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: 33-82028; 33-82028-01

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

         Delaware                                        13-3770906
         Delaware                                        13-3770901
(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-JPS Automotive 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-JPS Automotive 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-JPS 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-JPS 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-JPS Capital  Corporation  Exchange Act reports were timely transmitted to
the SEC,  but  contained  incorrect  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 registrant's  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-JPS  Automotive L.P. or Foamex-JPS
Capital Corporation are held by non- affiliates.

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

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

                       DOCUMENTS INCORPORATED BY REFERENCE
                                      None
<PAGE>

                           FOAMEX-JPS AUTOMOTIVE L.P.
                         FOAMEX-JPS 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                      14
   Item  7.       Management's Discussion and Analysis
                           of Financial Condition and Results
                           of Operations                                    16
   Item  8.       Financial Statements and Supplementary Data               24
   Item  9.       Changes in and Disagreements with Accountants
                           on Accounting and Financial Disclosure           24

Part III                                                                    24

Part IV

   Item 14.       Exhibits, Financial Statement Schedules
                           and Reports on Form 8-K                          25

   Signatures                                                               33





     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 1.  BUSINESS

GENERAL

         Foamex-JPS   Automotive   L.P.   ("FJPS")  was  formed  and   initially
capitalized  on May 13,  1994.  FJPS was formed for the purposes of, among other
things,  obtaining a 98% limited  partnership  interest in Foamex L.P. which was
contributed by Foamex  International  Inc. ("Foamex  International") on June 28,
1994 and acquiring a 99% limited  partnership  interest in JPS  Automotive  L.P.
(collectively  with its  subsidiaries,  "JPS  Automotive") with an investment of
approximately  $89.1  million in cash on June 28,  1994.  In April 1996,  Foamex
International  contributed the foam products operations of Foamex Latin America,
Inc.  ("Foamex  Mexico") to FJPS (99%) and to FJGP Inc.  ("FJGP")  (1%) who then
contributed  its  investment  in  Foamex  Mexico  to  FJPS.  FJPS   subsequently
contributed its 100% investment in Foamex Mexico to Foamex L.P. The contribution
was  accounted  for in a manner  similar  to a pooling  of  interests  since the
entities are under common control.  Accordingly, all periods presented have been
restated to reflect the financial  condition and results of operations of Foamex
Mexico. Foamex International owns a 99% limited partnership interest in FJPS and
FJGP Inc. ("FJGP"), a wholly-owned subsidiary of Foamex International, owns a 1%
general partnership interest in FJPS.

         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 Perfect Fit Industries,
Inc.  ("Perfect  Fit"),  FJPS sold its 99% interest in JPS  Automotive and JPSGP
Inc., another wholly-owned  subsidiary of Foamex International,  distributed its
1% general  partnership  interest  in JPS  Automotive  to Foamex  International.
Foamex  International  then sold its 1% interest in JPS Automotive.  Perfect Fit
operated in the home comfort  products  business  segment of Foamex L.P. 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. JPS Automotive was
acquired in June 1994 for $290.3  million  which  included  the  assumption  and
issuance of long-term debt by JPS Automotive of  approximately  $205.6  million.
The   consolidated   financial   statements  of  FJPS  have  been  restated  for
discontinued  operations  and  includes a loss in the equity  from  discontinued
operations of approximately $142.0 million.

         FJPS has  substantially no operations other than through its holding of
its  limited  partnership  interest  in Foamex  L.P.  As the holder of a limited
partnership interest in Foamex L.P., FJPS does not participate in the management
of, or control  Foamex  L.P.  Foamex  L.P.  is a  significant  manufacturer  and

                                        3
<PAGE>

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.

         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 FJPS and Foamex L.P.
which are identified as forward- looking,  FJPS and 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
and carpet  cushion  production,  the  implementation  and estimated  annualized
savings of the  operational  plan,  changes  in  environmental  legislation  and
environmental  conditions and the level of housing starts.  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 FJPS  and  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, complied 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 FJPS
and 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 FJPS
and  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 FJPS are located at 1000 Columbia
Avenue, Linwood, Pennsylvania 19061 and its telephone number is (610) 859-3000.

         References  in this Report to "FJPS" mean  Foamex-JPS  Automotive  L.P.
and, where relevant, its subsidiary and Foamex L.P. The diagram on the following
page depicts the relationship's between FJPS 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>

FOAMEX L.P.

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

                                        7

<PAGE>

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.

   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).

                                        8
<PAGE>
   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.

   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

                                        9
<PAGE>

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."

   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

                                       10
<PAGE>

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.

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

                                       11

<PAGE>

the partnership  formation of Foamex L.P. Foamex L.P. has completed  remediation
of soil  contamination at a former Trenton,  New Jersey  manufacturing  facility
closed in October  1993 and is awaiting  final  closure  approvals  from the New
Jersey Department of Environmental  Protection regarding the remediation of soil
contamination  and monitoring of  groundwater  at the former  Trenton  facility.
Also, Foamex L.P. has completed remediation at its Mesquite,  Texas facility and
is awaiting a  certificate  of  completion  under the Texas  Voluntary  Clean Up
program.

   Federal  regulations  require that by the end of 1998 all underground storage
tanks  ("USTs")  be  removed  or  upgraded  in all  states  to  meet  applicable
standards.  Foamex  L.P.  has six USTs that will  require  removal or  permanent
in-place closure by the end of 1998. Due to the age of these tanks,  leakage may
have occurred resulting in soil and possibly groundwater  contamination.  Foamex
L.P. has accrued $0.4 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

                                       12
<PAGE>

financial  position or results of operations.  In addition,  Foamex L.P. is also
indemnified  by  Trace  Holdings  for  any  such  liabilities  relating  to foam
manufactured  prior to October  1990.  Although  Trace  Holdings has paid Foamex
L.P.'s  litigation  expenses  to  date  pursuant  to  such  indemnification  and
management  believes Trace Holdings  likely will be in a position to continue to
pay such expenses,  there can be no absolute  assurance that Trace Holdings will
be able to provide such indemnification.  Based on information available at this
time with respect to the potential  liability,  and without  taking into account
the  indemnification  provided by Trace  Holdings and the  coverage  provided by
Trace Holdings' and Foamex L.P.'s liability insurance, Foamex L.P. believes that
the proceedings  should not ultimately result in any liability that would have a
material  adverse  effect on the financial  position or results of operations of
Foamex L.P. If management's  assessment of Foamex L.P.'s  liability with respect
to these actions is incorrect, such actions could have a material adverse effect
on Foamex L.P.

   During 1996,  the Richard Lee Cobble et al. v. Steve  Cansler 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

   Item 4 is omitted pursuant to General Instruction I(c) of Form 10-K.

ITEM 5.  MARKET FOR REGISTRANT'S COMMON STOCK AND RELATED SECURITY HOLDERS
           MATTERS

   FJPS is a privately  held company with no  established  public trading market
for  its  equity   securities.   The  equity   securities  are  held  by  Foamex
International and FJGP, a wholly-owned subsidiary of Foamex International.  FJCC
Inc. ("FJCC") is a wholly-owned subsidiary of FJPS.

   For the years ended  December 29, 1996,  December 31, 1995 and for the period
from May 13, 1994 (date of initial capitalization) to January 1, 1995, FJPS made
distributions  to its partners of approximately  $1.7 million,  $2.4 million and
$2.5 million, respectively.

   The general and limited  partnership  interest in FJPS were issued in 1994 to
FJGP and Foamex International in exchange for an initial capital contribution of
$30 and  $2,970,  respectively.  The common  stock of FJCC was issued to FJPS in
1994 in exchange for an initial capital  contribution  of $1,000.  The foregoing
issuances were made in reliance upon the exemption from  registration  set forth
in  Section  4(2) of the  Securities  Act  relating  to sales by an  issuer  not
involving any public offering.


                                       13
<PAGE>

ITEM 6.  SELECTED CONSOLIDATED FINANCIAL DATA

   The following table presents selected historical  consolidated financial data
of FJPS:

<TABLE>
<CAPTION>
                                                                                           Period from
                                                     Year Ended        Year Ended        May 13, 1994 to
                                                December 29, 1996   December 31, 1995    January 1, 1995
                                                                      (thousands)
<S>                                                <C>                 <C>                 <C>      
Statements of Operations data:
Interest and debt issuance expense                 $   9,611           $   8,173           $   3,599
Equity in earnings (loss) of
    unconsolidated limited partnership                52,588             (47,185)             19,667
Income (loss) from continuing operations              42,955             (55,443)             16,069
Equity in income (loss) from discontinued
   operations                                       (142,037)              1,956               6,312
Net income (loss)                                   (100,956)            (53,487)             22,381

Balance Sheet data (at period end):
Total assets                                       $  55,528           $ 145,392           $ 191,603
Long-term debt                                       114,061             114,825              99,391
Other liabilities                                     11,378                  58                  14
Partners' equity (deficit)                           (69,911)             30,509              92,198
</TABLE>

FOAMEX L.P.:

         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.

<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                                   $ 586,157          605,892           654,176          575,528           340,900
     Long-term debt                                   392,617          433,956           441,757          414,445           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.

                                       14

<PAGE>

(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>


                                       15

<PAGE>

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

General

         FJPS's results of operations  include its equity in the earnings (loss)
of Foamex L.P., its equity in the discontinued  operations of JPS Automotive and
interest and debt  issuance  cost  associated  with the issuance of the Discount
Debentures  (as  defined).  FJPS was  formed on May 13,  1994 and  acquired  its
partnership  interests in Foamex L.P. and JPS Automotive on June 28, 1994.  FJPS
has no direct  control or  influence  over Foamex L.P.  Control is  exercised by
Foamex  International  through its ownership of the managing general partners of
Foamex L.P. and FJPS. FJPS had no operations prior to June 28, 1994.

         During 1996,  Foamex L.P.  completed the sale of Perfect Fit, FJPS sold
its 99% interest in JPS Automotive and JPSGP, another wholly-owned subsidiary of
Foamex  International,  distributed its 1% general  partnership  interest in JPS
Automotive  to  Foamex  International.  Foamex  International  then  sold its 1%
interest in JPS Automotive.  The consolidated  financial statements of FJPS have
been restated for discontinued operations and includes a loss in the equity from
discontinued  operations  of $142.0  million.  (See  Note 3 to the  consolidated
financial statements for further discussion).

         In April  1996,  Foamex  International  contributed  the foam  products
operations of Foamex Latin America,  Inc. ("Foamex Mexico") to FJPS (99%) and to
FJGP (1%) who then  contributed  its  investment in Foamex Mexico to FJPS.  FJPS
subsequently contributed its 100% investment in Foamex Mexico to Foamex L.P. The
contribution  was  accounted  for in a manner  similar to a pooling of interests
since the entities are under common control.  Accordingly, all periods presented
have been restated to reflect the financial  condition and results of operations
of Foamex Mexico.

         FJCC is solely a co-issuer of the discount  debentures  and FJCC has no
other material operations.

Liquidity and Capital Resources

         FJPS's only source of cash to meet its  obligations,  including  paying
the principal of, premium,  if any, or interest on the Discount  Debentures when
due, are capital  contributions,  loans,  advances or other  payments,  from its
partners or  distributions,  loans,  advances or other payments from Foamex L.P.
Foamex L.P. is subject to significant contractual restrictions on its ability to
pay  dividends  or make loans,  advances  and  payments  to FJPS.  FJPS does not
anticipate funding any operating cash requirements of Foamex L.P.

         Cash Flow from Investing Activities

         During December 1996, FJPS received  approximately $16.9 million of net
sale  proceeds  relating  to  the  sale  of  its  partnership  interests  in JPS
Automotive.  FJPS  used  such net  sales  proceeds  to  prepay a  portion  of an
intercompany note payable to Foamex L.P.

         On June 28, 1994, FJPS acquired a 99% limited  partnership  interest in
JPS Automotive for aggregate consideration of approximately $89.1 million ($83.2
million  in  cash  and  the  assumption  of  $5.9  million  of JPS  Automotive's
acquisition cost liabilities). The net proceeds from the Discount Debentures (as
defined) and the FJPS Note (as defined) were used to fund the  consideration for
the  acquisition of the interests in JPS  Automotive.  In addition,  on June 28,
1994, Foamex  International  contributed a 98% limited  partnership  interest in
Foamex L.P. to FJPS, with an historical basis of approximately $69.6 million.

         Cash Flow from Financing Activities

         FJPS and FJCC issued $116.7 million  aggregate  principal amount ($57.0
million  initial cash  proceeds) of Discount  Debentures  on June 28, 1994.  The
original  issue  discount of $59.7 million will be amortized  using the weighted

                                       16
<PAGE>

average to maturity method over the life of the issue.  The Discount  Debentures
mature on July 1, 2004. 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 that
FJPS and FJCC do not  repay  indebtedness  in  connection  with  certain  equity
offerings.  Thereafter,  interest accrues at the rate of 14.00% per annum and is
payable  semiannually  in cash  commencing  January 1, 2000. Debt issuance costs
associated with the issuance of the Discount Debenture was $4.5 million of which
$1.3 million was paid by the partners of FJPS.

         During  1996,  in  connection  with  the sale of JPS  Automotive,  FJPS
obtained  a waiver of  certain  covenants  contained  in the  indenture  for the
Discount Debentures in exchange for a payment of 1% of the accreted value of the
Discount Debentures outstanding at September 30, 1996.

         A promissory note (the "FJPS Note") in the aggregate  principal  amount
of $87.9 million was issued by FJPS on June 28, 1994. Foamex L.P.  purchased the
note for $35.3 million in cash. FJPS used the proceeds from the sale of the FJPS
Note, in part, for its capital contribution to JPS Automotive in connection with
the acquisition of JPS Automotive. No interest is payable on the FJPS Note prior
to July 2000;  rather,  the FJPS Note  accretes  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 payable in cash at 16.00% per annum from July 2000 through the
maturity date. In December 1996, FJPS repaid  approximately $18.4 million of the
FJPS Note and a  prepayment  premium  of $0.2  million  using a  portion  of the
proceeds  from  the  sale of its  partnership  interests  in JPS  Automotive  in
exchange for certain waivers and amendments of the FJPS Note. FJPS has the right
to reborrow such amount,  subject to the  limitations in the Foamex L.P.  credit
agreement,  solely  for the  purpose  of  funding a  purchase  price  adjustment
payment, if any, in connection with the JPS Automotive sale.

FOAMEX L.P.:

         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.

                                       17
<PAGE>


         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.

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

                                       18
<PAGE>


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  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.

         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
current 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.

                                       19
<PAGE>


         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
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  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.


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

                                       20
<PAGE>

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
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

                                       21
<PAGE>
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.

         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
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

                                       22
<PAGE>

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

                                       23
<PAGE>

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.

ITEM 8.  FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

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

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

          Not applicable.

PART III

          Part III is omitted pursuant to General Instruction I(c) of Form 10-K.


                                       24
<PAGE>

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

(a) Financial Statements and Schedules
<TABLE>
<S>                                                                                                                <C>

FINANCIAL STATEMENTS OF REGISTRANTS:

FOAMEX-JPS AUTOMOTIVE L.P. AND SUBSIDIARY:
   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 December 29, 1996,
     December 31, 1995 and for the Period from May 13, 1994 (date of initial
     capitalization) to January 1, 1995                                                                             F-4
   Consolidated Statements of Cash Flows for the Years Ended December 29, 1996,
     December 31, 1995 and for the Period from May 13, 1994 (date of initial
     capitalization) to January 1, 1995                                                                             F-5
   Consolidated Statements of Partners' Equity (Deficit) for the Years Ended December 29, 1996,
     December 31, 1995 and for the Period from May 13, 1994 (date of initial
     capitalization) to January 1, 1995                                                                             F-6
   Notes to Consolidated Financial Statements                                                                       F-7

FOAMEX-JPS CAPITAL CORPORATION:
   Report of Independent Accountants                                                                               F-16
   Balance Sheets as of December 29, 1996 and December 31, 1995                                                    F-17
   Notes to Balance Sheets                                                                                         F-18

FINANCIAL STATEMENTS OF EQUITY INVESTEE:

FOAMEX L.P. AND SUBSIDIARIES:
   Report of Independent Accountants                                                                               F-19
   Consolidated Balance Sheets as of December 29, 1996 and December 31, 1995                                       F-20
   Consolidated Statements of Operations for the years 1996, 1995 and 1994                                         F-22
   Consolidated Statements of Cash Flows for the years 1996, 1995 and 1994                                         F-23
   Consolidated Statements of Partners' Equity (Deficit) for the years 1996, 1995 and 1994                         F-24
   Notes to Consolidated Financial Statements                                                                      F-25

FINANCIAL STATEMENTS OF GUARANTOR:

FOAMEX INTERNATIONAL INC. AND SUBSIDIARIES:
   Report of Independent Accountants                                                                               F-47
   Consolidated Balance Sheets as of December 29, 1996 and December 31, 1995                                       F-48
   Consolidated Statements of Operations for the years 1996, 1995 and 1994                                         F-50
   Consolidated Statements of Cash Flows for the years 1996, 1995 and 1994                                         F-51
   Consolidated Statements of Stockholders' Equity (Deficit) for the years 1996, 1995 and 1994                     F-52
   Notes to Consolidated Financial Statements                                                                      F-53

FINANCIAL STATEMENT SCHEDULES:

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

(b) Reports on Form 8-K

     Form  8-K   reporting  an  event  which   occurred  on  December  11,  1996
     (consummation of the sale of JPS Automotive L.P.).


                                       25
<PAGE>


     Form 8-K/A amending the earliest Form 8-K reporting an event which occurred
on December 11, 1996 (financial statement in connection with consummation of the
sale of JPS Automotive L.P.).

(c) Exhibits

3.1(a)          - Restated Certificate of Incorporation of Foamex International.
3.2(a)          - By-laws of Foamex International.
3.3(i)          - First Amended and Restated Agreement of Limited Partnership of
                FJPS.
3.4(i)          - Certificate of Incorporation of FJCC.
3.5(i)          - By-laws of FJCC.
3.6(i)          - Certificate of Incorporation of FJGP.
3.7(i)          - By-laws of FJGP.
3.8(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").
3.9(n)          - First Amendment to the Fourth Amendment and Restated Agreement
                of Limited Partnership of Foamex L.P., dated June 28, 1994.
3.10(a)         - Certificate of Incorporation of FMXI.
3.11(a)         - By-laws of FMXI.
3.12(e)         - Certificate of Incorporation of FCC.
3.13(e)         - By-laws of FCC.
3.14(c)         - Certificate of Incorporation of GFI Acquisition Corp.
3.15(c)         - Certificate of Amendment to the  Certificate of  Incorporation
                of GFI Acquisition Corp.
3.16(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(t)        - 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.

                                       26
<PAGE>

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,
                among Foamex L.P. and FCC as Issuers,  Foamex  International  as
                Parent Guarantor, General Felt, as Guarantor, and Fleet National
                Bank, as Trustee relating to the Senior Notes.
4.18(c)         - Indenture,  dated as of October 13,  1992,  among Foamex L.P.,
                FCC and  Shawmut  Bank,  ("Shawmut"),  as  trustee,  relating to
                $126,000,000  principal  amount  of 117/8%  Senior  Subordinated
                Debentures  due  2004,  including  form of  Senior  Subordinated
                Debenture.
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(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  National  Bank,  as Trustee,
                relating to the Senior Subordinated Debentures.
4.22(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.
4.23(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(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.
4.25(x)         - Consent,  Waiver and Amendment  Agreement,  dated December 11,
                1996, between FJPS and Foamex L.P.
4.26(t)         - Commitment  letter,  dated July 9, 1996, from The Bank of Nova
                Scotia to Foamex Canada Inc.
4.27(d)         -  Agreement  of  Undertaking,  dated as of December  31,  1991,
                between Foamex L.P. and The Bank of Nova Scotia.
4.28(t)         - Third Amended and Restated Credit Agreement,  dated as of July
                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  (the  "Credit
                Agreement").

                                       27

<PAGE>

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 (the
                "Credit Agreement").
4.30(x)         -  Second   Amendment  to  Third  Amended  and  Restated  Credit
                Agreement,  dated November 27, 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 (the
                "Credit Agreement").
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.
4.36(t)         - Third  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.
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)         - Form of 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.
4.43(a)         - DLJ Loan Commitment Agreement,  dated as of December 14, 1993,
                by and between Foamex International and 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(b)         - Interest  Rate and Currency  Exchange  Agreement,  dated as of
                June 14,  1993,  among Foamex  L.P.,  FCC, and Salomon  Brothers
                Holdings Company Inc ("Salomon Holdings").
10.2(x)         - Assignment  Agreement,  dated as of December  16, 1996,  among
                Foamex L.P., FCC, and Solomon Holdings.

                                       28

<PAGE>

10.3(m)         - Swap  Agreement,  dated as of March 31,  1994,  and amended in
                November 1994, by and between Foamex L.P. and Citibank, N.A.
10.4(x)         - Revised Confirmation Letter Agreements, dated as of January 7,
                1997, by and between Foamex L.P. and Citibank, N.A.
10.5(b)         - Revised Swap Transaction  Letter  Agreement,  dated as of June
                10, 1993, among Foamex L.P., FCC and Salomon Holdings.
10.6(d)         - Reimbursement  Agreement,  dated as of March 23, 1993, between
                Trace Holdings and General Felt.
10.7(d)         -  Shareholder   Agreement,   dated  December  31,  1992,  among
                Recticel,  s.a.,  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.
10.8(e)         - Asset Transfer Agreement, dated as of October 2, 1990, between
                Trace  Holdings and the Foamex L.P. (the "Trace  Holdings  Asset
                Transfer Agreement").
10.9(e)         - First  Amendment,  dated as of December 19, 1991, to the Trace
                Holdings Asset Transfer Agreement.
10.10(e)        - Amended and Restated Guaranty,  dated as of December 19, 1991,
                made by Trace Foam in favor of Foamex L.P.
10.11(e)        - Asset Transfer Agreement, dated as of October 2, 1990, between
                RFC and Foamex L.P. (the "RFC Asset Transfer Agreement").
10.12(e)        - First  Amendment,  dated as of December 19,  1991,  to the RFC
                Asset Transfer Agreement.
10.13(e)        - Schedule 5.03 to the RFC Asset  Transfer  Agreement (the "5.03
                Protocol").
10.14(d)        - The 5.03 Protocol  Assumption  Agreement,  dated as of October
                13, 1992, between RFC and Foamex L.P.
10.15(d)        - Letter Agreement between Trace Holdings and Recticel regarding
                the Recticel guaranty, dated as of July 22, 1992.
10.16(i)        - Supply Agreement, dated June 28, 1994, between Foamex L.P. and
                Foamex International.
10.17(i)        - First Amended and Restated Tax Sharing Agreement,  dated as of
                December 14,  1993,  among  Foamex  L.P.,  Trace Foam,  FMXI and
                Foamex International.
10.18(i)        - Tax Sharing  Agreement,  dated as of June 28, 1994, among FJPS
                and Foamex  International.  10.19(t) - Tax Distribution  Advance
                Agreement,  dated as of December 11, 1996, by and between Foamex
                L.P. and FJPS.
10.20           -  Agreement  and Plan of  Merger,  dated as of March  11,1 993,
                among Foamex L.P., GFI Acquisition, Inc. and General Felt.
10.21           - Agreement and Plan of Merger, dated as of March 1, 1993, among
                Great Wester, Rallis, Foamex L.P. and Kyoto Merger, Inc.
10.22(d)        - Trace Foam Management  Agreement between Foamex L.P. and Trace
                Foam, dated as of October 13, 1992.
10.23(i)        - Affirmation  Agreement re: Management  Agreement,  dated as of
                December 14, 1993 between Foamex L.P. and Trace Foam.
10.24(d)        -  Agreement  and Plan of  Merger,  dated as of March 11,  1993,
                among Foamex L.P., GFI Acquisition, Inc. and General Felt.
10.25(c)        - Agreement and Plan of Merger, dated as of March 1, 1993, among
                Great Western, Rallis, Foamex L.P. and Kyoto Merger, Inc.
10.26(e)(p)     - Salaried Incentive Plan of Foamex L.P. and Subsidiaries.
10.27(e)(p)     - Trace Holdings 1987 Nonqualified Stock Option Plan.
10.28(e)(p)     - Equity Growth Participation Program.
10.29(m)(p)     - The Foamex Group Salaried Employee Pension Plan (formerly, The
                General  Felt  Industries,  Inc.  Retirement  Plan for  Salaried
                Employees, effective as of January 1, 1995.
10.30(o)        - Foamex/GFI 401(k) Savings Plan dated July 1, 1995.
10.31(a)(p)     - Foamex International's 1993 Stock Option Plan.
10.32(a)(p)     -  Foamex  International's  Non-Employee  Director  Compensation
                Plan.
10.33(a)(p)     - Employment Agreement,  dated as of May 6, 1993, by and between
                Foamex L.P. and Rallis.
10.34(f)(p)     -  Employment  Agreement,  dated as of February 1, 1994,  by and
                between Foamex L.P. and William H. Bundy.

                                       29

<PAGE>

10.35(p)        -  Employment  Agreement,  dated  as of July  26,  1995,  by and
                between Foamex L.P. and Salvatore J. Bonanno.
10.36(a)        - Stock Exchange Agreement,  dated as of October 25, 1993, among
                Perfect  Fit,  the  stockholders   which  are  parties  thereto,
                Holdings  and  Foamex  L.P.  (the  "Perfect  Fit Stock  Exchange
                Agreement").
10.37(a)        - Amendment No. 1 to the Perfect Fit Stock  Exchange  Agreement,
                dated November 18, 1993.
10.38(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.
10.39(a)        - Exchange  Agreement,  dated as of December  14,  1993,  by and
                between Foamex International and RFC.
10.40(a)        - Withdrawal  Agreement,  dated as of December 14, 1993,  by and
                between Foamex L.P. and RFC.
10.41(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.
10.42(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.
10.43(a)        - Exchange  Agreement,  dated as of December  14,  1993,  by and
                between Foamex International and Marely.
10.44(a)        - Warrant Exchange Agreement,  dated as of December 14, 1993, by
                and between Foamex International and Marely.
10.45(a)        - Redemption and Withdrawal Agreement,  dated as of December 14,
                1993, by and between Foamex L.P. and Marely.
10.46(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.
10.47(a)        - Exchange  Agreement,  dated as of December  14,  1993,  by and
                between Foamex International and DLJ Funding.
10.48(a)        - Warrant Exchange Agreement,  dated as of December 14, 1993, by
                and between Foamex International and DLJ Funding.
10.49(a)        - Redemption and Withdrawal Agreement,  dated as of December 14,
                1993, by and between Foamex L.P. and DLJ Funding.
10.50(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.
10.51(a)        - Exchange  Agreement,  dated as of December  14,  1993,  by and
                between Foamex International and Rallis.
10.52(a)        - Partial Redemption  Agreement,  dated as of December 14, 1993,
                by and between Foamex L.P. and Rallis.
10.53(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.
10.54(a)        -  Amended  and  Restated  Put  Option  Agreement,  dated  as of
                December 14, 1993, by and between Trace Holdings and Rallis.
10.55(a)        - Exchange  Agreement,  dated as of December  14,  1993,  by and
                between Foamex International and Trace Holdings.
10.56(a)        - Redemption and Withdrawal Agreement,  dated as of December 14,
                1993, by and between Foamex L.P. and Trace Holdings.
10.57(a)        - Exchange  Agreement,  dated as of December  14,  1993,  by and
                between Foamex International and Trace Foam.
10.58(a)        - Withdrawal  Agreement,  dated as of December 14, 1993,  by and
                between Foamex L.P. and Trace Foam.
10.59(a)        - Exchange  Agreement,  dated as of December  14,  1993,  by and
                between Foamex International and FCD Sub.
10.60(a)        - Redemption and Withdrawal Agreement,  dated as of December 14,
                1993, by and between Foamex L.P. and FCD Sub.

                                       30
<PAGE>

10.61(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.
10.62(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.
10.63(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.
10.64(v)        - Equity Purchase Agreement, dated as of August 28, 1996, by and
                among  JPSGP Inc.,  Foamex-JPS  Automotive  L.P.,  and Collins &
                Aikman Products Co.
10.65(v)        - Amendment  No. 1 to Equity  Purchase  Agreement,  by and among
                JPSGP Inc.,  Foamex-JPS  Automotive  L.P.,  and Collins & Aikman
                Products Co., dated as of December 11, 1996.
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.

(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.

                                       31
<PAGE>

(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.

(u)      Incorporated  herein by  reference  to the  Exhibit  to the Form 8-K of
         Foamex  International  reporting an event which  occurred on August 28,
         1996.

(v)      Incorporated  herein by  reference  to the  Exhibit  to the Form 8-K of
         Foamex International  reporting an event which occurred on December 11,
         1996.

(w)      Incorporated  herein by  reference  to the  Exhibit to the Form 10-K of
         Foamex L.P. for the fiscal year ended December 29, 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  of  Foamex  L.P.  listed in the  accompanying  Index to
Financial  Statement  Schedules  are filed as part of this Annual Report on Form
10-K.

                                       32
<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-JPS AUTOMOTIVE L.P.
                                          By: FJGP Inc.
                                              General Partner


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

                                          FOAMEX-JPS 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, President      April 7, 1997
-------------------------    and Director of FJGP and FJCC
Marshall S. Cogan                      




/s/ Philip N. Smith, Jr.     Director, Vice President and          April 7, 1997
-------------------------    Secretary of FJGP and Director,
Philip N. Smith, Jr.         Vice President and Secretary of
                             of FJCC



/s/ Kenneth R. Fuette        Senior Vice President of              April 7, 1997
-------------------------    Finance (Chief Financial
Kenneth R. Fuette            Officer and Chief Accounting
                             Officer) of FJGP and FJCC

                                       33
<PAGE>
                           FOAMEX-JPS AUTOMOTIVE L.P.
                   INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
<TABLE>
<S>                                                                                                               <C>

FINANCIAL STATEMENTS OF REGISTRANTS:

FOAMEX-JPS AUTOMOTIVE L.P. AND SUBSIDIARY:
   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 December 29, 1996,
         December 31, 1995 and the Period from May 13, 1994 (date of initial
         capitalization) to January 1, 1995                                                                         F-4
   Consolidated Statements of Cash Flows for the Years Ended December 29, 1996,
         December 31, 1995 and the Period from May 13, 1994 (date of initial
         capitalization) to January 1, 1995                                                                         F-5
   Consolidated Statements of Partners' Equity (Deficit) for the Years Ended December 29, 1996,
         December 31, 1995 and the Period from May 13, 1994 (date of initial
         capitalization) to January 1, 1995                                                                         F-6
   Notes to Consolidated Financial Statements                                                                       F-7

FOAMEX-JPS CAPITAL CORPORATION:
   Report of Independent Accountants                                                                               F-16
   Balance Sheets as of December 29, 1996 and December 31, 1995                                                    F-17
   Notes to Balance Sheets                                                                                         F-18

FINANCIAL STATEMENTS OF EQUITY INVESTEE:

FOAMEX L.P. AND SUBSIDIARIES:
   Report of Independent Accountants                                                                               F-19
   Consolidated Balance Sheets as of December 29, 1996 and December 31, 1995                                       F-20
   Consolidated Statements of Operations for the Years 1996, 1995 and 1994                                         F-22
   Consolidated Statements of Cash Flows for the Years 1996, 1995 and 1994                                         F-23
   Consolidated Statements of Partners' Equity (Deficit) for the Years 1996, 1995 and 1994                         F-24
   Notes to Consolidated Financial Statements                                                                      F-25

FINANCIAL STATEMENTS OF GUARANTOR:

FOAMEX INTERNATIONAL INC. AND SUBSIDIARIES:
   Report of Independent Accountants                                                                               F-47
   Consolidated Balance Sheets as of December 29, 1996 and December 31, 1995                                       F-48
   Consolidated Statements of Operations for the Years 1996, 1995 and 1994                                         F-50
   Consolidated Statements of Cash Flows for the Years 1996, 1995 and 1994                                         F-51
   Consolidated Statements of Stockholders' Equity (Deficit) for the Years 1996, 1995 and 1993                     F-52
   Notes to Consolidated Financial Statements                                                                      F-53
</TABLE>

                                       F-1
<PAGE>

                        REPORT OF INDEPENDENT ACCOUNTANTS



To the Partners of Foamex-JPS Automotive L.P.:

We have  audited the  accompanying  consolidated  balance  sheets of  Foamex-JPS
Automotive L.P. and subsidiary ("FJPS") as of December 29, 1996 and December 31,
1995 and the  related  consolidated  statements  of  operations,  cash flows and
partners'  equity  (deficit) for the years in the period ended December 29, 1996
and  December  31,  1995 and the  period  from  May 13,  1994  (date of  initial
capitalization)  to  January  1,  1995.  These  financial   statements  are  the
responsibility of FJPS's management. Our responsibility is to express an opinion
on these financial statements based on our audits.

We conducted our audit 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 provides 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  FJPS as of
December 29, 1996 and December 31, 1995, and the  consolidated  results of their
operations  and their cash flows for the years in the periods ended December 29,
1996 and  December  31,  1995 and the period  from May 13, 1994 (date of initial
capitalization)  to  January  1,  1995 in  conformity  with  generally  accepted
accounting principles.




COOPERS & LYBRAND L.L.P.

2400 Eleven Penn Center
Philadelphia, Pennsylvania
February 26, 1997





                                       F-2
<PAGE>

                    FOAMEX-JPS AUTOMOTIVE L.P. AND SUBSIDIARY
                           CONSOLIDATED BALANCE SHEETS

<TABLE>
<CAPTION>
                                                            December 29,         December 31,
                                                               1996                1995
                                                                      (thousands)
<S>                                                          <C>                 <C>      
   Cash                                                      $       2           $       2

   Investment in unconsolidated limited partnership             51,800              36,269

   Investment in discontinued operations                            --             105,054

   Debt issuance costs, net                                      3,726               4,067
                                                             ---------           ---------

         TOTAL ASSETS                                        $  55,528           $ 145,392
                                                             =========           =========


LIABILITIES & PARTNERS' EQUITY (DEFICIT)

   Intercompany payable                                      $      53           $      58

   Long-term debt - equity affiliates                           33,180              44,444

   Long-term debt                                               80,881              70,381

   Other liabilities                                            11,325                  --
                                                             ---------           ---------

         Total liabilities                                     125,439             114,883
                                                             ---------           ---------

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

PARTNERS' EQUITY (DEFICIT):
   General partner                                                (579)                448
   Limited partner                                             (57,293)             44,378
   Other                                                       (12,039)            (14,317)
                                                             ---------           ---------

         Total partners' equity (deficit)                      (69,911)             30,509
                                                             ---------           ---------

   TOTAL LIABILITIES & PARTNERS' EQUITY (DEFICIT)            $  55,528           $ 145,392
                                                             =========           =========
</TABLE>


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

                                       F-3
<PAGE>

                    FOAMEX-JPS AUTOMOTIVE L.P. AND SUBSIDIARY
                      CONSOLIDATED STATEMENTS OF OPERATIONS

<TABLE>
<CAPTION>
                                                                                  For the
                                         For the             For the            Period from
                                        Year Ended         Year Ended         May 13, 1994 to
                                    December 29, 1996   December 31, 1995     January 1, 1995
                                                           (thousands)
<S>                                     <C>                 <C>                 <C>      
OTHER INCOME (EXPENSE), NET             $     (22)          $     (85)          $       1

INTEREST AND DEBT
   ISSUANCE EXPENSE                         9,611               8,173               3,599
                                        ---------           ---------           ---------

LOSS BEFORE EQUITY IN EARNINGS
   (LOSS) OF UNCONSOLIDATED
   LIMITED PARTNERSHIPS                    (9,633)             (8,258)             (3,598)

EQUITY IN EARNINGS (LOSS) OF
   UNCONSOLIDATED LIMITED
   PARTNERSHIP                             52,588             (47,185)             19,667
                                        ---------           ---------           ---------

INCOME (LOSS) FROM CONTINUING
   OPERATIONS                              42,955             (55,443)             16,069
                                        ---------           ---------           ---------

EQUITY IN INCOME (LOSS) FROM
   DISCONTINUED OPERATIONS               (142,037)              1,956               6,312
                                        ---------           ---------           ---------

INCOME (LOSS) BEFORE
   EXTRAORDINARY LOSS                     (99,082)            (53,487)             22,381

EQUITY IN EXTRAORDINARY LOSS               (1,874)                 --                  --
                                        ---------           ---------           ---------

NET INCOME (LOSS)                       $(100,956)          $ (53,487)          $  22,381
                                        =========           =========           =========
</TABLE>


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

                                       F-4
<PAGE>
                    FOAMEX-JPS AUTOMOTIVE L.P. AND SUBSIDIARY
                      CONSOLIDATED STATEMENTS OF CASH FLOWS

<TABLE>
<CAPTION>

                                                                                                                 For the
                                                                      For the                For the           Period from
                                                                     Year Ended            Year Ended        May 13, 1994 to
                                                                  December 29, 1996     December 31, 1995    January 1, 1995 
                                                                                          (thousands)
<S>                                                                    <C>                 <C>                 <C>      
OPERATING ACTIVITIES:
Net income (loss)                                                      $(100,956)          $ (53,487)          $  22,381
Adjustments to reconcile net income
   (loss) to cash used for operating activities:
   Amortization of debt issuance costs
         and debt discount                                                 9,611               8,173               3,599
   Equity in (earnings) loss of unconsolidated
         limited partnership                                             (52,588)             47,185             (19,667)
   Equity in (income) loss from discontinued operations                  142,037              (1,956)             (6,312)
   Equity in extraordinary loss                                            1,874                  --                  --
   Other assets and liabilities, net                                          22                  85                  (9)
                                                                       ---------           ---------           ---------

         Net cash used for operating activities                               --                  --                  (8)
                                                                       ---------           ---------           ---------

INVESTING ACTIVITIES:
   Proceeds from sale of partnership interest                             16,888                  --                  --
   Investment in unconsolidated limited partnership                           --                  --             (89,100)
   Cash distributions from unconsolidated subsidiaries                     3,477               2,368               2,516
                                                                       ---------           ---------           ---------

         Net cash provided by (used for)
            investing activities                                          20,365               2,368             (86,584)
                                                                       ---------           ---------           ---------

FINANCING ACTIVITIES:
   Repayment of senior note payable                                      (18,439)                 --                  --
   Waiver payment                                                           (184)                 --                  --
   Proceeds from sale of senior secured discount
         debentures                                                           --                  --              57,000
   Proceeds from sale of senior note payable                                  --                  --              35,300
   Cash contributions by partners                                             --                  --                   3
   Debt issuance costs                                                        --                  --              (3,193)
   Cash distributions to partners                                         (1,742)             (2,368)             (2,516)
                                                                       ---------           ---------           ---------

         Net cash provided by (used for) financing activities            (20,365)             (2,368)             86,594
                                                                       ---------           ---------           ---------

NET INCREASE IN CASH                                                          --                  --                   2

CASH AT BEGINNING OF PERIOD                                                    2                   2                  --
                                                                       ---------           ---------           ---------

CASH AT END OF PERIOD                                                  $       2           $       2           $       2
                                                                       =========           =========           =========
</TABLE>

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

                                       F-5
<PAGE>
                    FOAMEX-JPS AUTOMOTIVE L.P. AND SUBSIDIARY
              CONSOLIDATED STATEMENTS OF PARTNERS' EQUITY (DEFICIT)
                 For the Years Ended December 29, 1996, December
                  31, 1995 and for the Period from May 13, 1994
                 (date of initial capitalization) to January 1,
                                      1995

<TABLE>
<CAPTION>

                                                          General             Limited
                                                          Partner             Partner              Other                Total
                                                                                      (thousands)

<S>                                                     <C>                 <C>                 <C>                 <C>      
Balances at May 13, 1994                                 $       2           $      --           $      --           $       2

Contributions by partners                                      805              79,786              (8,260)             72,331

Distributions                                                  (25)             (2,491)                 --              (2,516)

Net income                                                     223              22,158                  --              22,381
                                                         ---------           ---------           ---------           ---------

Balances at January 1, 1995                                  1,005              99,453              (8,260)             92,198

Contributions by partners                                        2                 221                  --                 223

Distributions                                                  (24)             (2,344)                 --              (2,368)

Additional pension liability adjustment                         --                  --              (3,223)             (3,223)

Foreign currency translation adjustment                         --                  --                 472                 472

Increase in note receivable from Trace Holdings                 --                  --              (1,346)             (1,346)

Purchase of note from Foamex International                      --                  --              (1,960)             (1,960)

Net loss                                                      (535)            (52,952)                 --             (53,487)
                                                         ---------           ---------           ---------           ---------

Balances at December 31, 1995                                  448              44,378             (14,317)             30,509

Distributions                                                  (17)             (1,725)                 --              (1,742)

Additional pension liability adjustment                         --                  --               2,323               2,323

Foreign currency translation adjustment                         --                  --                 (45)                (45)

Net loss                                                    (1,010)            (99,946)                 --            (100,956)
                                                         ---------           ---------           ---------           ---------

Balances at December 29, 1996                            $    (579)          $ (57,293)          $ (12,039)          $ (69,911)
                                                         =========           =========           =========           =========
</TABLE>


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

                                       F-6
<PAGE>
                    FOAMEX-JPS AUTOMOTIVE L.P. AND SUBSIDIARY
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


1.       ORGANIZATION AND BASIS OF PRESENTATION

         Foamex-JPS   Automotive   L.P.   ("FJPS")  was  formed  and   initially
capitalized  on May 13,  1994.  FJPS was formed for the purposes of, among other
things,  acquiring a 98% limited partnership interest in Foamex L.P. contributed
from  Foamex  International  Inc.  ("Foamex  International")  and a 99%  limited
partnership  interest in JPS Automotive  L.P.  Foamex  International  owns a 99%
limited partnership  interest in FJPS, and FJGP Inc., a wholly-owned  subsidiary
of Foamex International, owns a 1% general partnership interest in FJPS.

         Foamex-JPS Capital Corporation  ("FJCC"), a wholly-owned  subsidiary of
FJPS,  was formed and  initially  capitalized  on May 13, 1994.  FJCC engages in
business activities related to borrowing money for the benefit of FJPS.

         During 1996,  Foamex L.P. sold Perfect Fit Industries,  Inc.  ("Perfect
Fit") which comprised the home comfort products  business segment of Foamex L.P.
In addition,  FJPS sold its  partnership  interest in JPS Automotive  L.P. which
operated in the automotive textile business segment. The consolidated  financial
statements of FJPS have been restated for discontinued operations and includes a
loss in the equity from discontinued  operations of $142.0 million.  (See Note 3
for further discussion).

         In April  1996,  Foamex  International  contributed  the foam  products
operations  of  Foamex  Mexico  to FJPS  (99%)  and to FJGP  Inc.  (1%) who then
contributed  its  investment  in  Foamex  Mexico  to  FJPS.  FJPS   subsequently
contributed its 100% investment in Foamex Mexico to Foamex L.P. The contribution
was  accounted  for in a manner  similar  to a pooling  of  interests  since the
entities are under common control.  Accordingly, all periods presented have been
restated to reflect the financial  condition and results of operations of Foamex
Mexico.

         FJPS's  consolidated  financial  statements consist of the consolidated
results of operations of FJPS,  including its wholly-owned  subsidiary FJCC, and
its 98% equity  interest in Foamex L.P.  FJPS's share of earnings  (loss) of its
unconsolidated  limited  partnership  is  reflected  in  income  as  earned  and
distributions will be credited against the investment in unconsolidated  limited
partnerships  when received.  FJPS has no employees or operations of its own nor
do its partners incur any expenses on its behalf.

         The  statements  of  operations  and cash flows  include  the equity in
undistributed  earnings of Foamex L.P. for the years ended December 29, 1996 and
December 31, 1995 and the period from June 28, 1994 to January 1, 1995.

2.       SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

         Consolidation

         The consolidated  financial statements include the accounts of FJPS and
its subsidiary.  Intercompany  accounts and transactions have been eliminated in
consolidation.  The equity method is being used to account for the operations of
Foamex L.P.  since  control is  exercised  by Foamex  International  through its
ownership of the managing general partner.

         Fiscal Year

         FJPS's fiscal year ends on the Sunday closest to the  thirty-first  day
of December.  Fiscal  years 1996 and 1995 are  composed of  fifty-two  weeks and
ended on December 29, 1996 and December 31, 1995.

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

2.       SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)

         Accounting Estimates

         The  preparation of financial  statements in conformity  with generally
accepted  accounting  principles  requires  management  to  make  estimates  and
assumptions  that affect the reported  amounts of assets and  liabilities at the
date of the  financial  statements  and the  reported  amounts of  revenues  and
expenses  during the reported  period.  Actual  results  could differ from those
estimates. (See Notes 7, 8 and 10).

         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 $0.8 million and $0.4 million, respectively.

         Income Taxes

         FJPS, as a limited partnership, is not subject to United States Federal
income taxes;  therefore, no current or deferred provision has been provided for
such taxes. The partners will provide for their  respective  shares of income or
loss in their federal and  applicable  state income tax returns.  FJPS 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 FJPS were a corporation  filing
separate tax returns.

         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

         On  December  11,  1996,  FJPS  completed  the sale of its  partnership
interests in JPS  Automotive  for a sale price of  approximately  $220.1 million
including the assumption of $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 JPS Automotive.  Actual and estimated transaction expenses related
to the sale  amounted  to  approximately  $8.9  million.  FJPS has  recorded  an
estimated net loss on the sale of JPS Automotive of approximately $99.5 million.

         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 the home comfort  products segment of Foamex L.P. Actual and estimated
transaction  expenses  related to the sale totaled  approximately  $1.5 million.
Foamex  L.P.  has  recorded a loss on the sale of Perfect  Fit of  approximately
$41.8  million,  which  includes the loss on disposal and a loss of $1.3 million
relating to operating  losses during the phase-out  period.  FJPS has recorded a
loss in the equity from discontinued operations of $41.2 million relating to the
sale of Perfect  Fit. A valuation  allowance  has been  provided for the capital
loss relating to the sale of Perfect Fit since Foamex L.P. 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.

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

3.       DISCONTINUED OPERATIONS (continued)

         FJPS's financial  statements have been restated to reflect the sales of
Perfect Fit and JPS Automotive. In addition,  interest and debt issuance expense
of FJPS was allocated to discontinued  operations based on the estimated debt to
be retired from the net proceeds from the sale of 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>      
Equity in income (loss) of discontinued operations          $(140,659)          $   3,429          $   7,065
Allocation of interest and debt issuance expense                1,378               1,473                753
                                                            ---------           ---------          ---------
Equity in income (loss) of discontinued operations          $(142,037)          $   1,956          $   6,312
                                                            =========           =========          =========
<FN>
(1)      FJPS's  discontinued  operations includes the operations of Perfect Fit
         through June 1996 and JPS Automotive through September 1996.
</FN>
</TABLE>

4.        INVESTMENT IN UNCONSOLIDATED LIMITED PARTNERSHIPS

          The  contribution  to FJPS of a 98%  limited  partnership  interest in
Foamex L.P. by Foamex International on June 28, 1994 was accounted for using the
equity  method on an  historical  basis,  since the  entities  were under common
control. Foamex International's  historical basis in the 98% limited partnership
interest of Foamex L.P. was $69.6 million at June 28, 1994.

          On June 28, 1994,  FJPS  invested  approximately  $89.1 million in JPS
Automotive,  including  $83.2 million in cash and the assumption of $5.9 million
of JPS  Automotive's  acquisition  cost  liabilities,  to acquire a 99%  limited
partnership interest which was accounted for using the equity method.

5.        LONG-TERM DEBT

          Long term debt as of December 29, 1996 and December 31, 1995  consists
of:
<TABLE>
<CAPTION>
                                                                                   December 29,       December 31,
                                                                                       1996              1995
                                                                                              (thousands)
<S>                                                                                  <C>               <C>     
              Senior secured discount debentures due 2004, Series B (net of
                unamortized debt discount of $35,864
                and $46,365, respectively)                                           $ 80,881          $ 70,381
              Senior note payable to Foamex L.P. due 2006
                (net of unamortized debt discount of $36,324
                and $43,499, respectively)                                             33,180            44,444
                                                                                     --------          --------
              Total long term debt                                                   $114,061          $114,825
                                                                                     ========          ========
</TABLE>

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

5.       LONG-TERM DEBT (continued)


         o   The Senior Secured Discount Debentures Series A due 2004 ("Discount
             Debentures")  in the aggregate  principal  amount of $116.7 million
             ($57.0 million  initial cash proceeds) were issued on June 28, 1994
             by FJPS and FJCC, as a unit with warrants to acquire 600,000 shares
             of the Foamex  International  common stock at an exercise  price of
             $11.53 per  share.  On  December  5, 1994,  an  exchange  offer was
             consummated and all the Discount Debentures series A were exchanged
             for  Discount  Debentures  series  B.  The  terms  of the  Discount
             Debentures  series B are  substantially  identical  in all respects
             (including  principal amount,  interest rate, maturity and ranking)
             to the terms of the Discount  Debentures  series A, except that the
             Discount  Debentures  series B, are freely  transferable by holders
             thereof and are not subject to any covenant regarding  registration
             under  the  Securities  Act  of  1933,  as  amended.  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  Foamex  International.  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  preceding  paragraph.  If FJPS and FJCC do
             not exercise  such  redemption  rights with at least 85% of the net
             proceeds  of an  Equity-Linked  Offering,  the  rate at  which  the
             Discount  Debentures  shall  accrete and the  interest  rate on the
             Discount Debentures will increase based on a formula.

             Subject to certain  qualifications  and  exceptions,  covenants and
             provisions  contained  therein,  the Discount  Debenture  Indenture
             restricts,  among other  things,  (i) the  incurrence of additional
             indebtedness,  (ii) the payment of dividends on and  redemptions of
             capital  stock,  (iii) the use of proceeds  from the sale of assets
             and subsidiary stock, (iv) transactions with affiliates and (v) the
             creation of certain liens.  The Discount  Debenture  Indenture also
             restricts the ability of FJPS and FJCC to consolidate or merge with
             or into,  or to transfer all or  substantially  all of their assets
             with or into,  or to  transfer  all or  substantially  all of their
             assets  to,  another  person.  Under the most  restrictive  of such
             payment  restrictions,  approximately $4.9 million was available to
             be paid by FJPS at December 29, 1996.

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

5.       LONG-TERM DEBT (continued)

         o   The senior note payable to Foamex L.P. due 2006 (the "FJPS  Note"),
             in the  aggregate  principal  amount of $87.9 million was issued by
             FJPS on June 28,  1994.  Foamex L.P.  purchased  the note for $35.3
             million.  FJPS used the proceeds from the sale of the FJPS Note, in
             part, for its capital  contribution to JPS Automotive in connection
             with the JPS  Automotive  Acquisition.  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 payable 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 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.

6.       PARTNERS' EQUITY (DEFICIT)

         The other component consists of the following:
<TABLE>
<CAPTION>
                                                         December 29,      December 31,      January 1,
                                                             1996             1995             1995
                                                                           (thousands)
<S>                                                         <C>              <C>              <C>    
         Foreign currency translation adjustment            $ 3,433          $ 3,388          $ 3,860
         Additional pension liability                         2,360            4,683            1,460
         Note receivable from Trace Holdings                  4,286            4,286            2,940
         Note receivable from Foamex International            1,960            1,960               --
                                                            -------          -------          -------

                                                            $12,039          $14,317          $ 8,260
                                                            =======          =======          =======
</TABLE>

7.       ENVIRONMENTAL MATTERS

         Foamex L.P.

         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,

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

7.       ENVIRONMENTAL MATTERS (continued)

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  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
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.

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

8.       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 capitalization  of Foamex L.P. in October 1990.  Although
Trace  Holdings has paid Foamex L.P.'s  litigation  expenses to date pursuant to
such  indemnification and management believes Trace Holdings likely will be in a
position to continue to pay such  expenses,  there can be no absolute  assurance
that Trace  Holdings  will be able to  provide  such  indemnification.  Based on
information available at this time with respect to the potential liability,  and
without taking into account the  indemnification  provided by Trace Holdings and
the coverage provided by Trace Holdings' and Foamex L.P.'s liability  insurance,
Foamex L.P.  believes that the proceedings  should not ultimately  result in any
liability that would have a material adverse effect on the financial position or
results of operations of Foamex L.P. If management's assessment of Foamex L.P.'s
liability with respect to these actions is incorrect,  such actions could have a
material adverse effect on Foamex L.P.

         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.


                                      F-13
<PAGE>

                    FOAMEX-JPS AUTOMOTIVE L.P. AND SUBSIDIARY
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

9.       SUMMARIZED FINANCIAL INFORMATION OF EQUITY AFFILIATES

         The following  table  presents  summarized  financial  information on a
combined 100% basis of the principal company accounted for by the equity method.
Accounts  presented  include:  Foamex  L.P.  (98%) as of  December  29, 1996 and
December  31,  1995 and for the years then ended and for the period from May 13,
1994 to January 1, 1995:.

<TABLE>
<CAPTION>
                                                            December 29,       December 31,          January 1,
                                                                1996              1995                  1995
                                                                               (thousands)
<S>                                                          <C>                 <C>                 <C>      
         Current assets                                      $ 288,920           $ 225,526           $ 259,911
         Noncurrent assets                                     297,237             380,366             394,265
         Current liabilities                                   151,830             154,204             131,481
         Noncurrent liabilities                                421,495             464,292             470,331
         Note receivable from Partner                           33,180              44,444              38,167
         Net sales                                             926,351             862,834             833,660
         Gross profit                                          153,232             100,749             142,395
         Income loss from continuing operations                 53,661             (48,126)             38,011
         Income (loss) from discontinued operations            (42,050)             (5,117)              1,230
         Net income (loss)                                       9,699             (53,243)             39,241
</TABLE>

         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. 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").

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

10.      FINANCIAL INSTRUMENTS AND CONCENTRATION OF CREDIT RISK

         Disclosure about Fair Value of Financial Instruments

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

         The  estimated  fair  values  of  FJPS's  financial  instruments  as of
December 29, 1996 are as follows:

                                          Carrying Amount             Fair Value
                                                         (thousands)
         Liabilities:
         Long-term debt                       $114,061                 $127,743
                                              ========                 ========

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

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

11       SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION

<TABLE>
<CAPTION>
                                                                                                     Period from
                                                       Year Ended              Year Ended         May 13, 1994 to
                                                  December 29, 1996        December 31, 1995       January 1, 1995
<S>                                                       <C>                    <C>                  <C>     
Noncash items:
   Accretion on the FJPS note                             $7,031                 $  6,152             $  2,867
   Debt issuance costs paid by partner                         -                      223                1,107
   Partners' contributions of Foamex L.P.                      -                        -               69,622
</TABLE>

                                      F-15
<PAGE>

                       REPORT OF INDEPENDENT ACCOUNTANTS


To the Stockholder of
  Foamex-JPS Capital Corporation:

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

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

In our opinion,  the balance  sheets  referred to above present  fairly,  in all
material  respects,  the financial  position of FJCC as of 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-16
<PAGE>
                        FOAMEX-JPS CAPITAL CORPORATION (A
             Wholly-Owned Subsidiary of Foamex-JPS Automotive 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-17

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

1.       ORGANIZATION

         Foamex-JPS Capital Corporation  ("FJCC"), a wholly-owned  subsidiary of
Foamex-JPS Automotive L.P. ("FJPS"), was formed and initially capitalized on May
13, 1994. FJCC engages in business activities related to borrowing money for the
benefit of FJPS.

2.       COMMITMENTS AND CONTINGENCIES

         FJCC is a joint and several obligor with FJPS on borrowings  consisting
of approximately  $116.7 million in aggregate principal amount of Senior Secured
Discount Debentures due 2004, Series B (the "Discount Debentures"). The Discount
Debentures,  issued on June 28,  1994,  are  secured  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  Foamex   International   Inc.   ("Foamex
International").  The Discount  Debentures  mature on July 1, 2004. 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  compounds  semiannually  at the rate of 13.50% per
annum from the date of  issuance of the  Discount  Debentures  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 in the financial statements
of FJPS and in the indenture. Thereafter, interest accrues at the rate of 14.00%
per annum and is payable semiannually in cash commencing January 1, 2000.



                                      F-18
<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-19

<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-20
<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-21
<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-22
<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-23
<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-24
<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-25

<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-26
<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-27
<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-28
<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-29
<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-30
<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-31
<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-32
<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-33

<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-34
<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-35
<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-36
<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-37
<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-38
<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-39
<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-40
<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-41
<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-42
<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-43
<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-44
<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-45
<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-46
<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-47
<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-48
<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-50
<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-51
<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
                                                                     ---------           ---------           ---------

                                      F-52
<PAGE>

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-53

<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-54
<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-55
<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-56
<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-57
<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-58
<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-59
<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-60
<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-61

<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-62
<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-63
<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-64
<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-65

<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-66
<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-67
<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-68
<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-69
<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-70
<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-71
<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-72
<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-73
<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-74
<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-75
<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-76
<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-77
<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-78
<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-79
<PAGE>


                           FOAMEX-JPS AUTOMOTIVE L.P.
                     INDEX TO FINANCIAL STATEMENT SCHEDULES



Index to Financial Statement Schedule:

Foamex L.P.

Schedule II - Valuation and Qualifying Accounts                             S-2

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