<PAGE>

                                                                      Exhibit 13
 
Selected Consolidated Financial Data
Polymer Group, Inc.
================================================================================
The following table sets forth certain historical financial information of the
Company. The statement of operations data for each of the four years in the
period ended December 28, 1996, the ten-week period ended January 2, 1993 and
the balance sheet data as of December 28, 1996, December 30, 1995, December 31,
1994, January 1, 1994 and January 2, 1993 have been derived from audited
financial statements. The statement of operations data for the forty-two week
period ended October 22, 1992 were derived from the audited statement of
revenues and expenses before corporate interest and income taxes of the
Nonwovens Division of Scott Paper Company, a predecessor ("Predecessor") of the
Company. The table should be read in conjunction with "Management's Discussion
and Analysis of Financial Condition and Results of Operations," the financial
statements of the Company and related notes thereto and other information
included elsewhere in this annual report.

<TABLE>
<CAPTION>




                                                       Company (f)                       Combined (a)   Company     Predecessor
                              --------------------------------------------------------   ------------   ----------  ------------
                                                                                                        Ten-Week      Forty-Two
                                                           Fiscal Year Ended                             Period      Week Period
                              ----------------------------------------------------------------------      Ended        Ended
(In Thousands,                December 28,   December 30,   December 31,    January 1,    January 2,    January 2,   October 22,
Except Per Share Data)            1996           1995           1994          1994          1993          1993         1992
====================================================================================================================================
<S>                           <C>            <C>            <C>             <C>           <C>           <C>          <C>
Statement of operations:
Net sales...................      $521,368       $437,638       $165,333     $121,473      $121,200      $22,081       $99,119
Cost of goods sold..........       389,013        333,606        129,071       97,291       102,980       18,587        84,393
------------------------------------------------------------------------------------------------------------------------------------
 Gross profit...............       132,355        104,032         36,262       24,182        18,220        3,494        14,726
Selling, general and 
 administrative expenses ...        70,207         61,744         20,699       13,022         8,044        2,291         5,753
------------------------------------------------------------------------------------------------------------------------------------
 Operating income...........        62,148         42,288         15,563       11,160        10,176        1,203         8,973
Other expense:
Interest expense, net.......        33,641         37,868         13,216        4,387             -          915             -
Foreign currency transaction
 losses, net................         2,955         22,811         17,332        1,363             -          903             -
Income taxes................        10,730          5,216          3,353        1,970             -           11             -
------------------------------------------------------------------------------------------------------------------------------------
Income (loss) before  
 extraordinary item.........        14,822        (23,607)       (18,338)       3,440             -         (626)            -
Extraordinary item, (loss)
 from extinguishment of debt       (13,932)             -         (4,372)           -             -            -             -
------------------------------------------------------------------------------------------------------------------------------------
Net income (loss)...........           890        (23,607)       (22,710)       3,440             -         (626)            -
Redeemable preferred stock
 dividends and accretion....        (3,020)        (4,839)        (1,209)      (2,480)            -            -             -
------------------------------------------------------------------------------------------------------------------------------------
Net income (loss) applicable 
 to common stock............      $ (2,130)      $(28,446)     $ (23,919)     $   960      $      -      $     -       $     -
====================================================================================================================================
Income (loss) before 
 extraordinary item per 
 common share..............       $    .43       $  (1.39)     $   (.95)     $    .05             -            -             -
====================================================================================================================================
Weighted average number of
 shares (b).................        27,688         20,500         20,500       20,500             -            -             -
====================================================================================================================================
</TABLE>

                                      17
<PAGE>
 
Selected Consolidated Financial Data (cont.)
<TABLE>
<CAPTION>
 
<S>                          <C>         <C>           <C>          <C>            <C>           <C>          <C>       
                              ----------------------------------------------------------------------------------------------------
                                                   Company (f)                         Combined (a)   Company    Predecessor       
                              ----------------------------------------------------------------------------------------------------
                                                                                                      Ten-Week    Forty-Two
                                                                                                       Period    Week Period
                                                       Fiscal Year Ended                                Ended      Ended
                              ---------------------------------------------------------------------                   
(In Thousands,                DECEMBER 28,   December 30,  December 31,   January 1,     January 2,   January 2, October 22,  
Except Per Share Data)            1996           1995         1994          1994            1993         1993         1992
==================================================================================================================================
CASH FLOW AND OTHER DATA:
Cash provided by (used in)
 operating activities......   $ 36,097       $  11,556     $ 17,386       $  6,888       $     -      $(5,561)   $      -
Cash (used in) investing
 activities................    (86,422)       (333,208)     (61,375)        (6,958)            -      (72,699)          -          
Cash provided by (used in)
 financing activities......     64,391         327,636       58,482         (1,038)            -       83,602           -  
EBITDA (c).................     98,915          72,122       23,864         16,115        15,060        2,087      12,973
EBITDA margin (d)..........       19.0%          16.48%       14.43%         13.27%        12.43%        9.45%      13.09%
Depreciation and
 amortization..............   $ 36,767       $  29,834     $  8,348       $  4,955       $ 4,884      $   884    $  4,000
Mexican statutory employee
 profit sharing (e)........          -               -          (47)             -             -            -           -
Capital expenditures.......     26,739          47,842       11,341          6,505         2,457        1,364       1,093
 
BALANCE SHEET DATA:
Cash and equivalents and
 marketable
 securities................   $ 48,479       $  22,949     $ 15,755       $  2,694       $ 3,922      $ 3,922    $      -
Working capital (deficit)..     93,154          61,558       31,060         (5,786)        1,774        1,774           -
Total assets...............    708,115         637,981      241,429        103,187        99,258       99,258           -
Total debt.................    382,242         450,878      190,814         57,562        58,600       58,600           -
Redeemable preferred stock,
 dividends and accretion...          -          44,339            -         31,603        29,123       29,123           -
Shareholders' equity
 (deficit).................    195,918          13,752        2,220           (592)       (1,267)      (1,267)          -
=================================================================================================================================
</TABLE>
(a) Audited operating data of the Predecessor for the forty-two week period
    ended October 22, 1992 have been combined for presentation purposes with the
    audited data of the Company for the ten-week period ended January 2, 1993.
(b) Gives effect to the approximately 19.97 to 1 stock split which was
    consummated concurrently with the Company's initial public offering ("IPO"
    or "Offering").
(c) EBITDA is defined as operating income plus depreciation, amortization and
    Mexican statutory employee profit sharing and is presented because it is
    generally accepted as providing useful information regarding a company's
    ability to service and/or incur debt. EBITDA should not be considered in
    isolation from or as a substitute for net income, cash flows from operating
    activities and other consolidated income or cash flow statement data
    prepared in accordance with generally accepted accounting principles or as a
    measure of profitability or liquidity.
(d) EBITDA margin represents EBITDA as percentage of net sales.
(e) In accordance with Mexican law, the Company's Mexican subsidiary is required
    to share with employees 10% of its pre-tax profits.
(f) On June 24, 1994 the Company acquired ("Bonlam Acquisition" and "Fabrene
    Acquisition", respectively) Bonlam, S.A. de C.V ("Bonlam"), and Fabrene,
    Inc. ("Fabrene"). On March 15, 1995 the Company acquired ("Chicopee
    Acquisition") the Nonwovens Business of Johnson & Johnson Advanced Materials
    Company and Chicopee B.V. (collectively, "Chicopee"). On August 14, 1996 the
    Company acquired FNA Polymer Corp. ("FNA"), formerly known as Fitesa North
    America Corporation.

                                      18
<PAGE>
 
Management's Discussion and Analysis of
Financial Condition and Results of Operations
Polymer Group, Inc.

RESULTS OF OPERATIONS

Set forth below are certain items expressed as a percentage of net sales for
fiscal years ended:
<TABLE>
<CAPTION>
                                  DECEMBER 28,   December 30,   December 31,
                                          1996           1995           1994
--------------------------------------------------------------------------------
<S>                               <C>            <C>            <C>
Net sales by product category:
Hygiene.........................          44.4%          45.1%          80.8%
Medical.........................          17.6           16.7             --
Wiping..........................          17.4           16.7             --
Industrial and specialty........          20.6           21.5           19.2

Net sales.......................         100.0          100.0          100.0
Raw material costs..............          46.1           48.8           52.3
Labor costs.....................           7.6            7.5            7.5
Overhead costs..................          20.9           19.9           18.3

Total costs of goods sold.......          74.6           76.2           78.1

Gross profit....................          25.4           23.8           21.9
Selling, general and
  administrative expenses.......          13.4           14.1           12.5

Operating income................          11.9            9.7            9.4
Other (income) expense:
Interest expense, net...........           6.5            8.7            8.0
Foreign currency
  transaction losses, net.......           0.5            5.2           10.5
Income (loss) before
  income taxes and
  extraordinary item............           4.9           (4.2)          (9.1)

Income taxes....................           2.1            1.2            2.0

Income before
  extraordinary item............           2.8           (5.4)         (11.1)

Extraordinary item, net of
  income tax benefit............           2.6             --            2.6

Net income (loss)...............           0.2%          (5.4)%        (13.7)%
</TABLE>


1996 COMPARED TO 1995

The Company experienced a high level of demand for several of its advanced
technologies in 1996. Net sales for 1996 were $521.4 million, an $83.7 million,
or 19.1%, increase over net sales of $437.6 million in 1995. The Company
achieved growth through both strategic acquisitions and capacity expansions of
existing assets. Net sales increased by $62.9 million as a result of the
inclusion of a full twelve months of Chicopee operations in 1996 as compared to
only nine and one half months in 1995. Market demand was up in all major product
categories, with hygiene and medical products representing the strongest unit
growth.

Hygiene product sales increased $33.6 million to $231.2 million (44.4% of
consolidated net sales) in 1996, from $197.6 million (45.1% of consolidated net
sales) in 1995. Sales of hygiene products made with spunbond and spunbond-
meltblown-spunbond ("SMS"), adhesive bond and apertured film technologies
increased by $28.5 mllion in 1996. Driving the internal growth of hygiene
products was the Mexican SMS expansion and rising demand for apertured film
facings, partially offset by declining thermal bond volume and the
discontinuation of purchased spunbond from a former joint venture partner. SMS
fabric has been the fastest-growing technology within the nonwovens industry,
experiencing demand growth in excess of 10% globally in 1996. The growth in net
sales reflects the Company's continued investment in SMS capacity to support the
rising demand for high performance nonwoven fabrics in hygiene and medical
applications. The Company's spunbond and SMS revenues increased 137% in 1996 as
a result of the successful SMS line start-up in San Luis Potosi, Mexico, and the
acquisition of FNA in October of 1996. Anticipating continued strong growth for
spunbond polypropylene products, the Company recently announced its commitment
to install a high volume multi-polymer line at the Mooresville, North Carolina
facility in late 1997. Higher volumes of adhesive bond sublayer fabrics for
hygiene applications also contributed to the increase in revenues from 1995 to
1996.

Sales of traditional carded nonwoven fabric for the hygiene market declined
somewhat in 1996 due to a shift in market demand towards spunbond/SMS
technology. While this trend is expected to continue as new spunbond/SMS
capacity is added to the industry globally, the Company believes demand for its
traditional carded nonwoven fabric will continue at high levels due to the
unique attributes of this technology, competitive pricing, and the development
of new end uses. Additionally, the adoption of the clothlike backsheet feature
by major diaper producers remains a potential opportunity for greater demand of
light weight nonwoven fabric that would further utilize the Company's
traditional carded nonwoven fabric.

Medical product sales increased $18.7 million to $91.7 million in 1996, from
$73.0 million in 1995. The Company's medical business benefited from a high
level of unit volume growth during the year, offset by a decrease in average
unit selling prices as a result of the pass through of lower raw material costs.
The net increase in total medical sales between 1996 and 1995 attributable to
volume growth was $7.5 million, or 10.2%, offset by price reductions of $5.9
million related to lower material cost. Growth in medical sales attributable to
the acquisition of FNA and Chicopee were $17.2 million.

                                      19
<PAGE>
 
Wiping product sales were $90.6 million in 1996, compared to $73.0 million in
1995, reflecting an increase of $17.6 million. Revenue growth in the wipes
category was principally due to inclusion of a full year of Chicopee operations.

Sales of industrial and specialty products were $107.8 million in 1996, compared
to $94.1 million in 1995, up 14.6% due primarily to the acquisitions of FNA and
Chicopee. In addition, industrial and specialty product revenue grew in 1996 as
a result of: (i) new product introductions such as decal backings, apparel
interlinings, window coverings and landscape fabrics; and (ii) growth in
established product lines such as microporous separators, crop covers, home
furnishings, clean room rollgoods and industrial protective coverings.

Gross profit was $132.4 million, or 25.4% of net sales, compared to $104.0
million, or 23.8% of net sales in 1995. The improvement in gross profit as a
percentage of sales was largely due to lower raw material costs. After a rapid
rise in the cost of key raw materials in 1995, the costs of the Company's
primary raw materials decreased by late 1995 and continued to decline into 1996.
As a result, material costs decreased 2.7% as a percent of net sales from the
previous year. Woodpulp, rayon fiber, polyester fiber and polypropylene resin
declined most significantly in 1996 relative to 1995. Polyethylene resin was
initially lower in the first half of 1996 but price increases since mid year
were only partially passed through to the market. Polypropylene fibers, which
represent a major share of the Company's purchases, experienced a stable price
environment in 1996. During 1996 the Company successfully completed a strategic
cost reduction project with the installation of polypropylene fiber spinning
equipment at the Neunkirchen, Germany facility for its internal fiber
requirements. The Company expects to complete qualifications of the new fiber
product and to begin to realize cost savings in fiscal 1997. Additionally, the
Company has increased its gross margins as a result of improvements in
manufacturing efficiencies and material utilization and a mix shift to greater
value added products. The Company has improved material utilization primarily by
reducing waste, controlling weight variation and designing lower basis weight
products. Overhead expenses increased from 19.9% of net sales in 1995 to 20.9%
of net sales in 1996 as a result of higher depreciation on completed capital
expenditures and transitional overhead associated with the integration of value-
added production in the hygiene product category. 

Selling, general and administrative expenses were $70.2 million in 1996,
compared with $61.7 million in 1995, an increase of $8.5 million primarily due
to the acquisition of FNA in August 1996 and a full year of expenses related to
the Chicopee operations compared with nine and one half months in 1995. As a
percentage of net sales, selling, general and administrative expenses decreased
to 13.5% in 1996 from 14.1% in 1995. The decrease reflects lower selling and
administrative expenses due to efficiencies resulting from increased sales
volume. The Company continued to aggressively develop its key technologies in
1996, spending approximately $6.9 million on designated research and development
activities. Company engineers developed over 49 new fabric styles utilizing the
Apex(R) technology; commercialized a proprietary new hygiene fabric for improved
wetness acquisition; commercialized a heavyweight shop towel as a line extension
in wipes; and enhanced manufacturing quality and efficiency.

As nonwoven fabrics become more specialized, the Company's challenge is to
develop greater value and functionality in its products and to get new and
improved products to the marketplace sooner. In a move to meet this challenge,
the Company's product development lines currently located at its research and
development facility in Dayton, New Jersey, will be relocated among the
Company's manufacturing facilities in 1997. Management believes this will reduce
the cycle time for the introduction of new products and processes by allowing
manufacturing personnel to be more involved in the development process.

Interest expense decreased $4.3 million from $37.9 million in 1995 to $33.6
million in 1996. Interest expense as a percentage of net sales decreased to 6.5%
in 1996 from 8.7% in 1995. These decreases are principally due to a lower
average amount of indebtedness outstanding in 1996. Net foreign currency
transaction losses were approximately $3.0 million (0.5 % of net sales) in 1996
versus $22.8 million (5.2% of net sales) in 1995. In 1996, the Company's
European operations incurred net foreign currency transaction losses of $6.2
million which were offset by net foreign currency transaction gains of $3.3
million within the Company's Mexican operation. The IPO and related debt
refinancing (collectively, the "Recapitalization") eliminated the majority of
the Company's United States dollar intercompany debt, effectively reducing the
Company's exposure to foreign currency fluctuations as discussed more fully in
"Liquidity and Capital Resources".

Income before nonrecurring charges was $14.8 million in 1996 versus a loss
before nonrecurring charges of $23.6 million in 1995. Income before nonrecurring
charges was favorably impacted during 1996 by increased profitability
attributable primarily to volume increases within the hygiene and industrial and
specialty product categories. Offsetting the effects of improved gross profit
were foreign currency transaction losses of approximately $3.0 million in 1996.
The Company provided for income taxes before nonrecurring charges of $10.7
million during 1996, representing an effective tax rate of approximately 42%.
Unfavorably impacting net income in the prior year was a higher effective tax
rate resulting from foreign losses which did not give rise to a corresponding
tax benefit.

In accordance with Statement of Financial Accounting Standards No. 109,
"Accounting for Income Taxes," a valuation allowance of $14.1 million has been
recognized at December 28, 1996 to offset deferred tax assets due to the
uncertainty of realizing the benefit of foreign net operating and capital loss
carryforwards of approximately $16.9 million. The Company has operating loss
carryforwards of approximately $28.7 million for federal income tax purposes
expiring in the years 2007-2011; capital loss carryforwards of $6.0 million
related to its Canadian operations; and operating loss carryforwards of $15.6
million which begin to expire in 2002 related to its Mexican operation. No
accounting recognition has been given to the potential income tax benefit

                                      20
<PAGE>
 
related to the Canadian and Mexican operating loss carryforwards. The Company
has not provided U.S. income taxes for undistributed earnings of foreign
subsidiaries which are considered to be retained indefinitely for reinvestment.
The distribution of these earnings would result in additional foreign
withholding taxes and additional U.S. federal income taxes to the extent they
are not offset by foreign tax credits, but it is not practicable to estimate the
total liability that would be incurred upon such a distribution. However, in
1996, the Company provided approximately $3.5 million for income taxes related
to the distribution of earnings from certain of its foreign operations which are
not considered to be retained indefinitely for reinvestment.

As a result of the Recapitalization, the Company recorded nonrecurring charges
of approximately $13.9 million (net of the related income tax benefit of
approximately $7.5 million), or $.51 per common share, related to the write-off
of previously capitalized debt issue costs and prepayment penalties paid in
connection with the repurchase of $50.0 million in principal of the Company's
Senior Notes.

1995 Compared to 1994

Consolidated net sales increased $272.3 million, to $437.6 million in 1995 from
$165.3 million in 1994, primarily as a result of the inclusion of Chicopee for
the period from March 16, 1995 to December 30, 1995 and, to a lesser extent,
from the inclusion of a full year of Fabrene and Bonlam net sales in 1995. For
the period from March 16, 1995 to December 30, 1995, Chicopee's net sales were
$225.6 million. Net sales for Fabrene and Bonlam increased $38.1 million, to
$77.9 million in 1995 from $39.8 million in 1994. Of this increase, $30.6
million was attributable to the inclusion of a full year of net sales. The
remaining $7.5 million increase in sales for Fabrene and Bonlam represented
organic volume growth of 10.6% during fiscal 1995. This volume growth was made
possible by the 1995 SMS capacity expansions at the Company's Mexican facility
and the woven capacity additions in North Bay, Ontario, Canada. Organic growth
in the rest of the Company's businesses was $8.6 million, or 6.8% over 1994, and
was principally due to price increases for the Company's hygiene products,
reflecting higher raw material costs and the addition of higher value end-use
products.

Gross profit as a percentage of net sales increased to 23.8% in 1995 from 21.9%
in 1994, primarily as a result of favorable diversification in the product mix
from the acquired businesses and, to a lesser extent, cost reduction programs
and decreases in raw material prices. In particular, the addition of the wipes
product category to the Company's business produced a favorable impact on gross
margins. Gross profit increased $67.7 million, to $104.0 million in 1995 from
$36.3 million in 1994, primarily due to the Chicopee Acquisition and the effect
of a full year of Fabrene and Bonlam. Raw material costs decreased to 48.8% of
net sales in 1995 from 52.3% of net sales in 1994, reflecting a mix of less
expensive raw materials associated with Chicopee. Labor expenses remained
constant at 7.5%. Overhead expenses increased from 18.3% of net sales in 1994 to
19.9% of net sales in 1995 as a result of higher depreciation on completed
capital expenditures and the additional over head expenses of Chicopee. The
Company's gross profit not attributable to the inclusion of Chicopee and a full
year of Fabrene and Bonlam was relatively flat between 1995 and 1994 as a result
of the following factors: (i) highly competitive pricing by diaper producers,
(ii) excess supply and soft pricing of spunbond products, and (iii) capacity
limitations at the North Bay, Ontario wovens facility, which prevented
incremental volume growth until capacity was added.

Selling, general and administrative expenses increased $41.0 million to $61.7
million in 1995 from $20.7 million in 1994, due to the acquisition of Chicopee
and the inclusion of a full year of operating expenses of Fabrene and Bonlam.
Selling, general and administrative expenses as a percentage of net sales
increased to 14.1% in 1995 from 12.5% in 1994, primarily as a result of the
acquisition of a branded wipes business as part of the Chicopee Acquisition,
which business requires greater selling and distribution expenses than the
Company's other businesses. General and administrative expenses increased $18.2
million between 1995 and 1994 as a result of the Chicopee Acquisition, although
general and administrative expenses as a percentage of net sales remained
constant at 6.6%.

Interest expense increased $24.7 million to $37.9 million in 1995 from $13.2
million in 1994. Interest expense as a percentage of net sales increased to 8.7%
in 1995 from 8.0% in 1994. These increases are principally due to a higher
average amount of indebtedness outstanding in 1995 connected with the Chicopee
Acquisition. Net foreign currency transaction losses were $22.8 million (5.2% of
net sales) in 1995 and $17.1 million (10.3% of net sales) in 1994. In 1995, the
Company's Canadian and European operations collectively incurred net foreign
currency transaction gains of $1.6 million which were offset by net foreign
currency transaction losses of $24.4 million within the Company's Mexican
operation. During the fourth quarter of 1994, the Mexican government
discontinued monetary support for the nuevo peso allowing it to float to market
rates, which resulted in a devaluation of the nuevo peso of approximately 124%
between December 20, 1994 and December 30, 1995. Approximately 97% ($23.5
million ) of the Company's Mexican related net foreign currency transaction
losses during 1995 resulted from its United States dollar denominated
intercompany indebtedness. As previously discussed, the Recapitalization
eliminated the majority of the Company's United States dollar intercompany debt,
effectively reducing the Company's exposure to foreign currency fluctuations.

Net loss increased $0.9 million, to $23.6 million in 1995 from $22.7 million in
1994, primarily as a result of an increase in net foreign currency transaction
losses of $5.8 million related mainly to the continued devaluation of the
Mexican nuevo peso during 1995 and to an increase in interest expense of $24.7
million due to a higher average amount of indebtedness outstanding in 1995
connected with the Chicopee Acquisition. Increasing the Company's net loss in
1995 was a high effective tax rate resulting from foreign losses, which did not
give rise to a corresponding tax benefit. Net loss was reduced during 1995 as a
result of increased net sales of $272.3 million and increased gross profit of
$67.7 million, each attributable primarily to the Chicopee Acquisition.

                                      21
<PAGE>
 
Liquidity and Capital Resources
Operating Activities

At fiscal year-end 1996 the Company had $36.1 million of cash compared to $11.6
million at year-end 1995, an increase of $24.5 million. This increase arose
principally from a higher level of operating income in 1996 and lower interest
costs due principally to a lower average amount of indebtedness outstanding in
1996. The Company's working capital increased $31.6 million, or 51.3%, from
$61.6 million in 1995 to $93.2 million in 1996, primarily as a result of
increases in accounts receivable and inventories offset by lower increases in
accounts payable and accrued expenses. Cash and equivalents and marketable
securities were $48.5 million at December 28, 1996 as compared to $22.9 million
at December 30, 1995, an increase of $25.6 million.

Investing and Financing Activities

On May 15, 1996, the Company completed its Offering of 11.5 million shares of
common stock at an offering price of $18.00 per share. Net proceeds to the
Company after underwriting fees and related costs were $190.8 million. As part
of the Offering, the Company consummated the following transactions: (i)
effectively repaid all outstanding indebtedness under the existing credit
facilities and terminated the facilities; (ii) redeemed $50.0 million principal
amount of the Senior Notes at a premium of 112.25%; (iii) redeemed the preferred
stock of Chicopee at a price equal to $1,000 per share plus accrued but unpaid
dividends of $46.9 million; (iv) redeemed the preferred stock of the Company at
a price equal to $1,000 per share plus accrued but unpaid dividends of $10.5
million; and (v) entered into a New Credit Facility which consists of a $200.0
million term loan and a $125.0 million revolving credit facility. In order to
enter into the New Credit Facility, the Company was required to obtain the
consents of holders of a majority of the outstanding principal amount of the
Senior Notes. Pursuant to a consent solicitation statement dated March 14, 1996,
the Company solicited and received the required consents, and, accordingly, the
Company and the trustee executed a Third Supplemental Indenture dated April 9,
1996 that became effective concurrently with the Offering, which allowed the
Company to enter into the New Credit Facility.

On August 14, 1996, a wholly-owned subsidiary of the Company completed the
acquisition of the business of FNA for approximately $48.0 million in a
transaction accounted for by the purchase method of accounting. FNA produces
polypropylene fabrics for the nonwovens industry utilizing spunbond/SMS
technologies. FNA competes primarily in three markets: hygiene markets,
including adult incontinence products and feminine hygiene products; disposable
products, including landscape and agricultural applications; and durable
products, including products for home furnishings.

Polymer Group maintains a comprehensive capital expenditure program and
continuously evaluates strategic acquisition opportunities to expand its
existing production capacity or enhance production technologies. Capital
programs which are currently in process as well as those which were completed in
1996 are consistent with the Company's criteria for capital expenditures which
include projects to debottleneck or expand the highest growth technologies such
as spunbond/SMS, spunlace and apertured films. Capital spending in 1996
approximated $26.7 million. During the third quarter of 1996, the Company
announced plans to install a 4.2 meter wide SMS line at its Mooresville, North
Carolina plant site. The new line will have the capability to produce polyester
nonwoven fabric as well as polypropylene and other polymer-based fabric. Other
anticipated uses include industrial and specialty applications made possible by
the new line's multi-polymer capability. The total capital outlay for this new
line is expected to approximate $25.0 million with commercial start-up expected
to begin in the fourth quarter of 1997.

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 New Credit
Facility, will be adequate over the next several years to make required debt
payments, including interest thereon, permit anticipated capital expenditures
and fund the Company's working capital requirements.

As disclosed in its Registration Statement on Form S-1, declared effective by
the Securities and Exchange Commission on May 9, 1996, and in connection with
the Chicopee Acquisition, management of the Company adopted a plan to relocate
manufacturing equipment, corporate offices and certain equipment used in
Chicopee's North American research and development activities to other sites
within the United States. Accordingly, the Company provided for accrued
restructuring costs of approximately $17.9 million in connection with the
allocation of the purchase price to the fair value of assets acquired and
liabilities assumed. During 1996 and 1995, the Company charged approximately
$3.5 million and $2.4 million, respectively, against the accrued restructuring
reserve. In 1996, the charges against the restructuring reserve related
primarily to: (i) the relocation of assets, including equipment used in
production and research and development related activities ($2.5 million); (ii)
the relocation of the acquiree's corporate headquarters ($0.8 million); and
(iii) other miscellaneous costs within the provisions of the restructuring plan
($0.2 million). At December 28, 1996, the Company's total accrued restructuring
costs associated with the plan approximated $12.0 million. Management currently
estimates that approximately $10.0 million of the total accrued restructuring
costs will be incurred during 1997; therefore, this portion of the total accrual
has been recognized as a current liability in the consolidated balance sheet.

Environmental

The Company is subject to a broad range of federal, foreign, state and local
laws governing regulations relating to the pollution and protection of the
environment. Among the many environmental requirements applicable to the Company
are laws relating to air emissions, wastewater discharges and the handling,
disposal and release of solid and hazardous substances and wastes. Based on
continuing internal review and advice from independent consultants, the Company
believes that it is currently in substantial compliance with environmental
requirements. The Company is also subject to laws, such as the Federal
Comprehensive

                                      22
<PAGE>
 
Environmental Response, Compensation, and Liability Act of 1980 ("CERCLA"), that
may impose liability retroactively and without fault for releases of hazardous
substances at on-site or off-site locations. The Company is not aware of any
releases for which it may be liable under CERCLAor any analogous provision. As a
result, the Company does not currently anticipate any material adverse effect on
its operations, financial condition or competitive position as a result of its
efforts to comply with environmental requirements. Some risk of environmental
liability is inherent, however, in the nature of the Company's business, and
there can be no assurance that material environmental liabilities will not
arise.

Effect of Inflation

Inflation generally affects the Company by increasing the cost of labor,
equipment and raw materials. The Company believes that inflation had no material
effect on the Company's results of operations during fiscal 1996. See "Foreign
Currency" below.

Foreign Currency

The Company manufactures certain of its products in Germany, Canada, Mexico and
the Netherlands. The Company accounts for and reports translation of foreign
currency transactions and foreign currency financial statements in accordance
with Statement of Financial Accounting Standards No. 52, "Foreign Currency
Translation" ("FAS 52"). For all periods through December 28, 1996, the foreign
entities have used the local currency as the functional currency and translated
assets and liabilities at period-end exchange rates and income and expense
accounts at the average exchange rates prevailing during the period. The non-
cash adjustment resulting from translation of financial statements is recorded
in a separate component of shareholders' equity. Prior to the translation of
financial statements, the foreign entities adjust assets and liabilities which
are to be settled in a currency other than the functional currency to the
functional currency using period-end exchange rates.

Effective December 29, 1996, the Company changed the functional currency for its
Mexican subsidiary from the nuevo peso to the United States dollar due to
economic factors and circumstances including: (i) the cumulative inflation index
in Mexico has been approximately 100% over a three year period ending December
28,1996; (ii) an increase in the volume of transactions denominated in dollars
including dollar-indexed transactions; and (iii) the cash flows of the Company's
Mexican subsidiary are directly affected since a substantial portion of
transactions are dollar denominated or dollar-indexed. Over 50% of product
shipments from the Company's Mexican subsidiary during 1996 were either dollar
denominated or dollar-indexed transactions. Since a significant portion of
transactions are dollar-based, inflationary increases have not had a material
effect on the Company's results of operations, as indicated in "Effect of
Inflation" above.

The dollar translated amount for nonmonetary assets, primarily property, plant
and equipment and goodwill, at December 28, 1996 was the accounting basis for
those assets at December 29, 1996 and for subsequent periods. Additionally, the
Mexican-related cumulative translation adjustment at December 28, 1996
accumulated in shareholders' equity prior to this change in functional currency
remains a separate component of shareholders' equity.

Derivatives

The Company has only limited involvement with derivative financial instruments
and does not use them for trading purposes. Such products are used only to
manage well-defined interest rate risks. Premiums paid for purchased interest
rate cap agreements are charged to expense over the rate cap period. On May 16,
1996 and in connection with the Recapitalization, the Company entered into a
London Interbank Bid Offer Rate-based interest rate cap agreement. The agreement
period extends through March 30, 1999, subject to adjustment, and provides for a
notional amount of $100.0 million which declines ratably over the rate cap term.
If the rate cap exceeds 9% on each quarterly reset date, as defined in the
agreement, the Company is entitled to receive an amount by which the rate cap
exceeds 9%. Over the term of the agreement in 1996, such amount did not exceed
9%.

New Accounting Standards

On December 31, 1995, the Company adopted the provisions of Financial Accounting
Standards Board ("FASB") Statement No. 121, "Accounting for the Impairment of
Long-Lived Assets and for Long-Lived Assets to be Disposed Of" ("FAS 121"),
which requires impairment losses to be recorded on long-lived assets used in
operations when indicators are present and the undiscounted cash flows estimated
to be generated by those assets are less than the assets' carrying amount. The
effect of adoption did not have a material impact on the Company's results of
operations. In connection with its IPO, the Company adopted the provisions of
FASB Statement No. 123, "Accounting for Stock-Based Compensation" ("FAS 123").
FAS 123 establishes financial accounting and reporting standards for stock-based
compensation plans. As permitted by FAS 123, the Company elected to account for
stock-based compensation awards in accordance with Accounting Principles Board
No. 25.

Safe Harbor Statement

This annual report contains forward-looking statements within the meaning of
Section 27A of the Securities Act of 1933, as amended, and Section 21E of the
Securities Exchange Act of 1934, as amended. In addition, from time to time, the
Company or its representatives have made or may make forward-looking statements,
orally or in writing. Such forward-looking statements may be included in, but
are not limited to, various filings made by the Company with the Securities and
Exchange Commission, press releases or oral statements made with the approval of
an authorized executive officer of the Company. Actual results could differ
materially from those projected or suggested in any forward-looking statements
as a result of a variety of factors and conditions. 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,
fluctuations in raw material costs, and other risks detailed in documents filed
by Polymer Group, Inc. with the Securities and Exchange Commission, including
the Company's Registration Statement on Form S-1 declared effective on May 9,
1996.

                                      23
<PAGE>
 
Report of Manangement
Polymer Group, Inc.

================================================================================
Management is responsible for the integrity and objectivity of the consolidated
financial statements. The statements have been prepared in accordance with
generally accepted accounting principles and, accordingly, include certain
amounts based on management's best estimates and judgment.

To meet its responsibility, management has established and maintains a system of
internal controls that provides reasonable assurance regarding the integrity and
reliability of the financial statements and the protection of assets from
unauthorized use or disposition. These systems are supported by qualified
personnel and by an appropriate division of responsibilities. There are limits
inherent in any system of internal controls since the cost of monitoring such
systems should not exceed the desired benefit. Management believes that the
company's system of internal controls is effective and provides an appropriate
cost/benefit balance.

The Board of Directors, acting through its Audit Committee composed solely of
nonemployee directors, is responsible for determining that management fulfills
its responsibilities in the preparation of financial statements and maintains
financial control of operations. The Audit Committee recommends to the Board of
Directors the appointment of independent auditors subject to ratification by the
shareholders. It meets regularly with management and the independent auditors.

The independent auditors provide an objective, independent review as to
management's discharge of its responsibilities insofar as they relate to the
fair presentation of the consolidated financial statements. Their report is
presented separately.



/s/ Jerry Zucker
Jerry Zucker
Chairman, President and Chief Executive Officer



/s/ James G.Boyd
James G.Boyd
Executive Vice President
and Chief Financial Officer


Report of Ernst & Young LLP, Independent Auditors



================================================================================
The Board of Directors
Polymer Group, Inc.

We have audited the accompanying consolidated balance sheets of Polymer Group,
Inc. as of December 28, 1996 and December 30, 1995, and the related consolidated
statements of operations, shareholders' equity (deficit), and cash flows for
each of the three years in the period ended December 28, 1996.  These financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.

We conducted our audits in accordance with generally accepted auditing
standards.  Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement.  An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements.  An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.

In our opinion, the financial statements referred to above present fairly, in
all material respects, the consolidated financial position of Polymer Group,
Inc. at December 28, 1996 and December 30, 1995 and the consolidated results of
its operations and its cash flows for each of the three years in the period
ended December 28, 1996 in conformity with generally accepted accounting
principles.



/s/ Ernst & Young LLP

Greenville, South Carolina
January 23, 1997

                                      24
<PAGE>
 
Consolidated Balance Sheets
Polymer Group, Inc.


<TABLE>
<CAPTION>


<S>                                                        <C>            <C>



                                                           December 28,   December 30,
(In Thousands, Except Share Data)                                  1996           1995
==========================================================================================
Assets:
Current assets:
Cash and equivalents....................................       $ 37,587       $ 18,088
Marketable securities...................................         10,892          4,861
Accounts receivable, net................................         64,752         58,288
Inventories.............................................         55,637         47,882
Deferred income taxes...................................          5,172          4,100
Other...................................................         10,387         13,691
------------------------------------------------------------------------------------------
 Total current assets...................................        184,427        146,910
Property, plant and equipment, net......................        406,527        380,338
Intangibles, loan acquisition and
 organization costs, net................................         96,932         95,753
Deferred income taxes...................................         10,741          9,500
Other...................................................          9,488          5,480
------------------------------------------------------------------------------------------
 Total assets...........................................       $708,115       $637,981
==========================================================================================
Liabilities and shareholders'
 equity:
Current liabilities:
Accounts payable........................................       $ 36,059       $ 36,550
Accrued liabilities.....................................         33,130         29,813
Income taxes payable....................................          1,196          4,295
Deferred income taxes...................................          1,391          3,756
Current portion of long-term debt.......................         19,497         10,938
------------------------------------------------------------------------------------------
 Total current liabilities..............................         91,273         85,352
Long-term debt, less current
 portion................................................        362,745        439,940
Deferred income taxes...................................         52,115         43,192
Other noncurrent liabilities............................          6,064         11,406
Mandatory redeemable preferred stock of subsidiary; 
 13% cumulative, non-voting, $.01 par value - 
 0 shares authorized, issued and outstanding 
 at 1996 (40,000 shares authorized, issued and
 outstanding at 1995); plus accumulated dividends of 
 $0 at 1996 ($4,575 at 1995); mandatory
 redemption value of $0 at 1996 ($44,575 at 1995).......              -         44,339
Shareholders' equity:
Series preferred stock - $.01 par value, 
 10,000,000 shares authorized at 1996 (0 at 1995); 
 0 shares issued and outstanding at 1996 and 1995......               -              -
Common stock - $.01 par value, 100,000,000 shares
 authorized at 1996 (0 at 1995);  32,000,000 shares 
 issued and outstanding at 1996 (0 at 1995)............             320              -
Non-voting common stock - $.01 par value,  
 3,000,000 shares authorized at 1996 (0 at 1995); 
 0 shares issued and outstanding at 1996 and 1995......               -              -
Class A-1 common stock - $.0005 par value, 
 0 shares authorized at 1996 (8,985,641 at 1995); 
 0 shares issued and outstanding at 1996  
 (5,359,615 at 1995)...................................               -              3
Class A-2 common stock - $.0005 par value, 
 0 shares authorized at 1996 (998,405 at 1995); 
 0 shares issued and outstanding at 1996
 (698,883 at 1995).....................................               -             -
Class A-3 common stock - $.0005 par value, 
 0 shares authorized at 1996 (2,995,214 at 1995); 
 0 shares issued and outstanding at 1996 
 (2,296,330 at 1995)...................................               -             1
Class B common stock - $.0005 par value, 
 0 shares authorized at 1996 (11,980,854 at 1995);  
 0 shares issued and outstanding at 1996 
 (10,727,437 at 1995)..................................               -              6
Class C common stock - $.0005 par value, 
 0 shares authorized at 1996 (4,992,023 at 1995), 
 0 shares issued and outstanding at 1996 and 1995.......              -              -
Additional paid-in capital..............................        243,662         53,134
(Deficit)...............................................        (54,783)       (52,653)
Cumulative translation adjustment.......................          6,790         12,919
Unrealized holding gain (loss) on
 marketable securities..................................            (71)           342
------------------------------------------------------------------------------------------
                                                                195,918         13,752
------------------------------------------------------------------------------------------
  Total liabilities and
  shareholders' equity..................................       $708,115       $637,981
==========================================================================================
See accompanying notes.
</TABLE>


                                      25
<PAGE>
 
Consolidated Statements of Operations
Polymer Group, Inc.
<TABLE>
<CAPTION>
 
 
                                                                     For the Fiscal Year Ended
                                                           --------------------------------------------
                                                           DECEMBER 28,   December 30,   December 31,
(In Thousands, Except Per Share Data)                          1996           1995        1994
=======================================================================================================
<S>                                                       <C>            <C>            <C>
Net sales............................................          $521,368       $437,638       $165,333
Cost of goods sold...................................           389,013        333,606        129,071
-------------------------------------------------------------------------------------------------------
  Gross profit.......................................           132,355        104,032         36,262
Selling, general and administrative expenses.........            70,207         61,744         20,699
-------------------------------------------------------------------------------------------------------
  Operating income...................................            62,148         42,288         15,563
Other expense:
Interest expense, net................................            33,641         37,868         13,216
Foreign currency transaction losses, net.............             2,955         22,811         17,332
-------------------------------------------------------------------------------------------------------
                                                                 36,596         60,679         30,548
-------------------------------------------------------------------------------------------------------
Income (loss) before income taxes and extraordinary
  item...............................................            25,552        (18,391)       (14,985)
Income taxes.........................................            10,730          5,216          3,353
-------------------------------------------------------------------------------------------------------
Income (loss) before extraordinary item..............            14,822        (23,607)       (18,338)
Extraordinary item, loss from extinguishment of
  debt, net of income tax benefit of $7,492 in 1996
  ($1,846 in 1994)...................................           (13,932)            --         (4,372)
-------------------------------------------------------------------------------------------------------
Net income (loss)....................................               890        (23,607)       (22,710)
Redeemable preferrred stock dividends and
  accretion..........................................            (3,020)        (4,839)        (1,209)
-------------------------------------------------------------------------------------------------------
Net (loss) applicable to common stock................          $ (2,130)      $(28,446)      $(23,919)
=======================================================================================================
 
Net income (loss) per common share:
Income (loss) before extraordinary item..............          $    .43       $  (1.39)      $   (.95)
Extraordinary item, net of income tax benefit........              (.51)            --           (.21)
-------------------------------------------------------------------------------------------------------
Net (loss) applicable to common stock................          $   (.08)      $  (1.39)      $  (1.17)
=======================================================================================================
Weighted average number of shares....................            27,688         20,500         20,500
=======================================================================================================
</TABLE>
See accompanying notes.

                                      26
<PAGE>
 
Consolidated Statements of Shareholders' Equity (Deficit)
Polymer Group, Inc.


For the Fiscal Years Ended December 28, 1996,
December 30, 1995 and December 31, 1994
<TABLE>
<CAPTION>
 

                                                                                                        Unrealized
                                                                                          Cumulative  Holding Gain
                                                                   Additional             Translation    (Loss) on
                                                          Common    Paid-in               Adjustments   Marketable
(In Thousands, Except Share Data)                          Stock    Capital    (Deficit)   and Other    Securities     Total
=================================================================================================================================
<S>                                                     <C>        <C>         <C>        <C>         <C>            <C>
Balance -- January 1, 1994......................            $  2   $     78    $    (52)    $  (620)         $   -     $   (592)
Exchange of preferred stock and shareholder
 loans for common stock.........................               -     23,929           -           -              -       23,929
Cash paid to and collected from
 shareholders...................................               -       (595)       (236)         80              -         (751)
Acquisition of affiliate........................               -       (876)          -        (698)             -       (1,574)
Issuance of stock (29,435,640 shares)...........              15          -           -           -              -           15
Net loss........................................               -          -     (22,710)          -              -      (22,710)
Foreign currency translation adjustments........               -         90           -       5,022              -        5,112
Cumulative dividends on redeemable
 preferred stock and discount accretion.........               -          -      (1,209)          -              -       (1,209)
----------------------------------------------------------------------------------------------------------------------------------
Balance -- December 31, 1994....................              17     22,626     (24,207)      3,784              -        2,220

Exchange of Class A and B stock
 (32,959,130 shares)............................             (17)   (22,626)          -           -              -      (22,643)
Issuance of Class A-1 stock (5,359,615 shares)..               3     21,155           -           -              -       21,158
Issuance of Class A-2 stock (698,883 shares)....               -      4,015           -           -              -        4,015
Issuance of Class A-3 stock (2,296,330 shares)..               1      4,621           -           -              -        4,622
Issuance of Class B stock (10,727,437 shares)...               6     22,843           -           -              -       22,849
Issuance of warrants............................               -        500           -           -              -          500
Net loss........................................               -          -     (23,607)          -              -      (23,607)
Foreign currency translation adjustments........               -          -           -       9,135              -        9,135
Cumulative dividends on redeemable
 preferred stock and discount accretion.........               -          -      (4,839)          -              -       (4,839)
Unrealized holding gain on marketable
 securities.....................................               -          -           -           -            342          342
---------------------------------------------------------------------------------------------------------------------------------
Balance -- December 30, 1995....................              10     53,134     (52,653)     12,919            342       13,752

Exercise of warrants (1,417,735 shares).........               1         (1)          -           -              -            -
Approximate 19.97 to 1 stock split..............             194       (194)          -           -              -            -
Issuance of stock, net of costs incurred
 (11,500,000 shares)............................             115    190,723           -           -              -      190,838
Net income......................................               -          -         890           -              -          890
Foreign currency translation adjustments........               -          -           -      (6,129)             -       (6,129)
Cumulative dividends on redeemable
 preferred stock and discount accretion.........               -          -      (3,020)          -              -       (3,020)
Unrealized holding (loss) on
 marketable securities..........................               -          -           -           -           (413)        (413)
---------------------------------------------------------------------------------------------------------------------------------
Balance -- December 28, 1996....................            $320   $243,662    $(54,783)    $ 6,790          $ (71)    $195,918
=================================================================================================================================
See accompanying notes.
</TABLE>

                                      27
<PAGE>
 
Consolidated Statements of Cash Flows
Polymer Group, Inc.
<TABLE>
<CAPTION>
 
 
                                                                 For the Fiscal Year Ended
                                                       --------------------------------------------
                                                       DECEMBER 28,   December 30,   December 31,
(In Thousands)                                                 1996           1995           1994
===================================================================================================
<S>                                                    <C>            <C>            <C>
OPERATING ACTIVITIES
Net income (loss)....................................     $     890      $ (23,607)     $ (22,710)
Adjustments to reconcile net income (loss) to net
  cash provided by operating activities:
Extraordinary item, net of income tax benefit........        13,932             --          4,372
Depreciation and amortization expense................        36,767         29,834          8,348
Foreign currency transaction losses, net.............         2,955         22,811         17,055
Provision for losses on accounts receivable and
  price concessions...................................        9,060          5,788            435
Provision for deferred income taxes..................           339         (1,375)           582
Changes in operating assets and liabilities, net of
  effect of acquisitions:
Accounts receivable..................................       (11,966)       (16,160)        (7,401)
Inventories..........................................        (6,353)        (7,799)         3,953
Accounts payable and accrued expenses................        (5,860)        (2,666)        13,381
Other, net...........................................        (3,667)         4,730           (629)
---------------------------------------------------------------------------------------------------
Net cash provided by operating activities............        36,097         11,556         17,386
---------------------------------------------------------------------------------------------------
INVESTING ACTIVITIES
Purchases of property, plant and equipment...........       (26,739)       (47,842)       (11,341)
Purchases of marketable securities...................       (22,879)       (22,521)        (4,705)
Proceeds from sales of marketable securities.........        16,713         19,929          2,707
Acquisition of businesses, net of cash acquired......       (52,466)      (281,358)       (48,643)
Organization and other costs.........................        (1,051)        (1,416)           607
---------------------------------------------------------------------------------------------------
Net cash (used in) investing activities..............       (86,422)      (333,208)       (61,375)
---------------------------------------------------------------------------------------------------
FINANCING ACTIVITIES
Issuance of common stock, net of costs incurred......       190,838         30,000             15
Proceeds from debt...................................       308,277        273,654        189,514
Payments of debt.....................................      (375,989)       (13,638)      (113,404)
Issuance of redeemable preferred stock
  and warrants.......................................        10,000         40,000             --
Redemption of preferred stock........................       (57,359)            --        (13,324)
Loan acquisition, debt prepayment and other
  costs, net.........................................       (11,376)        (2,380)        (4,319)
---------------------------------------------------------------------------------------------------
Net cash provided by financing activities............        64,391        327,636         58,482
Effect of exchange rate changes on cash..............         5,433         (1,724)        (3,359)
---------------------------------------------------------------------------------------------------
Net increase in cash and equivalents.................        19,499          4,260         11,134
Cash and equivalents at beginning of year............        18,088         13,828          2,694
---------------------------------------------------------------------------------------------------
Cash and equivalents at end of year..................     $  37,587      $  18,088      $  13,828
===================================================================================================
Noncash investing and financing activities:
Issuance of common stock in exchange for preferred
  stock, cumulative dividends and common stock in
  affiliated companies...............................     $      --      $      --      $  23,065
Cumulative dividends on redeemable preferred
  stock and accretion................................         3,020          4,839          1,209
Approximate 19.97 to 1 stock split...................           194             --             --
Supplemental information:
Cash paid for interest...............................        38,111         43,186          3,949
Cash paid for income taxes...........................         6,602          5,027          1,298
Acquisition of businesses:
Fair value of assets acquired........................        61,946        358,814        122,165
Liabilities assumed and incurred.....................         9,480         77,456         73,522
Cash paid............................................        52,466        281,358         48,643
===================================================================================================
</TABLE>
See accompanying notes.

                                      28

<PAGE>
 
Notes to Consolidated Financial Statements
Polymer Group, Inc.

===============================================================================
Note 1. Description of Business and Significant Accounting Policies

(a) Description of Business

Polymer Group, Inc. ("Polymer Group" or "Company") operates in one business
segment, manufacturing and marketing woven and nonwoven polyolefin fabric. The
Company's principle lines of business include hygiene and medical products for
consumer applications, wiping products and industrial and specialty products.
The Company operates thirteen manufacturing facilities located in the United
States, Canada, Mexico, the Netherlands and Germany.

(b) Basis of Presentation and Use of Estimates

The accompanying consolidated financial statements of Polymer Group, a Delaware
corporation incorporated on June 16, 1994, are prepared on the basis of
generally accepted accounting principles and include the accounts of the Company
and its subsidiaries, all of which are wholly-owned. All material intercompany
accounts are eliminated in consolidation. 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 conformity with generally accepted accounting principles requires
management to make estimates and assumptions that affect the reported amounts of
assets and liabilities at the date of the financial statements and the reported
amounts of revenues and expenses during the reporting period. Actual results
could differ from those estimates.

(c) Revenue Recognition

Revenue from product sales is recognized at the time ownership of goods
transfers to the customer and the earnings process is complete.

(d) Cash Equivalents and Investment Income

Investment securities with maturities of three months or less at the time of
acquisition are considered cash equivalents. Investment income approximated $1.9
million in 1996 and consists primarily of interest income from highly liquid
investment sources. Interest expense in the consolidated statements of
operations is net of investment income and capitalized interest (see explanation
(h) below). Investment income was not significant in 1995 or 1994.

(e) Marketable Securities

In accordance with Statement of Financial Accounting Standards No. 115,
"Accounting for Certain Investments in Debt and Equity Securities," the Company
has classified equity securities as available-for-sale which are carried at fair
value based on quoted market prices. Unrealized holding gains and losses on
available-for-sale securities are included as a component of shareholders'
equity. Realized gains and losses are determined on the specific identification
method and included in the determination of net income. Marketable securities as
of December 28, 1996 and December 30, 1995 consist of the following:

<TABLE>
<CAPTION>
(In Thousands)                                                    1996     1995
================================================================================
<S>                                                            <C>       <C>

Marketable securities (common and
 preferred stock):
Cost.......................................................    $10,963   $4,519
Unrealized gains...........................................          -      342
Unrealized (losses)........................................        (71)       -
--------------------------------------------------------------------------------
Gross fair value...........................................    $10,892   $4,861
================================================================================
</TABLE>

(f) Accounts Receivable and Concentration of Credit Risks 

Accounts receivable potentially expose the Company to concentration of credit
risk, as defined by Statement of Financial Accounting Standards No. 105
"Disclosure of Information about Financial Instruments with Off-Balance Sheet
Risk and Financial Instruments with Concentration of Credit Risk." The Company
provides credit in the normal course of business and performs ongoing credit
evaluations on certain of its customers' financial condition, but generally does
not require collateral to support such receivables. The Company also establishes
an allowance for doubtful accounts based upon factors surrounding the credit
risk of specific customers, historical trends and other information. The
allowance for doubtful accounts was $3.8 and $1.9 million at December 28, 1996
and December 30, 1995, respectively, which management believes is adequate to
provide for credit loss in the normal course of business, as well as losses for
customers who have filed for protection under the bankruptcy law. Johnson &
Johnson ("J&J") and The Procter & Gamble Company ("P&G") accounted for
approximately 29% and 14%, respectively, of the Company's sales in 1996. In
1995, J&J and P&G accounted for approximately 28% and 15%, respectively, of the
Company's sales. P&G accounted for approximately 38% of the Company's sales in
1994.

(g) Inventories

Inventories are stated at the lower of cost or market using the first-in, first-
out method of accounting. Supply inventories not expected to be utilized within
one year are classified as other non-current assets. Inventories, classified as
current assets, as of December 28, 1996 and December 30, 1995, consist of the
following:

                                      29
<PAGE>
--------------------------------------------------------------------------------
<TABLE>
<CAPTION>
(In Thousands)                        1996     1995
<S>                                  <C>      <C>
=====================================================
Finished goods.....................  $26,809  $22,476
Work in process and stores and
 maintenance parts.................    3,328    4,010
Raw materials......................   25,500   21,396
-----------------------------------------------------
Total..............................  $55,637  $47,882
=====================================================
</TABLE>

(h) Property, Plant and Equipment
Property, plant and equipment are stated at cost less accumulated depreciation.
Depreciation is computed for financial reporting purposes on the straight-line
method over the estimated useful lives of the related assets. The estimated
useful lives established for building and land improvements range from 18 to 33
years, and the estimated useful lives established for machinery, equipment and
other fixed assets range from 3 to 15 years. Costs of the construction of
certain long-term assets include capitalized interest which is amortized over
the estimated useful life of the related asset. The Company capitalized
approximately $0.8, $1.9 and $0.5 million of interest costs during 1996, 1995
and 1994, respectively.

(i) Intangibles, Loan Acquisition and Organization Costs
The excess of cost over the fair value of net assets of companies acquired is
amortized on the straight-line method over an estimated useful life of 40 years.
Identified intangible assets consist primarily of costs allocated in the
acquisitions to supply agreements, proprietary technology and other acquisition
related arrangements. Such costs are amortized on the straight-line method over
periods not exceeding an estimated useful life of ten years. Capitalized
organization costs are amortized over five years on the straight-line method.
Loan acquisition costs relating to long-term debt are amortized over the term of
the related debt. The lives established for these assets are a composite of many
factors; accordingly, the Company evaluates the continued appropriateness of
these lives based upon the latest available economic factors and circumstances.
The carrying value of goodwill is reviewed if the facts and circumstances
suggest that it may be impaired. If this review indicates that goodwill will not
be recoverable, as determined based on the undiscounted cash flows of the entity
acquired over the remaining amortization period, the Company's carrying value of
the goodwill is reduced by the estimated shortfall of cash flows.

(j) Derivatives
The Company has only limited involvement with derivative financial instruments
and does not use them for trading purposes. Such products are used only to
manage well-defined interest rate risks. Premiums paid for purchased interest
rate cap agreements are charged to expense over the rate cap period. On May 16,
1996, and in connection with the New Credit Facility (see Note 8. Long-Term
Debt), the Company entered into a London Interbank Bid Offer Rate ("LIBOR")-
based interest rate cap agreement. The agreement period extends through March
30, 1999, subject to adjustment, and provides for a notional amount of $100.0
million which declines ratably over the rate cap term. If the rate cap exceeds
9% on each quarterly reset date, as defined in the agreement, the Company is
entitled to receive an amount by which the rate cap exceeds 9%. Over the term of
the agreement in 1996, such amount did not exceed 9%. Charges to expense in 1996
related to derivative products were not significant.

(k) Fair Value of Financial Instruments
The Company has estimated the fair value amounts of financial instruments as
required by Statement of Financial Accounting Standards No. 107, "Disclosures
about Fair Value of Financial Instruments", using available market information
and appropriate valuation methodologies. However, considerable judgment is
required in interpreting market data to develop the estimates of fair value.
Accordingly, such estimates are not necessarily indicative of the amounts that
the Company would realize in a current market exchange. The carrying amount of
cash and equivalents, marketable securities, accounts receivable, other assets
and accounts payable are reasonable estimates of their fair values. Fair value
of the Company's long-term debt was estimated using interest rates at those
dates for issuance of such financial instruments with similar terms and
remaining maturities and other independent valuation methodologies. The
estimated fair value of long-term debt at December 28, 1996 and December 30,
1995 was $391.2 million and $445.2 million, respectively.

(l) Income Taxes
The provision for income taxes and corresponding balance sheet accounts are
determined in accordance with Statement of Financial Accounting Standards No.
109, "Accounting for Income Taxes" ("FAS 109"). Under FAS 109, the deferred tax
liabilities and assets are determined based upon temporary differences between
the basis of certain assets and liabilities for income tax and financial
reporting purposes. A valuation allowance is recognized if it is more likely
than not that some portion or all of a deferred tax asset will not be ultimately
realized.

(m) Research and Development
The cost of research and development is charged to expense as incurred and is
included in selling, general and administrative expense in the consolidated
statement of operations. The Company incurred approximately $6.9, $6.4 and $2.9
million of research and development expense during 1996, 1995 and 1994,
respectively.

                                      30
<PAGE>

--------------------------------------------------------------------------------

(n) Foreign Currency Translation

For all periods through December 28, 1996, the local currencies of the Company's
foreign subsidiaries have been determined to be the functional currencies in
accordance with Statement of Financial Accounting Standards No. 52, "Foreign
Currency Translation" ("FAS 52"). Assets and liabilities of the Company's
foreign subsidiaries are translated into United States dollars at current
exchange rates and resulting translation adjustments are included as a separate
component of shareholders' equity while revenue and expense accounts of these
operations are translated at weighted average exchange rates during the period.
Transaction gains and losses are included in the determination of net income.
See Note 18. Subsequent Events for discussion of the Company's change in
functional currency for its Mexican subsidiary from the nuevo peso to the United
States dollar.

(o) Net Income (Loss) Per Common Share

Net income (loss) per common share is determined by dividing net income (loss)
applicable to common stock by the average number of shares outstanding during
the period. Stock options are considered common stock equivalents, but are
excluded from the calculation of net income (loss) per common share since their
effect is antidilutive.

(p) New Accounting Standards

On December 31, 1995, the Company adopted the provisions of Financial Accounting
Standards Board ("FASB") Statement No. 121, "Accounting for the Impairment of
Long-Lived Assets and for Long-Lived Assets to be Disposed Of" ("FAS 121"),
which requires impairment losses to be recorded on long-lived assets used in
operations when indicators are present and the undiscounted cash flows estimated
to be generated by those assets are less than the assets' carrying amount. The
effect of adoption did not have a material impact on the Company's results of
operations. In connection with the Company's initial public offering of common
stock ("IPO" or "Offering"), the Company adopted the provisions of FASB
Statement No. 123, "Accounting for Stock-Based Compensation" ("FAS 123"). FAS
123 establishes financial accounting and reporting standards for stock-based
compensation plans. As permitted by FAS 123, the Company elected to account for
stock-based compensation awards in accordance with Accounting Principles Board
No. 25. Accordingly, the Company has disclosed information required by FAS 123
in Note 11. Stock Option Plan.


Note 2. Initial Public Offering

Initial Public Offering

On May 15, 1996, the Company completed the Offering of 11.5 million shares its
common stock at a price of $18.00 per share. Net proceeds to the Company after
underwriting fees and other related costs were approximately $190.8 million.
Pursuant to the Recapitalization Agreement dated May 6, 1996, all of the
warrants to acquire shares of Class C common stock were exercised, and the
outstanding shares of Class A common stock, Class B common stock, and Class C
common stock were converted into shares of a single class of common stock
concurrently with the IPO. In connection with the IPO, the Company's Board of
Directors ("Board") approved an approximately 19.97 to 1 stock split.
Accordingly, all common share and warrant data in the consolidated financial
statements have been restated to reflect such stock split. In connection with
consummation of the Offering, the Company consummated the following
transactions: (i) effectively repaid all outstanding indebtedness under the
FiberTech and Chicopee Credit Facilities ("Facilities") and terminated the
Facilities, redeemed $50.0 million principal amount of the 12 1/4% Senior Notes
at a premium of 112.25% plus accrued and unpaid interest and entered into a New
Credit Facility (together with the IPO, the "Recapitalization") (see Note 8.
Long-Term Debt); (ii) redeemed the preferred stock of Chicopee, Inc. at a price
of $1,000 per share plus accrued but unpaid dividends (of approximately $46.9
million); and (iii) redeemed the preferred stock of the Company, which was
issued on January 11, 1996 (see Note 17. Certain Matters), at a price of $1,000
per share plus accrued but unpaid dividends (of approximately $10.5 million).
Redeemable preferred stock activity during 1996 and 1995 consists of the
following:

<TABLE>
<CAPTION>
                                                                Fiscal Year
                                                            -------------------
(In Thousands)                                                1996       1995
--------------------------------------------------------------------------------
<S>                                                         <C>        <C>
Balance at beginning of period............................  $ 44,339    $    --
Issuances of redeemable preferred stock...................    10,000     39,500
Accrued dividends and discount accretion..................     3,020      4,839
Redemption of redeemable preferred stock..................   (57,359)        --
--------------------------------------------------------------------------------
Balance at end of period..................................  $     --    $44,339
--------------------------------------------------------------------------------
</TABLE>

Shareholders' Equity

As a result of the Offering, the Company's authorized capital stock consists of
100,000,000 shares of common stock, par value $0.01 per share, 3,000,000 shares
of non-voting common stock, par value $0.01 per

                                      31
<PAGE>
 
share, and 10,000,000 shares of preferred stock, par value $0.01 per share.
Subject to certain regulatory limitations, the non-voting common stock is
convertible on a one-for-one basis into common stock at the option of the
holder. The Company's Board may, without further action by Polymer Group's
shareholders, from time to time, direct the issuance of shares of preferred
stock in series and may, at the time of issuance, determine the rights,
preferences, conversion features, dividend rate (including whether such dividend
shall be cumulative or noncumulative) and limitations of each series.
Satisfaction of any dividend preferences of outstanding shares of preferred
stock would reduce the amount of funds available for common dividends. Holders
of shares of preferred stock may be entitled to receive a preference payment in
the event of any liquidation, dissolution or winding-up of the Company before
any payment is made to holders of shares of common stock. Following the
Offering, 100,000 shares of junior preferred stock were reserved for issuance in
connection with the Rights Plan (see Note 12. Shareholder Rights Plan).

Note 3. Organization and Acquisitions

On June 24, 1994, the Company issued $150.0 million in 12 1/4% Senior Notes (see
Note 8. Long-Term Debt); acquired two affiliated companies, PGI Polymer, Inc.
("PGI") and Fabrene Inc. ("Fabrene"); and acquired Bonlam, S.A. de C.V.
("Bonlam"). Following these transactions, PGI, Fabrene and Bonlam became wholly-
owned subsidiaries of the Company. PGI, a holding company, was acquired by
exchanging 1,522,370 shares of the Company's common stock and approximately
$13.3 million in cash for all of the outstanding shares of common stock and
preferred stock of PGI, and accrued dividends thereon. The acquisition was
considered to be between entities under common control and was accounted for at
historical cost in a manner similar to a pooling of interests. The net assets of
PGI on a historical cost basis were approximately $16.3 million at the time of
the acquisition. Prior to the acquisitions of PGI and Fabrene by the Company,
PGI owned 27% of Fabrene, a Canadian-based manufacturer and marketer of woven
polyolefin fabrics. This equity interest was acquired indirectly by the Company
in connection with the acquisition of PGI. The remaining 73% was acquired by the
Company in a transaction accounted for by the purchase method of accounting. To
effect the transaction, Fabrene acquired shares of its common stock and warrants
from a shareholder, and repaid a subordinated loan to the shareholder for $12.5
million in cash. The remaining shareholders of Fabrene exchanged their common
stock and common stock warrants for 128,220 shares of common stock of the
Company and approximately $0.8 million in cash. The Company's total cost of
acquiring the ownership not previously owned by PGI was approximately $7.0
million. The Company also acquired all the outstanding common stock of Bonlam, a
Mexican-based manufacturer and marketer of spunbond nonwoven products, for
approximately $40.7 million in a transaction accounted for by the purchase
method of accounting.

On March 15, 1995, the Company completed the acquisition ("Chicopee
Acquisition") of the Nonwovens Business of Johnson & Johnson Advanced Materials
Company and Chicopee B.V. (collectively, "Chicopee") from J&J for an aggregate
consideration of $290.0 million in a transaction accounted for by the purchase
method of accounting. Chicopee manufactures and markets nonwoven roll and
converted products, with a leading market share in the domestic and
international health care market. On August 14, 1996, PGI completed the
acquisition ("FNA Acquisition") of the business of FNA Polymer Corp. ("FNA")
(formerly known as Fitesa North America Corporation) for approximately $48.0
million in a transaction accounted for by the purchase method ot accounting. FNA
produces polypropylene fabrics for the nonwovens industry. The results of FNA
are included in the accompanying consolidated statements of operations for the
period from the date of acquisition through December 28, 1996.

The following pro forma information in the table below is based on historical
financial statements of the Company, FNA and Chicopee adjusted to give effect to
the Offering, the FNA Acquisition, the Chicopee Acquisition and the financing
thereof as if such events occurred on December 31, 1995 and January 1, 1995,
respectively. The allocation of the purchase price for the FNA Acquisition is
subject to revision based on facts and circumstances. The unaudited pro forma
financial information in the table below does not purport to represent what the
Company's results of operations would have been had the FNA Acquisition, the
Chicopee Acquisiton and the Offering actually occurred at the beginning of the
respective periods, or project the Company's results of operations for any
future periods.
<TABLE>
<CAPTION>
                                        Fiscal Year
                                    ------------------
(In Thousands)                          1996      1995
------------------------------------------------------
<S>                                 <C>       <C>
Net sales.........................  $540,395  $519,600
Income before extraordinary item..    19,323    10,284
Net income........................     4,765     2,858
------------------------------------------------------
Per share:
Income before extraordinary item..  $    .60  $    .32
Net income........................       .15       .09
------------------------------------------------------
</TABLE>
                                      32
<PAGE>

-------------------------------------------------------------------------------
Note 4. Property, Plant and Equipment

Property, plant and equipment as of December 28, 1996 and December 30, 1995,
consist of the following:

<TABLE>

(In Thousands)                                                 1996        1995
================================================================================
Cost:
<S>                                                        <C>        <C>
Land....................................................   $  9,272    $  9,091
Buildings and land improvements.........................     84,089      75,297
Machinery, equipment and other..........................    365,464     316,712
Construction in progress................................     12,915      18,429
--------------------------------------------------------------------------------
                                                            471,740     419,529
Less accumulated depreciation...........................    (65,213)    (39,191)
--------------------------------------------------------------------------------
                                                           $406,527    $380,338
================================================================================
</TABLE> 

Depreciation charged to expense was $27.2, $21.0 and $6.3 million during 1996,
 1995 and 1994, respectively.


Note 5. Intangibles, Loan Acquisition and Organization Costs

Intangibles, loan acquisition and organization costs as of December 28, 1996 and
December 30, 1995, consist of the following:

<TABLE>
(In Thousands)                                                 1996        1995
================================================================================
Cost:
<S>                                                        <C>        <C>
Goodwill................................................   $ 61,801    $ 41,837
Identified intangibles:
Supply agreement........................................     13,431      13,000 
Proprietary technology..................................     24,100      24,100
Other...................................................        902         876 
Loan acquisition costs..................................      8,302      21,613 
Organization costs......................................      6,752       7,375
--------------------------------------------------------------------------------
                                                            115,288     108,801
Less accumulated amortization...........................    (18,356)    (13,048)
--------------------------------------------------------------------------------
                                                           $ 96,932    $ 95,753
================================================================================
</TABLE>

Amortization charged to expense was $9.6, $8.9 and $2.1 million during 1996,
1995 and 1994, respectively. The approximate $20.0 million increase in goodwill
between 1996 and 1995 results from the FNA Acquisition. Additionally, the $13.3
million decrease in loan acquisition costs between 1996 and 1995 results from
the early extinguishment of debt in connection with the Offering as discussed in
Note 2. Initial Public Offering and Note 15. Quarterly Results of Operations
(Unaudited).


Note 6. Accrued Liabilities

Accrued laibilities as of December 28, 1996 and December 30, 1995, consist of
the following:

<TABLE>
(In Thousands)                                                 1996        1995
================================================================================
<S>                                                        <C>        <C>
Accrued liabilities:
Interest payable..........................................  $ 6,778     $ 8,898
Salaries, wages and other
 fringe benefits..........................................    7,116       5,924 
Restructuring costs.......................................   10,036       7,540
Other.....................................................    9,200       7,451
--------------------------------------------------------------------------------
                                                            $33,130     $29,813
================================================================================
</TABLE>

As disclosed in its Registration Statement on Form S-1, declared effective by
the Securities and Exchange Commission on May 9, 1996, and in connection with
the Chicopee Acquisition, management of the Company adopted a plan to relocate
manufacturing equipment, corporate offices and certain equipment used in
Chicopee's North American research and development activities to other sites
within the United States.  Accordingly, the Company provided for accrued
restructuring costs of approximately $17.9 million in connection with the
allocation of the purchase price to the fair value of assets acquired and
liabilites assumed. During 1996 and 1995, the Company charged approximately $3.5
million and $2.4 million, respectively, against the accrued restructuring
reserve. In 1996, the charges against the restructuring reserve related
primarily to: (i) the relocation of assets, including equipment used in
production and research and development related activities ($2.5 million); (ii)
the relocation of the acquiree's corporate headquarters ($0.8 million); and
(iii) other miscellaneous costs within the provisions of the restructuring plan
($0.2 million).  At December 28, 1996, the Company's total accrued restructuring
costs associated with the plan approximated $12.0 million. Management currently
estimates that approximately $10.0 million of the total accrued restructuring
costs will be incurred during 1997; therefore, this portion of the total accrual
has been recognized as a current liability in the consolidated balance sheet.

Note 7. Commitments and Contingencies

Leases

The Company leases certain manufacturing, warehousing and other facilities and
equipment under operating leases.  The leases on most of the properties contain
renewal provisions. Rent expense (net of sub-lease income), including incidental
leases, approximated $2.4, $2.3 and $0.3 million in 1996, 1995 and 1994,
respectively. Rental income approximated $2.2 and $2.3 million in 1996 and 1995,
respectively.  The approximate net minimum rental payments required under
operating leases that have initial or remaining non-cancelable lease terms in
excess of one year at December 28, 1996 as follows:



                                      33
<PAGE>
 
<TABLE>
<CAPTION>
 
                          Gross      Lease        Net
                         Minimum    and Sub-    Minimum
                          Rental     Lease       Rental
(In Thousands)           Payments   (Income)    Payments
=========================================================
<S>                     <C>         <C>         <C>
1997..................    $1,778    $   (445)   $  1,333
1998..................     1,484      (1,068)        416
1999..................     1,302      (1,068)        234
2000..................     1,213      (1,068)        145
2001..................     1,137      (1,068)         69
Thereafter............     2,086     (14,408)    (12,322)
---------------------------------------------------------
                          $9,000    $(19,125)   $(10,125)
=========================================================
</TABLE>

Purchase Commitments

At December 28, 1996, the Company had commitments of approximately $73.5 million
related to the purchase of raw materials and converting services and
approximately $30.9 million related to capital projects.

Collective Bargaining Agreements

At December 28, 1996, the Company had a total of approximately 2,300 employees
worldwide.  Of this total, approximately 900 employees are represented by labor
unions or trade councils that have entered into separate collective bargaining
agreements with the Company.  Approximately 34% of the Company's labor force is
covered by collective bargaining agreements which will expire within one year.



Environmental

The Company is subject to a broad range of federal, foreign, state and local
laws governing regulations relating to the pollution and protection of the
environment.  Among the many environmental requirements applicable to the
Company are laws relating to air emissions, wastewater discharges and the
handling, disposal and release of solid and hazardous substances and wastes.
Based on continuing internal review and advice from independent consultants, the
Company believes that it is currently in substantial compliance with
environmental requirements.  The Company is also subject to laws, such as the
Federal Comprehensive Environmental Response, Compensation, and Liability Act of
1980 ("CERCLA"), that may impose liability retroactively and without fault for
releases of hazardous substances at on-site or off-site locations.  The Company
is not aware of any releases for which it may be liable under CERCLA or any
analogous provision.  As a result, the Company does not currently anticipate any
material adverse effect on its operations, financial condition or competitive
position as a result of its efforts to comply with environmental requirements.
Some risk of environmental liability is inherent, however, in the nature of the
Company's business, and there can be no assurance that material environmental
liabilities will not arise.


Note 8. Long-Term Debt

Long-term debt as of December 28, 1996 and December 30, 1995, consists of the
following:

<TABLE>
<CAPTION>

(In Thousands)                                                                                                      1996      1995
====================================================================================================================================
<S>                                                                                                               <C>       <C>
Senior Notes, due July 15, 2002, interest rate 12 1/4%..........................................................  $100,000  $150,000
Term Loans, Facility A, B and C payable in quarterly installments ranging from $751 to $9,588 for the period
 from March 31, 1997 through March 31, 2002; interest at rates ranging from 4.88% to 7.44%......................   199,189        --
Revolving Credit Facility, due March 31, 2002 (subject to two one-year extensions at the request of the
 Company), interest at rates ranging from 4.88% to 7.50%........................................................    80,894        --
FiberTech Revolving Credit Facility, Tranche A aggregate principal of $46,600 due 1997; Tranche B aggregate
 principal of $25,000 due 1998, interest at rates ranging from 9.00% to 10.50%, paid in full in 1996 in 
 connection with the Offering...................................................................................        --    71,600
Chicopee Term Loans, Tranche A - $10,000 payable in 1996, $20,000 payable in 1997, $25,000 payable in 1998,
 $30,000 payable in 1999, $34,000 payable in 2000, and $6,000 payable in 2001;  Tranche B - $850 payable
 yearly from 1996 through 2000, $34,000 payable in 2001, $42,000 payable in 2002 and $4,113 payable
 in 2003, interest at base or LIBOR rates plus a margin ranging from 1.5% to 3.25%, paid in full in 1996 in
 connection with the Offering...................................................................................        --   209,363
Chicopee Revolving Credit Facility, due 2001, interest at rates ranging from 8.63% to 10.50%, paid in full in
 1996 in connection with the Offering...........................................................................        --    18,000
Other...........................................................................................................     2,159     1,915
------------------------------------------------------------------------------------------------------------------------------------
                                                                                                                   382,242   450,878
Less current maturities.........................................................................................    19,497    10,938
------------------------------------------------------------------------------------------------------------------------------------
Total...........................................................................................................  $362,745  $439,940
====================================================================================================================================
</TABLE>
  
                                      34
<PAGE>

--------------------------------------------------------------------------------
Long-term debt maturities consist of the following:

<TABLE>
<CAPTION>
(In Thousands)
==============================================================
<S>                                                   <C>
1997................................................  $ 19,497
1998................................................    26,834
1999................................................    36,850
2000................................................    46,789
2001................................................    56,517
Thereafter..........................................   195,755
==============================================================
</TABLE>

Senior Notes

In June 1994, the Company issued and sold $150.0 million principal amount of
12 1/4% Senior Notes due 2002 pursuant to a Purchase Agreement dated June 17,
1994 and an indenture dated June 24, 1994, as amended by the First Supplemental
Indenture dated as of March 15, 1995, the Second Supplemental Indenture dated as
of September 14, 1995, and the Third Supplemental Indenture dated as of April 9,
1996 (as so amended the "Indenture").  The Senior Notes are unsecured senior
obligations of the Company and are guaranteed by certain of the Company's
subsidiaries as more fully discussed in Note 9.  Selected Financial Data of
Guarantors.  The Senior Notes are subject to redemption at any time on or after
July 15, 1998, at the option of the Company based on certain redemption prices
including accrued and unpaid interest, if any, to the redemption date.
Notwithstanding the foregoing, at any time prior to July 15, 1997, the Company
was entitled to redeem up tp $50.0 million of the Senior Notes originally issued
at a redemption price of 112.25% of the principal amount redeemed plus accrued
interest to the redemption date.  Accordingly, the Company, in connection with
its IPO, redeemed $50.0 million of the Senior Notes for approximately $58.7
million.  See Note 2.  Initial Public Offering.  The Indenture contains a number
of covenants restricting the operations of the Company and its subsidiaries,
including covenants regarding limitations on dividends and other restrictions.
As of December 28, 1996, the Company was in compliance with covenant provisions
associated with the Senior Notes.  If a change of control (as defined in the
Indenture) occurs at any time, then each holder shall have the right to require
that the Company purchase the Senior Notes in whole or in part at an amount
equal to 101% of the principal amount of such Senior Notes, plus accrued
interest.


New Credit Facility

In connection with the Offering, the Company and its subsidiaries entered into a
new credit facility ("New Credit Facility").  The New Credit Facility consists
of term loans in the aggregate principal amount of $200.0 million and revolving
credit loans in an aggregate principal amount not to exceed $125.0 million.
$130.0 million in the aggregate of the term loans are denominated in United
States dollars, $40.0 million of the term loans are denominated in Dutch
guilders and $30.0 million of the term loans are denominated in Canadian
dollars. Revolving loans may be denominated in United States dollars, Dutch
guilders (up to $15.0 million) and Canadian dollars (up to $5.0 million).  All
indebtedness under the New Credit Facility is guaranteed (in whole or in part)
by each of the Company's domestic and certain of its foreign subsidiaries.  The
interest rates applicable to borrowings under the New Credit Facility are, in
the case of United States dollar denominated loans, the agent's base rate or
LIBOR, in the case of Dutch guilder denominated loans, the applicable
Eurocurrency rate, and in the case of Canadian dollar denominated loans, the
agent's Canadian base rate or the BA rate, in each case plus a margin determined
on the basis of the ratio of the Company's total consolidated indebtedness to
its consolidated earnings before interest, taxes, depreciation and amortization
on a rolling four quarter basis.  The margin applicable to base rate loans range
from 0.0% to 1.25% and the margin for LIBOR, Eurocurrency and BA loans range
from 1.0% to 2.5%.  The New Credit Facility contains covenants customary for
financings of this type.  As of December 28, 1996, the Company was in compliance
with covenant provisions associated with the New Credit Facility.  In order to
enter into the New Credit Facility with terms and conditions described above,
the Company was required to obtain the affirmative consents of holders of a
majority of the outstanding principal amount of the Senior Notes.  Pursuant to a
consent solicitation statement dated March 14, 1996, the Company solicited and
received the required consents, and accordingly, the Company and the trustee
executed a Third Supplemental Indenture that became effective concurrently with
consummation of the Offering, which allowed the Company to enter into the New
Credit Facility.  Commitment fees on the New Credit Facility are generally equal
to a percentage of the daily unused average amount of each such commitment.  At
December 28, 1996, unused commitments under the New Credit Facility approximated
$44.1 million.  Loan acquisition costs, including commitment fees, approximated
$5.3 million and $13.5 million in 1996 and 1995, respectively.



                                      35
<PAGE>
 
Note 9.  Selected Financial Data of Guarantors

Payment of the Senior Notes is unconditionally guaranteed, jointly and
severally, on a senior basis by FiberTech Group, Inc., PGI, Chicopee Holdings,
Inc., and Chicopee, Inc. (collectively, the "Guarantors"), wholly-owned
subsidiaries of the Company. Management has determined that separate complete
financial statements of the Guarantors would not provide additional material
information to users of the financial statements. The following sets forth
selected financial data of the Guarantors:

<TABLE>
<CAPTION>
                                                                  Chicopee                           FiberTech         PGI
(In Thousands)                                                 Holdings, Inc.*    Chicopee Inc.*    Group, Inc.    Polymer, Inc.
--------------------------------------------------------------------------------------------------------------------------------
<S>                                                            <C>                <C>               <C>            <C>
Fiscal year ended December 28, 1996:
Statement of Operations Data:
Net sales .................................................        $     -           $201,430        $121,183        $      -
Operating income ..........................................            103             23,692           1,258           4,360
Income (loss) before income taxes and extraordinary item ..            633              7,330          (4,219)         15,775
Income (loss) before extraordinary item ...................            367              4,398          (2,447)          9,150
Extraordinary item ........................................              -             (8,678)         (1,462)           (605)
Net income (loss) .........................................            367             (4,280)         (3,909)          8,545
Balance Sheet (at end of period):
Working capital ...........................................        $ 7,519           $ 12,866        $ 19,688        $    331
Total assets ..............................................         37,473            285,550         164,420         485,401
Total debt (excluding intercompany indebtedness) ..........              -             87,000          54,000               -
Shareholder's equity ......................................        $30,492             19,687          53,022         419,065
 
Fiscal year ended December 30, 1995:
Statement of Operations Data:
Net sales .................................................        $     -           $152,529        $134,889        $      -
Operating income (loss) ...................................              -             13,417           5,476            (716)
Income (loss) before income taxes .........................            215              2,285             518            (572)
Net income (loss) .........................................            125              1,360             311            (343)
Balance Sheet (at end of period):
Working capital (deficit) .................................        $ 7,056           $  3,842        $ 22,525        $ (2,383)
Total assets ..............................................         37,056            336,551         154,118         103,673
Total debt (excluding intercompany indebtedness) ..........              -            227,363          71,600               -
Shareholder's equity ......................................         30,125             26,521          58,638          62,956
 
Fiscal year ended December 31, 1994:
Statement of Operations Data:
Net sales .................................................        $     -           $      -        $126,310        $      -
Operating income (loss) ...................................              -                  -           8,591            (393)
Income (loss) before income taxes and extraordinary item ..              -                  -           5,161            (710)
Income (loss) before extraordinary item ...................              -                  -           3,162            (426)
Extraordinary item ........................................              -                  -          (1,803)              -
Net income (loss) .........................................              -                  -           1,359            (426)
---------------------------------------------------------------------------------------------------------------------------------
</TABLE>

* Chicopee Holdings, Inc. and Chicopee, Inc. were acquired as part of the
  Chicopee Acquisition on March 15, 1995 (see Note 3. Organization and
  Acquisitions). These entities became guarantors of the Senior Notes
  concurrently with the IPO.


                                      36

<PAGE>

--------------------------------------------------------------------------------

Note 10. Income Taxes
 
Significant components of the provision for income taxes are as follows:

<TABLE>
<CAPTION>
                                           Fiscal Year
                                 --------------------------------
(In Thousands)                      1996          1995      1994
=================================================================
<S>                              <C>       <C>           <C>
Current:
Federal and state..............  $    --        $1,461   $  (812)
Foreign........................    2,899         5,130     1,737
Deferred:
Federal and state..............    8,324          (826)    2,679
Foreign........................     (493)         (549)     (251)
-----------------------------------------------------------------
Income tax before
 extraordinary item............   10,730         5,216     3,353
Income tax benefit from:
Extraordinary item, loss from
 early extinguishment
 of debt.......................   (7,492)           --    (1,846)
-----------------------------------------------------------------
Total income tax expense.......  $ 3,238        $5,216   $ 1,507
=================================================================
</TABLE>

The Company's provision for income taxes in 1996 includes the benefit of
utilizing net operating loss carryforwards of approximately $4.9 million.  At
December 28, 1996, the Company had: (i) operating loss carryforwards of
approximately $28.7 million for federal income tax purposes expiring in the
years 2007 - 2011; (ii) capital loss carryforwards of approximately $6.0 million
related to its Canadian operation; and (iii) operating loss carryforwards of
approximately $15.6 million which begin to expire in 2002 related to its Mexican
operation.  No accounting recognition has been given to the potential income tax
benefit related to the Canadian and Mexican operating loss carryforwards.  The
Company has not provided U.S. income taxes for undistributed earnings of foreign
subsidiaries which are considered to be retained indefinitely for reinvestment.
The distribution of these earnings would result in additional foreign
withholding taxes and additional U.S. federal income taxes to the extent they
are not offset by foreign tax credits, but it is not practicable to estimate the
total liability that would be incurred upon such a distribution.  However, in
1996, the Company provided approximately $3.5 million for income taxes related
to the distribution of earnings from certain of its foreign operations which are
not considered to be retained indefinitely for reinvestment.  Significant
components of the Company's deferred tax assets and liabilities as of December
28, 1996 and December 30, 1995 are as follows:

<TABLE>
<CAPTION> 
 
(In Thousands)                                                             1996          1995
================================================================================================
<S>                                                                      <C>           <C>
Deferred tax assets:
Provision for restructuring............................................  $  2,566      $  3,341
U.S. net operating loss carryforward...................................    10,057         4,360
Foreign net operating and capital
 loss carryforward.....................................................     6,821         9,660
Foreign tax credits....................................................     1,356           783
Other..................................................................     9,262         7,248
------------------------------------------------------------------------------------------------

Total deferred tax assets..............................................    30,062        25,392
Valuation allowance for deferred
 tax assets............................................................   (14,149)      (11,792)
------------------------------------------------------------------------------------------------
Net deferred tax assets................................................    15,913        13,600

Deferred tax liabilities:
Depreciation and amortization..........................................   (22,159)      (16,827)
Basis difference on fixed assets.......................................   (23,561)      (27,795)
Provision for undistributed foreign
 earnings not considered to be
 retained indefinitely for reinvestment................................    (3,301)           --
Other, net.............................................................    (4,485)       (2,326)
------------------------------------------------------------------------------------------------
Total deferred tax liabilities.........................................   (53,506)      (46,948)
------------------------------------------------------------------------------------------------
Net deferred taxes.....................................................  $(37,593)     $(33,348)
================================================================================================
</TABLE> 

Taxes on income are based on earnings (loss) before taxes as follows:

<TABLE> 
<CAPTION>
                                                                                      Fiscal Year
                                                                         -------------------------------------
(In Thousands)                                                               1996         1995           1994
==============================================================================================================
<S>                                                                       <C>         <C>            <C>
Domestic...............................................................   $11,018     $  1,611       $  4,056
Foreign................................................................    14,534      (20,002)       (19,041)
--------------------------------------------------------------------------------------------------------------
                                                                          $25,552     $(18,391)      $(14,985)
==============================================================================================================
</TABLE> 

The provision for income taxes at the Company's effective tax rate
differed from the provision for income taxes at the statutory rate as
follows:

<TABLE> 
<CAPTION> 
                                                                                      Fiscal Year
                                                                         -------------------------------------
(In Thousands)                                                               1996         1995          1994
==============================================================================================================
<S>                                                                       <C>           <C>          <C>
Computed tax (benefit)
 expense at the statutory rate.........................................   $ 8,943       $(6,437)     $ (5,095)
Valuation allowance....................................................       418         7,521         6,800
Withholding taxes......................................................       964         1,244           720
Effect of foreign operations, net......................................       347         2,375           239
Other, net.............................................................        58           513           689
--------------------------------------------------------------------------------------------------------------
Provision for income taxes 
 before extraordinary item.............................................    10,730         5,216         3,353
Income tax benefit related
 to extraordinary item.................................................    (7,492)           --        (1,846)
--------------------------------------------------------------------------------------------------------------
Provision for income taxes.............................................   $ 3,238       $ 5,216       $ 1,507
==============================================================================================================
</TABLE>

                                      37
<PAGE>
--------------------------------------------------------------------------------
Note 11. Stock Option Plan

In connection with the Offering, the Company adopted the 1996 Key Employee Stock
Option Plan ("1996 Plan"). The 1996 Plan is administered by the Stock Option
Committee, which are non--management members of the Company's Board who are
appointed by the Board. Any person who is a full--time, salaried employee of the
Company (excluding non--management directors) is eligible to participate in the
1996 Plan. The Stock Option Committee selects the participants and determines
the terms and conditions of the options. The 1996 Plan provides for the issuance
of options covering 1,500,000 shares of common stock, subject to certain
adjustments reflecting changes in the Company's capitalization. Options granted
under the 1996 Plan may be either incentive stock options ("ISOs") or such other
forms of non--qualified stock options ("NQOs") as the Stock Option Committee may
determine. The 1996 Plan provides that the option price shall not be less than
the fair value of the shares at the date of grant and that such options vest in
equal 20% increments over five years. The options expire three years after the
date that such portion became vested and exercisable. Option activity under the
1996 Plan is as follows:

<TABLE>
<CAPTION>
                                               Fiscal Year 1996
                                         ---------------------------
                                         Number of      Grant/Option
                                            Shares             Price
==================================================================== 
<S>                                     <C>            <C> 
Shares under option at beginning           
  of year...........................            --                --
Granted.............................       130,330            $18.00
Exercised...........................            --                --
Forfeited...........................            --                --
Expired/Canceled....................            --                --
==================================================================== 
Shares under option at end of year..       130,330            $18.00
==================================================================== 
Shares under option exercisable at
 end of year........................            --                --
==================================================================== 
Shares available for future grant...     1,369,670                --
==================================================================== 
</TABLE>

As disclosed in Note 1. Description of Business and Significant Accounting
Policies, the Company adopted the disclosure--only provisions of FAS 123.
Accordingly, no compensation cost has been recognized in the Company's audited
financial statements for the 1996 Plan. In accordance with FAS 123, the fair
value of each option grant was determined by using the Black--Scholes option--
pricing model with the following weighted average assumptions used for 1996:
dividend yield of 0.0%; expected volatility of 0.55; risk--free interest rate of
6.1% and expected lives of 5 years. Had compensation cost for the Company's 1996
Plan been determined based on the fair value at the grant date for awards in
1996 consistent with provisions of FAS 123, the Company's net loss available to
common shareholders and net loss per common share would not have differed
materially from those amounts reported in the consolidated statements of
operations; therefore, supplemental pro forma information has not been
separately disclosed, as permitted by FAS 123.


Note 12. Shareholder Rights Plan

In connection with the IPO, the Company adopted a rights plan ("Rights Plan").
On April 15, 1996, the Company's Board of Directors declared a dividend of one
right for each share of common stock outstanding at the close of business on
June 3, 1996.  The holders of additional common stock issued subsequent to such
date and before the occurrence of certain events are entitled to one right for
each such additional share. Each right entitles the registered holder under
certain circumstances to purchase from the Company one--thousandth of a share of
junior preferred stock (series A) at a price of $80 per one--thousandth share of
junior preferred stock, subject to adjustment. The Company may redeem the rights
at $.01 per right prior to earlier of the stock acquisition date and the
expiration date as defined in the Rights Plan. Prior to exercise of a right, the
holder thereof, as such, will have no rights as a stockholder of the Company,
including, without limitation, the right to vote or to receive dividends or
distributions. In addition, the rights have certain anti--takeover effects. The
rights are not issued in separate form and may not be traded other than with the
shares to which they attach. If unexercised, the rights expire on June 3, 2006.

Note 13. Retirement Plans
Defined Contribution Plans

FiberTech maintains a 401(k) Plan ("FiberTech 401(k) Plan"), a Money Purchase
Salary Plan ("FiberTech Money Purchase Salary Plan") and a Money Purchase Hourly
Plan ("FiberTech Money Purchase Hourly Plan") (collectively, the "FiberTech
Money Purchase Plans") covering all employees who meet certain service
requirements. Under the provisions of the FiberTech Money Purchase Plans, the
Company has established 401(h) accounts to fund covered medical claims for early
retirees up to age 65. Under the FiberTech 401(k) Plan, employer contributions
are defined as a matching of employee contributions allowing for a maximum
matching contribution of 3% of a participant's earnings. Under the FiberTech
Money Purchase Salary Plan, employer contributions are defined as 6.5% of a
participant's base salary with 5% contributed to an employee's account and 1.5%
allocated to fund the general pool of the 401(h) account. Under the FiberTech
Money Purchase Hourly Plan, employer contributions are defined as 2.5% of a
participant's base salary with 2% given to an employee's account and .5%
allocated to fund the 401(h) account. The 401(h) accounts can be terminated at
the Company's discretion at any time without notice. Participant contributions
are not permitted under the FiberTech Money Purchase Plans. The cost of the
FiberTech plans was approximately





                                      38
<PAGE>
 
$0.7, $0.8 and $0.8 million for 1996, 1995 and 1994, respectively. Chicopee
maintains a 401(k) Retirement Savings Plan for non-union employees ("Chicopee
Non-Union 401(k) Plan") and a Money Purchase Retirement Plan for non-union
employees ("Chicopee Non-Union Money Purchase Plan "). Under the Chicopee Non-
Union 401(k) Plan, employer contributions are defined as a matching of employee
contributions allowing for a maximum match of 3%. Under the Chicopee Non-Union
Money Purchase Plan, employer contributions are defined as 3.5% of a
participant's base salary. Participant contributions are not permitted under the
Chicopee Non-Union Money Purchase Plan. Chicopee also maintains a 401(k)
Retirement Savings Plan for union employees whereby employer contributions are
based on 25% of the first $.40 per hour deferred by the employee. The cost of
the Chicopee plans was approximately $1.0 and $0.8 million in 1996 and 1995,
respectively. FNA maintains a 401(k) Plan ("FNA 401(k) Plan") covering all
employees who meet certain requirements. Each plan year employer contributions
are discretionary and are based on employee pre-tax contributions. The cost of
the FNA 401(k) Plan was not material in 1996.

Defined Benefit Plans
The Company maintains defined benefit retirement plans covering employees at
certain of the Company's subsidiaries. The annual service costs are determined
on the basis of an actuarial valuation by using the projected benefit method.
Any realizable surpluses are amortized on a straight-line basis over the
expected average remaining service lives of the employees in the plan. It is the
Company's policy to fund such plans in accordance with applicable laws and
regulations. At December 28, 1996, the pension plan assets were primarily
invested in separate funds whose values are subject to fluctuation in interest
rates and equity/bond securities markets. The data presented in the following
tables illustrate components of pension expense, assumptions used in accounting
for the defined benefit retirement plans and the funded status for such plans as
of the respective periods. Information regarding the Company's defined benefit
retirement plan for its Mexican subsidiary is excluded from the following
disclosures as such amounts were not material during 1996, 1995 and 1994.

Pension expense included in the determination of net income for 1996, 1995 and
1994 is included in the following table:

<TABLE>
<CAPTION>
                                                   Fiscal Year
                                   ---------------------------------------
(In Thousands)                        1996            1995           1994
--------------------------------------------------------------------------
<S>                                <C>              <C>              <C>
Current service costs..........    $ 1,523          $ 1,286          $  96
Interest costs on projected
 benefit obligation............      1,673            1,160            158
Return on plan assets..........     (2,158)          (1,400)          (194)
Net amortization of
 transition obligation.........        (52)               5            (12)
--------------------------------------------------------------------------
Pension expense, net...........    $   986          $ 1,051          $  48
--------------------------------------------------------------------------
</TABLE> 

Significant assumptions used in accounting for the defined benefit retirement
 plans are as follows:

<TABLE> 
<CAPTION> 
                                                   Fiscal Year
                                         ---------------------------------
(In Thousands)                              1996          1995        1994
--------------------------------------------------------------------------
<S>                                      <C>            <C>            <C> 
Return on plan assets:           
U.S. Plan........................           9.0%           9.0%         -
Non U.S. Plans...................        6.5%--13.0%    6.5%--8.0%     8.0%
Discount rate on projected       
 benefit obligations:            
U.S. Plan........................           7.5%           7.5%         -
Non U.S. Plans...................         6.0%--8.5%    6.0%--8.0%     8.0%
Salary and wage                  
 escalation rate:                
U.S. Plan........................             -             -           -
Non U.S. Plans...................         3.0%--4.0%    3.0% - 4.0%    4.0%
---------------------------------------------------------------------------
</TABLE>

The following table sets forth the funded status and amounts recognized in the
consolidated balance sheet as of December 28, 1996 and December 30, 1995:

<TABLE>
<CAPTION>
                                                                          1996                                 1995
                                                           -------------------------------------------------------------------------
                                                           (Non U.S. Plans)     (U.S. Plan)     (Non U.S. Plans)     (U.S. Plan)
                                                             Plan Assets     Plan Liabilities     Plan Assets     Plan Liabilities
                                                             Exceed Plan        Exceed Plan       Exceed Plan        Exceed Plan
(In Thousands)                                               Liabilities          Assets          Liabilities          Assets
------------------------------------------------------------------------------------------------------------------------------------
<S>                                                        <C>               <C>                <C>               <C>
Accumulated benefit obligation:
Vested...................................................      $21,368              $ 231           $15,533              $ 153     
Non-vested...............................................        1,172                181               589                121     
------------------------------------------------------------------------------------------------------------------------------------
                                                                22,540                412            16,122                274     
Benefits attributable to future salaries.................        3,942                  -             3,005                  -     
------------------------------------------------------------------------------------------------------------------------------------
Projected benefit obligation.............................       26,482                412            19,127                274     
Plan assets at fair value................................       34,036                175            23,509                 15     
------------------------------------------------------------------------------------------------------------------------------------
Excess (deficit) of plan assets over projected benefit                                                                             
 obligation..............................................        7,554               (237)            4,382               (259)    
Unrecognized transition net asset........................         (360)                 -              (412)                 -     
Unrecognized net (gain) loss.............................       (1,635)                 -               353                  -     
------------------------------------------------------------------------------------------------------------------------------------
Prepaid pension cost (pension liability).................      $ 5,559              $(237)          $ 4,323              $(259)     
------------------------------------------------------------------------------------------------------------------------------------
</TABLE>


                                      39
<PAGE>
 
--------------------------------------------------------------------------------
Note 14. Postretirement Benefits Other Than Pensions

In connection with the Chicopee Acquisition, the Company assumed obligations
under a defined benefit health care retirement plan for union employees at
Chicopee's North Little Rock, Arkansas manufacturing facility in addition to
certain other postretirement benefits for non-union employees.  Accordingly, the
Company follows the provisions of Statement of Financial Accounting Standards
No. 106, "Employers Accounting for Postretirement Benefits Other Than Pensions",
("FAS 106").  FAS 106 requires that the accrual method of accounting for
postretirement benefits other than pensions be used and the accrual period be
based on the period that employees render the services necessary to earn their
postretirement benefits.  The Company currently anticipates funding the plans on
a "pay-as-you-go" basis.  The weighted average discount rate used in the
calculation of the accumulated postretirement benefit obligation and the net
postretirement benefit cost for the plans was 6.5% and 7.5%.  The assumed annual
composite rate of increase in the per capita cost of Company provided health
care benefits begins at 9.0% for 1996, gradually decreases to 6.0% by 1999 and
remains at that level thereafter.  A 1% increase in these health care cost trend
rates would cause the accumulated obligation to increase by $0.7 million.  The
effect of such increase on the aggregate of the service and interest components
of the 1996 net postretirement benefit cost is not significant.  Net
postretirement benefit cost included in the determination of net income for 1996
and 1995 is included in the following table:

<TABLE>
<CAPTION>
                                                    Fiscal Year
                                                   ------------
(In Thousands)                                     1996    1995
=================================================================
<S>                                                <C>      <C>
Service cost - benefits earned
 during period...................................  $169    $109
Interest cost on accumulated
 postretirement benefit obligation...............   238     174
-----------------------------------------------------------------
Net postretirement benefit cost..................  $407    $283
=================================================================
</TABLE>

The following table sets forth the funded status of the Company's obligation
under FAS 106 as of December 28, 1996 and December 30, 1995:

<TABLE>
<CAPTION>

(In Thousands)                                  1996       1995
=================================================================
<S>                                            <C>       <C>
Accumulated postretirement benefit
 obligation:
Retirees....................................   $   --    $     --
Fully eligible active plan participants.....      885          --
Other active plan participants..............    3,016     3,493
-----------------------------------------------------------------
Accrued postretirement benefit
 obligation.................................   $3,901    $3,493
=================================================================
</TABLE>

Note 15. Quarterly Results of Operations (Unaudited)

<TABLE>
<CAPTION>
                                                                                 First      Second       Third      Fourth
(In Thousands)                                                                 Quarter     Quarter     Quarter     Quarter
===========================================================================================================================
<S>                                                                           <C>         <C>         <C>         <C>
Fiscal year ended December 28, 1996
Net sales........................................................             $122,715    $128,593    $135,042    $135,018
Gross profit.....................................................               29,395      32,265      33,834      36,861
Income (loss) before exraordinary item...........................                 (483)      2,598       5,531       7,176
Extraordinary item...............................................                   --     (13,932)         --          --
Net income (loss)................................................                 (483)    (11,334)      5,531       7,176
Redeemable preferred stock dividends and accretion...............               (2,104)       (916)         --          --
Net income (loss) attributable to common stock...................               (2,587)    (12,250)      5,531       7,176
Net income (loss) attributable to common stock per share before
 extraordinary item..............................................             $   (.13)   $    .06    $    .17    $    .22
Extraordinary item per common share..............................                   --        (.53)         --          --
Net income (loss) attributable to common stock...................             $   (.13)   $   (.47)   $    .17    $    .22

Fiscal year ended December 30, 1995
Net sales........................................................             $ 66,012    $123,041    $122,521    $126,064
Gross profit.....................................................               15,999      30,856      29,101      28,076
Net income (loss)................................................              (11,304)      6,774      (2,860)    (16,217)
Redeemable preferred stock dividends and accretion...............                 (200)     (1,398)     (1,454)     (1,787)
Net income (loss) attributable to common stock...................             $(11,504)   $  5,376    $ (4,314)   $(18,004)
Net income (loss) attributable to common stock per share.........             $   (.56)   $    .26    $   (.21)   $   (.88)
===========================================================================================================================
</TABLE>

Extraordinary Item

As discussed in Note 2. Initial Public Offering and Note 8.  Long-Term Debt, the
Company entered into a New Credit Facility in connection with consummation of
the Offering.  Accordingly, the Company recorded an extraordinary item ($13.9
million, net of the related income tax benefit of $7.5 million) in the second
quarter of 1996 related to the write-off of previously capitalized debt issue
costs and prepayment costs associated with the repurchase of $50.0 million
principal amount of the Senior Notes.


Other

In 1995, the Company incurred net foreign currency transaction losses of
approximately $22.8 million related primarily to United States dollar
intercompany indebtedness at the Company's Mexican operation ($24.3 million)
offset by net foreign currency gains within the Company's Canadian and European
operations ($1.6 million).  In the fourth

                                      40
<PAGE>
--------------------------------------------------------------------------------
quarter of 1994, the Mexican government discontinued monetary support for the
nuevo peso allowing it float to market rates which has resulted in a significant
devaluation of the nuevo peso since the end of 1994. As part of the
Recapitalization (see Note 2. Initial Public Offering) in 1996, the majority of
the Company's United States dollar intercompany indebtedness at its Mexican,
Canadian and German operations was effectively converted to equity, thus
mitigating the Company's exposure to foreign currency fluctuations.
Consequently, the Company's net foreign currency transaction loss in 1996
approximated $3.0 million (primarily related to United States dollar
intercompany indebtedness), a decrease of $19.8 million versus 1995. See Note
18. Subsequent Events for a discussion of the Company's change in functional
currency for its Mexican subsidiary from the nuevo peso to the United States
dollar.

NOTE 16. GEOGRAPHICAL INFORMATION

Geographic data for the Company's operations are presented in the following
table. Intercompany sales and expenses are eliminated in determining results for
each operation.  Export sales from the Company's United States operations to
unaffiliated customers approximated $43.8, $16.1 and $8.1 million during 1996,
1995 and 1994, respectively.

<TABLE>
<CAPTION>
                                          Fiscal Year
                                --------------------------------
(In Thousands)                      1996         1995       1994
================================================================
<S>                             <C>          <C>        <C>
Net sales to unaffiliated
 customers:
United States ................  $312,000     $255,296   $108,356
Canada........................    57,371       59,417     24,418
Europe........................   108,563       99,180     21,347
Mexico........................    43,434       23,745     11,212
----------------------------------------------------------------
  Total.......................  $521,368     $437,638   $165,333
================================================================
Income from operations:
United States.................  $ 35,625     $ 16,918   $  7,994
Canada........................     9,045       13,485      5,746
Europe........................     7,350        4,994        181
Mexico........................    10,128        6,891      1,642
----------------------------------------------------------------
  Total.......................    62,148       42,288     15,563
 
Other expense, net:
Interest expense..............    33,641       37,868     13,216
Foreign currency transaction
 losses, net..................     2,955       22,811     17,332
----------------------------------------------------------------
Income (loss) before income
 taxes and extraordinary
 item.........................  $ 25,552     $(18,391)  $(14,985)
================================================================
Identifiable assets:
United States.................  $388,240     $324,088   $104,792
Canada........................    92,670       88,100     71,088
Europe........................   171,676      180,978     29,020
Mexico........................    55,529       44,815     36,529
----------------------------------------------------------------
  Total.......................  $708,115     $637,981   $241,429
================================================================ 
</TABLE>

NOTE 17. CERTAIN MATTERS

The Company's corporate headquarters are housed in space leased by a shareholder
of the Company from an affiliate of the shareholder.  A portion of the payments
and other expenses, primarily insurance and allocated costs, are charged to the
Company.  Such amounts approximated $2.1, $2.3 and $1.4 million in 1996, 1995
and 1994, respectively. On September 1, 1993, an affiliated entity of the
Company acquired a manufacturing facility in Vineland, New Jersey for the
benefit of a wholly-owned subsidiary of the Company and entered into a lease of
the facility to the subsidiary at a base rate of $2.50 per square foot, subject
to adjustment to account for inflation, which is comparable to similar
properties in the area.  The lease terminates on August 31, 2003 and is subject
to a fair market value purchase option at termination.  Annual rental expense
relating to this lease approximated $0.2 million in 1996, 1995 and 1994,
respectively.  On January 11, 1996, the Company issued 10,000 shares of 13%
Cumulative Redeemable Preferred Stock, $.01 par value, to an entity affiliated
with the Company for $10.0 million. Such shares were redeemed in connection with
the IPO (see Note 2. Initial Public Offering).

NOTE 18. SUBSEQUENT EVENTS
Foreign Currency

Effective December 29, 1996, the Company changed the functional currency for its
Mexican subsidiary from the nuevo peso to the United States dollar due to
economic facts and circumstances including: (i) the cumulative inflation index
in Mexico has been approximately 100% over a three year period ended December
28,1996; (ii) an increase in the volume of transactions denominated in dollars
including dollar-indexed transactions; and (iii) the cash flows of the Company's
Mexican subsidiary are directly affected since a substantial portion of
transactions are dollar denominated or dollar-indexed. In accordance with FAS
52, the dollar translated amounts of nonmonetary assets, primarily property,
plant and equipment and goodwill, at December 28, 1996, became the accounting
basis for those assets at December 29, 1996, and for subsequent periods.
Additionally, the Mexican-related cumulative translation adjustment at December
28, 1996, accumulated in shareholders' equity prior to this change in functional
currency, remains as a separate component of shareholders' equity.

Employee Stock Purchase Plan

On January 1, 1997, the Company adopted the Stock Purchase Plan for Employees of
Polymer Group, Inc. which allows employee participants to purchase common stock
of the Company through payroll deductions. The plan is administered by a third
party and all administrative costs of the plan are covered by the Company. In
accordance with the plan, share purchases by the administrator are made at the
fair value of the Company's common stock on the date of purchase.

                                      41