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 June 28, 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 August
  12, 1998 was approximately 25,014,800.
  
  
                                    Page 1 of 27
                            Exhibit List on Page 20 of 27
  <PAGE>
  
                              FOAMEX INTERNATIONAL INC.
  
                                        INDEX
                                                                              Page
  
  Part I.  Financial Information:
  
           Item 1.  Financial Statements
  
                 Condensed Consolidated Statements of Operations -
                    Thirteen Week and Twenty-Six Week Periods Ended June
                    28, 1998 and June 29, 1997                                  3
  
                 Condensed Consolidated Balance Sheets as of June 28,
                    1998 and December 28, 1997                                  4
  
                 Condensed Consolidated Statements of Cash Flows -
                    Twenty-Six Week Periods Ended June 28, 1998 and June
                    29, 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                                                   20
  
           Exhibit List                                                        20
  
           Signatures                                                          27
  
  <PAGE>
  
  
  PART I.  FINANCIAL INFORMATION
  ITEM 1.  FINANCIAL STATEMENTS
  
                FOAMEX INTERNATIONAL INC. AND SUBSIDIARIES
        CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (unaudited)
  
  <TABLE>
  <CAPTION>
                                                 13 Week Periods Ended          26 Week Periods Ended
                                               June 28,        June 29,       June 28,       June 29,
                                                 1998            1997           1998           1997
  
                                                         (thousands except per share data)
  <S>                                          <C>            <C>            <C>            <C>      
  NET SALES                                    $ 298,479      $ 239,887      $ 612,269      $ 469,007
  
  COST OF GOODS SOLD                             241,557        195,107        504,151        381,430
                                               ---------      ---------      ---------      ---------
  
  GROSS PROFIT                                    56,922         44,780        108,118         87,577
  
  SELLING, GENERAL AND
     ADMINISTRATIVE EXPENSES                      20,861         16,100         43,238         32,087
                                               ---------      ---------      ---------      ---------
  
  INCOME FROM OPERATIONS                          36,061         28,680         64,880         55,490
  
  INTEREST AND DEBT ISSUANCE EXPENSE              17,531         13,474         35,308         27,442
  
  OTHER INCOME (EXPENSE), NET                     (1,046)           448         (1,745)         1,086
                                               ---------      ---------      ---------      ---------
  
  INCOME BEFORE PROVISION FOR INCOME TAXES        17,484         15,654         27,827         29,134
  
  PROVISION FOR INCOME TAXES                       6,993          6,184         11,128         11,528
                                               ---------      ---------      ---------      ---------
  
  INCOME BEFORE EXTAORDINARY LOSS                 10,491          9,470         16,699         17,606
  
  EXTRAORDINARY LOSS ON EARLY
     EXTINGUISHMENT OF DEBT,
     NET OF INCOME TAXES                             (43)       (42,189)        (1,917)       (42,599)
                                               ---------      ---------      ---------      ---------
  
  NET INCOME (LOSS)                            $  10,448      $ (32,719)     $  14,782      $ (24,993)
                                               =========      =========      =========      =========
  
  BASIC EARNINGS (LOSS) PER SHARE:
     INCOME BEFORE EXTRAORDINARY LOSS          $    0.42      $    0.37      $    0.67      $    0.70
     EXTRAORDINARY LOSS                               --          (1.66)         (0.08)         (1.69)
                                               ---------      ---------      ---------      ---------
     EARNINGS (LOSS) PER SHARE                 $    0.42      $   (1.29)     $    0.59      $   (0.99)
                                               =========      =========      =========      =========
  
     WEIGHTED AVERAGE NUMBER OF SHARES            25,012         25,298         24,977         25,304
                                               =========      =========      =========      =========
  
  DILUTED EARNINGS (LOSS) PER SHARE:
     INCOME BEFORE EXTRAORDINARY LOSS          $    0.40      $    0.36      $    0.64      $    0.67
     EXTRAORDINARY LOSS                               --          (1.62)         (0.07)         (1.63)
                                               ---------      ---------      ---------      ---------
     EARNINGS (LOSS) PER SHARE                 $    0.40      $   (1.26)     $    0.57      $   (0.96)
                                               =========      =========      =========      =========
  
     WEIGHTED AVERAGE NUMBER OF SHARES            26,124         26,042         26,090         26,086
                                               =========      =========      =========      =========
  </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>
                                                                        June 28,        December 28,
  ASSETS                                                                  1998              1997
  CURRENT ASSETS:                                                              (thousands)
  <S>                                                                 <C>              <C>        
     Cash and cash equivalents                                        $    18,175      $    12,044
     Accounts receivable, net                                             182,388          175,684
     Inventories                                                          124,080          120,299
     Other current assets                                                  77,160           62,901
                                                                      -----------      -----------
         Total current assets                                             401,803          370,928
  
  PROPERTY, PLANT AND EQUIPMENT, NET                                      230,619          233,435
  
  COST IN EXCESS OF ASSETS ACQUIRED, NET                                  215,711          218,219
  
  DEBT ISSUANCE COSTS, NET                                                 15,932           18,889
  
  DEFERRED INCOME TAXES                                                    34,168           26,960
  
  OTHER ASSETS                                                             24,364           25,192
                                                                      -----------      -----------
  
  TOTAL ASSETS                                                        $   922,597      $   893,623
                                                                      ===========      ===========
  
  LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)
  CURRENT LIABILITIES:
     Short-term borrowings                                            $     7,320      $     6,598
     Current portion of long-term debt                                      5,117           12,931
     Current portion of long-term debt - related party                      7,020               --
     Accounts payable                                                     103,508          131,689
     Accrued interest                                                      10,391           10,716
     Other accrued liabilities                                             64,686           70,513
                                                                      -----------      -----------
         Total current liabilities                                        198,042          232,447
  
  LONG-TERM DEBT                                                          692,479          735,724
  
  LONG-TERM DEBT - RELATED PARTY                                           97,180               --
  
  OTHER LIABILITIES                                                        34,331           38,871
                                                                      -----------      -----------
  
         Total liabilities                                              1,022,032        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)                             (151,109)        (164,118)
     Accumulated other comprehensive income                                (6,369)          (6,599)
     Other                                                                 (9,794)          (9,794)
                                                                      -----------      -----------
                                                                          (80,233)         (94,217)
     Common Stock held in treasury, at cost:
       1,989,000 shares at June 28, 1998 and December 28, 1997            (19,202)         (19,202)
                                                                      -----------      -----------
  
         Total stockholders' equity (deficit)                             (99,435)        (113,419)
                                                                      -----------      -----------
  
  TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)                $   922,597      $   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>
                                                                          26 Week Periods Ended
                                                                         June 28,         June 29,
                                                                           1998             1997
                                                                                (thousands)
  OPERATING ACTIVITIES:
  <S>                                                                    <C>            <C>       
     Net income (loss)                                                   $  14,782      $ (24,993)
     Adjustments to reconcile net income (loss) to net cash provided
         by (used for) operating activities:
         Depreciation and amortization                                      14,299         10,815
         Net amortization of debt issuance costs, debt discount
            and debt premium                                                 3,202          6,847
         Extraordinary loss on early extinguishment of debt                  1,579             37
         Other operating activities                                         11,481           (565)
         Changes in operating assets and liabilities, net                  (66,884)       (38,334)
                                                                         ---------      ---------
  
            Net cash used for operating activities                         (21,541)       (46,193)
                                                                         ---------      ---------
  
  INVESTING ACTIVITIES:
     Capital expenditures                                                  (14,982)       (16,432)
     Acquisitions, net of cash acquired                                     (4,399)            --
     Decrease in restricted cash                                                --         12,143
     Other investing activities                                             (1,467)            35
                                                                         ---------      ---------
  
            Net cash used for investing activities                         (20,848)        (4,254)
                                                                         ---------      ---------
  
  FINANCING ACTIVITIES:
     Net proceeds from short-term borrowings                                   722            256
     Net proceeds from revolving loans                                      82,426         49,000
     Proceeds from long-term debt                                          129,000        453,500
     Repayment of long-term debt                                          (132,767)      (450,026)
     Repayment of Foamex/GFI Note                                           (4,800)            --
     Debt issuance cost                                                     (1,598)       (14,746)
     Purchase of treasury stock                                                 --         (1,890)
     Dividends paid                                                         (1,246)            --
     GFI transaction costs                                                  (3,898)            --
     GFI transaction payment to Trace                                      (20,000)            --
     Other financing activities                                                681           (488)
                                                                         ---------      ---------
  
            Net cash provided by financing activities                       48,520         35,606
                                                                         ---------      ---------
  
  NET INCREASE (DECREASE) IN CASH
     AND CASH EQUIVALENTS                                                    6,131        (14,841)
  
  CASH AND CASH EQUIVALENTS
     AT BEGINNING OF PERIOD                                                 12,044         22,203
                                                                         ---------      ---------
  
  CASH AND CASH EQUIVALENTS
     AT END OF PERIOD                                                    $  18,175      $   7,362
                                                                         =========      =========
  </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.'s  (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 June 28, 1998, the condensed  consolidated  statements of operations
  for the thirteen week and  twenty-six  week periods ended June 28, 1998 and June
  29,  1997  and the  condensed  consolidated  statements  of cash  flows  for the
  twenty-six week periods ended June 28, 1998 and June 29, 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.
  
         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 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>
                                                                    13 Week Period              26 Week Period
                                                                  Ended June 29, 1997         Ended June 29, 1997
                                                                          (thousands, except per share data)
       <S>                                                             <C>                      <C>
            Net sales                                                $319,312                    $626,080
                                                                     ========                    ========
            Income before extraordinary loss                          $11,173                     $17,001
                                                                     ========                    ========
            Pro forma basic earnings (loss) per share                   $0.44                       $0.67
                                                                     ========                    ========
            Pro forma diluted earnings (loss) per share                 $0.43                       $0.65
                                                                     ========                    ========
  </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.
  
                                         6
  <PAGE>
                     FOAMEX INTERNATIONAL INC. AND SUBSIDIARIES
                NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
  
  3.     INVENTORIES
  
         Inventories consist of:
  
                                        June 28,      December 28,
                                          1998          1997
                                             (thousands)
         Raw materials and supplies     $ 79,404     $ 75,487
         Work-in-process                  16,887       15,620
         Finished goods                   27,789       29,192
                                        --------     --------
  
         Total                          $124,080     $120,299
                                        ========     ========
  
  4.     LONG-TERM DEBT AND LONG-TERM DEBT - RELATED PARTY
  
         Long-term debt consists of:
  <TABLE>
  <CAPTION>
                                                                  June 28,    December 28,
                                                                   1998          1997
         Credit Facility:                                             (thousands)
  <S>                                                             <C>          <C>     
           Term Loan A                                            $     --     $ 76,700
           Term Loan B                                              83,344      109,725
           Term Loan C                                              75,766       99,750
           Term Loan D                                             109,725      110,000
           Revolving credit facility                               137,354       54,928
         9 7/8% Senior subordinated notes due 2007                 150,000      150,000
         13 1/2% Senior subordinated notes due 2005 (includes
           $12,824 and $13,720 of unamortized debt premium)        110,824      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 $709 and $1,198)                         6,306        6,129
         Other                                                      17,277       18,180
                                                                  --------     --------
                                                                   697,596      748,655
  
         Less current portion                                        5,117       12,931
                                                                  --------     --------
  
         Long-term debt-unrelated parties                         $692,479     $735,724
                                                                  ========     ========
  
         Long-term debt - related party consists of:
  
         Foamex/GFI Note                                          $ 34,000     $     --
  
         Note payable to Foam Funding LLC                           70,200           --
                                                                  --------     --------
                                                                   104,200           --
  
         Less current portion - related party                        7,020           --
                                                                  --------     --------
  
         Long-term debt - related party                           $ 97,180     $     --
                                                                  ========     ========
  </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)
  
         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. [Add interest rate.]
  
         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 thirteen week and twenty-six week periods ended June 28, 1998,
  the Company incurred  interest  expense of  approximately  $0.6 million and $0.8
  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.
  
         During the thirteen week and twenty-six week periods ended June 28, 1998,
  the Company incurred  interest  expenses of approximately  $1.6 million and $2.1
  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 - $9.0 million; 1999 - $17.7 million; 2000 - $52.2 million; 2001 -
  $17.3  million;  2002 - $17.7  million;  2003 - $159.5;  and thereafter - $516.3
  million.
  
                                         8
  <PAGE>
                     FOAMEX INTERNATIONAL INC. AND SUBSIDIARIES
                NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
  
  
  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  twenty-six  week
  period ended June 28, 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,  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
  Perfect Fit. The extraordinary  loss is comprised of approximately  $0.4 million
  of premium  payments and  approximately  $0.6 million for the  write-off of debt
  issuance costs.
  
  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 June 28,  1998,  the Company has accruals of  approximately  $4.7 million for
  environmental  matters.  In addition,  as of June 28, 1998,  the Company has net
  receivables  of  approximately  $0.6  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 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 results
  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. 
  
                                         9
  
  <PAGE>
                     FOAMEX INTERNATIONAL INC. AND SUBSIDIARIES
                NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
  
  6.     ENVIRONMENTAL MATTERS (continued)
  
         The Company has reported to  appropriate  state  authorities  that it has
  found soil and  groundwater  contamination  in excess of state standards at four
  facilities and soil  contamination  in excess of state  standards at three other
  facilities.  The  Company  has  begun  remediation  and  is  conducting  further
  investigations  into the extent of the  contamination  at these  facilities and,
  accordingly,  the extent of the remediation that may ultimately be required. The
  actual cost and the timetable of any such  remediation  cannot be predicted with
  any degree of  certainty  at this time.  As of June 28,  1998,  the  Company has
  environmental accruals of approximately $4.1 million for the remaining potential
  remediation costs for these facilities based on engineering estimates.
  
         Federal  regulations  require  that by the end of  1998  all  underground
  storage tanks  ("USTs") be removed or upgraded in all states to meet  applicable
  standards.  The  Company  has six USTs that will  require  removal or  permanent
  in-place closure by the end of 1998. Due to the age of these tanks,  leakage may
  have  occurred  resulting in soil and possibly  groundwater  contamination.  The
  Company has accrued $0.1 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  thirteen  sites  with an  estimated  total
  liability to the Company for the thirteen sites of less than  approximately $0.5
  million.  Estimates  of total  clean-up  costs  and  fractional  allocations  of
  liability  are  generally  provided  by the EPA or the  committee  of PRP's with
  respect to the specified site. In each case, the participation of 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.
  
  7.     LITIGATION
  
         As of August 12, 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 for any such  liabilities  relating  to foam  manufactured
  prior to October 1990. Although Trace Holdings has paid Foamex L.P.'s litigation
  expenses to date pursuant to such indemnification and the Company believes Trace
  Holdings will be in a position to continued to pay such expenses, here 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
  
                                         10
  <PAGE>
                     FOAMEX INTERNATIONAL INC. AND SUBSIDIARIES
                NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
  
  7.     LITIGATION (continued)
  
  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,  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.  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,  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 lawsuits  entered into a Memorandum of  Understanding,
  dated  June  25,  1998  (the  "Memorandum  of  Understanding"),  to  settle  the
  litigation,  subject to, inter alia,  execution of a definitive  Stipulation  of
  Settlement and approval by the Delaware  Chancery Court following  notice to the
  public stockholders and a hearing. The Memorandum of Understanding provides that
  as a result of, among other things, the stockholder  litigation and negotiations
  among  counsel for the parties to the  Memorandum  of  Understanding,  a special
  meeting of stockholders will be held to vote upon and adopt the Merger Agreement
  which  provides,  among other  things,  for the public  shares of the  Company's
  common stock to be converted into the right to receive  $18.75 in cash,  without
  interest.  The Memorandum of Understanding  also  acknowledged that the terms of
  the Merger have been significantly  improved over the terms originally  proposed
  by Trace Holdings on March 16, 1998, and the Company and the individual director
  and  officer  defendants  acknowledged  that the filing and  prosecution  of the
  stockholder  litigation  was a factor  they took  into  account  in giving  fair
  consideration to and entering into the Merger,  and Trace Holdings  acknowledged
  that it took into account the  desirability  of  satisfactorily  addressing  the
  claims  asserted in the  stockholder  litigation  in  agreeing to the  increased
  consideration  to be paid to the  public  stockholders  pursuant  to the  Merger
  Agreement.
  
         The  Memorandum of  Understanding  also provided for  certification  of a
  class, for settlement purposes only, consisting of the public stockholders,  the
  dismissal  of the  stockholder  litigation  with  prejudice  and the  release by
  plaintiffs  and all members of the class of all claims and causes of action that
  were or could have been  asserted  against Trace  Holdings,  the Company and the
  individual  defendants  in the  stockholder  litigation or that arise out of the
  matters alleged by plaintiffs.  In connection with the proposed settlement,  the
  plaintiffs  intend  to  apply  of an award  of  attorney's  fees and  litigation
  expenses in an amount not to exceed $925,000, and the defendants have agreed not
  to oppose this application. Additionally, the Company has agreed to pay the cost
  of sending notice of the settlement, if any, to its public shareholders.
  
                                         11
  
  <PAGE>
  
                     FOAMEX INTERNATIONAL INC. AND SUBSIDIARIES
                NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
  
  7.     LITIGATION (continued)
  
         The  defendants  have  denied,  and  continued  to deny,  that  they have
  committed or have  threatened to commit any violation of law or breaches of duty
  to plaintiffs or the purported class. The defendants have agreed to the proposed
  settlement  because,  among other reasons,  such settlement  would eliminate the
  burden and expenses of further  litigation and would facilitate the consummation
  of a  transaction  that they believe to be in the best  interests of the Company
  and the public stockholders.
  
         The Company is party to various  other  lawsuits,  both as defendant  and
  plaintiff,  arising in the normal  course of business.  It is the opinion of the
  Company 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. These  transactions  have
  been  reflected  as  a   reorganization   of  companies  under  common  control.
  Accordingly,  the net  effect  resulted  to 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>
                                                          13 Week Period Ended       26 Week Period Ended
                                                          June 28,     June 29,     June 28,      June 29,
                                                            1998         1997         1998          1997
                                                              (thousands, except per share amounts)
  <S>                                                     <C>          <C>           <C>          <C>      
  Basic earnings (loss) per share:
         Net income (loss)                                $ 10,448     $(32,719)     $ 14,782     $(24,993)
                                                          ========     ========      ========     ========
  
         Average common stock outstanding                   25,012       25,298        24,977       25,304
                                                          ========     ========      ========     ========
  
         Basic earnings (loss) per share                  $   0.42     $  (1.29)     $   0.59     $  (0.99)
                                                          ========     ========      ========     ========
  
  Diluted earnings (loss) per share:
         Net income (loss) available for common stock
            and dilutive securities                       $ 10,448     $(32,719)     $ 14,782     $(24,993)
                                                          ========     ========      ========     ========
  
         Average common stock outstanding                   25,012       25,298        24,977       25,304
  
         Additional common shares resulting
            from stock options and warrants                  1,112          744         1,113          782
                                                          --------     --------      --------     --------
  
         Average common stock and dilutive
            stock outstanding                               26,124       26,042        26,090       26,086
                                                          ========     ========      ========     ========
  
         Diluted earnings (loss) per share                $   0.40     $  (1.26)     $   0.57     $  (0.96)
                                                          ========     ========      ========     ========
  </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  thirteen-week  and twenty-six  week periods ended
  June 28, 1998 and June 29, 1997 is comprised of the following:
  <TABLE>
  <CAPTION>
                                               13 Week Period Ended        26 Week Period Ended
                                               June 28,     June 29,       June 28,    June 29,
                                                 1998         1997           1998        1997
                                                                 (thousands)
  <S>                                          <C>          <C>           <C>          <C>      
  Net income (loss)                            $ 10,448     $(32,719)     $ 14,782     $(24,993)
  Foreign currency translation adjustments            3           16           230         (168)
                                               --------     --------      --------     --------
  Total comprehensive income                   $ 10,451     $(32,703)     $ 15,012     $(25,163)
                                               ========     ========      ========     ========
  </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.
  
         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 June 25, 1998, the Company, Trace Holdings, and Trace Merger Sub Corp.
  entered into an Agreement and Plan of Merger (the "Merger Agreement"), providing
  for the  merger  (the  "Merger")  of Trace  Merger  Sub Corp.  with and into the
  Company.  Upon consummation of the Merger, the holders of the outstanding shares
  of the Company's common sotck,  other than Trace Holdings and its  subsidiaries,
  will  received,  in  exchange  for  their  shares,  $18.75  per  share  in cash.
  Consummation  of the Merger is subject to a number of conditions,  many of which
  are outside the control of the Company, including: (i) the approval and adoption
  of the Merger  Agreement by the affirmative vote of the holders of a majority of
  the outstanding  shares of common stock of the Company;  (ii) the absence of any
  injunction preventing consummation of the Merger, (iii) th absence of a material
  adverse change in the business of the Company, and (iv) the receipt of requisite
  financing.
  
         On April 27, 1998, the Company's facility in Orlando, Florida was damaged
  by a fire.  The  Company  is in the  process  of  repairing  the  damages to the
  facility  and  supplying  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.  After  considering  the
  Company's  insurance  coverage,  the Company does not believe that the fire will
  have a significant  impact on the Company's  financial  position or  operations;
  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 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.  These
  transactions  have been reflected as a reorganization  of companies under common
  control.
  
                                         14
  <PAGE>
  ITEM 2.  MANAGEMENT'S DISCUSSION AND ANALYSIS OF THE FINANCIAL CONDITION AND
           RESULTS OF OPERATIONS
  
         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  $13.6  million  and  $24.3  million  for the  thirteen  week and
  twenty-six week periods ended June 29, 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.
  
  13 Week  Period  Ended June 28, 1998  Compared to 13 Week Period  Ended June 29,
  1997
  
  Results of Operations
  
         Net sales for the second  quarter of 1998 were $298.5 million as compared
  to $239.9 million in the second quarter of 1997, an increase of $58.6 million or
  24.4%.  Foam  Products  net sales for the second  quarter of 1998  increased  to
  $143.7 million from $86.0 million in the second 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 second
  quarter of 1998 decreased 3.4% to $72.4 million from $75.0 million in the second
  quarter  of 1997  primarily  due to the sale of Dalton  in  October  1997  which
  contributed net sales of $13.6 million in 1997 and a reduction in rebond selling
  prices as compared to 1997. Automotive Products net sales for the second quarter
  of 1998 increased 4.9% to $62.2 million from $59.3 million in the second quarter
  of 1997 primarily due to increased volume.  Technical Products net sales for the
  second quarter of 1998 increased 2.6% to $20.2 million from $19.6 million in the
  second  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 19.1% for the
  second quarter of 1998 from 18.7% in the second 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 second quarter of 1998 due to the Company's  implementation  of
  restructuring/consolidation programs associated with the Crain Acquisition.
  
         Income from operations  increased to $36.1 million for the second quarter
  of 1998 from $28.7  million in the second  quarter of 1997  primarily due to the
  Crain Acquisition.
  
         Income  before  extraordinary  loss  increased  to $10.5  million for the
  second  quarter of 1998 as  compared to $9.5  million for the second  quarter of
  1997.  The increase is primarily  due to the increase in income from  operations
  discussed above offset by an increase of approximately  $4.1 million in interest
  and debt issuance expense and $1.0 million of costs associated with the transfer
  of General Felt 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.
  
         The extraordinary  loss on early  extinguishment of debt of approximately
  $42.2 million (net of income taxes of $25.9  million)  during the second quarter
  of 1997 primarily  relates to debt extinguished in connection with the June 1997
  refinancing plan.
  
                                         15
  <PAGE>
  ITEM 2.  MANAGEMENT'S DISCUSSION AND ANALYSIS OF THE FINANCIAL CONDITION AND
           RESULTS OF OPERATIONS
  
  26 Week  Period  Ended June 28, 1998  Compared to 26 Week Period  Ended June 29,
  1997
  
  Results of Operations
  
         Net sales for the twenty-six  week period ended June 28, 1998 were $612.3
  million as compared to $469.0 million for the twenty-six  week period ended June
  29, 1997,  an increase of $143.3  million or 30.6%.  Foam Products net sales for
  the twenty-six  week period ended June 28, 1998 increased to $301.6 million from
  $170.0 million for the twenty-six  week period ended June 29, 1997 primarily due
  to the net sales from the Crain  operations.  Carpet Cushion  Products net sales
  for the  twenty-six  week period  ended June 28, 1998  increased  0.6% to $143.7
  million from $142.9 million for the  twenty-six  week period ended June 28, 1997
  primarily  due to net  sales  from the  Crain  operations  offset by the sale of
  Dalton in October 1997 which  contributed net sales of $24.3 million in 1997, to
  reduction  of  rebond  selling  prices  as  compared  to 1997 and  product  mix.
  Automotive Products net sales for the twenty-six week period ended June 28, 1998
  increased 5.6% to $125.7  million from $119.0  million for the  twenty-six  week
  period ended June 29, 1997 primarily due to increased volume. Technical Products
  net sales for the twenty-six  week period ended June 28, 1998 increased 11.1% to
  $41.3 million from $37.1 million for the  twenty-six  week period ended June 29,
  1997  primarily  due to increased  net sales volume for felted,  gasketing,  and
  sealing products.
  
         Gross  profit as a  percentage  of net sales  decreased  to 17.7% for the
  twenty-six  week period  ended June 28, 1998 from 18.7% in the  twenty-six  week
  period ended June 29, 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 throughout 1998.
  
         Income from operations increased to $64.9 million for the twenty-six week
  period  ended June 28,  1998 from $55.5  million in the  twenty-six  week period
  ended June 29, 1997 primarily due to the Crain Acquisition.
  
         Income  before  extraordinary  loss  decreased  to $16.7  million for the
  twenty-six  week period ended June 28, 1998 as compared to $17.6 million for the
  twenty-six  week period ended June 29, 1997. The decrease is primarily due to an
  increase of approximately $7.9 million in interest and debt issuance expense and
  $2.0  million of costs  associated  with the  transfer of General  Felt 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.
  
         The extraordinary  loss on early  extinguishment of debt of approximately
  $42.6 million (net of income taxes of $26.1 million)  during the twenty-six week
  period ended June 29, 1997  primarily  relates to the write-off of debt issuance
  costs with debt extinguished in connection with 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  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 June 28,  1998 and the Company  expects
  
                                         16
  <PAGE>
  ITEM 2.  MANAGEMENT'S DISCUSSION AND ANALYSIS OF THE FINANCIAL CONDITION AND
           RESULTS OF OPERATIONS
  
  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 June 28,  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  increased  $6.2 million  during 1998 to $18.2
  million at June 28, 1998 from $12.0  million at December 28, 1997  primarily due
  to increased borrowings offset by cash used for capital expenditures,  the Crain
  Acquisition  and  an  increase  of  cash  used  by  the  operating   assets  and
  liabilities.  Working  capital  increased  $65.3  million  during 1998 to $203.8
  million at June 28, 1998 from $138.5  million at December 28, 1997 primarily due
  to the increase in operating net 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 $38.7 million during 1998 to $203.0 million at
  June 28,  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 June 1998 as compared to December  1997.  The decrease in accounts
  payable is primarily due to the timing of payments.
  
         As of June 28,  1998,  there  were  $137.4  million of  revolving  credit
  borrowings under the Credit Facility and approximately  $49.7 million associated
  with letters of credit  outstanding  which are supported by the Credit  Facility
  with unused  availability of approximately  $13.0 million.  As of June 28, 1998,
  Foamex Carpet Credit  Facility had unused  availability of  approximately  $19.1
  million. Borrowings by Foamex Canada, Inc. as of June 28, 1998 were $4.3 million
  under Foamex Canada Inc.'s revolving  credit agreement with unused  availability
  of approximately $1.0 million.
  
       Cash  flow  used  for  operating  activities  was  $21.5  million  for  the
  twenty-six  weeks ended June 28, 1998 as compared to cash used of $46.2  million
  for the twenty-six  weeks ended June 29, 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 $20.8 million for
  the  twenty-six  week period  ended June 28, 1998 from cash used of $4.3 million
  for the  twenty-six  week period ended June 29, 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.
  
       Cash flow provided by financing  activities  increased to $48.5 million for
  the  twenty-six  week period ended June 28, 1998 as compared to cash provided of
  $35.6  million for the  twenty-six  week  period  ended June 29,  1997.  This is
  primarily  associated  with  borrowings  under the  revolving  loans to fund the
  operations of Crain during the twenty-six week period ended June 28, 1998 offset
  by the $28.6 million used to fund the GFI Transaction.
  
                                         17
  
  <PAGE>
  
  ITEM 2.  MANAGEMENT'S DISCUSSION AND ANALYSIS OF THE FINANCIAL CONDITION AND
           RESULTS OF OPERATIONS
  
         Interest Rate Swaps
  
         The Company enters into interest rate swaps to lower funding costs and/or
  to manage interest costs and exposure to changing  interest  rates.  The Company
  does not hold or issue financial instruments for trading purposes.
  
         On January 8, 1998,  the Company  entered into an amended  interest  rate
  swap  agreement,  which  provides  for an interest  rate swap  agreement  with a
  notional amount of $150.0 million through June 2002.  Under this agreement,  the
  Company is obligated to make fixed payments of 5.78% per annum through  December
  1998 and  variable  payments  based on LIBOR at the  beginning of each six month
  period for the remainder of the agreement, in exchange for fixed payments by the
  swap  partner  at  6.44%  per  annum  for  the  life of the  agreement,  payable
  semiannually in arrears.  The newly amended  interest rate swap agreement can be
  terminated  by the swap partner at the end of each six month  period  commencing
  December 1999.
  
         The Company is exposed to credit loss in the event of a nonperformance by
  the swap partner; however, the occurrence of this event is not anticipated.  The
  effect of the  interest  rate  swap  agreement  was a  favorable  adjustment  to
  interest  and debt  issuance  expense of $0.2  million and $0.8  million for the
  thirteen  week periods ended June 28, 1998 and June 29, 1997,  respectively  and
  $0.4 million and $1.7  million for the  twenty-six  week periods  ended June 28,
  1998 and June 29, 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 June 28, 1998 was $4.7 million. In addition,  as of
  June 28, 1998, the Company has net receivables of approximately $0.6 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.
  
  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  has and will  continue to make  certain  investments  in its
  software  systems and applications to ensure the Company is Year 2000 compliant.
  The Company plans to continue to make  modifications to the identified  software
  during  1998 and test the  changes  during  1998.  The  financial  impact to the
  Company has not been and is not  anticipated  to be  material  to its  financial
  position or results of operations in any given year. 
  
                                         18
  
  <PAGE>
  
  ITEM 2.  MANAGEMENT'S DISCUSSION AND ANALYSIS OF THE FINANCIAL CONDITION AND
           RESULTS OF 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, "Accounting for Derivative  Instruments and Hedging  Activities".  SFAS No.
  133  establishes  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.
  
                                         19
  
  <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  for the
             fiscal year ended  December 28, 1997 and in the  Company's  Quarterly
             Report on Form 10-Q/A for the fiscal quarter ended March 29, 1998.
  
             The  information  from  Notes 6 and 7 of the  condensed  consolidated
             financial  statements of the Company as of June 28, 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 June 25, 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.
  
                                         20
  
  <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.
  
                                         21
  
  <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.
  
                                         22
  
  <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.
  
                                         23
  
  <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.
  
                                         24
  
  <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 June 25, 1998.
  
                                         25
  <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/A,  dated May 12, 1998,  reporting the restated financial
                statements of Foamex L.P. elating to the GFI Transaction.
  
                Form 8-K, dated June 30, 1998, reporting the signing of the Merger
                Agreement on June 25, 1998.
  
  
                                         26
  
  <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:   August 17, 1998                         By: /s/ John A. Feenan
                                                      ----------------------------
                                                      John A. Feenan
                                                      Executive Vice President and
                                                      Chief Financial Officer
  
  
  
  
  
  
  
  
  
  
  
                                         27
metadata_documents: [{"type": "10-Q", "sequence": "1", "secsgml_size_bytes": 104248}]
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": "98693107"}, "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 June 28, 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 August
  12, 1998 was approximately 25,014,800.
  
                                    Page 1 of 27
                            Exhibit List on Page 20 of 27
  FOAMEX INTERNATIONAL INC.
  
                                        INDEX
                                                                              Page
  
  Part I.  Financial Information:
  
           Item 1.  Financial Statements
  
                 Condensed Consolidated Statements of Operations -
                    Thirteen Week and Twenty-Six Week Periods Ended June
                    28, 1998 and June 29, 1997                                  3
  
                 Condensed Consolidated Balance Sheets as of June 28,
                    1998 and December 28, 1997                                  4
  
                 Condensed Consolidated Statements of Cash Flows -
                    Twenty-Six Week Periods Ended June 28, 1998 and June
                    29, 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                                                   20
  
           Exhibit List                                                        20
  
           Signatures                                                          27
  PART I.  FINANCIAL INFORMATION
  ITEM 1.  FINANCIAL STATEMENTS
  
                FOAMEX INTERNATIONAL INC. AND SUBSIDIARIES
        CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (unaudited)
  13 Week Periods Ended          26 Week Periods Ended
                                               June 28,        June 29,       June 28,       June 29,
                                                 1998            1997           1998           1997
  
                                                         (thousands except per share data)
  NET SALES                                    $ 298,479      $ 239,887      $ 612,269      $ 469,007
  
  COST OF GOODS SOLD                             241,557        195,107        504,151        381,430
                                               ---------      ---------      ---------      ---------
  
  GROSS PROFIT                                    56,922         44,780        108,118         87,577
  
  SELLING, GENERAL AND
     ADMINISTRATIVE EXPENSES                      20,861         16,100         43,238         32,087
                                               ---------      ---------      ---------      ---------
  
  INCOME FROM OPERATIONS                          36,061         28,680         64,880         55,490
  
  INTEREST AND DEBT ISSUANCE EXPENSE              17,531         13,474         35,308         27,442
  
  OTHER INCOME (EXPENSE), NET                     (1,046)           448         (1,745)         1,086
                                               ---------      ---------      ---------      ---------
  
  INCOME BEFORE PROVISION FOR INCOME TAXES        17,484         15,654         27,827         29,134
  
  PROVISION FOR INCOME TAXES                       6,993          6,184         11,128         11,528
                                               ---------      ---------      ---------      ---------
  
  INCOME BEFORE EXTAORDINARY LOSS                 10,491          9,470         16,699         17,606
  
  EXTRAORDINARY LOSS ON EARLY
     EXTINGUISHMENT OF DEBT,
     NET OF INCOME TAXES                             (43)       (42,189)        (1,917)       (42,599)
                                               ---------      ---------      ---------      ---------
  
  NET INCOME (LOSS)                            $  10,448      $ (32,719)     $  14,782      $ (24,993)
                                               =========      =========      =========      =========
  
  BASIC EARNINGS (LOSS) PER SHARE:
     INCOME BEFORE EXTRAORDINARY LOSS          $    0.42      $    0.37      $    0.67      $    0.70
     EXTRAORDINARY LOSS                               --          (1.66)         (0.08)         (1.69)
                                               ---------      ---------      ---------      ---------
     EARNINGS (LOSS) PER SHARE                 $    0.42      $   (1.29)     $    0.59      $   (0.99)
                                               =========      =========      =========      =========
  
     WEIGHTED AVERAGE NUMBER OF SHARES            25,012         25,298         24,977         25,304
                                               =========      =========      =========      =========
  
  DILUTED EARNINGS (LOSS) PER SHARE:
     INCOME BEFORE EXTRAORDINARY LOSS          $    0.40      $    0.36      $    0.64      $    0.67
     EXTRAORDINARY LOSS                               --          (1.62)         (0.07)         (1.63)
                                               ---------      ---------      ---------      ---------
     EARNINGS (LOSS) PER SHARE                 $    0.40      $   (1.26)     $    0.57      $   (0.96)
                                               =========      =========      =========      =========
  
     WEIGHTED AVERAGE NUMBER OF SHARES            26,124         26,042         26,090         26,086
                                               =========      =========      =========      =========
  The accompanying notes are an integral part of the condensed
                    consolidated financial statements.
  
                                    3
  FOAMEX INTERNATIONAL INC. AND SUBSIDIARIES
                  CONDENSED CONSOLIDATED BALANCE SHEETS (unaudited)
  June 28,        December 28,
  ASSETS                                                                  1998              1997
  CURRENT ASSETS:                                                              (thousands)
  Cash and cash equivalents                                        $    18,175      $    12,044
     Accounts receivable, net                                             182,388          175,684
     Inventories                                                          124,080          120,299
     Other current assets                                                  77,160           62,901
                                                                      -----------      -----------
         Total current assets                                             401,803          370,928
  
  PROPERTY, PLANT AND EQUIPMENT, NET                                      230,619          233,435
  
  COST IN EXCESS OF ASSETS ACQUIRED, NET                                  215,711          218,219
  
  DEBT ISSUANCE COSTS, NET                                                 15,932           18,889
  
  DEFERRED INCOME TAXES                                                    34,168           26,960
  
  OTHER ASSETS                                                             24,364           25,192
                                                                      -----------      -----------
  
  TOTAL ASSETS                                                        $   922,597      $   893,623
                                                                      ===========      ===========
  
  LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)
  CURRENT LIABILITIES:
     Short-term borrowings                                            $     7,320      $     6,598
     Current portion of long-term debt                                      5,117           12,931
     Current portion of long-term debt - related party                      7,020               --
     Accounts payable                                                     103,508          131,689
     Accrued interest                                                      10,391           10,716
     Other accrued liabilities                                             64,686           70,513
                                                                      -----------      -----------
         Total current liabilities                                        198,042          232,447
  
  LONG-TERM DEBT                                                          692,479          735,724
  
  LONG-TERM DEBT - RELATED PARTY                                           97,180               --
  
  OTHER LIABILITIES                                                        34,331           38,871
                                                                      -----------      -----------
  
         Total liabilities                                              1,022,032        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)                             (151,109)        (164,118)
     Accumulated other comprehensive income                                (6,369)          (6,599)
     Other                                                                 (9,794)          (9,794)
                                                                      -----------      -----------
                                                                          (80,233)         (94,217)
     Common Stock held in treasury, at cost:
       1,989,000 shares at June 28, 1998 and December 28, 1997            (19,202)         (19,202)
                                                                      -----------      -----------
  
         Total stockholders' equity (deficit)                             (99,435)        (113,419)
                                                                      -----------      -----------
  
  TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)                $   922,597      $   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)
  26 Week Periods Ended
                                                                         June 28,         June 29,
                                                                           1998             1997
                                                                                (thousands)
  OPERATING ACTIVITIES:
  Net income (loss)                                                   $  14,782      $ (24,993)
     Adjustments to reconcile net income (loss) to net cash provided
         by (used for) operating activities:
         Depreciation and amortization                                      14,299         10,815
         Net amortization of debt issuance costs, debt discount
            and debt premium                                                 3,202          6,847
         Extraordinary loss on early extinguishment of debt                  1,579             37
         Other operating activities                                         11,481           (565)
         Changes in operating assets and liabilities, net                  (66,884)       (38,334)
                                                                         ---------      ---------
  
            Net cash used for operating activities                         (21,541)       (46,193)
                                                                         ---------      ---------
  
  INVESTING ACTIVITIES:
     Capital expenditures                                                  (14,982)       (16,432)
     Acquisitions, net of cash acquired                                     (4,399)            --
     Decrease in restricted cash                                                --         12,143
     Other investing activities                                             (1,467)            35
                                                                         ---------      ---------
  
            Net cash used for investing activities                         (20,848)        (4,254)
                                                                         ---------      ---------
  
  FINANCING ACTIVITIES:
     Net proceeds from short-term borrowings                                   722            256
     Net proceeds from revolving loans                                      82,426         49,000
     Proceeds from long-term debt                                          129,000        453,500
     Repayment of long-term debt                                          (132,767)      (450,026)
     Repayment of Foamex/GFI Note                                           (4,800)            --
     Debt issuance cost                                                     (1,598)       (14,746)
     Purchase of treasury stock                                                 --         (1,890)
     Dividends paid                                                         (1,246)            --
     GFI transaction costs                                                  (3,898)            --
     GFI transaction payment to Trace                                      (20,000)            --
     Other financing activities                                                681           (488)
                                                                         ---------      ---------
  
            Net cash provided by financing activities                       48,520         35,606
                                                                         ---------      ---------
  
  NET INCREASE (DECREASE) IN CASH
     AND CASH EQUIVALENTS                                                    6,131        (14,841)
  
  CASH AND CASH EQUIVALENTS
     AT BEGINNING OF PERIOD                                                 12,044         22,203
                                                                         ---------      ---------
  
  CASH AND CASH EQUIVALENTS
     AT END OF PERIOD                                                    $  18,175      $   7,362
                                                                         =========      =========
  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.'s  (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 June 28, 1998, the condensed  consolidated  statements of operations
  for the thirteen week and  twenty-six  week periods ended June 28, 1998 and June
  29,  1997  and the  condensed  consolidated  statements  of cash  flows  for the
  twenty-six week periods ended June 28, 1998 and June 29, 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.
  
         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 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.
  13 Week Period              26 Week Period
                                                                  Ended June 29, 1997         Ended June 29, 1997
                                                                          (thousands, except per share data)
  Net sales                                                $319,312                    $626,080
                                                                     ========                    ========
            Income before extraordinary loss                          $11,173                     $17,001
                                                                     ========                    ========
            Pro forma basic earnings (loss) per share                   $0.44                       $0.67
                                                                     ========                    ========
            Pro forma diluted earnings (loss) per share                 $0.43                       $0.65
                                                                     ========                    ========
  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.
  
                                         6
  FOAMEX INTERNATIONAL INC. AND SUBSIDIARIES
                NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
  
  3.     INVENTORIES
  
         Inventories consist of:
  
                                        June 28,      December 28,
                                          1998          1997
                                             (thousands)
         Raw materials and supplies     $ 79,404     $ 75,487
         Work-in-process                  16,887       15,620
         Finished goods                   27,789       29,192
                                        --------     --------
  
         Total                          $124,080     $120,299
                                        ========     ========
  
  4.     LONG-TERM DEBT AND LONG-TERM DEBT - RELATED PARTY
  
         Long-term debt consists of:
  June 28,    December 28,
                                                                   1998          1997
         Credit Facility:                                             (thousands)
  Term Loan A                                            $     --     $ 76,700
           Term Loan B                                              83,344      109,725
           Term Loan C                                              75,766       99,750
           Term Loan D                                             109,725      110,000
           Revolving credit facility                               137,354       54,928
         9 7/8% Senior subordinated notes due 2007                 150,000      150,000
         13 1/2% Senior subordinated notes due 2005 (includes
           $12,824 and $13,720 of unamortized debt premium)        110,824      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 $709 and $1,198)                         6,306        6,129
         Other                                                      17,277       18,180
                                                                  --------     --------
                                                                   697,596      748,655
  
         Less current portion                                        5,117       12,931
                                                                  --------     --------
  
         Long-term debt-unrelated parties                         $692,479     $735,724
                                                                  ========     ========
  
         Long-term debt - related party consists of:
  
         Foamex/GFI Note                                          $ 34,000     $     --
  
         Note payable to Foam Funding LLC                           70,200           --
                                                                  --------     --------
                                                                   104,200           --
  
         Less current portion - related party                        7,020           --
                                                                  --------     --------
  
         Long-term debt - related party                           $ 97,180     $     --
                                                                  ========     ========
  7
  FOAMEX INTERNATIONAL INC. AND SUBSIDIARIES
                NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
  
  4.     LONG-TERM DEBT AND LONG-TERM DEBT - RELATED PARTY (continued)
  
         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. [Add interest rate.]
  
         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 thirteen week and twenty-six week periods ended June 28, 1998,
  the Company incurred  interest  expense of  approximately  $0.6 million and $0.8
  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.
  
         During the thirteen week and twenty-six week periods ended June 28, 1998,
  the Company incurred  interest  expenses of approximately  $1.6 million and $2.1
  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 - $9.0 million; 1999 - $17.7 million; 2000 - $52.2 million; 2001 -
  $17.3  million;  2002 - $17.7  million;  2003 - $159.5;  and thereafter - $516.3
  million.
  
                                         8
  FOAMEX INTERNATIONAL INC. AND SUBSIDIARIES
                NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
  
  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  twenty-six  week
  period ended June 28, 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,  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
  Perfect Fit. The extraordinary  loss is comprised of approximately  $0.4 million
  of premium  payments and  approximately  $0.6 million for the  write-off of debt
  issuance costs.
  
  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 June 28,  1998,  the Company has accruals of  approximately  $4.7 million for
  environmental  matters.  In addition,  as of June 28, 1998,  the Company has net
  receivables  of  approximately  $0.6  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 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 results
  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. 
  
                                         9
  FOAMEX INTERNATIONAL INC. AND SUBSIDIARIES
                NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
  
  6.     ENVIRONMENTAL MATTERS (continued)
  
         The Company has reported to  appropriate  state  authorities  that it has
  found soil and  groundwater  contamination  in excess of state standards at four
  facilities and soil  contamination  in excess of state  standards at three other
  facilities.  The  Company  has  begun  remediation  and  is  conducting  further
  investigations  into the extent of the  contamination  at these  facilities and,
  accordingly,  the extent of the remediation that may ultimately be required. The
  actual cost and the timetable of any such  remediation  cannot be predicted with
  any degree of  certainty  at this time.  As of June 28,  1998,  the  Company has
  environmental accruals of approximately $4.1 million for the remaining potential
  remediation costs for these facilities based on engineering estimates.
  
         Federal  regulations  require  that by the end of  1998  all  underground
  storage tanks  ("USTs") be removed or upgraded in all states to meet  applicable
  standards.  The  Company  has six USTs that will  require  removal or  permanent
  in-place closure by the end of 1998. Due to the age of these tanks,  leakage may
  have  occurred  resulting in soil and possibly  groundwater  contamination.  The
  Company has accrued $0.1 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  thirteen  sites  with an  estimated  total
  liability to the Company for the thirteen sites of less than  approximately $0.5
  million.  Estimates  of total  clean-up  costs  and  fractional  allocations  of
  liability  are  generally  provided  by the EPA or the  committee  of PRP's with
  respect to the specified site. In each case, the participation of 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.
  
  7.     LITIGATION
  
         As of August 12, 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 for any such  liabilities  relating  to foam  manufactured
  prior to October 1990. Although Trace Holdings has paid Foamex L.P.'s litigation
  expenses to date pursuant to such indemnification and the Company believes Trace
  Holdings will be in a position to continued to pay such expenses, here 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
  
                                         10
  FOAMEX INTERNATIONAL INC. AND SUBSIDIARIES
                NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
  
  7.     LITIGATION (continued)
  
  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,  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.  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,  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 lawsuits  entered into a Memorandum of  Understanding,
  dated  June  25,  1998  (the  "Memorandum  of  Understanding"),  to  settle  the
  litigation,  subject to, inter alia,  execution of a definitive  Stipulation  of
  Settlement and approval by the Delaware  Chancery Court following  notice to the
  public stockholders and a hearing. The Memorandum of Understanding provides that
  as a result of, among other things, the stockholder  litigation and negotiations
  among  counsel for the parties to the  Memorandum  of  Understanding,  a special
  meeting of stockholders will be held to vote upon and adopt the Merger Agreement
  which  provides,  among other  things,  for the public  shares of the  Company's
  common stock to be converted into the right to receive  $18.75 in cash,  without
  interest.  The Memorandum of Understanding  also  acknowledged that the terms of
  the Merger have been significantly  improved over the terms originally  proposed
  by Trace Holdings on March 16, 1998, and the Company and the individual director
  and  officer  defendants  acknowledged  that the filing and  prosecution  of the
  stockholder  litigation  was a factor  they took  into  account  in giving  fair
  consideration to and entering into the Merger,  and Trace Holdings  acknowledged
  that it took into account the  desirability  of  satisfactorily  addressing  the
  claims  asserted in the  stockholder  litigation  in  agreeing to the  increased
  consideration  to be paid to the  public  stockholders  pursuant  to the  Merger
  Agreement.
  
         The  Memorandum of  Understanding  also provided for  certification  of a
  class, for settlement purposes only, consisting of the public stockholders,  the
  dismissal  of the  stockholder  litigation  with  prejudice  and the  release by
  plaintiffs  and all members of the class of all claims and causes of action that
  were or could have been  asserted  against Trace  Holdings,  the Company and the
  individual  defendants  in the  stockholder  litigation or that arise out of the
  matters alleged by plaintiffs.  In connection with the proposed settlement,  the
  plaintiffs  intend  to  apply  of an award  of  attorney's  fees and  litigation
  expenses in an amount not to exceed $925,000, and the defendants have agreed not
  to oppose this application. Additionally, the Company has agreed to pay the cost
  of sending notice of the settlement, if any, to its public shareholders.
  
                                         11
  FOAMEX INTERNATIONAL INC. AND SUBSIDIARIES
                NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
  
  7.     LITIGATION (continued)
  
         The  defendants  have  denied,  and  continued  to deny,  that  they have
  committed or have  threatened to commit any violation of law or breaches of duty
  to plaintiffs or the purported class. The defendants have agreed to the proposed
  settlement  because,  among other reasons,  such settlement  would eliminate the
  burden and expenses of further  litigation and would facilitate the consummation
  of a  transaction  that they believe to be in the best  interests of the Company
  and the public stockholders.
  
         The Company is party to various  other  lawsuits,  both as defendant  and
  plaintiff,  arising in the normal  course of business.  It is the opinion of the
  Company 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. These  transactions  have
  been  reflected  as  a   reorganization   of  companies  under  common  control.
  Accordingly,  the net  effect  resulted  to 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.
  13 Week Period Ended       26 Week Period Ended
                                                          June 28,     June 29,     June 28,      June 29,
                                                            1998         1997         1998          1997
                                                              (thousands, except per share amounts)
  Basic earnings (loss) per share:
         Net income (loss)                                $ 10,448     $(32,719)     $ 14,782     $(24,993)
                                                          ========     ========      ========     ========
  
         Average common stock outstanding                   25,012       25,298        24,977       25,304
                                                          ========     ========      ========     ========
  
         Basic earnings (loss) per share                  $   0.42     $  (1.29)     $   0.59     $  (0.99)
                                                          ========     ========      ========     ========
  
  Diluted earnings (loss) per share:
         Net income (loss) available for common stock
            and dilutive securities                       $ 10,448     $(32,719)     $ 14,782     $(24,993)
                                                          ========     ========      ========     ========
  
         Average common stock outstanding                   25,012       25,298        24,977       25,304
  
         Additional common shares resulting
            from stock options and warrants                  1,112          744         1,113          782
                                                          --------     --------      --------     --------
  
         Average common stock and dilutive
            stock outstanding                               26,124       26,042        26,090       26,086
                                                          ========     ========      ========     ========
  
         Diluted earnings (loss) per share                $   0.40     $  (1.26)     $   0.57     $  (0.96)
                                                          ========     ========      ========     ========
  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  thirteen-week  and twenty-six  week periods ended
  June 28, 1998 and June 29, 1997 is comprised of the following:
  13 Week Period Ended        26 Week Period Ended
                                               June 28,     June 29,       June 28,    June 29,
                                                 1998         1997           1998        1997
                                                                 (thousands)
  Net income (loss)                            $ 10,448     $(32,719)     $ 14,782     $(24,993)
  Foreign currency translation adjustments            3           16           230         (168)
                                               --------     --------      --------     --------
  Total comprehensive income                   $ 10,451     $(32,703)     $ 15,012     $(25,163)
                                               ========     ========      ========     ========
  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.
  
         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 June 25, 1998, the Company, Trace Holdings, and Trace Merger Sub Corp.
  entered into an Agreement and Plan of Merger (the "Merger Agreement"), providing
  for the  merger  (the  "Merger")  of Trace  Merger  Sub Corp.  with and into the
  Company.  Upon consummation of the Merger, the holders of the outstanding shares
  of the Company's common sotck,  other than Trace Holdings and its  subsidiaries,
  will  received,  in  exchange  for  their  shares,  $18.75  per  share  in cash.
  Consummation  of the Merger is subject to a number of conditions,  many of which
  are outside the control of the Company, including: (i) the approval and adoption
  of the Merger  Agreement by the affirmative vote of the holders of a majority of
  the outstanding  shares of common stock of the Company;  (ii) the absence of any
  injunction preventing consummation of the Merger, (iii) th absence of a material
  adverse change in the business of the Company, and (iv) the receipt of requisite
  financing.
  
         On April 27, 1998, the Company's facility in Orlando, Florida was damaged
  by a fire.  The  Company  is in the  process  of  repairing  the  damages to the
  facility  and  supplying  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.  After  considering  the
  Company's  insurance  coverage,  the Company does not believe that the fire will
  have a significant  impact on the Company's  financial  position or  operations;
  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 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.  These
  transactions  have been reflected as a reorganization  of companies under common
  control.
  
                                         14
  ITEM 2.  MANAGEMENT'S DISCUSSION AND ANALYSIS OF THE FINANCIAL CONDITION AND
           RESULTS OF OPERATIONS
  
         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  $13.6  million  and  $24.3  million  for the  thirteen  week and
  twenty-six week periods ended June 29, 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.
  
  13 Week  Period  Ended June 28, 1998  Compared to 13 Week Period  Ended June 29,
  1997
  
  Results of Operations
  
         Net sales for the second  quarter of 1998 were $298.5 million as compared
  to $239.9 million in the second quarter of 1997, an increase of $58.6 million or
  24.4%.  Foam  Products  net sales for the second  quarter of 1998  increased  to
  $143.7 million from $86.0 million in the second 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 second
  quarter of 1998 decreased 3.4% to $72.4 million from $75.0 million in the second
  quarter  of 1997  primarily  due to the sale of Dalton  in  October  1997  which
  contributed net sales of $13.6 million in 1997 and a reduction in rebond selling
  prices as compared to 1997. Automotive Products net sales for the second quarter
  of 1998 increased 4.9% to $62.2 million from $59.3 million in the second quarter
  of 1997 primarily due to increased volume.  Technical Products net sales for the
  second quarter of 1998 increased 2.6% to $20.2 million from $19.6 million in the
  second  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 19.1% for the
  second quarter of 1998 from 18.7% in the second 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 second quarter of 1998 due to the Company's  implementation  of
  restructuring/consolidation programs associated with the Crain Acquisition.
  
         Income from operations  increased to $36.1 million for the second quarter
  of 1998 from $28.7  million in the second  quarter of 1997  primarily due to the
  Crain Acquisition.
  
         Income  before  extraordinary  loss  increased  to $10.5  million for the
  second  quarter of 1998 as  compared to $9.5  million for the second  quarter of
  1997.  The increase is primarily  due to the increase in income from  operations
  discussed above offset by an increase of approximately  $4.1 million in interest
  and debt issuance expense and $1.0 million of costs associated with the transfer
  of General Felt 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.
  
         The extraordinary  loss on early  extinguishment of debt of approximately
  $42.2 million (net of income taxes of $25.9  million)  during the second quarter
  of 1997 primarily  relates to debt extinguished in connection with the June 1997
  refinancing plan.
  
                                         15
  ITEM 2.  MANAGEMENT'S DISCUSSION AND ANALYSIS OF THE FINANCIAL CONDITION AND
           RESULTS OF OPERATIONS
  
  26 Week  Period  Ended June 28, 1998  Compared to 26 Week Period  Ended June 29,
  1997
  
  Results of Operations
  
         Net sales for the twenty-six  week period ended June 28, 1998 were $612.3
  million as compared to $469.0 million for the twenty-six  week period ended June
  29, 1997,  an increase of $143.3  million or 30.6%.  Foam Products net sales for
  the twenty-six  week period ended June 28, 1998 increased to $301.6 million from
  $170.0 million for the twenty-six  week period ended June 29, 1997 primarily due
  to the net sales from the Crain  operations.  Carpet Cushion  Products net sales
  for the  twenty-six  week period  ended June 28, 1998  increased  0.6% to $143.7
  million from $142.9 million for the  twenty-six  week period ended June 28, 1997
  primarily  due to net  sales  from the  Crain  operations  offset by the sale of
  Dalton in October 1997 which  contributed net sales of $24.3 million in 1997, to
  reduction  of  rebond  selling  prices  as  compared  to 1997 and  product  mix.
  Automotive Products net sales for the twenty-six week period ended June 28, 1998
  increased 5.6% to $125.7  million from $119.0  million for the  twenty-six  week
  period ended June 29, 1997 primarily due to increased volume. Technical Products
  net sales for the twenty-six  week period ended June 28, 1998 increased 11.1% to
  $41.3 million from $37.1 million for the  twenty-six  week period ended June 29,
  1997  primarily  due to increased  net sales volume for felted,  gasketing,  and
  sealing products.
  
         Gross  profit as a  percentage  of net sales  decreased  to 17.7% for the
  twenty-six  week period  ended June 28, 1998 from 18.7% in the  twenty-six  week
  period ended June 29, 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 throughout 1998.
  
         Income from operations increased to $64.9 million for the twenty-six week
  period  ended June 28,  1998 from $55.5  million in the  twenty-six  week period
  ended June 29, 1997 primarily due to the Crain Acquisition.
  
         Income  before  extraordinary  loss  decreased  to $16.7  million for the
  twenty-six  week period ended June 28, 1998 as compared to $17.6 million for the
  twenty-six  week period ended June 29, 1997. The decrease is primarily due to an
  increase of approximately $7.9 million in interest and debt issuance expense and
  $2.0  million of costs  associated  with the  transfer of General  Felt 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.
  
         The extraordinary  loss on early  extinguishment of debt of approximately
  $42.6 million (net of income taxes of $26.1 million)  during the twenty-six week
  period ended June 29, 1997  primarily  relates to the write-off of debt issuance
  costs with debt extinguished in connection with 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  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 June 28,  1998 and the Company  expects
  
                                         16
  ITEM 2.  MANAGEMENT'S DISCUSSION AND ANALYSIS OF THE FINANCIAL CONDITION AND
           RESULTS OF OPERATIONS
  
  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 June 28,  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  increased  $6.2 million  during 1998 to $18.2
  million at June 28, 1998 from $12.0  million at December 28, 1997  primarily due
  to increased borrowings offset by cash used for capital expenditures,  the Crain
  Acquisition  and  an  increase  of  cash  used  by  the  operating   assets  and
  liabilities.  Working  capital  increased  $65.3  million  during 1998 to $203.8
  million at June 28, 1998 from $138.5  million at December 28, 1997 primarily due
  to the increase in operating net 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 $38.7 million during 1998 to $203.0 million at
  June 28,  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 June 1998 as compared to December  1997.  The decrease in accounts
  payable is primarily due to the timing of payments.
  
         As of June 28,  1998,  there  were  $137.4  million of  revolving  credit
  borrowings under the Credit Facility and approximately  $49.7 million associated
  with letters of credit  outstanding  which are supported by the Credit  Facility
  with unused  availability of approximately  $13.0 million.  As of June 28, 1998,
  Foamex Carpet Credit  Facility had unused  availability of  approximately  $19.1
  million. Borrowings by Foamex Canada, Inc. as of June 28, 1998 were $4.3 million
  under Foamex Canada Inc.'s revolving  credit agreement with unused  availability
  of approximately $1.0 million.
  
       Cash  flow  used  for  operating  activities  was  $21.5  million  for  the
  twenty-six  weeks ended June 28, 1998 as compared to cash used of $46.2  million
  for the twenty-six  weeks ended June 29, 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 $20.8 million for
  the  twenty-six  week period  ended June 28, 1998 from cash used of $4.3 million
  for the  twenty-six  week period ended June 29, 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.
  
       Cash flow provided by financing  activities  increased to $48.5 million for
  the  twenty-six  week period ended June 28, 1998 as compared to cash provided of
  $35.6  million for the  twenty-six  week  period  ended June 29,  1997.  This is
  primarily  associated  with  borrowings  under the  revolving  loans to fund the
  operations of Crain during the twenty-six week period ended June 28, 1998 offset
  by the $28.6 million used to fund the GFI Transaction.
  
                                         17
  ITEM 2.  MANAGEMENT'S DISCUSSION AND ANALYSIS OF THE FINANCIAL CONDITION AND
           RESULTS OF OPERATIONS
  
         Interest Rate Swaps
  
         The Company enters into interest rate swaps to lower funding costs and/or
  to manage interest costs and exposure to changing  interest  rates.  The Company
  does not hold or issue financial instruments for trading purposes.
  
         On January 8, 1998,  the Company  entered into an amended  interest  rate
  swap  agreement,  which  provides  for an interest  rate swap  agreement  with a
  notional amount of $150.0 million through June 2002.  Under this agreement,  the
  Company is obligated to make fixed payments of 5.78% per annum through  December
  1998 and  variable  payments  based on LIBOR at the  beginning of each six month
  period for the remainder of the agreement, in exchange for fixed payments by the
  swap  partner  at  6.44%  per  annum  for  the  life of the  agreement,  payable
  semiannually in arrears.  The newly amended  interest rate swap agreement can be
  terminated  by the swap partner at the end of each six month  period  commencing
  December 1999.
  
         The Company is exposed to credit loss in the event of a nonperformance by
  the swap partner; however, the occurrence of this event is not anticipated.  The
  effect of the  interest  rate  swap  agreement  was a  favorable  adjustment  to
  interest  and debt  issuance  expense of $0.2  million and $0.8  million for the
  thirteen  week periods ended June 28, 1998 and June 29, 1997,  respectively  and
  $0.4 million and $1.7  million for the  twenty-six  week periods  ended June 28,
  1998 and June 29, 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 June 28, 1998 was $4.7 million. In addition,  as of
  June 28, 1998, the Company has net receivables of approximately $0.6 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.
  
  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  has and will  continue to make  certain  investments  in its
  software  systems and applications to ensure the Company is Year 2000 compliant.
  The Company plans to continue to make  modifications to the identified  software
  during  1998 and test the  changes  during  1998.  The  financial  impact to the
  Company has not been and is not  anticipated  to be  material  to its  financial
  position or results of operations in any given year. 
  
                                         18
  ITEM 2.  MANAGEMENT'S DISCUSSION AND ANALYSIS OF THE FINANCIAL CONDITION AND
           RESULTS OF 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, "Accounting for Derivative  Instruments and Hedging  Activities".  SFAS No.
  133  establishes  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.
  
                                         19
  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  for the
             fiscal year ended  December 28, 1997 and in the  Company's  Quarterly
             Report on Form 10-Q/A for the fiscal quarter ended March 29, 1998.
  
             The  information  from  Notes 6 and 7 of the  condensed  consolidated
             financial  statements of the Company as of June 28, 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 June 25, 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.
  
                                         20
  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.
  
                                         21
  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.
  
                                         22
  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.
  
                                         23
  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.
  
                                         24
  (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 June 25, 1998.
  
                                         25
  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/A,  dated May 12, 1998,  reporting the restated financial
                statements of Foamex L.P. elating to the GFI Transaction.
  
                Form 8-K, dated June 30, 1998, reporting the signing of the Merger
                Agreement on June 25, 1998.
  
                                         26
  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:   August 17, 1998                         By: /s/ John A. Feenan
                                                      ----------------------------
                                                      John A. Feenan
                                                      Executive Vice President and
                                                      Chief Financial Officer
  
                                         27