content: SECURITIES AND EXCHANGE COMMISSION
                               WASHINGTON, D.C. 20549
  
  
  
                                      FORM 10-Q
  
  
                  QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
                       OF THE SECURITIES EXCHANGE ACT OF 1934
  
                  For the quarterly period ended September 30, 1998
  
                           Commission file number 0-22624
  
  
  
                              FOAMEX INTERNATIONAL INC.
               (Exact name of registrant as specified in its charter)
  
  
  
  
               Delaware                                    05-0473908
  (State or other jurisdiction of                     (I.R.S. Employer
  incorporation or organization)                       Identification Number)
  
  
  1000 Columbia Avenue
  Linwood, PA                                                  19061
  (Address of principal                                      (Zip Code)
  executive offices)
  
  
  Registrant's telephone number, including area code:  (610) 859-3000
  
  Indicate by check mark whether the registrant (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  period that the  registrant  was
  required  to file  such  reports)  and  (2)  has  been  subject  to such  filing
  requirements for the past 90 days. YES X NO
  
  The number of shares of the registrant's common stock outstanding as of November
  16, 1998 was approximately 25,014,800.
  
  
                                    Page 1 of 28
                            Exhibit List on Page 21 of 28
  <PAGE>
  
                              FOAMEX INTERNATIONAL INC.
  
                                        INDEX
                                                                             Page
  
  Part I.  Financial Information:
  
           Item 1.  Financial Statements
  
                Condensed Consolidated Statements of Operations -
                  Quarterly and Year to Date Periods Ended September 30,
                  1998 and September 28, 1997                                  3
  
                Condensed Consolidated Balance Sheets as of September
                  30, 1998 and December 28, 1997                               4
  
                Condensed Consolidated Statements of Cash Flows - Year
                  to Date Periods Ended September 30, 1998 and September
                  28, 1997                                                     5
  
                Notes to Condensed Consolidated Financial Statements           6
  
           Item 2.  Management's Discussion and Analysis of Financial 
                    Condition and Results of Operations                       14
  
  Part II. Other Information                                                  21
  
           Exhibit List                                                       21
  
           Signatures                                                         28
  
                                    2
  <PAGE>
  PART I.  FINANCIAL INFORMATION
  ITEM 1.  FINANCIAL STATEMENTS
  
                FOAMEX INTERNATIONAL INC. AND SUBSIDIARIES
        CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (unaudited)
  
  <TABLE>
  <CAPTION>
                                              Quarterly Periods Ended       Year  to Date Periods Ended
                                             September 30,   September 28,  September 30,  September 28,
                                                  1998            1997         1998           1997
  
                                                          (thousands except per share data)
  <S>                                          <C>            <C>           <C>            <C>      
  NET SALES                                    $ 332,710      $ 233,434     $ 944,979      $ 702,441
  
  COST OF GOODS SOLD                             275,970        195,395       780,121        576,825
                                               ---------      ---------     ---------      ---------
  
  GROSS PROFIT                                    56,740         38,039       164,858        125,616
  
  SELLING, GENERAL AND
     ADMINISTRATIVE EXPENSES                      19,820         15,766        63,058         47,853
                                               ---------      ---------     ---------      ---------
  
  INCOME FROM OPERATIONS                          36,920         22,273       101,800         77,763
  
  INTEREST AND DEBT ISSUANCE EXPENSE              18,652         12,080        53,960         39,522
  
  OTHER INCOME (EXPENSE), NET                     (2,200)           324        (3,945)         1,410
                                               ---------      ---------     ---------      ---------
  
  INCOME BEFORE PROVISION FOR INCOME TAXES        16,068         10,517        43,895         39,651
  
  PROVISION FOR INCOME TAXES                       6,428          4,002        17,556         15,530
                                               ---------      ---------     ---------      ---------
  
  INCOME BEFORE EXTAORDINARY LOSS                  9,640          6,515        26,339         24,121
  
  EXTRAORDINARY LOSS ON EARLY
     EXTINGUISHMENT OF DEBT,
     NET OF INCOME TAXES                              --             --        (1,917)       (42,599)
                                               ---------      ---------     ---------      ---------
  
  NET INCOME (LOSS)                            $   9,640      $   6,515     $  24,422      $ (18,478)
                                               =========      =========     =========      =========
  
  BASIC EARNINGS (LOSS) PER SHARE:
     INCOME BEFORE EXTRAORDINARY LOSS          $    0.39      $    0.26     $    1.05      $    0.96
     EXTRAORDINARY LOSS                               --             --         (0.07)         (1.69)
                                               ---------      ---------     ---------      ---------
     EARNINGS (LOSS) PER SHARE                 $    0.39      $    0.26     $    0.98      $   (0.73)
                                               =========      =========     =========      =========
  
  WEIGHTED AVERAGE NUMBER OF SHARES               25,015         24,959        24,989         25,189
                                               =========      =========     =========      =========
  
  DILUTED EARNINGS (LOSS) PER SHARE:
     INCOME BEFORE EXTRAORDINARY LOSS          $    0.37      $    0.26     $    1.01      $    0.94
     EXTRAORDINARY LOSS                               --             --         (0.07)         (1.66)
                                               ---------      ---------     ---------      ---------
     EARNINGS (LOSS) PER SHARE                 $    0.37      $    0.26     $    0.94      $   (0.72)
                                               =========      =========     =========      =========
  
  WEIGHTED AVERAGE NUMBER OF SHARES               26,118         25,435        26,146         25,645
                                               =========      =========     =========      =========
  </TABLE>
  
            The accompanying notes are an integral part of the condensed
                         consolidated financial statements.
  
                                         3
  
  <PAGE>
                     FOAMEX INTERNATIONAL INC. AND SUBSIDIARIES
                  CONDENSED CONSOLIDATED BALANCE SHEETS (unaudited)
  <TABLE>
  <CAPTION>
                                                                        September 30,     December 28,
  ASSETS                                                                    1998              1997
  CURRENT ASSETS:                                                               (thousands)
  <S>                                                                   <C>              <C>        
     Cash and cash equivalents                                          $    10,044      $    12,044
     Accounts receivable, net                                               204,639          175,684
     Inventories                                                            140,139          120,299
     Other current assets                                                    56,898           62,901
                                                                        -----------      -----------
         Total current assets                                               411,720          370,928
  
  PROPERTY, PLANT AND EQUIPMENT, NET                                        229,470          233,435
  
  COST IN EXCESS OF ASSETS ACQUIRED, NET                                    214,076          218,219
  
  DEBT ISSUANCE COSTS, NET                                                   15,406           18,889
  
  DEFERRED INCOME TAXES                                                      34,168           26,960
  
  OTHER ASSETS                                                               26,108           25,192
                                                                        -----------      -----------
  
  TOTAL ASSETS                                                          $   930,948      $   893,623
                                                                        ===========      ===========
  
  LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)
  CURRENT LIABILITIES:
     Short-term borrowings                                              $     6,058      $     6,598
     Current portion of long-term debt                                        5,117           12,931
     Current portion of long-term debt - related party                        7,020               --
     Accounts payable                                                       124,646          131,689
     Accrued interest                                                         9,723           10,716
     Other accrued liabilities                                               51,763           70,513
                                                                        -----------      -----------
         Total current liabilities                                          204,327          232,447
  
  LONG-TERM DEBT                                                            689,664          735,724
  
  LONG-TERM DEBT - RELATED PARTY                                             93,670               --
  
  OTHER LIABILITIES                                                          34,212           38,871
                                                                        -----------      -----------
  
         Total liabilities                                                1,021,873        1,007,042
                                                                        -----------      -----------
  
  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 27,003,823 and 25,014,823 shares, respectively;
       Outstanding 25,014,823 and 24,919,680 shares, respectively               270              269
     Additional paid-in capital                                              86,769           86,025
     Retained earnings (accumulated deficit)                               (141,469)        (164,118)
     Accumulated other comprehensive income                                  (7,498)          (6,598)
     Other                                                                   (9,795)          (9,795)
                                                                        -----------      -----------
                                                                            (71,723)         (94,217)
     Common Stock held in treasury, at cost:
       1,989,000 shares at September 30, 1998 and December 28, 1997         (19,202)         (19,202)
                                                                        -----------      -----------
  
         Total stockholders' equity (deficit)                               (90,925)        (113,419)
                                                                        -----------      -----------
  
  TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)                  $   930,948      $   893,623
                                                                        ===========      ===========
  </TABLE>
  
            The accompanying notes are an integral part of the condensed
                         consolidated financial statements.
  
                                         4
  <PAGE>
                     FOAMEX INTERNATIONAL INC. AND SUBSIDIARIES
             CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (unaudited)
  
  <TABLE>
  <CAPTION>
                                                                        Year to Date Periods Ended
                                                                       September 30,    September 28,
                                                                            1998            1997
                                                                               (thousands)
  <S>                                                                    <C>            <C>       
  OPERATING ACTIVITIES:
     Net income (loss)                                                   $  24,422      $ (18,478)
     Adjustments to reconcile net income (loss) to net cash provided
         by (used for) operating activities:
         Depreciation and amortization                                      26,686         16,409
         Amortization of debt issuance costs, debt discount
            and debt premium                                                   (16)         7,380
         Extraordinary loss on early extinguishment of debt                  1,579             37
         Other operating activities                                         15,660          9,274
         Changes in operating assets and liabilities, net                  (84,478)       (26,808)
                                                                         ---------      ---------
  
            Net cash used for operating activities                         (16,147)       (12,186)
                                                                         ---------      ---------
  
  INVESTING ACTIVITIES:
     Capital expenditures                                                  (22,423)       (25,865)
     Acquisition, net of cash acquired                                      (4,399)            --
     Decrease in restricted cash                                                --         12,143
     Loan to shareholder                                                        --         (5,000)
     Other investing activities                                             (1,465)        (2,930)
                                                                         ---------      ---------
  
            Net cash used for investing activities                         (28,287)       (21,652)
                                                                         ---------      ---------
  
  FINANCING ACTIVITIES:
     Net proceeds from short-term borrowings                                   185          1,179
     Net proceeds from revolving loans                                      81,489         31,000
     Proceeds from long-term debt                                          129,000        453,500
     Repayment of long-term debt                                          (138,355)      (450,270)
     Debt issuance cost                                                     (1,598)       (15,617)
     Purchase of treasury stock                                                 --         (5,739)
     Dividends paid                                                         (1,246)            --
     GFI transaction costs                                                  (3,898)            --
     GFI transaction payments to Trace                                     (24,800)            --
     Other financing activities                                              1,657           (502)
                                                                         ---------      ---------
  
            Net cash provided by financing activities                       42,434         13,551
                                                                         ---------      ---------
  
  NET DECREASE IN CASH
     AND CASH EQUIVALENTS                                                   (2,000)       (20,287)
  
  CASH AND CASH EQUIVALENTS
     AT BEGINNING OF PERIOD                                                 12,044         22,203
                                                                         ---------      ---------
  
  CASH AND CASH EQUIVALENTS
     AT END OF PERIOD                                                    $  10,044      $   1,916
                                                                         =========      =========
  </TABLE>
  
            The accompanying notes are an integral part of the condensed
                         consolidated financial statements.
  
                                         5
  <PAGE>
                     FOAMEX INTERNATIONAL INC. AND SUBSIDIARIES
                NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
  
  1.     CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
  
         Foamex  International  Inc. and  subsidiaries  (the "Company")  condensed
  consolidated  balance sheet as of December 28, 1997 has been  condensed from the
  audited  consolidated  balance sheet at that date.  The  condensed  consolidated
  balance sheet as of September 30, 1998, the condensed consolidated statements of
  operations  for the quarterly and year to date periods ended  September 30, 1998
  and September 28, 1997 and the condensed  consolidated  statements of cash flows
  for the year to date periods  ended  September  30, 1998 and  September 27, 1997
  have been  prepared by the Company  and have not been  audited by the  Company's
  independent  accountants.   In  the  opinion  of  management,  all  adjustments,
  consisting only of normal recurring adjustments, considered necessary for a fair
  presentation  of the financial  position,  results of operations  and cash flows
  have been included.
  
         During  September  1998,  management of the Company decided to change the
  year-end  reporting  requirement  of the Company from a fifty-two or fifty-three
  week fiscal year ending on the Sunday closest to the end of the calendar year to
  a  calendar  year  ending  December  31st  to  improve  the  internal  reporting
  requirement  of the Company.  On November 3, 1998,  the Board of  Directors  and
  other required third parties approved the fiscal year-end change. This change is
  effective for the third fiscal quarter of 1998 which ended on September 30, 1998
  and will result in a 1998  fiscal  year end of December  31, 1998 as compared to
  January 3, 1999;  accordingly,  the  quarterly  period ended  September 30, 1998
  includes an additional three days with estimated revenues of approximately $23.9
  million.
  
         Certain  information  and  note  disclosures  normally  included  in  the
  financial  statements  prepared in accordance with generally accepted accounting
  principles  have been  condensed  or  omitted in  accordance  with the rules and
  regulations  of  the  Securities  and  Exchange   Commission.   These  condensed
  consolidated  financial  statements  should  be read  in  conjunction  with  the
  Company's 1997 consolidated  financial statements and notes thereto as set forth
  in the  Company's  Annual  Report on Form  10-K/A-2  for the  fiscal  year ended
  December 28, 1997.
  
  2.     CRAIN ACQUISITION
  
         On  December  23,  1997,  the Company  acquired  Crain  Industries,  Inc.
  ("Crain") pursuant to a merger with Crain Holdings Corp. for a purchase price of
  approximately $213.7 million, including the assumption of debt with a face value
  of  approximately  $98.6 million (with an estimated fair value of  approximately
  $112.3 million) ("Crain Acquisition"). In addition, fees and expenses associated
  with the Crain Acquisition were approximately  $13.2 million.  Crain was a fully
  integrated manufacturer, fabricator and distributor of a broad range of flexible
  polyurethane foam and foam products sold to a diverse customer base, principally
  in the bedding, carpet cushion and furniture markets. The acquisition was funded
  by $118.0 million in bank borrowings by Foamex L.P. under a credit facility. The
  excess of the  purchase  price over the  estimated  fair value of the net assets
  acquired was approximately $152.5 million.
  
         The Crain  Acquisition was accounted for as a purchase and the operations
  of Crain are included in the  consolidated  statements  of  operations  and cash
  flows from the date of acquisition.  The cost of the Crain  Acquisition has been
  allocated  on the  basis  of the  fair  value  of the  assets  acquired  and the
  liabilities  assumed.  The excess of the purchase  price over the estimated fair
  value of the net assets  acquired  is being  amortized  using the  straight-line
  method over forty years.  The  allocation  of the  purchase  price for the Crain
  Acquisition is based upon  preliminary  estimates and assumptions and is subject
  to revision once  appraisals,  valuations and other studies of the fair value of
  the acquired assets and liabilities  have been completed.  The pro forma results
  listed below are unaudited and assume that the Crain Acquisition occurred at the
  beginning of fiscal year 1997.
  <TABLE>
  <CAPTION>
                                          Quarterly Period Ended  Year to Date Period Ended
                                             September 28, 1997      September 28, 1997
                                                (thousands, except per share data)
  <S>                                               <C>                   <C>     
          Net sales                                 $320,847              $946,927
                                                    ========              ========
          Income before extraordinary loss          $  6,430              $ 22,235
                                                    ========              ========
  </TABLE>
  
                                         6
  
  <PAGE>
                     FOAMEX INTERNATIONAL INC. AND SUBSIDIARIES
                NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
  
  2.     CRAIN ACQUISITION (continued)
  <TABLE>
  <CAPTION>
                                                            Quarterly Period Ended      Year to Date Period Ended
                                                                September 28, 1997           September 28, 1997
                                                                       (thousands, except per share data)
  <S>                                                              <C>                        <C>         
         Pro forma basic earnings (loss) per share                 $    0.26                  $     0.88
                                                                   =========                  ==========
         Pro forma diluted earnings (loss) per share               $    0.25                  $     0.87
                                                                   =========                  ==========
  </TABLE>
  
         The pro forma results are not  necessarily  indicative of what would have
  occurred  if the Crain  Acquisition  had been in effect for the  entire  periods
  presented nor are they necessarily indicative of future consolidated results.
  
  3.     INVENTORIES
  
         Inventories consist of:
  
                                           September 30,         December 28,
                                                1998                1997
                                                    (thousands)
          Raw materials and supplies          $ 88,520          $ 75,487
          Work-in-process                       19,212            15,620
          Finished goods                        32,407            29,192
                                              --------          --------
          Total                               $140,139          $120,299
                                              ========          ========
  
  4.     LONG-TERM DEBT AND LONG-TERM DEBT - RELATED PARTY
  
         Long-term debt consists of:
  <TABLE>
  <CAPTION>
                                                                      September 30,     December 28,
                                                                          1998               1997
         Credit Facility:                                                        (thousands)
  <S>                                                                   <C>               <C>     
            Term Loan A                                                 $     --          $ 76,700
            Term Loan B                                                   82,924           109,725
            Term Loan C                                                   75,385            99,750
            Term Loan D                                                  109,175           110,000
            Revolving credit facility                                    136,953            54,928
          9 7/8% Senior subordinated notes due 2007                      150,000           150,000
          13 1/2% Senior subordinated notes due 2005 (includes
            $12,376 and $13,720 of unamortized debt premium)             110,376           111,720
          9 1/2% Senior secured notes due 2000                                --             4,523
          Industrial revenue bonds                                         7,000             7,000
          Subordinated note payable (net of unamortized
            debt discount of $621 and $1,198)                              6,394             6,129
          Other                                                           16,574            18,180
                                                                        --------          --------
                                                                         694,781           748,655
  
          Less current portion                                             5,117            12,931
                                                                        --------          --------
  
          Long-term debt-unrelated parties                              $689,664          $735,724
                                                                        ========          ========
  </TABLE>
  
                                         7
  <PAGE>
                     FOAMEX INTERNATIONAL INC. AND SUBSIDIARIES
                NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
  
  
  4.     LONG-TERM DEBT AND LONG-TERM DEBT - RELATED PARTY (continued)
  <TABLE>
  <CAPTION>
                                                            September 30,         December 28,
                                                                 1998                1997
                                                                        (thousands)
          Long-term debt - related party consists of:
  
  <S>                                                          <C>               <C>         
          Foamex/GFI Note                                      $ 34,000          $         --
  
          Note payable to Foam Funding LLC                       66,690                    --
                                                               --------          ------------
                                                                100,690                    --
  
          Less current portion - related party                    7,020                    --
                                                               --------          ------------
  
          Long-term debt - related party                       $ 93,670          $         --
                                                               ========          ============
  </TABLE>
  
         Refinancing  Associated  with Transfer of General Felt  Industries,  Inc.
         ("General Felt") Common Stock
  
         In connection with GFI Transaction  (Note 8), Foamex L.P. borrowed $129.0
  million under a new term loan agreement which was  subsequently  assumed by Foam
  Funding  LLC and  borrowed  $32.0  million  under its credit  facility  ("Credit
  Facility"). These borrowings were used to (i) repay approximately $125.1 million
  of existing term loans under the Credit Facility and accrued interest thereon of
  approximately $0.9 million,  (ii) deposit $4.8 million into an escrow account in
  order to defease the senior secured notes which were redeemed  during June 1998,
  (iii) repay $4.8 million of  indebtedness  owed to General  Felt,  (iv) fund the
  $20.0  million to acquire the net assets of General  Felt after the  transfer of
  the  General  Felt stock to Foam  Funding  LLC and (v) pay fees and  expenses of
  approximately  $5.4 million.  Also,  Foamex L.P.  amended the Credit Facility to
  increase  the  availability  under the  revolving  credit  facility  from $150.0
  million to $200.0 million; however, $34.5 million of this increase is used for a
  letter  of  credit  to  support  the  Foamex/GFI  Note.  See Note 8 for  further
  discussion on the GFI Transaction.
  
         Foamex Carpet Revolving Credit
  
         Upon  consummation of the GFI  Transaction,  Foamex Carpet Cushion,  Inc.
  ("Foamex  Carpet") entered into a credit  agreement with the  institutions  from
  time to time party  thereto,  as issuing  banks,  and Citicorp USA, Inc. and The
  Bank of Nova Scotia,  as administrative  agents,  which provides for up to $20.0
  million in revolving credit borrowings.
  
         Foamex/GFI Note
  
         In connection  with the transfer of General  Felt's common stock,  Foamex
  L.P.  entered  into the $34.0  million  Foamex/GFI  Note to  settle an  existing
  intercompany  note payable to General  Felt,  which was retained by Foam Funding
  LLC in connection with the asset purchase agreement for the GFI Transaction (see
  Note 8). The  Foamex/GFI  Note  matures in March 2000 with  interest  payable at
  LIBOR plus an applicable  margin.  The principal  amount is due upon maturity in
  March 2000.
  
         During the quarterly  and year to date periods ended  September 30, 1998,
  the Company incurred  interest  expense of  approximately  $0.6 million and $1.4
  million, respectively.
  
         Note Payable to Foam Funding LLC
  
         In connection  with the asset purchase  agreement for the GFI Transaction
  (see Note 8), the Company entered into a $70.2 million promissory note with Foam
  Funding LLC.  The note bears  interest at a base rate plus 2.0% or at LIBOR plus
  3.0%. The note is payable upon demand commencing in March 2000, and if no demand
  is made,  matures in February  2004.  
  
                                         8
  
  <PAGE>
                     FOAMEX INTERNATIONAL INC. AND SUBSIDIARIES
                NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
  
  4.     LONG-TERM  DEBT AND  LONG-TERM  DEBT - RELATED PARTY (continued)
  
         During the quarterly  and year to date periods ended  September 30, 1998,
  the Company incurred  interest  expenses of approximately  $1.5 million and $3.6
  million, respectively.
  
         Principal Payments
  
         Principal  payments the Company's  long-term  debt and  long-term  debt -
  related  party  for the  remainder  of 1998 and for the next  five  years are as
  follows: 1998 - $3.4 million; 1999 - $17.6 million; 2000 - $52.2 million; 2001 -
  $17.3  million;  2002 - $17.7  million;  2003 - $159.1;  and thereafter - $517.3
  million.
  
  5.      EARLY EXTINGUISHMENT OF DEBT
  
         In connection with the GFI Transaction (see Note 8), the Company incurred
  an extraordinary loss on the early  extinguishment of debt of approximately $1.9
  million (net of income tax benefits of $1.2 million) for the year to date period
  ended September 30, 1998. The  extraordinary  loss is comprised of approximately
  $2.9 million for the write-off of debt  issuance  costs and  approximately  $0.2
  million of professional fees and other costs.
  
         During 1997, in  connection  with the  refinancing  plan of the Company's
  indebtedness,   the  Company  incurred  an  extraordinary   loss  on  the  early
  extinguishment  of debt of  approximately  $42.0 million (net of income taxes of
  $25.7  million).  The  extraordinary  loss is comprised of  approximately  $39.0
  million for premium and consent fee  payments,  approximately  $16.2 million for
  the  write-off of debt  issuance  costs and debt  discount,  approximately  $8.2
  million for the loss associated with the effective  termination and amendment of
  the interest rate swap agreements and approximately $4.3 million of professional
  fees  and  other  costs.   In  addition,   during  1997  the  Company   incurred
  extraordinary  losses of approximately $0.6 million (net of income taxes of $0.4
  million) associated with the early extinguishment of approximately $11.8 million
  of long-term debt funded with  approximately  $12.1 million of the remaining net
  proceeds  from the sale of its  Perfect Fit  Industries,  Inc.  subsidiary.  The
  extraordinary  loss is  comprised  of  approximately  $0.4  million  of  premium
  payments  and  approximately  $0.6 million for the  write-off  of debt  issuance
  costs.
  
  6.     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 1998,  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 September 30, 1998,  the Company has accruals of  approximately  $4.5 million
  for environmental  matters.  In addition,  as of September 30, 1998, the Company
  has net receivables of approximately  $1.1 million  relating to  indemnification
  for environmental liabilities.  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,  propylene oxide and TDI,  materials used in the
  manufacturing  of foam. On December 27, 1996,  the United  States  Environmental
  Protection Agency (the "EPA") proposed regulations under the 1990 CAA Amendments
  that  will  require  manufacturers  of slab  stock  polyurethane  foam  and foam
  fabrication  plants to reduce  emissions of methylene  chloride.  Because  these
  regulations  are subject to change  prior to  finalization,  the Company  cannot
  accurately predict the actual cost of their implementation. The Company does not
  believe  implementation  of the  regulations  will  require it to make  material
  expenditures  at  facilities  owned  prior  to  December  23,  1997,  due to the
  Company's  use  of  alternative  technologies  which  do not  utilize  methylene
  chloride and its ability to shift current  production to the  facilities,  which
  use  these  alternative  technologies;  however,  material  expenditures  may be
  required at the facilities formerly operated by
  
                                         9
  <PAGE>
                     FOAMEX INTERNATIONAL INC. AND SUBSIDIARIES
                NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
  
  6.      ENVIRONMENTAL MATTERS (continued)
  
  Crain.  The 1990 CAA Amendments  also may result in the imposition of additional
  standards  regulating air emissions from  polyurethane foam  manufacturers,  but
  these standards have not yet been proposed or promulgated.
  
         In addition to general regulatory requirements,  state laws have resulted
  or will result in more stringent  regulations  regarding the use and emission of
  methylene  chloride.  Several former Crain facilities have been required to meet
  greater  restrictions  regarding  emission limits and/or quantities used of this
  chemical.
  
         On April 10,  1997,  the  Occupational  Health and Safety  Administration
  promulgated new standards  governing  employee  exposure to methylene  chloride,
  which  is used  as a  blowing  agent  in  some  of the  Company's  manufacturing
  processes.  The Company  does not  believe  that it will be required to make any
  material  expenditures  to comply  with  these new  standards  due to its use of
  alternative  technologies which do not use methylene chloride and its ability to
  shift production to facilities which use these technologies;  however,  material
  expenditures may be required at the facilities formerly operated by Crain.
  
         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 September 30, 1998,  the Company has
  accruals of approximately $3.9 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 two 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 $0.1 million for the estimated  removal and remediation,  if
  any, associated with these USTs. However,  the full extent of contamination and,
  accordingly,  the actual cost of such  remediation  cannot be predicted with any
  degree of certainty at this time. 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 EPA with respect to nine sites with an estimated  total liability
  to the  Company  for the nine  sites of less than  approximately  $0.5  million.
  Estimates of total clean-up  costs and  fractional  allocations of liability are
  generally  provided  by the EPA or the  committee  of PRP's with  respect to the
  specified site. In each case, the  participation of 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.
  
                                         10
  <PAGE>
                     FOAMEX INTERNATIONAL INC. AND SUBSIDIARIES
                NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
  
  
  7.     LITIGATION
  
         As of November 16, 1998,  the Company and Trace  International  Holdings,
  Inc.  ("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 these
  actions allege substantial damages, but most of these actions allege unspecified
  damages for  personal  injuries of various  types.  Three of these cases seek to
  allege  claims on behalf of all breast  implant  recipients  or other  allegedly
  affected  parties,  but no class has been approved or certified by the court. In
  addition, three cases have been filed alleging claims on behalf of approximately
  700  residents of  Australia,  New Zealand,  England,  and Ireland.  The Company
  believes  that the number of suits may  increase.  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.  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.  Foamex L.P. is
  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,  there
  can be no absolute  assurance  that Trace  Holdings will be able to provide such
  indemnification in the future.  While it is not feasible to predict or determine
  the outcome of these actions,  based on the Company'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.  If the  Company's  assessment  of  liability  with respect to these
  actions is incorrect,  such actions could have a material  adverse effect on the
  Company.
  
         In November  1997, a complaint  was filed in the United  States  District
  Court for the  Southern  District of Texas  alleging  that  various  defendants,
  including Crain through the use of the CARDIO(R)  process  licensed from a third
  party, infringed on a patent held by plaintiff.  The Company is negotiating with
  the licensor of the process for the  assumption  of the defense of the action by
  the licensor;  however, the action is in the preliminary stages and there can be
  no assurance as to the ultimate outcome of the action.
  
         On or about March 17, 1998,  five  purported  class action  lawsuits were
  filed in the Delaware  Chancery Court, New Castle County (the "Court"),  against
  the Company,  directors of the Company,  Trace Holdings, and individual officers
  and directors of Trace Holdings: Brickell Partners v. Marshall S. Cogan, et al.,
  No. 16260NC; Mimona Capital v. Salvatore J. Bonanno, et al., No. 16259NC; Daniel
  Cohen v. Foamex  International  Inc.,  No.  16263;  Eileen  Karisinki  v. Foamex
  International  Inc., et al., No. 16261NC and John E. Funky Trust v. Salvatore J.
  Bonanno,  et al., No. 16267. A sixth  purported  class action  lawsuit,  Barnett
  Stepak v. Foamex  International  Inc., et al., No. 16277,  was filed on or about
  March  23,  1998  against  the  same   defendants.   A  stipulation   and  order
  consolidating  these six actions  under the  caption In re Foamex  International
  Inc. Shareholders  Litigation  Consolidated Action No 16259NC was entered by the
  Court on May 28, 1998 (the "Shareholders Litigation"). The complaints in the six
  actions allege,  among other things, that the defendants have violated fiduciary
  and other common law duties  purportedly  owed to the Company's  stockholders in
  connection  with  Trace  Holdings'  initial  proposal  to  acquire  all  of  the
  outstanding shares of the Company's common stock. The complaints  sought,  among
  other things,  class  certification,  a  declaration  that the  defendants  have
  breached  their  fiduciary  duties  to  the  class,  preliminary  and  permanent
  injunctions barring  implementation of the proposed  transaction,  rescission of
  the transaction if consummated,  unspecified compensatory damages, and costs and
  attorneys'  fees.  The  parties to the  Stockholder  Litigation  entered  into a
  Memorandum  of  Understanding,  dated June 25,  1998 to settle  the  Stockholder
  Litigation,  subject to, inter alia,  execution of a definitive  Stipulation  of
  Settlement and approval by the Court following  notice to the stockholders and a
  hearing,  and on  September  9, 1998,  the  parties  entered  into a  definitive
  Stipulation  of  Settlement.  On November 10,  1998,  counsel for certain of the
  defendants in the Stockholder Litigation gave notice pursuant to the Stipulation
  of Settlement that such
  
                                         11
  <PAGE>
                     FOAMEX INTERNATIONAL INC. AND SUBSIDIARIES
                NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
  
  7.    LITIGATION (continued)
  
  defendants were withdrawing from the Stipulation of Settlement.  On November 12,
  1998, the plaintiffs in the Stockholder Litigation filed an amended class action
  complaint against the Company,  Trace Holdings and certain individual  directors
  of the Company  alleging that (i) they breached their fiduciary and other common
  law duties  purportedly  owed to the Company's  stockholders  in connection with
  Trace Holding's revised proposal to acquire all of the outstanding shares of the
  Company's  common stock,  (ii) the individual  defendants  violated the Delaware
  Code in approving the Merger Agreement (as hereinafter defined), and (iii) Trace
  Holdings breached the Stipulation of Settlement.
  
         The Company is party to various  other  lawsuits,  both as defendant  and
  plaintiff,  arising in the normal course of business.  Management  believes 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 the Company's assessment of liability with respect
  to these actions is incorrect, such actions could have a material adverse effect
  on the Company's consolidated financial position.
  
  8.     GFI TRANSACTION
  
         On February 27, 1998, the Company and certain of its affiliates completed
  a series of  transactions  designed to simplify the  Company's  structure and to
  provide  future  operational  flexibility.  Prior to the  consummation  of these
  transactions, (i) Foamex L.P. and Foamex L.P.'s wholly-owned subsidiary, General
  Felt, entered into a supply agreement and an administrative  services agreement,
  (ii) Foamex L.P. repaid its  outstanding  indebtedness to General Felt with $4.8
  million  in cash and the $34.0  million  Foamex/GFI  Note  supported  by a $34.5
  million  letter  of  credit  under  the  Credit  Facility,   (iii)  Foamex  L.P.
  contributed  to  General  Felt $9.4  million  of  outstanding  net  intercompany
  payables and intercompany  loans with General Felt and (iv) Foamex L.P. defeased
  the $4.5 million outstanding principal amount of its 9 1/2% senior secured notes
  due 2000. The initial  transaction  resulted in the transfer from Foamex L.P. to
  Foam  Funding LLC of all of the  outstanding  common stock of General  Felt,  in
  exchange for (i) the  assumption by Foam Funding LLC of $129.0 million of Foamex
  L.P.'s  indebtedness and (ii) the transfer by Foam Funding LLC to Foamex L.P. of
  a 1%  non-managing  general  partnership  interest  in Foamex  L.P. As a result,
  General Felt ceased being a subsidiary  of Foamex L.P. and was relieved from all
  obligations under Foamex L.P.'s 9 7/8% senior subordinated notes due 2007 and 13
  1/2%  senior  subordinated  notes due 2005.  Upon  consummation  of the  initial
  transaction,  Foamex  Carpet,  a newly  formed  wholly-owned  subsidiary  of the
  Company,  the Company,  Foam Funding LLC, and General Felt entered into an asset
  purchase  agreement  dated  February  27,  1998,  in  which  General  Felt  sold
  substantially  all of its  assets  (other  than  the  Foamex/GFI  Note  and  its
  operating facility in Pico Rivera,  California) to Foamex Carpet in exchange for
  (i) $20.0 million in cash and (ii) a promissory  note issued by Foamex Carpet to
  Foam Funding LLC in the amount of $70.2 million.  The $20.0 million cash payment
  was  funded  with  a  distribution  by  Foamex  L.P.  Upon  consummation  of the
  transaction contemplated by the Asset Purchase Agreement,  Foamex Carpet entered
  into a Credit Agreement with the  institutions  from time to time party thereto,
  as issuing  banks,  and  Citicorp  USA,  Inc.  and The Bank of Nova  Scotia,  as
  administrative  agents,  which  provides  for up to $20.0  million in  revolving
  credit  borrowings.  Foamex  Carpet  will  conduct the carpet  cushion  business
  previously  conducted  by General  Felt.  Also,  Foam  Funding LLC has  retained
  ownership of one of General Felt's operating facilities which is being leased to
  Foamex Carpet and the $34.0 million Foamex/GFI Note.
  
         No gain has been recognized on the General Felt net assets transferred to
  Foam Funding LLC and  repurchased  by the Company.  The Company will continue to
  account for these net assets using the carryover basis of Foamex L.P. The $129.0
  million of debt assumed by Foam Funding LLC in the GFI Transaction was accounted
  for as an  extinguishment  of debt which  resulted in an  extraordinary  loss of
  approximately $2.0 million.  The 1% non-managing  general  partnership  interest
  acquired  in  connection  with  the  GFI  Transaction  was  accounted  for  as a
  redemption  of equity.  By virtue of the  transfer of General Felt stock and the
  subsequent  merger of  General  Felt  into Foam  Funding  LLC,  the Pico  Rivera
  facility was  transferred  to Foam Funding  LLC; no gain was  recognized  on the
  transfer since the Company leased-back the facility. Accordingly, the net effect
  resulted in a charge to stockholders'  equity  (deficit) of  approximately  $0.5
  million.
  
                                         12
  
  <PAGE>
  
                     FOAMEX INTERNATIONAL INC. AND SUBSIDIARIES
                NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
  
  9.     EARNINGS (LOSS) PER SHARE
  
         The  following  table shows the amounts  used in  computing  earnings per
  share and the  effect on income  and the  weighted  average  number of shares of
  dilutive potential common stock.
  
  <TABLE>
  <CAPTION>
                                                           Quarterly Period Ended             Year to Date Period Ended
                                                      September 30,     September 28,      September 30,     September 28,
                                                           1998              1997              1998              1997
                                                                   (thousands, except per share amounts)
  Basic earnings (loss) per share:
  <S>                                                    <C>               <C>               <C>               <C>      
         Net income (loss)                               $  9,640          $  6,515          $ 24,422          $(18,478)
                                                         ========          ========          ========          ========
  
         Average common stock outstanding                  25,015            24,959            24,989            25,189
                                                         ========          ========          ========          ========
  
         Basic earnings (loss) per share                 $   0.39          $   0.26          $   0.98          $  (0.73)
                                                         ========          ========          ========          ========
  
  Diluted earnings (loss) per share:
         Net income (loss) available for common
            stock and dilutive securities                $  9,640          $  6,515          $ 24,422          $(18,478)
                                                         ========          ========          ========          ========
  
         Average common stock outstanding                  25,015            24,959            24,989            25,189
  
         Additional common shares resulting
            from stock options and warrants                 1,103               476             1,157               456
                                                         --------          --------          --------          --------
  
         Average common stock and dilutive
            stock outstanding                              26,118            25,435            26,146            25,645
                                                         ========          ========          ========          ========
  
         Diluted earnings (loss) per share               $   0.37          $   0.26          $   0.94          $  (0.72)
                                                         ========          ========          ========          ========
  </TABLE>
  
  10.     COMPREHENSIVE INCOME
  
         In June 1997, the Financial  Accounting  Standards Board issued Statement
  of  Financial  Accounting   Standards  No.  130  ("SFAS  No.  130),   "Reporting
  Comprehensive  Income," which requires  disclosure of comprehensive  income,  as
  defined,  including  comprehensive  disclosure in interim financial  statements.
  Comprehensive  income for the quarterly and year to date periods ended September
  30, 1998 and September 28, 1997 is comprised of the following:
  
  <TABLE>
  <CAPTION>
                                                      Quarterly Period Ended                Year to Date Period Ended
                                                  September 30,      September 28,     September 30,       September 28,
                                                       1998              1997               1998                1997
                                                                               (thousands)
  <S>                                               <C>                <C>                <C>                <C>      
  Net income (loss)                                 $  9,640           $  6,515           $ 24,422           $(18,478)
  Foreign currency translation adjustments            (1,130)               (62)              (900)              (230)
                                                    --------           --------           --------           --------
  Total comprehensive income                        $  8,510           $  6,453           $ 23,522           $(18,708)
                                                    ========           ========           ========           ========
  </TABLE>
  
                                         13
  <PAGE>
  ITEM 2.  MANAGEMENT'S DISCUSSION AND ANALYSIS OF THE FINANCIAL CONDITION AND
           RESULTS OF OPERATIONS
  
         The Company operates primarily in the flexible  polyurethane and advanced
  polymer foam  products  industry.  The  following  discussion  should be read in
  conjunction  with the condensed  consolidated  financial  statements and related
  notes thereto of the Company  included in this report.  Certain  information  in
  this  report  contains   forward-looking   statements  and  should  be  read  in
  conjunction with the discussion regarding  forward-looking  statements set forth
  on pages 4 and 5 of the Company's 1997 Annual Report on Form 10-K/A-2.
  
         The Company's  products are utilized  primarily in four  businesses:  (i)
  Foam Products,  consisting of cushioning foams,  including  bedding,  furniture,
  packaging, health care and foam-based consumer products such as futons, pillows,
  mattress pads and juvenile furniture,  (ii) Carpet Cushion Products,  consisting
  of carpet padding and related products, (iii) Automotive Products, consisting of
  automotive trim,  laminates and other accessories,  and (iv) Technical Products,
  consisting  of  reticulated  and other  specialty  foams used for  reservoiring,
  filtration, gasketing and sealing.
  
         On November 5, 1998,  Trace  Holdings,  Trace  Merger Sub,  Inc.  and the
  Company  entered into an Agreement and Plan of Merger (the "Merger  Agreement").
  Pursuant to the terms of the Merger  Agreement,  Trace Merger Sub will be merged
  with and into the Company (the  "Merger") and each  outstanding  share of common
  stock (except for shares owned by the Trace Holdings shareholders,  shares owned
  by the  company  and  shares  owned  by the  stockholders  who  perfected  their
  appraisal rights in accordance with the Delaware law) will be converted into the
  right to receive  $12.00 in cash,  without  interest.  Also on November 5, 1998,
  Trace  Holdings  terminated  the prior  Merger  Agreement  among the  parties by
  delivering a Notice of Termination to the Company. Trace Holdings terminated the
  prior Merger Agreement  because the financing  condition  contained in the prior
  Merger  Agreement was  incapable of being  satisfied on or prior to December 31,
  1998.
  
         Consummation of the Merger is subject to various  conditions,  including,
  among others:  (i) the approval and adoption of the Merger  Agreement by (A) the
  affirmative  vote of holders of a majority of the  outstanding  shares of Common
  Stock entitled to vote thereon,  and (B) the  affirmative  vote of a majority of
  the independent Shares (as defined) voting with respect to the Merger,  (ii) the
  absence of any  injunction  preventing  consummation  of the  Merger,  (iii) the
  obtaining of financing for the transactions contemplated by the Merger Agreement
  on  terms  and  conditions  and in  amounts  reasonably  satisfactory  to  Trace
  Holdings,  and  (iv)  other  conditions  that  may be  waived  by  the  parties,
  including:  the absence of any action,  suit, claim or legal,  administrative or
  arbitral  proceeding or  investigation  pending before any  governmental  entity
  seeking to restrain or prohibit,  or to obtain damages in respect of, the Merger
  Agreement or the consummation of the transactions contemplated thereby.
  
         In April 1998, the Company's facility in Orlando,  Florida was damaged by
  a fire which  recommenced the  manufacturing  of Foam Products in  mid-September
  1998.  During this idle period,  the Company supplied local customers from other
  facilities.  The Company  believes that it has adequate  insurance  coverage for
  business  interruption  and damages to the  facility  associated  with the fire;
  however,  there can be no  assurance  that the fire will not have a  significant
  impact on the Company's financial position or operations.
  
         On February 27, 1998, the Company and certain of its affiliates completed
  a series of  transactions  designed to simplify the  Company's  structure and to
  provide  future  operational  flexibility.  Prior to the  consummation  of these
  transactions, the Company defeased the $4.5 million outstanding principal amount
  of its 9 1/2% senior secured notes due 2000. Foamex L.P. settled a $38.8 million
  intercompany  note  payable  to General  Felt with $4.8  million in cash and the
  $34.0 million  Foamex/GFI  Note  supported by a $34.5  million  letter of credit
  under the Foamex L.P. Credit Facility.  The initial transaction  resulted in the
  transfer from Foamex L.P. to Foam Funding LLC of all of the  outstanding  common
  stock of General Felt, in exchange for (i) the assumption by Foam Funding LLC of
  $129.0  million of Foamex  L.P.'s  indebtedness  and (ii) the  transfer  by Foam
  Funding LLC to Foamex L.P. of a 1% non-managing  general partnership interest in
  Foamex L.P. As a result,  General Felt ceased being a subsidiary  of Foamex L.P.
  and was  relieved  from  all  obligations  under  Foamex  L.P.'s  9 7/8%  senior
  subordinated notes due 2007 and 13 1/2% senior subordinated notes due 2005. Upon
  consummation  of  the  initial  transaction,   Foamex  Carpet,  a  newly  formed
  wholly-owned  subsidiary  of the  Company,  the  Company,  Foam Funding LLC, and
  General Felt entered into an asset purchase  agreement  dated February 27, 1998,
  in which  General  Felt sold  substantially  all of its assets  (other  than the
  Foamex/GFI Note and its operating facility in Pico Rivera, California) to Foamex
  Carpet in  exchange  for (i) $20.0  million in cash and (ii) a  promissory  note
  issued 
  
                                         14
  <PAGE>
  ITEM 2.  MANAGEMENT'S DISCUSSION AND ANALYSIS OF THE FINANCIAL CONDITION AND
           RESULTS OF OPERATIONS
  
  by Foamex Carpet to Foam Funding LLC in the amount of $70.2  million.  The $20.0
  million  cash  payment  was  funded  by  a  distribution  by  Foamex  L.P.  Upon
  consummation  of the transaction  contemplated by the asset purchase  agreement,
  Foamex Carpet entered into a credit agreement with the institutions from time to
  time party  thereto,  as issuing  banks,  and Citicorp USA, Inc. and The Bank of
  Nova Scotia, as administrative agents, which provides for up to $20.0 million in
  revolving  credit  borrowings.  Foamex  Carpet will  conduct the carpet  cushion
  business  previously  conducted  by General  Felt.  Also,  Foam  Funding LLC has
  retained ownership of one of General Felt's operating  facilities which is being
  leased to Foamex Carpet and the $34.0 million Foamex/GFI Note.
  
         On December 23, 1997,  the Company  acquired  Crain  pursuant to a merger
  agreement with Crain Holdings Corp. for a purchase price of approximately $213.7
  million,  including the  assumption  of debt with a face value of  approximately
  $98.6 million (and an estimated fair value of approximately $112.3 million).  In
  addition,   fees  and  expenses   associated  with  the  Crain  Acquisition  are
  approximately $13.2 million.
  
         On October 6, 1997, the Company sold  substantially all of the net assets
  of its needlepunch  carpeting,  tufted  carpeting and artificial  grass products
  business  located at its  facilities  in Dalton,  Georgia  ("Dalton").  Dalton's
  revenues  were $10.7  million and $35.1 million for the quarterly and nine month
  periods ended September 28, 1997.
  
         Operating  results  for 1998 are  expected  to be  influenced  by various
  internal and external factors.  These factors include,  among other things,  (i)
  consolidation of the Crain  Acquisition,  (ii) continued  implementation  of the
  continuous  improvement  program to improve the Company's  profitability,  (iii)
  variability  of the  Company's  raw  material  costs by the  Company's  chemical
  suppliers and (iv) fluctuations in interest rates.
  
  Quarterly  Period Ended  September 30, 1998  Compared to Quarterly  Period Ended
  September 28, 1997
  
  Results of Operations
  
         Net sales for the third  quarter of 1998 were $332.7  million as compared
  to $233.4  million in the third quarter of 1997, an increase of $99.3 million or
  42.5%. Foam Products net sales for the third quarter of 1998 increased to $157.2
  million from $89.8  million in the third  quarter of 1997  primarily  due to net
  sales from the Crain  operations  and increased  volume to our national  bedding
  customers  and  fabricators.  Carpet  Cushion  Products  net sales for the third
  quarter of 1998 increased 14.1% to $82.1 million from $72.0 million in the third
  quarter of 1997 primarily due to acquisition of the Crain  operations  offset by
  the sale of the Dalton Facility in October 1997.  Automotive  Products net sales
  for the third  quarter  of 1998  increased  40.6% to $73.6  million  from  $52.3
  million  in  the  third  quarter  of  1997  primarily  due to  increased  volume
  associated  with  above  normal  volume to  General  Motors  and  General  Motor
  suppliers  following  the  settlement  of General  Motor  labor  disputes.  This
  extraordinary  high  level of  volume is not  expected  to  continue.  Technical
  Products net sales for the third quarter of 1998 increased 2.6% to $19.8 million
  from $19.3 million in the third  quarter of 1997  primarily due to increased net
  sales volume for felted, gasketing, and sealing products.
  
         Gross  profit as a  percentage  of net sales  increased  to 17.1% for the
  third quarter of 1998 from 16.3% in the third  quarter of 1997  primarily due to
  increased  purchasing  leverage  offset by a shift in product  mix for 1998 as a
  result of the Crain  Acquisition.  Crain's  principal  product  lines,  bedding,
  furniture and carpet cushion,  have  inherently  lower gross profit margins than
  the Company's  historical gross profit margins.  Also,  gross profit  percentage
  increased in the third  quarter of 1998 due to the Company's  implementation  of
  restructuring/consolidation programs associated with the Crain Acquisition.
  
         Income from  operations  increased to $36.9 million for the third quarter
  of 1998 from $22.3  million in the third  quarter of 1997  primarily  due to the
  Crain Acquisition.
  
         Income before  extraordinary loss increased to $9.6 million for the third
  quarter of 1998 as compared to $6.5 million for the third  quarter of 1997.  The
  increase is primarily  due to the increase in income from  operations  discussed
  above offset by an increase of  approximately  $6.6 million in interest and debt
  issuance  
  
                                         15
  
  <PAGE>
  ITEM 2.  MANAGEMENT'S DISCUSSION AND ANALYSIS OF THE FINANCIAL CONDITION AND
           RESULTS OF OPERATIONS
  
  expense and $2.2 million of costs  associated  with foreign  currency  losses in
  Mexico and Canada and certain fees  associated with financial and legal advisors
  used by the  Company  in the  buy-out  proposal  is  included  in  other  income
  (expense),  net. The increase in interest and debt issuance expense is primarily
  due to the debt incurred in connection with the Crain Acquisition  offset by the
  favorable effects of the June 1997 refinancing plan.
  
  Year to Date Period  Ended  September  30, 1998  Compared to Year to Date Period
  Ended September 28, 1997
  
  Results of Operations
  
         Net sales  for the year to date  period  ended  September  30,  1998 were
  $945.0  million as compared to $702.4  million for the year to date period ended
  September  28, 1997, an increase of $242.6  million or 34.5%.  Foam Products net
  sales for the year to date period ended  September 30, 1998  increased  76.6% to
  $458.7 million from $259.7  million for the year to date period ended  September
  28,  1997  primarily  due to the net  sales  from the Crain  operations.  Carpet
  Cushion  Products net sales for the year to date period ended September 30, 1998
  increased 5.1% to $225.9 million from $214.9 million for the year to date period
  ended  September 28, 1997  primarily due to net sales from the Crain  operations
  offset by the sale of Dalton in October  1997 and due to a  reduction  of rebond
  selling  prices as compared to 1997 and a change in the product mix.  Automotive
  Products  net  sales  for the  year to date  period  ended  September  30,  1998
  increased  16.3% to $199.3  million  from  $171.4  million  for the year to date
  period ended  September 28, 1997  primarily due to increased  volume.  Technical
  Products  net  sales  for the  year to date  period  ended  September  30,  1998
  increased  8.2% to $61.1  million from $56.4 million for the year to date period
  ended September 28, 1997 primarily due to increased net sales volume for felted,
  gasketing, and sealing products.
  
         Gross profit as a percentage of net sales decreased to 17.4% for the year
  to date period  ended  September  30, 1998 from 17.9% in the year to date period
  ended September 28, 1997 primarily due to the shift in product mix for 1998 as a
  result of the Crain  Acquisition.  Crain's  principal  product  lines,  bedding,
  furniture and carpet cushion,  have  inherently  lower gross profit margins than
  the Company's historical gross profit margins.  Also, the gross profit was lower
  since  the  Company  carried  the  full  individual   operating  costs  of  both
  organizations during the first quarter of 1998.
  
         Income from  operations  increased to $101.8 million for the year to date
  period ended  September  30, 1998 from $77.8  million in the year to date period
  ended September 28, 1997 primarily due to the Crain Acquisition.
  
         Income before  extraordinary loss increased to $26.3 million for the year
  to date period  ended  September  30, 1998 as compared to $24.1  million for the
  year to date period ended  September 28, 1997.  The decrease is primarily due to
  an increase of approximately $14.4 million in interest and debt issuance expense
  and $3.9 million of costs  associated with (i) the transfer of General Felt (ii)
  foreign  currency  losses in Mexico and Canada and (iii) certain fees associated
  with  financial and legal  advisors used by the Company in the buy-out  proposal
  which is included in other income  (expense),  net. The increase in interest and
  debt issuance  expense is primarily due to the debt incurred in connection  with
  the  Crain  Acquisition  offset  by  the  favorable  effects  of the  June  1997
  refinancing plan.
  
  Liquidity and Capital Resources
  
         Liquidity and Capital Resources
  
         The Company is a holding company whose  operations are conducted  through
  two  wholly-owned  subsidiaries,  Foamex L.P. and Foamex  Carpet.  The liquidity
  requirements of the Company consist primarily of the operating cash requirements
  of its two principal subsidiaries.
  
         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.  The Company believes that
  cash flow from Foamex  L.P.'s  operating  activities,  cash on hand and periodic
  borrowings  under the Credit  
  
                                         16
  
  <PAGE>
  ITEM 2.  MANAGEMENT'S DISCUSSION AND ANALYSIS OF THE FINANCIAL CONDITION AND
           RESULTS OF OPERATIONS
  
  Facility,  if  necessary,  will be  adequate  to meet  Foamex  L.P.'s  liquidity
  requirements.  The ability to meet such liquidity requirements could be impaired
  if Foamex L.P. were to fail to comply with any covenants contained in the Credit
  Facility  and such  noncompliance  was not cured by Foamex L.P. or waived by the
  lenders. Foamex L.P. was in compliance with the covenants in the Credit Facility
  as of September 30, 1998 and the Company expects Foamex L.P. to be in compliance
  with such covenants for the  foreseeable  future.  The ability of Foamex L.P. to
  make  distributions  to the Company is  restricted by the terms of its financing
  agreements; therefore, neither the Company nor Foamex Carpet is expected to have
  access to the cash flow generated by Foamex L.P. for the foreseeable future.
  
         Foamex  Carpet's  operating  cash  requirements  consist  principally  of
  working capital  requirements,  scheduled  payments of principal and interest on
  outstanding  indebtedness  and capital  expenditures.  The Company believes that
  cash flow from Foamex Carpet's operating  activities,  cash on hand and periodic
  borrowings  under Foamex  Carpet's  credit  facility (the "Foamex  Carpet Credit
  Facility"),  if necessary,  will be adequate to meet Foamex  Carpet's  liquidity
  requirements.  The ability to meet such liquidity requirements could be impaired
  if Foamex  Carpet were to fail to comply  with any  covenants  contained  in the
  Foamex Carpet  Credit  Facility and such  noncompliance  was not cured by Foamex
  Carpet  or waived by the  lenders.  Foamex  Carpet  was in  compliance  with the
  covenants in the Foamex Carpet Credit  Facility as of September 30, 1998 and the
  Company  expects  Foamex Carpet to be in compliance  with such covenants for the
  foreseeable  future.  The ability of Foamex Carpet to make  distributions to the
  Company  is  restricted  by the terms of its  financing  agreements;  therefore,
  neither  the Company nor Foamex L.P. is expected to have access to the cash flow
  generated by Foamex Carpet for the foreseeable future.
  
         Cash and cash  equivalents  decreased  $2.0 million  during 1998 to $10.0
  million at September 30, 1998 from $12.0 million at December 28, 1997  primarily
  due to cash used for capital expenditures, the Crain Acquisition and an increase
  of cash  used by the  operating  assets  and  liabilities  offset  by  increased
  borrowings.  Working  capital  increased  $68.9  million  during  1998 to $207.4
  million at September 30, 1998 from $138.5 million at December 28, 1997 primarily
  due to the  increase  in net  operating  assets (as  discussed  below) and a net
  increase in other  current  assets and  liabilities.  The net  increase in other
  current  assets  and  liabilities  is  primarily  associated  with the timing of
  payments  for  interest  and prepaid  expenses and the receipt of cash for other
  receivables.  Net  operating  assets  and  liabilities  (comprised  of  accounts
  receivable,  inventories  and accounts  payable)  increased $55.8 million during
  1998 to $220.1 million at September 30, 1998 from $164.3 million at December 28,
  1997  primarily due to increases in accounts  receivable and  inventories  and a
  decrease in accounts payable.  The increase in accounts  receivable is primarily
  due to an increase in net sales for September 1998 as compared to December 1997.
  The  increase in  inventories  is primarily  due to  increased  purchases of raw
  materials  associated with potential price  increases.  The decrease in accounts
  payable is primarily due to the timing of payments.
  
         As of September 30, 1998,  there were $137.0 million of revolving  credit
  borrowings under the Credit Facility and approximately  $50.0 million associated
  with letters of credit  outstanding  which are supported by the Credit  Facility
  with unused  availability of  approximately  $73.1 million.  As of September 30,
  1998,  Foamex Carpet Credit Facility had unused  availability  of  approximately
  $19.2 million.  Borrowings by Foamex Canada,  Inc. as of September 30, 1998 were
  $3.6 million under Foamex Canada Inc.'s  revolving  credit agreement with unused
  availability of approximately $1.7 million.
  
         Cash flow used for operating activities was $16.1 million for the year to
  period ended September 30, 1998 as compared to cash provided by of $12.2 million
  for the year to date period ended September 28, 1997. This decrease is primarily
  due to $42.6  million  of cash  used  during  1997 for  premiums  and  repayment
  penalties associated with the June 1997 refinancing plan offset by (i) cash used
  for the increase in accounts  receivable and other  receivables  associated with
  the timing of receipts and (ii) a reduction in accounts payable  associated with
  the timing of payments.
  
         Cash flow used for  investing  activities  increased to $28.3 million for
  the year to date period ended September 30, 1998 from cash used of $21.7 million
  for the year to date period ended  September 28, 1997  primarily due to (i) $4.4
  million paid in connection with the Crain Acquisition offset by the use of $12.1
  million  of  restricted  cash in 1997 to  repaid  long-term  debt  and a loan to
  shareholder of $5.0 million in 1997.
  
                                         17
  
  <PAGE>
  
  ITEM 2.  MANAGEMENT'S DISCUSSION AND ANALYSIS OF THE FINANCIAL CONDITION AND
           RESULTS OF OPERATIONS
  
         Cash flow provided by financing activities increased to $42.4 million for
  the year to date  period  ended  September  30, 1998 as compared to cash used of
  $13.6  million for the year to date period ended  September  28,  1997.  This is
  primarily  associated  with  borrowings  under the  revolving  loans to fund the
  operations  of Crain  during the year to date period  ended  September  30, 1998
  offset by the $28.7 million used to fund the GFI Transaction.
  
         Certain  credit  agreements and  promissory  notes of Foamex L.P.  and/or
  Foamex Carpet  pursuant to which  approximately  $500.0 million of debt has been
  issued,  contain  provisions  that  would  result  in the  acceleration  of such
  indebtedness  if Trace  were to cease  to own at  least  30% of the  outstanding
  common stock.  Similarly,  certain  indentures of Foamex L.P. and Foamex Capital
  Corporation  relating to  approximately  $248.0  million of Senior  Subordinated
  Notes contain  provisions  that provide the holders of such Senior  Subordinated
  Notes with the right to require the issuers  thereof to  repurchase  such Senior
  Subordinated  Notes at a price in cash equal to 101% of the aggregate  principal
  amount  thereof,  plus accrued and unpaid  interest  thereon,  if Trace Holdings
  falls below certain specified ownership levels of common stock and other persons
  or group owns a greater  percentage of common stock than Trace  Holdings.  Trace
  Holdings has informed the Company that it has substantial  debt  obligations due
  at the end of December 1998 and currently does not have the financial  resources
  to pay  these  obligations.  Trace  Holdings  intends  to  seek  waivers  and/or
  modifications of such indebtedness; however, there can be no assurance that such
  waivers and/or modifications will be achieved. If Trace Holdings were to default
  on its indebtedness and the holders of such indebtedness or other Trace Holdings
  creditors  were to  foreclose  on or  otherwise  attach the common stock held by
  Trace  Holdings,  such  event  could  trigger  the  acceleration  and put rights
  described  above.  Although  management  believes that all such debt obligations
  would be refinanced under such circumstances, there can be no assurance that the
  Company or its subsidiaries  would be able to do so. Trace Holdings has informed
  the Company that it  anticipates  that if the proposed  merger is consummated it
  will be able to satisfy or restructure its outstanding obligations.
  
         Interest Rate Swaps
  
         In  September  1998,  the Company sold its  existing  interest  rate swap
  agreements for a net gain of approximately $1.0 million which is being amortized
  over the life of the debt.
  
         The effect of the Company's interest rate swap agreements was a favorable
  adjustment  to  interest  and debt  issuance  expense of $0.3  million  and $0.5
  million for the  quarterly  periods  ended  September 30, 1998 and September 28,
  1997,  respectively  and  $0.7  million  and $2.2  million  for the year to date
  periods ended September 30, 1998 and September 28, 1997, respectively.
  
  Environmental Matters
  
         The Company is subject to extensive and changing  environmental  laws and
  regulations.  Expenditures to date in connection  with the Company'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  the  Company  in  connection   with
  environmental matters as of September 30, 1998 was $4.5 million. In addition, as
  of September 30, 1998,  the Company has net  receivables of  approximately  $1.1
  million for indemnification of environmental liabilities from former owners, net
  of  approximately  $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 the Company to reassess its
  potential  exposure  to  all  pending  environmental  matters,  including  those
  described in the footnotes to the Company's  consolidated  financial statements,
  the Company believes that, based upon all currently available  information,  the
  resolution  of all such pending  environmental  matters will not have a material
  adverse  effect  on  the  Company's  operations,   financial  position,  capital
  expenditures or competitive position.
  
                                         18
  <PAGE>
  ITEM 2.  MANAGEMENT'S DISCUSSION AND ANALYSIS OF THE FINANCIAL CONDITION AND
           RESULTS OF OPERATIONS
  
  Inflation and Other Matters
  
         There was no significant  impact on the Company's  operations as a result
  of  inflation  during  the  periods  presented.  In some  circumstances,  market
  conditions or customer  expectations may prevent the Company from increasing the
  price of its products to offset the inflationary pressures that may increase its
  costs in the future.
  
         The Company's automotive products 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, the Company's
  sales are  sensitive  to sales of new and  existing  homes,  changes in personal
  disposable  income  and  seasonality.  The  Company  typically  experiences  two
  seasonally  slow periods  during each year, in early July and in late  December,
  due to scheduled plant shutdowns and holidays.
  
  Year 2000 Compliance
  
         The  Company  uses  multiple  business  information  systems  as  well as
  manufacturing support systems that could be impacted by the "Year 2000 problem".
  The Year 2000 problem arises from computer programs that have been written using
  two digits  rather  than four to  designate  the year.  Date-sensitive  computer
  software  may  recognize a date using "00" as the year 1900 rather than the year
  2000,  resulting  in  system  failures  or  miscalculations,   which  may  cause
  operational disruptions.
  
         The  Company  is in the  process  of the  remediation  of their  business
  information  computer  systems.  The  Company  is  also  in the  process  of the
  conversion  of the former  Crain  systems  to the  Company's  standard  business
  information computer systems. The replacement of these systems will increase the
  integration  of systems and allow  employees  at  different  locations  to share
  financial information and operations  information more effectively.  Remediation
  of the Company business  information  computer systems and the conversion of the
  former Crain systems should be completed in 1998. These systems and software are
  Year 2000  compliant,  thus  handling  the majority of the  Company's  Year 2000
  business systems requirements.
  
         The Company has a Year 2000 Executive  Sponsor Team with  representatives
  of the Company.  The Year 2000 Executive Sponsor Team is providing  direction to
  the Year 2000 Steering Committee within the organization. The Steering Committee
  is in the process of  completing  an assessment of the state of readiness of the
  Information   Technology  ("IT")  and  non-IT  systems  of  the  Company.  These
  assessments  cover  manufacturing  systems,   including  laboratory  information
  systems  and field  instrumentation,  and  significant  third  party  vendor and
  supplier systems,  including employee  compensation and benefit plan maintenance
  systems.  The  Steering  Committee  is  also in the  process  of  assessing  the
  readiness of significant customers and suppliers.
  
         The Year  2000  assessment  process  for  each  facility  consists  of an
  inventory  of Year 2000  sensitive  equipment,  an  assessment  of the impact of
  possible  failures,  determination  of the  required  remediation  actions,  and
  testing and implementation of solutions. The inventory, assessment,  remediation
  and testing phases should be completed in 1998, with fail safe testing and final
  implementation  taking  place in  1999.  The  progress  of  these  phases  as of
  September 30, 1998 is summarized as follows:
  
         The total estimated spending of $2.4 million for the Company represents a
  midpoint of an estimated  range  between $2.1  million and $2.7  million.  These
  spending  estimates  will be refined as phases of the  assessment are completed.
  Spending is funded by cash  generated  from  operations.  Preliminary  estimates
  indicate  that from 25 to 35 percent of the  estimated  costs could  qualify for
  capitalization.
  
         Management  believes  that  all  significant  systems  controlled  by the
  Company  will be Year 2000  ready in the last half of 1999.  While the  Steering
  Committee is communicating readiness to third party customers, as requested, and
  is assessing the readiness of critical suppliers, there can be no assurance that
  third parties with a significant  business  relationship will successfully test,
  reprogram,  and replace all of their IT and non-IT systems on a timely basis. As
  part of the  overall  readiness,  the  Company is in the  process of  developing
  contingency plans in the event of Year 2000 non-compliance of certain systems or
  third parties.  Details of such  contingency  plans will be 
  
                                         19
  
  <PAGE>
  
  ITEM 2.  MANAGEMENT'S DISCUSSION AND ANALYSIS OF THE FINANCIAL CONDITION AND
           RESULTS OF OPERATIONS
  
  determined  after the Steering  Committee has  completed its  assessment of both
  internal and third party systems and the potential for possible failures.
  
         There  is  inherent  uncertainty  in the  Year  2000  problem  due to the
  possibility of  unanticipated  failures by third party  customers and suppliers.
  Accordingly,  the  Company  is unable,  at this  time,  to assess the extent and
  resulting  materiality  of the  impact of  possible  Year 2000  failures  on its
  operations, liquidity or financial position. The Year 2000 assessment process is
  expected  to provide  information  that will  significantly  reduce the level of
  uncertainty  regarding  the  Year  2000  impact.  Management  believes  that the
  completion of the assessment as scheduled will help minimize the  possibility of
  any significant disruptions of Company operations.
  
  New Accounting Standards
  
         Statement of Financial  Accounting  Standards  No. 130 ("SFAS No.  130"),
  "Reporting  Comprehensive  Income,"  was  issued  by  the  Financial  Accounting
  Standards  Board in June 1997.  This  statement  requires all items that must be
  recognized under accounting  standards as components of comprehensive  income to
  be reported in a financial  statement that is displayed with the same prominence
  as other financial statements. The Company adopted SFAS No.
  130 during the first quarter of 1998 (see Note 10).
  
         Statement of Financial  Accounting  Standards  No. 131 ("SFAS No.  131"),
  "Disclosures  about  Segments of an Enterprise  and Restated  Information,"  was
  issued by the Financial  Accounting Standards Board in June 1997. This statement
  establishes  standards for reporting  information  about  operating  segments in
  annual  financial  statements  and  requires  reporting  of  selected  financial
  information  about  operating  segments in interim  financial  reports issued to
  stockholders.  It also  establishes  standards  for  related  disclosures  about
  products and services,  geographic areas, and major customers.  The Company will
  adopt SFAS No. 131 for the year ended 1998 reporting.  The Company is evaluating
  the impact, if any, the standard will have on its present segment reporting.
  
         In February 1998 the Financial Accounting Standards Board issued SFAS No.
  132, "Employers'  Disclosures about Pension and Other  Postretirement  Benefits"
  ("SFAS No. 132"),  which is effective for fiscal years  beginning after December
  15, 1997. SFAS No. 132 revised the required  disclosures about pension and other
  postretirement  benefit  plans.  The Company  plans to adopt SFAS No. 132 in the
  fourth quarter of 1998.
  
         In June 1998 the Financial Accounting Standards Board issued SFAS No. 133
  ("SFAS  No.  133"),   "Accounting   for  Derivative   Instruments   and  Hedging
  Activities."  SFAS  No.  133  established  new  procedures  for  accounting  for
  derivatives  and  hedging  activities  and  supercedes  and  amends a number  of
  existing standards.  The statement is effective for fiscal years beginning after
  June 15, 1999.
  
                                         20
  
  <PAGE>
  Part II -  Other Information
  
  Item 1.    Legal Proceedings
  
             Reference  is  made  to  the  description  of the  legal  proceedings
             contained in the  Company's  Annual  Report on Form  10-K/A-2 for the
             fiscal year ended  December 28, 1997 and in the  Company's  Quarterly
             Report on Form 10-Q/A-1 for the fiscal quarter ended June 28, 1998.
  
             The  information  from  Notes 6 and 7 of the  condensed  consolidated
             financial  statements  of  the  Company  as  of  September  30,  1998
             (unaudited) is incorporated herein by reference.
  
  Item 2.    Changes in Securities
  
             None.
  
  Item 3.    Defaults Upon Senior Securities
  
             None.
  
  Item 4.    Submission of Matters to a Vote of Security Holders.
  
             None.
  
  Item 5.    Other Information
  
             None.
  
  Item 6.    Exhibits and Reports on Form 8-K
  
            (a)  Exhibits
  
  2.1(x)        -  Transfer  Agreement,  dated as of  February  27,  1998,  by and
                between Foam Funding LLC and Foamex L.P.
  2.2(x)        - Asset Purchase Agreement,  dated as of February 27, 1998, by and
                among  Foamex  Carpet  Cushion,  Inc.  ("Foamex  Carpet"),  Foamex
                International Inc. ("Foamex International"),  Foam Funding LLC and
                General Felt Industries, Inc. ("General Felt").
  2.3(z)        - Agreement  and Plan of Merger,  dated as of November 5, 1998, by
                and among Foamex International, Trace International Holdings, Inc.
                and Trace Merger Sub Corp.
  3.1(a)        - Certificate of Limited Partnership of Foamex L.P.
  3.2.1(a)      - Fourth Amended and Restated Agreement of Limited  Partnership of
                Foamex L.P.,  dated as of December  14,  1993,  by and among FMXI,
                Inc.  ("FMXI") and Trace Foam Company,  Inc.  ("Trace  Foam"),  as
                general partners,  and Foamex International,  as a limited partner
                (the "Partnership Agreement").
  3.2.2(b)      - First  Amendment to the  Partnership  Agreement,  dated June 28,
                1994.
  3.2.3(c)      - Second  Amendment to the Partnership  Agreement,  dated June 12,
                1997.
  3.2.4(v)      - Third Amendment to the Partnership Agreement, dated December 23,
                1997.
  3.2.5(x)      - Fourth  Amendment to the Partnership  Agreement,  dated February
                27, 1998.
  3.3(y)        - Certificate of Incorporation of FMXI.
  3.4(y)        - By-laws of FMXI.
  3.5(k)        -  Certificate  of  Incorporation  of Foamex  Capital  Corporation
                ("FCC").
  3.6(k)        - By-laws of FCC.
  3.7(a)        - Certificate of Incorporation of Foamex International.
  3.8(a)        - By-laws of Foamex International.
  
                                         21
  
  <PAGE>
  
  4.1.1(d)      - Indenture,  dated as of June 12, 1997, by and among Foamex L.P.,
                FCC,  the  Subsidiary  Guarantors  and The  Bank of New  York,  as
                trustee,  relating  to  $150,000,000  principal  amount  of 9 7/8%
                Senior Subordinated Notes due 2007 (the "9 7/8% Notes"), including
                the form of Senior Subordinated Note and Subsidiary Guarantee.
  4.1.2(v)      - First  Supplemental  Indenture,  dated as of December  23, 1997,
                between  Foamex LLC ("FLLC") and The Bank of New York, as trustee,
                relating to the 9 7/8% Notes.
  4.1.3(x)      - Second  Supplemental  Indenture,  dated as of February 27, 1998,
                among Foamex L.P. and FCC, as joint and several obligors,  General
                Felt,  Foamex  Fibers,  Inc.  (`Foamex  Fibers"),   and  FLLC,  as
                withdrawing  guarantors,  and The Bank of New  York,  as  trustee,
                relating to the 9 7/8% Notes.
  4.2.1(v)      - Indenture,  dated as of December  23, 1997,  by and among Foamex
                L.P.,  FCC, the Subsidiary  Guarantors,  Crain Holdings  Corp., as
                Intermediate  obligator,  and The Bank of New  York,  as  trustee,
                relating  to  $98,000,000  principal  amount  of  13  1/2%  Senior
                Subordinated  Notes due 2005 (the "13 1/2% Notes"),  including the
                form of Senior Subordinated Note and Subsidiary Guarantee.
  4.2.2(x)      - First  Supplemental  Indenture,  dated as of February  27, 1998,
                among Foamex L.P. and FCC, as joint and several obligors,  General
                Felt,  Foamex Fibers and FLLC, as  withdrawing  guarantors,  Crain
                Industries,  Inc., as withdrawing  intermediate  obligor,  and The
                Bank of New York, as trustee, relating to the 13 1/2% Notes.
  4.3(x)        - Discharge of  Indenture,  dated as of February 27, 1998,  by and
                among Foamex L.P.,  General Felt,  Foamex  International and State
                Street Bank and Trust Company, as trustee,  relating to the 9 1/2%
                Senior Secured Notes due 2000.
  4.4.1(x)      - Credit  Agreement,  dated as of June 12,  1997,  as amended  and
                restated as of February  27, 1998,  by and among Foamex L.P.,  and
                FMXI, the institutions from time to time party thereto as lenders,
                the institutions from time to time party thereto as issuing banks,
                and  Citicorp  USA,   Inc.  and  The  Bank  of  Nova  Scotia,   as
                Administrative Agents.
  4.4.2(x)      - Second Amended and Restated Foamex International Guaranty, dated
                as of February 27, 1998, made by Foamex  International in favor of
                Citicorp USA, Inc., as Collateral Agent.
  4.4.3(x)      - Amended and Restated Partnership Guaranty,  dated as of February
                27,  1998,  made  by FMXI in  favor  of  Citicorp  USA,  Inc.,  as
                Collateral Agent.
  4.4.4(p)      - Foamex Guaranty,  dated as of June 12, 1997, made by Foamex L.P.
                in favor of Citicorp USA, Inc., as Collateral Agent.
  4.4.5(p)      - Subsidiary  Guaranty,  dated as of June 12, 1997, made by Foamex
                Latin America,  Inc. in favor of Citicorp USA, Inc., as Collateral
                Agent.
  4.4.6(p)      - Subsidiary  Guaranty,  dated as of June 12, 1997, made by Foamex
                Mexico, Inc. in favor of Citicorp USA, Inc., as Collateral Agent.
  4.4.7(p)      - Subsidiary  Guaranty,  dated as of June 12, 1997, made by FCC in
                favor of Citicorp USA, Inc., as Collateral Agent.
  4.4.8(p)      - Subsidiary  Guaranty,  dated as of June 12, 1997, made by Foamex
                Mexico II, Inc.  in favor of Citicorp  USA,  Inc.,  as  Collateral
                Agent.
  4.4.9(p)      - Subsidiary  Guaranty,  dated as of June 12, 1997, made by Foamex
                Asia, Inc. in favor of Citicorp USA, Inc., as Collateral Agent.
  4.4.10(p)     - Subsidiary Pledge Agreement,  dated as of June 12, 1997, made by
                FCC in favor of Citicorp USA, Inc., as Collateral Agent.
  4.4.11(p)     - Subsidiary Pledge Agreement,  dated as of June 12, 1997, made by
                Foamex Latin  America,  Inc. in favor of Citicorp  USA,  Inc.,  as
                Collateral Agent.
  4.4.12(p)     - Subsidiary Pledge Agreement,  dated as of June 12, 1997, made by
                Foamex Asia,  Inc. in favor of Citicorp  USA,  Inc., as Collateral
                Agent.
  4.4.13(p)     - Subsidiary Pledge Agreement,  dated as of June 12, 1997, made by
                Foamex Mexico,  Inc. in favor of Citicorp USA, Inc., as Collateral
                Agent.
  4.4.14(p)     - Subsidiary Pledge Agreement,  dated as of June 12, 1997, made by
                Foamex  Mexico  II,  Inc.  in  favor of  Citicorp  USA,  Inc.,  as
                Collateral Agent.
  4.4.15(p)     - Foamex  Security  Agreement,  dated as of June 12, 1997, made by
                Foamex L.P. in favor of Citicorp USA, Inc., as Collateral Agent.
  
                                         22
  <PAGE>
  
  4.4.16(p)     - Subsidiary Security  Agreement,  dated as of June 12, 1997, made
                by Foamex Latin  America,  Inc. in favor of Citicorp USA, Inc., as
                Collateral Agent.
  4.4.17(p)     - Subsidiary Security  Agreement,  dated as of June 12, 1997, made
                by  Foamex  Mexico,  Inc.  in  favor of  Citicorp  USA,  Inc.,  as
                Collateral Agent.
  4.4.18(p)     - Subsidiary Security  Agreement,  dated as of June 12, 1997, made
                by Foamex  Mexico II,  Inc.  in favor of Citicorp  USA,  Inc.,  as
                Collateral Agent.
  4.4.19(p)     - Subsidiary Security  Agreement,  dated as of June 12, 1997, made
                by Foamex Asia, Inc. in favor of Citicorp USA, Inc., as Collateral
                Agent.
  4.4.20(p)     - Subsidiary Security  Agreement,  dated as of June 12, 1997, made
                by FCC in favor of Citicorp USA, Inc., as Collateral Agent.
  4.4.21(r)     - Foamex  Pledge  Agreement,  dated as of June 12,  1997,  made by
                Foamex L.P. in favor of Citicorp USA, Inc., as Collateral Agent.
  4.4.22(w)     - First Amendment to Foamex Pledge Agreement, dated as of December
                23,  1997,  by Foamex  L.P.  in favor of Citicorp  USA,  Inc.,  as
                Collateral Agent.
  4.4.23(w)     - First  Amendment  to  Foamex  Security  Agreement,  dated  as of
                December 23, 1997, by Foamex L.P. in favor of Citicorp USA,  Inc.,
                as Collateral Agent.
  4.4.24(w)     - First Amendment to Foamex Patent Agreement, dated as of December
                23,  1997,  by Foamex  L.P.  in favor of Citicorp  USA,  Inc.,  as
                Collateral Agent.
  4.4.25(w)     - First  Amendment to Trademark  Security  Agreement,  dated as of
                December 23, 1997, by Foamex L.P. in favor of Citicorp USA,  Inc.,
                as Collateral Agent.
  4.4.26(w)     -  Acknowledgment  of  Guaranty  by  each of the  guarantors  to a
                Guaranty dated June 12, 1997 in favor of Citicorp USA, Inc.
  4.4.27(w)     - First  Amendment to Pledge  Agreement,  dated as of December 23,
                1997, by pledgors in favor of Citicorp USA, Inc.
  4.4.28(w)     - Crain Industries  Guaranty,  dated as of December 23, 1997, made
                by Crain in favor of Citicorp USA, Inc.
  4.4.29(x)     -  Partnership  Pledge  Agreement,  dated as of February 27, 1998,
                made by Foamex  International  and FMXI in favor of Citicorp  USA,
                Inc., as Collateral Agent.
  4.5(u)        - Commitment  letter,  dated July 17, 1997,  from The Bank of Nova
                Scotia to Foamex Canada Inc.
  4.6(a)        - Subordinated  Promissory  Note,  dated as of May 6, 1993, in the
                original principal amount of $7,014,864 executed by Foamex L.P. to
                John Rallis ("Rallis").
  4.7(a)        - Marely Loan Commitment Agreement, dated as of December 14, 1993,
                by and between Foamex L.P. and Marely s.a. ("Marely").
  4.8(a)        - DLJ Loan Commitment Agreement, dated as of December 14, 1993, by
                and between Foamex L.P. and DLJ Funding, Inc. ("DLJ Funding").
  4.9.1(p)      - Promissory Note, dated June 12, 1997, in the aggregate principal
                amount of $5,000,000, executed by Trace Holdings to Foamex L.P.
  4.9.2(p)      - Promissory Note, dated June 12, 1997, in the aggregate principal
                amount of $4,794,828, executed by Trace Holdings to Foamex L.P.
  4.10.1(x)     - Credit  Agreement,  dated as of February 27, 1998,  by and among
                Foamex Carpet, the institutions from time to time party thereto as
                lenders,  the  institutions  from time to time  party  thereto  as
                issuing  banks and Citicorp USA, Inc. and The Bank of Nova Scotia,
                as administrative agents.
  4.10.2(x)     - Foamex  International  Guaranty,  dated as of February 27, 1998,
                made by Foamex  International  in favor of Citicorp USA,  Inc., as
                Collateral Agent.
  4.10.3(x)     - Foamex International Pledge Agreement,  dated as of February 27,
                1998, made by Foamex International in favor of Citicorp USA, Inc.,
                as Collateral Agent.
  4.10.4(x)     - New GFI Security Agreement,  dated as of February 27, 1998, made
                by Foamex  Carpet in favor of Citicorp  USA,  Inc.,  as Collateral
                Agent.
  4.10.5(x)     - New GFI Intercreditor Agreement,  dated as of February 27, 1998,
                by  and  among  Foamex  Carpet,   The  Bank  of  Nova  Scotia,  as
                Administrative  Agent,  and Citicorp USA, Inc., as  Administrative
                Agent and Collateral Agent.
  
                                         23
  
  <PAGE>
  
  4.10.6(x)     - FII Intercreditor  Agreement,  dated as of February 27, 1998, by
                and between  Foamex  International  and  Citicorp  USA,  Inc.,  as
                Collateral Agent.
  4.11.1(x)     -  Promissory  Note of Foamex L.P. in favor of Foam Funding LLC in
                the principal amount of $34 million, dated February 27, 1998.
  4.12.1(x)     - Promissory Note of Foamex Carpet in favor of Foam Funding LLC in
                the principal amount of $70.2 million, dated February 27, 1998.
  10.1.1(p)     - Amendment to Master Agreement, dated as of June 5, 1997, between
                Citibank, N.A. and Foamex L.P.
  10.1.2(p)     -  Amended  Confirmation,  dated  as of  June  13,  1997,  between
                Citibank, N.A. and Foamex L.P.
  10.1.3(w)     - Amended  Confirmation,  dated as of  February  2, 1998,  between
                Citibank, N.A. and Foamex L.P.
  10.2(h)       -  Reimbursement  Agreement,  dated as of March 23, 1993,  between
                Trace Holdings and General Felt.
  10.3(h)       - Shareholder Agreement,  dated December 31, 1992, among Recticel,
                s.a.  ("Recticel"),  Recticel  Holding  Noord B.V.,  Foamex  L.P.,
                Beamech Group Limited,  LME-Beamech,  Inc., James Brian Blackwell,
                and Prefoam AG relating to foam technology sharing arrangement.
  10.4.1(k)     - Asset Transfer  Agreement,  dated as of October 2, 1990, between
                Trace Holdings and Foamex L.P. (the "Trace Holdings Asset Transfer
                Agreement").
  10.4.2(k)     - First  Amendment,  dated as of December 19,  1991,  to the Trace
                Holdings  Asset  Transfer  Agreement.   10.4.3(k)  -  Amended  and
                Restated  Guaranty,  dated as of December 19, 1991,  made by Trace
                Foam in favor of Foamex L.P.
  10.5.1(k)     - Asset Transfer  Agreement,  dated as of October 2, 1990, between
                Recticel Foam Corporation  ("RFC") and Foamex L.P. (the "RFC Asset
                Transfer Agreement").
  10.5.2(k)     - First Amendment, dated as of December 19, 1991, to the RFC Asset
                Transfer Agreement.
  10.5.3(k)     - Schedule  5.03 to the RFC Asset  Transfer  Agreement  (the "5.03
                Protocol").  10.5.4(h) - The 5.03 Protocol  Assumption  Agreement,
                dated as of October 13, 1992, between RFC and Foamex L.P.
  10.5.5(h)     - Letter Agreement  between Trace Holdings and Recticel  regarding
                the Recticel Guaranty, dated as of July 22, 1992.
  10.6(l)       - Supply Agreement,  dated June 28, 1994,  between Foamex L.P. and
                Foamex International.
  10.7.1(l)     - First  Amended and Restated Tax Sharing  Agreement,  dated as of
                December 14, 1993,  among Foamex L.P., Trace Foam, FMXI and Foamex
                International.
  10.7.2(d)     - First Amendment to Amended and Restated Tax Sharing Agreement of
                Foamex L.P.,  dated as of June 12, 1997, by and among Foamex L.P.,
                Foamex International, FMXI and Trace Foam.
  10.7.3(w)     - Second  Amendment to Amended and Restated Tax Sharing  Agreement
                of Foamex L.P., dated as of December 23, 1997, by and among Foamex
                L.P., Foamex International, FMXI, and Trace Foam.
  10.7.4(y)     - Third Amendment to Amended and Restated Tax Sharing Agreement of
                Foamex L.P.,  dated as of February 27, 1998, by and between Foamex
                L.P., Foamex International and FMXI.
  10.8.1(m)     - Tax  Distribution  Advance  Agreement,  dated as of December 11,
                1996, by and between Foamex L.P. and Foamex-JPS Automotive.
  10.8.2(d)     - Amendment No. 1 to Tax Distribution Advance Agreement,  dated as
                of  June  12,  1997,  by  and  between   Foamex  L.P.  and  Foamex
                International.
  10.9.1(h)     - Trace Foam  Management  Agreement  between Foamex L.P. and Trace
                Foam, dated as of October 13, 1992.
  10.9.2(l)     - Affirmation  Agreement  re:  Management  Agreement,  dated as of
                December 14, 1993, between Foamex L.P. and Trace Foam.
  10.9.3(d)     - First  Amendment to Management  Agreement,  dated as of June 12,
                1997, by and between Foamex L.P. and Trace Foam.
  10.10.1(k)    - Salaried Incentive Plan of Foamex L.P. and Subsidiaries.
  10.10.2(k)    - Trace Holdings 1987 Nonqualified Stock Option Plan.
  
                                         24
  
  <PAGE>
  
  10.10.3(k)    -  Equity Growth Participation Program.
  10.10.4(o)    - The Foamex L.P. Salaried Pension Plan (formerly the General Felt
                Industries,   Inc.   Retirement  Plan  for  Salaried   Employees),
                effective as of January 1, 1995.
  10.10.5(u)    - The Foamex  L.P.  Hourly  Pension  Plan  (formerly  "The  Foamex
                Products  Inc.  Hourly  Employee   Retirement  Plan),  as  amended
                December 31, 1995.
  10.10.6(u)    - Foamex L.P. 401(k) Savings Plan effective October 1, 1997.
  10.10.7(a)    - Foamex L.P.'s 1993 Stock Option Plan.
  10.10.8(a)    - Foamex L.P.'s Non-Employee Director Compensation Plan.
  10.11.1(o)    -  Employment  Agreement,  dated as of  February  1, 1994,  by and
                between Foamex L.P. and William H. Bundy.
  10.12.1(a)    - Warrant  Exchange  Agreement,  dated as of December 14, 1993, by
                and between Foamex L.P. and Marely.
  10.12.2(a)    - Warrant  Exchange  Agreement,  dated as of December 14, 1993, by
                and between Foamex L.P. and DLJ Funding.
  10.13(t)      - Warrant  Agreement,  dated as of June 28,  1994,  by and between
                Foamex International and Shawmut Bank.
  10.14(o)      - Stock Purchase Agreement,  dated as of December 23, 1993, by and
                between   Transformacion   de  Espumas  u  Fieltros,   S.A.,   the
                stockholders which are parties thereto, and Foamex L.P.
  10.15.1(r)    - Asset  Purchase  Agreement,  dated as of August 29, 1997, by and
                among  General  Felt,  Foamex  L.P.,  Bretlin,  Inc. and The Dixie
                Group.
  10.15.2(s)    - Addendum  to Asset  Purchase  Agreement,  dated as of October 1,
                1997, by and among General Felt,  Foamex L.P.,  Bretlin,  Inc. and
                The Dixie Group.
  10.16.1(x)    - Supply Agreement,  dated as of February 27, 1998, by and between
                Foamex L.P. and General Felt (as assigned to Foamex Carpet).
  10.16.2(x)    -  Administrative  Services  Agreement,  dated as of February  27,
                1998, by and between  Foamex L.P. and General Felt (as assigned to
                Foamex Carpet).
  10.17(y)      - Tax Sharing  Agreement,  dated as of February 27, 1998,  between
                Foamex International and Foamex Carpet.
  10.18.1(w)    - Joint  Venture  Agreement  between Hua Kee  Company  Limited and
                Foamex Asia, Inc., dated as of July 8, 1997.
  10.18.2(w)    - Loan Agreement  between Hua Kee Company Limited and Foamex Asia,
                Inc., dated as of July 8, 1997.
  27            - Financial Data Schedule for the year ended December 28, 1997.
  
  ----------------------------
  (a)  Incorporated   herein  by  reference  to  the  Exhibit  to  Foamex   L.P.'s
       Registration Statement on Form S-1, Registration No. 33-69606.
  
  (b)  Incorporated  herein by reference to the Exhibit to the Form 10-K of Foamex
       for the fiscal year ended January 1, 1995.
  
  (c)  Incorporated  herein by reference  to the Exhibit to the Current  Report on
       Form 8-K of Foamex reporting an event that occurred May 28, 1997.
  
  (d)  Incorporated  herein by reference  to the Exhibit to the Current  Report on
       Form 8-K of Foamex reporting an event that occurred June 12, 1997.
  
  (e) Intentionally omitted.
  
  (f) Intentionally omitted.
  
  (g) Intentionally omitted.
  
                                         25
  
  <PAGE>
  
  (h)  Incorporated  herein by reference to the Exhibit to the Form 10-K Statement
       of Foamex and FCC for fiscal 1992.
  
  (i)  Intentionally omitted.
  
  (j)  Intentionally omitted.
  
  (k)  Incorporated  herein  by  reference  to the  Exhibit  to  the  Registration
       Statement  of Foamex and FCC on Form S-1,  Registration  Nos.  33-49976 and
       33-49976-01.
  
  (l)  Incorporated  herein  by  reference  to the  Exhibit  to  the  Registration
       Statement  of FJPS,  FJCC and Foamex  L.P.  on Form S-4,  Registration  No.
       33-82028.
  
  (m)  Incorporated  herein by  reference  to the Exhibit to the Annual  Report on
       Form 10-K of Foamex for the fiscal year ended December 29, 1996.
  
  (n)  Intentionally omitted.
  
  (o)  Incorporated  herein by reference to the Exhibit to the Form 10-K of Foamex
       L.P. for fiscal 1993.
  
  (p)  Incorporated  herein  by  reference  to the  Exhibit  in  the  Registration
       Statement of Foamex on Form S-4, Registration No. 333-30291.
  
  (q)  Intentionally omitted.
  
  (r)  Incorporated  herein  by  reference  to the  Current  Report on Form 8-K of
       Foamex L.P. reporting an event that occurred on August 29, 1997.
  
  (s)  Incorporated  herein  by  reference  to the  Current  Report on Form 8-K of
       Foamex L.P. reporting an event that occurred on October 6, 1997.
  
  (t)  Incorporated  by  reference  to the  Exhibit  to the  Form  10-Q of  Foamex
       International for the quarterly period ended July 3, 1994.
  
  (u)  Incorporated  by  reference  to the Exhibit to the Form 10-Q of Foamex L.P.
       for the quarterly period ended September 28, 1997.
  
  (v)  Incorporated  herein by reference  to the Exhibit to the Current  Report on
       Form  8-K  of  Foamex  L.P.,   Foamex   Capital   Corporation   and  Foamex
       International reporting an event that occurred December 23, 1997.
  
  (w)  Incorporated  herein  by  reference  to the  Exhibit  in  the  Registration
       Statement of Foamex L.P. and FCC on Form S-4, Registration No. 333-45733.
  
  (x)  Incorporated  herein  by  reference  to the  Current  Report on Form 8-K of
       Foamex International reporting an event that occurred on February 27, 1998.
  
  (y)  Incorporated  herein by reference to the Exhibit to the Form 10-K of Foamex
       International for the fiscal year ended December 28, 1997.
  
  (z)  Incorporated  herein  by  reference  to the  Current  Report on Form 8-K of
       Foamex International reporting an event that occurred on November 5, 1998.
  
                                         26
  <PAGE>
  
  
           Certain  instruments  defining the rights of security holders have been
  excluded herefrom in accordance with Item  601(b)(4)(iii) of Regulation S-K. The
  registrant  hereby  agrees  to  furnish  a copy of any  such  instrument  to the
  Commission upon request.
  
           (b)  The Company filed the following Current Reports on Form 8-K:
  
                Form 8-K, dated June 30, 1998, reporting the signing of the Merger
                Agreement on June 25, 1998.
  
                Form 8-K/A dated  September 9, 1998,  reporting the acquisition of
                Crain Industries, Inc.
  
                Form 8-K dated October 5, 1998.
  
                Form 8-K dated October 19, 1998.
  
                Form 8-K dated  November 4, 1998,  reporting  the change in fiscal
                year end.
  
                Form 8-K dated  November  6, 1998,  reporting  the  signing of the
                Merger Agreement on November 5, 1998.
  
                Form 8-K/A dated November 9, 1998,  reporting the change in fiscal
                year end.
  
                                         27
  
  <PAGE>
  
                                     SIGNATURES
  
  
            Pursuant to the  requirements 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.
  
  
                                               FOAMEX INTERNATIONAL INC.
  
  
  Date:   November 20, 1998                By: /s/ John A. Feenan
                                               ----------------------
                                               John A. Feenan
                                               Executive Vice President and
                                               Chief Financial Officer
  
  
  
                                         28
metadata_documents: [{"type": "10-Q", "sequence": "1", "secsgml_size_bytes": 113521}]
metadata_filer: {"company-data": {"conformed-name": "FOAMEX INTERNATIONAL INC", "cik": "0000912908", "assigned-sic": "3086", "irs-number": "050473908", "state-of-incorporation": "DE", "fiscal-year-end": "1231"}, "filing-values": {"form-type": "10-Q", "act": "34", "file-number": "000-22624", "film-number": "98756335"}, "business-address": {"street1": "1000 COLUMBIA AVENUE", "city": "LINWOOD", "state": "PA", "zip": "19061", "phone": "6108593000"}, "mail-address": {"street1": "1000 COLUMBIA AVE", "city": "LINWOOD", "state": "PA", "zip": "19061"}}
text: SECURITIES AND EXCHANGE COMMISSION
                               WASHINGTON, D.C. 20549
  
                                      FORM 10-Q
  
                  QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
                       OF THE SECURITIES EXCHANGE ACT OF 1934
  
                  For the quarterly period ended September 30, 1998
  
                           Commission file number 0-22624
  
                              FOAMEX INTERNATIONAL INC.
               (Exact name of registrant as specified in its charter)
  
               Delaware                                    05-0473908
  (State or other jurisdiction of                     (I.R.S. Employer
  incorporation or organization)                       Identification Number)
  
  1000 Columbia Avenue
  Linwood, PA                                                  19061
  (Address of principal                                      (Zip Code)
  executive offices)
  
  Registrant's telephone number, including area code:  (610) 859-3000
  
  Indicate by check mark whether the registrant (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  period that the  registrant  was
  required  to file  such  reports)  and  (2)  has  been  subject  to such  filing
  requirements for the past 90 days. YES X NO
  
  The number of shares of the registrant's common stock outstanding as of November
  16, 1998 was approximately 25,014,800.
  
                                    Page 1 of 28
                            Exhibit List on Page 21 of 28
  FOAMEX INTERNATIONAL INC.
  
                                        INDEX
                                                                             Page
  
  Part I.  Financial Information:
  
           Item 1.  Financial Statements
  
                Condensed Consolidated Statements of Operations -
                  Quarterly and Year to Date Periods Ended September 30,
                  1998 and September 28, 1997                                  3
  
                Condensed Consolidated Balance Sheets as of September
                  30, 1998 and December 28, 1997                               4
  
                Condensed Consolidated Statements of Cash Flows - Year
                  to Date Periods Ended September 30, 1998 and September
                  28, 1997                                                     5
  
                Notes to Condensed Consolidated Financial Statements           6
  
           Item 2.  Management's Discussion and Analysis of Financial 
                    Condition and Results of Operations                       14
  
  Part II. Other Information                                                  21
  
           Exhibit List                                                       21
  
           Signatures                                                         28
  
                                    2
  PART I.  FINANCIAL INFORMATION
  ITEM 1.  FINANCIAL STATEMENTS
  
                FOAMEX INTERNATIONAL INC. AND SUBSIDIARIES
        CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (unaudited)
  Quarterly Periods Ended       Year  to Date Periods Ended
                                             September 30,   September 28,  September 30,  September 28,
                                                  1998            1997         1998           1997
  
                                                          (thousands except per share data)
  NET SALES                                    $ 332,710      $ 233,434     $ 944,979      $ 702,441
  
  COST OF GOODS SOLD                             275,970        195,395       780,121        576,825
                                               ---------      ---------     ---------      ---------
  
  GROSS PROFIT                                    56,740         38,039       164,858        125,616
  
  SELLING, GENERAL AND
     ADMINISTRATIVE EXPENSES                      19,820         15,766        63,058         47,853
                                               ---------      ---------     ---------      ---------
  
  INCOME FROM OPERATIONS                          36,920         22,273       101,800         77,763
  
  INTEREST AND DEBT ISSUANCE EXPENSE              18,652         12,080        53,960         39,522
  
  OTHER INCOME (EXPENSE), NET                     (2,200)           324        (3,945)         1,410
                                               ---------      ---------     ---------      ---------
  
  INCOME BEFORE PROVISION FOR INCOME TAXES        16,068         10,517        43,895         39,651
  
  PROVISION FOR INCOME TAXES                       6,428          4,002        17,556         15,530
                                               ---------      ---------     ---------      ---------
  
  INCOME BEFORE EXTAORDINARY LOSS                  9,640          6,515        26,339         24,121
  
  EXTRAORDINARY LOSS ON EARLY
     EXTINGUISHMENT OF DEBT,
     NET OF INCOME TAXES                              --             --        (1,917)       (42,599)
                                               ---------      ---------     ---------      ---------
  
  NET INCOME (LOSS)                            $   9,640      $   6,515     $  24,422      $ (18,478)
                                               =========      =========     =========      =========
  
  BASIC EARNINGS (LOSS) PER SHARE:
     INCOME BEFORE EXTRAORDINARY LOSS          $    0.39      $    0.26     $    1.05      $    0.96
     EXTRAORDINARY LOSS                               --             --         (0.07)         (1.69)
                                               ---------      ---------     ---------      ---------
     EARNINGS (LOSS) PER SHARE                 $    0.39      $    0.26     $    0.98      $   (0.73)
                                               =========      =========     =========      =========
  
  WEIGHTED AVERAGE NUMBER OF SHARES               25,015         24,959        24,989         25,189
                                               =========      =========     =========      =========
  
  DILUTED EARNINGS (LOSS) PER SHARE:
     INCOME BEFORE EXTRAORDINARY LOSS          $    0.37      $    0.26     $    1.01      $    0.94
     EXTRAORDINARY LOSS                               --             --         (0.07)         (1.66)
                                               ---------      ---------     ---------      ---------
     EARNINGS (LOSS) PER SHARE                 $    0.37      $    0.26     $    0.94      $   (0.72)
                                               =========      =========     =========      =========
  
  WEIGHTED AVERAGE NUMBER OF SHARES               26,118         25,435        26,146         25,645
                                               =========      =========     =========      =========
  The accompanying notes are an integral part of the condensed
                         consolidated financial statements.
  
                                         3
  FOAMEX INTERNATIONAL INC. AND SUBSIDIARIES
                  CONDENSED CONSOLIDATED BALANCE SHEETS (unaudited)
  September 30,     December 28,
  ASSETS                                                                    1998              1997
  CURRENT ASSETS:                                                               (thousands)
  Cash and cash equivalents                                          $    10,044      $    12,044
     Accounts receivable, net                                               204,639          175,684
     Inventories                                                            140,139          120,299
     Other current assets                                                    56,898           62,901
                                                                        -----------      -----------
         Total current assets                                               411,720          370,928
  
  PROPERTY, PLANT AND EQUIPMENT, NET                                        229,470          233,435
  
  COST IN EXCESS OF ASSETS ACQUIRED, NET                                    214,076          218,219
  
  DEBT ISSUANCE COSTS, NET                                                   15,406           18,889
  
  DEFERRED INCOME TAXES                                                      34,168           26,960
  
  OTHER ASSETS                                                               26,108           25,192
                                                                        -----------      -----------
  
  TOTAL ASSETS                                                          $   930,948      $   893,623
                                                                        ===========      ===========
  
  LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)
  CURRENT LIABILITIES:
     Short-term borrowings                                              $     6,058      $     6,598
     Current portion of long-term debt                                        5,117           12,931
     Current portion of long-term debt - related party                        7,020               --
     Accounts payable                                                       124,646          131,689
     Accrued interest                                                         9,723           10,716
     Other accrued liabilities                                               51,763           70,513
                                                                        -----------      -----------
         Total current liabilities                                          204,327          232,447
  
  LONG-TERM DEBT                                                            689,664          735,724
  
  LONG-TERM DEBT - RELATED PARTY                                             93,670               --
  
  OTHER LIABILITIES                                                          34,212           38,871
                                                                        -----------      -----------
  
         Total liabilities                                                1,021,873        1,007,042
                                                                        -----------      -----------
  
  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 27,003,823 and 25,014,823 shares, respectively;
       Outstanding 25,014,823 and 24,919,680 shares, respectively               270              269
     Additional paid-in capital                                              86,769           86,025
     Retained earnings (accumulated deficit)                               (141,469)        (164,118)
     Accumulated other comprehensive income                                  (7,498)          (6,598)
     Other                                                                   (9,795)          (9,795)
                                                                        -----------      -----------
                                                                            (71,723)         (94,217)
     Common Stock held in treasury, at cost:
       1,989,000 shares at September 30, 1998 and December 28, 1997         (19,202)         (19,202)
                                                                        -----------      -----------
  
         Total stockholders' equity (deficit)                               (90,925)        (113,419)
                                                                        -----------      -----------
  
  TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)                  $   930,948      $   893,623
                                                                        ===========      ===========
  The accompanying notes are an integral part of the condensed
                         consolidated financial statements.
  
                                         4
  FOAMEX INTERNATIONAL INC. AND SUBSIDIARIES
             CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (unaudited)
  Year to Date Periods Ended
                                                                       September 30,    September 28,
                                                                            1998            1997
                                                                               (thousands)
  OPERATING ACTIVITIES:
     Net income (loss)                                                   $  24,422      $ (18,478)
     Adjustments to reconcile net income (loss) to net cash provided
         by (used for) operating activities:
         Depreciation and amortization                                      26,686         16,409
         Amortization of debt issuance costs, debt discount
            and debt premium                                                   (16)         7,380
         Extraordinary loss on early extinguishment of debt                  1,579             37
         Other operating activities                                         15,660          9,274
         Changes in operating assets and liabilities, net                  (84,478)       (26,808)
                                                                         ---------      ---------
  
            Net cash used for operating activities                         (16,147)       (12,186)
                                                                         ---------      ---------
  
  INVESTING ACTIVITIES:
     Capital expenditures                                                  (22,423)       (25,865)
     Acquisition, net of cash acquired                                      (4,399)            --
     Decrease in restricted cash                                                --         12,143
     Loan to shareholder                                                        --         (5,000)
     Other investing activities                                             (1,465)        (2,930)
                                                                         ---------      ---------
  
            Net cash used for investing activities                         (28,287)       (21,652)
                                                                         ---------      ---------
  
  FINANCING ACTIVITIES:
     Net proceeds from short-term borrowings                                   185          1,179
     Net proceeds from revolving loans                                      81,489         31,000
     Proceeds from long-term debt                                          129,000        453,500
     Repayment of long-term debt                                          (138,355)      (450,270)
     Debt issuance cost                                                     (1,598)       (15,617)
     Purchase of treasury stock                                                 --         (5,739)
     Dividends paid                                                         (1,246)            --
     GFI transaction costs                                                  (3,898)            --
     GFI transaction payments to Trace                                     (24,800)            --
     Other financing activities                                              1,657           (502)
                                                                         ---------      ---------
  
            Net cash provided by financing activities                       42,434         13,551
                                                                         ---------      ---------
  
  NET DECREASE IN CASH
     AND CASH EQUIVALENTS                                                   (2,000)       (20,287)
  
  CASH AND CASH EQUIVALENTS
     AT BEGINNING OF PERIOD                                                 12,044         22,203
                                                                         ---------      ---------
  
  CASH AND CASH EQUIVALENTS
     AT END OF PERIOD                                                    $  10,044      $   1,916
                                                                         =========      =========
  The accompanying notes are an integral part of the condensed
                         consolidated financial statements.
  
                                         5
  FOAMEX INTERNATIONAL INC. AND SUBSIDIARIES
                NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
  
  1.     CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
  
         Foamex  International  Inc. and  subsidiaries  (the "Company")  condensed
  consolidated  balance sheet as of December 28, 1997 has been  condensed from the
  audited  consolidated  balance sheet at that date.  The  condensed  consolidated
  balance sheet as of September 30, 1998, the condensed consolidated statements of
  operations  for the quarterly and year to date periods ended  September 30, 1998
  and September 28, 1997 and the condensed  consolidated  statements of cash flows
  for the year to date periods  ended  September  30, 1998 and  September 27, 1997
  have been  prepared by the Company  and have not been  audited by the  Company's
  independent  accountants.   In  the  opinion  of  management,  all  adjustments,
  consisting only of normal recurring adjustments, considered necessary for a fair
  presentation  of the financial  position,  results of operations  and cash flows
  have been included.
  
         During  September  1998,  management of the Company decided to change the
  year-end  reporting  requirement  of the Company from a fifty-two or fifty-three
  week fiscal year ending on the Sunday closest to the end of the calendar year to
  a  calendar  year  ending  December  31st  to  improve  the  internal  reporting
  requirement  of the Company.  On November 3, 1998,  the Board of  Directors  and
  other required third parties approved the fiscal year-end change. This change is
  effective for the third fiscal quarter of 1998 which ended on September 30, 1998
  and will result in a 1998  fiscal  year end of December  31, 1998 as compared to
  January 3, 1999;  accordingly,  the  quarterly  period ended  September 30, 1998
  includes an additional three days with estimated revenues of approximately $23.9
  million.
  
         Certain  information  and  note  disclosures  normally  included  in  the
  financial  statements  prepared in accordance with generally accepted accounting
  principles  have been  condensed  or  omitted in  accordance  with the rules and
  regulations  of  the  Securities  and  Exchange   Commission.   These  condensed
  consolidated  financial  statements  should  be read  in  conjunction  with  the
  Company's 1997 consolidated  financial statements and notes thereto as set forth
  in the  Company's  Annual  Report on Form  10-K/A-2  for the  fiscal  year ended
  December 28, 1997.
  
  2.     CRAIN ACQUISITION
  
         On  December  23,  1997,  the Company  acquired  Crain  Industries,  Inc.
  ("Crain") pursuant to a merger with Crain Holdings Corp. for a purchase price of
  approximately $213.7 million, including the assumption of debt with a face value
  of  approximately  $98.6 million (with an estimated fair value of  approximately
  $112.3 million) ("Crain Acquisition"). In addition, fees and expenses associated
  with the Crain Acquisition were approximately  $13.2 million.  Crain was a fully
  integrated manufacturer, fabricator and distributor of a broad range of flexible
  polyurethane foam and foam products sold to a diverse customer base, principally
  in the bedding, carpet cushion and furniture markets. The acquisition was funded
  by $118.0 million in bank borrowings by Foamex L.P. under a credit facility. The
  excess of the  purchase  price over the  estimated  fair value of the net assets
  acquired was approximately $152.5 million.
  
         The Crain  Acquisition was accounted for as a purchase and the operations
  of Crain are included in the  consolidated  statements  of  operations  and cash
  flows from the date of acquisition.  The cost of the Crain  Acquisition has been
  allocated  on the  basis  of the  fair  value  of the  assets  acquired  and the
  liabilities  assumed.  The excess of the purchase  price over the estimated fair
  value of the net assets  acquired  is being  amortized  using the  straight-line
  method over forty years.  The  allocation  of the  purchase  price for the Crain
  Acquisition is based upon  preliminary  estimates and assumptions and is subject
  to revision once  appraisals,  valuations and other studies of the fair value of
  the acquired assets and liabilities  have been completed.  The pro forma results
  listed below are unaudited and assume that the Crain Acquisition occurred at the
  beginning of fiscal year 1997.
  Quarterly Period Ended  Year to Date Period Ended
                                             September 28, 1997      September 28, 1997
                                                (thousands, except per share data)
  Net sales                                 $320,847              $946,927
                                                    ========              ========
          Income before extraordinary loss          $  6,430              $ 22,235
                                                    ========              ========
  6
  FOAMEX INTERNATIONAL INC. AND SUBSIDIARIES
                NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
  
  2.     CRAIN ACQUISITION (continued)
  Quarterly Period Ended      Year to Date Period Ended
                                                                September 28, 1997           September 28, 1997
                                                                       (thousands, except per share data)
  Pro forma basic earnings (loss) per share                 $    0.26                  $     0.88
                                                                   =========                  ==========
         Pro forma diluted earnings (loss) per share               $    0.25                  $     0.87
                                                                   =========                  ==========
  The pro forma results are not  necessarily  indicative of what would have
  occurred  if the Crain  Acquisition  had been in effect for the  entire  periods
  presented nor are they necessarily indicative of future consolidated results.
  
  3.     INVENTORIES
  
         Inventories consist of:
  
                                           September 30,         December 28,
                                                1998                1997
                                                    (thousands)
          Raw materials and supplies          $ 88,520          $ 75,487
          Work-in-process                       19,212            15,620
          Finished goods                        32,407            29,192
                                              --------          --------
          Total                               $140,139          $120,299
                                              ========          ========
  
  4.     LONG-TERM DEBT AND LONG-TERM DEBT - RELATED PARTY
  
         Long-term debt consists of:
  September 30,     December 28,
                                                                          1998               1997
         Credit Facility:                                                        (thousands)
  Term Loan A                                                 $     --          $ 76,700
            Term Loan B                                                   82,924           109,725
            Term Loan C                                                   75,385            99,750
            Term Loan D                                                  109,175           110,000
            Revolving credit facility                                    136,953            54,928
          9 7/8% Senior subordinated notes due 2007                      150,000           150,000
          13 1/2% Senior subordinated notes due 2005 (includes
            $12,376 and $13,720 of unamortized debt premium)             110,376           111,720
          9 1/2% Senior secured notes due 2000                                --             4,523
          Industrial revenue bonds                                         7,000             7,000
          Subordinated note payable (net of unamortized
            debt discount of $621 and $1,198)                              6,394             6,129
          Other                                                           16,574            18,180
                                                                        --------          --------
                                                                         694,781           748,655
  
          Less current portion                                             5,117            12,931
                                                                        --------          --------
  
          Long-term debt-unrelated parties                              $689,664          $735,724
                                                                        ========          ========
  7
  FOAMEX INTERNATIONAL INC. AND SUBSIDIARIES
                NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
  
  4.     LONG-TERM DEBT AND LONG-TERM DEBT - RELATED PARTY (continued)
  September 30,         December 28,
                                                                 1998                1997
                                                                        (thousands)
          Long-term debt - related party consists of:
  Foamex/GFI Note                                      $ 34,000          $         --
  
          Note payable to Foam Funding LLC                       66,690                    --
                                                               --------          ------------
                                                                100,690                    --
  
          Less current portion - related party                    7,020                    --
                                                               --------          ------------
  
          Long-term debt - related party                       $ 93,670          $         --
                                                               ========          ============
  Refinancing  Associated  with Transfer of General Felt  Industries,  Inc.
         ("General Felt") Common Stock
  
         In connection with GFI Transaction  (Note 8), Foamex L.P. borrowed $129.0
  million under a new term loan agreement which was  subsequently  assumed by Foam
  Funding  LLC and  borrowed  $32.0  million  under its credit  facility  ("Credit
  Facility"). These borrowings were used to (i) repay approximately $125.1 million
  of existing term loans under the Credit Facility and accrued interest thereon of
  approximately $0.9 million,  (ii) deposit $4.8 million into an escrow account in
  order to defease the senior secured notes which were redeemed  during June 1998,
  (iii) repay $4.8 million of  indebtedness  owed to General  Felt,  (iv) fund the
  $20.0  million to acquire the net assets of General  Felt after the  transfer of
  the  General  Felt stock to Foam  Funding  LLC and (v) pay fees and  expenses of
  approximately  $5.4 million.  Also,  Foamex L.P.  amended the Credit Facility to
  increase  the  availability  under the  revolving  credit  facility  from $150.0
  million to $200.0 million; however, $34.5 million of this increase is used for a
  letter  of  credit  to  support  the  Foamex/GFI  Note.  See Note 8 for  further
  discussion on the GFI Transaction.
  
         Foamex Carpet Revolving Credit
  
         Upon  consummation of the GFI  Transaction,  Foamex Carpet Cushion,  Inc.
  ("Foamex  Carpet") entered into a credit  agreement with the  institutions  from
  time to time party  thereto,  as issuing  banks,  and Citicorp USA, Inc. and The
  Bank of Nova Scotia,  as administrative  agents,  which provides for up to $20.0
  million in revolving credit borrowings.
  
         Foamex/GFI Note
  
         In connection  with the transfer of General  Felt's common stock,  Foamex
  L.P.  entered  into the $34.0  million  Foamex/GFI  Note to  settle an  existing
  intercompany  note payable to General  Felt,  which was retained by Foam Funding
  LLC in connection with the asset purchase agreement for the GFI Transaction (see
  Note 8). The  Foamex/GFI  Note  matures in March 2000 with  interest  payable at
  LIBOR plus an applicable  margin.  The principal  amount is due upon maturity in
  March 2000.
  
         During the quarterly  and year to date periods ended  September 30, 1998,
  the Company incurred  interest  expense of  approximately  $0.6 million and $1.4
  million, respectively.
  
         Note Payable to Foam Funding LLC
  
         In connection  with the asset purchase  agreement for the GFI Transaction
  (see Note 8), the Company entered into a $70.2 million promissory note with Foam
  Funding LLC.  The note bears  interest at a base rate plus 2.0% or at LIBOR plus
  3.0%. The note is payable upon demand commencing in March 2000, and if no demand
  is made,  matures in February  2004.  
  
                                         8
  FOAMEX INTERNATIONAL INC. AND SUBSIDIARIES
                NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
  
  4.     LONG-TERM  DEBT AND  LONG-TERM  DEBT - RELATED PARTY (continued)
  
         During the quarterly  and year to date periods ended  September 30, 1998,
  the Company incurred  interest  expenses of approximately  $1.5 million and $3.6
  million, respectively.
  
         Principal Payments
  
         Principal  payments the Company's  long-term  debt and  long-term  debt -
  related  party  for the  remainder  of 1998 and for the next  five  years are as
  follows: 1998 - $3.4 million; 1999 - $17.6 million; 2000 - $52.2 million; 2001 -
  $17.3  million;  2002 - $17.7  million;  2003 - $159.1;  and thereafter - $517.3
  million.
  
  5.      EARLY EXTINGUISHMENT OF DEBT
  
         In connection with the GFI Transaction (see Note 8), the Company incurred
  an extraordinary loss on the early  extinguishment of debt of approximately $1.9
  million (net of income tax benefits of $1.2 million) for the year to date period
  ended September 30, 1998. The  extraordinary  loss is comprised of approximately
  $2.9 million for the write-off of debt  issuance  costs and  approximately  $0.2
  million of professional fees and other costs.
  
         During 1997, in  connection  with the  refinancing  plan of the Company's
  indebtedness,   the  Company  incurred  an  extraordinary   loss  on  the  early
  extinguishment  of debt of  approximately  $42.0 million (net of income taxes of
  $25.7  million).  The  extraordinary  loss is comprised of  approximately  $39.0
  million for premium and consent fee  payments,  approximately  $16.2 million for
  the  write-off of debt  issuance  costs and debt  discount,  approximately  $8.2
  million for the loss associated with the effective  termination and amendment of
  the interest rate swap agreements and approximately $4.3 million of professional
  fees  and  other  costs.   In  addition,   during  1997  the  Company   incurred
  extraordinary  losses of approximately $0.6 million (net of income taxes of $0.4
  million) associated with the early extinguishment of approximately $11.8 million
  of long-term debt funded with  approximately  $12.1 million of the remaining net
  proceeds  from the sale of its  Perfect Fit  Industries,  Inc.  subsidiary.  The
  extraordinary  loss is  comprised  of  approximately  $0.4  million  of  premium
  payments  and  approximately  $0.6 million for the  write-off  of debt  issuance
  costs.
  
  6.     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 1998,  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 September 30, 1998,  the Company has accruals of  approximately  $4.5 million
  for environmental  matters.  In addition,  as of September 30, 1998, the Company
  has net receivables of approximately  $1.1 million  relating to  indemnification
  for environmental liabilities.  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,  propylene oxide and TDI,  materials used in the
  manufacturing  of foam. On December 27, 1996,  the United  States  Environmental
  Protection Agency (the "EPA") proposed regulations under the 1990 CAA Amendments
  that  will  require  manufacturers  of slab  stock  polyurethane  foam  and foam
  fabrication  plants to reduce  emissions of methylene  chloride.  Because  these
  regulations  are subject to change  prior to  finalization,  the Company  cannot
  accurately predict the actual cost of their implementation. The Company does not
  believe  implementation  of the  regulations  will  require it to make  material
  expenditures  at  facilities  owned  prior  to  December  23,  1997,  due to the
  Company's  use  of  alternative  technologies  which  do not  utilize  methylene
  chloride and its ability to shift current  production to the  facilities,  which
  use  these  alternative  technologies;  however,  material  expenditures  may be
  required at the facilities formerly operated by
  
                                         9
  FOAMEX INTERNATIONAL INC. AND SUBSIDIARIES
                NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
  
  6.      ENVIRONMENTAL MATTERS (continued)
  
  Crain.  The 1990 CAA Amendments  also may result in the imposition of additional
  standards  regulating air emissions from  polyurethane foam  manufacturers,  but
  these standards have not yet been proposed or promulgated.
  
         In addition to general regulatory requirements,  state laws have resulted
  or will result in more stringent  regulations  regarding the use and emission of
  methylene  chloride.  Several former Crain facilities have been required to meet
  greater  restrictions  regarding  emission limits and/or quantities used of this
  chemical.
  
         On April 10,  1997,  the  Occupational  Health and Safety  Administration
  promulgated new standards  governing  employee  exposure to methylene  chloride,
  which  is used  as a  blowing  agent  in  some  of the  Company's  manufacturing
  processes.  The Company  does not  believe  that it will be required to make any
  material  expenditures  to comply  with  these new  standards  due to its use of
  alternative  technologies which do not use methylene chloride and its ability to
  shift production to facilities which use these technologies;  however,  material
  expenditures may be required at the facilities formerly operated by Crain.
  
         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 September 30, 1998,  the Company has
  accruals of approximately $3.9 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 two 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 $0.1 million for the estimated  removal and remediation,  if
  any, associated with these USTs. However,  the full extent of contamination and,
  accordingly,  the actual cost of such  remediation  cannot be predicted with any
  degree of certainty at this time. 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 EPA with respect to nine sites with an estimated  total liability
  to the  Company  for the nine  sites of less than  approximately  $0.5  million.
  Estimates of total clean-up  costs and  fractional  allocations of liability are
  generally  provided  by the EPA or the  committee  of PRP's with  respect to the
  specified site. In each case, the  participation of 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.
  
                                         10
  FOAMEX INTERNATIONAL INC. AND SUBSIDIARIES
                NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
  
  7.     LITIGATION
  
         As of November 16, 1998,  the Company and Trace  International  Holdings,
  Inc.  ("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 these
  actions allege substantial damages, but most of these actions allege unspecified
  damages for  personal  injuries of various  types.  Three of these cases seek to
  allege  claims on behalf of all breast  implant  recipients  or other  allegedly
  affected  parties,  but no class has been approved or certified by the court. In
  addition, three cases have been filed alleging claims on behalf of approximately
  700  residents of  Australia,  New Zealand,  England,  and Ireland.  The Company
  believes  that the number of suits may  increase.  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.  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.  Foamex L.P. is
  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,  there
  can be no absolute  assurance  that Trace  Holdings will be able to provide such
  indemnification in the future.  While it is not feasible to predict or determine
  the outcome of these actions,  based on the Company'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.  If the  Company's  assessment  of  liability  with respect to these
  actions is incorrect,  such actions could have a material  adverse effect on the
  Company.
  
         In November  1997, a complaint  was filed in the United  States  District
  Court for the  Southern  District of Texas  alleging  that  various  defendants,
  including Crain through the use of the CARDIO(R)  process  licensed from a third
  party, infringed on a patent held by plaintiff.  The Company is negotiating with
  the licensor of the process for the  assumption  of the defense of the action by
  the licensor;  however, the action is in the preliminary stages and there can be
  no assurance as to the ultimate outcome of the action.
  
         On or about March 17, 1998,  five  purported  class action  lawsuits were
  filed in the Delaware  Chancery Court, New Castle County (the "Court"),  against
  the Company,  directors of the Company,  Trace Holdings, and individual officers
  and directors of Trace Holdings: Brickell Partners v. Marshall S. Cogan, et al.,
  No. 16260NC; Mimona Capital v. Salvatore J. Bonanno, et al., No. 16259NC; Daniel
  Cohen v. Foamex  International  Inc.,  No.  16263;  Eileen  Karisinki  v. Foamex
  International  Inc., et al., No. 16261NC and John E. Funky Trust v. Salvatore J.
  Bonanno,  et al., No. 16267. A sixth  purported  class action  lawsuit,  Barnett
  Stepak v. Foamex  International  Inc., et al., No. 16277,  was filed on or about
  March  23,  1998  against  the  same   defendants.   A  stipulation   and  order
  consolidating  these six actions  under the  caption In re Foamex  International
  Inc. Shareholders  Litigation  Consolidated Action No 16259NC was entered by the
  Court on May 28, 1998 (the "Shareholders Litigation"). The complaints in the six
  actions allege,  among other things, that the defendants have violated fiduciary
  and other common law duties  purportedly  owed to the Company's  stockholders in
  connection  with  Trace  Holdings'  initial  proposal  to  acquire  all  of  the
  outstanding shares of the Company's common stock. The complaints  sought,  among
  other things,  class  certification,  a  declaration  that the  defendants  have
  breached  their  fiduciary  duties  to  the  class,  preliminary  and  permanent
  injunctions barring  implementation of the proposed  transaction,  rescission of
  the transaction if consummated,  unspecified compensatory damages, and costs and
  attorneys'  fees.  The  parties to the  Stockholder  Litigation  entered  into a
  Memorandum  of  Understanding,  dated June 25,  1998 to settle  the  Stockholder
  Litigation,  subject to, inter alia,  execution of a definitive  Stipulation  of
  Settlement and approval by the Court following  notice to the stockholders and a
  hearing,  and on  September  9, 1998,  the  parties  entered  into a  definitive
  Stipulation  of  Settlement.  On November 10,  1998,  counsel for certain of the
  defendants in the Stockholder Litigation gave notice pursuant to the Stipulation
  of Settlement that such
  
                                         11
  FOAMEX INTERNATIONAL INC. AND SUBSIDIARIES
                NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
  
  7.    LITIGATION (continued)
  
  defendants were withdrawing from the Stipulation of Settlement.  On November 12,
  1998, the plaintiffs in the Stockholder Litigation filed an amended class action
  complaint against the Company,  Trace Holdings and certain individual  directors
  of the Company  alleging that (i) they breached their fiduciary and other common
  law duties  purportedly  owed to the Company's  stockholders  in connection with
  Trace Holding's revised proposal to acquire all of the outstanding shares of the
  Company's  common stock,  (ii) the individual  defendants  violated the Delaware
  Code in approving the Merger Agreement (as hereinafter defined), and (iii) Trace
  Holdings breached the Stipulation of Settlement.
  
         The Company is party to various  other  lawsuits,  both as defendant  and
  plaintiff,  arising in the normal course of business.  Management  believes 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 the Company's assessment of liability with respect
  to these actions is incorrect, such actions could have a material adverse effect
  on the Company's consolidated financial position.
  
  8.     GFI TRANSACTION
  
         On February 27, 1998, the Company and certain of its affiliates completed
  a series of  transactions  designed to simplify the  Company's  structure and to
  provide  future  operational  flexibility.  Prior to the  consummation  of these
  transactions, (i) Foamex L.P. and Foamex L.P.'s wholly-owned subsidiary, General
  Felt, entered into a supply agreement and an administrative  services agreement,
  (ii) Foamex L.P. repaid its  outstanding  indebtedness to General Felt with $4.8
  million  in cash and the $34.0  million  Foamex/GFI  Note  supported  by a $34.5
  million  letter  of  credit  under  the  Credit  Facility,   (iii)  Foamex  L.P.
  contributed  to  General  Felt $9.4  million  of  outstanding  net  intercompany
  payables and intercompany  loans with General Felt and (iv) Foamex L.P. defeased
  the $4.5 million outstanding principal amount of its 9 1/2% senior secured notes
  due 2000. The initial  transaction  resulted in the transfer from Foamex L.P. to
  Foam  Funding LLC of all of the  outstanding  common stock of General  Felt,  in
  exchange for (i) the  assumption by Foam Funding LLC of $129.0 million of Foamex
  L.P.'s  indebtedness and (ii) the transfer by Foam Funding LLC to Foamex L.P. of
  a 1%  non-managing  general  partnership  interest  in Foamex  L.P. As a result,
  General Felt ceased being a subsidiary  of Foamex L.P. and was relieved from all
  obligations under Foamex L.P.'s 9 7/8% senior subordinated notes due 2007 and 13
  1/2%  senior  subordinated  notes due 2005.  Upon  consummation  of the  initial
  transaction,  Foamex  Carpet,  a newly  formed  wholly-owned  subsidiary  of the
  Company,  the Company,  Foam Funding LLC, and General Felt entered into an asset
  purchase  agreement  dated  February  27,  1998,  in  which  General  Felt  sold
  substantially  all of its  assets  (other  than  the  Foamex/GFI  Note  and  its
  operating facility in Pico Rivera,  California) to Foamex Carpet in exchange for
  (i) $20.0 million in cash and (ii) a promissory  note issued by Foamex Carpet to
  Foam Funding LLC in the amount of $70.2 million.  The $20.0 million cash payment
  was  funded  with  a  distribution  by  Foamex  L.P.  Upon  consummation  of the
  transaction contemplated by the Asset Purchase Agreement,  Foamex Carpet entered
  into a Credit Agreement with the  institutions  from time to time party thereto,
  as issuing  banks,  and  Citicorp  USA,  Inc.  and The Bank of Nova  Scotia,  as
  administrative  agents,  which  provides  for up to $20.0  million in  revolving
  credit  borrowings.  Foamex  Carpet  will  conduct the carpet  cushion  business
  previously  conducted  by General  Felt.  Also,  Foam  Funding LLC has  retained
  ownership of one of General Felt's operating facilities which is being leased to
  Foamex Carpet and the $34.0 million Foamex/GFI Note.
  
         No gain has been recognized on the General Felt net assets transferred to
  Foam Funding LLC and  repurchased  by the Company.  The Company will continue to
  account for these net assets using the carryover basis of Foamex L.P. The $129.0
  million of debt assumed by Foam Funding LLC in the GFI Transaction was accounted
  for as an  extinguishment  of debt which  resulted in an  extraordinary  loss of
  approximately $2.0 million.  The 1% non-managing  general  partnership  interest
  acquired  in  connection  with  the  GFI  Transaction  was  accounted  for  as a
  redemption  of equity.  By virtue of the  transfer of General Felt stock and the
  subsequent  merger of  General  Felt  into Foam  Funding  LLC,  the Pico  Rivera
  facility was  transferred  to Foam Funding  LLC; no gain was  recognized  on the
  transfer since the Company leased-back the facility. Accordingly, the net effect
  resulted in a charge to stockholders'  equity  (deficit) of  approximately  $0.5
  million.
  
                                         12
  FOAMEX INTERNATIONAL INC. AND SUBSIDIARIES
                NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
  
  9.     EARNINGS (LOSS) PER SHARE
  
         The  following  table shows the amounts  used in  computing  earnings per
  share and the  effect on income  and the  weighted  average  number of shares of
  dilutive potential common stock.
  Quarterly Period Ended             Year to Date Period Ended
                                                      September 30,     September 28,      September 30,     September 28,
                                                           1998              1997              1998              1997
                                                                   (thousands, except per share amounts)
  Basic earnings (loss) per share:
  Net income (loss)                               $  9,640          $  6,515          $ 24,422          $(18,478)
                                                         ========          ========          ========          ========
  
         Average common stock outstanding                  25,015            24,959            24,989            25,189
                                                         ========          ========          ========          ========
  
         Basic earnings (loss) per share                 $   0.39          $   0.26          $   0.98          $  (0.73)
                                                         ========          ========          ========          ========
  
  Diluted earnings (loss) per share:
         Net income (loss) available for common
            stock and dilutive securities                $  9,640          $  6,515          $ 24,422          $(18,478)
                                                         ========          ========          ========          ========
  
         Average common stock outstanding                  25,015            24,959            24,989            25,189
  
         Additional common shares resulting
            from stock options and warrants                 1,103               476             1,157               456
                                                         --------          --------          --------          --------
  
         Average common stock and dilutive
            stock outstanding                              26,118            25,435            26,146            25,645
                                                         ========          ========          ========          ========
  
         Diluted earnings (loss) per share               $   0.37          $   0.26          $   0.94          $  (0.72)
                                                         ========          ========          ========          ========
  10.     COMPREHENSIVE INCOME
  
         In June 1997, the Financial  Accounting  Standards Board issued Statement
  of  Financial  Accounting   Standards  No.  130  ("SFAS  No.  130),   "Reporting
  Comprehensive  Income," which requires  disclosure of comprehensive  income,  as
  defined,  including  comprehensive  disclosure in interim financial  statements.
  Comprehensive  income for the quarterly and year to date periods ended September
  30, 1998 and September 28, 1997 is comprised of the following:
  Quarterly Period Ended                Year to Date Period Ended
                                                  September 30,      September 28,     September 30,       September 28,
                                                       1998              1997               1998                1997
                                                                               (thousands)
  Net income (loss)                                 $  9,640           $  6,515           $ 24,422           $(18,478)
  Foreign currency translation adjustments            (1,130)               (62)              (900)              (230)
                                                    --------           --------           --------           --------
  Total comprehensive income                        $  8,510           $  6,453           $ 23,522           $(18,708)
                                                    ========           ========           ========           ========
  13
  ITEM 2.  MANAGEMENT'S DISCUSSION AND ANALYSIS OF THE FINANCIAL CONDITION AND
           RESULTS OF OPERATIONS
  
         The Company operates primarily in the flexible  polyurethane and advanced
  polymer foam  products  industry.  The  following  discussion  should be read in
  conjunction  with the condensed  consolidated  financial  statements and related
  notes thereto of the Company  included in this report.  Certain  information  in
  this  report  contains   forward-looking   statements  and  should  be  read  in
  conjunction with the discussion regarding  forward-looking  statements set forth
  on pages 4 and 5 of the Company's 1997 Annual Report on Form 10-K/A-2.
  
         The Company's  products are utilized  primarily in four  businesses:  (i)
  Foam Products,  consisting of cushioning foams,  including  bedding,  furniture,
  packaging, health care and foam-based consumer products such as futons, pillows,
  mattress pads and juvenile furniture,  (ii) Carpet Cushion Products,  consisting
  of carpet padding and related products, (iii) Automotive Products, consisting of
  automotive trim,  laminates and other accessories,  and (iv) Technical Products,
  consisting  of  reticulated  and other  specialty  foams used for  reservoiring,
  filtration, gasketing and sealing.
  
         On November 5, 1998,  Trace  Holdings,  Trace  Merger Sub,  Inc.  and the
  Company  entered into an Agreement and Plan of Merger (the "Merger  Agreement").
  Pursuant to the terms of the Merger  Agreement,  Trace Merger Sub will be merged
  with and into the Company (the  "Merger") and each  outstanding  share of common
  stock (except for shares owned by the Trace Holdings shareholders,  shares owned
  by the  company  and  shares  owned  by the  stockholders  who  perfected  their
  appraisal rights in accordance with the Delaware law) will be converted into the
  right to receive  $12.00 in cash,  without  interest.  Also on November 5, 1998,
  Trace  Holdings  terminated  the prior  Merger  Agreement  among the  parties by
  delivering a Notice of Termination to the Company. Trace Holdings terminated the
  prior Merger Agreement  because the financing  condition  contained in the prior
  Merger  Agreement was  incapable of being  satisfied on or prior to December 31,
  1998.
  
         Consummation of the Merger is subject to various  conditions,  including,
  among others:  (i) the approval and adoption of the Merger  Agreement by (A) the
  affirmative  vote of holders of a majority of the  outstanding  shares of Common
  Stock entitled to vote thereon,  and (B) the  affirmative  vote of a majority of
  the independent Shares (as defined) voting with respect to the Merger,  (ii) the
  absence of any  injunction  preventing  consummation  of the  Merger,  (iii) the
  obtaining of financing for the transactions contemplated by the Merger Agreement
  on  terms  and  conditions  and in  amounts  reasonably  satisfactory  to  Trace
  Holdings,  and  (iv)  other  conditions  that  may be  waived  by  the  parties,
  including:  the absence of any action,  suit, claim or legal,  administrative or
  arbitral  proceeding or  investigation  pending before any  governmental  entity
  seeking to restrain or prohibit,  or to obtain damages in respect of, the Merger
  Agreement or the consummation of the transactions contemplated thereby.
  
         In April 1998, the Company's facility in Orlando,  Florida was damaged by
  a fire which  recommenced the  manufacturing  of Foam Products in  mid-September
  1998.  During this idle period,  the Company supplied local customers from other
  facilities.  The Company  believes that it has adequate  insurance  coverage for
  business  interruption  and damages to the  facility  associated  with the fire;
  however,  there can be no  assurance  that the fire will not have a  significant
  impact on the Company's financial position or operations.
  
         On February 27, 1998, the Company and certain of its affiliates completed
  a series of  transactions  designed to simplify the  Company's  structure and to
  provide  future  operational  flexibility.  Prior to the  consummation  of these
  transactions, the Company defeased the $4.5 million outstanding principal amount
  of its 9 1/2% senior secured notes due 2000. Foamex L.P. settled a $38.8 million
  intercompany  note  payable  to General  Felt with $4.8  million in cash and the
  $34.0 million  Foamex/GFI  Note  supported by a $34.5  million  letter of credit
  under the Foamex L.P. Credit Facility.  The initial transaction  resulted in the
  transfer from Foamex L.P. to Foam Funding LLC of all of the  outstanding  common
  stock of General Felt, in exchange for (i) the assumption by Foam Funding LLC of
  $129.0  million of Foamex  L.P.'s  indebtedness  and (ii) the  transfer  by Foam
  Funding LLC to Foamex L.P. of a 1% non-managing  general partnership interest in
  Foamex L.P. As a result,  General Felt ceased being a subsidiary  of Foamex L.P.
  and was  relieved  from  all  obligations  under  Foamex  L.P.'s  9 7/8%  senior
  subordinated notes due 2007 and 13 1/2% senior subordinated notes due 2005. Upon
  consummation  of  the  initial  transaction,   Foamex  Carpet,  a  newly  formed
  wholly-owned  subsidiary  of the  Company,  the  Company,  Foam Funding LLC, and
  General Felt entered into an asset purchase  agreement  dated February 27, 1998,
  in which  General  Felt sold  substantially  all of its assets  (other  than the
  Foamex/GFI Note and its operating facility in Pico Rivera, California) to Foamex
  Carpet in  exchange  for (i) $20.0  million in cash and (ii) a  promissory  note
  issued 
  
                                         14
  ITEM 2.  MANAGEMENT'S DISCUSSION AND ANALYSIS OF THE FINANCIAL CONDITION AND
           RESULTS OF OPERATIONS
  
  by Foamex Carpet to Foam Funding LLC in the amount of $70.2  million.  The $20.0
  million  cash  payment  was  funded  by  a  distribution  by  Foamex  L.P.  Upon
  consummation  of the transaction  contemplated by the asset purchase  agreement,
  Foamex Carpet entered into a credit agreement with the institutions from time to
  time party  thereto,  as issuing  banks,  and Citicorp USA, Inc. and The Bank of
  Nova Scotia, as administrative agents, which provides for up to $20.0 million in
  revolving  credit  borrowings.  Foamex  Carpet will  conduct the carpet  cushion
  business  previously  conducted  by General  Felt.  Also,  Foam  Funding LLC has
  retained ownership of one of General Felt's operating  facilities which is being
  leased to Foamex Carpet and the $34.0 million Foamex/GFI Note.
  
         On December 23, 1997,  the Company  acquired  Crain  pursuant to a merger
  agreement with Crain Holdings Corp. for a purchase price of approximately $213.7
  million,  including the  assumption  of debt with a face value of  approximately
  $98.6 million (and an estimated fair value of approximately $112.3 million).  In
  addition,   fees  and  expenses   associated  with  the  Crain  Acquisition  are
  approximately $13.2 million.
  
         On October 6, 1997, the Company sold  substantially all of the net assets
  of its needlepunch  carpeting,  tufted  carpeting and artificial  grass products
  business  located at its  facilities  in Dalton,  Georgia  ("Dalton").  Dalton's
  revenues  were $10.7  million and $35.1 million for the quarterly and nine month
  periods ended September 28, 1997.
  
         Operating  results  for 1998 are  expected  to be  influenced  by various
  internal and external factors.  These factors include,  among other things,  (i)
  consolidation of the Crain  Acquisition,  (ii) continued  implementation  of the
  continuous  improvement  program to improve the Company's  profitability,  (iii)
  variability  of the  Company's  raw  material  costs by the  Company's  chemical
  suppliers and (iv) fluctuations in interest rates.
  
  Quarterly  Period Ended  September 30, 1998  Compared to Quarterly  Period Ended
  September 28, 1997
  
  Results of Operations
  
         Net sales for the third  quarter of 1998 were $332.7  million as compared
  to $233.4  million in the third quarter of 1997, an increase of $99.3 million or
  42.5%. Foam Products net sales for the third quarter of 1998 increased to $157.2
  million from $89.8  million in the third  quarter of 1997  primarily  due to net
  sales from the Crain  operations  and increased  volume to our national  bedding
  customers  and  fabricators.  Carpet  Cushion  Products  net sales for the third
  quarter of 1998 increased 14.1% to $82.1 million from $72.0 million in the third
  quarter of 1997 primarily due to acquisition of the Crain  operations  offset by
  the sale of the Dalton Facility in October 1997.  Automotive  Products net sales
  for the third  quarter  of 1998  increased  40.6% to $73.6  million  from  $52.3
  million  in  the  third  quarter  of  1997  primarily  due to  increased  volume
  associated  with  above  normal  volume to  General  Motors  and  General  Motor
  suppliers  following  the  settlement  of General  Motor  labor  disputes.  This
  extraordinary  high  level of  volume is not  expected  to  continue.  Technical
  Products net sales for the third quarter of 1998 increased 2.6% to $19.8 million
  from $19.3 million in the third  quarter of 1997  primarily due to increased net
  sales volume for felted, gasketing, and sealing products.
  
         Gross  profit as a  percentage  of net sales  increased  to 17.1% for the
  third quarter of 1998 from 16.3% in the third  quarter of 1997  primarily due to
  increased  purchasing  leverage  offset by a shift in product  mix for 1998 as a
  result of the Crain  Acquisition.  Crain's  principal  product  lines,  bedding,
  furniture and carpet cushion,  have  inherently  lower gross profit margins than
  the Company's  historical gross profit margins.  Also,  gross profit  percentage
  increased in the third  quarter of 1998 due to the Company's  implementation  of
  restructuring/consolidation programs associated with the Crain Acquisition.
  
         Income from  operations  increased to $36.9 million for the third quarter
  of 1998 from $22.3  million in the third  quarter of 1997  primarily  due to the
  Crain Acquisition.
  
         Income before  extraordinary loss increased to $9.6 million for the third
  quarter of 1998 as compared to $6.5 million for the third  quarter of 1997.  The
  increase is primarily  due to the increase in income from  operations  discussed
  above offset by an increase of  approximately  $6.6 million in interest and debt
  issuance  
  
                                         15
  ITEM 2.  MANAGEMENT'S DISCUSSION AND ANALYSIS OF THE FINANCIAL CONDITION AND
           RESULTS OF OPERATIONS
  
  expense and $2.2 million of costs  associated  with foreign  currency  losses in
  Mexico and Canada and certain fees  associated with financial and legal advisors
  used by the  Company  in the  buy-out  proposal  is  included  in  other  income
  (expense),  net. The increase in interest and debt issuance expense is primarily
  due to the debt incurred in connection with the Crain Acquisition  offset by the
  favorable effects of the June 1997 refinancing plan.
  
  Year to Date Period  Ended  September  30, 1998  Compared to Year to Date Period
  Ended September 28, 1997
  
  Results of Operations
  
         Net sales  for the year to date  period  ended  September  30,  1998 were
  $945.0  million as compared to $702.4  million for the year to date period ended
  September  28, 1997, an increase of $242.6  million or 34.5%.  Foam Products net
  sales for the year to date period ended  September 30, 1998  increased  76.6% to
  $458.7 million from $259.7  million for the year to date period ended  September
  28,  1997  primarily  due to the net  sales  from the Crain  operations.  Carpet
  Cushion  Products net sales for the year to date period ended September 30, 1998
  increased 5.1% to $225.9 million from $214.9 million for the year to date period
  ended  September 28, 1997  primarily due to net sales from the Crain  operations
  offset by the sale of Dalton in October  1997 and due to a  reduction  of rebond
  selling  prices as compared to 1997 and a change in the product mix.  Automotive
  Products  net  sales  for the  year to date  period  ended  September  30,  1998
  increased  16.3% to $199.3  million  from  $171.4  million  for the year to date
  period ended  September 28, 1997  primarily due to increased  volume.  Technical
  Products  net  sales  for the  year to date  period  ended  September  30,  1998
  increased  8.2% to $61.1  million from $56.4 million for the year to date period
  ended September 28, 1997 primarily due to increased net sales volume for felted,
  gasketing, and sealing products.
  
         Gross profit as a percentage of net sales decreased to 17.4% for the year
  to date period  ended  September  30, 1998 from 17.9% in the year to date period
  ended September 28, 1997 primarily due to the shift in product mix for 1998 as a
  result of the Crain  Acquisition.  Crain's  principal  product  lines,  bedding,
  furniture and carpet cushion,  have  inherently  lower gross profit margins than
  the Company's historical gross profit margins.  Also, the gross profit was lower
  since  the  Company  carried  the  full  individual   operating  costs  of  both
  organizations during the first quarter of 1998.
  
         Income from  operations  increased to $101.8 million for the year to date
  period ended  September  30, 1998 from $77.8  million in the year to date period
  ended September 28, 1997 primarily due to the Crain Acquisition.
  
         Income before  extraordinary loss increased to $26.3 million for the year
  to date period  ended  September  30, 1998 as compared to $24.1  million for the
  year to date period ended  September 28, 1997.  The decrease is primarily due to
  an increase of approximately $14.4 million in interest and debt issuance expense
  and $3.9 million of costs  associated with (i) the transfer of General Felt (ii)
  foreign  currency  losses in Mexico and Canada and (iii) certain fees associated
  with  financial and legal  advisors used by the Company in the buy-out  proposal
  which is included in other income  (expense),  net. The increase in interest and
  debt issuance  expense is primarily due to the debt incurred in connection  with
  the  Crain  Acquisition  offset  by  the  favorable  effects  of the  June  1997
  refinancing plan.
  
  Liquidity and Capital Resources
  
         Liquidity and Capital Resources
  
         The Company is a holding company whose  operations are conducted  through
  two  wholly-owned  subsidiaries,  Foamex L.P. and Foamex  Carpet.  The liquidity
  requirements of the Company consist primarily of the operating cash requirements
  of its two principal subsidiaries.
  
         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.  The Company believes that
  cash flow from Foamex  L.P.'s  operating  activities,  cash on hand and periodic
  borrowings  under the Credit  
  
                                         16
  ITEM 2.  MANAGEMENT'S DISCUSSION AND ANALYSIS OF THE FINANCIAL CONDITION AND
           RESULTS OF OPERATIONS
  
  Facility,  if  necessary,  will be  adequate  to meet  Foamex  L.P.'s  liquidity
  requirements.  The ability to meet such liquidity requirements could be impaired
  if Foamex L.P. were to fail to comply with any covenants contained in the Credit
  Facility  and such  noncompliance  was not cured by Foamex L.P. or waived by the
  lenders. Foamex L.P. was in compliance with the covenants in the Credit Facility
  as of September 30, 1998 and the Company expects Foamex L.P. to be in compliance
  with such covenants for the  foreseeable  future.  The ability of Foamex L.P. to
  make  distributions  to the Company is  restricted by the terms of its financing
  agreements; therefore, neither the Company nor Foamex Carpet is expected to have
  access to the cash flow generated by Foamex L.P. for the foreseeable future.
  
         Foamex  Carpet's  operating  cash  requirements  consist  principally  of
  working capital  requirements,  scheduled  payments of principal and interest on
  outstanding  indebtedness  and capital  expenditures.  The Company believes that
  cash flow from Foamex Carpet's operating  activities,  cash on hand and periodic
  borrowings  under Foamex  Carpet's  credit  facility (the "Foamex  Carpet Credit
  Facility"),  if necessary,  will be adequate to meet Foamex  Carpet's  liquidity
  requirements.  The ability to meet such liquidity requirements could be impaired
  if Foamex  Carpet were to fail to comply  with any  covenants  contained  in the
  Foamex Carpet  Credit  Facility and such  noncompliance  was not cured by Foamex
  Carpet  or waived by the  lenders.  Foamex  Carpet  was in  compliance  with the
  covenants in the Foamex Carpet Credit  Facility as of September 30, 1998 and the
  Company  expects  Foamex Carpet to be in compliance  with such covenants for the
  foreseeable  future.  The ability of Foamex Carpet to make  distributions to the
  Company  is  restricted  by the terms of its  financing  agreements;  therefore,
  neither  the Company nor Foamex L.P. is expected to have access to the cash flow
  generated by Foamex Carpet for the foreseeable future.
  
         Cash and cash  equivalents  decreased  $2.0 million  during 1998 to $10.0
  million at September 30, 1998 from $12.0 million at December 28, 1997  primarily
  due to cash used for capital expenditures, the Crain Acquisition and an increase
  of cash  used by the  operating  assets  and  liabilities  offset  by  increased
  borrowings.  Working  capital  increased  $68.9  million  during  1998 to $207.4
  million at September 30, 1998 from $138.5 million at December 28, 1997 primarily
  due to the  increase  in net  operating  assets (as  discussed  below) and a net
  increase in other  current  assets and  liabilities.  The net  increase in other
  current  assets  and  liabilities  is  primarily  associated  with the timing of
  payments  for  interest  and prepaid  expenses and the receipt of cash for other
  receivables.  Net  operating  assets  and  liabilities  (comprised  of  accounts
  receivable,  inventories  and accounts  payable)  increased $55.8 million during
  1998 to $220.1 million at September 30, 1998 from $164.3 million at December 28,
  1997  primarily due to increases in accounts  receivable and  inventories  and a
  decrease in accounts payable.  The increase in accounts  receivable is primarily
  due to an increase in net sales for September 1998 as compared to December 1997.
  The  increase in  inventories  is primarily  due to  increased  purchases of raw
  materials  associated with potential price  increases.  The decrease in accounts
  payable is primarily due to the timing of payments.
  
         As of September 30, 1998,  there were $137.0 million of revolving  credit
  borrowings under the Credit Facility and approximately  $50.0 million associated
  with letters of credit  outstanding  which are supported by the Credit  Facility
  with unused  availability of  approximately  $73.1 million.  As of September 30,
  1998,  Foamex Carpet Credit Facility had unused  availability  of  approximately
  $19.2 million.  Borrowings by Foamex Canada,  Inc. as of September 30, 1998 were
  $3.6 million under Foamex Canada Inc.'s  revolving  credit agreement with unused
  availability of approximately $1.7 million.
  
         Cash flow used for operating activities was $16.1 million for the year to
  period ended September 30, 1998 as compared to cash provided by of $12.2 million
  for the year to date period ended September 28, 1997. This decrease is primarily
  due to $42.6  million  of cash  used  during  1997 for  premiums  and  repayment
  penalties associated with the June 1997 refinancing plan offset by (i) cash used
  for the increase in accounts  receivable and other  receivables  associated with
  the timing of receipts and (ii) a reduction in accounts payable  associated with
  the timing of payments.
  
         Cash flow used for  investing  activities  increased to $28.3 million for
  the year to date period ended September 30, 1998 from cash used of $21.7 million
  for the year to date period ended  September 28, 1997  primarily due to (i) $4.4
  million paid in connection with the Crain Acquisition offset by the use of $12.1
  million  of  restricted  cash in 1997 to  repaid  long-term  debt  and a loan to
  shareholder of $5.0 million in 1997.
  
                                         17
  ITEM 2.  MANAGEMENT'S DISCUSSION AND ANALYSIS OF THE FINANCIAL CONDITION AND
           RESULTS OF OPERATIONS
  
         Cash flow provided by financing activities increased to $42.4 million for
  the year to date  period  ended  September  30, 1998 as compared to cash used of
  $13.6  million for the year to date period ended  September  28,  1997.  This is
  primarily  associated  with  borrowings  under the  revolving  loans to fund the
  operations  of Crain  during the year to date period  ended  September  30, 1998
  offset by the $28.7 million used to fund the GFI Transaction.
  
         Certain  credit  agreements and  promissory  notes of Foamex L.P.  and/or
  Foamex Carpet  pursuant to which  approximately  $500.0 million of debt has been
  issued,  contain  provisions  that  would  result  in the  acceleration  of such
  indebtedness  if Trace  were to cease  to own at  least  30% of the  outstanding
  common stock.  Similarly,  certain  indentures of Foamex L.P. and Foamex Capital
  Corporation  relating to  approximately  $248.0  million of Senior  Subordinated
  Notes contain  provisions  that provide the holders of such Senior  Subordinated
  Notes with the right to require the issuers  thereof to  repurchase  such Senior
  Subordinated  Notes at a price in cash equal to 101% of the aggregate  principal
  amount  thereof,  plus accrued and unpaid  interest  thereon,  if Trace Holdings
  falls below certain specified ownership levels of common stock and other persons
  or group owns a greater  percentage of common stock than Trace  Holdings.  Trace
  Holdings has informed the Company that it has substantial  debt  obligations due
  at the end of December 1998 and currently does not have the financial  resources
  to pay  these  obligations.  Trace  Holdings  intends  to  seek  waivers  and/or
  modifications of such indebtedness; however, there can be no assurance that such
  waivers and/or modifications will be achieved. If Trace Holdings were to default
  on its indebtedness and the holders of such indebtedness or other Trace Holdings
  creditors  were to  foreclose  on or  otherwise  attach the common stock held by
  Trace  Holdings,  such  event  could  trigger  the  acceleration  and put rights
  described  above.  Although  management  believes that all such debt obligations
  would be refinanced under such circumstances, there can be no assurance that the
  Company or its subsidiaries  would be able to do so. Trace Holdings has informed
  the Company that it  anticipates  that if the proposed  merger is consummated it
  will be able to satisfy or restructure its outstanding obligations.
  
         Interest Rate Swaps
  
         In  September  1998,  the Company sold its  existing  interest  rate swap
  agreements for a net gain of approximately $1.0 million which is being amortized
  over the life of the debt.
  
         The effect of the Company's interest rate swap agreements was a favorable
  adjustment  to  interest  and debt  issuance  expense of $0.3  million  and $0.5
  million for the  quarterly  periods  ended  September 30, 1998 and September 28,
  1997,  respectively  and  $0.7  million  and $2.2  million  for the year to date
  periods ended September 30, 1998 and September 28, 1997, respectively.
  
  Environmental Matters
  
         The Company is subject to extensive and changing  environmental  laws and
  regulations.  Expenditures to date in connection  with the Company'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  the  Company  in  connection   with
  environmental matters as of September 30, 1998 was $4.5 million. In addition, as
  of September 30, 1998,  the Company has net  receivables of  approximately  $1.1
  million for indemnification of environmental liabilities from former owners, net
  of  approximately  $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 the Company to reassess its
  potential  exposure  to  all  pending  environmental  matters,  including  those
  described in the footnotes to the Company's  consolidated  financial statements,
  the Company believes that, based upon all currently available  information,  the
  resolution  of all such pending  environmental  matters will not have a material
  adverse  effect  on  the  Company's  operations,   financial  position,  capital
  expenditures or competitive position.
  
                                         18
  ITEM 2.  MANAGEMENT'S DISCUSSION AND ANALYSIS OF THE FINANCIAL CONDITION AND
           RESULTS OF OPERATIONS
  
  Inflation and Other Matters
  
         There was no significant  impact on the Company's  operations as a result
  of  inflation  during  the  periods  presented.  In some  circumstances,  market
  conditions or customer  expectations may prevent the Company from increasing the
  price of its products to offset the inflationary pressures that may increase its
  costs in the future.
  
         The Company's automotive products 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, the Company's
  sales are  sensitive  to sales of new and  existing  homes,  changes in personal
  disposable  income  and  seasonality.  The  Company  typically  experiences  two
  seasonally  slow periods  during each year, in early July and in late  December,
  due to scheduled plant shutdowns and holidays.
  
  Year 2000 Compliance
  
         The  Company  uses  multiple  business  information  systems  as  well as
  manufacturing support systems that could be impacted by the "Year 2000 problem".
  The Year 2000 problem arises from computer programs that have been written using
  two digits  rather  than four to  designate  the year.  Date-sensitive  computer
  software  may  recognize a date using "00" as the year 1900 rather than the year
  2000,  resulting  in  system  failures  or  miscalculations,   which  may  cause
  operational disruptions.
  
         The  Company  is in the  process  of the  remediation  of their  business
  information  computer  systems.  The  Company  is  also  in the  process  of the
  conversion  of the former  Crain  systems  to the  Company's  standard  business
  information computer systems. The replacement of these systems will increase the
  integration  of systems and allow  employees  at  different  locations  to share
  financial information and operations  information more effectively.  Remediation
  of the Company business  information  computer systems and the conversion of the
  former Crain systems should be completed in 1998. These systems and software are
  Year 2000  compliant,  thus  handling  the majority of the  Company's  Year 2000
  business systems requirements.
  
         The Company has a Year 2000 Executive  Sponsor Team with  representatives
  of the Company.  The Year 2000 Executive Sponsor Team is providing  direction to
  the Year 2000 Steering Committee within the organization. The Steering Committee
  is in the process of  completing  an assessment of the state of readiness of the
  Information   Technology  ("IT")  and  non-IT  systems  of  the  Company.  These
  assessments  cover  manufacturing  systems,   including  laboratory  information
  systems  and field  instrumentation,  and  significant  third  party  vendor and
  supplier systems,  including employee  compensation and benefit plan maintenance
  systems.  The  Steering  Committee  is  also in the  process  of  assessing  the
  readiness of significant customers and suppliers.
  
         The Year  2000  assessment  process  for  each  facility  consists  of an
  inventory  of Year 2000  sensitive  equipment,  an  assessment  of the impact of
  possible  failures,  determination  of the  required  remediation  actions,  and
  testing and implementation of solutions. The inventory, assessment,  remediation
  and testing phases should be completed in 1998, with fail safe testing and final
  implementation  taking  place in  1999.  The  progress  of  these  phases  as of
  September 30, 1998 is summarized as follows:
  
         The total estimated spending of $2.4 million for the Company represents a
  midpoint of an estimated  range  between $2.1  million and $2.7  million.  These
  spending  estimates  will be refined as phases of the  assessment are completed.
  Spending is funded by cash  generated  from  operations.  Preliminary  estimates
  indicate  that from 25 to 35 percent of the  estimated  costs could  qualify for
  capitalization.
  
         Management  believes  that  all  significant  systems  controlled  by the
  Company  will be Year 2000  ready in the last half of 1999.  While the  Steering
  Committee is communicating readiness to third party customers, as requested, and
  is assessing the readiness of critical suppliers, there can be no assurance that
  third parties with a significant  business  relationship will successfully test,
  reprogram,  and replace all of their IT and non-IT systems on a timely basis. As
  part of the  overall  readiness,  the  Company is in the  process of  developing
  contingency plans in the event of Year 2000 non-compliance of certain systems or
  third parties.  Details of such  contingency  plans will be 
  
                                         19
  ITEM 2.  MANAGEMENT'S DISCUSSION AND ANALYSIS OF THE FINANCIAL CONDITION AND
           RESULTS OF OPERATIONS
  
  determined  after the Steering  Committee has  completed its  assessment of both
  internal and third party systems and the potential for possible failures.
  
         There  is  inherent  uncertainty  in the  Year  2000  problem  due to the
  possibility of  unanticipated  failures by third party  customers and suppliers.
  Accordingly,  the  Company  is unable,  at this  time,  to assess the extent and
  resulting  materiality  of the  impact of  possible  Year 2000  failures  on its
  operations, liquidity or financial position. The Year 2000 assessment process is
  expected  to provide  information  that will  significantly  reduce the level of
  uncertainty  regarding  the  Year  2000  impact.  Management  believes  that the
  completion of the assessment as scheduled will help minimize the  possibility of
  any significant disruptions of Company operations.
  
  New Accounting Standards
  
         Statement of Financial  Accounting  Standards  No. 130 ("SFAS No.  130"),
  "Reporting  Comprehensive  Income,"  was  issued  by  the  Financial  Accounting
  Standards  Board in June 1997.  This  statement  requires all items that must be
  recognized under accounting  standards as components of comprehensive  income to
  be reported in a financial  statement that is displayed with the same prominence
  as other financial statements. The Company adopted SFAS No.
  130 during the first quarter of 1998 (see Note 10).
  
         Statement of Financial  Accounting  Standards  No. 131 ("SFAS No.  131"),
  "Disclosures  about  Segments of an Enterprise  and Restated  Information,"  was
  issued by the Financial  Accounting Standards Board in June 1997. This statement
  establishes  standards for reporting  information  about  operating  segments in
  annual  financial  statements  and  requires  reporting  of  selected  financial
  information  about  operating  segments in interim  financial  reports issued to
  stockholders.  It also  establishes  standards  for  related  disclosures  about
  products and services,  geographic areas, and major customers.  The Company will
  adopt SFAS No. 131 for the year ended 1998 reporting.  The Company is evaluating
  the impact, if any, the standard will have on its present segment reporting.
  
         In February 1998 the Financial Accounting Standards Board issued SFAS No.
  132, "Employers'  Disclosures about Pension and Other  Postretirement  Benefits"
  ("SFAS No. 132"),  which is effective for fiscal years  beginning after December
  15, 1997. SFAS No. 132 revised the required  disclosures about pension and other
  postretirement  benefit  plans.  The Company  plans to adopt SFAS No. 132 in the
  fourth quarter of 1998.
  
         In June 1998 the Financial Accounting Standards Board issued SFAS No. 133
  ("SFAS  No.  133"),   "Accounting   for  Derivative   Instruments   and  Hedging
  Activities."  SFAS  No.  133  established  new  procedures  for  accounting  for
  derivatives  and  hedging  activities  and  supercedes  and  amends a number  of
  existing standards.  The statement is effective for fiscal years beginning after
  June 15, 1999.
  
                                         20
  Part II -  Other Information
  
  Item 1.    Legal Proceedings
  
             Reference  is  made  to  the  description  of the  legal  proceedings
             contained in the  Company's  Annual  Report on Form  10-K/A-2 for the
             fiscal year ended  December 28, 1997 and in the  Company's  Quarterly
             Report on Form 10-Q/A-1 for the fiscal quarter ended June 28, 1998.
  
             The  information  from  Notes 6 and 7 of the  condensed  consolidated
             financial  statements  of  the  Company  as  of  September  30,  1998
             (unaudited) is incorporated herein by reference.
  
  Item 2.    Changes in Securities
  
             None.
  
  Item 3.    Defaults Upon Senior Securities
  
             None.
  
  Item 4.    Submission of Matters to a Vote of Security Holders.
  
             None.
  
  Item 5.    Other Information
  
             None.
  
  Item 6.    Exhibits and Reports on Form 8-K
  
            (a)  Exhibits
  
  2.1(x)        -  Transfer  Agreement,  dated as of  February  27,  1998,  by and
                between Foam Funding LLC and Foamex L.P.
  2.2(x)        - Asset Purchase Agreement,  dated as of February 27, 1998, by and
                among  Foamex  Carpet  Cushion,  Inc.  ("Foamex  Carpet"),  Foamex
                International Inc. ("Foamex International"),  Foam Funding LLC and
                General Felt Industries, Inc. ("General Felt").
  2.3(z)        - Agreement  and Plan of Merger,  dated as of November 5, 1998, by
                and among Foamex International, Trace International Holdings, Inc.
                and Trace Merger Sub Corp.
  3.1(a)        - Certificate of Limited Partnership of Foamex L.P.
  3.2.1(a)      - Fourth Amended and Restated Agreement of Limited  Partnership of
                Foamex L.P.,  dated as of December  14,  1993,  by and among FMXI,
                Inc.  ("FMXI") and Trace Foam Company,  Inc.  ("Trace  Foam"),  as
                general partners,  and Foamex International,  as a limited partner
                (the "Partnership Agreement").
  3.2.2(b)      - First  Amendment to the  Partnership  Agreement,  dated June 28,
                1994.
  3.2.3(c)      - Second  Amendment to the Partnership  Agreement,  dated June 12,
                1997.
  3.2.4(v)      - Third Amendment to the Partnership Agreement, dated December 23,
                1997.
  3.2.5(x)      - Fourth  Amendment to the Partnership  Agreement,  dated February
                27, 1998.
  3.3(y)        - Certificate of Incorporation of FMXI.
  3.4(y)        - By-laws of FMXI.
  3.5(k)        -  Certificate  of  Incorporation  of Foamex  Capital  Corporation
                ("FCC").
  3.6(k)        - By-laws of FCC.
  3.7(a)        - Certificate of Incorporation of Foamex International.
  3.8(a)        - By-laws of Foamex International.
  
                                         21
  4.1.1(d)      - Indenture,  dated as of June 12, 1997, by and among Foamex L.P.,
                FCC,  the  Subsidiary  Guarantors  and The  Bank of New  York,  as
                trustee,  relating  to  $150,000,000  principal  amount  of 9 7/8%
                Senior Subordinated Notes due 2007 (the "9 7/8% Notes"), including
                the form of Senior Subordinated Note and Subsidiary Guarantee.
  4.1.2(v)      - First  Supplemental  Indenture,  dated as of December  23, 1997,
                between  Foamex LLC ("FLLC") and The Bank of New York, as trustee,
                relating to the 9 7/8% Notes.
  4.1.3(x)      - Second  Supplemental  Indenture,  dated as of February 27, 1998,
                among Foamex L.P. and FCC, as joint and several obligors,  General
                Felt,  Foamex  Fibers,  Inc.  (`Foamex  Fibers"),   and  FLLC,  as
                withdrawing  guarantors,  and The Bank of New  York,  as  trustee,
                relating to the 9 7/8% Notes.
  4.2.1(v)      - Indenture,  dated as of December  23, 1997,  by and among Foamex
                L.P.,  FCC, the Subsidiary  Guarantors,  Crain Holdings  Corp., as
                Intermediate  obligator,  and The Bank of New  York,  as  trustee,
                relating  to  $98,000,000  principal  amount  of  13  1/2%  Senior
                Subordinated  Notes due 2005 (the "13 1/2% Notes"),  including the
                form of Senior Subordinated Note and Subsidiary Guarantee.
  4.2.2(x)      - First  Supplemental  Indenture,  dated as of February  27, 1998,
                among Foamex L.P. and FCC, as joint and several obligors,  General
                Felt,  Foamex Fibers and FLLC, as  withdrawing  guarantors,  Crain
                Industries,  Inc., as withdrawing  intermediate  obligor,  and The
                Bank of New York, as trustee, relating to the 13 1/2% Notes.
  4.3(x)        - Discharge of  Indenture,  dated as of February 27, 1998,  by and
                among Foamex L.P.,  General Felt,  Foamex  International and State
                Street Bank and Trust Company, as trustee,  relating to the 9 1/2%
                Senior Secured Notes due 2000.
  4.4.1(x)      - Credit  Agreement,  dated as of June 12,  1997,  as amended  and
                restated as of February  27, 1998,  by and among Foamex L.P.,  and
                FMXI, the institutions from time to time party thereto as lenders,
                the institutions from time to time party thereto as issuing banks,
                and  Citicorp  USA,   Inc.  and  The  Bank  of  Nova  Scotia,   as
                Administrative Agents.
  4.4.2(x)      - Second Amended and Restated Foamex International Guaranty, dated
                as of February 27, 1998, made by Foamex  International in favor of
                Citicorp USA, Inc., as Collateral Agent.
  4.4.3(x)      - Amended and Restated Partnership Guaranty,  dated as of February
                27,  1998,  made  by FMXI in  favor  of  Citicorp  USA,  Inc.,  as
                Collateral Agent.
  4.4.4(p)      - Foamex Guaranty,  dated as of June 12, 1997, made by Foamex L.P.
                in favor of Citicorp USA, Inc., as Collateral Agent.
  4.4.5(p)      - Subsidiary  Guaranty,  dated as of June 12, 1997, made by Foamex
                Latin America,  Inc. in favor of Citicorp USA, Inc., as Collateral
                Agent.
  4.4.6(p)      - Subsidiary  Guaranty,  dated as of June 12, 1997, made by Foamex
                Mexico, Inc. in favor of Citicorp USA, Inc., as Collateral Agent.
  4.4.7(p)      - Subsidiary  Guaranty,  dated as of June 12, 1997, made by FCC in
                favor of Citicorp USA, Inc., as Collateral Agent.
  4.4.8(p)      - Subsidiary  Guaranty,  dated as of June 12, 1997, made by Foamex
                Mexico II, Inc.  in favor of Citicorp  USA,  Inc.,  as  Collateral
                Agent.
  4.4.9(p)      - Subsidiary  Guaranty,  dated as of June 12, 1997, made by Foamex
                Asia, Inc. in favor of Citicorp USA, Inc., as Collateral Agent.
  4.4.10(p)     - Subsidiary Pledge Agreement,  dated as of June 12, 1997, made by
                FCC in favor of Citicorp USA, Inc., as Collateral Agent.
  4.4.11(p)     - Subsidiary Pledge Agreement,  dated as of June 12, 1997, made by
                Foamex Latin  America,  Inc. in favor of Citicorp  USA,  Inc.,  as
                Collateral Agent.
  4.4.12(p)     - Subsidiary Pledge Agreement,  dated as of June 12, 1997, made by
                Foamex Asia,  Inc. in favor of Citicorp  USA,  Inc., as Collateral
                Agent.
  4.4.13(p)     - Subsidiary Pledge Agreement,  dated as of June 12, 1997, made by
                Foamex Mexico,  Inc. in favor of Citicorp USA, Inc., as Collateral
                Agent.
  4.4.14(p)     - Subsidiary Pledge Agreement,  dated as of June 12, 1997, made by
                Foamex  Mexico  II,  Inc.  in  favor of  Citicorp  USA,  Inc.,  as
                Collateral Agent.
  4.4.15(p)     - Foamex  Security  Agreement,  dated as of June 12, 1997, made by
                Foamex L.P. in favor of Citicorp USA, Inc., as Collateral Agent.
  
                                         22
  4.4.16(p)     - Subsidiary Security  Agreement,  dated as of June 12, 1997, made
                by Foamex Latin  America,  Inc. in favor of Citicorp USA, Inc., as
                Collateral Agent.
  4.4.17(p)     - Subsidiary Security  Agreement,  dated as of June 12, 1997, made
                by  Foamex  Mexico,  Inc.  in  favor of  Citicorp  USA,  Inc.,  as
                Collateral Agent.
  4.4.18(p)     - Subsidiary Security  Agreement,  dated as of June 12, 1997, made
                by Foamex  Mexico II,  Inc.  in favor of Citicorp  USA,  Inc.,  as
                Collateral Agent.
  4.4.19(p)     - Subsidiary Security  Agreement,  dated as of June 12, 1997, made
                by Foamex Asia, Inc. in favor of Citicorp USA, Inc., as Collateral
                Agent.
  4.4.20(p)     - Subsidiary Security  Agreement,  dated as of June 12, 1997, made
                by FCC in favor of Citicorp USA, Inc., as Collateral Agent.
  4.4.21(r)     - Foamex  Pledge  Agreement,  dated as of June 12,  1997,  made by
                Foamex L.P. in favor of Citicorp USA, Inc., as Collateral Agent.
  4.4.22(w)     - First Amendment to Foamex Pledge Agreement, dated as of December
                23,  1997,  by Foamex  L.P.  in favor of Citicorp  USA,  Inc.,  as
                Collateral Agent.
  4.4.23(w)     - First  Amendment  to  Foamex  Security  Agreement,  dated  as of
                December 23, 1997, by Foamex L.P. in favor of Citicorp USA,  Inc.,
                as Collateral Agent.
  4.4.24(w)     - First Amendment to Foamex Patent Agreement, dated as of December
                23,  1997,  by Foamex  L.P.  in favor of Citicorp  USA,  Inc.,  as
                Collateral Agent.
  4.4.25(w)     - First  Amendment to Trademark  Security  Agreement,  dated as of
                December 23, 1997, by Foamex L.P. in favor of Citicorp USA,  Inc.,
                as Collateral Agent.
  4.4.26(w)     -  Acknowledgment  of  Guaranty  by  each of the  guarantors  to a
                Guaranty dated June 12, 1997 in favor of Citicorp USA, Inc.
  4.4.27(w)     - First  Amendment to Pledge  Agreement,  dated as of December 23,
                1997, by pledgors in favor of Citicorp USA, Inc.
  4.4.28(w)     - Crain Industries  Guaranty,  dated as of December 23, 1997, made
                by Crain in favor of Citicorp USA, Inc.
  4.4.29(x)     -  Partnership  Pledge  Agreement,  dated as of February 27, 1998,
                made by Foamex  International  and FMXI in favor of Citicorp  USA,
                Inc., as Collateral Agent.
  4.5(u)        - Commitment  letter,  dated July 17, 1997,  from The Bank of Nova
                Scotia to Foamex Canada Inc.
  4.6(a)        - Subordinated  Promissory  Note,  dated as of May 6, 1993, in the
                original principal amount of $7,014,864 executed by Foamex L.P. to
                John Rallis ("Rallis").
  4.7(a)        - Marely Loan Commitment Agreement, dated as of December 14, 1993,
                by and between Foamex L.P. and Marely s.a. ("Marely").
  4.8(a)        - DLJ Loan Commitment Agreement, dated as of December 14, 1993, by
                and between Foamex L.P. and DLJ Funding, Inc. ("DLJ Funding").
  4.9.1(p)      - Promissory Note, dated June 12, 1997, in the aggregate principal
                amount of $5,000,000, executed by Trace Holdings to Foamex L.P.
  4.9.2(p)      - Promissory Note, dated June 12, 1997, in the aggregate principal
                amount of $4,794,828, executed by Trace Holdings to Foamex L.P.
  4.10.1(x)     - Credit  Agreement,  dated as of February 27, 1998,  by and among
                Foamex Carpet, the institutions from time to time party thereto as
                lenders,  the  institutions  from time to time  party  thereto  as
                issuing  banks and Citicorp USA, Inc. and The Bank of Nova Scotia,
                as administrative agents.
  4.10.2(x)     - Foamex  International  Guaranty,  dated as of February 27, 1998,
                made by Foamex  International  in favor of Citicorp USA,  Inc., as
                Collateral Agent.
  4.10.3(x)     - Foamex International Pledge Agreement,  dated as of February 27,
                1998, made by Foamex International in favor of Citicorp USA, Inc.,
                as Collateral Agent.
  4.10.4(x)     - New GFI Security Agreement,  dated as of February 27, 1998, made
                by Foamex  Carpet in favor of Citicorp  USA,  Inc.,  as Collateral
                Agent.
  4.10.5(x)     - New GFI Intercreditor Agreement,  dated as of February 27, 1998,
                by  and  among  Foamex  Carpet,   The  Bank  of  Nova  Scotia,  as
                Administrative  Agent,  and Citicorp USA, Inc., as  Administrative
                Agent and Collateral Agent.
  
                                         23
  4.10.6(x)     - FII Intercreditor  Agreement,  dated as of February 27, 1998, by
                and between  Foamex  International  and  Citicorp  USA,  Inc.,  as
                Collateral Agent.
  4.11.1(x)     -  Promissory  Note of Foamex L.P. in favor of Foam Funding LLC in
                the principal amount of $34 million, dated February 27, 1998.
  4.12.1(x)     - Promissory Note of Foamex Carpet in favor of Foam Funding LLC in
                the principal amount of $70.2 million, dated February 27, 1998.
  10.1.1(p)     - Amendment to Master Agreement, dated as of June 5, 1997, between
                Citibank, N.A. and Foamex L.P.
  10.1.2(p)     -  Amended  Confirmation,  dated  as of  June  13,  1997,  between
                Citibank, N.A. and Foamex L.P.
  10.1.3(w)     - Amended  Confirmation,  dated as of  February  2, 1998,  between
                Citibank, N.A. and Foamex L.P.
  10.2(h)       -  Reimbursement  Agreement,  dated as of March 23, 1993,  between
                Trace Holdings and General Felt.
  10.3(h)       - Shareholder Agreement,  dated December 31, 1992, among Recticel,
                s.a.  ("Recticel"),  Recticel  Holding  Noord B.V.,  Foamex  L.P.,
                Beamech Group Limited,  LME-Beamech,  Inc., James Brian Blackwell,
                and Prefoam AG relating to foam technology sharing arrangement.
  10.4.1(k)     - Asset Transfer  Agreement,  dated as of October 2, 1990, between
                Trace Holdings and Foamex L.P. (the "Trace Holdings Asset Transfer
                Agreement").
  10.4.2(k)     - First  Amendment,  dated as of December 19,  1991,  to the Trace
                Holdings  Asset  Transfer  Agreement.   10.4.3(k)  -  Amended  and
                Restated  Guaranty,  dated as of December 19, 1991,  made by Trace
                Foam in favor of Foamex L.P.
  10.5.1(k)     - Asset Transfer  Agreement,  dated as of October 2, 1990, between
                Recticel Foam Corporation  ("RFC") and Foamex L.P. (the "RFC Asset
                Transfer Agreement").
  10.5.2(k)     - First Amendment, dated as of December 19, 1991, to the RFC Asset
                Transfer Agreement.
  10.5.3(k)     - Schedule  5.03 to the RFC Asset  Transfer  Agreement  (the "5.03
                Protocol").  10.5.4(h) - The 5.03 Protocol  Assumption  Agreement,
                dated as of October 13, 1992, between RFC and Foamex L.P.
  10.5.5(h)     - Letter Agreement  between Trace Holdings and Recticel  regarding
                the Recticel Guaranty, dated as of July 22, 1992.
  10.6(l)       - Supply Agreement,  dated June 28, 1994,  between Foamex L.P. and
                Foamex International.
  10.7.1(l)     - First  Amended and Restated Tax Sharing  Agreement,  dated as of
                December 14, 1993,  among Foamex L.P., Trace Foam, FMXI and Foamex
                International.
  10.7.2(d)     - First Amendment to Amended and Restated Tax Sharing Agreement of
                Foamex L.P.,  dated as of June 12, 1997, by and among Foamex L.P.,
                Foamex International, FMXI and Trace Foam.
  10.7.3(w)     - Second  Amendment to Amended and Restated Tax Sharing  Agreement
                of Foamex L.P., dated as of December 23, 1997, by and among Foamex
                L.P., Foamex International, FMXI, and Trace Foam.
  10.7.4(y)     - Third Amendment to Amended and Restated Tax Sharing Agreement of
                Foamex L.P.,  dated as of February 27, 1998, by and between Foamex
                L.P., Foamex International and FMXI.
  10.8.1(m)     - Tax  Distribution  Advance  Agreement,  dated as of December 11,
                1996, by and between Foamex L.P. and Foamex-JPS Automotive.
  10.8.2(d)     - Amendment No. 1 to Tax Distribution Advance Agreement,  dated as
                of  June  12,  1997,  by  and  between   Foamex  L.P.  and  Foamex
                International.
  10.9.1(h)     - Trace Foam  Management  Agreement  between Foamex L.P. and Trace
                Foam, dated as of October 13, 1992.
  10.9.2(l)     - Affirmation  Agreement  re:  Management  Agreement,  dated as of
                December 14, 1993, between Foamex L.P. and Trace Foam.
  10.9.3(d)     - First  Amendment to Management  Agreement,  dated as of June 12,
                1997, by and between Foamex L.P. and Trace Foam.
  10.10.1(k)    - Salaried Incentive Plan of Foamex L.P. and Subsidiaries.
  10.10.2(k)    - Trace Holdings 1987 Nonqualified Stock Option Plan.
  
                                         24
  10.10.3(k)    -  Equity Growth Participation Program.
  10.10.4(o)    - The Foamex L.P. Salaried Pension Plan (formerly the General Felt
                Industries,   Inc.   Retirement  Plan  for  Salaried   Employees),
                effective as of January 1, 1995.
  10.10.5(u)    - The Foamex  L.P.  Hourly  Pension  Plan  (formerly  "The  Foamex
                Products  Inc.  Hourly  Employee   Retirement  Plan),  as  amended
                December 31, 1995.
  10.10.6(u)    - Foamex L.P. 401(k) Savings Plan effective October 1, 1997.
  10.10.7(a)    - Foamex L.P.'s 1993 Stock Option Plan.
  10.10.8(a)    - Foamex L.P.'s Non-Employee Director Compensation Plan.
  10.11.1(o)    -  Employment  Agreement,  dated as of  February  1, 1994,  by and
                between Foamex L.P. and William H. Bundy.
  10.12.1(a)    - Warrant  Exchange  Agreement,  dated as of December 14, 1993, by
                and between Foamex L.P. and Marely.
  10.12.2(a)    - Warrant  Exchange  Agreement,  dated as of December 14, 1993, by
                and between Foamex L.P. and DLJ Funding.
  10.13(t)      - Warrant  Agreement,  dated as of June 28,  1994,  by and between
                Foamex International and Shawmut Bank.
  10.14(o)      - Stock Purchase Agreement,  dated as of December 23, 1993, by and
                between   Transformacion   de  Espumas  u  Fieltros,   S.A.,   the
                stockholders which are parties thereto, and Foamex L.P.
  10.15.1(r)    - Asset  Purchase  Agreement,  dated as of August 29, 1997, by and
                among  General  Felt,  Foamex  L.P.,  Bretlin,  Inc. and The Dixie
                Group.
  10.15.2(s)    - Addendum  to Asset  Purchase  Agreement,  dated as of October 1,
                1997, by and among General Felt,  Foamex L.P.,  Bretlin,  Inc. and
                The Dixie Group.
  10.16.1(x)    - Supply Agreement,  dated as of February 27, 1998, by and between
                Foamex L.P. and General Felt (as assigned to Foamex Carpet).
  10.16.2(x)    -  Administrative  Services  Agreement,  dated as of February  27,
                1998, by and between  Foamex L.P. and General Felt (as assigned to
                Foamex Carpet).
  10.17(y)      - Tax Sharing  Agreement,  dated as of February 27, 1998,  between
                Foamex International and Foamex Carpet.
  10.18.1(w)    - Joint  Venture  Agreement  between Hua Kee  Company  Limited and
                Foamex Asia, Inc., dated as of July 8, 1997.
  10.18.2(w)    - Loan Agreement  between Hua Kee Company Limited and Foamex Asia,
                Inc., dated as of July 8, 1997.
  27            - Financial Data Schedule for the year ended December 28, 1997.
  
  ----------------------------
  (a)  Incorporated   herein  by  reference  to  the  Exhibit  to  Foamex   L.P.'s
       Registration Statement on Form S-1, Registration No. 33-69606.
  
  (b)  Incorporated  herein by reference to the Exhibit to the Form 10-K of Foamex
       for the fiscal year ended January 1, 1995.
  
  (c)  Incorporated  herein by reference  to the Exhibit to the Current  Report on
       Form 8-K of Foamex reporting an event that occurred May 28, 1997.
  
  (d)  Incorporated  herein by reference  to the Exhibit to the Current  Report on
       Form 8-K of Foamex reporting an event that occurred June 12, 1997.
  
  (e) Intentionally omitted.
  
  (f) Intentionally omitted.
  
  (g) Intentionally omitted.
  
                                         25
  (h)  Incorporated  herein by reference to the Exhibit to the Form 10-K Statement
       of Foamex and FCC for fiscal 1992.
  
  (i)  Intentionally omitted.
  
  (j)  Intentionally omitted.
  
  (k)  Incorporated  herein  by  reference  to the  Exhibit  to  the  Registration
       Statement  of Foamex and FCC on Form S-1,  Registration  Nos.  33-49976 and
       33-49976-01.
  
  (l)  Incorporated  herein  by  reference  to the  Exhibit  to  the  Registration
       Statement  of FJPS,  FJCC and Foamex  L.P.  on Form S-4,  Registration  No.
       33-82028.
  
  (m)  Incorporated  herein by  reference  to the Exhibit to the Annual  Report on
       Form 10-K of Foamex for the fiscal year ended December 29, 1996.
  
  (n)  Intentionally omitted.
  
  (o)  Incorporated  herein by reference to the Exhibit to the Form 10-K of Foamex
       L.P. for fiscal 1993.
  
  (p)  Incorporated  herein  by  reference  to the  Exhibit  in  the  Registration
       Statement of Foamex on Form S-4, Registration No. 333-30291.
  
  (q)  Intentionally omitted.
  
  (r)  Incorporated  herein  by  reference  to the  Current  Report on Form 8-K of
       Foamex L.P. reporting an event that occurred on August 29, 1997.
  
  (s)  Incorporated  herein  by  reference  to the  Current  Report on Form 8-K of
       Foamex L.P. reporting an event that occurred on October 6, 1997.
  
  (t)  Incorporated  by  reference  to the  Exhibit  to the  Form  10-Q of  Foamex
       International for the quarterly period ended July 3, 1994.
  
  (u)  Incorporated  by  reference  to the Exhibit to the Form 10-Q of Foamex L.P.
       for the quarterly period ended September 28, 1997.
  
  (v)  Incorporated  herein by reference  to the Exhibit to the Current  Report on
       Form  8-K  of  Foamex  L.P.,   Foamex   Capital   Corporation   and  Foamex
       International reporting an event that occurred December 23, 1997.
  
  (w)  Incorporated  herein  by  reference  to the  Exhibit  in  the  Registration
       Statement of Foamex L.P. and FCC on Form S-4, Registration No. 333-45733.
  
  (x)  Incorporated  herein  by  reference  to the  Current  Report on Form 8-K of
       Foamex International reporting an event that occurred on February 27, 1998.
  
  (y)  Incorporated  herein by reference to the Exhibit to the Form 10-K of Foamex
       International for the fiscal year ended December 28, 1997.
  
  (z)  Incorporated  herein  by  reference  to the  Current  Report on Form 8-K of
       Foamex International reporting an event that occurred on November 5, 1998.
  
                                         26
  Certain  instruments  defining the rights of security holders have been
  excluded herefrom in accordance with Item  601(b)(4)(iii) of Regulation S-K. The
  registrant  hereby  agrees  to  furnish  a copy of any  such  instrument  to the
  Commission upon request.
  
           (b)  The Company filed the following Current Reports on Form 8-K:
  
                Form 8-K, dated June 30, 1998, reporting the signing of the Merger
                Agreement on June 25, 1998.
  
                Form 8-K/A dated  September 9, 1998,  reporting the acquisition of
                Crain Industries, Inc.
  
                Form 8-K dated October 5, 1998.
  
                Form 8-K dated October 19, 1998.
  
                Form 8-K dated  November 4, 1998,  reporting  the change in fiscal
                year end.
  
                Form 8-K dated  November  6, 1998,  reporting  the  signing of the
                Merger Agreement on November 5, 1998.
  
                Form 8-K/A dated November 9, 1998,  reporting the change in fiscal
                year end.
  
                                         27
  SIGNATURES
  
            Pursuant to the  requirements 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.
  
                                               FOAMEX INTERNATIONAL INC.
  
  Date:   November 20, 1998                By: /s/ John A. Feenan
                                               ----------------------
                                               John A. Feenan
                                               Executive Vice President and
                                               Chief Financial Officer
  
                                         28