content: SECURITIES AND EXCHANGE COMMISSION
                               WASHINGTON, D.C. 20549
  
                                    -------------
  
                                      FORM 10-Q
  
  
                  QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
                       OF THE SECURITIES EXCHANGE ACT OF 1934
  
                  For the quarterly period ended September 30, 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 November
  5, 1999 was 25,052,991.
  
  
  <PAGE>
  <TABLE>
  <CAPTION>
  <S>         <C>                                                                                               <C>
                              FOAMEX INTERNATIONAL INC.
  
                                        INDEX
                                                                                                                 Page
  
  Part I.  Financial Information
  
           Item 1.  Financial Statements.
  
                Condensed Consolidated Statements of Operations (unaudited) -
                  Three and Nine Months Ended September 30, 1999 and 1998                                           3
  
                Condensed Consolidated Balance Sheets (unaudited) -
                  as of September 30, 1999 and December 31, 1998                                                    4
  
                Condensed Consolidated Statements of Cash Flows (unaudited) -
                  Nine Months Ended September 30, 1999 and 1998                                                     5
  
                Notes to Condensed Consolidated Financial Statements (unaudited)                                    6
  
           Item 2.  Management's Discussion and Analysis of Financial Condition and Results
                     of Operations.                                                                                18
  
           Item 3.  Quantitative and Qualitative Disclosures about Market Risk.                                    27
  
  Part II.  Other Information                                                                                      28
  
            Item 1.  Legal Proceedings.                                                                            28
  
            Item 6.  Exhibits and Reports on Form 8-K.                                                             28
  
  Signatures                                                                                                       29
  
  Exhibits                                                                                                         30
  
  
  </TABLE>
  
  
  
  
  
  
  
                                         2
  <PAGE>
  PART I.  FINANCIAL INFORMATION
  ITEM 1.  FINANCIAL STATEMENTS
  <TABLE>
  <CAPTION>
  
                                  FOAMEX INTERNATIONAL INC. AND SUBSIDIARIES
                          CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (unaudited)
                                       (thousands except per share data)
  
                                                    Three Months Ended              Nine Months Ended
                                               September 30,   September 30,    September 30,  September 30,
                                                    1999           1998             1999           1998
                                                 ---------       ---------       ---------      ---------
  <S>                                            <C>             <C>             <C>            <C>
  NET SALES                                      $ 326,949       $ 332,510       $ 962,841      $ 943,279
  
  COST OF GOODS SOLD                               278,136         281,191         826,654        787,424
                                                 ---------       ---------       ---------      ---------
  
  GROSS PROFIT                                      48,813          51,319         136,187        155,855
  
  SELLING, GENERAL AND
     ADMINISTRATIVE EXPENSES                        19,484          24,006          56,778         68,855
  
  RESTRUCTURING AND OTHER CHARGES (CREDITS)          2,988              --          10,112           (700)
                                                 ---------       ---------       ---------      ---------
  
  INCOME FROM OPERATIONS                            26,341          27,313          69,297         87,700
  
  INTEREST AND DEBT ISSUANCE EXPENSE                18,740          18,402          54,111         53,210
  
  OTHER INCOME (EXPENSE), NET                         (459)         (3,200)          2,605         (4,945)
                                                 ---------       ---------       ---------      ---------
  
  INCOME BEFORE PROVISION FOR INCOME TAXES           7,142           5,711          17,791         29,545
  
  PROVISION FOR INCOME TAXES                         1,014           2,285           2,473         11,816
                                                 ---------       ---------       ---------      ---------
  
  INCOME BEFORE EXTRAORDINARY LOSS                   6,128           3,426          15,318         17,729
  
  EXTRAORDINARY LOSS ON EARLY
     EXTINGUISHMENT OF DEBT,
     NET OF INCOME TAXES                                --              --              --         (1,917)
                                                 ---------       ---------       ---------      ---------
  
  NET INCOME                                     $   6,128       $   3,426       $  15,318      $  15,812
                                                 =========       =========       =========      =========
  
  BASIC EARNINGS PER SHARE:
     INCOME BEFORE EXTRAORDINARY LOSS            $    0.24       $    0.14       $    0.61      $    0.71
     EXTRAORDINARY LOSS                                 --              --              --          (0.08)
                                                 ---------       ---------       ---------      ---------
     EARNINGS PER SHARE                          $    0.24       $    0.14       $    0.61      $    0.63
                                                 =========       =========       =========      =========
  
  WEIGHTED AVERAGE NUMBER OF SHARES                 25,053          25,015          25,053         24,989
                                                 =========       =========       =========      =========
  
  DILUTED EARNINGS PER SHARE:
     INCOME BEFORE EXTRAORDINARY LOSS            $    0.24       $    0.13       $    0.61      $    0.67
     EXTRAORDINARY LOSS                                 --              --              --          (0.07)
                                                 ---------       ---------       ---------      ---------
     EARNINGS PER SHARE                          $    0.24       $    0.13       $    0.61      $    0.60
                                                 =========       =========       =========      =========
  
  WEIGHTED AVERAGE NUMBER OF SHARES
     AND EQUIVALENTS                                25,342          26,118          25,229         26,146
                                                 =========       =========       =========      =========
  
                         The accompanying notes are an integral part of the condensed
                                      consolidated financial statements.
  </TABLE>
  
                                                      3
  
  <PAGE>
                               FOAMEX INTERNATIONAL INC. AND SUBSIDIARIES
                           CONDENSED CONSOLIDATED BALANCE SHEETS (unaudited)
                                  (thousands, except number of shares)
  
  <TABLE>
  <CAPTION>
                                                                       September 30,      December 31,
  ASSETS                                                                   1999               1998
  CURRENT ASSETS:
  <S>                                                                  <C>               <C>
     Cash and cash equivalents                                         $     4,240       $    12,572
     Accounts receivable, net of allowance of $8,544 in 1999
       and $11,630 in 1998                                                 196,474           185,158
     Inventories                                                           104,458           136,658
     Other current assets                                                   31,096            38,978
                                                                       -----------       -----------
         Total current assets                                              336,268           373,366
                                                                       -----------       -----------
  
  PROPERTY, PLANT AND EQUIPMENT                                            382,529           386,873
  LESS ACCUMULATED DEPRECIATION                                           (159,741)         (144,700)
                                                                       -----------       -----------
      NET PROPERTY, PLANT AND EQUIPMENT                                    222,788           242,173
  
  COST IN EXCESS OF ASSETS ACQUIRED, net of accumulated
  amortization of $21,495 in 1999 and $17,131 in 1998                      216,882           220,934
  
  DEBT ISSUANCE COSTS, net of accumulated
  amortization of $5,538 in 1999 and $3,038 in 1998                         20,344            14,852
  
  OTHER ASSETS                                                              23,428            23,640
                                                                       -----------       -----------
  
  TOTAL ASSETS                                                         $   819,710       $   874,965
                                                                       ===========       ===========
  
  LIABILITIES AND STOCKHOLDERS' DEFICIT
  CURRENT LIABILITIES:
     Short-term borrowings                                             $     3,636       $     2,957
     Current portion of long-term debt                                      12,543           690,248
     Current portion of long-term debt - related party                      10,530            98,935
     Accounts payable                                                      119,541           149,268
     Accrued interest                                                        7,774             7,851
     Other accrued liabilities                                              76,062            79,178
                                                                       -----------       -----------
         Total current liabilities                                         230,086         1,028,437
  
  LONG-TERM DEBT                                                           655,199             8,240
  
  LONG-TERM DEBT - RELATED PARTY                                            81,385                --
  
  OTHER LIABILITIES                                                         40,667            42,407
                                                                       -----------       -----------
  
         Total liabilities                                               1,007,337         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                                             87,243            86,990
     Accumulated deficit                                                  (222,343)         (237,661)
     Accumulated other comprehensive income (loss)                         (24,374)          (24,721)
     Other                                                                 (28,423)          (28,997)
                                                                       -----------       -----------
  
         Total stockholders' deficit                                      (187,627)         (204,119)
                                                                       -----------       -----------
  
  TOTAL LIABILITIES AND STOCKHOLDERS' DEFICIT                          $   819,710       $   874,965
                                                                       ===========       ===========
  
                      The accompanying notes are an integral part of the condensed
                                  consolidated financial statements.
  </TABLE>
  
                                                   4
  <PAGE>
  
                             FOAMEX INTERNATIONAL INC. AND SUBSIDIARIES
                     CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (unaudited)
                                             (thousands)
  <TABLE>
  <CAPTION>
                                                                           Nine Months Ended
                                                                     September 30,   September 30,
                                                                         1999            1998
  OPERATING ACTIVITIES
  <S>                                                                 <C>             <C>
     Net income                                                       $  15,318       $  15,812
     Adjustments to reconcile net income to net cash provided
         by (used for) operating activities:
         Depreciation and amortization                                   25,772          25,624
         Amortization of debt issuance costs, debt discount,
            debt premium and deferred swap adjustments                      696             (16)
         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                                       2,703          15,660
         Changes in operating assets and liabilities, net                (6,761)        (76,353)
                                                                      ---------       ---------
  
            Net cash provided by (used for) operating activities         35,584         (17,694)
                                                                      ---------       ---------
  
  INVESTING ACTIVITIES
     Capital expenditures                                               (14,861)        (23,173)
     Acquisitions, net of cash acquired                                      --          (4,399)
     Proceeds from sale of assets                                        16,313              --
     Other investing activities                                             924             832
                                                                      ---------       ---------
  
            Net cash provided by (used for) investing activities          2,376         (26,740)
                                                                      ---------       ---------
  
  FINANCING ACTIVITIES
     Net proceeds from short-term borrowings                                679             185
     Net proceeds from (repayments of) revolving loans                  (14,332)         81,489
     Proceeds from long-term debt                                            --         129,000
     Repayment of long-term debt                                        (15,862)       (134,845)
     Repayment of long-term debt - related party                         (7,020)         (3,510)
     Dividends paid                                                          --          (1,246)
     Cash overdrafts                                                     (2,017)             --
     Transfer of General Felt                                                --         (28,698)
     Debt issuance costs                                                 (7,993)         (1,598)
     Other financing activities                                             253           1,657
                                                                      ---------       ---------
  
            Net cash provided by (used for) financing activities        (46,292)         42,434
                                                                      ---------       ---------
  
  CASH AND CASH EQUIVALENTS
  Net increase (decrease)                                                (8,332)         (2,000)
  Beginning of year                                                      12,572          12,044
                                                                      ---------       ---------
  End of period                                                       $   4,240       $  10,044
                                                                      =========       =========
  </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.     ORGANIZATION AND BASIS OF PRESENTATION
  
  Basis of Presentation
  
         The condensed consolidated financial statements are unaudited, but in the
  opinion of management include all adjustments necessary to present fairly Foamex
  International   Inc.'s  (the  "Company")   financial  position  and  results  of
  operations.  These interim  financial  statements  should be read in conjunction
  with the financial  statements and related notes included in the 1998 Form 10-K.
  Results  for  interim  periods are not  necessarily  indicative  of trends or of
  results for a full year.
  
  Reporting Period
  
         Effective  September 1998, the annual reporting period was changed 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 on December 31. This change
  was effective for the third fiscal quarter of 1998, which ended on September 30,
  1998.
  
  Potential Business Combinations
  
         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.  The  transaction  is 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, subject to certain conditions.
  
         The  transaction  is subject  to a number of  conditions,  including  the
  negotiation  of  definitive  documents  that  will  contain  certain  conditions
  relating to the bank  credit  facilities  and the public  debt of the  Company's
  subsidiaries.  Additional issues that will need to be addressed include, minimum
  shareholder  acceptance,  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 other regulatory agencies.
  
         On November  1, 1999,  the  Company  announced  that the letter of intent
  expired by its terms.  However,  the  Purchasers  requested  an extension of the
  letter of intent until  December 15, 1999.  The parties  agreed to the extension
  and are continuing discussions towards a possible transaction.
  
         Also on November 1, 1999, the Company  announced that it has authorized a
  due diligence review for a possible business combination led by John G. Johnson,
  Jr.,  President  and Chief  Executive  Officer of the Company.  Mr.  Johnson has
  informed the Board of Directors that he is working with various possible sources
  of equity  funding,  but that he has no firm  commitments for the financing of a
  transaction. No formal proposal has been made to the Company by Mr. Johnson.
  
         The  accompanying  financial  statements  and notes  have  been  prepared
  assuming a going-concern  basis and do not recognize the impact of the potential
  business combinations.
  
  Going Concern Issue - Financial Condition
  
         As of December 31, 1998, certain subsidiaries were not in compliance with
  various debt covenants included in agreements  totaling $480.4 million.  Had the
  lenders  under  these  debt   agreements   accelerated  the  maturity  of  their
  indebtedness as a result of the  subsidiaries'  noncompliance,  the acceleration
  would have  constituted  an event of default  and 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,  approximately  $771.1 million of
  long-term debt at December 31, 1998 was classified as a current liability in the
  consolidated  balance sheet,  which produced a working  capital  deficit.  These
  issues raised  substantial doubt at year-end 1998 about the Company's ability to
  continue as a going concern.
  
  
  
                                         6
  <PAGE>
                     FOAMEX INTERNATIONAL INC. AND SUBSIDIARIES
          NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (unaudited)
  
  
  1.     ORGANIZATION AND BASIS OF PRESENTATION (continued)
  
         In response to these financial conditions,  amendments to debt agreements
  were  executed  during  the  first  half  of  1999,  as  discussed  in  Note  8.
  Additionally,  the Company generated net income,  provided over $35.0 million of
  cash flow from operations and reduced total debt by 5% from the beginning of the
  year. The combination of debt amendments,  year to date results and management's
  expectations  regarding  compliance  with debt  covenants in future  measurement
  periods  represented an improved  financial  position relative to year-end 1998.
  Accordingly,  $749.8  million of debt at the end of the second  quarter 1999 and
  approximately  $736.6  million of debt at the end of the third quarter 1999 were
  classified as long term.
  
  Going Concern Issue - Change In Control
  
         Trace International  Holdings, Inc. ("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  $481.8  million  of debt  was
  outstanding as of September 30, 1999,  contain  provisions  that would result in
  the acceleration of such indebtedness if a person or group other than Trace were
  to beneficially own more than 25% of the Company's  outstanding voting stock and
  a greater percentage of such voting stock than the amount  beneficially owned by
  Trace.  Additionally,  certain  indentures  of Foamex  L.P.  and Foamex  Capital
  Corporation  relating to senior  subordinated  notes of $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
  a person or group other than Trace were to beneficially own more than 25% of the
  Company's outstanding voting stock and a greater percentage of such voting stock
  than the amount beneficially owned by 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
  to a person or group other than Trace which would  acquire  more than 25% of the
  Company's outstanding voting stock and a greater percentage of such voting stock
  than the amount beneficially owned by Trace. According to a filing made with the
  bankruptcy  court on November 2, 1999, two of Trace's  creditors have petitioned
  the bankruptcy court to permit such creditors to foreclose on and take ownership
  of the shares of common stock pledged to them, representing approximately 17% of
  the Company's outstanding voting stock.
  
         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,  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
  financial  statements were prepared on a going-concern  basis and do not include
  any  adjustments  that might  result  from the  outcome of the Trace  bankruptcy
  filing.
  
  2.     ASSET SALE
  
         On March 31,  1999,  the Company  sold its  corporate  airplane for $16.3
  million  and  recorded  a gain of  approximately  $4.2  million.  The  gain  was
  recognized in other income (expense) in the condensed consolidated statements of
  operations.  Debt associated with the airplane of $8.9 million was repaid with a
  portion of the proceeds.
  
         The  sale  of  the  airplane   triggered  an   obligation   to  Trace  of
  approximately  $0.6  million.  Under  the  terms  of  the  airplane  acquisition
  agreement,  the Company was  obligated  to share the net proceeds in excess of a
  specified  amount  defined in the  agreement.  The obligation was offset against
  Trace's two promissory notes payable to Foamex L.P.
  
  
                                         7
  <PAGE>
                     FOAMEX INTERNATIONAL INC. AND SUBSIDIARIES
          NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (unaudited)
  
  
  3.     INCOME TAXES
  
         The provision for income taxes in 1999 was based on year to date results.
  The 1999 effective tax rate was reduced by the partial  reversal of the deferred
  tax asset valuation  allowance  recognized in 1998. The valuation  allowance was
  reduced to reflect the  utilization of Federal loss  carryforwards  that reduced
  the  current tax  component  of the Federal  tax  provision.  Additionally,  the
  valuation allowance was reduced to offset the net deferred Federal tax liability
  generated in 1999.
  
  4.     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>
                                                       Three Months Ended             Nine Months Ended
                                                 September 30,   September 30,    September 30,   September 30,
                                                     1999            1998             1999              1998
                                                   -------          -------          -------          -------
                                                             (thousands, except per share amounts)
  Basic earnings per share:
  <S>                                              <C>              <C>              <C>              <C>
    Net income                                     $ 6,128          $ 3,426          $15,318          $15,812
                                                   =======          =======          =======          =======
  
    Average common stock outstanding                25,053           25,015           25,053           24,989
                                                   =======          =======          =======          =======
  
    Basic earnings per share                       $  0.24          $  0.14          $  0.61          $  0.63
                                                   =======          =======          =======          =======
  
  Diluted earnings per share:
    Net income available for common stock
      and dilutive securities                      $ 6,128          $ 3,426          $15,318          $15,812
                                                   =======          =======          =======          =======
  
    Average common stock outstanding                25,053           25,015           25,053           24,989
  
    Common stock equivalents resulting
      from stock options and warrants                  289            1,103              176            1,157
                                                   -------          -------          -------          -------
  
    Average common stock and dilutive
      equivalents                                   25,342           26,118           25,229           26,146
                                                   =======          =======          =======          =======
  
    Diluted earnings per share                     $  0.24          $  0.13          $  0.61          $  0.60
                                                   =======          =======          =======          =======
  </TABLE>
  
  5.     COMPREHENSIVE INCOME
  
         The components of comprehensive income are listed below.
  <TABLE>
  <CAPTION>
                                                         Three Months Ended                 Nine Months Ended
                                                   September 30,   September 30,     September 30,   September 30,
                                                        1999            1998             1999              1998
                                                      --------        --------         ----------       ---------
                                                                             (thousands)
  <S>                                                  <C>             <C>                <C>             <C>
         Net income                                    $ 6,128         $ 3,426            $15,318         $15,812
         Foreign currency translation adjustments         (464)         (1,130)               347            (900)
                                                      --------        --------         ----------       ---------
         Total comprehensive income                    $ 5,664         $ 2,296            $15,665         $14,912
                                                       =======         =======            =======         =======
  </TABLE>
  
  6.     RESTRUCTURING AND OTHER CHARGES (CREDITS)
  
         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,  restructuring  and
  other charges of approximately $3.5 million were recognized related primarily to
  severance in
  
  
                                         8
  <PAGE>
  
                     FOAMEX INTERNATIONAL INC. AND SUBSIDIARIES
          NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (unaudited)
  
  
  6.      RESTRUCTURING AND OTHER CHARGES (CREDITS) (continued)
  
  connection with replacing the Company's former Chief Executive  Officer and work
  force reductions of approximately 81 employees.
  
         During the second  quarter of 1999,  restructuring  and other  charges of
  approximately $3.7 million were recognized.  The provision included $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.
  
         In the  third  quarter  of  1999,  restructuring  and  other  charges  of
  approximately  $3.0  million were  recognized.  The third  quarter  provision is
  comprised of $1.6 million of severance  costs in connection with additional work
  force reductions of approximately 8 employees,  $0.9 million of costs associated
  with the  closure  of Foamex  L.P.'s New York  office and $0.5  million of other
  charges.
  
         Approximately  $4.3 million of severance costs incurred in 1999 have been
  paid as of  September  30,  1999.  Approximately  $1.5 million of the total 1999
  severance costs primarily  relate to contractual  severance costs payable to the
  Company's former Chief Executive Officer, which will be paid through March 2001.
  The  Company  may  record  additional  restructuring  charges  as  it  finalizes
  implementation of its restructuring plan.
  
  7.     INVENTORIES
  
         The components of inventory are listed below.
  <TABLE>
  <CAPTION>
                                                                          September 30,            December 31,
                                                                               1999                   1998
                                                                                      (thousands)
  <S>                                                                        <C>                     <C>
         Raw materials and supplies                                          $ 69,278                $ 99,997
         Work-in-process                                                       12,354                  12,188
         Finished goods                                                        22,826                  24,473
                                                                             --------                --------
         Total                                                               $104,458                $136,658
                                                                             ========                ========
  </TABLE>
  
  8.     LONG-TERM DEBT
  
         Long-term debt consists of:
  <TABLE>
  <CAPTION>
  <S>                                                                          <C>                   <C>
                                                                            September 30,          December 31,
                                                                                1999                   1998
                                                                            -----------             ----------
         Foamex L.P. Amended Credit Facility:                                          (thousands)
           Term Loan B                                                         $ 82,084              $ 82,714
           Term Loan C                                                           74,622                75,194
           Term Loan D                                                          108,075               108,900
           Revolving credit facility                                            122,414               139,438
         Foamex Carpet Amended Credit Facility                                    2,692                     -
         9 7/8% Senior subordinated notes due 2007                              150,000               150,000
         13 1/2% Senior subordinated notes due 2005 (includes
           $10,549 and $11,893 of unamortized debt premium)                     108,549               109,893
         Industrial revenue bonds                                                 7,000                 7,000
         Subordinated note payable (net of unamortized
           debt discount of $280 and $523)                                        4,396                 6,491
         Other                                                                    7,910                18,858
                                                                            -----------             ---------
                                                                                667,742               698,488
  </TABLE>
  
                                         9
  <PAGE>
                     FOAMEX INTERNATIONAL INC. AND SUBSIDIARIES
          NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (unaudited)
  
  
  8.     LONG-TERM DEBT (continued)
  <TABLE>
  <CAPTION>
  
                                                     September 30,      December 31,
                                                         1999               1998
                                                       --------          --------
                                                               (thousands)
  <S>                                                    <C>              <C>
  Less current portion                                   12,543           690,248
                                                       --------          --------
  
  Long-term debt-unrelated parties                     $655,199          $  8,240
                                                       ========          ========
  
  Long-term debt - related party consists of:
  
  Foamex/GFI Note                                      $ 34,000          $ 34,000
  Note payable to Foam Funding LLC                       57,915            64,935
                                                       --------          --------
                                                         91,915            98,935
  
  Less current portion                                   10,530            98,935
                                                       --------          --------
  
  Long-term debt - related party                       $ 81,385          $     --
                                                       ========          ========
  </TABLE>
  
         Foamex L.P.  amended its credit facility (the "Foamex L.P. Amended Credit
  Facility"),  as of June 30, 1999,  and modified the financial  covenants for net
  worth and interest,  fixed charge coverage and leverage ratios through  December
  2006.  An  earnings  requirement,  as defined in the debt  agreement,  was added
  through  September  30,  1999.  Foamex L.P. was in  compliance  with the interim
  requirement at the end of the third quarter 1999. 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 agreement was also amended
  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  (totaling  $3.0
  million  in  1998)  and  distributions  to  the  Company,  and to  limit  future
  investments in foreign subsidiaries and joint ventures.  The "change of control"
  definition under the agreement was also modified.  Revolver borrowings under the
  credit facility  totaled $122.4 million at the end of the third quarter of 1999.
  The  weighted  average  interest  rate on these  obligations  was 8.8% and $17.5
  million was available for additional borrowings.
  
         During 1999,  the  Foamex/GFI  Note was amended to  incorporate  the same
  change in control provisions that are included in the Foamex L.P. Amended Credit
  Facility.
  
         Foamex Carpet Cushion,  Inc.  (Foamex Carpet") amended is credit facility
  (the "Foamex Carpet  Amended Credit  Facility") and note payable to Foam Funding
  LLC, as of June 30, 1999, and modified the financial covenants for net worth and
  interest,  fixed charge coverage and leverage  ratios through  February 2004. An
  earnings  requirement,  as  defined  in the debt  agreement,  was added  through
  September 30, 1999. Foamex Carpet was in compliance with the interim requirement
  at the end of the  third  quarter  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 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. Borrowings under the credit
  facility  totaled  $2.7  million at the end of the third  quarter  of 1999.  The
  weighted average  interest rate on these  obligations was 9.2% and $11.9 million
  was available for additional borrowings.
  
         The Company  continues  to be subject to  covenants  contained in various
  debt agreements that limit,  among other things to varying degrees,  the ability
  of the Company's  subsidiaries (a) to pay  distributions  or 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 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.
  
  
                                         10
  <PAGE>
                     FOAMEX INTERNATIONAL INC. AND SUBSIDIARIES
          NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (unaudited)
  
  
  8. LONG-TERM DEBT (continued)
  
         Certain  of  the  Company's  Mexican  subsidiaries  were  in  default  of
  financial covenant provisions  contained in loan agreements with a Mexican bank.
  Amendments  to the loan  agreements  were  finalized  to  modify  the  financial
  covenant  provisions.  As of September 30, 1999, these Mexican subsidiaries were
  in compliance with the financial covenant provisions under the loan agreements.
  
  9.     SEGMENT RESULTS
  
         Segment results are presented below.
  <TABLE>
  <CAPTION>
  <S>                                    <C>          <C>          <C>           <C>         <C>          <C>
                                                     Carpet
                                           Foam      Cushion     Automotive    Technical
                                         Products    Products     Products      Products       Other         Total
                                        ----------  ---------   ------------   ----------    --------     ---------
                                                                         (thousands)
  Third Quarter 1999
  --------------------
  Net sales                              $139,111     $70,160      $83,355       $24,322     $10,001      $326,949
  Income (loss) from operations            16,228       2,497        6,832         6,438      (5,654)       26,341
  Depreciation and amortization             4,512       1,587        1,370           736         769         8,974
  
  Third Quarter 1998
  --------------------
  Net sales                              $159,954     $76,890      $69,843       $19,891      $5,932      $332,510
  Income (loss) from operations            20,944       5,159        3,775         3,662      (6,227)       27,313
  Depreciation and amortization             4,572       1,582        1,360           730         610         8,854
  
  Year to Date 1999
  --------------------
  Net sales                              $406,295    $201,040     $262,936       $69,598     $22,972      $962,841
  Income (loss) from operations            42,098       5,464       19,187        17,308     (14,760)       69,297
  Depreciation and amortization            13,355       4,647        3,995         2,119       1,656        25,772
  
  Year to Date 1998
  --------------------
  Net sales                              $442,991    $225,896     $197,447       $61,163     $15,782      $943,279
  Income (loss) from operations            55,793      13,568       16,804        12,103     (10,568)       87,700
  Depreciation and amortization            13,193       4,574        3,948         2,118       1,791        25,624
  </TABLE>
  
  10.    STOCKHOLDERS' EQUITY (DEFICIT)
  
  Warrants
  
         On July 1, 1999,  116,745  warrants for an aggregate of 600,000 shares of
  common stock expired without having been exercised.  In addition,  all remaining
  warrants  outstanding  to purchase  approximately  1.2 million  shares of common
  stock expired on October 12, 1999.
  
  11.    RELATED PARTY TRANSACTIONS
  
  Foam Funding LLC Debt
  
         In the third quarter of 1999, the  subsidiaries  of the Company paid $1.9
  million of  interest  and $2.6  million of  principal  on notes  payable to Foam
  Funding  LLC.  For the first three  quarters  of 1999,  interest  and  principal
  payments totaled $5.6 million and $7.0 million, respectively.
  
         In the third  quarter  of 1998,  subsidiaries  of the  Company  paid $1.5
  million of  interest  and $1.7  million of  principal  on notes  payable to Foam
  Funding  LLC.  For the first three  quarters  of 1998,  interest  and  principal
  payments totaled $3.6 million and $3.5 million, respectively.
  
  
  
                                         11
  <PAGE>
                     FOAMEX INTERNATIONAL INC. AND SUBSIDIARIES
          NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (unaudited)
  
  
  11.    RELATED PARTY TRANSACTIONS (continued)
  
  Trace Management Fee
  
         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 a Trace subsidiary.  The 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.
  
  New York Sublease
  
         Prior to September 30, 1999,  Foamex L.P.  subleased 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 that the space be vacated by September
  30, 1999.  Trace complied with such request,  and Foamex L.P. has closed its New
  York office and subleased the premises to a third party.
  
  Trace Promissory Notes
  
         Note 2 includes  disclosures  regarding  1999 activity  concerning  Trace
  promissory  notes  payable to Foamex L.P.  The Trace  notes are  included in the
  other  component  of  stockholders'   deficit,  which  is  consistent  with  the
  recognition in prior years.
  
  12.    COMMITMENTS AND CONTINGENCIES
  
  Litigation - Shareholders
  
         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 complaint from counsel
  of certain  stockholders  naming the  Company  and  certain  current  and former
  directors,  which  included  allegations  similar to those in the Second Amended
  Complaint,  as defined below.  The Company was advised by such counsel that such
  stockholders intended to file an action soon thereafter. On August 13, 1999, two
  stockholders  filed an action on behalf  of an  alleged  class of the  Company's
  shareholders,   entitled  Watchung  Road  Associates,   L.P.  et  al  v.  Foamex
  International  Inc., et al., Civil Action No. 17370 (the "Watchung  Complaint"),
  in the Court of Chancery of the State of Delaware,  New Castle County.  The suit
  names the  Company,  Mr.  Marshall  S. Cogan,  Mr.  Etienne  Davignon,  Mr. John
  Gutfreund,  Mr. Robert Hay, Dr. Stuart Hershon,  Mr. Jack Johnson,  and Mr. John
  Tunney  as  defendants.  The  Watchung  Complaint  alleges  that the  individual
  defendants  breached their fiduciary  duties by agreeing to the potential buyout
  of the Company by Sorgenti  Chemical  Industries  LLC and Liberty  Partners L.P.
  (the "Sorgenti Transaction").
  
         The Watchung  Complaint alleges that the Sorgenti  Transaction's  buy-out
  price of  $11.50  per  outstanding  share is  inadequate  and fails to take into
  consideration claims the Company allegedly has a result of the supposed wrongful
  diversions  of  Company  assets in the  Company's  dealings  with  Trace and its
  affiliates.  The Watchung  Complaint  also alleges that the  directors  breached
  their fiduciary  duties agreeing to the proposed  Sorgenti  Transaction  without
  conducting an auction or active  market  check.  The suit alleges that the board
  placed Mr. Cogan's  interest ahead of those of the Company's  stockholders,  and
  alleges that a critical  condition of the Sorgenti  Transaction  is a consulting
  agreement  for Mr.  Cogan.  The  Watchung  suit  seeks to  enjoin  the  Sorgenti
  Transaction,  seeks  rescission  or  damages  if  the  Sorgenti  Transaction  is
  consummated,  and seeks an accounting from the directors for plaintiffs  alleged
  losses. To date, no response to the Watchung Complaint has been made.
  
  
                                         12
  <PAGE>
                     FOAMEX INTERNATIONAL INC. AND SUBSIDIARIES
          NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (unaudited)
  
  
  12.    COMMITMENTS AND CONTINGENCIES (continued)
  
         On April 26, 1999, a putative securities class action entitled Molitor v.
  Foamex  International Inc., et al., 99 Civ. 3004, 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. On May 18, 1999, a similar  action  entitled  Thomas W. Riley v.
  Foamex International Inc., et al., 99 Civ. 3653 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. Plaintiffs have
  advised the Company that they plan to file a  consolidated  complaint  within 45
  days of October 7, 1999. After service,  defendants will have 45 days to respond
  to the consolidated complaint.
  
         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 Shareholder  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
  
  
                                         13
  <PAGE>
                     FOAMEX INTERNATIONAL INC. AND SUBSIDIARIES
          NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (unaudited)
  
  
  12.    COMMITMENTS AND CONTINGENCIES (continued)
  
  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.
  
         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.  In January  1999,  Trace advised that it could not finance the offer
  reflected  in  the  Second  Merger  Agreement.  As  a  result,  the  preliminary
  injunction motion did not go forward.
  
         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.
  
         On August 26, 1999, the plaintiffs in the  Shareholder  Litigation  moved
  for leave to file a Third Amended and  Supplemental  Class Action and Derivative
  Complaint (the "Third Amended Complaint"). The Third Amended Complaint was filed
  on October 27, 1999. The Third Amended  Complaint  alleges both class claims and
  derivative  claims,  and names the Company,  Mr.  Marshall S. Cogan,  Mr. Andrea
  Farace,  Dr. Stuart Hershon,  Mr. John Tunney,  Mr. Etienne  Davignon,  Mr. John
  Gutfreund, Mr. Robert Hay and Mr. John Johnson as defendants.
  
         The  Third  Amended  Complaint  alleges  that the  individual  defendants
  breached their duties to the Company's  Public  Shareholders  by agreeing to the
  Sorgenti   Transaction   at  an  inadequate   price  that  fails  to  take  into
  consideration the Company's  allegedly  valuable claims arising out of purported
  diversions  of money  from the  Company to Trace,  and by  failing  to  maximize
  shareholder value in a sale of the Company and instead agreeing to a deal with a
  buyer who is willing to enter into a  consulting  deal with Mr. Cogan to get his
  and the  board's  approval.  The Third  Amended  Complaint  purports to assert a
  derivative  claim for waste and breach of fiduciary duty against Mr. Cogan,  Mr.
  Farace, Dr. Hershon, Mr. Tunney, Mr. Davignon,  Mr. Gutfreund,  and Mr. Hay. The
  Third Amended  Complaint  seeks the  appointment  of a receiver for the Company,
  alleging  that the  directors  have  mismanaged  the Company.  The Third Amended
  Complaint also alleges that Mr. Cogan,  Mr. Farace,  Dr. Hershon,  Mr. Davignon,
  Mr.  Tunney,  Mr.  Gutfreund,  and Mr. Hay breached  their  fiduciary  duties by
  failing to enforce the Company's rights under the First Merger Agreement.
  
         The Third Amended  Complaint  seeks:  a declaration  that the  individual
  defendants have breached their fiduciary  duties;  damages;  the imposition of a
  constructive  trust on profits and  benefits  Mr.  Cogan,  Trace,  and the other
  individual  defendants allegedly received as a result of the alleged wrongdoing;
  an injunction against the
  
                                         14
  <PAGE>
                     FOAMEX INTERNATIONAL INC. AND SUBSIDIARIES
          NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (unaudited)
  
  
  12.    COMMITMENTS AND CONTINGENCIES (continued)
  
  Sorgenti Transaction under its present terms; rescission and damages if the deal
  is consummated;  and the appointment of a receiver for the Company.  To date, no
  response to the Third Amended Complaint has been made.
  
         The defendants  intend to vigorously defend these  litigations,  which if
  adversely  determined,  could have a material  adverse  effect on the  financial
  position, results of operations and cash flows of the Company.
  
  Litigation - Breast Implants
  
         As of  November  8, 1999,  the  Company  and Trace  were two of  multiple
  defendants  in actions  filed on behalf of  approximately  4,157  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's  insurance  carrier has paid the  Company's  litigation
  expenses to date,  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, 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.
  
  Litigation - Other
  
         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.
  
  Environmental
  
         The Company is subject to extensive and changing  federal,  state,  local
  and foreign environmental laws and regulations,  including those relating to the
  use, handling,  storage,  discharge and disposal of hazardous substances and the
  remediation of  environmental  contamination,  and as a result,  is from time to
  time involved in administrative and judicial  proceedings and inquiries relating
  to environmental matters. As of September 30, 1999, the Company
  
                                         15
  <PAGE>
                     FOAMEX INTERNATIONAL INC. AND SUBSIDIARIES
          NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (unaudited)
  
  
  12.     COMMITMENTS AND CONTINGENCIES (continued)
  
  had accruals of approximately  $4.5 million for  environmental  matters.  During
  1998,  the  Company  established  an  allowance  of  $1.2  million  relating  to
  receivables from Trace for environmental  indemnifications  due to the financial
  difficulties of Trace.
  
         The Clean Air Act Amendments of 1990 (the "1990 CAA Amendments")  provide
  for the establishment of federal emission standards for hazardous air pollutants
  including  methylene  chloride,  propylene oxide and TDI,  materials used in the
  manufacturing  of foam. On December 27, 1996,  the United  States  Environmental
  Protection Agency (the "EPA") proposed regulations under the 1990 CAA Amendments
  that  will  require  manufacturers  of slab  stock  polyurethane  foam  and foam
  fabrication plants to reduce emissions of methylene chloride. The final National
  Emission  Standard for  Hazardous  Air  Pollutants  ("NESHAP")  was  promulgated
  October 7,  1998.  NESHAP  requires  a  reduction  of  approximately  70% of the
  emission  of  methylene  chloride  for the slab  stock foam  industry  effective
  October 7, 2001. The Company does not believe  implementation  of the regulation
  will  require  it to make  material  expenditures  due to the  Company's  use of
  alternative technologies which do not utilize methylene chloride and its ability
  to shift  current  production  to the  facilities  which use  these  alternative
  technologies.  The 1990 CAA  Amendments  also may  result in the  imposition  of
  additional   standards   regulating   air  emissions  from   polyurethane   foam
  manufacturers, but these standards have not yet been proposed or promulgated.
  
         The Company has reported to  appropriate  state  authorities  that it has
  found soil and groundwater  contamination  in excess of state standards at three
  facilities and soil  contamination  in excess of state  standards at three other
  facilities.  The  Company  has  begun  remediation  and  is  conducting  further
  investigations  into the extent of the  contamination  at these  facilities and,
  accordingly,  the extent of the remediation that may ultimately be required. The
  actual cost and the timetable of any such  remediation  cannot be predicted with
  any degree of certainty  at this time.  The Company has accruals of $3.3 million
  for the  estimated  cost of  completing  remediation  at these  facilities.  The
  Company  is  in  the  process  of  addressing  potential  contamination  at  its
  Morristown,  Tennessee facility,  and has submitted a sampling plan to the State
  of Tennessee.  The extent of the contamination and responsible  parties, if any,
  has not yet been  determined.  A former  owner may be liable for cleanup  costs;
  nevertheless, the cost of remediation, if any, is not expected to be material.
  
         Federal  regulations  required  that by the end of 1998  all  underground
  storage tanks  ("USTs") be removed or upgraded in all states to meet  applicable
  standards.  The Company has upgraded all USTs at its  facilities  in  accordance
  with these  regulations and recently  completed the closure of remaining USTs at
  two sites to meet applicable  standards.  Some petroleum  contamination in soils
  was found at one of the sites;  the  extent of the  contamination  is  currently
  being investigated.  The Company has accrued  approximately $0.5 million for the
  estimated  remediation costs associated with this site. However, the full extent
  of contamination,  and accordingly, the actual cost of such remediation,  cannot
  be  predicted  with  any  degree  of  certainty  at this  time.  Based  upon the
  investigation conducted thus far, the Company believes that its USTs do not pose
  a  significant  risk  of  environmental  liability.  However,  there  can  be no
  assurances that such USTs will not result in significant environmental liability
  in the future.
  
         On April 10,  1997,  the  Occupational  Health and Safety  Administration
  promulgated new standards  governing  employee  exposure to methylene  chloride,
  which  is used  as a  blowing  agent  in  some  of the  Company's  manufacturing
  processes.  The phase-in of the  standards was completed in 1999 and the Company
  has  developed  and  implemented  a  compliance  program.  Capital  expenditures
  required  and  changes  in  operating   procedures   are  not   anticipated   to
  significantly impact the Company's competitive position.
  
         The  Company  has been  designated  as a  Potentially  Responsible  Party
  ("PRP") by the EPA with respect to seven sites. Estimates of total cleanup costs
  and fractional allocations of liability are generally provided by the EPA or the
  committee  of PRP's  with  respect to the  specified  site.  In each  case,  the
  liability of the Company is not considered to be material.
  
  
                                         16
  <PAGE>
                     FOAMEX INTERNATIONAL INC. AND SUBSIDIARIES
          NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (unaudited)
  
  
  12.    COMMITMENTS AND CONTINGENCIES (continued)
  
         Although it is possible that new information or future developments could
  require the Company to reassess its potential  exposure  relating to all pending
  environmental  matters,  including those described herein,  the Company believes
  that,  based upon all currently  available  information,  the resolution of such
  environmental  matters will not have a material  adverse effect on the Company's
  operations,  financial position,  capital expenditures or competitive  position.
  The possibility  exists,  however,  that new  environmental  legislation  and/or
  environmental  regulations may be adopted, or other environmental conditions may
  be found to exist, that may require  expenditures not currently  anticipated and
  that may be material.
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
                                         17
  
  <PAGE>
  
  
  ITEM 2.  MANAGEMENT'S DISCUSSION AND ANALYSIS OF THE FINANCIAL CONDITION AND
           RESULTS OF OPERATIONS
  
  Going Concern Issues
  
         The  accompanying  financial  statements  and notes  have  been  prepared
  assuming the Company will continue as a going  concern.  As discussed in Note 1,
  there are going concern issues involving the financial  condition of the Company
  and related impact of debt covenants, and change in control provisions that have
  the potential to accelerate certain debt obligations.
  
         The Company is subject to various  internal  and external  factors  which
  could significantly impact its liquidity and capital structure, including, among
  other  things,  (a) the  Company's  debt and capital  structures,  (b) the Crain
  Consolidation,  (c) additional raw material cost  increases,  (d) the ability to
  increase  customers  selling price to recover 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 in the Company's
  subsidiaries'  debt agreements  (discussed  below), 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.
  
         As discussed in the capital  structure  section  below,  during the first
  half of 1999,  amendments to debt  agreements  were  completed and the Company's
  subsidiaries were in compliance with the financial covenants of these agreements
  on both June 30, 1999 and September 30, 1999.  Although the Company believes its
  subsidiaries  can meet the debt  covenant  requirements  under  their  financing
  agreements,  there can be no assurance  these  covenants  will be met.  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, and borrowing capacity 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.
  
         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
  $481.8  million  of debt was  outstanding  as of  September  30,  1999,  contain
  provisions  that would  result in the  acceleration  of such  indebtedness  if a
  person or group other than Trace were to  beneficially  own more than 25% of the
  Company's outstanding voting stock and a greater percentage of such voting stock
  than the amount beneficially owned by Trace. Additionally, certain indentures of
  the Foamex L.P. and Foamex Capital  Corporation  relating to senior subordinated
  notes of $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 a person or group  other  than Trace were to
  beneficially own more than 25% of the Company's  outstanding  voting stock and a
  greater  percentage of such voting stock than the amount  beneficially  owned by
  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
  to a person or group other than Trace which would  acquire  more than 25% of the
  Company's outstanding voting stock and a greater percentage of such voting stock
  than the amount beneficially owned by Trace. According to a filing made with the
  bankruptcy  court on November 2, 1999, two of Trace's  creditors have petitioned
  the bankruptcy court to permit such creditors to foreclose on and take ownership
  of the shares of common stock owned by them,  representing  approximately 17% of
  the Company's outstanding voting stock.
  
                                         18
  <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,  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.
  
  Potential Business Combinations
  
         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. The transaction is 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, subject to certain conditions.
  
         The  transaction  is subject  to a number of  conditions,  including  the
  negotiation  of  definitive  documents  that  will  contain  certain  conditions
  relating to the bank  credit  facilities  and the public  debt of the  Company's
  subsidiaries.  Additional issues that will need to be addressed include, minimum
  shareholder  acceptance,  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 other regulatory agencies.
  
         On November  1, 1999,  the  Company  announced  that the letter of intent
  expired by its terms.  However,  the  Purchasers  requested  an extension of the
  letter of intent until  December 15, 1999.  The parties  agreed to the extension
  and are continuing discussions towards a possible transaction.
  
         Also on November 1, 1999, the Company  announced that is has authorized a
  due diligence review for a possible business combination led by John G. Johnson,
  Jr.,  President  and Chief  Executive  Officer of the Company.  Mr.  Johnson has
  informed the Board of Directors that he is working with various possible sources
  of equity  funding,  but that he has no firm  commitments for the financing of a
  transaction. No formal proposal has been made to the Company by Mr. Johnson.
  
  RESULTS OF OPERATIONS FOR THE THREE MONTHS ENDED SEPTEMBER 30, 1999 AND 1998
  
  Income from Operations
  
         Net sales for the third  quarter of 1999 were $326.9  million,  down 1.7%
  compared to $332.5  million in the third  quarter of 1998.  The  decrease in the
  third quarter  versus the prior year reflects a decrease in Foam Products  sales
  due to  manufacturing  consolidations  and a decrease in Carpet Cushion Products
  volume  offset  by  increased  volume  of  automotive  lamination  products  and
  Technical Products sales.
  
         Income  from  operations  decreased  3.6% to $26.3  million for the third
  quarter of 1999 compared to $27.3 million in the 1998 third quarter.  Results in
  1999 included a $3.0 million  provision for  restructuring  and other costs. The
  decrease in margins versus the prior year resulted  principally  from lower Foam
  Products  and Carpet  Cushion  Products  sales and an increase  in lower  margin
  automotive   lamination   business.   The  decrease  in  selling,   general  and
  administrative  costs included the  elimination  of  duplicative  costs from the
  Crain Consolidation and cost reductions implemented during 1999.
  
  Interest and Debt Issuance Expense
  
         Interest and debt  issuance  expense  totaled  $18.7 million for the 1999
  third quarter, 1.8% higher than the comparable 1998 expense.
  
                                         19
  <PAGE>
  
  ITEM 2.  MANAGEMENT'S DISCUSSION AND ANALYSIS OF THE FINANCIAL CONDITION AND
           RESULTS OF OPERATIONS
  
  
  Other Income (Expense), Net
  
         Other expense was significantly lower in 1999. The 1998 third quarter net
  other expense of $3.2 million  included $1.1 million of foreign  currency losses
  from the Company's  Canadian and Mexican  operations,  $1.1 million of financial
  and legal fees in connection with a proposed merger and a $1.0 million reduction
  in value of the Company's investment in Trace Global Opportunities Fund.
  
  Income Tax Expense
  
         The third quarter 1999  effective tax rate was 14.2% compared to 40.0% in
  the third  quarter of 1998.  The provision for income taxes in 1999 was based on
  year to date  results.  The 1999  effective  tax rate was reduced by the partial
  reversal of the deferred tax asset valuation  allowance  recognized in 1998. The
  valuation  allowance  was reduced to reflect  the  utilization  of Federal  loss
  carryforwards  that  reduced  the  current  tax  component  of the  Federal  tax
  provision.  Additionally,  the valuation allowance was reduced to offset the net
  deferred Federal tax liability generated in 1999.
  
  Net Income
  
         Net  income for the third  quarter  of 1999 was up 78.9% to $6.1  million
  compared to $3.4 million in the 1998 third quarter. The increase was largely due
  to a reduction in net other expenses combined with a lower effective tax rate in
  1999.
  
  Segment Results
  <TABLE>
  <CAPTION>
  <S>                                    <C>          <C>          <C>           <C>         <C>          <C>
                                                      Carpet
                                           Foam      Cushion    Automotive     Technical
                                         Products    Products    Products      Products       Other       Total
                                        ----------  ----------  -----------    ---------     --------     -------
                                                                        (thousands)
  Third Quarter 1999
  -------------------
  Net sales                              $139,111     $70,160      $83,355       $24,322     $10,001      $326,949
  Income (loss) from operations            16,228       2,497        6,832         6,438      (5,654)       26,341
  
  Third Quarter 1998
  -------------------
  Net sales                              $159,954     $76,890      $69,843       $19,891      $5,932      $332,510
  Income (loss) from operations            20,944       5,159        3,775         3,662      (6,227)       27,313
  </TABLE>
  
  
  Foam Products
  
         Foam  Products net sales for the third quarter of 1999  decreased  13.0%.
  Lower  margins  resulted  in a 22.5% drop in income  from  operations.  Improved
  operating  efficiencies  and cost reductions as part of the Crain  Consolidation
  helped to offset the income decline.
  
  Carpet Cushion Products
  
         Carpet Cushion Products net sales for the third quarter of 1999 decreased
  8.8% primarily due to lower  shipments.  Income from operations  decreased 51.6%
  primarily due to lower margins.
  
  Automotive Products
  
         Automotive  Products  net sales for the third  quarter of 1999  increased
  19.3%. The increase  reflected higher shipments of lamination  products.  Income
  from operations  increased 81.0% from the combination of operating  efficiencies
  and sales gains.
  
                                         20
  <PAGE>
  ITEM 2.  MANAGEMENT'S DISCUSSION AND ANALYSIS OF THE FINANCIAL CONDITION AND
           RESULTS OF OPERATIONS
  
  
  Technical Products
  
         Technical  Products  net sales for the third  quarter  of 1999  increased
  22.3%. Income from operations increased 75.8% and reflected higher margin sales.
  
  Other
  
         Other  primarily  consists of certain foreign  manufacturing  operations,
  corporate  expenses not allocated to 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 1999 loss from operations was primarily  associated with the $3.0 million of
  restructuring and other charges.
  
  RESULTS OF OPERATIONS FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1999 AND 1998
  
  Income from Operations
  
         Net sales for the  first  three  quarters  of 1999  were  $962.8  million
  compared to $943.3 million for the comparable  period in 1998. The 2.1% increase
  was primarily the result of sales gains in the Automotive Products and Technical
  Products  segments  partially  offset by declines in the foam and carpet cushion
  segments.
  
         Despite the sales  improvement,  income from  operations of $69.3 million
  was down 21.0% from $87.7  million for the  comparable  1998 period.  Results in
  1999 included $10.1 million of  restructuring  and other charges.  The remaining
  decline  primarily  reflected  lower  results  in the Foam  Products  and Carpet
  Cushion Products segments. The Foam Products segment was impacted by lower sales
  due to plant closures in connection with the Crain Consolidation. Carpet cushion
  1999 results were impacted by lower margins. The increase in Automotive Products
  and  Technical   Products  segment  results  translated  to  improved  earnings.
  Partially  offsetting  these negative  factors were lower  selling,  general and
  administrative  expenses that primarily reflected the elimination of duplicative
  costs from the Crain Consolidation and cost reductions implemented during 1999.
  
  Interest and Debt Issuance Expense
  
         Interest  and  debt  issuance  expense  totaled  $54.1  million  in 1999,
  slightly higher than the 1998 expense of $53.2 million.
  
  Other Income (Expense), Net
  
         During the first  quarter of 1999, a $4.2 million gain was  recognized on
  the sale of the  corporate  aircraft.  Expenses in 1998 included $2.0 million of
  costs  associated  with the GFI  Transaction,  $0.9 million of foreign  currency
  losses in Mexico and Canada,  $1.1 million in fees associated with the financial
  and legal advisors used by the Company in connection  with the proposed  Merger,
  and a $1.0 million  reduction in the value of the  Company's  investment  in the
  Trace Global Opportunities Fund.
  
  Income Tax Expense
  
         The 1999  effective  tax rate for the  first  three  quarters  was  13.9%
  compared to 40.0% in 1998.  The  provision for income taxes in 1999 was based on
  year to date  results.  The 1999  effective  tax rate was reduced by the partial
  reversal of the deferred tax asset valuation  allowance  recognized in 1998. The
  valuation  allowance  was reduced to reflect  the  utilization  of Federal  loss
  carryforwards  that  reduced  the  current  tax  component  of the  Federal  tax
  provision.  Additionally,  the valuation allowance was reduced to offset the net
  deferred Federal tax liability generated in 1999.
  
                                         21
  <PAGE>
  ITEM 2.  MANAGEMENT'S DISCUSSION AND ANALYSIS OF THE FINANCIAL CONDITION AND
           RESULTS OF OPERATIONS
  
  
  Extraordinary Loss
  
         The  extraordinary  loss on the early  extinguishment of debt in 1998 was
  $1.9 million  (net of $1.3 million  income tax  benefit).  The charge  primarily
  reflected the write-off of debt  issuance  costs in connection  with a series of
  transactions designed to simplify the Company's capital structure and to provide
  future operational flexibility.
  
  Net Income
  
         Net income for the first three quarters of 1999 was $15.3  million,  down
  3.1% from the  comparable  period in 1998.  Lower  income  from  operations  was
  partially offset by a net improvement in other income and expense and by a lower
  effective tax rate.
  
  Segment Results
  <TABLE>
  <CAPTION>
  <S>                                  <C>          <C>           <C>           <C>          <C>          <C>
                                                    Carpet
                                         Foam      Cushion    Automotive     Technical
                                       Products    Products      Products     Products       Other         Total
                                      ----------  ----------  -----------    ---------     --------       -------
                                                                        (thousands)
  Year to Date 1999
  ------------------
  Net sales                            $406,295     $201,040      $262,936      $69,598      $22,972      $962,841
  Income (loss) from operations          42,098        5,464        19,187       17,308      (14,760)       69,297
  
  Year to Date 1998
  ------------------
  Net sales                            $442,991     $225,896      $197,447      $61,163      $15,782      $943,279
  Income (loss) from operations          55,793       13,568        16,804       12,103      (10,568)       87,700
  </TABLE>
  
  
  Foam Products
  
         Foam Products net sales for the first three quarters  decreased 8.3%. The
  decrease primarily  reflected the closure of several plants as part of the Crain
  Consolidation. Income from operations decreased 24.5% due to lower margins.
  
  Carpet Cushion Products
  
         Carpet Cushion Products net sales for the first three quarters  decreased
  11.0%  primarily due to reductions in carpet  cushion  selling  prices and lower
  shipments.  Income  from  operations  decreased  59.7%  primarily  due to  lower
  margins.
  
  Automotive Products
  
         Automotive  Products  net sales for the first  three  quarters  increased
  33.2%. The increase  reflected higher shipments of lamination  products.  Income
  from operations  increased 14.2% from the combination of operating  efficiencies
  and sales gains that were especially evident during the third quarter of 1999.
  
  Technical Products
  
         Technical Products net sales for the first three quarter increased 13.8%.
  Income from operations increased 43.0% and reflected higher margin sales.
  
  Other
  
         Other  primarily  consists of certain foreign  manufacturing  operations,
  corporate  expenses not allocated to 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 loss from operations in 1999 was primarily associated with the $10.1 million
  of restructuring and other charges.
  
                                         22
  <PAGE>
  
  ITEM 2.  MANAGEMENT'S DISCUSSION AND ANALYSIS OF THE FINANCIAL CONDITION AND
           RESULTS OF OPERATIONS
  
  
  Capital Structure
  
         As of December 31, 1998, certain subsidiaries were not in compliance with
  various debt covenants included in agreements  totaling $480.4 million.  Had the
  lenders  under  these  debt   agreements   accelerated  the  maturity  of  their
  indebtedness as a result of the  subsidiaries'  noncompliance,  the acceleration
  would have  constituted  an event of default  and 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,  approximately  $771.1 million of
  long-term debt at December 31, 1998 was classified as a current liability in the
  consolidated  balance sheet,  which produced a working  capital  deficit.  These
  issues raised  substantial doubt at year-end 1998 about the Company's ability to
  continue as a going concern.
  
         In response to these financial conditions,  amendments to debt agreements
  were  executed  during  the  first  half  of  1999,  as  discussed  in  Note  8.
  Additionally,  the Company generated net income,  provided over $35.0 million of
  cash flow from operations and reduced total debt by 5% from the beginning of the
  year. The combination of debt amendments,  year to date results and management's
  expectations  regarding  compliance  with debt  covenants in future  measurement
  periods  represented an improved  financial  position relative to year-end 1998.
  Accordingly,  $749.8  million of debt at the end of the second  quarter 1999 and
  approximately  $736.6  million  at the  end  of  the  third  quarter  1999  were
  classified as long term in the balance sheet.
  
         Amendments to the Foamex L.P.  Amended  Credit  Facility,  as of June 30,
  1999, modified the financial covenants for net worth and interest,  fixed charge
  coverage and leverage ratios through December 2006. An earnings requirement,  as
  defined in the debt agreement, was added through September 30, 1999. The Company
  was in compliance  with the interim  requirement at the end of the third quarter
  1999.  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  agreement 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 (totaling $3.0 million in 1998) and  distributions to the Company,  and
  to limit future  investments in foreign  subsidiaries  and joint  ventures.  The
  "change of control" definition under the agreement was also modified.
  
         During 1999,  the  Foamex/GFI  Note was amended to  incorporate  the same
  change in control provisions that are included in the Foamex L.P. Amended Credit
  Facility.
  
         Amendments to the Foamex Carpet Amended  Credit  Facility and to the note
  payable  to Foam  Funding  LLC,  as of June 30,  1999,  modified  the  financial
  covenants for net worth and interest,  fixed charge coverage and leverage ratios
  through  February  2004.  An  earnings  requirement,  as  defined  in  the  debt
  agreement,  was added through  September 30, 1999. The Company was in compliance
  with  the  interim  requirement  at the end of the  third  quarter  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 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.
  
         The Company  continues  to be subject to  covenants  contained in various
  debt agreements that limit,  among other things to varying degrees,  the ability
  of the Company's  subsidiaries (a) to pay  distributions  or 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 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.
  
         Certain  of  the  Company's  Mexican  subsidiaries  were  in  default  of
  financial covenant provisions  contained in loan agreements with a Mexican bank.
  Amendments  to the loan  agreements  were  finalized  to  modify  the  financial
  
  
                                         23
  <PAGE>
  ITEM 2.  MANAGEMENT'S DISCUSSION AND ANALYSIS OF THE FINANCIAL CONDITION AND
           RESULTS OF OPERATIONS
  
  
  covenant  provisions.  As of September 30, 1999, these Mexican subsidiaries were
  in compliance with the financial covenant provisions under the loan agreements.
  
  Liquidity
  
         Cash  provided by operating  activities  was $35.6  million for the first
  three  quarters of 1999 as  compared to cash used of $17.7  million for the same
  period in 1998. The  improvement is primarily due to a decrease in cash used for
  operating assets and liabilities.
  
         Cash  provided by investing  activities  was $2.4 million for the year to
  date period ended  September  30, 1999 as compared to cash used of $26.7 million
  for the comparable 1998 period. Cash provided by investing  activities primarily
  represented the proceeds from the sale of the corporate  airplane,  discussed in
  Note 2. Additionally,  capital expenditures in 1999 were down. Cash requirements
  in 1998 included $4.4 million for the acquisition-related payments.
  
         Cash  required for financing  activities  was $46.3 million for the first
  three quarters and primarily  reflected net debt  repayments and $8.0 million of
  debt issuance costs.
  
         The ability of Foamex L.P. and Foamex Carpet to make distributions to the
  Company is restricted  by the terms of their  respective  financing  agreements.
  Consequently,  the  Company  is not  expected  to have  access  to the cash flow
  generated by their principal subsidiaries for the foreseeable future.
  
         As of September 30, 1999,  there were $122.4 million of revolving  credit
  borrowings,  at a weighted  average interest rate of 8.8%, under the Foamex L.P.
  Amended Credit Facility with $17.5 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 September  30, 1999 were  approximately  $3.6  million,  at an
  interest rate of 7.0%,  under Foamex Canada Inc.'s  revolving  credit  agreement
  with unused  availability  of  approximately  $1.8  million.  Foamex  Carpet had
  approximately  $2.7 million of  outstanding  borrowings  under the Foamex Carpet
  Amended Credit Facility at September 30, 1999, at an interest rate of 9.2%, with
  unused  availability of $11.9 million and approximately  $0.4 million of letters
  of credit  outstanding  which are supported by the Foamex Carpet  Amended Credit
  Facility.
  
         The  Company  expects to  continue to reduce  capital  expenditures  from
  historical levels for the foreseeable  future.  Lower capital expenditure levels
  are not anticipated to materially impact the Company's competitive position.
  
  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 September 30, 1999 was $4.5 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 notes 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 September 30, 1999,  indebtedness
  with variable interest rates totaled $499.7 million. On an annualized
  
                                         24
  <PAGE>
  ITEM 2.  MANAGEMENT'S DISCUSSION AND ANALYSIS OF THE FINANCIAL CONDITION AND
           RESULTS OF OPERATIONS
  
  
  basis, if the interest rates on these debt instruments increased by 1%, interest
  expense would increase by approximately $5.0 million.
  
  Year 2000 Compliance
  
         Status Update
         -------------
  
         By the end of the third  quarter of 1999,  the  Company  has  essentially
  completed  its  program to  address  potential  disruptions  to  operations  and
  relationships  with our  business  partners  related  to the Year 2000  software
  problem.
  
         The Company utilized a  cross-functional  team approach that was directed
  by a Year 2000  Executive  Sponsor  Team.  A  comprehensive  assessment  of both
  information technology (IT) and non-IT systems has been completed.
  These assessments included:
  
            o    administrative, manufacturing and laboratory computer systems
            o    desktop and telecommunications systems
            o    safety and environmental systems
            o    systems  provided by vendors and  suppliers,  including  employee
                 compensation and benefit plan maintenance systems
            o    process control systems and manufacturing equipment
            o    significant customers and suppliers.
  
         Assessment & Remediation Process
         --------------------------------
  
         The assessment process for each facility consisted of:
  
            o    an inventory  of  potential  Year 2000  sensitive  equipment  and
                 systems
            o    an impact  evaluation of possible  failures and  determination of
                 required remediation actions
            o    testing and implementation of remediation actions.
  
         The assessment  process,  including  fail safe testing,  was completed in
  1999. The following discussion focuses on the process.
  
         The inventory and  assessment  phases were  completed by the end of 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.  Remediation  actions
  included:
  
            o    the modification of several million lines of system code
            o    the conversion of the systems  acquired in business  combinations
                 to standard business information computer systems
            o    upgrading system hardware and operating system software
            o    testing of the applicable systems in a development testing area
            o    the  migration  of the  remediated  systems  into the  production
                 environment.
  
         Cost and Project Impact
         -----------------------
  
         The cost to address the Year 2000 Problem is approximately  $2.0 million.
  The majority of this total  project cost has already been  incurred  during 1998
  and 1999. The project cost primarily represents the cost for various
  
                                         25
  <PAGE>
  ITEM 2.  MANAGEMENT'S DISCUSSION AND ANALYSIS OF THE FINANCIAL CONDITION AND
           RESULTS OF OPERATIONS
  
  
  consultants and system upgrades. Project cost includes internal Company cost for
  IT employees that worked directly on software programming modifications.
  
         Spending on the Year 2000 Problem has been funded by cash  generated from
  operations.  The project did not significantly impact the other responsibilities
  and project schedule of the IT department during the past two years.
  
         Contingency Plans
         -----------------
  
         As part of the overall response to the Year 2000 Problem, the Company has
  developed  contingency plans in the event of Year 2000 non-compliance of certain
  systems or third parties. These contingency plans include:
  
            o    additional   security   of   manufacturing   and   administrative
                 facilities
            o    response teams to address incidents
            o    status  review and  testing  of  critical  applications  prior to
                 initiation of normal processing  requirements on or about January
                 1, 2000
            o    alternative  production  and  shipping  locations in the event of
                 localized power outages.
  
         Risks
         -----
  
         Management  believes  that  all  significant  systems  controlled  by the
  Company are ready. While the Company is communicating readiness to 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.
  
         There is inherent  uncertainty  in connection  with the Year 2000 Problem
  due to the  possibility of  unanticipated  failures by customers,  suppliers and
  infrastructure  services.  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 has provided information in order
  to  reduce  the  level of  uncertainty  regarding  the  impact  of the Year 2000
  Problem.  Management  believes  that the  Company's  solutions  to the Year 2000
  Problem will help minimize the  possibility  of  significant  disruptions to the
  Company's operations.
  
         Forward-Looking Statements Relating to the Year 2000 Problem
         ------------------------------------------------------------
  
         The Year 2000  Problem  discussion  includes a number of  forward-looking
  statements that are based on the Company's best estimates.  The actual impact of
  the Year 2000 Problem could differ  materially from these estimates because of a
  number of factors,  including  the failure of third parties to achieve Year 2000
  compliance and the inability of Foamex to:
  
            o    accurately  assess  which  systems and  relationships  with third
                 parties are important
            o    identify and correct all computer code in key systems
            o    identify and correct all production  equipment that could have an
                 embedded date sensitive chip
            o    identify all significant issues.
  
         The factors  identified above are not necessarily all of the factors that
  could result in materially  different impact from the estimates  included in the
  Company's forward-looking statements.
  
  Forward-Looking Statements
  
         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.
  
  
  
                                         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 12 of the condensed  consolidated financial
             statements  of the Company as of September  30, 1999  (unaudited)  is
             incorporated herein by reference.
  
  Item 5.    Other Information
             ------------------
  
             Information concerning the extension of a Letter of Intent for the
             acquisition of the Company is incorporated by reference to Exhibit
             No. 99.
  
  Item 6.    Exhibits and Reports on Form 8-K
             --------------------------------
  
             (a)  Exhibits
  
                 4.5  Commitment Letter dated August 9, 1999, from The Bank of
                      Nova Scotia to Foamex Canada Inc.
  
                 27   Financial Data Schedule for the year to date period ended
                      September 30, 1999.
  
                 99   Press release concerning the extension of a Letter of Intent
                      for the acquisition of the Company.
  
             (b)  The Company filed the following  Current Reports on Form 8-K for
                  the quarter ended September 30, 1999:
  
                  A report,  dated  August 5,  1999,  was filed for Item 5.  Other
                  Events, reporting press release of proposed buyout.
  
                  A report,  dated August 13, 1999,  was filed for Item.  5. Other
                  Events, concerning a purported class action complaint by certain
                  shareholders.
  
  
  
  
  
  
                                         28
  <PAGE>
  
                                     SIGNATURES
  
  
            Pursuant to the  requirements of the Securities  Exchange Act of 1934,
  the  registrant  has duly  caused  this report to be signed on its behalf by the
  undersigned thereunto duly authorized.
  
  
                                           FOAMEX INTERNATIONAL INC.
  
  
  Date: November 12, 1999                  By: /s/ George L. Karpinski
                                               -------------------------------
                                               George L. Karpinski
                                               Senior Vice  President, Treasurer
                                               and Assistant Secretary
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
                                         29
metadata_documents: [{"type": "10-Q", "sequence": "1", "secsgml_size_bytes": 112344}]
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": "99747735"}, "business-address": {"street1": "1000 COLUMBIA AVENUE", "city": "LINWOOD", "state": "PA", "zip": "19061", "phone": "6108593000"}, "mail-address": {"street1": "1000 COLUMBIA AVE", "city": "LINWOOD", "state": "PA", "zip": "19061"}}
text: SECURITIES AND EXCHANGE COMMISSION
                               WASHINGTON, D.C. 20549
  
                                    -------------
  
                                      FORM 10-Q
  
                  QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
                       OF THE SECURITIES EXCHANGE ACT OF 1934
  
                  For the quarterly period ended September 30, 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 November
  5, 1999 was 25,052,991.
  FOAMEX INTERNATIONAL INC.
  
                                        INDEX
                                                                                                                 Page
  
  Part I.  Financial Information
  
           Item 1.  Financial Statements.
  
                Condensed Consolidated Statements of Operations (unaudited) -
                  Three and Nine Months Ended September 30, 1999 and 1998                                           3
  
                Condensed Consolidated Balance Sheets (unaudited) -
                  as of September 30, 1999 and December 31, 1998                                                    4
  
                Condensed Consolidated Statements of Cash Flows (unaudited) -
                  Nine Months Ended September 30, 1999 and 1998                                                     5
  
                Notes to Condensed Consolidated Financial Statements (unaudited)                                    6
  
           Item 2.  Management's Discussion and Analysis of Financial Condition and Results
                     of Operations.                                                                                18
  
           Item 3.  Quantitative and Qualitative Disclosures about Market Risk.                                    27
  
  Part II.  Other Information                                                                                      28
  
            Item 1.  Legal Proceedings.                                                                            28
  
            Item 6.  Exhibits and Reports on Form 8-K.                                                             28
  
  Signatures                                                                                                       29
  
  Exhibits                                                                                                         30
  2
  PART I.  FINANCIAL INFORMATION
  ITEM 1.  FINANCIAL STATEMENTS
  FOAMEX INTERNATIONAL INC. AND SUBSIDIARIES
                          CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (unaudited)
                                       (thousands except per share data)
  
                                                    Three Months Ended              Nine Months Ended
                                               September 30,   September 30,    September 30,  September 30,
                                                    1999           1998             1999           1998
                                                 ---------       ---------       ---------      ---------
  NET SALES                                      $ 326,949       $ 332,510       $ 962,841      $ 943,279
  
  COST OF GOODS SOLD                               278,136         281,191         826,654        787,424
                                                 ---------       ---------       ---------      ---------
  
  GROSS PROFIT                                      48,813          51,319         136,187        155,855
  
  SELLING, GENERAL AND
     ADMINISTRATIVE EXPENSES                        19,484          24,006          56,778         68,855
  
  RESTRUCTURING AND OTHER CHARGES (CREDITS)          2,988              --          10,112           (700)
                                                 ---------       ---------       ---------      ---------
  
  INCOME FROM OPERATIONS                            26,341          27,313          69,297         87,700
  
  INTEREST AND DEBT ISSUANCE EXPENSE                18,740          18,402          54,111         53,210
  
  OTHER INCOME (EXPENSE), NET                         (459)         (3,200)          2,605         (4,945)
                                                 ---------       ---------       ---------      ---------
  
  INCOME BEFORE PROVISION FOR INCOME TAXES           7,142           5,711          17,791         29,545
  
  PROVISION FOR INCOME TAXES                         1,014           2,285           2,473         11,816
                                                 ---------       ---------       ---------      ---------
  
  INCOME BEFORE EXTRAORDINARY LOSS                   6,128           3,426          15,318         17,729
  
  EXTRAORDINARY LOSS ON EARLY
     EXTINGUISHMENT OF DEBT,
     NET OF INCOME TAXES                                --              --              --         (1,917)
                                                 ---------       ---------       ---------      ---------
  
  NET INCOME                                     $   6,128       $   3,426       $  15,318      $  15,812
                                                 =========       =========       =========      =========
  
  BASIC EARNINGS PER SHARE:
     INCOME BEFORE EXTRAORDINARY LOSS            $    0.24       $    0.14       $    0.61      $    0.71
     EXTRAORDINARY LOSS                                 --              --              --          (0.08)
                                                 ---------       ---------       ---------      ---------
     EARNINGS PER SHARE                          $    0.24       $    0.14       $    0.61      $    0.63
                                                 =========       =========       =========      =========
  
  WEIGHTED AVERAGE NUMBER OF SHARES                 25,053          25,015          25,053         24,989
                                                 =========       =========       =========      =========
  
  DILUTED EARNINGS PER SHARE:
     INCOME BEFORE EXTRAORDINARY LOSS            $    0.24       $    0.13       $    0.61      $    0.67
     EXTRAORDINARY LOSS                                 --              --              --          (0.07)
                                                 ---------       ---------       ---------      ---------
     EARNINGS PER SHARE                          $    0.24       $    0.13       $    0.61      $    0.60
                                                 =========       =========       =========      =========
  
  WEIGHTED AVERAGE NUMBER OF SHARES
     AND EQUIVALENTS                                25,342          26,118          25,229         26,146
                                                 =========       =========       =========      =========
  
                         The accompanying notes are an integral part of the condensed
                                      consolidated financial statements.
  3
  FOAMEX INTERNATIONAL INC. AND SUBSIDIARIES
                           CONDENSED CONSOLIDATED BALANCE SHEETS (unaudited)
                                  (thousands, except number of shares)
  September 30,      December 31,
  ASSETS                                                                   1999               1998
  CURRENT ASSETS:
  Cash and cash equivalents                                         $     4,240       $    12,572
     Accounts receivable, net of allowance of $8,544 in 1999
       and $11,630 in 1998                                                 196,474           185,158
     Inventories                                                           104,458           136,658
     Other current assets                                                   31,096            38,978
                                                                       -----------       -----------
         Total current assets                                              336,268           373,366
                                                                       -----------       -----------
  
  PROPERTY, PLANT AND EQUIPMENT                                            382,529           386,873
  LESS ACCUMULATED DEPRECIATION                                           (159,741)         (144,700)
                                                                       -----------       -----------
      NET PROPERTY, PLANT AND EQUIPMENT                                    222,788           242,173
  
  COST IN EXCESS OF ASSETS ACQUIRED, net of accumulated
  amortization of $21,495 in 1999 and $17,131 in 1998                      216,882           220,934
  
  DEBT ISSUANCE COSTS, net of accumulated
  amortization of $5,538 in 1999 and $3,038 in 1998                         20,344            14,852
  
  OTHER ASSETS                                                              23,428            23,640
                                                                       -----------       -----------
  
  TOTAL ASSETS                                                         $   819,710       $   874,965
                                                                       ===========       ===========
  
  LIABILITIES AND STOCKHOLDERS' DEFICIT
  CURRENT LIABILITIES:
     Short-term borrowings                                             $     3,636       $     2,957
     Current portion of long-term debt                                      12,543           690,248
     Current portion of long-term debt - related party                      10,530            98,935
     Accounts payable                                                      119,541           149,268
     Accrued interest                                                        7,774             7,851
     Other accrued liabilities                                              76,062            79,178
                                                                       -----------       -----------
         Total current liabilities                                         230,086         1,028,437
  
  LONG-TERM DEBT                                                           655,199             8,240
  
  LONG-TERM DEBT - RELATED PARTY                                            81,385                --
  
  OTHER LIABILITIES                                                         40,667            42,407
                                                                       -----------       -----------
  
         Total liabilities                                               1,007,337         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                                             87,243            86,990
     Accumulated deficit                                                  (222,343)         (237,661)
     Accumulated other comprehensive income (loss)                         (24,374)          (24,721)
     Other                                                                 (28,423)          (28,997)
                                                                       -----------       -----------
  
         Total stockholders' deficit                                      (187,627)         (204,119)
                                                                       -----------       -----------
  
  TOTAL LIABILITIES AND STOCKHOLDERS' DEFICIT                          $   819,710       $   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)
                                             (thousands)
  Nine Months Ended
                                                                     September 30,   September 30,
                                                                         1999            1998
  OPERATING ACTIVITIES
  Net income                                                       $  15,318       $  15,812
     Adjustments to reconcile net income to net cash provided
         by (used for) operating activities:
         Depreciation and amortization                                   25,772          25,624
         Amortization of debt issuance costs, debt discount,
            debt premium and deferred swap adjustments                      696             (16)
         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                                       2,703          15,660
         Changes in operating assets and liabilities, net                (6,761)        (76,353)
                                                                      ---------       ---------
  
            Net cash provided by (used for) operating activities         35,584         (17,694)
                                                                      ---------       ---------
  
  INVESTING ACTIVITIES
     Capital expenditures                                               (14,861)        (23,173)
     Acquisitions, net of cash acquired                                      --          (4,399)
     Proceeds from sale of assets                                        16,313              --
     Other investing activities                                             924             832
                                                                      ---------       ---------
  
            Net cash provided by (used for) investing activities          2,376         (26,740)
                                                                      ---------       ---------
  
  FINANCING ACTIVITIES
     Net proceeds from short-term borrowings                                679             185
     Net proceeds from (repayments of) revolving loans                  (14,332)         81,489
     Proceeds from long-term debt                                            --         129,000
     Repayment of long-term debt                                        (15,862)       (134,845)
     Repayment of long-term debt - related party                         (7,020)         (3,510)
     Dividends paid                                                          --          (1,246)
     Cash overdrafts                                                     (2,017)             --
     Transfer of General Felt                                                --         (28,698)
     Debt issuance costs                                                 (7,993)         (1,598)
     Other financing activities                                             253           1,657
                                                                      ---------       ---------
  
            Net cash provided by (used for) financing activities        (46,292)         42,434
                                                                      ---------       ---------
  
  CASH AND CASH EQUIVALENTS
  Net increase (decrease)                                                (8,332)         (2,000)
  Beginning of year                                                      12,572          12,044
                                                                      ---------       ---------
  End of period                                                       $   4,240       $  10,044
                                                                      =========       =========
  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.     ORGANIZATION AND BASIS OF PRESENTATION
  
  Basis of Presentation
  
         The condensed consolidated financial statements are unaudited, but in the
  opinion of management include all adjustments necessary to present fairly Foamex
  International   Inc.'s  (the  "Company")   financial  position  and  results  of
  operations.  These interim  financial  statements  should be read in conjunction
  with the financial  statements and related notes included in the 1998 Form 10-K.
  Results  for  interim  periods are not  necessarily  indicative  of trends or of
  results for a full year.
  
  Reporting Period
  
         Effective  September 1998, the annual reporting period was changed 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 on December 31. This change
  was effective for the third fiscal quarter of 1998, which ended on September 30,
  1998.
  
  Potential Business Combinations
  
         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.  The  transaction  is 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, subject to certain conditions.
  
         The  transaction  is subject  to a number of  conditions,  including  the
  negotiation  of  definitive  documents  that  will  contain  certain  conditions
  relating to the bank  credit  facilities  and the public  debt of the  Company's
  subsidiaries.  Additional issues that will need to be addressed include, minimum
  shareholder  acceptance,  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 other regulatory agencies.
  
         On November  1, 1999,  the  Company  announced  that the letter of intent
  expired by its terms.  However,  the  Purchasers  requested  an extension of the
  letter of intent until  December 15, 1999.  The parties  agreed to the extension
  and are continuing discussions towards a possible transaction.
  
         Also on November 1, 1999, the Company  announced that it has authorized a
  due diligence review for a possible business combination led by John G. Johnson,
  Jr.,  President  and Chief  Executive  Officer of the Company.  Mr.  Johnson has
  informed the Board of Directors that he is working with various possible sources
  of equity  funding,  but that he has no firm  commitments for the financing of a
  transaction. No formal proposal has been made to the Company by Mr. Johnson.
  
         The  accompanying  financial  statements  and notes  have  been  prepared
  assuming a going-concern  basis and do not recognize the impact of the potential
  business combinations.
  
  Going Concern Issue - Financial Condition
  
         As of December 31, 1998, certain subsidiaries were not in compliance with
  various debt covenants included in agreements  totaling $480.4 million.  Had the
  lenders  under  these  debt   agreements   accelerated  the  maturity  of  their
  indebtedness as a result of the  subsidiaries'  noncompliance,  the acceleration
  would have  constituted  an event of default  and 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,  approximately  $771.1 million of
  long-term debt at December 31, 1998 was classified as a current liability in the
  consolidated  balance sheet,  which produced a working  capital  deficit.  These
  issues raised  substantial doubt at year-end 1998 about the Company's ability to
  continue as a going concern.
  
                                         6
  FOAMEX INTERNATIONAL INC. AND SUBSIDIARIES
          NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (unaudited)
  
  1.     ORGANIZATION AND BASIS OF PRESENTATION (continued)
  
         In response to these financial conditions,  amendments to debt agreements
  were  executed  during  the  first  half  of  1999,  as  discussed  in  Note  8.
  Additionally,  the Company generated net income,  provided over $35.0 million of
  cash flow from operations and reduced total debt by 5% from the beginning of the
  year. The combination of debt amendments,  year to date results and management's
  expectations  regarding  compliance  with debt  covenants in future  measurement
  periods  represented an improved  financial  position relative to year-end 1998.
  Accordingly,  $749.8  million of debt at the end of the second  quarter 1999 and
  approximately  $736.6  million of debt at the end of the third quarter 1999 were
  classified as long term.
  
  Going Concern Issue - Change In Control
  
         Trace International  Holdings, Inc. ("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  $481.8  million  of debt  was
  outstanding as of September 30, 1999,  contain  provisions  that would result in
  the acceleration of such indebtedness if a person or group other than Trace were
  to beneficially own more than 25% of the Company's  outstanding voting stock and
  a greater percentage of such voting stock than the amount  beneficially owned by
  Trace.  Additionally,  certain  indentures  of Foamex  L.P.  and Foamex  Capital
  Corporation  relating to senior  subordinated  notes of $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
  a person or group other than Trace were to beneficially own more than 25% of the
  Company's outstanding voting stock and a greater percentage of such voting stock
  than the amount beneficially owned by 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
  to a person or group other than Trace which would  acquire  more than 25% of the
  Company's outstanding voting stock and a greater percentage of such voting stock
  than the amount beneficially owned by Trace. According to a filing made with the
  bankruptcy  court on November 2, 1999, two of Trace's  creditors have petitioned
  the bankruptcy court to permit such creditors to foreclose on and take ownership
  of the shares of common stock pledged to them, representing approximately 17% of
  the Company's outstanding voting stock.
  
         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,  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
  financial  statements were prepared on a going-concern  basis and do not include
  any  adjustments  that might  result  from the  outcome of the Trace  bankruptcy
  filing.
  
  2.     ASSET SALE
  
         On March 31,  1999,  the Company  sold its  corporate  airplane for $16.3
  million  and  recorded  a gain of  approximately  $4.2  million.  The  gain  was
  recognized in other income (expense) in the condensed consolidated statements of
  operations.  Debt associated with the airplane of $8.9 million was repaid with a
  portion of the proceeds.
  
         The  sale  of  the  airplane   triggered  an   obligation   to  Trace  of
  approximately  $0.6  million.  Under  the  terms  of  the  airplane  acquisition
  agreement,  the Company was  obligated  to share the net proceeds in excess of a
  specified  amount  defined in the  agreement.  The obligation was offset against
  Trace's two promissory notes payable to Foamex L.P.
  
                                         7
  FOAMEX INTERNATIONAL INC. AND SUBSIDIARIES
          NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (unaudited)
  
  3.     INCOME TAXES
  
         The provision for income taxes in 1999 was based on year to date results.
  The 1999 effective tax rate was reduced by the partial  reversal of the deferred
  tax asset valuation  allowance  recognized in 1998. The valuation  allowance was
  reduced to reflect the  utilization of Federal loss  carryforwards  that reduced
  the  current tax  component  of the Federal  tax  provision.  Additionally,  the
  valuation allowance was reduced to offset the net deferred Federal tax liability
  generated in 1999.
  
  4.     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.
  Three Months Ended             Nine Months Ended
                                                 September 30,   September 30,    September 30,   September 30,
                                                     1999            1998             1999              1998
                                                   -------          -------          -------          -------
                                                             (thousands, except per share amounts)
  Basic earnings per share:
  Net income                                     $ 6,128          $ 3,426          $15,318          $15,812
                                                   =======          =======          =======          =======
  
    Average common stock outstanding                25,053           25,015           25,053           24,989
                                                   =======          =======          =======          =======
  
    Basic earnings per share                       $  0.24          $  0.14          $  0.61          $  0.63
                                                   =======          =======          =======          =======
  
  Diluted earnings per share:
    Net income available for common stock
      and dilutive securities                      $ 6,128          $ 3,426          $15,318          $15,812
                                                   =======          =======          =======          =======
  
    Average common stock outstanding                25,053           25,015           25,053           24,989
  
    Common stock equivalents resulting
      from stock options and warrants                  289            1,103              176            1,157
                                                   -------          -------          -------          -------
  
    Average common stock and dilutive
      equivalents                                   25,342           26,118           25,229           26,146
                                                   =======          =======          =======          =======
  
    Diluted earnings per share                     $  0.24          $  0.13          $  0.61          $  0.60
                                                   =======          =======          =======          =======
  5.     COMPREHENSIVE INCOME
  
         The components of comprehensive income are listed below.
  Three Months Ended                 Nine Months Ended
                                                   September 30,   September 30,     September 30,   September 30,
                                                        1999            1998             1999              1998
                                                      --------        --------         ----------       ---------
                                                                             (thousands)
  Net income                                    $ 6,128         $ 3,426            $15,318         $15,812
         Foreign currency translation adjustments         (464)         (1,130)               347            (900)
                                                      --------        --------         ----------       ---------
         Total comprehensive income                    $ 5,664         $ 2,296            $15,665         $14,912
                                                       =======         =======            =======         =======
  6.     RESTRUCTURING AND OTHER CHARGES (CREDITS)
  
         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,  restructuring  and
  other charges of approximately $3.5 million were recognized related primarily to
  severance in
  
                                         8
  FOAMEX INTERNATIONAL INC. AND SUBSIDIARIES
          NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (unaudited)
  
  6.      RESTRUCTURING AND OTHER CHARGES (CREDITS) (continued)
  
  connection with replacing the Company's former Chief Executive  Officer and work
  force reductions of approximately 81 employees.
  
         During the second  quarter of 1999,  restructuring  and other  charges of
  approximately $3.7 million were recognized.  The provision included $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.
  
         In the  third  quarter  of  1999,  restructuring  and  other  charges  of
  approximately  $3.0  million were  recognized.  The third  quarter  provision is
  comprised of $1.6 million of severance  costs in connection with additional work
  force reductions of approximately 8 employees,  $0.9 million of costs associated
  with the  closure  of Foamex  L.P.'s New York  office and $0.5  million of other
  charges.
  
         Approximately  $4.3 million of severance costs incurred in 1999 have been
  paid as of  September  30,  1999.  Approximately  $1.5 million of the total 1999
  severance costs primarily  relate to contractual  severance costs payable to the
  Company's former Chief Executive Officer, which will be paid through March 2001.
  The  Company  may  record  additional  restructuring  charges  as  it  finalizes
  implementation of its restructuring plan.
  
  7.     INVENTORIES
  
         The components of inventory are listed below.
  September 30,            December 31,
                                                                               1999                   1998
                                                                                      (thousands)
  Raw materials and supplies                                          $ 69,278                $ 99,997
         Work-in-process                                                       12,354                  12,188
         Finished goods                                                        22,826                  24,473
                                                                             --------                --------
         Total                                                               $104,458                $136,658
                                                                             ========                ========
  8.     LONG-TERM DEBT
  
         Long-term debt consists of:
  September 30,          December 31,
                                                                                1999                   1998
                                                                            -----------             ----------
         Foamex L.P. Amended Credit Facility:                                          (thousands)
           Term Loan B                                                         $ 82,084              $ 82,714
           Term Loan C                                                           74,622                75,194
           Term Loan D                                                          108,075               108,900
           Revolving credit facility                                            122,414               139,438
         Foamex Carpet Amended Credit Facility                                    2,692                     -
         9 7/8% Senior subordinated notes due 2007                              150,000               150,000
         13 1/2% Senior subordinated notes due 2005 (includes
           $10,549 and $11,893 of unamortized debt premium)                     108,549               109,893
         Industrial revenue bonds                                                 7,000                 7,000
         Subordinated note payable (net of unamortized
           debt discount of $280 and $523)                                        4,396                 6,491
         Other                                                                    7,910                18,858
                                                                            -----------             ---------
                                                                                667,742               698,488
  9
  FOAMEX INTERNATIONAL INC. AND SUBSIDIARIES
          NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (unaudited)
  
  8.     LONG-TERM DEBT (continued)
  September 30,      December 31,
                                                         1999               1998
                                                       --------          --------
                                                               (thousands)
  Less current portion                                   12,543           690,248
                                                       --------          --------
  
  Long-term debt-unrelated parties                     $655,199          $  8,240
                                                       ========          ========
  
  Long-term debt - related party consists of:
  
  Foamex/GFI Note                                      $ 34,000          $ 34,000
  Note payable to Foam Funding LLC                       57,915            64,935
                                                       --------          --------
                                                         91,915            98,935
  
  Less current portion                                   10,530            98,935
                                                       --------          --------
  
  Long-term debt - related party                       $ 81,385          $     --
                                                       ========          ========
  Foamex L.P.  amended its credit facility (the "Foamex L.P. Amended Credit
  Facility"),  as of June 30, 1999,  and modified the financial  covenants for net
  worth and interest,  fixed charge coverage and leverage ratios through  December
  2006.  An  earnings  requirement,  as defined in the debt  agreement,  was added
  through  September  30,  1999.  Foamex L.P. was in  compliance  with the interim
  requirement at the end of the third quarter 1999. 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 agreement was also amended
  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  (totaling  $3.0
  million  in  1998)  and  distributions  to  the  Company,  and to  limit  future
  investments in foreign subsidiaries and joint ventures.  The "change of control"
  definition under the agreement was also modified.  Revolver borrowings under the
  credit facility  totaled $122.4 million at the end of the third quarter of 1999.
  The  weighted  average  interest  rate on these  obligations  was 8.8% and $17.5
  million was available for additional borrowings.
  
         During 1999,  the  Foamex/GFI  Note was amended to  incorporate  the same
  change in control provisions that are included in the Foamex L.P. Amended Credit
  Facility.
  
         Foamex Carpet Cushion,  Inc.  (Foamex Carpet") amended is credit facility
  (the "Foamex Carpet  Amended Credit  Facility") and note payable to Foam Funding
  LLC, as of June 30, 1999, and modified the financial covenants for net worth and
  interest,  fixed charge coverage and leverage  ratios through  February 2004. An
  earnings  requirement,  as  defined  in the debt  agreement,  was added  through
  September 30, 1999. Foamex Carpet was in compliance with the interim requirement
  at the end of the  third  quarter  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 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. Borrowings under the credit
  facility  totaled  $2.7  million at the end of the third  quarter  of 1999.  The
  weighted average  interest rate on these  obligations was 9.2% and $11.9 million
  was available for additional borrowings.
  
         The Company  continues  to be subject to  covenants  contained in various
  debt agreements that limit,  among other things to varying degrees,  the ability
  of the Company's  subsidiaries (a) to pay  distributions  or 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 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.
  
                                         10
  FOAMEX INTERNATIONAL INC. AND SUBSIDIARIES
          NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (unaudited)
  
  8. LONG-TERM DEBT (continued)
  
         Certain  of  the  Company's  Mexican  subsidiaries  were  in  default  of
  financial covenant provisions  contained in loan agreements with a Mexican bank.
  Amendments  to the loan  agreements  were  finalized  to  modify  the  financial
  covenant  provisions.  As of September 30, 1999, these Mexican subsidiaries were
  in compliance with the financial covenant provisions under the loan agreements.
  
  9.     SEGMENT RESULTS
  
         Segment results are presented below.
  Carpet
                                           Foam      Cushion     Automotive    Technical
                                         Products    Products     Products      Products       Other         Total
                                        ----------  ---------   ------------   ----------    --------     ---------
                                                                         (thousands)
  Third Quarter 1999
  --------------------
  Net sales                              $139,111     $70,160      $83,355       $24,322     $10,001      $326,949
  Income (loss) from operations            16,228       2,497        6,832         6,438      (5,654)       26,341
  Depreciation and amortization             4,512       1,587        1,370           736         769         8,974
  
  Third Quarter 1998
  --------------------
  Net sales                              $159,954     $76,890      $69,843       $19,891      $5,932      $332,510
  Income (loss) from operations            20,944       5,159        3,775         3,662      (6,227)       27,313
  Depreciation and amortization             4,572       1,582        1,360           730         610         8,854
  
  Year to Date 1999
  --------------------
  Net sales                              $406,295    $201,040     $262,936       $69,598     $22,972      $962,841
  Income (loss) from operations            42,098       5,464       19,187        17,308     (14,760)       69,297
  Depreciation and amortization            13,355       4,647        3,995         2,119       1,656        25,772
  
  Year to Date 1998
  --------------------
  Net sales                              $442,991    $225,896     $197,447       $61,163     $15,782      $943,279
  Income (loss) from operations            55,793      13,568       16,804        12,103     (10,568)       87,700
  Depreciation and amortization            13,193       4,574        3,948         2,118       1,791        25,624
  10.    STOCKHOLDERS' EQUITY (DEFICIT)
  
  Warrants
  
         On July 1, 1999,  116,745  warrants for an aggregate of 600,000 shares of
  common stock expired without having been exercised.  In addition,  all remaining
  warrants  outstanding  to purchase  approximately  1.2 million  shares of common
  stock expired on October 12, 1999.
  
  11.    RELATED PARTY TRANSACTIONS
  
  Foam Funding LLC Debt
  
         In the third quarter of 1999, the  subsidiaries  of the Company paid $1.9
  million of  interest  and $2.6  million of  principal  on notes  payable to Foam
  Funding  LLC.  For the first three  quarters  of 1999,  interest  and  principal
  payments totaled $5.6 million and $7.0 million, respectively.
  
         In the third  quarter  of 1998,  subsidiaries  of the  Company  paid $1.5
  million of  interest  and $1.7  million of  principal  on notes  payable to Foam
  Funding  LLC.  For the first three  quarters  of 1998,  interest  and  principal
  payments totaled $3.6 million and $3.5 million, respectively.
  
                                         11
  FOAMEX INTERNATIONAL INC. AND SUBSIDIARIES
          NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (unaudited)
  
  11.    RELATED PARTY TRANSACTIONS (continued)
  
  Trace Management Fee
  
         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 a Trace subsidiary.  The 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.
  
  New York Sublease
  
         Prior to September 30, 1999,  Foamex L.P.  subleased 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 that the space be vacated by September
  30, 1999.  Trace complied with such request,  and Foamex L.P. has closed its New
  York office and subleased the premises to a third party.
  
  Trace Promissory Notes
  
         Note 2 includes  disclosures  regarding  1999 activity  concerning  Trace
  promissory  notes  payable to Foamex L.P.  The Trace  notes are  included in the
  other  component  of  stockholders'   deficit,  which  is  consistent  with  the
  recognition in prior years.
  
  12.    COMMITMENTS AND CONTINGENCIES
  
  Litigation - Shareholders
  
         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 complaint from counsel
  of certain  stockholders  naming the  Company  and  certain  current  and former
  directors,  which  included  allegations  similar to those in the Second Amended
  Complaint,  as defined below.  The Company was advised by such counsel that such
  stockholders intended to file an action soon thereafter. On August 13, 1999, two
  stockholders  filed an action on behalf  of an  alleged  class of the  Company's
  shareholders,   entitled  Watchung  Road  Associates,   L.P.  et  al  v.  Foamex
  International  Inc., et al., Civil Action No. 17370 (the "Watchung  Complaint"),
  in the Court of Chancery of the State of Delaware,  New Castle County.  The suit
  names the  Company,  Mr.  Marshall  S. Cogan,  Mr.  Etienne  Davignon,  Mr. John
  Gutfreund,  Mr. Robert Hay, Dr. Stuart Hershon,  Mr. Jack Johnson,  and Mr. John
  Tunney  as  defendants.  The  Watchung  Complaint  alleges  that the  individual
  defendants  breached their fiduciary  duties by agreeing to the potential buyout
  of the Company by Sorgenti  Chemical  Industries  LLC and Liberty  Partners L.P.
  (the "Sorgenti Transaction").
  
         The Watchung  Complaint alleges that the Sorgenti  Transaction's  buy-out
  price of  $11.50  per  outstanding  share is  inadequate  and fails to take into
  consideration claims the Company allegedly has a result of the supposed wrongful
  diversions  of  Company  assets in the  Company's  dealings  with  Trace and its
  affiliates.  The Watchung  Complaint  also alleges that the  directors  breached
  their fiduciary  duties agreeing to the proposed  Sorgenti  Transaction  without
  conducting an auction or active  market  check.  The suit alleges that the board
  placed Mr. Cogan's  interest ahead of those of the Company's  stockholders,  and
  alleges that a critical  condition of the Sorgenti  Transaction  is a consulting
  agreement  for Mr.  Cogan.  The  Watchung  suit  seeks to  enjoin  the  Sorgenti
  Transaction,  seeks  rescission  or  damages  if  the  Sorgenti  Transaction  is
  consummated,  and seeks an accounting from the directors for plaintiffs  alleged
  losses. To date, no response to the Watchung Complaint has been made.
  
                                         12
  FOAMEX INTERNATIONAL INC. AND SUBSIDIARIES
          NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (unaudited)
  
  12.    COMMITMENTS AND CONTINGENCIES (continued)
  
         On April 26, 1999, a putative securities class action entitled Molitor v.
  Foamex  International Inc., et al., 99 Civ. 3004, 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. On May 18, 1999, a similar  action  entitled  Thomas W. Riley v.
  Foamex International Inc., et al., 99 Civ. 3653 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. Plaintiffs have
  advised the Company that they plan to file a  consolidated  complaint  within 45
  days of October 7, 1999. After service,  defendants will have 45 days to respond
  to the consolidated complaint.
  
         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 Shareholder  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
  
                                         13
  FOAMEX INTERNATIONAL INC. AND SUBSIDIARIES
          NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (unaudited)
  
  12.    COMMITMENTS AND CONTINGENCIES (continued)
  
  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.
  
         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.  In January  1999,  Trace advised that it could not finance the offer
  reflected  in  the  Second  Merger  Agreement.  As  a  result,  the  preliminary
  injunction motion did not go forward.
  
         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.
  
         On August 26, 1999, the plaintiffs in the  Shareholder  Litigation  moved
  for leave to file a Third Amended and  Supplemental  Class Action and Derivative
  Complaint (the "Third Amended Complaint"). The Third Amended Complaint was filed
  on October 27, 1999. The Third Amended  Complaint  alleges both class claims and
  derivative  claims,  and names the Company,  Mr.  Marshall S. Cogan,  Mr. Andrea
  Farace,  Dr. Stuart Hershon,  Mr. John Tunney,  Mr. Etienne  Davignon,  Mr. John
  Gutfreund, Mr. Robert Hay and Mr. John Johnson as defendants.
  
         The  Third  Amended  Complaint  alleges  that the  individual  defendants
  breached their duties to the Company's  Public  Shareholders  by agreeing to the
  Sorgenti   Transaction   at  an  inadequate   price  that  fails  to  take  into
  consideration the Company's  allegedly  valuable claims arising out of purported
  diversions  of money  from the  Company to Trace,  and by  failing  to  maximize
  shareholder value in a sale of the Company and instead agreeing to a deal with a
  buyer who is willing to enter into a  consulting  deal with Mr. Cogan to get his
  and the  board's  approval.  The Third  Amended  Complaint  purports to assert a
  derivative  claim for waste and breach of fiduciary duty against Mr. Cogan,  Mr.
  Farace, Dr. Hershon, Mr. Tunney, Mr. Davignon,  Mr. Gutfreund,  and Mr. Hay. The
  Third Amended  Complaint  seeks the  appointment  of a receiver for the Company,
  alleging  that the  directors  have  mismanaged  the Company.  The Third Amended
  Complaint also alleges that Mr. Cogan,  Mr. Farace,  Dr. Hershon,  Mr. Davignon,
  Mr.  Tunney,  Mr.  Gutfreund,  and Mr. Hay breached  their  fiduciary  duties by
  failing to enforce the Company's rights under the First Merger Agreement.
  
         The Third Amended  Complaint  seeks:  a declaration  that the  individual
  defendants have breached their fiduciary  duties;  damages;  the imposition of a
  constructive  trust on profits and  benefits  Mr.  Cogan,  Trace,  and the other
  individual  defendants allegedly received as a result of the alleged wrongdoing;
  an injunction against the
  
                                         14
  FOAMEX INTERNATIONAL INC. AND SUBSIDIARIES
          NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (unaudited)
  
  12.    COMMITMENTS AND CONTINGENCIES (continued)
  
  Sorgenti Transaction under its present terms; rescission and damages if the deal
  is consummated;  and the appointment of a receiver for the Company.  To date, no
  response to the Third Amended Complaint has been made.
  
         The defendants  intend to vigorously defend these  litigations,  which if
  adversely  determined,  could have a material  adverse  effect on the  financial
  position, results of operations and cash flows of the Company.
  
  Litigation - Breast Implants
  
         As of  November  8, 1999,  the  Company  and Trace  were two of  multiple
  defendants  in actions  filed on behalf of  approximately  4,157  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's  insurance  carrier has paid the  Company's  litigation
  expenses to date,  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, 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.
  
  Litigation - Other
  
         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.
  
  Environmental
  
         The Company is subject to extensive and changing  federal,  state,  local
  and foreign environmental laws and regulations,  including those relating to the
  use, handling,  storage,  discharge and disposal of hazardous substances and the
  remediation of  environmental  contamination,  and as a result,  is from time to
  time involved in administrative and judicial  proceedings and inquiries relating
  to environmental matters. As of September 30, 1999, the Company
  
                                         15
  FOAMEX INTERNATIONAL INC. AND SUBSIDIARIES
          NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (unaudited)
  
  12.     COMMITMENTS AND CONTINGENCIES (continued)
  
  had accruals of approximately  $4.5 million for  environmental  matters.  During
  1998,  the  Company  established  an  allowance  of  $1.2  million  relating  to
  receivables from Trace for environmental  indemnifications  due to the financial
  difficulties of Trace.
  
         The Clean Air Act Amendments of 1990 (the "1990 CAA Amendments")  provide
  for the establishment of federal emission standards for hazardous air pollutants
  including  methylene  chloride,  propylene oxide and TDI,  materials used in the
  manufacturing  of foam. On December 27, 1996,  the United  States  Environmental
  Protection Agency (the "EPA") proposed regulations under the 1990 CAA Amendments
  that  will  require  manufacturers  of slab  stock  polyurethane  foam  and foam
  fabrication plants to reduce emissions of methylene chloride. The final National
  Emission  Standard for  Hazardous  Air  Pollutants  ("NESHAP")  was  promulgated
  October 7,  1998.  NESHAP  requires  a  reduction  of  approximately  70% of the
  emission  of  methylene  chloride  for the slab  stock foam  industry  effective
  October 7, 2001. The Company does not believe  implementation  of the regulation
  will  require  it to make  material  expenditures  due to the  Company's  use of
  alternative technologies which do not utilize methylene chloride and its ability
  to shift  current  production  to the  facilities  which use  these  alternative
  technologies.  The 1990 CAA  Amendments  also may  result in the  imposition  of
  additional   standards   regulating   air  emissions  from   polyurethane   foam
  manufacturers, but these standards have not yet been proposed or promulgated.
  
         The Company has reported to  appropriate  state  authorities  that it has
  found soil and groundwater  contamination  in excess of state standards at three
  facilities and soil  contamination  in excess of state  standards at three other
  facilities.  The  Company  has  begun  remediation  and  is  conducting  further
  investigations  into the extent of the  contamination  at these  facilities and,
  accordingly,  the extent of the remediation that may ultimately be required. The
  actual cost and the timetable of any such  remediation  cannot be predicted with
  any degree of certainty  at this time.  The Company has accruals of $3.3 million
  for the  estimated  cost of  completing  remediation  at these  facilities.  The
  Company  is  in  the  process  of  addressing  potential  contamination  at  its
  Morristown,  Tennessee facility,  and has submitted a sampling plan to the State
  of Tennessee.  The extent of the contamination and responsible  parties, if any,
  has not yet been  determined.  A former  owner may be liable for cleanup  costs;
  nevertheless, the cost of remediation, if any, is not expected to be material.
  
         Federal  regulations  required  that by the end of 1998  all  underground
  storage tanks  ("USTs") be removed or upgraded in all states to meet  applicable
  standards.  The Company has upgraded all USTs at its  facilities  in  accordance
  with these  regulations and recently  completed the closure of remaining USTs at
  two sites to meet applicable  standards.  Some petroleum  contamination in soils
  was found at one of the sites;  the  extent of the  contamination  is  currently
  being investigated.  The Company has accrued  approximately $0.5 million for the
  estimated  remediation costs associated with this site. However, the full extent
  of contamination,  and accordingly, the actual cost of such remediation,  cannot
  be  predicted  with  any  degree  of  certainty  at this  time.  Based  upon the
  investigation conducted thus far, the Company believes that its USTs do not pose
  a  significant  risk  of  environmental  liability.  However,  there  can  be no
  assurances that such USTs will not result in significant environmental liability
  in the future.
  
         On April 10,  1997,  the  Occupational  Health and Safety  Administration
  promulgated new standards  governing  employee  exposure to methylene  chloride,
  which  is used  as a  blowing  agent  in  some  of the  Company's  manufacturing
  processes.  The phase-in of the  standards was completed in 1999 and the Company
  has  developed  and  implemented  a  compliance  program.  Capital  expenditures
  required  and  changes  in  operating   procedures   are  not   anticipated   to
  significantly impact the Company's competitive position.
  
         The  Company  has been  designated  as a  Potentially  Responsible  Party
  ("PRP") by the EPA with respect to seven sites. Estimates of total cleanup costs
  and fractional allocations of liability are generally provided by the EPA or the
  committee  of PRP's  with  respect to the  specified  site.  In each  case,  the
  liability of the Company is not considered to be material.
  
                                         16
  FOAMEX INTERNATIONAL INC. AND SUBSIDIARIES
          NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (unaudited)
  
  12.    COMMITMENTS AND CONTINGENCIES (continued)
  
         Although it is possible that new information or future developments could
  require the Company to reassess its potential  exposure  relating to all pending
  environmental  matters,  including those described herein,  the Company believes
  that,  based upon all currently  available  information,  the resolution of such
  environmental  matters will not have a material  adverse effect on the Company's
  operations,  financial position,  capital expenditures or competitive  position.
  The possibility  exists,  however,  that new  environmental  legislation  and/or
  environmental  regulations may be adopted, or other environmental conditions may
  be found to exist, that may require  expenditures not currently  anticipated and
  that may be material.
  
                                         17
  ITEM 2.  MANAGEMENT'S DISCUSSION AND ANALYSIS OF THE FINANCIAL CONDITION AND
           RESULTS OF OPERATIONS
  
  Going Concern Issues
  
         The  accompanying  financial  statements  and notes  have  been  prepared
  assuming the Company will continue as a going  concern.  As discussed in Note 1,
  there are going concern issues involving the financial  condition of the Company
  and related impact of debt covenants, and change in control provisions that have
  the potential to accelerate certain debt obligations.
  
         The Company is subject to various  internal  and external  factors  which
  could significantly impact its liquidity and capital structure, including, among
  other  things,  (a) the  Company's  debt and capital  structures,  (b) the Crain
  Consolidation,  (c) additional raw material cost  increases,  (d) the ability to
  increase  customers  selling price to recover 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 in the Company's
  subsidiaries'  debt agreements  (discussed  below), 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.
  
         As discussed in the capital  structure  section  below,  during the first
  half of 1999,  amendments to debt  agreements  were  completed and the Company's
  subsidiaries were in compliance with the financial covenants of these agreements
  on both June 30, 1999 and September 30, 1999.  Although the Company believes its
  subsidiaries  can meet the debt  covenant  requirements  under  their  financing
  agreements,  there can be no assurance  these  covenants  will be met.  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, and borrowing capacity 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.
  
         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
  $481.8  million  of debt was  outstanding  as of  September  30,  1999,  contain
  provisions  that would  result in the  acceleration  of such  indebtedness  if a
  person or group other than Trace were to  beneficially  own more than 25% of the
  Company's outstanding voting stock and a greater percentage of such voting stock
  than the amount beneficially owned by Trace. Additionally, certain indentures of
  the Foamex L.P. and Foamex Capital  Corporation  relating to senior subordinated
  notes of $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 a person or group  other  than Trace were to
  beneficially own more than 25% of the Company's  outstanding  voting stock and a
  greater  percentage of such voting stock than the amount  beneficially  owned by
  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
  to a person or group other than Trace which would  acquire  more than 25% of the
  Company's outstanding voting stock and a greater percentage of such voting stock
  than the amount beneficially owned by Trace. According to a filing made with the
  bankruptcy  court on November 2, 1999, two of Trace's  creditors have petitioned
  the bankruptcy court to permit such creditors to foreclose on and take ownership
  of the shares of common stock owned by them,  representing  approximately 17% of
  the Company's outstanding voting stock.
  
                                         18
  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,  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.
  
  Potential Business Combinations
  
         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. The transaction is 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, subject to certain conditions.
  
         The  transaction  is subject  to a number of  conditions,  including  the
  negotiation  of  definitive  documents  that  will  contain  certain  conditions
  relating to the bank  credit  facilities  and the public  debt of the  Company's
  subsidiaries.  Additional issues that will need to be addressed include, minimum
  shareholder  acceptance,  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 other regulatory agencies.
  
         On November  1, 1999,  the  Company  announced  that the letter of intent
  expired by its terms.  However,  the  Purchasers  requested  an extension of the
  letter of intent until  December 15, 1999.  The parties  agreed to the extension
  and are continuing discussions towards a possible transaction.
  
         Also on November 1, 1999, the Company  announced that is has authorized a
  due diligence review for a possible business combination led by John G. Johnson,
  Jr.,  President  and Chief  Executive  Officer of the Company.  Mr.  Johnson has
  informed the Board of Directors that he is working with various possible sources
  of equity  funding,  but that he has no firm  commitments for the financing of a
  transaction. No formal proposal has been made to the Company by Mr. Johnson.
  
  RESULTS OF OPERATIONS FOR THE THREE MONTHS ENDED SEPTEMBER 30, 1999 AND 1998
  
  Income from Operations
  
         Net sales for the third  quarter of 1999 were $326.9  million,  down 1.7%
  compared to $332.5  million in the third  quarter of 1998.  The  decrease in the
  third quarter  versus the prior year reflects a decrease in Foam Products  sales
  due to  manufacturing  consolidations  and a decrease in Carpet Cushion Products
  volume  offset  by  increased  volume  of  automotive  lamination  products  and
  Technical Products sales.
  
         Income  from  operations  decreased  3.6% to $26.3  million for the third
  quarter of 1999 compared to $27.3 million in the 1998 third quarter.  Results in
  1999 included a $3.0 million  provision for  restructuring  and other costs. The
  decrease in margins versus the prior year resulted  principally  from lower Foam
  Products  and Carpet  Cushion  Products  sales and an increase  in lower  margin
  automotive   lamination   business.   The  decrease  in  selling,   general  and
  administrative  costs included the  elimination  of  duplicative  costs from the
  Crain Consolidation and cost reductions implemented during 1999.
  
  Interest and Debt Issuance Expense
  
         Interest and debt  issuance  expense  totaled  $18.7 million for the 1999
  third quarter, 1.8% higher than the comparable 1998 expense.
  
                                         19
  ITEM 2.  MANAGEMENT'S DISCUSSION AND ANALYSIS OF THE FINANCIAL CONDITION AND
           RESULTS OF OPERATIONS
  
  Other Income (Expense), Net
  
         Other expense was significantly lower in 1999. The 1998 third quarter net
  other expense of $3.2 million  included $1.1 million of foreign  currency losses
  from the Company's  Canadian and Mexican  operations,  $1.1 million of financial
  and legal fees in connection with a proposed merger and a $1.0 million reduction
  in value of the Company's investment in Trace Global Opportunities Fund.
  
  Income Tax Expense
  
         The third quarter 1999  effective tax rate was 14.2% compared to 40.0% in
  the third  quarter of 1998.  The provision for income taxes in 1999 was based on
  year to date  results.  The 1999  effective  tax rate was reduced by the partial
  reversal of the deferred tax asset valuation  allowance  recognized in 1998. The
  valuation  allowance  was reduced to reflect  the  utilization  of Federal  loss
  carryforwards  that  reduced  the  current  tax  component  of the  Federal  tax
  provision.  Additionally,  the valuation allowance was reduced to offset the net
  deferred Federal tax liability generated in 1999.
  
  Net Income
  
         Net  income for the third  quarter  of 1999 was up 78.9% to $6.1  million
  compared to $3.4 million in the 1998 third quarter. The increase was largely due
  to a reduction in net other expenses combined with a lower effective tax rate in
  1999.
  
  Segment Results
  Carpet
                                           Foam      Cushion    Automotive     Technical
                                         Products    Products    Products      Products       Other       Total
                                        ----------  ----------  -----------    ---------     --------     -------
                                                                        (thousands)
  Third Quarter 1999
  -------------------
  Net sales                              $139,111     $70,160      $83,355       $24,322     $10,001      $326,949
  Income (loss) from operations            16,228       2,497        6,832         6,438      (5,654)       26,341
  
  Third Quarter 1998
  -------------------
  Net sales                              $159,954     $76,890      $69,843       $19,891      $5,932      $332,510
  Income (loss) from operations            20,944       5,159        3,775         3,662      (6,227)       27,313
  Foam Products
  
         Foam  Products net sales for the third quarter of 1999  decreased  13.0%.
  Lower  margins  resulted  in a 22.5% drop in income  from  operations.  Improved
  operating  efficiencies  and cost reductions as part of the Crain  Consolidation
  helped to offset the income decline.
  
  Carpet Cushion Products
  
         Carpet Cushion Products net sales for the third quarter of 1999 decreased
  8.8% primarily due to lower  shipments.  Income from operations  decreased 51.6%
  primarily due to lower margins.
  
  Automotive Products
  
         Automotive  Products  net sales for the third  quarter of 1999  increased
  19.3%. The increase  reflected higher shipments of lamination  products.  Income
  from operations  increased 81.0% from the combination of operating  efficiencies
  and sales gains.
  
                                         20
  ITEM 2.  MANAGEMENT'S DISCUSSION AND ANALYSIS OF THE FINANCIAL CONDITION AND
           RESULTS OF OPERATIONS
  
  Technical Products
  
         Technical  Products  net sales for the third  quarter  of 1999  increased
  22.3%. Income from operations increased 75.8% and reflected higher margin sales.
  
  Other
  
         Other  primarily  consists of certain foreign  manufacturing  operations,
  corporate  expenses not allocated to 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 1999 loss from operations was primarily  associated with the $3.0 million of
  restructuring and other charges.
  
  RESULTS OF OPERATIONS FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1999 AND 1998
  
  Income from Operations
  
         Net sales for the  first  three  quarters  of 1999  were  $962.8  million
  compared to $943.3 million for the comparable  period in 1998. The 2.1% increase
  was primarily the result of sales gains in the Automotive Products and Technical
  Products  segments  partially  offset by declines in the foam and carpet cushion
  segments.
  
         Despite the sales  improvement,  income from  operations of $69.3 million
  was down 21.0% from $87.7  million for the  comparable  1998 period.  Results in
  1999 included $10.1 million of  restructuring  and other charges.  The remaining
  decline  primarily  reflected  lower  results  in the Foam  Products  and Carpet
  Cushion Products segments. The Foam Products segment was impacted by lower sales
  due to plant closures in connection with the Crain Consolidation. Carpet cushion
  1999 results were impacted by lower margins. The increase in Automotive Products
  and  Technical   Products  segment  results  translated  to  improved  earnings.
  Partially  offsetting  these negative  factors were lower  selling,  general and
  administrative  expenses that primarily reflected the elimination of duplicative
  costs from the Crain Consolidation and cost reductions implemented during 1999.
  
  Interest and Debt Issuance Expense
  
         Interest  and  debt  issuance  expense  totaled  $54.1  million  in 1999,
  slightly higher than the 1998 expense of $53.2 million.
  
  Other Income (Expense), Net
  
         During the first  quarter of 1999, a $4.2 million gain was  recognized on
  the sale of the  corporate  aircraft.  Expenses in 1998 included $2.0 million of
  costs  associated  with the GFI  Transaction,  $0.9 million of foreign  currency
  losses in Mexico and Canada,  $1.1 million in fees associated with the financial
  and legal advisors used by the Company in connection  with the proposed  Merger,
  and a $1.0 million  reduction in the value of the  Company's  investment  in the
  Trace Global Opportunities Fund.
  
  Income Tax Expense
  
         The 1999  effective  tax rate for the  first  three  quarters  was  13.9%
  compared to 40.0% in 1998.  The  provision for income taxes in 1999 was based on
  year to date  results.  The 1999  effective  tax rate was reduced by the partial
  reversal of the deferred tax asset valuation  allowance  recognized in 1998. The
  valuation  allowance  was reduced to reflect  the  utilization  of Federal  loss
  carryforwards  that  reduced  the  current  tax  component  of the  Federal  tax
  provision.  Additionally,  the valuation allowance was reduced to offset the net
  deferred Federal tax liability generated in 1999.
  
                                         21
  ITEM 2.  MANAGEMENT'S DISCUSSION AND ANALYSIS OF THE FINANCIAL CONDITION AND
           RESULTS OF OPERATIONS
  
  Extraordinary Loss
  
         The  extraordinary  loss on the early  extinguishment of debt in 1998 was
  $1.9 million  (net of $1.3 million  income tax  benefit).  The charge  primarily
  reflected the write-off of debt  issuance  costs in connection  with a series of
  transactions designed to simplify the Company's capital structure and to provide
  future operational flexibility.
  
  Net Income
  
         Net income for the first three quarters of 1999 was $15.3  million,  down
  3.1% from the  comparable  period in 1998.  Lower  income  from  operations  was
  partially offset by a net improvement in other income and expense and by a lower
  effective tax rate.
  
  Segment Results
  Carpet
                                         Foam      Cushion    Automotive     Technical
                                       Products    Products      Products     Products       Other         Total
                                      ----------  ----------  -----------    ---------     --------       -------
                                                                        (thousands)
  Year to Date 1999
  ------------------
  Net sales                            $406,295     $201,040      $262,936      $69,598      $22,972      $962,841
  Income (loss) from operations          42,098        5,464        19,187       17,308      (14,760)       69,297
  
  Year to Date 1998
  ------------------
  Net sales                            $442,991     $225,896      $197,447      $61,163      $15,782      $943,279
  Income (loss) from operations          55,793       13,568        16,804       12,103      (10,568)       87,700
  Foam Products
  
         Foam Products net sales for the first three quarters  decreased 8.3%. The
  decrease primarily  reflected the closure of several plants as part of the Crain
  Consolidation. Income from operations decreased 24.5% due to lower margins.
  
  Carpet Cushion Products
  
         Carpet Cushion Products net sales for the first three quarters  decreased
  11.0%  primarily due to reductions in carpet  cushion  selling  prices and lower
  shipments.  Income  from  operations  decreased  59.7%  primarily  due to  lower
  margins.
  
  Automotive Products
  
         Automotive  Products  net sales for the first  three  quarters  increased
  33.2%. The increase  reflected higher shipments of lamination  products.  Income
  from operations  increased 14.2% from the combination of operating  efficiencies
  and sales gains that were especially evident during the third quarter of 1999.
  
  Technical Products
  
         Technical Products net sales for the first three quarter increased 13.8%.
  Income from operations increased 43.0% and reflected higher margin sales.
  
  Other
  
         Other  primarily  consists of certain foreign  manufacturing  operations,
  corporate  expenses not allocated to 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 loss from operations in 1999 was primarily associated with the $10.1 million
  of restructuring and other charges.
  
                                         22
  ITEM 2.  MANAGEMENT'S DISCUSSION AND ANALYSIS OF THE FINANCIAL CONDITION AND
           RESULTS OF OPERATIONS
  
  Capital Structure
  
         As of December 31, 1998, certain subsidiaries were not in compliance with
  various debt covenants included in agreements  totaling $480.4 million.  Had the
  lenders  under  these  debt   agreements   accelerated  the  maturity  of  their
  indebtedness as a result of the  subsidiaries'  noncompliance,  the acceleration
  would have  constituted  an event of default  and 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,  approximately  $771.1 million of
  long-term debt at December 31, 1998 was classified as a current liability in the
  consolidated  balance sheet,  which produced a working  capital  deficit.  These
  issues raised  substantial doubt at year-end 1998 about the Company's ability to
  continue as a going concern.
  
         In response to these financial conditions,  amendments to debt agreements
  were  executed  during  the  first  half  of  1999,  as  discussed  in  Note  8.
  Additionally,  the Company generated net income,  provided over $35.0 million of
  cash flow from operations and reduced total debt by 5% from the beginning of the
  year. The combination of debt amendments,  year to date results and management's
  expectations  regarding  compliance  with debt  covenants in future  measurement
  periods  represented an improved  financial  position relative to year-end 1998.
  Accordingly,  $749.8  million of debt at the end of the second  quarter 1999 and
  approximately  $736.6  million  at the  end  of  the  third  quarter  1999  were
  classified as long term in the balance sheet.
  
         Amendments to the Foamex L.P.  Amended  Credit  Facility,  as of June 30,
  1999, modified the financial covenants for net worth and interest,  fixed charge
  coverage and leverage ratios through December 2006. An earnings requirement,  as
  defined in the debt agreement, was added through September 30, 1999. The Company
  was in compliance  with the interim  requirement at the end of the third quarter
  1999.  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  agreement 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 (totaling $3.0 million in 1998) and  distributions to the Company,  and
  to limit future  investments in foreign  subsidiaries  and joint  ventures.  The
  "change of control" definition under the agreement was also modified.
  
         During 1999,  the  Foamex/GFI  Note was amended to  incorporate  the same
  change in control provisions that are included in the Foamex L.P. Amended Credit
  Facility.
  
         Amendments to the Foamex Carpet Amended  Credit  Facility and to the note
  payable  to Foam  Funding  LLC,  as of June 30,  1999,  modified  the  financial
  covenants for net worth and interest,  fixed charge coverage and leverage ratios
  through  February  2004.  An  earnings  requirement,  as  defined  in  the  debt
  agreement,  was added through  September 30, 1999. The Company was in compliance
  with  the  interim  requirement  at the end of the  third  quarter  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 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.
  
         The Company  continues  to be subject to  covenants  contained in various
  debt agreements that limit,  among other things to varying degrees,  the ability
  of the Company's  subsidiaries (a) to pay  distributions  or 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 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.
  
         Certain  of  the  Company's  Mexican  subsidiaries  were  in  default  of
  financial covenant provisions  contained in loan agreements with a Mexican bank.
  Amendments  to the loan  agreements  were  finalized  to  modify  the  financial
  
                                         23
  ITEM 2.  MANAGEMENT'S DISCUSSION AND ANALYSIS OF THE FINANCIAL CONDITION AND
           RESULTS OF OPERATIONS
  
  covenant  provisions.  As of September 30, 1999, these Mexican subsidiaries were
  in compliance with the financial covenant provisions under the loan agreements.
  
  Liquidity
  
         Cash  provided by operating  activities  was $35.6  million for the first
  three  quarters of 1999 as  compared to cash used of $17.7  million for the same
  period in 1998. The  improvement is primarily due to a decrease in cash used for
  operating assets and liabilities.
  
         Cash  provided by investing  activities  was $2.4 million for the year to
  date period ended  September  30, 1999 as compared to cash used of $26.7 million
  for the comparable 1998 period. Cash provided by investing  activities primarily
  represented the proceeds from the sale of the corporate  airplane,  discussed in
  Note 2. Additionally,  capital expenditures in 1999 were down. Cash requirements
  in 1998 included $4.4 million for the acquisition-related payments.
  
         Cash  required for financing  activities  was $46.3 million for the first
  three quarters and primarily  reflected net debt  repayments and $8.0 million of
  debt issuance costs.
  
         The ability of Foamex L.P. and Foamex Carpet to make distributions to the
  Company is restricted  by the terms of their  respective  financing  agreements.
  Consequently,  the  Company  is not  expected  to have  access  to the cash flow
  generated by their principal subsidiaries for the foreseeable future.
  
         As of September 30, 1999,  there were $122.4 million of revolving  credit
  borrowings,  at a weighted  average interest rate of 8.8%, under the Foamex L.P.
  Amended Credit Facility with $17.5 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 September  30, 1999 were  approximately  $3.6  million,  at an
  interest rate of 7.0%,  under Foamex Canada Inc.'s  revolving  credit  agreement
  with unused  availability  of  approximately  $1.8  million.  Foamex  Carpet had
  approximately  $2.7 million of  outstanding  borrowings  under the Foamex Carpet
  Amended Credit Facility at September 30, 1999, at an interest rate of 9.2%, with
  unused  availability of $11.9 million and approximately  $0.4 million of letters
  of credit  outstanding  which are supported by the Foamex Carpet  Amended Credit
  Facility.
  
         The  Company  expects to  continue to reduce  capital  expenditures  from
  historical levels for the foreseeable  future.  Lower capital expenditure levels
  are not anticipated to materially impact the Company's competitive position.
  
  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 September 30, 1999 was $4.5 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 notes 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 September 30, 1999,  indebtedness
  with variable interest rates totaled $499.7 million. On an annualized
  
                                         24
  ITEM 2.  MANAGEMENT'S DISCUSSION AND ANALYSIS OF THE FINANCIAL CONDITION AND
           RESULTS OF OPERATIONS
  
  basis, if the interest rates on these debt instruments increased by 1%, interest
  expense would increase by approximately $5.0 million.
  
  Year 2000 Compliance
  
         Status Update
         -------------
  
         By the end of the third  quarter of 1999,  the  Company  has  essentially
  completed  its  program to  address  potential  disruptions  to  operations  and
  relationships  with our  business  partners  related  to the Year 2000  software
  problem.
  
         The Company utilized a  cross-functional  team approach that was directed
  by a Year 2000  Executive  Sponsor  Team.  A  comprehensive  assessment  of both
  information technology (IT) and non-IT systems has been completed.
  These assessments included:
  
            o    administrative, manufacturing and laboratory computer systems
            o    desktop and telecommunications systems
            o    safety and environmental systems
            o    systems  provided by vendors and  suppliers,  including  employee
                 compensation and benefit plan maintenance systems
            o    process control systems and manufacturing equipment
            o    significant customers and suppliers.
  
         Assessment & Remediation Process
         --------------------------------
  
         The assessment process for each facility consisted of:
  
            o    an inventory  of  potential  Year 2000  sensitive  equipment  and
                 systems
            o    an impact  evaluation of possible  failures and  determination of
                 required remediation actions
            o    testing and implementation of remediation actions.
  
         The assessment  process,  including  fail safe testing,  was completed in
  1999. The following discussion focuses on the process.
  
         The inventory and  assessment  phases were  completed by the end of 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.  Remediation  actions
  included:
  
            o    the modification of several million lines of system code
            o    the conversion of the systems  acquired in business  combinations
                 to standard business information computer systems
            o    upgrading system hardware and operating system software
            o    testing of the applicable systems in a development testing area
            o    the  migration  of the  remediated  systems  into the  production
                 environment.
  
         Cost and Project Impact
         -----------------------
  
         The cost to address the Year 2000 Problem is approximately  $2.0 million.
  The majority of this total  project cost has already been  incurred  during 1998
  and 1999. The project cost primarily represents the cost for various
  
                                         25
  ITEM 2.  MANAGEMENT'S DISCUSSION AND ANALYSIS OF THE FINANCIAL CONDITION AND
           RESULTS OF OPERATIONS
  
  consultants and system upgrades. Project cost includes internal Company cost for
  IT employees that worked directly on software programming modifications.
  
         Spending on the Year 2000 Problem has been funded by cash  generated from
  operations.  The project did not significantly impact the other responsibilities
  and project schedule of the IT department during the past two years.
  
         Contingency Plans
         -----------------
  
         As part of the overall response to the Year 2000 Problem, the Company has
  developed  contingency plans in the event of Year 2000 non-compliance of certain
  systems or third parties. These contingency plans include:
  
            o    additional   security   of   manufacturing   and   administrative
                 facilities
            o    response teams to address incidents
            o    status  review and  testing  of  critical  applications  prior to
                 initiation of normal processing  requirements on or about January
                 1, 2000
            o    alternative  production  and  shipping  locations in the event of
                 localized power outages.
  
         Risks
         -----
  
         Management  believes  that  all  significant  systems  controlled  by the
  Company are ready. While the Company is communicating readiness to 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.
  
         There is inherent  uncertainty  in connection  with the Year 2000 Problem
  due to the  possibility of  unanticipated  failures by customers,  suppliers and
  infrastructure  services.  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 has provided information in order
  to  reduce  the  level of  uncertainty  regarding  the  impact  of the Year 2000
  Problem.  Management  believes  that the  Company's  solutions  to the Year 2000
  Problem will help minimize the  possibility  of  significant  disruptions to the
  Company's operations.
  
         Forward-Looking Statements Relating to the Year 2000 Problem
         ------------------------------------------------------------
  
         The Year 2000  Problem  discussion  includes a number of  forward-looking
  statements that are based on the Company's best estimates.  The actual impact of
  the Year 2000 Problem could differ  materially from these estimates because of a
  number of factors,  including  the failure of third parties to achieve Year 2000
  compliance and the inability of Foamex to:
  
            o    accurately  assess  which  systems and  relationships  with third
                 parties are important
            o    identify and correct all computer code in key systems
            o    identify and correct all production  equipment that could have an
                 embedded date sensitive chip
            o    identify all significant issues.
  
         The factors  identified above are not necessarily all of the factors that
  could result in materially  different impact from the estimates  included in the
  Company's forward-looking statements.
  
  Forward-Looking Statements
  
         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.
  
                                         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 12 of the condensed  consolidated financial
             statements  of the Company as of September  30, 1999  (unaudited)  is
             incorporated herein by reference.
  
  Item 5.    Other Information
             ------------------
  
             Information concerning the extension of a Letter of Intent for the
             acquisition of the Company is incorporated by reference to Exhibit
             No. 99.
  
  Item 6.    Exhibits and Reports on Form 8-K
             --------------------------------
  
             (a)  Exhibits
  
                 4.5  Commitment Letter dated August 9, 1999, from The Bank of
                      Nova Scotia to Foamex Canada Inc.
  
                 27   Financial Data Schedule for the year to date period ended
                      September 30, 1999.
  
                 99   Press release concerning the extension of a Letter of Intent
                      for the acquisition of the Company.
  
             (b)  The Company filed the following  Current Reports on Form 8-K for
                  the quarter ended September 30, 1999:
  
                  A report,  dated  August 5,  1999,  was filed for Item 5.  Other
                  Events, reporting press release of proposed buyout.
  
                  A report,  dated August 13, 1999,  was filed for Item.  5. Other
                  Events, concerning a purported class action complaint by certain
                  shareholders.
  
                                         28
  SIGNATURES
  
            Pursuant to the  requirements of the Securities  Exchange Act of 1934,
  the  registrant  has duly  caused  this report to be signed on its behalf by the
  undersigned thereunto duly authorized.
  
                                           FOAMEX INTERNATIONAL INC.
  
  Date: November 12, 1999                  By: /s/ George L. Karpinski
                                               -------------------------------
                                               George L. Karpinski
                                               Senior Vice  President, Treasurer
                                               and Assistant Secretary
  
                                         29