##### 



EXHIBIT 99.2




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##### 



46
    
    Gildan 2005 Annual Report
 CONSOLIDATED FINANCIAL STATEMENTS
 47
    
    MANAGEMENTS RESPONSIBILITY FOR FINANCIAL REPORTING48
    
    AUDITORS REPORT TO THE SHAREHOLDERS49
    
    CONSOLIDATED BALANCE SHEETS50
    
    CONSOLIDATED STATEMENTS OF EARNINGS50
    
    CONSOLIDATED STATEMENTS OF RETAINED EARNINGS51
    
    CONSOLIDATED STATEMENTS OF CASH FLOWS52
    
    NOTES TO CONSOLIDATED FINANCIAL STATEMENTS




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##### 



Gildan 2005 Annual Report
    
    
    47
 MANAGEMENTS RESPONSIBILITY FOR FINANCIAL REPORTING
     (-s- Glenn J. Chamandy)
    
    (-s- Laurence G. Sellyn)Glenn J. Chamandy
    
    Laurence G. SellynPresident and Chief Executive Officer
    
    Executive Vice-President,Chief Financial and Administrative Officer




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##### 



48
    
    Gildan 2005 Annual Report
 AUDITORS REPORT TO THE SHAREHOLDERS




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##### 



Gildan 2005 Annual Report
    
    
    49
 CONSOLIDATED BALANCE SHEETS  October 2, 2005 and October 3, 2004
(In thousands of US dollars)
 2005
    
    
    
    2004ASSETSCurrent assets:Cash and cash equivalents
    
    $
    69,802
    
    
    
    $
    60,671Accounts receivable
    
    
    108,646
    
    
    
    
    85,317Inventories
    
    
    134,861
    
    
    
    
    116,615Prepaid expenses and deposits
    
    
    4,394
    
    
    
    
    3,243Future income taxes (note 12)
    
    
    10,135
    
    
    
    
    8,149327,838
    
    
    
    
    273,995Fixed assets (note 3)
    
    
    260,615
    
    
    
    
    211,693Other assets (note 4)
    
    
    4,036
    
    
    
    
    3,127Assets held for sale (note 14 (b))
    
    
    5,027
    
    
    
    
    $
    597,516
    
    
    
    $
    488,815LIABILITIES AND SHAREHOLDERS EQUITYCurrent liabilities:Bank indebtedness (note 5)
    
    $
    3,980
    
    
    
    $
    Accounts payable and accrued liabilities
    
    
    86,843
    
    
    
    
    74,607Income taxes payable
    
    
    2,206
    
    
    
    
    1,966Current portion of long-term debt (note 6)
    
    
    19,859
    
    
    
    
    18,610112,888
    
    
    
    
    95,183Long-term debt (note 6)
    
    
    27,288
    
    
    
    
    37,979Future income taxes (note 12)
    
    
    31,386
    
    
    
    
    28,058Non-controlling interest
    
    
    5,394
    
    
    
    
    Shareholders equity (note 7):Share capital
    
    
    84,177
    
    
    
    
    78,170Contributed surplus
    
    
    1,596
    
    
    
    
    681Cumulative translation adjustment
    
    
    26,248
    
    
    
    
    26,248Retained earnings
    
    
    308,539
    
    
    
    
    222,496420,560
    
    
    
    
    327,595Commitments and contingent liabilities (note 10)$
    597,516
    
    
    
    $
    488,815
 See accompanying notes to consolidated financial statements.
  (-s- Glenn J. Chamandy)
    
    (-s- Pierre Robitaille)Glenn J. Chamandy
    
    Pierre RobitailleDirector
    
    Director




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##### 



50
    
    Gildan 2005 Annual Report
 CONSOLIDATED STATEMENTS OF EARNINGS  Years ended October 2, 2005, October 3, 2004 and October 5, 2003
(In thousands of US dollars, except per share amounts)
 2005
    
    
    
    2004
    
    
    2003Sales
    
    $
    653,851
    
    
    
    $
    533,368
    
    
    $
    431,195Cost of sales
    
    
    450,570
    
    
    
    
    378,696
    
    
    
    301,341Gross profit
    
    
    203,281
    
    
    
    
    154,672
    
    
    
    129,854Selling, general and administrative expenses
    
    
    74,896
    
    
    
    
    62,898
    
    
    
    48,403Special charge (note 14 (b))
    
    
    10,726
    
    
    
    
    
    
    
    
    Earnings before the undernoted items
    
    
    117,659
    
    
    
    
    91,774
    
    
    
    81,451Depreciation and amortization
    
    
    25,615
    
    
    
    
    22,275
    
    
    
    16,088Interest
    
    
    4,615
    
    
    
    
    6,170
    
    
    
    6,419Non-controlling interest in income of consolidated joint venture
    
    
    34
    
    
    
    
    
    
    
    
    30,264
    
    
    
    
    28,445
    
    
    
    22,507Earnings before income taxes
    
    
    87,395
    
    
    
    
    63,329
    
    
    
    58,944Income taxes (note 12)
    
    
    1,352
    
    
    
    
    3,078
    
    
    
    5,788Net earnings
    
    $
    86,043
    
    
    
    $
    60,251
    
    
    $
    53,156Earnings per share (note 13):Basic
    
    $
    1.44
    
    
    
    $
    1.02
    
    
    $
    0.91Diluted
    
    
    1.43
    
    
    
    
    1.01
    
    
    
    0.89
 See accompanying notes to consolidated financial statements.
 CONSOLIDATED STATEMENTS OF RETAINED EARNINGS  Years ended October 2, 2005, October 3, 2004 and October 5, 2003
(In thousands of US dollars)
 2005
    
    
    
    2004
    
    
    2003Retained earnings, beginning of year
    
    $
    222,496
    
    
    
    $
    162,245
    
    
    $
    109,089Net earnings
    
    
    86,043
    
    
    
    
    60,251
    
    
    
    53,156Retained earnings, end of year
    
    $
    308,539
    
    
    
    $
    222,496
    
    
    $
    162,245
 See accompanying notes to consolidated financial statements.




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##### 



Gildan 2005 Annual Report
    
    
    51
 CONSOLIDATED STATEMENTS OF CASH FLOWS  Years ended October 2, 2005, October 3, 2004 and October 5, 2003
(In thousands of US dollars)
 2005
    
    
    
    2004
    
    
    2003CASH FLOWS FROM (USED IN) OPERATING ACTIVITIES:Net earnings
    
    $
    86,043
    
    
    
    $
    60,251
    
    
    $
    53,156Adjustments for:Depreciation and amortization
    
    
    25,615
    
    
    
    
    22,275
    
    
    
    16,088Stock-based compensation costs
    
    
    1,050
    
    
    
    
    477
    
    
    
    Future income taxes
    
    
    176
    
    
    
    
    2,947
    
    
    
    4,196Loss on disposal and writedown of fixed assets
    
    
    7,373
    
    
    
    
    1,949
    
    
    
    244Non-controlling interest
    
    
    34
    
    
    
    
    
    
    
    
    Unrealized foreign exchange loss (gain)
    
    
    2,552
    
    
    
    
    586
    
    
    
    (34
    )Changes in non-cash working capital balances:Accounts receivable
    
    
    (22,694
    )
    
    
    
    (20,236
    )
    
    
    (7,320
    )Inventories
    
    
    (17,790
    )
    
    
    
    (13,112
    )
    
    
    (16,131
    )Prepaid expenses and deposits
    
    
    (1,082
    )
    
    
    
    440
    
    
    
    (831
    )Accounts payable and accrued liabilities
    
    
    11,979
    
    
    
    
    5,416
    
    
    
    12,654Income taxes payable
    
    
    (6
    )
    
    
    
    (2,073
    )
    
    
    1,69993,250
    
    
    
    
    58,920
    
    
    
    63,721CASH FLOWS FROM (USED IN) FINANCING ACTIVITIES:Repayment of long-term debt
    
    
    (24,739
    )
    
    
    
    (19,981
    )
    
    
    (948
    )Increase in long-term debt
    
    
    12,086
    
    
    
    
    4,125
    
    
    
    268Increase in bank indebtedness
    
    
    3,980
    
    
    
    
    
    
    
    
    Repayment of capital leases
    
    
    (157
    )
    
    
    
    (1,158
    )
    
    
    (3,396
    )Proceeds from the issuance of shares
    
    
    5,872
    
    
    
    
    2,664
    
    
    
    4,487Contribution by non-controlling interest
    
    
    2,500
    
    
    
    
    
    
    
    
    (458
    )
    
    
    
    (14,350
    )
    
    
    411CASH FLOWS FROM (USED IN) INVESTING ACTIVITIES:Purchase of fixed assets, net of disposals
    
    
    (86,124
    )
    
    
    
    (53,684
    )
    
    
    (39,415
    )Proceeds from the sale of assets held for sale
    
    
    4,087
    
    
    
    
    
    
    
    
    Increase in other assets
    
    
    (1,811
    )
    
    
    
    (136
    )
    
    
    (43
    )(83,848
    )
    
    
    
    (53,820
    )
    
    
    (39,458
    )Effect of exchange rate changes on cash and
cash equivalents denominated in foreign currencies
    
    
    187
    
    
    
    
    581
    
    
    
    (344
    )Net increase (decrease) in cash and cash equivalents
during the year
    
    
    9,131
    
    
    
    
    (8,669
    )
    
    
    24,330Cash and cash equivalents, beginning of year
    
    
    60,671
    
    
    
    
    69,340
    
    
    
    45,010Cash and cash equivalents, end of year
    
    $
    69,802
    
    
    
    $
    60,671
    
    
    $
    69,340
 Supplemental disclosure of cash flow information (note 14 (e))
 See accompanying notes to consolidated financial statements.




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52
    
    Gildan 2005 Annual Report
 NOTES TO CONSOLIDATED FINANCIAL STATEMENTSYears ended October 2, 2005, October 3, 2004 and October 5, 2003
(In thousands of US dollars, except share and per share amounts)Gildan Activewear Inc. (the Company) is incorporated under the Canada Business Corporations
Act. Its principal business activity is the manufacture and sale of activewear apparel. The
Companys fiscal year ends on the first Sunday following September 28. All references to 2005, 2004
and 2003 represent the fiscal years ended October 2, 2005, October 3, 2004 and October 5, 2003,
respectively. Fiscal 2003 includes 53 weeks instead of the normal 52 weeks. The inclusion of an
extra week occurs in every sixth fiscal year due to the Companys floating year-end date.
 (1)
    
    CHANGE IN ACCOUNTING POLICYThe Canadian Institute of Chartered Accountants
(CICA) issued Accounting Guideline 15 
Consolidation of Variable Interest Entities(AcG-15) (VIEs), which contains guidelines that
harmonize with corresponding guidance in the United States. A VIE is any type of legal structure
not controlled by voting equity, but rather by/or through contractual or other financial
arrangements. This guideline requires the Company to identify VIEs in which it has an interest,
determine whether it is the primary beneficiary of such entities and, if so, to consolidate the
VIE. A primary beneficiary is an enterprise that will absorb a majority of the VIEs expected
losses, receive a majority of its expected residual return, or both. The Company determined that
its joint venture (CanAm Yarns, LLC (formerly Cedartown Manufacturing, LLC)) (CanAm) with
Frontier Spinning Mills, Inc. meets the criteria for being a VIE and that the Company is the
primary beneficiary of the entity.The Company elected to early adopt this standard in order to minimize any potential difference
between Canadian and US GAAP. The consolidation of CanAm at October 4, 2004, the beginning of the
Companys 2005 fiscal year, increased total assets by $7,929, total liabilities by $5,069, and
non-controlling interest by $2,860. The Companys net earnings were not affected by this change as
the investment in the joint venture was previously accounted for using the proportionate
consolidation method.
 (2)
    
    SIGNIFICANT ACCOUNTING POLICIESThe consolidated financial statements are expressed in US dollars and have been prepared in
accordance with accounting principles generally accepted in Canada. These principles conform, in
all material respects, with accounting principles generally accepted in the United States, except
as described in note 18. The principal accounting policies of the Company are summarized as
follows:
 (a)
    
    Basis of presentationThe accompanying consolidated financial statements include the accounts of the Company and
its subsidiaries and a joint venture for which the Company is considered the primary
beneficiary. All significant intercompany balances and transactions have been eliminated on
consolidation.(b)
    
    Cash and cash equivalentsThe Company considers all liquid investments with maturities of three months or less when
acquired to be cash equivalents.(c)
    
    InventoriesInventories are stated at the lower of cost and market value. Cost is established based on
the first-in, first-out method. Market value is defined as replacement cost for raw
materials and net realizable value for work in process and finished goods.(d)
    
    Fixed assetsFixed assets are recorded at cost. Depreciation and amortization are calculated on a
straight-line basis at the following annual rates:
 Asset
    
    RateBuildings and improvements
    
    2 1/2% to 20%Equipment
    
    6 2/3% to 25%Equipment under capital leases
    
    6 2/3% to 25%




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##### 



Gildan 2005 Annual Report
    
    
    53
 NOTES TO CONSOLIDATED FINANCIAL STATEMENTSYears ended October 2, 2005, October 3, 2004
and October 5, 2003(In thousands of US dollars,
except share and per share amounts)
 SIGNIFICANT ACCOUNTING POLICIES (continued)
 (d)
    
    Fixed assets (continued)Fixed assets are reviewed whenever events or changes in circumstances indicate that the
carrying amount of an asset may not be recoverable, which is established as the carrying
amount of an asset to be held and used over the sum of the undiscounted cash flows expected
from its use and disposal; the impairment recognized is measured as the amount by which the
carrying amount of the asset exceeds its fair value. Fair value is the estimated value at
which the asset could be bought or sold in a transaction between willing parties.(e)
    
    Deferred chargesThe costs of obtaining long-term financing are deferred and amortized using the interest
method over the term of the related debt. Plant start-up costs are deferred and amortized
on a straight-line basis over two years. The amortization of these charges is included in
depreciation and amortization.(f)
    
    Use of estimatesThe preparation of financial statements in conformity with generally accepted accounting
principles requires management to make estimates and assumptions that affect the reported
amounts of assets and liabilities and disclosure of contingent assets and liabilities at
the date of the financial statements and the reported amounts of revenues and expenses
during the reporting period. Financial results as determined by actual events could differ
from those estimates.Significant estimates and assumptions affect many items in the financial statements
including the key assumptions used in determining the allowance for doubtful accounts,
future income tax assets and liabilities, stock-based compensation costs and the useful
life and recoverability of fixed assets.(g)
    
    Foreign exchangeMonetary assets and liabilities of the Canadian and foreign operations denominated in
currencies other than US dollars are translated at the rates of exchange at the balance
sheet date. Other balance sheet items, denominated in currencies other than US dollars, are
translated at the rates prevailing at the respective transaction dates. Income and
expenses, denominated in currencies other than US dollars, are translated at average rates
prevailing during the year. Gains or losses on foreign exchange are recorded in the
consolidated statements of earnings.The foreign subsidiaries are considered to be integrated foreign operations, and their
accounts have been translated using the temporal method with translation gains and losses
included in the consolidated statements of earnings.(h)
    
    Revenue recognitionSales are recognized upon shipment of products to customers, since title passes upon
shipment. At the time of sale, estimates are made based upon existing programs for customer
price discounts and rebates. 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.(i)
    
    Cotton and yarn procurementsThe Company contracts to buy cotton and yarn with future delivery dates at fixed prices in
order to reduce the effects of fluctuations in the prices of cotton used in the manufacture
of its products. These contracts are not used for trading purposes. The Company commits to
fixed prices on a percentage of its 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, the
Company estimates the costs of cotton that are not recoverable in future sales of finished
goods, and records a charge to earnings.(j)
    
    Financial instruments and hedging relationshipsThe Company may periodically use derivative financial instruments, such as forward foreign
exchange contracts, to manage risks related to fluctuations in exchange rates. Derivative
financial instruments are not used for trading purposes. Forward foreign exchange contracts
are entered into with maturities not exceeding twenty-four months.




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54
    
    Gildan 2005 Annual Report
 NOTES TO CONSOLIDATED FINANCIAL STATEMENTSYears ended October 2, 2005, October 3, 2004
and October 5, 2003(In thousands of US dollars,
except share and per share amounts)SIGNIFICANT ACCOUNTING POLICIES (continued)
 (j)
    
    Financial instruments and hedging relationships (continued)The Company formally documents all relationships between hedging instruments and hedged
items, as well as its risk management objective and strategy for undertaking various hedge
transactions. This process includes linking all derivatives to specific assets and
liabilities on the balance sheet or to specific firm commitments or anticipated
transactions. The Company also formally assesses, both at the hedges inception and on an
ongoing basis, whether the derivatives that are used in hedging transactions are effective
in offsetting cash flows of hedged items. When hedging instruments become ineffective
before their maturity or the hedging relationship is terminated, deferred gains or losses
on such instruments continue to be deferred and charged to earnings in the same period as
for the corresponding gains or losses for the hedged items; gains and losses realized
subsequently as a result of marking-to-market are charged directly to earnings. If the
hedged item ceases to exist due to its maturity, expiry, cancellation or exercise before
the hedging instrument expires, deferred gains or losses are charged to 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 earnings.
Gains and losses on forward foreign exchange contracts are recognized in earnings in the
same period as the transactions that are hedged, and offset transaction losses or gains on
the foreign currency cash flows, which they are intended to hedge.(k)
    
    Income taxesThe Company utilizes 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 the financial statements. Future income tax
assets are evaluated and if realization is not considered to be more likely than not, a
valuation allowance is provided.(l)
    
    Stock-based compensation and other stock-based paymentsEffective the commencement of its 2004 fiscal year, the Company follows the fair
value-based method to account for all transactions whereby services are received in
exchange for stock-based compensation and other stock-based payments. Under the fair value-
based method, compensation cost is measured at the fair value at the date of grant and is
expensed over the awards vesting period.For employee share purchase plans, the Companys contribution, on the employees behalf, is
recognized as a compensation expense with an offset to share capital, and consideration
paid by employees on purchase of stock is also recorded as an increase to share capital.The following disclosure is required to report the pro forma net earnings and earnings per
share as if the fair value-based method had been used to account for employee stock options
granted during fiscal 2003.
 2005
    
    
    
    2004
    
    
    2003Net earnings, as reported
    
    $
    86,043
    
    
    
    $
    60,251
    
    
    $
    53,156Deduct:Total stock-based employee compensation recovery
(expense) determined under fair value-based method for
awards granted in fiscal 2003
    
    
    10
    
    
    
    
    101
    
    
    
    (240
    )Pro forma net earnings
    
    $
    86,053
    
    
    
    $
    60,352
    
    
    $
    52,916




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##### 



Gildan 2005 Annual Report
    
    
    55
 NOTES TO CONSOLIDATED FINANCIAL STATEMENTSYears ended October 2, 2005, October 3, 2004 and October 5, 2003(In thousands of US dollars, except share and per share amounts)SINIFICANT ACCOUNTING POLICIES (continued)
 (l)
    
    Stock-based compensation and other stock-based payments (continued)
 2005
    
    
    
    2004
    
    
    2003Earnings per share:Basic:As reported
    
    $
    1.44
    
    
    
    $
    1.02
    
    
    $
    0.91Pro forma
    
    
    1.44
    
    
    
    
    1.02
    
    
    
    0.90Diluted:As reported
    
    
    1.43
    
    
    
    
    1.01
    
    
    
    0.89Pro forma
    
    
    1.43
    
    
    
    
    1.01
    
    
    
    0.89
 During fiscal 2005, 26,666 (2004  173,754) options granted in fiscal 2003 were cancelled, which
reduced the amount of stock-based compensation for the year, presented above, by $59 (2004  $196),
since the Company only accounts for forfeitures as they occur.The weighted average grant-date fair value of the remaining 41,992 options granted in fiscal 2003
is CA$4.81 per option, which is recognized as compensation cost over the vesting period for
purposes of calculating pro forma net earnings.The weighted average fair value of each option granted in fiscal 2003 was estimated on the date of
grant using the Black-Scholes pricing model with the following weighted average assumptions:
 Risk-free interest rate
    
    
    3.59
    %Expected volatility
    
    
    34.14
    %Expected life
    
    2.68 yearsExpected dividend yield
    
    nil
 (m)
    
    Employee future benefitsThe Company offers group defined contribution plans to eligible employees whereby the
Company matches employees contributions up to a fixed percentage of the employees salary.
Contributions by the Company to trustee-managed investment portfolios or employee
associations are expensed as incurred.(n)
    
    Earnings per shareBasic earnings per share are computed by dividing net earnings by the weighted average
number of common shares outstanding for the year. Diluted earnings per share are computed
in the same manner, except the weighted average number of common shares outstanding for the
period is increased to include additional shares from the assumed exercise of options, if
dilutive, and the issuance of restricted share units.The number of additional shares is calculated by assuming that outstanding options are
exercised, and that the proceeds from such exercises are used to repurchase common shares
at the average share price for the period.(o)
    
    Research and development investment tax credits and government grantsResearch and development investment tax credits and government grants are recorded as a
reduction of the related expense or the cost of the assets acquired. Tax credits are
recorded in the accounts when reasonable assurance exists that they will be realized.




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##### 



56
    
    Gildan 2005 Annual Report
 NOTES TO CONSOLIDATED FINANCIAL STATEMENTSYears ended October 2, 2005, October 3, 2004
and October 5, 2003(In thousands of US dollars,
except share and per share amounts)SIGNIFICANT ACCOUNTING POLICIES (continued)
 (p)
    
    Environmental expendituresEnvironmental expenditures that relate to current operations are expensed or capitalized as
appropriate. Expenditures that relate to an existing condition caused by past operations and
which are not expected to contribute to current or future operations are expensed. Liabilities
are recorded when environmental assessments and/or remedial efforts are likely, and when the
costs, based on a specific plan of action in terms of the technology to be used and the extent
of the corrective action required, can be reasonably estimated.(q)
    
    GuaranteesIn the normal course of business, the Company enters into various agreements that may contain
features that meet the definition of a guarantee. A guarantee is defined to be a contract
(including an indemnity) that contingently requires the Company to make payments to a third
party based on (i) changes in an underlying interest rate, foreign exchange rate, equity or
commodity instrument, index or other variable that is related to an asset, a liability or an
equity security of the guaranteed party, (ii) failure of another party to perform under an
obligating agreement, or (iii) failure of another party to pay its indebtedness when due.A liability is recorded when the Company considers probable that a payment relating to the
guarantee has to be made to the other party.(r)
    
    Asset retirement obligationsThe Company records the obligation for estimated asset retirement costs at fair value when the
legal obligation associated with the retirement of a tangible, long-lived asset and obligations
in connection with leased assets are incurred. The associated costs are capitalized as part of
the carrying value of the related asset and depreciated over the remaining useful life. The
liability is accreted to full value over time through charges to earnings. Cost estimates are
influenced by factors such as the number and type of assets subject to asset retirement
obligations, the extent of work required and changes in environmental legislation. A revision to
the estimated cost or useful lives of the assets could result in an increase or decrease in the
total obligation which would change the amount of amortization and accretion expense recognized
in net earnings over time.As at October 2, 2005 and October 3, 2004, there were no significant asset retirement
obligations recorded in the accounts of the Company.
 (3)
    
    FIXED ASSETS
 2005Accumulateddepreciation and
    
    
    Net bookCost
    
    
    amortization
    
    
    valueLand
    
    $
    19,032
    
    
    $
    
    
    
    $
    19,032Buildings and improvements
    
    
    95,207
    
    
    
    10,691
    
    
    
    84,516Equipment
    
    
    225,514
    
    
    
    72,312
    
    
    
    153,202Equipment under capital leases
    
    
    1,532
    
    
    
    1,307
    
    
    
    225Construction in progress
    
    
    3,640
    
    
    
    
    
    
    
    3,640$
    344,925
    
    
    $
    84,310
    
    
    $
    260,615




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##### 



Gildan 2005 Annual Report
    
    
    57
 NOTES TO CONSOLIDATED FINANCIAL STATEMENTSYears ended October 2, 2005, October 3, 2004 and October 5, 2003(In thousands of US dollars, except share and per share amounts)FIXED ASSETS (continued)
 2004Accumulateddepreciation and
    
    
    Net bookCost
    
    
    amortization
    
    
    valueLand
    
    $
    14,524
    
    
    $
    
    
    
    $
    14,524Buildings and improvements
    
    
    61,667
    
    
    
    8,121
    
    
    
    53,546Equipment
    
    
    182,036
    
    
    
    57,242
    
    
    
    124,794Equipment under capital leases
    
    
    1,928
    
    
    
    1,309
    
    
    
    619Construction in progress
    
    
    18,210
    
    
    
    
    
    
    
    18,210$
    278,365
    
    
    $
    66,672
    
    
    $
    211,693
 (4)
    
    OTHER ASSETS
 2005
    
    
    
    2004Loan to
director and officer (2004  CA$300) (a)
    
    $
    
    
    
    
    $
    238Deferred charges, net of accumulated amortization
of $5,716 (2004  $4,901)
    
    
    1,482
    
    
    
    
    1,459Long-term receivable
    
    
    1,133
    
    
    
    
    Prepaid equipment rental
    
    
    446
    
    
    
    
    556Deposits
    
    
    662
    
    
    
    
    583Other
    
    
    313
    
    
    
    
    291$
    4,036
    
    
    
    $
    3,127
 (a)

    

    During fiscal 2005, the balance of a loan due from a director and officer was repaid.
 (5)
    
    BANK INDEBTEDNESSThe Companys joint venture, CanAm, has a revolving line of credit in the amount of $4,000. As at
October 2, 2005, the joint venture had utilized $3,980 of its line of credit. The borrowings are
due on demand and bear interest at 30-day LIBOR plus 2.25% (6.13% at October 2, 2005). The line of
credit is secured by a first ranking security interest on the assets of the joint venture.




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##### 



58
    
    Gildan 2005 Annual Report
 NOTES TO CONSOLIDATED FINANCIAL STATEMENTSYears ended October 2, 2005, October 3, 2004 and October
5, 2003 (In thousands of US dollars, except share and per
share amounts)
 (6)
    
    LONG-TERM DEBT
 2005
    
    
    
    2004SecuredSenior notes (a)
    
    $
    35,000
    
    
    
    $
    52,500Term loan, repayable in monthly instalments, bearing interest
at 30-day LIBOR plus 2.75%, maturing in September 2012 (6.63% at October 2, 2005), collateralized by real estate (b)
    
    
    10,658
    
    
    
    
    Term loan, repayable in monthly instalments, bearing interest at 30-day
LIBOR plus 3% (4.84% at October 3, 2004), refinanced in 2005 (b)
    
    
    
    
    
    
    
    3,369Term loan, repayable in monthly instalments, bearing
interest at 6%, maturing in
December 2008 (b)
    
    
    1,041
    
    
    
    
    Obligations under capital leases, bearing interest at 3.83%,
maturing in December 2006
    
    
    186
    
    
    
    
    343$
    46,885
    
    
    
    $
    56,212Current portion of secured debt
    
    
    19,737
    
    
    
    
    18,495$
    27,148
    
    
    
    $
    37,717UnsecuredTerm loans, bearing interest at rates up to 5% per annum, maturing at various dates through 2008
    
    $
    262
    
    
    
    $
    377Current portion of unsecured debt
    
    
    122
    
    
    
    
    115$
    140
    
    
    
    $
    262Total unsecured and secured long-term debt
    
    $
    27,288
    
    
    
    $
    37,979
 (a)
    
    In fiscal 2000, the Company issued senior notes in the amount of $70,000. These notes are
repayable in four equal annual instalments which commenced in June 2004. The outstanding balances
bear interest at 9.51% on $27,500 and 9.88% on $7,500, and are secured by tangible and intangible
property of the Company. The combined effective interest rate on the senior notes for fiscal 2005
was 9.59% (2004  9.59%).(b)
    
    These term loans have been entered into by CanAm, the Companys joint venture with Frontier
Spinning Mills, Inc.
  
 Fiscal year2006
    
    $
    19,7002007
    
    
    19,7042008
    
    
    2,1492009
    
    
    1,8302010
    
    
    1,770Thereafter
    
    
    1,808$
    46,961




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##### 



Gildan 2005 Annual Report
    
    
    59
 NOTES TO CONSOLIDATED FINANCIAL STATEMENTSYears ended October 2, 2005, October 3, 2004 and October
5, 2003(In thousands of US dollars, except share and per
share amounts)
 LONG-TERM DEBT (continued)Future minimum lease payments under capital leases are as follows:
 Fiscal year2006
    
    $
    1642007
    
    
    27Total minimum lease payments
    
    
    191Less imputed interest
    
    
    5$
    186
 (7)
    
    SHAREHOLDERS EQUITYChanges in share capital were as follows:
 2005
    
    
    
    
    
    
    
    2004Book
    
    
    
    
    
    
    
    BookShares
    
    
    value
    
    
    
    Shares
    
    
    valueAuthorized without limit as to number and without par value:First preferred shares, issuable in series, non-voting
Second preferred shares, issuable in series, non-voting
Common sharesIssued and outstanding:Commons shares:Total outstanding, beginning of year
    
    
    
    
    
    $
    
    
    
    
    
    
    
    
    $
    Conversion of Class A shares into common shares (a)
    
    
    59,397,412
    
    
    
    78,170
    
    
    
    
    
    
    
    
    Shares issued under employee share purchase plan
    
    
    9,916
    
    
    
    200
    
    
    
    
    
    
    
    
    Shares issued pursuant to exercise of stock options
    
    
    547,202
    
    
    
    5,807
    
    
    
    
    
    
    
    
    Total outstanding, end of year
    
    
    59,954,530
    
    
    
    84,177
    
    
    
    
    
    
    
    
    Class A subordinate voting shares:Total outstanding, beginning of year
    
    
    59,397,412
    
    
    
    78,170
    
    
    
    
    46,851,932
    
    
    
    72,023Conversion of Class A shares into common shares (a)
    
    
    (59,397,412
    )
    
    
    (78,170
    )
    
    
    
    
    
    
    
    Conversion of Class B shares into Class A shares (e)
    
    
    
    
    
    
    
    
    
    
    
    12,188,000
    
    
    
    3,467Shares issued under employee share purchase plan
    
    
    
    
    
    
    
    
    
    
    
    11,174
    
    
    
    163Shares issued pursuant to exercise of stock options
    
    
    
    
    
    
    
    
    
    
    
    346,306
    
    
    
    2,517Total outstanding, end of year
    
    
    
    
    
    
    
    
    
    
    
    59,397,412
    
    
    
    78,170Class B multiple voting shares:Total outstanding, beginning of year
    
    
    
    
    
    
    
    
    
    
    
    12,188,000
    
    
    
    3,467Conversion of Class B shares into Class A shares (e)
    
    
    
    
    
    
    
    
    
    
    
    (12,188,000
    )
    
    
    (3,467
    )Total outstanding, end of year
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    59,954,530
    
    
    $
    84,177
    
    
    
    
    59,397,412
    
    
    $
    78,170




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##### 



60
    
    Gildan 2005 Annual Report
 NOTES TO CONSOLIDATED FINANCIAL STATEMENTSYears ended October 2, 2005, October 3, 2004 and October 5, 2003(In thousands of US dollars, except share and per share amounts)SHAREHOLDERS EQUITY (continued)The amounts credited to share capital from exercise of stock options include a cash consideration
of $5,672 as well as an ascribed value from contributed surplus of $135 (2004  nil).
 (a)
    
    The Articles of the Company were amended by Certificate of Amendment dated February
2, 2005 to create an unlimited number of a new class of common shares, convert each of the
issued and outstanding Class A subordinate voting shares into one of the common shares
created, and cancel the Class B multiple voting shares and the Class A subordinate voting
shares as well as the rights, privileges, restrictions and conditions attached thereto.(b)
    
    On December 1, 2004, the Board of Directors approved the renewal of the stock
repurchase program authorizing the Company to purchase up to a maximum of 1,000,000 of the
Companys common shares in the open market commencing December 22, 2004 and ending
December 21, 2005. As at October 2, 2005, no shares had been repurchased under this plan.(c)
    
    On December 1, 2004, the Board of Directors adopted a shareholder rights plan, which
became effective that same day. At the annual and special meeting of the shareholders on
February 2, 2005, the shareholders approved a resolution confirming the ratification of
the shareholder rights plan. The objectives of the shareholder rights plan are to provide
the Board of Directors and the shareholders with additional time to assess any unsolicited
take-over bid for the Company and, where appropriate, pursue other alternatives for
maximizing shareholder value.(d)
    
    On May 4, 2005, the Board of Directors of the Company declared a two-for-one stock
split, effected in the form of a stock dividend, applicable to all of its issued and
outstanding common shares and payable to shareholders of record on May 20, 2005. All share
and per share data reflect the effect of the stock split on a retroactive basis.(e)
    
    On March 1, 2004, the holders of the Class B multiple voting shares converted all the
issued and outstanding Class B multiple voting shares into Class A subordinate voting
shares on a one-for-one basis for no consideration.(f)
    
    Changes in contributed surplus were as follows:
 Balance, October 5, 2003
    
    $
    220Stock-based compensation related to stock options and restricted share units
    
    
    461Balance, October 3, 2004
    
    
    681Stock-based compensation related to stock options and restricted share units
    
    
    1,050Ascribed value credited to share capital from exercise of stock options
    
    
    (135
    )Balance, October 2, 2005
    
    $
    1,596
 (g)
    
    Cumulative translation adjustment:On October 6, 2003, the Company adopted the US dollar as its functional and reporting
currency. The change in the functional currency for the prior periods resulted in a
currency translation adjustment of $26,248 which is reflected in the cumulative translation
adjustment.
 (8)
    
    STOCK-BASED COMPENSATION
 (a)
    
    Employee share purchase plans:The Company has employee share purchase plans which allow eligible employees to authorize
payroll deductions of up to 10% of their salary to purchase, from treasury, common shares
of the Company at a price of 90% of the then current stock price as defined in the plans.
Employees purchasing shares under the plans must hold the shares for a minimum of one year.
The Company has reserved 1,400,000 common shares for issuance under the plans. As at
October 2, 2005, a total of 52,756 (2004  42,840) shares were issued under these plans.




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##### 



Gildan 2005 Annual Report
    
    
    61
 NOTES TO CONSOLIDATED FINANCIAL STATEMENTSYears ended October 2, 2005, October 3, 2004 and October 5, 2003(In thousands of US dollars, except share and per share amounts)STOCK-BASED COMPENSATION (continued)
 (b)
    
    Stock optionsUnder the Companys Long-Term Incentive Plan (LTIP), the Company may grant options to
purchase common shares at the current market price on the date of grant to officers, other
key employees and directors of the Company. Stock options vest equally over a two to
four-year period from the date of grant, and expire no more than ten years after the date
of grant. The LTIP provided that the number of common shares reserved for issuance shall
not exceed 5,537,776 shares.Changes in outstanding stock options were as follows:
 Weighted averageNumber
    
    
    exercise price(in Canadian dollars)Options outstanding, October 5, 2003
    
    
    1,680,372
    
    
    $
    12.74Exercised
    
    
    (346,306
    )
    
    
    9.59Cancelled
    
    
    (191,420
    )
    
    
    17.60Options outstanding, October 3, 2004
    
    
    1,142,646
    
    
    $
    12.88Exercised
    
    
    (547,202
    )
    
    
    12.78Cancelled
    
    
    (26,666
    )
    
    
    20.45Options outstanding, October 2, 2005
    
    
    568,778
    
    
    $
    12.62
 The following table summarizes information about stock options outstanding and exercisable at
October 2, 2005:
 Options outstanding
    
    
    Options exercisableWeightedWeighted
    
    
    average
    
    
    
    
    
    
    WeightedRange of
    
    
    
    
    
    average
    
    
    remaining
    
    
    
    
    
    
    averageexercise
    
    
    
    
    
    exercise
    
    
    contractual
    
    
    
    
    
    
    exerciseprices
    
    Number
    
    
    price
    
    
    life (yrs)
    
    
    Number
    
    
    price(in Canadian dollars)
    
    
    
    
    
    (in Canadian dollars)
    
    
    
    
    
    
    
    
    
    
    (in Canadian dollars)$
    
    
    
    2.57  4.88
    
    
    62,056
    
    
    $
    3.53
    
    
    
    3.07
    
    
    
    62,056
    
    
    $
    3.53$
    

    
    
    7.19  9.85
    
    
    16,134
    
    
    
    7.65
    
    
    
    4.55
    
    
    
    13,334
    
    
    
    7.19$
    

    
    
    10.00  12.63
    
    
    269,149
    
    
    
    12.08
    
    
    
    5.20
    
    
    
    248,504
    
    
    
    12.18$
    

    
    
    13.75  17.29
    
    
    201,437
    
    
    
    16.00
    
    
    
    5.49
    
    
    
    198,332
    
    
    
    15.98$
    

    
    
    17.40  20.45
    
    
    20,002
    
    
    
    18.08
    
    
    
    7.11
    
    
    
    2,669
    
    
    
    17.40568,778
    
    
    $
    12.62
    
    
    
    5.12
    
    
    
    524,895
    
    
    $
    12.49




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##### 



62
    
    Gildan 2005 Annual ReportNOTES TO CONSOLIDATED FINANCIAL STATEMENTSYears ended October 2, 2005, October 3, 2004 and October 5, 2003
(In thousands of US dollars, except share and per share amounts)STOCK-BASED COMPENSATION (continued)
 (c)
    
    Under the Companys (LTIP), the Board of Directors may grant restricted share
units (RSUs). An RSU is the right of an individual to whom a grant of such unit is
made to receive one common share at the end of the vesting period, if certain
conditions have been achieved, which include the employees continued employment
during that period and achievement of specified performance objectives. Grant levels
of RSUs are determined by the Board of Directors, primarily based on the expected
impact of the role of the employee on the Companys performance and strategic
development. At the end of the vesting period, the common shares to which a holder of
RSUs is entitled will be issued from treasury subject to the share limit provided in
the LTIP. Compensation expense relating to the RSU plan is recognized in the
financial statements over the vesting period based on the fair value of the RSU on
the date of the grant.
 Changes in outstanding RSUs were as follows:
 Weightedaveragefair valueRSU
    
    
    per unit(in Canadian dollars)RSUs outstanding, October 5, 2003
    
    
    
    
    
    $
    Granted
    
    
    230,000
    
    
    
    19.65Cancelled
    
    
    (6,000
    )
    
    
    19.66RSUs outstanding, October 3, 2004
    
    
    224,000
    
    
    
    19.65Granted
    
    
    162,000
    
    
    
    27.83Cancelled
    
    
    (30,000
    )
    
    
    18.33RSUs outstanding, October 2, 2005
    
    
    356,000
    
    
    $
    23.48
 As of October 2, 2005, none of the awarded and outstanding RSUs were vested and all have terms that
cliff vest at the end of 5 years from the date of grant. The compensation expense recorded for
fiscal 2005, in respect of the LTIP, was $919 (2004  $331). The counterpart has been recorded as
contributed surplus. When the shares are issued to the employees, the amounts previously credited
to contributed surplus are credited to share capital.
 (9)
    
    DEFERRED SHARE UNIT PLANEffective October 4, 2004, the Company established a deferred share unit plan for independent
members of the Companys Board of Directors who may elect annually to receive all or a portion of
their retainers and fees in the form of deferred share units (DSUs). The value of these DSUs is
the market price of the Companys common shares at the time of payment of the retainers or fees.
DSUs granted under the plan will be redeemable and the value thereof payable in cash only after the
director ceases to act as a director of the Company. As at October 2, 2005, there were 2,666 DSUs
outstanding at a value of $102 .This amount is included in Accounts payable and accrued
liabilities. The DSU obligation will continue to be adjusted each quarter based on the market
value of the Companys common shares. The Company includes the cost of the DSU plan in  Selling,
general and administrative expenses.




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##### 



Gildan 2005 Annual Report

    
    63
 NOTES TO CONSOLIDATED FINANCIAL STATEMENTSYears ended October 2, 2005, October 3, 2004 and October 5, 2003(In thousands of US dollars, except share and per share amounts)(10)
    
    COMMITMENTS AND CONTINGENT LIABILITIES
 (a)
    
    The minimum annual lease payments under operating leases are approximately as follows:
 Fiscal year2006
    
    $
    7,2872007
    
    
    3,8722008
    
    
    3,1322009
    
    
    2,6782010
    
    
    2,272Thereafter
    
    
    10,606$
    29,847
 (b)
    
    As at October 2, 2005, there were contractual obligations outstanding of
approximately $16,971 for the acquisition of fixed assets (2004  $27,560).(c)
    
    The Company is a party to claims and litigation arising in the normal course of
operations. The Company does not expect the resolution of these matters to have a
materially adverse effect on the financial position or results of operations of the
Company.
 (11)
    
    GUARANTEESAs at October 2, 2005, significant guarantees that have been provided to third parties are the
following:The Company, and some of its subsidiaries, have granted irrevocable standby letters of credit and
surety bonds, issued by highly rated financial institutions, to third parties to indemnify them in
the event the Company does not perform its contractual obligations. As at October 2, 2005, the
maximum potential liability under these guarantees was $28,500, of which $8,700 was for surety
bonds and $19,800 was for standby letters of credit and corporate guarantees. The standby letters
of credit mature at various dates during fiscal 2006, the surety bonds are automatically renewed on
an annual basis and the corporate guarantees mature upon 30 days notice.As at October 2, 2005, the Company has not recorded a liability with respect to these guarantees,
as the Company does not expect to make any payments for the aforementioned items. Management
believes that the fair value of the non-contingent obligations to stand ready to perform in the
event that specified triggering events or conditions occur approximates the cost of obtaining the
standby letters of credit and surety bonds.




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##### 



64
    
    Gildan 2005 Annual Report
 NOTES TO CONSOLIDATED FINANCIAL STATEMENTSYears ended October 2, 2005, October 3, 2004 and October 5, 2003
(In thousands of US dollars, except share and per share amounts)(12)
    
    INCOME TAXESThe income tax provision differs from the amount computed by applying the combined Canadian federal
and provincial tax rates to earnings before income taxes. The reasons for the difference and the
related tax effects are as follows:
 2005
    
    
    
    2004
    
    
    2003Combined basic Canadian federal and provincial income taxes
    
    $
    27,075
    
    
    
    $
    20,012
    
    
    $
    19,602Increase (decrease) in income taxes resulting from:Effect of different tax rates on earnings of foreign
subsidiaries
    
    
    (29,016
    )
    
    
    
    (19,935
    )
    
    
    (15,430
    )Effect of non-deductible expenses and other
    
    
    3,293
    
    
    
    
    3,001
    
    
    
    1,616$
    1,352
    
    
    
    $
    3,078
    
    
    $
    5,788
 For fiscal 2005, the effect of different tax rates on earnings of foreign subsidiaries was greater
than the amount computed by applying the combined Canadian tax rates to consolidated earnings
before income taxes. This occurred due to a combination of losses incurred in the Canadian parent
company that generated a recovery of income taxes at statutory Canadian rates, and earnings in the
Companys subsidiaries that generated income tax expense at relatively low tax rates.The components of income tax expense are as follows:
 2005
    
    
    
    2004
    
    
    2003Current income taxes
    
    $
    1,176
    
    
    
    $
    131
    
    
    $
    1,592Future income taxes
    
    
    176
    
    
    
    
    2,947
    
    
    
    4,196$
    1,352
    
    
    
    $
    3,078
    
    
    $
    5,788
 The Company has not recognized a future income tax liability for the undistributed earnings of its
subsidiaries in the current or prior years because the Company currently does not expect to sell
those investments, and for those undistributed earnings that would become taxable, there is no
intention to repatriate the earnings.Future income taxes reflect the net effects of temporary differences between the carrying amounts
of assets and liabilities for financial reporting purposes and the amounts used for income tax
purposes. Significant components of the Companys future tax position are as follows:
 2005
    
    
    
    2004Future income tax assets:Non-capital losses and research and development expenses
    
    $
    6,735
    
    
    
    $
    4,099Inventory
    
    
    645
    
    
    
    
    1,347Reserves and accruals
    
    
    1,555
    
    
    
    
    1,453Other
    
    
    1,200
    
    
    
    
    1,25010,135
    
    
    
    
    8,149Future income tax liabilities:Fixed assets and other
    
    
    31,386
    
    
    
    
    28,058Net future income tax liability
    
    $
    21,251
    
    
    
    $
    19,909
 Management believes that all future income tax assets will more likely be realized than not and,
accordingly, no valuation allowance has been provided.




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##### 



Gildan 2005 Annual Report
    
    
    65
 NOTES TO CONSOLIDATED FINANCIAL STATEMENTSYears ended October 2, 2005, October 3, 2004 and October 5, 2003(In thousands of US dollars, except share and per share amounts)(13)
    
    EARNINGS PER SHAREA reconciliation between basic and diluted earnings per share is as follows:
 2005
    
    
    
    2004
    
    
    2003Basic earnings per share:Basic weighted average number of common shares outstanding
    
    
    59,690,966
    
    
    
    
    59,181,610
    
    
    
    58,483,292Basic earnings per share
    
    $
    1.44
    
    
    
    $
    1.02
    
    
    $
    0.91Diluted earnings per share:Basic weighted average number of common shares outstanding
    
    
    59,690,966
    
    
    
    
    59,181,610
    
    
    
    58,483,292Plus impact of stock options and RSUs
    
    
    443,910
    
    
    
    
    489,568
    
    
    
    968,086Diluted weighted average number of common shares outstanding
    
    
    60,134,876
    
    
    
    
    59,671,178
    
    
    
    59,451,378Diluted earnings per share
    
    $
    1.43
    
    
    
    $
    1.01
    
    
    $
    0.89
 All stock options and RSUs outstanding for fiscal 2005 were dilutive.Excluded from the above calculation for fiscal 2004 are 64,000 stock options ranging in price from
CA$18.25 to CA$20.44 which were deemed to be anti-dilutive because the exercise prices were greater
than the average market price of the common shares. All stock options outstanding for fiscal 2003
were dilutive. In addition, there are 178,000 (2004  112,000) RSUs that have performance-vesting
triggers that were excluded from the above calculation of diluted earnings per share for fiscal
2005 and 2004.(14)
    
    OTHER INFORMATION
 (a)
    
    The following items were included in the determination of the Companys net earnings:
 2005
    
    
    
    2004
    
    
    2003Depreciation expense of fixed assets
    
    $
    24,677
    
    
    
    $
    21,511
    
    
    $
    15,407Interest expense on long-term debt
    
    
    4,805
    
    
    
    
    6,226
    
    
    
    6,751Interest expense on short-term indebtedness
    
    
    56
    
    
    
    
    
    
    
    
    Foreign exchange (loss) gain
    
    
    (1,113
    )
    
    
    
    47
    
    
    
    1,206Defined contribution plan expense
    
    
    688
    
    
    
    
    442
    
    
    
    376Amortization expense of deferred start-up costs
    
    
    502
    
    
    
    
    377
    
    
    
    297Amortization of deferred financing costs and other
    
    
    436
    
    
    
    
    387
    
    
    
    384Investment income
    
    
    450
    
    
    
    
    248
    
    
    
    371Special charge (b)
    
    
    10,726
    
    
    
    
    
    
    
    
    




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##### 



66
    
    Gildan 2005 Annual Report
 NOTES TO CONSOLIDATED FINANCIAL STATEMENTSYears ended October 2, 2005, October 3, 2004 and October 5, 2003(In thousands of US dollars, except share and per share amounts)OTHER INFORMATION (continued)
 (b)
    
    During fiscal 2005, the Company closed its two Canadian yarn-spinning operations and
recognized a charge of $10,726 before tax ($7,008 after tax) for closure costs. The
components of the special charge are as follows:
 Writedown of fixed assets
    
    $
    6,783Employee severance
    
    
    3,688Other
    
    
    255$
    10,726
 A major portion of the Canadian yarn-spinning equipment was transferred to a new facility
in Clarkton, North Carolina, which is operated by the Companys joint venture with Frontier
Spinning Mills, Inc. The Company reduced the carrying values of the remaining fixed assets
considered to be held for sale to their fair values. The severance costs were fully paid in
the year.(c)
    
    An amount of approximately $1,173 (2004  $500) is included as compensation costs in
Selling, general and administrative expenses in the consolidated statements of earnings
for fiscal 2005 in respect of the employee share purchase plans, RSUs, DSUs and certain
stock options.(d)
    
    During fiscal 2004, the Company closed one of its Honduran sewing facilities. The
total costs of closure amounted to $2,200, of which $1,400 related mainly to severance
payments recorded in Cost of sales and $800 represented the writedown of fixed assets
that was recorded in Selling, general and administrative expenses. As at October 3,
2004, all payments relating to the closure had been made.(e)
    
    Supplemental cash flow disclosure:
 2005
    
    
    
    2004
    
    
    2003Cash paid during the year for:Interest
    
    $
    4,516
    
    
    
    $
    6,404
    
    
    $
    6,444Income taxes
    
    
    1,557
    
    
    
    
    1,812
    
    
    
    1,075Non-cash transactions:Additions to fixed assets included in accounts
payable and accrued liabilities
    
    
    740
    
    
    
    
    3,473
    
    
    
    2,349Cash and cash equivalents consist of:Cash balances with banks
    
    $
    38,802
    
    
    
    $
    33,571
    
    
    $
    50,672Short-term investments, bearing interest
at 3.67% (2004  1.72%; 2003  1.65%)
    
    
    31,000
    
    
    
    
    27,100
    
    
    
    18,668$
    69,802
    
    
    
    $
    60,671
    
    
    $
    69,340




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Gildan 2005 Annual Report
    
    
    67
 NOTES TO CONSOLIDATED FINANCIAL STATEMENTSYears ended October 2, 2005, October 3, 2004 and October 5, 2003(In thousands of US dollars, except share and per share amounts)(15)
    
    RELATED PARTY TRANSACTIONSThe Company has transactions with Frontier Spinning Mills, Inc., its joint-venture partner in
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. The
following is a summary of the related party transactions that occurred throughout fiscal 2004 and
2005 and balances owed as of the year-end dates:
 2005
    
    
    
    2004Transactions:Yarn purchases
    
    $
    106,820
    
    
    
    $
    94,910Management fee expense
    
    
    562
    
    
    
    
    Balances outstanding:Accounts payable
    
    
    15,631
    
    
    
    
    22,683
 During fiscal 2005, Frontier Spinning Mills, Inc. contributed $2,500 in cash to CanAm.(16)
    
    FINANCIAL INSTRUMENTS
 (a)
    
    Foreign currency risk managementA portion of the Companys sales are denominated in currencies other than US dollars. The
Company uses the revenue stream in these non-US dollar currencies as a natural hedge against
purchases of fixed assets and expenses denominated in these non-US dollar currencies. From time
to time, the Company also uses forward foreign exchange contracts to hedge its foreign exchange
exposure on cash flows related to sales and operating expenses.
 The following table summarizes the Companys commitments to buy and sell foreign currencies as at
October 2, 2005 and October 3, 2004:
 NotionalNotional
    
    
    Exchange
    
    
    
    
    
    
    US dollaramount
    
    
    rate
    
    
    Maturity
    
    equivalent2005:Sell contracts:Foreign exchange
contracts:
    
    
    9,276
    
    
    1.3450 to 1.3721
    
    Oct. 2005  Sept. 2006
    
    $
    12,620£
    4,490
    
    
    1.8707 to 1.8909
    
    Oct. 2005  Sept. 2006
    
    
    8,439CA
    $
    2,800
    
    
    
    0.8610
    
    
    Oct. 2005
    
    
    2,410Buy contracts:Foreign exchange
contracts:
    CA
    $
    21,400
    
    
    0.7997 to 0.8216
    
    Oct. 2005  Aug. 2006
    
    $
    17,348
    2,150
    
    
    
    1.2039
    
    
    Oct. 2005
    
    
    2,5882004:Sell contracts:Foreign exchange
contracts:
    
    
    1,409
    
    
    
    1.2703 to 1.2717
    
    
    Oct.  Dec. 2004
    
    $
    1,791£
    1,002
    
    
    
    1.7970 to 1.8490
    
    
    Oct.  Dec. 2004
    
    
    1,836Buy contracts:Foreign exchange
contracts:
    CA
    $
    38,990
    
    
    
    0.7251 to 0.7401
    
    
    Oct. 2004  May 2005
    
    $
    28,726




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##### 



68
    
    Gildan 2005 Annual Report
 NOTES TO CONSOLIDATED FINANCIAL STATEMENTSYears ended October 2, 2005, October 3, 2004 and October 5, 2003(In thousands of US dollars, except share and per share amounts)FINANCIAL INSTRUMENTS (continued)
 (a)
    
    Foreign currency risk management (continued)A forward foreign exchange contract represents an obligation to buy or sell a foreign
currency with a counterparty. Credit risk exists in the event of failure by a counterparty
to meet its obligations. The Company reduces this risk by dealing only with highly rated
counterparties, normally major European and North American financial institutions.(b)
    
    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 North American and European
financial institutions.The Companys extension of credit involves judgment and is based on an evaluation of each
customers financial condition and payment history. The Company regularly monitors its
credit risk exposure to its customers and takes steps to mitigate the risk of loss,
including obtaining partial credit insurance. As at October 2, 2005, the Companys top 10
customers accounted for 55.6% (2004  51.5%) of the trade receivable balance, of which one
customer represented 18.9% (2004  19.5%). The remaining trade receivable balances are
dispersed among a large number of customers across many geographic areas including the
United States, Canada, Europe and Australasia.An allowance for doubtful accounts is maintained for potential credit losses consistent
with the credit risk, historical trends, general economic conditions and other information.(c)
    
    Fair value disclosureFair value estimates are made as of a specific point in time, using available information
about the financial instrument. These estimates are subjective in nature and often cannot
be determined with precision.The Company has determined that the carrying values of its short-term financial assets and
liabilities approximate their respective fair values as at the balance sheet dates because
of the short-term maturity of those instruments.The fair value of long-term debt is $49,532 (2004  $61,252) compared to a carrying value
of $47,147 (2004  $56,589) as at October 2, 2005. The fair value of the forward foreign
exchange contracts is $2,953 (2004  $2,112) as at October 2, 2005. The method of
calculating fair values for the financial instruments is described below.The fair value of the Companys long-term debt bearing interest at fixed rates was
calculated using the present value of future payments of principal and interest discounted
at the current market rates of interest available to the Company for the same or similar
debt instruments with the same remaining maturities. For long-term debt bearing interest at
variable rates, the fair value is considered to approximate the carrying value. The fair
value of the forward foreign exchange contracts was determined using quoted market values.(d)
    
    Interest rate riskThe Companys exposure to interest rate fluctuations is with respect to debt which bears
interest at floating rates.




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##### 



Gildan 2005 Annual Report
    
    
    69
 NOTES TO CONSOLIDATED FINANCIAL STATEMENTSYears ended October 2, 2005, October 3, 2004 and October 5, 2003(In thousands of US dollars, except share and per share amounts)(17)
    
    SEGMENTED INFORMATIONThe Company manufactures and sells activewear apparel. The Company operates in one business
segment.
 (a)
    
    Major customers and revenues by geographic areas:
 (i)
    
    The Company has one customer accounting for greater than 10% of total sales. This customer
accounted for 28.2% of total sales (2004  25.0%; 2003  27.5%).(ii)
    
    Sales were derived from customers located in the following geographic areas:
 2005
    
    
    
    2004
    
    
    2003United States
    
    $
    567,084
    
    
    
    $
    452,060
    
    
    $
    362,231Canada
    
    
    46,009
    
    
    
    
    44,827
    
    
    
    40,311Europe and other
    
    
    40,758
    
    
    
    
    36,481
    
    
    
    28,653$
    653,851
    
    
    
    $
    533,368
    
    
    $
    431,195
 (b)
    
    Fixed assets by geographic areas are as follows:
 2005
    
    
    
    2004Caribbean Basin and Central America
    
    $
    141,029
    
    
    
    $
    96,099United States
    
    
    67,260
    
    
    
    
    28,006Canada
    
    
    47,711
    
    
    
    
    82,034Mexico
    
    
    4,615
    
    
    
    
    5,554$
    260,615
    
    
    
    $
    211,693




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##### 



70
    
    Gildan 2005 Annual Report
 NOTES TO CONSOLIDATED FINANCIAL STATEMENTSYears ended October 2, 2005, October 3, 2004 and October 5, 2003(In thousands of US dollars, except share and per share amounts)(18)
    
    CANADIAN AND UNITED STATES ACCOUNTING DIFFERENCESThe consolidated financial statements of the Company are expressed in US dollars and are prepared
in accordance with Canadian generally accepted accounting principles (GAAP), which conform, in
all material respects, with those generally accepted in the United States except as described
below:
 (a)
    
    Consolidated statements of earnings:
 2005
    
    
    
    2004
    
    
    2003Net earnings in accordance with Canadian GAAP
    
    $
    86,043
    
    
    
    $
    60,251
    
    
    $
    53,156Swap expense (i)
    
    
    (175
    )
    
    
    
    (586
    )
    
    
    (1,091
    )Start-up costs (ii)
    
    
    (293
    )
    
    
    
    (347
    )
    
    
    137Stock-based compensation (iii)
    
    
    
    
    
    
    
    106
    
    
    
    (561
    )Tax effect of above adjustments
    
    
    54
    
    
    
    
    32
    
    
    
    273Net earnings in accordance with United States GAAP
    
    
    85,629
    
    
    
    
    59,456
    
    
    
    51,914Other comprehensive income:Mark-to-market adjustments on foreign exchange
contracts, net of tax of $261 (2004 - $655)
(note 18 (d))
    
    
    580
    
    
    
    
    1,457
    
    
    
    Comprehensive income
    
    $
    86,209
    
    
    
    $
    60,913
    
    
    $
    51,914Earnings per share under United States GAAP:Basic
    
    $
    1.44
    
    
    
    $
    1.00
    
    
    $
    0.89Diluted
    
    
    1.43
    
    
    
    
    1.00
    
    
    
    0.87Weighted average number of common shares
outstanding under United States GAAP:Basic
    
    
    59,690,966
    
    
    
    
    59,181,610
    
    
    
    58,483,292Diluted
    
    
    60,134,876
    
    
    
    
    59,671,178
    
    
    
    59,451,378
 (i)
    
    Swap revenue:Under United States GAAP, SFAS 133 Accounting for Derivative Instruments and Hedging
Activitiesrequires that all derivative instruments be recognized as assets or liabilities
and be measured at fair value. Under Canadian GAAP, there is no requirement to record
derivative instruments used for hedging purposes at fair values. Consequently, on an
ongoing basis, differences arise between amounts recognized for Canadian GAAP and United
States GAAP. Upon cancellation of the derivative instruments, the gain or loss recognized
under Canadian GAAP is different than the amount under United States GAAP.Under Canadian GAAP, the Company was using hedge accounting for certain derivative
instruments. The gain realized on cancellation of a cross-currency interest rate swap
arrangement was deferred, and is being amortized over the term of the related debt. Under
United States GAAP, the Company had not designated the derivative instrument in a hedging
relationship and, consequently, upon cancellation of the instrument, the Company recognized
the gain immediately into earnings.(ii)
    
    Start-up costs:Costs incurred during the start-up period for new manufacturing and distribution facilities
are deferred and amortized on a straight-line basis over two years. United States GAAP
requires such costs to be expensed as incurred. The adjustment to net earnings in
accordance with United States GAAP includes the write-off of current years start-up costs,
and the reversal of the current year amortization of start-up costs deferred under Canadian
GAAP.




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##### 



Gildan 2005 Annual Report
    
    
    71
 NOTES TO CONSOLIDATED FINANCIAL STATEMENTSYears ended October 2, 2005, October 3, 2004 and October 5, 2003(In thousands of US dollars, except share and per share amounts)CANADIAN AND UNITED STATES ACCOUNTING DIFFERENCES (continued)
 (a)
    
    Consolidated statements of earnings (continued):
 (iii)
    
    Stock-based compensation:Effective October 6, 2003, the Company adopted the fair value recognition
provisions of FASB Statement 123, Accounting for Stock-based Compensation,
prospectively to all employee awards granted, modified or settled after that date.
Consequently, for periods after October 5, 2003, there are no differences between
Canadian GAAP and United States GAAP. In prior years, as permitted by the
provisions of SFAS No. 123, the Company measured compensation cost using the
intrinsic value method being the excess of the quoted market price of the Companys
stock at the grant date over the amount the employee must pay for the stock.
Accordingly, as no excess existed at the grant date, no compensation expense was
recognized for stock option awards. However, certain of the Companys stock options
granted prior to fiscal 2004 were modified which resulted in a new measurement date
under United States GAAP. Compensation costs related to these modifications were
expensed at the modification date.Under Canadian GAAP, for options granted in prior years, the Company used the
settlement date method of accounting for options, and compensation expense was not
recognized.
 (b)
    
    Consolidated statements of cash flows:
 2005
    
    
    
    2004
    
    
    2003Changes due to United States GAAP:Operating activities on a Canadian basis
    
    $
    93,250
    
    
    
    $
    58,920
    
    
    $
    63,721Start-up costs
    
    
    (293
    )
    
    
    
    (347
    )
    
    
    137Operating activities cash flow, United States GAAP
    
    
    92,957
    
    
    
    
    58,573
    
    
    
    63,858Investing activities on a Canadian basis
    
    
    (83,848
    )
    
    
    
    (53,820
    )
    
    
    (39,458
    )Start-up costs
    
    
    293
    
    
    
    
    347
    
    
    
    (137
    )Investing activities cash flow, United States GAAP
    
    
    (83,555
    )
    
    
    
    (53,473
    )
    
    
    (39,595
    )Financing activities on a Canadian basis and
under United States GAAP
    
    
    (458
    )
    
    
    
    (14,350
    )
    
    
    411Effect of exchange rate changes on cash and cash equivalents
    
    
    187
    
    
    
    
    581
    
    
    
    (344
    )Net increase (decrease) in cash and cash
equivalents, during the year
    
    
    9,131
    
    
    
    
    (8,669
    )
    
    
    24,330Cash and cash equivalents, United States GAAP, beginning of year
    
    
    60,671
    
    
    
    
    69,340
    
    
    
    45,010Cash and cash equivalents, United States GAAP, end of year
    
    $
    69,802
    
    
    
    $
    60,671
    
    
    $
    69,340




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##### 



72
    
    Gildan 2005 Annual Report
 NOTES TO CONSOLIDATED FINANCIAL STATEMENTSYears ended October 2, 2005, October 3, 2004 and October 5, 2003(In thousands of US dollars, except share and per share amounts)CANADIAN AND UNITED STATES ACCOUNTING DIFFERENCES (continued)
 (c)
    
    Consolidated balance sheets:A reconciliation of shareholders equity under Canadian GAAP to United States GAAP is as
follows:
 2005
    
    
    
    2004Shareholders equity under Canadian GAAP
    
    $
    420,560
    
    
    
    $
    327,595United States GAAP adjustments:Start-up costs
    
    
    (1,053
    )
    
    
    
    (760
    )Foreign exchange contracts
    
    
    2,953
    
    
    
    
    2,112Cross-currency swap
    
    
    123
    
    
    
    
    298Tax effect on above adjustments
    
    
    (954
    )
    
    
    
    (747
    )1,069
    
    
    
    
    903Shareholders equity under United States GAAP
    
    $
    421,629
    
    
    
    $
    328,498
 (d)
    
    Comprehensive income:Under United States GAAP, SFAS No. 130, Reporting Comprehensive Incomeestablishes
standards for reporting and presentation of comprehensive income and its components in a
full set of financial statements. Comprehensive income consists of net earnings and all
other changes in shareholders equity that do not result from transactions with
shareholders. Such changes include cumulative foreign currency translation adjustments and
the changes in the market value of the forward foreign exchange contracts considered as
hedges against cash flow items. The Statement does not affect the Companys financial
position or results of operations.Accumulated other comprehensive income, which resulted from (a) the change in functional currency
in fiscal 2004 and (b) the market value of the forward foreign exchange contracts considered as
hedges against cash flow items, is as follows:
 2005
    
    
    
    2004
    
    
    2003Opening balance
    
    $
    27,705
    
    
    
    $
    26,248
    
    
    $
    Change during the year
    
    
    580
    
    
    
    
    1,457
    
    
    
    Cumulative translation adjustment
    
    
    
    
    
    
    
    
    
    
    
    26,248$
    28,285
    
    
    
    $
    27,705
    
    
    $
    26,248
 Under Canadian GAAP, the cumulative translation adjustment account is disclosed as a separate
component of shareholders equity.




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##### 



Gildan 2005 Annual Report
    
    
    73
 NOTES TO CONSOLIDATED FINANCIAL STATEMENTSYears ended October 2, 2005, October 3, 2004 and October 5, 2003(In thousands of US dollars, except share and per share amounts)CANADIAN AND UNITED STATES ACCOUNTING DIFFERENCES (continued)
 (e)
    
    Supplementary information:Under United States GAAP and Securities and Exchange Commission rules, separate disclosure is
required for the following statement of earnings and balance sheet items. There is no similar
requirement under Canadian GAAP.
 2005
    
    
    
    2004
    
    
    2003Statements of earnings:Rental expenses
    
    $
    3,517
    
    
    
    $
    2,826
    
    
    $
    2,281Advertising expenses
    
    
    5,760
    
    
    
    
    5,148
    
    
    
    5,050Balance sheets:Accounts payable
    
    
    43,234
    
    
    
    
    40,040
    
    
    
    35,395Accrued liabilities
    
    
    43,486
    
    
    
    
    34,458
    
    
    
    30,836Allowance for doubtful accounts, price discounts and rebates
    
    
    42,258
    
    
    
    
    23,460
    
    
    
    21,614
 (19)
    
    COMPARATIVE FIGURESCertain comparative figures have been reclassified in order to conform with the current years
presentation.