UNITED STATES
                       SECURITIES AND EXCHANGE COMMISSION
                             WASHINGTON, D.C. 20549

                                    FORM 10-K

[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
    ACT OF 1934
    For fiscal year ended February 1, 1997
                                       OR

[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
    EXCHANGE ACT OF 1934 For the transition period from           to          .
                                                        ---------    ---------  

                        Commission File Number 000-22385


                             ITHACA INDUSTRIES, INC.
               (Exact name of issuer as specified in its charter)

           Delaware                                             56-1385842
-------------------------------                           ----------------------
(State or other jurisdiction of                              (I.R.S. Employer
incorporation or organization)                            Identification Number)

Highway 268 West, P.O. Box 620, Wilkesboro, North Carolina       28697
----------------------------------------------------------    ----------
(Address of principal executive offices)                      (Zip code)

Registrant's telephone number, including area code:  (910) 667-5231

Securities registered pursuant to Section 12(b) of the Act:
(TITLE OF EACH CLASS                 NAME OF EACH EXCHANGE ON WHICH REGISTERED:)
--------------------                 -------------------------------------------
None

           Securities registered pursuant to Section 12(g) of the Act:
                                 Title and class
                     Common Stock, par value $.01 per share

    Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period than the
registrant was required to file such reports) and (2) has been subject to such
filing requirements for the past 90 days.
YES        NO    X
   -------    -------

    Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to the
best of the registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K. [ ]

The aggregate market value of the voting stock held by nonaffiliates of the
registrant cannot be determined in the manner called for by Form 10-K. See 
Item 5.

    Indicate by check mark whether the registrant has filed all documents and
reports required to be filed by Section 12, 13 or 15(d) of the Securities
Exchange Act of 1934 subsequent to the distribution of securities under a plan
confirmed by a court.
YES   X    NO
   -------   -------

The number of shares of the Registrant's common stock outstanding as of May 2,
1997 was 10,000,000.


                    The Exhibit Index is located on page 26.



<PAGE>

                                     PART I


SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS

         Certain statements in this report including information set forth under
"Management's Discussion and Analysis of Financial Condition and Results of
Operations," constitute "Forward-Looking Statements" within the meaning of the
Private Securities Litigation Reform Act of 1995 (the "Reform Act"). Ithaca
Industries, Inc., a Delaware corporation (the "Company" or "Ithaca"), desires to
take advantage of certain "safe harbor" provisions of the Reform Act and is
including this special note to enable the Company to do so. Forward-looking
statements included in this report, involve known and unknown risks,
uncertainties, and other factors which could cause the Company's actual results,
performance (financial or operating) or achievements to differ materially from
the future results, performance (financial or operating) or achievements
expressed or implied by such forward-looking statements. The Company believes a
change in the following important factors could cause such a material difference
to occur: (1) the level of sales to the Company's major customers, in particular
J.C. Penney which accounted for approximately 48% of the Company's total net
sales for the 52-week period ended February 1, 1997; (2) the Company's ability
to source or manufacture its products at a competitively favorable cost; (3) the
general strength of retailing, in particular in the apparel categories in which
the Company operates and at the retail outlets which are major customers of the
Company; (4) the continued services of certain of the Company's senior
executives; (5) the comparative strength of the Company's principal competitors,
particularly the impact of foreign sourcing in certain of the Company's product
categories; (6) the absence of political or economic disruptions, quotas, labor
disruptions, embargoes or currency fluctuations that might adversely affect the
Company, particularly in Honduras and other foreign nations where the Company
currently or in the future sources its products; (7) the success of the
Company's recent Business Plan (as defined below) and reorganization,
particularly the success of the Company's ongoing efforts to consolidate its
women's hosiery operations and to consolidate certain other operations in
offshore facilities and to increase its foreign sourcing capabilities
(especially in women's and girls' underwear categories), the level of efficiency
of operation of the Company's new centralized distribution centers, the success
of the Company's efforts to streamline its SKU's and eliminate unprofitable and
low-profit lines and products, the success of the Company's efforts to reduce
its selling, general and administrative expenses, and the success of the
Company's efforts to efficiently manage its inventory levels; (8) the impact of
price fluctuations of the Company's raw materials, particularly cotton and
spandex, and the Company's ability to pass on to retailers and consumers any
possible price increases; (9) the continued improvement of the Company's
information systems; or (10) the ability of the Company to have access to
adequate capital to meet its working capital needs and to fund necessary capital
expenditures.

         Many of the foregoing factors have been discussed in the Company's
prior filings with the Securities and Exchange Commission (the "Commission") and
other publicly available documents. Had the Reform Act been effective at an
earlier time, this special note would have been included in earlier Commission
filings. The foregoing review of significant factors should not be construed as
exhaustive or as an admission regarding the adequacy of disclosures previously
made by the Company prior to the effective date of the Reform Act.

         For purposes of presenting financial information in this report (other
than the Financial Statements included in Item 8), the Company's fiscal years
are indicated as ending on January 31, although before December of 1996 such
periods actually ended on the Friday nearest such date and after November of
1996 such periods actually ended on the Saturday nearest such date.


ITEM 1.  BUSINESS

GENERAL

         Ithaca is a leading designer, marketer and manufacturer of private
label men's and boys' underwear and outerwear T-shirt products, women's and
girls' underwear and women's hosiery. The Company believes it is the largest
manufacturer of private label underwear and women's hosiery products in the
United States, operating distribution and manufacturing facilities in the
southeastern United States and off-shore manufacturing facilities in Central
America. The key elements of the Company's strategy are to supply a wide variety
of product offerings at a number of price points, to maintain a strong presence
in multiple channels of distribution, to maintain close customer relationships
by developing products and programs that suit individual customer needs, and to
maintain a low cost and flexible manufacturing capability.

                                        1
 

<PAGE>

         The Company is organized under the laws of the State of Delaware and
its principal executive offices are located at Highway 268 West, P.O. Box 620,
Wilkesboro, North Carolina 28697, Telephone Number (910) 667-5231.

PLAN OF REORGANIZATION

         On December 16, 1996, the Company emerged from bankruptcy pursuant to
the Plan of Reorganization, dated as of August 29, 1996 (the "Plan of
Reorganization"). As a result of the reorganization, the Company significantly
reduced its debt and simplified its capital structure. Pursuant to the Plan of
Reorganization, prior equity interests in the company were cancelled, 10,000,000
shares of the Company's common stock, par value $0.01 (the "Common Stock") were
distributed to the holders of the Company's outstanding 11.125% Senior
Subordinated Notes due 2002 (the "Notes"), the Notes were retired, the Company
ceased to be a subsidiary of Ithaca Holdings, Inc., the Company's Credit
Agreement with various banks, Canadian Imperial Bank of Commerce as co-agent and
Bankers Trust Company as agent, originally dated as of December 10, 1992 was
amended and restated as of December 16, 1996 (the "Credit Agreement") and
general unsecured claims, administrative claims, tax claims, priority claims and
general secured claims allowed by the Bankruptcy Court for the District of
Delaware (the "Bankruptcy Court") were paid in full.

         In the third and fourth quarters of fiscal 1996 the Company undertook
an extensive review of its manufacturing capacity, overhead structure, product
lines and customer base. These efforts resulted in the promulgation of a
three-year business plan, which was revised in May, 1996 (as revised, the
"Business Plan"), to enhance performance and reduce overhead expenses. As part
of the implementation of the Business Plan, the Company consolidated its
distribution centers and production capacity to increase efficiencies,
consolidated the operations of certain plants to off-shore facilities and
accelerated the process of moving sewing operations off-shore.

         On February 1, 1997 the capital structure of the Company consisted of
approximately $66.1 million of long-term debt exclusive of current maturities,
and approximately $19.4 million of net equity.

FRESH START REPORTING

         The Company adopted Fresh Start Reporting on November 22, 1996, the day
the Plan of Reorganization was confirmed by the Bankruptcy Court. Accordingly,
the Company's Consolidated Balance Sheets as of February 1, 1997 and its
Consolidated Statements of Operations, Consolidated Statement of Stockholders'
Equity (Deficit) and Consolidated Statement of Cash Flows for the 10-week period
ended February 1, 1997 and the 42-Week period ended November 22, 1996 will not
be comparable to the Consolidated Financial Statements for prior periods
included elsewhere herein.

PRODUCTS AND SALES

         The Company's three principal product lines are (1) men's and boys'
underwear and outerwear T-shirts, (2) women's and girls' underwear and (3)
women's hosiery. The Company offers a large selection of products in a wide
range of styles, sizes and colors. Ithaca has worked closely with its customers
over the years to develop a wide variety of products in each of its product
lines to meet the needs of retailers in varied distribution channels. The
Company's offerings within each product line range from lower priced goods sold
by supermarkets and discount stores to higher quality, higher priced styles sold
by department stores. Management believes that this product breadth gives it a
competitive advantage over other U.S. private label manufacturers who do not
offer such a wide selection and over foreign manufacturers who generally are not
as capable of providing prompt delivery on a broad range of products. Ithaca's
products are sold through a wide range of retail distribution channels and are
offered to the public through more than 10,000 customer outlets, including
discount stores, department stores, specialty stores, drug stores and
supermarkets.

         MEN'S AND BOYS' UNDERWEAR AND OUTERWEAR T-SHIRTS

         Ithaca designs and manufactures over 160 styles of crew-neck T-shirts,
V-neck T-shirts, briefs, athletic shirts and fashion underwear for its line of
men's and boys' underwear. Ithaca also designs and manufactures over 30 styles
of tank top shirts, mock turtleneck shirts, white and colored pocket T-shirts
and white and colored T-shirt blanks for screen printing for its T-shirt product
line. Products are made of 100% cotton, cotton and polyester blends and for
fashion underwear, nylon.

                                        2
 

<PAGE>

         Men's and boys' underwear and outerwear T-shirts accounted for
approximately 51% of the Company's net sales in the 10-week period ended
February 1, 1997, 56% in the 42-week period ended November 22, 1996, 52% in
fiscal 1996 and 50% in fiscal 1995.

         WOMEN'S AND GIRLS' UNDERWEAR

         Ithaca designs and manufactures over 100 styles of briefs, hip huggers
and bikini panties for its line of women's and girls' underwear.

         Women's and girls' underwear sales accounted for approximately 17% of
the Company's net sales in the 10-week period ended February 1, 1997, 17% in the
42-week period ended November 22, 1996, 19% in fiscal 1996 and 21% in fiscal
1995.

         WOMEN'S HOSIERY

         Ithaca designs and manufactures over 130 styles of regular sheer
pantyhose, control top and support pantyhose, knee-highs and stockings for its
line of women's hosiery.

         Women's hosiery sales accounted for approximately 29% of the Company's
net sales in the 10-week period ended February 1, 1997, 25% for the 42-week
period ended November 22, 1996, 27% in fiscal 1996 and 28% in fiscal 1995.

RAW MATERIALS

         The principal materials used in the Company's production of goods are
cotton, polyester, nylon and spandex yarns as well as tricot and powernet
fabrics. The Company does not produce its own yarns and believes that purchasing
yarns from the wide range of available sources in the United States is
cost-effective. Ithaca also purchases dyestuffs and packaging materials. The
Company is not always able to promptly pass on to its customers price increases
in raw materials principally due to the timing of raw material purchases and
customer orders as well as competitive conditions.

         Management believes its sources of raw materials are adequate and does
not currently anticipate difficulty in obtaining raw materials to meet its
needs. The Company has not experienced any significant shortages of raw
materials during the past 30 years.

MANUFACTURING AND SOURCING

         Ithaca manufactures its products at 13 plants in the southeastern
United States and Central America, and sources a portion of its products from
contractors located in other countries throughout the world. Goods typically are
produced in anticipation of customer demand and the Company maintains a general
inventory which turned over 0.7 times in the 10-week period ending February 1,
1997 and 3.6 times in the 42-week period ending November 22, 1996. In both its
women's hosiery and fabric production facilities, Ithaca has the flexibility to
shift its manufacturing processes easily among many styles, colors and sizes in
response to changes in demand. Approximately half of the Company's men's and
boys' and women's and girls' products are either assembled off-shore from
components that are cut in the United States or sourced from the Far East.
Essentially all of the Company's women's hosiery products are produced
domestically.

TRADEMARKS, LICENSES AND PATENTS

         Ithaca's products are predominantly sold under the private label names
or trade names of its customers. The Company usually seeks to obtain trademark
registration protection for those private label names developed by the Company,
although such protection generally is not as critical as with branded products.
The Company has registered over 46 trademarks in the United States, and has 4
trademark applications pending as of May 1, 1997.

         Ithaca has license agreements permitting it to manufacture and sell
specific underwear products using the trademarks of others. The Company has the
exclusive U.S. license from Hang Ten International to use the Hang Ten trademark
on men's and boys' underwear through January 31, 1999. The Company has the
exclusive U.S. license from John Weitz Inc. to use the John Weitz trademark on
specified underwear products for men and boys through September 30, 1997. Ithaca
has a license agreement with International Licensing

                                        3
 

<PAGE>

Corporation to use the Lightning Bolt trademark on specified underwear products
for men through January 31, 1999. The Company has exclusive U.S. licenses from
Salant Corporation to use the Lady Manhattan trademark on specified women's
underwear products through December 31, 1999. Ithaca holds a patent for an
Automatic Labeling Machine & Method which expires on February 3, 2001.

         The Company does not believe that the loss of any trademark or license
with respect to any product or products or the expiration or invalidation of any
patent would have a material adverse effect on the overall business of the
Company.

DELIVERY REQUIREMENTS

         All purchase orders are taken for current delivery and the Company has
no long-term sales contracts with any customer, or any contract entitling Ithaca
to be the exclusive supplier of merchandise to any retailer. The Company's
standard payment terms are net 30 days and are shipped F.O.B.--distribution
center.

SEASONALITY

         The Company does not regard its overall business as highly seasonal.

IMPORTANCE OF MAJOR CUSTOMERS

         For the 52-week period ended February 1, 1997, J.C. Penney accounted
for approximately 48% of the total net sales of the Company, compared to nearly
42% in fiscal 1996 and 44% in fiscal 1995. Wal-Mart accounted for approximately
9% of total net sales for the 52-week period ended February 1, 1997, compared to
approximately 11% in fiscal 1996 and 13% in fiscal 1995. No other customers
accounted for 10% or more of net sales in the 52-week period ended February 1,
1997, in fiscal 1996 or fiscal 1995. Although the Company's reliance on its
major customers has generally decreased over the last ten years, the loss of a
material amount of sales to J.C. Penney, or a decline in J.C. Penney's business,
or the loss of one of the Company's other major customers would have a material
adverse effect on Ithaca's Results of Operations.

BACKLOG

         The dollar amount of backlog of orders believed to be firm is not
material for an understanding of the business of the Company.

COMPETITION

         The underwear and women's hosiery markets in the United States are
highly competitive. The Company's products compete with products manufactured by
other private label suppliers as well as with products manufactured under
recognized name brands.

         Ithaca believes it is the largest manufacturer of private label
merchandise in each of its three principal product lines, offering a broad
selection of styles, sizes and colors. The private label underwear and women's
hosiery products business is generally comprised of small scale, privately owned
companies with limited product lines. However, management is aware of several
large private label manufacturers with substantial resources. Ithaca's principal
private label competitors include: Beltex, Springford, Nantucket, Oneita, Tultex
and Delta Woodside in men's and boys' underwear or outerwear T-shirts;
Fitzgerald and Wundies Industries Inc. in women's and girls' underwear; and
Americal Corp., Glendale Hosiery Company, Inc. and Acme-McCrary Corp. in women's
hosiery.

         The supply of branded underwear and women's hosiery products is
dominated by a few large manufacturers, some of which have substantially greater
financial resources and market recognition than Ithaca. Many of these
manufacturers also produce some private label underwear and women's hosiery
products. The Company's largest competitors among branded product manufacturers
are: Jockey International Inc. ("Jockey" and "Jockey for Her" brands), Sara Lee
Corp. ("Hanes" and "Hanes Her Way" brands) and Fruit of the Loom, Inc. ("Fruit
of the Loom" and "BVD" brands) in underwear; and Sara Lee Corp. ("Hanes" and
"L'eggs" brands), Kayser-Roth Corp. ("No Nonsense" brand) and Pennaco Hosiery
Inc. ("Round the Clock" brand) in women's hosiery.


                                        4
<PAGE>

         Competition in the underwear and women's hosiery products market is
generally based on price, quality and service. The Company believes that it has
an advantage over other private label suppliers because of the level of
merchandising and marketing services it offers to retailers implementing private
label programs.

IMPORTS AND EXPORT SALES

         Ithaca's products compete with goods produced worldwide. Trade
association data available to the Company suggests that imported goods,
including offshore assembly of domestically cut garments, represented
approximately 36.5% of the total retail sales of men's and boys' underwear in
calendar 1996, up from 26.4% in calendar 1995, represented 51.7% of women's and
girls' panties compared with 45.4% in the prior year, and represented 13.1% of
sheer hosiery and tights versus 8.4% in calendar 1995. Reliable data on sales of
imported T-shirts is not believed to be available; however, retail sales of
imported men's and boys' knit sport shirts was reported to be 52.8% in calendar
1996 versus 49.3% in the prior year. The Company believes that it is important
to have the capability of sourcing a portion of its products from outside the
United States. The Company has consolidated certain plants to off-shore
facilities and has accelerated the process of moving more sewing operations
off-shore. The Company has established four Honduran subsidiaries which operate
three sewing plants in that country, primarily for men's and boys' underwear and
outerwear T-shirts. With respect to women's and girls' underwear, Ithaca sources
certain products from the Far East. The Company's ability to utilize foreign
sourcing is dependent on the absence of political or economic disruptions,
quotas, labor disruptions, embargoes or currency fluctuations in the countries
in which the Company sources its products.

         Less than 1% of the Company's sales for the 10-week period ended
February 1, 1997 and for the 42-week period ended November 22, 1996 were made to
firms outside the United States. The Company believes that changes in the level
of sales outside of the United States would not have a material adverse effect
on Ithaca's Results of Operations.

ENVIRONMENTAL MATTERS

         The Company believes that its facilities and operations are
substantially in compliance with current federal, state and local regulations
regarding safety, health and environmental pollution. Ithaca generally has
experienced no difficulty in complying with these regulations and such
compliance has not had a material adverse effect on the Company's capital
expenditures, earnings or competitive position.

EMPLOYEES

         The Company employed approximately 6,700 people as of April 25, 1997,
of which approximately 6,200 were engaged in manufacturing and approximately 500
were engaged in managerial, administrative or sales and marketing functions.
None of the Company's employees are covered by a collective bargaining
agreement. The Company considers its relations with employees to be satisfactory
and has never experienced any interruption of operations due to labor disputes.


ITEM 2.  PROPERTIES

         The Company owns its corporate headquarters in Wilkesboro, North
Carolina. The Company leases sales offices in New York City and Dallas, Texas.
The Company manufactures and distributes its women's and girls' underwear at its
owned facilities in Cairo, Georgia and Meigs, Georgia. Cutting and distribution
for men's and boys' underwear and T-shirt products takes place at an owned
centralized distribution and cutting facility in Vidalia, Georgia. Men's and
boys' underwear and outerwear T-shirts are sewn in three owned plants in the
southeastern United States and at three facilities leased by the Company in
Honduras. The Company manufactures and distributes its women's hosiery products
at two owned facilities in North Carolina. Fabric for use in the Company's
underwear and T-shirt products is knit and finished at the Company's owned
facility in Gastonia, North Carolina and narrow fabrics, such as waistbands, are
manufactured at an owned facility in Graham, North Carolina. The Company also
utilizes leased storage facilities at several plant locations. All of the
Company's facilities are kept in good repair and have well-maintained equipment.



                                        5
<PAGE>

ITEM 3.  LEGAL PROCEEDINGS

        From time to time the Company is involved in legal proceedings relating
to claims arising out of its operations in the normal course of business. The
Company believes that there are no material legal proceedings pending or
threatened against the Company or any of its properties.


ITEM 4.  SUBMISSION OF MATTERS TO A VOTE OF HOLDERS OF THE COMMON STOCK

        No matters have been submitted to a vote of the holders of Common Stock
during the fourth quarter of the Registrant's 1997 fiscal year.


                                     PART II


ITEM 5.  MARKET FOR REGISTRANT'S COMMON STOCK AND RELATED STOCKHOLDER MATTERS

        Through the date hereof, there has been no established public trading
market for the Common Stock. Application will be made to list the Common Stock
on NASDAQ National Market. There can be no assurance that any active trading
market will develop or will be sustained for the Common Stock or as to the price
at which the Common Stock may trade or that the market for the Common Stock will
not be subject to disruptions.

        On December 16, 1996, 10,000,000 shares of Common Stock were issued in
reliance upon the exemption provided by 11 USC 1145. These shares were
registered under the Securities Act of 1934, as amended, by means of a
Registration Statement on Form S-1 declared effective on April 4, 1997.

        As of April 25, 1997, there were approximately 10 holders of record of
Common Stock and there were no outstanding options or warrants to purchase, or
securities convertible into, Common Stock or Preferred Stock other than options
to purchase 899,514 shares of Common Stock, including the options granted to
Alvarez & Marsal, Inc., issuable under the Company's 1996 Long Term Stock
Incentive Plan (the "LTIP"), of which options to purchase 372,698 shares are
currently exercisable.

        The Company has not paid any cash dividends on the Common Stock and does
not anticipate that it will do so in the foreseeable future. The Company intends
to retain earnings to provide funds for the continued growth and development of
the Company's business. The Credit Agreement restricts the Company's ability to
pay dividends on the Common Stock. Any determination to pay cash dividends in
the foreseeable future will be at the discretion of the Company's Board of
Directors (the "Board" or the "Board of Directors") and will be dependent upon
the Company's results of operations, financial condition, contractual
restrictions and other factors deemed relevant by the Board. The Company
presently intends to retain earnings for working capital and to fund capital
expenditures. Accordingly, there is no present intention to pay cash dividends
on any shares of the Common Stock.


                                        6
<PAGE>

ITEM 6.  SELECTED FINANCIAL DATA

        The following table sets forth selected financial information with
respect to the Company for the 10- week period ended February 1, 1997, the
42-week period ended November 22, 1996 and each of the four fiscal years prior
to the fiscal year ended February 1, 1997 and is derived from and should be read
in conjunction with the Company's audited Consolidated Financial Statements and
related notes included in Item 8 of this report. Income per share for periods
prior to December 16, 1996 is not meaningful because during such periods the
Company was a wholly owned subsidiary of Ithaca Holdings, Inc.

        The selected financial information set forth below is qualified by and
should be read in conjunction with Item 8 the "Financial Statements" and the
notes thereto and Item 7 "Management's Discussion and Analysis of Financial
Condition and Results of Operations" included in this report. The Company's
Results of Operations for the 10-week period ended February 1, 1997 and the
42-week period ended November 22, 1996 reflect the consummation of the Plan of
Reorganization and the transactions contemplated thereby and the application of
Fresh Start Reporting rules and procedures. Results of Operations of the Company
after fiscal 1996, including for the 10-week period ended February 1, 1997 and
the 42-week period ended November 22, 1996, will generally not be comparable to
the periods discussed below due to the effects of the Plan of Reorganization.

  
<TABLE>
<CAPTION>
                                  Post
                              Confirmation                                 Preconfirmation
                               -----------     -------------------------------------------------------------------
                                10 Week          42-Week                            
                              Period Ended    Period Ended                      Fiscal Year Ended 
                               February 1,     November 22,                         January 31,                                  
                               -----------     ------------      -------------------------------------------------
                                  1997             1996             1996        1995        1994           1993
                                ---------        ---------       ---------    ---------   ---------      ---------
                                                            (Dollars in thousands)
STATEMENT OF INCOME DATA:                      
<S>                             <C>              <C>             <C>          <C>         <C>            <C>      
Net sales                       $  42,708        $ 297,603       $ 398,819    $ 414,800   $ 414,671      $ 440,357
Gross profit                        4,487           42,060          44,882       72,859      68,072         79,137
Selling, general and                           
  administrative expenses           7,354           27,670          43,486       37,075      39,711(1)      33,996
(Recovery of) provision for                    
  asset write-downs and                        
  restructuring                    (2,964)          51,591(2)
Operating income (loss)            (2,867)          17,354         (50,195)      35,784      28,361         45,141
Interest expense - net(3)           1,385           17,489          26,905       23,147      23,455         24,027
Reorganization items                 --             (1,176)(4)        --           --          --             --
Income (loss) before income        (4,157)     
taxes and extraordinary items       1,666          (76,802)         13,166        4,968      21,647
Income tax (benefit) expense       (1,400)           4,218         (27,157)       5,653       2,086          8,415
(Loss) income before                           
  extraordinary items              (2,757)          (2,552)        (49,644)       7,513       2,882         13,232
Extraordinary items(5)               --             67,924            --           --          --           (5,939)
Net income (loss)               $  (2,757)       $  65,372       $ (49,644)   $   7,513   $   2,882      $   7,293
                                =========        =========       =========    =========   =========      =========
Net loss per common share       $   (0.28)            --              --           --          --             --
                                =========        =========       =========    =========   =========      =========
<CAPTION>
BALANCE SHEET DATA (AT END                  
 OF PERIOD):                           Post-Confirmation
                                       -----------------
<S>                             <C>              <C>             <C>          <C>         <C>            <C>      
Working capital (deficit)         $63,523        $  75,591       ($145,909)   $ 113,028    $123,222      $ 122,230
Total assets                      133,687          155,993         208,642      224,471     235,997        236,588
Long-term debt exclusive of
  current maturities               66,069           77,255             n/a(6)   221,819     242,785        250,720
Total stockholders' equity         19,359           22,116         (93,558)     (43,914)    (51,427)       (54,309)
(deficit)
</TABLE>
-----------------------------


(1) Includes a bad debt provision of $4 million to cover the bankruptcy of a
    major T-shirt customer during the second quarter of fiscal 1994.


                                        7
<PAGE>

(2) In fiscal 1996 the Company initiated a restructuring plan to improve
    operating performance and reduce costs. In connection with this plan, the
    Company recorded charges totaling $51,591,000 ($33,379,000 after related
    income tax benefits). Such charges related to (i) the closing and
    consolidation of certain manufacturing and distribution facilities, (ii) the
    write-down of certain equipment associated with closed facilities, (iii) the
    write-off and establishment of reserves for inventory and accounts
    receivable associated with customers, product lines, and specific products
    that the Company elected to discontinue manufacturing and distributing, (iv)
    severance and other costs associated with plant closures and overhead
    reductions, and (v) the write-off of certain impaired intangible assets.

(3) Principally includes interest expense on long-term debt and amortization of
    deferred debt expense, offset by interest income from the short-term
    investment of excess cash. During the period from August 29, 1996 through
    November 22, 1996, the Company did not accrue interest on the Senior
    Subordinated Notes due 2002 which were cancelled in connection with the Plan
    of Reorganization.

(4) Reorganization items for the 42-week period ended November 22, 1996 include
    $3,765,000 of adjustments to record assets and liabilities at fair value in
    connection with the application of Fresh Start Reporting.

(5) Loss on early extinguishment of debt (net of income tax benefit of
    $3,763,000) on December 10, 1992 and gain on debt discharge (net of income
    tax expense of $23,056,000) pursuant to confirmation of Plan of
    Reorganization at November 22, 1996.

(6) Due to continuing covenant violations, temporary waivers granted and events
    of default, as further discussed in "Management's Discussion and Analysis,"
    all of the Company's outstanding debt was classified as current at February
    2, 1996.


                                        8
<PAGE>

ITEM 7.  MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
         OF OPERATION

GENERAL

   The following discussion should be read in conjunction with the Consolidated
Financial Statements and the related notes included in Item 8 of this report.

   The following table sets forth the percentage relationship to total net sales
of certain items included in the Company's Statements of Operations:


<TABLE>
<CAPTION>
                                 Post-Confirmation                         Preconfirmation
                                 -----------------   -----------------------------------------------------------
                                                                                   FISCAL YEAR ENDED JANUARY 31,
                                                                                   -----------------------------
                               10-WEEK PERIOD ENDED       42-WEEK PERIOD
                                 FEBRUARY 1, 1997    ENDED NOVEMBER 22, 1996         1996                 1995
                                 ----------------    -----------------------         -----                ----
<S>                                  <C>                    <C>                    <C>                  <C>  
Net sales:
   Men's & boys' underwear                                              
     and T-shirts                      51.2%                  56.4%                  52.0%                49.6%
   Women's and girls'                                                                                 
      underwear                        17.1                   17.2                   18.7                 20.6
   Women's hosiery                     28.6                   24.5                   27.3                 27.8
   Other                                3.1                    1.9                    2.0                  2.0
                                       ----                   ----                   ----                 ---- 
                                                                                                      
   Total                              100.0%                 100.0                  100.0%               100.0%
                                      -----                  -----                  -----                ----- 
                                                                                                      
Cost of sales                          89.5%                  85.9                   88.7%                82.4%
                                       ----                   ----                   ----                 ---- 
                                                                                                      
Gross profit                           10.5                   14.1                   11.3                 17.6
Selling, general and                                                                                  
   administrative expenses             17.2                    9.3                   10.9                  8.9
(Recovery of) provisions for                                                                          
   asset write-downs and                                                                              
   restructuring                       --                     (1.0)%                 12.9%                --
                                       ----                   ----                   ----                 ---- 
Operating income (loss)                (6.7)                   5.8                  (12.6)                 8.7
Interest expense-net                    3.2                    5.9                    6.7                  5.6
Other (net)                            (0.2)                  (0.2)                  --                   (0.1)
Reorganization items                   --                     (0.4)%                 --                   --
                                       ----                   ----                   ----                 ---- 
Income (loss) before                                                                                  
   income taxes and                                                                                   
   extraordinary items                 (9.7)                   0.5                  (19.2)                 3.2
Income tax expense                                                                                    
     (benefit)                          3.3                    1.4                   (6.8)                 1.4
Extraordinary item-gain                                                                               
   on debt discharge                   --                     22.8                   --                   --
   Net income (loss)                   (6.4)%                 21.9%                 (12.4)%                1.8%
                                       ====                   ====                  =====                  === 
                                                                                                      
</TABLE>    



RESULTS OF OPERATIONS

COMPARISON OF THE 10-WEEK PERIOD ENDED FEBRUARY 1, 1997 TO THE 10-WEEK PERIOD
ENDED FEBRUARY 2, 1996.

         Net sales declined 33.0% to $42.7 million in the 10-week period ended
February 1, 1997, from $63.7 million in the 10-week period ended February 2,
1996. Men's and boys' underwear and T-shirt sales were down 30.8%, women's and
girls' underwear sales were down 34.2% and women's hosiery sales were down
36.4%. Unit volume was down 29.8% with men's and boys' underwear and T-shirts
down 20.3%, women's and girls' underwear down 39.8% and women's hosiery down
32.0%. The average selling price per dozen in the 10-week period ended February
1, 1997 decreased to $18.75 from $19.63 in the comparable

                                        9
<PAGE>

prior period, primarily reflecting a change in the mix among product lines.
There were no significant pricing changes to the Company's customers during the
10-week period ended February 1, 1997.

         The sales declines reflect, in part, the implementation of the
Company's Business Plan, which was designed in part to eliminate unprofitable
products. While the Company does not consider its business to be seasonal, the
relative level of sales for the 10-week period ended February 1, 1997,
proportionate to the Company's sales in other periods, is consistent with the
Company's past experience as that period is traditionally a period of relatively
low sales activity. The sales level is not believed to be representative of the
Company's sales level and financial results on an annualized basis. Net sales in
the 10-week period ended February 1, 1997 included approximately $3.8 million of
sales resulting from the wind-down of discontinued products, which will not
recur in future periods. Sales of discontinued products were not included in the
projections made in the Business Plan as it only included sales of products
which the Company intended to sell in future periods.

         Gross profit, excluding provisions for asset write-down and
restructuring charges incurred in the 10- week period ended February 2, 1996,
increased by $4.7 million from ($0.2) million to $4.5 million during the 10-week
period ended February 1, 1997, compared to the 10-week period ended February 2,
1996; with gross margin improving to 10.5% of sales from (0.3%) in the
comparable prior period, as product costs fell proportionately faster than the
sales decline. The improved gross margin was principally attributable to lower
costs of production resulting from the offshore sourcing of men's and boys'
underwear and outerwear T-shirts and women's and girls' underwear and improved
efficiencies in hosiery operations.

         The Company recorded provisions for workforce reductions and asset
write-downs of $37.4 million in the 10-week period ended February 2, 1996. There
were no provisions for workforce reductions and asset write-downs in the 10-week
period ended February 1, 1997.

         Selling, general, and administrative expenses, excluding the provisions
for workforce reductions and asset write-downs incurred in the 10-week period
ended February 2, 1996, decreased by $2.3 million (23.2%) in the 10-week period
ended February 1, 1997 to $7.3 million from $9.5 million in the 10-week period
ended February 2, 1996. Shipping expense was $1.6 million lower in the 10-week
period ended February 1, 1997 as compared to the 10-week period ended February
2, 1996. Lower shipping costs were realized, in part, because during the 10-week
period ended February 1, 1997 the Company's consolidated distribution center
were fully operational, while in the comparable prior period, the Company's
consolidated distribution centers could not be fully utilized. In addition, the
company experienced lower sales levels in the current period compared to the
comparable prior period. Selling costs were $1.4 million lower in the current
period, reflecting staffing reductions implemented early in fiscal 1997.

         Interest expense, net of interest income, decreased to $1.4 million in
the 10-week period ended February 1, 1997 compared to $4.9 million in the
10-week period ended February 2, 1996. The decrease in the 10-week period ended
February 1, 1997, compared to the 10-week period ended February 2, 1996, was due
to lower average borrowings, including the effect of the retirement of the Notes
pursuant to the Plan of Reorganization, partially offset by higher interest
rates.

         The income tax benefit in the 10-week period ended February 1, 1997 was
34% of the loss before income taxes, compared to a benefit of 46% of the loss
before income taxes in the 10-week period ended February 2, 1996.

COMPARISON OF 42-WEEK PERIOD ENDED NOVEMBER 22, 1996 TO 43-WEEK PERIOD ENDED
NOVEMBER 24, 1995.

         Net sales declined 11.2% to $297.6 million in the 42-week period ended
November 22, 1996 from $335.1 million in the 43-week period ended November 24,
1995. Men's and boys' underwear sales were up 1.2%; women's and girls' underwear
sales were down 19.5% and women's hosiery sales were down 18.8%. Outerwear
T-shirts sales decreased 16.6%. Unit volume was down 12.9% with men's and boys'
underwear down 3.3%, women's and girls' underwear down 18.6% and women's hosiery
down 17.3%, and outerwear T-shirt volume down 18.7%. The average selling price
per dozen in the 42-week period ended November 22, 1996 increased to $20.57 from
$20.18, primarily reflecting a mix change among product lines. There were no
significant pricing changes to the Company's customers during the 42-week period
ended November 22, 1996.

                                       10
<PAGE>

         The sales declines reflected, in part, the implementation of the
Company's Business Plan which was designed, among other objectives, to eliminate
unprofitable products. Net sales in the 42-week period ended November 22, 1996
included $39.9 million of sales resulting from the wind-down of discontinued
products, which will not recur in future periods. These sales of discontinued
products were not included in the Business Plan which reflected only sales of
products that the Company intends to continue selling.

         Gross profit declined $3.0 million or 6.6% during the 42-week period
ended November 22, 1996 compared to the 43-week period ended November 24, 1995;
however, gross margin improved to 14.1% of sales from 13.4% in the prior period,
as product costs fell proportionately faster than the sales decline. The
improved gross margin was attributable to lower costs from offshore sourcing of
men's and boys' underwear and women's and girls' underwear. In the 42-week
period ended November 22, 1996, the Company reduced its excess domestic
manufacturing capacity in the men's and boys' underwear, women's and girls'
underwear and outerwear T-Shirt divisions by closing plants. Approximately 1,500
manufacturing and overhead jobs were eliminated by these closings in the 42-week
period ended November 22, 1996. Women's hosiery was favorably impacted by
improved production efficiency and progress in eliminating unprofitable
products.

         The Company recorded a reversal in the 42-week period ended November
22, 1996 of $3.0 million of asset writedowns taken during fiscal 1996 (related
to recovery of receivables previously identified as impaired assets) compared to
provisions for workforce reductions and assets writedown of $14.2 million in the
43-week period ended November 24, 1995.

         Selling, general and administrative expenses decreased by $6.3 million
(18.5%) in the 42-week period ended November 22, 1996 to $27.7 million from
$34.0 million in 43-week period ended November 24, 1995, which represented a
decrease from 10.9% as a percentage of sales in the 43-week period ended
November 24, 1995 to 9.3% as a percentage of sales in the 42-week period ended
November 22, 1996. The primary component of this decrease was lower employee
related costs, resulting from headcount reductions early in fiscal 1997.
Shipping expense was $2.0 million lower in the current period reflecting
operation of the consolidated distribution centers in the current period
compared with the transition to these distribution centers in the prior period
and lower sales levels in the 42-week period ended November 22, 1996 as compared
to the 43-week period ended November 24, 1995.

         Interest expense, net of interest income, decreased to $17.5 million
for the 42-week period ended November 22, 1996 compared to $22.0 million in
fiscal 1996. The decrease in the 42-week period ended November 22, 1996 was due
to nonaccrual of bondholder interest after August 29, 1996 ($3.2 million lower
than the 43-week period ended November 24, 1995) and lower average borrowings in
fiscal 1997, partially offset by higher interest rates during the period.

         Income tax expense in the 42-week period ended November 22, 1996 was
253.3% of income before income taxes, compared to 35.3% in full year fiscal
1996. The increase is due primarily to the provision for deferred tax
liabilities resulting from tax bases reductions in connection with the gain from
the debt discharge associated with the confirmation of the Plan of
Reorganization and to the non-deductibility of certain restructuring charges.

COMPARISON OF FISCAL 1996 TO FISCAL 1995

         Net sales declined 3.9% ($398.9 million) in fiscal 1996 from fiscal
1995 ($414.8 million). Men's and boys' underwear sales were down 1.7%, women's
and girls' underwear sales were down 12.6%, and women's hosiery sales were down
5.4% reflecting in part the increase in casual workplace attire and longer
lasting products. Outerwear T-shirt sales increased 6.2%. Unit volume was down
7.0%, with men's and boys' underwear down 4.3%, women's and girls' underwear
down 8.8%, and women's hosiery down 11.3%, partially offset by a 9.1% increase
in outerwear T-shirt volume. The average selling price per dozen in fiscal 1996
increased to $20.09 from $19.04, reflecting a mix change among product lines.
There were no significant pricing changes to the Company's customers during
fiscal 1996.

         Gross profit decreased significantly ($28.0 million or 38%) during
fiscal 1996 compared to fiscal 1995. All product categories had decreased gross
profit during fiscal 1996, due to erratic demand, lower production volume and
manufacturing cost increases which were not offset by price increases. In
particular, lower sales, increased SKU's, and higher overhead costs resulted in
an operating loss in the branded women's hosiery line. Anticipating that the
weakness in the U.S. retail environment would persist, with severe pricing
pressures likely to continue or escalate with resulting adverse effect on the
Company's profitability, the

                                       11
<PAGE>

Company undertook an extensive review of its manufacturing capacities, overhead
structure, product lines and customer base in the third and fourth quarters of
fiscal 1996 and the first and second quarters of fiscal 1997.

         As a result of the implementation of objectives formulated during this
review, the Company recorded provisions for workforce reduction and asset
write-downs of $51.6 million in fiscal 1996. Approximately $24.2 million of this
provision was related to cost of goods, including costs associated with a major
program sourced in the Far East. In fiscal 1996 the Company reduced its excess
domestic manufacturing capacity in the men's and boys' underwear, women's and
girls' underwear and outerwear T-shirt divisions by closing plants.
Approximately 1,100 manufacturing and overhead jobs were eliminated by these
closings in the 1996 fiscal year.

         Selling, general and administrative expenses, excluding provisions for
workforce reductions and asset write-downs, increased by $6.4 million (17.3%) in
fiscal 1996 to $43.5 million from fiscal 1995. The primary component of this
increase was shipping expense, which increased by $2.5 million (27.1%), due to
non-recurring costs incurred in the relocation of both the men's and boys'
underwear and women's and girls' underwear distribution activities to new
facilities in fiscal 1996, while operating from inefficient temporary facilities
during much of the year. Professional and legal fees were approximately $3.1
million higher in fiscal 1996 compared to the prior year, related primarily to
costs associated with a proposed bank debt refinancing in the second and third
fiscal quarters of 1996 and the subsequent financial restructuring activities.

         Interest expense, net of interest income, increased to $26.9 million
for fiscal 1996 compared to $23.1 million in fiscal 1995. The increase in fiscal
1996 was due to higher average borrowings in 1996 and higher interest rates
during the period.

         The loss before income taxes generated an income tax benefit of $27.2
million in fiscal 1996, an effective rate of 35.3% compared to an effective rate
of 43% in fiscal 1995. The change in effective tax rate was primarily due to the
write-off in fiscal 1996 of certain intangibles which did not create any tax
benefit.

LIQUIDITY AND CAPITAL RESOURCES

         The Company's existing Credit Agreement was amended and restated on
December 16, 1996. As of that date, the Credit Agreement provides for a term
loan facility ("Term Loan") of $55.0 million and a revolving loan facility of
$77.2 million. The revolving loan facility includes a sub-limit of $25.0 million
for the issuance of letters of credit. For thirty-day periods beginning in
December and May of each year, commitments under the revolving loan facility are
reduced to $63.0 million and $68.0 million, respectively, (the "Clean-Down
Periods"). As of April 25, 1997, the Company had $50.6 million of Term Loans
outstanding, $9.0 million of borrowings under its revolving loan facility, and
$6.9 million of outstanding letters of credit. The Company at April 25, 1997 had
$39.0 million of additional borrowing capacity under its revolving loan
facility.

         At February 1, 1997 the Company's working capital was $63.5 million and
the current ratio was 2.9:1. At November 22, 1996 the Company's working capital
was $75.6 million and the current ratio was 2.7:1. The Company reported a
working capital deficit at the end of fiscal 1996 because of the presentation of
substantially all outstanding debt as currently payable. The calculation of a
current ratio under such circumstance would not be meaningful. Working capital
of $113.0 million as of January 27, 1995 decreased by $10.2 million (8.3%) from
$123.2 million as of January 28, 1994. The current ratio was 3.9:1 as of January
27, 1995, compared to 4.2:1 as of January 28, 1994.

         Capital additions of $0.8 million during the 10-week period ended
February 1, 1997 were primarily related to purchases of machinery and equipment.
Capital additions of the comparable prior period were $1.0 million. Capital
additions of $3.2 million during 42-week period ended November 22, 1996, also
primarily related to purchases of machinery and equipment, were substantially
below capital additions of $13.9 million during the full fiscal year 1996.
Capital additions of $13.9 million in fiscal year 1996 related principally to
the Company's new centralized distribution facilities and were significantly
above the additions of $8.5 million in fiscal 1995.

         The Company's cash on hand as of February 1, 1997 was $0.1 million
compared with $1.3 million at November 22, 1996. This decrease in cash was due
to the use of cash to reduce outstanding bank borrowings during the 10-week
period ended February 1, 1997.


                                       12
<PAGE>

         Inflation has had only a minimal impact on the Company in the past. The
Company has minimized the impact of inflation on costs and expenses through cost
controls and increased manufacturing efficiency. The Company has at times
experienced some increase in the cost of labor, supplies, raw materials and
administrative expenses. The Company is not always able to promptly pass on cost
increases to its customers, principally due to timing of raw materials purchases
and customer orders as well as competitive pressures.

FINANCIAL CONDITION

         On October 8, 1996 the company filed a voluntary petition for
reorganization under Chapter 11 with the Bankruptcy Court. The filing of the
voluntary petition resulted from a sequence of events stemming from the
Company's default under the Credit Agreement.

         The Company emerged from bankruptcy on December 16, 1996 and a final
order was issued by the Bankruptcy Court on April 7, 1997. Pursuant to the Plan
of Reorganization, the Company has repaid all of the secured and unsecured
claims allowed by the Bankruptcy Court as follows: general unsecured claims were
satisfied in the ordinary course of business. Noteholder claimants received the
right to a pro rata share of 10,000,000 shares of Ithaca Common Stock
(representing, in the aggregate, all of the outstanding shares of Ithaca Common
Stock except for Common Stock issued pursuant to the LTIP). Prior equity
interests in the Company were cancelled, annulled and extinguished.
Administrative claims were paid in full, in cash, in the ordinary course of
business. Tax claims were paid in full. Priority claims were paid in full. The
Credit Agreement was amended and restated. General secured claims were paid in
full. Each holder of an allowed general secured claim was either paid in full on
December 16, 1996 (or the date upon which there is a final order allowing such
claim as an allowed secured claim), or was otherwise to be rendered unimpaired.

BUSINESS PLAN

         In the third and fourth quarters of fiscal 1996 the Company undertook
an extensive review of its manufacturing capacity, overhead structure, product
lines and customer base. The Company analyzed its strategic plans in connection
with the utilization of its plants located in Honduras, as well as obtaining
products from other foreign sources. These efforts resulted in the promulgation
of the Business Plan to which the Company currently adheres. In general, to
enhance its performance and reduce overhead expenses, the Company consolidated
its distribution centers and production capacity to increase efficiencies,
consolidated certain plants to off-shore facilities and accelerated the process
of moving more sewing operations off-shore. As part of the implementation of the
Business Plan, the Company terminated certain real property leases and
unprofitable license agreements, and made certain payments in connection
therewith. In addition, the Company reduced the number of styles and products it
produced, eliminated certain unprofitable customers and product lines, began the
process of establishing Far East outsourcing capability and closed selected
plants. Beginning in fiscal 1998, the Company has been unable to obtain the
level of sales revenue anticipated by the Business Plan and therefore may not be
able to achieve the Operating Results set forth in the Business Plan. The
Company believes this resulted from customers' reluctance to place new or
additional programs with the Company while it was implementing its financial
restructuring as well as increased pressure from the Company's competitors to
place programs with both existing and potential new customers.

         The Company has previously made its Business Plan, which contained
projections regarding the Company's future net sales and operating income,
publicly available. Projections contained in the Business Plan were not prepared
with a view to complying with published guidelines of the Commission nor with
the accounting profession's principles regarding projections. In addition, such
information was based on a number of assumptions and was subject to significant
uncertainties and contingencies, many of which are beyond the Company's control.
Further, the Business Plan did not reflect any tax expense or credits during the
projection period, and utilized asset and liability valuations from the
Company's Historical Financial Statements, modified for the impact of the
exchange of the Notes for equity and the resultant elimination of bondholder
interest during the projection period. Such information does not reflect the
impact of Fresh Start accounting rules, does not conform to generally accepted
accounting principles, and constitutes Forward Looking Statements under the
Reform Act as discussed on the first page of this report.


ITEM 8.  FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

                                       13
<PAGE>



ITHACA INDUSTRIES, INC. AND SUBSIDIARIES

Index to Financial Statements


                                                                            Page

Independent Auditors' Report ..............................................  F-2

Consolidated Balance Sheets as of February 1, 1997 and February 2, 1996 ...  F-3

ConsolidatedStatements of Operations  for the 10-Week  Period ended  
  February 1, 1997, the 42-Week Period ended November 22, 1996,
  and for the Years ended February 2, 1996 and January 27, 1995 ............ F-5

ConsolidatedStatements of Stockholders'  Equity (Deficit) for the 
  10-Week Period ended  February 1, 1997, the 42-Week Period ended 
  November 22, 1996, and for the Years ended February 2, 1996 and 
  January 27, 1995 ......................................................... F-6

ConsolidatedStatements  of Cash Flows for the 10-Week  Period ended  
  February 1, 1997, the 42-Week Period ended November 22, 1996,
  and for the Years ended February 2, 1996 and January 27, 1995 ............ F-7

Notes to Consolidated Financial Statements ................................. F-9





                                       F-1

<PAGE>



KPMG Peat Marwick LLP
     303 Peachtree Street, N.E.
     Suite 2000
     Atlanta, GA  30308

                          INDEPENDENT AUDITORS' REPORT


The Board of Directors
Ithaca Industries, Inc.:


We  have  audited  the  accompanying   consolidated  balance  sheets  of  Ithaca
Industries,  Inc. and  subsidiaries as of February 1, 1997 and February 2, 1996,
and the related  consolidated  statements of  operations,  stockholders'  equity
(deficit),  and cash flows for the 10-week  period ended  February 1, 1997,  the
42-week  period ended  November 22, 1996,  and each of the years in the two-year
period ended February 2, 1996. These consolidated  financial  statements are the
responsibility of the Company's management.  Our responsibility is to express an
opinion on these consolidated financial statements based on our audits.

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

In our opinion, the consolidated  financial statements referred to above present
fairly, in all material  respects,  the financial position of Ithaca Industries,
Inc.  and  subsidiaries  as of  February 1, 1997 and  February 2, 1996,  and the
results of their  operations  and their cash flows for the 10-week  period ended
February 1, 1997,  the 42-week  period ended  November 22, 1996, and each of the
years in the  two-year  period  ended  February  2,  1996,  in  conformity  with
generally accepted accounting principles.

On December 16, 1996, the Company emerged from bankruptcy.  As described in note
1 to the  consolidated  financial  statements,  the  Company  accounted  for the
reorganization  as of November  22, 1996 and adopted  fresh-start  reporting  in
accordance with the American Institute of Certified Public Accountants Statement
of Position 90-7,  Financial  Reporting by Entities in Reorganization  Under the
Bankruptcy  Code.  As a result,  the  consolidated  financial  statements  as of
February 1, 1997 and for the ten-week  period then ended  present the  financial
position,  results of operations,  and cash flows of the reorganized  entity and
are,  therefore,  not comparable to the  consolidated  financial  statements for
periods prior to the Company's emergence from bankruptcy.


                                /s/ KPMG PEAT MARWICK LLP

                                KPMG PEAT MARWICK LLP

Atlanta, Georgia
March 27, 1997


                                       F-2


<PAGE>



                    ITHACA INDUSTRIES, INC. AND SUBSIDIARIES

                          Consolidated Balance Sheets

                     February 1, 1997 and February 2, 1996

                       (In thousands, except share data)


<TABLE>
<CAPTION>


                                                              Post-confirmation       Preconfirmation
                                                              -----------------       ---------------
                                                                 February 1,            February 2,
                      Assets (Note 6)                               1997                   1996
                      ---------------                               ----                   ----
<S>                                                             <C>                       <C>   
Current assets:
  Cash and cash equivalents                                     $       66                10,369
  Trade accounts receivable, net of allowance for
    doubtful accounts of $1,256 at February 1, 1997
    and $1,215 at February 2, 1996 (note 9)                         26,486                29,958
  Due from former Parent (note 8)                                      -                     604
  Inventories (note 3)                                              65,680                56,079
  Deferred taxes (note 7)                                              -                  20,212
  Prepaid expenses and other current assets                            876                 1,567
  Refundable income taxes (note 7)                                     -                  13,159
  Assets held for disposition, net of estimated
    reserves  (notes 3, 4, and 13)                                   3,755                17,139
                                                                    ------               -------
        Total current assets                                        96,863               149,087
                                                                    ------               -------

Net property, plant, and equipment (note 4)                         35,531                54,295

Other assets:
  Intangible assets, net of accumulated amortization
    of $91 and $22,570 at February 1, 1997 and February 2,
    1996, respectively (note 5)                                        362                  905
  Deferred debt expenses, net of accumulated amortization
    of $7,868 at February 2, 1996 (note 13)                            -                  3,651
  Other                                                                931                  704
                                                                     -----                -----
         Total other assets                                          1,293                5,260











                                                                ---------              -------
                                                                $  133,687             208,642

</TABLE>

See accompanying notes to consolidated financial statements.





                                      F-3
<PAGE>


<TABLE>
<CAPTION>


                                                              Post-confirmation       Preconfirmation
                                                              -----------------       ---------------
                                                                 February 1,            February 2,
              Liabilities and Stockholders' Equity (Deficit)        1997                   1996
              ----------------------------------------------        ----                   ----
<S>                                                            <C>                        <C>
Current liabilities:
  Current installments of long-term debt, due to related
    parties (notes 6 and 10)                                   $      -                    33,757
  Current installments of long-term debt (notes 6
    and 10)                                                            70                 206,301
  Accounts payable                                                 10,742                  16,414
  Accrued payroll and related expenses                             11,396                  10,335
  Accrued restructuring costs (note 13)                             2,106                  12,204
  Income taxes payable (note 7)                                     3,073                     -
  Deferred income taxes (note 7)                                    2,255                     -
  Other accrued expenses                                            3,698                  15,985
        Total current liabilities                                  33,340                 294,996
                                                                   ------                 -------

Long-term debt, excluding current installments, due to
   related parties (notes 6 and 10)                                 9,710                    -
Long-term debt, excluding current installments (notes 6 and 10)    56,359                    -
Deferred income taxes (note 7)                                     14,919                   7,204
Preconfirmation redeemable cumulative preferred stock of
    $.01 par value.  Authorized but unissued 500,000 shares
    at February 2, 1996                                               -                      -

Stockholders' equity (deficit):
  Preferred stock, $.01 par value; authorized 2,500,000
    shares; none outstanding at February 1, 1997                      -                      -
  Common stock of $.01 par value; authorized 27,500,000
    shares; issued and outstanding 10,000,000 shares at
    February 1, 1997                                                  100                    -
  Preconfirmation common stock, par value $.01; authorized
    and issued 1,000 shares at February 2, 1996                       -                      -
  Additional paid-in capital                                       22,016                  9,000
  Accumulated deficit                                              (2,757)              (102,558)
                                                               ----------               -------- 
      Total stockholders' equity (deficit)                         19,359                (93,558)

Commitments and contingencies (notes 6, 9, 11, and 12)

                                                               ----------                -------
                                                               $  133,687                208,642

</TABLE>


                                      F-4

<PAGE>


                    ITHACA INDUSTRIES, INC. AND SUBSIDIARIES

                     Consolidated Statements of Operations

                     10-Week Period ended February 1, 1997,
                  42-Week Period ended November 22, 1996, and
                Years ended February 2, 1996 and January 27, 1995

                (In thousands, except share and per share data)


<TABLE>
<CAPTION>

                                                              Post-confirmation       Preconfirmation
                                                              -----------------       ---------------
                                                                   10-Week       42-Week
                                                                 Period ended   Period ended    Years ended
                                                                  February 1,   November 22,  February 2, January 27,
                                                                     1997          1996          1996        1995
                                                                     ----          ----          ----        ----

<S>                                                               <C>             <C>           <C>         <C>    
Net sales (note 9)                                                $ 42,708        297,603       398,819     414,800
Cost of sales (note 3)                                              38,221        255,543       353,937     341,941
                                                                    ------        -------       -------     -------
         Gross profit                                                4,487         42,060        44,882      72,859

Selling, general, and administrative expenses
   (notes 8, 11, and 12)                                             7,354         27,670        43,486      37,075
(Recovery of) provision for asset write-downs and
    restructuring (note 13)                                            -           (2,964)       51,591         -
                                                                    -------        ------        ------          
           Operating income (loss)                                  (2,867)        17,354       (50,195)     35,784

Other income (deductions):
   Interest expense - related parties (contractual interest
     of $3,252 at November 22, 1996)                                  (196)        (2,597)       (3,918)     (3,566)
   Interest and other, net of interest income of $81,  
     $164,  $237, and $895 at February 1, 1997,  
     November 22, 1996,   February  2,  1996, and
     January  27,   1995, respectively (contractual
     interest of $17,512 at November 22, 1996)                      (1,189)       (14,892)      (22,987)    (19,581)
                                                                     -----         ------        ------      ------- 
   Other, net                                                           95            625           299         529
                                                                     -----         ------        ------      ------
                                                                    (1,290)       (16,864)      (26,606)    (22,618)
                                                                     -----         ------        ------      ------ 
           Income (loss) before reorganization items,
             income taxes, and extraordinary item                   (4,157)           490       (76,801)     13,166

Reorganization items:
   Adjustments to fair value                                           -            3,765           -           -
   Professional fees and other                                         -           (2,589)          -           -
   ---------------------------                                       -----         -------       ------      ------
          Income (loss) before income taxes
             and extraordinary item                                 (4,157)         1,666       (76,801)     13,166

Income tax (expense) benefit (note 7)                                1,400         (4,218)       27,157      (5,653)
                                   -                                 -----          -----        ------       ----- 
          (Loss) income before extraordinary item                   (2,757)        (2,552)      (49,644)      7,513

Extraordinary item - gain on debt  discharge of $90,980  
   before  income taxes of $23,056 at November 22,
   1996 (notes 1 and 7)                                                -           67,924           -           -
                                                                 ----------       ------        ------       -----

           Net income (loss)                                      $ (2,757)        65,372       (49,644)      7,513
                                                                  ========         ======        ======       =====

Net loss per common share                                         $   (.28)

Weighted average common shares outstanding                      10,000,000
                                                                ==========


</TABLE>


See accompanying notes to consolidated financial statements.

                                      F-5



<PAGE>

                    ITHACA INDUSTRIES, INC. AND SUBSIDIARIES

           Consolidated Statements of Stockholder's Equity (Deficit)

                     10-Week Period ended February 1, 1997,
                   42-Week Period ended November 22, 1996, and
                Years ended February 2, 1996 and January 27, 1995

                       (In thousands, except share data)



<TABLE>
<CAPTION>


                                                          Shares                                                         Total
                                                --------------------------------             Additional  Retained    stockholders'
                                                                        Post-       Common      paid-in     earnings    equity
                                                Preconfirmation     confirmation     stock      capital     (deficit)   (deficit)
                                                ---------------     ------------     -----      -------     ---------   ---------

<S>                                                 <C>           <C>                <C>         <C>        <C>         <C>
Balance at January 28, 1994                           1,000             -            $ -          9,000     (60,427)    (51,427)
Net income                                              -               -              -            -         7,513       7,513
                                                     -------      -----------        ----        ------    --------     --------
Balance at January 27, 1995                           1,000             -              -          9,000     (52,914)    (43,914)

Net loss                                                -               -              -            -       (49,644)    (49,644)
                                                      -----       -----------        ----        ------     -------     ------- 
Balance at February 2, 1996                           1,000             -              -          9,000    (102,558)    (93,558)

Net income for 42-week period ended November 22,  
    1996 (Preconfirmation)                              -               -              -                     65,372      65,372
Effect of reorganization:
  Elimination of accumulated deficit                    -               -              -                     37,186      37,186
  Cancellation of preconfirmation shares             (1,000)            -              -         (9,000)       -         (9,000)
  Issuance of post-confirmation shares                  -          10,000,000          100       22,016        -         22,116
                                                     ------        ----------          ---       ------     -------      ------
Balance at November 22, 1996 (Post-Confirmation)        -          10,000,000          100       22,016        -         22,116

Net loss for 10-week period ended February 1, 1997      -               -              -            -       (2,757)     (2,757)
                                                     ------        ----------         ----       ------     --------     -------

Balance at February 1, 1997                             -          10,000,000         $100       22,016     (2,757)     19,359
                                                     =======       ==========         ====       ======     ======      ======


</TABLE>

See accompanying notes to consolidated financial statements.

                                      F-6

<PAGE>

                    ITHACA INDUSTRIES, INC. AND SUBSIDIARIES

                     Consolidated Statements of Cash Flows

                     10-Week Period ended February 1, 1997,
                  42-Week Period ended November 22, 1996, and
               Years ended February 2, 1996 and January 27, 1995

                                 (In thousands)

<TABLE>
<CAPTION>

                                                              Post-confirmation       Preconfirmation
                                                              -----------------       ---------------
                                                                   10-Week       42-Week
                                                                 Period ended   Period ended    Years ended
                                                                  February 1,   November 22,  February 2, January 27,
                                                                     1997          1996          1996        1995
                                                                  -----------   ------------  ----------- -----------
<S>                                                               <C>             <C>          <C>          <C>  
Cash provided by operating activities:
  Net income (loss)                                               $ (2,757)       65,372       (49,644)     7,513
  Adjustments to reconcile net income (loss) to net
    cash provided by operations:
       (Recovery of) provision for asset write-downs
           and restructuring                                            -         (2,964)       40,623        -
        Gain on debt discharge                                          -        (90,980)          -          -
        Depreciation and amortization of property,
           plant, and equipment                                         853        6,936         8,713      8,652
        Provision for (recovery of) doubtful accounts                  (252)         293           -         (582)
        Amortization of intangible assets, deferred debt
          expense     , and discount on subordinated notes               91        1,568         5,521      2,697
        Provision for deferred taxes                                 (1,396)      31,578       (15,486)      (765)
        (Gain) loss on sale of property, plant, and
           equipment                                                    -           (292)           22       (238)
        Net adjustments in accounts for fair value                      -         (3,765)          -          -
        Provision for reorganization items                              -          2,589           -          -
        Changes in operating assets and liabilities before
            the effects of restructuring reclassifications:
              Trade accounts receivable and due to/from Parent       19,108      (13,011)        4,668     (2,871)
              Inventories                                             3,026         (646)       12,071    (22,455)
              Prepaid expenses and other assets                        (264)      14,204       (13,495)     1,514
              Assets held for disposition                              (781)      18,523           -          -
              Accounts payable                                       (1,744)      (3,928)         (725)        78
              Accrued payroll and related expenses                   (3,347)       4,408          (941)     2,695
              Other accrued expenses                                 (1,811)       1,469         6,390      4,645
              Accruals relating to IRS examination                      -            -             -       (4,354)
                                                                     ------       ------        ------     ------ 
                Net cash provided by (used in)
                    operating activities                             10,726       31,354        (2,283)    (3,471)
                                                                     ------       ------        ------     ------ 

Cash flows from investing activities:
  Proceeds from sale of property, plant, and equipment                  59          949         219         563
  Additions to property, plant, and equipment                         (797)       (3,248)     (13,887)    (8,478)
  Decrease (increase) in other assets                                  -             -          1,251       (711)
                                                                      ----         -----       ------      ----- 
            Net cash used in investing activities                     (738)       (2,299)     (12,417)    (8,626)
                                                                      ----         -----       ------     ------ 



                                                                                     (Continued)

</TABLE>


                                      F-7


<PAGE>

                    ITHACA INDUSTRIES, INC. AND SUBSIDIARIES

                     Consolidated Statements of Cash Flows

                                 (In thousands)

<TABLE>
<CAPTION>
                                                              Post-confirmation       Preconfirmation
                                                              -----------------       ---------------
                                                                   10-Week       42-Week
                                                                 Period ended   Period ended    Years ended
                                                                  February 1,   November 22,  February 2, January 27,
                                                                     1997          1996          1996        1995
                                                                  -----------   ------------  ----------- -----------
<S>                                                              <C>             <C>           <C>          <C>     
Cash flows from financing activities:
  Repayment of long-term debt                                   $  (11,251)      (38,095)      (19,462)     (20,971)
  Proceeds from long-term debt                                         -             -          37,000          -
                                                                 ---------        ------        ------        -----
             Net cash (used in) provided by
                 financing activities                              (11,251)      (38,095)       17,538      (20,971)
                                                                   -------       -------        ------      ------- 

             Net (decrease) increase in cash and
                cash equivalents                                    (1,263)       (9,040)        2,838      (33,068)

Cash and cash equivalents at beginning of period                     1,329        10,369         7,531       40,599
                                                                ----------        ------         -----       ------

Cash and cash equivalents at end of period                      $       66         1,329        10,369        7,531
                                                                ==========         =====        ======        =====

Supplemental disclosures - net cash paid (received) 
  during the period for:
    Income taxes                                                $     (360)      (16,835)        1,224        7,149
                                                                ==========       =======         =====        =====

    Interest paid to related parties                            $      301           379         2,654        3,314
                                                                ==========           ===         =====        =====

    Interest paid to others                                     $    1,690         7,632        16,309       17,046
                                                                ==========         =====        ======       ======
</TABLE>


See accompanying notes to consolidated financial statements.




                                      F-8

<PAGE>

                    ITHACA INDUSTRIES, INC. AND SUBSIDIARIES

                   Notes to Consolidated Financial Statements

                     February 1, 1997 and February 2, 1996

                       (In thousands, except share data)


(1)         Reorganization and Emergence from Chapter 11 Bankruptcy
            -------------------------------------------------------

            On December 16, 1996 (the "Effective Date"), Ithaca Industries, Inc.
(the "Company")  emerged from proceedings  under Chapter 11 of the United States
Bankruptcy  Code  ("Chapter  11") pursuant to a  Prepackaged  Chapter 11 Plan of
Reorganization  (the "Plan"),  which was  confirmed by United States  Bankruptcy
Court for the District of Delaware (the "Bankruptcy Court") on November 22, 1996
(the  "Confirmation  Date").  The Plan  implemented  a  financial  restructuring
whereby  approximately  $125,000  ($124,625,  net of original issue discount) of
previously  outstanding  Senior  Subordinated  Notes (the  "Notes")  and related
accrued interest, which were subject to settlement under the Plan were exchanged
for  approximately  10,000,000  shares of new common stock (the "Common  Stock")
issued by the Company in connection with the reorganization.  Additionally,  the
Company's  Credit  Agreement  was amended  and  restructured.  The  restructured
long-term  debt  outstanding  after  consummation  of the  Plan  is  secured  by
substantially  all of the  assets of the  Company.  All  previously  outstanding
common stock was canceled, annulled, and extinguished.

            Pursuant to the Plan, the Company's certificate of incorporation and
bylaws were amended and  restated in their  entirety by the Amended and Restated
Certificate of Incorporation  (the  "Certificate")  and the Amended and Restated
Bylaws (the "Bylaws") to provide,  among other things,  for the restructuring of
the Company's equity  capitalization under the Plan. As of the Effective Date of
the Plan, the Company was  authorized to issue  27,500,000 of the Company's $.01
par value,  common stock of which an aggregate of  10,000,000  shares was issued
and  distributed  pursuant to the Plan. An aggregate of 928,962 shares of common
stock was reserved for issuance  pursuant to the 1996 Long-Term  Stock Incentive
Plan (the "Stock Plan").

            The Company's  Certificate  authorized 2,500,000 shares of preferred
stock with $.01 par value. The Board of Directors is authorized, upon two-thirds
affirmative vote, to issue preferred stock subject to restrictions  contained in
the Amended and Restated Credit Agreement ("Amended Agreement"),  in one or more
series,  for  any  purpose  permitted  by  law,  and is  authorized  to fix  the
designations,  power,  rights,  and  preferences  of the  preferred  stock.  The
Certificate  provides  that the  Company  will not  issue any  nonvoting  equity
securities to the extent  prohibited by the Bankruptcy Code. The Certificate may
be amended in accordance with applicable law to remove the prohibition.

            During fiscal 1996, as a result of diminished operating  performance
and  profitability,  the Company  incurred  covenant  defaults  under the Credit
Agreement.  In addition, the Company did not make the December 15, 1995 and June
15, 1996  scheduled  interest  payments due on the Notes or scheduled  quarterly
principal  payments due under the Credit  Agreement on January 31, April 30, and
July 31, 1996.  As a result of  negotiations  between the  Company's  creditors,
owners, and management,  the parties agreed to effect a financial  restructuring
and, accordingly,  on October 8, 1996 (the "Petition Date"), the Company filed a
voluntary  petition for relief under  Chapter 11 in the  Bankruptcy  Court.  The
Company  filed the Plan to  consummate a financial  restructuring  that had been
negotiated  among  the  Company,  its  Noteholders  and  parties  to the  Credit
Agreement,  and the sole  stockholder of the Company's  outstanding  stock.  The
Company was operated as a debtor-in-possession subject to the supervision of the
Bankruptcy Court until December 16, 1996.


                                      F-9

<PAGE>


                    ITHACA INDUSTRIES, INC. AND SUBSIDIARIES

                   Notes to Consolidated Financial Statements

                       (In thousands, except share data)


            The  Company  continued  to pay its trade  creditors  and other debt
obligations in the ordinary  course of business  while under the  supervision of
the Bankruptcy Court.


Fresh-Start Reporting
---------------------

            For  financial  reporting  purposes,   the  effective  date  of  the
Company's  emergence  from Chapter 11 was assumed to be November  22,  1996.  In
accordance  with AICPA  Statement  of  Position  90-7,  Financial  Reporting  by
Entities in Reorganization  Under the Bankruptcy Code ("SOP 90-7"),  the Company
adopted  "fresh-start  reporting,"  including the terms of the Amended Agreement
and  reflected  the  effects  of such  adoption  in the  consolidated  financial
statements as of November 22, 1996. The Post-Confirmation consolidated financial
statements have been separated from the Preconfirmation  balance sheet and prior
period amounts by a bold line to signify that the Post-Confirmation consolidated
financial  statements are those of a new reporting entity and have been prepared
on a basis not comparable to prior periods.

            The  Company  adopted  Fresh-Start   Reporting  because  holders  of
existing voting shares before filing and  confirmation of the Plan received less
than 50% of the voting  shares of the  emerging  entity  and its  reorganization
value  was less than its  post-petition  liabilities  and  allowed  claims.  The
adjustments to reflect the consummation of the Plan,  include the pretax gain on
debt  discharge of $90,980  (principally  accrued  interest and principal of the
Notes) and the  adjustment of $3,765 to record assets and  liabilities  at their
estimated  fair values,  have been  reflected in the  accompanying  consolidated
statements  of  operations  for the 42-week  period  ended  November  22,  1996.
Deferred  taxes of  approximately  $23,056 were provided as a result of the debt
discharge and the resulting  reductions to the tax bases of assets in accordance
with Section 108 of the Internal Revenue Code.

            The reorganization value of the Company was determined by management
utilizing several factors and various valuation  methods,  including  discounted
cash  flows,   cash  flow  multiple  ratios,   and  other   applicable   ratios.
Reorganization  value  generally  approximates  fair value of the entity  before
considering  liabilities and  approximates  the amount a willing buyer would pay
for the assets of the entity  after the  restructuring.  The  primary  valuation
methodology  employed to determine the reorganization value of the Company was a
net present value approach.  The estimated  unleveraged  reorganization value of
the Company was computed using a discounted  cash flow  analysis.  This analysis
included the present values of (i) the  discounted  projected free cash flows of
the Company through fiscal year 1999, (ii) the discounted  terminal value of the
Company at the end of that 1999 fiscal year, and (iii) projected  excess cash on
hand at the  Confirmation  Date. For purposes of discounting  values, a discount
rate of 9.5% was utilized throughout the analysis.  The terminal value was based
upon a 3.5% growth factor in perpetuity with a 6% terminal discount rate.


(Continued)

                                      F-10



<PAGE>

                    ITHACA INDUSTRIES, INC. AND SUBSIDIARIES

                   Notes to Consolidated Financial Statements

                       (In thousands, except share data)


Based on information from  parties-in-interest  and from the Company's financial
advisors,  the total  reorganization  value of the Company was  estimated  to be
$155,993 at November 22, 1996. The estimated reorganization value of the Company
was allocated to specific asset categories as follows:

               Current assets                            $ 118,858  
               Property and equipment                       35,647
               Other noncurrent assets                       1,488    
                                                            
                                                         $ 155,993  
               
All  payments and  distributions  required by the Plan to be made by the Company
with  respect  to  prepetition  claims  against  the  Company  have been made or
provided  for at November  22,  1996,  and no further  material  recourse to the
Company is available to any person with respect to any prepetition claims.

The effect of the Plan and the  implementation  of Fresh-Start  Reporting on the
Company's consolidated balance sheet as of November 22, 1996 was as follows:


<TABLE>
<CAPTION>

                                                                                                          Post-
                                            Preconfirmation          Adjustments                      confirmation
                                            balance sheet at        to record the                    balance sheet at
                                              November 22,            Plan at          Fair value       November 22,
                                                 1996              confirmation(a)   adjustments(b)       1996
                                                 ----              ---------------   --------------       ----

<S>                                           <C>                   <C>               <C>                 <C>  
 Cash                                         $   1,329                  -                 -                1,329
 Other current assets                           117,802              (13,549)           13,276            117,529

 Property, plant, and equipment                 139,026                  -            (103,379)            35,647
 Accumulated depreciation                        89,876                  -              89,876                -
                                             ----------              -------           -------            -------
    Net property, plant, and equipment           49,150                  -             (13,503)            35,647
                                             ----------              -------           -------            -------

 Other long-term assets                           1,035                  -                 -                1,035
 Other intangible assets                          3,042               (2,589)              -                  453
                                             ----------              -------           -------            -------

                                             $  172,358              (16,138)             (227)           155,993
                                             ==========              =======           =======            =======

 Current long-term debt                      $  202,016             (201,881)              -                  135
 Other current liabilities                       55,847               (8,723)           (3,992)            43,132
 Long-term debt                                     -                 77,255               -               77,255
 Noncurrent deferred income taxes                 6,651                5,198             1,506             13,355
 Stockholders' equity (deficit)                 (92,156)             112,013             2,259 (c)         22,116
                                             ----------              -------           -------             ------

                                             $  172,358              (16,138)             (227)           155,993
                                             ==========              =======           =======            =======

<FN>
            (a)  To record the forgiveness of the notes, the issuance of common stock, and the related income tax effects pursuant 
                 to the Plan.
            (b)  To record the adjustments to assets and liabilities to their estimated fair value.
            (c)  Net adjustment to equity consists of net fair value adjustments of $3,765 less related income tax effects of 
                 $1,506.
</FN>
</TABLE>


                                      F-11

<PAGE>


                    ITHACA INDUSTRIES, INC. AND SUBSIDIARIES

                   Notes to Consolidated Financial Statements

                       (In thousands, except share data)


(2)  Summary of Significant Accounting Policies and Practices
     --------------------------------------------------------

     (a)    Description of Business and Basis of Presentation
            -------------------------------------------------

            The Company is a manufacturer of private-label underwear and women's
            hosiery   products,   operating   distribution   and   manufacturing
            facilities   in  the   Southeastern   United  States  and  off-shore
            manufacturing  facilities  in  Central  America.  Additionally,  the
            Company  sources some of its  production  from  various  contractors
            worldwide.  The Company has three principal product lines: (i) men's
            and boy's underwear and outerwear T-shirts,  (ii) women's and girls'
            underwear,  and (iii)  women's  hosiery.  The  Company  markets  its
            products  through  a wide  range of  national  and  regional  retail
            distribution channels, including discount stores, department stores,
            specialty stores, drug stores, and supermarkets. The majority of the
            Company's raw materials are readily  available and are not dependent
            upon a single supplier.

     (b)    Principles of Consolidation
            ---------------------------

            These  consolidated   financial  statements  include  the  financial
            statements  of  Ithaca   Industries,   Inc.  and  its  wholly  owned
            subsidiaries. All significant intercompany balances and transactions
            have been eliminated.

     (c)    Cash and Cash Equivalents
            -------------------------

            Cash  balances  at  year-end  reflect  short-term   interest-earning
            deposits,  net of  outstanding  checks.  Cash  balances also include
            overdraft  amounts for which the right of offset with other accounts
            exists.  For purposes of the  statement  of cash flows,  the Company
            considers  all highly  liquid  debt  instruments  purchased  with an
            initial  maturity  of three  months or less to be cash  equivalents.
            Cash and cash equivalents include  interest-earning  deposits of $66
            and $10,369 at February 1, 1997 and February 2, 1996, respectively.

     (d)    Inventories
            -----------

            Inventories consist of raw materials,  work in process, and finished
            goods  relating to  manufacturing  operations  and are valued at the
            lower of cost or market  with  cost  determined  using the  last-in,
            first-out (LIFO) method.

     (e)    Property, Plant, and Equipment
            ------------------------------

            Property,  plant, and equipment acquired after November 22, 1996 are
            stated at cost.  Upon emergence from Chapter 11, the Company adopted
            Fresh-Start  Reporting effective November 22, 1996 and, accordingly,
            all property, plant, and equipment at November 22, 1996 was recorded
            at its estimated fair value and historical accumulated  depreciation
            was eliminated.  Depreciation and amortization  expense of property,
            plant,  and equipment is calculated using the  straight-line  method
            over the estimated remaining useful lives of the assets as follows:

                Buildings                           25 - 30 years            
                Property improvements                5 - 10 years 
                Machinery and equipment              3 -  8 years  
                Vehicles                                  3 years            
                
                                                         (Continued)


                                      F-12


<PAGE>

                    ITHACA INDUSTRIES, INC. AND SUBSIDIARIES

                   Notes to Consolidated Financial Statements

                       (In thousands, except share data)


     (f)    Intangibles
            -----------

            Intangible assets,  consisting of patents,  are amortized over their
            respective remaining terms. On an ongoing basis,  management reviews
            the valuation and amortization of intangible  assets. As part of the
            review,   management   estimates   fair  values  based  upon  recent
            historical   results  and  expected  future  results,   taking  into
            consideration  events or circumstances which might affect their fair
            values.

            Deferred debt expenses are amortized  over the lives of the loans to
            which  the  expenses  relate.   As  a  result  of  the  adoption  of
            Fresh-Start  Reporting  and  the  related  amendment  of the  Credit
            Agreement,  the  unamortized  balance of deferred  debt  expense was
            included in  reorganization  expense for the  42-week  period  ended
            November 22, 1996.

     (g)    Revenue Recognition
            -------------------

            Sales are recognized at the time the related goods are shipped.

     (h)    Income Taxes
            ------------

            Income taxes are accounted for under the asset and liability method.
            Deferred tax assets and  liabilities  are  recognized for the future
            tax consequences  attributable to differences  between the financial
            statement  carrying  amounts of existing  assets and liabilities and
            their respective tax bases.  Deferred tax assets and liabilities are
            measured using enacted tax rates expected to apply to taxable income
            in the years in which those temporary differences are expected to be
            recovered  or  settled.  The  effect  on  deferred  tax  assets  and
            liabilities  of a change in tax rates is recognized in income in the
            period that includes the enactment date.

            Prior to its emergence  from Chapter 11, the Company was included in
            an affiliated  group and the Company's  Federal  taxable  income was
            included in such group's consolidated tax return.  Pursuant to a tax
            sharing  agreement  with the former Parent,  the Company  recognized
            income  tax  expense  or  benefit  as if it were  to  file  separate
            Federal,  state,  or local income tax returns.  The Company  entered
            into the  Intercompany  Compromise  and Settlement  Agreement  which
            included a  provision  that  terminated  the tax  sharing  agreement
            effective November 22, 1996.

                                                                     (Continued)


                                      F-13


<PAGE>

                    ITHACA INDUSTRIES, INC. AND SUBSIDIARIES

                   Notes to Consolidated Financial Statements

                       (In thousands, except share data)


     (i)    Stock Option Plan
            -----------------

            Effective  November 22, 1996,  with the adoption of its stock option
            plan,  the  Company  adopted   Statement  of  Financial   Accounting
            Standards  No.  123  (SFAS  No.  123),  Accounting  for  Stock-Based
            Compensation, which permits the Company to recognize as expense over
            the vesting period the fair value of all  stock-based  awards on the
            date of grant. Alternatively,  SFAS No. 123 also permits the Company
            to apply the  provisions  of APB Opinion  No. 25 where  compensation
            expense  would be  recorded on the date of grant only if the current
            market price of the underlying  stock exceeded the exercise price of
            the option and provide pro forma net income and pro forma income per
            share disclosures for stock option grants made in future years as if
            the  fair-value  based  method  defined  in SFAS  No.  123 had  been
            applied.  The  Company has  elected to apply the  provisions  of APB
            Opinion No. 25 and provide the pro forma  disclosure  provisions  of
            SFAS No. 123.

     (j)    Fiscal Year
            -----------

            The Company's  fiscal year ends on the last Saturday  closest to the
            end of January.  The results of  operations  for fiscal 1997 include
            the 10-week  period ended February 1, 1997  (post-confirmation)  and
            the 42-week  period ended November 22, 1996  (preconfirmation).  The
            results of operations  for the year ended February 2, 1996 reflect a
            53-week  period  (fiscal  1996),  and the results for the year ended
            January 27, 1995 reflect a 52-week period (fiscal 1995).

     (k)    Use of Estimates
            ----------------

            Management  of the  Company  has  made a  number  of  estimates  and
            assumptions  relating to the reporting of assets and liabilities and
            the disclosure of contingent assets and liabilities to prepare these
            financial   statements  in  conformity   with   generally   accepted
            accounting  principles.  Actual  results  could  differ  from  those
            estimates.

     (l)    Net Income Per Common Share
            ---------------------------

            Net  income  per  common   share  is   calculated   based  upon  the
            weighted-average   number  of  common   shares  and   common   stock
            equivalents  outstanding.  Common stock equivalents consist of stock
            options and have been excluded from shares outstanding because their
            impact is antidilutive.

                                      F-14

                                                                     (Continued)

<PAGE>


                    ITHACA INDUSTRIES, INC. AND SUBSIDIARIES

                   Notes to Consolidated Financial Statements

                       (In thousands, except share data)


(3)  Inventories
     -----------

     Inventories consist of the following:

                                            Post-confirmation    Preconfirmation
                                            -----------------    ---------------
                                               February 1,         February 2,  
                                                  1997                1996      
                                                  ----                ----      
                                              
     Raw materials and supplies                $  15,607            24,676
     Work-in-process                              12,381            16,882      
     Finished goods                               41,278            53,962      
                                                  69,266            95,520      
     Less excess of FIFO over LIFO cost              -              10,474      
     Less inventory included in assets held for                                 
        disposition, net (note 13)                 3,586            28,967      
                                                                                
                                               $  65,680            56,079      
                                                                    
      Upon adoption of Fresh-Start Reporting at November 22, 1996, the excess of
      first-in,  first-out (FIFO) over LIFO cost is equal to zero as inventories
      were  restated to their  estimated  fair value.  The  adjustment  has been
      included in fair value adjustments in note 1.

      During the  42-week  period  ended  November  22,  1996 and the year ended
      February 2, 1996, LIFO inventory  layers were  liquidated.  This reduction
      resulted in charging lower  inventory  costs  prevailing in prior years to
      cost of goods  sold,  thus  reducing  cost of sales by  $1,367  and  $271,
      respectively, which is lower than the amount that would have resulted from
      replacing the liquidated inventory at end of period prices on those dates.

(4)   Property, Plant, and Equipment
      ------------------------------

      Property, plant, and equipment consist of the following:

                                              Post-confirmation  Preconfirmation
                                              -----------------  ---------------
                                                  February 1,      February 2,  
                                                     1997             1996      
                                                     ----             ----      
     Land                                         $   1,306           2,936
     Buildings and improvements                      18,528          55,838    
     Machinery and equipment                         16,288          85,821   
     Vehicles                                           104             428  
     Construction in progress                           327             241  
                                                     36,553         145,264   
     Less accumulated depreciation and amortization     853          84,941   
     Less property, plant, and equipment included in                       
       assets held for disposition (note 13)            169           6,028  
                                                                            
                                                  $   35,531         54,295
     


                                                                     (Continued)
                                      F-15


<PAGE>

                    ITHACA INDUSTRIES, INC. AND SUBSIDIARIES

                   Notes to Consolidated Financial Statements

                       (In thousands, except share data)


(5)  Intangible Assets
     -----------------

     Intangible assets consist of the following (see note 13):


                           Post-confirmation          Preconfirmation
                              February 1,               February 2,
                                1997                       1996
                            ------------   -------------------------------------

                                                       Value of
                                                      work-force in    Licensing
                               Patents     Patents       place         agreement
                               -------     -------    -------------    ---------

Gross amount                   $ 453      $ 11,860      7,946           3,669
Less accumulated amortization     91        10,955      7,946           3,669
                               -----      --------      -----           -----

                               $ 362      $    905        -                -
                               =====      ========      ======          ======

(6)  Long-Term Debt
---  --------------

     A summary of long-term debt follows:

                                         Post-confirmation       Preconfirmation
                                            February 1,             February 2,
                                              1997                    1996
                                         -----------------       ---------------

Borrowings under credit agreements:
  Revolving loans:
    Base rate loans                                $ 13,000              -    
    LIBOR-based loans                                   -             37,000 
  Term loans:                                                                
    Base rate loans                                  53,000              -   
    LIBOR-based loans                                   -             77,771 
Senior Subordinated Notes, due 2002 with interest                            
  payable quarterly at 11.125%, net of unamortized                           
  original issue discount of $375                       -            124,573 
9.0% to 10.5% notes, maturing through 1998              139              714 
                                                   --------          ------- 
                                                     66,139          240,058 
Less current installments of long-term debt              70          240,058 
                                                   --------          ------- 
                                                                             
                                                   $ 66,069              -   
                                                   ========          ========
                                                                    
Pursuant to the Plan,  the Credit  Agreement  was amended and  restated  and the
Notes were canceled and exchanged  for all of the Company's  outstanding  common
stock on the  Effective  Date.  The  following is a summary  description  of the
Amended  and  Restated  Credit  Agreement  ("Amended  Agreement")  issued on the
Effective Date.

REVOLVING CREDIT COMMITMENT

The total  Revolving  Credit  Commitment  ("Revolving  Loan")  under the Amended
Agreement is $77,200 which is inclusive of (i) any outstanding unpaid balance of
prepetition  revolving  credit  loans  and  post-petition   debtor-in-possession
financing,  (ii) $22,185 transferred from the Preconfirmation term loan balance,
and (iii) a $25,000 letter of credit subfacility.  For a 30-day period beginning
in May and  December  of each year,  commitments  under the  Revolving  Loan are
reduced to $63 million and $68 million, respectively.

                                                                     (Continued)

                                      F-16

<PAGE>

                    ITHACA INDUSTRIES, INC. AND SUBSIDIARIES

                   Notes to Consolidated Financial Statements

                       (In thousands, except share data)


The total outstanding  Revolving Loan including letters of credit may not exceed
a borrowing  base  determined  by  specified  percentages  of eligible  accounts
receivable and inventory as defined by the Amended  Agreement.  A commitment fee
of 0.5% of the unused Revolving Loan is due each year. A letter of credit fee of
2.5% per annum of the daily  stated  amount of all  letters of credit and facing
fees of 1/4 of 1% per annum of the daily stated  amount of all standby and trade
letters of credit is payable  quarterly in arrears.  The Revolving  Loan expires
August 31, 1999.

At February 1, 1997,  there was $13,000  outstanding  under the  Revolving  Loan
provisions  and  $6,825  issued  under the trade and  standby  letters of credit
provision of the Amended  Agreement.  The additional  availability as calculated
under the provisions of the Amended Agreement at February 1, 1997 was $33,145.

TERM LOAN COMMITMENT

The total Term Loan  Commitment  ("Term  Loan")  under the Amended  Agreement is
$55,000  which was reduced to $53,000 as a result of fiscal 1997  payments.  The
remaining  balance is payable in  installments  of $5,000 on January  31,  1998;
$4,000 on January 31, 1999; and $44,000 on August 31, 1999. At February 1, 1997,
$5,000 of the  outstanding  term loan  balance has been  excluded  from  current
installments  of  long-term  debt as this  amount  could  be  repaid  using  the
Revolving Loan.

The Term Loan  contains  mandatory  prepayment  provisions  which  require  that
certain  excess cash flows,  proceeds  from the sale of assets for  disposition,
other  proceeds  outside the  ordinary  course of  business,  and tax refunds as
defined  must be used to pay down the  outstanding  term loan balance in reverse
order of maturity. Once repaid, Term Loans may not be reborrowed.  The Term Loan
Commitment expires August 31, 1999.

At  February  1,  1997,  there  was  $53,000  outstanding  under  the Term  Loan
provisions of the Amended Agreement.

Except in certain  limited  circumstances,  the Revolving Loan and the Term Loan
will bear  interest at 150 basis  points above the base rate which is defined as
the  higher of (i) 1/2 of 1% in excess of the  adjusted  certificate  of deposit
rate,  (ii) the  prime  lending  rate,  and  (iii)  1/2 of 1% in  excess  of the
overnight federal funds rate. Interest is due in arrears on the last day of each
month.  The interest  rate is subject to  cumulative  increases in the event the
Company  (i) does  not  achieve  certain  earnings  before  interest  taxes  and
depreciation  (EBITDA) targets or (ii) fails to make annual principal  payments,
other than regularly  scheduled  term loan  amortization  payments,  of at least
$5,000.  In addition,  default  interest is payable at the base rate plus 2%. On
January 29, 1997, the Company  entered into a rate  protection  agreement  which
limits the base interest rate payable on the first $45 million  outstanding term
loan principal to 9.5% through July 28, 1998.

Borrowings under the Amended  Agreement are secured by a lien against all assets
of  the  Company  and  subsidiaries.  The  Amended  Agreement  contains  certain
financial and nonfinancial covenants. As of February 1, 1997, the Company was in
compliance with such covenants.



                                                                     (Continued)


                                      F-17
<PAGE>


                    ITHACA INDUSTRIES, INC. AND SUBSIDIARIES

                   Notes to Consolidated Financial Statements

                       (In thousands, except share data)


Prior  to its  amendment  and  restatement  pursuant  to the  Plan,  the  Credit
Agreement had a revolving  credit facility (the  "Facility")  which provided for
availability of $65 million until October 31, 1998. The term loan was originally
repayable  in  quarterly  installments  of $7,148 in 1997,  $6,291 in 1998,  and
$6,004 in 1999. The entire amount  outstanding under the Credit Agreement was to
mature on October 31, 1998.  Advances  under the  Facility  were not to exceed a
borrowing  base  determined  by  specific   percentages  of  eligible   accounts
receivable  and  inventories  (each  as  defined  in the  Credit  Agreement).  A
commitment  fee of 0.5% per annum was required on all unused  amounts  under the
Facility.  The Company had a rate  protection  agreement  which limited the base
interest rate payable on the first $25 million  outstanding  term loan principal
to 7.5%  through  December  21,  1995.  At  February 2, 1996,  amounts  totaling
approximately  $240,058  were  classified  as current due to defaults  under the
Credit Agreement.

Borrowings under the Credit Agreement, at the Company's option, were either base
rate loans or LIBOR (London Interbank Offered Rate) based loans. Base rate loans
accrued  interest  at the  lenders'  prime rate  (8.25% at  February 2, 1996) of
interest  plus 1.5%.  LIBOR-based  loans  accrued  interest at the LIBOR rate of
5.375% at February 2, 1996 plus 2.75%.

Borrowings  under the Credit  Agreement  were  secured by a pledge of all assets
owned by the Company and a security  interest in all the Company's  tangible and
intangible assets.

Interest on the Notes was payable  semiannually on each June 15 and December 15,
commencing  December 15, 1992.  Prior to the  conversion  of the Notes to equity
interests pursuant to the Plan,  approximately $33,757 of the Notes were held by
related  parties  at  February  2,  1996  and  are  included  in  related  party
liabilities on the accompanying consolidated balance sheets.

(7)  Income Taxes
     ------------

     Components of income tax benefit (expense) consist of:

                       Post-confirmation              Preconfirmation
                       -----------------              ---------------
                            10-week        42-week
                         period ended    period ended         Years ended
                          February 1,    November 22     February 2, January 27,
                             1997          1996            1996        1995
                             ----          ----            ----        ----

Current:
   Federal                 $    4         3,113           10,302      (4,751)
   State                        1         1,191            1,369      (1,106)
Deferred                    1,395        (8,522)          15,486         204

                           $1,400        (4,218)          27,157      (5,653)


                                                                     (Continued)


                                  F-18

<PAGE>

                    ITHACA INDUSTRIES, INC. AND SUBSIDIARIES

                   Notes to Consolidated Financial Statements

                       (In thousands, except share data)


Income tax benefit  (expense) for the 10-week period ended February 1, 1997, the
42-week period ended November 22, 1996, and the years ended February 2, 1996 and
January 27,  1995  amounted  to $1,400,  $(4,218),  $27,157,  and  $(5,653),  an
effective rate of 33.7%, 253.0%, 35.3%, and 42.9%,  respectively,  which differs
from the "expected"  income tax expense  (computed by applying the U.S.  Federal
corporate  income  tax rate of 35% to  income  (loss)  before  income  taxes and
extraordinary item) as follows:


<TABLE>
<CAPTION>

                                                     Post-confirmation              Preconfirmation             
                                                     -----------------              ---------------             
                                                          10-week        42-week                                
                                                       period ended    period ended         Years ended         
                                                        February 1,    November 22     February 2, January 27,  
                                                           1997          1996            1996        1995       
                                                           ----          ----            ----        ----       
                                                     
<S>                                                       <C>            <C>            <C>         <C>    
Computed "expected" income tax benefit (expense)          $ 1,455        (583)          26,881      (4,610)
State and local taxes, net of Federal
     income tax benefit                                       175         (45)           2,090        (695)
Amortization of intangible assets                             -           -             (1,632)        (64)
Nondeductible expenses relating to reorganization            (216)       (744)             -           -
Provision for resolution of tax audits and adjustments
    to refund receivable                                      -        (2,727)             -           -
Other, net                                                    (14)       (119)           (182)        (284)
                                                              ---        ----            ----         ---- 

                                                          $ 1,400      (4,218)         27,157       (5,653)
                                                          =======      ======          ======       ====== 
   

</TABLE>

The tax effect of temporary  differences that give rise to significant  portions
of the deferred tax assets and deferred tax  liabilities at February 1, 1997 and
February 2, 1996 are presented below:


<TABLE>
<CAPTION>

                                                                   Post-confirmation   Preconfirmation 
                                                                       February 1,         February 2, 
                                                                          1997                1996     
                                                                          ----                ----     
                                                                                                       
<S>                                                                  <C>                     <C>       
Deferred tax assets:                                                                                   
  Nondeductible accruals                                             $   3,387               9,036     
  Restructuring related reserves and write-downs                                                       
     of inventory, receivables, and property, plant,                                                   
     and equipment                                                         -                 9,049     
  Inventory write-downs                                                  1,349                 718     
  Accounts receivable reserves and allowances                              173                 291     
  State taxes                                                              -                   749     
  Other                                                                    -                   369     
                                                                         -----                 ---     
      Deferred tax assets                                                4,909              20,212     
                                                                         -----              ------     
                                                                                
Deferred tax liabilities:
  Tax attribute reductions of inventory, receivables,
      and property, plant, and equipment                               (21,090)                -
  Plant and equipment                                                      -                (7,204)
  State taxes                                                             (579)                -
  Other                                                                   (414)                -
                                                                          ----                  
    Deferred tax liabilities                                           (22,083)             (7,204)
                                                                       -------              ------ 

       Net deferred tax (liability) asset                            $ (17,174)             13,008
                                                                     =========              ======

</TABLE>


                                                                     (Continued)

                                      F-19

<PAGE>

                    ITHACA INDUSTRIES, INC. AND SUBSIDIARIES

                   Notes to Consolidated Financial Statements

                       (In thousands, except share data)


(8)   Related Party Transactions
      --------------------------

      During the period ended  November 22, 1996 and the years ended February 2,
      1996 and  January  27,  1995,  the Company  engaged in  transactions  with
      related parties,  including  (income)  expenses  incurred on behalf of the
      former  Parent  company  of  approximately   $(299),   $325,  and  $2,390,
      respectively,  with a balance receivable of $604 at February 2, 1996 which
      was settled prior to February 1, 1997.

      The Company also licensed certain trademarks from an affiliate under terms
      and  conditions  consistent  within the  industry.  Royalties  paid to the
      affiliate  totaled $175 in fiscal 1995. No royalty payments have been made
      since fiscal 1995.

      Prior to November 22, 1996, long-term debt to related parties consisted of
      notes held by parties which were stockholders, or their affiliates, of the
      former  Parent.  After  November 22, 1996,  long-term  debt due to related
      parties  consists  of  borrowings  under the Amended  Agreement  held by a
      stockholder of the Company.

      In  accordance  with the Plan,  the equity  interests of the former Parent
      were  canceled,  extinguished,  and  annulled.  Additionally,  the Company
      entered into the  Intercompany  Compromise and Settlement  Agreement as of
      the  Effective  Date which  included a provision to terminate  the license
      agreement.

(9)   Credit Concentrations
      ---------------------

      Most of the Company's sales are concentrated with national retailers.  For
      the 10-week  period  ended  February 1, 1997 and the 42-week  period ended
      November 22, 1996,  one customer  individually  accounted for 48% and 47%,
      respectively,  of net  sales.  For the years  ended  February  2, 1996 and
      January 27, 1995, two customers  accounted for 42% and 11% and 44% and 13%
      of net sales, respectively.

      At February 1, 1997 and February 2, 1996, the Company had $659 and $2,935,
      respectively,  of trade  accounts  receivable  due from customers that are
      believed to be moderate to high credit  risks.  These  accounts  have been
      factored under a nonrecourse  non-notification factoring arrangement which
      reduces  the credit  risk to the  Company  subject to  performance  by the
      factor.  Management  anticipates  the factor  will be able to fulfill  its
      obligations if required.


                                                                     (Continued)
                                      F20


<PAGE>

                    ITHACA INDUSTRIES, INC. AND SUBSIDIARIES

                   Notes to Consolidated Financial Statements

                       (In thousands, except share data)


(10) Fair Value of Financial Instruments
     -----------------------------------

      At February 1, 1997,  the fair value of the Company's debt is equal to the
      carrying  amount as it was  subject  to  restructuring  and is based  upon
      market  rates.  At  February  2,  1996,  the fair  value of the  Company's
      long-term  debt is  estimated  based on the  most  recent  trading  prices
      offered for the Company's  debt.  The carrying  amounts and estimated fair
      values of the Company's long-term debt are as follows:

                                                         Preconfirmation   
                                                         February 2, 1996  
                                                         ----------------  
                                                         Carrying    Fair  
                                                         amount      value 
                                                         ------      ----- 
Long-term debt:                                          
   Revolving credit facility                           $ (37,000)  (37,000)
   Term loans                                            (77,771)  (72,716)
   Senior subordinated notes                            (124,573)  (56,250)
   Other long-term borrowings                               (714)     (714)

      The carrying value of all other financial  instruments in the consolidated
      balance sheets approximates fair value.

(11)  Commitments and Other Matters
      ---------------------------- 

      The Company  leases certain  equipment and  warehousing  facilities  under
      operating  leases  expiring  at various  dates  through  2010.  Total rent
      expense under these leases amounted to approximately $790, $3,881, $3,414,
      and $3,798,  for the 10-week  period ended  February 1, 1997,  the 42-week
      period ended  November 22, 1996,  and the years ended February 2, 1996 and
      January 27, 1995,  respectively.  In addition,  the Company is responsible
      for payment of applicable  real estate taxes,  insurance,  and maintenance
      expenses.

      At February 1, 1997,  future minimum annual rentals under these leases are
      as follows:

             Fiscal years ending in:
             -----------------------
                   1998                                  $ 3,293   
                   1999                                    2,716               
                   2000                                    2,114               
                   2001                                    1,373               
                   2002                                      902               
                   Thereafter                                731     
                                                             ---     
                                                                               
                                                         $11,129  
                                                         =======  
                                                           

      The Company has royalty  agreements  for certain  licensed  products.  The
      total royalty  expense under these  agreements  amounted to  approximately
      $92, $479,  $2,541,  and $2,644 the 10-week period ended February 1, 1997,
      for the  42-week  period  ended  November  22,  1996,  and the years ended
      February 2, 1996 and January 27, 1995, respectively.  At February 1, 1997,
      the future minimum  royalty  expense for the fiscal year ending in 1998 is
      approximately $557.

                                                                     (Continued)

                                      F-21


<PAGE>

                    ITHACA INDUSTRIES, INC. AND SUBSIDIARIES

                   Notes to Consolidated Financial Statements

                       (In thousands, except share data)


(12) Employee Benefit Plans
     ----------------------

      In fiscal 1997, the Company adopted an incentive  compensation  plan under
      which  certain  employees  may receive  discretionary  bonus awards from a
      bonus  pool   calculated   based  on  achievement  of  specified   targets
      established  by the Board of  Directors.  Bonus  amounts  expensed for the
      10-week  period  ended  February  1,  1997 and the  42-week  period  ended
      November  22,  1996  were $560 and  $1,740,  respectively.  Bonus  amounts
      expensed  under the  provisions of the previous bonus plan were $1,310 for
      the year ended January 27, 1995. No bonuses were earned for the year ended
      February 2, 1996.

      On the Effective  Date,  the Company  adopted the Stock Plan which permits
      the  Company's  Board of Directors to grant stock  options to officers and
      key  employees.  The  Stock  Plan  initially  reserved  928,962  shares of
      authorized but unissued common stock. Total shares available for grant may
      be increased by the Board of Directors at their discretion.  Stock options
      may be  granted at an  exercise  price  equal to or less than fair  market
      value as stipulated in the applicable option agreement.  Excluding a grant
      of  109,290  options  to  certain  outside  consultants,  50% of the total
      options  available  vest over three years and  one-third of these  options
      vest and become fully exercisable when granted and on the subsequent first
      and second  anniversaries from the date of grant. The remaining 50% of the
      options  available are  performance  based and vest in equal amounts based
      upon the achievement of certain  performance  targets for each of the next
      three years.

      During the 10-week  period ended  February 1, 1997,  899,514  options were
      granted at $6 per share; of the 899,514 options outstanding,  240,994 were
      vested  and   exercisable  at  February  1,  1997.  The   weighted-average
      contractual life of options outstanding at February 1, 1997 is nine years.
      Had compensation  cost for the Company's stock option plan been determined
      based upon the fair  value at the grant  date for  awards  under this plan
      consistent  with SFAS 123,  the  effect on the  Company's  net  income and
      income  per  share  would  not  be  material,  based  upon  the  following
      assumptions  related to the options:  risk-free  interest rate of 6.2%, no
      dividend yield, and three-year expected lives.

      The Company  maintains  a medical  benefits  plan and trust  which  covers
      substantially  all employees of the Company.  The plan is funded currently
      by contributions from the Company and employees based on anticipated claim
      costs and administrative expenses.  Company contributions to the plan were
      $1,250,  $5,604,  $8,585, and $9,544 for the 10-week period ended February
      1, 1997,  the 42-week  period ended November 22, 1996, and the years ended
      February 2, 1996 and January 27, 1995, respectively.  Net assets available
      for plan  benefits  held in trust were $1,037 at February 1, 1997 and $605
      at February 2, 1996.

      The  Company  sponsors  a  defined  contribution  retirement  plan for its
      employees.  Company  contributions  are  based  upon a  percentage  of the
      employees'   contributions.   Contributions  and  administrative  expenses
      incurred by the Company on behalf of the plan totaled  approximately  $53,
      $319,  $456,  and $473 for the 10-week  period ended February 1, 1997, the
      42-week  period ended  November 22, 1996,  and the years ended February 2,
      1996 and January 27, 1995, respectively.


                                                                     (Continued)

                                      F-22


<PAGE>

                    ITHACA INDUSTRIES, INC. AND SUBSIDIARIES

                   Notes to Consolidated Financial Statements

                       (In thousands, except share data)


(13) Restructuring
     -------------

      In the third  quarter of fiscal  1996,  in  response to  operating  losses
      resulting  from  decreasing  sales  as  well  as  high  manufacturing  and
      distribution  costs,  the  Company  initiated a  restructuring  to improve
      operating   performance   and  reduce  costs.   In  connection  with  this
      restructuring,  the Company  recorded  charges  totaling  $51,591 ($33,379
      after related income tax benefits), of which $14,153 ($9,157 net of income
      tax  benefits),  and $37,438  ($24,222  after related income tax benefits)
      were  charged to  operating  expenses in the third and fourth  quarters of
      fiscal 1996,  respectively.  Such  charges  related to (i) the closing and
      consolidation of certain manufacturing and distribution  facilities;  (ii)
      the write-down of certain  equipment  associated with closed facilities to
      net realizable value; (iii) the write-off and establishment of reserves to
      reduce inventory and accounts receivable to estimated net realizable value
      for  amounts  associated  with  customers,  product  lines,  and  specific
      products  that  the  Company  elected  to  discontinue  manufacturing  and
      distributing;  (iv)  severance  and  other  costs  associated  with  plant
      closures and overhead  reductions  resulting  from a total  domestic  work
      force  reduction  in fiscal  1996 and fiscal 1997 of  approximately  three
      thousand  employees,  of which  approximately one thousand one hundred and
      one thousand nine hundred had occurred during fiscal 1996 and fiscal 1997,
      respectively; and (v) the write-off of certain impaired intangible assets,
      principally deferred debt expenses of $2,672 and goodwill of $2,395.

      As of February 1, 1997 and February 2, 1996,  assets held for  disposition
      consist of the following:


<TABLE>
<CAPTION>

                                                   Post-confirmation       Preconfirmation
                                                     February 1,              February 2,
                                                        1997                      1996
                                                        ----                      ----
<S>                                                   <C>                       <C>  
Trade accounts receivable, net of estimated reserve
   of $2,176 at February 2, 1996                      $   -                     3,824
Property, plant, and equipment, net of estimated
   reserve of $ $4,228 at February 2, 1996               169                    1,800
Inventory, net of obsolescence reserve of
   $17,452 and allocated LIFO reserve of $1,033
   at February 2, 1996                                 3,586                   11,515
               -- ----                                 -----                   ------

                                                      $3,755                   17,139
                                                      ======                   ======

</TABLE>

      The reserves reflect  management's  estimates of the recoverability of the
      related assets.


                                                                     (Continued)



                                      F-23

<PAGE>

                    ITHACA INDUSTRIES, INC. AND SUBSIDIARIES

                   Notes to Consolidated Financial Statements

                       (In thousands, except share data)


(14) Quarterly Financial Data (Unaudited)
     ------------------------------------


<TABLE>
<CAPTION>

                                                                   Preconfirmation                         Post-confirmation
                                                                   ---------------                         -----------------
                                                                                                         Fourth quarter - 1997
                                                                                                         ---------------------
                                                                                     Fourth      3 weeks ended        10 weeks ended
                                                First       Second      Third       quarter -      November 22,          February 1,
                                               quarter      quarter     quarter       1996            1996                  1997    
                                               -------      -------     -------       ----            ----                  ----    
                                                                                                                                    
<S>                                            <C>          <C>          <C>        <C>              <C>                   <C>      
Year ended 1997:                                                                                                                    
  Net sales                                    $97,619      78,883       98,624                      22,477                42,708   
  Gross profit                                  12,691      11,707       13,367                       4,295                 4,487   
  Recovery of provision for asset write-                                                                               
    downs and restructuring                        -        (2,964)         -                           -                     -
  Loss from continuing operations before
    extraordinary items                            -           -            -                          (592)                  -
  Extraordinary items                              -           -            -                        67,924                   -
  Net income (loss)                             (1,298)        641       (1,303)                     67,332                (2,757)
                                                ======         ===       ======                      ======                ====== 

Net loss per common share(1)                                                                                                $(.28)
                         ==                                                                                                 ===== 


Year ended 1996:
  Net sales                                    $93,661     101,688      111,521      91,949
  Gross profit                                  16,856      13,664       12,227       2,135
  Provision for asset write-downs and
              restructuring                        -           -        (14,153)    (37,438)
  Net income (loss)                                110      (1,907)     (11,840)    (36,007)
                                                   ===      ======      =======     ======= 

<FN>
(1)   Net income (loss) and per share amounts for periods  prior to November 22, 1996 have not been  presented  because they are not
      meaningful due to the  implementation of Fresh-Start  Reporting and the substantial change in the number of shares outstanding
      subsequent to the consummation of the Plan.
</FN>
</TABLE>

                                       F-4

<PAGE>

ITEM 9.  CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
         FINANCIAL DISCLOSURE

         None.




<PAGE>

                                    PART III


ITEM 10.  DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT

         The directors and executive officers of the Company are as follows:
  
<TABLE>
<CAPTION>
         NAME              Age         Present Position With the Company

<S>                        <C>         <C>
Walter J. Branson          35          Director
Peter C. Cheston           38          Acting Chief Operating Officer
Marvin B. Crow             65          Director
Francis Goldwyn            43          Director
Morton Handel              62          Director
Eric N. Hoyle              50          Senior Vice President-Finance and Administration,
                                       Secretary, Chief Financial Officer
David H. Jones             54          Executive Vice President-Sales
R. Dean Riggs              45          Executive Vice President-Manufacturing
Jim D. Waller              56          Chairman of the Board, Chief Executive Officer,
                                       President, Director
David N. Weinstein         38          Director
James A. Williams          54          Director
</TABLE>

  
        Walter J. Branson was elected as a member of the post-reorganization
Board of Directors. Mr. Branson is currently Senior Vice President of
Development of the Big Party Corp. He joined the retailing firm as Vice
President of Development in 1996. From 1993 to 1996, Mr. Branson was the Chief
Financial Officer for CWT Specialty Stores. From 1989 to 1992, Mr. Branson was
employed by Executive Life Insurance as an Investment Manager.

        Peter C. Cheston joined the Company in November 1995, temporarily, as
Acting Chief Operating Officer. Mr. Cheston is a Managing Director at Alvarez &
Marsal, Inc. a turnaround management firm, with whom he has been employed since
1985. It is anticipated that he will resign from his position with the Company
at such time as determined by the Board of Directors.

        Marvin Crow was elected as a member of the post-reorganization Board of
Directors. At present, Mr. Crow serves on the Board of Directors of Dyersberg
Corporation, National Spinning Company, The Bibb Company and Ameritex Yarn
Corporation and works as a consultant for National Spinning Company, Texfi
Industries, Inc., Fortsmann & Company, Inc. and Charles Craft. Mr. Crow is also
actively involved with KBO Enterprises, Inc. Established by his family in 1989,
KBO Enterprises is involved in video rental, fitness, and TCBY Yogurt stores in
the Carolinas.

        Francis Goldwyn was elected as a member of the post-reorganization Board
of Directors. Since 1993 Mr. Goldwyn has been a principal of Chapman Management
Inc., a provider of strategic operating and financial consulting services. From
1991 to 1992, Mr. Goldwyn served as an Executive Vice President with the Gitano
Group, Inc.

        Morton Handel was elected as a member of the post-reorganization Board
of Directors. Presently, Mr. Handel is a director of CompUSA, Chairman of the
Board of Concurrent Computer Corporation and President of S&H Consulting Ltd.
Mr. Handel has served as a director of Concurrent Computer Corporation since
1991. S&H Consulting Ltd. provides strategic operating and financial consulting
services. Mr. Handel served as a member of the Management Committee of Remington
Products Company, a consumer products manufacturer, from 1992 to 1996.

         Eric N. Hoyle joined the Company in January 1994 as Senior Vice
President--Finance and Administration and Chief Financial Officer. Mr. Hoyle was
previously employed by Bali Company, a

                                       14
<PAGE>

manufacturer and marketer of Intimate Apparel from 1980 to 1994, most recently
as Chief Financial Officer and Vice President Finance and Administration. Mr.
Hoyle is a Certified Public Accountant.

         David H. Jones joined the Company in January 1997 as Executive Vice
President-Sales. Prior to joining Ithaca, Mr. Jones was with Gerber
Childrenswear, Inc. where he served as President and CEO from 1994 to 1996 and
as Vice President-Sales from 1991 to 1994. Mr. Jones has over 25 years
experience in the apparel business.

         R. Dean Riggs joined the Company in August 1996 as Executive Vice
President-Manufacturing. Mr. Riggs was previously employed by Sara Lee Knit
Products from 1974 to 1996. At Sara Lee Knit Products, his most recent
assignments included Vice President-Operations Planning and Vice
President-Manufacturing & Operations in the Casual Wear Division.

        Jim D. Waller has served as Chief Executive Officer since April 1991.
Mr. Waller joined Anderson Hosiery as Vice President--Marketing in 1968 and
became Vice President--Marketing of Ithaca upon its acquisition of Anderson
Hosiery from Collins and Aikman in 1982. Mr. Waller was elected a director in
January 1985, President in June 1987 and Chairman of the Board in March 1995.
Mr. Waller has served as President and as director of Ithaca Holdings Inc.
between January 1992 and December 1996 and as Chairman between March 1995 and
December 1996.

        David N. Weinstein was elected as a member of the post-reorganization
Board of Directors. Mr. Weinstein is a Managing Director in the High Yield
Department at BancBoston Securities, Inc. Mr. Weinstein was Head of the High
Yield Capital Market Group at Chase Securities, Inc. and a Managing Director of
the firm from 1993 to 1996. From 1990 through 1993, Mr. Weinstein served in
various roles at Lehman Brothers/Smith Barney Shearson including as Head of the
Capital Markets Group in the High Yield Department at Lehman Brothers and as
Director of the High Yield/Private Finance Group at Smith Barney Shearson.

        James A. Williams was elected as a member of the post-reorganization
Board of Directors. Mr. Williams also serves on the Board of Directors of The
Bibb Company. He is the President and Chief Executive Officer of Great American
Knitting Mills and has served in that capacity since 1991. Mr. Williams joined
Great American Mills as Senior Vice President of Sales and Marketing in 1985.
From 1970 through 1985, Mr. Williams was employed by Adams-Mill Hosiery Company,
first as a Sales Manager and later as Senior Vice President-Sales & Marketing.

        Pursuant to the Plan of Reorganization, the Board consists of seven (7)
directors, one of whom is Jim D. Waller. The term of office of each director
will expire at the first annual meeting of stockholders of the Company next
following the Company's fiscal year ending January 31, 1998. Directors of the
Company hold office until their successors are elected and qualified, or until
their earlier resignation or removal. Each executive officer is appointed by the
Board for a term specified by the Board, or until his or her earlier resignation
or removal.

COMMITTEES OF THE BOARD OF DIRECTORS

         The Board has established an Audit Committee and a Compensation and
Stock Option Committee.

        The "Audit Committee" is responsible for meeting with representatives of
the Company's independent certified public accountants and financial management
to review accounting, internal control, auditing and financial reporting matters
and is responsible, among other things, for maintaining liaison with and
exercising supervision over the actions of said accountants in whatever manner
and to whatever extent deemed, at its discretion, necessary, proper and in the
best interest of the Company and its stockholders. The Audit Committee consists
of Messrs. Crow, Goldwyn and Handel, three Directors who are not and never have
been employees of the Company.

        The "Compensation and Stock Option Committee" is responsible for
reviewing and approving officer and executive salaries and for reviewing and
recommending for approval by the Board executive and key employee compensation
plans, including incentive compensation and other benefits and consists of
Messrs. Branson, Weinstein and Williams, all of whom are not and never have been
employees of the Company.


                                       15
<PAGE>

DIRECTOR COMPENSATION

        Other than $21,909 paid to F. Richard Redden, a director of the Company
until December 16, 1996, non-employee Directors received no remuneration for
serving on the Board of Directors during the 42 week period ended November 22,
1996. Currently, non-employee Directors of the Company (Messrs. Branson, Crow,
Goldwyn, Handel, Weinstein and Williams) are paid retainer fees of $20,000 per
year. Each non-employee Director also receives a fee of $1,500 for each day of
Board or committee meetings attended. The Company and its subsidiaries do not
pay fees to Directors who are employees of the Company or its subsidiaries.


ITEM 11.  EXECUTIVE COMPENSATION

               The following table sets forth a summary of compensation for
services rendered in all capacities for the three fiscal years ended February 1,
1997 for the Chief Executive Officer, the three other most highly compensated
executive officers of the Company and two executives for whom disclosure would
be required but for the fact that they were not employed by the Company at the
end of the last completed fiscal year.

                                  SUMMARY COMPENSATION TABLE(1)

<TABLE>
<CAPTION>
                                            Annual Compensation          Long-Term Compensation Awards
                                            -------------------          -----------------------------
                                                                            Number of
                                                                            Securities
                                                                            Underlying       All Other
                                                                             Options       Compensation
       Name and Position           Year          Salary         Bonus            (2)            (3)
       -----------------           ----          ------         -----           -----        ---------
<S>                                <C>          <C>           <C>             <C>               <C>   
J.D. Waller                        1997         $490,988      $422,005        273,224           $1,219
  Chairman, President and Chief    1996         $490,984            -0-            -0-           1,219
  Executive Officer                1995          480,413       316,130             -0-           1,079

N.J. Wehrmann(4)                   1997          206,583            -0-            -0-           1,219
  Executive Vice President -       1996          206,583            -0-            -0-           1,219
  Manufacturing                    1995          202,194        88,060             -0-           1,092

G.P. Felten(5)                     1997          123,384            -0-            -0-             660
  Senior Vice President -          1996          217,000            -0-            -0-           1,219
  Sales & Marketing                1995          214,000        88,514             -0-           1,651

E.N. Hoyle                         1997          190,500       109,538         65,000            1,219
  Senior Vice President -          1996          190,000            -0-            -0-           1,544
  Finance and Administration,      1995          180,847        82,032             -0-              64
  Chief Financial Officer

R. Dean Riggs(6)                   1997           80,641        46,369         75,000               -0-
  Executive Vice President -       1996               -0-           -0-            -0-              -0-
  Manufacturing                    1995               -0-           -0-            -0-              -0-

David H. Jones(7)                  1997            8,267            -0-        70,000               -0-
  Executive Vice President -       1996               -0-           -0-            -0-              -0-
  Sales                            1995               -0-           -0-            -0-              -0-
</TABLE>
  
--------------------

(1) As the Company had only three executive officers (other than the Chief
    Executive Officer), only such three executive officers are included in this
    table and the other tables in "Executive Compensation." Mr. Peter C.
    Cheston, Acting Chief Operating Office of the Company, receives no salary
    directly from the Company. Mr. Cheston receives remuneration from Alvarez &
    Marsal, Inc., with whom he is employed. See "Consulting Arrangements."

                                       16
<PAGE>

(2) Represents options to purchase shares of common stock of the Company
    pursuant to the Company's LTIP.

(3) The amounts reported in this column represent the Company's matching
    contributions for the account of the named executive officers pursuant to
    the Company's Employee Retirement Savings Plan (the "401(k) Plan").

(4) Mr. Wehrmann's employment with the Company terminated in August, 1996. He
    has since been replaced by R. Dean Riggs.

(5) Mr. Felten's employment with the Company terminated in August, 1996. He has
    since been replaced by David H. Jones.

(6) Mr. Riggs joined the Company in August, 1996. The compensation reported for
    him in respect of fiscal 1997 reflects compensation for services rendered
    for a portion of the 1997 fiscal year.

(7) Mr. Jones joined the Company in January, 1997. The compensation reported for
    him in respect of fiscal 1997 reflects compensation for services rendered
    for a portion of the 1997 fiscal year.



                    OPTIONS/SAR GRANTS IN LAST FISCAL YEAR /1/


<TABLE>
<CAPTION>
                                         % of Total
                       Number of         Options/SARs                                   Potential Realizable Value at Assumed
                       Securities        Granted to       Exercise or                   Annual Rates of Stock Price Appreciation
                       Underlying        Employees in     Base Price      Expiration    for Option Term
Name                   Options Granted   Fiscal Year      ($/Sh)          Date               (5%) ($)           (10%) ($)
---------------------- ----------------  ---------------- --------------  ------------  ------------------------------------------
<S>                            <C>                 <C>            <C>       <C>               <C>                 <C>       
J.D. Waller                    273,224             34.58%         $6.00     1/23/07           $1,030,874          $2,612,692
                                                                                                               
E.N. Hoyle                      65,000              8.23%         $6.00     1/23/07             $245,245            $621,560
                                                                                                               
R.D. Riggs                      75,000              9.49%         $6.00     1/23/07             $282,975            $717,184
                                                                                                               
D.H. Jones                      70,000              8.86%         $6.00     1/23/07             $264,110            $669,372
                                                                                                               
All Employees as a             790,224            100.00%         $6.00     1/23/07           $2,981,515          $7,556,481
group                                                                                                       
</TABLE>



/1/ All options granted in fiscal 1997 are exercisable at a strike price of
    $6.00 which the Company's Board of Directors determined to be approximately
    equal to the fair market value of the Common Stock at the time of grant.
    Approximately 16.67% of the options awarded will vest at the end of each of
    fiscal 1997, fiscal 1998 and fiscal 1999. Up to an additional 16.67% of the
    options will vest approximately 45 days after the end of each of fiscal
    1997, fiscal 1998 and fiscal 1999, with the number of options vesting linked
    to the achievement of certain performance goals related to EBITDA, subject
    to the discretion of the Compensation and Stock Option Committee in
    accordance to the terms of the LTIP. Assuming the officers' continued
    employment with the Company, the options will expire on the tenth
    anniversary of the date of grant.

EMPLOYMENT AND CONSULTING AGREEMENTS

        The Company entered into an employment agreement with Jim D. Waller in
February 1997 (the "Employment Agreement"). The Employment Agreement, which
expires on December 31, 1999, calls for Mr. Waller to serve as the Company's
Chief Executive Officer at an annual base salary of $490,000. Mr. Waller is
eligible to participate in the Company's Cash Bonus Plan (as defined below) and
the Company's LTIP.


                                       17
 

<PAGE>





        If Mr. Waller's employment is terminated during the term of the
Employment Agreement, he will be entitled to receive his base salary until
termination. If such termination is without cause (defined as gross negligence
that is materially detrimental to the Company; wilful, material, continued and
bad faith failure to perform and discharge his duties and responsibilities; or
conviction of a felony involving personal dishonesty) or if Mr. Waller resigns
for good reason (defined as either a failure to re-elect him as Chief Executive
Officer, an assignment of duties significantly different from Chief Executive
Officer, a material limitation of the powers of Chief Executive Officer, a
reduction in base salary, relocation from Wilkesboro, North Carolina or a
failure to obtain the assumption of the Employment Agreement by a successor),
until the expiration of the Employment Agreement, Mr. Waller will be entitled to
receive 65% of his base salary if his employment terminates during the fiscal
year ending in the third year prior to the expiration date, 80% of his base
salary if his employment terminates during the fiscal year ending in the second
year prior to the expiration date and 100% of his base salary if his employment
is terminated thereafter. In the case of Mr. Waller's death during the term of
the Employment Agreement, his designee, estate, personal or legal
representative, as the case may be, shall be entitled to receive his then
current base salary until the earlier of one year or the date of expiration of
the Employment Agreement. If Mr. Waller is mentally or physically incapacitated
during the term of the Employment Agreement and is unable to perform his duties,
he will be entitled to receive 50% of his base salary until the earlier of one
year after his replacement or the expiration of the agreement.

        The Employment Agreement contains restrictions on disclosure by Mr.
Waller of confidential information and restricts Mr. Waller's right to compete
with the Company anywhere the Company does business during the term of his
employment and for 24 months thereafter. As described above, the Employment
Agreement is terminable upon the death of Mr. Waller, by the Company for cause
(as defined above), upon disability or by Mr. Waller under certain
circumstances. In addition, unless Mr. Waller's employment is terminated for
cause (as defined above) by the Company, or Mr. Waller terminates his employment
other than for good reason (as defined above), Mr. Waller is entitled to
continue to participate in all group health, medical and employee benefits plans
and programs to which he was previously entitled for the remaining term of the
Employment Agreement.

        The Company has also entered into a one-year Management Agreement
("Management Agreement") with Alvarez & Marsal, Inc. pursuant to which Peter
Cheston will serve as the Company's Acting Chief Operating Officer at a monthly
fee of $35,000 (subject to downward adjustment upon the mutual agreement of Mr.
Cheston and Ithaca, if Mr. Cheston devotes less than ninety percent of his time
to the management of the Company). In addition, pursuant to the Management
Agreement, Alvarez & Marsal, Inc. received an option to purchase 109,290 shares
of the Company's capital stock as of February 1, 1997 and is eligible to
participate in the Cash Bonus Plan (as defined below). The Management Agreement
is terminable by Ithaca upon 30 days notice. The Management Agreement also
provides for certain customary indemnifications by the Company of Alvarez and
Marsal, Inc. and its directors, officers, agents and affiliates for actions
arising out of Alvarez and Marsal, Inc.'s performance under the Management
Agreement.

CASH BONUS PLAN

        Approximately 150 employees, as recommended by management, are eligible
to participate in the Cash Bonus Plan (the "Cash Bonus Plan"). Under the
provisions of the Cash Bonus Plan, 85% of the amount available for cash bonuses
will be paid out if 85% of the target performance level is achieved and will be
increased pro rata as actual performance meets or equals up to 115% of the
Business Plan targets. In fiscal 1997, the maximum bonus of $2,280,739 was
awarded by the Board of Directors at the recommendation of the Compensation and
Stock Option Committee.

LONG-TERM STOCK INCENTIVE PLAN

        Ithaca has implemented the Ithaca Industries, Inc. 1996 Long-Term Stock
Incentive Plan (previously defined as the "LTIP"), to be administered by the
Compensation and Stock Option Committee comprised of two or more members of the
Board each of whom is intended to be a "Director" (within the meaning of Rule
16b-3 promulgated under the Securities and Exchange Act of 1934, the "Exchange
Act") and an "outside director" (within the meaning of the Internal Revenue Code
of 1986, as amended (the "Code") Section 162 (m)) although, the mere fact that
the Compensation and Stock Option Committee does not consist of non-employee
Directors and outside directors will not invalidate any awards made by it. Any
officer, other key employee or consultant to the Company or any of its
subsidiaries who is not a member of the Compensation and Stock Option Committee
is eligible to participate in the LTIP. The Compensation and Stock Option

                                       18
<PAGE>

Committee has the sole and complete authority to determine the participants to
whom awards shall be granted ("Participant" or "Participants").

        The LTIP authorizes the grant of awards to Participants with respect to
a maximum of 928,962 shares of the Company's Common Stock, which awards may be
made in the form of (a) nonqualified stock options, (b) stock options intended
to qualify as incentive stock options under Section 422 of the Code, (c) stock
appreciation rights, (d) restricted stock and/or restricted stock units, (e)
performance awards and (f) other stock based awards. In any calendar year, a
Participant may not receive stock options or stock appreciation rights for more
than 273,224 of the Company's shares. No more than 109,290 shares of Common
Stock or the equivalent cash value thereof, may be paid to a Participant in
connection with the settlement of any award(s) designated as a Performance
Compensation Award (as defined below) in respect of a single performance period.
Any Performance Compensation Award (as defined below) that is deferred shall not
(between the date that the award is deferred and the payment date), increase (i)
with respect to an award payable in cash, by a measuring factor for each fiscal
year greater than a reasonable rate of interest set by the Compensation and
Stock Option Committee or (ii) with respect to an award payable in shares of the
Company, by an amount greater than the appreciation of a share of the Common
Stock from the date such award is deferred to the payment date. If any award
granted under the LTIP is forfeited, or if an award has expired, terminated or
been cancelled for any reason whatsoever (other than by reason of exercise or
vesting), then the shares of Common Stock covered by such award may be granted
to another Participant pursuant to the terms of the LTIP, to the maximum extent
permitted under Section 162(m) of the Code.

        Stock options intended to qualify as incentive stock options will be
subject to terms, conditions and such rules as may be prescribed by Section 422
of the Code. Additionally, non-qualified and incentive stock options granted
under the LTIP shall be subject to such terms, including exercise price and
conditions and timing of exercise, as may be determined by the Compensation and
Stock Option Committee and specified in the applicable award agreement. Payment
in respect of the exercise of an option granted under the LTIP may be made (a)
in cash, (b) its equivalent or if and to the extent permitted by the
Compensation and Stock Option Committee and subject to such rules as may be
established by the Compensation and Stock Option Committee, (c) by exchanging
Common Stock owned by the optionee (which are not the subject of any pledge or
other security interest and which have been owned by such optionee for at least
6 months), (d) through the delivery of irrevocable instructions to a broker to
sell the Common Stock being acquired upon exercise of the option and to deliver
promptly to the Company an amount equal to the aggregate exercise price or (e)
by a combination of the foregoing, provided that the combined value of all cash,
cash equivalents and the fair market value of shares of Common Stock so tendered
to the Company (as of the date of such tender) is at least equal to the
aggregate exercise price of the option.

        Stock appreciation rights granted under the LTIP may not be exercisable
earlier than six months after the date of grant but shall otherwise be subject
to such terms, including grant price and conditions and limitations applicable
to exercise as may be determined by the Compensation and Stock Option Committee
and specified in the applicable award agreement. Stock appreciation rights may
be granted in tandem with another award, in addition to another award, or
freestanding and unrelated to another award. A stock appreciation right shall
entitle the Participant to receive an amount equal to the excess of the fair
market value of a share of Common Stock over the grant price on the date of
exercise thereof. The Compensation and Stock Option Committee shall determine
whether a stock appreciation right shall be settled in cash, Common Stock or a
combination of cash and Common Stock.

        Restricted stock and restricted stock units granted under the LTIP shall
be subject to such terms and conditions as may be determined by the Compensation
and Stock Option Committee in its sole discretion, including, without
limitation, the duration of the period during which, and the conditions, if any,
under which, the restricted stock and restricted stock units may be forfeited to
the Company. Each restricted stock unit shall have a value equal to the fair
market value of a share of Common Stock. Upon the lapse of the restrictions
applicable thereto, or otherwise in accordance with the applicable award
agreement, restricted stock units shall be paid in cash, shares of Common Stock,
other securities or other property, as determined in the sole discretion of the
Compensation and Stock Option Committee. Dividends paid on any shares of
restricted stock may be paid directly to the participant, withheld by the
Company subject to vesting of the restricted shares or may be reinvested in
additional shares of restricted stock or in additional restricted stock units,
as determined by the Compensation and Stock Option Committee in its sole
discretion.

        Performance awards granted under the LTIP shall consist of a right
denominated in cash or shares of Common Stock, payable at such time and in such
form as the Compensation and Stock Option Committee

                                       19
<PAGE>

shall determine, payable in amounts determined by the Compensation and Stock
Option Committee, based upon the achievement of such performance goals during
such performance periods as the Compensation and Stock Option Committee shall
establish. Subject to the terms of the LTIP and any applicable award agreement,
the Compensation and Stock Option Committee shall determine the performance
goals to be achieved during any performance period, the length of any
performance period, the amount of any performance award and the amount and kind
of any payment or transfer to be made pursuant to any performance award.
Performance awards may be paid in a lump sum or in installments following the
close of the performance period or, in accordance with procedures established by
the Compensation and Stock Option Committee, on a deferred basis.

        In addition to the foregoing types of awards, the Compensation and Stock
Option Committee shall have the authority to grant to Participants an "Other
Stock-Based Award", which shall consist of any right which is (a) not a stock
option, stock appreciation right, restricted stock or restricted unit award or
performance award, and (b) an award of shares of Common Stock or an award
denominated or payable in, valued in whole or in part by reference to, or
otherwise based on or related to, shares of Common Stock (including, without
limitation, securities convertible into shares of Common Stock), as deemed by
the Compensation and Stock Option Committee to be consistent with the purposes
of the LTIP; provided that any such rights must comply, to the extent deemed
desirable by the Compensation and Stock Option Committee, with Rule 16b-3 and
applicable law. Subject to the terms of the LTIP and any applicable award
agreement, the Compensation and Stock Option Committee shall determine the terms
and conditions of any such other stock-based award, including the price, if any,
at which securities may be purchased pursuant to any other stock-based award
granted under the LTIP. In the sole and complete discretion of the Compensation
and Stock Option Committee, an award, whether made as any other stock-based
award or as any other type of award issuable under the LTIP, may provide the
participant with dividends or dividend equivalents, payable in cash, shares of
Common Stock, other securities or other property on a current or deferred basis.

        The Compensation and Stock Option Committee shall also have the
discretion to designate any award as a "Performance Compensation Award." While
awards in the form of stock options and stock appreciation rights are intended
to qualify as "Performance-Based Compensation" under Section 162(m) of the Code,
provided that the exercise price or the grant price, as the case may be, is
established by the Compensation and Stock Option Committee to be equal to the
fair market value per share of Common Stock as of the date of grant, this form
of award enables the Compensation and Stock Option Committee to treat certain
other awards under the LTIP as Performance Based Compensation and thus preserve
deductibility by the Company for federal income tax purposes of such awards
which are made to participants in the LTIP.

        Each Performance Compensation Award shall be payable only upon
achievement over a specified performance period of a duration of at least one
year of a pre-established objective performance goal established by the
Compensation and Stock Option Committee for such period. The Compensation and
Stock Option Committee may designate one or more performance criteria for
purposes of establishing a performance goal with respect to Performance
Compensation Awards made pursuant to the LTIP. The performance criteria that
will be used to establish such performance goals shall be based on the
attainment of specific levels of performance of the Company (or subsidiary,
affiliate, division or operational unit of the Company) and shall be limited to
the following: return on net assets, return on shareholders' equity, return on
assets, return on capital, shareholder returns, profit margin, EBITDA, earnings
per share, net earnings, operating earnings, price per share, sales or market
share.

        With regard to a particular performance period, the Compensation and
Stock Option Committee shall have the discretion, subject to the terms of the
LTIP, to select the length of the performance period, the type(s) of Performance
Compensation Award(s) to be issued, the performance goals that will be used to
measure performance for the period and the performance formula that will be used
to determine what portion, if any, of the Performance Compensation Award has
been earned for the period. Such discretion shall be exercised by the
Compensation and Stock Option Committee in writing no later than 90 days after
the commencement of the period. Performance for the period shall be measured and
certified by the Compensation and Stock Option Committee upon the period's
close. In determining entitlement to payment in respect of a Performance
Compensation Award, the Compensation and Stock Option Committee may through use
of negative discretion reduce or eliminate such award, provided such discretion
is permitted under Section 162(m) of the Code. The Compensation and Stock Option
Committee may not use negative discretion with respect to any option or stock
appreciation right other than an option or stock appreciation right that is
intended to be a Performance Compensation Award.


                                       20
<PAGE>

        In the event that the Compensation and Stock Option Committee determines
that any corporate transaction or event affects the shares of Common Stock
awarded pursuant to the LTIP, such that an adjustment is appropriate in order to
prevent dilution or enlargement of the benefits or potential benefits intended
to be made available under the LTIP, then the Compensation and Stock Option
Committee shall, in such manner as it may deem equitable, adjust any or all of
(a) the number of shares or other securities of the Company (or number and kind
of other securities or property) with respect to which awards may be granted,
(b) the number of shares of Common Stock or other securities of the Company (or
number and kind of other securities or property) subject to outstanding awards
and (c) the grant or exercise price with respect to any award or (d) if deemed
appropriate, make provision for a cash payment to the holder of an outstanding
award in consideration for the cancellation of such award; provided, in each
case that no such adjustment shall be authorized to the extent such authority
would cause an award designated by the Compensation and Stock Option Committee
as a Performance Compensation Award or an option or stock appreciation right
with an exercise price or grant price (as applicable) equal to the fair market
value of a share of Common Stock to fail to qualify as Performance Based
Compensation.

        In the event of a Change of Control of the Company (as defined in the
LTIP), any outstanding awards which are unexerciseable or otherwise unvested
shall automatically be deemed exercisable or otherwise vested as of immediately
prior to the Change of Control.

        Each award and each right under any award, shall be exercisable only by
the Participant during the Participant's lifetime or if permissible under
applicable law, by the Participant's guardian or legal representative. No award
may be assigned, alienated, pledged, attached, sold or otherwise transferred or
encumbered by a Participant other than by will or by the laws of descent and
distribution and any such purported assignment, alienation, pledge, attachment,
sale, transfer or encumbrance shall be void and unenforceable against the
Company or any affiliate; provided that the designation of a beneficiary shall
not constitute an assignment, alienation, pledge, attachment, sale, transfer or
encumbrance.

        The Board of Directors may amend, alter, suspend, discontinue, or
terminate the LTIP or any portion thereof at any time; provided that no such
amendment, alteration, suspension, discontinuation or termination shall be made
without shareholder approval if such approval is necessary to comply with any
tax or regulatory requirement, including for these purposes any approval
requirement which is a prerequisite for exemptive relief from Section 16(b) of
the Exchange Act or Code Section 162(m) (provided that the Company is subject to
the requirements of Section 16 of the Exchange Act or Code Section 162(m), as
the case may be, as of the date of such action).

        As of January 24, 1997, options representing 899,514 shares were awarded
to 40 individuals and Alvarez & Marsal, Inc. Options representing 504,402 shares
were awarded as nonqualified stock options, of which 240,994 vested as of
February 1, 1997. Options representing 395,112 shares were awarded as
Performance Compensation Awards, of which 131,704 vested as of April 15, 1997.

        In addition, the Company presently (i) maintains a medical and dental
benefits plan (the "Medical Plan") which covers substantially all employees and
(ii) sponsors a qualified defined contribution retirement plan for its employees
under section 401(k) of the Internal Revenue Code of 1986 (the "Retirement
Plan"). The Medical Plan is funded currently by contributions from the Company
and employees based on anticipated claim costs. Company contributions to the
Retirement Plan are based upon a percentage of the employees' contributions.

COMPENSATION AND STOCK OPTION COMMITTEE INTERLOCKS AND
INSIDER PARTICIPATION IN COMPENSATION DECISIONS

        During the Company's last fiscal year there were no Compensation and
Stock Option Committee Interlocks.

CONSULTING ARRANGEMENTS

        In connection with consulting services provided by Mr. Redden, a former
Director of the Company who resigned on December 16, 1997, Osnos and Company, of
which Mr. Redden was President, billed the Company $8,313 for services rendered
in fiscal year 1996 and $21,258 for services rendered through February 1, 1997.
The Company does not anticipate working with Osnos and Company in the future.


                                       21
<PAGE>

        Alvarez and Marsal, Inc., of which Mr. Cheston is a managing director,
is providing turnaround management and financial restructuring advisory services
to the Company. The Company was billed $337,847 in fiscal 1996 and $1,210,796
for the 52-week period ended February 1, 1997. In addition, an Option to
purchase 109,290 shares at $6.00 per share was granted to Alvarez & Marsal,
Inc., the Company's financial and business advisor, as of January 24, 1997 and
was exercisable as of February 1, 1997. As of the date of this report, Alvarez &
Marsal, Inc. has not exercised any portion of its option.


ITEM 12.  SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

        The following table sets forth the number of shares of Common Stock of
the Company beneficially owned, as of April 3, 1997, by certain executive
officers and by each person known by the Company to beneficially own more than
5% of the Company's Common Stock.


<TABLE>
<CAPTION>
Name and                                                    Number
Address of Owners                                           of Shares        Percentage
-----------------                                           ---------        ----------
<S>                                                       <C>                <C>  
Northwestern Mutual Life Insurance Company                2,536,000 /1/       25.4%
720 East Wisconsin Avenue
Milwaukee, Wisconsin 53202

Merrill Lynch, Pierce, Fenner & Smith Incorporated        1,252,080           12.5%
250 Vesey Street
New York, NY  10281

Jim D. Waller/2/                                             91,075              *
Ithaca Industries, Inc.
Highway 268 West
P.O. Box 620
Wilkesboro, North Carolina 28697

Eric N. Hoyle/2/                                             21,667              *
Ithaca Industries, Inc.
Highway 268 West
P.O. Box 620
Wilkesboro, North Carolina 28697

R.D. Riggs/2/                                                25,000              *
Ithaca Industries, Inc.
Highway 268 West
P.O. Box 620
Wilkesboro, North Carolina 28697

D.H. Jones/2/                                                23,334              *
Ithaca Industries, Inc.
Highway 268 West
P.O. Box 620
Wilkesboro, North Carolina 28697

All Executive Officers as a group/2/                        283,408            2.6%
</TABLE>

-------------------------
*    Less than 1%.

/1/ Of The Northwestern Mutual Life Insurance Company's holdings of 2,536,000
    shares of Common Stock, 120,000 shares are held pursuant to shared voting
    and investment power with The Northwestern Mutual Life Insurance Company
    Group Annuity Separate Account, an affiliate and 136,000 shares are held
    pursuant to shared voting and investment power with Northwestern Mutual
    Series Fund, Inc., a wholly-owned subsidiary.


                                                   22
 

<PAGE>





2   The named executive officers have been awarded options to purchase the
    shares indicated as of January 24, 1997, pursuant to the LTIP. Options
    awarded under the LTIP that are not vested or that do not vest within 60
    days from the date of this report are not included. In each case, the
    options to purchase half of the number of the shares indicated vested as of
    February 1, 1997 while the remaining half of the number of shares indicated
    vested as of April 15, 1997.



ITEM 13.  CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

        During the Company's last fiscal year there were no reportable
transactions or relationships.


                                     PART IV


ITEM 14.  EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K

(a)     Financial Statement, Financial Statement Schedules and Exhibits

        1.  FINANCIAL STATEMENTS

            A.    Consolidated Balance Sheet as of February 1, 1997 and 
                  February 2, 1996.

            B.    Consolidated Statements of Operations for the 10-Week Period
                  ended February 1, 1997, the 42-Week Period ended November 22,
                  1996 and for the years ended February 2, 1996 and January 27,
                  1995.

            C.    Consolidated Statements of Stockholders' Equity (Deficit) for
                  the 10-Week Period ended February 1, 1997, the 42-Week Period
                  ended November 22, 1996 and for the years ended February 2,
                  1996 and January 27, 1995.

            D.    Consolidated Statements of Cash Flows for the 10-Week Period
                  ended February 1, 1997, the 42-Week Period ended November 22,
                  1996, and for the years ended February 2, 1996 and January 27,
                  1995.

            E.    Notes to the Consolidated Financial Statements.

        2.  FINANCIAL STATEMENT SCHEDULE
<TABLE>
<CAPTION>
                                                                                              Page
                                                                                              ----
<S>                        <C>                                                                <C>
            Schedule II    Valuation and Qualifying Accounts--years ended 
                           February 1, 1997, February 2, 1996 and January 27, 1995.              S-1
</TABLE>

        3.  EXHIBITS

            All Exhibits listed below are filed with this Annual Report on Form
            10-K unless specifically stated to be incorporated by reference to
            other documents previously filed with the Securities and Exchange
            Commission.

EXHIBIT NO.       DESCRIPTION OF EXHIBITS

     2.1          Plan of Reorganization, dated August 29, 1996 (incorporated by
                  reference to Exhibit A of Exhibit 2.1 to the Company's Form
                  8-K, dated September 3, 1996).

     2.2          Modification of the Plan of Reorganization (incorporated by
                  reference to Exhibit 2.2 to the Company's Registration
                  Statement on Form S-1, dated March 17, 1997).

     2.3          Second Modification of the Plan of Reorganization
                  (incorporated by reference to Exhibit 2.3 to the Company's
                  Registration Statement on Form S-1, dated March 17, 1997).

                                       23
<PAGE>


     3.1          Amended and Restated Certificate of Incorporation of the
                  Company (incorporated by reference to Exhibit 3.1 of the
                  Company's Registration Statement on Form S-1, dated March 17,
                  1997).

     3.2          Amended and Restated By-Laws of the Company (incorporated by
                  reference to Exhibit F of Exhibit 2.1 to the Company's Form
                  8-K, dated September 3, 1996).

     4            Registration Rights Agreement, between the Company and various
                  stockholders (incorporated by reference to Exhibit H of
                  Exhibit 2.1 to the Company's Form 8-K, dated September 3,
                  1996).

     10.1         Credit Agreement among the Company, various banks, Canadian
                  Imperial Bank of Commerce as co-agent and Bankers Trust
                  Company as agent, originally dated as of December 1, 1992 and
                  amended and restated as of December 16, 1996 (incorporated by
                  reference to Exhibit 10.1 of the Company's Registration
                  Statement on Form S-1, dated March 17, 1997, Exhibit P of
                  which is incorporated by reference to Exhibit 99.1 to the
                  Company's Form 10-K, dated May 17, 1996 and Exhibit Q of which
                  is included in item 2.1).

     10.2         Ithaca Industries 1996 Long Term Stock Incentive Plan
                  (incorporated by reference to Exhibit I of Exhibit 2.1 to the
                  Company's Form 8-K, dated September 3, 1996).

     10.3         Management Agreement between the Company and Alvarez and
                  Marsal, Inc. (incorporated by reference to Exhibit 10.3 of the
                  Company's Registration Statement on Form S-1, dated March 17,
                  1997).

     10.4         Employment Agreement of Jim D. Waller (incorporated by
                  reference to Exhibit 10.4 of the Company's Registration
                  Statement on Form S-1, dated March 17, 1997).

     21           List of Subsidiaries of the Company (incorporated by reference
                  to Exhibit 21 of the Company's Registration Statement on Form
                  S-1, dated March 17, 1997).

     23           Consent of KPMG Peat Marwick LLP.

     24           Power of Attorney (included in the signature page of this
                  report).

     27           Financial Data Schedule for the 10-week period ended 
                  February 1, 1997.

(b)     Reports on Form 8-K:

        No reports on Form 8-K have been filed by the Registrant during the last
        quarter of the fiscal year ended February 1, 1997.

        As of the date of the filing of this Annual Report on Form 10-K no proxy
        materials have been furnished to security holders. Copies of all proxy
        materials will be sent to the Commission in compliance with its rules.


                                       24
<PAGE>

                                   SIGNATURES

        Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized, in Wilkesboro, North
Carolina, on this 2nd day of May, 1997.

                                        ITHACA INDUSTRIES, INC.


                                        By:  /s/ Eric Hoyle
                                           -------------------------------
                                           Eric N. Hoyle
                                           (Secretary, Chief Financial and
                                           Accounting Officer)


        We, the undersigned officers and directors of Ithaca Industries, Inc.,
hereby severally constitute Jim D. Waller, and Eric N. Hoyle, and each of them
singly, our true and lawful attorneys with full power to them, and each of them
singly, to sign for us and in our names in the capacities indicated below, any
and all reports, with all exhibits thereto and any and all documents in
connection therewith, and generally do all such things in our name and on our
behalf in such capacities to enable Ithaca Industries, Inc. to comply with the
applicable provisions of the Securities Exchange Act of 1934, as amended, and
all requirements of the Securities Exchange Commission, and we hereby ratify and
confirm our signatures as they may be signed by our said attorneys, or either of
them, to any and all such amendments.

        Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, this report has been signed by the following persons in
the capacities and on the dates indicated.
  
<TABLE>
<CAPTION>
                 Signature                  Title                          Date
                 ---------                  -----                          ----
                                            
<S>    <C>                                  <C>                            <C>      
             /s/ Jim D. Waller              Chairman, Chief                May 2, 1997  
             -----------------              Executive Officer,                          
               Jim D. Waller                President and Director


           /s/ Walter J. Branson            Director                       May 1, 1997
          -----------------------
             Walter J. Branson


            /s/ Marvin B. Crow              Director                       April 28, 1997
           --------------------
              Marvin B. Crow


                                            Director
           --------------------
             Francis Goldwyn


           /s/ Morton E. Handel             Director                       May 2, 1997
          ----------------------
             Morton E. Handel


          /s/ David N. Weinstein            Director                       April 30, 1997
         ------------------------
            David N. Weinstein


           /s/ James A. Williams            Director                       April 28, 1997
          -----------------------
             James A. Williams

</TABLE>
  

                                       25

<PAGE>


                                                                     Schedule II
                    ITHACA INDUSTRIES, INC. AND SUBSIDIARIES

                       Valuation and Qualifying Accounts

           10-Week Period ended February 1, 1997, Post-Confirmation,
            42-Week Period ended November 22, 1996, Preconfirmation,
             and Years ended February 2, 1996 and January 27, 1995


<TABLE>
<CAPTION>
                                                                Balance at       Charged to                Balance at
                                                               beginning of       cost and                    end of      
            Description                                         year/period       expenses   Deductions    year/period 
            -----------                                         -----------       --------   ----------    ----------- 
<S>                                                             <C>                 <C>         <C>         <C>      
10-week period ended February 1, 1997
   (post-confirmation):
      Allowance for doubtful accounts                           $ 1,508,296         2,329       254,488     1,256,137
      Provision for discounts                                         4,760       544,529       549,289           -
      Provision for claims and allowances                         1,244,737       893,886     1,109,507     1,029,116
      Provision for assets held for disposition
        and reserve for plant closures                           12,204,000           -      10,097,770     2,106,230
                                                                -----------     ---------    ----------     ---------

             Total                                              $14,961,793     1,440,744    12,011,054     4,391,483
                                                                ===========     =========    ==========     =========

42-week period ended November 22, 1996
   (preconfirmation):
       Allowance for doubtful accounts                          $ 1,215,000       333,724        40,428     1,508,296
       Provision for discounts                                       99,178     1,925,578     2,019,996         4,760
       Provision for claims and allowances                        1,255,602     4,579,938     4,590,803     1,244,737
       Provision for assets held for disposition
          and reserve for plant closures                         37,093,000           -      24,889,000    12,204,000
                                                                -----------     ---------    ----------    ----------

              Total                                             $39,662,780     6,839,240    31,540,227    14,961,793
                                                                ===========     =========    ==========    ==========

Year ended February 2, 1996:
    Allowance for doubtful accounts                               1,215,000        54,965        54,965     1,215,000
    Provision for discounts                                         146,974     2,776,842     2,824,638        99,178
    Provision for claims and allowances                           1,373,208     6,530,524     6,648,130     1,255,602
    Provision for assets held for disposition and
      reserve for plant closures                                        -      51,591,000    14,498,000    37,093,000
                                                                -----------    ----------    ----------    ----------

               Total                                            $ 2,735,182    60,953,331    24,025,733    39,662,780
                                                                ===========    ==========    ==========    ==========

Year ended January 27, 1995:
    Allowance for doubtful accounts                             $ 1,797,344      (528,547)       53,797     1,215,000
    Provision for discounts                                         269,658     2,937,297     3,059,981       146,974
    Provision for claims and allowances                           1,061,451     5,575,020     5,263,263     1,373,208
                                                                -----------     ---------     ---------     ---------

               Total                                            $ 3,128,453     7,983,770     8,377,041     2,735,182
                                                                ===========     =========     =========     =========

</TABLE>
<PAGE>
                                      S-1

<PAGE>


                                  EXHIBIT INDEX


EXHIBIT NO.       DESCRIPTION OF EXHIBITS

     2.1          Plan of Reorganization, dated August 29, 1996 (incorporated by
                  reference to Exhibit A of Exhibit 2.1 to the Company's Form
                  8-K, dated September 3, 1996).

     2.2          Modification of the Plan of Reorganization (incorporated by
                  reference to Exhibit 2.2 to the Company's Registration
                  Statement on Form S-1, dated March 17, 1997).

     2.3          Second Modification of the Plan of Reorganization
                  (incorporated by reference to Exhibit 2.3 to the Company's
                  Registration Statement on Form S-1, dated March 17, 1997).

     3.1          Amended and Restated Certificate of Incorporation of the
                  Company (incorporated by reference to Exhibit 3.1 of the
                  Company's Registration Statement on Form S-1, dated March 17,
                  1997).

     3.2          Amended and Restated By-Laws of the Company (incorporated by
                  reference to Exhibit F of Exhibit 2.1 to the Company's Form
                  8-K, dated September 3, 1996).

     4            Registration Rights Agreement, between the Company and various
                  stockholders (incorporated by reference to Exhibit H of
                  Exhibit 2.1 to the Company's Form 8-K, dated September 3,
                  1996).

     10.1         Credit Agreement among the Company, various banks, Canadian
                  Imperial Bank of Commerce as co-agent and Bankers Trust
                  Company as agent, originally dated as of December 1, 1992 and
                  amended and restated as of December 16, 1996 (incorporated by
                  reference to Exhibit 10.1 of the Company's Registration
                  Statement on Form S-1, dated March 17, 1997, Exhibit P of
                  which is incorporated by reference to Exhibit 99.1 to the
                  Company's Form 10-K, dated May 17, 1996 and Exhibit Q of which
                  is included in item 2.1).

     10.2         Ithaca Industries 1996 Long Term Stock Incentive Plan
                  (incorporated by reference to Exhibit I of Exhibit 2.1 to the
                  Company's Form 8-K, dated September 3, 1996).

     10.3         Management Agreement between the Company and Alvarez and
                  Marsal, Inc. (incorporated by reference to Exhibit 10.3 of the
                  Company's Registration Statement on Form S-1, dated March 17,
                  1997).

     10.4         Employment Agreement of Jim D. Waller (incorporated by
                  reference to Exhibit 10.4 of the Company's Registration
                  Statement on Form S-1, dated March 17, 1997).

     21           List of Subsidiaries of the Company (incorporated by reference
                  to Exhibit 21 of the Company's Registration Statement on Form
                  S-1, dated March 17, 1997).

     23           Consent of KPMG Peat Marwick LLP.

     24           Power of Attorney (included in the signature page of this
                  report).

     27           Financial Data Schedule for the 10-week period ended February
                  1, 1997.


                                       26