<PAGE>
 
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
 
                       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 4, 1998
 
                         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, 1998 there were 32,000,000 Common Shares, $.01 par value
outstanding.
 
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
<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..............................................  11
  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 PER SHARE DATA)
 
<TABLE>
<CAPTION>
                                                         APRIL 4,    JANUARY 3,
                        ASSETS                             1998         1998
                        ------                          -----------  ----------
                                                        (UNAUDITED)
<S>                                                     <C>          <C>
Current assets:
  Cash and equivalents................................. $   64,339   $   50,190
  Marketable securities................................      8,167        7,754
  Accounts receivable, net.............................    115,800      107,328
  Inventories..........................................    106,379       94,128
  Assets held for disposition, net.....................        --       464,524
  Other................................................     26,920       31,146
                                                        ----------   ----------
    Total current assets...............................    321,605      755,070
Property, plant and equipment, net.....................    641,155      606,260
Intangibles, loan acquisition and organization costs,
 net...................................................    262,340      229,391
Other..................................................     46,806       37,032
                                                        ----------   ----------
    Total assets....................................... $1,271,906   $1,627,753
                                                        ==========   ==========
<CAPTION>
    LIABILITIES AND SHAREHOLDERS' EQUITY
    ------------------------------------
<S>                                                     <C>          <C>
Current liabilities:
  Accounts payable, accrued liabilities and other...... $  130,631   $  105,824
  Short-term bridge financing..........................        --       425,945
  Current portion of long-term debt....................      3,711        3,276
                                                        ----------   ----------
    Total current liabilities..........................    134,342      535,045
                                                        ----------   ----------
Long-term debt, less current portion...................    848,552      741,860
Deferred income taxes..................................     81,339       82,213
Other noncurrent liabilities...........................     15,464       14,815
Minority interest......................................        --        54,730
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)............................................    (39,788)     (39,355)
  Other ...............................................    (11,985)      (5,537)
                                                        ----------   ----------
                                                           192,209      199,090
                                                        ----------   ----------
    Total liabilities and shareholders' equity......... $1,271,906   $1,627,753
                                                        ==========   ==========
</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
                                ------------------
                                           MARCH
                                APRIL 4,    29,
                                  1998      1997
                                --------  --------
<S>                             <C>       <C>
Net sales.....................  $193,336  $128,947
Cost of goods sold............   147,058    96,362
                                --------  --------
Gross profit..................    46,278    32,585
Selling, general and
 administrative expenses......    26,025    18,656
                                --------  --------
Operating income..............    20,253    13,929
Other (income) expense:
  Interest expense, net.......    15,980     6,834
  Foreign currency transaction
   (gains) losses, net........       676      (320)
                                --------  --------
                                  16,656     6,514
                                --------  --------
Income before income taxes and
 extraordinary item...........     3,597     7,415
Income taxes..................     1,302     2,453
                                --------  --------
Income before extraordinary
 item.........................     2,295     4,962
Extraordinary item, (loss)
 from extinguishment of debt..    (2,728)      --
                                --------  --------
      Net income (loss).......  $   (433) $  4,962
                                ========  ========
Net income (loss) per common
 share:
  Basic:
    Average common shares
     outstanding..............    32,000    32,000
    Income before
     extraordinary item.......  $   0.07  $   0.16
    Extraordinary item, (loss)
     from extinguishment of
     debt.....................     (0.09)      --
                                --------  --------
      Net income (loss) per
       common share--basic....  $  (0.02) $   0.16
                                ========  ========
  Diluted:
    Average common shares
     outstanding..............    32,000    32,000
    Income before
     extraordinary item.......  $   0.07  $   0.16
    Extraordinary item, (loss)
     from extinguishment of
     debt.....................     (0.09)      --
                                --------  --------
      Net income (loss) per
       common share--diluted..  $  (0.02) $   0.16
                                ========  ========
</TABLE>
 
 
                            See accompanying notes.
 
                                       4
<PAGE>
 
                              POLYMER GROUP, INC.
          CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
 
                                 (IN THOUSANDS)
<TABLE>
<CAPTION>
                                                           THREE MONTHS ENDED
                                                           --------------------
                                                           APRIL 4,   MARCH 29,
                                                             1998       1997
                                                           ---------  ---------
<S>                                                        <C>        <C>
Operating activities
  Net income (loss)....................................... $    (433) $  4,962
  Adjustments to reconcile net income (loss) to net cash
   provided by operating activities:
    Extraordinary item....................................     2,728       --
    Depreciation and amortization expense.................    13,769     9,901
    Foreign currency transaction (gains) losses, net......       676      (320)
  Changes in operating assets and liabilities, net of
   effects of business acquisition:
    Accounts receivable...................................      (223)   (2,539)
    Inventories...........................................    (6,962)   (1,144)
    Accounts payable and other............................    17,987      (845)
                                                           ---------  --------
      Net cash provided by operating activities...........    27,542    10,015
                                                           ---------  --------
Investing activities
  Purchases of property, plant and equipment..............   (19,122)  (13,369)
  Purchases of marketable securities classified as
   available for sale.....................................    (3,990)   (7,335)
  Proceeds from sales of marketable securities classified
   as available for sale..................................     3,540     5,965
  Proceeds from sale of assets, net of canceled
   subordinated advance...................................   323,524       --
  Minority interest.......................................   (54,730)      --
  Other, including business acquisition...................   (49,157)     (146)
                                                           ---------  --------
      Net cash provided by (used in) investing activities.   200,065   (14,885)
                                                           ---------  --------
Financing activities
  Proceeds from debt......................................   576,531     7,150
  Payment of debt.........................................  (778,572)   (3,284)
  Loan acquisition costs, net.............................    (9,376)      (14)
                                                           ---------  --------
      Net cash provided by (used in) financing activities.  (211,417)    3,852
                                                           ---------  --------
Effect of exchange rate changes on cash...................    (2,041)   (3,985)
                                                           ---------  --------
Net increase (decrease) in cash and equivalents...........    14,149    (5,003)
Cash and equivalents at beginning of period...............    50,190    37,587
                                                           ---------  --------
Cash and equivalents at ending of period.................. $  64,339  $ 32,584
                                                           =========  ========
</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. ("Polymer Group" or the "Company") is a world-wide
manufacturer of flexible nonwoven and oriented polyolefin fabrics. The
Company's principal lines of business include hygiene, medical, wiping and
industrial and specialty products. The Company operates manufacturing
facilities in the United States, Canada, Mexico, Germany, the Netherlands,
France and England.
 
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. In the opinion of the management of Polymer
Group, 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 4, 1998, are not
necessarily indicative of the results that may be expected for fiscal 1998.
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:
 
<TABLE>
<CAPTION>
                                                          APRIL 4,   JANUARY 3,
                                                            1998        1998
                                                         ----------- ----------
                                                         (UNAUDITED)
      <S>                                                <C>         <C>
      Inventories:
        Finished goods..................................  $ 58,321    $48,769
        Work in process and stores and maintenance
         parts..........................................    11,402     11,201
        Raw materials...................................    36,656     34,158
                                                          --------    -------
          Total.........................................  $106,379    $94,128
                                                          ========    =======
</TABLE>
 
NOTE 3. NET INCOME (LOSS) PER SHARE
 
In 1997, the Financial Accounting Standards Board issued Statement No. 128,
"Earnings Per Share" ("FAS 128"). FAS 128 replaced the calculation of primary
and fully diluted earnings per share with basic and diluted 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.
 
NOTE 4. ACQUISITIONS
 
On December 19, 1997, DT Acquisition Inc. ("DTA"), a special-purpose
subsidiary of the Company, completed the purchase of approximately 98% of the
outstanding common shares of Dominion Textile Inc. ("Dominion") for Cdn$14.50
per share and approximately 96% of the outstanding first preferred
 
                                       6
<PAGE>
 
                              POLYMER GROUP, INC.
 
            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
 
NOTE 4. ACQUISITIONS--(CONTINUED)
 
shares of Dominion for Cdn$150 per share. The acquisition, which was accounted
for using the purchase method of accounting, was financed with $215.9 million
of borrowings under DTA's $600.0 million senior secured credit facilities, and
subordinated advances of $141.0, $69.0 and $25.0 million by Galey & Lord, Inc.
("Galey"), ZB Holdings, Inc. ("ZB Holdings") and the Company, respectively. ZB
Holdings is a wholly-owned subsidiary of The InterTech Group, Inc., an
affiliate of the Company.
 
On January 29, 1998, DTA acquired all remaining common and preferred shares,
at which time Dominion underwent a "winding up". All assets of Dominion were
transferred to DTA, all liabilities of Dominion were assumed by DTA and all
outstanding common shares and first preferred shares held by DTA were
redeemed. Immediately thereafter, pursuant to a purchase agreement dated
October 27, 1997, the apparel fabrics business of Dominion was sold to Galey
for approximately $464.5 million, including related fees and expenses, and the
Company acquired (the "Nonwovens Acquisition") the assets and liabilities of
Dominion that comprised the nonwovens and industrial fabrics operations (the
"Nonwovens Business") for approximately $351.6 million, including fees and
expenses. The Nonwovens Business includes a 50% interest in Argentina-based
Dominion Nonwovens Sudamerica S.A. ("DNS"). DNS manufactures and markets
nonwovens to hygiene markets in South America. Concurrently, Dominion Textile
(USA) Inc. ("DT USA"), a wholly-owned subsidiary of Dominion, purchased
approximately $145.6 million of its $150.0 million outstanding 8.875%
Guaranteed Senior Notes due 2003 and, at the same time, purchased
approximately $124.5 million of its $125.0 million outstanding 9.25%
Guaranteed Senior Notes due 2006. Net assets of the apparel fabrics business
of Dominion were classified as assets held for disposition on the Company's
consolidated balance sheet at January 3, 1998. Operating results of the
apparel fabrics business of Dominion have been excluded from the Company's
results of operations for the three months ended April 4, 1998.
 
In connection with the Nonwovens Acquisition and related transactions, the
Company also amended its senior secured credit facility to provide for $125.0
million in term loans. The Company used borrowings under the credit facility,
as amended, to finance the purchase of the Nonwovens Business, in part by
retiring amounts outstanding under the DTA $600.0 million credit facility and
repaying the subordinated advance made by ZB Holdings.
 
On March 5, 1998, the Company issued $200.0 million of 8.75% Senior
Subordinated Notes due 2008 (the "2008 Notes") to qualified buyers pursuant to
Rule 144A under the Securities Act (the "March 1998 Offering"). Proceeds from
the sale of the 2008 Notes were used, in part, to finance the Oriented Polymer
Acquisition (as defined below) and to repay existing revolving obligations.
 
On March 16, 1998, the Company completed the acquisition (the "Oriented
Polymer Acquisition") of a leading North American manufacturer of
polypropylene-based commercial twine and polyethylene-based specialty knitted
products for approximately $47.0 million in a transaction accounted for by the
purchase method of accounting. Supplemental pro forma information for the
Oriented Polymer Acquisition is not presented because the acquisition was not
material to the consolidated results of operations.
 
                                       7
<PAGE>
 
                              POLYMER GROUP, INC.
 
            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
 
 
NOTE 5. SELECTED FINANCIAL DATA OF GUARANTORS
 
Payment of the 2007 Notes and 2008 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 4, 1998
 
<TABLE>
<CAPTION>
                           COMBINED     COMBINED
                          GUARANTOR   NON-GUARANTOR    THE      RECLASSIFICATIONS
                         SUBSIDIARIES SUBSIDIARIES   COMPANY    AND ELIMINATIONS  CONSOLIDATED
                         ------------ ------------- ----------  ----------------- ------------
<S>                      <C>          <C>           <C>         <C>               <C>
Working capital.........  $   91,662   $  104,588   $   (9,050)    $        63     $  187,263
Total assets............   1,983,879      985,657    1,409,259      (3,106,889)     1,271,906
Total debt..............   1,237,332      779,475    1,187,730      (2,352,274)       852,263
Shareholders' equity....     621,547      133,030      192,209        (754,577)       192,209
 
         CONDENSED CONSOLIDATING SELECTED BALANCE SHEET FINANCIAL DATA
                             AS OF JANUARY 3, 1998
 
<CAPTION>
                           COMBINED     COMBINED
                          GUARANTOR   NON-GUARANTOR    THE      RECLASSIFICATIONS
                         SUBSIDIARIES SUBSIDIARIES   COMPANY    AND ELIMINATIONS  CONSOLIDATED
                         ------------ ------------- ----------  ----------------- ------------
<S>                      <C>          <C>           <C>         <C>               <C>
Working capital.........  $   68,859   $  137,167   $    3,100     $    10,899     $  220,025
Total assets............   1,164,642    1,141,546      950,260      (1,628,695)     1,627,753
Total debt..............       2,050      342,320      425,767         (25,001)       745,136
Shareholders' equity....     586,079       82,720      199,090        (668,799)       199,090
</TABLE>
 
                                       8
<PAGE>
 
                              POLYMER GROUP, INC.
 
            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
 
NOTE 5. SELECTED FINANCIAL DATA OF GUARANTORS--(CONTINUED)
 
    CONDENSED CONSOLIDATING STATEMENT OF OPERATIONS SELECTED FINANCIAL DATA
                   FOR THE THREE MONTHS ENDED APRIL 4, 1998
 
<TABLE>
<CAPTION>
                            COMBINED     COMBINED             RECLASSIFICA-
                           GUARANTOR   NON-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
 (loss) of subsidiaries.         --           --       3,851      (3,851)          --
Net income (loss).......       4,593         (742)      (433)     (3,851)         (433)
 
    CONDENSED CONSOLIDATING STATEMENT OF OPERATIONS SELECTED FINANCIAL DATA
                   FOR THE THREE MONTHS ENDED MARCH 29, 1997
 
<CAPTION>
                            COMBINED     COMBINED             RECLASSIFICA-
                           GUARANTOR   NON-GUARANTOR   THE      TIONS AND
                          SUBSIDIARIES SUBSIDIARIES  COMPANY  ELIMINATIONS  CONSOLIDATED
                          ------------ ------------- -------  ------------- ------------
<S>                       <C>          <C>           <C>      <C>           <C>
Net sales...............     $82,007      $48,762    $   --     $ (1,822)     $128,947
Operating income........       5,163        7,343      1,423         --         13,929
Income (loss) before
 income taxes and
 extraordinary item.....       3,969        6,567     (3,121)        --          7,415
Income taxes (benefit)..        (298)         502      2,249         --          2,453
Income (loss) before
 extraordinary item.....       4,267        6,065     (5,370)        --          4,962
Extraordinary item......         --           --         --          --            --
Equity in earnings of
 subsidiaries...........         --           --      10,332     (10,332)          --
Net income..............       4,267        6,065      4,962     (10,332)        4,962
</TABLE>
 
NOTE 6. OTHER
 
In 1997, the Financial Accounting Standards Board issued Statement No. 130,
"Reporting Comprehensive Income" ("FAS 130") which is effective for fiscal
years beginning after December 15, 1997. FAS 130 establishes new rules for the
reporting and display of comprehensive income and its components. FAS 130
requires unrealized gains or losses on the Company's available-for-sale
securities and the foreign currency translation adjustments, which prior to
adoption were reported separately in shareholders' equity, to be included in
other comprehensive income. The Company's comprehensive loss approximated $6.9
million and $2.7 million for the three months ended April 4, 1998 and March
29, 1997, respectively.
 
                                       9
<PAGE>
 
                              POLYMER GROUP, INC.
 
            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
 
NOTE 6. OTHER (CONTINUED)
 
In 1997, the Financial Accounting Standards Board issued Statement No. 131,
"Disclosures about Segments of an Enterprise and Related Information" ("FAS
131") which is effective for years beginning after December 15, 1997. FAS 131
establishes standards for the way that public business enterprises report
information about operating segments in annual financial statements and
requires that those enterprises report selected information about operating
segments in interim financial reports. It also establishes standards for
related disclosures about products and services, geographic areas, and major
customers. FAS 131 does not require interim disclosures during the initial
year of application; however, the segment information must be reported for
comparative purposes in interim financial statements in the second year of
application. The Company has adopted FAS 131 and will defer reporting segment
information in the interim financial statements until the second year of
application.
 
                                      10
<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 3,
1998.
 
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 4,  MARCH 29,
                                                               1998      1997
                                                             --------  ---------
      <S>                                                    <C>       <C>
      Net sales by product category:
        Hygiene.............................................   41.5%      42.0%
        Medical.............................................   11.8       16.7
        Wiping..............................................   13.6       20.4
        Industrial and specialty............................   33.1       20.9
                                                              -----      -----
                                                              100.0      100.0
      Cost of goods sold....................................   76.1       74.7
                                                              -----      -----
        Gross profit........................................   23.9       25.3
      Selling, general and administrative expenses..........   13.4       14.5
                                                              -----      -----
      Operating income......................................   10.5       10.8
      Other (income) expense
        Interest expense, net...............................    8.3        5.3
        Foreign currency (gains) losses, net................    0.3       (0.2)
                                                              -----      -----
                                                                8.6        5.1
      Income before income taxes and extraordinary item.....    1.9        5.7
      Income taxes..........................................    0.7        1.9
                                                              -----      -----
      Income before extraordinary item......................    1.2        3.8
      Extraordinary item, (loss) from extinguishment of
       debt.................................................   (1.4)       --
                                                              -----      -----
      Net income (loss).....................................   (0.2)%      3.8%
                                                              =====      =====
</TABLE>
 
COMPARISON OF THREE MONTHS ENDED APRIL 4, 1998 AND MARCH 29, 1997
 
NET SALES
 
The following table sets forth components of the Company's net sales by
product category for the three months ended April 4, 1998 and the
corresponding increase/(decrease) over the comparable fiscal period in the
prior year:
 
<TABLE>
<CAPTION>
                                                                      %
                                   FIRST QTR FIRST QTR INCREASE/  INCREASE/
                                     1998      1997    (DECREASE) (DECREASE)
                                   --------- --------- ---------- ----------
                                            (DOLLARS IN THOUSANDS)
      <S>                          <C>       <C>       <C>        <C>
      Net sales by product
       category:
        Hygiene................... $ 80,173  $ 54,198   $25,975      47.9%
        Medical...................   22,827    21,460     1,367       6.4
        Wiping....................   26,260    26,303       (43)     (0.2)
        Industrial and specialty..   64,076    26,986    37,090     137.4
                                   --------  --------   -------
          Total net sales......... $193,336  $128,947   $64,389      49.9
                                   ========  ========   =======
</TABLE>
 
                                      11
<PAGE>
 
COMPARISON OF THREE MONTHS ENDED APRIL 4, 1998 AND MARCH 29, 1997--(CONTINUED)
 
NET SALES--(CONTINUED)
 
Consolidated net sales increased $64.4 million, or approximately 50.0%, from
$128.9 million for the three months ended March 29, 1997 to $193.3 million for
the three months ended April 4, 1998. The increase was comprised of $53.6
million in net sales due to the Nonwovens Acquisition and the Oriented Polymer
Acquisition and $14.2 million due to organic growth, offset by a $3.4 million
decline in net sales due to weak European currencies.
 
Hygiene product net sales increased 48.0%, or $26.0 million, from $54.2
million in 1997 to $80.2 million in 1998. The increase was due primarily to
(i) acquisition growth, including the addition of new key hygiene product
customers, (ii) additional manufacturing capacity and (iii) increased volume
output of other process technology. The increase was offset by $1.9 million
due to European currency translation losses.
 
Medical product net sales increased 6.4%, or $1.4 million, from $21.5 million
in 1997 to $22.8 million in 1998. Medical product revenues represented 11.8%
of consolidated net sales for the fiscal quarter. Increases in medical product
net sales were primarily a result of higher sales in surgical gowns and
drapes.
 
Wipes net sales were $26.3 million in the first quarter of 1998 and 1997.
North American sales of food service wiping applications and Handi-wipes
increased by approximately $1.1 million; however, this increase was offset by
$1.2 million from European currency translation losses.
 
Industrial and specialty product net sales increased 137.4%, or $37.1 million,
from $27.0 million in 1997 to $64.1 million in 1998. Industrial and specialty
product revenues represented 33.1% of net sales for the fiscal quarter.
Approximately $35.5 million in growth is attributable to the Nonwovens
Acquisition and the Oriented Polymer Acquisition. Sales of existing products
increased $1.6 million due to strong sales of alkaline battery separators,
apparel lining materials, housewrap and crop cover materials.
 
GROSS PROFIT
 
Gross profit increased to $46.3 million, or 23.9% of consolidated net sales,
for the first quarter of 1998 versus $32.6 million for the comparable period
of 1997. Raw material costs in the first quarter of 1998 were approximately
$82.1 million, or 42.5% of net sales, compared to $55.5 million, or 43.1% of
net sales, in the first quarter of 1997. The decline in raw material costs as
a percentage of net sales reflects the continued trend in lower raw material
costs versus prior periods. Direct labor costs were $16.0 million, or 8.3% of
net sales, in the first quarter of 1998 as compared to $10.2 million, or
approximately 8.0% of net sales, in the first quarter of 1997. Overhead costs
were $48.9 million in the first quarter of 1998 versus $30.6 million in the
first quarter of 1997. The increase in overhead costs between 1998 and 1997
resulted from higher depreciation on completed capital expenditures and higher
incremental overhead associated with the Nonwovens Business.
 
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES
 
Selling, general and administrative expenses decreased from 14.5% of net sales
in the first quarter of 1997 to 13.4% of net sales in the first quarter of
1998 as a result of lower distribution costs and other general and
administrative costs as a percentage of sales. Selling, general and
administrative expenses for the first quarter of 1998 were $26.0 million, up
approximately $7.3 million versus $18.7 million for the first quarter of 1997
due primarily to additional costs associated with the Nonwovens Acquisition
and the Oriented Polymer Acquisition.
 
                                      12
<PAGE>
 
OTHER
 
Interest expense increased $9.2 million, from $6.8 million in the first
quarter of 1997 to $16.0 million in the first quarter of 1998. Interest
expense as a percentage of net sales increased from 5.3% in the first quarter
of 1997 to 8.3% in the first quarter of 1998. The increase in interest expense
is principally due to a higher average amount of indebtedness outstanding.
 
Net foreign currency transaction losses were approximately $0.7 million during
the first quarter of 1998 versus gains of $0.3 million in the first quarter of
1997.
 
The Company provided for income taxes of approximately $1.3 million for the
three months ended April 4, 1998, representing an effective tax rate of 36.2%.
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
foreign tax rates and to an increase in non-deductible goodwill amortization
in 1998. The Company provided for income taxes of $2.5 million during the
first quarter of 1997, representing an effective tax rate of 33.1%.
 
INCOME BEFORE EXTRAORDINARY ITEM
 
Income before extraordinary item was $2.3 million, or $0.07 per share, in the
first quarter of 1998 as compared to $5.0 million, or $0.16 per share, for the
comparable period in the previous year. The approximate $2.7 million decrease
between first quarter 1998 and first quarter 1997 was attributable primarily
to higher interest expense of $9.2 million resulting from the Nonwovens
Acquisition.
 
EXTRAORDINARY ITEM
 
As a result of the Nonwovens Acquisition, the Company recorded one-time
charges of $2.7 million for the write-off of previously capitalized deferred
financing costs.
 
LIQUIDITY AND CAPITAL RESOURCES
 
<TABLE>
<CAPTION>
                                                         APRIL 4,   JANUARY 3,
                                                           1998        1998
                                                        ----------  ----------
                                                           (IN THOUSANDS)
<S>                                                     <C>         <C>
Balance sheet data:
  Cash and equivalents and marketable securities....... $   72,506  $   57,934
  Current assets.......................................    321,605     755,070
  Current liabilities (excluding current portion of
   long-term debt).....................................    130,631     531,769
  Working capital......................................    190,974     223,301
  Total assets.........................................  1,271,906   1,627,753
  Debt (including current portion).....................    852,263     745,136
  Shareholders' equity.................................    192,209     199,090
<CAPTION>
                                                         THREE MONTHS ENDED
                                                        ----------------------
                                                         APRIL 4,   MARCH 29,
                                                           1998        1997
                                                        ----------  ----------
                                                           (IN THOUSANDS)
<S>                                                     <C>         <C>
Cash flow data:
  Net cash provided by operating activities............ $   27,542  $   10,015
  Net cash provided by (used in) investing activities..    200,065     (14,885)
  Net cash provided by (used in) financing activities..   (211,417)      3,852
</TABLE>
 
                                      13
<PAGE>
 
Operating Activities
 
During the three months ended April 4, 1998, the Company's operations
generated $27.5 million in cash. The Company's working capital, excluding
assets held for disposition and short-term bridge financing, increased $6.3
million, from $184.7 million at January 3, 1998 to $191.0 million at April 4,
1998. Cash and equivalents and marketable securities were $72.5 million at
April 4, 1998 as compared to $57.9 million at January 3, 1998. This increase
arose principally from increased operating income during the first quarter of
1998.
 
Investing and Financing Activities
 
Capital expenditures for the three months ended April 4, 1998 totaled $19.1
million, related primarily to margin-enhancing projects. For the remainder of
fiscal 1998, the Company expects capital expenditures to approximate $63.9
million.
 
As discussed in "Note 4. Acquisitions", on December 19, 1997, DTA completed
the purchase of approximately 98% of the outstanding common shares of Dominion
for Cdn$14.50 per share and approximately 96% of the outstanding first
preferred shares of Dominion for Cdn$150 per share. The acquisition, which was
accounted for using the purchase method of accounting, was financed with
$215.9 million of borrowings under DTA's $600.0 million senior secured credit
facilities, and subordinated advances of $141.0, $69.0 and $25.0 million by
Galey, ZB Holdings and the Company, respectively.
 
On January 29, 1998, DTA acquired all remaining common and preferred shares of
Dominion, at which time Dominion underwent a "winding up". All assets of
Dominion were transferred to DTA, all liabilities of Dominion were assumed by
DTA and all outstanding common shares and preferred shares held by DTA were
redeemed. Immediately thereafter, pursuant to a purchase agreement dated
October 27, 1997, the apparel fabrics business of Dominion was sold to Galey
for approximately $464.5 million, including related fees and expenses, and the
Company acquired the Nonwovens Business for approximately $351.6 million,
including fees and expenses. Concurrently, DT USA purchased approximately
$145.6 million of its $150.0 million outstanding 8.875% Guaranteed Senior
Notes due 2003 and, at the same time, purchased approximately $124.5 million
of its $125.0 million outstanding 9.25% Guaranteed Senior Notes due 2006. Net
assets of the apparel business of Dominion were classified as assets held for
disposition on the Company's consolidated balance sheet at January 3, 1998. In
connection with the Nonwovens Acquisition and related transactions, the
Company also amended its credit facility to provide for $125.0 million in term
loans.
 
On March 5, 1998, the Company issued $200.0 million of 8.75% Senior
Subordinated Notes due 2008 to qualified buyers pursuant to Rule 144A under
the Securities Act.
 
On March 16, 1998, the Company completed the Oriented Polymer Acquisition for
approximately $47.0 million in a transaction accounted for by the purchase
method of accounting.
 
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
4, 1998.
 
                                      14
<PAGE>
 
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.
 
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 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.
 
Not applicable.
 
                                      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
 
  On May 11, 1998, the Company's trading symbol on the New York Stock Exchange
for its common stock, par value $.01 per share, was changed to "PGI" from
"PGH." The Company issued a press release announcing the change on May 11,
1998.
 
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.
 
  On February 13, 1998 and April 14, 1998 the Company filed reports on Form 8-K
and Form 8-K/A, respectively, relating to the Nonwovens Acquisition.
 
                                       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 19, 1998
 
                                      17
<PAGE>
 
                                 EXHIBIT INDEX
 
<TABLE>
<CAPTION>
  EXHIBIT
  NUMBER
  -------
 <C>       <S>                                                              <C>
  2.1      Agreement dated October 27, 1997, among Polymer Group, Inc.,
           Galey & Lord, Inc. and DT Acquisition Inc.(1)
  2.2      Letter Agreement, dated October 27, 1997, among Polymer Group,
           Inc., Galey & Lord, Inc. and DT Acquisition Inc.(2)
  2.3      Operating Agreement, dated December 19, 1997, among Polymer
           Group, Inc., Galey & Lord, Inc. and DT Acquisition Inc.(1)
  2.4      DT Acquisition Inc. Offers to Purchase Statement for all out-
           standing Common Shares and all outstanding First Preferred
           Shares of Dominion Textile Inc., dated October 29, 1997.(2)
  2.5      Notice of Extension and Variation by DT Acquisition Inc. in
           respect of its Offers to Purchase, dated November 18, 1997.(2)
  2.6      Notice of Extension by DT Acquisition Inc. in respect of its
           Offers to Purchase, dated December 2, 1997.(2)
  2.7      Notice of Extension and Variation by DT Acquisition Inc. in
           respect of its Offers to Purchase, dated December 8, 1997.(2)
  2.8      Notice of Extension by DT Acquisition Inc. in respect of its
           Offers to Purchase, dated December 17, 1997.(2)
  2.9      Letter Agreement between DT Acquisition Inc., Polymer Group,
           Inc. and Dominion Textile Inc. dated November 16, 1997.(2)
  2.10     Notice of Redemption pursuant to the provisions of Section 206
           of the Canada Business Corporations Act in regard to holders
           of Common Shares of Dominion Textile Inc., dated December 30,
           1997.(2)
  2.11     Notice of Redemption pursuant to the provisions of Section 206
           of the Canada Business Corporations Act in regard to holders
           of First Preferred Shares of Dominion Textile Inc., dated De-
           cember 30, 1997.(2)
  2.12     Notice of Redemption in regard to holders of Second Preferred
           Shares, Series D of Dominion Textile Inc., dated December 23,
           1997.(2)
  2.13     Notice of Redemption in regard to holders of Second Preferred
           Shares, Series E of Dominion Textile Inc., dated December 23,
           1997.(2)
  2.14     Indenture, winding up Dominion Textile Inc. pursuant to the
           Canada Business Corporations Act, dated January 29, 1998.(2)
  2.15     Master Separation Agreement, among Polymer Group, Inc., Galey
           & Lord, Inc. and DT Acquisition Inc., dated January 29,
           1998.(3)*
  3.1(i)   Form of Amended and Restated Certificate of Incorporation of
           the Company.(3)
  3.1(ii)  Certificate of Designation of the Company.(4)
  3.2      Amended and Restated By-laws of the Company.(3)
  4.1      Indenture, dated as of March 1, 1998, among Polymer Group,
           Inc., the Guarantors named therein and Harris Trust & Savings
           Bank, as trustee.
  4.2      Forms of Series A and Series B 8 3/4% Senior Subordinated
           Notes due 2008 (contained in Exhibit 4.1 as Exhibit A and B
           thereto, respectively).
</TABLE>
 
 
                                       18
<PAGE>
 
<TABLE>
<CAPTION>
  EXHIBIT
  NUMBER
  -------
 <C>       <S>                                                              <C>
  4.3      Form of Guarantee (contained in Exhibit 4.2)
  4.4      Registration Rights Agreement, dated as of March 5, 1998,
           among Polymer Group, Inc., the Guarantors named therein and
           Chase Securities Inc.
  4.5      Second Supplemental Indenture dated January 29, 1998, to In-
           denture dated as of June 30, 1997, among Polymer Group, Inc.,
           Dominion Textile (USA) Inc., DomTex Industries Inc., Poly-Bond
           Inc. and Harris Trust & Savings Bank with respect to the 9%
           Senior Subordinated Notes due 2007.(2)
 10.1      Purchase Agreement, dated February 27, 1998, by and among Pol-
           ymer Group, Inc., the Guarantors named therein and Chase Secu-
           rities Inc., as Initial Purchaser, with respect to the 8 3/4%
           Senior Subordinated Notes due 2008.
 10.2      Amendment No. 2, dated January 29, 1998, to the Amended, Re-
           stated and Consolidated Credit Agreement dated July 3, 1997 by
           and among Polymer Group, Inc., the Guarantors named therein,
           the lenders named therein and The Chase Manhattan Bank, as
           agent.
 11        Statement of Computation of Per Share Earnings
 27        Financial Data Schedule
</TABLE>
--------
(1) Incorporated by reference to the respective exhibit to the Company's Form
    8-K, dated February 13, 1998.
(2) Incorporated by reference to the respective exhibit to the Company's Form
    10-K, dated April 3, 1998.
(3) Incorporated by reference to the respective exhibit to the Company's Form
    8-K/A, dated April 14, 1998.
(4) Incorporated by reference to the respective exhibit to the Company's
    Registration Statement on Form S-1 (Reg. No. 333-2424).
(5) Incorporated by reference to the respective exhibit to the Company's
    Registration Statement on Form S-4 (Reg. No. 333-32605).
 
  *Certain portions of this Exhibit have been omitted & filed separately with
     the Commission pursuant to an Application for Confidential Treatment.
 
                                      19