maintenance of net worth and interest coverage ratios, as defined.  Under
the  most  restrictive  of the  distribution  restrictions,  approximately  $0.7
million was  available to be paid by Foamex L.P. to its partners at December 29,
1996.

         As of  December  29,  1996,  Foamex  L.P.  was in  compliance  with the
covenants of the indentures, credit agreements and other indebtedness agreements
and expects to be in compliance with these covenants for the foreseeable future.

         Future Obligations on Long-Term Debt

         Scheduled maturities of long-term debt are shown below:

         Year Ended                                          Long-Term Debt
                                                               (thousands)
         1997                                                   $ 13,490
         1998                                                      4,000
         1999                                                      5,338
         2000                                                    106,631
         2001                                                      2,339
         Thereafter                                              275,735
                                                                --------

         Total                                                   407,533

         Less unamortized discount                                 1,967
                                                                --------
         Total                                                  $405,566
                                                                ========

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


8.       LONG-TERM DEBT (continued)

         In  addition,  Foamex  L.P.  has  approximately  $0.8  million of total
capital  lease  obligations  that are  payable  in 1997  through  2000 in annual
amounts of approximately $0.2 million.

9.       EMPLOYEE BENEFIT PLANS

         Defined Benefit Pension Plans

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

         Net periodic pension cost included the following components:
<TABLE>
<CAPTION>
                                                  1996             1995               1994
                                                               (thousands)
<S>                                             <C>               <C>               <C>    
         Service cost                           $ 2,471           $ 2,087           $ 2,452
         Interest cost                            3,997             3,742             3,541
         Actual return on plan assets            (8,841)           (5,682)              624
         Net amortization and deferral            4,643             1,807            (4,649)
                                                -------           -------           -------
                 Total                          $ 2,270           $ 1,954           $ 1,968
                                                =======           =======           =======
</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 limita tions of
the Internal  Revenue Code of 1986,  as amended (the "Code").  Plan  investments
consist primarily of corporate equity and debt securities, mutual life insurance
funds and cash  equivalents.  During  1996,  the  discount  rate was adjusted to
7.50%.  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 29, 1996 and December 31, 1995:

<TABLE>
<CAPTION>
                                                                            December 29,        December 31,
                                                                                1996                1995
                                                                                     (thousands)
<S>                                                                           <C>                <C>     
         Actuarial present value of accumulated benefit obligations:
         Vested benefits                                                      $ 55,336           $ 52,762
         Nonvested benefits                                                      2,137              1,916
                                                                              --------           --------

         Accumulated benefit obligations                                      $ 57,473           $ 54,678
                                                                              ========           ========

         Total projected benefit obligations                                  $ 58,775           $ 55,810
         Fair value of plan assets                                              53,734             44,441
                                                                              --------           --------

         Projected benefit obligations in excess
           of plan assets                                                       (5,041)           (11,369)

         Unrecognized net loss from past experience difference
           from that assumed and effect of changes in assumptions                1,099              6,394
         Additional minimum liability                                           (2,694)            (5,265)
                                                                              --------           --------
         Accrued pension cost                                                 $ (6,636)          $(10,240)
                                                                              ========           ========
</TABLE>

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




9.        EMPLOYEE BENEFIT PLANS (continued)

          Significant  assumptions  used in determining the plans' funded status
are as follows:
<TABLE>
<CAPTION>
                                                                             December 29,    December 31,
                                                                                 1996            1995
<S>                                                                              <C>            <C>  
         Expected long-term rates of return on plan assets                       9.50%          9.00%
         Discount rates on projected benefit obligations                         7.50%          7.25%
         Rates of increase in compensation levels (where applicable)             4.00%          4.00%
</TABLE>

          Defined Contribution Plan

          Foamex L.P.  maintains a defined  contribution plan which is qualified
under  Section  401(k) of the Code and is available  for eligible  employees who
elect to  participate  in the plan.  Employee  contributions  are  voluntary and
subject to certain  limitations  as imposed by the Code.  During  1996 and 1995,
Foamex  L.P.  provided  contributions  amounting  to a 25%  match of  employees'
contributions  up to 4% of eligible  compensation.  Foamex L.P. also provides an
additional  25%  match  of  employees'   contributions  up  to  4%  of  eligible
compensation made to a fund which invests in Foamex  International common stock.
In addition, Foamex L.P. may make discretionary contributions amounting to a 25%
match of employees'  contributions up to 4% of eligible  compensation.  Prior to
1995,  employer  contributions  were  discretionary  and provided a 50% match of
employees'  contributions  up to 3% of  eligible  compensation.  The expense for
these contributions for 1996, 1995 and 1994 was approximately $0.8 million, $0.7
million and $0.4 million, respectively.

          Postretirement Benefits

          In addition  to  providing  pension  benefits,  Foamex  L.P.  provides
postretirement  health care and life  insurance for eligible  employees.  During
1996,  certain  employees  accepted an early retirement  program  resulting in a
special  termination  loss of $0.6  million.  During 1995,  changes were made to
postretirement  benefits  offered  to  certain  employees  which  resulted  in a
curtailment  loss of $0.6  million.  These  plans are  unfunded  and Foamex L.P.
retains the right, subject to existing agreements,  to modify or eliminate these
benefits.

          The  components  of 1996,  1995 and 1994  expense  for  postretirement
benefits are as follows:

<TABLE>
<CAPTION>
                                                           1996             1995            1994
                                                                        (thousands)
<S>                                                        <C>             <C>             <C>  
         Service costs for benefits earned                 $  12           $  24           $ 172
         Interest cost on liability                           67              83             192
         Net amortization and deferral                       (53)            (13)            134
         Special termination/curtailment loss                576             619              --
                                                           -----           -----           -----

         Net periodic postretirement benefit cost          $ 602           $ 713           $ 498
                                                           =====           =====           =====
</TABLE>

         The accumulated  postretirement benefit obligation at December 29, 1996
and December  31, 1995  resulted in an unfunded  obligation  of $2.1 million and
$1.6 million, respectively.

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


9.       EMPLOYEE BENEFIT PLANS (continued)

         A 9% and 10% annual rate of increase in the per capita costs of covered
health care benefits was assumed for each of 1996 and 1995,  respectively.  This
rate was assumed to gradually  decrease to 5% by the year 2000.  Increasing  the
weighted  average  assumed health care cost trend rates by one percentage  point
would have an  insignificant  impact on the accumulated  postretirement  benefit
obligation  and service and interest  cost. The discount rate used was 7.50% and
7.25% as of December 29, 1996 and December 31, 1995, 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 29, 1996 and December 31, 1995,
Foamex L.P.'s liability for  postemployment  benefits was insignificant for each
period.

         Other

         In  December  1994,  Foamex  L.P.  changed  its method of  compensating
certain  employees for vacation which  increased  income from operations by $4.3
million for 1994.

10.      INCOME TAXES

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

<TABLE>
<CAPTION>
                                                                   1996               1995               1994
                                                                                    (thousands)
<S>                                                              <C>               <C>                <C>     
         United States                                           $ 58,277          $(45,738)          $ 42,610
         Foreign                                                    3,086              (983)             1,926
                                                                 --------          --------           --------
         Income (loss) from continuing operations
            before provision (benefit) for income taxes          $ 61,363          $(46,721)          $ 44,536
                                                                 ========          ========           ========
</TABLE>

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

<TABLE>
<CAPTION>
                                                               1996             1995              1994
                                                                             (thousands)
<S>                                                          <C>               <C>               <C>    
         Continuing operations                               $ 7,702           $ 1,405           $ 6,525
         Discontinued operations                              (2,606)           (2,640)             (731)
                                                             -------           -------           -------
             Total consolidated provision (benefit)
                for income taxes                             $ 5,096           $(1,235)          $ 5,794
                                                             =======           =======           =======
</TABLE>

                                      F-20
<PAGE>
                          FOAMEX L.P. AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

10.      INCOME TAXES (continued)

         The  total  consolidated   provision  (benefit)  for  income  taxes  is
summarized as follows:
<TABLE>
<CAPTION>
                                                               1996             1995              1994
                                                                            (thousands)
<S>                                                          <C>              <C>               <C>    
         Current:
             Federal                                         $   220          $    --           $    --
             State                                               686              266               172
             Foreign                                             786              480               833
                                                             -------          -------           -------

             Total current                                     1,692              746             1,005
                                                             -------          -------           -------

         Deferred:
             Federal                                           1,665           (1,424)            3,598
             State                                             1,248             (268)            1,212
             Foreign                                             491             (289)              (21)
                                                             -------          -------           -------

             Total deferred                                    3,404           (1,981)            4,789
                                                             -------          -------           -------

             Total consolidated provision (benefit)
                for income taxes                             $ 5,096          $(1,235)          $ 5,794
                                                             =======          =======           =======
</TABLE>

         The  tax  effect  of  the  temporary  differences  that  give  rise  to
significant deferred tax assets and liabilities are:

<TABLE>
<CAPTION>
                                                                  December 29,        December 31,
                                                                      1996               1995
                                                                            (thousands)
<S>                                                                 <C>                <C>     
         Deferred tax assets:
         Inventory basis differences                                $    415           $    861
         Employee benefit accruals                                       714                976
         Allowances and contingent liabilities                         2,548              2,427
         Restructuring and plant closing accruals                      3,632              7,644
         Other                                                           221                 77
         Net operating loss carryforwards                              5,154              8,975
         Capital loss carryforwards                                   14,193                 --
         Valuation allowance for deferred tax assets                 (15,988)           (13,473)
                                                                    --------           --------

         Deferred tax assets                                          10,889              7,487
                                                                    --------           --------

         Deferred tax liabilities:
         Basis difference in property, plant and equipment             7,644              8,507

         Other                                                         1,188                374
                                                                    --------           --------

         Deferred tax liabilities                                      8,832              8,881
                                                                    --------           --------

         Net deferred tax assets (liabilities)                      $  2,057           $ (1,394)
                                                                    ========           ========
</TABLE>

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

10.      INCOME TAXES (continued)

         Foamex  L.P.  has  determined   that  taxable   capital  gains  in  the
foreseeable  future for a subsidiary  that files a separate  federal  income tax
return  will  likely not be  sufficient  to  recognize  the  deferred  tax asset
associated with the capital loss carryforward of that subsidiary. Accordingly, a
valuation allowance has been provided for the deferred tax asset associated with
the capital loss  carryforward  and certain  other  deferred tax assets.  During
1996, the valuation  allowance for deferred tax assets increased by $2.5 million
which  included a $14.2  million  increase  for the capital  loss  carryforward,
offset by $6.9 million  decrease due to reversal of General Felt  preacquisition
temporary   differences   and  $4.8   million  for   reversal  of  General  Felt
postacquisition  temporary  differences  which is reflected in the  consolidated
statement of operations.  The $6.9 million reversal of preacquisition  temporary
differences was used to reduce cost in excess of assets acquired. As of December
29,  1996,  approximately  $1.8  million of  deferred  tax assets are related to
preacquisition  activities and if utilized will further reduce cost in excess of
assets acquired. At December 29, 1996, General Felt has $14.7 million of regular
tax net operating loss  carryforwards  for federal income tax purposes  expiring
from 2003 to 2010 of which $7.0  million was  acquired in 1993 and is subject to
limitations.  In  addition,  General  Felt has $40.6  million  of  capital  loss
carryforwards that expire in 2001.

         A  reconciliation  of the  statutory  federal  income  tax  rate to the
effective income tax rate on continuing operations is as follows:
<TABLE>
<CAPTION>
                                                                  1996                1995              1994
                                                                                  (thousands)
<S>                                                             <C>                <C>                <C>     
         Statutory income taxes                                 $ 21,477           $(16,352)          $ 15,588
         State income taxes, net of federal                        1,288                266                900
         Permanent difference on partnership income              (11,714)            12,233            (11,009)
         Limitation on the utilization of tax benefits                --              4,929                 --
         Valuation allowance                                      (4,823)                --               (452)
         Cost in excess of assets acquired                           551                554                525
         Other                                                       923               (225)               973
                                                                --------           --------           --------

             Total                                              $  7,702           $  1,405           $  6,525
                                                                ========           ========           ========
</TABLE>

11.      EXTRAORDINARY LOSS

         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.

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

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

12.      COMMITMENTS AND CONTINGENCIES (continued)

for increased  rentals based upon  increases in the Consumer  Price Index,  real
estate taxes and lessors' operating  expenses.  Total minimum rental commitments
(excluding commitments accrued as part of the 1996 and 1995 restructuring plans)
required under operating leases at December 29, 1996 are:

                                                 Third Party      Related Party
                                                   Leases            Leases
                                                         (thousands)
         1997                                      $ 7,874           $ 1,767
         1998                                        6,164             1,823
         1999                                        4,866             1,823
         2000                                        3,812             1,823
         2001                                        2,883             2,265
         Thereafter                                  4,122             5,800
                                                   -------           -------

             Total                                 $29,721           $15,301
                                                   =======           =======

         Rental   expense   charged  to  operations   under   operating   leases
approximated  $9.6 million,  $10.1  million and $9.7 million for 1996,  1995 and
1994,  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,  $3.5 million and $3.9
million  for 1996,  1995 and  1994,  respectively,  under  leases  with  related
parties.

13.      RELATED PARTY TRANSACTIONS AND BALANCES

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

         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 have been 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.

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

         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 matures in December 1997. The note has been classified in the
other component of partners' equity (deficit).

         On July 7, 1996, Trace International  Holdings, Inc. ("Trace Holdings")
issued to Foamex L.P. a promissory  note for $4.4  million in  principal  amount
plus  accrued  interest of $0.4  million,  which is an extension of a promissory
note of Trace Holdings that was due in July 1996. The promissory note is due and
payable on demand or, if no demand is made,  July 7, 1997, and bears interest at
9.5%,  payable quarterly in arrears  commencing  October 1, 1996. The promissory
note is included in other partners' equity (deficit).

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

13.      RELATED PARTY TRANSACTIONS AND BALANCES (continued)

         In connection with the acquisition of Great Western, Foamex L.P. issued
a promissory note to Rallis (see Note 8) and entered into lease  agreements (see
Note 12) with Rallis and an affiliate of Rallis,  for the rental of former Great
Western  manufacturing  facilities  located  in  Orange,  Ontario  and  Hayward,
California  and a warehouse  facility  in Tigard,  Oregon.  Foamex L.P.  has the
option to purchase each of these properties from Rallis or such affiliate.

         Foamex L.P. was party to a lease  agreement  for an airplane with Trace
Aviation Corp. ("Trace Aviation"),  a subsidiary of Trace Holdings.  During 1995
and 1994,  Foamex  L.P.  paid Trace  Aviation  $1.6  million  and $2.7  million,
respectively, pursuant to the lease agreement. The lease agreement also provided
for the use of the airplane by Trace Holdings with  remuneration  to Foamex L.P.
based on actual usage of the plane. During 1995 and 1994, Trace Holdings paid to
Foamex  L.P.  $0.6  million  and $0.5  million,  respectively,  pursuant  to the
agreement. During August 1995, Foamex Aviation Inc. ("Aviation"), a wholly-owned
subsidiary of Foamex  International,  acquired the aircraft from Trace  Holdings
for $3.0 million in cash and the assumption of $11.7 million of related debt. In
connection with the acquisition of the aircraft, the Foamex L.P. lease and other
agreements were terminated.

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

         During 1995 and 1994, Foamex L.P. purchased  approximately $2.5 million
and  $11.9  million,   respectively,   of  scrap  material  from  Recticel  Foam
Corporation  ("RFC"),  a former  partner of Foamex L.P. and whose  chairman is a
director of Foamex International,  under a minimum annual volume agreement which
expired in June 1995.

         On June 28,  1994,  Foamex L.P.  purchased an $87.9  million  principal
amount note due 2006 from its 98% limited  partner  Foamex-JPS  Automotive  L.P.
("FJPS")  for  $35.3  million  (the  "FJPS  Note").  The FJPS  Note will not pay
interest  until July 2000.  Instead,  principal  will accrete  (from the initial
purchase price of $35.3 million) on a daily basis and compound  semiannually  at
the rate of 15.50%  per annum  through  June 1996;  15.75% per annum  thereafter
through June 1997; and 16.00% per annum thereafter  through June 2000.  Interest
will be due  semiannually in cash at 16.00% per annum from July 2000 through the
maturity date. In December 1996 in exchange for certain waivers and amendment of
the FJPS Note,  FJPS repaid $18.4 million of the FJPS Note and a waiver  payment
of $0.2 million using a portion of the proceeds from the sale of its partnership
interest in JPS  Automotive  L.P.  FJPS has the right to reborrow  such  amount,
subject  to  limitations  in the Foamex  L.P.  Credit  Facility,  solely for the
purpose of funding a purchase price  adjustment  payment,  if any, in connection
with the JPS  Automotive  L.P.  sale.  The FJPS  Note  has  been  classified  in
partners' equity  (deficit) and the accreted  principal of $16.3 million for the
period  from June 28, 1994 to  December  29, 1996 has been  included in the FJPS
Note.  The FJPS Note may be redeemed at the option of FJPS, in whole or in part,
at any time at the redemption  prices  (expressed as percentages of the Accreted
Value (as defined) if on or prior to July 1, 2000, and thereafter,  expressed as
percentages  of  the  principal   amount)   initially  equal  to  108%  for  the
twelve-month  period  commencing July 1, 1994 declining to 100% on or after July
1, 2005.  If FJPS does not repay the  indebtedness  with at least 85% of the net
proceeds of any Equity  Offering (as  defined),  the rate at which the FJPS Note
accretes and the interest rate on the FJPS Note will increase.

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

13.      RELATED PARTY TRANSACTIONS AND BALANCES (continued)

         In June 1994,  Foamex L.P.  also entered into a supply  agreement  with
Foamex  International  (the  "Supply  Agreement").  Pursuant to the terms of the
Supply  Agreement,  at the  option of Foamex  L.P.,  Foamex  International  will
purchase certain raw materials which are necessary for the manufacture of Foamex
L.P.'s  products,  and resell such  materials to Foamex L.P. at a price equal to
net cost plus reasonable out of pocket  expenses.  Management  believes that the
terms of the Supply Agreement are no less favorable than those which Foamex L.P.
could have  obtained  from an  unaffiliated  third party.  During 1996 and 1995,
Foamex L.P. made $129.7 million and $105.1 million,  respectively,  of purchases
relating to the Supply Agreement.

         As of December 29, 1996 and December 31, 1995,  due to related  parties
amounted to $8.8 million and $11.7 million, respectively, and represents the net
amounts payable to Foamex International and subsidiaries for purchases under the
Supply Agreement and other matters.

         Foamex L.P. made charitable  contributions  to the Trace  International
Holding, Inc. Foundation of approximately $0.2 million in each of 1996, 1995 and
1994.

         On December  11,  1996,  Foamex L.P.  entered  into a Tax  Distribution
Advance  Agreement  with  FJPS,  pursuant  to which FJPS is  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 29,
1996, there were no advances 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 June 1994. In connection with a
June 1994 amendment,  the ownership of Foamex L.P. changed as follows: (i) FMXI,
a wholly-owned  subsidiary of Foamex  International,  bifurcated its 4% managing
general partnership interest into a 1% managing general partnership interest and
a 3% limited  partnership  interest  and  distributed  the  limited  partnership
interest to Foamex International,  (ii) Foamex International contributed its 95%
limited partnership  interest and the 3% limited  partnership  interest received
from FMXI to FJPS and  withdrew as a partner of Foamex  L.P.  and (iii) FJPS was
admitted as a partner of Foamex L.P.  with a 98% limited  partnership  interest.
The  partners  also  consented  to  the  pledge  by  FJPS  of a  43.44%  limited
partnership interest in Foamex L.P. to secure the repayment of certain of FJPS's
indebtedness  incurred in connection with the acquisition of JPS Automotive L.P.
by Foamex  International.  As of December 29, 1996 and  December  31, 1995,  the
partnership  interests of FMXI, Inc.  ("FMXI"),  Trace Foam, and FJPS were 1.0%,
1.0% and 98.0%, respectively.

         Cash  distributions  for 1996,  1995 and 1994 were paid  (received)  as
follows:
<TABLE>
<CAPTION>
                                        1996               1995             1994
                                                       (thousands)
<S>                                    <C>               <C>              <C>    
         FMXI                          $   (35)          $    12          $    59
         Trace Foam                         45                --               29
         Foamex International               --                --              653
         FJPS                            3,477             2,367            2,516
                                       -------           -------          -------

             Total                     $ 3,487           $ 2,379          $ 3,257
                                       =======           =======          =======
</TABLE>

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

14.      PARTNERS' EQUITY (DEFICIT) (continued)

         Other

         The other  component  of  partners'  equity  (deficit)  consists of the
following:
<TABLE>
<CAPTION>
                                                 December 29,     December 31,      January 1,
                                                     1996             1995             1995
                                                                  (thousands)
<S>                                                <C>              <C>              <C>    
Foreign currency translation adjustment            $ 3,494          $ 3,448          $ 3,930
Additional pension liability                         2,407            4,779            1,489
Note receivable from Trace Holdings                  4,373            4,373            3,000
Note receivable from Foamex International            2,000            2,000               --
                                                   -------          -------          -------

                                                   $12,274          $14,600          $ 8,419
                                                   =======          =======          =======
</TABLE>

15.      ENVIRONMENTAL MATTERS

         Foamex L.P. is subject to extensive and changing federal,  state, local
and foreign environmental laws and regulations,  including those relating to the
use, handling,  storage,  discharge and disposal of hazardous substances and the
remediation of  environmental  contamination,  and as a result,  is from time to
time involved in administrative and judicial  proceedings and inquiries relating
to environmental  matters.  During 1996,  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
29, 1996, Foamex L.P. has environmental  accruals of approximately  $4.1 million
for environmental  matters. In addition, as of December 29, 1996 Foamex L.P. has
net receivables of approximately  $0.9 million relating to  indemnification  for
environmental  liabilities,  net of an allowance of  approximately  $1.0 million
relating to potential  disagreements regarding the scope of the indemnification.
Foamex L.P.  believes that  realization of the net  receivables  established for
indemnification is probable.

         The  Clean Air Act  Amendments  of 1990  (the  "1990  CAA  Amendments")
provide for the  establishment of federal  emission  standards for hazardous air
pollutants including methylene chloride and TDI, principal raw materials used in
the  manufacturing  of  foam.  Foamex  L.P.  completely  eliminated  the  use of
chlorofluorocarbons  and  methylchloroform  by the end of  1995.  The  1990  CAA
Amendments  also  may  result  in the  imposition  of more  stringent  standards
regulating air emissions from the use of these  chemicals by  polyurethane  foam
manufacturers, but these standards have not yet been promulgated.

         Foamex L.P. has reported to appropriate  state  authorities that it has
found soil and  groundwater  contamination  in excess of state standards at four
facilities and soil  contamination  in excess of state  standards at three other
facilities.  Foamex  L.P.  has  begun  remediation  and  is  conducting  further
investigations  into the extent of the  contamination  at these  facilities and,
accordingly,  the extent of the remediation that may ultimately be required. The
actual cost and the timetable of any such  remediation  cannot be predicted with
any degree of certainty at this time.  As of December 29, 1996,  Foamex L.P. has
environmental accruals of approximately $3.2 million for the remaining potential
remediation costs for these facilities based on engineering estimates.

         Federal  regulations  require  that by the end of 1998 all  underground
storage tanks  ("USTs") be removed or upgraded in all states to meet  applicable

                                      F-26
<PAGE>
                          FOAMEX L.P. AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

15.     ENVIRONMENTAL MATTERS (continued)

standards.  Foamex  L.P.  has six USTs that will  require  removal or  permanent
in-place closure by the end of 1998. Due to the age of these tanks,  leakage may
have occurred resulting in soil and possibly groundwater  contamination.  Foamex
L.P. has accrued $0.4 million for the estimated removal and remediation, if any,
associated  with these  USTs.  However,  the full extent of  contamination  and,
accordingly,  the actual cost of such  remediation  cannot be predicted with any
degree of certainty at this time. Foamex L.P. believes that its USTs do not pose
a  significant  risk  of  environmental   liability  because  of  Foamex  L.P.'s
monitoring  practices  for  USTs  and  conditional  approval  for the  permanent
in-place closure for certain USTs. However,  there can be no assurance that such
USTs will not result in significant environmental liability in the future.

         Foamex L.P. has been  designated  as a  Potentially  Responsible  Party
("PRP") by the United States  Environmental  Protection  Agency (the "EPA") with
respect to thirteen sites,  with an estimated total liability to Foamex L.P. for
the thirteen sites of less than approximately  $0.5 million.  Estimates of total
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 participation of Foamex L.P. is considered to be immaterial.

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

16.      LITIGATION

         As of February 26, 1997,  Foamex L.P.  and Trace  Holdings  were two of
multiple defendants in actions filed on behalf of approximately 5,000 recipients
of breast  implants in various  United  States  federal and state courts and one
Canadian provincial court, some of which allege substantial damages, but most of
which allege unspecified damages for personal injuries of various types. Five of
these cases seek to allege claims on behalf of all breast implant  recipients or
other allegedly affected parties, but no class has been approved or certified by
the court. In addition, three cases have been filed alleging claims on behalf of
approximately  700 residents of Australia,  New Zealand,  England,  and Ireland.
During 1995,  Foamex L.P. and Trace Holdings were granted summary  judgments and
dismissed  as  defendants  from all cases in the  federal  courts of the  United
States and the state  courts of  California.  Appeals for these  decisions  were
withdrawn and the decisions  are final.  In addition,  two of the cases filed on
behalf of 903 foreign  plaintiffs  were  dismissed on the grounds that the cases
could not be brought in the United  States  courts.  This decision is subject to
appeal.  Foamex  L.P.  believes  that the  number  of suits  and  claimants  may
increase.  Although  breast implants do not contain foam,  certain  silicone gel
implants  were  produced  using  a  polyurethane  foam  covering  fabricated  by
independent  distributors  or  fabricators  from bulk foam purchased from Foamex
L.P. or Trace  Holdings.  Neither  Foamex L.P. nor Trace  Holdings  recommended,
authorized or approved the use of its foam for these  purposes.  While it is not
feasible  to  predict  or  determine  the  outcome  of these  actions,  based on
management's   present  assessment  of  the  merits  of  pending  claims,  after
consultation with the general counsel of Trace Holdings, and without taking into
account  potential  indemnity from the  manufacturers  of  polyurethane  covered
breast  implants,  management  believes that the disposition of matters that are
pending or that may reasonably be  anticipated to be asserted  should not have a
material adverse effect on either Foamex L.P.'s or Trace Holdings'  consolidated
financial  position or results of operations.  In addition,  Foamex L.P. is also
indemnified  by  Trace  Holdings  for  any  such  liabilities  relating  to foam
manufactured prior to October 1990.

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

16.     LITIGATION (continued)

Although  Trace  Holdings  has paid Foamex  L.P.'s  litigation  expenses to date
pursuant to such  indemnification  and management believes Trace Holdings likely
will be in a position to continue to pay such expenses, there can be no absolute
assurance  that Trace  Holdings  will be able to provide  such  indemnification.
Based on  information  available  at this time  with  respect  to the  potential
liability, and without taking into account the indemnification provided by Trace
Holdings  and the  coverage  provided  by  Trace  Holdings'  and  Foamex  L.P.'s
liability  insurance,  Foamex  L.P.  believes  that the  proceedings  should not
ultimately  result in any liability that would have a material adverse effect on
the financial  position or results of operations of Foamex L.P. If  management's
assessment  of  Foamex  L.P.'s  liability  with  respect  to  these  actions  is
incorrect, such actions could have a material adverse effect on Foamex L.P.

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

17.      FINANCIAL INSTRUMENTS AND CONCENTRATION OF CREDIT RISK

         Interest Rate Swap Agreements

         Foamex  L.P.  has two  interest  rate  swap  agreements  involving  the
exchange of fixed and floating interest payment obligations without the exchange
of the underlying  principal  amounts.  At December 29, 1996, the total notional
principal amount of these interest rate swap agreements was $300.0 million.  The
counterparty to these agreements is a large international financial institution.
The interest rate swap  agreements  subject  Foamex L.P. to financial  risk that
will vary during the life of these  agreements  in  relation to market  interest
rates.

         Concentration of Credit Risk

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

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

         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.

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


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

         The estimated fair values of Foamex L.P.'s financial  instruments as of
December 29, 1996 are as follows:

                                         Carrying Amount        Fair Value
                                                      (thousands)

         Liabilities:
             Long-term debt               $    406,352          $427,862
                                          ============          ========

             Interest rate swaps          $         --          $  3,160
                                          ============          ========

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

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

         The fair value of interest  rate swaps are based on the amount at which
Foamex L.P.  would pay if the swaps were  settled,  as  determined  by estimates
obtained from dealers.

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

18.      SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION
<TABLE>
<CAPTION>
                                                 1996             1995            1994
                                                              (thousands)

<S>                                            <C>              <C>              <C>    
         Cash paid for interest                $43,378          $47,282          $42,734
                                               =======          =======          =======

         Cash paid for income taxes            $ 1,533          $   634          $ 1,757
                                               =======          =======          =======

         Noncash capital expenditures          $   165          $   378          $    --
                                               =======          =======          =======
</TABLE>


                                      F-29
<PAGE>

                        REPORT OF INDEPENDENT ACCOUNTANTS



Board of Directors
Foamex Capital Corporation
Wilmington, Delaware

We have audited the  accompanying  balance sheets of Foamex Capital  Corporation
("FCC") (a  wholly-owned  subsidiary of Foamex L.P.) as of December 29, 1996 and
December  31,  1995.  These  balance  sheets  are the  responsibility  of  FCC's
management.  Our responsibility is to express an opinion on these balance sheets
based on our audits.

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

In our opinion,  the balance  sheets  referred to above present  fairly,  in all
material  respects,  the  financial  position  of FCC at  December  29, 1996 and
December 31, 1995, in conformity with generally accepted accounting principles.




COOPERS & LYBRAND L.L.P.

2400 Eleven Penn Center
Philadelphia, Pennsylvania
February 26, 1997



                                      F-30
<PAGE>

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

<TABLE>
<CAPTION>
                                                        December 29,     December 31,
                                                           1996             1995

<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-31
<PAGE>

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


1.     ORGANIZATION

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

2.     COMMITMENTS AND CONTINGENCIES

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

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

       The Senior Secured Notes were issued on June 3, 1993 and bear interest at
the rate of 9 1/2%  payable  semiannually  on each  June 1 and  December  1. The
Senior  Secured  Notes  mature on June 1,  2000.  The Senior  Secured  Notes are
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 may be redeemed at the option of Foamex L.P.,  in whole or in part, at any
time on or after June 1, 1998,  initially at 101.583% of their principal amount,
plus  accrued  interest,  and  declining  to 100% on or after June 1, 1999.  The
Senior Secured Notes have been guaranteed,  on a senior secured basis by General
Felt and on a senior  unsecured  basis by  Foamex  International.  During  1996,
Foamex L.P. repurchased $9.9 million of Senior Secured Notes.

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

       The  Senior  Notes  bear   interest  at  the  rate  of  11  1/4%  payable
semiannually  on each April 1 and October 1. The Senior  Notes mature on October
1, 2002. The Senior Notes may be redeemed at the option of Foamex L.P., in whole
or in part,  at any time on or after  October 1, 1997,  initially at 104.219% of
their principal amount, plus accrued interest, and declining to 100% on or after
October 1, 2000. In October 1994,  Foamex L.P. provided certain real property as
collateral  for the  Senior  Notes,  with a net book  value of $37.8  million at
December 29, 1996. The Senior Notes have been guaranteed,  on a senior basis, by
General Felt and Foamex International. During 1996, Foamex L.P.
repurchased $8.6 million of Senior Notes.

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

       The Subordinated  Debentures bear interest at the rate of 11 7/8% payable
semiannually on each April 1 and October 1. The Subordinated  Debentures  mature
on October 1, 2004. The Subordinated Debentures may be redeemed at the option of
Foamex  L.P.,  in whole or in part,  at any time on or after  October  1,  1997,
initially at 105.938% of their  principal  amount,  plus accrued  interest,  and
declining to 100% on or after October 1, 2002. The  Subordinated  Debentures are
subordinated  in right of  payment  to all senior  indebtedness,  including  the
Senior Secured Notes and the Senior Notes. The Subordinated Debentures have been
guaranteed,  on  a  senior  subordinated  basis,  by  General  Felt  and  Foamex
International. During 1996, Foamex L.P. repurchased $0.1 million of Subordinated
Debentures.

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

       The Series B Debentures  were issued July 30, 1993,  by Foamex L.P. in an
exchange offer to holders of senior subordinated debentures issued in connection
with the  acquisition of General Felt on March 23, 1993. The Series B Debentures
have terms  substantially  similar to the Subordinated  Debentures,  except that
holders of the Series B  Debentures  are  entitled to receive  proceeds  from an
asset sale only if any  proceeds  remain after an offer to  repurchase  has been
made to the holders of the Subordinated Debentures. The Series B Debentures have
been guaranteed on a senior subordinated basis by General Felt.

                                      F-32
<PAGE>
                        REPORT OF INDEPENDENT ACCOUNTANTS




To the Stockholder of
General Felt Industries, Inc.

We have audited the  accompanying  consolidated  balance  sheets of General Felt
Industries,  Inc. and subsidiaries  ("General Felt") as of December 29, 1996 and
December 31, 1995, and the related consolidated  statements of operations,  cash
flows and  stockholder's  equity for each of the three years in the period ended
December 29, 1996. These financial  statements are the responsibility of General
Felt's  management.  Our  responsibility  is to  express  an  opinion  on  these
financial statements based on our audits.

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

In our opinion,  the financial  statements  referred to above present fairly, in
all material respects, the consolidated financial position of General Felt as of
December 29, 1996 and December 31,  1995,  and the  consolidated  results of its
operations  and its cash flows for each of the three  years in the period  ended
December 29, 1996, in conformity with generally accepted accounting principles.




COOPERS & LYBRAND L.L.P.

2400 Eleven Penn Center
Philadelphia, Pennsylvania
February 26, 1997




                                      F-33

<PAGE>

                 GENERAL FELT INDUSTRIES, INC. AND SUBSIDIARIES
                           CONSOLIDATED BALANCE SHEETS

<TABLE>
<CAPTION>
                                                              December 29,        December 31,
ASSETS                                                           1996                 1995
                                                                        (thousands)
<S>                                                           <C>                 <C>      
       CURRENT ASSETS:
          Cash                                                $     336           $     538
          Restricted cash                                        12,143                  --
          Accounts receivable, net of allowance for
              doubtful accounts of $4,453 and $5,986             44,973              35,532
          Inventories                                            25,314              18,485
          Deferred income taxes                                   6,342                  --
          Other current assets                                    3,093               3,574
                                                              ---------           ---------

              Total current assets                               92,201              58,129
                                                              ---------           ---------

       PROPERTY, PLANT AND EQUIPMENT:
          Land and land improvements                              3,491                 600
          Buildings and leasehold improvements                    5,896               5,579
          Machinery, equipment and furnishings                   29,354              23,426
          Construction in progress                                1,957                 803
                                                              ---------           ---------

              Total                                              40,698              30,408

          Less accumulated depreciation
              and amortization                                   (8,950)             (5,322)
                                                              ---------           ---------

              Property, plant and equipment, net                 31,748              25,086

       COST IN EXCESS OF ASSETS ACQUIRED, NET                    50,574              58,964

       NET ASSETS OF DISCONTINUED OPERATIONS                         --              11,689

       OTHER ASSETS                                               3,158               1,629
                                                              ---------           ---------

              TOTAL ASSETS                                    $ 177,681           $ 155,497
                                                              =========           =========
</TABLE>


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

                                      F-34

<PAGE>

                 GENERAL FELT INDUSTRIES, INC. AND SUBSIDIARIES
                           CONSOLIDATED BALANCE SHEETS

<TABLE>
<CAPTION>
                                                                        December 29,       December 31,
LIABILITIES & STOCKHOLDER'S EQUITY                                          1996               1995
                                                                                  (thousands)
<S>                                                                      <C>                 <C>      
       CURRENT LIABILITIES:
          Current portion of long-term debt - unrelated parties          $      --           $   3,000
          Current portion of long-term debt - related party                 12,143                  --
          Accounts payable                                                  13,719              10,697
          Accounts payable to related party                                 17,987              13,000
          Accrued employee compensation                                      1,434               2,133
          Accrued restructuring charges                                      2,279               4,308
          Other accrued liabilities                                         14,210              10,780
                                                                         ---------           ---------

              Total current liabilities                                     61,772              43,918

       LONG-TERM DEBT - UNRELATED PARTIES                                       --               8,250

       LONG-TERM DEBT - RELATED PARTY                                        9,260              48,306

       DEFERRED INCOME TAXES                                                 3,273                  --

       ACCRUED RESTRUCTURING - NONCURRENT                                    2,308                  --

       OTHER LIABILITIES                                                     4,049               5,514
                                                                         ---------           ---------

              Total liabilities                                             80,662             105,988
                                                                         ---------           ---------

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

       STOCKHOLDER'S EQUITY:
          Common stock, $.01 par value; authorized,
              issued and outstanding 1,000 shares                               --                  --
          Additional paid-in capital                                       143,965              69,194
          Retained earnings (accumulated deficit)                          (46,946)            (19,685)
                                                                         ---------           ---------
              Total stockholder's equity                                    97,019              49,509
                                                                         ---------           ---------

              TOTAL LIABILITIES AND STOCKHOLDER'S EQUITY                 $ 177,681           $ 155,497
                                                                         =========           =========
</TABLE>

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

                                      F-35
<PAGE>

                 GENERAL FELT INDUSTRIES, INC. AND SUBSIDIARIES
                      CONSOLIDATED STATEMENTS OF OPERATIONS
                     for the years ended 1996, 1995 and 1994
<TABLE>
<CAPTION>
                                                        December 29,        December 31,        January 1,
                                                            1996               1995                1995
                                                                            (thousands)

<S>                                                      <C>                 <C>                 <C>      
       NET SALES                                         $ 302,648           $ 279,123           $ 290,577

       COST OF GOODS SOLD                                  263,316             252,591             251,120
                                                         ---------           ---------           ---------

       GROSS PROFIT                                         39,332              26,532              39,457

       SELLING, GENERAL AND
          ADMINISTRATIVE EXPENSES                           18,819              22,312              24,392

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

       INCOME (LOSS) FROM OPERATIONS                        25,973              (9,936)             15,065

       INTEREST EXPENSE                                      2,179               1,164               1,178

       OTHER INCOME, NET                                     1,015                  52                  90
                                                         ---------           ---------           ---------

       INCOME (LOSS) FROM CONTINUING
          OPERATIONS BEFORE PROVISION
          FOR INCOME TAXES                                  24,809             (11,048)             13,977

       PROVISION FOR INCOME TAXES                            6,344                 962               5,587
                                                         ---------           ---------           ---------

       INCOME (LOSS) FROM CONTINUING OPERATIONS             18,465             (12,010)              8,390
                                                         ---------           ---------           ---------

       DISCONTINUED OPERATIONS:

       OPERATING LOSS FROM DISCONTINUED
          OPERATIONS, NET OF INCOME TAXES                   (3,389)            (11,040)             (2,293)

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

       LOSS FROM DISCONTINUED OPERATIONS,
          NET OF INCOME TAXES                              (45,726)            (11,040)             (2,293)
                                                         ---------           ---------           ---------

       NET INCOME (LOSS)                                 $ (27,261)          $ (23,050)          $   6,097
                                                         =========           =========           =========
</TABLE>


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

                                      F-36
<PAGE>

                 GENERAL FELT INDUSTRIES, INC. AND SUBSIDIARIES
                      CONSOLIDATED STATEMENTS OF CASH FLOWS
                     for the years ended 1996, 1995 and 1994
<TABLE>
<CAPTION>
                                                                     December 29,        December 31,         January 1,
                                                                          1996               1995                1995
                                                                                         (thousands)
<S>                                                                     <C>                <C>                <C>     
       OPERATING ACTIVITIES:
       Net income (loss)                                                $(27,261)          $(23,050)          $  6,097
       Adjustments to reconcile net income (loss) to net
          cash provided by (used for) operating activities:
          Depreciation and amortization                                    4,564              4,476              4,054
          Net loss on disposal of discontinued operations                 40,551                 --                 --
          Net loss from discontinued operations                            5,175             11,040              2,293
          Asset writedowns and other charges (credits)                    (6,769)             8,505                 --
          Provision for uncollectible accounts                               967              2,992                607
          Deferred income taxes                                            5,519                962              5,541
          Changes in operating assets and liabilities,
              net of acquisitions and discontinued operations:
           Accounts receivable                                           (10,358)               721             (4,512)
           Inventories                                                    (6,829)               157                254
           Accounts payable and accounts payable to
              related party                                                8,009             (6,309)             6,039
           Accrued restructuring charges                                     280              3,424               (566)
           Other assets and liabilities                                   (1,813)            (2,328)            (7,961)
                                                                        --------           --------           --------

          Net cash provided by continued operations                       12,035                590             11,846
          Net cash used for discontinued operations                         (524)           (12,617)              (969)
                                                                        --------           --------           --------
          Net cash provided by (used for) operating activities            11,511            (12,027)            10,877
                                                                        --------           --------           --------

       INVESTING ACTIVITIES:
       Capital expenditures                                               (2,442)            (1,604)            (3,391)
       Proceeds from sale of subsidiary                                   42,650                 --                 --
       Acquisition, net of cash acquired                                      --             (7,272)                --
       Increase in restricted cash                                       (12,143)                --                 --
       Capital expenditures for discontinued operations                     (919)            (4,429)            (6,565)
       Other investing activities                                         (2,149)                10              1,016
                                                                        --------           --------           --------

          Net cash provided by (used for) investing activities            24,997            (13,295)            (8,940)
                                                                        --------           --------           --------

       FINANCING ACTIVITIES:
          Net proceeds from (repayments of) revolving loans                   --             (3,000)             3,000
          Net proceeds from (repayments of) Foamex L.P. 
              notes payable                                              (26,903)            14,742            (26,734)
          Proceeds from long-term debt - unrelated party                      --                 --             15,000
          Payments on long-term debt - unrelated party                   (11,250)            (3,000)              (750)
          Net financing activities of discontinued operations              1,443             17,046              7,534
                                                                        --------           --------           --------

          Net cash (used for) provided by financing activities           (36,710)            25,788             (1,950)
                                                                        --------           --------           --------

       NET INCREASE (DECREASE) IN CASH                                      (202)               466                (13)

       CASH AT BEGINNING OF PERIOD                                           538                 72                 85
                                                                        --------           --------           --------

       CASH AT END OF PERIOD                                            $    336           $    538           $     72
                                                                        ========           ========           ========
</TABLE>

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

                                      F-37
<PAGE>
                 GENERAL FELT INDUSTRIES, INC. AND SUBSIDIARIES
                 CONSOLIDATED STATEMENTS OF STOCKHOLDER'S EQUITY
<TABLE>
<CAPTION>
                                                                                                    Retained
                                                                               Additional           Earnings
                                                        Common Stock             Paid-In          (Accumulated
                                                     Shares      Amount          Capital            Deficit)
                                                                               (thousands)
<S>                                                <C>          <C>            <C>               <C>      
       Balances at January 2, 1994                         1         --          $ 67,036          $ (2,732)

       Net income                                         --         --                --             6,097
                                                    --------     ------          --------          --------

       Balances at January 1, 1995                         1         --            67,036             3,365

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

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

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

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

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

       Balances at December 29, 1996                       1         --          $143,965          $(46,946)
                                                    ========     ======          ========          ========
</TABLE>


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


                                      F-38
<PAGE>

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

1.     ORGANIZATION AND BASIS OF PRESENTATION

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

       General Felt is a wholly-owned subsidiary of Foamex L.P. which in turn is
a 99% owned subsidiary of Foamex International Inc. ("Foamex International").

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

2.     SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

       Consolidation

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

       The consolidated financial statements have been restated for discontinued
operations.  The  accompanying  notes present amounts related only to continuing
operations.

       Fiscal Year

       General Felt's fiscal year ends on the Sunday closest to the thirty-first
day of  December.  Fiscal years 1996,  1995 and 1994 were  composed of fifty-two
weeks and ended on December  29,  1996,  December  31, 1995 and January 1, 1995,
respectively.

       Accounting Estimates

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

       Cash Management

       General Felt's cash management system operates such that checks processed
by General Felt but not yet presented to the bank are not considered  reductions
of cash or  accounts  payable.  Checks  presented  to the bank for  payment  are
provided for by a draw on the revolving notes with Foamex L.P. Cash receipts are
used to reduce the outstanding borrowings under the Foamex L.P. revolving notes.
As of December 29, 1996 and December  31, 1995,  $0.4 million and $0.4  million,
respectively,  of processed  checks have not been  presented to the bank and are
included in accounts payable.


                                      F-39
<PAGE>

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

2.     SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)

       Restricted Cash

       As  of  December  29,  1996,   General  Felt  had   restricted   cash  of
approximately  $12.1 million.  This cash was derived from the net sales proceeds
relating  to the sale of Perfect  Fit and is  restricted  by Foamex  L.P.'s debt
agreements. This restricted cash will be used to reduce long-term debt - related
party with Foamex L.P.  during  1997;  accordingly,  a  corresponding  amount of
long-term  debt  -  related  party  has  been   classified  as  current  in  the
accompanying consolidated balance sheets.

       Inventories

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

       Property, Plant and Equipment

       Property,  plant and  equipment  are  stated at cost and are  depreciated
using the  straight-line  method over the estimated  useful lives of the assets.
The range of useful lives  estimated for buildings and building  improvements is
generally  ten to  forty  years  and the  range  for  machinery,  equipment  and
furnishings is five to twelve years.  Leasehold  improvements are amortized over
the shorter of the terms of the respective lease or the estimated useful life of
the improvement,  whichever is shorter. Depreciation expense for the years ended
1996,  1995  and  1994  was  $3.0  million,   $2.8  million  and  $2.6  million,
respectively.   For  income  tax   purposes,   General  Felt  uses   accelerated
depreciation methods.

       Cost of  maintenance  and  repairs is  charged  to  expense as  incurred.
Renewals and improvements are capitalized.  Upon retirement or other disposition
of items of plant and equipment,  the cost and related accumulated  depreciation
are removed from the  accounts  and any gain or loss is included in  operations.
During  1994,  General  Felt  Inc.  sold  equipment  with a net  book  value  of
approximately  $1.0 million to a related party. There was no gain or loss on the
sale.

       Cost in Excess of Net Assets Acquired

       The  excess of the  acquisition  cost over the fair  value of net  assets
acquired  in  business  combinations  accounted  for by the  purchase  method is
amortized  using the  straight-line  method  over a forty year  period.  At each
balance sheet date General Felt evaluates the  recoverability  of cost in excess
of net assets acquired using certain financial indicators such as historical and
future  ability to generate  income  from  operations  based on a going  concern
basis. Accumulated amortization as of December 29, 1996 and December 31, 1995 is
approximately $5.9 million and $4.3 million, respectively.

       Environmental Matters

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


                                      F-40
<PAGE>
                 GENERAL FELT INDUSTRIES, INC. AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

2.     SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)

       Income Taxes

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

       Reclassifications

       Certain amounts in the 1995 and 1994  consolidated  financial  statements
have been reclassified to conform with the current year's presentation.

3.     DISCONTINUED OPERATIONS

       During 1996,  General Felt finalized the sale of the  outstanding  common
stock of Perfect Fit, a wholly-owned  subsidiary,  for an adjusted sale price of
approximately  $44.2  million.  The sale included  substantially  all of the net
assets of the home comfort  products  segment with an adjusted net book value of
approximately  $84.5  million  after  Foamex  L.P.   contributed  Perfect  Fit's
intercompany  notes  receivable and accrued interest thereon with Foamex L.P. to
General Felt.  Actual and  estimated  transaction  expenses  related to the sale
totaled  approximately  $1.5  million.  General  Felt  has  recorded  a loss for
discontinued  operations of approximately $42.3 million, which includes the loss
on  disposal  and a net loss of $1.8  million  (net of $1.2  million  income tax
benefit)  relating to operating losses during the phase-out  period. A valuation
allowance has been provided for the capital loss relating to the sale of Perfect
Fit since General Felt has  determined  that capital gain taxable  income is not
likely to be  sufficient  to recognize  the  deferred tax asset  relating to the
capital loss carryforward.

       Summary operating results of General Felt's discontinued  operations were
as follows:
<TABLE>
<CAPTION>
                                                                1996  (1)           1995                1994
                                                                                 (thousands)
<S>                                                             <C>                <C>                <C>     
Sales                                                           $ 50,097           $ 98,464           $ 95,381
Gross profit                                                       8,065             14,946             18,200
Income (loss) from operations                                      1,123             (3,058)             4,170
Interest and debt issuance expense                                 5,543             10,636             (7,194)
Other expense                                                        348                 --                 --
Loss from discontinued operations before income taxes             (4,768)           (13,694)            (3,024)
Provision (benefit) for income taxes                              (1,379)            (2,654)              (731)
                                                                --------           --------           --------
Loss from discontinued operations, net of income taxes          $ (3,389)          $(11,040)          $ (2,293)
                                                                ========           ========           ========
</TABLE>

(1)    General Felt's discontinued operations includes the operations of Perfect
       Fit through June 1996.

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


3. DISCONTINUED OPERATIONS (continued)

   Net assets of General Felt's discontinued  operations (excluding intercompany
net assets) at December 31, 1995 is as follows:

                                                  1995
                                               (thousands)
Current assets                                  $31,925
Property, plant and equipment, net               21,672
Cost in excess of assets acquired, net           40,333
Other assets                                      2,219
                                                -------

   Total assets                                  96,149
                                                -------

Current liabilities                              11,076
Long-term debt due to Foamex L.P.                73,384
                                                -------

   Total liabilities                             84,460
                                                -------

   Net assets                                   $11,689
                                                =======

4.     RESTRUCTURING CHARGES

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

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


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

4.     RESTRUCTURING CHARGES (continued)

       Generally, the 1995 restructuring plan has been implemented as originally
contemplated.  The following  table sets forth the  components of General Felt's
restructuring and other charges:
<TABLE>
<CAPTION>
                                                         Asset    Plant Closure  Personnel
                                           Total       Writedowns   and Leases   Reductions     Other
                                                                       (millions)
<S>                                        <C>           <C>          <C>          <C>          <C>   
1995 restructuring charge                  $  14.2       $  8.5       $  3.8       $  0.8       $  1.1
Asset writeoff/writedowns                    (11.3)        (9.9)        (0.3)          --         (1.1)
                                           -------       ------       ------       ------       ------

Balances at December 31, 1995                  2.9         (1.4)         3.5          0.8           --
Cash spending                                 (1.0)          --         (0.5)        (0.5)          --
1996 restructuring charge                      5.8          1.6          3.9          0.3           --
Restructuring credits                        (11.3)        (8.4)        (2.7)        (0.2)          --
Asset adjustments for restructuring
   credits                                     8.2          8.2           --           --           --
                                           -------       ------       ------       ------       ------
Balances at December 29, 1996              $   4.6       $   --       $  4.2       $  0.4       $   --
                                           =======       ======       ======       ======       ======
</TABLE>

       As  indicated in the table above,  the accrued  restructuring  balance at
December 29, 1996, will be used for plant closure and leases  including  rundown
costs at the  facilities.  General  Felt  expects  to incur  approximately  $2.3
million of charges  during 1997 with the  remaining  $2.3 million to be incurred
through  2001.  General  Felt has  terminated  or notified 61  employees  in the
manufacturing and administrative areas of their impending termination.

5.     ACQUISITIONS

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

6.     INVENTORIES

         Inventories consist of:

                                   December 29, 1996   December 31, 1995
                                                (thousands)

       Raw material and supplies          $12,795          $ 7,277
       Work in process                      1,120              917
       Finished goods                      11,399           10,291
                                          -------          -------
          Total                           $25,314          $18,485
                                          =======          =======


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

7.     LONG-TERM DEBT - RELATED PARTY

       General  Felt has two  revolving  promissory  notes with  Foamex  L.P. to
borrow  up to a  maximum  of $64.0  million.  During  1996,  General  Felt  used
approximately  $22.5 million of the net proceeds from the sale of Perfect Fit to
reduce  these  promissory  notes with Foamex  L.P.  The notes are due on demand,
however,  the  remaining  net proceeds of $12.1 million from the sale of Perfect
Fit will be used to  paydown  the notes  with  Foamex  L.P.  during  1997 and is
classified as a current  liability in the  accompanying  balance sheets.  Foamex
L.P. has  indicated  that it does not intend to demand  payment on the remaining
balance of the notes during 1997. Accordingly,  the balance of the notes of $9.3
million is classified as long-term in the accompanying balance sheets.  Interest
is payable  quarterly  at the prime rate (8.5% at December  31,  1995).  General
Felt's cash receipts  reduce the outstanding  balance and the cash  requirements
increase the outstanding balance on a daily basis.

8.     LONG-TERM DEBT - UNRELATED PARTY

       Long-term debt - unrelated parties consists of:

                                  December 31, 1995
                                    (thousands)

       Term loan                     $11,250
       Revolving loan                     --
                                     -------
                                      11,250
       Less current portion            3,000
                                     -------

          Total                      $ 8,250
                                     =======

       Term and Revolving Loans

       On June 28,  1994,  Foamex L.P.  and General Felt entered into an amended
credit  agreement (the "Foamex L.P.  Credit  Facility").  The Foamex L.P. Credit
Facility  provides for loans of up to $85.0 million of which up to $40.0 million
was  available  as a  term  loan  payable  in 20  equal  quarterly  installments
commencing  October 1994 and up to $45.0 million is available  under a revolving
line of credit which  expires in June 1999.  On June 28,  1994,  Foamex L.P. and
General Felt entered into a $40.0 million term loan under the Foamex L.P. Credit
Facility of which $15.0  million was borrowed by General  Felt;  no further term
loan  borrowings  are  available  thereunder.  Borrowings  under the Foamex L.P.
Credit Facility are collateralized by the accounts receivable of Foamex L.P. and
General  Felt During 1996,  General Felt used $9.0 million of net proceeds  from
the sale of Perfect Fit to repay its outstanding term loan borrowings.  Pursuant
to the terms of the  Foamex  L.P.  Credit  Facility,  borrowed  funds  will bear
interest  at a floating  rate equal to 1.0% per annum plus the higher of (i) the
base rate of The Bank of Nova  Scotia,  as in effect  from time to time,  (ii) a
rate that is, generally,  0.5% per annum plus a fluctuating rate generally equal
to  the  rate  on  three-month  certificates  of  deposit,  subject  to  certain
adjustments,  plus a fluctuating  rate generally equal to the annual  assessment
rate  paid  by The  Bank  of  Nova  Scotia  to  the  Federal  Deposit  Insurance
Corporation  or (iii) 0.5% per annum plus the federal  funds rate in effect from
time to time. At the option of either  borrower,  portions of outstanding  loans
under the Foamex L.P. Credit  Facility will be convertible  into Eurodollar rate
loans  bearing  interest at a rate  generally  equal to 3.0% per annum above the
average LIBOR rate of Citibank, N.A. and The Bank of Nova Scotia. As of December
29, 1996, no revolving credit  borrowings were outstanding under the Foamex L.P.
Credit Facility with unused  availability of $33.3 million.  In addition,  there
were $11.7 million in letters of credit outstanding under the Foamex L.P. Credit
Facility.

                                      F-44
<PAGE>
                 GENERAL FELT INDUSTRIES, INC. AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


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

       Debt Restrictions and Covenants

       The Foamex  L.P.  indentures,  credit  agreement  and other  indebtedness
agreements  contain  various  covenants,  including  restrictions on payments of
distributions  by Foamex L.P. to its  partners,  the  incurrence  of  additional
indebtedness,  the sale of assets,  mergers and  consolidations and transactions
with affiliates.  In addition,  certain  agreements contain a provision that, in
the event of a defined change of control,  the indebtedness  must be repaid,  in
certain cases at the option of the holder.  Also,  Foamex L.P. is required under
certain of these agreements to maintain specified  financial ratios of which the
most  restrictive is the maintenance of net worth and interest  coverage ratios,
as  defined.  Under  the  most  restrictive  of the  distribution  restrictions,
approximately  $0.7  million  was  available  to be paid by Foamex  L.P.  to its
partners at December 29, 1996. Also,  General Felt is required to maintain $41.0
million net worth, as defined.

       As of December 29, 1996,  Foamex L.P. and General Felt were in compliance
with the  covenants  of the Foamex  L.P.  Credit  Facility  and expects to be in
compliance with the covenants for the foreseeable future.

9.     EMPLOYEE BENEFIT PLANS

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

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

       Net periodic pension cost includes the following components:

                                               1994
                                            (thousands)
       Service cost-benefits earned
          during the period                   $   419
       Interest cost on projected
          benefit obligation                    1,077
       Actual return on plan assets                84
       Net amortization and deferral           (1,195)
                                              -------

       Net periodic pension cost              $   385
                                              =======

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


9.     EMPLOYEE BENEFIT PLANS (continued)

       The assumptions  used to determine net periodic  pension cost and related
pension obligations were as follows:

                                                                  1994

       Discount rate                                              8.25%
       Rate of increase in compensation levels                    4.00
       Expected long-term rate of return on assets                9.75

       In  addition   certain   employees   of  General   Felt  are  covered  by
union-sponsored  collectively  bargained,  multi-employer pension plans. General
Felt  contributed and charged to expense $0.1 million related to these plans for
each of the years 1996, 1995 and 1994.

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

10.    INCOME TAXES

       The components of the total consolidated  provision  (benefit) for income
taxes are summarized as follows:
<TABLE>
<CAPTION>
                                                           1996              1995            1994
                                                                         (thousands)
<S>                                                      <C>              <C>            <C>
         Continuing operations                            $ 6,344         $   962         $ 5,587
         Discontinued operations                           (2,558)         (2,654)           (731)
            Total consolidated provision (benefit)
               for income taxes                            $3,786         $(1,692)        $ 4,856
</TABLE>


                                      F-46
<PAGE>
                 GENERAL FELT INDUSTRIES, INC. AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


10.    INCOME TAXES (continued)

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

                             1996           1995            1994
                                         (thousands)
         Current:
            Federal        $   220            $--             $--
            State              605             --              46
                           -------        -------         -------
           Total               825             --              46
                           -------        -------         -------

         Deferred:
            Federal          1,666         (1,424)          3,598
            State            1,295           (268)          1,212
                           -------        -------         -------

              Total          2,961         (1,692)          4,810
                           -------        -------         -------

              Total        $ 3,786        $(1,692)        $ 4,856
                           =======        =======         =======

       The components of the temporary  differences that give use to significant
deferred tax assets and liabilities are:
<TABLE>
<CAPTION>
                                                               December 29,      December 31,
                                                                   1996             1995
                                                                        (thousands)
       <S>                                                     <C>               <C>
         Deferred tax assets:
            Inventory basis differences                         $    415         $    861
            Employee benefit accruals                                714            1,004
            Allowances and contingent liabilities                  2,548            2,427
            Restructuring and plant closing accruals               3,632            7,498
            Other                                                    139               77
            Net operating loss carryforward                        5,154            8,975
            Capital loss carryforwards                            14,193               --
            Valuation allowance                                  (15,988)         (13,473)
                                                                --------         --------

            Deferred tax assets                                   10,807            7,369
                                                                --------         --------

         Deferred tax liabilities:
            Difference between book and tax depreciation           6,722            7,009
            Other                                                  1,016              360
                                                                --------         --------
               Deferred tax liabilities                            7,738            7,369
                                                                --------         --------

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


                                      F-47
<PAGE>
                 GENERAL FELT INDUSTRIES, INC. AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


10.    INCOME TAXES (continued)

       A  reconciliation  of  the  statutory  federal  income  tax  rate  to the
effective income tax rate on continuing operations is as follows:
<TABLE>
<CAPTION>
                                                           1996             1995            1994
                                                                        (thousands)
<S>                                                    <C>               <C>             <C>
         Statutory income taxes                           $ 8,683         $(3,867)        $ 4,892
         State income taxes, net of federal                 1,235            (648)            839
         Limitation on utilization of tax benefits             --           4,929              --
         Amortization of excess cost                          517             554             525
         Valuation allowance                               (4,823)             --            (452)
         Other                                                732              (6)           (217)
                                                          -------         -------         -------

         Tax provision                                    $ 6,344         $   962         $ 5,587
                                                          =======         =======         =======
</TABLE>

       General  Felt.  has  determined   that  taxable   capital  gains  in  the
foreseeable  future will likely not be  sufficient to recognize the deferred tax
asset associated with the capital loss  carryforward.  Accordingly,  a valuation
allowance  has been  provided  for the deferred  tax asset  associated  with the
capital loss  carryforward  and certain other deferred tax assets.  During 1996,
the valuation  allowance for deferred tax assets increased by $2.5 million which
included a $14.2 million increase for the capital loss  carryforward,  offset by
$6.9 million decrease due to reversal of  preacquisition  temporary  differences
and $4.8 million for reversal of postacquisition  temporary differences which is
reflected in the consolidated statement of operations. The $6.9 million reversal
of  preacquisition  temporary  differences  was used to reduce cost in excess of
assets acquired. As of December 29, 1996, approximately $1.8 million of deferred
tax assets are related to preacquisition activities and if utilized will further
reduce cost in excess of assets acquired. At December 29, 1996, General Felt has
$14.7 million of regular tax net operating loss carryforwards for federal income
tax  purposes  expiring  from 2003 to 2010 of which $7.0 million was acquired in
1993 and is subject to limitations.  In addition, General Felt has $40.6 million
of capital loss carryforwards that expire in 2001.

11.  ENVIRONMENTAL MATTERS

       During 1996,  expenditures in connection  with General Felt's  compliance
with federal, state, and local environmental laws and regulations did not have a
material  adverse  effect on  General  Felt's  operations,  financial  position,
capital expenditures or competitive  position.  As of December 29, 1996, General
Felt has environmental  accruals of approximately $1.5 million for environmental
matters.

       General Felt has reported to appropriate  state  authorities  that it has
found  soil and  groundwater  contamination  in excess of state  standards  at a
facility  located in  Philadelphia.  General Felt has begun  remediation  and is
conducting further  investigations  into the extent of the contamination at this
facility and, accordingly,  the extent of the remediation that may ultimately be
required.  The actual cost and the timetable of any such  remediation  cannot be
predicted  with any degree of certainty  at this time.  As of December 29, 1996,
General Felt has  environmental  accruals of approximately  $1.2 million for the
remaining potential  remediation costs for these facilities based on engineering
estimates.

       Federal  regulations  require  that by the end of  1998  all  underground
storage tanks  ("USTs") be removed or upgraded in all states to meet  applicable
standards.  General  Felt has six USTs that will  require  removal or  permanent
in-place closure by the end of 1998. Due to the age of these tanks,  leakage may
have occurred resulting in soil and possibly groundwater contamination.  General
Felt has accrued $0.3 million for the estimated removal and remediation, if any,
associated  with these  USTs.  However,  the full extent of  contamination  and,
accordingly,  the actual cost of such  remediation  cannot be predicted with any
degree of certainty at this time.  General  Felt  believes  that its USTs do not
pose a significant  risk of  environmental  liability  because of General Felt's
monitoring  practices  for  USTs  and  conditional  approval  for the  permanent
in-place closure for certain USTs. However,  there can be no assurance that such
USTs will not result in significant environmental liability in the future.

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

11.  ENVIRONMENTAL MATTERS (continued)

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

12.  COMMITMENTS AND CONTINGENCIES

       Operating Leases

       General Felt is obligated, under various noncancellable lease agreements,
for rental of facilities and machinery and equipment. Many of the leases contain
renewal  options  with  varying  terms and  escalation  clauses that provide for
increased  rentals based upon increases in the Consumer Price Index, real estate
taxes and the lessors'  operating  expenses.  Total  minimum  rental  commitment
(excluding commitments accrued as part of the 1996 and 1995 restructuring plans)
required under operating leases at December 29, 1996 was:

       1997                                               $ 1,070
       1998                                                   809
       1999                                                   446
       2000                                                   367
       2001                                                   340
       Thereafter                                           1,061
                                                          -------

       Total minimum lease payments                       $ 4,093
                                                          =======

       Total rent  expense  for all  operating  leases for the years ended 1996,
1995 and 1994 were  approximately  $2.1 million,  $2.8 million and $3.5 million,
respectively.

       Guarantor

       General Felt has pledged  their stock as  collateral  for certain debt of
Foamex L.P. and is a co-guarantor of the borrowings outstanding under the Foamex
L.P. Credit Facility and Foamex L.P. bond  indentures,  which as of December 29,
1996, had amounts outstanding of approximately $11.0 million and $380.2 million,
respectively.

13.  RELATED PARTY TRANSACTIONS AND BALANCES

       General Felt purchased $154.0 million,  $141.2 million and $149.0 million
of  carpet  cushion  foam  from  Foamex  L.P.   during  1996,   1995  and  1994,
respectively.

       In connection  with the  consolidation  of General Felt's  administrative
functions  with  those of Foamex  L.P.,  General  Felt paid  approximately  $1.4
million  and $2.3  million to Foamex L.P.  in 1996 and 1995,  respectively,  for
direct  costs  incurred  by Foamex  L.P.  on  General  Felt's  behalf and for an
allocation of shared services and facilities.

       During 1993, General Felt leased two facilities from limited partnerships
in which certain directors and officers of related parties have an interest. The
lessor  under the first of these  leases (the "East State  Lease") is East State
Associates.  The lease  related to a warehouse at General  Felt's  Trenton,  New
Jersey facility. In accordance with the terms of the lease, the lessor exercised
its right to require General Felt to purchase the facility at the appraised fair
market value of approximately  $2.3 million.  General Felt assigned the purchase
contract  for the  property to an  unaffiliated  third party who  purchased  the
property on March 28, 1994.  General  Felt no longer  leases the  facility.  The
lessor under the second lease (the "West State Lease") is West State Associates.
The lease  relates to General  Felt's  manufacturing  facility  in Pico  Rivera,
California.  During 1994,  General Felt  purchased  the facility in Pico Rivera,
California  from the lessor at the appraised  fair market value of $3.4 million.
Rental  payments for these  leases for the year ended  January 1, 1995 were $0.3
million.

                                      F-49
<PAGE>
                 GENERAL FELT INDUSTRIES, INC. AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

14.  FINANCIAL INSTRUMENTS AND CONCENTRATION OF CREDIT RISK

       Concentration of Credit Risk

       General Felt's financial instruments subject to credit risk are primarily
trade  accounts  receivable.  Accounts  receivable are  concentrated  with large
retail  customers.  General Felt  performs  ongoing  credit  evaluations  of its
customers financial conditions and, generally,  requires no collateral.  General
Felt maintains  allowance  accounts for potential  credit losses and such losses
have been within  management's  expectations.  Additionally,  General Felt's ten
largest  customers  accounted  for  approximately  30.8% and  32.6% of  accounts
receivable at December 29, 1996 and December 31, 1995, respectively.

       Disclosure about Fair Value of Financial Instruments

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

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

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

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

15.  SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION

       Supplemental disclosures of cash flow information:

                                        1996            1995            1994
                                                     (thousands)

       Interest paid                   $4,434          $5,300          $3,609
                                       ======          ======          ======

       Income taxes paid, net          $  596          $  183          $  316
                                       ======          ======          ======



                                      F-50
<PAGE>

                        REPORT OF INDEPENDENT ACCOUNTANTS




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

We  have  audited  the  accompanying   consolidated  balance  sheets  of  Foamex
International  Inc. and subsidiaries (the "Company") as of December 29, 1996 and
December 31, 1995 and the related  consolidated  statements of operations,  cash
flows and  stockholders'  equity  (deficit)  for each of the three  years in the
period  ended   December  29,  1996.   These   financial   statements   are  the
responsibility of the Company's management.  Our responsibility is to express an
opinion on these financial statements based on our audits.

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

In our opinion,  the financial  statements  referred to above present fairly, in
all material respects,  the consolidated financial position of the Company as of
December 29, 1996 and December 31, 1995, and the  consolidated  results of their
operations  and their cash flows for each of the three years in the period ended
December 29, 1996 in conformity with generally accepted accounting principles.





COOPERS & LYBRAND L.L.P.

2400 Eleven Penn Center
Philadelphia, Pennsylvania
February 26, 1997



                                      F-51
<PAGE>

                   FOAMEX INTERNATIONAL INC. AND SUBSIDIARIES
                           CONSOLIDATED BALANCE SHEETS


<TABLE>
<CAPTION>
                                                     December 29,         December 31,
ASSETS                                                   1996                 1995
                                                                (thousands)
<S>                                                    <C>                 <C>      
CURRENT ASSETS:
    Cash and cash equivalents                          $  22,203           $   3,322
    Restricted cash                                       12,143                  --
    Accounts receivable, net of allowance for
      doubtful accounts of $6,328 and $9,138             126,573             113,716
    Inventories                                          102,610              89,952
    Deferred income taxes                                 21,765              12,625
    Due from related parties                               1,866               1,644
    Other current assets                                  19,944              25,033
                                                       ---------           ---------

            Total current assets                         307,104             246,292
                                                       ---------           ---------

PROPERTY, PLANT AND EQUIPMENT:
    Land and land improvements                             9,674               4,632
    Buildings and leasehold improvements                  78,082              78,169
    Machinery, equipment and furnishings                 199,993             190,708
    Construction in progress                              20,784               7,985
                                                       ---------           ---------

            Total                                        308,533             281,494

    Less accumulated depreciation and
      amortization                                      (113,160)            (98,176)
                                                       ---------           ---------

      Property, plant and equipment, net                 195,373             183,318

COST IN EXCESS OF ASSETS ACQUIRED, NET                    82,471              89,605

DEBT ISSUANCE COSTS, NET                                  18,628              22,770

NET ASSETS OF DISCONTINUED OPERATIONS                         --             191,188

OTHER ASSETS                                              16,270              15,069
                                                       ---------           ---------

TOTAL ASSETS                                           $ 619,846           $ 748,242
                                                       =========           =========
</TABLE>

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

                                      F-52
<PAGE>
                   FOAMEX INTERNATIONAL INC. AND SUBSIDIARIES
                           CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
                                                                         December 29,         December 31,
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)                               1996                 1995
                                                                           (thousands except share data)
<S>                                                                       <C>                 <C>      
CURRENT LIABILITIES:
    Short-term borrowings                                                 $   3,692           $   2,199
    Current portion of long-term debt - unrelated parties                    14,505               9,281
    Accounts payable                                                         84,930              80,624
    Accrued employee compensation                                             7,302               8,116
    Accrued interest                                                          9,012               9,694
    Accrued restructuring charges                                             6,300              16,287
    Other accrued liabilities                                                44,782              28,483
                                                                          ---------           ---------

      Total current liabilities                                             170,523             154,684

LONG-TERM DEBT - UNRELATED PARTIES                                          477,527             509,414

LONG-TERM DEBT - RELATED PARTIES                                              5,817               5,540

DEFERRED INCOME TAXES                                                         6,290              24,996

ACCRUED RESTRUCTURING CHARGES                                                 4,043               3,773

OTHER LIABILITIES                                                            13,749              20,452
                                                                          ---------           ---------

    Total liabilities                                                       677,949             718,859
                                                                          ---------           ---------

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

STOCKHOLDERS' EQUITY (DEFICIT):
    Preferred Stock, par value $1.00 per share:
      Authorized 5,000,000 shares - none issued                                  --                  --
    Common Stock, par value $.01 per share:
      Authorized 50,000,000 shares
      Issued 26,753,262 and 26,715,960 shares, respectively;
      Outstanding 25,198,862 and 25,786,260 shares, respectively                267                 267
    Additional paid-in capital                                               84,579              84,015
    Retained earnings (accumulated deficit)                                (120,174)            (37,039)
    Other                                                                    (9,312)            (10,693)
                                                                          ---------           ---------
                                                                            (44,640)             36,550
    Common Stock held in treasury, at cost:
      1,554,400 shares and 929,700, respectively                            (13,463)             (7,167)
                                                                          ---------           ---------

      Total stockholders' equity (deficit)                                  (58,103)             29,383
                                                                          ---------           ---------

TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)                      $ 619,846           $ 748,242
                                                                          =========           =========
</TABLE>

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

                                      F-53
<PAGE>

                   FOAMEX INTERNATIONAL INC. AND SUBSIDIARIES
                      CONSOLIDATED STATEMENTS OF OPERATIONS
                       For the Years 1996, 1995, and 1994
<TABLE>
<CAPTION>
                                                            1996                1995                1994
                                                              (thousands except per share amounts)
<S>                                                      <C>                 <C>                 <C>      
NET SALES                                                $ 926,351           $ 862,834           $ 833,660

COST OF GOODS SOLD                                         773,119             762,085             691,265
                                                         ---------           ---------           ---------

GROSS PROFIT                                               153,232             100,749             142,395

SELLING, GENERAL AND ADMINISTRATIVE
    EXPENSES                                                58,329              69,913              62,245

RESTRUCTURING AND OTHER CHARGES (CREDITS)                   (6,541)             41,417                  --
                                                         ---------           ---------           ---------

INCOME (LOSS) FROM OPERATIONS                              101,444             (10,581)             80,150

INTEREST AND DEBT ISSUANCE EXPENSE                          53,900              52,878              45,131

OTHER INCOME, NET                                            1,617                 461               1,147
                                                         ---------           ---------           ---------

INCOME (LOSS) FROM CONTINUING OPERATIONS
    BEFORE PROVISION (BENEFIT) FOR INCOME TAXES             49,161             (62,998)             36,166

PROVISION (BENEFIT) FOR INCOME TAXES                        16,669             (12,248)             13,955
                                                         ---------           ---------           ---------

INCOME (LOSS) FROM CONTINUING OPERATIONS                    32,492             (50,750)             22,211
                                                         ---------           ---------           ---------

DISCONTINUED OPERATIONS:

INCOME (LOSS) FROM DISCONTINUED OPERATIONS,
    NET OF INCOME TAXES                                       (584)             (2,370)              3,919

LOSS ON DISPOSAL OF DISCONTINUED OPERATIONS,
    INCLUDING PROVISIONS FOR OPERATING LOSSES
    DURING THE PHASE-OUT PERIOD, NET OF INCOME
    TAXES                                                 (113,896)                 --                  --
                                                         ---------           ---------           ---------

INCOME (LOSS) FROM DISCONTINUED OPERATIONS,
    NET OF INCOME TAXES                                   (114,480)             (2,370)              3,919
                                                         ---------           ---------           ---------

INCOME (LOSS) BEFORE EXTRAORDINARY LOSS                    (81,988)            (53,120)             26,130

EXTRAORDINARY LOSS ON EARLY EXTINGUISHMENT
    OF DEBT, NET OF INCOME TAXES                            (1,147)                 --                  --
                                                         ---------           ---------           ---------

NET INCOME (LOSS)                                        $ (83,135)          $ (53,120)          $  26,130
                                                         =========           =========           =========

EARNINGS (LOSS) PER SHARE:

CONTINUING OPERATIONS                                    $    1.27           $   (1.92)          $    0.83

DISCONTINUED OPERATIONS                                      (4.47)              (0.09)               0.15

EXTRAORDINARY LOSS                                           (0.05)               0.00                0.00
                                                         ---------           ---------           ---------

EARNINGS (LOSS) PER SHARE                                $   (3.25)          $   (2.01)          $    0.98
                                                         =========           =========           =========

WEIGHTED AVERAGE NUMBER
    OF SHARES OUTSTANDING                                   25,616              26,472              26,684
                                                         =========           =========           =========
</TABLE>

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

                                      F-54
<PAGE>
                   FOAMEX INTERNATIONAL INC. AND SUBSIDIARIES
                      CONSOLIDATED STATEMENTS OF CASH FLOWS
                       For the Years 1996, 1995, and 1994
<TABLE>
<CAPTION>
                                                                         1996                1995               1994
                                                                                         (thousands)
<S>                                                                  <C>                 <C>                 <C>      
OPERATING ACTIVITIES:
   Net income (loss)                                                 $ (83,135)          $ (53,120)          $  26,130
   Adjustments to reconcile net income (loss) to net
     cash provided by operating activities:
     Depreciation and amortization                                      22,353              23,302              22,108
     Amortization of debt issuance costs and debt discount              13,903              12,192               6,468
     Net loss on disposal of discontinued operations                   110,137                  --                  --
     Net loss (income) from discontinued operations                      4,343               2,370              (3,919)
     Asset writedowns and other charges (credits)                       (7,364)             16,677                  --
     Provision for uncollectible accounts                                  704               4,627                 878
     Deferred income taxes                                              14,903             (10,667)              9,914
     Other, net                                                         (3,642)                (72)                453
   Changes in operating assets and liabilities,
     net of acquisitions and discontinued operations:
     Accounts receivable                                               (13,723)             (1,604)            (24,677)
     Inventories                                                       (13,078)             14,146             (21,790)
     Accounts payable                                                    4,306              (2,726)             49,039
     Accrued restructuring charges                                      (7,405)             17,284              (3,469)
     Other assets and liabilities                                       (1,048)              3,048             (13,031)
                                                                     ---------           ---------           ---------

       Net cash provided by continuing operations                       41,254              25,457              48,104
       Net cash provided by discontinued operations                     16,491               4,133               6,471
                                                                     ---------           ---------           ---------
       Net cash provided by operating activities                        57,745              29,590              54,575
                                                                     ---------           ---------           ---------

INVESTING ACTIVITIES:
   Capital expenditures                                                (23,344)            (22,348)            (21,201)
   Acquisitions, net of cash acquired                                     (841)             (8,113)             (1,712)
   Proceeds from sale of discontinued operations                        59,452                  --                  --
   Increase in restricted cash                                         (12,143)                 --                  --
   Discontinued operations investing activities                         (5,490)            (19,411)           (290,014)
   Other investing activities                                           (1,276)              2,495              (1,910)
                                                                     ---------           ---------           ---------

       Net cash provided by (used for) investing activities             16,358             (47,377)           (314,837)
                                                                     ---------           ---------           ---------

FINANCING ACTIVITIES:
   Net proceeds from (repayments of) short-term borrowings               1,493              (1,685)                537
   Net proceeds from (repayments of) revolving loans                        --              (3,000)              3,000
   Proceeds from long-term debt-unrelated parties                        1,500                  --              97,000
   Repayments of long-term debt-unrelated parties                      (38,887)             (9,356)             (3,256)
   Debt issuance costs                                                      --                (184)             (9,116)
   Purchase of treasury stock                                           (6,296)             (7,167)                 --
   Discontinued operations financing activities                        (12,406)              1,674             179,655
   Other financing activities                                             (626)                 --                (687)
                                                                     ---------           ---------           ---------

       Net cash provided by (used for) financing activities            (55,222)            (19,718)            267,133
                                                                     ---------           ---------           ---------

Net increase (decrease) in cash and cash equivalents                    18,881             (37,505)              6,871

Cash and cash equivalents at beginning of period                         3,322              40,827              33,956
                                                                     ---------           ---------           ---------

Cash and cash equivalents at end of period                           $  22,203           $   3,322           $  40,827
                                                                     =========           =========           =========
</TABLE>

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

                                      F-55
<PAGE>
                   FOAMEX INTERNATIONAL INC. AND SUBSIDIARIES
            CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY (DEFICIT)
                       For the Years 1996, 1995, and 1994
<TABLE>
<CAPTION>
                                                                                      Retained
                                                                          Additional   Earnings
                                                  Common Stock             Paid-in   (Accumulated                    Treasury
                                              Shares         Amount        Capital     Deficit)          Other         Stock
                                                                                (thousands)

<S>                                         <C>         <C>           <C>           <C>            <C>       
Balances at January 2, 1994                    26,684      $     267     $  80,566     $ (10,049)     $  (6,478)

Issuance of warrants                                                         3,000
Stock option compensation                                                       75
Stock options exercised                                                         10
Additional pension liability                                                                                 86
Foreign currency translation adjustment                                                                  (1,435)
Other                                                                          (27)
Net income                                                                                26,130
                                            ---------      ---------     ---------     ---------      ---------      --------- 

Balances at January 1, 1995                    26,684            267        83,624        16,081         (7,827)

Issuance of common stock                           32             --           316
Stock option compensation                                                       75
Increase in note receivable from
    principal stockholder                                                                                (1,373)
Additional pension liability                                                                             (1,974)
Foreign currency translation adjustment                                                                     481
Purchase of treasury stock                                                                                           $  (7,167)
Net loss                                                                                 (53,120)
                                            ---------      ---------     ---------     ---------      ---------      --------- 

Balances at December 31, 1995                  26,716            267        84,015       (37,039)       (10,693)        (7,167)

Issuance of common stock                           22             --           165
Stock option compensation                                                      297
Stock options exercised                            15             --           102
Additional pension liability                                                                              1,427
Foreign currency translation adjustment                                                                     (46)
Purchase of treasury stock                                                                                              (6,296)
Net loss                                                                                 (83,135)
                                            ---------      ---------     ---------     ---------      ---------      --------- 
Balances at December 29, 1996                  26,753      $     267     $  84,579     $(120,174)     $  (9,312)     $ (13,463)
                                            =========      =========     =========     =========      =========      =========
</TABLE>


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

                                      F-56
<PAGE>
                   FOAMEX INTERNATIONAL INC. AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


1.       ORGANIZATION AND BASIS OF PRESENTATION

         Foamex International Inc. (the "Company") is a significant manufacturer
and marketer of flexible  polyurethane  foam and foam  products in North America
through Foamex L.P., a 99% owned subsidiary.  The Company's products include (i)
foam for carpet cushion and other carpet  products,  (ii)  cushioning  foams for
furniture,  bedding,  packaging and health care, (iii) foams for automotive trim
and accessories and (iv) technical foams for filtration,  consumer  products and
packaging.

         During 1996, the Company sold Perfect Fit  Industries,  Inc.  ("Perfect
Fit") and JPS  Automotive  L.P.  ("JPS  Automotive")  which  comprised  the home
comfort products and automotive textile business segments,  respectively, of the
Company. The consolidated financial statements of the Company have been restated
for  discontinued  operations  and includes a net loss of $113.9 million (net of
$34.9  million  income tax benefit) on the disposal of these  business  segments
which includes provisions for operating losses during the phase-out period. (See
Note 3 for further discussion).

2.       SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

         Consolidation

         The  consolidated  financial  statements  include  the  accounts of the
Company and all subsidiaries  that the Company directly or indirectly  controls,
either  through  majority  ownership or  otherwise,  other than the home comfort
products and  automotive  textile  business  segments which are accounted for as
discontinued  operations.  Intercompany accounts and transactions for continuing
operations have been eliminated in consolidation.

         The   consolidated   financial   statements   have  been  restated  for
discontinued operations.  The accompanying notes present amounts related only to
continuing operations.

         Fiscal Year

         The  Company's   fiscal  year  ends  on  the  Sunday   closest  to  the
thirty-first day of December.  Fiscal years 1996, 1995 and 1994 were composed of
fifty-two weeks and ended on December 29, 1996, December 31, 1995 and January 1,
1995, respectively.

         Accounting Estimates

         The  preparation of financial  statements in conformity  with generally
accepted  accounting  principles  requires  management  to  make  estimates  and
assumptions  that affect the reported  amounts of assets and  liabilities at the
date of the  financial  statements  and the  reported  amounts of  revenues  and
expenses  during the reported  period.  Actual  results  could differ from those
estimates.  (See  Notes 3, 4, 9, 10,  16,  17 and 18 and Cost in  Excess  of Net
Assets Acquired below.)

         Cash Equivalents

         The Company  considers all highly liquid  investments  with an original
maturity  of three  months or less when  purchased  to be cash  equivalents.  On
December  29, 1996 and December 31,  1995,  cash and cash  equivalents  included
$19.6  million  and  $2.7  million,   respectively,   of  repurchase  agreements
collateralized by U.S. Government securities.

                                      F-57
<PAGE>
                   FOAMEX INTERNATIONAL INC. AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


2.       SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)

         Restricted Cash

         As  of  December  29,  1996,  the  Company  had   restricted   cash  of
approximately  $12.1 million.  This cash was derived from the net sales proceeds
relating  to the sale of Perfect  Fit and is  restricted  by Foamex  L.P.'s debt
agreements.  As of February 26, 1997,  the Company has used  approximately  $8.4
million of the  restricted  cash to  repurchase  approximately  $8.0  million of
outstanding indebtedness.

         Inventories

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

         Property, Plant and Equipment

         Property,  plant and equipment  are stated at cost and are  depreciated
using the  straight-line  method over the estimated  useful lives of the assets.
The range of  useful  lives  estimated  for  buildings  is  generally  twenty to
thirty-five  years,  and the range for machinery,  equipment and  furnishings is
five to twelve years.  Leasehold  improvements are amortized over the shorter of
the  terms  of the  respective  leases  or the  estimated  useful  lives  of the
leasehold improvements.  Depreciation expense for the years ended 1996, 1995 and
1994 was $19.1  million,  $19.1  million and $16.8  million,  respectively.  For
income tax purposes, the Company 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 interest method.  Accumulated amortization as of December 29, 1996 and
December 31, 1995 was approximately $8.8 million and $6.7 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
the  Company  evaluates  the  recoverability  of cost in  excess  of net  assets
acquired  using  certain  financial  indicators  such as  historical  and future
ability to  generate  income from  operations  based on a going  concern  basis.
Accumulated  amortization  as of  December  29, 1996 and  December  31, 1995 was
approximately $11.6 million and $9.0 million, respectively.

         Environmental Matters

         Environmental  expenditures  that  relate  to  current  operations  are
expensed or capitalized as appropriate.  Expenditures that relate to an existing
condition caused by past operations, and which do not contribute to current or

                                      F-58
<PAGE>
                   FOAMEX INTERNATIONAL INC. AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

2.       SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)

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

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

         Foreign Currency Accounting

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

         Interest Rate Swap Agreement

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

         Income Taxes

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

         Earnings (Loss) Per Share

         Earnings  (loss) per share for 1996 was computed  based on the weighted
average  number of shares  actually  outstanding  plus the shares  that would be
outstanding  assuming the exercise of dilutive  stock options and warrants which
are considered to be common stock  equivalents.  The number of shares that would
be issued from the  exercise of stock  options has been reduced by the number of
shares that could have been  purchased  from the proceeds at the average  market
price of the Company's common stock. For 1995 and 1994, common stock equivalents
have not been included since the effect would be antidilutive and/or immaterial.

         Reclassifications

         Certain amounts in the 1995 and 1994 consolidated  financial statements
have been reclassified to conform with the current year's presentation.

                                      F-59
<PAGE>
                   FOAMEX INTERNATIONAL INC. AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

3.       DISCONTINUED OPERATIONS

         On December 11, 1996, the Company completed the sale of its partnership
interests in JPS  Automotive  for a sale price of  approximately  $220.1 million
including $200.1 million of JPS Automotive's  indebtedness.  The sale is subject
to a post-closing adjustment which is expected to be finalized during the second
quarter of 1997.  The sale included  substantially  all of the net assets of the
automotive textiles business segment.  Actual and estimated transaction expenses
related to the sale  amounted to  approximately  $8.9  million.  The Company has
recorded a net loss on the sale of JPS Automotive of approximately $70.9 million
(net of $34.2 million  income tax benefit),  which includes the loss on disposal
and a net loss of $1.3 million (net of $0.7 million income tax benefit) relating
to operating losses during the phase-out period.

         During 1996, the Company  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  substantially  all of the net
assets of the home comfort products  segment.  Actual and estimated  transaction
expenses related to the sale amounted to approximately $1.5 million. The Company
has recorded a loss on the sale of Perfect Fit of  approximately  $43.0 million,
which  includes  the loss on  disposal  and a loss of $2.4  million  relating to
operating  losses during the phase-out  period.  A valuation  allowance has been
provided  for the  capital  loss  relating  to the sale of Perfect Fit since the
Company has  determined  that capital  gain  taxable  income is not likely to be
sufficient  to recognize  the  deferred  tax asset  relating to the capital loss
carryforward.

         The Company's  financial  statements  have been restated to reflect the
discontinuation  of the home comfort  products and automotive  textile  business
segments.  In  addition  to  the  interest  and  debt  issuance  expense  of JPS
Automotive,  interest and debt issuance  expense was  allocated to  discontinued
operations  based on the estimated debt to be retired from the net proceeds from
the sale of Perfect Fit and JPS Automotive.  A summary of the operating  results
for the discontinued operations is as follows:
<TABLE>
<CAPTION>
                                                                      1996  (1)       1995           1994
                                                                                  (thousands)
<S>                                                                 <C>            <C>            <C>      
Sales                                                               $ 244,305      $ 405,726      $ 254,174
Gross profit                                                           38,296         69,410         50,477
Income from operations                                                 17,072         28,009         24,026
Interest and debt issuance expense                                     16,905         28,575         16,463
Other expense                                                            (975)          (113)          (127)
Income (loss) from discontinued operations before income taxes           (808)          (679)         7,436
Provision (benefit) for income taxes                                     (224)         1,691          3,517
Income (loss) from discontinued operations, net of income taxes          (584)        (2,370)         3,919
<FN>
(1)      The  Company's  discontinued  operations  includes  the  operations  of
         Perfect  Fit through  June 1996 and JPS  Automotive  through  September
         1996.
</FN>
</TABLE>

                                      F-60
<PAGE>
                   FOAMEX INTERNATIONAL INC. AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

3.        DISCONTINUED OPERATIONS (continued)

          Net assets of  discontinued  operations  (excluding  intercompany  net
assets) at December 31, 1995 were as follows:

                                                                     1995
                                                                 (thousands)
         Current assets                                            $100,574
         Property, plant and equipment, net                         142,863
         Cost in excess of assets acquired, net                     202,020
         Other assets                                                10,642
                                                                   --------
            Total assets                                            456,099

         Current liabilities                                         49,202
         Long-term debt                                             204,463
         Other liabilities                                           11,246
                                                                   --------
            Total liabilities                                       264,911
                                                                   --------

         Net assets                                                $191,188
                                                                   ========

4.       RESTRUCTURING AND OTHER CHARGES (CREDITS)

         In  1995,  the  Company  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.  The Company
recorded restructuring and other charges of $41.4 million which was comprised of
$35.6  million  associated  with  the  consolidation  of  the  foam  production,
fabrication or branch locations,  $2.2 million associated with the completion of
a  1993   restructuring  plan  and  $3.6  million  associated  with  merger  and
acquisition  activities  of the Company.  The  components  of the $35.6  million
restructuring  charge include:  $16.7 million for fixed asset writedowns (net of
estimated sale  proceeds),  $15.1 million for plant closure and operating  lease
obligations and $3.8 million for personnel reductions. The $3.8 million cost for
personnel  reductions  primarily represents severance and employee benefit costs
associated with the elimination of manufacturing and administrative personnel.

         In 1996,  the  Company  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,  the Company has 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, the
Company  recorded a $6.5  million  net  restructuring  credit  which  included a
restructuring credit of $11.3 million associated with the Company's decision not
to close the facility identified as part of the 1995 restructuring plan and $1.8
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").


                                      F-61
<PAGE>
                   FOAMEX INTERNATIONAL INC. AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

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

         Generally,   the  1995  restructuring  plan  has  been  implemented  as
originally  contemplated.  The following  table sets forth the components of the
Company's restructuring and other charges:
<TABLE>
<CAPTION>
                                                        Asset      Plant Closure   Personnel
                                           Total      Writedowns    and Leases     Reductions     Other
                                                                    (millions)
<S>                                       <C>           <C>           <C>           <C>          <C>   
1995 restructuring charge                 $  41.4       $  16.7       $  15.1       $  3.8       $  5.8
Asset writeoff/writedowns                   (25.1)        (20.9)           --           --         (4.2)
Cash spending                                (0.4)           --          (0.3)        (0.1)          --
                                          -------       -------       -------       ------       ------

Balances at December 31, 1995                15.9          (4.2)         14.8          3.7          1.6
Cash spending                                (9.9)           --          (6.6)        (2.0)        (1.3)
Cash proceeds                                 1.0           1.0            --           --           --
1996 restructuring charge                     6.6           2.4           4.1          0.1           --
Restructuring credits                       (13.1)         (9.7)         (2.8)        (0.4)        (0.2)
Asset adjustment for restructuring
   credit                                     8.0           8.7          (0.6)          --         (0.1)
                                          -------       -------       -------       ------       ------
 
Balances at December 29, 1996             $   8.5       $  (1.8)      $   8.9       $  1.4       $   --
                                          =======       =======       =======       ======       ======
</TABLE>

         As indicated in the table above, the accrued  restructuring  balance at
December  29,  1996,  will be used for  payments  relating to plant  closure and
leases  including  rundown  costs at the  facilities.  The $1.8 million of asset
writedowns  relates to estimated  proceeds and is included in noncurrent assets.
The Company expects to incur  approximately  $6.3 million of charges during 1997
with the remaining $4.0 million to be incurred  through 2001. As of December 29,
1996,  the Company has  terminated  approximately  270  employees  and  notified
approximately  40 employees in the  manufacturing  and  administrative  areas of
their impending  termination in connection with the 1996 and 1995  restructuring
plans.

5.       ACQUISITIONS

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

         In March  1994,  the  Company  acquired  Transformacion  De  Espumas  Y
Fieltros S.A. de C.V. ("TEFSA") for an aggregate purchase price of approximately
$4.5 million, including related fees and expenses of approximately $0.4 million,
to be paid  over a three  year  period  with an  initial  cash  payment  of $1.7
million.  The excess of the purchase  price over the estimated fair value of the
assets  acquired  was $3.7  million.  During  1996 and 1995,  the  Company  made
scheduled  cash  payments of $0.8 million for each year in  accordance  with the
purchase agreement. The final payment will be made in April 1997.

         The acquisitions  were accounted for as purchases and the operations of
the acquired companies are included in the consolidated statements of operations
and cash flows from their  respective  dates of  acquisition.  The excess of the
purchase price over the estimated fair value of the net assets acquired is being
amortized using the straight-line method over forty years.


                                      F-62
<PAGE>
                   FOAMEX INTERNATIONAL INC. AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

6.       INVENTORIES

         Inventories consists of:
                                           December 29,       December 31,
                                               1996               1995
                                                    (thousands)
         Raw materials and supplies          $ 61,559          $ 49,963
         Work-in process                       13,453            14,451
         Finished goods                        27,598            25,538
                                             --------          --------
                 Total                       $102,610          $ 89,952
                                             ========          ========

7.       SHORT-TERM BORROWINGS

         Short-term  borrowings include  borrowings  outstanding under a line of
credit facility for Foamex Canada Inc. ("Foamex Canada") bearing interest at the
bank's prime rate (4.75% at December 29, 1996) plus 1/2%.  The weighted  average
interest rates on Foamex Canada's  short-term  borrowings  outstanding for 1996,
1995 and 1994 were 5.9%, 8.0% and 7.3%,  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 $17.1 million as of December 29, 1996. The unused amount under
this line of credit totaled $0.7 million as of December 29, 1996.

8.       LONG-TERM DEBT

         Long-term debt consists of:
<TABLE>
<CAPTION>
                                                                      December 29,      December 31,
                                                                          1996              1995
                                                                             (thousands)
<S>                                                                    <C>               <C>     
Unrelated parties:
9 1/2% Senior secured notes due 2000 (1)                               $106,793          $116,667
11 1/4% Senior notes due 2002 (1)                                       141,400           150,000
11 7/8% Senior subordinated debentures due 2004 (net of
         unamortized debt discount of $769 and $827) (1)                125,056           125,173
Senior secured discount debentures due 2004, Series B
         (net of unamortized debt discount of $35,864 and
         $46,364) (2)                                                    80,881            70,381
11 7/8% Senior subordinated debentures due 2004, Series B (3)             7,000             7,000
Industrial revenue bonds (4)                                              7,000             7,000
Foamex L.P. term loan (8.54% interest rate as of
         December 29, 1996)(4)                                           11,000            30,000
Other                                                                    12,902            12,474
                                                                       --------          --------

                                                                        492,032           518,695

Less current portion                                                     14,505             9,281
                                                                       --------          --------

Long-term debt--unrelated parties                                      $477,527          $509,414
                                                                       ========          ========
</TABLE>

                                      F-63

<PAGE>
                   FOAMEX INTERNATIONAL INC. AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

8.       LONG-TERM DEBT (continued)

Related parties:
Subordinated note payable (net of unamortized
         debt discount of $1,198 and $1,475) (3)          $5,817          $5,540
                                                          ======          ======

         (1)      Subsidiary debt of Foamex L.P. and Foamex Capital  Corporation
                  and  guaranteed  by the Company and General  Felt  Industries,
                  Inc. ("General Felt").

         (2)      Subsidiary  debt of Foamex-JPS  Automotive L.P. and Foamex-JPS
                  Capital Corporation and guaranteed by the Company.

         (3)      Subsidiary debt of Foamex L.P. and Foamex Capital  Corporation
                  and guaranteed by General Felt.

         (4)      Subsidiary debt of Foamex L.P.

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

         The Senior  Secured Notes were issued on June 3, 1993 and bear interest
at the rate of 9 1/2%  payable  semiannually  on each June 1 and December 1. The
Senior  Secured  Notes  mature on June 1,  2000.  The Senior  Secured  Notes are
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 may be redeemed at the option of Foamex L.P.,  in whole or in part, at any
time on or after June 1, 1998,  initially at 101.583% of their principal amount,
plus accrued  interest,  and declining to 100% on or after June 1, 1999.  During
1996, Foamex L.P.  repurchased $9.9 million of Senior Secured Notes with the net
proceeds from the sale of Perfect Fit (see Note 11).

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

         The  Senior  Notes  bear  interest  at  the  rate  of 11  1/4%  payable
semiannually  on each April 1 and October 1. The Senior  Notes mature on October
1, 2002. The Senior Notes may be redeemed at the option of Foamex L.P., in whole
or in part,  at any time on or after  October 1, 1997,  initially at 104.219% of
their principal amount, plus accrued interest, and declining to 100% on or after
October 1, 2000. In October 1994,  Foamex L.P. provided certain real property as
collateral  for the  Senior  Notes,  with a net book  value of $37.8  million at
December 29, 1996. During 1996,  Foamex L.P.  repurchased $8.6 million of Senior
Notes with the net proceeds from the sale of Perfect Fit (see Note 11).

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

         The  Subordinated  Debentures  bear  interest  at the  rate  of 11 7/8%
payable semiannually on each April 1 and October 1. The Subordinated  Debentures
mature on October 1, 2004.  The  Subordinated  Debentures may be redeemed at the
option of Foamex L.P.,  in whole or in part,  at any time on or after October 1,
1997,  initially at 105.938% of their principal  amount,  plus accrued interest,
and declining to 100% on or after October 1, 2002. The  Subordinated  Debentures
are subordinated in right of payment to all senior  indebtedness,  including the
Senior Secured Notes and the Senior Notes. During 1996, Foamex L.P.  repurchased
$0.1 million of  Subordinated  Debentures with the net proceeds from the sale of
Perfect Fit (see Note 11).


                                      F-64
<PAGE>
                   FOAMEX INTERNATIONAL INC. AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

8.       LONG-TERM DEBT (continued)

         Senior Secured Discount Debentures due 2004 ("Discount Debentures")

         Discount  Debentures,  in the  aggregate  principal  amount  of  $116.7
million  ($57.0  million  initial  cash  proceeds)  were  issued  during 1994 by
Foamex-JPS Automotive L.P. ("FJPS") and Foamex-JPS Capital Corporation ("FJCC").
In connection  with this issuance,  the Company  issued  warrants to acquire 0.6
million  shares of the Company's  common stock to the purchasers of the Discount
Debentures  (see Note 15).  The  Discount  Debentures  are  collateralized  by a
first-priority lien granted by FJPS on a 43.44% limited partnership  interest in
Foamex L.P. and are  guaranteed  on a senior basis by the Company.  The original
issue discount of $59.7 million will be amortized using the weighted  average to
maturity  method over the life of the issue.  No cash interest is payable on the
Discount  Debentures  prior to January 1, 2000;  rather the Discount  Debentures
accrete on a daily  basis and  compound  semiannually  at the rate of 13.50% per
annum from the date of issuance through June 30, 1996, at the rate of 13.75% per
annum  from July 1, 1996  through  June 30,  1997 and at the rate of 14.00%  per
annum from July 1, 1997 through June 30, 1999,  in each case subject to increase
in the event the Discount  Debentures are not redeemed at the option of FJPS and
FJCC as described below. Thereafter,  interest accrues at the rate of 14.00% per
annum and is payable semiannually in cash commencing January 1, 2000.

         The Discount Debentures may be redeemed at the option of FJPS and FJCC,
in whole or in part, at any time after July 1, 1999,  initially at 110% of their
principal amount, plus accrued interest to the redemption date, and declining to
100% on or after July 1, 2002.  Prior to July 1, 1997, at the option of FJPS and
FJCC, (i) up to 50% of the original  aggregate  principal amount of the Discount
Debentures  will  be  redeemable  at a  redemption  price  equal  to 110% of the
Accreted  Value (as defined in the  indenture  with respect to such  debentures)
(the  "Discount  Debenture  Indenture")  of such  Discount  Debentures  and (ii)
additional Discount Debentures will be redeemable at a redemption price equal to
112% of the Accreted Value of such Discount  Debentures  from the proceeds of an
Equity Offering (as defined in the Discount Debenture  Indenture).  In addition,
at any time on or prior to July 1, 1997,  FJPS and FJCC may redeem all,  but not
less than all, of the outstanding  Discount  Debentures from the net proceeds of
an Equity-Linked  Offering (as defined in the Discount  Debenture  Indenture) at
the redemption prices set forth in the immediately  preceding sentence.  If FJPS
and FJCC do not  exercise  such  redemption  rights with at least 85% of the net
proceeds of an Equity Offering,  the rate at which the Discount Debentures shall
accrete and the interest rate on the Discount  Debentures will increase based on
a formula.

         During 1996, the Company received  consents from 100% of the holders of
the Discount  Debentures  for the waiver of certain  provisions  of the Discount
Debentures Indenture in connection with the sale of JPS Automotive.

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

         The Series B Debentures were issued July 30, 1993, by Foamex L.P. in an
exchange offer to holders of senior subordinated debentures issued in connection
with the  acquisition of General Felt on March 23, 1993. The Series B Debentures
have terms  substantially  similar to the Subordinated  Debentures,  except that
holders of the Series B  Debentures  are  entitled to receive  proceeds  from an
asset sale only if any  proceeds  remain after an offer to  repurchase  has been
made to the holders of the Subordinated Debentures.


                                      F-65
<PAGE>
                   FOAMEX INTERNATIONAL INC. AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

8.       LONG-TERM DEBT (continued)

         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 $11.3  million at
December 29, 1996 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 4.85% and 4.0% at
December   29,  1996  for  the  $6.0  million  and  $1.0  million  bond  issues,
respectively.  The interest  rate on the $6.0  million bond issue varies  weekly
based on an interest rate that is indicative of current  bidside  yields on high
quality  short-term,  tax-exempt  obligations,  or if such  interest rate is not
available,  70.0% of the interest rate for thirteen week United States  Treasury
Bills.  The maximum  interest rate for either of the IRBs is 15.0% per annum. At
the time of a conversion to a fixed interest rate and upon  appropriate  notice,
the IRBs are redeemable at the option of the bondholders.

         Term and Revolving Loans

         Foamex L.P. has a credit agreement (the "Foamex L.P. Credit  Facility")
with a group of banks that provide for loans of up to $85.0  million of which up
to $40.0 million was available as a term loan payable in twenty equal  quarterly
installments  commencing October 1994 and up to $45.0 million is available under
a revolving line of credit which expires in June 1999. In 1994,  Foamex L.P. and
General Felt entered into a $40.0 million term loan under the Foamex L.P. Credit
Facility; no further term loan borrowings are available thereunder. During 1996,
Foamex L.P.  and General Felt used $12.0  million of the net  proceeds  from the
Perfect Fit sale to repay term loan borrowings. Borrowings under the Foamex L.P.
Credit Facility are collateralized by the accounts receivable of Foamex L.P. and
General Felt. Pursuant to the terms of the Foamex L.P. Credit Facility, borrowed
funds will bear  interest  at a  floating  rate equal to 1.0% per annum plus the
highest of (i) the base rate of The Bank of Nova Scotia,  as in effect from time
to time, (ii) a rate that is, generally,  0.5% per annum plus a fluctuating rate
generally equal to the rate on three month  certificates of deposit,  subject to
certain  adjustments,  plus a  fluctuating  rate  generally  equal to the annual
assessment rate paid by The Bank of Nova Scotia to the Federal Deposit Insurance
Corporation  or (iii) 0.5% per annum plus the federal  funds rate in effect from
time to time. At the option of the borrower,  portions of the outstanding  loans
under the Foamex L.P. Credit  Facility will be convertible  into Eurodollar rate
loans  bearing  interest at a rate  generally  equal to 3.0% per annum above the
average LIBOR rate of Citibank, N.A. and The Bank of Nova Scotia. As of December
29,  1996,  there  were  approximately   $11.7  million  in  letters  of  credit
outstanding  under the Foamex L.P.  Credit  Facility.  As of December  29, 1996,
there was unused  availability of  approximately  $33.3 million under the Foamex
L.P. Credit Facility.

         Subordinated Note Payable

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

         Other

         As of December 29, 1996,  other debt is comprised  primarily of capital
lease  obligations,   equipment  financing   associated  with  an  aircraft  and
borrowings by Foamex Mexico.

                                      F-66
<PAGE>
                   FOAMEX INTERNATIONAL INC. AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

8.       LONG-TERM DEBT (continued)

         Interest Rate Swap Agreements

         The Company  enters into  interest  rate swaps to lower  funding  costs
and/or to manage  interest costs and exposure to changing  interest  rates.  The
Company does not hold or issue financial  instruments for trading purposes.  The
Company has an interest rate swap agreement,  as amended, with a notional amount
of $150.0 million through December 2001.  Under the swap agreement,  the Company
has made variable payments based on LIBOR through December 1996 and is obligated
to make  fixed  payments  at 5.30%  per  annum for the  twelve  months  ended in
December  1997 and  variable  payments  based on LIBOR for the  remainder of the
agreement, in exchange for fixed payments by the swap partner at 5.81% per annum
through  December  1996, and 6.50% per annum for the remainder of the agreement,
payable  semiannually in arrears.  The swap partner has the ability to terminate
the swap agreement after the December 1997 payment if the LIBOR rate the Company
is to pay for any  period  thereafter  is equal to or less than 4.50% per annum.
Interest expense will be subject to fluctuations in LIBOR during the term of the
swap agreement  except during 1997. The Company is exposed to credit loss in the
event of  nonperformance  by the swap partner;  however,  the occurrence of this
event is not anticipated.

         Also, the Company has an interest rate swap agreement,  as amended, for
a notional  amount of $150.0  million  through  December  2001.  Under this swap
agreement,  the Company has made variable  payments based on LIBOR with a cap of
5.50% per annum and a floor of 4.75% per annum for the six months  ended in June
1995,  variable  payments based on LIBOR with a floor of 4.75% per annum for the
six months ended in December  1995,  fixed payments at a rate of 5.81% per annum
for the twelve  months  ended in December  1996 and is  obligated  to make fixed
payments  at a rate of 5.30% per annum for the twelve  months  ended in December
1997 and variable payments based on LIBOR for the remainder of the agreement, in
exchange  for  variable  payments by the swap  partner at the rate of LIBOR plus
0.80% per annum for the six  months  ended in June  1995,  LIBOR  plus 0.72% per
annum for the six months ended in December 1995,  LIBOR plus 2.45% per annum for
the six months ended in June 1996, LIBOR plus 2.39% per annum for the six months
ended in December  1996 and fixed  payments at 6.50% per annum for the remainder
of the term of the agreement,  payable semiannually in arrears. The swap partner
has the ability to terminate the swap agreement  after the December 1997 payment
if the LIBOR rate the Company is to pay for any period thereafter is equal to or
less than 4.50% per annum.  Interest  expense will be subject to fluctuations in
LIBOR during the term of the swap  agreement  except during 1997.  The effect of
the two  interest  rate swaps  described  above was a  favorable  adjustment  to
interest  expense of $3.7 million,  $1.4 million and $3.0 million for 1996, 1995
and 1994,  respectively.  The  Company is exposed to credit loss in the event of
nonperformance by the swap partner; however, the occurrence of this event is not
anticipated.

         Debt Restrictions and Covenants

         The  indentures,  credit  agreement and other  indebtedness  agreements
contain various covenants,  including  restrictions on payments of distributions
to the Company by its subsidiaries,  the incurrence of additional  indebtedness,
the sale of assets, mergers and consolidations and transactions with affiliates.
In addition,  certain  agreements  contain a provision  that,  in the event of a
defined change of control, the indebtedness must be repaid, in certain cases, at
the option of the holder.  Also, the Company's  subsidiaries  are required under
certain of these agreements to maintain specified  financial ratios of which the
most  restrictive is the maintenance of net worth and interest  coverage ratios,
as  defined.  Under  the  most  restrictive  of the  distribution  restrictions,
approximately  $4.9  million  was  available  to be paid to the  Company  by its
subsidiaries as of December 29, 1996.

                                      F-67

<PAGE>
                   FOAMEX INTERNATIONAL INC. AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

8.       LONG-TERM DEBT (continued)

         During 1996,  the Company  received  consents  and/or  waivers from its
lenders  and  bondholders  in  connection  with the sale of Perfect  Fit and JPS
Automotive and other related matters.

         As of  December  29,  1996,  the  Company  was in  compliance  with the
covenants of the indentures, credit agreements and other indebtedness agreements
and expects to be in compliance with these covenants for the foreseeable future.

         Future Obligations on Long-Term Debt

         Scheduled maturities of long-term debt are shown below:

         Year End                                         Long-Term Debt
                                                            (thousands)

         1997                                               $ 14,260
         1998                                                  4,770
         1999                                                  6,108
         2000                                                107,401
         2001                                                  3,109
         Thereafter                                          399,246
                                                            --------

         Total                                               534,894

         Less unamortized discount                            37,831
                                                            --------

         Total                                              $497,063
                                                            ========

         In  addition,  the  Company  has  approximately  $0.8  million of total
capital  lease  obligations  that are  payable  in 1997  through  2000 in annual
amounts of approximately $0.2 million.

9.       EMPLOYEE BENEFIT PLANS

         Defined Benefit Pension Plans

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

         Net periodic pension cost included the following components:
<TABLE>
<CAPTION>
                                                  1996              1995             1994
                                                                 (thousands)
<S>                                             <C>               <C>               <C>    
         Service cost                           $ 2,471           $ 2,087           $ 2,452
         Interest cost                            3,997             3,742             3,541
         Actual return on plan assets            (8,841)           (5,682)              624
         Net amortization and deferral            4,643             1,807            (4,649)
                                                -------           -------           -------
           Total                                $ 2,270           $ 1,954           $ 1,968
                                                =======           =======           =======
</TABLE>

                                      F-68
<PAGE>
                   FOAMEX INTERNATIONAL INC. AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

9.       EMPLOYEE BENEFIT PLANS (continued)

         The Company's  funding policy is to contribute  annually an amount that
both  satisfies  the minimum  funding  requirements  of the Employee  Retirement
Income Security Act of 1974 and does not exceed the full funding  limitations of
the Internal  Revenue Code of 1986,  as amended (the "Code").  Plan  investments
consist primarily of corporate equity and debt securities, mutual life insurance
funds and cash  equivalents.  During  1996,  the  discount  rate was adjusted to
7.50%.  The  following  table  sets  forth the  funded  status of the  Company's
underfunded  plans and the amounts  recognized in the accompanying  consolidated
balance sheets as of December 29, 1996 and December 31, 1995:

<TABLE>
<CAPTION>
                                                                            December 29,      December 31,
                                                                                1996              1995
                                                                                      (thousands)
<S>                                                                           <C>                <C>     
         Actuarial present value of accumulated benefit obligations:
         Vested benefits                                                      $ 55,336           $ 52,762
         Nonvested benefits                                                      2,137              1,916
                                                                              --------           --------

         Accumulated benefit obligations                                      $ 57,473           $ 54,678
                                                                              ========           ========

         Total projected benefit obligations                                  $ 58,775           $ 55,810
         Fair value of plan assets                                              53,734             44,441
                                                                              --------           --------

          Projected benefit obligations in excess
                  of plan assets                                                (5,041)           (11,369)

         Unrecognized net loss from past experience
                  difference from that assumed and effect
                  of changes in assumptions                                      1,099              6,394

         Additional minimum liability                                           (2,694)            (5,265)
                                                                              --------           --------

         Accrued pension cost                                                 $ (6,636)          $(10,240)
                                                                              ========           ========
</TABLE>

         Significant  assumptions  used in determining  the plans' funded status
are as follows:
<TABLE>
<CAPTION>
                                                                                 December 29,      December 31,
                                                                                     1996              1995
<S>                                                                                 <C>              <C>  
Expected long-term rates of return on plan assets                                   9.50%            9.00%
Discount rates on projected benefit obligations                                     7.50%            7.25%
Rates of increase in compensation levels (where applicable)                         4.00%            4.00%
</TABLE>

                                      F-69
<PAGE>
                   FOAMEX INTERNATIONAL INC. AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

9.       EMPLOYEE BENEFIT PLANS (continued)

         Defined Contribution Plan

         The Company  maintains a defined  contribution  plan which is qualified
under  Section  401(k) of the Code and is available  for eligible  employees who
elect to  participate  in the plan.  Employee  contributions  are  voluntary and
subject to certain limitations as imposed by the Code. During 1996 and 1995, the
Company  provided   contributions   amounting  to  a  25%  match  of  employees'
contributions  up to 4% of eligible  compensation.  The Company also provides an
additional  25%  match  of  employees'   contributions  up  to  4%  of  eligible
compensation  made to a fund which  invests in the Company's  common  stock.  In
addition,  the Company may make discretionary  contributions  amounting to a 25%
match of employees'  contributions up to 4% of eligible  compensation.  Prior to
1995,  Company  contributions  were  discretionary  and  provided a 50% match of
employees'  contributions  up to 3% of  eligible  compensation.  The expense for
these contributions for 1996, 1995 and 1994 was approximately $0.8 million, $0.7
million and $0.4 million, respectively.

         Postretirement Benefits

         In  addition  to  providing  pension  benefits,  the  Company  provides
postretirement  health care and life  insurance for eligible  employees.  During
1996,  certain  employees  accepted an early retirement  program  resulting in a
special  termination  loss of $0.6  million.  During 1995,  changes were made to
postretirement  benefits  offered  to  certain  employees  which  resulted  in a
curtailment  loss of $0.6  million.  These  plans are  unfunded  and the Company
retains the right, subject to existing agreements,  to modify or eliminate these
benefits.

         The  components  of  1996,  1995 and 1994  expense  for  postretirement
benefits are as follows:

<TABLE>
<CAPTION>
                                                   1996           1995            1994
                                                              (thousands)
<S>                                               <C>             <C>             <C>  
Service costs for benefits earned                 $  12           $  24           $ 172
Interest cost on liability                           67              83             192
Net amortization and deferral                       (53)            (13)            134
Special termination/curtailment loss                576             619              --
                                                  -----           -----           -----

Net periodic postretirement benefit cost          $ 602           $ 713           $ 498
                                                  =====           =====           =====
</TABLE>

         The accumulated  postretirement benefit obligation at December 29, 1996
and December  31, 1995  resulted in an unfunded  obligation  of $2.1 million and
$1.6 million, respectively.

         A 9% and 10% annual rate of increase in the per capita costs of covered
health care benefits was assumed for each of 1996 and 1995,  respectively.  This
rate was assumed to gradually  decrease to 5% by the year 2000.  Increasing  the
weighted  average  assumed health care cost trend rates by one percentage  point
would have an  insignificant  impact on the accumulated  postretirement  benefit
obligation  and service and interest  cost. The discount rate used was 7.50% and
7.25% as of December 29, 1996 and December 31, 1995, respectively.

                                      F-70
<PAGE>
                   FOAMEX INTERNATIONAL INC. AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

9.       EMPLOYEE BENEFIT PLANS (continued)

         Postemployment Benefits

         The  Company  provides  certain  postemployment  benefits  to former or
inactive  employees  and  their  dependents  during  the time  period  following
employment  but before  retirement.  At December 29, 1996 and December 31, 1995,
the Company's  liability for postemployment  benefits was insignificant for each
period.

         Other

         In  December  1994,  the  Company  changed  its method of  compensating
certain  employees for vacation,  which increased income from operations by $4.3
million for 1994.

10.      INCOME TAXES

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

<TABLE>
<CAPTION>
                                                                   1996              1995                1994
                                                                                  (thousands)
<S>                                                              <C>               <C>                <C>     
         United States                                           $ 46,075          $(62,015)          $ 34,240
         Foreign                                                    3,086              (983)             1,926
                                                                 --------          --------           --------

         Income (loss) from continuing operations
            before provision (benefit) for income taxes          $ 49,161          $(62,998)          $ 36,166
                                                                 ========          ========           ========
</TABLE>

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

<TABLE>
<CAPTION>
                                                               1996               1995              1994
                                                                              (thousands)

<S>                                                          <C>                <C>                <C>     
         Continuing operations                               $ 16,669           $(12,248)          $ 13,955

         Discontinued operations                              (35,129)             1,691              3,517

         Extraordinary loss on early extinguishment
             of debt                                             (765)                --                 --
                                                             --------           --------           --------

         Total consolidated provision (benefit) for
             income taxes                                    $(19,225)          $(10,557)          $ 17,472
                                                             ========           ========           ========
</TABLE>

                                      F-71
<PAGE>
                   FOAMEX INTERNATIONAL INC. AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

10.      INCOME TAXES (continued)

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

<TABLE>
<CAPTION>
                                                               1996               1995              1994
                                                                              (thousands)
<S>                                                          <C>                <C>                <C>     
         Current:
             Federal                                         $    220           $ (2,038)          $  3,236
             State                                                760                 --                 --
             Foreign                                              786                457                805
                                                             --------           --------           --------

             Total current                                      1,766             (1,581)             4,041
                                                             --------           --------           --------

         Deferred:
             Federal                                          (24,211)            (9,543)            10,259
             State                                              2,729                856              3,193
             Foreign                                              491               (289)               (21)
                                                             --------           --------           --------

             Total deferred                                   (20,991)            (8,976)            13,431
                                                             --------           --------           --------

             Total consolidated provision (benefit)
                for income taxes                             $(19,225)          $(10,557)          $ 17,472
                                                             ========           ========           ========
</TABLE>

         The  tax  effect  of  the  temporary  differences  that  give  rise  to
significant deferred tax assets and liabilities are:
<TABLE>
<CAPTION>
                                                                              December 31,      December 31,
                                                                                  1996              1995
                                                                                       (thousands)
<S>                                                                             <C>                <C>     
         Deferred tax assets:
             Inventory basis differences                                        $  1,209           $  2,473
             Employee benefit accruals                                             6,247              7,733
             Allowances and contingent liabilities                                 3,616              8,589
             Restructuring and plant closing accruals                              8,323             10,869
             Other                                                                 6,301              2,518
             Net operating loss carryforwards                                     37,483             20,190
             Capital loss carryforwards                                           16,561                 --
             Valuation allowance for deferred tax assets                         (23,064)           (16,979)
                                                                                --------           --------

             Deferred tax assets                                                  56,676             35,393
                                                                                --------           --------

         Deferred tax liabilities:
             Basis difference in property, plant and equipment                    36,257             30,183
             Net deferred tax liabilities associated with discontinued
                operations                                                            --             14,304
             Other                                                                 4,944              3,277
                                                                                --------           --------

             Deferred tax liabilities                                             41,201             47,764
                                                                                --------           --------

         Net deferred tax assets (liabilities)                                  $ 15,475           $(12,371)
                                                                                ========           ========
</TABLE>

                                      F-72
<PAGE>
                   FOAMEX INTERNATIONAL INC. AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

10.      INCOME TAXES (continued)

         The  Company  has  determined   that  taxable   capital  gains  in  the
foreseeable  future for  subsidiaries  that file a separate  federal  income tax
return  will  likely not be  sufficient  to  recognize  the  deferred  tax asset
associated  with  the  capital  loss  carryforward.   Accordingly,  a  valuation
allowance  has been  provided  for the deferred  tax asset  associated  with the
capital loss  carryforward  and certain other deferred tax assets.  During 1996,
the valuation  allowance for deferred tax assets increased by $6.1 million which
included a $16.6 million increase for the capital loss  carryforward,  offset by
$6.9 million decrease due to reversal of  preacquisition  temporary  differences
and $3.6 million for the reversal of valuation allowances which are reflected in
the  consolidated  statement  of  operations.   The  $6.9  million  reversal  of
preacquisition temporary differences was used to reduce cost in excess of assets
acquired.  As of December 29, 1996,  approximately  $1.8 million of deferred tax
assets are related to  preacquisition  activities  and if utilized  will further
reduce cost in excess of assets acquired.  At December 29, 1996, the Company has
$103.2  million of regular  tax net  operating  loss  carryforwards  for federal
income  tax  purposes  expiring  from  2003 to 2010 of which  $7.0  million  was
acquired in 1993 and is subject to  limitations.  In  addition,  the Company has
$47.3 million of capital loss carryforwards that expire in 2001.

         A  reconciliation  of the  statutory  federal  income  tax  rate to the
effective income tax rate on continuing operations is as follows:
<TABLE>
<CAPTION>
                                                                  1996               1995               1994
                                                                                          (thousands)
<S>                                                             <C>                <C>                <C>     
         Statutory income taxes                                 $ 17,206           $(22,049)          $ 12,658
         State income taxes, net of federal                        1,864             (2,095)             1,977
         Limitation on the utilization of tax benefits                --              7,695                 --
         Valuation allowance                                      (3,621)                --               (452)
         Cost in excess of assets acquired                           644              1,010                926
         Other                                                       576              3,191             (1,154)
                                                                --------           --------           --------

             Total                                              $ 16,669           $(12,248)          $ 13,955
                                                                ========           ========           ========
</TABLE>

11.      EXTRAORDINARY LOSS

         During 1996,  the Company 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.  The Company  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 $1.1 million (net of $0.8 million income tax benefit).

12.      COMMITMENTS AND CONTINGENCIES

         Operating Leases

         The Company is obligated under various  noncancelable  lease agreements
for  rental of  facilities,  vehicles  and other  equipment.  Many of the leases
contain renewal options with varying terms and escalation clauses that

                                      F-73
<PAGE>
                   FOAMEX INTERNATIONAL INC. AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

12.      COMMITMENTS AND CONTINGENCIES (continued)

provide for increased  rentals based upon increases in the Consumer Price Index,
real  estate  taxes  and  lessors'  operating  expenses.  Total  minimum  rental
commitments  (excluding  commitments  accrued  as  part  of the  1996  and  1995
restructuring plans) required under operating leases at December 29, 1996 are:

                                      Third Party              Related Party
                                         Leases                    Leases
                                                   (thousands)
         1997                          $  7,874                  $  1,767
         1998                             6,164                     1,823
         1999                             4,866                     1,823
         2000                             3,812                     1,823
         2001                             2,883                     2,265
         Thereafter                       4,122                     5,800
                                       --------                  --------
             Total                      $29,721                   $15,301
                                        =======                   =======

         Rental   expense   charged  to  operations   under   operating   leases
approximated  $9.6 million,  $10.5 million and $10.3 million for 1996,  1995 and
1994,  respectively.  Substantially  all such  rental  expense  represented  the
minimum  rental  payments  under  operating  leases.  In  addition,  the Company
incurred  rental expense of  approximately  $1.7 million,  $3.5 million and $3.9
million  for 1996,  1995 and  1994,  respectively,  under  leases  with  related
parties.

13.      RELATED PARTY TRANSACTIONS AND BALANCES

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

         On July 7, 1996, Trace International  Holdings, Inc. ("Trace Holdings")
issued to Foamex L.P. a promissory  note for $4.4  million in  principal  amount
plus  accrued  interest of $0.4  million,  which is an extension of a promissory
note of Trace Holdings that was due in July 1996. The promissory note is due and
payable on demand or, if no demand is made,  July 7, 1997, and bears interest at
9.5%, payable quarterly in arrears commencing October 1, 1996.
The promissory note is included in other stockholders' equity (deficit).

         In connection with the acquisition of Great Western, Foamex L.P. issued
a promissory note to Rallis (see Note 8) and entered into lease  agreements (see
Note 12) with Rallis and an affiliate of Rallis,  for the rental of former Great
Western  manufacturing  facilities  located  in  Orange,  Ontario  and  Hayward,
California  and a warehouse  facility  in Tigard,  Oregon.  Foamex L.P.  has the
option to purchase each of these properties from Rallis or such affiliate.

         Foamex L.P. was party to a lease  agreement  for an airplane with Trace
Aviation Corp. ("Trace Aviation"),  a subsidiary of Trace Holdings.  During 1995
and 1994,  Foamex  L.P.  paid Trace  Aviation  $1.6  million  and $2.7  million,
respectively, pursuant to the lease agreement. The lease agreement also provided
for the use of the airplane by Trace Holdings with  remuneration  to Foamex L.P.
based on actual usage of the plane. During 1995 and 1994, Trace Holdings paid to
Foamex  L.P.  $0.6  million  and $0.5  million,  respectively,  pursuant  to the
agreement. During August 1995, Foamex Aviation Inc. ("Aviation"), a wholly-owned
subsidiary of the Company,  acquired the aircraft  from Trace  Holdings for $3.0
million  in cash and the  assumption  of  $11.7  million  of  related  debt.  In
connection with the acquisition of the aircraft, the Foamex L.P. lease and other
agreements were terminated.

                                      F-74
<PAGE>
                   FOAMEX INTERNATIONAL INC. AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

13.      RELATED PARTY TRANSACTIONS AND BALANCES (continued)

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

         During 1995 and 1994, the Company purchased  approximately $2.5 million
and  $11.9  million,   respectively,   of  scrap  material  from  Recticel  Foam
Corporation  ("RFC"),  a former  partner of Foamex L.P. and whose  chairman is a
director of the Company,  under a minimum annual volume  agreement which expired
in June 1995.

14.      STOCK OPTION PLAN

         The  Company's  1993 Stock  Option Plan  provides  for the  granting of
nonqualified  ("NQSOs") and incentive stock options for up to 3.0 million shares
of common  stock to  officers  and  executive  employees  of the Company and its
subsidiaries  and affiliates,  the price and terms of each such option is at the
discretion of the Company,  except that the term cannot exceed ten years.  As of
December 29,  1996,  the stock  options  issued under the 1993 Stock Option Plan
vest equally over a five year period with a term of ten years.

         A summary of stock option activity is as follows:
<TABLE>
<CAPTION>
                                                   1996                           1995                           1994
                                                        Weighted                       Weighted                         Weighted
                                                         Average                        Average                         Average
                                                         Exercise                       Exercise                        Exercise
                                           Shares         Price           Shares          Price          Shares          Price
<S>                                        <C>           <C>            <C>             <C>            <C>             <C>      
Outstanding at beginning of year           951,343       $    7.64      2,033,800       $   17.28      1,998,600       $   17.63
   Granted                                 202,240            7.06        150,000            9.95        145,000           10.50
   Exercised                               (14,914)           6.88             --              --           (740)          13.50
   Forfeited                              (171,193)          10.80       (145,956)          14.59       (109,060)          14.70
   Canceled                                     --              --     (1,924,700)          17.15             --              --
   Granted in exchange offer                    --              --        838,199            6.88             --              --
                                        ----------       ---------     ----------       ---------     ----------       ---------


Outstanding at end of year                 967,476       $    6.97        951,343       $    7.64      2,033,800       $   17.28
                                        ==========       =========     ==========       =========     ==========       =========

Exercisable at end of year                 431,863       $    6.94         20,140       $   14.62        573,100       $   18.69
                                        ==========       =========     ==========       =========     ==========       =========
</TABLE>

         The options  outstanding  at December  29, 1996 have an exercise  price
range of $6.88 to $10.25.  During 1996, the Company granted 202,240 options with
a weighted  average  market price on the date of grant of $12.13.  The aggregate
difference of $1.0 million  between the fair market value ("FMV") of the options
at the date of grant and the option  price is being  charged to expense over the
vesting period (five years) of the options.  During 1995, the Company  granted a
total of  150,000  options  which  include  (i) 15,000  options  with a weighted
average  market price on the date of grant of $9.50,  (ii) 85,000 options with a
weighted  average  market  price on the date of grant of $8.29 and (iii)  50,000
options  with a  weighted  average  market  price on the date of grant of $9.50.


                                      F-75
<PAGE>
                   FOAMEX INTERNATIONAL INC. AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

14.      STOCK OPTION PLAN (continued)

During 1994, the Company granted 145,000 options with a weighted  average market
price on the date of grant of $10.50.  Upon  completion  of the  initial  public
offering (the "IPO") in December 1993,  options were granted to purchase 248,600
shares of common stock at $13.50 per share and 1,750,000  shares of common stock
at prices ranging from $15.00 to $22.50 per share.  The aggregate  difference of
$373,000 between the FMV ($15 per share) of the options at the date of grant and
the $13.50  option  price is being  charged to expense  over the vesting  period
(five  years) of the options.  Total  compensation  expense  relating to options
amounted  to  approximately  $0.3  million,   $0.1  million  and  $0.1  million,
respectively, in each of 1996, 1995 and 1994, respectively.

         In December  1995,  the Stock  Option Plan  Committee  approved a stock
option exchange  program which permitted  optionees of record as of that date to
exchange  all options  previously  granted  for options  priced at the FMV share
price,  $6.875,  as of the close of  business  on that  date.  The number of new
options (the "New Options") to be exchanged for previously  granted options (the
"Old  Options") was  determined on the basis of the ratio of the FMV on December
6,  1995  to the  FMV or the  discount  share  value  of the  Old  Options  when
originally  granted.  New Options could not be exercised  until December 6, 1996
and expire upon the same terms as the Old Options.

         The weighted average remaining contractual lives of outstanding options
at December 29, 1996 was approximately 7.7 years.

         The Company  applies the  provisions  of  Accounting  Principles  Board
Opinion  No.  25  ("Accounting  for  Stock  Issued to  Employees")  and  related
interpretations ("APB 25") in accounting for its stock-based compensation plans.
Accordingly,  compensation  expense  has  been  recognized  in the  consolidated
financial  statements with respect to the above plans in accordance with APB 25.
Had  compensation  costs for the above plans been  determined  based on the fair
value of the options at the grant dates  under those plans  consistent  with the
methods under Statement of Financial  Accounting  Standards No. 123 ("Accounting
for Stock Based Compensation"),  the Company's income from continuing operations
and earnings (loss) per share would not have been significantly affected.

15.      STOCKHOLDERS' EQUITY (DEFICIT)

         Preferred Stock

         The  Company is  authorized  to issue 5.0 million  shares of  preferred
stock with a par value of $1.00 per share,  none of which has been  issued.  The
Board of  Directors  has the power to  establish  the powers,  preferences,  and
rights of each  series  which may afford  the  holders  of any  preferred  stock
preferences, powers and rights (including voting rights) senior to the rights of
the holders of common stock.

         Common Stock

         At December  29,  1996,  the Company had an aggregate of 4.8 million of
common stock shares  reserved for issuance in  connection  with its stock option
plan (3.0 million) and outstanding warrants (1.8 million).

         Warrants

         In  June  1994,  in  connection  with  the  issuance  of  the  Discount
Debentures,  the Company issued 116,745  warrants to purchase 0.6 million shares
of common  stock.  Each  warrant is  exercisable  on or before  July 1, 1999 for
5.1394  shares at a cash price of $11.52 per share upon  exercise.  The warrants

                                      F-76
<PAGE>
                   FOAMEX INTERNATIONAL INC. AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS



15.      STOCKHOLDERS' EQUITY (DEFICIT) (continued)

were valued by projecting the Company's  financial results for five years. These
financial  results were discounted at a rate of 18% to 20% and, with a projected
price  earnings   ratio  of  10-11x  after  five  years,   yielded  a  value  of
approximately  $25.70  per  warrant  or  $3.0  million  in  total.  Accordingly,
additional  paid in capital was increased for the cash received  attributable to
the  warrants  and the  associated  debt  reduced,  with  such  reduction  to be
amortized over the life of the debt.

         In  addition,   the  Company  has  outstanding   warrants  to  purchase
approximately  1.2  million  shares  of  common  stock at an  exercise  price of
approximately $12.30 per share at any time prior to October 1999.

         Treasury Stock

         During 1996 and 1995, the Company  purchased 624,700 and 929,700 shares
of its common  stock,  respectively,  for an aggregate  cost of $6.3 million and
$7.2 million, respectively,  under programs authorized by the Board of Directors
to purchase up to 3.0 million shares of the Company's common stock.

         Other

         The other component of stockholders'  equity (deficit)  consists of the
following:
<TABLE>
<CAPTION>
                                                          December 29,     December 31,      January 1,
                                                             1996             1995             1995
                                                                                   (thousands)
<S>                                                        <C>              <C>              <C>    
Foreign currency translation adjustment                    $ 3,494          $ 3,448          $ 3,929
Additional pension liability, net of income taxes            1,445            2,872              898
Note receivable from Trace Holdings                          4,373            4,373            3,000
                                                           -------          -------          -------
                                                           $ 9,312          $10,693          $ 7,827
                                                           =======          =======          =======
</TABLE>

16.      ENVIRONMENTAL MATTERS

         The Company 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 1996,  expenditures  in connection  with the
Company's compliance with federal,  state, local and foreign  environmental laws
and  regulations  did  not  have a  material  adverse  effect  on the  Company's
operations, financial position, capital expenditures or competitive position. As
of December 29, 1996, the Company has  environmental  accruals of  approximately
$4.1 million for environmental  matters.  In addition,  as of December 29, 1996,
the  Company has net  receivables  of  approximately  $0.9  million  relating to
indemnification   for  environmental   liabilities,   net  of  an  allowance  of
approximately  $1.0 million  relating to potential  disagreements  regarding the
scope of the  indemnification.  The Company believes that realization of the net
receivables established for indemnification is probable.

         The  Clean Air Act  Amendments  of 1990  (the  "1990  CAA  Amendments")
provide for the  establishment of federal  emission  standards for hazardous air
pollutants including methylene chloride and TDI, principal raw materials used in
the  manufacturing  of  foam.  The  Company  completely  eliminated  the  use of
chlorofluorocarbons  and  methylchloroform  by the end of  1995.  The  1990  CAA
Amendments  also  may  result  in the  imposition  of more  stringent  standards
regulating air emissions from the use of these  chemicals by  polyurethane  foam
manufacturers, but these standards have not yet been promulgated.

                                      F-77
<PAGE>
                   FOAMEX INTERNATIONAL INC. AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

16.      ENVIRONMENTAL MATTERS (continued)

         The Company has reported to appropriate  state  authorities that it has
found soil and  groundwater  contamination  in excess of state standards at four
facilities and soil  contamination  in excess of state  standards at three other
facilities.  The  Company  has  begun  remediation  and  is  conducting  further
investigations  into the extent of the  contamination  at these  facilities and,
accordingly,  the extent of the remediation that may ultimately be required. The
actual cost and the timetable of any such  remediation  cannot be predicted with
any degree of certainty at this time.  As of December 29, 1996,  the Company has
environmental accruals of approximately $3.2 million for the remaining potential
remediation costs for these facilities based on engineering estimates.

         Federal  regulations  require  that by the end of 1998 all  underground
storage tanks  ("USTs") be removed or upgraded in all states to meet  applicable
standards.  The  Company  has six USTs that will  require  removal or  permanent
in-place closure by the end of 1998. Due to the age of these tanks,  leakage may
have  occurred  resulting in soil and possibly  groundwater  contamination.  The
Company has accrued $0.4 million for the estimated  removal and remediation,  if
any, associated with these USTs. However,  the full extent of contamination and,
accordingly,  the actual cost of such  remediation  cannot be predicted with any
degree of certainty at this time. The Company believes that its USTs do not pose
a  significant  risk  of  environmental   liability  because  of  the  Company's
monitoring  practices  for  USTs  and  conditional  approval  for the  permanent
in-place closure for certain USTs. However,  there can be no assurance that such
USTs will not result in significant environmental liability in the future.

         The Company has been  designated  as a  Potentially  Responsible  Party
("PRP") by the United States  Environmental  Protection  Agency (the "EPA") with
respect to thirteen sites with an estimated  total  liability to the Company for
the thirteen sites of less than approximately  $0.5 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 participation of the Company is considered to be immaterial.

         Although it is possible  that new  information  or future  developments
could  require the Company 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 the
Company'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

         As of February 26,  1997,  the Company and Trace  Holdings  were two of
multiple defendants in actions filed on behalf of approximately 5,000 recipients
of breast  implants in various  United  States  federal and state courts and one
Canadian provincial court, some of which allege substantial damages, but most of
which allege unspecified damages for personal injuries of various types. Five of
these cases seek to allege claims on behalf of all breast implant  recipients or
other allegedly affected parties, but no class has been approved or certified by
the court. In addition, three cases have been filed alleging claims on behalf of
approximately  700 residents of Australia,  New Zealand,  England,  and Ireland.
During 1995, the Company and Trace Holdings were granted  summary  judgments and
dismissed  as  defendants  from all cases in the  federal  courts of the  United
States and the state  courts of  California.  Appeals for these  decisions  were
withdrawn and the decisions  are final.  In addition,  two of the cases filed on
behalf of 903 foreign  plaintiffs  were  dismissed on the grounds that the cases

                                      F-78
<PAGE>
                   FOAMEX INTERNATIONAL INC. AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

17.      LITIGATION (continued)

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

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

18.      FINANCIAL INSTRUMENTS AND CONCENTRATION OF CREDIT RISK

         Interest Rate Swap Agreements

         The  Company  has two  interest  rate  swap  agreements  involving  the
exchange of fixed and floating interest payment obligations without the exchange
of the underlying  principal  amounts.  At December 29, 1996, the total notional
principal amount of these interest rate swap agreements was $300.0 million.  The
counterparty to these agreements is a large international financial institution.
The interest  rate swap  agreements  subject the Company to financial  risk that
will vary during the life of these  agreements  in  relation to market  interest
rates.

         Concentration of Credit Risk

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

                                      F-79
<PAGE>
                   FOAMEX INTERNATIONAL INC. AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

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

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

         Disclosure about Fair Value of Financial Instruments

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

         The estimated fair values of the Company's financial  instruments as of
December 29, 1996 are as follows:

                                Carrying Amount         Fair Value
                                             (thousands)

Liabilities:
    Long-term debt               $    497,849          $533,041
                                 ============          ========

    Interest rate swaps          $         --          $  3,160
                                 ============          ========

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

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

         The fair value of interest  rate swaps are based on the amount at which
the Company  would pay if the swaps were  settled,  as  determined  by estimates
obtained from dealers.

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





                                      F-80
<PAGE>
                   FOAMEX INTERNATIONAL INC. AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

19.      SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION

<TABLE>
<CAPTION>
                                                      1996               1995              1994
                                                                     (thousands)

<S>                                                 <C>                <C>               <C>     
Cash paid for interest                              $ 44,472           $ 47,333          $ 42,734
                                                    ========           ========          ========

Cash paid (received) for income taxes, net          $ (2,855)          $  3,024          $  6,711
                                                    ========           ========          ========

Noncash capital expenditures                        $    165           $    378          $     --
                                                    ========           ========          ========
</TABLE>

20.       QUARTERLY FINANCIAL DATA (UNAUDITED)

<TABLE>
<CAPTION>
                                     First             Second              Third                Fourth
                                    Quarter            Quarter            Quarter               Quarter
                                                  (thousands except per share amounts)
                                                                                                   1996
<S>                                <C>                <C>                 <C>                 <C>      
         Net sales                 $ 219,131          $ 240,447           $ 236,766           $ 230,007
         Gross profit                 36,031             38,167              39,960              39,074
         Net income (loss)             6,137            (31,707)            (66,623)              9,058
         Earning (loss) per share       0.24              (1.24)              (2.61)               0.36

                                                                                                   1995
         Net sales                 $ 219,542          $ 215,350           $ 217,036           $ 210,906
         Gross profit                 32,664             33,198              30,809               4,078
         Net income (loss)             5,061              3,923                 425             (62,529)
         Earnings (loss) per share      0.19               0.15                0.02               (2.40)
</TABLE>

         During 1996, the Company recorded a net loss on the disposal of Perfect
Fit including  operating  losses during the  phase-out  period of  approximately
$43.0 million of which $39.3 million is reflected in the second  quarter of 1996
(see Note 3). Also,  during 1996 the Company  recorded an estimated  net loss on
the disposal of JPS Automotive  including  operating losses during the phase-out
period of approximately $70.9 million of which $69.7 million is reflected in the
third  quarter  of 1996 (see Note 3).  During the  fourth  quarter of 1996,  the
Company recorded a $6.5 million net restructuring  credit, which is described in
Note 4.

         During 1995, depressed industry conditions  necessitated the closing of
certain  facilities,  as more fully  described  in Note 4, which  resulted  in a
pre-tax  restructuring  charge of $41.4 million in December 1995 and resulted in
certain unusual charges,  consisting of inventory write-downs,  customer credits
and rollbacks.  Furthermore, the fourth quarter of 1995 included certain changes
in  estimates  related to recovery of  environmental  receivables  and  employee
benefit  accruals.  The unusual charges and change in estimates  decreased gross
profit by $13.4  million  and  increased  selling,  general  and  administrative
expenses by $4.9 million.


                                      F-81

<PAGE>


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




Index to Financial Statement Schedule

Schedule II - Valuation and Qualifying Accounts

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



                                       S-1
<PAGE>

                                                                     Schedule II

                          FOAMEX L.P. AND SUBSIDIARIES
                        VALUATION AND QUALIFYING ACCOUNTS
                                   (thousands)
<TABLE>
<CAPTION>
                                             Balance at        Charged to         Charged to                         Balance at
                                            Beginning of       Costs and            other                               End of
                                               Period           Expenses         Accounts(1)         Deductions         Period
<S>                                         <C>                <C>               <C>                <C>                <C>    

YEAR ENDED DECEMBER 29, 1996
Allowance for Uncollectible Accounts        $     4,839        $     704         $       292        $     1,911        $ 3,060
                                            ===========        =========         ===========        ===========        =======

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

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


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

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

Valuation Allowance                         $    12,432        $   4,929         $    (3,888)(3)    $        --        $13,473
                                            ===========        =========         ===========        ===========        =======


YEAR ENDED JANUARY 1, 1995(2)
Allowance for Uncollectible Accounts        $     2,898        $     878         $       146        $     1,598        $ 2,324
                                            ===========        =========         ===========        ===========        =======

Reserve for Discounts                       $     1,326        $      --         $    12,582        $    12,526        $ 1,382
                                            ===========        =========         ===========        ===========        =======

Reserve for Billing Adjustments             $       140        $      --         $      (140)       $        --        $    --
                                            ===========        =========         ===========        ===========        =======

Valuation Allowance                         $    12,884        $    (452)        $        --        $        --        $12,432
                                            ===========        =========         ===========        ===========        =======

<FN>
 -------------------------------------

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

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

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

                                       S-2