21

MD&A


22
OUR BUSINESS24
STRATEGY AND OBJECTIVES25
OPERATING RESULTS30
SUMMARY OF QUARTERLY RESULTS31
FINANCIAL CONDITION32
LIQUIDITY AND CAPITAL RESOURCES


35
CRITICAL ACCOUNTING ESTIMATES36
CHANGES IN ACCOUNTING POLICIES AND
 RECENT ACCOUNTING PRONOUNCEMENTS37
RELATED PARTY TRANSACTIONS37
DISCLOSURE CONTROLS
 38
INTERNAL CONTROL OVER FINANCIAL REPORTING38
RISKS AND UNCERTAINTIES42
RECONCILIATION AND DEFINITION OF NON-GAAP MEASURES44
FORWARD-LOOKING STATEMENTS


GILDAN 2007 ANNUAL REPORT

---



20

(GRAPHIC)

|                                                                                                                                                                                                                                
|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|                                                                                                                                                                                                                                
|WE
 CONTINUE TO HAVE SIGNIFICANT UNUSED DEBT FINANCING CAPACITY AND FINANCING
 FLEXIBILITY TO INVEST IN CAPITAL EXPENDITURES FOR FURTHER CAPACITY EXPANSION...AS WELL AS TO PURSUE OTHER POTENTIAL
 ACQUISITION OPPORTUNITIES.
|                                                                                                                                                                                                                                

Laurence G. SellynExecutive
Vice-President, 
Chief Financial and Administrative Officer

GILDAN 2007 ANNUAL REPORT

---



22

MD&A

This Managements discussion and analysis (MD&A) comments on Gildans
operations, performance and financial condition as at and for the years ended
September 30, 2007 and October 1, 2006, compared to the preceding years. For a
complete understanding of our business environment, trends, risks and
uncertainties and the effect of accounting estimates on our results of
operations and financial condition, this MD&A should be read together with
the audited Consolidated Financial Statements and the related notes. This
MD&A is dated December 14, 2007. All amounts in this report are in U.S.
dollars, unless otherwise noted.

All financial information contained in this MD&A and in the
Consolidated Financial Statements has been prepared in accordance with Canadian
generally accepted accounting principles (GAAP), except for certain information
discussed in the paragraph entitled Non-GAAP Financial Measures on page 25 of
this MD&A. The audited Consolidated Financial Statements and this MD&A
were reviewed by Gildans Audit and Finance Committee and were approved by our
Board of Directors.

Additional information about Gildan, including our 2007 Annual Information
Form, is available on our website at www.gildan.com, on the SEDAR website at
www.sedar.com, and on the EDGAR section of the U.S. Securities and Exchange
Commission website (which includes the Annual Report on Form 40-F) at
www.sec.gov.

This document contains forward-looking statements, which are qualified by
reference to, and should be read together with the Forward-looking Statements
cautionary notice on page 44.

In this MD&A, Gildan, the Company, or the words we,
us, our
refer, depending on the context, either to Gildan Activewear Inc. or to Gildan
Activewear Inc. together with its subsidiaries and joint venture.

OUR BUSINESS

Gildan is a vertically-integrated marketer and manufacturer of activewear,
underwear and socks. The Company operates in one business segment, being
high-volume, basic, frequently replenished, non-fashion apparel. We are the
leading supplier of activewear for the wholesale imprinted sportswear market in
the U.S. and Canada, and also a leading supplier for this market in Europe. As
part of our growth strategy to sell our products into the mass-market retail
channel in North America, in 2006, we expanded our product-line to include
socks and underwear. We are now one of the leading suppliers of socks in the
U.S. mass-market retail channel.

Our Products

We specialize in marketing and large-scale manufacturing of basic,
non-fashion apparel products for customers requiring an efficient supply chain
and consistent product quality for high-volume automatic replenishment
programs.

We sell activewear, namely T-shirts, fleece and sport shirts, in large
quantities to wholesale distributors as undecorated blanks, which are
subsequently decorated by screenprinters with designs and logos. We sell our
products to wholesale distributors under the Gildan brand. Consumers ultimately
purchase the Companys products in venues such as sports, entertainment and
corporate events, and travel and tourism destinations. The Companys products
are also utilized for work uniforms and other end-uses to convey individual,
group and team identity.

In the retail channel, we have complemented our activewear product-line
with a variety of styles of socks and mens and boys underwear. We sell these
products to mass-market and regional retailers in North America under the
Gildan brand and under various retailer private label programs.

Our Manufacturing and Distribution Facilities

Textile and Sock Manufacturing

To support our sales in the various markets, we have built and are
continuing to build modern manufacturing facilities located in Central America
and the Caribbean Basin. Our largest manufacturing hub in Central America
includes our first integrated knitting, bleaching, dyeing, finishing and
cutting facility in Rio Nance, Honduras, which became operational in 2002. In
addition, during 2007, we commenced production at our new state-of-the-art
integrated sock manufacturing facility and at our new integrated textile
facility for the production of activewear, both in Rio Nance, Honduras. We
expect to ramp up our sock and activewear facilities to full capacity by the
third quarter of fiscal 2008. In August 2007, we announced plans for a second
sock facility to support our projected continuing growth in sales, which is
expected to be constructed and ramped up over twenty-four months. In addition,
we are also evaluating the timing and geographical location for future textile
capacity expansion, to support our ongoing growth initiatives in the U.S.
mass-market retail and international markets.

GILDAN 2007 ANNUAL REPORT

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23

MD&A

We also have established a vertically-integrated Caribbean Basin
manufacturing hub with a textile facility for the production of activewear in
Bella Vista, Dominican Republic, which began commercial operations in fiscal
2005 and is currently running at a comparable scale of production to our mature
textile facility in Honduras.

Our land and infrastructure in Central America and the Caribbean Basin
can accommodate further capacity expansion on the same sites.

During the fourth quarter of the 2007 fiscal year, we closed our remaining
textile facilities in Montreal, Canada, and our cutting facility in Bombay, New
York. In addition, we closed our two sewing facilities in Mexico in March 2007,
which had been supplied with fabric from our Canadian textile operations. As a
result, all of our manufacturing for T-shirts, fleece, sport shirts and
underwear has been consolidated into our vertically-integrated manufacturing
hubs in Central America and the Caribbean Basin, where we have invested and
continue to invest in major capacity expansion projects, as described above.

In addition to our integrated sock manufacturing facility located in our
Central America manufacturing hub, we have a U.S. sock manufacturing facility
in Hillsville, Virginia. Shortly after the end of our 2007 fiscal year, on
October 15, 2007, we completed the acquisition of all of the capital stock of
V.I. Prewett & Son, Inc. (Prewett), a large U.S. supplier of basic family
socks to U.S. mass-market retailers, with sock manufacturing facilities in Fort
Payne, Alabama.

Yarn-Spinning

CanAm Yarns, LLC (CanAm), our joint-venture company with Frontier Spinning
Mills, Inc. (Frontier), operates yarn-spinning facilities in Georgia and North
Carolina. CanAms yarn-spinning operations, together with supply agreements
currently in place with Frontier and other third-party yarn providers, serve to
meet our yarn requirements.

Sewing

Our sewing facilities are located in Central America and the Caribbean
Basin. We also utilize third-party contractors, primarily in Haiti, to
complement our vertically-integrated production.

Distribution

We distribute our products for the wholesale imprinted sports-wear market
in the U.S. primarily out of our company-owned distribution centre in Eden,
North Carolina, and also use third-party warehouses in the western United
States, Canada, Mexico, Europe and Asia to service our customers in these
markets. We also operate distribution centres in Martinsville, Virginia and
Fort Payne, Alabama dedicated to servicing the mass-market retail channel. We
are also developing facilities to enhance our ability to provide direct
shipments from our Central American and Caribbean Basin manufacturing hubs.

Corporate Head Office and Employees

Our corporate head office is located in Montreal, Canada and as of the end of this fiscal year we
employed more than 15,000 full-time employees worldwide.

Market Overview

Our target market for activewear, socks and underwear is characterized by
low fashion risk compared to many other apparel markets, since our products are
basic and produced in a limited range of sizes, colours and styles, and since
logos and designs for the screenprint market are not imprinted or embroidered
by Gildan.

The apparel market for our products is highly competitive. Competition is
generally based upon price, with reliable quality and service also being key
requirements for success. Our primary competitors in North America are the
major U.S.-based manufacturers of basic family apparel for the wholesale and
retail channels, such as the Hanes, Fruit of the Loom, and Jerzees brands. The
competition in the European wholesale imprinted activewear market is similar to
that in North America, as we compete primarily with the European divisions of
the larger U.S.-based manufacturers. In Europe, we also have large competitors,
which do not have integrated manufacturing operations and source products from
contractors in Asia. In addition, we face the threat of increasing global
competition. In particular, the U.S. sock industry is subject to global
competition, including significant imports from Asia.

We believe that growth for activewear products has been driven by several
market trends such as the following:

|  |                                                                                          
|- | -----------------------------------------------------------------------------------------
| | continued
 use of activewear for event merchandising (such as concerts, festivals, etc.);
|  |                                                                                          
| | continued
 evolution of the entertainment/sports licensing and merchandising businesses; 
|  |                                                                                          
| | the
 growing use of activewear for uniform applications;                                 
|  |                                                                                          
| | the
 growing use of activewear for corporate promotions;                                 
|  |                                                                                          
| | continued
 increase in use of activewear products for travel and tourism;                
|  |                                                                                          
| | an
 increased emphasis on physical fitness; and                                          
|  |                                                                                          
| | a
 greater use and acceptance of casual dress in the workplace.                          

In addition, reductions in manufacturing costs, combined with quality
enhancements in activewear apparel, such as pre-shrunk fabrics, improved fabric
weight, blends and construction, as well as an increased range of colours and
styles have provided consumers with superior products at lower prices.

We believe that providing a superior value proposition predicated on
reliable product quality and comfort, combined with efficient customer service
and competitive pricing, will continue to be key drivers of success in both the
wholesale and retail channels.

GILDAN 2007 ANNUAL REPORT

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24

MD&A

Due to wholesaler and retailer consolidation, the customer base to which
we sell and are targeting to sell our products is composed of a relatively
small number of significant customers. This concentration is not unusual in the
mass-market retail channel.

The continued consolidation of the number of suppliers by retailers
looking for the convenience of a full-line supplier of a product category for
the entire family could create growth opportunities for our products.

STRATEGY AND
OBJECTIVES

We believe that our success in developing our vertically-integrated
manufacturing hubs has allowed us to provide our customers with low prices,
consistent product quality and a reliable supply chain, and has been the main
reason that we have been able to continue to increase our market presence and
establish our market leadership in the imprinted sportswear market. These are
the same factors that management believes will support Gildans success in
building a consumer brand in the retail channel.

We are able to price our products competitively because of our success in
reducing operating costs. We accomplish this by:

|  |                                                                                                                                                                                                                        
|- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | investing
 in modern, automated equipment and facilities;                                                                                                                                                              
|  |                                                                                                                                                                                                                        
| | increasing
 our capacity through the development of integrated regional hubs in Central
 America and the Caribbean Basin, where we benefit from strategic locations and favourable international
 trade agreements; and
|  |                                                                                                                                                                                                                        
| | focusing
 on producing a narrow range of basic, high-volume product-lines, which allows
 us to maximize production efficiencies.                                                                                       

We intend to continue to expand capacity through the acquisition of
modern, automated equipment for all aspects of our manufacturing process to
maximize productivity and achieve high efficiency rates.

Our growth strategy comprises the following four initiatives:

|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           
|-- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|1. | Continue to increase market share in the U.S. wholesale
 imprinted sportswear market in all product categoriesDuring fiscal 2007, we further increased our
 leading market share position in the U.S. wholesale distributor network in
 the T-shirt and sport shirt categories as reported in the S.T.A.R.S. Report
 produced by ACNielsen Market Decisions. In addition, we gained significant
 share in the fleece category, also reaching the leading market share position
 in this category in fiscal 2007. We believe we will continue to increase
 market share in this channel due to our competitive strengths and the
 addition of low cost production capacity.

|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       
|-- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|2. | Leverage our successful business model to penetrate the
 mass-market retail channel and develop Gildan as a consumer brandWe plan to continue to sell
 the same basic undecorated activewear apparel products into the retail
 channel, as well as our new products, socks and underwear, which leverage our
 existing core competencies, successful business model and competitive
 strengths. Our goal is to continue to provide a value proposition, combining
 quality, service and competitive pricing. We intend to follow the same
 pricing strategy as in the wholesale market, by using our cost efficiencies
 to offer lower selling prices. Our main competitors in the retail channel for
 basic family apparel products are essentially the same as in the wholesale
 channel.                                                                                                                                                                                                                                                                                                                                                                                           
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       
|   | In
 2006, we continued with our initial entry into the retail channel,
 concentrating at that time on regional retailers which we were able to
 service well with the production capacity that we had available. Our
 acquisition of Kentucky Derby Hosiery Co., Inc. (Kentucky Derby) in July 2006
 provided us with enhanced distribution to major U.S. mass-market retailers.
 This allowed us to achieve our first national branded program for mens and
 boys socks with a U.S. national retailer, for which shipments began in March
 2007. In June 2007, we began shipments of a major private label sock program
 to a second U.S. mass-market retailer. On October 15, 2007, we completed the acquisition
 of Prewett, a large U.S. supplier of basic family socks to U.S. mass-market
 retailers. We expect that the acquisition of Prewett will further strengthen
 Gildans positioning as a full-product supplier of socks, activewear
 and underwear for the retail channel. As we ramp up our
 major capacity expansion projects in Central America, we are increasingly
 better positioned to service large replenishment programs for major
 mass-market customers.

|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               
|-- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|3. | Pursue international growth opportunitiesWe expect to pursue further market penetration within our existing wholesale
 markets in Europe, Mexico and Australia, in addition to pursuing further
 international market expansion opportunities. During fiscal 2007, we achieved
 significant unit volume growth in Europe and other international markets. We
 continue to see opportunities for growth in Europe, as additional production
 capacity comes on stream from the ramp up of our major capacity expansion
 projects in Central America and as we expand our product-lines for the
 European market. In Mexico, we continued to expand our presence in the
 wholesale imprinted sportswear market and now service several distributors.
 In fiscal 2007, we began to sell our products through a distributor in Japan,
 which services the wholesale channel and is also selling Gildan branded
 underwear and activewear products in the retail channel. In addition, we
 established a distributor in China to position Gildan to service both the
 imprinted and retail markets.

GILDAN 2007 ANNUAL REPORT

---



25

MD&A

|                                                                                                                                                                                                                                                                                                                  |                                                                                                                                                                                                                                                                                                                                                                                                                                               
|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|4.                                                                                                                                                                                                                                                                                                                | Reinvest free cash flow to pursue selective
 complementary acquisitions                                                                                                                                                                                                                                                                                                                                                                       
|                                                                                                                                                                                                                                                                                                                  |                                                                                                                                                                                                                                                                                                                                                                                                                                               
|                                                                                                                                                                                                                                                                                                                  | We
 will seek opportunities to reinvest our free cash flow in organic capacity
 expansion and evaluate further selective acquisitions, which could complement
 our organic strategic growth opportunities in the U.S. retail market and in
 international markets. We will seek opportunities where we believe we can
 lever our core competencies and which position us in markets, which offer the
 potential for superior economic returns.
|                                                                                                                                                                                                                                                                                                                  |                                                                                                                                                                                                                                                                                                                                                                                                                                               
|We
 are subject to a variety of business risks that may affect our ability to
 maintain our current market share and profitability, as well as our ability
 to achieve our long-term strategic objectives. These risks are described in
 the Risks and Uncertainties section of this MD&A beginning on page 38.

OPERATING RESULTS

SELECTED ANNUAL INFORMATION(in $ millions, except per share amounts)

|                                                                  |  |      |       |      |  |       |  |  |       | 
|----------------------------------------------------------------- |  | ---- | ----- | ---- |  | ----- |  |  | ----- | 
|                                                                  |  | 2007 |       | 2006 |  | 2005  | 
|                                                                  |  |      |       |      |  |       |  |  |       | 
|                                                                 
|Sales                                                             |  |      | 964.4 |      |  | 773.2 |  |  | 653.9 | 
|Cost of sales                                                     |  |      | 655.3 |      |  | 521.1 |  |  | 450.6 | 
|                                                                  |  |      |       |      |  |       |  |  |       | 
|Gross profit                                                      |  |      | 309.1 |      |  | 252.1 |  |  | 203.3 | 
|Selling, general and
 administrative expenses                     |  |      | 110.9 |      |  | 84.4  |  |  | 73.8  | 
|Restructuring and other
 charges                                  |  |      | 28.0  |      |  | 20.4  |  |  | 11.8  | 
|                                                                  |  |      |       |      |  |       |  |  |       | 
|                                                                  |  |      | 170.2 |      |  | 147.3 |  |  | 117.7 | 
|Depreciation and amortization                                     |  |      | 38.8  |      |  | 32.4  |  |  | 25.6  | 
|Interest, net                                                     |  |      | 4.9   |      |  | 3.1   |  |  | 4.6   | 
|Non-controlling interest in
 income of consolidated joint venture |  |      | 1.3   |      |  | 0.2   |  |  | 0.1   | 
|                                                                  |  |      |       |      |  |       |  |  |       | 
|Earnings before income taxes                                      |  |      | 125.2 |      |  | 111.6 |  |  | 87.4  | 
|Income tax (recovery) expense                                     |  |      | (4.8  | )    |  | 4.8   |  |  | 1.4   | 
|                                                                  |  |      |       |      |  |       |  |  |       | 
|Net earnings                                                      |  |      | 130.0 |      |  | 106.8 |  |  | 86.0  | 
|                                                                  |  |      |       |      |  |       |  |  |       | 
|Basic EPS(1)                                                      |  |      | 1.08  |      |  | 0.89  |  |  | 0.72  | 
|Diluted EPS(1)                                                    |  |      | 1.07  |      |  | 0.88  |  |  | 0.72  | 
|                                                                  |  |      |       |      |  |       |  |  |       | 
|Total assets                                                      |  |      | 874.5 |      |  | 723.3 |  |  | 597.5 | 
|Total long-term liabilities(2)                                    |  |      | 87.5  |      |  | 47.1  |  |  | 64.1  | 
|                                                                  |  |      |       |      |  |       |  |  |       | 

|                                                                                            |                                                                                                           
|------------------------------------------------------------------------------------------- | ----------------------------------------------------------------------------------------------------------
|Certain
 minor rounding variances exist between the financial statements and this
 summary.
|                                                                                            |                                                                                                           
|(1)                                                                                         | All
 earnings per share data reflect the effect of the stock splits as described on
 page 35.             
|                                                                                            |                                                                                                           
|(2)                                                                                         | Includes
 long-term debt, future income taxes and non-controlling interest in
 consolidated joint venture.

Operating results for the year ended September 30,
2007, compared to the year ended October 1, 2006

Non-GAAP
Financial Measures

We use
non-GAAP measures to assess our operating performance. Securities regulations
require that companies caution readers that earnings and other measures
adjusted to a basis other than GAAP do not have standardized meanings and are
unlikely to be comparable to similar measures used by other companies.
Accordingly, they should not be considered in isolation. We use non-GAAP
measures such as adjusted net earnings, adjusted diluted EPS, EBITDA, free cash
flow, total indebtedness and net indebtedness to measure our performance from
one period to the next without the variation caused by certain adjustments that
could potentially distort the analysis of trends in our operating performance,
and because we believe such measures provide meaningful information on the
Companys financial condition and
operating results.

We refer the reader to page 42 for the definition and complete
reconciliation of all non-GAAP financial measures used and presented by the
Company to the most directly comparable GAAP financial measures.

Business
Acquisitions

Effective
July 6, 2006, we acquired 100% of the common shares of Kentucky Derby, a U.S.
hosiery manufacturer with corporate headquarters in Hopkinsville, Kentucky. The
total purchase price of $20.4 million, including transaction costs, was paid in
cash except for approximately $0.5 million, which was settled through the
issuance of common shares of Gildan. We accounted for this acquisition using
the purchase method and the results of Kentucky Derby were consolidated with
those of Gildan from the date of acquisition. Accordingly, our results of
operations for fiscal 2007 include a full year of operations from Kentucky
Derby and those for 2006 include the results of operations for one quarter from
the date of acquisition. Please refer to Note 3 to the Consolidated Financial
Statements for a summary of the estimated fair value of the assets acquired and
liabilities assumed at the date of acquisition.

Subsequent to the end of fiscal 2007, on October 15, 2007, the Company
acquired 100% of the capital stock of Prewett, a large U.S. supplier of basic
family socks to U.S. mass-market retailers. Prewetts corporate headquarters
are located in Fort Payne, Alabama. The Company paid $125 million on closing,
and also placed $10 million in escrow to provide for a further contingent
increase in the purchase price of the acquisition. The funds were drawn under
the Companys revolving long-term credit facility. The Company has not yet
finalized the allocation of the purchase price for this acquisition. The
results of operations of Prewett will be included in the Companys fiscal 2008
results, from the date of acquisition.

GILDAN
2007 ANNUAL REPORT

---



26

MD&A

Sales

Sales for fiscal 2007 reached
$964.4 million, up 24.7% from $773.2 million in fiscal 2006. The increase in
sales was due to an increase of $108.2 million of sock sales for the year and
an increase of 11.3% in unit sales volumes for our activewear products,
combined with the impact of a higher-valued activewear product-mix, partially
offset by an approximate 1.6% decline in activewear unit selling prices
compared to last year. Fiscal 2007 included sock sales of $138.2 million
pursuant to the acquisition of Kentucky Derby. This compared to the inclusion
of only one fiscal quarter of sock sales in fiscal 2006, totalling $30.0
million.

Market growth and share data
presented for the U.S. wholesale distributor channel is based on the S.T.A.R.S.
Report produced by ACNielsen Market Decisions. The following table summarizes
the S.T.A.R.S. data for the nine months ended September 30, 2007:

|             |  |                                                 |      |          |                                  |                      |    |  |  |      |   |  |      |  
|------------ |  | ----------------------------------------------- | ---- | -------- | -------------------------------- | -------------------- | -- |  |  | ---- | - |  | ---- | -
|             |  | Nine months ended
 September 30,
 2007 vs. 2006 |      |          | Nine months ended
 September 30, |                     
|             |  |                                                 |      |         
|             |  |                                                 |      | 2007     |                                  | 2006                 |   
|             |  |                                                 |      |          |                                  |                      |    |  |  |      |   |  |      |  
|             |  | Unit Growth                                     |      |          |                                  | Market Share
 Gildan |   
|             |  | Gildan                                          |      | Industry |                                  |                      |    | 
|             |  |                                                 |      |          |                                  |                      |    |  |  |      |   |  |      |  
|            
|All Products |  |                                                 | 14.8 | %        |                                  | 1.8                  | %  |  |  | 47.8 | % |  | 42.6 | %
|T-shirts     |  |                                                 | 13.9 | %        |                                  | 2.0                  | %  |  |  | 48.5 | % |  | 43.7 | %
|Fleece       |  |                                                 | 52.4 | %        |                                  | 6.3                  | %  |  |  | 43.7 | % |  | 30.8 | %
|Sport shirts |  |                                                 | 4.7  | %        |                                  | (4.5                 | )% |  |  | 35.1 | % |  | 32.2 | %
|             |  |                                                 |      |          |                                  |                      |    |  |  |      |   |  |      |  

The increase in activewear unit
sales was primarily due to continuing market share penetration in all product
categories in the U.S. distributor channel. Growth in overall industry
shipments from U.S. distributors to screenprinters for the nine months ended
September 30, 2007 was 1.8%. In the T-shirt category, sales volumes of Gildan
T-shirts by U.S. distributors to screenprinters grew by 13.9% for the nine
months ended September 30, 2007, and our leading share in this category
increased to 48.5%. Unit volume growth of Gildan fleece products from U.S.
distributors to screenprinters totaled 52.4%, significantly exceeding that of
the industry and positioning Gildan as the market share leader in this category
with a share of 43.7%. We increased our leading brand position in sport shirts
by achieving a 35.1% market share, and sales volumes of Gildan sport shirts
from U.S. distributors to screenprinters grew by 4.7%, compared with an overall
decline of 4.5% for the industry.

U.S. INDUSTRY GROWTH
(based
on unit sales (%))

(BAR CHART)

We also maintained a leading market
share position in Canada and experienced strong growth momentum in
international markets. In particular, unit shipments for activewear in Europe
increased 28.3% in fiscal 2007 compared to the same period last year. We
continued to expand our distributor network in the wholesale distributor market
in Mexico.

In March of this year, we began
shipment of our first branded program for mens and boys socks to a national retailer and in
June we began shipment of a major private label sock program to a large
national retailer.

Gross Profit

Gross profit is the result of our
sales less cost of sales. Gross margin reflects gross profit as a percentage of
sales. Our cost of sales includes all raw material costs, manufacturing
conversion costs, sourcing costs and transportation costs incurred until the
receipt of finished goods at our distribution facilities, but excludes
depreciation expense. Cost of sales also includes costs relating to purchasing,
receiving and inspection activities, manufacturing administration, third-party
manufacturing services, insurance, internal transfers of finished goods, and
customs and duties. Our reporting of gross margins may not be comparable to
this metric as reported by other companies, since some entities include
depreciation expense and distribution costs in cost of sales, whereas we report
these items in depreciation and amortization and in selling, general and
administrative expenses, respectively.

GROSS MARGINS

(%)

(BAR CHART)

Gross profit for fiscal 2007 was $309.1
million, or 32.1% of sales, compared to $252.1 million, or 32.6% of sales
during fiscal 2006. Higher gross margins for activewear were offset by the
impact of lower margins from the sale of socks, which do not yet reflect the
cost synergies from the optimization of our sock manufacturing operations.
During fiscal 2007, our major new branded and

GILDAN
2007 ANNUAL REPORT

---



27

MD&A

private label retail sock programs
were priced based on the expected ramped-up cost structure for our new Honduran
sock facility. However, a large proportion of socks for these programs was
supplied from our higher-cost U.S. sock manufacturing facilities, which were
closed in August 2007, as well as high-cost outside contractors. We expect to
achieve improvement in gross margins for our sock product-line as we complete
the ramp-up of our new sock manufacturing facility in Honduras during fiscal
2008. Excluding the impact of sock sales, gross margins for fiscal 2007
increased to 35.0%, compared to 33.2% in fiscal 2006. The improvement in gross
margins was due primarily to manufacturing efficiencies as we continued to
reduce our overall manufacturing costs, largely as a result of the ramp-up of
the Dominican Republic textile facility and the rationalization of our Canadian
textile manufacturing which was announced in September 2006. This improvement
was partially offset by higher cotton costs compared to the low point in cotton
prices in the first half of fiscal 2006 and the non-recurrence of a $1.1
million reversal of a litigation reserve which positively impacted gross
margins in the second quarter of fiscal 2006.

Selling, General and Administrative
Expenses

Our selling, general and administrative
(SG&A) expenses include costs incurred subsequent to the receipt of
finished goods at our distribution facilities, excluding depreciation expense
and costs of inter-warehouse transfers of finished goods. The principal
components of our SG&A expenses include warehousing and handling costs, the
cost of shipping goods to customers, selling and administrative personnel
costs, advertising and marketing expenses, leased facilities and equipment
costs, professional fees, and other general and administrative expenses.

SG&A
(percentage
of sales (%))

(BAR CHART)

SG&A expenses were $111.0
million, or 11.5% of sales during fiscal 2007, compared to $84.4 million, or
10.9% of sales during fiscal 2006. The increase in SG&A expenses was due to
the impact of the acquisition of Kentucky Derby in the fourth quarter of fiscal
2006, higher distribution costs, and increased administration and information
technology costs to support our continuing growth.

Restructuring and Other Charges

The following table summarizes the
components of restructuring and other charges for the years ended September 30,
2007, October 1, 2006 and October 2, 2005:

|                                                                                           |  |      |      |      |  |      |  |  |      | 
|------------------------------------------------------------------------------------------ |  | ---- | ---- | ---- |  | ---- |  |  | ---- | 
|(in $ millions)                                                                            |  |      |      |      |  |      |  |  |      | 
|                                                                                           |  | 2007 |      | 2006 |  | 2005 | 
|                                                                                           |  |      |      |      |  |      |  |  |      | 
|                                                                                          
|Accelerated depreciation (a)                                                               |  |      | 3.5  |      |  |     |  |  |     | 
|Net gain on disposal of assets held
 for sale (b)                                          |  |      | (1.5 | )    |  |     |  |  |     | 
|Asset impairment loss and write-down
 of property, plant and equipment (a) (c)             |  |      | 3.6  |      |  | 15.1 |  |  | 6.8  | 
|Severance (a) (c)                                                                          |  |      | 13.6 |      |  | 2.1  |  |  | 3.7  | 
|Charge to comply with employment
 contract (d)                                             |  |      |     |      |  | 1.5  |  |  | 1.1  | 
|Other (a) (e)                                                                              |  |      | 8.8  |      |  | 1.7  |  |  | 0.2  | 
|                                                                                           |  |      |      |      |  |      |  |  |      | 
|                                                                                           |  |      | 28.0 |      |  | 20.4 |  |  | 11.8 | 
|                                                                                           |  |      |      |      |  |      |  |  |      | 
|                                                                                          
|Certain minor rounding variances
 exist between the financial statements and this summary.

|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      
|--- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(a) | In September 2006, we announced a
 restructuring of our Canadian manufacturing operations, involving the closure
 of our textile manufacturing facility in Valleyfield, Quebec and the
 downsizing of our Montreal, Quebec knitting facility, to take effect in
 December 2006. In fiscal 2006, we recorded severance charges of $2.1
 million and other exit costs of $1.7 million relating to this
 restructuring. In addition, in September 2006, we recorded an impairment loss
 of $15.1 million on all Canadian textile and related manufacturing assets,
 and reduced our estimate of the remaining economic lives of these assets. The
 effect of this change in estimate, amounting to $3.5 million for fiscal 2007,
 was classified as accelerated depreciation and included in restructuring and other
 charges. We do not expect any further amounts to be incurred relating to
 accelerated depreciation in fiscal 2008.
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      
|(b) | During the fourth quarter of fiscal
 2006, we announced the relocation and consolidation of our U.S. retail
 distribution centres and the closure of our Canadian distribution centre in
 Montreal, Quebec, effective October 2006. We also announced the closure and
 downsizing of sock manufacturing capacity located in North Carolina and
 Virginia. As at September 30, 2007, assets held for sale include land,
 building and equipment at these locations. We ceased recording depreciation
 on these assets, which are recorded at the lower of their net book value or
 fair value less costs to sell. During fiscal 2007, we sold some of the assets
 related to these facilities and recorded a gain of $1.5 million.                                                                                                                                                                                                    

GILDAN 2007 ANNUAL REPORT

---



28

MD&A

|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              
|--- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(c) | On March 27, 2007, we announced plans
 to close our two remaining textile facilities in Montreal, Quebec and our
 cutting facility in Bombay, New York, in the fourth quarter of fiscal 2007.
 In addition, we closed two sewing facilities in Mexico in March 2007, which
 had been supplied with fabric from Gildans Canadian textile operations.
 In fiscal 2007, we recorded severance costs of $13.6 million, primarily
 relating to these plant closures. As at September 30, 2007, assets held for
 sale include land, building and equipment at these locations.                                                                                                    
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              
|    | Concurrent with the restructuring of
 the Canadian textile operations, we also announced plans to relocate our
 corporate office, which is currently located in the same facility as was our
 Montreal knitting operations, into leased premises in the Montreal area. In
 March 2007, we recorded a $3.6 million asset impairment loss relating to our
 corporate head office facility.                                                                                                                                                                                                                                                                                     
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              
|    | During fiscal 2005, we closed our two
 Canadian yarn-spinning facilities, and relocated a major portion of our
 yarn-spinning equipment to a North Carolina spinning facility operated by
 CanAm. The components of the charge primarily included a writedown to fair
 value of the fixed assets not transferred to CanAm of $6.8 million and
 employee severance of $3.7 million. The fixed assets not transferred to CanAm
 were classified as held for sale at their estimated fair values. Proceeds
 from these assets of $4.1 million and $5.0 million were received in fiscal
 2005 and in fiscal 2006, respectively. Severance costs were paid in full in fiscal 2005.
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              
|    | We do not expect any further
 severance charges to be incurred relating to these closures in fiscal 2008.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              
|(d) | During fiscal 2004, we expensed $4.6
 million representing managements best estimate of the cost of
 financial obligations pursuant to an employment contract with the former
 Chairman and Co-Chief Executive Officer of the Company. The employment
 contract includes variable components related to the Companys financial and
operating
 performance to fiscal 2009. This resulted in charges of $1.5 million in
 fiscal 2006 and $1.1 million in fiscal 2005. Most of the payments under this
 contract are payable in Canadian dollars. No charges were incurred in fiscal
 2007 relating to this employment contract.                                              
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              
|(e) | Other costs relate primarily to exit
 costs incurred in connection with the closures noted above, including
 carrying and dismantling costs associated with assets held for sale. Other
 costs also include temporary incremental duties as a result of the closure of
 our Mexican sewing facilities. We expect to incur additional carrying costs
 relating to the assets held for sale, which will be accounted for as
 restructuring and other charges as incurred during fiscal 2008, until all
 assets related to the closures are disposed of.                                                                                                                        

Depreciation and Interest Expenses

Depreciation and amortization
expense of $38.8 million in fiscal 2007 increased $6.4 million compared to
$32.4 million in fiscal 2006. The increase in depreciation expense in fiscal
2007 was due to continuing capital expenditures for organic capacity expansion.

Net interest expense amounted to
$4.9 million during fiscal 2007, up $1.8 million from $3.1 million in fiscal
2006. The increase in net interest expense resulted from lower investment
income and higher borrowings during fiscal 2007, mainly due to the use of funds
for the acquisition of Kentucky Derby and higher capital expenditure spending
during the year.

Income Taxes

The Company recorded an income tax
recovery of $4.8 million compared to an income tax expense of $4.8 million in
fiscal 2006. The income tax recovery included the recognition of
previously unrecognized tax benefits in the amount of $7.6 million relating to
a prior taxation year, which became statute-barred during fiscal 2007. In addition,
in the fourth quarter of fiscal 2007, we determined that the criteria for
recognition of future tax assets in Kentucky Derby were met and we recorded an
income tax recovery of $3.1 million relating to the current years operating loss of
Kentucky Derby.
Excluding the impact of these income tax recoveries, as well as the impact of
restructuring and other charges as discussed on page 27, the effective income
tax rate for the year ended September 30, 2007 was 3.8%, consistent with
 a 3.9% effective income tax rate for fiscal 2006.

Net Earnings

Net earnings and earnings per share
on a diluted basis (EPS) were $130.0 million and $1.07, respectively, for
fiscal 2007 compared to net earnings of $106.8 million, or $0.88 per share on a
diluted basis in fiscal 2006. Net earnings included restructuring and other
charges of $27.3 million after tax, or $0.22 per share, in fiscal 2007 and
$20.0 million after-tax, or $0.17 per share, in fiscal 2006. Excluding the
impact of these restructuring and other charges, adjusted net earnings of
$157.3 million, or $1.29 per share on a diluted basis, for fiscal 2007 reflected
increases of 24.1% and 22.9%, respectively, compared to adjusted net earnings
of $126.8 million, or $1.05 per share on a diluted basis in fiscal 2006. The
increase in adjusted net earnings and adjusted diluted EPS resulted mainly from
favourable manufacturing efficiencies, growth in activewear unit sales volumes
and a higher-valued product mix for our activewear products, partially offset
by lower unit selling prices for activewear, higher cotton costs, increased
SG&A, depreciation and interest expenses, and a $0.03 per share dilutive
impact for the year arising from the Kentucky Derby acquisition. In addition,
net earnings for fiscal 2007 were positively affected by income tax recoveries
in the third and fourth quarters totaling approximately $0.06 per share.

GILDAN
2007 ANNUAL REPORT

---



29

MD&A

NET EARNINGS(1)(in $ millions)

(BAR CHART)

DILUTED EPS(1)(in $)

(BAR CHART)

|    |                                                                                                                      
|--- | ---------------------------------------------------------------------------------------------------------------------
|(1) | Adjusted
  net earnings and adjusted diluted EPS are before impact of restructuring and
  other charges. See page 42.

Operating Results for the year ended October 1, 2006,
compared to the year ended October 2, 2005

Sales

Sales for fiscal 2006 reached $773.2 million, up 18.2% from $653.9 million
in fiscal 2005. The increase in sales was due mainly to a 14.5% increase in
unit sales volumes for our activewear products, combined with the impact of a
higher-valued product-mix, partially offset by a decline in activewear unit
selling prices compared to the prior year. In addition, sales in the fourth
quarter of fiscal 2006 included $30.0 million from the acquisition of Kentucky
Derby, which was effective July 6, 2006. Excluding the acquisition of Kentucky
Derby, sales were up 13.7%. The increase in unit sales volumes was due to
continuing market share penetration, primarily in the T-shirt and fleece
categories in the U.S. distributor channel and growth in overall industry unit
shipments from U.S. distributors to screenprinters.

We maintained a leading market share position in Canada and continued to
expand our international business. In Europe, our unit sales increased 9.3%
over fiscal 2005, and, in the fourth quarter of fiscal 2006, we added three
major new distributors in the U.K. During fiscal 2006, we introduced our
products in the wholesale distributor market in Mexico and continued to expand
our distributor network in this market.

Gross Profit

Gross profit for fiscal 2006 was $252.1 million, or 32.6% of sales, compared to $203.3
million, or 31.1% of sales during fiscal 2005. The gross margin improvement in
fiscal 2006 was due primarily to manufacturing efficiencies, lower cotton
costs, and a favourable product-mix. In addition, the margin improvement
reflected the impact of a reversal of a prior year reserve of $1.1 million for
litigation related to cotton purchase contracts in fiscal 2001, which was resolved in
Gildans favour in the second quarter of fiscal 2006. The positive variances in
gross margin in fiscal 2006 were partly offset by the impacts of lower net
selling prices, higher energy and transportation costs, and from the mix impact
of the higher proportion of the lower margin sock sales following the
acquisition of Kentucky Derby.

Selling, General and Administrative Expenses

SG&A expenses were $84.4 million, or 10.9% of sales in fiscal 2006,
compared to $73.8 million, or 11.3% of sales in fiscal 2005. The increase in
SG&A expenses in fiscal 2006 stemmed primarily from higher volume-driven
distribution costs, professional fees for the compliance with the requirements
of Section 404 of the U.S. Sarbanes Oxley
Act of 2002, and the impact of the stronger Canadian dollar,
combined with the cost of ongoing organizational development to support our
growth strategy. In addition, SG&A expenses included the acquisition of
Kentucky Derby in the fourth quarter of fiscal 2006, which accounted for $4.4
million of the year-over-year increase. The increase in SG&A expenses was
partially offset by an adjustment to the reserve for doubtful accounts in the
second quarter of fiscal 2006.

Depreciation and Interest Expenses

Depreciation and amortization expense increased to $32.4 million in
fiscal 2006, compared to $25.6 million in fiscal 2005. The increase in depreciation expense in fiscal 2006 was due
to a higher capital asset base resulting from continued capital spending to
support capacity expansion, in particular the Dominican Republic facility.

Net interest expense amounted to $3.1 million during fiscal 2006, down
from $4.6 million in fiscal 2005. The decrease in net interest expense resulted
from higher investment income and the reduction in overall debt, following the
scheduled principal repayments made on the Companys Senior Notes. The increase
in investment income was due to higher average cash balances during fiscal 2006
combined with higher interest rate returns compared to fiscal 2005.

Income Taxes

Income tax expense for the year ended October 1, 2006, was $4.8 million,
up $3.4 million from $1.4 million in fiscal 2005. The income tax expense for
fiscal 2006 and fiscal 2005 included an income tax recovery of $0.4 million and
$3.9 million, respectively, related to restructuring and other charges.
Excluding the impact of restructuring and other charges in both years, the
income tax provision for the year ended October 1, 2006 was $5.2
million, resulting in an effective income tax rate of 3.9%, compared to an
income tax provision of $5.3 million in fiscal 2005, reflecting an effective
income tax rate of 5.3%. The decline in the effective income tax rate was
mainly due to a higher proportion of our total sales being derived from our
international operations and sourced from our textile facilities outside of
North America.

GILDAN 2007 ANNUAL REPORT

---



30

MD&A

Net Earnings

Net earnings for fiscal 2006 were $106.8 million, or $0.88 per share on a
diluted basis, up respectively 24.2% and 22.2% compared to net earnings of
$86.0 million, or $0.72 per share on a diluted basis in fiscal 2005. Net
earnings for fiscal 2006 included restructuring and other charges of $20.0 million after
tax, or $0.17 per share. Net earnings for fiscal 2005 included restructuring
and other charges of $7.9 million after tax, or $0.06 per share. Excluding the
impact of these restructuring and other charges, adjusted net earnings of
$126.8 million, or $1.05 per share on a diluted basis in fiscal 2006, increased 35.0% and
34.0%, respectively, compared to adjusted net earnings of $93.9 million, or
$0.78 per share in fiscal 2005. The increase in adjusted net earnings and
adjusted diluted EPS resulted mainly from the continued strong growth in unit
sales volumes and higher gross margins, which more than offset increases in
SG&A and depreciation expenses.

SUMMARY OF QUARTERLY RESULTS

The table below sets forth certain summarized unaudited quarterly
financial data for the eight most recently completed quarters. This quarterly
information is unaudited but has been prepared on the same basis as the annual
audited Consolidated Financial Statements. The operating results for any
quarter are not necessarily indicative of the results to be expected for any
period.

The activewear business is seasonal and we have historically experienced
quarterly fluctuations in operating results. Typically, demand for our T-shirts
is highest in the third quarter of each fiscal year, when distributors purchase
inventory for the peak summer selling season, and lowest in the first quarter
of each fiscal year. Demand for fleece is typically highest, as a result of cooler
weather, in the third and fourth quarters of each fiscal
year. The seasonality of specific product-lines is consistent with that experienced by other companies in the
activewear industry. During the year, we operate our mature facilities at full
capacity in order to be cost efficient. Consequently, with the seasonal sales
trends of our business, we experience fluctuations in our inventory levels
throughout the year. For our sock products, demand is typically highest in the
first and fourth quarters of each fiscal year, stimulated largely by the cooler weather, the need to
support requirements for the back-to-school period and the peak retail selling
during the Christmas holiday season. Management anticipates that the
seasonality we have historically experienced will continue in the future,
although it is expected to  be somewhat mitigated by our product
diversification.

Fourth Quarter Results

Sales in the fourth quarter amounted to $254.9 million, up 8.4% from
$235.2 million in the fourth quarter of last year. The increase in sales
revenues was due to an 8.9% increase  in unit sales volumes for activewear
and a 15.7% increase in unit sales volumes for socks, partially offset by a
1.4% reduction in unit selling prices for activewear compared to last year. The
growth in activewear unit sales was primarily due to continuing market share
penetration in all product categories in the U.S. distributor channel and a
2.4% increase in overall industry shipments from U.S. distributors to
screenprinters for the quarter ended September 30, 2007. Growth in Gildans activewear
sales in international markets in the fourth quarter continued to be strong.
Unit shipments in Europe increased by 20.9% compared with the fourth quarter of
fiscal 2006.

Gross margins in the fourth quarter of fiscal 2007 were 32.2%, compared
with 30.6% in the fourth quarter of fiscal 2006. Higher gross margins for
activewear were partially offset by lower gross margins for socks. The increase
in gross margins for activewear compared to last year was primarily due to
further manufacturing efficiencies, partially offset by lower selling prices
and higher cotton costs. The lower gross margins for socks, compared to the
fourth quarter of last year, reflected the consumption of high-cost inventories
from outside contractors which were used to support major new retail programs
during the transition of manufacturing to Gildans new sock factory in
Honduras. Virtually all of the basic mens and boys products for these sock
programs, as well as certain basic mass-market programs supplied by Prewett,
are now being manufactured at Gildans new sock facility in Honduras.

(in $
millions, except per share amounts)

|               |  |       |  |       |  |       |  |       |  |       |  |       |  |       |  |       | 
|-------------- |  | ----- |  | ----- |  | ----- |  | ----- |  | ----- |  | ----- |  | ----- |  | ----- | 
|               |  | 2007  |  | 2006  | 
|              
|               |  | Q4    |  | Q3    |  | Q2    |  | Q1    |  | Q4    |  | Q3    |  | Q2    |  | Q1    | 
|              
|              
|Sales          |  | 254.9 |  | 291.6 |  | 232.1 |  | 185.8 |  | 235.2 |  | 233.9 |  | 183.8 |  | 120.3 | 
|Net
  earnings |  | 40.9  |  | 52.4  |  | 21.1  |  | 15.6  |  | 16.8  |  | 42.8  |  | 31.0  |  | 16.2  | 
|               |  |       |  |       |  |       |  |       |  |       |  |       |  |       |  |       | 
|Basic
  EPS    |  | 0.34  |  | 0.44  |  | 0.18  |  | 0.13  |  | 0.14  |  | 0.36  |  | 0.26  |  | 0.14  | 
|Diluted
  EPS  |  | 0.34  |  | 0.43  |  | 0.17  |  | 0.13  |  | 0.14  |  | 0.35  |  | 0.26  |  | 0.13  | 
|               |  |       |  |       |  |       |  |       |  |       |  |       |  |       |  |       | 

GILDAN 2007 ANNUAL REPORT

---



31

MD&A

SG&A expenses in the fourth quarter were $27.9 million, or 10.9% of
sales, compared to $23.6 million, or 10.1% of sales, in the fourth quarter of
last year. The increase in SG&A expenses was primarily due to higher
distribution costs and increased administration and information technology
costs to support our continuing growth.

Depreciation and amortization expenses amounted to $10.3 million for the
fourth quarter of fiscal 2007, up $1.2 million from the same period last year
mainly due to our continuing investments in capacity expansion.

We recorded a tax recovery of $4.6 million in the fourth quarter which
included the recognition of an income tax benefit of $3.1 million relating to
the fiscal 2007 full year operating loss incurred by Kentucky Derby. The tax
benefit of operating losses may be recognized if there is sufficient assurance
that losses will be utilized against expected future profits within the
permitted time-frame. We also recognized tax benefits in the amount of $1.9
million relating to a prior taxation year, which became statute-barred during
fiscal 2007.

We achieved fourth quarter net earnings of $40.9 million and diluted EPS
of $0.34, after recording a restructuring charge in the quarter of $4.9 million
after-tax or $0.04 per share, which was primarily related to the previously
announced restructuring of our Canadian, Mexican and U.S. manufacturing
facilities. Before reflecting the restructuring charge, adjusted net earnings
and adjusted diluted EPS for the fourth quarter of fiscal 2007 amounted to
$45.8 million or $0.38, up respectively 24.5% and 26.7% from adjusted net
earnings of $36.8 million and adjusted diluted EPS of $0.30 in the fourth
quarter of fiscal 2006. The growth in EPS compared to last year was due to
higher gross margins for activewear, continuing growth in activewear unit sales
volumes and the impact of income tax recoveries, partially offset by lower
activewear selling prices, higher raw material costs and higher selling,
general and administrative and depreciation expenses. The impact of the
Kentucky Derby acquisition was $0.01 accretive to EPS in the fourth quarter, as
the negative impact of consuming higher-cost inventories manufactured by
external contractors was more than offset by the favourable impact of recognizing
the tax benefit of Kentucky Derby losses for the full fiscal year.

FINANCIAL CONDITION

Accounts receivable of $206.1 million, as at September 30, 2007, reflected
an increase of $40.2 million from accounts receivable of $165.9 million at the
end of fiscal 2006. The increase was primarily due to an 8.4% increase in sales
in the fourth quarter over the prior year and an increase in days sales
outstanding in our trade receivables. The increase in days sales outstanding in
our trade receivables resulted mainly from the increased proportion of fleece
sales, which traditionally reflect extended payment terms in the late spring
and summer months, in line with industry practice.

ACCOUNTS RECEIVABLE AND INVENTORY VS. SALES TRENDS
(in $ millions)

(BAR CHART)

Inventories were $240.0 million at the end of fiscal 2007, representing an
increase of $39.3 million from $200.7 million at the end of fiscal
2006. Higher inventories reflected our objective to maintain service levels to
customers in both our wholesale and retail channels during the relocation of
our manufacturing operations from Canada, U.S and Mexico to lower cost
facilities in Central America and the Caribbean Basin. In addition, activewear
inventories at the end of fiscal 2007 reflected new product lines and further geographical
expansion.

Property, plant and equipment, which are net of accumulated depreciation,
including asset impairment losses, amounted to $377.6 million at the end of
fiscal 2007, up $74.9 million from last year. This increase was primarily due
to net capital expenditures of $134.3 million, mainly for capacity expansion
projects in Honduras, partially offset by depreciation and asset impairment
losses of $43.9 million.

GILDAN 2007 ANNUAL REPORT

---



32

MD&A

Intangible assets amounted to $2.0 million as at September 30, 2007
compared to $9.5 million at the end of fiscal 2006. Intangible assets
represented the unamortized value of customer contracts and customer
relationships included in the purchase price for Kentucky Derby in fiscal 2006.
The decline in intangible assets was primarily due to a $7.3 million drawdown
related to the recognition of the income tax benefit for pre-acquisition tax losses of Kentucky
Derby. In the fourth quarter of fiscal 2007, we concluded that the benefit of
these tax losses would likely be realized. Under Canadian GAAP, the recognition
of income tax benefits from tax losses of an acquired company relating to
taxation years prior to the acquisition date must first be applied to reduce
the value of any intangible assets recognized at time of acquisition.

Total assets were $874.5 million on September 30, 2007, compared to $723.3
million at the end of the previous year. Working capital was $342.5 million
compared to $261.0 million on October 1, 2006. The current ratio at the end of
fiscal 2007 was 3.8 compared to 2.8 at the end of fiscal 2006.

PROPERTY, PLANT AND EQUIPMENT ASSETS BY GEOGRAPHY

(PIE CHART)

LIQUIDITY AND CAPITAL RESOURCES

Cash Flows

Cash flows from operating activities in fiscal 2007 were $91.2 million,
compared to $94.7 million for the previous year. This amount represents cash
flows from operating earnings less amounts required to finance increases in
accounts receivable and inventories. The net decline was mainly due to lower
accounts payable and accrued liabilities. The decrease in accounts payable and
accrued liabilities resulted primarily from the lower use of activewear
outside-contractors and increased usage of Asian sock contractors which require
shorter payment terms, as well as the payment of severance costs in fiscal 2007
related to restructuring activities announced in fiscal 2006. These factors
offset the impact of higher cash operating earnings.

Cash flows used in investing activities were $134.7 million in fiscal
2007, compared to cash outflows of $96.1 million in fiscal 2006 that included
$19.9 million related to the acquisition of Kentucky Derby in the fourth
quarter of fiscal 2006. The increase in cash used in investing activities was
mainly due to higher net capital expenditures. Net capital expenditures for
fiscal 2007 were $134.3 million, up $54.1 million from fiscal 2006. The
increase related to higher capital spending for our major
textile and sock manufacturing expansion projects in Honduras, our new U.S. retail
distribution centre, capital investments in our information technology systems
and the expansion of our sewing capacity. The major capital investment projects
for fiscal 2006 included the textile facility in the Dominican Republic, as
well as the sock manufacturing facility and the textile facility for the
production of activewear in Honduras.

We had negative free cash flow(1) of $43.5 million in fiscal
2007 compared to free cash flow of $18.5 million in fiscal 2006, mainly as
a result of higher capital expenditures and working capital requirements, which
more than offset higher cash operating earnings.

Cash flows from financing activities in fiscal 2007 amounted to $23.6
million, compared to cash outflows of $39.4 million in fiscal 2006. The difference
was primarily the result of a $49.0 million drawdown on our credit facilities
to support the acceleration of our capacity expansion plans and increased
working capital requirements, and a lower reduction of bank indebtedness in
fiscal 2007. During fiscal 2007, we repaid $23.2 million of long-term debt
consisting of the final $17.5 million principal repayment of our Senior Notes
and long-term debt repayments of our joint venture and our subsidiary Kentucky
Derby. In addition, we repaid $3.5 million of bank indebtedness related to our
joint venture. During fiscal 2006, the $23.9 million decrease in long-term debt
included a $17.5 million principal repayment on our Senior Notes and a $4.0
million repayment of Kentucky Derby long-term debt. In addition, after
acquiring Kentucky Derby, we repaid $17.3 million of its bank indebtedness in
the fourth quarter of fiscal 2006.

We ended fiscal 2007 with cash and cash equivalents of $9.3 million compared to $29.0 million at
the end of fiscal 2006. Total indebtedness as at September 30, 2007 amounted to
$59.7 million compared to $37.3 million at the end of fiscal 2006. The $22.3
million year-over-year increase in total indebtedness was mainly as a result of
the increase in long-term debt from the use of our long-term credit facility, partly
offset by the final principal repayment of $17.5 million on our Senior Notes,
which was made on May 31, 2007 and the repayment of our joint ventures bank
indebtedness. As at the end of fiscal 2007, we had drawn $49.0 million from our
revolving long-term credit facility.

|    |                                                                                                                                                                                              
|--- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(1) | Cash
  flows from operating activities, including net changes in non-cash working
  capital balances, less cash from investing activities excluding business
  acquisitions. See pages 42-43.

GILDAN 2007 ANNUAL REPORT

---



33

MD&A

Liquidity and Capital Resources

In recent years, we have funded our operations and capital requirements
with cash generated from operations. A revolving credit facility has been
periodically utilized to finance seasonal peak working capital requirements. Our primary
use of funds on an ongoing basis is related to capital expenditures for new
manufacturing facilities, inventory financing, accounts receivable funding, and
business acquisitions. In fiscal 2007, we used our revolving long-term credit
facility, in addition to our cash flow from operations, to finance capital
expenditures due to the acceleration of our major capacity expansion projects
in Honduras.

At the end of fiscal 2007, $49.0 million was drawn on our long-term credit
facility. No amounts were drawn under this facility as at October 1, 2006. On
October 30, 2007, we increased our long-term credit facility to $400 million,
on an unsecured basis, which matures in June 2012. We believe our cash flow
from operating activities together with our credit facilities will provide us
with sufficient liquidity and capital resources in fiscal 2008 to fund our
anticipated working capital and capital expenditure requirements. Furthermore,
we continue to have significant unused debt financing capacity and financing
flexibility to invest in capital expenditures for further capacity expansion in
excess of our current plans, as well as to pursue other potential acquisition
opportunities.

On October 15, 2007, we paid $125 million on closing of the Prewett
acquisition and also placed $10 million in escrow to provide for a further
contingent increase in the purchase price of the acquisition. The funds were
drawn under our revolving long-term credit facility.

In order to be able to support our opportunities for continuing sales
growth, we are continuing to invest in capacity expansion in Central America.
For fiscal 2008, we are now projecting capital expenditures of approximately
$140 million compared to our previous projection of $155 million announced in
August 2007. The reduction in projected capital spending for fiscal 2008 is due
to delays in the timing of a major energy cost reduction project in Honduras
combined with below budget spending for the new activewear facility currently
being ramped up to full capacity in Honduras. The projected capital investments
for fiscal 2008 primarily include the expenditures to complete the ramp-up of
the activewear and sock facilities in Honduras, the energy and chemical cost
reduction projects, which we announced in May 2007, investments in our
information technology systems and the construction of a second sock facility
to be completed over twenty-four months.

In order to maximize flexibility to finance our ongoing growth and
expansion and to be able to take advantage of additional new opportunities, we
do not currently pay a dividend. Periodically, the merits of introducing a
dividend are re-evaluated by our Board of Directors.

Off-Balance Sheet Arrangements

We have no commitments that are not reflected in our balance sheets except
for operating leases and other purchase obligations, which are included in the
table of contractual obligations below. As disclosed in Note 13 to our
Consolidated Financial Statements, we have granted corporate guarantees,
irrevocable standby letters of credit and surety bonds to third parties to
indemnify them in the event the Company and some of its subsidiaries do not
perform its contractual obligations. As at September 30, 2007, the maximum
potential liability under these guarantees was $13.6 million, of which $5.5
million was for surety bonds and $8.1 million was for corporate guarantees and
standby letters of credit.

Derivative Financial Instruments

From time to time, we use forward foreign exchange contracts, primarily in
Canadian dollars, British pounds and Euros, to hedge cash flows related to
sales and operating expenses denominated in foreign currencies (non-U.S.
dollar).

A forward foreign exchange contract represents an obligation to buy or
sell foreign currency with a counterparty. Credit risk exists in the event of
failure by a counterparty to meet its obligations. We reduce this risk by
dealing only with highly rated counterparties, normally major European and
North American financial institutions. Our exposure to foreign currency
fluctuations is described in more detail in the Risks and Uncertainties
section of this MD&A.

We do not use derivative financial instruments for speculative purposes.
Forward foreign exchange contracts are entered into with maturities not
exceeding twenty-four months.

GILDAN 2007 ANNUAL REPORT

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|                             |  |                 |        |               |                  |          |                                 |                          |   |       
|---------------------------- |  | --------------- | ------ | ------------- | ---------------- | -------- | ------------------------------- | ------------------------ | - | ------
|(in thousands)               |  | Notional
amount |        | Exchange rate |                  | Maturity |                                 | Notional U.S.
equivalent
|                            
|                            
|2007                         |  |                 |        |               |                  |          |                                 |                          |   |       
|Buy contracts:               |  |                 |        |               |                  |          |                                 |                          |   |       
|Foreign exchange contracts   |  |                | 4,425  |               | 1.3390 to 1.4222 |          | October 2007 to December
  2007 |                          | $ | 6,025 
|                             |  |                 |        |               |                  |          |                                 |                          |   |       
|Sell contracts:              |  |                 |        |               |                  |          |                                 |                          |   |       
|Foreign exchange contracts   |  |                | 13,980 |               | 1.3410 to 1.3899 |          | October 2007 to October
  2008  |                          | $ | 19,096
|                             |  | £               | 10,801 |               | 1.9640 to 2.0331 |          | October 2007 to October
  2008  |                          |   | 21,501
|                             |  | CA$             | 3,800  |               | 0.9945           |          | October 2007                    |                          |   | 3,821 
|                            
|                             |  |                 |        |               |                  |          |                                 |                          |   |       
|2006                         |  |                 |        |               |                  |          |                                 |                          |   |       
|Buy
  contracts:             |  |                 |        |               |                  |          |                                 |                          |   |       
|Foreign
  exchange contracts |  |                | 9,756  |               | 1.2056 to 1.2696 |          | October 2006 to June 2007       |                          | $ | 11,934
|                             |  | CA$             | 6,250  |               | 0.8961           |          | October 2006                    |                          |   | 5,600 
|                            

For fiscal 2007 and 2006, net earnings included recognized gains relating
to derivative financial instruments of $1.9 million and $4.6 million,
respectively, which primarily related to hedging activities as discussed above.

The table above summarizes our commitments to buy and sell foreign
currencies as at September 30, 2007 and October 1, 2006.

Contractual Obligations

In the normal course of business, we enter into contractual obligations
that will require us to disburse cash over future periods. The following table
sets forth our contractual obligations for the following items as at September
30, 2007:

|                        
|------------------------
|PAYMENTS
  DUE BY PERIOD
|                        
|(in
  $ millions)       

|                              |  |       |       |                    |  |                |  |                |      |                 |  |      |  |  |      | 
|----------------------------- |  | ----- | ----- | ------------------ |  | -------------- |  | -------------- | ---- | --------------- |  | ---- |  |  | ---- | 
|                              |  | Total |       | Less than
  1 year |  | 1 to 3
  years |  | 4 to 5
  years |      | After
  5 years | 
|                             
|                             
|Long-term
  debt              |  |       | 59.7  |                    |  | 3.7            |  |                | 5.2  |                 |  | 50.8 |  |  |     | 
|Operating
  leases            |  |       | 49.0  |                    |  | 6.9            |  |                | 13.1 |                 |  | 9.9  |  |  | 19.1 | 
|Purchase
  obligations        |  |       | 132.1 |                    |  | 131.9          |  |                | 0.2  |                 |  |     |  |  |     | 
|Other
  obligations           |  |       | 50.4  |                    |  | 50.4           |  |                |     |                 |  |     |  |  |     | 
|                             
|Total Contractual Obligations |  |       | 291.2 |                    |  | 192.9          |  |                | 18.5 |                 |  | 60.7 |  |  | 19.1 | 
|                             

We expect that cash flow from our operating earnings, together with our
year-end cash balances and unutilized bank facilities, will be sufficient to
meet foreseeable cash needs for fiscal 2008.

Settlement of Contingent Liability

In November 2002, one of our Mexican subsidiaries (Gildan Mexico) received
a tax assessment from a regional taxation office relating to duties for the
2000 fiscal year for approximately $6.0 million. The substance of the
assessment was that the Mexican taxation authorities adopted the position that Canadian-made
textiles shipped to Gildan Mexico for sewing processing had not subsequently
been exported from Mexico. Gildan Mexico appealed the assessment and was
successful in obtaining a judgment in its favour. Notwithstanding the judgment,
the regional Mexican taxation office issued a new assessment in March 2005, and
increased the assessed amount to approximately $7.1 million, primarily
comprised of interest and late payment penalties. Shortly after receiving the
second assessment, Gildan Mexico again filed an appeal. In July 2006, Gildan
Mexico received notification that its appeal of the second assessment for
fiscal 2000 was unsuccessful. We received legal opinions that the tax
assessment was without merit under Mexican law governing re-export from
maquiladora operations. Additionally, Gildan Mexico, a maquiladora operation,
provided documentation to establish that the textiles imported into Mexico for
sewing were subsequently exported to the United States and Canada.

In April 2007, a new law, which was passed by the Mexican Congress in
December 2006, was formally enacted. The provisions of this law allowed Gildan
Mexico to apply for the forgiveness of all of the interest and penalties and a
substantial amount of the principal related to this tax assessment. In May
2007, Gildan Mexico filed an application requesting that the provisions of the
new law be applied to its outstanding tax assessment. The Mexican taxation
authorities accepted the application in May 2007 and Gildan Mexico settled the
assessment with a payment of $0.4 million during the third quarter of fiscal
2007. We had previously recorded a charge for this amount, which was reflected
in selling, general and administrative expenses in the second quarter of fiscal
2007. Gildan Mexico has been released from all previously tax-assessed amounts
by the Mexican taxation authorities.

Outstanding Share Data

Our common shares are listed on the New York Stock Exchange and the
Toronto Stock Exchange (GIL).

GILDAN 2007 ANNUAL REPORT

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35

MD&A

As at November 30, 2007, there were 120,426,127 common shares issued and
outstanding along with 975,539 stock options and 924,000 dilutive restricted
share units (Treasury RSUs) outstanding. Each stock option entitles the holder
to purchase one common share at the end of the vesting period at a
predetermined option price. Each Treasury RSU entitles the holder to receive
one common share from treasury at the end of the vesting period, without any
monetary consideration being paid to the Company. However, the vesting of 50%
of the restricted share grant is dependent upon the financial performance of
the Company relative to a benchmark group of Canadian publicly-listed
companies.

Stock Split

On May 2, 2007, our Board of Directors approved a two-for-one stock split
effected in the form of a stock dividend. The split was applicable to all
shareholders of record on May 18, 2007. The Companys shares commenced trading
on a post-split basis on May 16, 2007 on the Toronto Stock Exchange (TSX), and
on May 28, 2007 on the New York Stock Exchange (NYSE), in accordance with the
respective requirements of these exchanges.

On May 4, 2005, our Board of Directors declared a two-for-one stock split
effected in the form of a stock dividend. The split was applicable to all
shareholders of record on May 20, 2005. The common shares commenced trading on
a post-split basis on May 18, 2005 on the TSX, and on June 1, 2005 on the NYSE.

All share and per share data in this MD&A are stated after the
above-noted stock splits.

CRITICAL ACCOUNTING ESTIMATES

Our significant accounting policies are described in Note 2 to our audited
Consolidated Financial Statements. The preparation of financial statements in
conformity with Canadian GAAP requires estimates and assumptions that affect
our results of operations and financial position. By their nature, these judgments are
subject to an inherent degree of uncertainty and are based upon historical
experience, trends in the industry and information available from outside
sources. On an ongoing basis, management reviews its estimates and actual
results could differ materially from those estimates.

Management believes that the following accounting estimates are most
significant to assist in understanding and evaluating our financial results.

Sales Promotional Programs

At the time of sale, estimates are made for customer price discounts and
rebates based upon existing programs. Accruals required for new programs, which
relate to prior sales, are recorded at the time the new program is introduced.
Sales are recorded net of these program costs and a provision for estimated
sales returns, which is based on historical experience and other known factors,
and exclude sales taxes. If actual price discounts, rebates or returns differ
from estimates, significant adjustments to net sales could be required in future periods.

Trade Accounts Receivable

Trade accounts receivable consist of amounts due from our normal business
activities. Our extension of credit and our determination of the allowance for
doubtful accounts involve judgment and are based on an evaluation of each
customers financial condition and payment history. We regularly monitor our
credit risk exposure to our customers and take steps to mitigate the risk of
loss.

If the financial condition of our customers were to deteriorate causing an
impairment of their ability to make payments, additional provisions for bad
debts may be required in future periods. On the other hand, if our ultimate
recovery on the accounts we have reserved or written off exceeds our estimates,
we may decrease our reserves.

Property, plant and equipment

Our property, plant and equipment are stated at cost less accumulated
depreciation, including asset impairment losses. Depreciation is calculated
using the straight-line method over the estimated useful lives of the assets.

On a regular basis, we review the estimated useful lives of our property,
plant and equipment. Assessing the reasonableness of the estimated useful lives
of property, plant and equipment requires judgment and is based on currently
available information. We also review our property, plant and equipment for
potential impairment whenever events and changes in circumstances indicate that
the carrying amounts of such assets may not be recoverable. Impairment losses
are recognized when the estimated undiscounted future cash flows expected to
result from the use of an asset and its eventual disposition are less than its
carrying amount. The amount of impairment loss recognized is measured as the
amount by which the carrying value for an asset exceeds the fair value of the
asset, with fair value being determined based upon discounted cash flows or
appraised values, depending on the nature of the asset. In estimating future
cash flows, the Company uses its best estimates based on internal plans, which
incorporate managements judgments as to the remaining service potential of the
property, plant and equipment. Changes in circumstances, such as technological
advances and changes to our business strategy can result in actual useful lives
and future cash flows differing significantly from our estimates. Revisions to
the estimated useful lives of property, plant and equipment or future cash
flows constitute a change in accounting estimate and are applied prospectively.

GILDAN 2007 ANNUAL REPORT

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36

MD&A

Cotton and Yarn Procurements

We contract to buy cotton and yarn with future delivery dates at fixed
prices in order to mitigate the effects of fluctuations in the prices of cotton
used in the manufacture of our products. These contracts are not used for
trading purposes. We commit to fixed prices on a percentage of our cotton and
yarn requirements up to eighteen months in the future. If market prices for
cotton and yarn fall significantly below the committed future purchase prices, we estimate the costs of
cotton and yarn that are not recoverable in future sales of finished goods, and
record a charge to earnings.

Income Taxes

We utilize the asset and liability method for accounting for income taxes
which requires the establishment of future tax assets and liabilities, measured
at substantively enacted tax rates, for all temporary differences caused when
the tax bases of assets and liabilities differ from those reported in our
audited Consolidated Financial Statements. We recognize future income tax
assets only to the extent that, in managements opinion, it is more likely than
not that the future income tax assets will be realized. Our assessment of
whether a future income tax asset is more likely than not to be realized is
based on estimates of future taxable income in certain jurisdictions and other
assumptions.

Our income tax provision is based on domestic laws in the various
countries in which we operate as well as applicable international tax treaties.
These rules and regulations are subject to interpretation and require estimates
and assumptions that may be challenged by taxation authorities. We periodically
review our estimates relating to income tax assets and liabilities, and record
adjustments as circumstances warrant, such as changes to tax laws and
administrative guidance, and the resolution of uncertainties through either the
conclusion of tax audits or expiration of prescribed time limits within the
relevant statutes. The final results of government tax audits and other events
may vary materially compared to estimates and assumptions used by management in
determining the provision for income taxes and in valuing income tax assets and
liabilities, and in such eventualities we may be required to reduce or increase
the value of income tax assets and liabilities resulting in a material income
tax expense or recovery in future periods.

Business Acquisitions

We account for business acquisitions using the purchase method.
Accordingly, the purchase price of a business acquisition is allocated to its
identifiable net assets including identifiable intangible assets, on the basis
of estimated fair values as at the date of purchase, with any excess being
assigned to goodwill. We estimate the fair value of assets and liabilities
acquired at date of acquisition using a projected discounted cash flow method
and other valuation methods. We make a number of significant estimates when
calculating fair value using a projected discounted cash flow method. These
estimates include projected future cash flows, the number of years used, the
discount rate and others.

We believe that our estimates and valuation methods are reasonable. They
are consistent with our inherent planning and reflect our best estimates, but
they have inherent uncertainties that management may not be able to control.

CHANGES IN ACCOUNTING POLICIES AND RECENT ACCOUNTING PRONOUNCEMENTS

Changes in Accounting Policies

Effective at the commencement of our 2007 fiscal year, we adopted the
Canadian Institute of Chartered Accountants (CICA) Handbook Sections 1530,
Comprehensive Income, 3251, Equity, 3855, Financial Instruments  Recognition and
Measurement, 3861, Financial Instruments  Disclosure and Presentation, and 3865,
Hedges. These new Handbook Sections, which apply to fiscal years beginning on
or after October 1, 2006 on a prospective basis, provide comprehensive
requirements for the recognition and measurement of financial instruments, as
well as standards on when and how hedge accounting may be applied. Handbook
Section 1530 also establishes standards for reporting and displaying
comprehensive income. Comprehensive income is defined as the change in equity
from transactions and other events from non-owner sources. Other comprehensive
income refers to items recognized in comprehensive income but that are excluded
from net earnings calculated in accordance with generally accepted accounting
principles.

Under these new standards, all financial instruments are classified into
one of the following five categories: held-for-trading, held-to-maturity
investments, loans and receivables, available-for-sale financial assets or
other financial liabilities. All financial instruments, including derivatives,
are included on the consolidated balance sheet and are measured at fair market
value with the exception of loans and receivables, held-to-maturity investments
and other financial liabilities, which are measured at amortized cost. Subsequent
measurement and recognition of changes in fair value of financial instruments
depend on their initial classification. Held-for-trading financial investments
are measured at fair value and all gains and losses are included in net
earnings in the period in which they arise. Available-for-sale financial
instruments are measured at fair value with revaluation gains and losses
included in other comprehensive income until the asset is removed from the
balance sheet.

The standards require derivative instruments to be recorded as either
assets or liabilities measured at their fair value unless exempted from
derivative treatment as a normal purchase and sale. Certain derivatives
embedded in other contracts must also be measured at fair value. All changes in
the fair value of derivatives are recognized in earnings unless specific hedge
criteria are met, which requires that a company must formally document,
designate and assess the effectiveness of transactions that receive hedge accounting.
Derivatives that qualify as hedging instruments must be designated as either a
cash flow hedge,

GILDAN 2007 ANNUAL REPORT

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37

MD&A

when the hedged item is a future cash flow, or a fair value hedge, when
the hedged item is a recognized asset or liability. The unrealized gains and
losses related to a cash flow hedge are included in other comprehensive income.
For a fair value hedge, both the derivative and the hedged item are recorded at
fair value in the consolidated balance sheet and the unrealized gains and
losses from both items are included in earnings. Any derivative instrument that
does not qualify for hedge accounting is marked-to-market at each reporting
date and the gains or losses are included in net earnings.

As a result of the adoption of these standards, we have classified our
cash equivalents as available for sale. We have also classified our accounts
receivable as loans and receivables, and our accounts payable and long-term
debt as other financial liabilities, all of which are measured at amortized
cost. The adoption of these new standards also resulted in the reclassification
of an amount of $26.2 million previously recorded in Cumulative translation
adjustment to Accumulated other comprehensive income on the consolidated
balance sheets. As at October 1, 2006 and September 30, 2007, all outstanding
forward foreign exchange contracts were reported on a mark-to-market basis and
the gains or losses were included in earnings, because we elected not to follow
hedge accounting for these derivatives. The adoption of these standards had no
impact on the consolidated statement of earnings.

Recent Accounting Pronouncements

Capital DisclosuresIn
December 2006, the CICA issued Section 1535, Capital Disclosures. This Section
established standards for disclosing information about an entitys capital and
how it is managed. This Section is effective for fiscal periods beginning on or
after October 1, 2007. This new standard relates to disclosure only and will
not impact our financial results.

Financial Instruments  Disclosure and Presentation
In December 2006, the CICA
issued Section 3862, Financial Instruments  Disclosure, and Section 3863,
Financial Instruments  Presentation. These Sections are effective for fiscal
periods beginning on or after October 1, 2007. These sections replace existing
Section 3861, Financial Instruments  Disclosure and Presentation. Disclosure
standards are enhanced and expanded to complement the changes in accounting
policy adopted in accordance with Section 3855, Financial Instruments  Recognitions and Measurement. These new standards relate to disclosure and
presentation only and will not impact our financial results.

Inventories
In June 2007, the CICA issued
Section 3031, Inventories, which replaces Section 3030 and harmonizes the
Canadian standards related to inventories with International Financial
Reporting Standards (IFRS). This Section provides changes to the measurement
and more extensive guidance on the determination of cost, including allocation of overhead; narrows the permitted cost
formulas; requires impairment testing; and expands the disclosure requirements
to increase transparency. This Section applies to interim and annual financial
statements beginning on or after January 1, 2008. We have not yet determined
what the impact of adopting this standard will have on our consolidated
financial statements.

International Financial Reporting StandardsIn 2005 the Accounting Standards
Board of Canada (AcSB) announced that accounting standards in Canada are to
converge with IFRS. In May 2007, the CICA published an updated version of its
Implementation Plan for Incorporating International Financial Reporting
Standards into Canadian GAAP. This plan includes an outline of the key
decisions that the CICA will need to make as it implements the Strategic Plan
for publicly accountable enterprises that will converge Canadian generally
accepted accounting standards with IFRS. It is anticipated that the decision on
the changeover date from current Canadian GAAP to IFRS will be made by the CICA
by March 31, 2008. While IFRS uses a conceptual framework similar to Canadian
GAAP, there are significant differences in accounting policy which must be
addressed. We are currently assessing the future impact of these new standards
on our consolidated financial statements.

RELATED PARTY TRANSACTIONS
We have transactions with
Frontier, which manages the operations of CanAm. These transactions are in the
normal course of operations and are measured at the exchange amount, which is
the amount of consideration established and agreed to by the related parties.
Total purchases of yarn from Frontier were $103.9 million in fiscal 2007 (2006  $100.4 million), along with $0.8 million relating to management fees (2006  $0.8
million). As at September 30, 2007, we had an outstanding payable to Frontier
of $20.1 million (2006  $18.9 million).

DISCLOSURE
CONTROLSOur disclosure controls and
procedures are designed to ensure that information required to be disclosed in
our reports filed with securities regulatory authorities is recorded,
processed, summarized, and reported within prescribed time periods and is
accumulated and communicated to our management, including our Chief Executive
Officer and our Chief Financial Officer, as appropriate, to allow timely
decisions regarding required disclosure.

An evaluation was carried out under the supervision of, and with the
participation of, our management, including our Chief Executive Officer and our
Chief Financial Officer, of the effectiveness of our disclosure controls and
procedures as of September 30, 2007. Based on that evaluation, our Chief
Executive Officer and our Chief Financial Officer concluded that our disclosure
controls and procedures were effective as of the end of such period.

GILDAN 2007 ANNUAL REPORT

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MD&A

INTERNAL
CONTROL OVER FINANCIAL REPORTING

Managements Annual Report on Internal Control Over Financial ReportingOur
management is responsible for establishing and maintaining adequate internal
control over financial reporting, as such term is defined in Rules 13(a)-15(f)
and 15(d)-15(f) under the U.S. Securities Exchange Act of 1934.

Our internal control over financial reporting includes those policies and
procedures that: (1) pertain to the maintenance of records that, in reasonable
detail, accurately and fairly reflect the transactions and dispositions of our
assets; (2) provide reasonable assurance that transactions are recorded as
necessary to permit preparation of financial statements in accordance with
generally accepted accounting principles, and that our receipts and
expenditures are being made only in accordance with authorizations of our
management and directors; and (3) provide reasonable assurance regarding
prevention or timely detection of unauthorized acquisition, use or disposition
of our assets that could have a material effect on the financial statements.

Under the supervision and with the participation of our Chief Executive
Officer and our Chief Financial Officer, management conducted an evaluation of
the effectiveness of our internal control over financial reporting, as of
September 30, 2007, based on the framework set forth in Internal Control-Integrated Framework
issued by the Committee of Sponsoring Organizations of the Treadway Commission
(COSO). Based on its evaluation under this framework, management concluded that
our internal control over financial reporting was effective as of that date.

Attestation Report of Independent Registered Public Accounting Firm

KPMG
LLP, an independent registered public accounting firm, which audited and
reported on our financial statements in this Annual Report, has issued an
unqualified attestation report on the effectiveness of our internal control
over financial reporting as of September 30, 2007.

Changes in Internal Controls Over Financial Reporting

There
have been no changes during fiscal 2007 in our internal control over financial
reporting that have materially affected, or are reasonably likely to materially
affect, our internal control over financial reporting.

The design of any system of controls and procedures is based in part upon
certain assumptions about the likelihood of certain events. There can be no
assurance that any design will succeed in achieving its stated goals under all
potential future conditions, regardless of how remote.

RISKS AND
UNCERTAINTIES

The Company is subject to a variety of business risks. The risks described
below are risks that could materially affect our business, financial condition
and results of operations, but are not necessarily the only ones facing the
Company. Additional risks that are not currently known to us or that we
currently deem immaterial, could also materially and adversely affect our
business.

Our ability to implement our strategies and plans
While we believe we can leverage
our existing core competencies and successful business model in the mass-market
retail channel, we cannot assure you that we will be successful in the retail
channel or in penetrating other international markets.

In addition to our acquisitions of Kentucky Derby and Prewett, we may
invest in business acquisitions that we assess to be complementary to our
business or that could contribute to the acceleration of our growth strategy,
and from which we would expect to realize economic benefits through the
integration of such acquisitions into our operations. There can be no assurance
that we would be successful in completing such acquisitions or that we would realize
the anticipated benefits from acquisitions.

Our industry is competitive
The apparel market for our
products is highly competitive. Competition is generally based upon price, with
reliable quality and service also being key requirements for success. Our
primary competitors in North America are the major U.S.-based manufacturers for
the wholesale and retail channels, such as the Fruit of the Loom, Hanes  and
Jerzees brands. The competition in the European wholesale imprinted activewear
market is similar to that in North America, as we compete primarily with the
European divisions of the larger U.S.-based manufacturers. In Europe, we also
have large competitors that do not have integrated manufacturing operations and
source products from contractors in Asia. In addition, we face the threat of
increasing global competition. In particular, the U.S. sock industry is subject
to global competition, including significant imports from Asia.

Our ability to remain competitive in the areas of price, quality, service,
marketing, product development, manufacturing and distribution will, in large
part, determine our future success. We cannot assure you that we will be able
to continue to compete successfully.

Our industry is subject to pricing pressuresPrices in our industry have been
declining over the past several years primarily as a result of passing cost
reductions through into lower selling prices. In the future, our financial
performance may be negatively affected if we are forced to reduce our prices
without a corresponding decrease in production costs, or if our production
costs, including the cost of raw materials, increase and we cannot raise our
prices.

GILDAN 2007 ANNUAL REPORT

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MD&A

Our success depends on our ability to anticipate evolving consumer preferences and trendsWhile we currently focus on
basic, non-fashion products, the apparel industry, particularly within the
retail channel, is subject to evolving consumer preferences and trends. Our
success may be impacted by changes in consumer preferences which do not fit
with Gildans core competency of marketing and large-scale manufacturing of
basic, non-fashion apparel products. This could have a material adverse effect
on our business, results of operations and financial condition.

Our operations are subject to environmental regulationWe are subject to various
environmental and occupational health and safety laws and regulations in our
operations in the United States and other jurisdictions in which we operate.
Future events, such as:

|  |                                                                                                              
|- | -------------------------------------------------------------------------------------------------------------
| | a
 change in existing laws and regulations;                                                                  
|  |                                                                                                              
| | the enactment of new laws and
 regulations;                                                                  
|  |                                                                                                              
| | a
 release of hazardous substances on or from our properties or any associated
 offsite disposal location; or
|  |                                                                                                              
| | the
 discovery of contamination from current or prior activities at any of our
 properties                   

may give rise to compliance requirements such as manufacturing
interruption or environmental remediation costs that could have a material
adverse effect on our business.

We rely on a relatively small number of significant customersWe sell our products to a
relatively small number of significant customers totaling approximately 200. In
fiscal 2007 our largest customer accounted for 23.1% (2006  28.2%) of sales, and
our top ten customers accounted for 62.8% (2006  66.0%) of total sales. We
expect that these customers will continue to represent a significant portion of
our sales in the future. If any of our significant customers substantially
reduce their purchases or cease to buy from us and we cannot replace that
business with sales to other customers on similar terms, our business could be
materially adversely affected.

Our customers do not commit to purchase minimum quantities
Our contracts with our customers do not require them to purchase a minimum
quantity of our products. If any of our customers experience a significant
business downturn or fail to remain committed to our products, they may reduce or discontinue purchases
from us. Although we have maintained long-term relationships with many of our
wholesale distributor customers, there can be no assurance that historic levels
of business from any of our customers will continue or increase in the future.

We are exposed to concentrations of credit riskThe Companys financial
instruments that are exposed to concentrations of credit risk consist primarily
of cash equivalents and trade receivables. The Company invests available cash
in short-term deposits with major North American and European financial
institutions.

The Companys extension of credit involves considerable judgment and is
based on an evaluation of each customers financial condition and payment
history. Adverse changes in our customers financial position could cause us to
limit or discontinue business with that customer, require us to assume more
credit risk relating to that customers future purchases or result in
uncollectible accounts receivable from that customer, all of which could have a
material adverse effect on our business, results of operations and financial
condition. The Company regularly monitors its credit risk exposure to its
customers and takes steps to mitigate the risk of loss. As at September 30,
2007, the Companys top ten customers accounted for approximately 61.4% (2006  57.0%) of the trade receivable balance of which one customer represented 15.6%
(2006  18.1%). The remaining trade receivable balance is comprised of a large
number of debtors across many geographic areas including the United States,
Canada, Europe, Mexico and Australasia. An allowance for doubtful accounts is
maintained for credit losses consistent with the credit risk, historical
trends, general economic conditions and other available information.

We are subject to international trade regulationThere exist a number of regional
trade agreements and programs, such as the North American Free Trade Agreement
(NAFTA), the Caribbean Basin Trade Partnership Act (CBTPA), the Dominican
Republic-Central America-United States Free Trade Agreement (CAFTA-DR) and the
Haitian Hemispheric Opportunity through Partnership Encouragement Act (HOPE)
which allow qualifying textiles and apparel from participating countries
duty-free access to developed countries markets. Two of the newest programs,
CAFTA-DR and HOPE, were adopted to strengthen and develop economic relations
among countries which are party to the agreement. In addition, the
above-mentioned international trade legislation contains provisions that may
apply tariffs, quotas and/or safeguards, as necessary.

We have situated our manufacturing facilities in strategic locations to
take advantage of these trade liberalization measures, which are intended to
position us to be globally competitive. However, any changes to existing
international trade legislation, which the Company is currently relying on in
conducting its manufacturing operations, may negatively impact our business.

There also exist a number of trade agreements involving various countries
engaged in textile manufacturing activities in which the Company currently does
not have any operations. Any changes to such agreements or any new trade
agreements or legislation, which would allow duty free and/or quota free access
of apparel into developed countries, may also negatively impact our operations
by enabling the Companys competitors to have a more effective cost structure.

The textile and apparel industries of developed countries such as Canada,
the United States and the European community, have historically received a
relatively higher degree of trade protection than other industries. However, since January 2005, quotas on imports of
textiles and apparel from member countries of the World Trade Organization
(WTO) have been eliminated with the exception of China, which will continue to
be subject to quotas on its textile and apparel exports until the end of the
2008 calendar year.

GILDAN 2007 ANNUAL REPORT

---



40

MD&A

CAFTA-DR provides for the application of safeguards in the form of
reinstatement of normal duties if increased imports cause or threaten to cause
substantial injury to a domestic industry. The United States is considering such
a safeguard against socks imported from Honduras, which, if enacted, could
affect our imports of socks from our Honduran sock facility. Under the current
legislation, a safeguard under CAFTA-DR may be imposed for a period of up to
three years, and may not extend beyond March 31, 2011. While we believe that
there is no basis to support a conclusion that sock imports from Honduras have
caused or threatened to cause serious damage to the U.S. domestic sock
industry, there can be no assurance that the United States will make such a
determination nor can there be any assurances that safeguards under CAFTA-DR or
other developments in trade legislation would not adversely impact our
business.

In addition, the Company is subject to customs audits in the various
countries in which it operates. Although we believe that our customs compliance
programs are effective, we cannot predict the outcome of any governmental
audit.

We currently pay income tax at a comparatively low effective rate, which could change in the future
The Companys structure for managing its global sales, marketing, manufacturing
and product sourcing operations results in the income generated from its global
activities being subject to relatively low income tax rates. The structure is
supported by current domestic laws in the countries in which the Company
operates, as well as through the application of income tax treaties between
various countries in which the Company operates. The Company also conducts
annual transfer pricing studies to substantiate the transactions between the
various related parties within the Company. Although we believe we are in
compliance with the underlying rules and regulations with respect to our
transfer pricing in the various countries in which we operate, this area of
taxation is subject to interpretation and may be challenged by the taxation
authorities. We cannot predict the outcome of governmental audits related to
this area.

The Company is subject to and is regularly undergoing government audits in
the various countries in which it operates. The final result of any audits
undertaken by taxation authorities may vary compared to the estimates and
assumptions used by management in determining the Companys consolidated income
tax provision. Depending on the ultimate outcome of any such audit, there may
be a material impact on the Companys consolidated income tax provision and its
income tax assets and liabilities. The Company operates under free trade and
export processing zones in various countries in Central America and the Caribbean Basin.
Under the free trade zone rules, the Company is not subject to income tax in
these countries. Any changes to the free trade zone rules or the free trade
zone status of any one of the countries in which we operate may adversely
impact the effective income tax rate of the Company.

Any unanticipated changes to either current domestic laws in the countries
in which the Company operates, or any changes to the income tax treaties the
Company currently relies on, may also adversely impact the effective income tax
rate of the Company.

The price of the raw materials we buy is prone to significant fluctuations and volatility

Cotton
and polyester fibres are the primary raw materials used in the manufacture of
our products. We also purchase chemicals, dyestuffs and trims through a variety
of suppliers. The Company purchases cotton and polyester fibres through its
yarn-spinning joint venture, and also purchases processed cotton yarn and
blended yarn from outside vendors, at prices that are correlated with the price
of cotton and polyester fibres. The price of cotton fluctuates and is affected
by weather, consumer demand, speculation on the commodities market, the
relative valuations and fluctuations of the currencies of producer versus
consumer countries and other factors that are generally unpredictable and
beyond our control. In addition, fluctuations in crude oil or petroleum prices
affect our energy consumption costs and can also influence the prices of
related items used in our business, such as polyester fibres, chemicals,
dyestuffs and trims. The Company enters into futures contracts and makes other
arrangements to establish firm prices for cotton and cotton yarn for which it
will ultimately take delivery in advance in order to mitigate the effect of
price fluctuations. For future deliveries with a fixed price, the Company will
not be able to benefit from price decreases but will be protected against price increases.
Conversely, in the event that we have not entered into sufficient cotton
futures contracts or made other arrangements to lock in the price of cotton
yarn in advance of delivery, we will not be protected against price increases,
but will be in a position to benefit from any price decreases.

Without taking into account the impact of futures contracts, a change of
$0.01 per pound in cotton prices would affect the Companys annual raw material
costs by approximately $3.9 million, at estimated current production levels.
The ultimate effect of this change on the Companys earnings cannot be
quantified, as the relationship between movements in cotton prices and
movements in industry selling prices cannot be predicted with any certainty.
However, a dramatic increase in the price of cotton could have a material
adverse effect on our business, results of operations and financial condition
if the increase or part of the increase could not be mitigated through higher
industry selling prices.

GILDAN 2007 ANNUAL REPORT

---



41

MD&A

Our operations are subject to political, social and economic risks

The majority of our products are now manufactured and sewn in Central
America and the Caribbean Basin. Some of the countries in which we operate have
experienced political, social and economic instability in the past, and we
cannot be certain of their future stability.

Events that could disrupt our supply chain, interrupt production at our
facilities, increase our cost of sales or result in capital expenditures
include:

|  |                                                                                                                   
|- | ------------------------------------------------------------------------------------------------------------------
| | political
 instability, labour unrest, war or terrorism;                                                          
|  |                                                                                                                   
| | disruptions
 in shipping and freight forwarding services;                                                         
|  |                                                                                                                   
| | interruptions
 in the availability of basic services and infrastructure, including power and
 water shortages; and
|  |                                                                                                                   
| | fire
 or natural disasters, such as hurricanes, floods and earthquakes.                                           

Such conditions or events, whether or not covered by our insurance
policies, could have material adverse effects on our business, results of
operations and financial condition.

Our industry is subject to fluctuations in sales demand

Demand for our products may vary from year to year. We must appropriately
balance our inventory with our ability to meet market demand. Based on
discussions with our customers and internally generated projections reflecting
our analysis of factors impacting industry demand at the beginning of each
fiscal year, we produce and store finished goods inventory to meet the expected
demand for delivery. If, after producing and storing inventory in anticipation
of deliveries, demand is significantly less than expected, we may have to hold inventory for extended periods of time,
or sell excess inventory at reduced prices. In either case, our profits would
be reduced. Excess inventory could also result in slower production, lower
plant and equipment utilization and lower fixed operating cost absorption, all
of which would have a negative impact on our business, results of operations or
financial condition.

On the other hand, we are also exposed to loss of sales opportunities if
we underestimate market demand and produce too little inventory for any
particular period to satisfy our customers demand for our products. Customers
could seek to fulfill their product needs from competitors and reduce the
amount of business they do with us, which would have a negative impact on our
business, results of operations or financial condition.

Our business operations significantly rely on our information systems

We depend on information systems to purchase raw materials and supplies,
schedule and manage production, process transactions, respond to customer
inquiries, manage inventories and ship goods on a timely basis to our
customers. There can be no assurance that we will not experience operational
problems with our information systems as a result of system failures, viruses,
security breaches or other causes. In addition, there can be no assurance that
we will be able to timely modify or adapt our systems to meet evolving
requirements for our business. Any material disruption or slowdown of our
systems could cause operational delays that could have a material adverse
effect on our business, results of operation and financial condition.

Foreign currency risk

The functional and reporting currency of the Company is the US dollar. The
majority of the Companys sales revenues are denominated in US dollars, while a
significant portion of its manufacturing operations are located outside the United States, and
its corporate head office is located in Canada. The Company is therefore exposed to the effects of
changes in foreign currency (non-U.S. dollar) exchange rates. The Companys exposure
relates primarily to changes in the U.S. dollar versus the Canadian dollar, the
Honduras Lempira, the Dominican Republic Peso, the British Pound and the Euro
exchange rates. Significant fluctuations in these exchange rates versus the
U.S. dollar could materially impact our future results of operations.

Our operations could be affected by changes in our relationship with our
employees or changes to domestic and foreign employment regulations

We employ more than 15,000 employees worldwide. As a result, changes in
domestic and foreign laws governing our relationships with our employees,
including wage and hour laws and regulations, fair labour standards, overtime
pay, unemployment tax rates, workers compensation rates and payroll taxes,
would likely have a direct impact on our operating costs. The majority of our
employees are employed outside of Canada and
the United States. A significant increase in wage rates in the countries in
which we operate could have a material impact on our operating costs.

The Company has historically been able to operate in a productive manner
in all of its manufacturing facilities without experiencing labour disruptions,
such as strikes or work stoppages. If labour relations were to change or
deteriorate, this could adversely affect the productivity and cost structure of
the Companys manufacturing operations.

We may suffer negative publicity if we, or our third-party contractors,
violate labour laws or engage in practices that are viewed as unethical

We are committed to ensuring that all of our manufacturing facilities
comply with our strict internal Code of Conduct, local and international laws,
and the codes to which we subscribe, including those of Worldwide Responsible
Apparel Production (WRAP) and the Fair Labor Association (FLA). While the
majority of our manufacturing operations are conducted through company-owned
facilities, we also utilize third-party contractors to complement our
vertically-integrated production. We have an internationally respected Director
of Corporate Social Responsibility who is developing and implementing the Companys compliance programs, including a comprehensive program of
training and auditing at our Company-owned and contractor facilities. However,
if one of our own manufacturing operations or one of our third-party
contractors violates or is accused of violating local or international labour
laws or other applicable regulations, or engages in labour or other practices
that would be viewed, in any market in which our products are sold, as
unethical, we could suffer negative publicity which could tarnish our
reputation or result in a loss of sales that could have a material adverse
effect on our business, results of operations and financial condition.

GILDAN 2007 ANNUAL REPORT

---



42

MD&A

We depend on key management

Our success depends upon the continued contributions of our key
management, some of whom have unique talents and experience and would be
difficult to replace. The loss or interruption of the services of a key executive
could have a material adverse effect on our business during the transitional
period that would be required for a successor to assume the responsibilities of
the key management position. Our future success will also depend on our ability
to attract and retain key managers, sales people and others. We may not be able
to attract or retain these employees, which could adversely affect our
business.

RECONCILIATION AND DEFINITION OF NON-GAAP
MEASURES

We use non-GAAP measures to assess our operating performance and financial
condition. The terms and definitions of the non-GAAP measures used in this report
and a reconciliation of each non-GAAP measure to the most directly comparable
GAAP measure are provided below. The non-GAAP measures are presented on a consistent
basis for all periods presented in this MD&A. These non-GAAP measures do
not have any standardized meanings prescribed by Canadian GAAP and are
therefore unlikely to be comparable to similar measures presented by other
companies. Accordingly, they should not be considered in isolation.

Adjusted Net Earnings and Adjusted Diluted EPS

To measure our performance from one period to the next, without the
variations caused by the impacts of restructuring and other charges as
discussed on page 27, management uses adjusted net earnings and adjusted
diluted earnings per share, which are calculated as net earnings and earnings
per share excluding these items. We exclude these items because they affect the
comparability of our financial results and could potentially distort the
analysis of trends in our business performance. Excluding these items does not
imply they are necessarily non-recurring.

(in $ millions, except per share amounts)

|                                                                  |  |         |       |   |  |          |      |  |       |  
|----------------------------------------------------------------- |  | ------- | ----- | - |  | -------- | ---- |  | ----- | -
|2007                                                              |  | Audited |       |   |  | Adjusted |     
|                                                                  |  |         |       |   |  |          |     
|                                                                  |  |         |       |   |  |          |      |  |       |  
|Sales                                                             |  |         | 964.4 |   |  |          |      |  | 964.4 |  
|Cost of sales                                                     |  |         | 655.3 |   |  |          |      |  | 655.3 |  
|                                                                  |  |         |       |   |  |          |      |  |       |  
|Gross profit                                                      |  |         | 309.1 |   |  |          |      |  | 309.1 |  
|Selling, general and
 administrative expenses                     |  |         | 110.9 |   |  |          |      |  | 110.9 |  
|Restructuring and other
 charges                                  |  |         | 28.0  |   |  | (28.0    | )(1) |  |      |  
|                                                                  |  |         |       |   |  |          |      |  |       |  
|                                                                  |  |         | 170.2 |   |  | 28.0     |      |  | 198.2 |  
|Depreciation and amortization                                     |  |         | 38.8  |   |  |          |      |  | 38.8  |  
|Interest, net                                                     |  |         | 4.9   |   |  |          |      |  | 4.9   |  
|Non-controlling interest in
 income of consolidated joint venture |  |         | 1.3   |   |  |          |      |  | 1.3   |  
|                                                                  |  |         |       |   |  |          |      |  |       |  
|Earnings before income taxes                                      |  |         | 125.2 |   |  | 28.0     |      |  | 153.2 |  
|Income tax (recovery) expense                                     |  |         | (4.8  | ) |  | 0.7      | (1)  |  | (4.1  | )
|                                                                  |  |         |       |   |  |          |      |  |       |  
|Net earnings                                                      |  |         | 130.0 |   |  | 27.3     |      |  | 157.3 |  
|                                                                  |  |         |       |   |  |          |      |  |       |  
|                                                                  |  |         |       |   |  |          |      |  |       |  
|Basic EPS                                                         |  |         | 1.08  |   |  | 0.22     |      |  | 1.30  |  
|Diluted EPS                                                       |  |         | 1.07  |   |  | 0.22     |      |  | 1.29  |  
|                                                                  |  |         |       |   |  |          |      |  |       |  

Certain minor rounding variances exist between the financial statements
and this summary.

|    |                                                                                                        
|--- | -------------------------------------------------------------------------------------------------------
|(1) | Adjustment
 to remove restructuring and other charges, and the income tax effect thereon.
 See page 27.

(in $ millions, except per share amounts)

|                                                                  |  |         |       |  |  |          |      |  |       | 
|----------------------------------------------------------------- |  | ------- | ----- |  |  | -------- | ---- |  | ----- | 
|2006                                                              |  | Audited |       |  |  | Adjusted |     
|                                                                  |  |         |       |  |  |          |     
|                                                                  |  |         |       |  |  |          |      |  |       | 
|Sales                                                             |  |         | 773.2 |  |  |          |      |  | 773.2 | 
|Cost of sales                                                     |  |         | 521.1 |  |  |          |      |  | 521.1 | 
|                                                                  |  |         |       |  |  |          |      |  |       | 
|Gross profit                                                      |  |         | 252.1 |  |  |          |      |  | 252.1 | 
|Selling, general and
 administrative expenses                     |  |         | 84.4  |  |  |          |      |  | 84.4  | 
|Restructuring and other
 charges                                  |  |         | 20.4  |  |  | (20.4    | )(1) |  |      | 
|                                                                  |  |         |       |  |  |          |      |  |       | 
|                                                                  |  |         | 147.3 |  |  | 20.4     |      |  | 167.7 | 
|Depreciation and amortization                                     |  |         | 32.4  |  |  |          |      |  | 32.4  | 
|Interest, net                                                     |  |         | 3.1   |  |  |          |      |  | 3.1   | 
|Non-controlling interest in
 income of consolidated joint venture |  |         | 0.2   |  |  |          |      |  | 0.2   | 
|                                                                  |  |         |       |  |  |          |      |  |       | 
|Earnings before income taxes                                      |  |         | 111.6 |  |  | 20.4     |      |  | 132.0 | 
|Income tax expense                                                |  |         | 4.8   |  |  | 0.4      | (1)  |  | 5.2   | 
|                                                                  |  |         |       |  |  |          |      |  |       | 
|Net earnings                                                      |  |         | 106.8 |  |  | 20.0     |      |  | 126.8 | 
|                                                                  |  |         |       |  |  |          |      |  |       | 
|                                                                  |  |         |       |  |  |          |      |  |       | 
|Basic EPS                                                         |  |         | 0.89  |  |  | 0.17     |      |  | 1.06  | 
|Diluted EPS                                                       |  |         | 0.88  |  |  | 0.17     |      |  | 1.05  | 
|                                                                  |  |         |       |  |  |          |      |  |       | 

Certain minor rounding variances exist between the financial statements
and this summary.

|    |                                                                                                        
|--- | -------------------------------------------------------------------------------------------------------
|(1) | Adjustment
 to remove restructuring and other charges, and the income tax effect thereon.
 See page 27.

GILDAN 2007 ANNUAL REPORT

---



43

MD&A

Adjusted Net Earnings and Adjusted Diluted EPS
(in $ millions, except per share amounts)

|                                                                  |  |         |       |  |  |          |      |  |       | 
|----------------------------------------------------------------- |  | ------- | ----- |  |  | -------- | ---- |  | ----- | 
|2005                                                              |  | Audited |       |  |  | Adjusted |     
|                                                                  |  |         |       |  |  |          |     
|                                                                  |  |         |       |  |  |          |      |  |       | 
|Sales                                                             |  |         | 653.9 |  |  |          |      |  | 653.9 | 
|Cost of sales                                                     |  |         | 450.6 |  |  |          |      |  | 450.6 | 
|                                                                  |  |         |       |  |  |          |      |  |       | 
|Gross profit                                                      |  |         | 203.3 |  |  |          |      |  | 203.3 | 
|Selling, general and
 administrative expenses                     |  |         | 73.8  |  |  |          |      |  | 73.8  | 
|Restructuring and other
 charges                                  |  |         | 11.8  |  |  | (11.8    | )(1) |  |      | 
|                                                                  |  |         |       |  |  |          |      |  |       | 
|                                                                  |  |         | 117.7 |  |  | 11.8     |      |  | 129.5 | 
|Depreciation and amortization                                     |  |         | 25.6  |  |  |          |      |  | 25.6  | 
|Interest, net                                                     |  |         | 4.6   |  |  |          |      |  | 4.6   | 
|Non-controlling interest in
 income of consolidated joint venture |  |         | 0.1   |  |  |          |      |  | 0.1   | 
|                                                                  |  |         |       |  |  |          |      |  |       | 
|Earnings before income taxes                                      |  |         | 87.4  |  |  | 11.8     |      |  | 99.2  | 
|Income tax expense                                                |  |         | 1.4   |  |  | 3.9      | (1)  |  | 5.3   | 
|                                                                  |  |         |       |  |  |          |      |  |       | 
|Net earnings                                                      |  |         | 86.0  |  |  | 7.9      |      |  | 93.9  | 
|                                                                  |  |         |       |  |  |          |      |  |       | 
|                                                                  |  |         |       |  |  |          |      |  |       | 
|Basic EPS                                                         |  |         | 0.72  |  |  | 0.06     |      |  | 0.78  | 
|Diluted EPS                                                       |  |         | 0.72  |  |  | 0.06     |      |  | 0.78  | 
|                                                                  |  |         |       |  |  |          |      |  |       | 

Certain minor rounding variances exist between the financial statements
and this summary.

|    |                                                                                                        
|--- | -------------------------------------------------------------------------------------------------------
|(1) | Adjustment
 to remove restructuring and other charges, and the income tax effect thereon.
 See page 27.

EBITDA

EBITDA is calculated as earnings before interest, taxes and depreciation
and amortization and excludes the impacts of restructuring and other charges,
as discussed on page 27. We use EBITDA, among other measures, to assess the
operating performance of our business. We also believe this measure is commonly
used by investors and analysts to measure a companys ability to service debt
and to meet other payment obligations, or as a common valuation measurement. We
exclude depreciation and amortization expenses, which are non-cash in nature
and can vary significantly depending upon accounting methods or non-operating
factors such as historical cost. Excluding these items does not imply they are
necessarily non-recurring.

(in $ millions)


|                                                                  |  |      |       |      |  |       |  |  |       | 
|----------------------------------------------------------------- |  | ---- | ----- | ---- |  | ----- |  |  | ----- | 
|                                                                  |  | 2007 |       | 2006 |  | 2005  | 
|                                                                  |  |      |       |      |  |       | 
|                                                                  |  |      |       |      |  |       |  |  |       | 
|Net earnings                                                      |  |      | 130.0 |      |  | 106.8 |  |  | 86.0  | 
|Restructuring and other
 charges                                  |  |      | 28.0  |      |  | 20.4  |  |  | 11.8  | 
|Depreciation and amortization                                     |  |      | 38.8  |      |  | 32.4  |  |  | 25.6  | 
|Interest, net                                                     |  |      | 4.9   |      |  | 3.1   |  |  | 4.6   | 
|Income tax (recovery) expense                                     |  |      | (4.8  | )    |  | 4.8   |  |  | 1.4   | 
|Non-controlling interest in
 income of consolidated joint venture |  |      | 1.3   |      |  | 0.2   |  |  | 0.1   | 
|                                                                  |  |      |       |      |  |       |  |  |       | 
|EBITDA                                                            |  |      | 198.2 |      |  | 167.7 |  |  | 129.5 | 
|                                                                  |  |      |       |      |  |       |  |  |       | 

Certain minor rounding variances exist between the financial statements
and this summary.

Free Cash Flow

Free cash flow is defined as cash from operating activities including net
changes in non-cash working capital balances, less cash flow used in investing
activities excluding business acquisitions. We consider free cash flow to be an
important indicator of the financial strength and performance of our business,
because it shows how much cash is available after capital expenditures to repay
debt and to reinvest in our business. We believe this measure is commonly used
by investors and analysts when valuing a business and its underlying assets.

(in $ millions)

|                                         |  |      |        |      |  |       |   |  |       |  
|---------------------------------------- |  | ---- | ------ | ---- |  | ----- | - |  | ----- | -
|                                         |  | 2007 |        | 2006 |  | 2005  |  
|                                         |  |      |        |      |  |       |  
|                                         |  |      |        |      |  |       |   |  |       |  
|Cash
 flows from operating activities    |  |      | 91.2   |      |  | 94.7  |   |  | 93.2  |  
|Cash
 flows used in investing activities |  |      | (134.7 | )    |  | (96.1 | ) |  | (83.8 | )
|Add
 back:                               |  |      |        |      |  |       |   |  |       |  
|Acquisition of Kentucky Derby            |  |      |       |      |  | 19.9  |   |  |      |  
|                                         |  |      |        |      |  |       |   |  |       |  
|Free
 cash flow                          |  |      | (43.5  | )    |  | 18.5  |   |  | 9.4   |  
|                                         |  |      |        |      |  |       |   |  |       |  

Certain minor rounding variances exist between the financial statements
and this summary.

Total Indebtedness and (Net Indebtedness) 
Cash in Excess of Debt

We consider total indebtedness and net indebtedness to be important indicators
of the financial leverage of the Company.

(in $ millions)

|                                           |  |      |       |      |  |       |   |  |       |  
|------------------------------------------ |  | ---- | ----- | ---- |  | ----- | - |  | ----- | -
|                                           |  | 2007 |       | 2006 |  | 2005  |  
|                                           |  |      |       |      |  |       |  
|                                           |  |      |       |      |  |       |   |  |       |  
|Bank indebtedness                          |  |      |      |      |  | (3.5  | ) |  | (4.0  | )
|Current portion of long-term
 debt         |  |      | (3.7  | )    |  | (21.8 | ) |  | (19.8 | )
|Long-term debt                             |  |      | (56.0 | )    |  | (12.0 | ) |  | (27.3 | )
|                                           |  |      |       |      |  |       |   |  |       |  
|Total indebtedness                         |  |      | (59.7 | )    |  | (37.3 | ) |  | (51.1 | )
|Cash and cash equivalents                  |  |      | 9.3   |      |  | 29.0  |   |  | 69.8  |  
|                                           |  |      |       |      |  |       |   |  |       |  
|(Net indebtedness) Cash in
 excess of debt |  |      | (50.4 | )    |  | (8.3  | ) |  | 18.7  |  
|                                           |  |      |       |      |  |       |   |  |       |  

Certain minor rounding variances exist between the financial statements
and this summary.

GILDAN 2007 ANNUAL REPORT

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44

MD&A

FORWARD-LOOKING STATEMENTS

Certain statements included in this MD&A may constitute forward-looking
statements within the meaning of the U.S. Private
Securities Litigation Reform Act of 1995 and Canadian securities
legislation and regulations, and are subject to important risks, uncertainties
and assumptions. This forward-looking information includes amongst others,
information with respect to our objectives and the strategies to achieve these
objectives, as well as information with respect to our beliefs, plans,
expectations, anticipations, estimates and intentions. Forward-looking
statements generally can be identified by the use of conditional or
forward-looking terminology such as may, will, expect, intend, estimate,
anticipate, plan, foresee, believe or continue or the negatives of
these terms or variations of them or similar terminology. We refer you to the
Companys filings with the Canadian securities regulatory authorities and the
U.S. Securities and Exchange Commission, as well as the Risks and
Uncertainties section of this MD&A, beginning on page 38, for a discussion
of the various factors that may affect the Companys future results. Material
factors and assumptions that were applied in drawing a conclusion or making a
forecast or projection are also set out throughout this document.

The results or events predicted in such forward-looking information may differ
materially from actual results or events. Material factors, which could cause
actual results or events to differ materially from a conclusion, forecast or
projection in such forward-looking information, include, but are not limited
to:

|  |                                                                                                                                                         
|- | --------------------------------------------------------------------------------------------------------------------------------------------------------
| | general
 economic conditions such as currency exchange rates, commodity prices and
 other factors over which we have no control;                        
|  |                                                                                                                                                         
| | the
 impact of economic and business conditions, industry trends and other
 external and political factors in the countries in which we operate;        
|  |                                                                                                                                                         
| | the
 intensity of competitive activity;                                                                                                                 
|  |                                                                                                                                                         
| | changes
 in environmental, tax, trade and other laws and regulations;                                                                                   
|  |                                                                                                                                                         
| | our
 ability to implement our strategies and plans;                                                                                                     
|  |                                                                                                                                                         
| | our
 ability to complete and successfully integrate acquisitions;                                                                                       
|  |                                                                                                                                                         
| | our
 reliance on a small number of significant customers;                                                                                               
|  |                                                                                                                                                         
| | changes
 in consumer preferences, customer demand for our products and our ability to
 maintain customer relationships and grow our business;           
|  |                                                                                                                                                         
| | our
 customers do not commit to minimum quantity purchases;                                                                                             
|  |                                                                                                                                                         
| | the
 seasonality of our business;                                                                                                                       
|  |                                                                                                                                                         
| | our
 ability to attract and retain key personnel;                                                                                                       
|  |                                                                                                                                                         
| | high
 reliance on computerized information systems;                                                                                                     
|  |                                                                                                                                                         
| | changes
 in accounting policies and estimates; and                                                                                                      
|  |                                                                                                                                                         
| | disruption
 to manufacturing and distribution activities due to labour disruptions, bad
 weather, natural disasters and other unforeseen adverse events.

This may cause the Companys actual performance and financial results in
future periods to differ materially from any estimates or projections of future
performance or results expressed or implied by such forward-looking statements.
Forward-looking statements do not take into account the effect that
transactions or non-recurring or other special items announced or occurring
after the statements are made have on the Companys business. For example, they
do not include the effect of business dispositions, acquisitions, other
business transactions, asset writedowns or other charges announced or occurring
after forward-looking statements are made. The financial impact of such
transactions and non-recurring and other special items can be complex and
necessarily depends on the facts particular to each of them.

We believe that the expectations represented by our forward-looking
statements are reasonable, yet there can be no assurance that such expectations
will prove to be correct. Furthermore, unless otherwise stated, the
forward-looking statements contained in this report are made as of the date of
this report, and we do not undertake any obligation to update publicly or to
revise any of the included forward-looking statements, whether as a result of
new information, future events or otherwise unless required by applicable
legislation or regulation. The forward-looking statements contained in this
report are expressly qualified by this cautionary statement.

December 14, 2007

GILDAN 2007 ANNUAL REPORT

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