content: SECURITIES AND EXCHANGE COMMISSION
                               WASHINGTON, D.C. 20549
  
  
  
                                      FORM 10-Q
  
  
                  QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
                       OF THE SECURITIES EXCHANGE ACT OF 1934
  
                    For the quarterly period ended June 30, 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
  August 10, 1999 was 25,052,991.
  
  
                                    Page 1 of 30
                            Exhibit List on Page 28 of 30
  
  <PAGE>
                              FOAMEX INTERNATIONAL INC.
  
                                        INDEX
                                                                              Page
  
  Part I.  Financial Information:
  
           Item 1.  Financial Statements
  
                 Condensed Consolidated Statements of Operations
                   (unaudited) - Quarterly and Year to Date Periods
                   Ended June 30, 1999 and June 28, 1998                       3
  
                 Condensed Consolidated Balance Sheets (unaudited) as of
                   June 30, 1999 and December 31, 1998                         4
  
                 Condensed Consolidated Statements of Cash Flows
                   (unaudited) - Year to Date Periods Ended June 30,
                   1999 and June 28, 1998                                      5
  
                 Notes to Condensed Consolidated Financial Statements
                   (unaudited)                                                 6
  
           Item 2.  Management's Discussion and Analysis of Financial
                    Condition and Results of Operations                       17
  
           Item 3.  Quantitative and Qualitative Disclosures about
                    Market Risk                                               27
  
  Part II.  Other Information                                                 28
  
            Item 1.  Legal Proceedings                                        28
  
            Item 4.  Submission of Matters to a Vote of Security Holders      28
  
            Item 6.  Exhibits and Reports on Form 8-K                         28
  
  Signatures                                                                  30
  
                                    2
  
  <PAGE>
  PART I.  FINANCIAL INFORMATION
  ITEM 1.  FINANCIAL STATEMENTS
  
                FOAMEX INTERNATIONAL INC. AND SUBSIDIARIES
        CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (unaudited)
  
  <TABLE>
  <CAPTION>
                                                 Quarterly Periods Ended      Year to Date Periods Ended
                                                  June 30,       June 28,      June 30,       June 28,
                                                   1999           1998           1999           1998
                                                          (thousands except per share data)
  <S>                                           <C>            <C>            <C>           <C>
  NET SALES                                     $ 313,029      $ 298,479      $ 635,892     $ 610,769
  
  COST OF GOODS SOLD                              269,252        243,513        548,518       506,233
                                                ---------      ---------      ---------     ---------
  
  GROSS PROFIT                                     43,777         54,966         87,374       104,536
  
  SELLING, GENERAL AND
     ADMINISTRATIVE EXPENSES                       18,466         21,806         37,294        44,849
  
  RESTRUCTURING AND OTHER CHARGES (CREDITS)         3,667           (700)         7,124          (700)
                                                ---------      ---------      ---------     ---------
  
  INCOME FROM OPERATIONS                           21,644         33,860         42,956        60,387
  
  INTEREST AND DEBT ISSUANCE EXPENSE               17,675         17,281         35,371        34,808
  
  OTHER INCOME (EXPENSE), NET                        (287)        (1,046)         3,064        (1,745)
                                                ---------      ---------      ---------     ---------
  
  INCOME BEFORE PROVISION FOR INCOME TAXES          3,682         15,533         10,649        23,834
  
  PROVISION FOR INCOME TAXES                          505          6,213          1,459         9,531
                                                ---------      ---------      ---------     ---------
  
  INCOME BEFORE EXTRAORDINARY LOSS                  3,177          9,320          9,190        14,303
  
  EXTRAORDINARY LOSS ON EARLY
     EXTINGUISHMENT OF DEBT,
     NET OF INCOME TAXES                               --            (43)            --        (1,917)
                                                ---------      ---------      ---------     ---------
  
  NET INCOME                                    $   3,177      $   9,277      $   9,190     $  12,386
                                                =========      =========      =========     =========
  
  BASIC EARNINGS PER SHARE:
     INCOME BEFORE EXTRAORDINARY LOSS           $    0.13      $    0.37      $    0.37     $    0.58
     EXTRAORDINARY LOSS                                --             --             --         (0.08)
                                                ---------      ---------      ---------     ---------
     EARNINGS PER SHARE                         $    0.13      $    0.37      $    0.37     $    0.50
                                                =========      =========      =========     =========
  
  WEIGHTED AVERAGE NUMBER OF SHARES                25,053         25,012         25,053        24,977
                                                =========      =========      =========     =========
  
  DILUTED EARNINGS PER SHARE:
     INCOME BEFORE EXTRAORDINARY LOSS           $    0.13      $    0.36      $    0.37     $    0.55
     EXTRAORDINARY LOSS                                --             --             --         (0.07)
                                                ---------      ---------      ---------     ---------
     EARNINGS PER SHARE                         $    0.13      $    0.36      $    0.37     $    0.48
                                                =========      =========      =========     =========
  
  WEIGHTED AVERAGE NUMBER OF SHARES                25,083         26,124         25,173        26,090
                                                =========      =========      =========     =========
  </TABLE>
  
            The accompanying notes are an integral part of the
               condensed consolidated financial statements.
  
                                    3
  <PAGE>
                FOAMEX INTERNATIONAL INC. AND SUBSIDIARIES
             CONDENSED CONSOLIDATED BALANCE SHEETS (unaudited)
  
  <TABLE>
  <CAPTION>
                                                                         June 30,       December 31,
  ASSETS                                                                  1999              1998
  CURRENT ASSETS:                                                 (thousands, except number of shares)
  <S>                                                                 <C>              <C>
     Cash and cash equivalents                                        $     3,116      $    12,572
     Accounts receivable, net                                             190,383          185,158
     Inventories                                                          104,992          136,658
     Other current assets                                                  32,019           38,978
                                                                      -----------      -----------
         Total current assets                                             330,510          373,366
  
  PROPERTY, PLANT AND EQUIPMENT, NET                                      222,264          242,173
  
  COST IN EXCESS OF ASSETS ACQUIRED, NET                                  218,279          220,934
  
  DEBT ISSUANCE COSTS, NET                                                 21,478           14,852
  
  OTHER ASSETS                                                             23,306           23,640
                                                                      -----------      -----------
  
  TOTAL ASSETS                                                        $   815,837      $   874,965
                                                                      ===========      ===========
  
  LIABILITIES AND STOCKHOLDERS' DEFICIT
  CURRENT LIABILITIES:
     Short-term borrowings                                            $     4,700      $     2,957
     Current portion of long-term debt                                     13,022          690,248
     Current portion of long-term debt - related party                     10,830           98,935
     Accounts payable                                                     113,092          149,268
     Accrued interest                                                       9,908            7,851
     Other accrued liabilities                                             68,266           79,178
                                                                      -----------      -----------
         Total current liabilities                                        219,818        1,028,437
  
  LONG-TERM DEBT                                                          666,040            8,240
  
  LONG-TERM DEBT - RELATED PARTY                                           83,717               --
  
  OTHER LIABILITIES                                                        39,557           42,407
                                                                      -----------      -----------
  
         Total liabilities                                              1,009,132        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                                                 (228,471)        (237,661)
     Accumulated other comprehensive income                               (23,910)         (24,721)
     Other                                                                (28,423)         (28,997)
                                                                      -----------      -----------
  
         Total stockholders' deficit                                     (193,295)        (204,119)
                                                                      -----------      -----------
  
  TOTAL LIABILITIES AND STOCKHOLDERS' DEFICIT                         $   815,837      $   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>
                                                                    Year to Date Periods Ended
                                                                      June 30,       June 28,
                                                                        1999           1998
                                                                     ---------      ---------
                                                                           (thousands)
  <S>                                                                <C>            <C>
  OPERATING ACTIVITIES:
     Net income                                                      $   9,190      $  12,386
     Adjustments to reconcile net income to net cash provided
         by (used for) operating activities:
         Depreciation and amortization                                  16,798         16,770
         Amortization of debt issuance costs, debt discount,
            debt premium and deferred swap adjustments                     193             23
         Asset writedowns and other charges                              2,073             --
         Gain on sale of assets                                         (4,217)            --
         Extraordinary loss on early extinguishment of debt                 --          1,579
         Other operating activities                                      6,534         11,481
         Changes in operating assets and liabilities, net              (12,259)       (64,341)
                                                                     ---------      ---------
  
            Net cash provided by (used for) operating activities        18,312        (22,102)
                                                                     ---------      ---------
  
  INVESTING ACTIVITIES:
     Capital expenditures                                              (10,820)       (15,482)
     Acquisitions, net of cash acquired                                     --         (4,399)
     Proceeds from sale of assets                                       16,313             --
     Other investing activities                                            924           (406)
                                                                     ---------      ---------
  
            Net cash provided by (used for) investing activities         6,417        (20,287)
                                                                     ---------      ---------
  
  FINANCING ACTIVITIES:
     Net proceeds from short-term borrowings                             1,743            722
     Net proceeds from (repayments of) revolving loans                  (4,463)        82,426
     Proceeds from long-term debt                                           --        129,000
     Repayment of long-term debt                                       (14,395)      (132,767)
     Repayment of long-term debt - related party                        (4,388)        (4,800)
     Dividend paid                                                          --         (1,246)
     Cash overdrafts                                                    (4,938)            --
     Transfer of General Felt                                               --        (23,898)
     Debt issuance costs                                                (7,993)        (1,598)
     Other financing activities                                            249            681
                                                                     ---------      ---------
  
            Net cash provided by (used for) financing activities       (34,185)        48,520
                                                                     ---------      ---------
  
  NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS                  (9,456)         6,131
  
  CASH AND CASH EQUIVALENTS
     AT BEGINNING OF PERIOD                                             12,572         12,044
                                                                     ---------      ---------
  
  CASH AND CASH EQUIVALENTS
     AT END OF PERIOD                                                $   3,116      $  18,175
                                                                     =========      =========
  </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 June
  30, 1999, the condensed consolidated  statements of operations for the quarterly
  and year to date periods ended June 30, 1999 and June 28, 1998 and the condensed
  consolidated  statements  of cash flows for the year to date periods  ended June
  30, 1999 and June 28,  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. As a result, the financial data for the quarterly and year to date periods
  ended  June 28,  1998  represent  thirteen-week  and  twenty-six  week  periods,
  respectively.  The  financial  data for the  quarterly  and year to date periods
  ended June 30, 1999  represent  three and six month periods,  respectively,  and
  include 91 and 181 calendar days, respectively.
  
       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 June 30, 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 and year to
  date periods ended June 30, 1999 and June 28, 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  consolidated  loss from  continuing
  operations and certain of its  subsidiaries  were not in compliance with certain
  covenants  contained  in  agreements  governing   approximately  $480.4  million
  principal  amount of  indebtedness.  Had the lenders under these debt agreements
  accelerated the maturity of their  indebtedness as a result of the subsidiaries'
  noncompliance,  such  acceleration  would have  constituted  an event of default
  under or given the holders the right to require the repurchase of  substantially
  all of the Company's subsidiaries' long-term debt. As a result of these factors,
  the  Company  classified  approximately  $771.1  million  of  long-term  debt at
  December 31, 1998 as current in the accompanying  condensed consolidated balance
  sheet,  which  resulted  in a working  capital  deficit.  These  matters  raised
  substantial  doubt as of  December  31,  1998  about the  Company's  ability  to
  continue as a going concern.
  
       On June 30, 1999, certain of the Company's  subsidiaries amended certain of
  their debt  agreements to, among other things,  modify  financial  covenants and
  provide for future  measurement  periods  taking into  account the  subsidiaries
  estimated  future  operating  results and financial  condition and  management's
  expectations  regarding  compliance with these  covenants in future  measurement
  periods  (see Note 4).  For the year to date  period  ended June 30,  1999,  the
  Company had consolidated  income from continuing  operations and Foamex L.P. and
  Foamex Carpet were in compliance with their debt covenants. As a result of these
  factors and management's  expectations regarding compliance with these covenants
  in future  measurement  periods,  the Company  classified  approximately  $749.8
  million of debt as long-term in the accompanying  condensed consolidated balance
  sheet at June 30, 1999 which resulted in positive working capital. The Company's
  subsidiaries continue to be subject to certain "change of
  
                                         6
  <PAGE>
                FOAMEX INTERNATIONAL INC. AND SUBSIDIARIES
     NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (unaudited)
  
  1.   CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)
  
  control"  provisions  under  their debt  agreements,  which  could  result in an
  acceleration of the related debt, as discussed below.
  
       Trace International  Holdings,  Inc.  ("Trace"),  a privately held company,
  owns  approximately  46.1% of the  Company's  outstanding  voting  common stock.
  Trace's  Chairman also serves as the Company's  Chairman.  The Company's  common
  stock  owned by Trace is  pledged  as  collateral  against  certain  of  Trace's
  obligations.  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,  the "change of control"  provisions  of the
  Company's  subsidiaries'  debt agreements may be triggered and substantially all
  of the Company's subsidiaries' indebtedness may be accelerated.  The Company was
  informed by Trace that it filed a petition  for relief  under  Chapter 11 of the
  Bankruptcy  Code in  Federal  Court in New York City on July 21,  1999.  Trace's
  bankruptcy  filing does not  automatically  constitute a change of control under
  the  provisions of the debt  agreements.  See "Change of Control  Provisions" in
  Note 4.
  
  2.   INVENTORIES
  
         Inventories consist of:
  
                                          June 30,      December 31,
                                           1999             1998
                                         --------        --------
                                                (thousands)
       Raw materials and supplies        $ 69,701        $ 99,997
       Work-in-process                     12,879          12,188
       Finished goods                      22,412          24,473
                                         --------        --------
       Total                             $104,992        $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  condensed  consolidated  statement  of
  operations for the year to date period ended June 30, 1999.
  
  4.   LONG-TERM DEBT AND LONG-TERM DEBT - RELATED PARTY
  
       The Company  classified  approximately  $771.1 million of long-term debt as
  current in the accompanying condensed consolidated balance sheet at December 31,
  1998 as a result of  various  factors,  including  the fact that  certain of the
  Company's  subsidiaries had received waivers for noncompliance with certain debt
  covenants,  which were only granted  through  June 30,  1999.  On June 30, 1999,
  certain of the Company's  subsidiaries  amended certain of their debt agreements
  to,  among other  things,  modify  financial  covenants  as of June 30, 1999 and
  provide for future  measurement  periods  taking into account  estimated  future
  operating  results  and  financial   condition  and  management's   expectations
  regarding these future  measurement  periods.  For the year to date period ended
  June 30, 1999, the Company had  consolidated  income from continuing  operations
  and Foamex L.P. and Foamex Carpet were in compliance  with their debt covenants.
  As a result of these factors and management's  expectations regarding compliance
  with these covenants in future measurement  periods,  the Company has classified
  approximately $749.8 million of debt as long-term in the accompanying  condensed
  consolidated balance sheet at June 30, 1999. The Company's subsidiaries continue
  to be  subject  to  certain  "change of  control"  provisions  under  their debt
  agreements
  
                                         7
  <PAGE>
                FOAMEX INTERNATIONAL INC. AND SUBSIDIARIES
     NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (unaudited)
  
  4.   LONG-TERM DEBT AND LONG-TERM DEBT - RELATED PARTY (continued)
  
  which  could  result  in  an   acceleration  of  the  related  debt.  See  "Debt
  Restrictions and Covenants" and "Change of Control Provisions" below.
  
         Long-term debt consists of:
  
  <TABLE>
  <CAPTION>
                                                                    June 30,      December 31,
                                                                     1999            1998
                                                                   --------        --------
       Foamex L.P. Amended Credit Facility:                               (thousands)
  <S>                                                              <C>             <C>
         Term Loan B                                               $ 82,294        $ 82,714
         Term Loan C                                                 74,812          75,194
         Term Loan D                                                108,350         108,900
         Revolving credit facility                                  130,384         139,438
       Foamex Carpet revolving credit facility                        4,591              --
       9 7/8% Senior subordinated notes due 2007                    150,000         150,000
       13 1/2% Senior subordinated notes due 2005 (includes
         $10,997 and $11,893 of unamortized debt premium)           108,997         109,893
       Industrial revenue bonds                                       7,000           7,000
       Subordinated note payable (net of unamortized
         debt discount of $356 and $523)                              4,320           6,491
       Other                                                          8,314          18,858
                                                                   --------        --------
                                                                    679,062         698,488
  
       Less current portion                                          13,022         690,248
                                                                   --------        --------
  
       Long-term debt-unrelated parties                            $666,040        $  8,240
                                                                   ========        ========
  
       Long-term debt - related party consists of:
  
       Foamex/GFI Note                                             $ 34,000        $ 34,000
       Note payable to Foam Funding LLC                              60,547          64,935
                                                                   --------        --------
                                                                     94,547          98,935
  
       Less current portion                                          10,830          98,935
                                                                   --------        --------
  
       Long-term debt - related party                              $ 83,717        $     --
                                                                   ========        ========
  </TABLE>
  
       During the  quarterly  periods  ended June 30, 1999 and June 28, 1998,  the
  Company paid approximately $1.9 million and $1.6 million,  respectively, to Foam
  Funding LLC for interest on notes payable. During the year to date periods ended
  June 30, 1999 and June 28, 1998, the Company paid approximately $3.7 million and
  $2.3  million,  respectively,  for interest on the notes payable to Foam Funding
  L.L.C.
  
       Other Long-Term Debt
  
       Approximately  $8.9 million of the decrease in other long-term debt at June
  30, 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 for the senior  subordinated  notes,  the Foamex L.P. Credit
  Agreement  as  amended  on June  30,  1999  (the  "Foamex  L.P.  Amended  Credit
  Facility"),  the Foamex Carpet Credit Agreement as amended on June 30, 1999 (the
  "Foamex  Carpet  Amended Credit  Facility")  and other  indebtedness  agreements
  contain certain covenants that limit, among other things to varying degrees, the
  ability of the Company's subsidiaries (a) to pay distributions or
  
                                         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)
  
  redeem  partnership  interests,  (b) to make  certain  restrictive  payments  or
  investments,  (c) to incur  additional  indebtedness or issue  Preferred  Equity
  Interest, as defined, (d) to merge, consolidate or sell all or substantially all
  of its assets or (e) 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 (see "Change of Control  Provisions" below)
  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.  Also,  the  Company's  subsidiaries  are
  required  under  certain of these  agreements  to maintain  specified  financial
  ratios  of which  the most  restrictive  are the  maintenance  of net  worth and
  interest, fixed charge and leverage coverage ratios, as defined.
  
       The Foamex L.P.  Amended Credit  Facility  modified the required limits for
  the net worth and interest,  fixed charge and leverage  coverage  ratios through
  December 2006 and added an earnings before  interest,  taxes,  depreciation  and
  amortization  ("EBITDA") covenant  requirement through September 30, 1999. Also,
  effective January 1, 2000, the interest rate on outstanding borrowings under the
  Foamex L.P.  Amended  Credit  Facility  will  increase  by 25 basis  points each
  quarter  that  Foamex  L.P.'s  leverage  ratio  exceeds  5.00 to 1.00.  Once the
  leverage  ratio is reduced  below this level,  the  cumulative  amount of any 25
  basis point  adjustments to the interest rate on borrowings would be eliminated.
  The weighted average interest rate on such borrowings was approximately  8.6% at
  June 30, 1999. The Foamex L.P.  Amended Credit  Facility was also modified to no
  longer permit Foamex L.P. to make certain cash  payments,  including the payment
  of an annual  management  fee to a subsidiary  of Trace (which  aggregated  $3.0
  million for the year ended December 31, 1998) and  distributions to the Company,
  and to limit future investments in foreign  subsidiaries and joint ventures.  In
  addition,  the Foamex  L.P.  Amended  Credit  Facility  modified  the "change of
  control"  definition  under the  agreement  (see "Change of Control  Provisions"
  below).
  
       Foamex L.P. had previously  amended its credit  facility on March 11, 1999.
  This 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's expectations regarding future measurement periods. As Foamex L.P.'s
  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 its
  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 to
  this agreement.
  
       The Foamex  Carpet  Amended  Credit  Facility and the amendment to the note
  payable to Foam Funding LLC  modified the required  limits for the net worth and
  interest,  fixed charge and leverage  coverage ratios through  February 2004 and
  added an EBITDA covenant requirement through September 30, 1999. Also, effective
  June 30, 1999,  the interest  rate on  outstanding  borrowings  under the Foamex
  Carpet  Amended  Credit  Facility  increased  by 25 basis  points.  The weighted
  average  interest rate on such  borrowings was  approximately  9.24% at June 30,
  1999. The Foamex Carpet  Amended  Credit  Facility and the amendment to the note
  payable to Foam  Funding LLC also  modified  the "change of control"  definition
  under the agreements (see "Change of Control Provisions" below).
  
       Foamex  Carpet had  previously  amended  its credit  facility  and the note
  payable  to Foam  Funding  LLC on March  12,  1999.  These  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 management's 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 its credit facility and
  the note  payable  to Foam  Funding  LLC,  in order to enable  Foamex  Carpet to
  negotiate further amendments to these agreements.
  
       Certain of the Company's  Mexican  subsidiaries are in default of financial
  covenant  provisions  contained  in  loan  agreements  with a  Mexican  bank  as
  negotiations  continue to finalize amendments to the loan agreements to cure the
  defaults.  The defaults under the Mexican loan  agreements do not have any cross
  default consequences for the Company's domestic subsidiaries' debt agreements.
  
                                         9
  <PAGE>
                FOAMEX INTERNATIONAL INC. AND SUBSIDIARIES
     NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (unaudited)
  
  4.   LONG-TERM DEBT AND LONG-TERM DEBT - RELATED PARTY (continued)
  
       Change of Control Provisions
  
       Trace is a privately  held company  which owns  approximately  46.1% of the
  Company's  outstanding voting common stock and whose Chairman also serves as the
  Company's  Chairman.  The  Company's  common  stock owned by Trace is pledged as
  collateral against certain of Trace's obligations. Certain credit agreements and
  promissory notes of the Company's subsidiaries,  pursuant to which approximately
  $495.0 million of debt was issued as of June 30, 1999,  contain  provisions that
  would result in the acceleration of such  indebtedness if Trace were to cease to
  beneficially own at least 25% of the Company's  outstanding  voting common stock
  and other  persons or groups  were to own a greater  percentage  of such  voting
  common stock than Trace.  Additionally,  certain  indentures  of Foamex L.P. and
  Foamex   Capital   Corporation   relating  to  senior   subordinated   notes  of
  approximately $248.0 million contain provisions that provide the holders of such
  notes with the right to require the issuers to repurchase  such notes at a price
  in cash equal to 101% of the aggregate  principal  amount thereof,  plus accrued
  and unpaid interest thereon, if Trace were to cease to beneficially own at least
  25% of the Company's outstanding voting common stock and other persons or groups
  were to own a greater percentage of such voting common stock than Trace.
  
       The Company was informed by Trace that it filed a petition for relief under
  Chapter 11 of the Bankruptcy  Code in Federal Court in New York City on July 21,
  1999.  Trace's  bankruptcy  filing does not constitute a change of control under
  the provisions of the debt agreements unless the bankruptcy court allows Trace's
  creditors to foreclose on and take ownership of the Company's common stock owned
  by Trace, or otherwise authorizes a sale or transfer of these shares, and Trace,
  its  affiliates  and  subsidiaries  cease to own at least  25% of the  Company's
  outstanding  voting  common  stock and  other  persons  or groups  own a greater
  percentage of voting common stock than Trace.
  
       The  Company  will seek to resolve the issues that may arise if the "change
  of control"  provisions are triggered in the future,  including  waivers of such
  provisions and/or refinancing  certain debt, if necessary.  Although  management
  believes  that  its  subsidiaries'  debt  obligations  could  be  refinanced  if
  accelerated as a result of the "change of control" provisions under related debt
  agreements,  there can be no assurance that the Company or its subsidiaries will
  be able to do so or that the  Company  will be able to  obtain  waivers  of such
  provisions.  The accompanying condensed consolidated financial statements do not
  include  any   adjustments   that  might   result  from  the  outcome  of  these
  uncertainties.
  
  5.   LITIGATION
  
       During 1999, the Company received several  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 had been disclosed in the Company's  periodic
  filings.  On June 14, 1999, the Company  received a draft compliant from counsel
  of certain  stockholders  naming the  Company  and  certain  current  and former
  directors,  which  include  allegations  similar to those in the Second  Amended
  Complaint,  as defined below.  The Company has been advised by such counsel that
  such  stockholders  intend to file an action  shortly.  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.
  
       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
  complaint 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. On May 18, 1999, a similar action entitled Thomas W. Riley v. Foamex
  
                                         10
  <PAGE>
                FOAMEX INTERNATIONAL INC. AND SUBSIDIARIES
     NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (unaudited)
  
  5.   LITIGATION (continued)
  
  International  Inc., et al., 99 Civ. 3653 (DC) was filed in the same court.  The
  two actions have been  consolidated.  To date,  no response to the complaint has
  been made and no discovery or other proceedings has taken place.
  
       Beginning  on or about  March  17,  1998,  six  actions  (collectively  the
  "Shareholder  Litigation")  were filed in the Court of  Chancery of the State of
  Delaware,  New Castle County (the "Court"),  by stockholders of the Company. The
  Shareholder  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 original  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 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  Shareholder  Litigation  entered into a  Memorandum  of
  Understanding,  dated June 25,  1998 (the  "Memorandum  of  Understanding"),  to
  settle the  Shareholder  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 Shareholder
  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   outstanding  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  Shareholders"),  the  dismissal  of  the  Shareholder  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 Shareholders 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 for October 27, 1998 to
  consider whether the settlement  should be approved (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  Shareholders.  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  Shareholder  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
  Shareholder  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.
  
                                         11
  <PAGE>
                FOAMEX INTERNATIONAL INC. AND SUBSIDIARIES
     NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (unaudited)
  
  5.   LITIGATION (continued)
  
       On November 12, 1998, the plaintiffs in the Shareholder 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  Shareholders  in connection  with a second  Agreement and Plan of Merger
  (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 injunction,  seeking an Order
  to  preliminarily  enjoin the defendants from proceeding  with,  consummating or
  otherwise effecting the merger contemplated by the Second Merger Agreement.
  
       On June 9, 1999, the  plaintiffs in the  Shareholder  Litigation  moved for
  leave to file a Second  Amended and  Supplemental  Class  Action and  Derivative
  Complaint (the "Second  Amended  Complaint").  The Second Amended  Complaint was
  filed on July 14, 1999, and 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 the named  individuals  breached
  their  fiduciary   duties  by  causing  the  Company  to  waste  assets  in  its
  transactions with Trace and by failing to enforce the Company's rights under the
  First Merger Agreement,  seeking appointment of a receiver for the Company,  and
  alleging that Trace and Merger Sub breached the Stipulation of Settlement.
  
       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  Shareholder
  Litigation. If the Shareholder 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 was granted during August  1999.  Neither the
  Company  nor  any of the  individual  directors  of the  Company  are  named  as
  defendants in this litigation.
  
       As of August 9, 1999, the Company and Trace were two of multiple defendants
  in actions filed on behalf of approximately  4,209 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,  in light of  Trace's  recent  filing  under  Chapter 11 of the
  Bankruptcy  Code,  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,
  
                                         12
  <PAGE>
                FOAMEX INTERNATIONAL INC. AND SUBSIDIARIES
     NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (unaudited)
  
  5.   LITIGATION (continued)
  
  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  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.
  
       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 Periods Ended      Year to Date Periods Ended
                                                      June 30,        June 28,      June 30,       June 28,
                                                        1999           1998          1999            1998
                                                             (thousands, except per share amounts)
  <S>                                                 <C>            <C>            <C>            <C>
  Basic earnings per share:
         Net income                                   $ 3,177        $ 9,277        $ 9,190        $12,386
                                                      =======        =======        =======        =======
  
         Average common stock outstanding              25,053         25,012         25,053         24,977
                                                      =======        =======        =======        =======
  
         Basic earnings per share                     $  0.13        $  0.37        $  0.37        $  0.50
                                                      =======        =======        =======        =======
  
  Diluted earnings per share:
         Net income available for common stock
            and dilutive securities                   $ 3,177        $ 9,277        $ 9,190        $12,386
                                                      =======        =======        =======        =======
  
         Average common stock outstanding              25,053         25,012         25,053         24,977
  
         Additional common shares resulting
            from stock options and warrants                30          1,112            120          1,113
                                                      -------        -------        -------        -------
  
         Average common stock and dilutive
            stock outstanding                          25,083         26,124         25,173         26,090
                                                      =======        =======        =======        =======
  
         Diluted earnings per share                   $  0.13        $  0.36        $  0.37        $  0.48
                                                      =======        =======        =======        =======
  </TABLE>
  
                                         13
  
  <PAGE>
                FOAMEX INTERNATIONAL INC. AND SUBSIDIARIES
     NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (unaudited)
  
  6.   EARNINGS PER SHARE (continued)
  
       On July 1, 1999,  116,745  warrants for an  aggregate of 600,000  shares of
  common stock expired without having been exercised.
  
  7.   COMPREHENSIVE INCOME
  
       Comprehensive  income  for the  periods  noted  below is  comprised  of the
  following:
  
  <TABLE>
  <CAPTION>
                                                  Quarterly Periods Ended     Year to Date Periods Ended
                                                  June 30,       June 28,      June 30,        June 28,
                                                    1999           1998          1999            1998
                                                                      (thousands)
  <S>                                             <C>            <C>            <C>            <C>
  Net income                                      $ 3,177        $ 9,277        $ 9,190        $12,386
  Foreign currency translation adjustments            399              3            811            230
                                                  -------        -------        -------        -------
  Total comprehensive income                      $ 3,576        $ 9,280        $10,001        $12,616
                                                  =======        =======        =======        =======
  </TABLE>
  
  8.   RESTRUCTURING AND OTHER CHARGES
  
       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 and other 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.  During the second quarter of 1999, the Company
  recorded  additional  restructuring  and other  charges  of  approximately  $3.7
  million.  The $3.7 million of  restructuring  and other  charges is comprised of
  $1.3  million  of  severance  costs in  connection  with  additional  work force
  reductions of approximately 64 employees,  $2.3 million of costs associated with
  the closure of two additional  manufacturing  operations and facilities and $0.1
  million of other charges. Approximately $2.5 million of severance costs incurred
  in 1999 have been paid as of June 30,  1999.  Approximately  $1.5 million of the
  total 1999  severance  costs  primarily  relate to contractual  severance  costs
  payable to the Company's former Chairman and Chief Executive Officer, which will
  be paid  through  March 2001.  The Company may record  additional  restructuring
  charges in the future as it finalizes implementation of 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,  furniture and retail
  industries.  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.
  
                                         14
  <PAGE>
                FOAMEX INTERNATIONAL INC. AND SUBSIDIARIES
     NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (unaudited)
  
  9.   OPERATING SEGMENT AND RELATED DATA (continued)
  
       The accounting policies of the operating segments are the same as described
  in the "Summary of Significant  Accounting  Policies" in Note 2 to the Company's
  consolidated financial statements in its 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
  <S>                                          <C>          <C>          <C>          <C>          <C>           <C>
  Quarterly period ended June 30, 1999:
  Net sales                                    $126,315     $ 66,081     $ 90,810     $ 23,028     $  6,795      $313,029
  Income (loss) from operations                  12,831        1,234        5,789        6,017       (4,227)       21,644
  Depreciation and amortization                   4,381        1,497        1,280          667          341         8,166
  
  Quarterly period ended June 28, 1998:
  Net sales                                    $133,422     $ 79,947     $ 61,923     $ 20,156     $  3,031      $298,479
  Income (loss) from operations                  22,974        3,720        5,747        4,001       (2,582)       33,860
  Depreciation and amortization                   4,625        1,599        1,378          737          614         8,953
  
  Year to date period ended June 30, 1999:
  Net sales                                    $267,184     $130,880     $179,581     $ 45,276     $ 12,971      $635,892
  Income (loss) from operations                  25,870        2,967       12,355       10,870       (9,106)       42,956
  Depreciation and amortization                   8,843        3,060        2,625        1,383          887        16,798
  
  Year to date period ended June 28, 1998:
  Net sales                                    $283,037     $149,006     $127,604     $ 41,272     $  9,850      $610,769
  Income (loss) from operations                  34,849        8,409       13,029        8,441       (4,341)       60,387
  Depreciation and amortization                   8,620        2,991        2,588        1,389        1,182        16,770
  </TABLE>
  
  10.  RELATED PARTY TRANSACTIONS
  
       Effective June 30, 1999, the Foamex L.P.  Amended Credit Facility no longer
  permits  Foamex  L.P.  to pay a  management  fee to a  subsidiary  of  Trace  in
  connection  with  a  management   agreement  with  the  Trace   subsidiary  (the
  "Management Agreement"). Such management fee was $3.0 million for the year ended
  December  31,  1998.  On July 29,  1999,  Foamex  L.P.  submitted  to the  Trace
  subsidiary formal notice of the termination of the Management  Agreement,  which
  Foamex L.P. believes took place by informal action on June 29, 1999.
  
       Foamex L.P.  subleases  certain  space in its New York office to Trace (the
  "New York  Sublease").  Foamex  L.P.  gave notice on June 30, 1999 that if prior
  unpaid rent under the New York  Sublease was not paid,  Foamex L.P.  intended to
  give  notice  pursuant  to Article 7 of the New York Real  Property  Actions and
  Proceedings  Law (the "Notice") that the space be vacated by September 30, 1999.
  However,  as a result of Trace's  bankruptcy  filing and the  imposition  of the
  automatic  stay under  Section 362 of the  Bankruptcy  Code,  Foamex L.P. is not
  permitted to give the Notice or  otherwise  pursue state law remedies for breach
  of the New York  Sublease  without  relief from the  automatic  stay.  Under the
  Bankruptcy  Code,  Trace has 60 days (which period may be extended for cause) to
  determine whether to assume or reject the New York Sublease.  Pending assumption
  or rejection,  Trace is required under the Bankruptcy Code to timely perform its
  post-bankruptcy obligations under the New York Sublease.
  
  11.  SUBSEQUENT EVENT
  
       On August 5, 1999, the Company announced that its Board of Directors signed
  a letter of intent with Sorgenti Chemical  Industries,  LLC and Liberty Partners
  Holdings 20, LLC  (collectively,  the "Purchasers")  for a business  combination
  providing  for  $11.50  per share for all of the  Company's  outstanding  common
  stock,  subject to due  diligence,  the execution of definitive  agreements  and
  other conditions. Under the terms of the letter of intent, if the Company enters
  into a business  combination with another party, the Purchasers will be entitled
  to a break-up fee of
  
                                         15
  <PAGE>
                FOAMEX INTERNATIONAL INC. AND SUBSIDIARIES
     NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (unaudited)
  
  11.  SUBSEQUENT EVENT (continued)
  
  $6.0 million plus reimbursement of certain expenses. The buyout offer is subject
  to a number of conditions,  including the  negotiation of definitive  documents,
  which will contain certain conditions relating to the bank credit facilities and
  public debt of the Company's  subsidiaries,  as well as certain other conditions
  relating to minimum shareholder  acceptance and change of board membership,  and
  other provisions  providing for a higher break-up fee and expense  reimbursement
  if the Company  enters into a business  combination  providing a more  favorable
  transaction.  The definitive buyout agreement will require  appropriate  filings
  with the Securities and Exchange Commission and regulatory agencies.
  
       Following  the  execution  of the letter of  intent,  the  Purchasers  will
  commence  their due  diligence  investigation  of the  Company.  The parties are
  discussing the process by which waivers and/or  consents from the holders of the
  bank and public  indebtedness  of the Company will be sought in connection  with
  the  buyout and will seek such to  negotiate  the terms of a  definitive  buyout
  agreement prior to October 31, 1999.
  
  
  
                                         16
  
  <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 June 30, 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.  See Note 1 to
  the accompanying  condensed consolidated financial statements and "Liquidity and
  Capital Resources" below.
  
       On March 16, 1999, the Company announced that it 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.  On May 26, 1999,  the
  Company  announced  major  executive  changes  in  connection  with its  ongoing
  restructuring initiatives, which included the appointment of John Televantos, an
  ARCO Chemical Company veteran, as President of the Foam Business Group.
  
       On August 5, 1999, the Company announced that its Board of Directors signed
  a letter of intent with the Purchasers for a business combination  providing for
  $11.50 per share for all of the Company's  outstanding common stock,  subject to
  due  diligence,  the execution of definitive  agreements  and other  conditions.
  Under the terms of the letter of intent,  if the Company  enters into a business
  combination  with another party,  the Purchasers  will be entitled to a break-up
  fee of $6.0 million plus reimbursement of certain expenses.  The buyout offer is
  subject to a number of  conditions,  including  the  negotiation  of  definitive
  documents,  which will contain  certain  conditions  relating to the bank credit
  facilities  and public debt of the  Company's  subsidiaries,  as well as certain
  other conditions relating to minimum shareholder  acceptance and change of board
  membership, and other provisions providing for a higher break-up fee and expense
  reimbursement if the Company enters into a business combination providing a more
  favorable transaction.  The definitive buyout agreement will require appropriate
  filings with the Securities and Exchange Commission and regulatory agencies.
  
       Following  the  execution  of the letter of  intent,  the  Purchasers  will
  commence  their due  diligence  investigation  of the  Company.  The parties are
  discussing the process by which waivers and/or  consents from the holders of the
  bank and public  indebtedness  of the Company will be sought in connection  with
  the  buyout and will seek such to  negotiate  the terms of a  definitive  buyout
  agreement prior to October 31, 1999.
  
       Restructuring Plan
  
       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 and other 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.  During the second quarter of 1999, the Company
  recorded  additional  restructuring  and other  charges  of  approximately  $3.7
  million.  The $3.7 million of  restructuring  and other  charges is comprised of
  $1.3  million  of  severance  costs in  connection  with  additional  work force
  reductions of approximately 64 employees,  $2.3 million of costs associated with
  the closure of two additional  manufacturing  operations and facilities and $0.1
  million of other charges. Approximately $2.5 million of severance costs incurred
  in 1999 have been paid as of June 30,  1999.  Approximately  $1.5 million of the
  total 1999  severance  costs  primarily  relate to contractual  severance  costs
  payable to the Company's former Chairman and Chief Executive Officer, which will
  be paid  through  March 2001.  The Company may record  additional  restructuring
  charges in the future as it finalizes implementation of its restructuring plan.
  
                                         17
  <PAGE>
  ITEM 2.  MANAGEMENT'S DISCUSSION AND ANALYSIS OF THE FINANCIAL CONDITION AND
           RESULTS OF OPERATIONS
  
       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  condensed  consolidated  statement  of
  operations for the year to date period ended June 30, 1999.
  
         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.
  
       The Company is subject to various internal and external factors which could
  significantly  impact its  business,  including,  among  other  things,  (a) the
  Company's  debt  and  capital  structures,  (b)  the  Crain  Consolidation,  (c)
  additional  raw  material  cost  increases,  if any, by the  Company's  chemical
  suppliers,  (d) the  Company's  success in passing on to its  customers  selling
  price increases to recover such raw material cost increases, (e) fluctuations in
  interest rates, and (f) Trace's financial condition,  including the potential of
  triggering  the "change of control"  provisions of the  Company's  subsidiaries'
  debt  agreements,  and other  such  factors  which may be beyond  the  Company's
  control.  Refer to page 4 of the  Company's  Annual  Report on Form 10-K for the
  year ended  December 31, 1998 for a discussion of these and  additional  factors
  which  management  believes may impact the Company.  These  factors  could cause
  future results to differ  materially  from  historical  trends and  management's
  current  expectations  and could impact the  Company's  ability to continue as a
  going concern.  Although the Company believes its subsidiaries can meet the debt
  covenant  requirements  under  their  financing  agreements,  there  can  be  no
  assurance such covenants will be met and the related  indebtedness will continue
  to  be  classified  as  long  term.   Although   management  believes  that  its
  subsidiaries' debt obligations could be refinanced if accelerated as a result of
  the "change of control"  provisions under related debt agreements,  there can be
  no assurance that the Company or its subsidiaries  will be able to do so or that
  the Company  will be able to obtain  waivers of such  provisions.  Additionally,
  although the Company  believes  that  consolidated  cash flow from its operating
  activities,  cash on hand and periodic  borrowings under the Foamex L.P. Amended
  Credit  Facility and the Foamex Carpet  Amended Credit  Facility,  if necessary,
  will be adequate to meet the Company's liquidity  requirements,  there can be no
  assurance  that the  Company's  internally  generated  funds and funds  from any
  borrowings  will prove to be  sufficient to fund the  Company's  operations  and
  permit it to continue as a going concern.
  
  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,  furniture and retail
  industries.  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
  
                                         18
  
  <PAGE>
  ITEM 2.  MANAGEMENT'S DISCUSSION AND ANALYSIS OF THE FINANCIAL CONDITION AND
           RESULTS OF OPERATIONS
  
  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
  
  <S>                                          <C>          <C>          <C>          <C>          <C>           <C>
  Quarterly period ended June 30, 1999:
  Net sales                                    $126,315     $ 66,081     $ 90,810     $ 23,028     $  6,795      $313,029
  Income (loss) from operations                  12,831        1,234        5,789        6,017       (4,227)       21,644
  Depreciation and amortization                   4,381        1,497        1,280          667          341         8,166
  
  Quarterly period ended June 28, 1998:
  Net sales                                    $133,422     $ 79,947     $ 61,923     $ 20,156     $  3,031      $298,479
  Income (loss) from operations                  22,974        3,720        5,747        4,001       (2,582)       33,860
  Depreciation and amortization                   4,625        1,599        1,378          737          614         8,953
  
  Year to date period ended June 30, 1999:
  Net sales                                    $267,184     $130,880     $179,581     $ 45,276     $ 12,971      $635,892
  Income (loss) from operations                  25,870        2,967       12,355       10,870       (9,106)       42,956
  Depreciation and amortization                   8,843        3,060        2,625        1,383          887        16,798
  
  Year to date period ended June 28, 1998:
  Net sales                                    $283,037     $149,006     $127,604     $ 41,272     $  9,850      $610,769
  Income (loss) from operations                  34,849        8,409       13,029        8,441       (4,341)       60,387
  Depreciation and amortization                   8,620        2,991        2,588        1,389        1,182        16,770
  </TABLE>
  
  Quarterly Period Ended June 30, 1999 Compared to Quarterly Period Ended June 28,
  1998
  
       Net sales for the second quarter of 1999 were $313.0 million as compared to
  $298.5  million in the second  quarter of 1998,  an increase of $14.5 million or
  4.9%.  The increase in net sales was  primarily  associated  with an increase in
  automotive  lamination products,  which was offset by decreased sales due to the
  closure of several plants in connection with the Crain Consolidation and reduced
  carpet cushion selling prices. Income from operations decreased $12.2 million or
  36.1% to $21.6 million for the second  quarter of 1999 from $33.9 million in the
  second  quarter  of 1998.  The  decrease  in  income  from  operations  resulted
  primarily  from (a)  restructuring  costs of $4.4  million  recorded  during the
  second  quarter  of 1999 and (b) a  decrease  in gross  profit of $11.2  million
  resulting  primarily  from  increased raw material  costs,  reductions in carpet
  cushion  selling prices and a shift in product mix resulting from lower sales of
  foam products offset by an increase in lower margin automotive lamination sales,
  offset in part by a decrease in selling,  general and administrative expenses of
  $3.3  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  and  second
  quarters of 1999.
  
       Foam Products
  
       Foam products net sales for the second  quarter of 1999  decreased  5.3% to
  $126.3  million from $133.4  million in the second quarter of 1998. The decrease
  in net sales was primarily associated with the closure of several plants as part
  of the Crain  Consolidation.  Income from  operations  decreased  44.1% to $12.8
  million  (10.2% of net sales) for the second  quarter of 1999 from $22.9 million
  (17.2% of net sales) in the second  quarter of 1998. The decrease in income from
  operations  was  primarily  the result of increased  raw material  costs and the
  decrease in net sales,  offset in part by improved  operating  efficiencies  and
  cost reductions as part of the Crain Consolidation.
  
                                         19
  <PAGE>
  ITEM 2.  MANAGEMENT'S DISCUSSION AND ANALYSIS OF THE FINANCIAL CONDITION AND
           RESULTS OF OPERATIONS
  
       Carpet Cushion Products
  
       Carpet cushion  products net sales for the second quarter of 1999 decreased
  17.3%  to $66.1  million  from  $80.0  million  in the  second  quarter  of 1998
  primarily due to reductions in carpet cushion selling prices and decreased units
  sold. Income from operations decreased 66.8% to $1.2 million (1.9% of net sales)
  for the  second  quarter  of 1999 from $3.7  million  (4.7% of net sales) in the
  second  quarter of 1998.  The decrease was primarily the result of increased raw
  material costs and the decrease in net sales.
  
       Automotive Products
  
       Automotive  products  net sales for the second  quarter  of 1999  increased
  46.6% to $90.8  million from $61.9  million in the second  quarter of 1998.  The
  increase  in net sales  was  associated  with  increased  volume  of  lamination
  products.  Income from  operations  increased  0.7% to $5.8 million (6.4% of net
  sales) for the second  quarter of 1999 from $5.7 million  (9.3% of net sales) in
  the second quarter of 1998. This increase was primarily a result of the increase
  in net sales  offset in part by  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 second quarter of 1999 increased 14.2%
  to $23.0 million from $20.2 million in the second  quarter of 1998.  Income from
  operations  increased  50.4% to $6.0 million (26.1% of net sales) for the second
  quarter of 1999 from $4.0 million  (19.9% of net sales) in the second 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 increase in net sales associated with this
  segment  primarily  resulted  from an increase  in net sales from the  Company's
  Mexican operations.  The decrease in income (loss) from operations was primarily
  associated with the $3.7 million of restructuring  and other charges recorded in
  the second quarter of 1999 discussed previously.
  
       Income Before Provision for Income Taxes
  
       Income before  provision for income taxes decreased to $3.7 million for the
  second  quarter of 1999 as  compared to $15.5  million in the second  quarter of
  1998.  This decrease is primarily due to the decrease in income from  operations
  of $12.2 million discussed above.
  
       Income Taxes
  
       The second  quarter 1999  effective tax rate was 13.7% compared to 40.0% in
  the second quarter of 1998.  Included in the 1999 effective rate was recognition
  of taxes on foreign  operations  and state income taxes for those states with no
  or limited provisions for net operations loss carryforwards.
  
       The lower rate in 1999  reflected the  utilization of Federal net operating
  loss  carryforwards  that  offset  the  Federal  tax  expense  on  1999  income.
  Utilization of net operating loss carryforwards was recognized as a reduction in
  the deferred tax asset valuation allowance established at year-end 1998.
  
  Year to Date Period  Ended June 30, 1999  Compared to Year to Date Period  Ended
  June 28, 1998
  
       Net sales  for the year to date  period  ended  June 30,  1999 were  $635.9
  million as compared to $610.8  million in the year to date period ended June 28,
  1998,  an  increase  of $25.1  million or 4.1%.  The  increase  in net sales was
  primarily associated with the increase in 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 $17.4 million, or
  28.9%,  to $43.0  million for the year to date  period  ended June 30, 1999 from
  $60.4  million in the year to
  
                                         20
  
  <PAGE>
  ITEM 2.  MANAGEMENT'S DISCUSSION AND ANALYSIS OF THE FINANCIAL CONDITION AND
           RESULTS OF OPERATIONS
  
  date period ended June 28, 1998. The decrease in income from operations resulted
  primarily from (a)  restructuring  costs recorded during the year to date period
  ended June 30, 1999 of $7.1  million and (b) a decrease in gross profit of $17.2
  million  resulting  primarily from increased raw material  costs,  reductions in
  carpet  cushion  selling  prices and a shift in product mix resulting from lower
  sales  of foam  products  offset  by an  increase  in  lower  margin  automotive
  lamination  sales,  offset  in  part  by a  decrease  in  selling,  general  and
  administrative  expenses of $7.6 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
  and second  quarters of 1999. The Company  recorded a net gain of  approximately
  $4.2 million on the sale of its 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 year to date  period  ended June 30, 1999
  decreased  5.6% to $267.2 million from $283.0 million in the year to date period
  ended June 28, 1998. The decrease in net sales was primarily associated with the
  closure  of  several  plants as part of the  Crain  Consolidation.  Income  from
  operations  decreased 25.8% to $25.9 million (9.7% of net sales) for the year to
  date period ended June 30, 1999 from $34.8  million  (12.3% of net sales) in the
  year to date period ended June 28, 1998. The decrease in income from  operations
  was primarily the result of increased raw material costs and the decrease in net
  sales, offset in part by improved operating  efficiencies and cost reductions as
  part of the Crain Consolidation.
  
       Carpet Cushion Products
  
       Carpet  cushion  products  net sales for the year to date period ended June
  30, 1999  decreased  12.2% to $130.9  million from $149.0 million in the year to
  date period ended June 28, 1998  primarily due to  reductions in carpet  cushion
  selling prices and decreased units sold. Income from operations  decreased 64.7%
  to $3.0  million  (2.3% of net sales) for the year to date period ended June 30,
  1999 from $8.4 million (5.6% of net sales) in the year to date period ended June
  28, 1998.  The decrease was primarily the result of increased raw material costs
  and the decrease in net sales.
  
       Automotive Products
  
       Automotive  products  net sales for the year to date period  ended June 30,
  1999  increased  40.7% to $179.6 million from $127.6 million in the year to date
  period  ended June 28,  1998.  The  increase  in net sales was  associated  with
  increased volume of lamination  products.  Income from operations decreased 5.2%
  to $12.4  million (6.9% of net sales) for the year to date period ended June 30,
  1999 from $13.0  million  (10.2% of net sales) in the year to date period  ended
  June 28, 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 year to date  period  ended June 30,
  1999  increased  9.7% to $45.3  million  from $41.3  million in the year to date
  period  ended June 28, 1998.  Income from  operations  increased  28.8% to $10.9
  million  (24.0% of net sales) for the year to date  period  ended June 30,  1999
  from $8.4 million (20.5% of net sales) in the year to date period ended June 28,
  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 increase in net sales associated with this
  segment  primarily  resulted  from an increase  in net sales from the  Company's
  Mexican operations.  The decrease in income (loss) from operations was primarily
  associated with the $7.1 million of restructuring  and other charges recorded in
  the year to date period ended June 30, 1999 discussed previously.
  
                                         21
  
  <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 $10.6 million for the
  year to date period ended June 30, 1999 as compared to $23.8 million in the year
  to date  period  ended June 28,  1998.  This  decrease is  primarily  due to the
  decrease in income from operations of $17.4 million  discussed above,  offset by
  an  increase of  approximately  $4.8  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.
  
       Income Taxes
  
       The year to date 1999 effective tax rate was 13.7% compared to 40.0% in the
  second quarter of 1998.  Included in the 1999 effective rate was  recognition of
  taxes on foreign  operations  and state income taxes for those states with no or
  limited provisions for net operating loss carryforwards.
  
       The lower rate in 1999  reflected the  utilization of Federal net operating
  loss  carryforwards  that  offset  the  Federal  tax  expense  on  1999  income.
  Utilization of net operating loss carryforwards was recognized as a reduction in
  the deferred tax asset valuation allowance established at year-end 1998.
  
       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. Amended Credit Facility, if necessary,  will be
  adequate to meet Foamex L.P.'s liquidity requirements.  The ability to meet such
  liquidity  requirements  could be impaired if Foamex L.P. were to fail to comply
  with covenants  contained in the Foamex L.P.  Amended  Credit  Facility and such
  noncompliance was not cured by Foamex L.P. or waived by the lenders. Foamex L.P.
  obtained  various waivers and amendments under its credit facility in March, May
  and June 1999 and was in  compliance  with the  covenants  under the Foamex L.P.
  Amended  Credit  Facility as of June 30,  1999.  See Note 4 to the  accompanying
  condensed  consolidated  financial  statements.  Foamex L.P. incurred  aggregate
  financing fees of  approximately  $3.5 million in connection  with the March and
  June  1999  amendments.  These  financing  fees  will be  amortized  along  with
  previously paid financing fees through  December 2006, the remaining term of the
  Foamex  L.P.  Amended  Credit  Facility.  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 Amended Credit Facility,  if necessary,  will
  be adequate to meet Foamex Carpet's liquidity requirements.  The ability to meet
  such liquidity  requirements  could be impaired if Foamex Carpet were to fail to
  comply with covenants contained in the Foamex Carpet Amended Credit Facility and
  other  financing  arrangements  and such  noncompliance  was not cured by Foamex
  Carpet or waived by the lenders.  Foamex  Carpet  obtained  various  waivers and
  amendments under its credit facility and other financing  arrangements in March,
  May and June 1999 and was in  compliance  with the  covenants  under the  Foamex
  Carpet Amended Credit Facility and other  financing  arrangements
  
                                         22
  
  <PAGE>
  ITEM 2.  MANAGEMENT'S DISCUSSION AND ANALYSIS OF THE FINANCIAL CONDITION AND
           RESULTS OF OPERATIONS
  
  as of June 30,  1999.  See  Note 4 to the  accompanying  condensed  consolidated
  financial  statements.  Foamex  Carpet  incurred  aggregate  financing  fees  of
  approximately   $4.5  million  in  connection  with  the  March  and  June  1999
  amendments.  These  financing fees will be amortized  along with previously paid
  financing  fees through  February  2004, the remaining term of the Foamex Carpet
  Amended Credit Facility.  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.
  
       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  consolidated  loss from  continuing
  operations and certain of its  subsidiaries  were not in compliance with certain
  covenants  contained  in  agreements  governing   approximately  $480.4  million
  principal  amount of  indebtedness.  Had the lenders under these debt agreements
  accelerated the maturity of their  indebtedness as a result of the subsidiaries'
  noncompliance,  such  acceleration  would have  constituted  an event of default
  under or given the holders the right to require the repurchase of  substantially
  all of the Company's subsidiaries' long-term debt. As a result of these factors,
  the  Company  classified  approximately  $771.1  million  of  long-term  debt at
  December 31, 1998 as current in the accompanying  condensed consolidated balance
  sheet,  which  resulted  in a working  capital  deficit.  These  matters  raised
  substantial  doubt as of  December  31,  1998  about the  Company's  ability  to
  continue as a going concern.
  
       On June 30, 1999, certain of the Company's  subsidiaries amended certain of
  their debt  agreements to, among other things,  modify  financial  covenants and
  provides for future  measurement  periods taking into account  estimated  future
  operating  results  and  financial   condition  and  management's   expectations
  regarding  these  future  measurement  periods.  See Note 4 to the  accompanying
  condensed consolidated  financial statements.  For the year to date period ended
  June 30, 1999, the Company had  consolidated  income from continuing  operations
  and Foamex L.P. and Foamex Carpet were in compliance  with their debt covenants.
  As a result of these factors and management's  expectations regarding compliance
  with these covenants in future measurement  periods,  the Company has classified
  approximately $749.8 million of debt as long-term in the accompanying  condensed
  consolidated  balance sheet at June 30, 1999, which resulted in positive working
  capital. The Company's subsidiaries continue to be subject to certain "change of
  control"  provisions  under  their  debt  agreements  which  could  result in an
  acceleration of the related debt.
  
       Certain of the Company's  Mexican  subsidiaries are in default of financial
  covenant  provisions  contained  in  loan  agreements  with a  Mexican  bank  as
  negotiations  continue to finalize amendments to the loan agreements to cure the
  defaults.  The defaults under the Mexican loan  agreements do not have any cross
  default consequences for the Company's domestic subsidiaries' debt agreements.
  
       Trace is a privately  held company  which owns  approximately  46.1% of the
  Company's  outstanding voting common stock and whose Chairman also serves as the
  Company's  Chairman.  The  Company's  common  stock owned by Trace is pledged as
  collateral against certain of Trace's obligations. Certain credit agreements and
  promissory notes of the Company's subsidiaries,  pursuant to which approximately
  $495.0 million of debt was issued as of June 30, 1999,  contain  provisions that
  would result in the acceleration of such  indebtedness if Trace were to cease to
  beneficially own at least 25% of the Company's  outstanding  voting common stock
  and other  persons or groups  were to own a greater  percentage  of such  voting
  common stock than Trace. Additionally, certain indentures of the Foamex L.P. and
  Foamex   Capital   Corporation   relating  to  senior   subordinated   notes  of
  approximately $248.0 million contain provisions that provide the holders of such
  notes with the right to require the issuers to repurchase  such notes at a price
  in cash equal to 101% of the aggregate  principal  amount thereof,  plus accrued
  and unpaid interest thereon, if Trace were to cease to beneficially own at least
  25% of the Company's outstanding voting common stock and other persons or groups
  were to own a greater percentage of such voting common stock than Trace.
  
       The Company was informed by Trace that it filed a petition for relief under
  Chapter 11 of the Bankruptcy  Code in Federal Court in New York City on July 21,
  1999.  Trace's  bankruptcy  filing does not constitute a change of control under
  the provisions of the debt agreements unless the bankruptcy court allows Trace's
  creditors to foreclose on and take ownership of the Company's common stock owned
  by Trace, or otherwise authorizes a sale or transfer of these shares, and Trace,
  its  affiliates  and  subsidiaries  cease to own at least  25% of the  Company's
  outstanding  voting  common  stock and  other  persons  or groups  own a greater
  percentage of voting common stock than Trace.
  
                                         23
  
  <PAGE>
  ITEM 2.  MANAGEMENT'S DISCUSSION AND ANALYSIS OF THE FINANCIAL CONDITION AND
           RESULTS OF OPERATIONS
  
       The  Company  will seek to resolve the issues that may arise if the "change
  of control"  provisions are triggered in the future,  including  waivers of such
  provisions and/or refinancing  certain debt, if necessary.  Although  management
  believes  that  its  subsidiaries'  debt  obligations  could  be  refinanced  if
  accelerated as a result of the "change of control" provisions under related debt
  agreements,  there can be no assurance that the Company or its subsidiaries will
  be able to do so or that the  Company  will be able to  obtain  waivers  of such
  provisions.  The accompanying condensed consolidated financial statements do not
  include  any   adjustments   that  might   result  from  the  outcome  of  these
  uncertainties.
  
       As of June  30,  1999,  there  were  $130.4  million  of  revolving  credit
  borrowings,  at an average interest rate of 8.34%, under the Foamex L.P. Amended
  Credit  Facility with $12.0  million  available for  additional  borrowings  and
  approximately $47.6 million of letters of credit outstanding which are supported
  by the Foamex L.P. Amended Credit Facility.  Borrowings by Foamex Canada Inc. as
  of June 30, 1999 were approximately $4.7 million,  at an interest rate of 6.75%,
  under Foamex Canada Inc.'s revolving  credit agreement with unused  availability
  of approximately  $0.7 million.  Foamex Carpet had approximately $4.6 million of
  outstanding  borrowings  under the Foamex Carpet Amended Credit Facility at June
  30, 1999, at an interest rate of 9.24%, with unused availability of $9.9 million
  and  approximately  $0.5  million  of letters  of credit  outstanding  which are
  supported by the Foamex Carpet Amended Credit Facility.
  
       Cash and cash  equivalents  decreased to $3.1 million at June 30, 1999 from
  $12.6  million at December  31, 1998 due  primarily  to cash used for  financing
  activities  primarily for the repayment of debt and for debt issuance  costs and
  cash used for capital  expenditures,  offset by cash  generated  from  operating
  activities  and  from  the  sale  of  the  corporate  airplane.   Excluding  the
  reclassification  of long-term  debt to current at December  31,  1998,  working
  capital  decreased  $5.3 million to $110.7  million at June 30, 1999 from $116.0
  million at December 31, 1998 primarily due to the decrease in cash offset by the
  increase in net  operating  assets and  liabilities,  as  discussed  below.  Net
  operating assets and liabilities (comprised of accounts receivable,  inventories
  and accounts payable)  increased $9.7 million to $182.3 million at June 30, 1999
  as compared to $172.6  million at December 31, 1998.  The increase was primarily
  due to a $5.2  million  increase  in  accounts  receivable  and a $36.2  million
  decrease in accounts  payable offset by a $31.7 million decrease in inventories.
  The increase in accounts receivable was primarily associated with an increase in
  sales during June 1999 as compared to December 1998. The decrease in inventories
  was primarily due to increased second 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 June 30, 1999.
  
       Cash Flow from Operating Activities
  
       Cash flow provided by operating  activities  was $18.3 million for the year
  to date period ended June 30, 1999 as compared to cash used of $22.1 million for
  the year to date period ended June 28, 1998. The improvement is primarily due to
  a decrease in cash used for  operating  assets and  liabilities  for the year to
  date period ended June 30, 1999 as compared to the corresponding period in 1998.
  
       Cash Flow from Investing Activities
  
       Cash flow provided by investing activities was $6.4 million for the year to
  date period  ended June 30,  1999 as compared to cash used of $20.3  million for
  the year to date period ended June 28, 1998.  This increase was due primarily to
  (i) a  decrease  in capital  expenditures  of $4.7  million in 1999,  (ii) gross
  proceeds  in 1999 of $16.3  million  from the  sale of the  Company's  corporate
  airplane  and (iii) cash used in 1998 of $4.4  million for  certain  acquisition
  payments.
  
       During  1999,  the Company  spent  approximately  $10.8  million on capital
  improvements as compared to $15.5 million for 1998. The 1999  expenditures  were
  primarily for recurring  capital  replacement  additions.  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.
  
                                         24
  <PAGE>
  ITEM 2.  MANAGEMENT'S DISCUSSION AND ANALYSIS OF THE FINANCIAL CONDITION AND
           RESULTS OF OPERATIONS
  
       Cash Flow from Financing Activities
  
       Financing  activity  required  $34.2  million  for the first  half of 1999.
  Financing  requirements primarily included debt repayments.  Additionally,  $8.0
  million of debt issuance costs was incurred and $4.9 million of cash  overdrafts
  were outstanding on June 30, 1999.
  
       During the first half of 1998,  financing  activity  provided $48.5 million
  that was primarily attributable to a series of transactions  associated with the
  transfer of certain assets of General Felt Industries, Inc.
  
  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 June 30,  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.
  
  Market Risk
  
       The Company's debt securities  with variable  interest rates are subject to
  market risk for changes in interest rates. On June 30, 1999, long-term debt with
  variable  interest rates totaled $514.5 million.  On an annualized basis, if the
  interest rates on these debt instruments increased by 1%, interest expense would
  increase by approximately $5.1 million.
  
  Inflation
  
       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.
  
  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
  
                                         25
  
  <PAGE>
  ITEM 2.  MANAGEMENT'S DISCUSSION AND ANALYSIS OF THE FINANCIAL CONDITION AND
           RESULTS OF OPERATIONS
  
  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 June 30, 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.
  
  
                                         26
  
  <PAGE>
  
  
  ITEM 3.  QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
  
       See the "Market  Risk" section under Item 2,  Management's  Discussion  and
  Analysis of Financial Condition and Results of Operations.
  
  
  
  
  
  
                                         27
  <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  June  30,  1999  (unaudited)  is
            incorporated herein by reference.
  
  Item 4.   Submission of Matters to a Vote of Security Holders
  
       The Company held its Annual Meeting of Shareholders on May 27, 1999. At the
  meeting,  shareholders  elected  seven  directors  and ratified the selection of
  PricewaterhouseCoopers  LLP as the Company's independent accountant for the year
  ending December 31, 1999.
  
       All seven of the Company's directors had terms that expired during 1999 and
  stood for re-election  this year.  Each of the directors  received a majority of
  the  votes  necessary  for  re-election,  as noted  below,  and thus  were  each
  re-elected to serve for one-year terms and until their successors have been duly
  elected and qualified:
  
             Director                 For             Withhold Authority
       -------------------         ----------         ------------------
       Marshall S. Cogan           21,142,645         1,707,197
       Etienne Davignon            21,420,383         1,429,459
       John H. Gutfreund           21,811,020         1,038,822
       Robert J. Hay               21,811,177         1,038,665
       Stuart J. Hershon           21,790,605         1,059,237
       John G. Johnson, Jr         22,177,508           672,334
       John V. Tunney              21,798,440         1,051,402
  
       As a result of the  elections,  the term of office of each of the directors
  listed above continued after the meeting.
  
       PricewaterhouseCoopers  LLP received a majority of the votes  necessary for
  ratification  as the  Company's  independent  accountant  for  the  year  ending
  December 31, 1999, as noted below:
  
           For             Against            Abstentions        Broker Non-Votes
       22,392,125          451,882               5,835               2,166,910
  
  Item 6.   Exhibits and Reports on Form 8-K
  
            (a)  Exhibits
  
                 27   Financial  Data  Schedule  for the year to date period ended
                      June 30, 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.
  
                                         28
  
  <PAGE>
  
                 Form  8-K,  dated  as of  April  16,  1999  reporting  update  to
                 preliminary earnings.
  
                 Form  8-K,  dated as of June 30,  1999  reporting  amendments  to
                 aspects of the Company's subsidiaries' credit agreements.
  
                 Form 8-K,  dated  August  5,  1999  reporting  press  release  of
                 proposed buyout.
  
  
                                         29
  <PAGE>
  
                                     SIGNATURES
  
  
       Pursuant to the  requirements  of the Securities  Exchange Act of 1934, the
  registrant  has duly  caused  this  report  to be  signed  on its  behalf by the
  undersigned thereunto duly authorized.
  
  
                                             FOAMEX INTERNATIONAL INC.
  
  
  Date:   August 13, 1999                    By: /s/ George L. Karpinski
                                                 ---------------------------------
                                                 George L. Karpinski
                                                 Senior Vice  President, Treasurer
                                                 and Assistant Secretary
  
  
  
  
  
  
  
  
                                         30
metadata_documents: [{"type": "10-Q", "sequence": "1", "secsgml_size_bytes": 120706}]
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": "99689363"}, "business-address": {"street1": "1000 COLUMBIA AVENUE", "city": "LINWOOD", "state": "PA", "zip": "19061", "phone": "6108593000"}, "mail-address": {"street1": "1000 COLUMBIA AVE", "city": "LINWOOD", "state": "PA", "zip": "19061"}}
text: SECURITIES AND EXCHANGE COMMISSION
                               WASHINGTON, D.C. 20549
  
                                      FORM 10-Q
  
                  QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
                       OF THE SECURITIES EXCHANGE ACT OF 1934
  
                    For the quarterly period ended June 30, 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
  August 10, 1999 was 25,052,991.
  
                                    Page 1 of 30
                            Exhibit List on Page 28 of 30
  FOAMEX INTERNATIONAL INC.
  
                                        INDEX
                                                                              Page
  
  Part I.  Financial Information:
  
           Item 1.  Financial Statements
  
                 Condensed Consolidated Statements of Operations
                   (unaudited) - Quarterly and Year to Date Periods
                   Ended June 30, 1999 and June 28, 1998                       3
  
                 Condensed Consolidated Balance Sheets (unaudited) as of
                   June 30, 1999 and December 31, 1998                         4
  
                 Condensed Consolidated Statements of Cash Flows
                   (unaudited) - Year to Date Periods Ended June 30,
                   1999 and June 28, 1998                                      5
  
                 Notes to Condensed Consolidated Financial Statements
                   (unaudited)                                                 6
  
           Item 2.  Management's Discussion and Analysis of Financial
                    Condition and Results of Operations                       17
  
           Item 3.  Quantitative and Qualitative Disclosures about
                    Market Risk                                               27
  
  Part II.  Other Information                                                 28
  
            Item 1.  Legal Proceedings                                        28
  
            Item 4.  Submission of Matters to a Vote of Security Holders      28
  
            Item 6.  Exhibits and Reports on Form 8-K                         28
  
  Signatures                                                                  30
  
                                    2
  PART I.  FINANCIAL INFORMATION
  ITEM 1.  FINANCIAL STATEMENTS
  
                FOAMEX INTERNATIONAL INC. AND SUBSIDIARIES
        CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (unaudited)
  Quarterly Periods Ended      Year to Date Periods Ended
                                                  June 30,       June 28,      June 30,       June 28,
                                                   1999           1998           1999           1998
                                                          (thousands except per share data)
  NET SALES                                     $ 313,029      $ 298,479      $ 635,892     $ 610,769
  
  COST OF GOODS SOLD                              269,252        243,513        548,518       506,233
                                                ---------      ---------      ---------     ---------
  
  GROSS PROFIT                                     43,777         54,966         87,374       104,536
  
  SELLING, GENERAL AND
     ADMINISTRATIVE EXPENSES                       18,466         21,806         37,294        44,849
  
  RESTRUCTURING AND OTHER CHARGES (CREDITS)         3,667           (700)         7,124          (700)
                                                ---------      ---------      ---------     ---------
  
  INCOME FROM OPERATIONS                           21,644         33,860         42,956        60,387
  
  INTEREST AND DEBT ISSUANCE EXPENSE               17,675         17,281         35,371        34,808
  
  OTHER INCOME (EXPENSE), NET                        (287)        (1,046)         3,064        (1,745)
                                                ---------      ---------      ---------     ---------
  
  INCOME BEFORE PROVISION FOR INCOME TAXES          3,682         15,533         10,649        23,834
  
  PROVISION FOR INCOME TAXES                          505          6,213          1,459         9,531
                                                ---------      ---------      ---------     ---------
  
  INCOME BEFORE EXTRAORDINARY LOSS                  3,177          9,320          9,190        14,303
  
  EXTRAORDINARY LOSS ON EARLY
     EXTINGUISHMENT OF DEBT,
     NET OF INCOME TAXES                               --            (43)            --        (1,917)
                                                ---------      ---------      ---------     ---------
  
  NET INCOME                                    $   3,177      $   9,277      $   9,190     $  12,386
                                                =========      =========      =========     =========
  
  BASIC EARNINGS PER SHARE:
     INCOME BEFORE EXTRAORDINARY LOSS           $    0.13      $    0.37      $    0.37     $    0.58
     EXTRAORDINARY LOSS                                --             --             --         (0.08)
                                                ---------      ---------      ---------     ---------
     EARNINGS PER SHARE                         $    0.13      $    0.37      $    0.37     $    0.50
                                                =========      =========      =========     =========
  
  WEIGHTED AVERAGE NUMBER OF SHARES                25,053         25,012         25,053        24,977
                                                =========      =========      =========     =========
  
  DILUTED EARNINGS PER SHARE:
     INCOME BEFORE EXTRAORDINARY LOSS           $    0.13      $    0.36      $    0.37     $    0.55
     EXTRAORDINARY LOSS                                --             --             --         (0.07)
                                                ---------      ---------      ---------     ---------
     EARNINGS PER SHARE                         $    0.13      $    0.36      $    0.37     $    0.48
                                                =========      =========      =========     =========
  
  WEIGHTED AVERAGE NUMBER OF SHARES                25,083         26,124         25,173        26,090
                                                =========      =========      =========     =========
  The accompanying notes are an integral part of the
               condensed consolidated financial statements.
  
                                    3
  FOAMEX INTERNATIONAL INC. AND SUBSIDIARIES
             CONDENSED CONSOLIDATED BALANCE SHEETS (unaudited)
  June 30,       December 31,
  ASSETS                                                                  1999              1998
  CURRENT ASSETS:                                                 (thousands, except number of shares)
  Cash and cash equivalents                                        $     3,116      $    12,572
     Accounts receivable, net                                             190,383          185,158
     Inventories                                                          104,992          136,658
     Other current assets                                                  32,019           38,978
                                                                      -----------      -----------
         Total current assets                                             330,510          373,366
  
  PROPERTY, PLANT AND EQUIPMENT, NET                                      222,264          242,173
  
  COST IN EXCESS OF ASSETS ACQUIRED, NET                                  218,279          220,934
  
  DEBT ISSUANCE COSTS, NET                                                 21,478           14,852
  
  OTHER ASSETS                                                             23,306           23,640
                                                                      -----------      -----------
  
  TOTAL ASSETS                                                        $   815,837      $   874,965
                                                                      ===========      ===========
  
  LIABILITIES AND STOCKHOLDERS' DEFICIT
  CURRENT LIABILITIES:
     Short-term borrowings                                            $     4,700      $     2,957
     Current portion of long-term debt                                     13,022          690,248
     Current portion of long-term debt - related party                     10,830           98,935
     Accounts payable                                                     113,092          149,268
     Accrued interest                                                       9,908            7,851
     Other accrued liabilities                                             68,266           79,178
                                                                      -----------      -----------
         Total current liabilities                                        219,818        1,028,437
  
  LONG-TERM DEBT                                                          666,040            8,240
  
  LONG-TERM DEBT - RELATED PARTY                                           83,717               --
  
  OTHER LIABILITIES                                                        39,557           42,407
                                                                      -----------      -----------
  
         Total liabilities                                              1,009,132        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                                                 (228,471)        (237,661)
     Accumulated other comprehensive income                               (23,910)         (24,721)
     Other                                                                (28,423)         (28,997)
                                                                      -----------      -----------
  
         Total stockholders' deficit                                     (193,295)        (204,119)
                                                                      -----------      -----------
  
  TOTAL LIABILITIES AND STOCKHOLDERS' DEFICIT                         $   815,837      $   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)
  Year to Date Periods Ended
                                                                      June 30,       June 28,
                                                                        1999           1998
                                                                     ---------      ---------
                                                                           (thousands)
  OPERATING ACTIVITIES:
     Net income                                                      $   9,190      $  12,386
     Adjustments to reconcile net income to net cash provided
         by (used for) operating activities:
         Depreciation and amortization                                  16,798         16,770
         Amortization of debt issuance costs, debt discount,
            debt premium and deferred swap adjustments                     193             23
         Asset writedowns and other charges                              2,073             --
         Gain on sale of assets                                         (4,217)            --
         Extraordinary loss on early extinguishment of debt                 --          1,579
         Other operating activities                                      6,534         11,481
         Changes in operating assets and liabilities, net              (12,259)       (64,341)
                                                                     ---------      ---------
  
            Net cash provided by (used for) operating activities        18,312        (22,102)
                                                                     ---------      ---------
  
  INVESTING ACTIVITIES:
     Capital expenditures                                              (10,820)       (15,482)
     Acquisitions, net of cash acquired                                     --         (4,399)
     Proceeds from sale of assets                                       16,313             --
     Other investing activities                                            924           (406)
                                                                     ---------      ---------
  
            Net cash provided by (used for) investing activities         6,417        (20,287)
                                                                     ---------      ---------
  
  FINANCING ACTIVITIES:
     Net proceeds from short-term borrowings                             1,743            722
     Net proceeds from (repayments of) revolving loans                  (4,463)        82,426
     Proceeds from long-term debt                                           --        129,000
     Repayment of long-term debt                                       (14,395)      (132,767)
     Repayment of long-term debt - related party                        (4,388)        (4,800)
     Dividend paid                                                          --         (1,246)
     Cash overdrafts                                                    (4,938)            --
     Transfer of General Felt                                               --        (23,898)
     Debt issuance costs                                                (7,993)        (1,598)
     Other financing activities                                            249            681
                                                                     ---------      ---------
  
            Net cash provided by (used for) financing activities       (34,185)        48,520
                                                                     ---------      ---------
  
  NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS                  (9,456)         6,131
  
  CASH AND CASH EQUIVALENTS
     AT BEGINNING OF PERIOD                                             12,572         12,044
                                                                     ---------      ---------
  
  CASH AND CASH EQUIVALENTS
     AT END OF PERIOD                                                $   3,116      $  18,175
                                                                     =========      =========
  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 June
  30, 1999, the condensed consolidated  statements of operations for the quarterly
  and year to date periods ended June 30, 1999 and June 28, 1998 and the condensed
  consolidated  statements  of cash flows for the year to date periods  ended June
  30, 1999 and June 28,  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. As a result, the financial data for the quarterly and year to date periods
  ended  June 28,  1998  represent  thirteen-week  and  twenty-six  week  periods,
  respectively.  The  financial  data for the  quarterly  and year to date periods
  ended June 30, 1999  represent  three and six month periods,  respectively,  and
  include 91 and 181 calendar days, respectively.
  
       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 June 30, 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 and year to
  date periods ended June 30, 1999 and June 28, 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  consolidated  loss from  continuing
  operations and certain of its  subsidiaries  were not in compliance with certain
  covenants  contained  in  agreements  governing   approximately  $480.4  million
  principal  amount of  indebtedness.  Had the lenders under these debt agreements
  accelerated the maturity of their  indebtedness as a result of the subsidiaries'
  noncompliance,  such  acceleration  would have  constituted  an event of default
  under or given the holders the right to require the repurchase of  substantially
  all of the Company's subsidiaries' long-term debt. As a result of these factors,
  the  Company  classified  approximately  $771.1  million  of  long-term  debt at
  December 31, 1998 as current in the accompanying  condensed consolidated balance
  sheet,  which  resulted  in a working  capital  deficit.  These  matters  raised
  substantial  doubt as of  December  31,  1998  about the  Company's  ability  to
  continue as a going concern.
  
       On June 30, 1999, certain of the Company's  subsidiaries amended certain of
  their debt  agreements to, among other things,  modify  financial  covenants and
  provide for future  measurement  periods  taking into  account the  subsidiaries
  estimated  future  operating  results and financial  condition and  management's
  expectations  regarding  compliance with these  covenants in future  measurement
  periods  (see Note 4).  For the year to date  period  ended June 30,  1999,  the
  Company had consolidated  income from continuing  operations and Foamex L.P. and
  Foamex Carpet were in compliance with their debt covenants. As a result of these
  factors and management's  expectations regarding compliance with these covenants
  in future  measurement  periods,  the Company  classified  approximately  $749.8
  million of debt as long-term in the accompanying  condensed consolidated balance
  sheet at June 30, 1999 which resulted in positive working capital. The Company's
  subsidiaries continue to be subject to certain "change of
  
                                         6
  FOAMEX INTERNATIONAL INC. AND SUBSIDIARIES
     NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (unaudited)
  
  1.   CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)
  
  control"  provisions  under  their debt  agreements,  which  could  result in an
  acceleration of the related debt, as discussed below.
  
       Trace International  Holdings,  Inc.  ("Trace"),  a privately held company,
  owns  approximately  46.1% of the  Company's  outstanding  voting  common stock.
  Trace's  Chairman also serves as the Company's  Chairman.  The Company's  common
  stock  owned by Trace is  pledged  as  collateral  against  certain  of  Trace's
  obligations.  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,  the "change of control"  provisions  of the
  Company's  subsidiaries'  debt agreements may be triggered and substantially all
  of the Company's subsidiaries' indebtedness may be accelerated.  The Company was
  informed by Trace that it filed a petition  for relief  under  Chapter 11 of the
  Bankruptcy  Code in  Federal  Court in New York City on July 21,  1999.  Trace's
  bankruptcy  filing does not  automatically  constitute a change of control under
  the  provisions of the debt  agreements.  See "Change of Control  Provisions" in
  Note 4.
  
  2.   INVENTORIES
  
         Inventories consist of:
  
                                          June 30,      December 31,
                                           1999             1998
                                         --------        --------
                                                (thousands)
       Raw materials and supplies        $ 69,701        $ 99,997
       Work-in-process                     12,879          12,188
       Finished goods                      22,412          24,473
                                         --------        --------
       Total                             $104,992        $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  condensed  consolidated  statement  of
  operations for the year to date period ended June 30, 1999.
  
  4.   LONG-TERM DEBT AND LONG-TERM DEBT - RELATED PARTY
  
       The Company  classified  approximately  $771.1 million of long-term debt as
  current in the accompanying condensed consolidated balance sheet at December 31,
  1998 as a result of  various  factors,  including  the fact that  certain of the
  Company's  subsidiaries had received waivers for noncompliance with certain debt
  covenants,  which were only granted  through  June 30,  1999.  On June 30, 1999,
  certain of the Company's  subsidiaries  amended certain of their debt agreements
  to,  among other  things,  modify  financial  covenants  as of June 30, 1999 and
  provide for future  measurement  periods  taking into account  estimated  future
  operating  results  and  financial   condition  and  management's   expectations
  regarding these future  measurement  periods.  For the year to date period ended
  June 30, 1999, the Company had  consolidated  income from continuing  operations
  and Foamex L.P. and Foamex Carpet were in compliance  with their debt covenants.
  As a result of these factors and management's  expectations regarding compliance
  with these covenants in future measurement  periods,  the Company has classified
  approximately $749.8 million of debt as long-term in the accompanying  condensed
  consolidated balance sheet at June 30, 1999. The Company's subsidiaries continue
  to be  subject  to  certain  "change of  control"  provisions  under  their debt
  agreements
  
                                         7
  FOAMEX INTERNATIONAL INC. AND SUBSIDIARIES
     NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (unaudited)
  
  4.   LONG-TERM DEBT AND LONG-TERM DEBT - RELATED PARTY (continued)
  
  which  could  result  in  an   acceleration  of  the  related  debt.  See  "Debt
  Restrictions and Covenants" and "Change of Control Provisions" below.
  
         Long-term debt consists of:
  June 30,      December 31,
                                                                     1999            1998
                                                                   --------        --------
       Foamex L.P. Amended Credit Facility:                               (thousands)
  Term Loan B                                               $ 82,294        $ 82,714
         Term Loan C                                                 74,812          75,194
         Term Loan D                                                108,350         108,900
         Revolving credit facility                                  130,384         139,438
       Foamex Carpet revolving credit facility                        4,591              --
       9 7/8% Senior subordinated notes due 2007                    150,000         150,000
       13 1/2% Senior subordinated notes due 2005 (includes
         $10,997 and $11,893 of unamortized debt premium)           108,997         109,893
       Industrial revenue bonds                                       7,000           7,000
       Subordinated note payable (net of unamortized
         debt discount of $356 and $523)                              4,320           6,491
       Other                                                          8,314          18,858
                                                                   --------        --------
                                                                    679,062         698,488
  
       Less current portion                                          13,022         690,248
                                                                   --------        --------
  
       Long-term debt-unrelated parties                            $666,040        $  8,240
                                                                   ========        ========
  
       Long-term debt - related party consists of:
  
       Foamex/GFI Note                                             $ 34,000        $ 34,000
       Note payable to Foam Funding LLC                              60,547          64,935
                                                                   --------        --------
                                                                     94,547          98,935
  
       Less current portion                                          10,830          98,935
                                                                   --------        --------
  
       Long-term debt - related party                              $ 83,717        $     --
                                                                   ========        ========
  During the  quarterly  periods  ended June 30, 1999 and June 28, 1998,  the
  Company paid approximately $1.9 million and $1.6 million,  respectively, to Foam
  Funding LLC for interest on notes payable. During the year to date periods ended
  June 30, 1999 and June 28, 1998, the Company paid approximately $3.7 million and
  $2.3  million,  respectively,  for interest on the notes payable to Foam Funding
  L.L.C.
  
       Other Long-Term Debt
  
       Approximately  $8.9 million of the decrease in other long-term debt at June
  30, 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 for the senior  subordinated  notes,  the Foamex L.P. Credit
  Agreement  as  amended  on June  30,  1999  (the  "Foamex  L.P.  Amended  Credit
  Facility"),  the Foamex Carpet Credit Agreement as amended on June 30, 1999 (the
  "Foamex  Carpet  Amended Credit  Facility")  and other  indebtedness  agreements
  contain certain covenants that limit, among other things to varying degrees, the
  ability of the Company's subsidiaries (a) to pay distributions or
  
                                         8
  FOAMEX INTERNATIONAL INC. AND SUBSIDIARIES
     NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (unaudited)
  
  4.   LONG-TERM DEBT AND LONG-TERM DEBT - RELATED PARTY (continued)
  
  redeem  partnership  interests,  (b) to make  certain  restrictive  payments  or
  investments,  (c) to incur  additional  indebtedness or issue  Preferred  Equity
  Interest, as defined, (d) to merge, consolidate or sell all or substantially all
  of its assets or (e) 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 (see "Change of Control  Provisions" below)
  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.  Also,  the  Company's  subsidiaries  are
  required  under  certain of these  agreements  to maintain  specified  financial
  ratios  of which  the most  restrictive  are the  maintenance  of net  worth and
  interest, fixed charge and leverage coverage ratios, as defined.
  
       The Foamex L.P.  Amended Credit  Facility  modified the required limits for
  the net worth and interest,  fixed charge and leverage  coverage  ratios through
  December 2006 and added an earnings before  interest,  taxes,  depreciation  and
  amortization  ("EBITDA") covenant  requirement through September 30, 1999. Also,
  effective January 1, 2000, the interest rate on outstanding borrowings under the
  Foamex L.P.  Amended  Credit  Facility  will  increase  by 25 basis  points each
  quarter  that  Foamex  L.P.'s  leverage  ratio  exceeds  5.00 to 1.00.  Once the
  leverage  ratio is reduced  below this level,  the  cumulative  amount of any 25
  basis point  adjustments to the interest rate on borrowings would be eliminated.
  The weighted average interest rate on such borrowings was approximately  8.6% at
  June 30, 1999. The Foamex L.P.  Amended Credit  Facility was also modified to no
  longer permit Foamex L.P. to make certain cash  payments,  including the payment
  of an annual  management  fee to a subsidiary  of Trace (which  aggregated  $3.0
  million for the year ended December 31, 1998) and  distributions to the Company,
  and to limit future investments in foreign  subsidiaries and joint ventures.  In
  addition,  the Foamex  L.P.  Amended  Credit  Facility  modified  the "change of
  control"  definition  under the  agreement  (see "Change of Control  Provisions"
  below).
  
       Foamex L.P. had previously  amended its credit  facility on March 11, 1999.
  This 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's expectations regarding future measurement periods. As Foamex L.P.'s
  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 its
  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 to
  this agreement.
  
       The Foamex  Carpet  Amended  Credit  Facility and the amendment to the note
  payable to Foam Funding LLC  modified the required  limits for the net worth and
  interest,  fixed charge and leverage  coverage ratios through  February 2004 and
  added an EBITDA covenant requirement through September 30, 1999. Also, effective
  June 30, 1999,  the interest  rate on  outstanding  borrowings  under the Foamex
  Carpet  Amended  Credit  Facility  increased  by 25 basis  points.  The weighted
  average  interest rate on such  borrowings was  approximately  9.24% at June 30,
  1999. The Foamex Carpet  Amended  Credit  Facility and the amendment to the note
  payable to Foam  Funding LLC also  modified  the "change of control"  definition
  under the agreements (see "Change of Control Provisions" below).
  
       Foamex  Carpet had  previously  amended  its credit  facility  and the note
  payable  to Foam  Funding  LLC on March  12,  1999.  These  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 management's 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 its credit facility and
  the note  payable  to Foam  Funding  LLC,  in order to enable  Foamex  Carpet to
  negotiate further amendments to these agreements.
  
       Certain of the Company's  Mexican  subsidiaries are in default of financial
  covenant  provisions  contained  in  loan  agreements  with a  Mexican  bank  as
  negotiations  continue to finalize amendments to the loan agreements to cure the
  defaults.  The defaults under the Mexican loan  agreements do not have any cross
  default consequences for the Company's domestic subsidiaries' debt agreements.
  
                                         9
  FOAMEX INTERNATIONAL INC. AND SUBSIDIARIES
     NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (unaudited)
  
  4.   LONG-TERM DEBT AND LONG-TERM DEBT - RELATED PARTY (continued)
  
       Change of Control Provisions
  
       Trace is a privately  held company  which owns  approximately  46.1% of the
  Company's  outstanding voting common stock and whose Chairman also serves as the
  Company's  Chairman.  The  Company's  common  stock owned by Trace is pledged as
  collateral against certain of Trace's obligations. Certain credit agreements and
  promissory notes of the Company's subsidiaries,  pursuant to which approximately
  $495.0 million of debt was issued as of June 30, 1999,  contain  provisions that
  would result in the acceleration of such  indebtedness if Trace were to cease to
  beneficially own at least 25% of the Company's  outstanding  voting common stock
  and other  persons or groups  were to own a greater  percentage  of such  voting
  common stock than Trace.  Additionally,  certain  indentures  of Foamex L.P. and
  Foamex   Capital   Corporation   relating  to  senior   subordinated   notes  of
  approximately $248.0 million contain provisions that provide the holders of such
  notes with the right to require the issuers to repurchase  such notes at a price
  in cash equal to 101% of the aggregate  principal  amount thereof,  plus accrued
  and unpaid interest thereon, if Trace were to cease to beneficially own at least
  25% of the Company's outstanding voting common stock and other persons or groups
  were to own a greater percentage of such voting common stock than Trace.
  
       The Company was informed by Trace that it filed a petition for relief under
  Chapter 11 of the Bankruptcy  Code in Federal Court in New York City on July 21,
  1999.  Trace's  bankruptcy  filing does not constitute a change of control under
  the provisions of the debt agreements unless the bankruptcy court allows Trace's
  creditors to foreclose on and take ownership of the Company's common stock owned
  by Trace, or otherwise authorizes a sale or transfer of these shares, and Trace,
  its  affiliates  and  subsidiaries  cease to own at least  25% of the  Company's
  outstanding  voting  common  stock and  other  persons  or groups  own a greater
  percentage of voting common stock than Trace.
  
       The  Company  will seek to resolve the issues that may arise if the "change
  of control"  provisions are triggered in the future,  including  waivers of such
  provisions and/or refinancing  certain debt, if necessary.  Although  management
  believes  that  its  subsidiaries'  debt  obligations  could  be  refinanced  if
  accelerated as a result of the "change of control" provisions under related debt
  agreements,  there can be no assurance that the Company or its subsidiaries will
  be able to do so or that the  Company  will be able to  obtain  waivers  of such
  provisions.  The accompanying condensed consolidated financial statements do not
  include  any   adjustments   that  might   result  from  the  outcome  of  these
  uncertainties.
  
  5.   LITIGATION
  
       During 1999, the Company received several  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 had been disclosed in the Company's  periodic
  filings.  On June 14, 1999, the Company  received a draft compliant from counsel
  of certain  stockholders  naming the  Company  and  certain  current  and former
  directors,  which  include  allegations  similar to those in the Second  Amended
  Complaint,  as defined below.  The Company has been advised by such counsel that
  such  stockholders  intend to file an action  shortly.  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.
  
       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
  complaint 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. On May 18, 1999, a similar action entitled Thomas W. Riley v. Foamex
  
                                         10
  FOAMEX INTERNATIONAL INC. AND SUBSIDIARIES
     NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (unaudited)
  
  5.   LITIGATION (continued)
  
  International  Inc., et al., 99 Civ. 3653 (DC) was filed in the same court.  The
  two actions have been  consolidated.  To date,  no response to the complaint has
  been made and no discovery or other proceedings has taken place.
  
       Beginning  on or about  March  17,  1998,  six  actions  (collectively  the
  "Shareholder  Litigation")  were filed in the Court of  Chancery of the State of
  Delaware,  New Castle County (the "Court"),  by stockholders of the Company. The
  Shareholder  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 original  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 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  Shareholder  Litigation  entered into a  Memorandum  of
  Understanding,  dated June 25,  1998 (the  "Memorandum  of  Understanding"),  to
  settle the  Shareholder  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 Shareholder
  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   outstanding  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  Shareholders"),  the  dismissal  of  the  Shareholder  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 Shareholders 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 for October 27, 1998 to
  consider whether the settlement  should be approved (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  Shareholders.  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  Shareholder  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
  Shareholder  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.
  
                                         11
  FOAMEX INTERNATIONAL INC. AND SUBSIDIARIES
     NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (unaudited)
  
  5.   LITIGATION (continued)
  
       On November 12, 1998, the plaintiffs in the Shareholder 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  Shareholders  in connection  with a second  Agreement and Plan of Merger
  (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 injunction,  seeking an Order
  to  preliminarily  enjoin the defendants from proceeding  with,  consummating or
  otherwise effecting the merger contemplated by the Second Merger Agreement.
  
       On June 9, 1999, the  plaintiffs in the  Shareholder  Litigation  moved for
  leave to file a Second  Amended and  Supplemental  Class  Action and  Derivative
  Complaint (the "Second  Amended  Complaint").  The Second Amended  Complaint was
  filed on July 14, 1999, and 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 the named  individuals  breached
  their  fiduciary   duties  by  causing  the  Company  to  waste  assets  in  its
  transactions with Trace and by failing to enforce the Company's rights under the
  First Merger Agreement,  seeking appointment of a receiver for the Company,  and
  alleging that Trace and Merger Sub breached the Stipulation of Settlement.
  
       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  Shareholder
  Litigation. If the Shareholder 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 was granted during August  1999.  Neither the
  Company  nor  any of the  individual  directors  of the  Company  are  named  as
  defendants in this litigation.
  
       As of August 9, 1999, the Company and Trace were two of multiple defendants
  in actions filed on behalf of approximately  4,209 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,  in light of  Trace's  recent  filing  under  Chapter 11 of the
  Bankruptcy  Code,  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,
  
                                         12
  FOAMEX INTERNATIONAL INC. AND SUBSIDIARIES
     NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (unaudited)
  
  5.   LITIGATION (continued)
  
  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  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.
  
       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 Periods Ended      Year to Date Periods Ended
                                                      June 30,        June 28,      June 30,       June 28,
                                                        1999           1998          1999            1998
                                                             (thousands, except per share amounts)
  Basic earnings per share:
         Net income                                   $ 3,177        $ 9,277        $ 9,190        $12,386
                                                      =======        =======        =======        =======
  
         Average common stock outstanding              25,053         25,012         25,053         24,977
                                                      =======        =======        =======        =======
  
         Basic earnings per share                     $  0.13        $  0.37        $  0.37        $  0.50
                                                      =======        =======        =======        =======
  
  Diluted earnings per share:
         Net income available for common stock
            and dilutive securities                   $ 3,177        $ 9,277        $ 9,190        $12,386
                                                      =======        =======        =======        =======
  
         Average common stock outstanding              25,053         25,012         25,053         24,977
  
         Additional common shares resulting
            from stock options and warrants                30          1,112            120          1,113
                                                      -------        -------        -------        -------
  
         Average common stock and dilutive
            stock outstanding                          25,083         26,124         25,173         26,090
                                                      =======        =======        =======        =======
  
         Diluted earnings per share                   $  0.13        $  0.36        $  0.37        $  0.48
                                                      =======        =======        =======        =======
  13
  FOAMEX INTERNATIONAL INC. AND SUBSIDIARIES
     NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (unaudited)
  
  6.   EARNINGS PER SHARE (continued)
  
       On July 1, 1999,  116,745  warrants for an  aggregate of 600,000  shares of
  common stock expired without having been exercised.
  
  7.   COMPREHENSIVE INCOME
  
       Comprehensive  income  for the  periods  noted  below is  comprised  of the
  following:
  Quarterly Periods Ended     Year to Date Periods Ended
                                                  June 30,       June 28,      June 30,        June 28,
                                                    1999           1998          1999            1998
                                                                      (thousands)
  Net income                                      $ 3,177        $ 9,277        $ 9,190        $12,386
  Foreign currency translation adjustments            399              3            811            230
                                                  -------        -------        -------        -------
  Total comprehensive income                      $ 3,576        $ 9,280        $10,001        $12,616
                                                  =======        =======        =======        =======
  8.   RESTRUCTURING AND OTHER CHARGES
  
       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 and other 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.  During the second quarter of 1999, the Company
  recorded  additional  restructuring  and other  charges  of  approximately  $3.7
  million.  The $3.7 million of  restructuring  and other  charges is comprised of
  $1.3  million  of  severance  costs in  connection  with  additional  work force
  reductions of approximately 64 employees,  $2.3 million of costs associated with
  the closure of two additional  manufacturing  operations and facilities and $0.1
  million of other charges. Approximately $2.5 million of severance costs incurred
  in 1999 have been paid as of June 30,  1999.  Approximately  $1.5 million of the
  total 1999  severance  costs  primarily  relate to contractual  severance  costs
  payable to the Company's former Chairman and Chief Executive Officer, which will
  be paid  through  March 2001.  The Company may record  additional  restructuring
  charges in the future as it finalizes implementation of 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,  furniture and retail
  industries.  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.
  
                                         14
  FOAMEX INTERNATIONAL INC. AND SUBSIDIARIES
     NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (unaudited)
  
  9.   OPERATING SEGMENT AND RELATED DATA (continued)
  
       The accounting policies of the operating segments are the same as described
  in the "Summary of Significant  Accounting  Policies" in Note 2 to the Company's
  consolidated financial statements in its 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 June 30, 1999:
  Net sales                                    $126,315     $ 66,081     $ 90,810     $ 23,028     $  6,795      $313,029
  Income (loss) from operations                  12,831        1,234        5,789        6,017       (4,227)       21,644
  Depreciation and amortization                   4,381        1,497        1,280          667          341         8,166
  
  Quarterly period ended June 28, 1998:
  Net sales                                    $133,422     $ 79,947     $ 61,923     $ 20,156     $  3,031      $298,479
  Income (loss) from operations                  22,974        3,720        5,747        4,001       (2,582)       33,860
  Depreciation and amortization                   4,625        1,599        1,378          737          614         8,953
  
  Year to date period ended June 30, 1999:
  Net sales                                    $267,184     $130,880     $179,581     $ 45,276     $ 12,971      $635,892
  Income (loss) from operations                  25,870        2,967       12,355       10,870       (9,106)       42,956
  Depreciation and amortization                   8,843        3,060        2,625        1,383          887        16,798
  
  Year to date period ended June 28, 1998:
  Net sales                                    $283,037     $149,006     $127,604     $ 41,272     $  9,850      $610,769
  Income (loss) from operations                  34,849        8,409       13,029        8,441       (4,341)       60,387
  Depreciation and amortization                   8,620        2,991        2,588        1,389        1,182        16,770
  10.  RELATED PARTY TRANSACTIONS
  
       Effective June 30, 1999, the Foamex L.P.  Amended Credit Facility no longer
  permits  Foamex  L.P.  to pay a  management  fee to a  subsidiary  of  Trace  in
  connection  with  a  management   agreement  with  the  Trace   subsidiary  (the
  "Management Agreement"). Such management fee was $3.0 million for the year ended
  December  31,  1998.  On July 29,  1999,  Foamex  L.P.  submitted  to the  Trace
  subsidiary formal notice of the termination of the Management  Agreement,  which
  Foamex L.P. believes took place by informal action on June 29, 1999.
  
       Foamex L.P.  subleases  certain  space in its New York office to Trace (the
  "New York  Sublease").  Foamex  L.P.  gave notice on June 30, 1999 that if prior
  unpaid rent under the New York  Sublease was not paid,  Foamex L.P.  intended to
  give  notice  pursuant  to Article 7 of the New York Real  Property  Actions and
  Proceedings  Law (the "Notice") that the space be vacated by September 30, 1999.
  However,  as a result of Trace's  bankruptcy  filing and the  imposition  of the
  automatic  stay under  Section 362 of the  Bankruptcy  Code,  Foamex L.P. is not
  permitted to give the Notice or  otherwise  pursue state law remedies for breach
  of the New York  Sublease  without  relief from the  automatic  stay.  Under the
  Bankruptcy  Code,  Trace has 60 days (which period may be extended for cause) to
  determine whether to assume or reject the New York Sublease.  Pending assumption
  or rejection,  Trace is required under the Bankruptcy Code to timely perform its
  post-bankruptcy obligations under the New York Sublease.
  
  11.  SUBSEQUENT EVENT
  
       On August 5, 1999, the Company announced that its Board of Directors signed
  a letter of intent with Sorgenti Chemical  Industries,  LLC and Liberty Partners
  Holdings 20, LLC  (collectively,  the "Purchasers")  for a business  combination
  providing  for  $11.50  per share for all of the  Company's  outstanding  common
  stock,  subject to due  diligence,  the execution of definitive  agreements  and
  other conditions. Under the terms of the letter of intent, if the Company enters
  into a business  combination with another party, the Purchasers will be entitled
  to a break-up fee of
  
                                         15
  FOAMEX INTERNATIONAL INC. AND SUBSIDIARIES
     NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (unaudited)
  
  11.  SUBSEQUENT EVENT (continued)
  
  $6.0 million plus reimbursement of certain expenses. The buyout offer is subject
  to a number of conditions,  including the  negotiation of definitive  documents,
  which will contain certain conditions relating to the bank credit facilities and
  public debt of the Company's  subsidiaries,  as well as certain other conditions
  relating to minimum shareholder  acceptance and change of board membership,  and
  other provisions  providing for a higher break-up fee and expense  reimbursement
  if the Company  enters into a business  combination  providing a more  favorable
  transaction.  The definitive buyout agreement will require  appropriate  filings
  with the Securities and Exchange Commission and regulatory agencies.
  
       Following  the  execution  of the letter of  intent,  the  Purchasers  will
  commence  their due  diligence  investigation  of the  Company.  The parties are
  discussing the process by which waivers and/or  consents from the holders of the
  bank and public  indebtedness  of the Company will be sought in connection  with
  the  buyout and will seek such to  negotiate  the terms of a  definitive  buyout
  agreement prior to October 31, 1999.
  
                                         16
  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 June 30, 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.  See Note 1 to
  the accompanying  condensed consolidated financial statements and "Liquidity and
  Capital Resources" below.
  
       On March 16, 1999, the Company announced that it 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.  On May 26, 1999,  the
  Company  announced  major  executive  changes  in  connection  with its  ongoing
  restructuring initiatives, which included the appointment of John Televantos, an
  ARCO Chemical Company veteran, as President of the Foam Business Group.
  
       On August 5, 1999, the Company announced that its Board of Directors signed
  a letter of intent with the Purchasers for a business combination  providing for
  $11.50 per share for all of the Company's  outstanding common stock,  subject to
  due  diligence,  the execution of definitive  agreements  and other  conditions.
  Under the terms of the letter of intent,  if the Company  enters into a business
  combination  with another party,  the Purchasers  will be entitled to a break-up
  fee of $6.0 million plus reimbursement of certain expenses.  The buyout offer is
  subject to a number of  conditions,  including  the  negotiation  of  definitive
  documents,  which will contain  certain  conditions  relating to the bank credit
  facilities  and public debt of the  Company's  subsidiaries,  as well as certain
  other conditions relating to minimum shareholder  acceptance and change of board
  membership, and other provisions providing for a higher break-up fee and expense
  reimbursement if the Company enters into a business combination providing a more
  favorable transaction.  The definitive buyout agreement will require appropriate
  filings with the Securities and Exchange Commission and regulatory agencies.
  
       Following  the  execution  of the letter of  intent,  the  Purchasers  will
  commence  their due  diligence  investigation  of the  Company.  The parties are
  discussing the process by which waivers and/or  consents from the holders of the
  bank and public  indebtedness  of the Company will be sought in connection  with
  the  buyout and will seek such to  negotiate  the terms of a  definitive  buyout
  agreement prior to October 31, 1999.
  
       Restructuring Plan
  
       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 and other 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.  During the second quarter of 1999, the Company
  recorded  additional  restructuring  and other  charges  of  approximately  $3.7
  million.  The $3.7 million of  restructuring  and other  charges is comprised of
  $1.3  million  of  severance  costs in  connection  with  additional  work force
  reductions of approximately 64 employees,  $2.3 million of costs associated with
  the closure of two additional  manufacturing  operations and facilities and $0.1
  million of other charges. Approximately $2.5 million of severance costs incurred
  in 1999 have been paid as of June 30,  1999.  Approximately  $1.5 million of the
  total 1999  severance  costs  primarily  relate to contractual  severance  costs
  payable to the Company's former Chairman and Chief Executive Officer, which will
  be paid  through  March 2001.  The Company may record  additional  restructuring
  charges in the future as it finalizes implementation of its restructuring plan.
  
                                         17
  ITEM 2.  MANAGEMENT'S DISCUSSION AND ANALYSIS OF THE FINANCIAL CONDITION AND
           RESULTS OF OPERATIONS
  
       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  condensed  consolidated  statement  of
  operations for the year to date period ended June 30, 1999.
  
         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.
  
       The Company is subject to various internal and external factors which could
  significantly  impact its  business,  including,  among  other  things,  (a) the
  Company's  debt  and  capital  structures,  (b)  the  Crain  Consolidation,  (c)
  additional  raw  material  cost  increases,  if any, by the  Company's  chemical
  suppliers,  (d) the  Company's  success in passing on to its  customers  selling
  price increases to recover such raw material cost increases, (e) fluctuations in
  interest rates, and (f) Trace's financial condition,  including the potential of
  triggering  the "change of control"  provisions of the  Company's  subsidiaries'
  debt  agreements,  and other  such  factors  which may be beyond  the  Company's
  control.  Refer to page 4 of the  Company's  Annual  Report on Form 10-K for the
  year ended  December 31, 1998 for a discussion of these and  additional  factors
  which  management  believes may impact the Company.  These  factors  could cause
  future results to differ  materially  from  historical  trends and  management's
  current  expectations  and could impact the  Company's  ability to continue as a
  going concern.  Although the Company believes its subsidiaries can meet the debt
  covenant  requirements  under  their  financing  agreements,  there  can  be  no
  assurance such covenants will be met and the related  indebtedness will continue
  to  be  classified  as  long  term.   Although   management  believes  that  its
  subsidiaries' debt obligations could be refinanced if accelerated as a result of
  the "change of control"  provisions under related debt agreements,  there can be
  no assurance that the Company or its subsidiaries  will be able to do so or that
  the Company  will be able to obtain  waivers of such  provisions.  Additionally,
  although the Company  believes  that  consolidated  cash flow from its operating
  activities,  cash on hand and periodic  borrowings under the Foamex L.P. Amended
  Credit  Facility and the Foamex Carpet  Amended Credit  Facility,  if necessary,
  will be adequate to meet the Company's liquidity  requirements,  there can be no
  assurance  that the  Company's  internally  generated  funds and funds  from any
  borrowings  will prove to be  sufficient to fund the  Company's  operations  and
  permit it to continue as a going concern.
  
  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,  furniture and retail
  industries.  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
  
                                         18
  ITEM 2.  MANAGEMENT'S DISCUSSION AND ANALYSIS OF THE FINANCIAL CONDITION AND
           RESULTS OF OPERATIONS
  
  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 June 30, 1999:
  Net sales                                    $126,315     $ 66,081     $ 90,810     $ 23,028     $  6,795      $313,029
  Income (loss) from operations                  12,831        1,234        5,789        6,017       (4,227)       21,644
  Depreciation and amortization                   4,381        1,497        1,280          667          341         8,166
  
  Quarterly period ended June 28, 1998:
  Net sales                                    $133,422     $ 79,947     $ 61,923     $ 20,156     $  3,031      $298,479
  Income (loss) from operations                  22,974        3,720        5,747        4,001       (2,582)       33,860
  Depreciation and amortization                   4,625        1,599        1,378          737          614         8,953
  
  Year to date period ended June 30, 1999:
  Net sales                                    $267,184     $130,880     $179,581     $ 45,276     $ 12,971      $635,892
  Income (loss) from operations                  25,870        2,967       12,355       10,870       (9,106)       42,956
  Depreciation and amortization                   8,843        3,060        2,625        1,383          887        16,798
  
  Year to date period ended June 28, 1998:
  Net sales                                    $283,037     $149,006     $127,604     $ 41,272     $  9,850      $610,769
  Income (loss) from operations                  34,849        8,409       13,029        8,441       (4,341)       60,387
  Depreciation and amortization                   8,620        2,991        2,588        1,389        1,182        16,770
  Quarterly Period Ended June 30, 1999 Compared to Quarterly Period Ended June 28,
  1998
  
       Net sales for the second quarter of 1999 were $313.0 million as compared to
  $298.5  million in the second  quarter of 1998,  an increase of $14.5 million or
  4.9%.  The increase in net sales was  primarily  associated  with an increase in
  automotive  lamination products,  which was offset by decreased sales due to the
  closure of several plants in connection with the Crain Consolidation and reduced
  carpet cushion selling prices. Income from operations decreased $12.2 million or
  36.1% to $21.6 million for the second  quarter of 1999 from $33.9 million in the
  second  quarter  of 1998.  The  decrease  in  income  from  operations  resulted
  primarily  from (a)  restructuring  costs of $4.4  million  recorded  during the
  second  quarter  of 1999 and (b) a  decrease  in gross  profit of $11.2  million
  resulting  primarily  from  increased raw material  costs,  reductions in carpet
  cushion  selling prices and a shift in product mix resulting from lower sales of
  foam products offset by an increase in lower margin automotive lamination sales,
  offset in part by a decrease in selling,  general and administrative expenses of
  $3.3  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  and  second
  quarters of 1999.
  
       Foam Products
  
       Foam products net sales for the second  quarter of 1999  decreased  5.3% to
  $126.3  million from $133.4  million in the second quarter of 1998. The decrease
  in net sales was primarily associated with the closure of several plants as part
  of the Crain  Consolidation.  Income from  operations  decreased  44.1% to $12.8
  million  (10.2% of net sales) for the second  quarter of 1999 from $22.9 million
  (17.2% of net sales) in the second  quarter of 1998. The decrease in income from
  operations  was  primarily  the result of increased  raw material  costs and the
  decrease in net sales,  offset in part by improved  operating  efficiencies  and
  cost reductions as part of the Crain Consolidation.
  
                                         19
  ITEM 2.  MANAGEMENT'S DISCUSSION AND ANALYSIS OF THE FINANCIAL CONDITION AND
           RESULTS OF OPERATIONS
  
       Carpet Cushion Products
  
       Carpet cushion  products net sales for the second quarter of 1999 decreased
  17.3%  to $66.1  million  from  $80.0  million  in the  second  quarter  of 1998
  primarily due to reductions in carpet cushion selling prices and decreased units
  sold. Income from operations decreased 66.8% to $1.2 million (1.9% of net sales)
  for the  second  quarter  of 1999 from $3.7  million  (4.7% of net sales) in the
  second  quarter of 1998.  The decrease was primarily the result of increased raw
  material costs and the decrease in net sales.
  
       Automotive Products
  
       Automotive  products  net sales for the second  quarter  of 1999  increased
  46.6% to $90.8  million from $61.9  million in the second  quarter of 1998.  The
  increase  in net sales  was  associated  with  increased  volume  of  lamination
  products.  Income from  operations  increased  0.7% to $5.8 million (6.4% of net
  sales) for the second  quarter of 1999 from $5.7 million  (9.3% of net sales) in
  the second quarter of 1998. This increase was primarily a result of the increase
  in net sales  offset in part by  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 second quarter of 1999 increased 14.2%
  to $23.0 million from $20.2 million in the second  quarter of 1998.  Income from
  operations  increased  50.4% to $6.0 million (26.1% of net sales) for the second
  quarter of 1999 from $4.0 million  (19.9% of net sales) in the second 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 increase in net sales associated with this
  segment  primarily  resulted  from an increase  in net sales from the  Company's
  Mexican operations.  The decrease in income (loss) from operations was primarily
  associated with the $3.7 million of restructuring  and other charges recorded in
  the second quarter of 1999 discussed previously.
  
       Income Before Provision for Income Taxes
  
       Income before  provision for income taxes decreased to $3.7 million for the
  second  quarter of 1999 as  compared to $15.5  million in the second  quarter of
  1998.  This decrease is primarily due to the decrease in income from  operations
  of $12.2 million discussed above.
  
       Income Taxes
  
       The second  quarter 1999  effective tax rate was 13.7% compared to 40.0% in
  the second quarter of 1998.  Included in the 1999 effective rate was recognition
  of taxes on foreign  operations  and state income taxes for those states with no
  or limited provisions for net operations loss carryforwards.
  
       The lower rate in 1999  reflected the  utilization of Federal net operating
  loss  carryforwards  that  offset  the  Federal  tax  expense  on  1999  income.
  Utilization of net operating loss carryforwards was recognized as a reduction in
  the deferred tax asset valuation allowance established at year-end 1998.
  
  Year to Date Period  Ended June 30, 1999  Compared to Year to Date Period  Ended
  June 28, 1998
  
       Net sales  for the year to date  period  ended  June 30,  1999 were  $635.9
  million as compared to $610.8  million in the year to date period ended June 28,
  1998,  an  increase  of $25.1  million or 4.1%.  The  increase  in net sales was
  primarily associated with the increase in 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 $17.4 million, or
  28.9%,  to $43.0  million for the year to date  period  ended June 30, 1999 from
  $60.4  million in the year to
  
                                         20
  ITEM 2.  MANAGEMENT'S DISCUSSION AND ANALYSIS OF THE FINANCIAL CONDITION AND
           RESULTS OF OPERATIONS
  
  date period ended June 28, 1998. The decrease in income from operations resulted
  primarily from (a)  restructuring  costs recorded during the year to date period
  ended June 30, 1999 of $7.1  million and (b) a decrease in gross profit of $17.2
  million  resulting  primarily from increased raw material  costs,  reductions in
  carpet  cushion  selling  prices and a shift in product mix resulting from lower
  sales  of foam  products  offset  by an  increase  in  lower  margin  automotive
  lamination  sales,  offset  in  part  by a  decrease  in  selling,  general  and
  administrative  expenses of $7.6 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
  and second  quarters of 1999. The Company  recorded a net gain of  approximately
  $4.2 million on the sale of its 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 year to date  period  ended June 30, 1999
  decreased  5.6% to $267.2 million from $283.0 million in the year to date period
  ended June 28, 1998. The decrease in net sales was primarily associated with the
  closure  of  several  plants as part of the  Crain  Consolidation.  Income  from
  operations  decreased 25.8% to $25.9 million (9.7% of net sales) for the year to
  date period ended June 30, 1999 from $34.8  million  (12.3% of net sales) in the
  year to date period ended June 28, 1998. The decrease in income from  operations
  was primarily the result of increased raw material costs and the decrease in net
  sales, offset in part by improved operating  efficiencies and cost reductions as
  part of the Crain Consolidation.
  
       Carpet Cushion Products
  
       Carpet  cushion  products  net sales for the year to date period ended June
  30, 1999  decreased  12.2% to $130.9  million from $149.0 million in the year to
  date period ended June 28, 1998  primarily due to  reductions in carpet  cushion
  selling prices and decreased units sold. Income from operations  decreased 64.7%
  to $3.0  million  (2.3% of net sales) for the year to date period ended June 30,
  1999 from $8.4 million (5.6% of net sales) in the year to date period ended June
  28, 1998.  The decrease was primarily the result of increased raw material costs
  and the decrease in net sales.
  
       Automotive Products
  
       Automotive  products  net sales for the year to date period  ended June 30,
  1999  increased  40.7% to $179.6 million from $127.6 million in the year to date
  period  ended June 28,  1998.  The  increase  in net sales was  associated  with
  increased volume of lamination  products.  Income from operations decreased 5.2%
  to $12.4  million (6.9% of net sales) for the year to date period ended June 30,
  1999 from $13.0  million  (10.2% of net sales) in the year to date period  ended
  June 28, 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 year to date  period  ended June 30,
  1999  increased  9.7% to $45.3  million  from $41.3  million in the year to date
  period  ended June 28, 1998.  Income from  operations  increased  28.8% to $10.9
  million  (24.0% of net sales) for the year to date  period  ended June 30,  1999
  from $8.4 million (20.5% of net sales) in the year to date period ended June 28,
  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 increase in net sales associated with this
  segment  primarily  resulted  from an increase  in net sales from the  Company's
  Mexican operations.  The decrease in income (loss) from operations was primarily
  associated with the $7.1 million of restructuring  and other charges recorded in
  the year to date period ended June 30, 1999 discussed previously.
  
                                         21
  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 $10.6 million for the
  year to date period ended June 30, 1999 as compared to $23.8 million in the year
  to date  period  ended June 28,  1998.  This  decrease is  primarily  due to the
  decrease in income from operations of $17.4 million  discussed above,  offset by
  an  increase of  approximately  $4.8  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.
  
       Income Taxes
  
       The year to date 1999 effective tax rate was 13.7% compared to 40.0% in the
  second quarter of 1998.  Included in the 1999 effective rate was  recognition of
  taxes on foreign  operations  and state income taxes for those states with no or
  limited provisions for net operating loss carryforwards.
  
       The lower rate in 1999  reflected the  utilization of Federal net operating
  loss  carryforwards  that  offset  the  Federal  tax  expense  on  1999  income.
  Utilization of net operating loss carryforwards was recognized as a reduction in
  the deferred tax asset valuation allowance established at year-end 1998.
  
       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. Amended Credit Facility, if necessary,  will be
  adequate to meet Foamex L.P.'s liquidity requirements.  The ability to meet such
  liquidity  requirements  could be impaired if Foamex L.P. were to fail to comply
  with covenants  contained in the Foamex L.P.  Amended  Credit  Facility and such
  noncompliance was not cured by Foamex L.P. or waived by the lenders. Foamex L.P.
  obtained  various waivers and amendments under its credit facility in March, May
  and June 1999 and was in  compliance  with the  covenants  under the Foamex L.P.
  Amended  Credit  Facility as of June 30,  1999.  See Note 4 to the  accompanying
  condensed  consolidated  financial  statements.  Foamex L.P. incurred  aggregate
  financing fees of  approximately  $3.5 million in connection  with the March and
  June  1999  amendments.  These  financing  fees  will be  amortized  along  with
  previously paid financing fees through  December 2006, the remaining term of the
  Foamex  L.P.  Amended  Credit  Facility.  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 Amended Credit Facility,  if necessary,  will
  be adequate to meet Foamex Carpet's liquidity requirements.  The ability to meet
  such liquidity  requirements  could be impaired if Foamex Carpet were to fail to
  comply with covenants contained in the Foamex Carpet Amended Credit Facility and
  other  financing  arrangements  and such  noncompliance  was not cured by Foamex
  Carpet or waived by the lenders.  Foamex  Carpet  obtained  various  waivers and
  amendments under its credit facility and other financing  arrangements in March,
  May and June 1999 and was in  compliance  with the  covenants  under the  Foamex
  Carpet Amended Credit Facility and other  financing  arrangements
  
                                         22
  ITEM 2.  MANAGEMENT'S DISCUSSION AND ANALYSIS OF THE FINANCIAL CONDITION AND
           RESULTS OF OPERATIONS
  
  as of June 30,  1999.  See  Note 4 to the  accompanying  condensed  consolidated
  financial  statements.  Foamex  Carpet  incurred  aggregate  financing  fees  of
  approximately   $4.5  million  in  connection  with  the  March  and  June  1999
  amendments.  These  financing fees will be amortized  along with previously paid
  financing  fees through  February  2004, the remaining term of the Foamex Carpet
  Amended Credit Facility.  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.
  
       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  consolidated  loss from  continuing
  operations and certain of its  subsidiaries  were not in compliance with certain
  covenants  contained  in  agreements  governing   approximately  $480.4  million
  principal  amount of  indebtedness.  Had the lenders under these debt agreements
  accelerated the maturity of their  indebtedness as a result of the subsidiaries'
  noncompliance,  such  acceleration  would have  constituted  an event of default
  under or given the holders the right to require the repurchase of  substantially
  all of the Company's subsidiaries' long-term debt. As a result of these factors,
  the  Company  classified  approximately  $771.1  million  of  long-term  debt at
  December 31, 1998 as current in the accompanying  condensed consolidated balance
  sheet,  which  resulted  in a working  capital  deficit.  These  matters  raised
  substantial  doubt as of  December  31,  1998  about the  Company's  ability  to
  continue as a going concern.
  
       On June 30, 1999, certain of the Company's  subsidiaries amended certain of
  their debt  agreements to, among other things,  modify  financial  covenants and
  provides for future  measurement  periods taking into account  estimated  future
  operating  results  and  financial   condition  and  management's   expectations
  regarding  these  future  measurement  periods.  See Note 4 to the  accompanying
  condensed consolidated  financial statements.  For the year to date period ended
  June 30, 1999, the Company had  consolidated  income from continuing  operations
  and Foamex L.P. and Foamex Carpet were in compliance  with their debt covenants.
  As a result of these factors and management's  expectations regarding compliance
  with these covenants in future measurement  periods,  the Company has classified
  approximately $749.8 million of debt as long-term in the accompanying  condensed
  consolidated  balance sheet at June 30, 1999, which resulted in positive working
  capital. The Company's subsidiaries continue to be subject to certain "change of
  control"  provisions  under  their  debt  agreements  which  could  result in an
  acceleration of the related debt.
  
       Certain of the Company's  Mexican  subsidiaries are in default of financial
  covenant  provisions  contained  in  loan  agreements  with a  Mexican  bank  as
  negotiations  continue to finalize amendments to the loan agreements to cure the
  defaults.  The defaults under the Mexican loan  agreements do not have any cross
  default consequences for the Company's domestic subsidiaries' debt agreements.
  
       Trace is a privately  held company  which owns  approximately  46.1% of the
  Company's  outstanding voting common stock and whose Chairman also serves as the
  Company's  Chairman.  The  Company's  common  stock owned by Trace is pledged as
  collateral against certain of Trace's obligations. Certain credit agreements and
  promissory notes of the Company's subsidiaries,  pursuant to which approximately
  $495.0 million of debt was issued as of June 30, 1999,  contain  provisions that
  would result in the acceleration of such  indebtedness if Trace were to cease to
  beneficially own at least 25% of the Company's  outstanding  voting common stock
  and other  persons or groups  were to own a greater  percentage  of such  voting
  common stock than Trace. Additionally, certain indentures of the Foamex L.P. and
  Foamex   Capital   Corporation   relating  to  senior   subordinated   notes  of
  approximately $248.0 million contain provisions that provide the holders of such
  notes with the right to require the issuers to repurchase  such notes at a price
  in cash equal to 101% of the aggregate  principal  amount thereof,  plus accrued
  and unpaid interest thereon, if Trace were to cease to beneficially own at least
  25% of the Company's outstanding voting common stock and other persons or groups
  were to own a greater percentage of such voting common stock than Trace.
  
       The Company was informed by Trace that it filed a petition for relief under
  Chapter 11 of the Bankruptcy  Code in Federal Court in New York City on July 21,
  1999.  Trace's  bankruptcy  filing does not constitute a change of control under
  the provisions of the debt agreements unless the bankruptcy court allows Trace's
  creditors to foreclose on and take ownership of the Company's common stock owned
  by Trace, or otherwise authorizes a sale or transfer of these shares, and Trace,
  its  affiliates  and  subsidiaries  cease to own at least  25% of the  Company's
  outstanding  voting  common  stock and  other  persons  or groups  own a greater
  percentage of voting common stock than Trace.
  
                                         23
  ITEM 2.  MANAGEMENT'S DISCUSSION AND ANALYSIS OF THE FINANCIAL CONDITION AND
           RESULTS OF OPERATIONS
  
       The  Company  will seek to resolve the issues that may arise if the "change
  of control"  provisions are triggered in the future,  including  waivers of such
  provisions and/or refinancing  certain debt, if necessary.  Although  management
  believes  that  its  subsidiaries'  debt  obligations  could  be  refinanced  if
  accelerated as a result of the "change of control" provisions under related debt
  agreements,  there can be no assurance that the Company or its subsidiaries will
  be able to do so or that the  Company  will be able to  obtain  waivers  of such
  provisions.  The accompanying condensed consolidated financial statements do not
  include  any   adjustments   that  might   result  from  the  outcome  of  these
  uncertainties.
  
       As of June  30,  1999,  there  were  $130.4  million  of  revolving  credit
  borrowings,  at an average interest rate of 8.34%, under the Foamex L.P. Amended
  Credit  Facility with $12.0  million  available for  additional  borrowings  and
  approximately $47.6 million of letters of credit outstanding which are supported
  by the Foamex L.P. Amended Credit Facility.  Borrowings by Foamex Canada Inc. as
  of June 30, 1999 were approximately $4.7 million,  at an interest rate of 6.75%,
  under Foamex Canada Inc.'s revolving  credit agreement with unused  availability
  of approximately  $0.7 million.  Foamex Carpet had approximately $4.6 million of
  outstanding  borrowings  under the Foamex Carpet Amended Credit Facility at June
  30, 1999, at an interest rate of 9.24%, with unused availability of $9.9 million
  and  approximately  $0.5  million  of letters  of credit  outstanding  which are
  supported by the Foamex Carpet Amended Credit Facility.
  
       Cash and cash  equivalents  decreased to $3.1 million at June 30, 1999 from
  $12.6  million at December  31, 1998 due  primarily  to cash used for  financing
  activities  primarily for the repayment of debt and for debt issuance  costs and
  cash used for capital  expenditures,  offset by cash  generated  from  operating
  activities  and  from  the  sale  of  the  corporate  airplane.   Excluding  the
  reclassification  of long-term  debt to current at December  31,  1998,  working
  capital  decreased  $5.3 million to $110.7  million at June 30, 1999 from $116.0
  million at December 31, 1998 primarily due to the decrease in cash offset by the
  increase in net  operating  assets and  liabilities,  as  discussed  below.  Net
  operating assets and liabilities (comprised of accounts receivable,  inventories
  and accounts payable)  increased $9.7 million to $182.3 million at June 30, 1999
  as compared to $172.6  million at December 31, 1998.  The increase was primarily
  due to a $5.2  million  increase  in  accounts  receivable  and a $36.2  million
  decrease in accounts  payable offset by a $31.7 million decrease in inventories.
  The increase in accounts receivable was primarily associated with an increase in
  sales during June 1999 as compared to December 1998. The decrease in inventories
  was primarily due to increased second 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 June 30, 1999.
  
       Cash Flow from Operating Activities
  
       Cash flow provided by operating  activities  was $18.3 million for the year
  to date period ended June 30, 1999 as compared to cash used of $22.1 million for
  the year to date period ended June 28, 1998. The improvement is primarily due to
  a decrease in cash used for  operating  assets and  liabilities  for the year to
  date period ended June 30, 1999 as compared to the corresponding period in 1998.
  
       Cash Flow from Investing Activities
  
       Cash flow provided by investing activities was $6.4 million for the year to
  date period  ended June 30,  1999 as compared to cash used of $20.3  million for
  the year to date period ended June 28, 1998.  This increase was due primarily to
  (i) a  decrease  in capital  expenditures  of $4.7  million in 1999,  (ii) gross
  proceeds  in 1999 of $16.3  million  from the  sale of the  Company's  corporate
  airplane  and (iii) cash used in 1998 of $4.4  million for  certain  acquisition
  payments.
  
       During  1999,  the Company  spent  approximately  $10.8  million on capital
  improvements as compared to $15.5 million for 1998. The 1999  expenditures  were
  primarily for recurring  capital  replacement  additions.  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.
  
                                         24
  ITEM 2.  MANAGEMENT'S DISCUSSION AND ANALYSIS OF THE FINANCIAL CONDITION AND
           RESULTS OF OPERATIONS
  
       Cash Flow from Financing Activities
  
       Financing  activity  required  $34.2  million  for the first  half of 1999.
  Financing  requirements primarily included debt repayments.  Additionally,  $8.0
  million of debt issuance costs was incurred and $4.9 million of cash  overdrafts
  were outstanding on June 30, 1999.
  
       During the first half of 1998,  financing  activity  provided $48.5 million
  that was primarily attributable to a series of transactions  associated with the
  transfer of certain assets of General Felt Industries, Inc.
  
  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 June 30,  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.
  
  Market Risk
  
       The Company's debt securities  with variable  interest rates are subject to
  market risk for changes in interest rates. On June 30, 1999, long-term debt with
  variable  interest rates totaled $514.5 million.  On an annualized basis, if the
  interest rates on these debt instruments increased by 1%, interest expense would
  increase by approximately $5.1 million.
  
  Inflation
  
       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.
  
  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
  
                                         25
  ITEM 2.  MANAGEMENT'S DISCUSSION AND ANALYSIS OF THE FINANCIAL CONDITION AND
           RESULTS OF OPERATIONS
  
  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 June 30, 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.
  
                                         26
  ITEM 3.  QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
  
       See the "Market  Risk" section under Item 2,  Management's  Discussion  and
  Analysis of Financial Condition and Results of Operations.
  
                                         27
  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  June  30,  1999  (unaudited)  is
            incorporated herein by reference.
  
  Item 4.   Submission of Matters to a Vote of Security Holders
  
       The Company held its Annual Meeting of Shareholders on May 27, 1999. At the
  meeting,  shareholders  elected  seven  directors  and ratified the selection of
  PricewaterhouseCoopers  LLP as the Company's independent accountant for the year
  ending December 31, 1999.
  
       All seven of the Company's directors had terms that expired during 1999 and
  stood for re-election  this year.  Each of the directors  received a majority of
  the  votes  necessary  for  re-election,  as noted  below,  and thus  were  each
  re-elected to serve for one-year terms and until their successors have been duly
  elected and qualified:
  
             Director                 For             Withhold Authority
       -------------------         ----------         ------------------
       Marshall S. Cogan           21,142,645         1,707,197
       Etienne Davignon            21,420,383         1,429,459
       John H. Gutfreund           21,811,020         1,038,822
       Robert J. Hay               21,811,177         1,038,665
       Stuart J. Hershon           21,790,605         1,059,237
       John G. Johnson, Jr         22,177,508           672,334
       John V. Tunney              21,798,440         1,051,402
  
       As a result of the  elections,  the term of office of each of the directors
  listed above continued after the meeting.
  
       PricewaterhouseCoopers  LLP received a majority of the votes  necessary for
  ratification  as the  Company's  independent  accountant  for  the  year  ending
  December 31, 1999, as noted below:
  
           For             Against            Abstentions        Broker Non-Votes
       22,392,125          451,882               5,835               2,166,910
  
  Item 6.   Exhibits and Reports on Form 8-K
  
            (a)  Exhibits
  
                 27   Financial  Data  Schedule  for the year to date period ended
                      June 30, 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.
  
                                         28
  Form  8-K,  dated  as of  April  16,  1999  reporting  update  to
                 preliminary earnings.
  
                 Form  8-K,  dated as of June 30,  1999  reporting  amendments  to
                 aspects of the Company's subsidiaries' credit agreements.
  
                 Form 8-K,  dated  August  5,  1999  reporting  press  release  of
                 proposed buyout.
  
                                         29
  SIGNATURES
  
       Pursuant to the  requirements  of the Securities  Exchange Act of 1934, the
  registrant  has duly  caused  this  report  to be  signed  on its  behalf by the
  undersigned thereunto duly authorized.
  
                                             FOAMEX INTERNATIONAL INC.
  
  Date:   August 13, 1999                    By: /s/ George L. Karpinski
                                                 ---------------------------------
                                                 George L. Karpinski
                                                 Senior Vice  President, Treasurer
                                                 and Assistant Secretary
  
                                         30