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 March 31, 1999
  
                           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 May 12,
  1999 was 25,052,991.
  
  
                                    Page 1 of 23
                            Exhibit List on Page 22 of 23
  <PAGE>
                              FOAMEX INTERNATIONAL INC.
  <TABLE>
  <CAPTION>
  <S>                                                                                                           <C>
                                        INDEX
                                                                                                                 Page
  Part I.   Financial Information:
  
            Item 1.  Financial Statements
  
                Condensed Consolidated Statements of Operations (unaudited) - Quarterly Periods Ended
                  March 31, 1999 and March 29, 1998                                                                3
  
                Condensed Consolidated Balance Sheets (unaudited) as of March 31, 1999
                  and December 31, 1998                                                                            4
  
                Condensed Consolidated Statements of Cash Flows (unaudited) - Quarterly Periods Ended
                  March 31, 1999 and March 29, 1998                                                                5
  
                Notes to Condensed Consolidated Financial Statements (unaudited)                                   6
  
  
            Item 2.  Management's Discussion and Analysis of Financial Condition and Results
                     of Operations                                                                                14
  
  Part II.  Other Information                                                                                     22
  
            Item 1.  Legal Proceedings                                                                            22
  
            Item 6.  Exhibits and Reports on Form 8-K                                                             22
  
  Signatures                                                                                                      23
  </TABLE>
  
  
                                         2
  <PAGE>
  PART I.  FINANCIAL INFORMATION
  ITEM 1.  FINANCIAL STATEMENTS
  
                     FOAMEX INTERNATIONAL INC. AND SUBSIDIARIES
             CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (unaudited)
  
  <TABLE>
  <CAPTION>
                                                 Quarterly Periods Ended   
                                                  March 31,       March 29,
                                                    1999            1998     
                                           (thousands, except per share amounts)
  <S>                                            <C>           <C>      
  NET SALES                                      $ 322,863     $ 312,290
  
  COST OF GOODS SOLD                               279,266       262,720
                                                 ---------     ---------
  
  GROSS PROFIT                                      43,597        49,570
  
  SELLING, GENERAL AND
     ADMINISTRATIVE EXPENSES                        18,828        23,043
  
  RESTRUCTURING AND OTHER CHARGES                    3,457            --
                                                 ---------     ---------
  
  INCOME FROM OPERATIONS                            21,312        26,527
  
  INTEREST AND DEBT ISSUANCE EXPENSE                17,696        17,527
  
  OTHER INCOME (EXPENSE), NET                        3,351          (699)
                                                 ---------     ---------
  
  INCOME BEFORE PROVISION FOR INCOME TAXES           6,967         8,301
  
  PROVISION FOR INCOME TAXES                           954         3,318
                                                 ---------     ---------
  
  INCOME BEFORE EXTRAORDINARY LOSS                   6,013         4,983
  
  EXTRAORDINARY LOSS ON EARLY EXTINGUISHMENT
     OF DEBT, NET OF INCOME TAXES                       --        (1,874)
                                                 ---------     ---------
  
  NET INCOME                                     $   6,013     $   3,109
                                                 =========     =========
  
  BASIC EARNINGS (LOSS) PER SHARE:
     INCOME BEFORE EXTRAORDINARY LOSS            $    0.24     $    0.20
     EXTRAORDINARY LOSS                                 --         (0.08)
                                                 ---------     ---------
     EARNINGS PER SHARE                          $    0.24     $    0.12
                                                 =========     =========
  
  WEIGHTED AVERAGE NUMBER OF SHARES                 25,053        24,942
                                                 =========     =========
  
  DILUTED EARNINGS (LOSS) PER SHARE:
     INCOME BEFORE EXTRAORDINARY LOSS            $    0.24     $    0.19
     EXTRAORDINARY LOSS                                 --         (0.07)
                                                 ---------     ---------
     EARNINGS PER SHARE                          $    0.24     $    0.12
                                                 =========     =========
  
  WEIGHTED AVERAGE NUMBER OF SHARES                 25,263        25,603
                                                 =========     =========
  
  </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>
                                                                         March 31,        December 31,
  ASSETS                                                                   1999              1998       
  CURRENT ASSETS:                                                  (thousands, except number of shares)
  <S>                                                                 <C>              <C>        
     Cash and cash equivalents                                        $     6,762      $    12,572
     Accounts receivable, net                                             195,237          185,158
     Inventories                                                          117,641          136,658
     Other current assets                                                  34,635           38,978
                                                                      -----------      -----------
         Total current assets                                             354,275          373,366
  
  PROPERTY, PLANT AND EQUIPMENT, NET                                      231,470          242,173
  
  COST IN EXCESS OF ASSETS ACQUIRED, NET                                  219,678          220,934
  
  DEBT ISSUANCE COSTS, NET                                                 18,064           14,852
  
  OTHER ASSETS                                                             23,556           23,640
                                                                      -----------      -----------
  
  TOTAL ASSETS                                                        $   847,043      $   874,965
                                                                      ===========      ===========
  
  LIABILITIES AND STOCKHOLDERS' DEFICIT
  CURRENT LIABILITIES:
     Short-term borrowings                                            $     3,493      $     2,957
     Current portion of long-term debt                                    688,464          690,248
     Current portion of long-term debt - related party                     97,180           98,935
     Accounts payable                                                     127,007          149,268
     Accrued interest                                                       8,296            7,851
     Other accrued liabilities                                             77,086           79,178
                                                                      -----------      -----------
         Total current liabilities                                      1,001,526        1,028,437
  
  LONG-TERM DEBT                                                               --            8,240
  
  OTHER LIABILITIES                                                        42,388           42,407
                                                                      -----------      -----------
  
         Total liabilities                                              1,043,914        1,079,084
                                                                      -----------      -----------
  
  COMMITMENTS AND CONTINGENCIES                                                --               --
                                                                      -----------      -----------
  
  STOCKHOLDERS' 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 27,041,991 and 27,005,752 shares, respectively;
       Outstanding 25,052,991 and 25,016,752 shares, respectively             270              270
     Additional paid-in capital                                            87,239           86,990
     Accumulated deficit                                                 (231,648)        (237,661)
     Accumulated other comprehensive income                               (24,309)         (24,721)
     Other                                                                (28,423)         (28,997)
                                                                      -----------      -----------
  
         Total stockholders' deficit                                     (196,871)        (204,119)
                                                                      -----------      -----------
  
  TOTAL LIABILITIES AND STOCKHOLDERS' DEFICIT                         $   847,043      $   874,965
                                                                      ===========      ===========
  </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>
                                                                      Quarterly Periods Ended     
                                                                     March 31,      March 29,
                                                                       1999            1998    
                                                                           (thousands)
  OPERATING ACTIVITIES:
  <S>                                                                <C>            <C>      
     Net income                                                      $   6,013      $   3,109
     Adjustments to reconcile net income to net cash provided
         by operating activities:
         Depreciation and amortization                                   8,632          7,817
         Amortization of debt issuance costs, debt discount,
            debt premium and deferred swap agreements                      (60)           261
         Gain on sale of assets                                         (4,217)            --
         Extraordinary loss on early extinguishment of debt                 --          1,608
         Other operating activities                                        128          5,114
         Changes in operating assets and liabilities, net              (14,007)       (37,757)
                                                                     ---------      ---------
  
            Net cash used for operating activities                      (3,511)       (19,848)
                                                                     ---------      ---------
  
  INVESTING ACTIVITIES:
     Capital expenditures                                               (6,026)        (7,201)
     Acquisitions, net of cash acquired                                     --         (3,321)
     Proceeds from sale of assets                                       16,313             --
     Deposit for defeasance of indebtedness                                 --         (4,809)
     Other investing activities                                            924           (460)
                                                                     ---------      ---------
  
            Net cash provided by (used for) investing activities        11,211        (15,791)
                                                                     ---------      ---------
  
  FINANCING ACTIVITIES:
     Net proceeds from short-term borrowings                               536           (716)
     Net proceeds from revolving loans                                     461         69,973
     Proceeds from long-term debt                                           --        129,000
     Repayment of long-term debt                                       (10,222)      (127,083)
     Repayment of long-term debt - related party                        (1,755)            --
     Dividend paid                                                          --         (1,246)
     Cash overdrafts                                                       963             --
     Transfer of General Felt                                               --        (28,698)
     Debt issuance cost                                                 (3,742)        (1,149)
     Other financing activities                                            249            433
                                                                     ---------      ---------
  
            Net cash provided by (used for) financing activities       (13,510)        40,514
                                                                     ---------      ---------
  
  NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS                  (5,810)         4,875
  
  CASH AND CASH EQUIVALENTS
     AT BEGINNING OF PERIOD                                             12,572         12,044
                                                                     ---------      ---------
  
  CASH AND CASH EQUIVALENTS
     AT END OF PERIOD                                                $   6,762      $  16,919
                                                                     =========      =========
  </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 (unaudited)
  
  1.     CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
  
         Foamex  International  Inc.'s  (the  "Company")  condensed   consolidated
  balance  sheet as of  December  31,  1998 has been  condensed  from the  audited
  consolidated  balance  sheet at that date.  The condensed  consolidated  balance
  sheet as of March 31, 1999, the condensed consolidated  statements of operations
  and cash flows for  quarterly  periods  ended  March 31, 1999 and March 29, 1998
  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.
  
         Effective September 1998, management of the Company elected to change the
  year-end  reporting  period from a  fifty-two  or  fifty-three  week fiscal year
  ending on the Sunday  closest to the end of the calendar year to a calendar year
  ending December 31st to improve the internal reporting requirements. This change
  was effective for the third fiscal  quarter of 1998 which ended on September 30,
  1998. Fiscal year 1997 was composed of fifty-two weeks and ended on December 28,
  1997. As a result,  the quarterly  financial data for the quarterly period ended
  March 29, 1998  represents a  thirteen-week  period.  The first  quarter of 1999
  ended on March 31, 1999,  the end of the third full month of 1999,  and included
  91 calendar days.
  
         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 1998 consolidated  financial statements and notes thereto as set forth
  in the  Company's  Annual  Report on Form 10-K for the year ended  December  31,
  1998.
  
         The Company  operates in the flexible  polyurethane  and advanced polymer
  foam  products  industry.  As of March 31, 1999,  the Company's  operations  are
  conducted through its wholly owned  subsidiaries,  Foamex L.P. and Foamex Carpet
  Cushion,  Inc.  ("Foamex  Carpet"),  and  consist  of  the  following  operating
  segments:  (i) foam products,  (ii) carpet cushion  products,  (iii)  automotive
  products,  (iv) technical  products and (v) other,  which primarily  consists of
  certain foreign  manufacturing  operations,  corporate expenses not allocated to
  the other operating segments and restructuring and other charges.  The net sales
  and income (loss) from operations of these operating  segments for the quarterly
  periods ended March 31, 1999 and March 29, 1998 are included in Note 9.
  
         The accompanying  condensed  consolidated  financial statements have been
  prepared  assuming the Company will  continue as a going  concern.  For the year
  ended December 31, 1998, the Company had a loss from  continuing  operations,  a
  working  capital deficit and certain of the Company's  subsidiaries  were not in
  compliance and do not expect to be in compliance for future periods with certain
  debt  covenants  for  which  these  subsidiaries  are  seeking  amendments.  The
  Company's  subsidiaries  received  waivers  from the  lenders  under the various
  senior debt instruments through May 5, 1999, which were subsequently extended on
  May 6, 1999 through June 30, 1999,  for the  covenants  for which the  Company's
  subsidiaries were not in compliance.  Non-compliance under these debt agreements
  provides the lenders under the agreements,  which have an aggregate  outstanding
  principal  balance of  approximately  $478.0 million at March 31, 1999, with the
  right,  upon notice and lapse of time, to declare all of such indebtedness to be
  due.  Notwithstanding the fact that to date, the lenders have not exercised such
  rights and have  granted  waivers of such  covenants  through  June 30,  1999 to
  enable the Company's  subsidiaries  to negotiate  amendments of such  covenants;
  there  can be no  assurance  that such  amendments  will be  obtained.  Were the
  lenders under these agreements to accelerate the maturity of their indebtedness,
  such acceleration  would constitute an event of default and all of the Company's
  long-term  debt would  become  due. As a result,  the  Company has  reclassified
  approximately  $767.2 million and $771.1 million of long-term debt as current in
  the  accompanying  condensed  consolidated  balance sheets at March 31, 1999 and
  December 31, 1998, respectively. These matters raise substantial doubt about the
  Company's ability to continue as a going concern.
  
         Trace International  Holdings, Inc. ("Trace") is a privately held company
  which owned approximately  46.1% of the Company's  outstanding stock as of April
  1, 1999 and whose Chairman also serves as the Chairman of the Company.  In 1998,
  Trace informed the Company that Trace had substantial debt obligations that were
  due at the end of December 1998 and did not have the financial  resources to pay
  those obligations.  Subsequently, Trace informed the Company that waivers and/or
  modifications  of such  indebtedness  had been  obtained  for at least  the near
  future;
  
  
                                         6
  <PAGE>
                     FOAMEX INTERNATIONAL INC. AND SUBSIDIARIES
          NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (unaudited)
  
  1. CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)
  
  however,  there can be no assurance that such waivers and/or  modifications will
  remain in effect prior to obtaining a permanent resolution. The Company's common
  stock  owned by Trace is  pledged  as  collateral  against  certain  of  Trace's
  obligations. If Trace were to default on such indebtedness collateralized by the
  Company's common stock or other Trace creditors were to take steps  constituting
  a default  under such  indebtedness  (such as filing an  involuntary  bankruptcy
  petition),  and if the holders of such  indebtedness  were to  foreclose  on the
  Company's  common stock owned by Trace,  such event could trigger the "change of
  control"   provisions  and  correspondingly  the  acceleration  and  put  rights
  contained  in  certain  of  the  Company's  subsidiaries'  debt  agreements,  as
  described  below.  This could result in the acceleration of all of the Company's
  subsidiaries'   debt.   Although   management   believes   that  the   Company's
  subsidiaries'  debt obligations  could be refinanced  under such  circumstances,
  there can be no assurance that the Company or its subsidiaries  would be able to
  do so. The financial statements do not include any adjustments that might result
  from the outcome of these uncertainties.
  
         Certain credit  agreements and promissory notes of Foamex L.P. and Foamex
  Carpet pursuant to which  approximately  $503.2 million of debt has been issued,
  as of March 31, 1999,  contain  provisions that would result in the acceleration
  of  such  indebtedness  if  Trace  were  to  cease  to own at  least  30% of the
  outstanding common stock of the Company. Similarly, certain indentures of Foamex
  L.P. and Foamex Capital Corporation  relating to approximately $248.0 million of
  senior  subordinated  notes contain  provisions that provide the holders of such
  senior  subordinated  notes with the right to  require  the  issuers  thereof to
  repurchase  such senior  subordinated  notes at a price in cash equal to 101% of
  the  aggregate  principal  amount  thereof,  plus  accrued  and unpaid  interest
  thereon, if Trace falls below certain specified ownership levels of common stock
  and other persons or group owns a greater percentage of common stock than Trace.
  
  2. INVENTORIES
  
         Inventories consist of:
  <TABLE>
  <CAPTION>
                                                                         March 31,                December 31,
                                                                            1999                       1998  
                                                                                     (thousands)
  <S>                                                                     <C>                        <C>     
         Raw materials and supplies                                       $ 81,273                   $ 99,997
         Work-in-process                                                    11,857                     12,188
         Finished goods                                                     24,511                     24,473
                                                                         ---------                  ---------
         Total                                                            $117,641                   $136,658
                                                                          ========                   ========
  </TABLE>
  
  3.     SALE OF ASSETS
  
         On March 31,  1999,  the Company  sold its  corporate  airplane for $16.3
  million  in  gross  proceeds  of which  $8.9  million  was  used to  repay  debt
  associated  with the airplane.  As specified by the terms of the Aircraft  Sale,
  Lease and  Operating  Agreement,  pursuant  to which the Company  purchased  the
  airplane,  Trace agreed to reimburse  the Company to the extent the net proceeds
  from the sale of the airplane were less than a specified amount, and the Company
  was obligated to share the net proceeds in excess of such specified  amount with
  Trace. Pursuant to the terms of such agreement, the Company was obligated to pay
  Trace  approximately $0.6 million or approximately 50% of the "Excess Proceeds",
  as defined,  which was offset against Trace's obligation on two promissory notes
  in favor of the Company. The Company recorded a net gain resulting from the sale
  of the  airplane of  approximately  $4.2  million,  which is  reflected in other
  income (expense) in the accompanying  1999 condensed  consolidated  statement of
  operations.
  
                                          7
  <PAGE>
                     FOAMEX INTERNATIONAL INC. AND SUBSIDIARIES
          NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (unaudited)
  
  4.     CURRENT PORTION OF LONG-TERM DEBT AND LONG-TERM DEBT - RELATED PARTY
  
         The Company reclassified  approximately $767.2 million and $771.1 million
  of long-term debt as current in the accompanying  condensed consolidated balance
  sheets at March 31, 1999 and December 31, 1998, respectively, in connection with
  waivers   granted   through  June  30,  1999  under  certain  of  the  Company's
  subsidiaries' debt agreement's for  non-compliance  with certain debt covenants.
  These matters raise substantial doubt about the Company's ability to continue as
  a going concern. The Company's subsidiaries are seeking amendments to these debt
  agreements. (See Note 1.)
  
         Current portion of long-term debt and long-term debt consists of:
  <TABLE>
  <CAPTION>
                                                                      March 31,  December 31,
                                                                       1999         1998       
                                                                     --------     --------
         Foamex L.P. Credit Facility:                                      (thousands)
  <S>                                                                <C>          <C>     
          Term Loan B                                                $ 82,504     $ 82,714
          Term Loan C                                                  75,003       75,194
          Term Loan D                                                 108,625      108,900
          Revolving credit facility                                   134,201      139,438
        Foamex Carpet revolving credit facility                         5,698           --
        9 7/8% Senior subordinated notes due 2007                     150,000      150,000
        13 1/2% Senior subordinated notes due 2005 (includes
          $11,445 and $11,893 of unamortized debt premium)            109,445      109,893
        Industrial revenue bonds                                        7,000        7,000
        Subordinated note payable (net of unamortized
          debt discount of $431 and $523)                               6,583        6,491
        Other                                                           9,405       18,858
                                                                     --------     --------
                                                                      688,464      698,488
  
        Less current portion                                          688,464      690,248
                                                                     --------     --------
  
        Long-term debt-unrelated parties                             $     --     $  8,240
                                                                     ========     ========
  
        Current portion of long-term debt - related party consists of:
  
        Foamex/GFI Note                                              $ 34,000     $ 34,000
        Note payable to Foam Funding LLC                               63,180       64,935
                                                                     --------     --------
                                                                     $ 97,180     $ 98,935
                                                                     ========     ========
  </TABLE>
  
         Other Long-Term Debt
  
         Approximately  $8.9  million of the decrease in other  long-term  debt at
  March  31,  1999  from  December  31,  1998  was  due to the  repayment  of debt
  associated with the Company's  corporate airplane with a portion of the proceeds
  from the sale of the airplane. (See Note 3.)
  
         Debt Restrictions and Covenants
  
         The  indentures,  credit  facilities  and other  indebtedness  agreements
  contain  certain  covenants  that will  limit,  among  other  things to  varying
  degrees,  the ability of the Company's  subsidiaries (i) to pay distributions or
  redeem  equity  interests,   (ii)  to  make  certain  restrictive   payments  or
  investments,  (iii) to incur  additional  indebtedness or issue Preferred Equity
  Interest,  as defined,  (iv) to merge,  consolidate or sell all or substantially
  all of its assets or (v) to enter into certain  transactions  with affiliates or
  related persons. In addition, certain agreements contain provisions that, in the
  event of a defined change of control or the occurrence of an undefined  material
  adverse  change in the ability of the obligor to perform  its  obligations,  the
  indebtedness  must be repaid, in certain cases, at the option of the holder (see
  Note 1). Also,  the Company's  subsidiaries  are required under certain of these
  agreements to maintain
  
                                         8
  <PAGE>
                     FOAMEX INTERNATIONAL INC. AND SUBSIDIARIES
          NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (unaudited)
  
  4. LONG-TERM DEBT AND LONG-TERM DEBT - RELATED PARTY (continued)
  
  specified  financial ratios of which the most restrictive are the maintenance of
  net worth and interest,  fixed charge and leverage  coverage ratios, as defined.
  Under the most  restrictive  of the  distribution  restrictions,  the  Company's
  subsidiaries  are only  permitted to pay the Company funds to enable the Company
  to meet its operating and debt obligations.
  
         Foamex  L.P.  amended  its  credit  facility  with a group of banks  (the
  "Foamex  L.P.  Credit  Facility")  on March 11,  1999.  The  amendment  adjusted
  financial  covenants,  among other things,  as of December 31, 1998 and provided
  for future  measurement  periods  taking into account  Foamex  L.P.'s  estimated
  operating results and financial condition for 1998 and managements' expectations
  regarding future  measurement  periods.  As the Foamex L.P. actual 1998 net loss
  was greater than originally estimated, on April 15, 1999, Foamex L.P. obtained a
  waiver  through May 5, 1999,  which was further  extended on May 6, 1999 through
  June 30, 1999, of the financial  covenants  contained in the Foamex L.P.  Credit
  Facility and certain events of default arising out of its Mexican operations, in
  order to enable Foamex L.P. to negotiate a further  amendment of the Foamex L.P.
  Credit Facility.
  
         Foamex  Carpet  amended its credit  facility with a group of lenders (the
  "Foamex  Carpet  Credit  Facility")  and the Note Payable to Foam Funding LLC on
  March 12, 1999. The amendments adjusted financial covenants, among other things,
  as of December 31, 1998 and provided for future measurement  periods taking into
  account Foamex Carpet's estimated  operating results and financial condition for
  1998 and managements'  expectations regarding future measurement periods. As the
  Foamex Carpet actual 1998 results were lower than originally projected, on April
  15, 1999, Foamex Carpet obtained waivers through May 5, 1999, which were further
  extended  on May 6, 1999  through  June 30,  1999,  of the  financial  covenants
  contained  in the Foamex  Carpet  Credit  Facility  and the note payable to Foam
  Funding LLC, in order to enable Foamex Carpet to negotiate further amendments of
  the Foamex Carpet Credit Facility and the note payable to Foam Funding LLC.
  
         During the quarterly periods ended March 31, 1999 and March 29, 1998, the
  Company paid approximately $1.8 million and $0.7 million,  respectively, to Foam
  Funding LLC for interest on notes payable to them.
  
  5.     LITIGATION
  
         On April 26, 1999, a putative securities class action entitled Molitor v.
  Foamex  International  Inc., et al., 99 Civ. 3004 (DC),  was filed in the United
  States District court for the Southern District of New York naming as defendants
  the Company,  Trace and certain  officers and directors of the Company on behalf
  of  stockholders  who bought  shares of the  Company's  common  stock during the
  period  from May 7, 1998  through  and  including  April 16,  1999.  The lawsuit
  alleges that the defendants  violated  Section 10(b) of the Securities  Exchange
  Act  of  1934  and  Rule  10b-5  by  misrepresenting  and/or  omitting  material
  information  about the Company's  financial  situation and operations,  with the
  result of artificially  inflating the price of the Company's  stock. The lawsuit
  also  alleges  that Trace and Marshall S. Cogan  violated  Section  20(a) of the
  Securities  Exchange  Act of 1934 as  controlling  persons of the  Company.  The
  compliant seeks class certification,  a declaration that defendants violated the
  federal  securities  laws, an award of money damages,  and costs and attorneys',
  accountants' and experts' fees. The defendants  intend to vigorously  defend the
  action.  To date, no response to the complaint has been made and no discovery or
  other proceedings have taken place.
  
         On April 14, 1999, the Company received  communications  addressed to its
  Board of Directors from certain of the Company's  stockholders regarding aspects
  of the relationship between Trace and the Company. Such stockholders  questioned
  the propriety of certain  relationships and related  transactions  between Trace
  and the Company,  which previously have been disclosed in the Company's periodic
  filings.  The Company's  Board of Directors,  in  consultation  with its special
  counsel,  is in the process of evaluating such  communications and what actions,
  if any, to take with respect thereto.
  
         The Company's  Annual Report on Form 10-K for the year ended December 31,
  1998 included the following  discussions of other material litigation  involving
  the Company.  There have been no  significant  developments  in such  litigation
  since the filing of the Company's Annual Report on Form 10-K.
  
                                          9
  <PAGE>
                     FOAMEX INTERNATIONAL INC. AND SUBSIDIARIES
          NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (unaudited)
  
  5.     LITIGATION (continued)
  
         Beginning  on or about  March 17,  1998,  six actions  (collectively  the
  "Stockholder  Litigation")  were filed in the Court of  Chancery of the State of
  Delaware,  New Castle County (the "Court"),  by stockholders of the Company. The
  Stockholder  Litigation,  purportedly  brought as class actions on behalf of all
  stockholders  of the  Company,  named the  Company,  certain  of its  directors,
  certain of its  officers,  Trace and Trace Merger Sub,  Inc.  ("Merger  Sub") as
  defendants  alleging  that  they had  breached  their  fiduciary  duties  to the
  plaintiffs  and other  stockholders  of the Company  unaffiliated  with Trace in
  connection with the proposal of Trace to acquire the publicly traded outstanding
  common stock of the Company for $17.00 per share under an Agreement  and Plan of
  Merger  (the "First  Merger  Agreement").  The  complaints  sought,  among other
  things,  class  certification,  a declaration  that the defendants have breached
  their  fiduciary  duties to the class,  preliminary  and  permanent  injunctions
  barring   implementation  of  the  proposed   transaction,   rescission  of  the
  transaction if  consummated,  unspecified  compensatory  damages,  and costs and
  attorneys' fees. A stipulation and order  consolidating  these six actions under
  the  caption  In  re  Foamex   International   Inc.   Shareholders   Litigation,
  Consolidated Civil Action, No. 16259NC was entered by the Court on May 28, 1998.
  
         The parties to the  Stockholder  Litigation  entered into a Memorandum of
  Understanding,  dated June 25,  1998 (the  "Memorandum  of  Understanding"),  to
  settle the  Stockholder  Litigation,  subject  to,  inter alia,  execution  of a
  definitive  stipulation  of  settlement  between the parties and approval by the
  Court  following  notice  to  the  class  and  a  hearing.   The  Memorandum  of
  Understanding  provided that as a result of, among other things, the Stockholder
  Litigation and  negotiations  among counsel for the parties to the Memorandum of
  Understanding,  a special meeting of stockholders would be held to vote upon and
  approve the First Merger Agreement which provided,  among other things,  for all
  of the  Company's  common  stock not owned by Trace  and its  subsidiaries  (the
  "Public  Shares")  to be  converted  into the right to  receive  $18.75 in cash,
  without interest.
  
         The  Memorandum of  Understanding  also provided for  certification  of a
  class,  for settlement  purposes only,  consisting of the Public Shares owned by
  stockholders of the Company  unaffiliated  with Trace and its subsidiaries  (the
  "Public  Stockholders"),  the  dismissal  of  the  Stockholder  Litigation  with
  prejudice and the release by the  plaintiffs and all members of the class of all
  claims and causes of action that were or could have been asserted against Trace,
  the Company and the individual defendants in the Stockholders Litigation or that
  arise out of the matters alleged by plaintiffs.  Following the completion of the
  confirmatory   discovery   which  was   provided  for  in  the   Memorandum   of
  Understanding,  on  September  9, 1998,  the parties  entered  into a definitive
  Stipulation  of Settlement  and the Court set a hearing to consider  whether the
  settlement  should be approved for October 27, 1998 (the "Settlement  Hearing").
  In connection with the proposed settlement, the plaintiffs intended to apply for
  an award of attorney's  fees and litigation  expenses in an amount not to exceed
  $925,000,   and  the   defendants   agreed  not  to  oppose  this   application.
  Additionally,  the Company  agreed to pay the cost, if any, of sending notice of
  the  settlement to the Public  Stockholders.  On September 24, 1998, a Notice of
  Pendency of Class Action,  Proposed  Settlement  of Class Action and  Settlement
  Hearing was mailed to the members of the settlement  class. On October 20, 1998,
  the parties to the  Stockholder  Litigation  requested that the Court cancel the
  Settlement  Hearing in light of the  announcement  made by Trace on October  16,
  1998,  that it had  been  unable  to  obtain  the  necessary  financing  for the
  contemplated  acquisition  by Trace of the Company's  common stock at a price of
  $18.75 per share which was the subject matter of the proposed  settlement.  This
  request was approved by the Court on October 21, 1998,  and the Company issued a
  press release on October 21, 1998,  announcing  that the Court had cancelled the
  Settlement Hearing.
  
         On  November  10,  1998,  counsel for  certain of the  defendants  in the
  Stockholder  Litigation  gave notice  pursuant to the  Stipulation of Settlement
  that such  defendants  were  withdrawing  from the  Stipulation of Settlement in
  light of the notice  given by Trace to the Company and the special  committee of
  the Board of Directors on November 5, 1998 whereby  Trace  terminated  the First
  Merger Agreement on the grounds that the financing condition in the First Merger
  Agreement was incapable of being satisfied.
  
         On November 12, 1998, the plaintiffs in the Stockholder  Litigation filed
  an Amended  Class  Action  Complaint  (the  "Amended  Complaint").  The  Amended
  Complaint  named the  Company,  Trace,  Merger Sub, Mr.  Marshall S. Cogan,  Mr.
  Andrea Farace, Dr. Stuart Hershon,  Mr. John Tunney, and Mr. Etienne Davignon as
  defendants, alleging that they breached their fiduciary duties to plaintiffs and
  the other Public  Stockholders in connection with a second Agreement and Plan of
  Merber (the "Second Merger Agreement"),  that the proposal to acquire the Public
  Shares  for  $12.00  per  share  lacked  entire  fairness,  that the  individual
  defendants  violated  8  Del.  Code  ss.  251 in  approving  the  Second  Merger
  Agreement, and that Trace and Merger Sub breached the Stipulation of Settlement.
  On December 2, 1998, plaintiffs served a motion for a preliminary
  
                                         10
  <PAGE>
                     FOAMEX INTERNATIONAL INC. AND SUBSIDIARIES
          NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (unaudited)
  
  5.   LITIGATION (continued)
  
  injunction,  seeking  an Order  to  preliminarily  enjoin  the  defendants  from
  proceeding with,  consummating or otherwise effecting the merger contemplated by
  the Second Merger Agreement.
  
         The  defendants  have  denied,  and  continue  to deny,  that  they  have
  committed or have  threatened to commit any violation of law or breaches of duty
  to  plaintiffs  or the  purported  class or any  breach  of the  stipulation  of
  settlement.   The  defendants   intend  to  vigorously  defend  the  Stockholder
  Litigation. If the Stockholder Litigation is adversely determined, it could have
  a material adverse effect on the financial  position,  results of operations and
  cash flows of the Company.
  
         In addition,  on or about  November 18, 1998, a putative class action was
  filed in the United States  District Court for the Eastern  District of New York
  on behalf of all persons who purchased common stock of the Company between March
  16, 1998 and October 19, 1998, naming Trace as defendant and alleging that Trace
  breached a contract between the putative class members and Trace. By order dated
  January 8, 1999, the Court  transferred the action to the United States District
  Court for the Southern  District of New York. Trace made a motion to dismiss the
  action on February 8, 1999,  which motion is pending  before the Court,  and the
  Court has  stayed all  discovery  in the  action  until the  motion is  decided.
  Neither the Company nor any of the individual directors of the Company are named
  as defendants in this litigation.
  
         As of May 17, 1999, the Company and Trace were two of multiple defendants
  in actions filed on behalf of approximately  4,300 recipients of breast implants
  in various  United States  federal and state courts and one Canadian  provincial
  court,  some of which  allege  substantial  damages,  but  most of which  allege
  unspecified damages for personal injuries of various types. Three of these cases
  seek to  allege  claims  on behalf of all  breast  implant  recipients  or other
  allegedly  affected parties,  but no class has been approved or certified by the
  court.  In addition,  three cases have been filed  alleging  claims on behalf of
  approximately 39 residents of Australia, New Zealand,  England, and Ireland. The
  Company  believes that the number of suits and  claimants  may increase.  During
  1995,  the Company and Trace were granted  summary  judgments  and  dismissed as
  defendants  from all cases in the  federal  courts of the United  States and the
  state courts of California.  Appeals for these  decisions were withdrawn and the
  decisions are final.
  
         Although  breast  implants  do not contain  foam,  certain  silicone  gel
  implants  were  produced  using  a  polyurethane  foam  covering  fabricated  by
  independent  distributors  or  fabricators  from  bulk foam  purchased  from the
  Company or Trace.  Neither  the Company nor Trace  recommended,  authorized,  or
  approved the use of its foam for these purposes. The Company is also indemnified
  by Trace for any such liabilities relating to foam manufactured prior to October
  1990.  Although  Trace has paid the Company's  litigation  expenses to date from
  insurance proceeds Trace received,  there can be no assurance that Trace will be
  able to continue to provide  such  indemnification.  While it is not feasible to
  predict or determine the outcome of these actions, based on management's present
  assessment of the merits of pending claims,  after consultation with the general
  counsel of Trace,  and without taking into account  indemnification  provided by
  Trace, the coverage provided by Trace and the Company's  liability insurance and
  potential  indemnity  from the  manufacturers  of  polyurethane  covered  breast
  implants,  management  believes that the disposition of matters that are pending
  or that may reasonably be anticipated to be asserted  should not have a material
  adverse  effect  on either  the  Company's  or  Trace's  consolidated  financial
  position or results of operations.  If management's  assessment of the Company's
  liability with respect to these actions is incorrect,  such actions could have a
  material  adverse  effect on the financial  position,  results of operations and
  cash flows of 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.  Such action could have a
  material  adverse  effect on the financial  position,  results of operations and
  cash flows of the Company.
  
                                         11
  <PAGE>
                     FOAMEX INTERNATIONAL INC. AND SUBSIDIARIES
          NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (unaudited)
  
  5.     LITIGATION (continued)
  
         Other Litigation
  
         The Company is party to various  other  lawsuits,  both as defendant  and
  plaintiff,  arising  in the  normal  course of  business.  It is the  opinion of
  management that the  disposition of these lawsuits will not,  individually or in
  the  aggregate,  have a material  adverse  effect on the  financial  position or
  results  of  operations  of  the  Company.  If  management's  assessment  of the
  Company's  liability  with respect to these actions is  incorrect,  such actions
  could have a material  adverse  effect on the Company's  consolidated  financial
  position.
  
  6.     EARNINGS PER SHARE
  
         The  following  table shows the amounts  used in  computing  earnings per
  share and the  effect on income  and the  weighted  average  number of shares of
  dilutive potential common stock.
  <TABLE>
  <CAPTION>
                                                                   Quarterly Period Ended       
                                                                   March 31,   March 29,
                                                                     1999         1998     
                                                            (thousands, except per share amounts)
  Basic earnings per share:
  <S>                                                              <C>         <C>    
         Net income                                                $ 6,013     $ 3,109
                                                                   =======     =======
  
         Average common stock outstanding                           25,053      24,942
                                                                   =======     =======
  
         Basic earnings per share                                  $  0.24     $  0.12
                                                                   =======     =======
  
  Diluted earnings per share:
         Net income available for common stock
            and dilutive securities                                $ 6,013     $ 3,109
                                                                   =======     =======
  
         Average common stock outstanding                           25,053      24,942
  
         Additional common shares resulting from stock options         210         661
                                                                   -------     -------
  
         Average common stock and dilutive stock outstanding        25,263      25,603
                                                                   =======     =======
  
         Diluted earnings per share                                $  0.24     $  0.12
                                                                   =======     =======
  </TABLE>
  
  7.       COMPREHENSIVE INCOME
  
         Comprehensive  income for the quarterly  periods noted below is comprised
  of the following:
  
                                            Quarterly Period Ended 
                                             March 31,  March 29,
                                               1999       1998     
                                              ------     ------
                                                 (thousands)
  Net income                                  $6,013     $3,109
  Foreign current translation adjustments        412        227
                                              ------     ------
  Total comprehensive income                  $6,425     $3,336
                                              ======     ======
  
                                         12
  <PAGE>
                     FOAMEX INTERNATIONAL INC. AND SUBSIDIARIES
          NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (unaudited)
  
  8.     RESTRUCTURING AND OTHER CHARGES
  
         As  announced  previously  by the  Company  in its March 16,  1999  press
  release, the Company approved and began implementing a restructuring plan during
  the first quarter of 1999 to reduce selling, general and administrative expenses
  and other overhead costs. During the first quarter of 1999, the Company recorded
  restructuring charges of approximately $3.5 million in connection with this plan
  related primarily to severance in connection with replacing the Company's former
  Chairman and Chief Executive  Officer and work force reductions of approximately
  81 employees.  Approximately  $2.0 million of these severance costs will be paid
  by June 30, 1999.  Approximately  $1.5  million,  which  relates to  contractual
  severance  costs payable to the Company's  former  Chairman and Chief  Executive
  Officer,  will be paid  through  March  2001.  The  Company  expects  to  record
  additional  restructuring  charges  in the  future  as it fully  implements  its
  restructuring plan.
  
  9.     OPERATING SEGMENT AND RELATED DATA
  
         The Company reports  information about its business segments on the basis
  of how they are managed and  evaluated by the chief  operating  decision-makers.
  Each  of  the  operating  segments  is  headed  by one or  more  executive  vice
  presidents who are responsible for developing plans and directing the operations
  of the segment.
  
         The Company's  reportable  business  segments are foam  products,  carpet
  cushion products,  automotive products and technical products. The foam products
  segment  manufactures and markets foam used by the bedding  industry,  furniture
  industry  and  the  retail   industry.   The  carpet  cushion  products  segment
  distributes prime, rebond, sponge rubber and felt carpet cushion. The automotive
  products segment supplies foam primarily for automotive interior applications to
  automotive  manufacturers and to industry sub suppliers.  The technical products
  segment  manufactures and markets  reticulated  foams and other custom polyester
  and  polyether  foams  for   industrial,   specialty  and  consumer  and  safety
  applications.
  
         The  "other"  column  in  the  table  below  represents  certain  foreign
  manufacturing  operations  that  do not  meet  the  quantitative  threshold  for
  determining  reportable  segments,  corporate  expenses  not  allocated to other
  operating segments and restructuring and other charges.  Total asset information
  by operating  segment is not reported  because many of the Company's  facilities
  produce products for multiple operating segments.
  
         The  accounting  policies  of the  operating  segments  are  the  same as
  described in the "Summary of Significant Accounting Policies" (see Note 2 to the
  Company's  Annual  Report on Form 10-K for the year ended  December  31,  1998).
  Revenues and costs have been included in operating  segments where  specifically
  identified.  Costs shared by operating segments have been allocated on the basis
  of the amount utilized.
  <TABLE>
  <CAPTION>
                                                     Carpet
                                           Foam      Cushion    Automotive     Technical
                                         Products    Products      Products     Products       Other         Total 
  Quarterly period ended March 31, 1999:
  <S>                                  <C>           <C>           <C>          <C>          <C>          <C>     
  Net sales                            $140,869      $64,799       $88,771      $22,248      $ 6,176      $322,863
  Income (loss) from operations          13,039        1,733         6,566        4,853       (4,879)       21,312
  Depreciation and amortization           4,462        1,563         1,345          716          546         8,632
  
  Quarterly period ended March 29, 1998:
  Net sales                            $149,615      $69,059       $65,681      $21,116      $ 6,819      $312,290
  Income (loss) from operations          11,875        4,689         7,282        4,440       (1,759)       26,527
  Depreciation and amortization           3,995        1,392         1,210          652          568         7,817
  </TABLE>
  
                                         13
  <PAGE>
  ITEM 2.  MANAGEMENT'S DISCUSSION AND ANALYSIS OF THE FINANCIAL CONDITION AND
            RESULTS OF OPERATIONS
  
         The Company  operates in the flexible  polyurethane  and advanced polymer
  foam  products  industry.  As of March 31, 1999,  the Company's  operations  are
  conducted through its wholly owned  subsidiaries,  Foamex L.P. and Foamex Carpet
  and consist of the following operating segments: (i) foam products,  (ii) carpet
  cushion products,  (iii) automotive  products,  (iv) technical  products and (v)
  other,  which primarily  consists of certain foreign  manufacturing  operations,
  corporate   expenses  not  allocated  to  the  other   operating   segments  and
  restructuring  and other charges.  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 page 4 of the Company's Annual
  Report on Form 10-K for the year ended December 31, 1998.
  
         The accompanying  condensed  consolidated  financial statements have been
  prepared assuming the Company will continue as a going concern.  As discussed in
  Note 1 to the accompanying condensed consolidated financial statements and under
  "Liquidity  and Capital  Resources"  below,  at December 31, 1998 the  Company's
  subsidiaries  were not in compliance  and do not expect to be in compliance  for
  future periods with certain  financial  covenants  contained in certain of their
  debt  agreements.  These debt  agreements  had  outstanding  principal  balances
  aggregating  approximately  $478.0  million at March 31, 1999.  Were the lenders
  under these  agreements to accelerate the maturity of their  indebtedness,  such
  acceleration  would  constitute  an event of  default  and all of the  Company's
  subsidiaries'  long-term  debt would become due.  Additionally,  as discussed in
  Note 1 to the accompanying condensed consolidated financial statements and under
  "Liquidity and Capital  Resources"  below, if Trace defaults on its indebtedness
  collateralized  by the Company's common stock and such creditors  exercise their
  rights and remedies under the related debt agreements,  substantially all of the
  Company's subsidiaries indebtedness may be accelerated. As a result, the Company
  reclassified  approximately  $767.2 million and $771.1 million of long-term debt
  as current in the accompanying  condensed  consolidated  balance sheets at March
  31, 1999 and December 31, 1998,  respectively.  These matters raise  substantial
  doubt about the Company's ability to continue as a going concern.  The financial
  statements do not include any adjustments  that might result from the outcome of
  these uncertainties.
  
         On March 16,  1999,  the  Company  announced  that it had  hired  John G.
  Johnson,  Jr. as President,  Chief Executive Officer and director of the Company
  following the resignation of Andrea Farace from the positions of Chairman of the
  Board,  Chief  Executive  Officer and director of the Company.  The Company also
  announced that it had hired JP Morgan  Securities Inc. as a financial advisor to
  explore strategic alternatives to maximize shareholder value.
  
         Restructuring Plan
  
         As  announced  previously  by the  Company  in its March 16,  1999  press
  release, the Company approved and began implementing a restructuring plan during
  the first quarter of 1999 to reduce selling, general and administrative expenses
  and other overhead costs. During the first quarter of 1999, the Company recorded
  restructuring charges of approximately $3.5 million in connection with this plan
  related primarily to severance in connection with replacing the Company's former
  Chairman and Chief Executive  Officer and work force reductions of approximately
  81 employees.  Approximately  $2.0 million of these severance costs will be paid
  by June 30, 1999.  Approximately  $1.5  million,  which  relates to  contractual
  severance  costs payable to the Company's  former  Chairman and Chief  Executive
  Officer,  will be paid  through  March  2001.  The  Company  expects  to  record
  additional  restructuring  charges  in the  future  as it fully  implements  its
  restructuring  plan.  Such  amounts  cannot  be  estimated  at this time but are
  expected to relate primarily to severance costs.
  
         Acquisitions and Dispositions
  
         On March 31,  1999,  the Company  sold its  corporate  airplane for $16.3
  million  in  gross  proceeds  of which  $8.9  million  was  used to  repay  debt
  associated  with the airplane.  As specified by the terms of the Aircraft  Sale,
  Lease and  Operating  Agreement,  pursuant  to which the Company  purchased  the
  airplane,  Trace agreed to reimburse  the Company to the extent the net proceeds
  from the sale of the airplane were less than a specified amount, and the Company
  was obligated to share the net proceeds in excess of such specified  amount with
  Trace. Pursuant to the terms of such agreement, the Company was obligated to pay
  Trace  approximately $0.6 million or approximately 50% of the "Excess Proceeds",
  as defined,  which was offset against Trace's obligation on two promissory notes
  in favor of the Company. The Company recorded a net gain resulting from the sale
  of the  airplane of  approximately  $4.2  million,  which is  reflected in other
  income (expense) in the accompanying  1999 condensed  consolidated  statement of
  operations.
  
                                         14
  <PAGE>
  ITEM 2.  MANAGEMENT'S DISCUSSION AND ANALYSIS OF THE FINANCIAL CONDITION AND
            RESULTS OF OPERATIONS
  
         General
  
         The  Company's  automotive  foam  customers  are  predominantly  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.
  
         Operating  results  for 1999 are  expected  to be  influenced  by various
  internal and external factors.  These factors include,  among other things,  (a)
  the Company's  debt structure and the ability of the Company's  subsidiaries  to
  successfully  amend the terms of their bank credit  agreements and certain other
  indebtedness,  (b) the Company's capital structure, (c) continued implementation
  of  the   consolidation   plan  with  Crain   Industries,   Inc.   (the   "Crain
  Consolidation"),  (d) raw  material  cost  increases,  if any, by the  Company's
  chemical  suppliers,  (e) the  Company's  success in passing on to its customers
  selling price  increases to recover any such raw material cost increases and (f)
  fluctuations in interest rates.
  
  RESULTS OF OPERATIONS
  
         The Company reports  information about its business segments on the basis
  of how they are managed and  evaluated by the chief  operating  decision-makers.
  Each  of  the  operating  segments  is  headed  by one or  more  executive  vice
  presidents who are responsible for developing plans and directing the operations
  of the segment.
  
         The Company's  reportable  business  segments are foam  products,  carpet
  cushion products,  automotive products and technical products. The foam products
  segment  manufactures and markets foam used by the bedding  industry,  furniture
  industry  and  the  retail   industry.   The  carpet  cushion  products  segment
  distributes prime, rebond, sponge rubber and felt carpet cushion. The automotive
  products segment supplies foam primarily for automotive interior applications to
  automotive  manufacturers and to industry sub suppliers.  The technical products
  segment  manufactures and markets  reticulated  foams and other custom polyester
  and  polyether  foams  for   industrial,   specialty  and  consumer  and  safety
  applications.
  
         The  "other"  column  in  the  table  below  represents  certain  foreign
  manufacturing  operations  that  do not  meet  the  quantitative  threshold  for
  determining  reportable segments,  corporate expenses not allocated to the other
  operating segments and restructuring and other charges.  Total asset information
  by operating  segment is not reported  because many of the Company's  facilities
  produce products for multiple operating segments.
  <TABLE>
  <CAPTION>
                                                     Carpet
                                           Foam      Cushion    Automotive     Technical
                                         Products    Products      Products     Products       Other       Total   
  Quarterly period ended March 31, 1999:
  <S>                                  <C>           <C>           <C>          <C>          <C>          <C>     
  Net sales                            $140,869      $64,799       $88,771      $22,248      $ 6,176      $322,863
  Income (loss) from operations          13,039        1,733         6,566        4,853       (4,879)       21,312
  Depreciation and amortization           4,462        1,563         1,345          716          546         8,632
  
  Quarterly period ended March 29, 1998:
  Net sales                            $149,615      $69,059       $65,681      $21,116      $ 6,819      $312,290
  Income (loss) from operations          11,875        4,689         7,282        4,440       (1,759)       26,527
  Depreciation and amortization           3,995        1,392         1,210          652          568         7,817
  </TABLE>
  
  Quarterly  Period Ended March 31, 1999 Compared to Quarterly  Period Ended March
  27, 1998
  
         Net sales for the first  quarter of 1999 were $322.9  million as compared
  to $312.3  million in the first quarter of 1998, an increase of $10.6 million or
  3.4%.  The increase in net sales was primarily  associated  with the increase in
  
                                         15
  <PAGE>
  ITEM 2.  MANAGEMENT'S DISCUSSION AND ANALYSIS OF THE FINANCIAL CONDITION AND
            RESULTS OF OPERATIONS
  
  automotive  lamination products,  which was offset by decreased sales due to the
  closure of several  plants in connection  with the Crain  Consolidation.  Income
  from  operations  decreased $5.2 million or 19.7% to $21.3 million for the first
  quarter of 1999 from $26.5 million in the first quarter of 1998. The decrease in
  income from operations  resulted primarily from (a) restructuring costs recorded
  during the first  quarter of 1999 of $3.4  million  and (b) a decrease  in gross
  profit of $6.0 million resulting primarily from increased raw material costs and
  reductions in carpet  cushion  selling  prices,  offset in part by a decrease in
  selling,  general and administrative  expenses of $4.2 million.  The decrease in
  selling,  general and administrative  costs was primarily due to the elimination
  of  duplicative   costs  from  the  Crain   Consolidation  and  cost  reductions
  implemented during the first quarter of 1999. The Company recorded a net gain of
  approximately  $4.2  million on the sale of its  corporate  airplane  during the
  first  quarter  of 1999,  which is  reflected  in other  income  (expense).  See
  "Acquisitions and Dispositions."
  
         Foam Products
  
         Foam products net sales for the first quarter of 1999  decreased  5.8% to
  $140.9  million from $149.6  million in the first  quarter of 1998.  Income from
  operations  increased  9.8% to $13.0  million  (9.3% of net sales) for the first
  quarter of 1999 from $11.9  million  (7.9% of net sales) in the first quarter of
  1998.  The decrease in net sales was  primarily  associated  with the closure of
  several plants as part of the Crain  Consolidation.  The increase in income from
  operations was primarily the result of improved operating efficiencies resulting
  from the Crain Consolidation.
  
         Carpet Cushion Products
  
         Carpet cushion products net sales for the first quarter of 1999 decreased
  6.2% to $64.8 million from $69.1 million in the first quarter of 1998  primarily
  due to reductions in carpet  cushion  selling  prices and decreased  units sold.
  Income from  operations  decreased 63.0% to $1.7 million (2.7% of net sales) for
  the first  quarter  of 1999 from $4.7  million  (6.8% of net sales) in the first
  quarter of 1998.  The decrease was  primarily  associated  with the factors that
  caused the decrease in net sales.
  
         Automotive Products
  
         Automotive  products  net sales for the first  quarter of 1999  increased
  35.2% to $88.8  million  from $65.7  million in the first  quarter of 1998.  The
  increase  in net sales  was  associated  with  increased  volume  of  lamination
  products.  Income from  operations  decreased  9.8% to $6.6 million (7.4% of net
  sales) for the first  quarter of 1999 from $7.3 million  (11.1% of net sales) in
  the first  quarter of 1998.  This  decrease  was  primarily a result of contract
  price reductions and the change in product mix to more laminated  products which
  have lower margins than other automotive products.
  
         Technical Products
  
         Technical Products net sales for the first quarter of 1999 increased 5.4%
  to $22.2 million from $21.1  million in the first  quarter of 1998.  Income from
  operations  increased  9.3% to $4.9  million  (21.8% of net sales) for the first
  quarter of 1999 from $4.4 million  (21.0% of net sales) in the first  quarter of
  1998.  The  increase  in net sales and  income  from  operations  was  primarily
  associated with increased sales of foam for ink jet printers.
  
         Other
  
         Other  primarily  consists of certain foreign  manufacturing  operations,
  corporate   expenses  not  allocated  to  the  other   operating   segments  and
  restructuring and other charges.  The decrease in net sales associated with this
  segment  primarily  resulted  from a decrease  in net sales  from the  Company's
  Mexican  operations.  The  decrease  in income  from  operations  was  primarily
  associated with the $3.4 million of restructuring  charges recorded in the first
  quarter of 1999 discussed previously.
  
                                         16
  <PAGE>
  ITEM 2.  MANAGEMENT'S DISCUSSION AND ANALYSIS OF THE FINANCIAL CONDITION AND
            RESULTS OF OPERATIONS
  
         Income Before Provision for Income Taxes
  
         Income before  provision  for income taxes  decreased to $7.0 million for
  the first  quarter of 1999 as compared to $8.3  million in the first  quarter of
  1998.  This  decrease is  primarily  due to an increase  of  approximately  $4.1
  million in other income (expense),  net, primarily  resulting from a net gain of
  $4.2 million in connection  with the sale of the corporate  airplane  during the
  first quarter of 1999, offset by a decrease in income from operations  discussed
  above.
  
         Income Taxes
  
         The first  quarter of 1999  provision  for income  taxes of $1.0  million
  represents  statutory  income taxes on operations in Mexico and Canada and state
  income  taxes for those  states  that do not  permit use of net  operating  loss
  carryforwards.
  
         Extraordinary Loss
  
         The  extraordinary  loss on early  extinguishment of debt in 1998 of $1.9
  million (net of $1.3 million income tax benefit) was primarily  associated  with
  the write-off of debt issuance costs in connection with a series of transactions
  designed to simplify the Company's  structure and to provide future  operational
  flexibility.
  
  Liquidity and Capital Resources
  
         Liquidity
  
         The Company is a holding company whose  operations are conducted  through
  its 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 Foamex L.P. Credit Facility,  if necessary,  (provided that
  the Foamex L.P.  Credit Facility is successfully  amended,  as described  below)
  will be adequate to meet Foamex L.P.'s  liquidity  requirements.  The ability to
  meet such liquidity  requirements  could be impaired if Foamex L.P. were to fail
  to comply with any covenants  contained in the Foamex L.P.  Credit  Facility and
  such noncompliance was not cured by Foamex L.P. or waived by the lenders. Foamex
  L.P. amended its credit facility in March 1999.  Foamex L.P. paid  approximately
  $1.2 million in financing  fees and interest  rates were increased in connection
  with this amendment.  The amendment  adjusted financial  covenants,  among other
  things,  as of December  31, 1998 and provided  for future  measurement  periods
  taking into account  Foamex  L.P.'s  estimated  operating  results and financial
  condition for 1998 and  management  expectations  regarding  future  measurement
  periods.  As the Foamex L.P.  actual 1998 net loss was greater  than  originally
  estimated, on April 15, 1999, Foamex L.P. obtained a waiver through May 5, 1999,
  which  was  further  extended  on May 6,  1999  through  June 30,  1999,  of the
  financial  covenants  contained in the Foamex L.P.  Credit  Facility and certain
  events of default  arising  out of its  Mexican  operations,  in order to enable
  Foamex L.P. to negotiate a further amendment of the Foamex L.P. Credit Facility.
  There can be no assurance that such an amendment  will be obtained.  The failure
  to obtain such an amendment would have a material  adverse effect on Foamex L.P.
  and the Company. 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 the Foamex Carpet Credit Facility, if necessary, (provided that
  such Foamex Carpet Credit Facility is successfully  amended, as described below)
  
                                         17
  <PAGE>
  ITEM 2.  MANAGEMENT'S DISCUSSION AND ANALYSIS OF THE FINANCIAL CONDITION AND
            RESULTS OF OPERATIONS
  
  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
  other  financing  arrangements  and such  noncompliance  was not cured by Foamex
  Carpet or waived by the lenders.  Foamex Carpet amended its credit  facility and
  other  financing  arrangements in March 1999.  Foamex Carpet paid  approximately
  $2.6 million in financing  fees and  voluntarily  reduced the commitment by $5.0
  million in connection  with the amendment to the Foamex Carpet Credit  Facility.
  The amendments adjusted financial covenants,  among other things, as of December
  31, 1998 and provided for future measurement  periods taking into account Foamex
  Carpet's  estimated  operating  results and  financial  conditions  for 1998 and
  management  expectations  regarding future  measurement  periods.  As the Foamex
  Carpet actual 1998 net loss was greater than originally projected,  on April 15,
  1999,  Foamex Carpet obtained  waivers  through May 5, 1999,  which were further
  extended  on May 6, 1999  through  June 30,  1999,  of the  financial  covenants
  contained in the Foamex Carpet Credit Facility and other financing arrangements,
  in order to enable Foamex Carpet to negotiate  further  amendments of the Foamex
  Carpet Credit  Facility and the other  financing  arrangements.  There can be no
  assurance  that such  amendments  will be  obtained.  The failure to obtain such
  amendments  would  have a  material  adverse  effect  on Foamex  Carpet  and the
  Company.  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.
  
         Certain credit  agreements and promissory notes of Foamex L.P. and Foamex
  Carpet pursuant to which  approximately  $503.2 million of debt has been issued,
  as of March 31, 1999,  contain  provisions that would result in the acceleration
  of  such  indebtedness  if  Trace  were  to  cease  to own at  least  30% of the
  outstanding common stock of the Company. Similarly, certain indentures of Foamex
  L.P. and Foamex Capital Corporation  relating to approximately $248.0 million of
  senior  subordinated  notes contain  provisions that provide the holders of such
  senior  subordinated  notes with the right to  require  the  issuers  thereof to
  repurchase  such senior  subordinated  notes at a price in cash equal to 101% of
  the  aggregate  principal  amount  thereof,  plus  accrued  and unpaid  interest
  thereon, if Trace falls below certain specified ownership levels of common stock
  and other persons or group owns a greater percentage of common stock than Trace.
  Trace  is a  privately  held  company  which  owned  approximately  46.1% of the
  Company's common stock as of April 1, 1999 and whose Chairman also serves as the
  Chairman of the  Company.  In 1998,  Trace  informed  the Company that Trace had
  substantial  debt  obligations that were due at the end of December 1998 and did
  not have the financial resources to pay those obligations.  Subsequently,  Trace
  informed the Company that waivers and/or  modifications of such indebtedness had
  been obtained for at least the near future;  however,  there can be no assurance
  that such waivers and/or  modifications will remain in effect prior to obtaining
  a permanent resolution.  The Company's common stock owned by Trace is pledged as
  collateral against certain of Trace's debt obligations. If Trace were to default
  on such indebtedness collateralized by the Company's common stock or other Trace
  creditors  were to take steps  constituting  a default  under such  indebtedness
  (such as filing an involuntary bankruptcy petition),  and if the holders of such
  secured  indebtedness  were to foreclose on the Company's  common stock owned by
  Trace,  such  event  could  trigger  the  "change  of  control"  provisions  and
  correspondingly  the  acceleration  and put rights  contained  in certain of the
  Company's  subsidiaries' debt agreements,  as described above. This could result
  in  the  acceleration  of  all of the  Company's  subsidiaries'  debt.  Although
  management  believes that the Company's  subsidiaries' debt obligations could be
  refinanced under such circumstances,  there can be no assurance that the Company
  `s subsidiaries' would be able to do so.
  
         The accompanying  condensed  consolidated  financial statements have been
  prepared assuming the Company will continue as a going concern.  As discussed in
  Note 1 to the condensed consolidated financial statements,  at December 31, 1998
  certain of the Company's  subsidiaries  were not in compliance and do not expect
  to be in compliance in the future with certain financial  covenants contained in
  debt agreements. These agreements had outstanding principal balances aggregating
  approximately  $478.0  million at March 31,  1999.  The  Company's  subsidiaries
  received  waivers  from the lenders  under the various  senior debt  instruments
  through May 5, 1999,  which were  subsequently  extended on May 5, 1999  through
  June 30, 1999, for the covenants for which the Company's  subsidiaries' were not
  in compliance.  Non-compliance  under these debt agreements provides the lenders
  under these  agreements,  with the right,  upon the notice and lapse of time, to
  declare all of such  indebtedness  to be due.  Notwithstanding  the fact that to
  date the lenders have not exercised such rights and have granted waivers of such
  covenants  through  June  30,  1999 to  enable  the  Company's  subsidiaries  to
  negotiate  amendments  of such  covenants;  there can be no assurance  that such
  
                                         18
  <PAGE>
  ITEM 2.  MANAGEMENT'S DISCUSSION AND ANALYSIS OF THE FINANCIAL CONDITION AND
            RESULTS OF OPERATIONS
  
  amendments  will be  obtained.  Were  the  lenders  under  those  agreements  to
  accelerate  the  maturity  of  their   indebtedness,   such  acceleration  would
  constitute  an event of default and all of the  Company's  long-term  debt would
  become  due.  Additionally,  as  discussed  above,  if  Trace  defaults  on  its
  indebtedness  collateralized  by the Company's  common stock and such  creditors
  exercise  their  rights  and  remedies   under  the  related  debt   agreements,
  substantially all of the Company's indebtedness may be accelerated. As a result,
  the Company  reclassified  approximately  $767.2  million and $771.1  million of
  long-term debt as current in the  accompanying  condensed  consolidated  balance
  sheets at March 31, 1999 and  December  31, 1998,  respectively.  These  matters
  raise  substantial  doubt  about the  Company's  ability to  continue as a going
  concern.  The  financial  statements do not include any  adjustments  that might
  result from the outcome of these uncertainties.
  
         If the Company's subsidiaries are able to amend the relevant covenants in
  their credit  agreements and other  financial  arrangements;  the Company may be
  able to  reclassify  its  long-term  debt  included  in current  liabilities  as
  long-term.  However,  there can be no assurance that the Company's  subsidiaries
  will be able to obtain the necessary  amendments,  or if obtained,  that it will
  once again be able to classify such liabilities as long-term.
  
         As of March 31,  1999,  there were  $134.2  million of  revolving  credit
  borrowings,  at an average interest rate of 8.30%,  under the Foamex L.P. Credit
  Facility  with  $10.7   million   available  for   additional   borrowings   and
  approximately $47.6 million of letters of credit outstanding which are supported
  by the Foamex L.P. Credit Facility. Borrowings by Foamex Canada Inc. as of March
  31, 1999 were  approximately  $3.5 million,  at an interest rate of 7.25%, under
  Foamex Canada Inc.'s  revolving  credit  agreement with unused  availability  of
  approximately  $1.9  million.  Foamex Carpet had  approximately  $5.7 million of
  outstanding  borrowings  under the Foamex  Carpet  Credit  Facility at March 31,
  1999, at an interest rate of 8.82%, with unused availability of $8.7 million and
  approximately  $0.6 million of letters of credit outstanding which are supported
  by the Foamex Carpet Credit Facility.
  
         The Company's  subsidiaries  paid an aggregate  $3.8 million in financing
  fees associated with the March 1999 amendments to their credit  facilities.  The
  Company's subsidiaries have capitalized these costs and are currently amortizing
  them along with previously paid deferred financing costs over the remaining life
  of  the  related  debt  agreements  as  the  Company's  subsidiaries  expect  to
  successfully  amend these  agreements  during the  current  waiver  period.  The
  Company's  subsidiaries are in the process of negotiating  further amendments to
  these  agreements as discussed  previously.  Generally,  amendments to financing
  agreements  may  result in changes to terms and  conditions  under the  existing
  agreements,  including,  but not  limited  to,  changes  to  interest  rates and
  financial and  non-financial  covenants.  Additionally,  there may be additional
  financing fees  associated  with obtaining such  amendments.  The Company cannot
  determine  the changes which may occur to its existing  financing  agreements at
  this  time,  or the  amount  of any  financing  fees  which may be  required  in
  connection with these future amendments.
  
         Cash and cash  equivalents  decreased  to $6.8  million at March 31, 1999
  from $12.6  million at December  31, 1998 due  primarily  to the decrease in net
  cash provided by operating  activities.  Excluding the reclassification of other
  long-term  debt to current,  working  capital  increased  $3.9 million to $119.9
  million at March 31, 1999 from $116.0 million at December 31, 1998 primarily due
  to the increase in net  operating  assets and  liabilities,  as discussed  below
  offset by the decrease in cash. Net operating assets and liabilities  (comprised
  of accounts  receivable,  inventories  and  accounts  payable)  increased  $13.4
  million to $185.9  million at March 31, 1999 as  compared  to $172.5  million at
  December 31, 1998. The increase was primarily due to a $10.1 million increase in
  accounts receivable and a $22.3 million decrease in accounts payable offset by a
  $19.0 million decrease in inventories.  The increase in accounts  receivable was
  primarily  associated  with  increased  sales  during  March 1999 as compared to
  December 1998. The decrease in inventories  was primarily due to increased first
  quarter 1999 sales and due to the December 31, 1998 inventory  balance including
  significant  purchases of raw  materials  at year-end.  The decrease in accounts
  payable is primarily  associated  with the timing of payments to vendors and the
  decrease in inventories from December 31, 1998 to March 31, 1999.
  
         Cash Flow from Operating Activities
  
         Cash  flow  used  for  operating  activities  was  $3.5  million  for the
  quarterly  period ended March 31, 1999 as compared to cash used of $19.8 million
  
                                         19
  <PAGE>
  ITEM 2.  MANAGEMENT'S DISCUSSION AND ANALYSIS OF THE FINANCIAL CONDITION AND
            RESULTS OF OPERATIONS
  
  for the quarterly  period ended March 29, 1998. The improvement is primarily due
  to a decrease in cash used for operating  assets and  liabilities  for the first
  quarter of 1999 as compared to the first quarter of 1998.
  
         Cash Flow from Investing Activities
  
         During  1999,  the Company  spent  approximately  $6.0 million on capital
  improvements  as compared to $7.2 million for 1998. The 1999  expenditures  were
  primarily for recurring capital replacement. The 1998 expenditures included: (i)
  finalization  of the  expansion  and  modernization  of a facility  in  Orlando,
  Florida  to  improve  manufacturing  efficiencies,  (ii)  installation  of  more
  efficient foam production line systems and fabricating  equipment in a number of
  manufacturing  facilities and (iii)  installation of flame laminators to support
  the increased volume of automotive  laminated  products.  The Company expects to
  continue  to  reduce  capital   expenditures  from  historical  levels  for  the
  foreseeable future.
  
         On March 31,  1999,  the Company  sold its  corporate  aircraft for $16.3
  million  of  gross  proceeds  of which  $8.9  million  was  used to  repay  debt
  associated with the aircraft.
  
         Cash Flow from Financing Activities
  
         In  connection  with a series  of  transactions  in  connection  with the
  transfer of certain  assets of General Felt  Industries,  Inc.  during  February
  1998, the Company extinguished  approximately $125.1 million of term loans under
  the Foamex L.P.  Credit  Facility  funded  with $129.0  million of new term loan
  agreements  which were  subsequently  assumed by Foam  Funding LLC. In addition,
  during  February  1998,  Foamex L.P.  defeased the  outstanding  $4.5 million of
  senior secured notes due 2000.
  
  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 the
  Company's  operations,  financial position,  capital expenditures or competitive
  position.  The amount of liabilities  recorded by the Company in connection with
  environmental  matters as of March 31,  1999 was $4.7  million.  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 for the year ended December 31, 1998, 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.  See  Note  17 to  the  Company's  consolidated  financial  statements
  included in the Company's Annual Report on Form 10-K for the year ended December
  31, 1998.
  
  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.
  
                                         20
  <PAGE>
  ITEM 2.  MANAGEMENT'S DISCUSSION AND ANALYSIS OF THE FINANCIAL CONDITION AND
            RESULTS OF OPERATIONS
  
  Year 2000 Compliance
  
         The  Company  uses  numerous  business  information  systems  as  well as
  manufacturing support systems that could be impacted by the "Year 2000 Problem".
  The Year 2000 Problem arises from computer  programs that were written using two
  digits rather than four to designate the year. In connection  with the Year 2000
  Problem, date-sensitive computer software may recognize a date using "00" as the
  year 1900 rather  than the year 2000.  This could  result in system  failures or
  miscalculations which would cause significant operational disruptions.
  
         The  Company  has  a  Year  2000  Executive  Sponsor  Team  comprised  of
  representatives  of the  Company.  The  Year  2000  Executive  Sponsor  Team  is
  providing  direction  to and  receiving  reports  from  the Year  2000  Steering
  Committee  (the  "Steering  Committee")  within the  organization.  The Steering
  Committee  has  completed  an  assessment  of  the  state  of  readiness  of the
  Information   Technology  ("IT")  and  non-IT  systems  of  the  Company.  These
  assessments  cover  desktop  computers,   environmental  systems,  manufacturing
  systems (including laboratory  information systems) field  instrumentation,  and
  significant  third party vendor and supplier  systems,  which  include  employee
  compensation and benefit plan  maintenance  systems.  The Steering  Committee is
  also in the process of  assessing  the  readiness of the  Company's  significant
  customers and suppliers.
  
         The Year  2000  assessment  process  for  each  facility  consists  of an
  inventory  of Year 2000  sensitive  equipment,  an  assessment  of the impact of
  possible failures,  determination of required  remediation  actions, if any, and
  testing  and  implementation  of these  solutions.  The  inventory,  assessment,
  remediation and testing phases were completed at the end of 1998, with fail safe
  testing and final implementation currently taking place in 1999. The progress of
  these phases as of March 31, 1999 is summarized below.
  
         The Company  completed the inventory and assessment phases of the project
  by  December  31,  1998.  These  phases  consisted  of a visit to each  critical
  location  by team  members to promote  awareness  of the  project and verify the
  initial inventory  provided by the contact at each facility.  Testing plans were
  developed which included correspondence with suppliers regarding  date-sensitive
  devices.  In  addition,   local  management  was  advised  of  their  roles  and
  responsibilities in connection with the Year 2000 Problem.
  
         The Company  completed the remediation  and testing of critical  business
  information  computer  systems as of December 31, 1998.  The completion of these
  phases  included the  modification  of several million lines of system code, the
  conversion of the systems acquired from Crain to standard  business  information
  computer  systems,  upgrading  system  hardware and operating  system  software,
  testing  of the  applicable  systems  in a  development  testing  area,  and the
  migration of the remediated systems into the production environment.
  
         The Company  estimates it will spend $2.0 million in connection  with the
  Year 2000  Problem.  The  spending  estimate  will be  refined  as phases of the
  project  are  completed.  Spending  on the Year 2000  Problem  is funded by cash
  generated from operations.
  
         Management  believes  that  all  significant  systems  controlled  by the
  Company  will be Year 2000 ready in the latter half of 1999.  While the Steering
  Committee is communicating readiness to third party customers, as requested, and
  is assessing the readiness of critical suppliers, there can be no assurance that
  third parties with a significant  business  relationship will successfully test,
  reprogram,  and replace all of their IT and non-IT systems on a timely basis. As
  part of the  overall  response to the Year 2000  Problem,  the Company is in the
  process of developing contingency plans in the event of Year 2000 non-compliance
  of certain systems or third parties.  Details of such contingency  plans will be
  determined  after the Steering  Committee has  completed  its  assessment of its
  supply chain, other third parties and the potential for possible failures.
  
         There is inherent  uncertainty  in connection  with the Year 2000 Problem
  due to the  possibility of  unanticipated  failures by third party customers and
  suppliers.  Accordingly,  the  Company  is unable,  at this time,  to assess the
  extent and resulting materiality of the impact of possible Year 2000 failures on
  its  operations,  liquidity or  financial  position.  The Year 2000  assessment,
  remediation,  and testing process  continues to provide  information in order to
  reduce the level of  uncertainty  regarding the impact of the Year 2000 Problem.
  Management believes that if the Company's solutions to the Year 2000 Problem are
  completed as scheduled;  such  solutions may help  minimize the  possibility  of
  significant disruptions to the Company's operations.
  
                                         21
  <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 for the year
             ended December 31, 1998.
  
             The information from Note 5 of the condensed  consolidated  financial
             statements  of the  Company  as of  March  31,  1999  (unaudited)  is
             incorporated herein by reference.
  
  Item 6.    Exhibits and Reports on Form 8-K
  
            (a)  Exhibits
  
                 27   Financial Data Schedule for the quarterly period ended March
                      31, 1999.
  
           (b)  The Company filed the following  Current Reports on Form 8-K since
                December 31, 1998 through the date of this report:
  
                Form 8-K, dated as of January 8, 1999 reporting the termination of
                the Second Merger Agreement.
  
                Form  8-K,  dated as of March 11,  1999  reporting  press  release
                involving  preliminary  earnings,  appointment of John G. Johnson,
                Jr. and amendments to credit agreements,  guarantee and promissory
                notes.
  
                Form  8-K,  dated  as  of  April  16,  1999  reporting  update  to
                preliminary earnings.
  
  
                                         22
  <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:   May 17, 1999                  By: /s/ John A. Feenan         
                                            -------------------------------
                                            John A. Feenan
                                            Executive Vice President and
                                            and Chief Financial Officer
metadata_documents: [{"type": "10-Q", "sequence": "1", "secsgml_size_bytes": 96779}]
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": "99628532"}, "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 March 31, 1999
  
                           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 May 12,
  1999 was 25,052,991.
  
                                    Page 1 of 23
                            Exhibit List on Page 22 of 23
  FOAMEX INTERNATIONAL INC.
  INDEX
                                                                                                                 Page
  Part I.   Financial Information:
  
            Item 1.  Financial Statements
  
                Condensed Consolidated Statements of Operations (unaudited) - Quarterly Periods Ended
                  March 31, 1999 and March 29, 1998                                                                3
  
                Condensed Consolidated Balance Sheets (unaudited) as of March 31, 1999
                  and December 31, 1998                                                                            4
  
                Condensed Consolidated Statements of Cash Flows (unaudited) - Quarterly Periods Ended
                  March 31, 1999 and March 29, 1998                                                                5
  
                Notes to Condensed Consolidated Financial Statements (unaudited)                                   6
  
            Item 2.  Management's Discussion and Analysis of Financial Condition and Results
                     of Operations                                                                                14
  
  Part II.  Other Information                                                                                     22
  
            Item 1.  Legal Proceedings                                                                            22
  
            Item 6.  Exhibits and Reports on Form 8-K                                                             22
  
  Signatures                                                                                                      23
  2
  PART I.  FINANCIAL INFORMATION
  ITEM 1.  FINANCIAL STATEMENTS
  
                     FOAMEX INTERNATIONAL INC. AND SUBSIDIARIES
             CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (unaudited)
  Quarterly Periods Ended   
                                                  March 31,       March 29,
                                                    1999            1998     
                                           (thousands, except per share amounts)
  NET SALES                                      $ 322,863     $ 312,290
  
  COST OF GOODS SOLD                               279,266       262,720
                                                 ---------     ---------
  
  GROSS PROFIT                                      43,597        49,570
  
  SELLING, GENERAL AND
     ADMINISTRATIVE EXPENSES                        18,828        23,043
  
  RESTRUCTURING AND OTHER CHARGES                    3,457            --
                                                 ---------     ---------
  
  INCOME FROM OPERATIONS                            21,312        26,527
  
  INTEREST AND DEBT ISSUANCE EXPENSE                17,696        17,527
  
  OTHER INCOME (EXPENSE), NET                        3,351          (699)
                                                 ---------     ---------
  
  INCOME BEFORE PROVISION FOR INCOME TAXES           6,967         8,301
  
  PROVISION FOR INCOME TAXES                           954         3,318
                                                 ---------     ---------
  
  INCOME BEFORE EXTRAORDINARY LOSS                   6,013         4,983
  
  EXTRAORDINARY LOSS ON EARLY EXTINGUISHMENT
     OF DEBT, NET OF INCOME TAXES                       --        (1,874)
                                                 ---------     ---------
  
  NET INCOME                                     $   6,013     $   3,109
                                                 =========     =========
  
  BASIC EARNINGS (LOSS) PER SHARE:
     INCOME BEFORE EXTRAORDINARY LOSS            $    0.24     $    0.20
     EXTRAORDINARY LOSS                                 --         (0.08)
                                                 ---------     ---------
     EARNINGS PER SHARE                          $    0.24     $    0.12
                                                 =========     =========
  
  WEIGHTED AVERAGE NUMBER OF SHARES                 25,053        24,942
                                                 =========     =========
  
  DILUTED EARNINGS (LOSS) PER SHARE:
     INCOME BEFORE EXTRAORDINARY LOSS            $    0.24     $    0.19
     EXTRAORDINARY LOSS                                 --         (0.07)
                                                 ---------     ---------
     EARNINGS PER SHARE                          $    0.24     $    0.12
                                                 =========     =========
  
  WEIGHTED AVERAGE NUMBER OF SHARES                 25,263        25,603
                                                 =========     =========
  The  accompanying   notes  are  an  integral  part  of  the  condensed
  consolidated financial statements.
  
                                         3
  FOAMEX INTERNATIONAL INC. AND SUBSIDIARIES
                  CONDENSED CONSOLIDATED BALANCE SHEETS (unaudited)
  March 31,        December 31,
  ASSETS                                                                   1999              1998       
  CURRENT ASSETS:                                                  (thousands, except number of shares)
  Cash and cash equivalents                                        $     6,762      $    12,572
     Accounts receivable, net                                             195,237          185,158
     Inventories                                                          117,641          136,658
     Other current assets                                                  34,635           38,978
                                                                      -----------      -----------
         Total current assets                                             354,275          373,366
  
  PROPERTY, PLANT AND EQUIPMENT, NET                                      231,470          242,173
  
  COST IN EXCESS OF ASSETS ACQUIRED, NET                                  219,678          220,934
  
  DEBT ISSUANCE COSTS, NET                                                 18,064           14,852
  
  OTHER ASSETS                                                             23,556           23,640
                                                                      -----------      -----------
  
  TOTAL ASSETS                                                        $   847,043      $   874,965
                                                                      ===========      ===========
  
  LIABILITIES AND STOCKHOLDERS' DEFICIT
  CURRENT LIABILITIES:
     Short-term borrowings                                            $     3,493      $     2,957
     Current portion of long-term debt                                    688,464          690,248
     Current portion of long-term debt - related party                     97,180           98,935
     Accounts payable                                                     127,007          149,268
     Accrued interest                                                       8,296            7,851
     Other accrued liabilities                                             77,086           79,178
                                                                      -----------      -----------
         Total current liabilities                                      1,001,526        1,028,437
  
  LONG-TERM DEBT                                                               --            8,240
  
  OTHER LIABILITIES                                                        42,388           42,407
                                                                      -----------      -----------
  
         Total liabilities                                              1,043,914        1,079,084
                                                                      -----------      -----------
  
  COMMITMENTS AND CONTINGENCIES                                                --               --
                                                                      -----------      -----------
  
  STOCKHOLDERS' 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 27,041,991 and 27,005,752 shares, respectively;
       Outstanding 25,052,991 and 25,016,752 shares, respectively             270              270
     Additional paid-in capital                                            87,239           86,990
     Accumulated deficit                                                 (231,648)        (237,661)
     Accumulated other comprehensive income                               (24,309)         (24,721)
     Other                                                                (28,423)         (28,997)
                                                                      -----------      -----------
  
         Total stockholders' deficit                                     (196,871)        (204,119)
                                                                      -----------      -----------
  
  TOTAL LIABILITIES AND STOCKHOLDERS' DEFICIT                         $   847,043      $   874,965
                                                                      ===========      ===========
  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)
  Quarterly Periods Ended     
                                                                     March 31,      March 29,
                                                                       1999            1998    
                                                                           (thousands)
  OPERATING ACTIVITIES:
  Net income                                                      $   6,013      $   3,109
     Adjustments to reconcile net income to net cash provided
         by operating activities:
         Depreciation and amortization                                   8,632          7,817
         Amortization of debt issuance costs, debt discount,
            debt premium and deferred swap agreements                      (60)           261
         Gain on sale of assets                                         (4,217)            --
         Extraordinary loss on early extinguishment of debt                 --          1,608
         Other operating activities                                        128          5,114
         Changes in operating assets and liabilities, net              (14,007)       (37,757)
                                                                     ---------      ---------
  
            Net cash used for operating activities                      (3,511)       (19,848)
                                                                     ---------      ---------
  
  INVESTING ACTIVITIES:
     Capital expenditures                                               (6,026)        (7,201)
     Acquisitions, net of cash acquired                                     --         (3,321)
     Proceeds from sale of assets                                       16,313             --
     Deposit for defeasance of indebtedness                                 --         (4,809)
     Other investing activities                                            924           (460)
                                                                     ---------      ---------
  
            Net cash provided by (used for) investing activities        11,211        (15,791)
                                                                     ---------      ---------
  
  FINANCING ACTIVITIES:
     Net proceeds from short-term borrowings                               536           (716)
     Net proceeds from revolving loans                                     461         69,973
     Proceeds from long-term debt                                           --        129,000
     Repayment of long-term debt                                       (10,222)      (127,083)
     Repayment of long-term debt - related party                        (1,755)            --
     Dividend paid                                                          --         (1,246)
     Cash overdrafts                                                       963             --
     Transfer of General Felt                                               --        (28,698)
     Debt issuance cost                                                 (3,742)        (1,149)
     Other financing activities                                            249            433
                                                                     ---------      ---------
  
            Net cash provided by (used for) financing activities       (13,510)        40,514
                                                                     ---------      ---------
  
  NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS                  (5,810)         4,875
  
  CASH AND CASH EQUIVALENTS
     AT BEGINNING OF PERIOD                                             12,572         12,044
                                                                     ---------      ---------
  
  CASH AND CASH EQUIVALENTS
     AT END OF PERIOD                                                $   6,762      $  16,919
                                                                     =========      =========
  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 (unaudited)
  
  1.     CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
  
         Foamex  International  Inc.'s  (the  "Company")  condensed   consolidated
  balance  sheet as of  December  31,  1998 has been  condensed  from the  audited
  consolidated  balance  sheet at that date.  The condensed  consolidated  balance
  sheet as of March 31, 1999, the condensed consolidated  statements of operations
  and cash flows for  quarterly  periods  ended  March 31, 1999 and March 29, 1998
  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.
  
         Effective September 1998, management of the Company elected to change the
  year-end  reporting  period from a  fifty-two  or  fifty-three  week fiscal year
  ending on the Sunday  closest to the end of the calendar year to a calendar year
  ending December 31st to improve the internal reporting requirements. This change
  was effective for the third fiscal  quarter of 1998 which ended on September 30,
  1998. Fiscal year 1997 was composed of fifty-two weeks and ended on December 28,
  1997. As a result,  the quarterly  financial data for the quarterly period ended
  March 29, 1998  represents a  thirteen-week  period.  The first  quarter of 1999
  ended on March 31, 1999,  the end of the third full month of 1999,  and included
  91 calendar days.
  
         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 1998 consolidated  financial statements and notes thereto as set forth
  in the  Company's  Annual  Report on Form 10-K for the year ended  December  31,
  1998.
  
         The Company  operates in the flexible  polyurethane  and advanced polymer
  foam  products  industry.  As of March 31, 1999,  the Company's  operations  are
  conducted through its wholly owned  subsidiaries,  Foamex L.P. and Foamex Carpet
  Cushion,  Inc.  ("Foamex  Carpet"),  and  consist  of  the  following  operating
  segments:  (i) foam products,  (ii) carpet cushion  products,  (iii)  automotive
  products,  (iv) technical  products and (v) other,  which primarily  consists of
  certain foreign  manufacturing  operations,  corporate expenses not allocated to
  the other operating segments and restructuring and other charges.  The net sales
  and income (loss) from operations of these operating  segments for the quarterly
  periods ended March 31, 1999 and March 29, 1998 are included in Note 9.
  
         The accompanying  condensed  consolidated  financial statements have been
  prepared  assuming the Company will  continue as a going  concern.  For the year
  ended December 31, 1998, the Company had a loss from  continuing  operations,  a
  working  capital deficit and certain of the Company's  subsidiaries  were not in
  compliance and do not expect to be in compliance for future periods with certain
  debt  covenants  for  which  these  subsidiaries  are  seeking  amendments.  The
  Company's  subsidiaries  received  waivers  from the  lenders  under the various
  senior debt instruments through May 5, 1999, which were subsequently extended on
  May 6, 1999 through June 30, 1999,  for the  covenants  for which the  Company's
  subsidiaries were not in compliance.  Non-compliance under these debt agreements
  provides the lenders under the agreements,  which have an aggregate  outstanding
  principal  balance of  approximately  $478.0 million at March 31, 1999, with the
  right,  upon notice and lapse of time, to declare all of such indebtedness to be
  due.  Notwithstanding the fact that to date, the lenders have not exercised such
  rights and have  granted  waivers of such  covenants  through  June 30,  1999 to
  enable the Company's  subsidiaries  to negotiate  amendments of such  covenants;
  there  can be no  assurance  that such  amendments  will be  obtained.  Were the
  lenders under these agreements to accelerate the maturity of their indebtedness,
  such acceleration  would constitute an event of default and all of the Company's
  long-term  debt would  become  due. As a result,  the  Company has  reclassified
  approximately  $767.2 million and $771.1 million of long-term debt as current in
  the  accompanying  condensed  consolidated  balance sheets at March 31, 1999 and
  December 31, 1998, respectively. These matters raise substantial doubt about the
  Company's ability to continue as a going concern.
  
         Trace International  Holdings, Inc. ("Trace") is a privately held company
  which owned approximately  46.1% of the Company's  outstanding stock as of April
  1, 1999 and whose Chairman also serves as the Chairman of the Company.  In 1998,
  Trace informed the Company that Trace had substantial debt obligations that were
  due at the end of December 1998 and did not have the financial  resources to pay
  those obligations.  Subsequently, Trace informed the Company that waivers and/or
  modifications  of such  indebtedness  had been  obtained  for at least  the near
  future;
  
                                         6
  FOAMEX INTERNATIONAL INC. AND SUBSIDIARIES
          NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (unaudited)
  
  1. CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)
  
  however,  there can be no assurance that such waivers and/or  modifications will
  remain in effect prior to obtaining a permanent resolution. The Company's common
  stock  owned by Trace is  pledged  as  collateral  against  certain  of  Trace's
  obligations. If Trace were to default on such indebtedness collateralized by the
  Company's common stock or other Trace creditors were to take steps  constituting
  a default  under such  indebtedness  (such as filing an  involuntary  bankruptcy
  petition),  and if the holders of such  indebtedness  were to  foreclose  on the
  Company's  common stock owned by Trace,  such event could trigger the "change of
  control"   provisions  and  correspondingly  the  acceleration  and  put  rights
  contained  in  certain  of  the  Company's  subsidiaries'  debt  agreements,  as
  described  below.  This could result in the acceleration of all of the Company's
  subsidiaries'   debt.   Although   management   believes   that  the   Company's
  subsidiaries'  debt obligations  could be refinanced  under such  circumstances,
  there can be no assurance that the Company or its subsidiaries  would be able to
  do so. The financial statements do not include any adjustments that might result
  from the outcome of these uncertainties.
  
         Certain credit  agreements and promissory notes of Foamex L.P. and Foamex
  Carpet pursuant to which  approximately  $503.2 million of debt has been issued,
  as of March 31, 1999,  contain  provisions that would result in the acceleration
  of  such  indebtedness  if  Trace  were  to  cease  to own at  least  30% of the
  outstanding common stock of the Company. Similarly, certain indentures of Foamex
  L.P. and Foamex Capital Corporation  relating to approximately $248.0 million of
  senior  subordinated  notes contain  provisions that provide the holders of such
  senior  subordinated  notes with the right to  require  the  issuers  thereof to
  repurchase  such senior  subordinated  notes at a price in cash equal to 101% of
  the  aggregate  principal  amount  thereof,  plus  accrued  and unpaid  interest
  thereon, if Trace falls below certain specified ownership levels of common stock
  and other persons or group owns a greater percentage of common stock than Trace.
  
  2. INVENTORIES
  
         Inventories consist of:
  March 31,                December 31,
                                                                            1999                       1998  
                                                                                     (thousands)
  Raw materials and supplies                                       $ 81,273                   $ 99,997
         Work-in-process                                                    11,857                     12,188
         Finished goods                                                     24,511                     24,473
                                                                         ---------                  ---------
         Total                                                            $117,641                   $136,658
                                                                          ========                   ========
  3.     SALE OF ASSETS
  
         On March 31,  1999,  the Company  sold its  corporate  airplane for $16.3
  million  in  gross  proceeds  of which  $8.9  million  was  used to  repay  debt
  associated  with the airplane.  As specified by the terms of the Aircraft  Sale,
  Lease and  Operating  Agreement,  pursuant  to which the Company  purchased  the
  airplane,  Trace agreed to reimburse  the Company to the extent the net proceeds
  from the sale of the airplane were less than a specified amount, and the Company
  was obligated to share the net proceeds in excess of such specified  amount with
  Trace. Pursuant to the terms of such agreement, the Company was obligated to pay
  Trace  approximately $0.6 million or approximately 50% of the "Excess Proceeds",
  as defined,  which was offset against Trace's obligation on two promissory notes
  in favor of the Company. The Company recorded a net gain resulting from the sale
  of the  airplane of  approximately  $4.2  million,  which is  reflected in other
  income (expense) in the accompanying  1999 condensed  consolidated  statement of
  operations.
  
                                          7
  FOAMEX INTERNATIONAL INC. AND SUBSIDIARIES
          NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (unaudited)
  
  4.     CURRENT PORTION OF LONG-TERM DEBT AND LONG-TERM DEBT - RELATED PARTY
  
         The Company reclassified  approximately $767.2 million and $771.1 million
  of long-term debt as current in the accompanying  condensed consolidated balance
  sheets at March 31, 1999 and December 31, 1998, respectively, in connection with
  waivers   granted   through  June  30,  1999  under  certain  of  the  Company's
  subsidiaries' debt agreement's for  non-compliance  with certain debt covenants.
  These matters raise substantial doubt about the Company's ability to continue as
  a going concern. The Company's subsidiaries are seeking amendments to these debt
  agreements. (See Note 1.)
  
         Current portion of long-term debt and long-term debt consists of:
  March 31,  December 31,
                                                                       1999         1998       
                                                                     --------     --------
         Foamex L.P. Credit Facility:                                      (thousands)
  Term Loan B                                                $ 82,504     $ 82,714
          Term Loan C                                                  75,003       75,194
          Term Loan D                                                 108,625      108,900
          Revolving credit facility                                   134,201      139,438
        Foamex Carpet revolving credit facility                         5,698           --
        9 7/8% Senior subordinated notes due 2007                     150,000      150,000
        13 1/2% Senior subordinated notes due 2005 (includes
          $11,445 and $11,893 of unamortized debt premium)            109,445      109,893
        Industrial revenue bonds                                        7,000        7,000
        Subordinated note payable (net of unamortized
          debt discount of $431 and $523)                               6,583        6,491
        Other                                                           9,405       18,858
                                                                     --------     --------
                                                                      688,464      698,488
  
        Less current portion                                          688,464      690,248
                                                                     --------     --------
  
        Long-term debt-unrelated parties                             $     --     $  8,240
                                                                     ========     ========
  
        Current portion of long-term debt - related party consists of:
  
        Foamex/GFI Note                                              $ 34,000     $ 34,000
        Note payable to Foam Funding LLC                               63,180       64,935
                                                                     --------     --------
                                                                     $ 97,180     $ 98,935
                                                                     ========     ========
  Other Long-Term Debt
  
         Approximately  $8.9  million of the decrease in other  long-term  debt at
  March  31,  1999  from  December  31,  1998  was  due to the  repayment  of debt
  associated with the Company's  corporate airplane with a portion of the proceeds
  from the sale of the airplane. (See Note 3.)
  
         Debt Restrictions and Covenants
  
         The  indentures,  credit  facilities  and other  indebtedness  agreements
  contain  certain  covenants  that will  limit,  among  other  things to  varying
  degrees,  the ability of the Company's  subsidiaries (i) to pay distributions or
  redeem  equity  interests,   (ii)  to  make  certain  restrictive   payments  or
  investments,  (iii) to incur  additional  indebtedness or issue Preferred Equity
  Interest,  as defined,  (iv) to merge,  consolidate or sell all or substantially
  all of its assets or (v) to enter into certain  transactions  with affiliates or
  related persons. In addition, certain agreements contain provisions that, in the
  event of a defined change of control or the occurrence of an undefined  material
  adverse  change in the ability of the obligor to perform  its  obligations,  the
  indebtedness  must be repaid, in certain cases, at the option of the holder (see
  Note 1). Also,  the Company's  subsidiaries  are required under certain of these
  agreements to maintain
  
                                         8
  FOAMEX INTERNATIONAL INC. AND SUBSIDIARIES
          NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (unaudited)
  
  4. LONG-TERM DEBT AND LONG-TERM DEBT - RELATED PARTY (continued)
  
  specified  financial ratios of which the most restrictive are the maintenance of
  net worth and interest,  fixed charge and leverage  coverage ratios, as defined.
  Under the most  restrictive  of the  distribution  restrictions,  the  Company's
  subsidiaries  are only  permitted to pay the Company funds to enable the Company
  to meet its operating and debt obligations.
  
         Foamex  L.P.  amended  its  credit  facility  with a group of banks  (the
  "Foamex  L.P.  Credit  Facility")  on March 11,  1999.  The  amendment  adjusted
  financial  covenants,  among other things,  as of December 31, 1998 and provided
  for future  measurement  periods  taking into account  Foamex  L.P.'s  estimated
  operating results and financial condition for 1998 and managements' expectations
  regarding future  measurement  periods.  As the Foamex L.P. actual 1998 net loss
  was greater than originally estimated, on April 15, 1999, Foamex L.P. obtained a
  waiver  through May 5, 1999,  which was further  extended on May 6, 1999 through
  June 30, 1999, of the financial  covenants  contained in the Foamex L.P.  Credit
  Facility and certain events of default arising out of its Mexican operations, in
  order to enable Foamex L.P. to negotiate a further  amendment of the Foamex L.P.
  Credit Facility.
  
         Foamex  Carpet  amended its credit  facility with a group of lenders (the
  "Foamex  Carpet  Credit  Facility")  and the Note Payable to Foam Funding LLC on
  March 12, 1999. The amendments adjusted financial covenants, among other things,
  as of December 31, 1998 and provided for future measurement  periods taking into
  account Foamex Carpet's estimated  operating results and financial condition for
  1998 and managements'  expectations regarding future measurement periods. As the
  Foamex Carpet actual 1998 results were lower than originally projected, on April
  15, 1999, Foamex Carpet obtained waivers through May 5, 1999, which were further
  extended  on May 6, 1999  through  June 30,  1999,  of the  financial  covenants
  contained  in the Foamex  Carpet  Credit  Facility  and the note payable to Foam
  Funding LLC, in order to enable Foamex Carpet to negotiate further amendments of
  the Foamex Carpet Credit Facility and the note payable to Foam Funding LLC.
  
         During the quarterly periods ended March 31, 1999 and March 29, 1998, the
  Company paid approximately $1.8 million and $0.7 million,  respectively, to Foam
  Funding LLC for interest on notes payable to them.
  
  5.     LITIGATION
  
         On April 26, 1999, a putative securities class action entitled Molitor v.
  Foamex  International  Inc., et al., 99 Civ. 3004 (DC),  was filed in the United
  States District court for the Southern District of New York naming as defendants
  the Company,  Trace and certain  officers and directors of the Company on behalf
  of  stockholders  who bought  shares of the  Company's  common  stock during the
  period  from May 7, 1998  through  and  including  April 16,  1999.  The lawsuit
  alleges that the defendants  violated  Section 10(b) of the Securities  Exchange
  Act  of  1934  and  Rule  10b-5  by  misrepresenting  and/or  omitting  material
  information  about the Company's  financial  situation and operations,  with the
  result of artificially  inflating the price of the Company's  stock. The lawsuit
  also  alleges  that Trace and Marshall S. Cogan  violated  Section  20(a) of the
  Securities  Exchange  Act of 1934 as  controlling  persons of the  Company.  The
  compliant seeks class certification,  a declaration that defendants violated the
  federal  securities  laws, an award of money damages,  and costs and attorneys',
  accountants' and experts' fees. The defendants  intend to vigorously  defend the
  action.  To date, no response to the complaint has been made and no discovery or
  other proceedings have taken place.
  
         On April 14, 1999, the Company received  communications  addressed to its
  Board of Directors from certain of the Company's  stockholders regarding aspects
  of the relationship between Trace and the Company. Such stockholders  questioned
  the propriety of certain  relationships and related  transactions  between Trace
  and the Company,  which previously have been disclosed in the Company's periodic
  filings.  The Company's  Board of Directors,  in  consultation  with its special
  counsel,  is in the process of evaluating such  communications and what actions,
  if any, to take with respect thereto.
  
         The Company's  Annual Report on Form 10-K for the year ended December 31,
  1998 included the following  discussions of other material litigation  involving
  the Company.  There have been no  significant  developments  in such  litigation
  since the filing of the Company's Annual Report on Form 10-K.
  
                                          9
  FOAMEX INTERNATIONAL INC. AND SUBSIDIARIES
          NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (unaudited)
  
  5.     LITIGATION (continued)
  
         Beginning  on or about  March 17,  1998,  six actions  (collectively  the
  "Stockholder  Litigation")  were filed in the Court of  Chancery of the State of
  Delaware,  New Castle County (the "Court"),  by stockholders of the Company. The
  Stockholder  Litigation,  purportedly  brought as class actions on behalf of all
  stockholders  of the  Company,  named the  Company,  certain  of its  directors,
  certain of its  officers,  Trace and Trace Merger Sub,  Inc.  ("Merger  Sub") as
  defendants  alleging  that  they had  breached  their  fiduciary  duties  to the
  plaintiffs  and other  stockholders  of the Company  unaffiliated  with Trace in
  connection with the proposal of Trace to acquire the publicly traded outstanding
  common stock of the Company for $17.00 per share under an Agreement  and Plan of
  Merger  (the "First  Merger  Agreement").  The  complaints  sought,  among other
  things,  class  certification,  a declaration  that the defendants have breached
  their  fiduciary  duties to the class,  preliminary  and  permanent  injunctions
  barring   implementation  of  the  proposed   transaction,   rescission  of  the
  transaction if  consummated,  unspecified  compensatory  damages,  and costs and
  attorneys' fees. A stipulation and order  consolidating  these six actions under
  the  caption  In  re  Foamex   International   Inc.   Shareholders   Litigation,
  Consolidated Civil Action, No. 16259NC was entered by the Court on May 28, 1998.
  
         The parties to the  Stockholder  Litigation  entered into a Memorandum of
  Understanding,  dated June 25,  1998 (the  "Memorandum  of  Understanding"),  to
  settle the  Stockholder  Litigation,  subject  to,  inter alia,  execution  of a
  definitive  stipulation  of  settlement  between the parties and approval by the
  Court  following  notice  to  the  class  and  a  hearing.   The  Memorandum  of
  Understanding  provided that as a result of, among other things, the Stockholder
  Litigation and  negotiations  among counsel for the parties to the Memorandum of
  Understanding,  a special meeting of stockholders would be held to vote upon and
  approve the First Merger Agreement which provided,  among other things,  for all
  of the  Company's  common  stock not owned by Trace  and its  subsidiaries  (the
  "Public  Shares")  to be  converted  into the right to  receive  $18.75 in cash,
  without interest.
  
         The  Memorandum of  Understanding  also provided for  certification  of a
  class,  for settlement  purposes only,  consisting of the Public Shares owned by
  stockholders of the Company  unaffiliated  with Trace and its subsidiaries  (the
  "Public  Stockholders"),  the  dismissal  of  the  Stockholder  Litigation  with
  prejudice and the release by the  plaintiffs and all members of the class of all
  claims and causes of action that were or could have been asserted against Trace,
  the Company and the individual defendants in the Stockholders Litigation or that
  arise out of the matters alleged by plaintiffs.  Following the completion of the
  confirmatory   discovery   which  was   provided  for  in  the   Memorandum   of
  Understanding,  on  September  9, 1998,  the parties  entered  into a definitive
  Stipulation  of Settlement  and the Court set a hearing to consider  whether the
  settlement  should be approved for October 27, 1998 (the "Settlement  Hearing").
  In connection with the proposed settlement, the plaintiffs intended to apply for
  an award of attorney's  fees and litigation  expenses in an amount not to exceed
  $925,000,   and  the   defendants   agreed  not  to  oppose  this   application.
  Additionally,  the Company  agreed to pay the cost, if any, of sending notice of
  the  settlement to the Public  Stockholders.  On September 24, 1998, a Notice of
  Pendency of Class Action,  Proposed  Settlement  of Class Action and  Settlement
  Hearing was mailed to the members of the settlement  class. On October 20, 1998,
  the parties to the  Stockholder  Litigation  requested that the Court cancel the
  Settlement  Hearing in light of the  announcement  made by Trace on October  16,
  1998,  that it had  been  unable  to  obtain  the  necessary  financing  for the
  contemplated  acquisition  by Trace of the Company's  common stock at a price of
  $18.75 per share which was the subject matter of the proposed  settlement.  This
  request was approved by the Court on October 21, 1998,  and the Company issued a
  press release on October 21, 1998,  announcing  that the Court had cancelled the
  Settlement Hearing.
  
         On  November  10,  1998,  counsel for  certain of the  defendants  in the
  Stockholder  Litigation  gave notice  pursuant to the  Stipulation of Settlement
  that such  defendants  were  withdrawing  from the  Stipulation of Settlement in
  light of the notice  given by Trace to the Company and the special  committee of
  the Board of Directors on November 5, 1998 whereby  Trace  terminated  the First
  Merger Agreement on the grounds that the financing condition in the First Merger
  Agreement was incapable of being satisfied.
  
         On November 12, 1998, the plaintiffs in the Stockholder  Litigation filed
  an Amended  Class  Action  Complaint  (the  "Amended  Complaint").  The  Amended
  Complaint  named the  Company,  Trace,  Merger Sub, Mr.  Marshall S. Cogan,  Mr.
  Andrea Farace, Dr. Stuart Hershon,  Mr. John Tunney, and Mr. Etienne Davignon as
  defendants, alleging that they breached their fiduciary duties to plaintiffs and
  the other Public  Stockholders in connection with a second Agreement and Plan of
  Merber (the "Second Merger Agreement"),  that the proposal to acquire the Public
  Shares  for  $12.00  per  share  lacked  entire  fairness,  that the  individual
  defendants  violated  8  Del.  Code  ss.  251 in  approving  the  Second  Merger
  Agreement, and that Trace and Merger Sub breached the Stipulation of Settlement.
  On December 2, 1998, plaintiffs served a motion for a preliminary
  
                                         10
  FOAMEX INTERNATIONAL INC. AND SUBSIDIARIES
          NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (unaudited)
  
  5.   LITIGATION (continued)
  
  injunction,  seeking  an Order  to  preliminarily  enjoin  the  defendants  from
  proceeding with,  consummating or otherwise effecting the merger contemplated by
  the Second Merger Agreement.
  
         The  defendants  have  denied,  and  continue  to deny,  that  they  have
  committed or have  threatened to commit any violation of law or breaches of duty
  to  plaintiffs  or the  purported  class or any  breach  of the  stipulation  of
  settlement.   The  defendants   intend  to  vigorously  defend  the  Stockholder
  Litigation. If the Stockholder Litigation is adversely determined, it could have
  a material adverse effect on the financial  position,  results of operations and
  cash flows of the Company.
  
         In addition,  on or about  November 18, 1998, a putative class action was
  filed in the United States  District Court for the Eastern  District of New York
  on behalf of all persons who purchased common stock of the Company between March
  16, 1998 and October 19, 1998, naming Trace as defendant and alleging that Trace
  breached a contract between the putative class members and Trace. By order dated
  January 8, 1999, the Court  transferred the action to the United States District
  Court for the Southern  District of New York. Trace made a motion to dismiss the
  action on February 8, 1999,  which motion is pending  before the Court,  and the
  Court has  stayed all  discovery  in the  action  until the  motion is  decided.
  Neither the Company nor any of the individual directors of the Company are named
  as defendants in this litigation.
  
         As of May 17, 1999, the Company and Trace were two of multiple defendants
  in actions filed on behalf of approximately  4,300 recipients of breast implants
  in various  United States  federal and state courts and one Canadian  provincial
  court,  some of which  allege  substantial  damages,  but  most of which  allege
  unspecified damages for personal injuries of various types. Three of these cases
  seek to  allege  claims  on behalf of all  breast  implant  recipients  or other
  allegedly  affected parties,  but no class has been approved or certified by the
  court.  In addition,  three cases have been filed  alleging  claims on behalf of
  approximately 39 residents of Australia, New Zealand,  England, and Ireland. The
  Company  believes that the number of suits and  claimants  may increase.  During
  1995,  the Company and Trace were granted  summary  judgments  and  dismissed as
  defendants  from all cases in the  federal  courts of the United  States and the
  state courts of California.  Appeals for these  decisions were withdrawn and the
  decisions are final.
  
         Although  breast  implants  do not contain  foam,  certain  silicone  gel
  implants  were  produced  using  a  polyurethane  foam  covering  fabricated  by
  independent  distributors  or  fabricators  from  bulk foam  purchased  from the
  Company or Trace.  Neither  the Company nor Trace  recommended,  authorized,  or
  approved the use of its foam for these purposes. The Company is also indemnified
  by Trace for any such liabilities relating to foam manufactured prior to October
  1990.  Although  Trace has paid the Company's  litigation  expenses to date from
  insurance proceeds Trace received,  there can be no assurance that Trace will be
  able to continue to provide  such  indemnification.  While it is not feasible to
  predict or determine the outcome of these actions, based on management's present
  assessment of the merits of pending claims,  after consultation with the general
  counsel of Trace,  and without taking into account  indemnification  provided by
  Trace, the coverage provided by Trace and the Company's  liability insurance and
  potential  indemnity  from the  manufacturers  of  polyurethane  covered  breast
  implants,  management  believes that the disposition of matters that are pending
  or that may reasonably be anticipated to be asserted  should not have a material
  adverse  effect  on either  the  Company's  or  Trace's  consolidated  financial
  position or results of operations.  If management's  assessment of the Company's
  liability with respect to these actions is incorrect,  such actions could have a
  material  adverse  effect on the financial  position,  results of operations and
  cash flows of 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.  Such action could have a
  material  adverse  effect on the financial  position,  results of operations and
  cash flows of the Company.
  
                                         11
  FOAMEX INTERNATIONAL INC. AND SUBSIDIARIES
          NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (unaudited)
  
  5.     LITIGATION (continued)
  
         Other Litigation
  
         The Company is party to various  other  lawsuits,  both as defendant  and
  plaintiff,  arising  in the  normal  course of  business.  It is the  opinion of
  management that the  disposition of these lawsuits will not,  individually or in
  the  aggregate,  have a material  adverse  effect on the  financial  position or
  results  of  operations  of  the  Company.  If  management's  assessment  of the
  Company's  liability  with respect to these actions is  incorrect,  such actions
  could have a material  adverse  effect on the Company's  consolidated  financial
  position.
  
  6.     EARNINGS PER SHARE
  
         The  following  table shows the amounts  used in  computing  earnings per
  share and the  effect on income  and the  weighted  average  number of shares of
  dilutive potential common stock.
  Quarterly Period Ended       
                                                                   March 31,   March 29,
                                                                     1999         1998     
                                                            (thousands, except per share amounts)
  Basic earnings per share:
  Net income                                                $ 6,013     $ 3,109
                                                                   =======     =======
  
         Average common stock outstanding                           25,053      24,942
                                                                   =======     =======
  
         Basic earnings per share                                  $  0.24     $  0.12
                                                                   =======     =======
  
  Diluted earnings per share:
         Net income available for common stock
            and dilutive securities                                $ 6,013     $ 3,109
                                                                   =======     =======
  
         Average common stock outstanding                           25,053      24,942
  
         Additional common shares resulting from stock options         210         661
                                                                   -------     -------
  
         Average common stock and dilutive stock outstanding        25,263      25,603
                                                                   =======     =======
  
         Diluted earnings per share                                $  0.24     $  0.12
                                                                   =======     =======
  7.       COMPREHENSIVE INCOME
  
         Comprehensive  income for the quarterly  periods noted below is comprised
  of the following:
  
                                            Quarterly Period Ended 
                                             March 31,  March 29,
                                               1999       1998     
                                              ------     ------
                                                 (thousands)
  Net income                                  $6,013     $3,109
  Foreign current translation adjustments        412        227
                                              ------     ------
  Total comprehensive income                  $6,425     $3,336
                                              ======     ======
  
                                         12
  FOAMEX INTERNATIONAL INC. AND SUBSIDIARIES
          NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (unaudited)
  
  8.     RESTRUCTURING AND OTHER CHARGES
  
         As  announced  previously  by the  Company  in its March 16,  1999  press
  release, the Company approved and began implementing a restructuring plan during
  the first quarter of 1999 to reduce selling, general and administrative expenses
  and other overhead costs. During the first quarter of 1999, the Company recorded
  restructuring charges of approximately $3.5 million in connection with this plan
  related primarily to severance in connection with replacing the Company's former
  Chairman and Chief Executive  Officer and work force reductions of approximately
  81 employees.  Approximately  $2.0 million of these severance costs will be paid
  by June 30, 1999.  Approximately  $1.5  million,  which  relates to  contractual
  severance  costs payable to the Company's  former  Chairman and Chief  Executive
  Officer,  will be paid  through  March  2001.  The  Company  expects  to  record
  additional  restructuring  charges  in the  future  as it fully  implements  its
  restructuring plan.
  
  9.     OPERATING SEGMENT AND RELATED DATA
  
         The Company reports  information about its business segments on the basis
  of how they are managed and  evaluated by the chief  operating  decision-makers.
  Each  of  the  operating  segments  is  headed  by one or  more  executive  vice
  presidents who are responsible for developing plans and directing the operations
  of the segment.
  
         The Company's  reportable  business  segments are foam  products,  carpet
  cushion products,  automotive products and technical products. The foam products
  segment  manufactures and markets foam used by the bedding  industry,  furniture
  industry  and  the  retail   industry.   The  carpet  cushion  products  segment
  distributes prime, rebond, sponge rubber and felt carpet cushion. The automotive
  products segment supplies foam primarily for automotive interior applications to
  automotive  manufacturers and to industry sub suppliers.  The technical products
  segment  manufactures and markets  reticulated  foams and other custom polyester
  and  polyether  foams  for   industrial,   specialty  and  consumer  and  safety
  applications.
  
         The  "other"  column  in  the  table  below  represents  certain  foreign
  manufacturing  operations  that  do not  meet  the  quantitative  threshold  for
  determining  reportable  segments,  corporate  expenses  not  allocated to other
  operating segments and restructuring and other charges.  Total asset information
  by operating  segment is not reported  because many of the Company's  facilities
  produce products for multiple operating segments.
  
         The  accounting  policies  of the  operating  segments  are  the  same as
  described in the "Summary of Significant Accounting Policies" (see Note 2 to the
  Company's  Annual  Report on Form 10-K for the year ended  December  31,  1998).
  Revenues and costs have been included in operating  segments where  specifically
  identified.  Costs shared by operating segments have been allocated on the basis
  of the amount utilized.
  Carpet
                                           Foam      Cushion    Automotive     Technical
                                         Products    Products      Products     Products       Other         Total 
  Quarterly period ended March 31, 1999:
  Net sales                            $140,869      $64,799       $88,771      $22,248      $ 6,176      $322,863
  Income (loss) from operations          13,039        1,733         6,566        4,853       (4,879)       21,312
  Depreciation and amortization           4,462        1,563         1,345          716          546         8,632
  
  Quarterly period ended March 29, 1998:
  Net sales                            $149,615      $69,059       $65,681      $21,116      $ 6,819      $312,290
  Income (loss) from operations          11,875        4,689         7,282        4,440       (1,759)       26,527
  Depreciation and amortization           3,995        1,392         1,210          652          568         7,817
  13
  ITEM 2.  MANAGEMENT'S DISCUSSION AND ANALYSIS OF THE FINANCIAL CONDITION AND
            RESULTS OF OPERATIONS
  
         The Company  operates in the flexible  polyurethane  and advanced polymer
  foam  products  industry.  As of March 31, 1999,  the Company's  operations  are
  conducted through its wholly owned  subsidiaries,  Foamex L.P. and Foamex Carpet
  and consist of the following operating segments: (i) foam products,  (ii) carpet
  cushion products,  (iii) automotive  products,  (iv) technical  products and (v)
  other,  which primarily  consists of certain foreign  manufacturing  operations,
  corporate   expenses  not  allocated  to  the  other   operating   segments  and
  restructuring  and other charges.  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 page 4 of the Company's Annual
  Report on Form 10-K for the year ended December 31, 1998.
  
         The accompanying  condensed  consolidated  financial statements have been
  prepared assuming the Company will continue as a going concern.  As discussed in
  Note 1 to the accompanying condensed consolidated financial statements and under
  "Liquidity  and Capital  Resources"  below,  at December 31, 1998 the  Company's
  subsidiaries  were not in compliance  and do not expect to be in compliance  for
  future periods with certain  financial  covenants  contained in certain of their
  debt  agreements.  These debt  agreements  had  outstanding  principal  balances
  aggregating  approximately  $478.0  million at March 31, 1999.  Were the lenders
  under these  agreements to accelerate the maturity of their  indebtedness,  such
  acceleration  would  constitute  an event of  default  and all of the  Company's
  subsidiaries'  long-term  debt would become due.  Additionally,  as discussed in
  Note 1 to the accompanying condensed consolidated financial statements and under
  "Liquidity and Capital  Resources"  below, if Trace defaults on its indebtedness
  collateralized  by the Company's common stock and such creditors  exercise their
  rights and remedies under the related debt agreements,  substantially all of the
  Company's subsidiaries indebtedness may be accelerated. As a result, the Company
  reclassified  approximately  $767.2 million and $771.1 million of long-term debt
  as current in the accompanying  condensed  consolidated  balance sheets at March
  31, 1999 and December 31, 1998,  respectively.  These matters raise  substantial
  doubt about the Company's ability to continue as a going concern.  The financial
  statements do not include any adjustments  that might result from the outcome of
  these uncertainties.
  
         On March 16,  1999,  the  Company  announced  that it had  hired  John G.
  Johnson,  Jr. as President,  Chief Executive Officer and director of the Company
  following the resignation of Andrea Farace from the positions of Chairman of the
  Board,  Chief  Executive  Officer and director of the Company.  The Company also
  announced that it had hired JP Morgan  Securities Inc. as a financial advisor to
  explore strategic alternatives to maximize shareholder value.
  
         Restructuring Plan
  
         As  announced  previously  by the  Company  in its March 16,  1999  press
  release, the Company approved and began implementing a restructuring plan during
  the first quarter of 1999 to reduce selling, general and administrative expenses
  and other overhead costs. During the first quarter of 1999, the Company recorded
  restructuring charges of approximately $3.5 million in connection with this plan
  related primarily to severance in connection with replacing the Company's former
  Chairman and Chief Executive  Officer and work force reductions of approximately
  81 employees.  Approximately  $2.0 million of these severance costs will be paid
  by June 30, 1999.  Approximately  $1.5  million,  which  relates to  contractual
  severance  costs payable to the Company's  former  Chairman and Chief  Executive
  Officer,  will be paid  through  March  2001.  The  Company  expects  to  record
  additional  restructuring  charges  in the  future  as it fully  implements  its
  restructuring  plan.  Such  amounts  cannot  be  estimated  at this time but are
  expected to relate primarily to severance costs.
  
         Acquisitions and Dispositions
  
         On March 31,  1999,  the Company  sold its  corporate  airplane for $16.3
  million  in  gross  proceeds  of which  $8.9  million  was  used to  repay  debt
  associated  with the airplane.  As specified by the terms of the Aircraft  Sale,
  Lease and  Operating  Agreement,  pursuant  to which the Company  purchased  the
  airplane,  Trace agreed to reimburse  the Company to the extent the net proceeds
  from the sale of the airplane were less than a specified amount, and the Company
  was obligated to share the net proceeds in excess of such specified  amount with
  Trace. Pursuant to the terms of such agreement, the Company was obligated to pay
  Trace  approximately $0.6 million or approximately 50% of the "Excess Proceeds",
  as defined,  which was offset against Trace's obligation on two promissory notes
  in favor of the Company. The Company recorded a net gain resulting from the sale
  of the  airplane of  approximately  $4.2  million,  which is  reflected in other
  income (expense) in the accompanying  1999 condensed  consolidated  statement of
  operations.
  
                                         14
  ITEM 2.  MANAGEMENT'S DISCUSSION AND ANALYSIS OF THE FINANCIAL CONDITION AND
            RESULTS OF OPERATIONS
  
         General
  
         The  Company's  automotive  foam  customers  are  predominantly  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.
  
         Operating  results  for 1999 are  expected  to be  influenced  by various
  internal and external factors.  These factors include,  among other things,  (a)
  the Company's  debt structure and the ability of the Company's  subsidiaries  to
  successfully  amend the terms of their bank credit  agreements and certain other
  indebtedness,  (b) the Company's capital structure, (c) continued implementation
  of  the   consolidation   plan  with  Crain   Industries,   Inc.   (the   "Crain
  Consolidation"),  (d) raw  material  cost  increases,  if any, by the  Company's
  chemical  suppliers,  (e) the  Company's  success in passing on to its customers
  selling price  increases to recover any such raw material cost increases and (f)
  fluctuations in interest rates.
  
  RESULTS OF OPERATIONS
  
         The Company reports  information about its business segments on the basis
  of how they are managed and  evaluated by the chief  operating  decision-makers.
  Each  of  the  operating  segments  is  headed  by one or  more  executive  vice
  presidents who are responsible for developing plans and directing the operations
  of the segment.
  
         The Company's  reportable  business  segments are foam  products,  carpet
  cushion products,  automotive products and technical products. The foam products
  segment  manufactures and markets foam used by the bedding  industry,  furniture
  industry  and  the  retail   industry.   The  carpet  cushion  products  segment
  distributes prime, rebond, sponge rubber and felt carpet cushion. The automotive
  products segment supplies foam primarily for automotive interior applications to
  automotive  manufacturers and to industry sub suppliers.  The technical products
  segment  manufactures and markets  reticulated  foams and other custom polyester
  and  polyether  foams  for   industrial,   specialty  and  consumer  and  safety
  applications.
  
         The  "other"  column  in  the  table  below  represents  certain  foreign
  manufacturing  operations  that  do not  meet  the  quantitative  threshold  for
  determining  reportable segments,  corporate expenses not allocated to the other
  operating segments and restructuring and other charges.  Total asset information
  by operating  segment is not reported  because many of the Company's  facilities
  produce products for multiple operating segments.
  Carpet
                                           Foam      Cushion    Automotive     Technical
                                         Products    Products      Products     Products       Other       Total   
  Quarterly period ended March 31, 1999:
  Net sales                            $140,869      $64,799       $88,771      $22,248      $ 6,176      $322,863
  Income (loss) from operations          13,039        1,733         6,566        4,853       (4,879)       21,312
  Depreciation and amortization           4,462        1,563         1,345          716          546         8,632
  
  Quarterly period ended March 29, 1998:
  Net sales                            $149,615      $69,059       $65,681      $21,116      $ 6,819      $312,290
  Income (loss) from operations          11,875        4,689         7,282        4,440       (1,759)       26,527
  Depreciation and amortization           3,995        1,392         1,210          652          568         7,817
  Quarterly  Period Ended March 31, 1999 Compared to Quarterly  Period Ended March
  27, 1998
  
         Net sales for the first  quarter of 1999 were $322.9  million as compared
  to $312.3  million in the first quarter of 1998, an increase of $10.6 million or
  3.4%.  The increase in net sales was primarily  associated  with the increase in
  
                                         15
  ITEM 2.  MANAGEMENT'S DISCUSSION AND ANALYSIS OF THE FINANCIAL CONDITION AND
            RESULTS OF OPERATIONS
  
  automotive  lamination products,  which was offset by decreased sales due to the
  closure of several  plants in connection  with the Crain  Consolidation.  Income
  from  operations  decreased $5.2 million or 19.7% to $21.3 million for the first
  quarter of 1999 from $26.5 million in the first quarter of 1998. The decrease in
  income from operations  resulted primarily from (a) restructuring costs recorded
  during the first  quarter of 1999 of $3.4  million  and (b) a decrease  in gross
  profit of $6.0 million resulting primarily from increased raw material costs and
  reductions in carpet  cushion  selling  prices,  offset in part by a decrease in
  selling,  general and administrative  expenses of $4.2 million.  The decrease in
  selling,  general and administrative  costs was primarily due to the elimination
  of  duplicative   costs  from  the  Crain   Consolidation  and  cost  reductions
  implemented during the first quarter of 1999. The Company recorded a net gain of
  approximately  $4.2  million on the sale of its  corporate  airplane  during the
  first  quarter  of 1999,  which is  reflected  in other  income  (expense).  See
  "Acquisitions and Dispositions."
  
         Foam Products
  
         Foam products net sales for the first quarter of 1999  decreased  5.8% to
  $140.9  million from $149.6  million in the first  quarter of 1998.  Income from
  operations  increased  9.8% to $13.0  million  (9.3% of net sales) for the first
  quarter of 1999 from $11.9  million  (7.9% of net sales) in the first quarter of
  1998.  The decrease in net sales was  primarily  associated  with the closure of
  several plants as part of the Crain  Consolidation.  The increase in income from
  operations was primarily the result of improved operating efficiencies resulting
  from the Crain Consolidation.
  
         Carpet Cushion Products
  
         Carpet cushion products net sales for the first quarter of 1999 decreased
  6.2% to $64.8 million from $69.1 million in the first quarter of 1998  primarily
  due to reductions in carpet  cushion  selling  prices and decreased  units sold.
  Income from  operations  decreased 63.0% to $1.7 million (2.7% of net sales) for
  the first  quarter  of 1999 from $4.7  million  (6.8% of net sales) in the first
  quarter of 1998.  The decrease was  primarily  associated  with the factors that
  caused the decrease in net sales.
  
         Automotive Products
  
         Automotive  products  net sales for the first  quarter of 1999  increased
  35.2% to $88.8  million  from $65.7  million in the first  quarter of 1998.  The
  increase  in net sales  was  associated  with  increased  volume  of  lamination
  products.  Income from  operations  decreased  9.8% to $6.6 million (7.4% of net
  sales) for the first  quarter of 1999 from $7.3 million  (11.1% of net sales) in
  the first  quarter of 1998.  This  decrease  was  primarily a result of contract
  price reductions and the change in product mix to more laminated  products which
  have lower margins than other automotive products.
  
         Technical Products
  
         Technical Products net sales for the first quarter of 1999 increased 5.4%
  to $22.2 million from $21.1  million in the first  quarter of 1998.  Income from
  operations  increased  9.3% to $4.9  million  (21.8% of net sales) for the first
  quarter of 1999 from $4.4 million  (21.0% of net sales) in the first  quarter of
  1998.  The  increase  in net sales and  income  from  operations  was  primarily
  associated with increased sales of foam for ink jet printers.
  
         Other
  
         Other  primarily  consists of certain foreign  manufacturing  operations,
  corporate   expenses  not  allocated  to  the  other   operating   segments  and
  restructuring and other charges.  The decrease in net sales associated with this
  segment  primarily  resulted  from a decrease  in net sales  from the  Company's
  Mexican  operations.  The  decrease  in income  from  operations  was  primarily
  associated with the $3.4 million of restructuring  charges recorded in the first
  quarter of 1999 discussed previously.
  
                                         16
  ITEM 2.  MANAGEMENT'S DISCUSSION AND ANALYSIS OF THE FINANCIAL CONDITION AND
            RESULTS OF OPERATIONS
  
         Income Before Provision for Income Taxes
  
         Income before  provision  for income taxes  decreased to $7.0 million for
  the first  quarter of 1999 as compared to $8.3  million in the first  quarter of
  1998.  This  decrease is  primarily  due to an increase  of  approximately  $4.1
  million in other income (expense),  net, primarily  resulting from a net gain of
  $4.2 million in connection  with the sale of the corporate  airplane  during the
  first quarter of 1999, offset by a decrease in income from operations  discussed
  above.
  
         Income Taxes
  
         The first  quarter of 1999  provision  for income  taxes of $1.0  million
  represents  statutory  income taxes on operations in Mexico and Canada and state
  income  taxes for those  states  that do not  permit use of net  operating  loss
  carryforwards.
  
         Extraordinary Loss
  
         The  extraordinary  loss on early  extinguishment of debt in 1998 of $1.9
  million (net of $1.3 million income tax benefit) was primarily  associated  with
  the write-off of debt issuance costs in connection with a series of transactions
  designed to simplify the Company's  structure and to provide future  operational
  flexibility.
  
  Liquidity and Capital Resources
  
         Liquidity
  
         The Company is a holding company whose  operations are conducted  through
  its 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 Foamex L.P. Credit Facility,  if necessary,  (provided that
  the Foamex L.P.  Credit Facility is successfully  amended,  as described  below)
  will be adequate to meet Foamex L.P.'s  liquidity  requirements.  The ability to
  meet such liquidity  requirements  could be impaired if Foamex L.P. were to fail
  to comply with any covenants  contained in the Foamex L.P.  Credit  Facility and
  such noncompliance was not cured by Foamex L.P. or waived by the lenders. Foamex
  L.P. amended its credit facility in March 1999.  Foamex L.P. paid  approximately
  $1.2 million in financing  fees and interest  rates were increased in connection
  with this amendment.  The amendment  adjusted financial  covenants,  among other
  things,  as of December  31, 1998 and provided  for future  measurement  periods
  taking into account  Foamex  L.P.'s  estimated  operating  results and financial
  condition for 1998 and  management  expectations  regarding  future  measurement
  periods.  As the Foamex L.P.  actual 1998 net loss was greater  than  originally
  estimated, on April 15, 1999, Foamex L.P. obtained a waiver through May 5, 1999,
  which  was  further  extended  on May 6,  1999  through  June 30,  1999,  of the
  financial  covenants  contained in the Foamex L.P.  Credit  Facility and certain
  events of default  arising  out of its  Mexican  operations,  in order to enable
  Foamex L.P. to negotiate a further amendment of the Foamex L.P. Credit Facility.
  There can be no assurance that such an amendment  will be obtained.  The failure
  to obtain such an amendment would have a material  adverse effect on Foamex L.P.
  and the Company. 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 the Foamex Carpet Credit Facility, if necessary, (provided that
  such Foamex Carpet Credit Facility is successfully  amended, as described below)
  
                                         17
  ITEM 2.  MANAGEMENT'S DISCUSSION AND ANALYSIS OF THE FINANCIAL CONDITION AND
            RESULTS OF OPERATIONS
  
  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
  other  financing  arrangements  and such  noncompliance  was not cured by Foamex
  Carpet or waived by the lenders.  Foamex Carpet amended its credit  facility and
  other  financing  arrangements in March 1999.  Foamex Carpet paid  approximately
  $2.6 million in financing  fees and  voluntarily  reduced the commitment by $5.0
  million in connection  with the amendment to the Foamex Carpet Credit  Facility.
  The amendments adjusted financial covenants,  among other things, as of December
  31, 1998 and provided for future measurement  periods taking into account Foamex
  Carpet's  estimated  operating  results and  financial  conditions  for 1998 and
  management  expectations  regarding future  measurement  periods.  As the Foamex
  Carpet actual 1998 net loss was greater than originally projected,  on April 15,
  1999,  Foamex Carpet obtained  waivers  through May 5, 1999,  which were further
  extended  on May 6, 1999  through  June 30,  1999,  of the  financial  covenants
  contained in the Foamex Carpet Credit Facility and other financing arrangements,
  in order to enable Foamex Carpet to negotiate  further  amendments of the Foamex
  Carpet Credit  Facility and the other  financing  arrangements.  There can be no
  assurance  that such  amendments  will be  obtained.  The failure to obtain such
  amendments  would  have a  material  adverse  effect  on Foamex  Carpet  and the
  Company.  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.
  
         Certain credit  agreements and promissory notes of Foamex L.P. and Foamex
  Carpet pursuant to which  approximately  $503.2 million of debt has been issued,
  as of March 31, 1999,  contain  provisions that would result in the acceleration
  of  such  indebtedness  if  Trace  were  to  cease  to own at  least  30% of the
  outstanding common stock of the Company. Similarly, certain indentures of Foamex
  L.P. and Foamex Capital Corporation  relating to approximately $248.0 million of
  senior  subordinated  notes contain  provisions that provide the holders of such
  senior  subordinated  notes with the right to  require  the  issuers  thereof to
  repurchase  such senior  subordinated  notes at a price in cash equal to 101% of
  the  aggregate  principal  amount  thereof,  plus  accrued  and unpaid  interest
  thereon, if Trace falls below certain specified ownership levels of common stock
  and other persons or group owns a greater percentage of common stock than Trace.
  Trace  is a  privately  held  company  which  owned  approximately  46.1% of the
  Company's common stock as of April 1, 1999 and whose Chairman also serves as the
  Chairman of the  Company.  In 1998,  Trace  informed  the Company that Trace had
  substantial  debt  obligations that were due at the end of December 1998 and did
  not have the financial resources to pay those obligations.  Subsequently,  Trace
  informed the Company that waivers and/or  modifications of such indebtedness had
  been obtained for at least the near future;  however,  there can be no assurance
  that such waivers and/or  modifications will remain in effect prior to obtaining
  a permanent resolution.  The Company's common stock owned by Trace is pledged as
  collateral against certain of Trace's debt obligations. If Trace were to default
  on such indebtedness collateralized by the Company's common stock or other Trace
  creditors  were to take steps  constituting  a default  under such  indebtedness
  (such as filing an involuntary bankruptcy petition),  and if the holders of such
  secured  indebtedness  were to foreclose on the Company's  common stock owned by
  Trace,  such  event  could  trigger  the  "change  of  control"  provisions  and
  correspondingly  the  acceleration  and put rights  contained  in certain of the
  Company's  subsidiaries' debt agreements,  as described above. This could result
  in  the  acceleration  of  all of the  Company's  subsidiaries'  debt.  Although
  management  believes that the Company's  subsidiaries' debt obligations could be
  refinanced under such circumstances,  there can be no assurance that the Company
  `s subsidiaries' would be able to do so.
  
         The accompanying  condensed  consolidated  financial statements have been
  prepared assuming the Company will continue as a going concern.  As discussed in
  Note 1 to the condensed consolidated financial statements,  at December 31, 1998
  certain of the Company's  subsidiaries  were not in compliance and do not expect
  to be in compliance in the future with certain financial  covenants contained in
  debt agreements. These agreements had outstanding principal balances aggregating
  approximately  $478.0  million at March 31,  1999.  The  Company's  subsidiaries
  received  waivers  from the lenders  under the various  senior debt  instruments
  through May 5, 1999,  which were  subsequently  extended on May 5, 1999  through
  June 30, 1999, for the covenants for which the Company's  subsidiaries' were not
  in compliance.  Non-compliance  under these debt agreements provides the lenders
  under these  agreements,  with the right,  upon the notice and lapse of time, to
  declare all of such  indebtedness  to be due.  Notwithstanding  the fact that to
  date the lenders have not exercised such rights and have granted waivers of such
  covenants  through  June  30,  1999 to  enable  the  Company's  subsidiaries  to
  negotiate  amendments  of such  covenants;  there can be no assurance  that such
  
                                         18
  ITEM 2.  MANAGEMENT'S DISCUSSION AND ANALYSIS OF THE FINANCIAL CONDITION AND
            RESULTS OF OPERATIONS
  
  amendments  will be  obtained.  Were  the  lenders  under  those  agreements  to
  accelerate  the  maturity  of  their   indebtedness,   such  acceleration  would
  constitute  an event of default and all of the  Company's  long-term  debt would
  become  due.  Additionally,  as  discussed  above,  if  Trace  defaults  on  its
  indebtedness  collateralized  by the Company's  common stock and such  creditors
  exercise  their  rights  and  remedies   under  the  related  debt   agreements,
  substantially all of the Company's indebtedness may be accelerated. As a result,
  the Company  reclassified  approximately  $767.2  million and $771.1  million of
  long-term debt as current in the  accompanying  condensed  consolidated  balance
  sheets at March 31, 1999 and  December  31, 1998,  respectively.  These  matters
  raise  substantial  doubt  about the  Company's  ability to  continue as a going
  concern.  The  financial  statements do not include any  adjustments  that might
  result from the outcome of these uncertainties.
  
         If the Company's subsidiaries are able to amend the relevant covenants in
  their credit  agreements and other  financial  arrangements;  the Company may be
  able to  reclassify  its  long-term  debt  included  in current  liabilities  as
  long-term.  However,  there can be no assurance that the Company's  subsidiaries
  will be able to obtain the necessary  amendments,  or if obtained,  that it will
  once again be able to classify such liabilities as long-term.
  
         As of March 31,  1999,  there were  $134.2  million of  revolving  credit
  borrowings,  at an average interest rate of 8.30%,  under the Foamex L.P. Credit
  Facility  with  $10.7   million   available  for   additional   borrowings   and
  approximately $47.6 million of letters of credit outstanding which are supported
  by the Foamex L.P. Credit Facility. Borrowings by Foamex Canada Inc. as of March
  31, 1999 were  approximately  $3.5 million,  at an interest rate of 7.25%, under
  Foamex Canada Inc.'s  revolving  credit  agreement with unused  availability  of
  approximately  $1.9  million.  Foamex Carpet had  approximately  $5.7 million of
  outstanding  borrowings  under the Foamex  Carpet  Credit  Facility at March 31,
  1999, at an interest rate of 8.82%, with unused availability of $8.7 million and
  approximately  $0.6 million of letters of credit outstanding which are supported
  by the Foamex Carpet Credit Facility.
  
         The Company's  subsidiaries  paid an aggregate  $3.8 million in financing
  fees associated with the March 1999 amendments to their credit  facilities.  The
  Company's subsidiaries have capitalized these costs and are currently amortizing
  them along with previously paid deferred financing costs over the remaining life
  of  the  related  debt  agreements  as  the  Company's  subsidiaries  expect  to
  successfully  amend these  agreements  during the  current  waiver  period.  The
  Company's  subsidiaries are in the process of negotiating  further amendments to
  these  agreements as discussed  previously.  Generally,  amendments to financing
  agreements  may  result in changes to terms and  conditions  under the  existing
  agreements,  including,  but not  limited  to,  changes  to  interest  rates and
  financial and  non-financial  covenants.  Additionally,  there may be additional
  financing fees  associated  with obtaining such  amendments.  The Company cannot
  determine  the changes which may occur to its existing  financing  agreements at
  this  time,  or the  amount  of any  financing  fees  which may be  required  in
  connection with these future amendments.
  
         Cash and cash  equivalents  decreased  to $6.8  million at March 31, 1999
  from $12.6  million at December  31, 1998 due  primarily  to the decrease in net
  cash provided by operating  activities.  Excluding the reclassification of other
  long-term  debt to current,  working  capital  increased  $3.9 million to $119.9
  million at March 31, 1999 from $116.0 million at December 31, 1998 primarily due
  to the increase in net  operating  assets and  liabilities,  as discussed  below
  offset by the decrease in cash. Net operating assets and liabilities  (comprised
  of accounts  receivable,  inventories  and  accounts  payable)  increased  $13.4
  million to $185.9  million at March 31, 1999 as  compared  to $172.5  million at
  December 31, 1998. The increase was primarily due to a $10.1 million increase in
  accounts receivable and a $22.3 million decrease in accounts payable offset by a
  $19.0 million decrease in inventories.  The increase in accounts  receivable was
  primarily  associated  with  increased  sales  during  March 1999 as compared to
  December 1998. The decrease in inventories  was primarily due to increased first
  quarter 1999 sales and due to the December 31, 1998 inventory  balance including
  significant  purchases of raw  materials  at year-end.  The decrease in accounts
  payable is primarily  associated  with the timing of payments to vendors and the
  decrease in inventories from December 31, 1998 to March 31, 1999.
  
         Cash Flow from Operating Activities
  
         Cash  flow  used  for  operating  activities  was  $3.5  million  for the
  quarterly  period ended March 31, 1999 as compared to cash used of $19.8 million
  
                                         19
  ITEM 2.  MANAGEMENT'S DISCUSSION AND ANALYSIS OF THE FINANCIAL CONDITION AND
            RESULTS OF OPERATIONS
  
  for the quarterly  period ended March 29, 1998. The improvement is primarily due
  to a decrease in cash used for operating  assets and  liabilities  for the first
  quarter of 1999 as compared to the first quarter of 1998.
  
         Cash Flow from Investing Activities
  
         During  1999,  the Company  spent  approximately  $6.0 million on capital
  improvements  as compared to $7.2 million for 1998. The 1999  expenditures  were
  primarily for recurring capital replacement. The 1998 expenditures included: (i)
  finalization  of the  expansion  and  modernization  of a facility  in  Orlando,
  Florida  to  improve  manufacturing  efficiencies,  (ii)  installation  of  more
  efficient foam production line systems and fabricating  equipment in a number of
  manufacturing  facilities and (iii)  installation of flame laminators to support
  the increased volume of automotive  laminated  products.  The Company expects to
  continue  to  reduce  capital   expenditures  from  historical  levels  for  the
  foreseeable future.
  
         On March 31,  1999,  the Company  sold its  corporate  aircraft for $16.3
  million  of  gross  proceeds  of which  $8.9  million  was  used to  repay  debt
  associated with the aircraft.
  
         Cash Flow from Financing Activities
  
         In  connection  with a series  of  transactions  in  connection  with the
  transfer of certain  assets of General Felt  Industries,  Inc.  during  February
  1998, the Company extinguished  approximately $125.1 million of term loans under
  the Foamex L.P.  Credit  Facility  funded  with $129.0  million of new term loan
  agreements  which were  subsequently  assumed by Foam  Funding LLC. In addition,
  during  February  1998,  Foamex L.P.  defeased the  outstanding  $4.5 million of
  senior secured notes due 2000.
  
  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 the
  Company's  operations,  financial position,  capital expenditures or competitive
  position.  The amount of liabilities  recorded by the Company in connection with
  environmental  matters as of March 31,  1999 was $4.7  million.  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 for the year ended December 31, 1998, 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.  See  Note  17 to  the  Company's  consolidated  financial  statements
  included in the Company's Annual Report on Form 10-K for the year ended December
  31, 1998.
  
  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.
  
                                         20
  ITEM 2.  MANAGEMENT'S DISCUSSION AND ANALYSIS OF THE FINANCIAL CONDITION AND
            RESULTS OF OPERATIONS
  
  Year 2000 Compliance
  
         The  Company  uses  numerous  business  information  systems  as  well as
  manufacturing support systems that could be impacted by the "Year 2000 Problem".
  The Year 2000 Problem arises from computer  programs that were written using two
  digits rather than four to designate the year. In connection  with the Year 2000
  Problem, date-sensitive computer software may recognize a date using "00" as the
  year 1900 rather  than the year 2000.  This could  result in system  failures or
  miscalculations which would cause significant operational disruptions.
  
         The  Company  has  a  Year  2000  Executive  Sponsor  Team  comprised  of
  representatives  of the  Company.  The  Year  2000  Executive  Sponsor  Team  is
  providing  direction  to and  receiving  reports  from  the Year  2000  Steering
  Committee  (the  "Steering  Committee")  within the  organization.  The Steering
  Committee  has  completed  an  assessment  of  the  state  of  readiness  of the
  Information   Technology  ("IT")  and  non-IT  systems  of  the  Company.  These
  assessments  cover  desktop  computers,   environmental  systems,  manufacturing
  systems (including laboratory  information systems) field  instrumentation,  and
  significant  third party vendor and supplier  systems,  which  include  employee
  compensation and benefit plan  maintenance  systems.  The Steering  Committee is
  also in the process of  assessing  the  readiness of the  Company's  significant
  customers and suppliers.
  
         The Year  2000  assessment  process  for  each  facility  consists  of an
  inventory  of Year 2000  sensitive  equipment,  an  assessment  of the impact of
  possible failures,  determination of required  remediation  actions, if any, and
  testing  and  implementation  of these  solutions.  The  inventory,  assessment,
  remediation and testing phases were completed at the end of 1998, with fail safe
  testing and final implementation currently taking place in 1999. The progress of
  these phases as of March 31, 1999 is summarized below.
  
         The Company  completed the inventory and assessment phases of the project
  by  December  31,  1998.  These  phases  consisted  of a visit to each  critical
  location  by team  members to promote  awareness  of the  project and verify the
  initial inventory  provided by the contact at each facility.  Testing plans were
  developed which included correspondence with suppliers regarding  date-sensitive
  devices.  In  addition,   local  management  was  advised  of  their  roles  and
  responsibilities in connection with the Year 2000 Problem.
  
         The Company  completed the remediation  and testing of critical  business
  information  computer  systems as of December 31, 1998.  The completion of these
  phases  included the  modification  of several million lines of system code, the
  conversion of the systems acquired from Crain to standard  business  information
  computer  systems,  upgrading  system  hardware and operating  system  software,
  testing  of the  applicable  systems  in a  development  testing  area,  and the
  migration of the remediated systems into the production environment.
  
         The Company  estimates it will spend $2.0 million in connection  with the
  Year 2000  Problem.  The  spending  estimate  will be  refined  as phases of the
  project  are  completed.  Spending  on the Year 2000  Problem  is funded by cash
  generated from operations.
  
         Management  believes  that  all  significant  systems  controlled  by the
  Company  will be Year 2000 ready in the latter half of 1999.  While the Steering
  Committee is communicating readiness to third party customers, as requested, and
  is assessing the readiness of critical suppliers, there can be no assurance that
  third parties with a significant  business  relationship will successfully test,
  reprogram,  and replace all of their IT and non-IT systems on a timely basis. As
  part of the  overall  response to the Year 2000  Problem,  the Company is in the
  process of developing contingency plans in the event of Year 2000 non-compliance
  of certain systems or third parties.  Details of such contingency  plans will be
  determined  after the Steering  Committee has  completed  its  assessment of its
  supply chain, other third parties and the potential for possible failures.
  
         There is inherent  uncertainty  in connection  with the Year 2000 Problem
  due to the  possibility of  unanticipated  failures by third party customers and
  suppliers.  Accordingly,  the  Company  is unable,  at this time,  to assess the
  extent and resulting materiality of the impact of possible Year 2000 failures on
  its  operations,  liquidity or  financial  position.  The Year 2000  assessment,
  remediation,  and testing process  continues to provide  information in order to
  reduce the level of  uncertainty  regarding the impact of the Year 2000 Problem.
  Management believes that if the Company's solutions to the Year 2000 Problem are
  completed as scheduled;  such  solutions may help  minimize the  possibility  of
  significant disruptions to the Company's operations.
  
                                         21
  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 for the year
             ended December 31, 1998.
  
             The information from Note 5 of the condensed  consolidated  financial
             statements  of the  Company  as of  March  31,  1999  (unaudited)  is
             incorporated herein by reference.
  
  Item 6.    Exhibits and Reports on Form 8-K
  
            (a)  Exhibits
  
                 27   Financial Data Schedule for the quarterly period ended March
                      31, 1999.
  
           (b)  The Company filed the following  Current Reports on Form 8-K since
                December 31, 1998 through the date of this report:
  
                Form 8-K, dated as of January 8, 1999 reporting the termination of
                the Second Merger Agreement.
  
                Form  8-K,  dated as of March 11,  1999  reporting  press  release
                involving  preliminary  earnings,  appointment of John G. Johnson,
                Jr. and amendments to credit agreements,  guarantee and promissory
                notes.
  
                Form  8-K,  dated  as  of  April  16,  1999  reporting  update  to
                preliminary earnings.
  
                                         22
  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:   May 17, 1999                  By: /s/ John A. Feenan         
                                            -------------------------------
                                            John A. Feenan
                                            Executive Vice President and
                                            and Chief Financial Officer