<PAGE>
 
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                      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 quarter ended April 3, 1999
 
                        Commission file number 1-14330
 
                              POLYMER GROUP, INC.
            (Exact name of registrant as specified in its charter)
 
               Delaware                              57-1003983
    (State or other jurisdiction of               (I.R.S. Employer
    incorporation or organization)               Identification No.)
 
 
          4838 Jenkins Avenue
   North Charleston, South Carolina                     29405
    (Address of principal executive                  (Zip Code)
               offices)
 
      Registrant's telephone number, including area code: (843) 566-7293
 
   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 periods that the
registrant was required to file such reports), and (2) has been subject to the
filing requirements for the past 90 days. Yes  X   No
 
   Indicate the number of shares outstanding of each of the issuer's classes
of common stock, as of the latest practicable date.
 
   On May 11, 1999 there were 32,000,000 Common Shares, $.01 par value
outstanding.
 
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<PAGE>
 
                              POLYMER GROUP, INC.
 
                               INDEX TO FORM 10-Q
 
<TABLE>
<CAPTION>
                                                                           Page
                                                                           ----
<S>                                                                        <C>
Part I. Financial Information.............................................   3
 
  Item 1. Financial Statements............................................   3
 
  Item 2. Management's Discussion and Analysis of Financial Condition and
   Results of Operations..................................................  10
 
  Item 3. Quantitative and Qualitative Disclosures About Market Risk......  15
 
Part II. Other Information................................................  16
 
Signatures................................................................  17
 
Exhibit Index.............................................................  18
</TABLE>
 
                                       2
<PAGE>
 
                         PART I. FINANCIAL INFORMATION
 
                          Item I. Financial Statements
 
                              POLYMER GROUP, INC.
 
                     CONDENSED CONSOLIDATED BALANCE SHEETS
 
                       (In Thousands, Except Share Data)
 
<TABLE>
<CAPTION>
                                                         April 3,    January 2,
                        ASSETS                             1999         1999
                        ------                          -----------  ----------
                                                        (Unaudited)
<S>                                                     <C>          <C>
Current assets:
  Cash and equivalents................................. $   67,281   $   58,308
  Marketable securities................................      9,668          --
  Accounts receivable, net.............................    118,064      103,958
  Inventories..........................................    104,823       98,820
  Other................................................     49,098       49,645
                                                        ----------   ----------
    Total current assets...............................    348,934      310,731
Property, plant and equipment, net.....................    696,959      685,009
Intangibles and loan acquisition costs, net............    255,621      253,094
Other..................................................     33,256       34,133
                                                        ----------   ----------
    Total assets....................................... $1,334,770   $1,282,967
                                                        ==========   ==========
 
<CAPTION>
         LIABILITIES AND SHAREHOLDERS' EQUITY
         ------------------------------------
<S>                                                     <C>          <C>
Current liabilities:
  Accounts payable, accrued liabilities and other...... $  115,038   $   95,205
  Current portion of long-term debt....................      5,870        3,070
                                                        ----------   ----------
    Total current liabilities..........................    120,908       98,275
                                                        ----------   ----------
Long-term debt, less current portion...................    900,819      863,429
Deferred income taxes..................................     80,247       82,876
Other non-current liabilities..........................     17,573       18,262
Shareholders' equity:
  Series preferred stock--$.01 par value, 10,000,000
   shares authorized, 0 shares issued and outstanding..        --           --
  Common stock--$.01 par value, 100,000,000 shares
   authorized, 32,000,000 shares issued and
   outstanding.........................................        320          320
  Non-voting common stock--$.01 par value, 3,000,000
   shares authorized, 0 shares issued and outstanding..        --           --
  Additional paid-in capital...........................    243,662      243,662
  (Deficit)............................................    (13,819)     (19,651)
  Accumulated other comprehensive (loss)...............    (14,940)      (4,206)
                                                        ----------   ----------
                                                           215,223      220,125
                                                        ----------   ----------
    Total liabilities and shareholders' equity......... $1,334,770   $1,282,967
                                                        ==========   ==========
</TABLE>
 
                            See accompanying notes.
 
                                       3
<PAGE>
 
                              POLYMER GROUP, INC.
 
               CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED)
 
                     (In Thousands, Except Per Share Data)
 
<TABLE>
<CAPTION>
                                                              Three Months
                                                                  Ended
                                                            ------------------
                                                            April 3,  April 4,
                                                              1999      1998
                                                            --------  --------
<S>                                                         <C>       <C>
Net sales.................................................. $210,147  $193,336
Cost of goods sold.........................................  156,879   147,058
                                                            --------  --------
Gross profit...............................................   53,268    46,278
Selling, general and administrative expenses...............   27,068    26,025
                                                            --------  --------
Operating income...........................................   26,200    20,253
Other (income) expense:
  Interest expense, net....................................   17,550    15,980
  Investment income--(gain) on marketable securities, net..   (1,375)      --
  Foreign currency and other...............................      659       676
                                                            --------  --------
                                                              16,834    16,656
                                                            --------  --------
Income before income taxes and extraordinary item..........    9,366     3,597
Income taxes...............................................    3,534     1,302
                                                            --------  --------
Income before extraordinary item...........................    5,832     2,295
Extraordinary item, (loss) from extinguishment of debt.....      --     (2,728)
                                                            --------  --------
      Net income (loss).................................... $  5,832  $   (433)
                                                            ========  ========
Net income (loss) per common share:
  Basic and diluted:
    Average common shares outstanding......................   32,000    32,000
    Income before extraordinary item....................... $   0.18  $   0.07
    Extraordinary item, (loss) from extinguishment of
     debt..................................................      --      (0.09)
                                                            --------  --------
      Net income (loss) per common share--basic and
       diluted............................................. $   0.18  $  (0.02)
                                                            ========  ========
</TABLE>
 
 
 
                            See accompanying notes.
 
                                       4
<PAGE>
 
                              POLYMER GROUP, INC.
 
   CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
 
                                 (In Thousands)
 
<TABLE>
<CAPTION>
                                                           Three Months Ended
                                                           -------------------
                                                           April 3,  April 4,
                                                             1999      1998
                                                           --------  ---------
<S>                                                        <C>       <C>
Operating activities
  Net income (loss)....................................... $  5,832  $    (433)
  Adjustments to reconcile net income (loss) to net cash
   provided by operating activities:
    Extraordinary item....................................      --       2,728
    Depreciation and amortization expense.................   16,580     13,769
    Change in marketable securities classified as
     trading..............................................   (9,668)       --
    Foreign currency transaction losses, net..............      659        676
  Changes in operating assets and liabilities, net of
   effects of business acquisition:
    Accounts receivable...................................  (11,341)      (223)
    Inventories...........................................   (3,378)    (6,962)
    Accounts payable and other............................   17,287     17,987
                                                           --------  ---------
      Net cash provided by operating activities...........   15,971     27,542
                                                           --------  ---------
Investing activities
  Purchases of property, plant and equipment..............  (26,034)   (19,122)
  Purchases of marketable securities classified as
   available for sale.....................................      --      (3,990)
  Proceeds from sales of marketable securities classified
   as available for sale..................................      --       3,540
  Proceeds from sale of assets, net of canceled
   subordinated advance...................................      --     323,524
  Minority interest.......................................      --     (54,730)
  Other, including business acquisition...................  (16,011)   (49,157)
                                                           --------  ---------
      Net cash (used in) provided by investing
       activities.........................................  (42,045)   200,065
                                                           --------  ---------
Financing activities
  Proceeds from debt......................................   38,608    576,531
  Payment of debt.........................................   (3,249)  (778,572)
  Loan acquisition costs, net.............................     (305)    (9,376)
                                                           --------  ---------
      Net cash provided by (used in) financing
       activities.........................................   35,054   (211,417)
                                                           --------  ---------
Effect of exchange rate changes on cash...................       (7)    (2,041)
                                                           --------  ---------
Net increase in cash and equivalents......................    8,973     14,149
Cash and equivalents at beginning of period...............   58,308     50,190
                                                           --------  ---------
Cash and equivalents at end of period..................... $ 67,281  $  64,339
                                                           ========  =========
</TABLE>
 
                            See accompanying notes.
 
                                       5
<PAGE>
 
                              POLYMER GROUP, INC.
 
                  NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
 
Note 1. Description of Business and Basis of Presentation
 
   Polymer Group, Inc. (the "Company"), a global manufacturer and marketer of
nonwoven and oriented polyolefin products, operates in four business segments
which include hygiene, medical, wiping and industrial and specialty products.
 
   The accompanying unaudited consolidated financial statements of the Company
have been prepared in accordance with generally accepted accounting principles
for interim financial information. Accordingly, they do not include all of the
information and footnotes required by generally accepted accounting principles
for complete financial statements. The Condensed Consolidated Balance Sheet as
of January 2, 1999 contains summarized information; as a result, such data
does not include the same detail provided in the 1998 annual report. In the
opinion of management, these unaudited consolidated financial statements
contain all adjustments of a normal recurring nature necessary for a fair
presentation. Operating results for the three months ended April 3, 1999, are
not necessarily indicative of the results that may be expected for fiscal
1999. Certain amounts previously presented in the consolidated financial
statements for prior periods have been reclassified to conform to current
classification. The preparation of financial statements in accordance with
generally accepted accounting principles requires management to make estimates
and assumptions that affect the reported amounts of revenues and expenses
during the reporting period. Actual results could differ from those estimates.
 
Note 2. Inventories
 
   Inventories are stated at the lower of cost or market using the first-in,
first-out method of accounting and consist of the following (in thousands):
 
<TABLE>
<CAPTION>
                                                         April 3,   January 2,
                                                           1999        1999
                                                        ----------- ----------
                                                        (Unaudited)
      <S>                                               <C>         <C>
      Inventories:
        Finished goods.................................  $ 58,177    $51,595
        Work in process and stores and maintenance
         parts.........................................    13,428     12,126
        Raw materials..................................    33,218     35,099
                                                         --------    -------
          Total........................................  $104,823    $98,820
                                                         ========    =======
</TABLE>
 
Note 3. Net Income (Loss) Per Share
 
   The Company discloses earnings per share in accordance with SFAS No. 128,
"Earnings Per Share." Unlike primary earnings per share, basic earnings per
share excludes any dilutive effects of options, warrants and convertible
securities. Diluted earnings per share is very similar to the previously
reported fully diluted earnings per share. The numerator for both basic and
diluted earnings per share is net income (loss) applicable to common stock.
The denominator for both basic and diluted earnings per share is average
common shares outstanding.
 
                                       6
<PAGE>
 
                              POLYMER GROUP, INC.
 
            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
 
 
Note 4. New Accounting Standards
 
   In 1998, the Financial Accounting Standards Board issued Statement No. 133,
"Accounting for Derivative Instruments and Hedging Activities" ("FAS 133")
which is effective for fiscal years beginning after June 15, 1999. FAS 133
establishes accounting and reporting standards for derivative instruments,
including certain derivative instruments embedded in other contracts, and for
hedging activities. It requires that an entity recognize all derivatives as
either assets or liabilities in the statement of financial position and
measure those instruments at fair value. FAS 133 requires disclosure based on
the type of hedge and the type of market risk that is being hedged. Currently,
the Company does not anticipate FAS 133 to have a financial or operational
impact on the Company.
 
   In April 1998, the American Institute of Certified Accountants issue
Statement of Position 98-5, "Reporting the Costs of Start-Up Activities"
("SOP"). The SOP was effective beginning on January 1, 1999, and required that
start-up/organization costs capitalized prior to January 1, 1999 be written-
off and any future start-up costs be expensed as incurred. During the fourth
quarter of 1998, the Company elected early adoption and wrote-off the net book
value of start-up costs as a cumulative effect of an accounting change, as
permitted by the SOP.
 
Note 5. Selected Financial Data of Guarantors
 
   Payment of the Company's senior notes is guaranteed jointly and severally
on a senior subordinated basis by certain of the Company's subsidiaries.
Management has determined that separate complete financial statements of the
guarantors are not material to users of the financial statements. The
following sets forth selected financial data of the guarantor and non-
guarantor subsidiaries (in thousands):
 
         Condensed Consolidating Selected Balance Sheet Financial Data
                              As of April 3, 1999
 
<TABLE>
<CAPTION>
                                        Combined
                           Combined       Non-
                          Guarantor    Guarantor      The     Reclassifications
                         Subsidiaries Subsidiaries  Company   and Eliminations  Consolidated
                         ------------ ------------ ---------- ----------------- ------------
<S>                      <C>          <C>          <C>        <C>               <C>
Working capital.........  $   96,645   $ 111,102   $   14,071    $     6,208     $  228,026
Total assets............   2,094,073     561,545    1,068,648     (2,389,496)     1,334,770
Total debt..............       5,674      42,889      858,126            --         906,689
Shareholders' equity....   1,109,360     251,815      160,704     (1,306,656)       215,223
</TABLE>
 
         Condensed Consolidating Selected Balance Sheet Financial Data
                             As of January 2, 1999
 
<TABLE>
<CAPTION>
                                        Combined
                           Combined       Non-
                          Guarantor    Guarantor      The     Reclassifications
                         Subsidiaries Subsidiaries  Company   and Eliminations  Consolidated
                         ------------ ------------ ---------- ----------------- ------------
<S>                      <C>          <C>          <C>        <C>               <C>
Working capital.........  $   94,702    $102,412   $   14,272    $     1,070     $  212,456
Total assets............   2,034,836     520,822    1,037,890     (2,310,581)     1,282,967
Total debt..............       5,741      34,247      826,511            --         866,499
Shareholders' equity....   1,084,281     235,106      169,917     (1,269,179)       220,125
</TABLE>
 
                                       7
<PAGE>
 
                              POLYMER GROUP, INC.
 
            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
 
 
    Condensed Consolidating Statement of Operations Selected Financial Data
                   For the Three Months Ended April 3, 1999
 
<TABLE>
<CAPTION>
                                        Combined
                           Combined       Non-              Reclassifica-
                          Guarantor    Guarantor     The      tions and
                         Subsidiaries Subsidiaries Company  Eliminations  Consolidated
                         ------------ ------------ -------  ------------- ------------
<S>                      <C>          <C>          <C>      <C>           <C>
Net sales...............   $139,627     $80,673    $   --     $(10,153)     $210,147
Operating income........     15,817       7,202      3,844        (663)       26,200
Income (loss) before
 income taxes and
 extraordinary item.....     12,939       3,676     (7,310)         61         9,366
Income taxes............      2,595         163        776         --          3,534
Income (loss) before
 extraordinary item.....     10,344       3,513     (8,086)         61         5,832
Equity in earnings of
 subsidiaries...........        --          --      13,857     (13,857)          --
Net income..............     10,344       3,513      5,771     (13,796)        5,832
</TABLE>
 
    Condensed Consolidating Statement of Operations Selected Financial Data
                   For the Three Months Ended April 4, 1998
 
<TABLE>
<CAPTION>
                                         Combined
                            Combined       Non-              Reclassifica-
                           Guarantor    Guarantor     The      tions and
                          Subsidiaries Subsidiaries Company  Eliminations  Consolidated
                          ------------ ------------ -------  ------------- ------------
<S>                       <C>          <C>          <C>      <C>           <C>
Net sales...............    $119,933     $77,010    $    59     $(3,666)     $193,336
Operating income........      12,353       6,491      1,409         --         20,253
Income (loss) before
 income taxes and
 extraordinary item.....       4,686       3,314     (4,403)        --          3,597
Income taxes (benefit)..          93       1,328       (119)        --          1,302
Income (loss) before
 extraordinary item.....       4,593       1,986     (4,284)        --          2,295
Extraordinary item......         --       (2,728)       --          --         (2,728)
Equity in earnings of
 subsidiaries...........         --          --       3,851      (3,851)          --
Net income (loss).......       4,593        (742)      (433)     (3,851)         (433)
</TABLE>
 
Note 6. Comprehensive Income
 
   The Company reports comprehensive income in accordance with SFAS No. 130,
"Reporting Comprehensive Income" ("FAS 130"). FAS 130 requires unrealized
gains or losses on the Company's available-for-sale securities and foreign
currency translation adjustments to be included in other comprehensive income.
The Company's comprehensive (loss), net of the related tax benefit,
approximated $(4.9) million and $(6.9) million for the three months ended
April 3, 1999 and April 4, 1998, respectively.
 
Note 7. Segment Information
 
   The Company reports segment information in accordance with SFAS No. 131,
"Disclosures about Segments of an Enterprise and Related Information" ("FAS
131"). Operating segments are defined as components of an enterprise about
which separate financial information is available that is evaluated regularly
by the chief operating decision maker in deciding how to allocate resources
and assessing performance. The Company defines operating segments around
market sectors. Two primary customers each account for greater than 10% of the
Company's sales. Sales to The Proctor & Gamble
 
                                       8
<PAGE>
 
                              POLYMER GROUP, INC.
 
            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
 
Company are reported primarily within the hygiene segment. Sales to Johnson &
Johnson are reported primarily in the hygiene and medical segments. The loss
of these sales would have a material adverse effect on these segments.
Generally, the company's products can be manufactured on more than one type of
asset. Accordingly, certain costs and assets attributed to each segment of the
business were determined on an allocation basis. Production times have a
similar relationship to net sales, thus the Company believes a reasonable
basis for allocating certain costs is the percent of net sales method. Segment
assets have not changed materially from the amounts reported in the 1998
annual report; therefore, the Company has elected not to disclose segment
assets for interim reporting, as permitted by FAS 131. Financial data by
segments follows (in thousands):
 
<TABLE>
<CAPTION>
                                                                Three Months
                                                                    Ended
                                                              -----------------
                                                              April 3, April 4,
                                                                1999     1998
                                                              -------- --------
<S>                                                           <C>      <C>
Net sales to unaffiliated customers:
  Hygiene.................................................... $ 78,321 $ 80,173
  Medical....................................................   24,626   22,827
  Wipes......................................................   34,416   26,260
  Industrial and specialty...................................   72,784   64,076
                                                              -------- --------
                                                              $210,147 $193,336
                                                              ======== ========
Operating income:
  Hygiene.................................................... $ 13,659 $  7,641
  Medical....................................................    4,178    3,337
  Wipes......................................................    3,664    3,985
  Industrial and specialty...................................    4,699    5,290
                                                              -------- --------
                                                              $ 26,200 $ 20,253
                                                              ======== ========
</TABLE>
 
   A reconciliation of operating income shown above to income before income
taxes and extraordinary item shown in the Consolidated Statements of
Operations follows (in thousands):
 
<TABLE>
<CAPTION>
                                                                 Three Months
                                                                     Ended
                                                                ----------------
                                                                 April    April
                                                                3, 1999  4, 1998
                                                                -------  -------
<S>                                                             <C>      <C>
Operating income............................................... $26,200  $20,253
Interest expense, net..........................................  17,550   15,980
Investment (income)-gain on marketable securities, net.........  (1,375)     --
Foreign currency and other.....................................     659      676
                                                                -------  -------
  Income before income taxes and extraordinary item............ $ 9,366  $ 3,597
                                                                =======  =======
</TABLE>
 
Note 8. Subsequent Event
 
   On May 7, 1999, the Company amended its credit facility to add an
additional term loan in the amount of $50.0 million. The amendment also
modified certain covenants, including an increase to the permitted leverage
ratios. The Company borrowed the entire amount of the additional term loan
which was used to reduce amounts outstanding under the revolving portion of
the credit facility.
 
                                       9
<PAGE>
 
Item 2. Management's Discussion and Analysis of Financial Condition and
      Results of Operations
 
   The following discussion and analysis provides information which management
believes is relevant to an assessment and understanding of the Company's
consolidated results of operations and financial condition. The discussion
should be read in conjunction with the consolidated financial statements and
notes thereto contained in Part I of this report on Form 10-Q and with the
Company's Annual Report on Form 10-K for the fiscal year ended January 2,
1999.
 
Results of Operations
 
   The following table sets forth the percentage relationships to net sales of
certain income statement items.
 
<TABLE>
<CAPTION>
                                                                Three Months
                                                                    Ended
                                                              -----------------
                                                              April 3, April 4,
                                                                1999     1998
                                                              -------- --------
<S>                                                           <C>      <C>
Net sales:
  Hygiene....................................................   37.3%    41.5%
  Medical....................................................   11.7     11.8
  Wiping.....................................................   16.4     13.6
  Industrial and specialty...................................   34.6     33.1
                                                               -----    -----
                                                               100.0    100.0
Cost of goods sold:
  Material...................................................   38.8     42.5
  Labor......................................................    8.3      8.3
  Overhead...................................................   27.5     25.3
                                                               -----    -----
                                                                74.6     76.1
                                                               -----    -----
  Gross profit...............................................   25.4     23.9
Selling, general and administrative expenses.................   12.9     13.4
                                                               -----    -----
Operating income.............................................   12.5     10.5
Other (income) expense
  Interest expense, net......................................    8.4      8.3
  Investment income--(gain) on marketable securities, net....   (0.7)     --
  Foreign currency and other.................................    0.3      0.3
                                                               -----    -----
                                                                 8.0      8.6
Income before income taxes and extraordinary item............    4.5      1.9
Income taxes.................................................    1.7      0.7
                                                               -----    -----
Income before extraordinary item.............................    2.8      1.2
Extraordinary item, (loss) from extinguishment of debt.......    --      (1.4)
                                                               -----    -----
Net income (loss)............................................    2.8%    (0.2)%
                                                               =====    =====
</TABLE>
 
                                      10
<PAGE>
 
Comparison of Three Months Ended April 3, 1999 and April 4, 1998
 
   The following table sets forth components of the Company's net sales and
operating income by segment for the three months ended April 3, 1999 and the
corresponding increase/(decrease) over the comparable period in the prior
year:
 
<TABLE>
<CAPTION>
                                         First Quarter
                                       ----------------- Increase/  % Increase/
                                         1999     1998   (Decrease) (Decrease)
                                       -------- -------- ---------- -----------
                                        (Dollars in Thousands, Except Percent
                                                        Data)
      <S>                              <C>      <C>      <C>        <C>
      Net sales:
        Hygiene....................... $ 78,321 $ 80,173  $(1,852)      (2.3)%
        Medical.......................   24,626   22,827    1,799        7.9
        Wiping........................   34,416   26,260    8,156       31.1
        Industrial and specialty......   72,784   64,076    8,708       13.6
                                       -------- --------  -------
                                       $210,147 $193,336  $16,811        8.7%
                                       ======== ========  =======
      Operating income:
        Hygiene....................... $ 13,659 $  7,641  $ 6,018       78.8%
        Medical.......................    4,178    3,337      841       25.2
        Wiping........................    3,664    3,985     (321)      (8.1)
        Industrial and specialty......    4,699    5,290     (591)     (11.2)
                                       -------- --------  -------
                                       $ 26,200 $ 20,253  $ 5,947       29.4%
                                       ======== ========  =======
</TABLE>
 
Net Sales
 
   The increase in net sales of 8.7% for the first quarter of 1999 over the
same period in 1998 was due primarily to organic growth.
 
   Hygiene sales decreased 2.3% quarter over quarter as a result of replacing
certain low margin products with high margin products and the pass-through to
customers of continued decreases in material costs. Medical sales increased
7.9% quarter over quarter as a result of new products and increased demand
from several leading customers. Wipes sales increased 31.1% quarter over
quarter due to the release of new products and new programs introduced by
leading customers. Industrial and specialty sales increased 13.6% as a result
of the recent acquisition and organic growth within the nonwovens business.
 
Operating Income
 
   The increase in operating income of 29.4% for the first quarter of 1999
over the first quarter in 1998 was due to increased sales, the continued
decline in raw material costs as a percentage of sales and the introduction of
certain high margin products. As a percentage of sales, labor costs remained
constant in addition to a slight increase in overhead costs and a slight
decrease in selling, general and administrative costs.
 
   Hygiene operating income increased 78.8% quarter over quarter as a result
of a better product mix which included new higher margin products. Medical
operating income increased 25.2% quarter over quarter as a result of increased
sales and lower selling, general and administrative expenses. Wiping operating
income decreased 8.1% quarter over quarter, despite higher sales, as a result
of utilizing higher overhead manufacturing lines to meet increased demand
requirements. Industrial and specialty operating income decreased 11.2%
quarter over quarter, despite higher sales, as a result of incremental costs
associated with new manufacturing programs and increased research and
development costs.
 
                                      11
<PAGE>
 
Other
 
   Interest expense increased $1.6 million, from $16.0 million in the first
quarter of 1998 to $17.6 million in the first quarter of 1999. Interest
expense as a percentage of net sales remained constant quarter over quarter.
The increase in interest expense is principally due to a higher average amount
of indebtedness outstanding.
 
   During the first quarter of 1999 the Company recognized a gain on
marketable securities, classified as trading, of $1.4 million.
 
   Net foreign currency transaction losses were approximately $0.7 million
during the first quarter of 1999 and 1998.
 
   The Company provided for income taxes of approximately $3.5 million for the
three months ended April 3, 1999, representing an effective tax rate of 37.7%.
The provision for income taxes at the Company's effective rate differed from
the provision for income taxes at the statutory rate due primarily to higher
tax rates in foreign jurisdictions. The Company provided for income taxes of
$1.3 million during the first quarter of 1998, representing an effective tax
rate of 36.2%.
 
Income Before Extraordinary Item
 
   Income before extraordinary item increased $3.5 million from $2.3 million,
or $0.07 per share, during the first quarter of 1998 to $5.8 million, or $0.18
per share, during the first quarter of 1999.
 
Extraordinary Item
 
   The Company recorded one-time charges of $2.7 million for the write-off of
previously capitalized deferred financing costs during the first quarter of
1998.
 
Liquidity and Capital Resources
 
<TABLE>
<CAPTION>
                                                          April 3,   January 2,
                                                            1999        1999
                                                         ----------  ----------
                                                            (In Thousands)
<S>                                                      <C>         <C>
Balance sheet data:
  Cash and equivalents and marketable securities........ $   76,949  $   58,308
  Working capital.......................................    228,026     212,456
  Total assets..........................................  1,334,770   1,282,967
  Debt (including current portion)......................    906,689     866,499
  Shareholders' equity..................................    215,223     220,125
 
<CAPTION>
                                                          Three Months Ended
                                                         ----------------------
                                                          April 3,    April 4,
                                                            1999        1998
                                                         ----------  ----------
                                                            (In Thousands)
<S>                                                      <C>         <C>
Cash flow data:
  Net cash provided by operating activities............. $   15,971  $   27,542
  Net cash (used in) provided by investing activities...    (42,045)    200,065
  Net cash provided by (used in) financing activities...     35,054    (211,417)
</TABLE>
 
Operating Activities
 
   During the first quarter of 1999 the Company's operations generated $16.0
million in cash. As of April 3, 1999 the Company recorded $9.7 million in
marketable securities, classified as trading, which reduced operating cash
flow.
 
                                      12
<PAGE>
 
Investing and Financing Activities
 
   Capital expenditures for the first quarter of 1999 totaled $26.0 million,
related primarily to margin-enhancing projects. For the remainder of fiscal
1999, the Company expects capital expenditures to approximate $124.0 million.
 
   The Company believes that based on current levels of operations and
anticipated growth, its cash from operations, together with other available
sources of liquidity (including but not limited to borrowings under the
amended credit facility) will be adequate over the next several years to make
required debt payments, including interest thereon, to permit anticipated
capital expenditures and to fund the Company's working capital requirements.
 
Effect of Inflation
 
   Inflation generally affects the Company by increasing the cost of labor,
equipment and new materials. The Company believes that inflation had no
material effect on the Company's business during the three months ended April
3, 1999.
 
Foreign Currency
 
   The Company's substantial foreign operations expose it to the risk of
exchange rate fluctuations. If foreign currency denominated revenues are
greater than costs, the translation of foreign currency denominated costs and
revenues into U.S. dollars will improve profitability when the foreign
currency strengthens against the U.S. dollar and will reduce profitability
when the foreign currency weakens.
 
Year 2000
 
   The Company has commenced global initiatives to address the Year 2000
issue. The project encompasses a review of information systems, personal
computers, process systems and ancillary systems and communications with third
party suppliers, vendors and customers. The objective of the Year 2000 project
is to minimize the seriousness of any technical failures in order to reduce
the risk of a material impact on the operations and financial condition of the
Company. The following outlines, by key areas, the status of the Company's
Year 2000 project, any reasonably expected risks identified during this
process, costs and contingency plans.
 
Information Systems and Personal Computers
 
   The majority of information systems and personal computers are Year 2000
ready. The information systems at certain facilities in Canada and Europe are
in the final phases of readiness with anticipated completion dates during the
first half of 1999. Year 2000 software "patches" are being tested at the U.S.
nonwovens facilities. We anticipate these software "patches" being applied
during the second quarter. In most cases, the Company has replaced, or is in
the process of replacing, older software with new programs and systems, rather
than modifying existing systems solely to become Year 2000 ready. Although the
timing of the system replacements is influenced by the Year 2000, in most
cases these systems would have been replaced in the normal course of business.
Management currently does not reasonably expect any risks material to the
operations and financial condition of the Company as a result of information
system and personal computer failures. Contingency plans are being
investigated for these systems, many of which are not critical.
 
Process Systems
 
   The Company has been communicating with vendors and performing physical
tests of the process systems and expects to complete the assessment during the
first half of 1999. The initial phase of the
 
                                      13
<PAGE>
 
assessment revealed that certain systems are not Year 2000 ready. All non-
compliant systems will be repaired or replaced. Most process systems can be
bypassed if necessary; therefore limiting potential Year 2000 problems. The
results of this assessment, plans for the final phase, and any necessary
contingency plans will be disclosed at a later date.
 
Ancillary Systems
 
   The assessment has revealed that the majority of ancillary systems are Year
2000 ready. All non-compliant systems will be upgraded to avoid potential
problems. The assessment has not revealed any material risks associated with
ancillary systems.
 
Third Party Compliance
 
   The Company continues to learn and evaluate the compliance status of
vendors, suppliers and customers with whom we have a material relationship.
This process includes sending surveys to key suppliers; however, in most
cases, the responses have not been adequate in determining the readiness of
third parties. The Company could face a material financial risk if its
customers or suppliers are unable to complete critical Year 2000 readiness
efforts in a timely manner; however, the evaluation has not revealed any
material risks to date associated with third parties. The Company plans to
have alternate suppliers available in the event a primary supplier has a Year
2000 related production interruption.
 
Year 2000 Costs
 
   Costs incurred to date have been approximately $0.6 million and currently
management does not expect future costs to exceed $0.6 million. Costs are
being monitored and can be expected to fluctuate during the final phases of
the project; however, total costs are not expected to be material to the
financial results of the Company.
 
Euro Conversion
 
   On January 1, 1999, member countries of the European Monetary Union (EMU)
began a three-year transition from their national currencies to a new common
currency, the "euro". Permanent rates of exchange between members' national
currency and the euro have been established and monetary, capital, foreign
exchange, and interbank markets have been converted to the euro. National
currencies will continue to exist as legal tender and may continue to be used
in commercial transactions. By January 2002, euro currency will be issued and
by July 2002, the respective national currencies will be withdrawn. The
Company has operations in three of the participating countries and has
successfully transitioned to using both the euro and local currencies for
commercial transactions. The Company continues to address the euro's impact on
information systems, currency exchange rate risk, taxation and pricing. Costs
of the euro conversion have not been material and management believes that
future costs of the euro conversion will not have a material impact on the
operations or the financial condition of the Company.
 
New Accounting Standards
 
   See "Note 4 to the Consolidated Financial Statements"
 
Safe Harbor Statement under the Private Securities Litigation Act of 1995
 
   Except for historical information contained herein, certain matters set
forth within Management's Discussion and Analysis of Financial Condition and
Results of Operations of this Form 10-Q are forward looking statements.
Certain risks and uncertainties could cause actual results to differ
 
                                      14
<PAGE>
 
materially from those set forth in the forward looking statements. The
following factors could cause actual results to differ materially from
historical results or those anticipated: adverse economic conditions,
competition in the Company's markets, fluctuation in raw material costs, and
other risks detailed in documents filed by the Company with the Securities and
Exchange Commission.
 
Item 3. Quantitative and Qualitative Disclosures About Market Risk.
 
   The Company's variable interest rate applicable to borrowings under it's
credit facility is based on, in the case of U.S. dollar denominated loans, the
Base Rate referred to therein or the Eurocurrency rate referred to therein for
U.S. dollars, at the Company's option, plus a specified margin. In the event
that a portion of the credit facility is denominated in Dutch guilders, the
applicable interest rate is based on the applicable Eurocurrency Base Rate
referred to therein for Dutch Guilders, plus a specified margin. In the event
that a portion of the Credit Facility is denominated in Canadian dollars, the
applicable interest rate is based on the Canadian Base Rate referred to
therein, plus a specified margin, of the Bankers' Acceptance discount Rate
referred to therein, at the Company's option. At April 3, 1999, the Company
had borrowings under the Credit Facility of $263.8 million that were subject
to interest rate risk. Each 1.0% increase in interest rates would impact
pretax earnings by $2.6 million. The Company has an interest rate cap
agreement which limits the amount of interest expense on $100 million of this
debt to a rate of 9%.
 
                                      15
<PAGE>
 
                                   PART II.
 
                               OTHER INFORMATION
 
Item 1. Legal Proceedings
 
   Not applicable.
 
Item 2. Changes in Securities
 
   Not applicable.
 
Item 3. Defaults upon Senior Securities
 
   Not applicable.
 
Item 4. Submission of Matters to a Vote of Security Holders
 
   Not applicable.
 
Item 5. Other Information
 
   Not applicable.
 
Item 6. Exhibits and Reports on Form 8-K
 
   Exhibits required to be filed with this report on Form 10-Q are listed in
the following Exhibit Index.
 
   There were no reports filed on Form 8-K during the quarter ended April 3,
1999.
 
                                      16
<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.
 
                                          Polymer Group, Inc.
 
                                                  /s/ Jerry Zucker
                                          By: _________________________________
                                                      Jerry Zucker
                                               Chairman, President, Chief
                                             Executive Officer and Director
                                              (Principal Executive Officer)
 
                                                  /s/ James G. Boyd
                                          By: _________________________________
                                                      James G. Boyd
                                           Executive Vice President, Treasurer
                                                           and
                                              Director (Principal Financial
                                                       Officer and
                                              Principal Accounting Officer)
 
May 11, 1999
 
                                       17
<PAGE>
 
                                 EXHIBIT INDEX
 
<TABLE>
<CAPTION>
  Exhibit
  Number                 Document Description
  -------                --------------------
 <C>       <S>                                               <C>
 11        Statement of Computation of Per Share Earnings.
 
 27        Financial Data Schedule
</TABLE>