<PAGE>

      AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON JUNE 23, 2004

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

                       SECURITIES AND EXCHANGE COMMISSION
                             WASHINGTON, D.C. 20549

                                    FORM 20-F

                  ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D)
                     OF THE SECURITIES EXCHANGE ACT OF 1934

                   FOR THE FISCAL YEAR ENDED DECEMBER 31, 2003

                         COMMISSION FILE NUMBER 0-30020

                           DELTA GALIL INDUSTRIES LTD.
             (EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)

                                     ISRAEL
                 (JURISDICTION OF INCORPORATION OR ORGANIZATION)

                    2 Kaufman Street, Tel Aviv 68012, Israel
                    (ADDRESS OF PRINCIPAL EXECUTIVE OFFICES)

 Securities registered or to be registered pursuant to Section 12(b) of the Act:

                                      NONE
                              (Title of each class)

 Securities registered or to be registered pursuant to Section 12(g) of the Act:

                               ORDINARY SHARES (1)
                                (Title of Class)

                         AMERICAN DEPOSITARY SHARES (2)
                                (Title of Class)

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

(1)     Not for trading, but only in connection with the listing of the American
        Depositary Shares.
(2)     Evidenced by American Depositary Receipts, each American Depositary
        Share representing one ordinary share, par value NIS 1.00 per share.

        Securities for which there is a reporting obligation pursuant to Section
15(d) of the Act:

                                      NONE
                                (Title of class)

        Indicate the number of outstanding shares of each of the issuer's
classes of capital or common stock at the close of the period covered by the
annual report:

        AS OF DECEMBER 31, 2003 THE REGISTRANT HAD 19,947,849 ORDINARY SHARES
OUTSTANDING (INCLUDING 1,422,486 ORDINARY SHARES OWNED BY THE REGISTRANT AND
87,638 ORDINARY SHARES HELD BY A TRUSTEE IN CONNECTION WITH THE REGISTRANT'S
STOCK OPTION PLANS).

        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 that the
Registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.

                                Yes X   No
                                   ---     ---

        Indicate by check mark which financial statement item the Registrant
elected to follow:

                            Item 17      Item 18 X
                                   ---          ---

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

<PAGE>
<TABLE>
<CAPTION>

                                          TABLE OF CONTENTS


                                                                                                 Page
                                                                                                 ----
<S>                                                                                              <C>
Introduction    ...............................................................................    3
Item 1          Identity of Directors, Senior Management and Advisers..........................    4
Item 2          Offer Statistics and Expected Timetable........................................    4
Item 3          Key Information................................................................    4
Item 4          Information on the Company.....................................................   12
Item 5          Operating and Financial Review and Prospects...................................   25
Item 6          Directors, Senior Management and Employees.....................................   38
Item 7          Major Shareholders and Related Party Transactions..............................   45
Item 8          Financial Information..........................................................   48
Item 9          The Offer and Listing..........................................................   49
Item 10         Additional Information.........................................................   50
Item 11         Quantitative and Qualitative Disclosures About Market Risk.....................   60
Item 12         Description of Securities Other Than Equity Securities.........................   61
Item 13         Defaults, Dividend Arrearages and Delinquencies................................   61
Item 14         Material Modifications to the Rights of Security Holders and Use of Proceeds...   61
Item 15         Controls and Procedures........................................................   61
Item 16         Audit Committee Financial Expert; Code of Ethics; Audit Fees...................   61
Item 17         Financial Statements...........................................................   62
Item 18         Financial Statements...........................................................   62
Item 19         Exhibits.......................................................................   63
</TABLE>

<PAGE>

                                  INTRODUCTION

        As used herein, references to "we," "our," "us," "Delta Galil" or the
"Company" are references to Delta Galil Industries Ltd. and to its consolidated
subsidiaries, except as the context otherwise requires. In addition, references
to our "financial statements" are to our consolidated financial statements
except as the context otherwise requires.

        In this document, references to "$," "US$," "U.S. dollars" and "dollars"
are to United States dollars and references to "NIS" and "shekels" are to New
Israeli Shekels.

        Our financial statements included in this annual report are prepared in
accordance with U.S. GAAP, and the accompanying discussion of the results of our
operations is based on our results under U.S. GAAP. See "Item 18. Financial
Statements" and "Item 5A. Operating and Financial Review and Prospects --
Operating Results".

        Delta Galil had 19,947,849 ordinary shares outstanding as of June 15,
2004. Percentages of outstanding shares used herein are based on 18,458,864
ordinary shares outstanding as of June 15, 2004, which excludes 1,422,486
ordinary shares held by Delta Galil, and 66,499 ordinary shares held by a
trustee in connection with Delta Galil's stock option plans.



                                     - 3 -
<PAGE>

                                     PART I



ITEM 1:     IDENTITY OF DIRECTORS, SENIOR MANAGEMENT AND ADVISERS

Not Applicable


ITEM 2:     OFFER STATISTICS AND EXPECTED TIMETABLE

Not Applicable


ITEM 3:  KEY INFORMATION

SELECTED FINANCIAL DATA

        The selected consolidated statement of income data set forth below have
been derived from Delta Galil's audited consolidated financial statements, which
were prepared in accordance with U.S. GAAP. The selected consolidated financial
data set forth below should be read in conjunction with "Item 5. Operating and
Financial Review and Prospects" and Delta Galil's consolidated financial
statements and the notes to those financial statements included in Item 18 of
this annual report.


                                     - 4 -
<PAGE>
<TABLE>
<CAPTION>

                                                                                    YEAR ENDED DECEMBER 31,
                                                            -----------------------------------------------------------------------
                                                               1999            2000           2001          2002            2003
                                                            -----------    -----------    -----------    -----------    -----------
                                                                            ($ IN THOUSANDS, EXCEPT PER SHARE DATA)
<S>                                                          <C>            <C>            <C>            <C>            <C>
STATEMENT OF INCOME DATA:
Net revenues .............................................   $ 355,237      $ 434,404      $ 558,763      $ 567,298      $ 580,130
Cost of revenues .........................................     272,441        341,458        455,726        456,738        466,378
                                                            -----------    -----------    -----------    -----------    -----------
Gross profit .............................................      82,796         92,946        103,037        110,560        113,752
Selling, marketing, general administrative expenses,
  goodwill amortization and restructuring expenses .......      48,522         59,481         80,277         82,700         80,581
Gain (loss) on sale of assets and subsidiary shares ......        (761)          (117)          (553)           (92)         3,645
                                                            -----------    -----------    -----------    -----------    -----------
Operating income .........................................      33,513         33,348         22,207         27,768         36,816
Financial expenses - net .................................       2,007          6,608          4,751          5,456          5,637
Other income - net .......................................       2,432            975            463            960            252
                                                            -----------    -----------    -----------    -----------    -----------
Income before taxes on income ............................      33,938         27,715         17,919         23,272         31,431
Taxes on income ..........................................       9,836          5,511          5,876          5,779          7,340
                                                            -----------    -----------    -----------    -----------    -----------
Income after taxes on income .............................      24,102         22,204         12,043         17,493         24,091
Share in profits (losses) of associated companies - net...         480            340            110            158           (300)
Minority interests - net .................................        (968)          (563)          (729)        (1,025)          (439)
                                                            -----------    -----------    -----------    -----------    -----------
Net income ...............................................   $  23,614      $  21,981      $  11,424      $  16,626      $  23,352
                                                            ===========    ===========    ===========    ===========    ===========

EPS
Basic ....................................................   $    1.46      $    1.23      $    0.60      $    0.88      $    1.28
                                                            ===========    ===========    ===========    ===========    ===========
Diluted ..................................................   $    1.45      $    1.22      $    0.60      $    0.88      $    1.24
                                                            ===========    ===========    ===========    ===========    ===========

Weighted average number of shares used in computation(1)..
    Basic ................................................      16,174         17,771         19,175         18,914         18,313
    Diluted ..............................................      16,286         17,996         19,199         18,927         18,763
Cash dividend per ordinary shares (2) ....................   $    0.42      $    0.37      $    0.30      $    0.37      $    0.52
</TABLE>
---------------------------------

(1)     See note 13i of the notes to Delta Galil's consolidated financial
        statements included in Item 18 of this annual report for a discussion of
        the shares used to compute net income per share for the years ended
        December 31, 2001, 2002 and 2003.
(2)     Until 2001, dividends were declared and paid in NIS and such amounts
        have been translated into U.S. dollars here as a convenience. Beginning
        in 2002, dividends, if any, are declared and paid in dollars.



                                     - 5 -
<PAGE>

<TABLE>
<CAPTION>

                                                                                    YEAR ENDED DECEMBER 31,
                                                            -----------------------------------------------------------------------
                                                               1999            2000           2001          2002            2003
                                                            -----------    -----------    -----------    -----------    -----------
                                                                                        ($ IN THOUSANDS)
<S>                                                          <C>            <C>            <C>            <C>            <C>
BALANCE SHEET DATA:

Cash and cash equivalents.................................   $   4,977      $   8,633      $  12,762      $  14,491      $  17,699
Working capital...........................................      52,930         68,079         74,020         67,945         56,612
Total assets..............................................     265,030        371,044        424,965        441,058        450,884
Shareholders' equity......................................     142,078        185,447        198,189        197,829        212,334
Amount of Share Capital...................................      21,343         21,679         21,792         21,792         21,830
</TABLE>


RISK FACTORS

        The following factors, in addition to other information contained in
this annual report, should be considered carefully.

        This annual report includes certain statements that are intended to be,
and are hereby identified as, "forward-looking statements" for the purposes of
the safe harbor provisions of the Private Securities Litigation Reform Act of
1995. We have based these forward-looking statements on our current expectations
and projections about future events. These forward-looking statements are
subject to risks, uncertainties, and assumptions about Delta Galil, including,
among other things:

        o       our anticipated growth strategies;

        o       our intention to introduce new products;

        o       anticipated trends in our business;

        o       future expenditures for capital projects; and

        o       our ability to continue to control costs and maintain quality.

        Forward-looking statements can be identified by the use of
forward-looking terminology such as "may," "will," "expect," "anticipate,"
"estimate," "continue" or other similar words. These statements discuss future
expectations, contain projections of results of operations or of financial
condition or state other "forward-looking" information. When considering such
forward-looking statements, you should keep in mind the risk factors and other
cautionary statements in this annual report.

        These statements may be found in Item 4: "Information on the Company"
and Item 5: "Operating and Financial Review and Prospects" and in this annual
report generally. Our actual results could differ materially from those
anticipated in these forward-looking statements as a result of various factors,
including all the risks discussed in "Risk Factors" and elsewhere in this annual
report.

        We undertake no obligation to publicly update or revise any
forward-looking statements, whether as a result of new information, future
events or otherwise. In light of these risks, uncertainties and assumptions, the
forward-looking events discussed in this annual report might not occur.

MOST OF DELTA GALIL'S SALES ARE TO A FEW SIGNIFICANT CUSTOMERS. ANY REDUCTION OF
PURCHASES BY MARKS & SPENCER OR ANOTHER SIGNIFICANT CUSTOMER COULD MATERIALLY
ADVERSELY AFFECT DELTA GALIL'S REVENUES.

        A majority of Delta Galil's revenues is from sales to three customers.
In 2003, 30.9% of Delta Galil's revenues were from sales to Marks & Spencer,
Delta Galil's largest customer. Sales to Target reached 15.0% of


                                     - 6 -
<PAGE>

revenues and sales to Wal-Mart reached 14.2% of revenues. Delta Galil's
contracts with its customers, including Marks & Spencer, are short-term and do
not contain minimum purchase requirements. It is possible that, in the future,
Delta Galil's customers will not purchase Delta Galil's products in the same
volumes or on the same terms as in the past. Any reduction of purchases by Marks
& Spencer or other key customers could adversely affect Delta Galil.

DELTA GALIL HAS BENEFITED FROM ITS SHIFT OF LABOR INTENSIVE PRODUCTION TO LOWER
LABOR COST COUNTRIES. A RISE IN WAGE LEVELS IN THOSE COUNTRIES COULD ADVERSELY
AFFECT DELTA GALIL'S FINANCIAL RESULTS.

        Delta Galil owns production facilities and outsources production in
countries that have low labor costs. In 2003, Delta Galil produced goods in
Jordan, Egypt, Turkey, Honduras, Eastern Europe and the Far East that accounted
for approximately 81% of Delta Galil's revenues. Historically, Delta Galil's
operating results have benefited from this shift of labor intensive production
to lower labor cost countries, and Delta Galil intends to increase its
production in low labor cost countries. Delta Galil's financial results could be
harmed if wage levels increased dramatically in the countries in which Delta
Galil produces. In addition, there can be no assurance that we will be able to
shift additional production to lower labor cost countries.

A DETERIORATION IN ISRAEL'S RELATIONSHIP WITH NEIGHBORING COUNTRIES IN WHICH
DELTA GALIL HAS PRODUCTION FACILITIES COULD INTERRUPT DELTA GALIL'S PRODUCTION
AND HARM ITS FINANCIAL RESULTS.

        Products produced in Egypt, Jordan and Turkey account for 35% of our
2003 revenues. Delta Galil's operations in these countries depend largely on
their relationship with the State of Israel. In the past, there have been
hostilities between Israel and Jordan and Egypt. In addition, since October
2000, there has been an increase in hostilities between Israel and the
Palestinians. As a result, several Arab states reduced the level of relations
with the State of Israel, principally regarding economic and commercial
activities. A deterioration in Israel's relations with Jordan or Egypt could
interrupt Delta Galil's foreign production operations and would adversely affect
Delta Galil.

DUE TO SEASONAL FLUCTUATIONS, DELTA GALIL'S OPERATING RESULTS IN ANY QUARTER MAY
NOT BE REPRESENTATIVE OF FUTURE PERFORMANCE.

        Delta Galil has experienced fluctuations in its annual and quarterly
operating results, and may continue to experience these fluctuations in the
future. Delta Galil's revenues fluctuate due to seasonal purchasing by
consumers. Revenues in the last two quarters of the year generally exceed
revenues in the first two quarters due to back-to-school and holiday purchases.
Because of these fluctuations, Delta Galil's operating results in any quarter
may not be representative of its future performance. These fluctuations may make
it difficult for investors to properly evaluate Delta Galil's prospects.

DELTA GALIL'S INTERNATIONAL OPERATIONS EXPOSE IT TO THE RISK OF FLUCTUATIONS IN
CURRENCY EXCHANGE RATES THAT COULD HARM ITS OPERATING RESULTS.

        Although Delta Galil is an Israeli company, its functional currency is
the U.S. dollar. Delta Galil has operations and sales in many countries that are
not denominated in dollars, and is therefore exposed to fluctuations in the rate
of exchange between the dollar and those currencies. In 2003, Delta Galil
derived 32% of its revenues from customers in pound sterling, 7% of its revenues
were in NIS, and 8% were in euros. More than 10% of Delta Galil's expenses were
in NIS in 2003.

        Some of Delta Galil's expenses in Israel are linked to the Israeli
consumer price index. Consequently, Delta Galil is exposed to risk to the extent
that the rate of Israeli inflation exceeds the rate of the NIS devaluation in
relation to the dollar and to the extent that the timing of such devaluation
lags behind inflation in Israel, resulting in a negative effect on Delta Galil's
profitability in those years.

        In order to limit Delta Galil's exposure to fluctuations in the exchange
rate between the dollar and other currencies, Delta Galil from time to time
purchases forward contracts for the exchange of foreign currencies into dollars
at a fixed rate. Nevertheless, these hedging transactions will not protect Delta
Galil if the decline in those currencies against the dollar continues for longer
than the term of the forward contracts. As of December 31, 2003 Delta Galil had
forward contracts for pound sterling only until June 2004. See Item 11:
"Quantitative and Qualitative Disclosure - About Market Risk".


                                     - 7 -
<PAGE>

THE APPAREL INDUSTRY IS SUBJECT TO CHANGES IN FASHION PREFERENCES. IF DELTA
GALIL AND ITS CUSTOMERS MISJUDGE A FASHION TREND, SALES COULD DECLINE.

        Delta Galil's success depends, in part, on its ability to design and
manufacture products that will appeal to consumers' changing fashion
preferences. Delta Galil may not be successful in anticipating and responding to
fashion trends in the future. If Delta Galil and its customers misjudge a
fashion trend, the customer's orders may decline, which could adversely affect
Delta Galil.

DELTA GALIL MAY BE UNABLE TO COMPETE WITH OTHER MANUFACTURERS THAT HAVE
FINANCIAL, GEOGRAPHIC AND OTHER ADVANTAGES.

        Delta Galil competes directly with a number of manufacturers of apparel,
some of which have longer operating histories, are closer geographically to
customers and enjoy greater financial and marketing resources than Delta Galil.
Increased competition could result in pricing pressure or loss of market share
and adversely affect Delta Galil's revenues and profitability. There can be no
assurance that Delta Galil will be able to compete successfully against existing
or new competitors.

IF DELTA GALIL'S CUSTOMERS ARE UNABLE TO SUCCESSFULLY COMPETE IN THEIR MARKETS,
DELTA GALIL'S SALES COULD DECLINE.

        Delta Galil's customers operate in an intensely competitive retail
environment. In the event that any of its customers' sales decline for any
reason, whether or not related to Delta Galil or its products, Delta Galil's
sales to such customers could also decline.

DOV LAUTMAN AND SARA LEE OWN ALMOST 50% OF DELTA GALIL'S OUTSTANDING SHARES, AND
TOGETHER CAN CONTROL DELTA GALIL'S MANAGEMENT.

        Mr. Dov Lautman, the Chairman of the Board of Directors of Delta Galil,
beneficially owns 4,644,993 ordinary shares, representing approximately 25.2% of
the ordinary shares outstanding. Sara Lee beneficially owns 4,256,537 ordinary
shares, representing 23.1% of the ordinary shares outstanding. Mr. Lautman and
the companies that he controls have a shareholders' agreement with Sara Lee that
requires each party to vote the shares it beneficially owns to elect directors
designated by Sara Lee to compose 30% of the board of directors, other than
independent directors, and to elect Mr. Lautman's designees for the remainder of
the board, other than independent directors. In addition, the agreement provides
that the appointment of a new Chief Executive Officer requires the consent of
Sara Lee. Mr. Lautman and Sara Lee have also given one another the first
opportunity to buy any shares the other party wishes to sell. Mr. Lautman and
Sara Lee together have the power to elect all of the directors other than
independent directors, appoint management and approve actions requiring the
approval of a majority of Delta Galil's shareholders.

SARA LEE COULD USE ITS OWNERSHIP POSITION TO INFLUENCE DELTA GALIL'S OPERATIONS
TO BENEFIT SARA LEE.

        Approximately 0.4% of Delta Galil's 2003 revenues were derived from
sales to affiliates of Sara Lee. Delta Galil is under no obligation to sell any
products to Sara Lee. However, Sara Lee may attempt to use its ownership
position to influence Delta Galil's operations. Israeli law requires special
approvals for extraordinary transactions with a controlling shareholder, such as
Sara Lee, and for transactions in which a director is deemed to have a personal
interest. In the event that a director of Delta Galil also serves as the chief
executive or as a director of an affiliate of Sara Lee, that Delta Galil
director would be deemed to have a personal interest in transactions between
that Sara Lee affiliate and Delta Galil, and such transactions would be subject,
under Israeli law, to special approvals. However, if no Delta Galil director is
a director or chief executive of the other party, transactions, other than
extraordinary transactions, between Delta Galil and Sara Lee or its affiliates
would not require special approvals.

INTEGRATION OF RECENT ACQUISITIONS WITH DELTA GALIL REQUIRES SUBSTANTIAL
MANAGERIAL RESOURCES, AND DELTA GALIL MAY BE UNABLE TO ACHIEVE INTEGRATION
SUCCESSFULLY.

        In November 2003 Delta Galil completed the acquisition of Auburn Hosiery
Mills and its subsidiaries. In 2000, Delta Galil completed the acquisition of
Wundies Industries and, in 2001, of Inner Secrets, which were merged into one
company named Delta Galil USA Inc. We are working towards integration with Delta
Galil of


                                     - 8 -
<PAGE>

the facilities and personnel of these acquired companies. The integration
diverts substantial attention of our senior management team from Delta Galil's
daily operations, places significant pressure on our staff and other resources
and poses financial, operational and legal risks. The integration may be impeded
by general economic conditions, failure to integrate financial and operating
systems, adverse response of competitors or clients, or regulatory developments.
Furthermore, the acquired companies are located in North America and Ireland,
where we have limited operating experience. Any failure to complete the
integration successfully could adversely affect Delta Galil.

DOV LAUTMAN, DELTA GALIL'S CHAIRMAN, FOUNDER AND PRINCIPAL SHAREHOLDER, HAS
SIGNIFICANTLY CONTRIBUTED TO ITS SUCCESS. IF DOV LAUTMAN WERE TO LEAVE, DELTA
GALIL COULD BE ADVERSELY AFFECTED.

        Dov Lautman, the Chairman of the Board of Directors, a founder and
principal shareholder of Delta Galil, has made significant contributions to its
growth. Delta Galil does not have an employment agreement with Mr. Lautman.
Should Mr. Lautman discontinue his service, Delta Galil's business may be
adversely affected.

DELTA GALIL HAS NO CONTROL OVER FLUCTUATIONS IN THE COST OF THE RAW MATERIALS IT
USES. A RISE IN COSTS COULD HARM DELTA GALIL'S PROFITABILITY.

        The primary raw materials used by Delta Galil in the manufacture of its
products are cotton yarn, Lycra(R) and elastics. Delta Galil's financial
performance is dependent to a substantial extent on the cost and availability of
these raw materials. The price of these raw materials fluctuates due to varying
supply and demand and other market factors over which Delta Galil has no
control. Delta Galil may not be able to transfer the increased costs due to a
rise in prices of raw materials to its customers. This would likely adversely
affect Delta Galil's profitability and financial condition.

BECAUSE DELTA GALIL OPERATES INTERNATIONALLY, IT IS EXPOSED TO CHANGES IN
FOREIGN REGULATIONS, TARIFFS, TAX LAWS AND OTHER RISKS INHERENT TO INTERNATIONAL
BUSINESS, ANY OF WHICH COULD AFFECT DELTA GALIL'S OPERATING RESULTS.

        Delta Galil's international purchases, sales and production expose it to
risks inherent in doing business in international markets such as:

        o       adverse changes in foreign regulations, export restrictions,
                tariffs, trade barriers and tax rules;

        o       difficulty in staffing and managing international operations;

        o       longer payment cycles and difficulties in collecting accounts
                receivable; and

        o       changes in social, political and economic conditions.

        Any of these factors could adversely affect Delta Galil's ability to
deliver or receive goods on a competitive and timely basis and its results of
operations.

DELTA GALIL HAS NO ESTABLISHED DIVIDEND POLICY AND CANNOT ASSURE THE AMOUNT OR
FREQUENCY OF FUTURE DIVIDENDS.

        Delta Galil does not have an established dividend policy. Delta Galil
distributed cash dividends to shareholders from time to time in the past and may
do so in the future. However, Delta Galil cannot assure the amount, frequency or
any distribution of future dividends. Delta Galil's board of directors will
determine future dividends, in light of several factors including Delta Galil's
earnings, financial condition and capital requirements. In addition, under
Israeli law, Delta Galil may pay dividends only out of accumulated earnings or
out of net earnings for the two years preceding the distribution of the
dividends.

A REVIVAL OF HOSTILITIES INVOLVING ISRAEL COULD ADVERSELY AFFECT DELTA GALIL'S
INTERNATIONAL TRADE AND OPERATIONS.

        Delta Galil is incorporated under the laws of the State of Israel, where
it also maintains its headquarters and a significant part of its manufacturing
facilities. Political, economic and military conditions in Israel directly


                                     - 9 -
<PAGE>

influence Delta Galil. Since the establishment of the State of Israel in 1948,
Israel and its Arab neighbors have engaged in a number of armed conflicts. A
state of hostility, varying in degree and intensity, has led to security and
economic problems for Israel. Despite progress towards peace between Israel, its
Arab neighbors and the Palestinians, major hostilities may revive. Since October
2000, there has been an increase in hostilities between Israel and the
Palestinians, and relations between Israel and its neighboring countries have
consequently also deteriorated. Such hostilities may hinder Israel's
international trade and lead to economic downturn. This, in turn, could have a
material adverse effect on Delta Galil's operations and business.

        Generally, male adult citizens and permanent residents of Israel are
obligated to perform military reserve duty annually. Additionally, these
residents may be called to active duty at any time under emergency
circumstances. The full impact on Delta Galil's workforce or business if some of
Delta Galil's officers and employees are called upon to perform military service
is difficult to predict.

DELTA GALIL BENEFITS FROM ISRAELI GOVERNMENT PROGRAMS THAT COULD BE REDUCED OR
ELIMINATED, INCREASING DELTA GALIL'S COSTS.

        Many of Delta Galil's existing production facilities in Israel are
entitled to Israeli government grants and tax benefits. Delta Galil received
grants totaling $1.2 million in 2001, $1.6 million in 2002 and $1.1 million in
2003 under these programs.

        The government of Israel has gradually reduced the investment grants
available from 38% of eligible capital expenditures in 1996 to 24% of eligible
capital expenditures in 1998 and thereafter. This lower grant rate applies to
any applications for grants made in 1998 or thereafter. There can be no
assurance that the Israeli government will not further reduce these investment
grants.

        In 1999, Delta Galil used tax benefits estimated at approximately $1.6
million. Because of existing losses for tax purposes, Delta Galil has not used
any of the tax benefits to which it is entitled under these government programs
since 1999. The remaining tax benefits may be available for use in future years.
See Item 10: "Additional Information - Israeli Taxation."

        The termination or reduction of these Israeli government programs,
particularly benefits available to Delta Galil as a result of the "Approved
Enterprise" status of its existing facilities, would increase Delta Galil's
costs of acquiring machinery and equipment for its production facilities, which
could have an effect on Delta Galil.

        In order to maintain eligibility for these grants and tax benefits,
Delta Galil must continue to meet various conditions, such as investment in
fixed assets and operations in specified zones. If Delta Galil fails to meet
these conditions in the future, it could be required to forego tax benefits and
to refund grants already received, in whole or in part, with interest, linked to
the consumer price index in Israel. To secure its obligations, Delta Galil gave
the Israeli government a security interest over all its assets in Israel.

DELTA GALIL BENEFITS FROM PRODUCING IN COUNTRIES THAT HAVE FREE TRADE AGREEMENTS
WITH COUNTRIES WHERE ITS CUSTOMERS ARE LOCATED. A LOSS OF THOSE FREE TRADE
ADVANTAGES OR A REMOVAL OF CURRENT QUOTAS OR A REDUCTION IN CURRENT TARIFFS
APPLICABLE TO EXPORTS FROM THE FAR EAST WOULD ELIMINATE AN IMPORTANT COMPETITIVE
ADVANTAGE.

        Delta Galil benefits from Israel's status as the only country in the
world enjoying free trade agreements with the United States, Canada, the
European Union and the European Free Trade Association. The agreements permit
Delta Galil to sell its Israeli manufactured products to these trade partners
free of customs duties and import quotas. Similar benefits are available to
Delta Galil's products manufactured in Egypt, since Egypt has a free trade
agreement with the European Union. The benefits of the Israel-United States Free
Trade Area Agreement also apply to goods processed in an area of Jordan in which
Delta Galil produces. Delta Galil also benefits from tariffs and quotas
applicable to goods produced in the Far East, which are not applicable to Delta
Galil's products produced outside the Far East. If there is a change in or
termination of such benefits or if other countries enter into similar trade
agreements, Delta Galil's trade advantage would be eroded and its business may
be adversely affected.


                                     - 10 -
<PAGE>

YOU MAY NOT BE ABLE TO ENFORCE CIVIL LIABILITIES IN THE UNITED STATES AGAINST
DELTA GALIL'S OFFICERS AND MOST OF ITS DIRECTORS.

        Most of Delta Galil's officers and directors reside outside the United
States. Service of process upon them may be difficult to effect within the
United States. Furthermore, because the majority of Delta Galil's assets are
located outside the United States, any judgment obtained in the United States
against Delta Galil or any of its directors and officers may not be collectible
within the United States.


                                     - 11 -
<PAGE>

ITEM 4:    INFORMATION ON THE COMPANY

HISTORY AND DEVELOPMENT OF THE COMPANY

        Delta Galil Industries Ltd. was incorporated in Israel in 1975 and
operates as a public company with liability limited by shares under the Israeli
Companies Law, 1999. Our registered offices are located at 2 Kaufman Street,
Tel-Aviv 68012, Israel and our telephone number is (972) 3-519-3636. Delta
Galil, with its consolidated subsidiaries, is a global manufacturer and marketer
of quality private label ladies' intimate apparel, men's underwear, socks,
shirts, babywear, bras, leisurewear and nightwear, knitted fabrics, dyeing,
trimmings and elastic ribbons. Delta Galil sells its products to leading
retailers, including:

o  Marks & Spencer (U.K.)       o  Victoria's Secret      o  Gap (U.S.)
                                   (U.S.)
o  Wal-Mart (U.S.)              o  Hema (Holland)         o  Kmart (U.S.)
o  Target (U.S.)                o  JC Penney (U.S.)       o  Mervyn's (U.S.)


and to marketers of leading brand names, including:

o  Calvin Klein (U.S.)          o  Nike                   o  Hugo Boss (Germany)


        Delta Galil also sells its products in Israel under the Delta brand
name.

        Delta Galil's ability to provide its customers with a comprehensive
package of services has enabled it to develop and maintain strong long-term
relationships with its customers. These services include:

        o       product line planning and design;

        o       manufacture of high quality knitted apparel using automated
                manufacturing processes; and

        o       marketing, packaging and distribution of finished products
                tailored to the requirements of the customers in Europe and the
                United States.

        Delta Galil designs and develops its products primarily in the United
States, England, Israel and Scotland. Delta Galil traditionally manufactured in
Israel and in Scotland. In recent years Delta Galil has been manufacturing in
Jordan, Egypt and Turkey, and since 1999 in Romania and Bulgaria, shifting an
increasing amount of labor intensive functions to these countries. In January
2000, Delta Galil acquired all of the assets of Dominion Hosiery Mills Inc.,
including its manufacturing facilities in Toronto, Canada. With the acquisitions
of Wundies Industries Inc. in September 2000 and Inner Secrets in January 2001,
Delta Galil also has a manufacturing plant in Honduras. In November 2002, Delta
Galil purchased a logistic center in Hungary. During the year 2003, Delta Galil
closed its manufacturing activities in Scotland and completed the acquisition of
Auburn Hosiery Mills including its manufacturing facilities in the United States
and in Ireland.

COMPETITIVE STRENGTHS

        The apparel market is highly competitive and fragmented. Delta Galil's
products compete with the products of other manufacturers located throughout the
world.

        Competition in the apparel market is generally based on price, quality
and customer service. Delta Galil believes that it has a relative advantage over
its competitors for the following reasons:


                                     - 12 -
<PAGE>

        o       HIGH QUALITY INNOVATIVE PRODUCT LINES. Delta Galil produces a
                broad selection of fashionably designed product lines using high
                quality knitted materials and attractive packaging. In 1998,
                Delta Galil introduced seamless intimate apparel, known as
                "seam-free" products. These products are produced using
                techniques that minimize labor-intensive production functions.

        o       LONG-TERM RELATIONSHIPS WITH LEADING RETAILERS AND BRAND NAME
                MARKETERS. Delta Galil has developed long-term relationships
                with its customers, many of whom control significant market
                shares in their respective countries. Although Delta Galil's
                customer contracts are generally short-term and do not contain
                minimum purchase requirements, Delta Galil has enjoyed
                relationships of more than five years with most of its major
                customers. Delta Galil and its in-house design teams and
                technology experts work closely with customers to provide a
                comprehensive package of services, including design,
                development, manufacturing and marketing of new product lines.

        o       EFFECTIVE MANAGEMENT OF MANUFACTURING AND LOGISTICS. Delta Galil
                maintains an advanced infrastructure of computerized
                acquisition, production, inventory control, dispatching,
                shipping and billing functions. These systems have enabled Delta
                Galil to effectively manage its geographically dispersed
                operations. As a result, Delta Galil is able to shift labor
                intensive production functions to lower labor cost countries
                while maintaining the high levels of quality and timely delivery
                standards that its customers require.

        o       UNIQUE FREE TRADE STATUS. Israel is currently the only country
                in the world that has free trade agreements with each of the
                United States, Canada, the European Union and the European Free
                Trade Association. Delta Galil's operations in Jordan and Egypt
                also benefit from advantageous trade agreements.

STRATEGY

        The key elements of Delta Galil's strategy are to:

        o       ENHANCE SALES TO EXISTING LARGE CUSTOMERS. Delta Galil seeks to
                increase sales of existing products and to introduce new product
                categories to existing customers. Delta Galil believes its broad
                product offerings, emphasis on customer service and proven
                reliability provide a competitive advantage as retailers
                consolidate purchases from a smaller number of suppliers. Delta
                Galil intends to continue capitalizing on this trend by
                expanding the scope of its existing customer relationships.

        o       EMPHASIZE PRODUCTS THAT IT CAN SELL AT A GREATER PROFIT MARGIN.
                Delta Galil is shifting its focus to products that it can sell
                at a higher profit margin. Delta Galil introduced higher margin
                intimate apparel products, including, bras, nightwear and
                seam-free and support underwear, and it is continuing to
                innovate and develop higher margin products, such as products
                using microfibers.

        o       DEVELOP RELATIONSHIPS WITH SELECTED NEW CUSTOMERS. Delta Galil
                is developing relationships with new customers who require high
                quality products to sell under their private labels or brands,
                are capable of ordering in significant volumes, demonstrate
                substantial growth potential and require Delta Galil's high
                level of service. Recent customer additions include Warner
                (U.S.), Puma, Polo, and Levi's (Europe)

        o       CONTINUOUSLY IMPROVE ITS MANUFACTURING EFFICIENCY. Delta Galil
                continuously seeks to increase manufacturing efficiencies by (1)
                moving labor intensive functions to lower cost countries, (2)
                further automating its operations and (3) introducing new
                technologies.


                                     - 13 -
<PAGE>

        o       PURSUE STRATEGIC ACQUISITIONS. In 2000 Delta Galil completed the
                acquisitions of Dominion Hosiery Mills and Wundies Industries,
                in 2001 of Inner Secrets. In 2002, Delta Galil purchased a
                logistics center in Hungary and in 2003 acquiredAuburn Hosiery
                Mills, as more fully described below. Delta Galil may pursue
                additional strategic acquisitions of businesses that would
                complement its product lines and customer relationships.

RECENT ACQUISITIONS

     ACQUISITION OF AUBURN

        In November 2003, the Company acquired, the socks business of Kellwood
Company. Operating under the name Auburn Hosiery Mills, the business includes
operations in both the United States and Europe.

        Auburn manufactures, markets and sells branded sport socks under
exclusive licenses to brand names of Wilson(R) and Converse(R) in the United
States and Europe and Coca-Cola(R) in Europe. Auburn manufactures and sources in
the United States, Mexico and Ireland and sells in North America and Europe.
Wal-Mart is Auburn's main customer in the United States.

        This acquisition is a favorable addition to Delta's socks business by
adding well-known brand names to the existing lines, penetrating into the US
mass market in the socks category and increasing Delta's marketing capabilities
in the United States and Europe.

        Delta paid $10.8 million in cash to Kellwood and recorded liabilities in
respect of restructuring costs in the amount of $6.2 million. Thus the total
acquisition cost amounted to approximately $17.0 million.


     ACQUISITION OF INNER SECRETS

        In 2001, Delta Galil, through its subsidiary, Wundies Industries Inc.,
completed the acquisition of Inner Secrets Inc., a New Jersey corporation, and
its subsidiaries. Inner Secrets manufactured and marketed private label
brassieres and other ladies' intimate apparel.

        At the time of the acquisition, Inner Secrets manufactured its products
in its factory in the Dominican Republic (which was closed in the first quarter
of 2002) and outsourced to sub-contractors in the Far East, including Hong Kong,
China, Indonesia and Bangladesh, as well as other countries including Guyana,
Mexico, Haiti, and Columbia. Inner Secrets had a distribution center in
Harrison, New Jersey.

        Inner Secrets had many quality customers, catering mainly to the mass
market, including Target, Wal-Mart and Kmart.

        As of December 31, 2001 Wundies Industries, which Delta Galil acquired
in 2000, and Inner Secrets were merged into a new company, Delta Galil USA Inc.

        As consideration for all of the share capital of Inner Secrets, Delta
Galil paid $48.7 million in cash, of which $14.4 million was for retirement of
bank and other debt, and $5.9 million in ordinary shares, comprised of 454,020
ordinary shares valued at $13.05 per ordinary share. The goodwill attributed to
the purchase of Inner Secrets amounted to approximately $24.3 million. In April
2003, Delta Galil USA paid $2.0 million as an adjustment to the purchase price.
A provision was made in 2002 for this payment, which was allocated as part of
the goodwill.

        In accordance with the acquisition agreement, and as a result of the
performance of Delta Galil USA in 2003, Delta Galil paid the selling
shareholders of Inner Secrets additional performance payments of $6.7 million
during April 2004. This payment has been allocated as part of the goodwill.

PRODUCTS

        Delta Galil works closely with its customers to design and manufacture
high quality knitwear. Delta Galil produces a variety of products using cotton
and man-made fibers. Delta Galil's products are generally sold at all price
levels.


                                     - 14 -
<PAGE>

        The following table outlines representative products in each of Delta
Galil's product categories, key customers/brands and the percentage of total
revenues that each product category represented during 2001, 2002 and 2003.


                                     - 15 -
<PAGE>
<TABLE>
<CAPTION>

                                                                                                % OF REVENUES
                                                                                             YEAR ENDED DECEMBER 31,
PRODUCT CATEGORY          KEY PRODUCTS            KEY CUSTOMERS/BRANDS                    2001        2002        2003
----------------          ------------            --------------------                    ----        ----        ----
<S>                       <C>                     <C>                                    <C>          <C>        <C>
Ladies' Intimate          Fashion and basic       Marks & Spencer    Calvin Klein         58%         59%         61%
Apparel                   panties and bras        Wal-Mart           Hema
                          (including seam-free)   Target             Kmart
                          Women's nightwear       JC Penney
                          Girl's nightwear        Victoria's Secret

Socks                     Men's, women's and      Marks & Spencer                         13%         15%         16%
                          children's leisure,     Nike
                          dress and sport socks   Wal-Mart
                                                  Hema
                                                  Sears
                                                  Dim
                                                  JC Penney

Men's Underwear           Briefs                  Calvin Klein       Schiesser            15%         11%         10%
                          Boxer shorts            Gap                Target
                          Mini-briefs             Hema               J. Crew
                          Undershirts             Hugo Boss
                          Men's nightwear         Marks & Spencer
                                                  Polo Ralph Lauren

Babywear                  Fashion and classic     Marks & Spencer                         6%          7%          7%
                          items, focusing on
                          newborns

Leisurewear               T-shirts                Marks & Spencer                         3%          4%          3%
                          Polo shirts
                          Sweatshirts
                          Leisure clothes

Others                    Fabrics, Elastic                                                5%          4%          3%
                          tapes  and other
                          operations
</TABLE>

        o       LADIES' INTIMATE APPAREL: Delta Galil's intimate apparel items
                include both fashion and basic underwear, as well as bras. Delta
                Galil has introduced machinery to produce seam-free panties,
                tops and control underwear. Delta Galil has been shifting its
                product mix to increase its focus on these products.

        o       SOCKS: Delta Galil manufactures men's, women's and children's
                socks in the leisure, dress and sports categories. Among the
                varieties of socks that Delta Galil manufactures are socks with
                popular cartoon and other characters that Delta Galil licenses.

        o       MEN'S UNDERWEAR: Delta Galil manufactures men's fashion and
                basic underwear for customers that include marketers of fashion
                brands and department store private labels.

        o       BABYWEAR: Babywear includes fashion and classic daywear and
                sleepsuits in a wide variety of styles and fabrics, with a focus
                on newborns. Delta Galil products in this category are sold at
                medium to high retail prices.

        o       LEISUREWEAR: Delta Galil manufactures basic and fashion
                leisurewear in a wide variety of styles and fabrics. The
                products range from T-shirts, polo shirts, sweatshirts and
                jogging suits to leisure and fashionable blouson jackets that
                are sold at medium to high retail prices.


                                     - 16 -
<PAGE>

        o       OTHERS: This category includes sales of production overruns of
                fabrics and Elastic tapes.

CUSTOMERS

        Delta Galil maintains long-term relationships with its customers, many
of whom control significant market shares in their respective countries. Delta
Galil premises its marketing strategy on its ability to offer customers a
package of services, including product planning and design tailored to the
customers' needs, high-tech quality manufacturing, distribution and logistics
setup and computer-linked accounts.

        Delta Galil has strong in-house creative teams of designers and
technology experts, consisting of fashion designers, textile designers, yarn
experts, knitting experts and dyeing and finishing experts. Delta Galil's design
specialists remain constantly apprised of technological innovations in textile
equipment and the state of the art in yarns, fabrics and accessories worldwide.
Delta Galil's presence in both the United States and Europe also enables its
design personnel to offer significant sales and marketing advice in both
markets. Although Delta Galil's products are sold predominantly under the
private labels and brands of its customers, Delta Galil's design specialists
collaborate closely with its customers to design and develop products. The
design teams prepare presentations for customers, including analysis of previous
season successes and failures, and, with the customer's participation, develop
the concept, product, packaging and product specifications, tailored to the
customer's specific needs. Delta Galil believes that the comprehensive nature of
the services it offers is a major factor in the strength of its relationship
with its customers.

     THE NORTH AMERICAN MARKET

        Recognizing the North American market's size and diversification, Delta
Galil has targeted this market as its major strategic market for growth and
profitability. Through internal growth and a series of acquisitions, Delta Galil
has been successful in rapidly increasing its presence in the North American
market. Sales to North America grew from $47.3 million (which represented 16% of
total sales) in 1998 to $310.6 million (which represented 56% of sales) in 2001.
Our four target largest customers in North America, Wal-Mart, Target, Victoria's
Secret and JCPenney, represented approximately 77% of our 2003 sales in North
America. Although 2002 and 2003 sales to North America decreased by 2.4% and
0.8% to $303.1 million and to $300.1 million respectively (representing 52% of
sales in 2003), we are expecting a strong rebound of sales to this market in
2004 mainly due to the acquisition of Auburn, which was consolidated only
beginning in November 2003. For an explanation of the decrease, see Item 5:
"Operating and Financial Review and Prospects - Results of Operations".

     MARKS & SPENCER RELATIONSHIP

        Delta Galil is one of Marks & Spencer's five largest suppliers and has
been doing business with Marks & Spencer for more than 20 years. Marks & Spencer
sells all of its products under its own brand name and is one of the leading
retailers of men's underwear, women's underwear and men's socks in the United
Kingdom. Delta Galil sells, on an average basis, approximately, 7.0 million
units to the Marks & Spencer distribution center per month. Delta Galil is a
diversified supplier to Marks & Spencer, selling to 20 different departments of
the chain. Each department is independently managed, has autonomy in procurement
decisions, and establishes its own product standards and supply requirements.

        Delta Galil's sales to Marks & Spencer grew from $1 million in 1981 to
$49 million in 1990, to $92 million in 1995 and to $188 million in 2000,
representing 43.4% of Delta Galil's revenues in 2000. The growth in Delta
Galil's revenues from 1997 through 2000 was due largely to the increase in sales
to Marks & Spencer. In 2000 and 2001, Marks & Spencer suffered from reduced
sales and profitability. Delta Galil, as a leading supplier to Marks & Spencer,
was affected by Marks & Spencer's decreased revenues as well as by the weakness
of the pound sterling. In 2001 sales to Marks & Spencer, in dollar terms,
amounted to $153 million, a decrease of 19% compared to 2000, reflecting a sharp
decrease in selling prices. In 2002 sales increased by 14% in dollar terms,
compared to sales in 2001 and amounted to $174 million. In 2003, sales were
positively affected by the strengthening of the pound sterling which led to an
increase of 3% in dollar terms, reaching $179 million, compared to 2002.


                                     - 17 -
<PAGE>

     ISRAELI MARKET

        Delta Galil believes that it is among the market leaders in Israel for
men's underwear, ladies' intimate apparel and socks, with $38 million of sales
in 2003. These sales include products Delta Galil manufactures, as well as goods
it imports into Israel or purchases from other Israeli suppliers. Of Delta
Galil's sales in Israel, 45% were made through retail department stores and
supermarkets, 54% were made through Delta Galil's Delta Plus factory outlets and
1% were made through Delta Galil's new chain stores located in malls. As of
December 31, 2003 Delta Plus had 79 stores, of which Delta Galil owned 43
directly and 36 were franchises.

SEASONALITY

        Delta Galil's revenues fluctuate due to seasonal purchasing by
consumers. Revenues in the last two quarters of the year generally exceed
revenues in the first two quarters due to back-to-school and holiday purchases.

MANUFACTURING

     MANUFACTURING PROCESS

        Delta Galil's manufacturing techniques enable it to provide its
customers with a wide array of consistently high quality products customized to
their individual needs at competitive prices. The production process includes
the following steps:

        o       RAW MATERIAL PROCUREMENT: The raw materials Delta Galil requires
                include, primarily, cotton yarns, blends of cotton and synthetic
                yarns (such as cotton-spandex, cotton-Lycra(R)and
                cotton-viscose) and elastics. Delta Galil purchases its raw
                materials from several international and domestic suppliers and
                historically has not experienced any difficulty in obtaining raw
                materials to meet production requirements. The price of these
                raw materials fluctuates due to varying supply and demand and
                other market factors over which Delta Galil has no control.
                Delta Galil purchases its raw materials only against actual
                orders, except for basic cotton yarn. As a result, Delta Galil
                can effectively manage its raw material inventory. Typically,
                Delta Galil does not maintain inventory of raw materials for a
                period of more than eight weeks. From time to time, when market
                conditions are favorable, Delta Galil enters into contracts with
                various suppliers of basic cotton yarn for delivery over a
                period of three to six months.

        o       KNITTING: Delta Galil produces the knitted fabric required for
                the underwear and other garments it manufactures in Israel and
                in Egypt. Delta Galil produces 60 to 100 different types of
                fabric. Delta Galil operates approximately 140 automatic
                knitting machines, with a total production capacity of
                approximately 520-550 tons of fabric per month depending on the
                type of fabric produced. During 2003, Delta Galil produced
                approximately 380 tons of fabric per month, approximately 95% of
                which Delta Galil used and the remainder of which was sold to
                third parties. Delta Galil does not have any long-term supply
                obligations and is able to adjust its capacity for its own use
                when necessary. Delta Galil outsources from various suppliers
                the rest of the knitted fabric it requires.

                Delta Galil operates approximately 1,800 knitting machines for
                the production of socks, including machines owned by
                sub-contractors, with a total production capacity of
                approximately 6.5 million pairs per month, which was fully
                utilized in 2003. Following the purchase of Auburn in November
                2003, Delta Galil increased its total socks production capacity
                by approximately 6.0 million pairs per month.

        o       DYEING AND FINISHING: Delta Galil has its own dyeing plants in
                Nahariya and Carmiel, Israel, in North America and in Ireland
                for dyeing of yarn, fabrics and products. The dyeing plants are
                principally engaged in supplying Delta Galil's own requirements.
                Delta Galil outsources the dyeing and finishing for production
                in Egypt. Delta Galil's


                                     - 18 -
<PAGE>

                ability to control the dyeing and finishing of its products and
                accumulated expertise in this area are key elements in its
                ability to provide quality products to its customers.

        o       CUTTING: Delta Galil uses computerized, automatic cutting
                equipment, which minimizes fabric waste.

        o       SEWING: Cut fabrics are sewn to complete the product, including
                the addition of accessories such as elastic waist and leg bands
                and labels. Delta Galil is currently operating at its sewing
                capacity, which is, on an average basis, approximately 15
                million units per month (depending on the type of product).
                Delta Galil operates 9 sewing plants, of which one is located in
                Israel, three in Jordan, four in Egypt, one in Honduras and one
                in Hungary. Delta Galil also subcontracts sewing functions,
                primarily to contractors in Israel, Egypt, Eastern Europe, the
                Far East and Central America.

        o       TESTING AND QUALITY ASSURANCE: Delta Galil places significant
                emphasis on quality control and uses quality assurance teams at
                each stage of the manufacturing process. Delta Galil's quality
                assurance procedures meet the very strict quality control
                standards of its customers.

     SEAM-FREE MANUFACTURING

        Applying technology utilized in the manufacture of hosiery, Delta Galil
produces one-piece seam-free panties and bras. Seam-free technology enables the
direct conversion of yarn into a nearly completed final product by a single
machine. After the machine knits the basic garment, all that is required to
complete the garment is dyeing and a limited amount of sewing and finishing.

        The seam-free process eliminates most stages of the manufacturing
process, which required special equipment such as knitting machines, cutting
equipment and extensive sewing machine operations, and personnel. This advanced
computer-intensive technology enables the production of a substantially wider
range of fabrics, styles and product lines. The use of the seam-free machines
also improves Delta Galil's potential to manufacture fashionable products with
consistently higher quality, durability and comfort.

        Delta Galil is making a major effort to capitalize on this unique and
new technology. Delta Galil continuously engages in research and development to
create additional products that use the seam-free technology. Nevertheless,
sales of seam-free products decreased from $40.2 million in 2000 to $17.4
million in 2003. The design, development and manufacturing of these products
require more resources than traditional products. Delta Galil has seen sales of
seam-free products drop as it did not offer the market enough innovative
products. Nevertheless, due to major improvement made in design and development
of new products and increase in demand for seamless garments, Delta Galil
forsees a rebound in this activity in 2004. As of December 31, 2003, Delta Galil
owned 239 seam-free knitting machines acquired at an aggregate cost, net of
grants, of approximately $14 million and currently working at a yearly average
capacity of approximately 70%. Following the increase in demand as described
above, Delta Galil purchased another 30 seam-free machines during the first
quarter of 2004.

     OUTSOURCING OF PRODUCTS

        Subcontractors manufactured goods in Egypt (babywear and underwear),
Turkey (socks), Romania (bras, babywear and underwear), Bulgaria (socks) and
Bangladesh, Mexico, El Salvador, Indonesia and China (all ladies intimate
apparel), which in 2003 accounted for approximately 50% of Delta Galil's
revenues. Delta Galil personnel closely supervise the production by
subcontractors in these countries.

     JORDANIAN JOINT VENTURE

        In 1995, Delta Galil entered into a joint venture with Century
Investment Group, a Jordanian company. Delta Galil supplies cut fabric to the
joint venture and purchases sewing services. Delta Galil holds a controlling
interest in this joint venture and purchases virtually all of the goods produced
by the joint venture.


                                     - 19 -
<PAGE>

SALES AND MARKETING

        Delta Galil customizes its sales and marketing strategy according to
individual customers' geographic regions and the market segment. For example,
one sales and marketing group handles the Marks & Spencer account, another
handles sales to the U.S. mass market, and a third focuses on accounts for
middle and upper market customers in the United States. Depending on where a
target customer is located, Delta Galil's sales offices in Europe, North America
or Israel implement the marketing strategy in coordination with headquarters.
Delta Galil staffs sales offices with experienced personnel who maintain ongoing
contact with its customers and respond to customers' needs promptly and
effectively.

RESEARCH AND DEVELOPMENT

        Delta Galil has strong in-house creative teams of designers and
technology experts, consisting of fashion designers, textile designers, yarn
experts, knitting experts and dyeing and finishing experts. Delta Galil's design
and development expenses increased to $23.0 million in 2003, as compared to
$20.8 million in 2002, and $19.5 million in 2001.

DELTA GALIL'S MANUFACTURING FACILITIES

        Delta Galil has manufacturing facilities in Israel, Jordan, Egypt, North
America, Honduras, Hungary and Ireland. Delta Galil has also sub-contracts to
manufacturers in Egypt, Turkey, Romania, Bulgaria, Central America and the Far
East. In 1995, Delta Galil began transferring labor intensive production
functions from its plants in Israel and Scotland to Egypt and Jordan. Since
1996, seven sewing plants in northern Israel and all manufacturing plants in
Scotland were closed and their production capacity was transferred to Egypt,
Jordan and Eastern Europe, leaving Delta Galil with only one sewing plant in
Israel. In 2003, 81% of Delta Galil's revenues were generated from the sale of
products produced in low labor cost countries, up from 49% in 2000. In 2003,
goods produced in Israel represented 14% of Delta Galil's revenues, down from
35% in 2000.


                                     - 20 -
<PAGE>

        The following table summarizes the distribution of Delta Galil's
revenues by location of production, stated as a percentage of total revenues for
the periods indicated:

<TABLE>
<CAPTION>
                                                                                        % OF REVENUES
                                                                               -------------------------------
                                                                                          YEAR ENDED
                                                                                         DECEMBER 31,
                                                                               -------------------------------
COUNTRY             ACTIVITY                        PRODUCTS                     2001        2002       2003
-------             --------                        --------                   -------     -------     -------
<S>                 <C>                             <C>                        <C>        <C>         <C>
Far East            Purchase of finished products   Ladies intimate apparel       19%        22%         30%
                    Sewing(1)

Egypt.........      Knitting(2)                     Ladies' intimate apparel      17%        19%         20%
                    Dyeing(1)                       Men's underwear
                    Cutting                         Babywear
                    Sewing(2)                       Leisurewear
                    Purchase of finished products

Israel........      Design                          Ladies' intimate apparel      18%        14%         14%
                    Knitting(2)                     Men's underwear
                    Dyeing                          Socks
                    Cutting & sewing(2)             Knitted fabric
                    Production of fabrics &         Elastic bands
                    elastics
                    Distribution center
                    Purchase of finished products

Caribbean &         Sewing(2)                       Ladies' intimate apparel      17%        15%         10%
Central America     Cutting                         Socks
                    Knitting (1)
                    Purchase of finished products

Jordan........      Sewing(2)(3)(5)                 Ladies' intimate apparel      14%        13%         9%
                                                    Men's underwear

Turkey........      Purchase of finished products   Socks                         6%          7%         7%

Eastern Europe      Knitting(1)                     Ladies' intimate apparel      3%          5%         6%
                    Sewing(2)                       Socks
                    Purchase of finished products   Babywear

North America       Design                          Ladies' intimate apparel      4%          4%         4%
                    Cutting                          Socks
                    Dyeing
                    Knitting(2)
                    Distribution center

Scotland......      Design                          Babywear                      2%          1%         0%
                    Cutting & sewing(4)             Leisurewear
                    Warehousing(4)
</TABLE>
--------------------------------
(1)     These activities are fully outsourced to local contractors.
(2)     A portion of these activities is outsourced to local contractors.
(3)     This activity is performed by a joint venture in which Delta Galil has a
        controlling interest.
(4)     These activities were discontinued starting 2003.
(5)     Fabric produced in Israel.



<PAGE>

MANAGEMENT INFORMATION SYSTEMS

        Delta Galil has invested in information technology as a tool to reduce
overall costs, enhance the efficiency of its garment design and manufacturing,
and support the sale and distribution of its products to its customers. Delta
Galil's production software processes customer orders, schedules production for
such orders and monitors the products ordered during all stages of production,
from knitting to sewing and during packaging and distribution. Delta Galil
believes that its information technology system has been effective in meeting
its demands. Delta Galil spent $6.2 million in 2003 and intends to spend $7.1
million in 2004 to enhance its system's capabilities in order to support the
growing demand for Delta Galil's products.

POLITICAL AND ECONOMIC CONDITIONS IN ISRAEL

        Delta Galil is incorporated under the laws of, and a significant portion
of its offices and manufacturing facilities are located in, the State of Israel.
Accordingly, Delta Galil is directly affected by political, economic and
military conditions in Israel. The operations of Delta Galil would be materially
adversely affected if major hostilities involving Israel should occur or if
trade between Israel and its present trading partners should be curtailed.

     POLITICAL CONDITIONS

        Since the establishment of the State of Israel in 1948, a number of
armed conflicts have taken place between Israel and its Arab neighbors and a
state of hostility, varying from time to time in intensity and degree, has led
to security and economic problems for Israel. However, a peace agreement between
Israel and Egypt was signed in 1979, a peace agreement between Israel and Jordan
was signed in 1994 and, since 1993, several agreements between Israel and
Palestinian representatives have been signed. As of the date hereof, Israel has
not entered into any peace agreement with Syria or Lebanon. There can be no
assurance as to how the "peace process" will develop or what effect it may have
upon Delta Galil.

        Despite progress towards peace between Israel, its Arab neighbors and
the Palestinians, major hostilities may revive. Since October 2000, there has
been an increase in hostilities between Israel and the Palestinians. The unrest
in and around the areas administrated by the Palestinian Authority may hinder
Israel's international trade and lead to economic downturn. This, in turn, could
have a material adverse effect on Delta Galil's operations and business. In
addition, certain countries, companies and organizations continue to participate
in a boycott of Israeli firms. Delta Galil does not believe that the recent
violence or the boycott have had a material adverse effect on Delta Galil, but
there can be no assurance that further violence or restrictive laws, policies or
practices directed towards Israel or Israeli businesses will not have an adverse
impact on Delta Galil's business.

     ECONOMIC CONDITIONS

        Israel's economy has been subject to numerous destabilizing factors,
including a period of rampant inflation in the early to mid-1980s, low foreign
exchange reserves, fluctuations in world commodity prices, military conflicts
and civil unrest. The Israeli government has, for these and other reasons,
intervened in various sections of the economy, employing, among other means,
fiscal and monetary policies, import duties, foreign currency restrictions and
controls of wages, prices and foreign currency exchange rates. The Israeli
government has periodically changed its policies in all these areas.

     TRADE AGREEMENTS

        Israel is a member of the United Nations, the International Monetary
Fund, the International Bank for Reconstruction and Development and the
International Finance Corporation. Israel is a member of the World Trade
Organization and is a signatory to the General Agreement on Trade in Services
and to the Agreement on Basic Telecommunications Services. In addition, Israel
has been granted preferences under the Generalized System of Preferences from
the United States, Australia, Canada and Japan. These preferences allow Israel
to export the products covered by such programs either duty-free or at reduced
tariffs.

        Delta Galil benefits from Israel's status that currently has free trade
agreements with the United States, Canada, the European Union and the European
Free Trade Association. The trade agreements permit Delta Galil to sell its
Israeli manufactured products to the United States, Canada and the member
countries of the European


                                     - 22 -
<PAGE>

Union and the European Free Trade Association free of customs duties and import
quotas. The United States has extended the benefits of the Israel-United States
Free Trade Area Agreement to goods processed in the area of Jordan in which
Delta Galil has its facilities. Due to a free trade agreement between the EU and
Egypt, Delta Galil's products manufactured in Egypt can enter the EU countries
duty free as well. Delta Galil also benefits from tariffs and quotas applicable
to goods produced in the Far East, which are not applicable to Delta Galil's
products produced outside the Far East In addition, the State of Israel provides
incentives that reduce the cost of equipment to Delta Galil and which may not be
available in other countries.

DELTA GALIL'S ORGANIZATIONAL STRUCTURE

        Delta Galil is an Israeli corporation that commenced operations in 1975.
It currently has 24 subsidiaries in which it holds at least a 50% interest. Six
of the subsidiaries are marketing subsidiaries in Europe, North America and
Israel. The main operations are included in the following companies:

<TABLE>
<CAPTION>

                                         PLACE OF            OWNERSHIP
             COMPANY                   INCORPORATION         INTEREST                        FUNCTION
--------------------------------  ----------------------- ---------------  -------------------------------------------
<S>                                                                             <C>
Delta Galil USA. Inc.              Delaware, U.S.A.       100%             o        Manufactures ladies and girls
                                                                                    intimate apparel and owns
                                                                                    Auburn Hosiery Mills.
Delta Galil Europe Ltd.            U.K.                   100%             o        Distribution services and
                                                                                    marketing center.
Delta Galil Holland B.V.           Holland                100%             o        Contract manufacture and owns
                                                                                    Delta Galil's interest in
                                                                                    Delta Textile Egypt-Free
                                                                                    Zone S.A.E., Dominion
                                                                                    Hosiery Inc., Century
                                                                                    Wear Corporation (WLL),
                                                                                    Delta Galil Hungary KFT,
                                                                                    Delta Textile Bulgaria
                                                                                    Ltd. and Sport Socks.
Delta Textile Egypt  - Free Zone   Egypt                  100%             o        Manufactures men's and women's
S.A.E.                                                                              underwear and leisurewear.
Dominion Hosiery Inc.              Canada                 100%             o        Manufactures ladies' socks in
                                                                                    Canada.
Century Wear Corporation (WLL)     Jordan                 50%*             o        Joint venture in Jordan that
                                                                                    performs sewing for the
                                                                                    production of various
                                                                                    products.
Delta Galil Hungary KFT            Hungary                100%             o        Operates logistic center and
                                                                                    manufactures babywear and
                                                                                    bras.
Sport Socks Co Ltd.                Ireland                100%             o        Manufactures socks in Ireland.
Delta Textile Marketing Ltd.       Israel                 100%             o        Factory outlets and wholesale
Delta Textile (New York) Ltd.      New York, U.S.A.       100%             o        Marketing
Delta Elastic Tapes Industries,    Israel                 90%              o        Manufactures elastic tape and
Ltd.                                                                                other components used in
                                                                                    underwear manufacture.
</TABLE>


                                     - 23 -
<PAGE>
<TABLE>
<CAPTION>

                                         PLACE OF            OWNERSHIP
             COMPANY                   INCORPORATION         INTEREST                        FUNCTION
--------------------------------  ----------------------- ---------------  -------------------------------------------
<S>                                                                             <C>
Auburn Hosiery Mills Inc.          Kentucky, USA          100%             o        Manufactures socks in the US.
</TABLE>



--------------------
*       Delta Galil effectively controls this joint venture as a result of its
        holding of an additional controlling share.


PROPERTY, PLANT AND EQUIPMENT

        Delta Galil has manufacturing facilities in Israel, Jordan, Egypt,
Turkey, Bulgaria, Ireland, Canada, Hungary and the United States. Delta Galil
maintains its principal Israeli manufacturing, warehousing and administrative
facilities in Carmiel, Daliat el-Carmel and Tel-Aviv. In Israel, Delta Galil
owns six facilities, including its principal production facility in Carmiel, and
leases nine facilities. The leases, including all extension options, for seven
facilities expire on various dates between 2005 and 2013. The remaining lease
expires in 2004, and Delta Galil is confident that it can renew that lease on
terms no less favorable than the existing lease. Delta Galil also owns
approximately 50 acres of undeveloped beachfront property surrounding its
Nahariya facility. This property is zoned mainly for tourism or residential
uses.

        In addition, Delta Galil owns a facility in Scotland, leases a warehouse
and development center outside London and leases offices in London. Delta Galil
leases manufacturing and storage facilities in Egypt pursuant to 25 year leases
that expire between 2019 and 2025. Delta Galil's joint venture in Jordan leases
sewing and cutting facilities in Irbid, and in Amman.

        Delta Galil leases manufacturing facilities in Canada, Honduras, and in
Pennsylvania, as well as facilities in New Jersey and a facility in Hong Kong.
These leases expire between 2004 and 2011. Delta Galil is confident that it can
renew these leases on terms no less favorable than existing leases. Delta Galil
also owns a facility in Rockingham, North Carolina, a logistic center in
Hungary, and other manufacturing facilities in Bulgaria, Kentucky USA and
Ireland. Management believes that Delta Galil's existing facilities are well
maintained, in good operating condition and provide adequate space for Delta
Galil's current level of operations. In addition, Delta Galil believes that its
facilities and operations are in compliance with current governmental
regulations regarding safety, health and environmental pollution. Delta Galil
generally has complied with these regulations and such compliance has not had a
material adverse effect on its capital expenditures, earnings or competitive
position.

        The following table shows Delta Galil's owned and leased properties and
facilities as of June 15, 2004:

<TABLE>
<CAPTION>

               PLANT LOCATION                         SQUARE FEET                    MAIN FUNCTION
---------------------------------------------     ---------------------    ----------------------------------
<S>                                                     <C>                <C>
Carmiel, Israel                                         641,100            Textile manufacturing
Nahariya, Israel                                        257,000            Dyeing
Rosh Ha'ain, Israel                                      74,777            Offices and warehouse
Delta Plus retail chain, Israel                          74,874            Retail
Yodaft, Israel                                           58,050            Warehouse
Daliat El Carmel, Israel                                 37,800            Elastic tape manufacturing
Tel Aviv, Israel                                         10,750            Main office

London, U.K.                                             25,000            Offices
Northampton, U.K.                                       125,000            Warehouse
Scotland                                                103,000            Offices and warehouse
Ireland                                                 128,000            Socks manufacturing, warehousing
                                                                           & offices
Jordan                                                  240,000            Sewing and warehouse
Egypt                                                   335,000            Knitting, cutting, sewing,
                                                                           warehouse and offices
New Jersey, U.S.                                        125,000            Logistic center, warehouse and
                                                                           offices
New York, U.S.                                           30,000            Offices
Pennsylvania, U.S.                                      400,000            Warehouse, logistic center and
                                                                           offices
Kentucky, US                                            205,000            Socks manufacturing, warehousing
                                                                           & offices
Honduras                                                108,000            Sewing and warehouse
Hong Kong                                                12,000            Offices and warehouse
Canada                                                   38,700            Socks manufacturing
Hungary                                                 135,000            Logistic center, cutting, and
                                                                           sewing
Bulgaria                                                 78,000            Socks manufacturing
</TABLE>


                                     - 24 -
<PAGE>

     CAPITAL EXPENDITURES

        The following table shows Delta Galil's fixed assets purchases for the
last three years on a cash flow basis, broken down by regions. These capital
expenditures were financed from Delta Galil's operating cash flow, and, in
Israel, also by government grants.

                                               YEAR ENDED DECEMBER 31,
                                           ------------------------------
                                            2001        2002        2003
                                           ------      ------      ------
                                                   ($ IN THOUSANDS)
Israel..............................        7,365       5,892       5,909
Egypt...............................        3,992       2,899       3,927
Eastern Europe......................                    2,553       3,246
United Kingdom......................           69         408         754
North America.......................        1,129       5,156         525
Jordan..............................        2,192         703         396
Others..............................          688         117         168
                                           ------      ------      ------
                                           15,435      17,728      14,925
                                           ======      ======      ======

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


                                     - 25 -
<PAGE>

ITEM 5:    OPERATING AND FINANCIAL REVIEW AND PROSPECTS

        THE FOLLOWING DISCUSSION AND ANALYSIS SHOULD BE READ IN CONJUNCTION WITH
DELTA GALIL'S CONSOLIDATED FINANCIAL STATEMENTS AND THE NOTES TO THOSE FINANCIAL
STATEMENTS INCLUDED IN ITEM 18 OF THIS ANNUAL REPORT. DELTA GALIL'S CONSOLIDATED
FINANCIAL STATEMENTS ARE PREPARED IN CONFORMITY WITH US GAAP.

OVERVIEW

        Following is a discussion of certain topics that will help you to better
understand our results of operations discussed below:

     REVENUES

        Delta Galil's revenues in 2003 increased by 2% and amounted to $580.1
million compared to $567.3 million in 2002.

        The following table shows Delta Galil's revenues by geographical area,
stated in million U.S. dollars and as a percentage of total revenues, for the
years ended December 31, 2001, 2002 and 2003:

<TABLE>
<CAPTION>
                                                       YEAR ENDED DECEMBER 31,
                              -----------------------------------------------------------------------

                                      2001                       2002                     2003
                              ---------------------      --------------------     -------------------
                                 $             %            $            %           $           %
                              -------       -------      -------      -------     -------     -------
<S>                             <C>            <C>         <C>           <C>        <C>          <C>
North America.............      310.6          55.6        303.1         53.4       300.7        51.8
United Kingdom............      156.8          28.1        181.3         32.0       187.9        32.4
Europe (excluding U.K.)...       45.9           8.2         44.4          7.8        48.7         8.4
Israel....................       45.5           8.1         38.5          6.8        42.8         7.4
                              -------       -------      -------      -------     -------     -------
Total.....................      558.8         100.0        567.3        100.0       580.1       100.0
                              =======       =======      =======      =======     =======     =======
</TABLE>

        In 2003, sales to North America decreased by 0.8% to $300.7 million
representing 51.8% of total sales. The decrease in sales to North America is
attributed mainly to a weakness in Christmas and New Year sales. Delta Galil's
sales to its top customer, the U.K. chain Marks & Spencer, increased by 2.8% to
$179.1 million in 2003 compared to $174.2 million in 2002. The increase is
attributed to the strengthening of the pound sterling versus the dollar. Delta
Galil's sales to the European market increased by 9.7% to $48.7 million in 2003
compared to $44.4 million in 2002, mainly due to the strengthening of the euro
versus the dollar. Delta Galil's sales to the Israeli market increased by 11.2%
to $42.8 million in 2003 compared to $38.5 million in 2002.

        In 2002, sales to North America decreased by 2.4% to $303.1 million
representing 53.4% of total sales. The decrease is attributed to a $9.7 million
decrease in sales to Kmart and $8.1 million decrease in sales to DKNY due to its
decision to exit from the men's category. Delta Galil's sales to its top
customer, the U.K. chain Marks & Spencer, increased by 13.6% to $174.2 million
in 2002 compared to $153.3 million in 2001. The increase is attributed to an
overall increase in Marks & Spencer sales and to the strengthening of the pound


                                     - 26 -
<PAGE>

sterling versus the dollar. Delta Galil's sales to the Israeli market decreased
by 15.4% to $38.5 million in 2002 compared to $45.5 million in 2001.

        The following table shows Delta Galil's revenues by product categories,
stated as a percentage of total revenues, for the years ended December 31, 2001,
2002 and 2003:

                                               YEAR ENDED DECEMBER 31,
                                         -----------------------------------
                                           2001         2002          2003
                                         --------     --------      --------
Ladies' Intimate Apparel...............     57.6%        59.2%         61.1%
Socks..................................     13.6         15.2          16.4
Men's Underwear........................     14.9         11.2          10.1
Babywear...............................      5.8          7.2           6.8
Leisurewear............................      2.7          3.6           3.0
Fabrics and Others.....................      5.4          3.6           2.6
                                         --------     --------      --------
Total..................................      100%         100%          100%
                                         ========     ========      ========

     ACQUISITION OF AUBURN HOSIERY MILLS

        On November 13, 2003 Delta Galil completed the acquisition of the
outstanding shares of Auburn Hosiery Mills. Auburn manufactures, markets and
sells branded sport socks under exclusive licenses to brand names both in the
United States and Europe.

        As consideration for all of the share capital of Auburn Hosiery, Delta
Galil paid $10.8 million to Kellwood and recorded liabilities in respect of
restructuring costs in the amount of $6.2 million. The total purchase price
amounted to approximately $17.0 million. The goodwill attributed to the purchase
of Auburn Hosiery Mills amounted to approximately $1.4 million.

     ACQUISITION OF INNER SECRETS

        In 2001, Delta Galil , through its wholly owned subsidiary, Wundies
Industries Inc., completed the acquisition of all of the outstanding shares of
Inner Secrets Inc., a New Jersey corporation, and its subsidiaries. Inner
Secrets manufactures and markets private label brassieres and other ladies'
intimate apparel.

        As consideration for all of the share capital of Inner Secrets, Delta
Galil paid $48.7 million in cash, of which $14.4 million was for retirement of
bank and other debt, and $5.9 million in ordinary shares, comprised of 454,020
ordinary shares valued at $13.05 per ordinary share. The goodwill attributed to
the purchase of Inner Secrets amounted to approximately $24.3 million.

        In April 2003, Delta Galil USA paid $2.0 million as an adjustment to the
purchase price. A provision was made in 2002 for this payment, which was
allocated as part of the goodwill.

        In accordance with the acquisition agreement, and as a result of the
performance of Delta Galil USA in 2003 , Delta Galil paid the selling
shareholders of Inner Secrets additional performance payment of $6.7 million
during April 2004. This payment has been allocated as part of the goodwill.

     ACQUISITION OF WUNDIES

        In 2000, Delta Galil completed the acquisition of all of the share
capital of Wundies Industries, Inc., a U.S. company, and its subsidiaries.
Wundies produces private label ladies' intimate apparel and underwear and
sleepwear for girls.

        The acquisition price was $29.1 million including $1.0 million
acquisition and issuance costs. In payment of the acquisition price, the
shareholders of Wundies received 1,305,050 ordinary shares of Delta Galil
representing approximately 6.5% of Delta Galil's issued share capital after the
acquisition on a fully diluted basis. A total of 70,979 of these ordinary shares
were allotted to certain Wundies employees pursuant to an employee stock plan
adopted by Delta Galil. The excess of cost of acquisition over the fair value of
net assets on


                                     - 27 -
<PAGE>

acquisition date - $15.6 million - is presented as goodwill. Pursuant to a
related agreement, a representative of Wafra Acquisition Fund 11, L.P., an
investment fund which owned approximately 93.5% of Wundies, was appointed as a
director of Delta Galil, for as long as Wafra continues to hold at least 50% of
the ordinary shares of Delta Galil it received.

        ACQUISITION OF A LOGISTIC CENTER IN HUNGARY

        In November 2002, Delta Galil, through a wholly owned subsidiary,
purchased the operations of Komar Textile Trading, a logistic center, which
included real estate, movables and receivables from subcontractors in Hungary.
The acquisition price was $5.6 million, and the excess of the cost of the
acquisition over the fair value of net assets amounted to $0.8 million.

        SALE OF INTERESTS IN ARAD TOWELS AND STANDARD TEXTILE (EUROPE) LTD.

        On December 31, 1998, Delta Galil sold its 40.7% interest in Arad Towels
Ltd. to Standard Textile (Europe) Ltd. ("STE") for $12.4 million in cash and a
15% interest in STE. The capital gain on this transaction totaled 5.2 million,
of which $3.1 million was applied to income in 1998 and the balance of $2.1
million was applied to income in 1999.

        On August 6, 2000 Delta Galil entered into an agreement with S.T.I.
Industries and Technologies Ltd., S.T.I.A. Holdings Ltd. and STE , for the sale
of its 15% holdings in STE for $9 million. The transaction is to be carried out
in four installments, subject to adjustments as stipulated in the agreement. The
first installment, 25% of the shares held by Delta Galil, was transferred to the
buyers upon the signing of the agreement, for $2.25 million. The second
installment was transferred on January 15, 2002, for consideration of $2.48
million, the third installment was transferred on January 15, 2003 for
consideration of $2.57 million and the fourth and final installment was
transferred on January 15, 2004 for consideration of $2.64 million. Delta Galil
recognized a capital gain of $0.9 million in 2003 from this transaction and a
similar profit will be recognized in 2004.

        STOCK REPURCHASES

        In September 2001 Delta Galil's Board of Directors approved a plan for
the repurchase of up to $3 million of its ordinary shares within the following
12 months. By the end of 2002, Delta Galil completed the repurchase of 378,500
ordinary shares at an average price of $7.9 per share.

        In December 2002, Delta Galil successfully completed a self-tender offer
in which it purchased 565,000 ordinary shares at a price per share of $11.0, for
aggregate consideration of $6.2 million.

        EMPLOYEE STOCK OPTION PLAN

        In October 2002, Delta Galil's Board of Directors approved an employee
stock option plan for the grant, without consideration, of options exercisable
to purchase 1,100,000 ordinary shares. The plan provides for forfeited options
to return to the pool for future grants. In November 2002, the Company granted
1,004,500 options to 97 employees of the group (including 100,000 options
granted to the CEO) at an exercise price of $9.0 per share. In May 2003 Delta
Galil granted an aggregate of 30,000 options to three employees at an exercise
price of $10.76. In March 2004, Delta Galil granted an aggregate of 80,000
options to six employees at an exercise price of $15.35. The options granted in
May 2003 and in March 2004 are subject to the same terms and conditions as those
granted in 2002.

        The options are exercisable over a three-year period, following one year
after the vesting date of the first batch and on the vesting date of the second,
third and fourth batches. All options granted after January 1, 2003 may be
exercised only following the elapse of two years after the end of the year in
which the options were granted.

RESULTS OF OPERATIONS

        The following table sets forth Delta Galil's results of operations
expressed as a percentage of total revenues for the periods indicated:


                                     - 28 -
<PAGE>
<TABLE>
<CAPTION>
                                                                             YEAR ENDED DECEMBER 31,
                                                                       ----------------------------------
                                                                         2001         2002         2003
                                                                       --------     --------     --------
<S>                                                                      <C>          <C>          <C>
Revenues........................................................         100.0%       100.0%       100.0%
Cost of revenues................................................          81.6         80.5         80.4
                                                                       --------     --------     --------
Gross profit....................................................          18.4         19.5         19.6
Selling, marketing, general, administrative,
      goodwill amortization and restructuring expenses..........          14.4         14.6         13.3
                                                                       --------     --------     --------
Operating income................................................           4.0          4.9          6.3
Financial expenses - net........................................          (0.9)        (1.0)        (0.9)
Other income- net...............................................           0.1          0.2          *
                                                                       --------     --------     --------
Income before taxes on income...................................           3.2          4.1          5.4
Taxes on income.................................................          (1.1)        (1.0)        (1.2)
                                                                       --------     --------     --------
Income after taxes on income....................................           2.1          3.1          4.2
Share in profits (losses) of associated companies - net.........           *            *           (0.1)
Minority interests- net.........................................          (0.1)        (0.2)        (0.1)
                                                                       --------     --------     --------
Net income......................................................           2.0%         2.9%         4.0%
                                                                       ========     ========     ========
</TABLE>
--------------------
* Less than 0.1%.

        SEGMENT RESULTS

        We have four principal segments: U.S. Mass Market, U.S. Upper Market,
Europe, and Socks. The U.S. Mass Market segment, which manufactures ladies
intimate apparel, generated approximately 38% of 2003 revenues. The US Upper
Market segment, which manufactures ladies intimate apparel and men's underwear,
generated approximately 11% of 2003 revenues. The European segment, which
manufactures ladies intimate apparel, men's underwear and outerwear, babywear
and leisurewear generated approximately 31% of 2003 revenues. The Socks segment,
which manufactures ladies, men's and children's socks, generated approximately
16% of 2003 revenues. In addition, we also have a wholesale and retail operation
in Israel, as well as textile infrastructure operations that primarily serve
other segments, which are referred to collectively as "Other" in our segment
report.

                                          SALES BY  SEGMENT(1)
                        -------------------------------------------------------
                                      ($ millions)
                        ------------------------------------
Europe..............          2003                2002             % Change
                              ----                ----             --------
U.S. Mass Market....         $ 219.0            $ 202.0                8.4%
U.S Upper Market....            66.5               84.8              (21.6)
Europe..............           177.4              171.0                3.7
Socks...............            91.8               85.3                7.6
Other...............            69.4               76.3               (9.0)
Adjustments1........           (44.0)             (52.1)             (15.5)

                             -------            -------            -------
Total                        $ 580.1            $ 567.3                2.2%
                             =======            =======            =======


        1       Includes inter-segment sales.
        2       Adjustment includes results of hedging transactions and
                elimination of intersegment sales.


        SALES BY SEGMENT

        The increase in sales by the U.S. Mass Market segment resulted primarily
from an increase in sales to existing customers. The decrease in sales by the
U.S Upper Market segment resulted primarily from Delta Galil's decision to
reduce the number of customers, as well as general weakness in this market, part
of which is reflected in a decrease in sales to Victoria's Secret, this
segment's largest customer. The increase in sales by the European segment is
attributed to the strengthening of the pound sterling and the euro against the
U.S. dollar. In pound


                                     - 29 -
<PAGE>

sterling and euro terms, sales declined. The increase in sales by the Socks
segment is attributed to the consolidation of Auburn in the fourth quarter of
2003.

                                   OPERATING INCOME (LOSS) BY SEGMENT
                        -------------------------------------------------------
                                      ($ millions)
                        ------------------------------------
                              2003                2002             % Change
                              ----                ----             --------
U.S. Mass Market......       $  24.8            $  14.6               69.9%
U.S Upper Market......          (1.7)              (1.6)              (6.3)
Europe................           4.5               10.2              (55.9)
Socks.................           9.3                8.1               14.8
Other.................          (5.1)              (5.1)                 0
Adjustments1..........           5.0                1.6                 --

                             -------            -------            -------
Total                        $  36.8            $  27.8               32.4%
                             -------            ------             -------


        1       Includes mainly capital gains and the effect of hedging
                transactions.


        OPERATING INCOME BY SEGMENT

        The increase in operating income in the U.S. Mass Market segment
resulted from an increase in sales in 2003, as well as the write-off of doubtful
accounts receivable from Kmart in 2002, which reduced operating income in 2002.
The decrease in operating income in the U.S. Upper Market segment is primarily
due to reduced sales volumes. The reduction in operating income was less than
the reduction in sales due to the change in the mix of customers, towards sales
to more profitable customers. The decline in operating income of the European
segment, despite the favorable exchange rates, is due primarily to costs
associated with the closure of a manufacturing and warehousing center in
Scotland and the integration of a new logistics center in Hungary that replaced
part of the Scottish operation. The increase in operating income of the Socks
segment resulted primarily from the strengthening of the pound sterling and the
euro against the U.S. dollar. The positive Adjustment in 2003 includes mainly a
capital gain from the sale of real estate in London.

        YEAR ENDED DECEMBER 31, 2003 COMPARED WITH YEAR ENDED DECEMBER 31, 2002
- CONSOLIDATED

        REVENUES. Total revenues in 2003 increased by 2.3% and amounted to
$580.1 million compared to $567.3 million in 2002. Sales in 2003 include $7.1
million that resulted from the consolidation of Auburn Hosiery starting in
November. Excluding these sales, the total sales in 2003 increased by 1% and
amounted to $573.0 million, compared to $567.3 million in 2002. Revenues in
North America decreased by 0.8% and amounted to $300.7 million in 2003 compared
to $303.1 million in 2002. The decrease is attributed to a decrease in Delta's
North America sales to specialty and department stores, which dropped 25% in
2003, totaling $75.8 million, compared to $101.1 million in 2002. This decrease
was offset by the revenues from the US mass market, which increased 11.3% in
2003 totaling $224.9 million, compared to $202.0 million in 2002. The increase
in revenues in the U.K. is attributed to the strengthening of the pound sterling
against the US dollar. Revenues from the Israeli market increased by 11.2% from
$38.5 million in 2002 to $42.8 million in 2003. The increase in revenues from
the Israeli market resulted from the increase of Delta Plus retail chain stores
activity reaching 79 stores, improved procurement sources, and the strengthening
of the NIS versus the dollar. Delta Galil's sales to the European market
increased by 9.7% to $48.7 milion in 2003 compared to $44.4 million in 2002,
mainly due to the strengthening of the euro versus the dollar.

        COST OF REVENUES. Delta Galil's cost of revenues is comprised mainly of
cost of materials, salaries and related expenses, work performed by
subcontractors, depreciation and amortization and the changes in inventories of
finished products and products in process. While costs associated with
depreciation and indirect salaries are generally fixed, cost of materials, work
performed by subcontractors and direct salaries are variable. Cost of revenues
in 2003 increased by 2.1% and amounted to $466.3 million (80.4% of revenues)
compared to $456.7 million (80.5% of revenues) in 2002. While cost of work
performed by sub-contractors increased by 25% compared to 2002, materials
consumption and wages and salaries decreased by 14% and 6% respectively.

        GROSS PROFIT. Gross profit in 2003 increased by 2.9% over 2002 and
totaled $113.8 million (19.6% of revenues), compared to $110.6 million (19.5% of
revenues) in 2002.


                                     - 30 -
<PAGE>

        SELLING AND MARKETING EXPENSES. Delta Galil's selling and marketing
expenses are comprised mainly of salaries and related expenses, professional
expenses, packaging, transportation and delivery, advertising, royalties,
depreciation and amortization, commissions and leases. While costs associated
with salaries, professional expenses, depreciation and amortization and leases
are generally fixed, packaging, transportation, delivery, advertising, royalties
and commissions are more variable. Selling and marketing expenses increased by
4.4 % to $ 62.9 million (10.8% of revenues) in 2003 compared to $60.2 million
(10.6% of revenues) in 2002. The increase in selling and marketing expenses is
attributed mainly to a $1.8 million increase in salaries and related expenses
due to the strengthening of the pound sterling and the NIS versus the dollar and
$1.0 million increase in lease expenses due to the increase in the number of
stores in the Israeli local retail chain and to the strengthening of the pound
sterling versus the dollar.

        GENERAL AND ADMINISTRATIVE EXPENSES. General and administrative expenses
are comprised mainly of salaries and related expenses, entertainment and travel
expenses, professional fees, doubtful accounts and bad debts, depreciation and
amortization and other office expenses. General and administrative expenses
decreased from $21.4 million in 2002 to $16.7 million in 2003. The decrease in
general and administrative expenses is attributed mainly to a decrease in
provision for doubtful accounts receivable, which accounted for $3.9 million of
the decrease.

        CAPITAL GAIN (LOSS) FROM REALIZATION OF FIXED ASSETS. In 2003 Delta
Galil recorded a $3.9 million capital gain from the sale of real estate in
London, which was offset by $0.3 million of capital loss from realization of
other fixed assets, versus a loss of $0.1 million in 2002.

        GOODWILL AMORTIZATION. Based on FAS 142, which Delta Galil adopted on
January 1, 2002, goodwill with indefinite life is no longer amortized. Prior to
January 1, 2002 Delta Galil amortized goodwill in equal annual installments
usually over a period of 40 years. See "Critical Accounting Policies - Valuation
of Intangible Assets-Goodwill".

        RESTRUCTURING EXPENSES. Restructuring expenses, comprising mainly
expenses relating to the closure of sewing plants, decreased from $1.1 million
in 2002 to $1.0 million in 2003.

        OPERATING INCOME. Operating income in 2003 increased by 32.6% compared
to 2002 and totaled $36.8 million (6.3% of revenues) compared to $27.8 million
(4.9% of revenues) in 2002. The increase in the operating profit margin is
primarily due to the capital gain and to the decrease in the general and
administrative as described above.

        FINANCIAL EXPENSES - NET. Financial expenses increased by 3.3% to $5.6
million in 2003 from $5.5 million in 2002. Financial expenses composed mainly
from interest and exchange differences.

        OTHER INCOME- NET. Other income in 2003 decreased by $0.7 million
compared to 2002, consists of a $1.0 million capital gain from realization of
the investment in an associated company, as described above "Sales of Arad
Towels and Standard Textile (Europe) Ltd", offset by $0.7 million impairment of
other investments.

        TAXES ON INCOME. Income taxes for 2003 were provided for at an effective
tax rate of 23.4% compared to 24.8% in 2002. The decrease in the effective tax
rate in 2003 compared to 2002 is mainly due to an increase in pre-tax earnings
of subsidiaries that are subject to lower tax rates.

        SHARE IN PROFITS (LOSSES) OF ASSOCIATED COMPANIES. Delta Galil's share
in (losses) profits of associated companies includes its investment in Edomit
Ltd., which is accounted for by the equity method, and in 2002 also its
investment in STE. In 2003 this share amounted to a loss of $0.3 million in 2003
compared to a profit of $0.2 million in 2002.

        MINORITY INTEREST- NET. Delta Galil operates sewing facilities in Jordan
through a partially owned subsidiary - Century Wear Corporation (WLL). Minority
interests in profit of this subsidiary in 2003 amounted to $0.4 million compared
to $1.0 million in 2002. Starting April 2003, following the sale of 10% of Delta
Galil's holding in Delta Elastic Tapes, minority interest includes income of
$0.1 million relating to this activity.

        NET INCOME. Net income in 2003 increased by 40.4% and totaled $23.4
million (4.0% of sales) compared to $16.6 million (2.9% of sales) in 2002.


                                     - 31 -
<PAGE>

        YEAR ENDED DECEMBER 31, 2002 COMPARED WITH YEAR ENDED DECEMBER 31, 2001
- CONSOLIDATED

        REVENUES. Total revenues in 2002 increased by 1.5% and amounted to
$567.3 million compared to $558.8 million in 2001. Revenues in North America
decreased by 2.4% and amounted to $303.1 million in 2002 compared to $310.6
million in 2001. The decrease is attributed to a decrease in Delta's North
America sales to specialty and department stores, which dropped 11.5% in 2002
totaling $101.1 million, compared to $114.3 million in 2001, offset by revenues
to the US mass market which increased 2.9% in 2002 totaling $202.0 million,
compared to $196.3 million in 2001. The increase in revenues in the U.K. is
attributed to an overall increase in Marks & Spencer sales and to the
strengthening of the pound sterling against the US dollar. Revenues to the
Israeli market dropped by 15.4% from $45.5 million in 2001 to $38.5 million in
2002. The decrease is attributed mainly to the devaluation of the NIS vs. the
dollar, which resulted in a $5.0 million decrease, and to the discontinuance of
the consolidation of Edomit's results starting 2002, which resulted in a $2.9
million decrease. Sales of seam-free products decreased from $25.2 million in
2001 to $18.3 million in 2002.

        COST OF REVENUES. Cost of revenues in 2002 remain almost unchanged and
amounted to $456.7 million (80.5% of revenues) compared to $455.7 million (81.6%
of revenues) in 2001. Wages and salaries decreased by approximately 8% mainly
due to the devaluation of the NIS versus the dollar. This decrease was offset
mainly by a 3% increase in the cost of work performed by subcontractors and by
$2.0 million cost of cancellation of a contract with a supplier.

        GROSS PROFIT. Gross profit in 2002 increased by 7.3% over 2001 and
totaled $110.6 million (19.5% of revenues), compared to $103.0 million (18.4% of
revenues) in 2001. The increase in the gross profit margin in 2002 resulted
mainly from the strengthening of the pound sterling and the euro versus the
dollar and the devaluation of the NIS versus the dollar in real terms, which
contributed approximately 1.3% of sales, offset by $2.0 million cancellation of
a contract with a supplier.

        SELLING AND MARKETING EXPENSES. Selling and marketing expenses increased
by 4.6 % to $ 60.2 million (10.6% of revenues) in 2002 compared to $57.6 million
(10.3% of revenues) in 2001. The increase in selling and marketing expenses is
attributed mainly to a $3.1 million increase in transportation and delivery
expenses, due to a decrease in product supply lead time, which requires the
increase of air shipment rather than sea shipment.

        GENERAL AND ADMINISTRATIVE EXPENSES. General and administrative expenses
increased from $20.8 million in 2001 to $21.5 million in 2002. The increase in
general and administrative expenses is attributed mainly to a $0.9 million
increase in wages and salaries and a $0.4 million increase in provision for
doubtful accounts offset by a decrease of $0.5 million in capital gain from
realization of fixed assets. General and administrative expenses in 2002
included a provision of $2.6 million to write off doubtful accounts receivable
from Kmart and a provision of $0.9 to write off doubtful accounts receivable of
an Israeli retail chain. In 2001, general and administrative expenses included a
provision for doubtful accounts receivable of $3.4 million, following the Kmart
filing for Chapter 11 bankruptcy protection. The provisions made regarding Kmart
debt reflect the expected settlement following the customer's forecasted
emergence from Chapter 11. By doing so, Delta Galil has written off all the
pre-petition outstanding receivables.

        GOODWILL AMORTIZATION. Based on FAS 142, which Delta Galil adopted on
January 1, 2002, goodwill with indefinite life is no longer amortized. Prior to
January 1, 2002 Delta Galil amortized goodwill in equal annual installments
usually over a period of 40 years. This amortization amounted to $1.5 million in
2001. See "Critical Accounting Policies - Valuation of Intangible
Assets-Goodwill".

        RESTRUCTURING EXPENSES. Restructuring expenses, comprising mainly
expenses relating to the closure of sewing plants, increased from $0.9 million
in 2001 to $1.1 million in 2002.

        OPERATING INCOME. Operating income in 2002 increased by 25.0% compared
to 2001 and totaled $27.8 million (4.9% of revenues) compared to $22.2 million
(4.0% of revenues) in 2001. The increase in the operating profit margin is
primarily due to the increase in gross profit margin and due to the cancellation
of the goodwill amortization.


                                     - 32 -
<PAGE>

        FINANCIAL EXPENSES - NET. Financial expenses increased by 14.8% to $5.5
million in 2002 from $4.8 million in 2001. Interest expenses decreased by $2.9
million, from $7.2 million in 2001 to $4.3 million in 2002, due to a decrease in
interest rates. Exchange differences in 2002 amounted to an expense of $1.2
million, compared to an income of $2.4 million in 2001, mainly due to the
devaluation of the NIS versus the dollar, and to the strengthening of the pound
sterling and euro against the dollar.

        OTHER INCOME - NET. Other income in 2002 consists of a $1.0 million
capital gain from realization of the investment in an associated company, as
described above "Sales of Arad Towels and Standard Textile (Europe) Ltd".

        TAXES ON INCOME. Income taxes for 2002 were provided for at an effective
tax rate of 24.8% compared to 32.8% in 2001. The decrease in the effective tax
rate in 2002 compared to 2001 is mainly due to an increase in pre-tax earnings
of subsidiaries that are subject to lower tax rates.

        SHARE IN PROFITS OF ASSOCIATED COMPANIES. Delta Galil's share in profits
of associated companies amounted to $0.2 million in 2002 compared to $0.1
million in 2001.

        MINORITY INTEREST - NET. Delta Galil operates sewing facilities in
Jordan through a partially owned subsidiary - Century Wear Corporation (WLL).
Minority interests in profit of this subsidiary in 2002 amounted to $1.0
million. Minority interest in profit of subsidiaries - net in 2001 amounted to
$0.7 million and represented the minority share in profit of Century Wear and
the share in Edomit results - a hotel activity, which Delta Galil ceased to
consolidate starting in 2002.

        NET INCOME. Net income in 2002 increased by 45.5% and totaled $16.6
million (2.9% of sales) compared to $11.4 million (2.0% of sales) in 2001.


CRITICAL ACCOUNTING POLICIES

        To improve your understanding of Delta Galil's financial statements, it
is important to obtain some degree of familiarity with Delta Galil's principal
or significant accounting policies. These policies are described in Note 1 to
the Consolidated Financial Statements listed in Item 18. Delta Galil, in
conjunction with its audit committee and its external auditors, reviews its
financial reporting, disclosure practices and accounting policies annually to
ensure that the financial statements developed, in part, on the basis of these
accounting policies provide complete, accurate and transparent information
concerning the financial condition of Delta Galil. As part of this process,
Delta Galil has reviewed the selection and application of its critical
accounting policies and financial disclosure as at December 31, 2003, and it
believes that the Consolidated Financial Statements listed in Item 18 present
fairly, in all material respects, the consolidated financial position of Delta
Galil as at that date.

        In preparing Delta Galil's financial statements in accordance with GAAP,
Delta Galil's management must often make estimates and assumptions that may
affect the reported amounts of assets, liabilities, revenues, expenses and
related disclosures as at the date of the financial statements and during the
reporting period. Some of those judgments can be subjective and complex, and
consequently actual results may differ from those estimates. However, Delta
Galil believes that, given the facts and circumstances before it at the time of
making the relevant judgments, estimates or assumptions, it is unlikely that
applying any such other reasonable judgment would cause a material adverse
effect on Delta Galil's consolidated results of operations, financial position
or liquidity for the periods presented in the Consolidated Financial Statements
listed in Item 18.

        Delta Galil is also subject to risks and uncertainties that may cause
actual results to differ from estimates and assumptions, such as changes in the
economic and political environment, competition, foreign exchange, taxation and
governmental programs. Certain of these risks, uncertainties and assumptions are
discussed under the heading Cautionary Statement Regarding Forward-Looking
Information and in Item 3 - Risk Factors.

        Delta Galil considers its most significant accounting policies to be
those relating to fixed assets and inventory valuation, both of which, as well
as Delta Galil's accounting policy relating to goodwill valuation are discussed
below.


                                     - 33 -
<PAGE>

     FIXED ASSETS VALUATION

        Fixed assets are stated at cost, net of related investment grants.
Depreciation is computed using the straight - line method on the basis of the
estimated useful life of the assets. Due to rapid changes in technology and in
the specifies of the business and due to the materiality of the fixed assets and
depreciation rates on its financial results, Delta Galil considers this to be a
critical issue. On January 1, 2002 Delta Galil adopted FAS No. 144, "Accounting
for the Impairment or Disposal of Long-Lived Assets". FAS 144 requires that
long-lived assets be held and used by an entity, be reviewed for impairment and,
if necessary, written down to the estimated fair value, whenever events or
changes in circumstances indicate the carrying amount of assets may not be
recoverable through undiscounted future cash flows.

        Delta tests long-lived assets for impairment, in the event an indication
of impairment exists. An impairment loss would be recognized, and the assets
would be written down to their estimated fair values, if the sum of the expected
future cash flows (undiscounted and without interest charges) of the long-lived
assets is less than the carrying amount of such assets.


     INVENTORY VALUATION

        Inventory, which is a material part of Delta Galil's total assets, is
valued at the lower of cost or market value. Costof raw and packaging materials
and purchased products is determined mainly on a "moving average" basis. Cost of
finished products and products in process is determined as follows: the raw
material and packaging component -is determined mainly on a "moving average"
basis; while labor and overhead is determined on an average basis over the
production period. If actual market prices for finished goods prove less
favorable than those projected by management, additional inventory write-downs
may be required. Inventory is written down for estimated obsolescence based upon
assumptions about future demand and market conditions. Likewise, favorable
future demand and market conditions could positively impact future operating
results if inventory that has been written down is sold.


      VALUATION OF INTANGIBLE ASSETS - GOODWILL

        Goodwill represents the excess of cost of investments in subsidiaries
acquired over the fair value of the net assets at acquisition. Until December
31, 2001, Goodwill was amortized in equal annual installments usually over a
40-year period, the maximum allowed period under U.S. GAAP. As from January 1,
2002, pursuant to FAS 142," Goodwill and Other Intangible Assets," goodwill is
no longer amortized but rather is tested for impairment annually. Delta
completed the transitional impairment review of goodwill on June 30, 2002, as
required by FAS 142. The various reporting units, for which separately
identifiable cash flow information is available, were identified and the fair
values of such reporting units were determined using the net income multiple of
comparable publicly traded companies in the textile industry . Consequently,
Delta has determined that there is no indication of impairment with respect to
goodwill as of January 1, 2002. Delta has selected September 30 as the date on
which it will perform its annual impairment test for indefinite life intangible
assets. As of December 31, 2003, based on the review made by Delta Galil, no
impairment was required.

NEW ACCOUNTING STANDARDS UNDER US GAAP

FAS 143

        In July 2001, the FASB issued FAS No. 143, "Accounting for Asset
Retirement Obligations". FAS 143 prescribes the accounting for obligations
associated with retirement of tangible long-lived assets, including the timing
of liability recognition and initial measurement of the liability. FAS 143
requires that an asset retirement cost should be capitalized as part of the cost
of the related long-lived asset and subsequently allocated to expense using a
systematic and rational method. FAS 143 will be effective for Delta Galil for
the fiscal years that began January 1, 2003. The adoption of FAS 143 did not
have a material effect on Delta Galil consolidated financial statements.


                                     - 34 -
<PAGE>

FAS 145

        In April 2002, the FASB issued FAS No. 145, ""Revision of FASB
Statements Nos. 4, 44 and 64, Amendment of FASB Statement No. 13, and Technical
Connections". Among other amendments and rescissions, FAS 145 eliminates the
requirement that gains and losses from the extinguishment of debt be aggregated
and, if material, classified as an extraordinary item, net of the related income
tax effect, unless such gains and losses meet the criteria in paragraph 20 of
Accounting Principles Board Opinion APB No. 30, ""Reporting the Results of
Operation - Reporting the Effects of Disposal of a Segment of a Business, and
Extraordinary, Unusual and Infrequently Occurring Events and Transactions"". FAS
145 is partially effective for transactions occurring after May 15, 2002 and
partially effective for fiscal years beginning after May 15, 2002.

        The adoption of FAS 145 did not have a material effect on Delta Galil
consolidated financial statements.

FAS 146

        In June 2002, the FASB issued FAS No. 146 ""Accounting for Costs
Associated with Exit or Disposal activities"". FAS 146 addresses financial
accounting and reporting for costs associated with exit or disposal activities.
FAS 146 requires that a liability for a cost associated with an exit or disposal
activity be recognized when the liability is incurred, as was the previous
accounting policy. FAS 146 is to be applied prospectively to exit or disposal
activities initiated after December 31, 2002.

        The adoption of FAS 146 did not have a material effect on Delta Galil
consolidated financial statements.

FAS 148

        In December 2002, the FASB issued FAS No. 148, "Accounting for
Stock-Based Compensation - Transition and Disclosure - an amendment of FASB
Statement No. 123". FAS 148 amends FAS 123 to provide alternative methods of
transition for a voluntary change to the fair value based method of accounting
for stock-based employee compensation. In addition, FAS 148 amends the
disclosure requirements of FAS 123 to require prominent disclosures in the
financial statements about the method of accounting for stock-based employee
compensation and the effect of the method used on reported results. The
transition guidance and annual disclosure provisions of FAS 148 are effective
for financial statements issued for fiscal years ending after December 15, 2002.

        Delta Galil has elected to continue accounting for employee stock based
compensation in accordance with APB 25 and related interpretations and has
applied the disclosure provisions in FAS FAS 148 in these consolidated financial
statements and the accompanying notes. See note 1q to the consolidated financial
statements.

        The adoption of FAS 148 did not have a material effect on Delta Galil
consolidated financial statements.

FIN 45

        In November 2002, the FASB issued FASB Interpretation No. 45
"Guarantor's Accounting and Disclosure Requirements for Guarantees, Including
Indirect Guarantees of Indebtedness of Others". FIN 45 requires the guarantor to
recognize, at the inception of a guarantee, a liability for the fair value of
the obligation undertaken in issuing the guarantee. It also elaborates on the
disclosures to be made by a guarantor in its financial statements about its
obligations under certain guarantees that it has issued. Disclosures required
under FIN 45 are already included in Delta Galil financial statements; however,
the initial recognition and initial measurement provisions of FIN 45 are
applicable on a prospective basis to guarantees issued or modified after
December 31, 2002.

        The adoption of FIN 45 did not have a material effect on Delta Galil
consolidated financial statements.


                                     - 35 -
<PAGE>

FIN 46

        In January 2003, the FASB issued FASB Interpretation No. 46,
"Consolidation of Variable Interest Entities," known as FIN 46. Under FIN 46,
entities are separated into two groups: (1) those for which voting interests are
used to determine consolidation, which is the most common situation, and (2)
those for which variable interests are used to determine consolidation. FIN 46
explains how to identify Variable Interest Entities (VIEs) and how to determine
when a business enterprise should include the assets, liabilities,
noncontrolling interests, and results of activities of a VIE in its consolidated
financial statements.

        Since issuing FIN 46, the FASB has proposed various amendments to it and
has deferred its effective dates. Most recently, in December 2003, the FASB
issued a revised version of FIN 46, known as FIN 46-R, which also provides for a
partial deferral of FIN 46. This partial deferral established the effective
dates for public entities to apply FIN 46 and FIN 46-R based on the nature of
the variable interest entity and the date upon which the public company became
involved with the variable interest entity. In general, the deferral provides
that (i) for variable interest entities created before February 1, 2003, a
public entity must apply FIN 46-R at the end of the first interim or annual
period ending after March 15, 2004, and may be required to apply FIN 46 at the
end of the first interim or annual period ending after December 15, 2003, if the
variable interest entity is a special purpose entity, and (ii) for variable
interest entities created after January 31, 2003, a public company must apply
FIN 46 at the end of the first interim or annual period ending after December
15, 2003, as previously required, and then apply FIN 46-R at the end of the
first interim or annual reporting period ending after March 15, 2004.

        Delta Galil currently has no variable interests in any VIE. Accordingly,
Delta Galil believes that the adoption of FIN 46 and FIN 46-R will not have
material impact on its financial position, results of operations and cash flows.


LIQUIDITY AND CAPITAL RESOURCES

        Delta Galil finances its operations mainly from cash flow from
operations, supplemented, if needed, by revolving short-term bank loans and
long-term bank loans. Delta Galil repays short-term bank loans if the cash flow
from operations exceeds the cash needs for operations and investment.

        Following is a breakdown of Delta Galil's cash flows for the last three
years:

<TABLE>
<CAPTION>
                                                                        YEAR ENDED DECEMBER 31,
                                                                --------------------------------------
                                                                  2001           2002           2003
                                                                --------       --------       --------
                                                                            ($ IN MILLIONS)
<S>                                                             <C>            <C>            <C>
Net cash flow provided by operating activity............        $   32.9       $   26.3       $   42.9
Net cash flow used in investing activity................           (45.9)         (19.7)         (18.4)
Net cash flow provided by financing activity
(excluding dividends to shareholders and cost of
acquisition of treasury shares).........................            23.9           10.5          (11.8)
Dividends to shareholders...............................            (5.8)          (7.0)          (9.5)
Cost of acquisition of treasury shares..................            (1.0)          (8.4)             -
                                                                --------       --------       --------
Increase in cash and cash equivalents...................        $    4.1       $    1.7       $    3.2
                                                                ========       ========       ========
</TABLE>

        In 2001, 2002 and 2003 Delta Galil generated excess cash flow from
operations of $32.9 million, $26.3 million and $42.9 million respectively.

        The increase in net cash flow provided by operating activity from $26.3
million in 2002 to $42.9 million in 2003 is mainly due to a decrease of $15.1
million in accounts receivable during 2003 compared to an increase of $10.5
million during 2002 and due to an increase of $6.7 million in net income. This
increase was partly offset by a decrease in accounts payable and accruals of
$5.1 million in 2003 compared to an increase of $4.4 million in 2002.

        Net cash flow used in investing activity in 2003 amounted to $18.4
million compared to $19.7 million in 2002. In 2003 net cash flow used in
investing activity included $10.1 million for the acquisition of Auburn


                                     - 36 -
<PAGE>

Hosiery Mills and an additional payment of $2.0 million for the acquisition of
Inner Secrets, while in 2002 it included $5.6 million for the acquisition of a
logistic center in Hungary.

        Net cash flow used in financing activity in 2003 amounted to $11.8
million while in 2002 the net cash flow provided by financing activity amounted
to $10.5 million.

     DEBT

        Set forth in the table below are Delta Galil's bank debt and debentures
for the last three years.

<TABLE>
<CAPTION>
                                                                      YEAR ENDED
                                                         ---------------------------------------
                                                            2001          2002           2003
                                                         ----------    ----------     ----------
                                                                    ($ IN MILLIONS)
<S>                                                      <C>           <C>            <C>
SHORT-TERM:
       Bank loans....................................    $    86.4     $    96.4      $    94.5
       Current maturities of long-term loans.........          6.9          10.3           10.4
       Debentures....................................          0.6             -              -
                                                         ----------    ----------     ----------
           Total Short-term..........................         93.9         106.7          104.9
                                                         ----------    ----------     ----------
LONG-TERM:
           Total Long-term bank loans................         25.2          23.0           13.6
                                                         ----------    ----------     ----------
           Total Debt................................    $   119.1     $   129.7      $   118.5
                                                         ==========    ==========     ==========
</TABLE>

        Delta Galil has incurred bank debt mainly for working capital, capital
expenditures and general corporate purposes. Delta Galil's bank loans bear
interest at annual rates ranging from approximately 2.5% to 2.9% (mainly 2.5%)
and are secured by liens on Delta Galil's assets. Delta Galil's bank loans are
issued under secured bank lines of credit of up to $217.3 million of which, as
of December 31, 2003, Delta Galil had $98.8 million available for additional
borrowings under the same prevailing rates.

        Delta Galil's bank lines of credit permit either short-term or long-term
borrowings. All of Delta Galil's short-term loans have maturities of up to three
months. Most of Delta Galil's borrowings are for shorter periods in order to
maintain cash management flexibility. Long-term bank loans mature in periods up
to February, 2009.

        Delta Galil USA Inc. is a party to a credit agreement, which was amended
as of June, 2003, with Bank Leumi USA and Bank Hapoalim B.M. Borrowings under
the credit agreement are secured by substantially all of the assets of Delta
Galil USA Inc. The credit agreement provides for up to $86 million in loans of
which $26 million are term loans and the remainder is revolving credit. The
principal of the term loans are payable in 14 equal quarterly installment of
approximately $1.9 million each until December 1, 2005. As of December 31, 2003
$31.4 million of this credit line was utilized.

     WORKING CAPITAL AND CAPITAL EXPENDITURES

        Working capital at December 31, 2003 was $56.6 million, compared to
$67.9 million at December 31, 2002 due to the acquisition of AuburnHosiery Mills
as part of which Delta Galil made a provision of approximately $6 million of
restructuring expenses, which are recorded as current liabilities. Delta Galil
believes that its working capital is sufficient for the company's present
requirements. Delta Galil has no material commitment for capital expenditures.


                                     - 37 -
<PAGE>

        Set forth below are our contractual obligations and other commercial
commitments as of December 31, 2003:

<TABLE>
<CAPTION>
                                                       PAYMENTS DUE BY PERIOD
                                                       ----------------------
                                                      LESS THAN 1                 MORE THAN 5
CONTRACTUAL OBLIGATIONS                     TOTAL        YEAR     2- 4 YEARS         YEARS
                                           -------     --------   ----------        -------
                                                        (U.S. $ IN MILLIONS)
<S>                                         <C>         <C>          <C>             <C>
Long-Term Debt.........................     $24.0       $10.4        $12.2           $1.4
Capital Lease Obligations..............       1.1         0.1          0.2            0.8
Operating Leases.......................      35.6         7.5         14.4           13.7
Letter of credits and bank
guarantees.............................      35.0        28.2          4.2            2.6
                                             ----        ----          ---            ---
Total Contractual Cash
Obligations............................      95.7        46.2         31.0           18.5
                                             ====        ====         ====           ====
</TABLE>

See Item 11: "Quantitative and Qualitative Disclosures About Market Risk"
regarding obligations related to forward currency contracts.


                                     - 38 -
<PAGE>

ITEM 6:    DIRECTORS AND SENIOR MANAGEMENT AND EMPLOYEES

        DIRECTORS AND SENIOR MANAGEMENT

        The directors and executive officers of Delta Galil are as follows:

<TABLE>
<CAPTION>

        NAME                                 AGE     POSITION
        ----                                 ---     --------
<S>                                          <C>     <C>
        Dov Lautman                          68      Chairman of the Board of Directors
        Arnon Tiberg                         60      President, Chief Executive Officer and General Manager
        Yossi Hajaj                          36      Chief Financial Officer
        Aviram Lahav                         45      Senior Vice President
        Michael Fitzgerald                   61      Senior Vice President
        Yechiel Naor                         55      Senior Vice President
        Imad Talhami                         45      Senior Vice President
        Esti Maoz                            56      Senior Vice President
        Eytan Stiassnie                      48      Senior Vice President
        Aharon Dovrat                        73      Director
        R. Henry Kleeman(3)                  46      Director
        Harvey M. Krueger                    75      Director
        Noam Lautman                         35      Director
        Giora Morag(1) (2)                   59      Director
        Amnon Neubach(1) (2)                 59      Director
        Peter Petrillo(4)                    43      Director
        Dan Propper                          63      Director
        Zalman Shalev(2)                     81      Director
        Amior Vinocourt(2)                   77      Director
        J. Randall White (3)                 49      Director
        Ann E. Ziegler(3)                    46      Director
</TABLE>

        (1)     External Director.
        (2)     Member of the Audit Committee.
        (3)     Mr. R. Henry Kleeman, Mr. J. Randall White and Ms. Ann E.
                Ziegler are nominees of Sara Lee International Corporation
                pursuant to a Shareholders Agreement among Sara Lee and the
                Lautman Group concerning the election of directors.
        (4)     Mr. Peter Petrillo is a nominee of Wafra Investment Advisory
                Group, Inc. pursuant to a Letter Agreement by and among Sara
                Lee, the Lautman Group and Wafra Investment Advisory Group, Inc.

        DOV LAUTMAN is the founder of Delta Galil and has served as the Chairman
of the Board of Directors since 1975. From 1975 to 1996, Mr. Lautman was the
Chief Executive Officer of Delta Galil. From 1986 to 1993, Mr. Lautman served as
President of the Manufacturers Association of Israel and as the Chairman of the
Coordinating Bureau of Economic Organizations of Israel. From 1993 to 1995, Mr.
Lautman was the Prime Minister's Special Emissary for Economic Development.
Since May 2001, Mr. Lautman has served as the chairman of the executive council
of Tel Aviv University.

        ARNON TIBERG has been the President and Chief Executive Officer of Delta
Galil since 1996. Mr. Tiberg served as a Director of Delta Galil from 1990 until
becoming the Chief Executive Officer in 1996. He is presently a Director of
Nilit Ltd., Strauss-Elite Holding Ltd., Kali Insurance Agency Ltd., and The
First International Bank of Israel Ltd. Mr. Tiberg is also a member of the
Executive Council of the Association of Publicly Traded Companies (of The Tel
Aviv Stock Exchange).

        YOSSI HAJAJ has served as Chief Financial Officer of Delta Galil since
March 2004. From 1999 to 2004 he served as controller and corporate secretary of
Delta Galil and from 1997 to 1999 he was Delta Galil's Chief Economist and
controller of foreign subsidiaries. Mr. Hajaj is a certified public accountant
(Isr.) and holds a B.A. in Accounting and Economics from Tel Aviv University. He
is a member of the Investment Committee of Tel Aviv University.


                                     - 39 -
<PAGE>

        AVIRAM LAHAV has been Senior Vice President and CEO of Delta Galil's
Innerwear USA operations since March 2004. From 1997 to 2004 he served as the
Chief Financial Officer of Delta Galil. From 1993 to 1997, Mr. Lahav was Chief
Executive Officer of Europcar/Eurodollar Israel, a car rental company and, from
1991 to 1993, Chief Financial Officer of Mediterranean Car Agency Ltd. Mr. Lahav
is a certified public accountant (Isr).

        MICHAEL FITZGERALD has served as CEO of Delta Galil USA since 1999, and
was named Senior Vice President of Delta Galil in 2002. Mr. Fitzgerald was
formerly Chief Executive Officer of Wundies Industries from 1989 until the
company was acquired by Delta Galil in 1999.Mr. Fitzgerald started with Wundies
in 1974 as manager of the ladies underwear division. He became Vice President of
Marketing in 1983. Between 1966 and 1974 Mr. Fitzgerald held various marketing
posts at the Buick Division of General Motors, Allied Chemical Fibers Division,
and the Coated Fabric Division of Occidental Petroleum. Mr. Fitzgerald holds a
Bachelor of Arts Degree from Fordham University and an MBA from the Bernard
Baruch College of the City University of New York.

        YECHIEL NAOR joined Delta Galil in 1997 as the General Manager of the
Textile Operation. In 2002 he was promoted to Senior Vice President. From 1984
until 1996 he served as VP and General Manager of Malden Mills Industries in
Lawrence, Mass. From 1973 to 1984 Mr. Naor served as Division Manager and
Technical Director of Argaman Industries in Israel. Mr. Naor holds an MSc in
Textile Chemistry, Plastics and Polymers and BSc Degree in Chemistry and Physics
from the Hebrew University in Jerusalem.

        IMAD TELHAMI has served as Senior Vice President and CEO of Delta's
Innerwear USA Operation since 2002. He started his career at Delta in 1983 as a
sewing plant manager. He managed several sewing plants until he was re-located
to manage Delta's facilities in Scotland. In 1996 he returned to Israel when he
was promoted to Lingerie Operation Director. In 1999 he was promoted to Director
of Delta's Marks and Spencer Operations. Mr. Telhami holds a BSc in Industrial
Management from Shenkar College in Israel. In March 2004 Mr. Telhami was
promoted to SVP and CEO of Delta Galil's European operation.

        ESTI MAOZ has been with Delta Galil since its inception in 1975, and has
served as Senior Vice President, Global Development and Marketing since November
2002. From September 1991 through October 2002, Ms. Maoz served as the President
of Delta Textiles (New York) Ltd. During these years, Ms. Maoz developed and
managed the marketing operations within North America. In 1987 Ms. Maoz
established the new Ladies Underwear Division and managed the Division through
1991. From 1984 through 1987 Ms. Maoz served as the Corporate Director of
Product Development and Design. From 1978 through 1984 Ms. Maoz served as the
Manager of all the sewing plants in Delta Galil. Ms. Maoz studied Business and
Marketing at the Haifa University in Haifa, Israel.

        EYTAN STIASSNIE has been Vice President and C.E.O. of Delta Galil's
Socks Division since January 2002 and was named Senior Vice President of Delta
Galil Industries in May 2004. He joined Delta Galil in 1989, serving as the
manager of information technology for the Sock Division until 1993, when he
became the production manager of the Sock Division, a position he held until
1997. From 1997 until 2001 he was operations manager of the Sock Division, and
during 2001 he served as vice president of logistics in the Sock Division. Mr.
Stiassnie holds a B. Sc. in Industrial Engineering, specializing in Information
Technology, from the Technion, Israel Institute of Technology.

        AHARON DOVRAT has served as a Director of Delta Galil since December
1998. Mr. Dovrat is the chairman of Dovrat & Co. Ltd. and Isal Ltd. . Mr. Dovrat
serves as a Director of Cognifit Ltd., DS Polaris Ltd., Technomatix Technologies
Ltd. and Solgood Communication Ltd. From 1992 to 1998.Mr. Dovrat was the
chairman of the Dovrat, Shrem & Co. S.A., an investment banking firm established
in 1991, as well as a Director of Domicar Ltd., Investment Company of Bank
Hapoalim Ltd., Oshap Technologies Ltd. and Ordan Industries Ltd. Until 1991 Mr.
Dovrat served as managing Director of Clal (Israel) Ltd., one of Israel's
largest public investment companies.

        R. HENRY KLEEMAN has served as a Director of Delta Galil since June
2000. Mr. Kleeman is a Vice President, Deputy General Counsel and business
practices officer of Sara Lee Corporation, where he has served as an attorney
since 1995. Mr. Kleeman also serves as a director of several Sara Lee
subsidiaries. Mr. Kleeman earned a bachelor of arts degree in English and
economics from Colgate University and a J.D. from the University of Chicago Law
School.


                                     - 40 -
<PAGE>

        HARVEY M. KRUEGER has served as a Director of Delta Galil since August
1999. Mr. Krueger is Vice Chairman of Lehman Brothers and has been involved with
that firm and Kuhn Loeb & Co., one of its constituent firms, since 1959. Mr.
Krueger currently serves as a Director of Automatic Data Processing Inc., Chaus
Inc., and is also Chairman of Stockton Partners Inc. In addition, Mr. Krueger is
former Chairman of the Peres Center for Peace, former Chairman of Cooper-Hewitt
National Design Museum and the Smithsonian Institution, former and honorary
Chairman of the Hebrew University of Jerusalem, and a member of the Board of
Directors of Beth Hatefutsoth and Beth Israel Medical Center (NY) and Continuum
Health Partners.

        NOAM LAUTMAN has been a Director of Delta Galil since October 2001. Mr.
Lautman has been Director for New Ventures and Strategic Business Planning at
Teva Pharmaceutical Industries Ltd since 2002. Mr. Lautman previously served in
various managerial positions in several Israeli companies operating in the
high-tech field. Mr. Lautman holds a B.Sc in Computer Science and Mathematics
and an MBA from New York University. Mr. Lautman is the son of Dov Lautman, the
Chairman of the Board of Directors of the Company.

        GIORA MORAG has served as a director of Delta Galil since September
2003. Mr. Morag worked at Bank Hapoalim B.M., for 27 years, until 2002. Mr.
Morag held a variety of managerial positions during his career, most recently as
the manager of the bank's UK branches. From 1996to 1999 Mr. Morag served as
General Manager of American Israel Bank Ltd,. a wholly owned subsidiary of Bank
Hapoalim. Mr. Morag studied economics and political science at the Hebrew
University.

        AMNON NEUBACH has been an independent business consultant since 1997.
From January 2001 until May 2003, Mr. Neubach served as the Chairman of the
Board of Directors of Pelephone Communications Ltd., an Israeli mobile phone
company. From 1995 to 1997, Mr. Neubach served as country advisor to Goldman
Sachs in Israel, and from 1990 to 1994 he served as the Minister of Economic
Affairs at the Israeli Embassy in Washington, D.C. Mr. Neubach serves as an
external director of Mind CTI Ltd. (Nasdaq: MNDO), a software company and Aspen
Building and Development Ltd. (TASE: ASBD), a real estate company and as a
director of Arelnet Ltd. (TASE: ARNT), a VOIP switch company; Zika Electrode
Works Ltd. (TASE: ZIKA), a manufacturer of electrodes and safety tools; Orbit
Alchut Technologies Ltd. (TASE: ORBI), an antenna company and Direct Insurance -
IDI Ltd., a private Israeli insurance company. Mr. Neubach received a B.A. in
economics and business administration and an M.A. in Economics from Bar-Ilan
University.

        PETER PETRILLO has served as a Director of Delta Galil since September
2000. Mr. Petrillo is the Senior Managing Director of Wafra Partners LLC and is
a Director of Riviera Trading, Inc., Holiday Group Inc., Travelpro
International, Inc., Altec Lansing Technologies, Inc., Vulcan Engineering Co.,
Kenexa Corporation, MariTEL, Inc., Casiano Communications, Inc., and The
Mitchell Gold Co. Mr. Petrillo was a member of the Board of Directors of Three V
Health, Inc., Deliland Foods Corporation, Atlantic Express Transportation Corp.,
and Phoenix Waste Services Company, Inc.

        DAN PROPPER has served as a Director of Delta Galil since 1986. Mr.
Propper has been the Managing Director of the OSEM Group of Companies since
1981. Until June 1999, Mr. Propper was the President of the Manufacturers
Association of Israel and Chairman of the Coordinating Bureau of Economic
Organizations of Israel. Mr. Propper is also a member of the Board of Directors
of Weizmann Institute and the Technion, Israel Institute of Technology, and
Chairman of the Boards of Directors of various industrial companies.

        ZALMAN SHALEV has served as a Director of Delta Galil since 1988. Mr.
Shalev is the former Chairman of the Board of Directors of ORT Israel and a
Director of World ORT Union and Israel Technical Incubators. Mr. Shalev is also
a member of the Israeli Chief Scientist Advisory Board. Mr. Shalev was a member
of the Board of Directors of Leumi & Co. until 1998. From 1967 to 1987 Mr.
Shalev served as a Director and President of Elisra Electronic Company. From
1962 to 1966 Mr. Shalev served as director of communication electronics of the
Israel Defense Forces.

        AMIOR VINOCOURT has served as a Director of Delta Galil since December
1996. Mr. Vinocourt was a Director of Industrial Building Corporation Ltd., of
Ofis Textile Ltd. and Alliance Tyre (1992) Ltd. Until 1995, Mr. Vinocourt was a
Director of Neshua Underwriting and Issuing Ltd. and, from 1994 to 1997 a
Director of Bank Hapoalim Ltd. Mr. Vinocourt is a Chartered Accountant (F.C.A.)
(England) and a Certified Public Accountant (Isr). From 1972 to 1993 Mr.
Vinocourt was managing Director of Industrial Finance Corp. Ltd. and the
Investment Company for Industrial Development in Israel Ltd.


                                     - 41 -
<PAGE>

        J. RANDALL WHITE has served as a Director of Delta Galil since September
2003. Mr. White has served as Vice President - Corporate Affairs for Sara Lee
Corporation since 2001. He joined Sara Lee in 1988 and has served in a variety
of executive capacities at Sara Lee. Mr. White is a trustee and former Chairman
of the Board of Hubbard Street Dance Chicago, Vice President and a trustee of
the Goodman Theatre, a member of the Board of Trustees of Ravinia Festival and a
member of the Board of Advisors of Catalyst. Mr. White earned a Bachelor of Arts
degree in economics and mathematics from Dartmouth College and a Master of
Business Administration from Harvard Business School.

        ANN E. ZIEGLER has served as a Director of Delta Galil since July 1998.
Ms. Ziegler is a Senior Vice President for Sara Lee Corporation and CFO and
SVP-Administration of the Sara Lee Bakery Group. From October 2000 until March
2003, Ms. Ziegler was Senior Vice President - Corporate Development for Sara Lee
Corporation. Ms. Ziegler joined Sara Lee in 1993 after being an associate with
the law firm Skadden, Arps, Slate, Meagher & Flom. Ms. Ziegler serves on the
Board of Directors of Unitrin Inc., Lifeline Theater and Chicago Shakespeare
Theatre. Ms. Ziegler earned a Bachelor of Arts Degree from the College of
William and Mary and a J.D. from the University of Chicago Law School.

COMPENSATION OF DIRECTORS AND EXECUTIVE OFFICERS

        The directors of Delta Galil, other than Dov Lautman who is also an
employee of Delta Galil, and the directors designated by Sara Lee, receive a
fixed annual compensation of approximately $8,000 for their services on the
board of directors or on any committee thereof. In addition, a sum of
approximately $300 is paid for attending each Board meeting. In 2003, Delta
Galil's expenses for directors' compensation amounted to a total of
approximately $90,000.

        The following table sets forth the aggregate compensation paid to or
accrued on behalf of all directors and executive officers of Delta Galil as a
group for the year ended December 31, 2003.

<TABLE>
<CAPTION>
                               SALARIES, DIRECTORS' FEES,     PENSION, RETIREMENT AND
                                COMMISSIONS AND BONUSES           SIMILAR BENEFITS
                                -----------------------           ----------------
<S>                                   <C>                           <C>
All directors and executive
officers (consisting of
22 persons).................          $3.4 million                  $0.3 million
</TABLE>

        As of June 15, 2004, 657,713 options to purchase Delta Galil's ordinary
shares were outstanding to certain executive officers and key employees
(consisting of 8 persons who were granted options). See "Stock Option Plans"
below and note 10 of the notes to Delta Galil's consolidated financial
statements included in Item 18 of this annual report.

BOARD PRACTICES

     TERMS OF DIRECTORS

        Delta Galil's directors are elected at the Annual Shareholders Meeting
to serve until the next annual meeting of shareholders and until their
respective successors are elected and qualified. Delta Galil's Articles of
Association provide that the directors may appoint additional directors (whether
to fill a vacancy or to expand the Board), provided the number of directors is
less than fifteen or such other maximum number approved at a general meeting of
shareholders. The Articles of Association also provide that the Board of
Directors may delegate all of its powers to committees of the Board as it deems
appropriate.

        Delta Galil or its subsidiaries have not entered into any service
contracts with its non-employee directors that provide benefits upon termination
of services.

     EXTERNAL DIRECTORS AND AUDIT COMMITTEE

        Under the Israeli Companies Law, public companies are required to elect
two external directors who must meet specified standards of independence. The
external directors may not have any economic relationship with the company.
External directors are elected by the shareholders. The votes in favor of their
election must include at least one-third of the votes of the shareholders
attending and voting who are non-controlling


                                     - 42 -
<PAGE>

shareholders of the company, without taking abstentions into account. This
approval requirement need not be met if the total votes of such non-controlling
shareholders who vote against the election represent 1% or less of all of the
voting rights in the company. External directors serve for a three-year term,
which may be renewed for only one additional three-year term. External directors
can be removed from office only by the shareholders at the same majority
required to elect them, or by a court. External directors may be removed from
office only if they cease to meet the statutory qualifications with respect to
their appointment or if they breach their duty of loyalty to the company.

        If, when an external director is elected, all members of the board of
directors of a company are of one gender, the external director to be elected
must be of the other gender.

        Any committee of the board of directors must include at least one
external director. An external director is entitled to compensation as provided
in regulations adopted under the Companies Law and is otherwise prohibited from
receiving any other compensation, directly or indirectly, in connection with his
or her service.

        Messrs. Giora Morag and Amnon Neubach serve as external directors of
Delta Galil. Their terms expire on September 30, 2006 and December 16, 2006,
respectively.

        The Companies Law also provides that publicly traded companies must
appoint an audit committee. The responsibilities of the audit committee include
identifying irregularities in the management of the company's business and
approving related party transactions as required by the Companies Law. An audit
committee must consist of at least three members and include all of the
company's external directors. The chairman of the board of directors, any
director employed by the company or providing services to the company on a
regular basis, any controlling shareholder or any relative of a controlling
shareholder may not be members of the audit committee. An audit committee may
not approve an action or a transaction with a controlling shareholder or with an
office holder, unless at the time of approval two external directors are serving
as members of the audit committee and at least one of the external directors was
present at the meeting in which an approval was granted.

        In addition, the Companies Law requires the board of directors of a
public company to appoint an internal auditor nominated by the audit committee.
A person who does not satisfy the Companies Law's independence requirements may
not be appointed as an internal auditor. The role of the internal auditor is to
examine, among other things, the compliance of the company with applicable law
and orderly business practice.

        Pursuant to the listing requirements of the Nasdaq National Market,
Delta Galil is required to have at least two independent directors on its board
of directors and to establish an audit committee, at least a majority of whose
members are independent of management. Messrs. Morag, Neubach, Shalev and
Vinocourt, who we believe meet the definitions of independence under the rules
of the Securities and Exchange Commission and the Nasdaq National Market,
currently serve on Delta Galil's audit committee.


EMPLOYEES

        As of December 31, 2003, Delta Galil employed approximately 12,150
employees of these, 10,000 were engaged in production, and the remainder
performed administrative, marketing, logistics and other functions.

        The following table shows the geographical distribution of Delta Galil's
employees, as of December 31, 2003:

        COUNTRY                                 NUMBER OF EMPLOYEES
        -------                                 -------------------
        Egypt                                           3,850
        Israel                                          2,930
        Jordan                                          2,360
        Honduras                                        1,170
        United States                                     780
        United Kingdom                                    418
        Hungary                                           370
        Canada                                            230
        Other                                              42
                                                           --
        Total                                          12,150
                                                       ======


                                     - 43 -
<PAGE>

        Many factory employees are eligible for bonuses based upon the number of
units such employees produce in any given day. Delta Galil has not experienced
any significant labor stoppages.

        Certain collective bargaining agreements between the General Federation
of Labor in Israel, known as the "Histadrut," and the Coordination Bureau of
Economic Organizations (including the Industrialists' Association of Israel) are
applicable to Delta Galil's employees in Israel. In addition, a collective
bargaining agreement relating to members of the Industrialists' Association,
which governs employee relations in the textile and clothing industry, applies
to all of Delta Galil's textile employees. These agreements concern, among other
things, the maximum length of the work day and the work week, minimum wages,
contributions to a pension fund, insurance for work-related accidents,
procedures for dismissing employees, determination of severance pay and other
conditions of employment. Furthermore, under these agreements, the wages of most
of Delta Galil's employees are automatically adjusted in accordance with the
cost-of-living adjustments as determined on a nationwide basis and under
agreements with the Histadrut based on changes in the Israeli consumer price
index. The amounts and frequency of such adjustments are modified from time to
time.

        Israeli law generally requires the payment by employers of severance pay
upon the retirement or death of an employee or upon termination of employment by
the employer or, in certain circumstances, by the employee. Delta Galil
currently funds its on-going severance obligations by making monthly payments to
pension funds, employee accounts in a provident fund and insurance policies. In
addition, according to the Israeli National Insurance Law, Israeli employees and
employers are required to pay specified amounts to the National Insurance
Institute. Since January 1, 1995, such amounts also include payments for
national health insurance payable by employees. The payments to the National
Insurance Institute are determined progressively in accordance with the wages
and range from 10.4% to 16.3% of wages, of which the employee contributes
between 43% and 64% and the employer contributes the balance. A majority of
Delta Galil's permanent employees are covered by life and pension insurance
policies providing customary benefits to employees, including retirement and
severance benefits. Delta Galil generally contributes up to 15.8% (depending on
the employee) of base wages to such plans and the permanent employees contribute
5.0% of their base wages.

        In addition, some employees of Delta Galil's U.S. subsidiary are subject
to a collective bargaining agreement.

SHARE OWNERSHIP

        See table under Item 7: "Major Shareholders and Related Party
Transactions" below.

STOCK OPTION PLANS

        Delta Galil has four stock option plans and has separately issued
options to one executive. The total shares that may be issued upon exercise of
all outstanding options represent approximately 9% of the outstanding share
capital of Delta Galil after taking into account shares issuable upon exercise
of these options, as of April 15, 2004.

        In May 1998, Delta Galil adopted an option plan to retain and attract
qualified persons as employees and officers and to motivate such persons by
providing them with an equity participation. The stock option plan is designed
to afford the participants tax benefits under Section 102 of the Israeli Income
Tax Ordinance.

        Options issued under the stock option plan are to be held in trust by
Investec Clali Trust Company Ltd., as trustee, for a period of at least two
years from the date of grant pursuant to the requirements of the Income Tax
Ordinance. Shares issued upon exercise of options will be held by the trustee
until the option holder pays applicable taxes. Unexercised options are not
entitled to a vote while held by the trustee.

        Options granted under the stock option plan vest over a period of three
years in four equal tranches, the first of which vested in August 1998. The
options are subject to restrictions on transfer, sale or hypothecation. Options
may only be exercised commencing on the date that is two years after the date
such options vested and


                                     - 44 -
<PAGE>

they expire five years after vesting. Restrictions on disposition of options
lapse according to the terms of the stock option plan under which those options
are granted.

        As of December 31, 2003, Delta Galil had outstanding under this plan
options to purchase up to 107,452 ordinary shares at an exercise price of $8.297
per ordinary share, converted to NIS on the date of the exercise. The exercise
price is equal to 90% of the Tel Aviv Stock Exchange closing price on the last
day of trading prior to the board of directors' approval of the plan. All of
these options were granted to executive officers of Delta Galil and its
subsidiaries.

        In addition, Delta Galil has granted to Arnon Tiberg, Delta Galil's
President and Chief Executive Officer, options to acquire 100,000 ordinary
shares. The options were approved by the board of directors and the audit
committee in September 1998, and at a shareholders' meeting on October 14, 1998.
The option's exercise price is $7.90 per share converted to NIS on the date of
the exercise. The exercise price is equal to 90% of the Tel Aviv Stock Exchange
closing price on the last day of trading prior to the board of directors'
approval of the plan. As of December 31, 2003 all of the said options are fully
vested. As of December 31, 2003, Delta Galil had outstanding under this plan
options to purchase up to 50,000 ordinary shares.

        In June 2000, Delta Galil adopted a new stock option plan. Under the new
plan, options to purchase 809,000 ordinary shares, including an additional
100,000 options to Arnon Tiberg, Delta Galil's President and Chief Executive
Officer, will be granted to 70 employees. As of June 15, 2004, 118,750 options
that were granted to 19 employees were forfeited, upon the termination of their
employment. The options vest over a three-year period and have an exercise price
of $21.07, equal to the Tel Aviv Stock Exchange closing price on the last day of
trading prior to the board of directors' approval. The options are to be held in
trust by Investec Clali Trust Company Ltd., as trustee, for a period of at least
two years from the date of grant pursuant to the requirements of the Income Tax
Ordinance.

        In October 2002 Delta Galil adopted a fourth stock option plan, under
which options to purchase up to 1,100,000 ordinary shares may be granted. Under
the new plan, options to purchase up to 1,004,500 ordinary shares were granted
to 97 employees, including an additional 100,000 options to Arnon Tiberg, Delta
Galil's President and Chief Executive Officer. The options vest over a four-year
period and have an exercise price of $9.00. The options are to be held in trust
by Investec Clali Trust Company Ltd., as trustee, for a period of at least two
years from the date of grant pursuant to the requirements of the Israeli Income
Tax Ordinance. The options vest in four equal batches. The first, second, third
and fourth batches will vest in November 2003, 2004, 2005 and 2006 respectively.
The options are exercisable over a three-year period, commencing one year after
the vesting date of the first batch and on the vesting date of the second, third
and fourth batch. In May 2003 the Company granted 30,000 options to three
employees of the group at an exercise price of $10.76. The options are
exercisable over a three years period, commencing one year after the vesting
date of the first batch and on the vesting date of the second, third and fourth
batch. In March 2004 the Company granted 80,000 options to six employees of the
group at an exercise price of $15.35. The options are exercisable over a three
years period, commencing one year after the vesting date of the first batch and
on the vesting date of the second, third and fourth batch.

        All options granted after January 1, 2003 may be exercised only
following the elapse of two years after the end of the year in which the options
were granted. As of June 15, 2004 options to purchase an additional 64,500
shares remain available for grant under the plan. As of June 15, 2004, 79,000
options that were granted to nine employees were forfeited upon the termination
of their employment.

        As of June 15, 2004, 1,862,063 options to purchase Delta Galil's
ordinary shares were outstanding to certain executive officers and key employees
(consisting of 108 persons who were granted options).


                                     - 45 -
<PAGE>

ITEM 7.    MAJOR SHAREHOLDERS AND RELATED PARTY TRANSACTIONS

MAJOR SHAREHOLDERS

        The following table sets forth stock ownership information (including
all ordinary shares represented by ADSs) as of June 15, 2004, with respect to:

        1)      Each person who is known by Delta Galil to be the beneficial
                owner of more than 5% of Delta Galil's outstanding ordinary
                shares; and

        2)      Directors and senior management (on an individual basis);

Except where otherwise indicated, Delta Galil believes, based on information
furnished by such owners, that the beneficial owners of the ordinary shares
listed below have sole investment and voting power with respect to such shares.
The shareholders listed below do not have any different voting rights from any
other shareholders of Delta Galil. Other than as disclosed below, none of Delta
Galil's directors beneficially owns 1% or more of Delta Galil's outstanding
ordinary shares.

<TABLE>
<CAPTION>
                                                      NUMBER OF             PERCENT OF
                                                   ORDINARY SHARES        ORDINARY SHARES
         NAME                                     BENEFICIALLY OWNED      OUTSTANDING(1)
         ----                                     ------------------      --------------
<S>                                                 <C>                      <C>
         Dov Lautman(2)                               4,644,993                25.2%
         Sara Lee International Corporation           4,256,537                23.1%
         Wafra Acquisition Fund 11, L.P.              1,123,010                6.1%
         Arnon Tiberg(3)                               493,084                 2.7%
         Amior Vinocourt(4)                             63,501                 0.3%
         Aharon Dovrat                                  10,050                 0.05%
         Harvey Krueger                                 5,000                  0.03%
</TABLE>
        -------------------
        (1)     Based on 18,458,864 ordinary shares outstanding, excluding
                1,422,486 ordinary shares held by the Company and excluding
                66,499 ordinary shares held by a trustee in connection with
                Delta Galil's stock option plans.
        (2)     Includes 3,264,336 shares held by Nichsei Adinoam Ltd. and
                1,380,657 shares held by N.D.R.L. Investments (1998) Ltd., each
                of which is a company controlled by Dov Lautman.
        (3)     Includes 439,150 shares held by Ha'lakucah Ha'Neeman (65) Ltd.,
                a company controlled by Mr. Tiberg. Arnon Tiberg was also
                granted options to acquire 300,000 ordinary shares. Options to
                acquire 100,000 ordinary shares have an exercise price of $7.90
                per share converted to NIS on the date of the exercise, and vest
                in four equal tranches over three years commencing in November
                1998, of them 50,000 have been exercised during 2003. Options to
                acquire an additional 100,000 ordinary shares have an exercise
                price of $21.07 per share converted to NIS on the date of the
                exercise, and vest in four equal tranches over three years
                commencing in August 2000. All of these options are exercisable
                commencing on the date that is two years after the date such
                options vested and expire five years after vesting. Options to
                acquire an additional 100,000 Ordinary Shares have an exercise
                price of $9.00 per share converted to NIS on the date of the
                exercise. These options vest in equal tranches over four years
                commencing in November 2003, and expire three years after
                vesting. The first two tranches are not exercisable until
                November 2004.
        (4)     Held through Vinocourt Achzakot Ltd., a company controlled by
                Mr. Vinocourt.


                                     - 46 -
<PAGE>

SHAREHOLDERS AGREEMENTS

        Dov Lautman, the Chairman of the Board of Directors of Delta Galil, and
two companies through which he holds shares in Delta Galil, N.D.R.L. Investments
(1998) Ltd. and Nichsei Adinoam Ltd., (collectively, the "Lautman Group"), have
a shareholders agreement with Sara Lee Corporation and Sara Lee International
Corporation.

        The shareholders agreement provides, among other things, that:

        o       Sara Lee International Corporation is entitled to nominate 30%
                of the members of Delta Galil's board of directors, excluding
                independent directors , with fractions rounded up to the next
                whole number, and Mr. Lautman is entitled to nominate the
                remainder of the members of the board, excluding independent
                directors;

        o       Delta Galil may not issue, allot or grant options over or
                conversion rights into its unissued share capital without the
                prior consent of Sara Lee International Corporation unless as
                part of a pro rata distribution of fully paid up bonus shares;
                and

        o       New appointments of a chief executive officer of Delta Galil
                shall require the consent of Sara Lee International Corporation.

        In addition, the Lautman Group and Sara Lee International Corporation
each granted the other a right to purchase any Delta Galil shares that the other
party beneficially owns and proposes to sell to unaffiliated third parties.

        The term of the shareholders agreement will expire on the earlier to
occur of: (i) the date on which Sara Lee holds less than 18% of the equity
rights of Delta Galil and (ii) the transfer by Sara Lee of its shares to a
competitor of Delta Galil, which is defined as an entity engaged in the United
States, Israel or Western Europe in the manufacture of socks and underwear,
including pantyhose and hosiery but excluding brassieres.

        In March 2004, Mr. Lautman sold 1,700,000 ordinary shares representing
9.2% of Delta Galil's outstanding shares for an aggregate selling price of $24.8
million. The price per share received by Mr. Lautman was 2% beneath the
then-current market price.

        In January 1998, Mr. Lautman purchased from Sara Lee ordinary shares
representing 12.52% of Delta Galil's then outstanding shares for an aggregate
purchase price of $10.3 million. The price per share paid by Mr. Lautman was
41.9% above the then-current market price.

        In addition, the Lautman Group, Sara Lee Corporation and Sara Lee
International Corporation are parties to a Letter Agreement with Wafra
Investment Advisory Group, Inc. dated as of September 11, 2000.

        Pursuant to the Letter Agreement, which was entered into in connection
with the acquisition of Wundies Industries Inc., Mr. Lautman agreed to nominate
a person designated by Wafra Acquisition Fund 11, L.P. and approved by Delta
Galil, as one of the nominees that Mr. Lautman is entitled to nominate to the
board of directors under the shareholders agreement described above. Each of the
Lautman Group, Sara Lee Corporation and Sara Lee International Corporation
agreed to vote in favor of such appointment. Wafra's nominee shall serve on
Delta Galil's board of directors for a period of two years or as long as Wafra
continues to hold at least 50% of the ordinary shares of Delta Galil it received
in consideration for its sale of shares of Wundies Industries, Inc.

        As of June 15, 2004, the Lautman Group owned 25.2% and Sara Lee owns
23.1% of the outstanding ordinary shares of Delta Galil.

        As of June 15, 2004, Delta Galil has 25 shareholders of record resident
in the United States, accounting for 30.8% of the outstanding ordinary shares.
Two U.S. shareholders, Sara Lee International Corporation and Wafra Acquisition
Fund 11 L.P., hold 29.2% of the outstanding ordinary shares.


                                     - 47 -
<PAGE>

RELATED PARTY TRANSACTIONS

     SALES TO SARA LEE AFFILIATES

        Delta Galil derived 0.4% of its revenues in 2003 from sales to
subsidiaries of Sara Lee that own or license brands, such as Dim, Playtex and
Polo Ralph Lauren. Delta Galil believes that these sales were on terms no less
favorable to Delta Galil than sales to other third parties.

        See "Item 10: Additional Information--Approval of Related Party
Transactions under Israeli Law."


                                     - 48 -
<PAGE>

ITEM 8:    FINANCIAL INFORMATION

CONSOLIDATED STATEMENTS AND OTHER FINANCIAL INFORMATION

        See Delta Galil's consolidated financial statements included in Item 18
of this annual report. No significant change has occurred since the date of the
consolidated financial statements included herein.

LEGAL PROCEEDINGS

        From time to time, Delta Galil is involved in legal proceedings relating
to claims arising out of its operations in the normal course of business,
including claims made by employees and former employees.

        Delta Galil believes that there are no legal proceedings pending or
threatened against it or any of its properties that may have significant effects
on its financial position or profitability.

DIVIDENDS

        Delta Galil has distributed cash dividends to its shareholders from time
to time in the past and will continue to consider, on a quarterly basis, the
payment of dividends to its shareholders. However, Delta Galil does not have an
established dividend policy, and the amount of future dividends, if any, will be
determined from time to time by the board of directors in light of Delta Galil's
earnings, financial condition, capital requirements and other factors.

        Following is a breakdown of dividends per ordinary share paid in the
last four fiscal years:

                          YEAR ENDED DECEMBER 31
        ------------------------------------------------------------
          2000             2001             2002              2003
          ----             ----             ----              ----
          $0.37            $0.30            $0.37             $0.52
          =====            =====            =====             =====


                                     - 49 -
<PAGE>

ITEM 9:    OFFER AND LISTING

        Delta Galil's ordinary shares have been listed on the Tel Aviv Stock
Exchange since 1982. The ordinary shares are not listed on any other stock
exchange and have not been publicly traded outside Israel.

        In the United States, ADSs evidenced by American Depositary Receipts
(ADRs) represent fully paid ordinary shares of Delta Galil and each ADS
represents one fully paid ordinary share. The ADSs are issued pursuant to a
Deposit Agreement entered into by Delta Galil and The Bank of New York, as
depositary. The Bank of New York's address is 101 Barclay Street, New York, New
York 10286. On March 25, 1999, trading of Delta Galil's ADSs commenced on the
Nasdaq National Market under the symbol DELT.

        The table below sets forth for the periods indicated (i) the high and
low last reported prices of the ordinary shares (in nominal NIS and dollars) on
the TASE, and (ii) the high and low sales prices of the ADSs as reported on the
Nasdaq since March 1999. The translation into dollars is based on the daily
representative rate of exchange on the last day of each period, as published by
the Bank of Israel.

<TABLE>
<CAPTION>
                                                                                                      ADS
                                                          ORDINARY SHARES                         EQUIVALENTS
                                         -------------------------------------------------        -----------
                                                   HIGH                      LOW               HIGH         LOW
                                                   ----                      ---               ----         ---
                                              NIS          $           NIS          $           $            $
                                              ---          -           ---          -           -            -
<S>                                          <C>          <C>         <C>          <C>        <C>           <C>
YEAR ENDING DECEMBER 31, 1998:               40.00        10.94       11.45         3.24           -           -
YEAR ENDING DECEMBER 31, 1999:               75.60        18.20       33.44         8.19       17.47        8.84
YEAR ENDING DECEMBER 31, 2000:              101.57        24.98       48.05        11.71       25.19       11.75
YEAR ENDING DECEMBER 31, 2001:
    First Quarter...................         59.18        14.38       51.12        12.40       14.63       12.06
    Second Quarter ................          55.76        13.45       34.63         8.30       13.82        8.20
    Third Quarter...................         44.07        10.41       33.33         7.64       10.46        7.58
    Fourth Quarter..................         45.44        10.36       34.40         7.90       10.10        7.62
YEAR ENDING DECEMBER 31, 2002:
    First Quarter...................         49.35        10.99       35.10         7.52       10.83        7.85
    Second Quarter..................         37.50         7.84       32.89         6.76        7.73        6.69
    Third Quarter...................         40.10         8.59       34.79         7.18        8.40        6.86
    Fourth Quarter..................         47.20        10.19       32.91         6.77       10.26        6.69
    YEAR ENDING DECEMBER 31, 2003:
    First Quarter...................         55.46        11.47       46.71         9.76       11.15        9.33
    Second Quarter..................         62.60        14.45       51.14        10.98       13.67       10.81
    Third Quarter...................         67.60        15.22       58.30        13.14       14.51       12.83
    Fourth Quarter..................         76.80        17.19       64.12        14.53       16.97       14.37
MOST RECENT SIX MONTHS:
         December 2003                       74.90        16.89       68.70        15.73       16.62       15.28
         January 2004                        74.30        16.88       68.50        15.38       16.16       15.18
         February 2004                       73.20        16.32       67.10        14.99       15.88       14.88
         March 2004                          73.18        16.32       66.20        14.68       15.98       14.71
         April 2004                          72.30        15.74       69.20        15.23       15.88       14.88
         May 2004                            72.17        15.80       66.90        14.57       15.65       14.20
</TABLE>


        As of June 13, 2004, the last reported price of the ordinary shares on
the TASE was NIS 68.62 ($15.76) and on June 10, 2004 the last reported price per
ADS on Nasdaq was $ 14.70.


                                     - 50 -
<PAGE>

        Fluctuations in the exchange rate between the NIS and the dollar may
affect the price of the ordinary shares on the TASE and, as a result, may affect
the market price of the ADSs in the United States.

ITEM 10:    ADDITIONAL INFORMATION

MEMORANDUM AND ARTICLES OF ASSOCIATION

        Delta Galil is registered with the Israeli Registrar of Companies as a
public company, with registration number 52-002560-2. Delta Galil's Articles of
Association provide that Delta Galil's objects may include any activity
permitted by law, and that Delta Galil can also contribute reasonable amounts to
worthwhile causes even if such contributions are not based on profit-oriented
business considerations.

APPROVAL OF RELATED PARTY TRANSACTIONS UNDER ISRAELI LAW

        The Companies Law governs the relationships between a company and its
"office holders." Under the Companies Law, an "office holder" is a director,
general manager, chief business manager, deputy general manager, vice general
manager, any other person assuming the responsibilities of any of the foregoing
positions without regard to such person's title or any other manager directly
subordinate to the general manager.

      DISCLOSURE OF PERSONAL INTEREST

        A director who has a personal interest in a transaction that is
considered at a meeting of the board of directors or the audit committee may not
be present during the board of directors or audit committee discussions and may
not vote on that matter. If a majority of the members of the audit committee or
of the board of directors has a personal interest in the matter, the director
can participate and vote at such audit committee or board meeting, provided,
however, that if the majority of the members or the directors has a personal
interest in the transaction, shareholder approval will be also required.

        The Companies Law requires that an office holder and any controlling
shareholder promptly disclose to the company any personal interest that he, or
any corporation in which he is a 5% or greater shareholder, director or general
manager or has the right to appoint at least one director or the general
manager, may have, and all related material information known to him, in
connection with any existing or proposed transaction by the company. In
addition, if the transaction is an "extraordinary transaction", the office
holder or controlling shareholder must also disclose any personal interest held
by such person's spouse, siblings, parents, grandparents, descendants, spouse's
descendants and the spouses of any of the foregoing. An extraordinary
transaction is a transaction that is not in the company's ordinary course of
business, or not at market terms or that may materially affect the company's
profitability, assets or liabilities.

     DIRECTORS' COMPENSATION

        Delta Galil's Articles provide that, unless otherwise approved at a
general meeting, each director shall be paid the same remuneration as paid to
each of Delta Galil's external directors. Remuneration of external directors is
limited by regulations issued under the Companies Law. The directors will be
entitled to be reimbursed for reasonable expenses incurred by them in performing
their services as directors.

     BOARD APPROVAL

        As more fully described below, depending on the circumstances, approvals
of related-party transactions may be required at three levels: board approval,
audit committee approval and shareholder approval.

        The Companies Law provides that transactions between a company and its
office holders, other than directors, as well as transactions with a company in
which an office holder has a personal interest, which are not "extraordinary
transactions," require the approval of the board of directors, unless another
manner of approval is provided by the articles of association. All arrangements
as to compensation of the General Manager, the Chief Executive Officer and the
President require approval of Delta Galil's board of directors. Unless otherwise
determined by the board of directors, the compensation arrangements of office
holders, other than the General Manager, CEO and/or President, are at the
discretion of the General Manager of Delta Galil.


                                     - 51 -
<PAGE>

      AUDIT COMMITTEE APPROVAL

        The Companies Law requires approval by both the audit committee and the
board of directors of, among other things, the following actions or
transactions:

        o       proposed transactions in which an office holder has a direct or
                indirect personal interest and which is outside the ordinary
                course of the company's business, which is not in accordance
                with market conditions or which may materially influence the
                earnings, assets or liabilities of the company; and

        o       actions which may otherwise be deemed to constitute a breach of
                fiduciary duty of any office holder of the company, that are
                done in good faith and that are in the interest of the company.


      SHAREHOLDER APPROVAL

        The Companies Law also provides that, in addition to approval of the
audit committee and the board of directors, the shareholders must approve the
following, unless there is an exemption in the Companies Law or in the
regulations promulgated thereunder:

        o       an extraordinary transaction between a public company and a
                controlling shareholder;

        o       an extraordinary transaction with a third party in which a
                controlling shareholder of the company has a personal interest;

        o       the terms of compensation of a controlling shareholder, if he is
                an employee of the company;

        o       terms of service of directors (including terms of their
                employment as officers of the company); and

        o       the terms of office of a controlling shareholder if he is an
                office holder of the company.

        The shareholder approval for such an extraordinary transaction must
include at least one-third of the shareholders who have no personal interest in
the transaction and are present at the meeting, not including abstentions. The
transaction can be approved by shareholders without this one-third approval, if
the total holdings of those shareholders who have no personal interest and voted
against the transaction do not represent more than 1% of the voting rights in
the company.

BORROWING POWERS

        Article 50 of the Articles provides that Delta Galil may from time to
time, at its discretion, borrow or secure the payment of any sum or sums of
money for its purposes. Article 51 provides that Delta Galil may raise the funds
for or secure the repayment of such sum or sums in such manner, at such times
and upon such terms and conditions as it deems fit and, in particular, by the
issue of bonds, perpetual or redeemable debentures, debenture stock, or any
mortgages or charges, on the whole or any part of the property of Delta Galil,
both present and future, including its uncalled capital at that time and its
called but unpaid capital.


                                     - 52 -
<PAGE>

CHANGE OF CONTROL

        The Companies Law provides that an acquisition of shares in a public
company must be made by means of a tender offer if as a result of the
acquisition the purchaser would become a 25% shareholder of the company. This
rule does not apply if there is already another 25% shareholder of the company.
Similarly, the Companies Law provides that an acquisition of shares in a public
company must be made by means of a tender offer if, as a result of the
acquisition, the purchaser would become a holder of more than 45% of the voting
rights of the company, unless there is another person holding at that time more
than 50% of the voting rights of the company.

        The Companies Law provides that mergers require the approval of the
board of directors and shareholders of the merging parties. For purposes of the
shareholder vote of each party, unless a court rules otherwise, the merger will
not be deemed approved if a majority of the shares not held by the other party,
or by any person, including that person's relatives and any company that person
controls, who holds 25% or more of the shares or has the right to appoint 25% or
more of the directors of the other party, have voted against the merger. The
Articles provide that shareholder approval of mergers will be by a simple
majority vote cast at a general meeting of shareholders, not taking abstentions
into account.

SHAREHOLDER MEETINGS

        Annual general meetings of shareholders are held once every year at such
time, within a period of not more than 15 months after the last preceding annual
general meeting, and such place as determined by the board of directors. The
board of directors may call extraordinary general meetings of shareholders and
are obligated to do so upon a written request in accordance with the Companies
Law. The Companies Law provides that an extraordinary general meeting of
shareholder may be called by the board of directors or by a request of two
directors or 25% of the directors in office, or by shareholders holding at least
5% of the issued share capital of the company and at least 1% of the voting
rights, or of shareholders holding at least 5% of the voting rights of the
company. Delta Galil generally must give notice of a general meeting to its
shareholders of record at least twenty-one days prior to the meeting.

     QUORUM; VOTING RIGHTS; RECORD DATE

        The required quorum for any general meeting is two or more shareholders
present in person or by proxy and holding at least thirty-three and one-third
percent (331/3%) of the issued voting shares. On all matters submitted to a vote
of shareholders, holders of ordinary shares have one vote for each ordinary
share. Such voting rights may be affected by the grant of any special voting
rights to the holders of a class of shares with preferential rights that may be
authorized in the future. Under the Companies Law, the board of directors can
set a record date for the purpose of a shareholder vote. The record date may be
between four and forty days before the date of the meeting.

DIRECTORS

     ELECTION OF DIRECTORS

        Delta Galil's ordinary shares do not have cumulative voting rights in
the election of directors. As a result, the holders of ordinary shares that
represent at least 51% of the voting power have the power to elect all the
directors. Directors are elected annually by the shareholders at the annual
meeting. Directors hold office until the conclusion of the next annual meeting
or until their earlier removal or resignation. A director is not required to
retire at a certain age and need not be a shareholder of Delta Galil.

     MEETINGS OF THE BOARD OF DIRECTORS

        The required quorum for any Board meeting is not less than thirty
percent (30%) of the then number of directors.


                                     - 53 -
<PAGE>

DESCRIPTION OF SHARE CAPITAL

        AUTHORIZED SHARES

        Delta Galil's authorized share capital consists of 26,000,000 ordinary
shares, par value NIS 1.00 per share.

        TRANSFER OF SHARES; NON-ASSESSABILITY

        Fully paid ordinary shares are non-assessable and are issued in
registered form. They may be freely transferred pursuant to the Articles of
Association unless such transfer is restricted or prohibited by another
instrument.

     FOREIGN OWNERSHIP

        Delta Galil's Memorandum and Articles of Association do not restrict in
any way the ownership of ordinary shares by nonresidents of Israel and neither
the Memorandum of Association nor Israeli law restricts the voting rights of
non-residents of Israel, other than citizens or residents of countries that are
in a state of war with Israel.

     DISTRIBUTION OF DIVIDENDS

        Delta Galil's ordinary shares are entitled to the full amount of any
cash or share dividend, if declared. Delta Galil may declare a dividend to be
paid to the holders of ordinary shares according to their rights and interests
in the profits of Delta Galil. In the event of liquidation, after satisfaction
of liabilities to creditors, the assets of Delta Galil will be distributed to
the holders of ordinary shares in proportion to the nominal value of their
respective holdings. This right may be affected by the grant of preferential
dividend or distribution rights to the holders of a class of shares with
preferential rights that may be authorized in the future by a special resolution
of the shareholders of Delta Galil.

        Under the Companies Law, dividends may be paid only out of accumulated
earnings or out of net earnings for the two years preceding the distribution of
the dividends as calculated under the Companies Law. Dividends may be paid only
if there is no reasonable concern that the distribution of dividends will
prevent the company from meeting its existing and foreseeable obligations as
they become due. The Articles provide that the distribution of cash dividends
and the amount to be distributed is made by the board of directors. The
distribution of dividends in kind requires shareholder approval after receiving
the recommendations of the board of directors.

     MODIFICATION OF CLASS RIGHTS

        The Articles may be amended by a resolution approved by the holders of
at least 66% of the shares represented at the shareholders' general meeting and
voting thereon, without taking abstentions into account. The rights attached to
any class of shares such as voting, dividends and the like, unless otherwise
provided for by the terms of issue of such class, may be varied with the consent
in writing of all of the holders of the issued shares of the class, or with the
adoption of a resolution by at least 66% of the ordinary shares present and
voting at a shareholders meeting. This special majority is greater than the
simple majority required by the Companies Law.

        AMERICAN DEPOSITARY RECEIPTS

        The description of American Depositary Receipts appearing in Delta
Galil's Registration Statement on Form F-1 (Registration No. 333-10062) filed
with the Securities and Exchange Commission on February 26, 1999 is incorporated
herein by reference.

DIRECTORS AND OFFICERS INDEMNIFICATION AND INSURANCE

        Delta Galil has obtained directors' and officers' liability insurance
covering the officers and directors of Delta Galil and its subsidiaries for
claims arising from wrongful acts they committed in their capacity as an


                                     - 54 -
<PAGE>

officer or a director. Delta Galil has also issued indemnity undertakings to its
office holders to indemnify them for amounts that they may be obligated to pay
in litigation related to their service to Delta Galil arising in one of the
types of events enumerated in the undertaking. Such indemnification is capped at
an aggregate of $15 million for all office holders in respect of the same series
of events, less any amount reimbursed by Delta Galil's directors and officers
insurance, PROVIDED however, that the total amount of indemnity may not exceed
25% of the shareholders' equity of Delta Galil on the date of the payment of
amounts pursuant to the undertaking.

MATERIAL CONTRACTS

        During 2003, Delta Galil completed the acquisition of Auburn Hosiery
Mills. For a description of this acquisition see Item 4: "Information on the
Company - Recent Acquisitions."

        For a description of a recent amendment to the credit facility of Delta
Galil USA Inc. see "Item 5 - Operating and Financial Review and Prospects -
Liquidity and Capital Resources - Debt."

EXCHANGE CONTROLS

        Non-residents of Israel who acquire any of the ADSs or ordinary shares
using non-Israeli currencies will be able to convert dividends, liquidation
distributions and the proceeds from the sale of such ADSs or ordinary shares,
into non-Israeli currencies at the rate of exchange prevailing at the time of
conversion provided that Israeli income tax has been paid (or withheld) on such
amounts.

        Israeli residents are eligible to purchase securities of Israeli and
non-Israeli companies, and are eligible to purchase the ADSs or ordinary shares.


ISRAELI TAXATION

        Following is a short summary of the tax structure applicable to
corporations in Israel, with special reference to its effect on Delta Galil. The
following is not intended, and should not be construed, as legal or professional
tax advice and is not exhaustive of all possible tax considerations.

     CORPORATE TAX RATE

        The regular Israeli corporate tax rate since 1996 has been 36%. However,
part of Delta Galil's Israeli income, which is derived from Approved
Enterprises, is subject to lower tax rates, as described below.

     LAW FOR THE ENCOURAGEMENT OF INDUSTRY (TAXES), 1969 (THE "INDUSTRY
     ENCOURAGEMENT LAW")

        Delta Galil and its Israeli subsidiary currently qualify as "Industrial
Companies" pursuant to the Industry Encouragement Law. As such, Delta Galil and
its subsidiary qualify for certain tax benefits, including:

        o       special depreciation rate for machinery, equipment and buildings
                used by an Industrial Enterprise. ;

        o       consolidated tax returns can be filed with its Industrial
                Companys ' subsidiary. Delta Galil files consolidated tax
                returns with one of its subsidiaries;

        o       expenses incurred in connection with the issuance of
                publicly-traded shares may be deducted at a rate of 33.33% per
                annum over a period of three years from the time the expenses
                were incurred.

        Eligibility for the benefits under the Industry Encouragement Law is not
subject to receipt of prior approval from any government authority. However, no
assurance can be given that Delta Galil or any of its Israeli subsidiaries that
presently qualify as "Industrial Companies" will continue to qualify as such in
the future, or that the benefits will be granted in the future.


                                     - 55 -
<PAGE>

     LAW FOR THE ENCOURAGEMENT OF CAPITAL INVESTMENTS, 1959 (THE "INVESTMENT
     LAW")

        Delta Galil has been granted the status of an "Approved Enterprise"
under the Investment Law. Pursuant to this law, capital investments in
production facilities, upon application to the Israeli Investment Center, may be
designated as an Approved Enterprise. Each certificate of approval for an
Approved Enterprise relates to a specific investment program delineated both by
its financial scope, including its capital sources, and by its physical
characteristics, i.e., the equipment to be purchased and utilized pursuant to
the program. Each application to the Investment Center is reviewed separately,
and a decision as to whether or not to approve the application is based, among
other things, on the then prevailing criteria set forth in the Investment Law,
on the specific objectives of the applicant company and on financial criteria of
the applicant company.

        An Approved Enterprise is entitled to benefits, including Israeli
government cash grants and tax benefits, for the increase in its revenues
deriving from the approved investments.

        Delta is a "Foreign Investors Company" ("FIC"), as defined by the
Investment Law, and is entitled to calculate its taxable income according to
changes of the dollar exchange rate. Delta cannot assure you that it will
continue to qualify as an FIC in the future, or that the benefits will be
granted in the future. Unless extended, benefits under the Investment Law are
granted to enterprises seeking approval not later than June 30, 2004.

        Delta Galil has four uncompleted Approved Enterprises plans. Income
derived from an Approved Enterprise is regularly subject to tax at the rate of
25% rather than the usual rate of 36% for a period of seven to ten years
commencing with the year in which the Approved Enterprise first generates
taxable income. This period of benefits may not exceed 12 years from the year of
commencement of operations or 14 years from the year in which approval was
granted, whichever is earlier. Some of the Approved Enterprises are eligible for
tax exemption for the first two years in which they generate taxable income.

        Delta Galil first derived income from some of the abovementioned
Approved Enterprises in 1998 and 1999. In the said years, Delta Galil used tax
benefits estimated at approximately $ 1.6 million. Due to losses for tax
purposes accumulated prior to 1998 and in the years 2000 - 2003, Delta Galil had
not used any of the tax benefits to which it is entitled under these government
programs in these years. The remaining tax benefits may be available for use in
future years.

        Under the Approved Enterprise programs, Delta Galil has received grants
totaling $ 1.2 million in 2001, $ 1.6 million in 2002 and $1.1 million in 2003.
The government of Israel has gradually reduced the investment grants available
from 38% of eligible capital expenditures in 1996 to 24% of eligible capital
expenditures in 1998 and thereafter.

        This lower grant rate applies to any applications in 1998 or thereafter.
There can be no assurance that the Israeli government will not further reduce
these investment grants.

        The benefits available to an Approved Enterprise are contingent upon
Delta Galil's fulfilling the conditions stipulated by the Investment Law,
regulations published thereunder and the conditions of approval for the specific
investments in Approved Enterprises.

        In the event that Delta Galil fails to comply with these conditions, the
benefits may be cancelled and Delta Galil may be required to refund the amount
of the benefits, in whole or in part, with the addition of linkage differences
to the Israeli consumer price index and interest.

        TAXATION OF NON-ISRAELI SUBSIDIARIES

        Non- Israeli subsidiaries are generally taxed based on the tax laws in
their countries of residence.

     CAPITAL GAINS AND INCOME TAXES APPLICABLE TO NON-ISRAELI SHAREHOLDERS

        CAPITAL GAINS. The basic capital gains tax rate applicable to
corporations effective until December 31, 2002 had been 36%, and the maximum tax
rate for individuals was 50%. Effective January 1, 2003, the capital gains tax
rate imposed upon sale of capital assets acquired after that date was reduced to
25%; capital gains realized from assets acquired before that date are subject to
a blended tax rate based on the relative periods of


                                     - 56 -
<PAGE>

time before and after that date that the asset was held. In addition, if the
ordinary shares are traded on a recognized stock exchange (including the Tel
Aviv Stock Exchange and the NASDAQ), gains on the sale of ordinary shares held
by non-Israeli tax resident investors will generally be exempt from Israeli
capital gains tax. Notwithstanding the foregoing, dealers in securities in
Israel are taxed at regular tax rates applicable to business income.

        Under an amendment to the Inflationary Adjustments Law, effective
January 1, 1999, corporate investors that hold listed securities (other than
corporations solely owned by individuals), will generally be subject to the
provisions of the Inflationary Adjustments Law. The Inflationary Adjustments Law
stipulates a comprehensive set of rules for determining the gains or losses from
the sale of listed securities. Gains from sale of negotiable shares which are
subject to the Inflationary Adjustments Law, are taxable at the rate of 36%.A
literal reading of the Inflationary Adjustments Law, may suggest that its
provisions also apply to foreign corporations, although the foreign corporation
may have no activity in Israel other than the shareholding in an Israeli
company. Consequently, unless a tax treaty exemption is applicable, the capital
gain exemption available for individual shareholders may not apply.

        Under the treaty between the United States and Israel, the capital gain
derived by a U.S. taxpayer from the sale, exchange or other disposition of stock
in an Israeli corporation would generally be tax exempt when the shareholder did
not own, within the 12 month period preceding such sale, exchange or other
disposition, shares constituting 10% or more of the voting power in the Israeli
corporation.

        DIVIDENDS. Individuals who are non-Israeli residents are subject to a
graduated income tax on income derived from sources in Israel. On the
distribution of dividends other than share dividends, income tax is withheld at
the rate of 25%, or 15% in the case of dividends distributed from taxable income
attributable to an Approved Enterprise, unless a different rate is provided in a
treaty between Israel and the shareholder's country of residence.

        Under the United States-Israel Tax Treaty, the maximum withholding tax
in Israel on dividends paid to a holder of ordinary shares who is a resident of
the United States is 25%. This tax rate is reduced to 12.5% for a corporation
that has been holding in excess of 10% of the voting rights of Delta Galil
during Delta Galil's tax year preceding the distribution of the dividend and the
portion of Delta Galil's tax year in which the dividend was distributed.
Dividends of an Israeli company derived from the income of an Approved
Enterprise will be subject to a dividend withholding tax of only 15%. The
withheld tax is the final tax in Israel on dividends paid to non-residents who
do not conduct business in Israel.

        Residents of the United States will generally have withholding tax in
Israel deducted at the source. They may be entitled to a credit or deduction for
U.S. federal income tax purposes in the amount of the taxes withheld, subject to
detailed rules contained in the United States-Israel Tax Treaty and in U.S. tax
legislation.

        A non-Israeli resident who has derived interest, dividend or royalty
income from or accrued in Israel, from which tax was withheld at the source, is
generally exempt from the duty to file tax returns in Israel with respect to
such income, provided such income was not derived from a business conducted in
Israel by the taxpayer.

        Israel presently has no estate or gift tax. Starting January 2003, a
capital gain tax will be imposed in case of gift from an Israeli resident to a
non-Israeli resident.

RECENT TAX REFORM LEGISLATION

        In July 2002, the Israeli Parliament approved a law introducing
extensive changes to Israel's tax law generally effective January 1, 2003. Among
the key provisions of this reform legislation are (1) changes which may result
in the imposition of taxes on dividends received by an Israeli company from its
foreign subsidiaries; and (2) the introduction of the controlled foreign
corporation concept according to which an Israeli company may become subject to
Israeli taxes on certain income of a non-Israeli subsidiary if the subsidiary's
primary source of income is passive income (such as interest, dividends,
royalties, rental income or capital gains). An Israeli company that is subject
to Israeli taxes on the income of its non-Israeli subsidiaries will receive a
credit for income taxes paid by the subsidiary in its country of residence.


                                     - 57 -
<PAGE>

UNITED STATES FEDERAL INCOME TAX CONSIDERATIONS

        The following discussion is a general summary of the material U.S.
federal income tax considerations applicable to U.S. Holders (as defined below)
of ADSs or ordinary shares, who hold such instruments as capital assets
(generally, property held for investment). This summary is based on provisions
of the U.S. Internal Revenue Code of 1986, as amended (the "Code"), existing and
proposed U.S. Treasury regulations promulgated thereunder and administrative and
judicial interpretations thereof, all in effect as of the date of this annual
report and all of which are subject to change (possibly with retroactive effect)
and to differing interpretations. In addition, this summary does not discuss all
aspects of U.S. federal income taxation that may be applicable to U.S. Holders
in light of their particular circumstances or to U.S. Holders who are subject to
special treatment under U.S. federal income tax law (including, for example,
life insurance companies, dealers in stocks or securities, financial
institutions, tax-exempt organizations, persons having a functional currency
other than the U.S. dollar, and persons who have directly, indirectly or
constructively owned 10% or more of the outstanding voting shares of Delta Galil
at any time during the twelve months preceding the date of this annual report or
of a disposition of ADRs, ADSs, or ordinary shares). EACH U.S. HOLDER IS URGED
TO CONSULT WITH ITS TAX ADVISOR REGARDING THE TAX CONSEQUENCES OF ITS HOLDINGS,
INCLUDING THE EFFECTS OF FEDERAL, STATE, LOCAL, FOREIGN AND OTHER TAX LAWS.

        As used herein, the term "U.S. Holder" signifies a holder of an ADR
evidencing an ADS or of an ordinary share, who is a citizen or resident of the
United States, or that is (i) a corporation or a partnership created or
organized in or under the laws of the United States or any political subdivision
thereof; (ii) an estate the income of which is subject to U.S. federal income
taxation regardless of its source or; (iii) a trust if (A) a U.S. court is able
to exercise primary supervision over the trust's administration and (B) one or
more U.S. persons have the authority to control all of the trust's substantial
decisions.

        This summary is based in part on representations of The Bank of New
York, Delta Galil's depositary, and assumes that each obligation provided for
in, or otherwise contemplated by, Delta Galil's deposit agreement with The Bank
of New York and any related agreement will be performed in accordance with its
terms. In general, for U.S. federal income tax purposes, U.S. Holders of ADRs
evidencing ADSs will be treated as the owners of the ordinary shares represented
by the ADSs.

     DIVIDENDS PAID ON THE ADSS OR ORDINARY SHARES

        A U.S. Holder will generally be required to include in gross income as
ordinary dividend income the amount of any distributions paid on the ADSs or
ordinary shares (including the amount of any Israeli taxes or depositary fees
withheld therefrom) to the extent that such distributions are paid out of Delta
Galil's current or accumulated earnings and profits as determined for U.S.
federal income tax purposes. Distributions in excess of such earnings and
profits will be applied against and will reduce the U.S. Holder's tax basis in
its ADSs or ordinary shares and, to the extent that they are in excess of such
tax basis, they will be treated as a gain from a sale or exchange of such ADSs
or ordinary shares. Such dividends will not qualify for the dividends-received
deduction applicable in certain cases to U.S. corporations.

     FOREIGN TAX CREDIT

        Any dividends paid by Delta Galil to a U.S. Holder with respect to the
ADSs or ordinary shares will be generally treated as foreign source income for
U.S. foreign tax credit purposes. Subject to the limitations set forth in the
Code, as modified by the treaty concerning double taxation between the United
States and Israel, U.S. Holders may elect to claim a foreign tax credit against
the U.S. federal tax liability for Israeli income tax withheld from dividends
received in respect of ADSs or ordinary shares. A U.S. Holder will be denied a
foreign tax credit with respect to Israeli income tax withheld from dividends
received in respect of ADSs or ordinary shares if such U.S. Holder has not held
the ADSs or ordinary shares for a minimum period or to the extent that such U.S.
Holder is under an obligation to make certain related payments with respect to
substantially similar or related property. The rules relating to the
determination of the foreign tax credit are complex, and each U.S. Holder should
consult with its tax advisor to determine whether and to what extent it is
entitled to such credit. U.S. Holders who do not elect to claim a foreign tax
credit may instead claim a deduction for Israeli income tax withheld, but only
for a year in which the U.S. Holder does so with respect to all foreign income
taxes.


                                     - 58 -
<PAGE>

     DISPOSITION OF ADSS OR ORDINARY SHARES

        Upon the sale or other disposition of ADSs or ordinary shares, a U.S.
Holder will generally recognize capital gain or loss equal to the difference
between the amount realized on the disposition and such Holder's adjusted tax
basis in the ADSs or ordinary shares. Gain or loss upon the disposition of the
ADSs or ordinary shares will be long-term if, at the time of the disposition,
the holding period for the ADSs or ordinary shares exceeds one year. Long-term
capital gains realized by U.S. Holders that are individuals are generally
subject to a marginal U.S. federal income tax rate which is lower than the
ordinary marginal income tax rate. The deductibility of capital losses by a U.S.
Holder is subject to limitations.

        In general, any gain recognized by a U.S. Holder on the sale or other
disposition of ADSs or ordinary shares will be U.S. source income for U.S.
foreign tax credit purposes. However, pursuant to the treaty concerning double
taxation between the United States and Israel, gain from the sale or other
disposition of ADSs or ordinary shares by a Holder who is a U.S. resident (for
treaty purposes) and who sells the ADSs or ordinary shares in Israel may be
treated as foreign source income for U.S. foreign tax credit purposes. Any loss
on the sale or other disposition of ADSs or ordinary shares may be required to
be allocated against foreign source income for U.S. foreign tax credit
limitation purposes.

        Exchanges, deposits and withdrawals by U.S. Holders of ordinary shares
in exchange for ADSs will not result in the realization of gain or loss for U.S.
federal income tax purposes.

     PASSIVE FOREIGN INVESTMENT COMPANY

        Special U.S. federal income tax rules apply to U.S. Holders owning
shares of a so-called "passive foreign investment company" ("PFIC"). A foreign
corporation will be considered a PFIC for any taxable year in which 75% or more
of its gross income consists of certain types of passive income or 50% or more
of the average value of its assets consists of "passive assets" (generally,
assets that generate passive income). Based upon an analysis of Delta Galil's
financial position, Delta Galil believes that it has not ever been a PFIC and
does not expect to become a PFIC for its current tax year. While Delta Galil
intends to manage its business so as to avoid PFIC status, to the extent
consistent with its other business goals, no assurances can be made that the
business plans of Delta Galil will not change in a manner that may affects its
PFIC status determination. Were Delta Galil classified as a PFIC, a U.S. Holder
could be subject to increased tax liability (possibly including an interest
charge) upon the sale or other disposition of ADSs or ordinary shares or upon
the receipt of amounts treated as "excess distributions."


                                     - 59 -
<PAGE>

        BACKUP WITHHOLDING

        A U.S. Holder may be subject to backup withholding at the rate of 30%
with respect to dividends on, and the proceeds from dispositions of, ADSs or
ordinary shares. In general, backup withholding will apply to a U.S. Holder only
if the U.S. Holder fails to comply with certain identification procedures or
fails to report properly payments of dividends. Backup withholding will not
apply with respect to payments made to certain exempt recipients, such as
corporations and tax-exempt organizations. Backup withholding is not an
additional tax and may be claimed as a credit against the U.S. federal income
tax liability of a U.S. Holder, provided that the required information is
furnished to the Internal Revenue Service.

DOCUMENTS ON DISPLAY

        Delta Galil files reports and other information with the SEC. These
reports include certain financial and statistic information about Delta Galil,
and may be accompanied by exhibits. You may read and copy any document Delta
Galil files with the SEC at the SEC's Public Reference Room at 450 Fifth Street,
Washington D.C. 20549. Please call the SEC at 1-800-SEC-0330 for further
information on the public reference rooms.

        The SEC maintains an Internet website at http://www.sec.gov that
contains reports and other material that are filed through the SEC's Electronic
Data Gathering, Analysis and Retrieval ("EDGAR") system. Delta Galil began
filing through the EDGAR system beginning in October 2002.


                                     - 60 -
<PAGE>

ITEM 11:    QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

        Although Delta Galil is an Israeli company, its functional currency is
the U.S. dollar. Delta Galil has operations and sales in many countries that are
not denominated in dollars, and is therefore exposed to fluctuations in the rate
of exchange between the dollar and those currencies. In 2003, Delta Galil
derived 32% of its revenues from customers in pound sterling, 7% of its revenue
were in NIS, and 8% were in euros. More than 10% of Delta Galil's expenses were
in NIS in 2003.

        Some of Delta Galil's expenses in Israel are linked to the Israeli
consumer price index. Consequently, Delta Galil is exposed to risk to the extent
that the rate of Israeli inflation exceeds the rate of the NIS devaluation in
relation to the dollar and to the extent that the timing of such devaluation
lags behind inflation in Israel.

        In order to reduce the exposure to exchange rate fluctuations between
the dollar and other currencies Delta Galil carries out currency transactions
that hedge part of its exposure in respect of its net income in non-dollar
currency for periods of up to 12 months. The financial results in respect of
these hedging transactions are reflected in Delta Galil's consolidated financial
statements, together with the results of the hedged items, such as revenues and
cost of revenues.

        As of December 31, 2003, Delta Galil had entered into hedging
transactions for the exchange of $30 million into pound sterling at an average
rate of $1.64 per pound sterling for the first two quarters of 2004. As of June
1, 2004 Delta Galil had executed additional hedging transactions for the
exchange of $35 million into pound sterling at an average rate of $1.84 per
pound sterling and for the exchange of $10 million into Euro at an average rate
of $1.28 per Euro for the second and the third quarters of 2004.

        In 2003, Delta Galil carried out sales of the pound sterling in the
amount of $45 million. The loss on these transactions amounted to $1.8 million.
$1.3 million of that loss is reflected in revenues, and $0.5 million, which
reflects the ineffective portion of changes in the fair value is presented among
financial expenses. As mentioned above, as of December 31, 2003 Delta Galil also
carried out sales of the pound sterling in the amount of $30 million, which will
be realized in 2004. The finance expenses relate to these transactions amounted
to $0.2 million. In addition, Delta Galil adjusts the linkage basis of the bank
credit it utilizes according to the proportions between the currencies that make
up its net income.

        Based on current sales volumes, expenses and exchange rates, each one
percent devaluation in pound sterling against the dollar would result in a
decrease of approximately $1.2 million in Delta Galil's yearly operating income,
and a strengthening of the pound sterling would have the opposite effect. Each
one percent appreciation of the NIS against the dollar would result in a
decrease of $0.5 million in yearly operating income, and a devaluation of the
NIS would have the opposite effect.

        For further discussion of Delta Galil's use of financial derivatives and
instruments in the management of risks relating to currency and interest rate
fluctuations, see notes 1(s) and 14 of the notes to Delta Galil's consolidated
financial statements included in Item 18 of this annual report.


                                     - 61 -
<PAGE>

ITEM 12:    DESCRIPTION OF SECURITIES OTHER THAN EQUITY SECURITIES

Not Applicable

                                     PART II


ITEM 13:    DEFAULTS, DIVIDEND ARREARAGES AND DELINQUENCIES

Not Applicable


ITEM 14:    MATERIAL MODIFICATIONS TO THE RIGHTS OF SECURITY HOLDERS AND USE OF
            PROCEEDS

Not Applicable


ITEM 15:    CONTROLS AND PROCEDURES

        DISCLOSURE CONTROLS AND PROCEDURES. Delta Galil's Chief Executive
Officer and Chief Financial Officer have evaluated the effectiveness of its
disclosure controls and procedures within the 90 days prior to the date of
filing of this Annual Report on Form 20-F. Based upon such review, the Chief
Executive Officer and Chief Financial Officer have concluded that Delta Galil
has in place appropriate controls and procedures designed to ensure that
information required to be disclosed by Delta Galil in the reports it files or
submits under the Securities Exchange Act of 1934, as amended, and the rules
thereunder, is recorded, processed, summarized and reported within the time
periods specified in the SEC's rules and forms.

        INTERNAL CONTROLS. Since the date of the evaluation described above,
there have not been any significant changes in Delta Galil's internal controls
or in other factors that could significantly affect those controls.

ITEM 16:

ITEM 16A AUDIT COMMITTEE FINANCIAL EXPERT

        The Board of Directors and the Audit Committee have determined that
Amior Vinocourt is an independent director under the definition of independence
under the rules of the Nasdaq National Market, and that Mr. Vinocourt is the
financial expert serving on the Audit Committee of Delta Galil.

ITEM 16B CODE OF ETHICS

        Delta Galil has adopted a code of ethics applicable to all employees and
directors. A copy is available upon request to the Chief Financial Officer,
Delta Galil Industries Ltd., 2 Kaufman Street, Tel-Aviv 68012, Israel.

ITEM 16C PRINCIPAL ACCOUNTANT FEES AND SERVICES

        Delta Galil paid the following fees to Pricewaterhouse Coopers during
the last two fiscal years:


                                     - 62 -
<PAGE>

                             2002                    2003
                             -------------------     -------------------
Audit fees                   $366,150                $385,660
Tax fees                       89,500                  75,000
                              -------                 -------
Total                         455,650                 460,660
                              =======                 =======

        Audit fees consist of audit work performed in the preparation of
financial statements and services that are normally provided in connection with
statutory and regulatory filings. Tax fees consist of audit work performed in
the preparation of tax returns and other tax planning.


POLICY ON PRE-APPROVAL OF AUDIT AND NON-AUDIT SERVICES OF INDEPENDENT AUDITORS

        Delta Galil's audit committee charter provides that the audit committee
shall approve in advance all audit services and all non-audit services provided
by the independent auditors based on a policy attached to the charter.

        Under the policy, proposed services either (i) may be pre-approved by
the audit committee without consideration of specific case-by-case services as
"general pre-approval"; or (ii) require the specific pre-approval of the Audit
Committee as "specific pre-approval". The appendices to the policy set out the
audit, audit-related and tax services that have received the general
pre-approval of the audit committee, including those described in the footnotes
to the table, above. These services are subject to annual review by the audit
committee.

        All other audit, audit-related, tax and other services not mentioned in
the appendices to the charter must receive a specific pre-approval from the
audit committee. Requests or applications to provide services that require
specific approval by the audit committee are submitted to the audit committee by
the chief executive officer, the chief financial officer and the internal
auditor.


                                    PART III


ITEM 17:    FINANCIAL STATEMENTS

Not applicable


ITEM 18:    FINANCIAL STATEMENTS

        The Consolidated Financial Statements and related notes thereto required
by this item are contained on pages F-1 through F-49 hereof.


                                     - 63 -
<PAGE>

ITEM 19:    EXHIBITS

<TABLE>
<CAPTION>
<S>                                                                             <C>
(A)  INDEX TO CONSOLIDATED FINANCIAL STATEMENTS                                                              PAGE

     Report of Independent Auditors........................................................................   F-2
     Consolidated Statements of Income for the Years Ended December 31, 2001, 2002, and 2003...............   F-3
     Consolidated Balance Sheets at December 31, 2002 and 2003.............................................   F-4
     Consolidated Statements of Changes in Shareholders' Equity for the Years Ended December 31, 2001,
        2002 and 2003......................................................................................   F-6
     Consolidated Statements of Cash Flows for the Years Ended December 31, 2001,  2002 and 2003...........   F-7
     Notes to Consolidated Financial Statements............................................................   F-10
     Schedule I............................................................................................   F-55
     Reports of Independent Auditors with respect to consolidated subsidiaries.............................   F-56
</TABLE>

(B)     EXHIBITS

1.1     Memorandum of Association, as amended**

1.2     Articles of Association**

2.1     Form of Deposit Agreement and ADR*

4.1     Agreement and Plan of Merger dated as of June 30, 2000 by and among
        W.I.I. Acquisitions Corp., Wundies Industries, Inc., Wafra Acquisition
        Fund 11, L.P., Michael Fitzgerald, William Mull, Judith Moore, Steven
        Lockcuff and Francis Tam.**

4.2     Stock Purchase Agreement dated as of December 20, 2000 by and among
        Norton Sloan, Melissa Miller, Diana Baradarian and Jack Thekkekara, as
        Selling Shareholders, and Delta Galil Industries Ltd. and Wundies
        Industries, Inc., as Purchaser, relating to the acquisition of Inner
        Secrets Inc.**

4.3     Credit and Security Agreement dated as of September 11, 2000 by and
        among Wundies Enterprises, Inc. and Wundies Industries, Inc., as
        Borrowers; Bank Leumi USA and Bank Hapoalim B.M., as Lenders and Bank
        Leumi USA, as Agent.**

4.4     Amendment dated as of April 23, 2003 by and among Norton Sloan, Melissa
        Miller, Diana Baradarian and Jack Thekkekara, as Selling Shareholders,
        and Delta Galil Industries Ltd. and Delta Galil USA Inc., as Purchaser
        relating to the acquisition of Inner Secrets Inc. ******

4.5     Amendment dated as of June 14, 2002, by and among Delta Galil USA Inc.,
        Bank Leumi USA and Bank Hapoalim B.M., to the Credit and Security
        Agreement dated as of September11, 2000, and related promissory
        notes.****

4.6     Option Plan to 13 employees of Delta Galil and/or its subsidiaries*

4.7     Option Plan to Arnon Tiberg*

4.8     Option Plan to 70 employees of Delta Galil and/or its subsidiaries***

4.9     Delta Galil Industries Ltd. 2002 Share Option Plan*****

4.10    Form of Indemnification Undertaking******

4.11    Agreement for Purchase and Sale of Stock of Auburn Hosiery Mills, Inc.
        dated October 30, 2003, by and among Delta Galil USA Inc., Delta Galil
        Industries Ltd., Delta Galil Holland B.V., CGW Holdings, Inc., GCI
        Spainco, S.L. and Kellwood Company

8.1     List of subsidiaries

14.1    Consent of PricewaterhouseCoopers LLP

14.2    Consent of Baker Tilly

14.3    Consent of Ernst and Young


                                     - 64 -
<PAGE>

12.1    Section 302 Certification of Arnon Tiberg

12.2    Section 302 Certification of Yossi Hajaj

13.1    Section 906 Certification of Arnon Tiberg

13.2    Section 906 Certification of Yossi Hajaj



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

* Previously filed as an exhibit to Delta Galil's Registration Statement on Form
F-1 (Registration No. 333-10062) filed with the Securities and Exchange
Commission on February 26, 1999 and incorporated herein by reference.
** Previously filed as an exhibit to Delta Galil's Annual Report on Form 20-F
(File No.0-30020) filed with the Securities and Exchange Commission on June 8,
2001 and incorporated herein by reference
*** Previously filed as an exhibit to Delta Galil's Registration Statement on
Form S-8 (Registration No. 333-12608) filed with the Securities and Exchange
Commission on September 26, 2000 and incorporated herein by reference.
**** Previously filed as an exhibit to Delta Galil's Annual Report on Form 20-F
(File No. 0-30020) filed with the Securities and Exchange Commission on June 28,
2002 and incorporated herein by reference.
***** Previously filed as an exhibit to Delta Galil's Registration Statement on
Form S-8 (Registration No. 353-102247) filed with the Securities and Exchange
Commission on December 30, 2002 and incorporated herein by reference.
****** Previously filed as an exhibit to Delta Galil's Annual Report on Form
20-F (File No. 0-30020) filed with the Securities and Exchange Commission on
June 26, 2003 and incorporated herein by reference.


                                     - 65 -
<PAGE>

                                    SIGNATURE

        The registrant hereby certifies that it meets all of the requirements
for filing on Form 20-F and that it has duly caused and authorized the
undersigned to sign this annual report on its behalf.



                                           DELTA GALIL INDUSTRIES LTD.



                                           By: YOSSI HAJAJ

                                           Name: Yossi Hajaj
                                           Title:   Chief Financial Officer


Date:    June 22, 2004

<PAGE>







                           DELTA GALIL INDUSTRIES LTD.
                            (An Israeli corporation)
                        CONSOLIDATED FINANCIAL STATEMENTS
                      FOR THE YEAR ENDED DECEMBER 31, 2003

<PAGE>




                           DELTA GALIL INDUSTRIES LTD.
                            (An Israeli corporation)
                        CONSOLIDATED FINANCIAL STATEMENTS
                      FOR THE YEAR ENDED DECEMBER 31, 2003


                                TABLE OF CONTENTS



                                                                      Page
REPORT OF INDEPENDENT AUDITORS                                         F-2
CONSOLIDATED FINANCIAL STATEMENTS:
     Statements of income                                              F-3
     Balance sheets                                                  F-4-F-5
     Statements of changes in shareholders' equity                     F-6
     Statements of cash flows                                        F-7-F-9
     Notes to financial statements                                  F-10-F-54
     Schedule I                                                        F-55


            The amounts are stated in U.S. dollars ($) in thousands.

<PAGE>


                         REPORT OF INDEPENDENT AUDITORS

To the shareholders of DELTA GALIL INDUSTRIES LTD.

We have audited the consolidated balance sheets of Delta Galil Industries Ltd.
(the "Company") and its subsidiaries as of December 31, 2003 and 2002 and the
consolidated statements of income, changes in shareholders' equity and cash
flows for each of the three years in the period ended December 31, 2003. These
financial statements are the responsibility of the Company's Board of Directors
and management. Our responsibility is to express an opinion on these financial
statements based on our audits.

We did not audit the financial statements of certain subsidiaries, whose assets
included in consolidation constitute approximately 18% and 25% of total
consolidated assets as of December 31, 2003 and 2002, respectively, and whose
revenues included in consolidation constitute approximately 2%, 10% and 30% of
total consolidated revenues for the years ended December 31, 2003, 2002 and
2001, respectively. We did not audit the financial statements of associated
companies, the Company's investment in which, as reflected in the balance sheets
as of December 31, 2003 and 2002 is $ 661,000 and $ 4,207,000, respectively, and
the Company's share in profit (loss) of which is an amount of $ (300,000),
$158,000 and $ 110,000 in 2003, 2002 and 2001, respectively. The financial
statements of those subsidiaries and associated companies were audited by other
independent auditors, whose reports have been furnished to us, and our opinion,
insofar as it relates to amounts included for those companies, is based on the
reports of the other independent auditors.

We conducted our audits in accordance with the standards of the Public Company
Accounting oversight Board auditing standards generally accepted in Israel and
in the United States of America, including those prescribed by the Israeli
Auditors (Mode of Performance) Regulations, 1973. 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 the Company's Board of
Directors and management, as well as evaluating the overall financial statement
presentation. We believe that our audits and the reports of the other
independent auditors provide a reasonable basis for our opinion.

In our opinion, based on our audits and the reports of the other independent
auditors, the consolidated financial statements referred to above, present
fairly, in all material respects, the consolidated financial position of the
Company and its subsidiaries as of December 31, 2003 and 2002, and the
consolidated results of their operations, changes in shareholders' equity and
cash flows for each of the three years in the period ended December 31, 2003, in
conformity with accounting principles generally accepted in the United States of
America.

As discussed in note 1h, effective January 1, 2002 the Company changed its
method of accounting for goodwill to conform with FASB Statement of Financial
Accounting Standards No. 142 "Goodwill and Other Intangible Assets".


Tel-Aviv, Israel                                   Kesselman & Kesselman
   June 16, 2004                             Certified Public Accountant (Isr.)

                                      F-2

<PAGE>

<TABLE>
<CAPTION>

                                 DELTA GALIL INDUSTRIES LTD.
                                  (An Israeli corporation)
                              CONSOLIDATED STATEMENTS OF INCOME
                   (U.S. dollars in thousands, except earnings per share)

                                                                      YEAR ENDED DECEMBER 31
                                                                 --------------------------------
                                                                    2003      2002        2001
                                                                 ---------- ---------- ----------
<S>                                                               <C>        <C>        <C>
NET REVENUES                                                      $580,130   $567,298   $558,763
COST OF REVENUES                                                   466,378    456,738    455,726
                                                                 ---------- ---------- ----------
GROSS PROFIT                                                       113,752    110,560    103,037
SELLING, MARKETING, GENERAL AND ADMINISTRATIVE EXPENSES - NET       79,574     81,635     77,872
GAIN (LOSS) ON SALE OF ASSETS AND SUBSIDIARY SHARES                  3,645       (92)      (553)
AMORTIZATION OF GOODWILL                                                                   1,505
RESTRUCTURING EXPENSES                                               1,007      1,065        900
                                                                 ---------- ---------- ----------
OPERATING INCOME                                                    36,816     27,768     22,207
FINANCIAL EXPENSES - net                                             5,637      5,456      4,751
OTHER INCOME - net                                                     252        960        463
                                                                 ---------- ---------- ----------
INCOME BEFORE TAXES ON INCOME                                       31,431     23,272     17,919
TAXES ON INCOME                                                      7,340      5,779      5,876
                                                                 ---------- ---------- ----------
                                                                    24,091     17,493     12,043
SHARE IN PROFITS (LOSSES) OF ASSOCIATED COMPANIES - net               (300)       158        110
MINORITY INTERESTS, NET                                               (439)    (1,025)      (729)
                                                                 ---------- ---------- ----------
NET INCOME                                                         $23,352    $16,626    $11,424
                                                                 ========== ========== ==========
EARNINGS PER SHARE:
    Basic                                                            $1.28      $0.88      $0.60
                                                                 ========== ========== ==========
    Diluted                                                          $1.24      $0.88      $0.60
                                                                 ========== ========== ==========
WEIGHTED AVERAGE NUMBER OF SHARES
    (IN THOUSANDS):
    Basic                                                           18,313     18,914     19,175
                                                                 ========== ========== ==========
    Diluted                                                         18,763     18,927     19,199
                                                                 ========== ========== ==========

         THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THE FINANCIAL STATEMENTS.

                                            F-3
</TABLE>

<PAGE>

<TABLE>
<CAPTION>

                                 DELTA GALIL INDUSTRIES LTD.
                                  (An Israeli corporation)
                                 CONSOLIDATED BALANCE SHEETS
                                 (U.S. dollars in thousands)


                                                                           DECEMBER 31
                                                                    -------------------------
                                                                        2003          2002
                                                                    -----------   -----------
<S>                                                                  <C>           <C>
                                  ASSETS
CURRENT ASSETS:
    Cash and cash equivalents                                        $  17,699     $  14,491
    Accounts receivable:
       Trade                                                            85,723        95,601
       Other                                                            10,662         9,314
    Inventories                                                        142,984       133,363
    Deferred income taxes                                                5,464         8,311
    Other investment (2002 - an associated company), see note 3a         1,682         1,682
                                                                    -----------   -----------
           Total current assets                                        264,214       262,762
                                                                    -----------   -----------
INVESTMENTS AND LONG-TERM RECEIVABLES:
    Associated companies and other investments                             661         3,656
    Funds in respect of employee rights upon retirement                  6,161         5,218
    Deferred income taxes                                                                745
    Long-term receivables, net of current maturities                       419           350
                                                                    -----------   -----------
                                                                         7,241         9,969
                                                                    -----------   -----------
PROPERTY, PLANT AND EQUIPMENT,
    net of accumulated depreciation and amortization                   124,877       121,601
                                                                    -----------   -----------
GOODWILL                                                                54,358        46,290
                                                                    -----------   -----------
DEFERRED CHARGES, net of accumulated amortization                          194           436
                                                                    -----------   -----------
           Total assets                                              $ 450,884     $ 441,058
                                                                    ===========   ===========



--------------------------------  --------------------------------  --------------------------------
          D. LAUTMAN                          A. TIBERG                        G. MORAG
     CHAIRMAN OF THE BOARD                       CEO                           DIRECTOR


                                                F-4
</TABLE>

<PAGE>

<TABLE>
<CAPTION>

                                                                                 DECEMBER 31
                                                                          -------------------------
                                                                              2003         2002
                                                                          -----------   -----------
<S>                                                                         <C>           <C>
                  LIABILITIES AND SHAREHOLDERS' EQUITY

CURRENT LIABILITIES:
    Short-term bank credit                                                  $ 94,560      $ 96,413
    Current maturities of long-term bank loans and other liabilities          10,436        10,257
    Accounts payable and accruals:
       Trade                                                                  54,464        61,788
       Other                                                                  48,142        26,359
                                                                          -----------   -----------
           Total current liabilities                                         207,602       194,817
                                                                          -----------   -----------
LONG-TERM LIABILITIES:
    Bank loans and other liabilities, net of current maturities               14,709        24,180
    Liability for employee rights upon retirement                              6,732         6,359
    Deferred income taxes                                                      6,300        14,371
                                                                          -----------   -----------
           Total long-term liabilities                                        27,741       44,910
                                                                          -----------   -----------
COMMITMENTS AND CONTINGENT LIABILITIES, see note 9

           Total liabilities                                                 235,343       239,727
                                                                          -----------   -----------
MINORITY INTERESTS                                                             3,207         3,502
                                                                          -----------   -----------
SHAREHOLDERS' EQUITY:
    Ordinary shares of NIS 1 par value
       December 31, 2003 and 2002:
       Authorized - 26,000,000 shares;
       Issued - 19,947,849 shares and 19,780,549 shares respectively;
       Issued and paid -19,860,211 shares and 19,680,102 shares,
           respectively                                                       21,830        21,792
    Additional paid-in capital                                                99,735        98,030
    Retained earnings                                                        104,607        90,748
    Accumulated other comprehensive loss                                      (2,503)       (1,406)
    Treasury shares, at cost (1,422,486 shares)                              (11,335)      (11,335)
                                                                          -----------   -----------
           Total shareholders' equity                                        212,334       197,829
                                                                          -----------   -----------
           Total liabilities and shareholders' equity                       $450,884      $441,058
                                                                          ===========   ===========


                 THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THE FINANCIAL STATEMENTS.

                                                  F-5
</TABLE>

<PAGE>

<TABLE>
<CAPTION>

                                                   DELTA GALIL INDUSTRIES LTD.
                                                    (An Israeli corporation)
                                   CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY
                                                   (U.S. dollars in thousands)



                                                             SHARE CAPITAL                                            ACCUMULATED
                                                       ------------------------- ADDITIONAL                              OTHER
                                                         NUMBER OF                 PAID-IN     DEFERRED     RETAINED  COMPREHENSIVE
                                                           SHARES     PAR VALUE    CAPITAL   COMPENSATION   EARNINGS  INCOME (LOSS)
                                                       ------------- ----------- ---------- -------------- ---------- --------------
                                                       IN THOUSANDS
                                                       -------------
<S>                                                         <C>          <C>        <C>                       <C>             <C>
BALANCE AT JANUARY 1, 2001                                  19,216      $21,679    $92,138         $(20)     $73,730
CHANGES DURING 2001:
    Net income                                                                                                11,424
    Gains in respect of derivative instruments
      designated as a cash-flow hedge (net of
      related tax of  $101,000)                                                                                               225
    Total comprehensive income
    Exercise of employee stock options                           8            2         62
    Issuance of share capital (see note 2)                     454          111      5,814
    Amortization of deferred compensation
      related to stock option grants
      to employees and the Company's CEO                                                             20
    Cash dividend ($0.30 per share)                                                                           (4,056)
    Cost of acquisition of treasury shares
                                                       ------------- ----------- ---------- -------------- ---------- --------------
BALANCE AT DECEMBER 31, 2001                                19,678       21,792     98,014          -;-       81,098          225
CHANGES DURING 2002:
    Net income                                                                                                16,626
    Losses in respect of derivative instruments
      designated as a cash-flow hedge (net of
      related tax of  $363,000)                                                                                              (808)
    Additional minimum pension liability adjustment
      (net of related tax of $540,000)                                                                                       (823)
    Total comprehensive income
    Exercise of employee stock options                           2            *         16
    Cash dividend ($0.37 per share)                                                                           (6,976)
    Cost of acquisition of treasury shares
                                                       ------------- ----------- ----------                ---------- --------------
BALANCE AT DECEMBER 31, 2002                                19,680      $21,792    $98,030                   $90,748      $(1,406)
CHANGES DURING 2003:
    Net income                                                                                                23,352
    Losses in respect of derivative instruments
      designated as a cash-flow hedge (net of
      related tax of  $485,000)                                                                                            (1,134)
    Differences from translation of foreign currency
      financial statements of a subsidiary                                                                                      *
    Additional minimum pension liability adjustment
      (net of related tax of $25,000)                                                                                          37
    Total comprehensive income
    Exercise of employee stock options                         181           38      1,387
    Tax benefit in respect of employee stock options
      exercised                                                                        318
    Cash dividend ($0.52 per share)                                                                           (9,493)
                                                       ------------- ----------- ----------                ---------- --------------
BALANCE AT DECEMBER 31, 2003                                19,861      $21,830    $99,735                  $104,607      $(2,503)
                                                       ============= =========== ==========                ========== ==============
(continued)

                                                            TREASURY
                                                             SHARES,
                                                             AT COST         TOTAL
                                                           ------------  -------------
BALANCE AT JANUARY 1, 2001                                   $(2,080)       $185,447
CHANGES DURING 2001:
    Net income                                                                11,424
    Gains in respect of derivative instruments
      designated as a cash-flow hedge (net of
      related tax of  $101,000)                                                  225
    Total comprehensive income                                                   ---
                                                                              11,649
    Exercise of employee stock options                                            64
    Issuance of share capital (see note 2)                                     5,925
    Amortization of deferred compensation
      related to stock option grants
      to employees and the Company's CEO                                          20
    Cash dividend ($0.30 per share)                                           (4,056)
    Cost of acquisition of treasury shares                      (860)           (860)
                                                           ------------  -------------
BALANCE AT DECEMBER 31, 2001                                  (2,940)        198,189
CHANGES DURING 2002:
    Net income                                                                16,626
    Losses in respect of derivative instruments
      designated as a cash-flow hedge (net of
      related tax of  $363,000)                                                 (808)
    Additional minimum pension liability adjustment
      (net of related tax of $540,000)                                          (823)
    Total comprehensive income                                                   ---
                                                                              14,995
    Exercise of employee stock options                                            16
    Cash dividend ($0.37 per share)                                           (6,976)
    Cost of acquisition of treasury shares                    (8,395)         (8,395)
                                                           ------------  -------------
BALANCE AT DECEMBER 31, 2002                                $(11,335)       $197,829
CHANGES DURING 2003:
    Net income                                                                23,352
    Losses in respect of derivative instruments
      designated as a cash-flow hedge (net of
      related tax of  $485,000)
    Differences from translation of foreign currency                          (1,134)
      financial statements of a subsidiary
    Additional minimum pension liability adjustment                                *
      (net of related tax of $25,000)                                             37
                                                                                  --
    Total comprehensive income                                                22,255
    Exercise of employee stock options                                         1,425
    Tax benefit in respect of employee stock options
      exercised                                                                  318
    Cash dividend ($0.52 per share)                                           (9,493)
                                                           ------------  -------------
BALANCE AT DECEMBER 31, 2003                                $(11,335)       $212,334
                                                           ============  =============


                                                       * Less than $1,000.

                               THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THE FINANCIAL STATEMENTS.

                                                                F-6
</TABLE>

<PAGE>

<TABLE>
<CAPTION>

                                                                                               (Continued)-1

                                     DELTA GALIL INDUSTRIES LTD.
                                      (An Israeli corporation)
                                CONSOLIDATED STATEMENTS OF CASH FLOWS
                                     (U.S. dollars in thousands)

                                                                                   YEAR ENDED DECEMBER 31
                                                                             -------------------------------
                                                                                2003       2002       2001
                                                                             ---------  ---------  ---------
<S>                                                                           <C>        <C>        <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
    Net income                                                                $23,352    $16,626    $11,424
    Adjustments to reconcile net income to net cash provided by
       operating activities:
       Income and expenses not involving cash flows:
           Minority interests in profits of subsidiaries - net                    439      1,025        729
           Share in losses (profits) of associated companies, net                 300       (158)      (110)
           Amounts carried to deferred charges                                              (146)      (414)
           Depreciation and amortization                                       14,530     14,082     13,946
           Write-down of other investments                                        634
           Amortization of goodwill                                                                   1,505
           Deferred income taxes - net                                         (3,555)       440      1,630
           Restructuring expenses                                                 194        414         94
           Changes in accrued liability for employee rights upon
               Retirement                                                         409         96       (647)
           Loss on amounts funded in respect of employee
               rights upon retirement                                             214        624        180
           Capital loss (gain) on sale of property, plant and equipment        (3,536)       313        947
           Gain from sale of subsidiary shares                                   (109)
           Capital gain from realization of investment in
              an associated company                                              (885)      (960)
           Erosion of long-term receivables                                       (30)
           Exchange differences (erosion) of principal of long-term
              bank loans and debentures - net                                   1,043         28       (450)
           Amount charged to capital surplus in respect of
              amortization of deferred compensation related to stock
              options grants to employees and the Company's CEO                                          20
                                                                             ---------  ---------  ---------
                                                                                9,648     15,758     17,430
                                                                             ---------  ---------  ---------
       Changes in operating assets and liabilities:
           Decrease (increase) in accounts receivable                          15,095    (10,493)    17,030
           Increase (decrease) in accounts payable and accruals                (5,061)     4,425    (10,418)
           Increase in inventories                                               (173)       (35)    (2,577)
                                                                             ---------  ---------  ---------
                                                                                9,861     (6,103)     4,035
                                                                             ---------  ---------  ---------
    Net cash provided by operating activities - forward                       $42,861    $26,281    $32,889
                                                                             =========  =========  =========

                                                  F-7
</TABLE>

<PAGE>

<TABLE>
<CAPTION>

                                                                                         (Continued)-2

                                     DELTA GALIL INDUSTRIES LTD.
                                      (An Israeli corporation)
                                CONSOLIDATED STATEMENTS OF CASH FLOWS
                                     (U.S. dollars in thousands)

                                                                             YEAR ENDED DECEMBER 31
                                                                       -------------------------------
                                                                          2003       2002       2001
                                                                       ---------  ---------  ---------
<S>                                                                     <C>        <C>        <C>
Brought forward                                                         $42,861    $26,281    $32,889
                                                                       ---------  ---------  ---------
CASH FLOWS FROM INVESTING ACTIVITIES:
    Acquisition of subsidiaries (1)                                     (10,101)    (5,600)   (33,789)
    Additional payment allocated to goodwill                             (2,003)
    Purchase of property, plant and equipment                           (14,925)   (17,728)   (15,435)
    Investment grants relating to property, plant and equipment           1,099      1,591      1,232
    Other investments                                                                  (17)
    Proceeds from sale of property, plant and equipment                   6,091        494      1,379
    Proceeds from realization of investment in an associated
       Company                                                            2,567      2,480      1,034
    Proceeds from sale of subsidiary shares                                 250
    Associated company consolidated in previous years (2)                               (2)
    Loans granted to employees                                             (350)      (408)      (545)
    Collection of employees loans                                           345        400        560
    Long term loans granted                                                (221)      (270)      (225)
    Amounts funded in respect of employee rights upon
       retirement - net                                                  (1,157)      (686)      (106)
                                                                       ---------  ---------  ---------
    Net cash used in investing activities                               (18,405)   (19,746)   (45,895)
                                                                       ---------  ---------  ---------
CASH FLOWS FROM FINANCING ACTIVITIES:
    Cost of acquisition of treasury shares                                          (8,356)      (860)
    Long-term bank loans and other long-term liabilities                            11,000     20,178
    Decrease in long-term loans and other long-term liabilities         (10,335)   (10,391)    (8,184)
    Dividend to the Company's shareholders                               (9,493)    (6,976)    (5,807)
    Dividend to minority shareholders in a subsidiary                      (778)      (500)      (280)
    Short-term bank credit - net                                         (2,067)    10,401     12,024
    Proceeds from exercise of options granted to employees
      and the company's CEO                                               1,425         16         64
                                                                       ---------  ---------  ---------
    Net cash provided by (used in) financing activities                 (21,248)    (4,806)    17,135
                                                                       ---------  ---------  ---------
TRANSLATION DIFFERENCES ON CASH OF FOREIGN
       CURRENCY CONSOLIDATED SUBSIDIARY                                       *
                                                                       ---------  ---------  ---------
NET INCREASE IN CASH AND CASH EQUIVALENTS                                 3,208      1,729      4,129
CASH AND CASH EQUIVALENTS AT BEGINNING
    OF YEAR                                                              14,491     12,762      8,633
                                                                       ---------  ---------  ---------
CASH AND CASH EQUIVALENTS AT END OF YEAR                                $17,699    $14,491    $12,762
                                                                       =========  =========  =========

                                           * Less than $1,000.

(1), (2) See next page for details.

                                                   F-8
</TABLE>

<PAGE>

<TABLE>
<CAPTION>

                                                                                         (Continued)-3

                                     DELTA GALIL INDUSTRIES LTD.
                                      (An Israeli corporation)
                                CONSOLIDATED STATEMENTS OF CASH FLOWS
                                     (U.S. dollars in thousands)

                                                                             YEAR ENDED DECEMBER 31
                                                                       -------------------------------
                                                                          2003       2002       2001
                                                                       ---------  ---------  ---------
<S>                                                                     <C>        <C>        <C>
SUPPLEMENTARY DISCLOSURE OF CASH FLOW
      INFORMATION - CASH PAID DURING THE
      YEAR FOR:
      Interest                                                          $ 3,660    $ 3,870    $ 6,462
                                                                       =========  =========  =========
      Income taxes                                                      $ 9,478    $ 6,748    $ 7,019
                                                                       =========  =========  =========

(1) ACQUISITION OF SUBSIDIARIES, SEE ALSO NOTE 2:
    Assets and liabilities of the subsidiaries upon acquisition:
      Working capital (excluding cash and cash equivalents)             $ 2,091    $   500    $14,876
      Long-lived assets                                                   6,642      4,347      1,267
      Goodwill arising on acquisition                                     1,368        753     24,311
                                                                       ---------  ---------  ---------
    Cost of investments                                                  10,101      5,600     40,454
                                                                       ---------  ---------  ---------
    Issuance of shares                                                                         (5,925)
    Amount payable                                                                               (740)
                                                                       ---------  ---------  ---------
    Cash paid - net                                                     $10,101    $ 5,600    $33,789
                                                                       =========  =========  =========
(2) Associated company previously consolidated:
    Assets and liabilities of the subsidiary previously consolidated
      Working capital (excluding cash and cash equivalents)                           $657
      Fixed assets                                                                  (2,511)
      Long-term liabilities                                                            435
      Minority interest in subsidiaries                                                711
      Investments in an associated company                                             710
                                                                                  ---------
                                                                                        $2
                                                                                  =========
</TABLE>

SUPPLEMENTARY INFORMATION ON INVESTING ACTIVITIES NOT INVOLVING CASH FLOWS:

(1)    In 2003 the group recorded additional $6.7 million as an adjustment to
       the purchase price of Inner Secrets, which was allocated to goodwill.
       This amount will be paid in 2004, see note 2c.

(2)    In 2003, 2002 and 2001, the net changes in outstanding balances of trade
       payables in respect of the purchase of property, plant and equipment were
       an increase (decrease) of $ (1.1) million, $ 0.2 million and $ 0.5
       million, respectively.


    THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THE FINANCIAL STATEMENTS.

                                      F-9

<PAGE>

                           DELTA GALIL INDUSTRIES LTD.
                            (An Israeli corporation)
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


NOTE 1 - SIGNIFICANT ACCOUNTING POLICIES:

A.      GENERAL:

1)      Operations

        Delta Galil Industries Ltd. (the "Company") is an Israeli corporation
        which, together with its subsidiaries (the "Group"), is engaged
        primarily in manufacturing and marketing of intimate apparel, infour
        reportable operating segments - U.S. mass market, U.S. upper market,
        Europe and Socks. As to the Group's segments and principal markets see
        note 16. Most of the marketing operations of intimate apparel are
        performed through wholly owned subsidiaries.

        A significant portion of the Group's revenues derives from three
        principal customers. See note 13a and 16b.

2)      Accounting principles

        The consolidated financial statements are prepared in accordance with
        generally accepted accounting principles ("GAAP") in the United States
        of America.

3) Use of estimates in the preparation of financial statements

        The preparation of financial statements in conformity with GAAP requires
        management to make estimates and assumptions that affect the reported
        amounts of assets and liabilities, and the disclosure of contingent
        assets and liabilities at the dates of the financial statements, and the
        reported amounts of revenues and expenses during the reported years.
        Actual results could differ from those estimates.

4)      Functional currency

        The currency of the primary economic environment in which the operations
        of the Company and most of its subsidiaries are conducted is the U.S.
        dollar (the "dollar" or "$"). Most of the Group's sales are made outside
        Israel, mainly to the United States (in dollars) and to the United
        Kingdom (in pounds sterling). The Company uses foreign currency
        derivatives in order to effectively change the cash flows resulting from
        sales in pounds sterling into dollars. Most of the materials consumed by
        the Company and its subsidiaries (which represent most of the Company
        and its subsidiaries' production costs) are purchased in dollars. Thus,
        the functional currency of the Company and these subsidiaries is the
        dollar. Most of the financing of the group are carried in dollars.

                                      F-10

<PAGE>

                           DELTA GALIL INDUSTRIES LTD.
                            (An Israeli corporation)
             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

NOTE 1 - SIGNIFICANT ACCOUNTING POLICIES (continued):

        Transactions and balances originally denominated in dollars are
        presented at their original amounts. Balances in non-dollar currencies
        are translated into dollars using historical and current exchange rates
        for non-monetary and monetary balances, respectively. For non-dollar
        transactions reflected in the statements of income, the exchange rates
        at transaction dates are used, except for expenses deriving from
        non-monetary items, which are translated using historical exchange
        rates. The resulting currency transaction gains or losses are carried to
        "financial expenses-net".

        The functional currency of a subsidiary which was acquired in 2003 (see
        also note 2a) is its local currency. The financial statements of this
        subsidiary are included in consolidation based on translation into
        dollars in accordance with Statement of Financial Accounting Standard
        ("FAS") 52 of FASB: assets and liabilities are translated at year end
        exchange rate, while operating results items are translated at average
        exchange rates during the year. Differences resulting from translation
        are presented in shareholders' equity, under accumulated other
        comprehensive income (loss).

B.      PRINCIPLES OF CONSOLIDATION

        The consolidated financial statements include the accounts of the
        Company and all of its subsidiaries. In these financial statements,
        "subsidiaries" are companies controlled to the extent of over 50%, the
        financial statement of which are consolidated with those of the Company.
        Significant intercompany balances and transactions were eliminated in
        consolidation. Profits from intercompany sales, not yet realized outside
        the Group, have also been eliminated.

C.      CASH EQUIVALENTS

        The Group considers all highly liquid investments, which include
        short-term bank deposits (up to three months from date of deposit) that
        are not restricted as to withdrawal or use, to be cash equivalents.

D.      INVENTORIES

        Inventories are valued at the lower of cost or market. Cost is
        determined as follows:

        Raw materials and supplies, packaging which is part of the production
        line and maintenance materials - on the "moving average" basis. Finished
        products and products in process - direct cost of materials (on the
        "moving average" basis), labor and an appropriate portion of indirect
        manufacturing costs.

E.      INVESTMENTS IN ASSOCIATED COMPANIES

                                      F-11
<PAGE>

        An "associated company" is a company over which significant influence is
        exercised, but which is not a consolidated subsidiary. Associated
        companies are accounted for by the equity method.









                                      F-12

<PAGE>

                           DELTA GALIL INDUSTRIES LTD.
                            (An Israeli corporation)
             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

NOTE 1 - SIGNIFICANT ACCOUNTING POLICIES (continued):

F.      OTHER INVESTMENTS

        These non-marketable investments are carried at cost, net of write down
        for decrease in value, which is not of a temporary nature - in 2003
        amounting $634 thousands (included in other income-net).

G.      PROPERTY, PLANT AND EQUIPMENT

        Property, plant and equipment are stated at cost, net of related
        investment grants ($ 49.2 million and $ 49.8 million at December 31,
        2003 and 2002, respectively). Fixed asset leased by the Group under
        capital lease are classified as the Group's asset and included at the
        present value of the minimum lease payments as determined in the lease
        agreement.

        Depreciation is computed by the straight-line method on the basis of the
        estimated useful life of the assets, at the following annual rates :

            Buildings and plumbing                       2%-7%
                                                      (mainly 4%)
            Machinery and equipment                      7%-25%
                                                      (mainly 7%)
            Vehicles                                    10%-20%
                                                     (mainly 15%)
            Office furniture and equipment               6%-25%
                                                      (mainly 7%)

        Leasehold improvements are amortized by the straight-line method over
        the lease period, which is shorter than the estimated useful life of the
        improvements.

H.      GOODWILL

        On January 1, 2002, the Company adopted FAS No. 142, "Goodwill and Other
        Intangible Assets ". Pursuant to FAS 142 goodwill is no longer amortized
        but rather tested for impairment at least annually.

        Prior to January 1, 2002, the Group amortized goodwill in equal annual
        installments, mainly over 40 years.

        The Company identified and allocated the goodwill to its various
        reporting units. The Company has performed a transitional impairment
        review to determine the fair value of its reporting units and whether
        any impairment of goodwill existed as of the date of adoption of FAS
        142. The transitional impairment review performed by the Company in 2002
        did not result in an impairment.

        The Company has selected September 30 of each year as the date on which
        it will perform its annual goodwill impairment review. No impairment
        resulted from the annual review performed in the year ended December 31,
        2003 and 2002.

                                      F-13

<PAGE>

                           DELTA GALIL INDUSTRIES LTD.
                            (An Israeli corporation)
             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

NOTE 1 - SIGNIFICANT ACCOUNTING POLICIES (continued):

I.      DEFERRED CHARGES

        Deferred charges represent mainly financing charges, which are amortized
        over the credit period.

        Amortization of deferred charges included among "financial expenses,
        net" were $ 250 thousands, $ 164 thousands and $ 128 thousands, for the
        years ended December 31, 2003, 2002 and 2001, respectively.

J.      IMPAIRMENT IN VALUE OF LONG-LIVED ASSETS

        On January 1, 2002 the Company adopted FAS 144 "Accounting for the
        Impairment or Disposal of Long- Lived Assets" ("FAS 144"). FAS 144
        requires that long-lived assets, to be held and used by an entity be
        reviewed for impairment whenever events or changes in circumstances
        indicate that the carrying amount of the assets may not be recoverable.
        Under FAS 144, if the sum of the expected future cash flows
        (undiscounted and without interest charges) of the long-lived assets is
        less than the carrying amount of such assets, an impairment loss would
        be recognized, and the assets are written down to their estimated fair
        values.

        The adoption of FAS 144, in 2002 did not have any material effect on the
        consolidated financial position and results of operations.

K.       DEFERRED INCOME TAXES

        Deferred taxes are determined utilizing the asset and liability method,
        based on the estimated future tax effect differences between the
        financial accounting and tax bases of assets and liabilities under the
        applicable tax laws. Deferred income tax provisions and benefits are
        based on the changes in the deferred tax assets or tax liabilities from
        period to period.

        As stated in note 11a, a plant of an Israeli subsidiary has been granted
        "approved enterprise" status and, accordingly, upon distribution of
        dividends by this subsidiary to the Company, such dividends may be
        subject to tax. In light of the Group's policy not to cause distribution
        of dividends, which would result in additional tax liabilities, any
        dividends received from the abovementioned subsidiary will be
        distributed to the Company's shareholders. Accordingly, no account has
        been taken of the additional tax in respect of the above dividends.

        The Group does not provide for an additional tax liability with respect
        to the excess of the amount for financial reporting over the tax basis
        of an investment in non-Israeli subsidiaries, as the Company does not
        expect such temporary differences to be reversed in the foreseeable
        future.

L.      TREASURY SHARES

        Treasury shares held by the Company are presented as a reduction of
        shareholders' equity, at their cost.

                                      F-14

<PAGE>

                           DELTA GALIL INDUSTRIES LTD.
                            (An Israeli corporation)
             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

NOTE 1 - SIGNIFICANT ACCOUNTING POLICIES (continued):

M.      REVENUE RECOGNITION:

        1)      Sale of products

                Income from sale of products is generally recognized when title
                passes to customers.

        2)      Revenue from hotel services

                This income was recognized - in 2001 - as the service was
                rendered (see also note 3b).

N.      CONCENTRATION OF CREDIT RISKS - ALLOWANCE FOR DOUBTFUL ACCOUNTS


        The Group's cash and cash equivalents as of December 31, 2003 and 2002
        were deposited mainly with major banks in United States of America,
        Israel, Hungary and Egypt. The Company is of the opinion that the credit
        risk in respect of these balances is remote.

        A large part of the Group's sales is to 3 principal customers (see also
        note 16b). The balance receivables from these principal customers as of
        December 31, 2003 and 2002 were $ 51,297, thousands and $ 48,271
        thousands, respectively (see also note 13a). The Group does not hold any
        collateral from these customers; however, based on past experience with
        those customers, the Group does not anticipate any difficulties in
        collecting the above balances. The balance of the item "accounts
        receivable - trade" is composed of a large number of customers. Certain
        trade receivables are insured under foreign trade risk insurance. An
        appropriate allowance for doubtful accounts is included in the accounts
        in respect of specific debts doubtful of collection.

        The bad debt income (expenses) and allowance charged to expenses, for
        the years ended December 31, 2003, 2002 and 2001 aggregated $ 309
        thousands, $ (3,558) thousands and $ (3,181) thousands, respectively.

O.      SHIPPING AND HANDLING COSTS

        The Group's shipping and handling costs are included under selling and
        marketing expenses in the consolidated statements of income. Shipping
        and handling costs for the years ended December 31, 2003, 2002 and 2001
        were approximately $ 17 million, $ 18 million and $ 15 million,
        respectively.

P.      ADVERTISING COSTS

        These costs are expensed as incurred. Advertising costs for the years
        ended December 31, 2003, 2002 and 2001 were $ 1.9 million, $ 2.5 million
        and $ 2.2 million a year, respectively.

                                      F-15
<PAGE>

                           DELTA GALIL INDUSTRIES LTD.
                            (An Israeli corporation)
             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

NOTE 1 - SIGNIFICANT ACCOUNTING POLICIES (continued):

Q.      STOCK BASED COMPENSATION

        Stock options granted to employees are accounted for under the
        recognition and measurement principles of APB No. 25, "Accounting for
        Stock Issued to Employees", and related interpretations. Under APB 25,
        compensation cost for employee stock option plans is measured using the
        intrinsic value based method of accounting.

        Accordingly, the difference, if any, between the quoted market price of
        the ordinary shares on the date of grant of the options and the exercise
        price of such options is charged on the date of grant to shareholders'
        equity under "deferred compensation", and thereafter amortized by the
        accelerated amortization method, against income, over the expected
        service period (up to four years).

        FAS 123, "Accounting for Stock-Based Compensation", established a fair
        value based method of accounting for employee stock options or similar
        equity instruments, and encourages adoption of such method for stock
        compensation plans. However, it also allows companies to continue to
        account for those plans using the accounting treatment prescribed by APB
        25. The Company has elected to continue accounting for employee stock
        option plans under APB 25, and has accordingly complied with the
        disclosure requirements set forth in FAS 123, as amended by FAS 148, for
        companies electing to apply APB 25.

        The following table illustrates the effect on net income and earnings
        per share assuming the Company has applied the fair value recognition
        provisions of FAS 123 to its stock-based employee compensation:

<TABLE>
<CAPTION>
                                                                YEAR ENDED DECEMBER 31
                                                          ---------------------------------
                                                             2003        2002       2001
                                                          ----------  ----------  ---------
                                                                     $ IN THOUSANDS
                                                                (EXCEPT PER SHARE DATA)
                                                          ---------------------------------
<S>                                                        <C>         <C>        <C>
      Net income, as reported                              $ 23,352    $ 16,626   $ 11,424
      Add - stock-based employee compensation
          expense included in reported net income,
          net of related tax effect                                                    14
      Less - stock-based employee compensation
          expense determined under fair value method,
          net of related tax effect                         (1,384)     (1,359)    (2,099)
                                                          ----------  ----------  ---------
      Pro forma net income                                 $ 21,968    $ 15,267    $ 9,339
                                                          ==========  ==========  =========
      Earnings per share:
          Basic - as reported                                $ 1.28     $ 0.88      $0.60
          Basic - pro forma                                  $ 1.20     $ 0.81      $0.49
          Diluted - as reported                              $ 1.24     $ 0.88      $0.60
          Diluted - pro forma                                $ 1.17     $ 0.81      $0.49
</TABLE>

                                      F-16
<PAGE>

                           DELTA GALIL INDUSTRIES LTD.
                            (An Israeli corporation)
             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

NOTE 1 - SIGNIFICANT ACCOUNTING POLICIES (continued):

R.      EARNINGS PER SHARE

        Basic earnings per share are computed by dividing net income by the
        weighted average number of shares outstanding during the year, net of
        treasury shares.

        Diluted earnings per share are computed by dividing net income by the
        weighted average number of shares outstanding during the year, net of
        treasury shares, taking into account the potential dilution that could
        occur upon the exercise of options granted under employee stock option
        plans, using the treasury stock method.

S.      DERIVATIVES

        The Company enters into forward exchange contracts to hedge the cash
        flows resulting from sales of products, salaries and wages, in
        currencies other than the functional currency. The Company does not hold
        derivative financial instruments for trading purposes.

        The Company has adopted FAS No. 133 "Accounting for Derivative
        Instruments and Hedging Activities". Under FAS 133, all derivatives are
        recognized on the balance sheet at their fair value. On the date that
        the Company enters into a derivative contract, it designates the
        derivative for accounting purposes, as: (1) hedging instrument, or (2)
        non-hedging instrument.

        For derivative financial instruments that are designated and qualify as
        a cash flow hedge, the effective portions of changes in fair value of
        the derivative are recorded in other comprehensive income (loss), under
        "Gains or losses in respect of derivative instruments designated as a
        cash-flow hedge , net of related tax" and are recognized in the income
        statement when the hedged item affects earnings. Ineffective portions of
        changes in the fair value of cash flow hedges are recognized immediately
        in income among financial expenses. Changes in the fair value of
        derivatives that do not qualify for hedge accounting are recognized in
        income among financial expenses. Cash flows from derivatives that
        qualify as a cash flow hedge are recognized in the statements of cash
        flows in the same category as that of the hedged item.

T.      COMPREHENSIVE INCOME

        In addition to net income, other comprehensive income (loss) includes
        gains or losses in respect of derivative instruments designated a
        cash-flow hedge, net of deferred tax, differences from translation of
        foreign currency financial statements of a subsidiary and additional
        minimum pension liability adjustments, net of related tax.

                                      F-17
<PAGE>

                           DELTA GALIL INDUSTRIES LTD.
                            (An Israeli corporation)
             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

NOTE 1 - SIGNIFICANT ACCOUNTING POLICIES (continued):

U.      CONSOLIDATION OF VARIABLE INTEREST ENTITIES

        In January 2003, the FASB issued FASB Interpretation No. 46,
        "Consolidation of Variable Interest Entities" (FIN 46). Under FIN 46,
        entities are separated into two populations: (1) those for which voting
        interests are used to determine consolidation (this is the most common
        situation) and (2) those for which variable interests are used to
        determine consolidation. FIN 46 explains how to identify Variable
        Interest Entities (VIEs) and how to determine when a business enterprise
        should include the assets, liabilities, noncontrolling interests, and
        results of activities of a VIE in its consolidated financial statements.

        Since issuing FIN 46, the FASB has proposed various amendments to the
        Interpretation and has deferred its effective dates. Most recently, in
        December 2003, the FASB issued a revised version of FIN 46 (FIN 46-R),
        which also provides for a partial deferral of FIN 46. This partial
        deferral established the effective dates for public entities to apply
        FIN 46 and FIN 46-R based on the nature of the variable interest entity
        and the date upon which the public company became involved with the
        variable interest entity. In general, the deferral provides that (i) for
        variable interest entities created before February 1, 2003, a public
        entity must apply FIN 46-R at the end of the first interim or annual
        period ending after March 15, 2004, and may be required to apply FIN 46
        at the end of the first interim or annual period ending after December
        15, 2003, if the variable interest entity is a special purpose entity,
        and (ii) for variable interest entities created after January 31, 2003,
        a public company must apply FIN 46 at the end of the first interim or
        annual period ending after December 15, 2003, as previously required,
        and then apply FIN 46-R at the end of the first interim or annual
        reporting period ending after March 15, 2004.

        The Company has currently no variable interests in any VIE. Accordingly,
        the Company believes that the adoption of FIN 46 and FIN 46-R will not
        have material impact on its financial position, results of operations
        and cash flows.

V.      RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS:

        In December 2003, the FASB issued FAS No. 132 (revised 2003),
        "Employers' Disclosures about Pensions and Other Postretirement
        Benefits, an amendment of FASB Statements No. 87, 88 and 106, and a
        revision of FASB Statement No. 132 ("FAS 132 (revised 2003)") ". This
        Statement revises employers' disclosures about pension plans and other
        postretirement benefit plans. It does not change the measurement or
        recognition of those plans. The new rules require additional disclosures
        about the assets, obligations, cash flows, and net periodic benefit cost
        of defined benefit pension plans and other postretirement benefit plans.
        Part of the new disclosures provisions are effective for 2003 calendar
        year-end financial statements, and accordingly have been applied by the
        Company in these consolidated financial statements. The rest of the
        provisions of this Statement, which have a later effective date, are
        currently being evaluated by the Company.

                                      F-18
<PAGE>

W.      RECLASSIFICATIONS

        Certain figures in respect of prior years have been reclassified to
        conform with the current year presentation.









                                      F-19
<PAGE>

                           DELTA GALIL INDUSTRIES LTD.
                            (An Israeli corporation)
             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

NOTE 2 - ACQUISITIONS AND OTHER TRANSACTIONS

        ACQUISITIONS:

        The acquisitions described bellow have all been accounted for by the
        purchase method. The consideration for each acquisition was attributed
        to net assets on the basis of the fair value of assets acquired and
        liabilities assumed. The results of operations of the acquired business
        are included in the consolidated financial statements as of the date of
        acquisition.

        A.      ACQUISITION OF AUBURN HOSIERY MILLS ("AUBURN")

                In November 2003, the Company acquired, through wholly owned
                subsidiaries from Kellwood inc. ("the seller") all of the shares
                of its two private held U.S. and Irish companies, which are
                engaged in the operations of design, development, manufacture,
                sourcing, marketing, distribution and sale of hosiery. The
                functional currency of the Irish operation is its local currency
                - the Euro.

                The Group paid $10.8 million in cash to the seller and recorded
                liabilities in respect of restructuring costs in an amount of
                $6.2 million, which includes approximately $2.2 million for
                severance pay and related costs and $ 4.0 million for costs
                associated with the shut down of certain acquired facilities.







                                      F-20
<PAGE>

                          DELTA GALIL INDUSTRIES LTD..
                            (An Israeli corporation)
             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

NOTE 2 - ACQUISITIONS AND OTHER TRANSACTIONS (continued):

        The following table summarizes the estimated fair values of the assets
        acquired and liabilities assumed at the date of acquisition. The excess
        of cost of acquisition over the fair value of net assets on acquisition
        date - $ 1.4 million - was allocated to goodwill. Goodwill is not
        deductible for tax purposes.

        At November 13, 2003 (in thousands)

        Cash and cash equivalent                                     $699

        Account receivable - trade                                  5,754

        Account receivable - other                                    700

        Inventories                                                 9,448

        Property, plant, and equipment                              6,642

        Goodwill                                                    1,368
                                                               -------------
                  Total assets acquired                           $24,611
                                                               =============
        Short-term bank credit                                       $213

        Accounts payable                                            7,435

        Accrued expenses - restructuring costs                      6,163
                                                               -------------
               Net assets acquired                                $10,800
                                                               =============

        Hereafter are the unaudited pro forma combined condensed income
        statements for the years ended December 31, 2003 and 2002, assuming that
        the acquisition had occurred on January 1, 2003 and 2002, respectively.
        The pro forma financial information is not necessarily indicative of the
        combined results that would have been attained had the acquisition taken
        place at the beginning of 2003 and 2002, nor is it necessarily
        indicative of future results.

                                                     YEAR ENDED
                                                     DECEMBER 31
                                              --------------------------
                                                  2003          2002
                                              ------------  ------------
                                                     IN THOUSANDS
                                              (except earnings per share)
                                              --------------------------
                                                      (UNAUDITED)
                                              --------------------------
            Net Revenues                         $628,017     $626,732
                                              ============  ============
            Net Income                            $19,820      $16,079
                                              ============  ============
            Earning per share - Basic               $1.08        $0.85
                                              ============  ============
            Earning per share - Diluted             $1.06        $0.85
                                              ============  ============

                                      F-21
<PAGE>

                          DELTA GALIL INDUSTRIES LTD..
                            (An Israeli corporation)
             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

NOTE 2 - ACQUISITIONS AND OTHER TRANSACTIONS (continued):

B.      ACQUISITION OF THE OPERATIONS OF KOMAR TEXTILE TRADING CO. LTD.
        ("KOMAR")

        In November 2002 the Company purchased some of the operations of Komar,
        a privately held Hungarian company. Komar is engaged in production of
        baby-wear. The purchase price - $ 5,600 thousands was paid in cash. The
        excess of cost of acquisition over the fair value of net assets on
        acquisition date - $ 753 thousands - was allocated to goodwill. Goodwill
        is not deductible for tax purposes.

C.      ACQUISITION OF INNER SECRETS INC. ("INNER")

        In January 2001, the Company acquired, through a wholly owned subsidiary
        - Wundies Industries Inc. ("the acquiring company"), all of the shares
        of Inner, a privately held U.S. company, which is engaged in the
        development, production and marketing of ladies' intimate apparel.

        The acquisition price was set to be four times Inner's earnings before
        interest, income taxes, depreciation and amortization ("EBITDA"),
        subject to certain adjustments, for the year ended December 31, 2000,
        but after deducting liabilities to banks and other loans as of December
        31, 2000. The acquisition price was paid as follows: 85% in cash and 15%
        in Company shares.

        During 2001 the Company paid $ 48.7 million in cash (including $ 14.4
        million paid to a bank for discharge of a loan) and $ 5.9 million in
        454,020 Company shares, based on a price per share of $ 13.05.

        The excess of cost of acquisition over the fair value of net assets on
        acquisition date - $ 24.3 million - was allocated to goodwill.

        At the end of 2002 the Company recorded an additional $ 2.0 million as
        an adjustment to the purchase price. The amount was paid in April 2003.
        The payment was allocated to goodwill.

        In addition, under the agreement the Company recorded an additional
        amount of $ 6.7 million, payable in 2004, as a final performance
        payment, which was allocated to goodwill.

        Goodwill is not deductible for tax purposes.


                                      F-22
<PAGE>

                          DELTA GALIL INDUSTRIES LTD..
                            (An Israeli corporation)
             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

NOTE 2 - ACQUISITIONS AND OTHER TRANSACTIONS (continued):

        OTHER TRANSACTIONS:

        SALE OF SUBSIDIARY'S SHARES

        In August 2002, Delta Galil signed an agreement for the sale of 10% of
        its wholly-owned subsidiary, in consideration of $250 thousands.

        During March 2003 the Company received the payment, transferred the
        shares and as a result recognized a gain in an amount of $ 109
        thousands.

        According to the agreement the buyer has an option to purchase
        additional shares of the subsidiary on terms to be agreed at a later
        stage. The option shall remain in effect for a period of 36 months from
        the date of agreement.


NOTE 3 - INVESTMENTS IN STANDARD TEXILE EUROPE LTD. AND IN EDOMIT LTD.

A.      SALE OF INVESTMENT IN STANDARD TEXTILE EUROPE LTD. ("STE")

        On August 4, 2000, a subsidiary signed an agreement for the sale of its
        investment in STE, which was an associated company, for $ 9 million,
        which bears interest of LIBOR plus 1.5% per year. Prior to the
        transaction, the subsidiary held 15% of STE's shares.

        The transaction is carried out in four batches, subject to adjustments
        based on STE's profits, as stipulated in the agreement. The first,
        second and third batches (approximately 75% of the shares held by the
        subsidiary) were transferred to the buyer upon the signing of the
        agreement, in January 2002 and in January 2003, respectively, for a
        total consideration of $ 7,300 thousands. The capital gain from the
        first, second and third batches, totaled to $780 thousands, $960
        thousands and $888 thousands, respectively, and was classified to "Other
        Income - net". The forth batch (approximately 25% of the shares held by
        the subsidiary) was transferred to the buyer on January 2004, for a
        consideration of $2,640 thousands. The capital gain from the selling of
        the forth batch amounted to $ 958 thousands.

        As of January 2003 the subsidiary no longer has significant influence on
        STE, and the investment in STE is presented at cost, which is the
        balance of the investment as of January 2003.

        The balance of the investment in STE as of December 31, 2003 and 2002 is
        $1,682 thousands and $3,364 thousands, respectively.

                                      F-23
<PAGE>

                          DELTA GALIL INDUSTRIES LTD..
                            (An Israeli corporation)
             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

NOTE 3 - INVESTMENT IN STANDARD TEXILE EUROPE LTD. AND IN EDOMIT LTD.
         (Continued):

B.      EDOMIT LTD. ("EDOMIT")

        The Company holds 50% of the shares in Edomit. As of January 1, 2002,
        according to a new agreement signed between the Company and the other
        shareholder, the Company no longer controls Edomit. Accordingly, as of
        the date of the agreement, the assets and liabilities of Edomit and the
        results of its operations are no longer included in the consolidated
        financial statements and the Company's investment in Edomit is accounted
        for by the equity method.

        The balance of the investment in Edomit as of December 31, 2003 and 2002
        is $ 661 thousands and $ 843 thousands, respectively. As of December 31,
        2003 and 2002 these balances include a loan in the amount of $ 417 and $
        299, respectively. The loan is linked to the CPI and bears no interest.

NOTE 4 - LONG-TERM RECEIVABLES

        Long-term receivables represent long-term loans to employees - mainly
        linked to the Israeli consumer price index ("CPI") and bearing interest
        at the rate of 4%.

        These balances are mature in the following years after balance sheet
        dates:

                                                         DECEMBER 31
                                                 --------------------------
                                                      2003         2002
                                                 ------------  ------------
                                                         IN THOUSANDS
                                                 --------------------------

           First year - current maturities            $512         $553
                                                 ------------  ------------
           Second year                                 362          195
           Third year                                   36          155
           Fourth year                                  21
                                                 ------------  ------------
                                                      $419         $350
                                                 ------------  ------------
                                                      $931         $903
                                                 ============  ============

                                      F-24
<PAGE>

                           DELTA GALIL INDUSTRIES LTD.
                            (An Israeli corporation)
             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

NOTE 5 - PROPERTY, PLANT AND EQUIPMENT:

A.      Composition of property, plant and equipment, grouped by major
        classifications, is as follows:

<TABLE>
<CAPTION>

                                                                        DECEMBER 31
                                                               ----------------------------
                                                                   2003            2002
                                                               ------------    ------------
                                                                        IN THOUSANDS
                                                               ----------------------------
<S>                                                                <C>             <C>
        Land, buildings and plumbing, see b. below*                 $39,877         $36,648
        Machinery and equipment                                     152,448         153,859
        Vehicles, office furniture and equipment
            and leasehold improvements                               52,567          44,244
                                                               ------------    ------------
                                                                    244,892         234,751
        Less - accumulated depreciation and amortization           (120,015)       (113,150)
                                                               ------------    ------------
                                                                   $124,877        $121,601
                                                               ============    ============
        * Including building leased under capital lease -
          (see note 1g):
        Cost                                                         $1,414          $1,414
        Less - accumulated depreciation                                 315             260
                                                               ------------    ------------
                                                                     $1,099          $1,154
                                                               ============    ============
</TABLE>

        In 2003 the Group recorded a $ 3.5 million capital gain from sale of
        real estate in London.




                                      F-25
<PAGE>

                           DELTA GALIL INDUSTRIES LTD.
                            (An Israeli corporation)
             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

NOTE 5 - PROPERTY, PLANT AND EQUIPMENT:

B.      LAND AND BUILDINGS

        Part of the buildings of the Company stand on land leased from the
        Israel Lands Administration for periods expiring in the years 2016-2037.
        The leasehold rights have not yet been registered in the Land Registry.

C.      Investment projects of the Company and its subsidiary have been approved
        by the Israeli Investment Center, under the Law for the Encouragement of
        Capital Investments, 1959. The balance of uncompleted investments as of
        December 31, 2003 aggregates $ 22.1 million.

D.      Depreciation and amortization in respect of property, plant and
        equipment totaled $14.3 million in the year ended December 31, 2003 and
        $ 13.9 million in the years ended December 31, 2002 and 2001 (excluding
        impairment of assets relating to restructuring, see note 13g).

E.      As to pledges on assets, see notes 8c and 11a.

NOTE 6 - GOODWILL:

a)      Changes in goodwill during the year:

<TABLE>
<CAPTION>
                                                              YEAR ENDED DECEMBER 31, 2003
                                           ---------------------------------------------------------------
                                                                       IN THOUSANDS
                                           ---------------------------------------------------------------
                                             US MASS    US UPPER
                                              MARKET      MARKET   EUROPE     SOCKS     OTHER      TOTAL
                                           ----------  ----------  -------  ---------  --------  ---------
<S>                                         <C>          <C>        <C>      <C>       <C>        <C>
        Goodwill at beginning of year       $ 40,032     $ 1,000    $ 753    $ 3,386   $1,119     $46,290
        Changes during the year:
          Goodwill arising from
               acquisition of
               subsidiaries, see note 2a                                                1,368       1,368
          Adjustment to purchase price,
               see note 2c                     6,700                                                6,700
          Translation differences                                                           *           *
                                           ==========  =========   =======  =========  ========  =========
        Goodwill at end of year             $ 46,732    $ 1,000     $ 753    $ 4,754    $1,119    $54,358
                                           ==========  =========   =======  =========  ========  =========

                                              * Less then $1 thousand.
</TABLE>


                                      F-26
<PAGE>

                           DELTA GALIL INDUSTRIES LTD.
                            (An Israeli corporation)
             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

NOTE 6 - GOODWILL (continued):

<TABLE>
<CAPTION>

                                                              YEAR ENDED DECEMBER 31, 2002
                                           ---------------------------------------------------------------
                                                                       IN THOUSANDS
                                           ---------------------------------------------------------------
                                             US MASS    US UPPER
                                              MARKET      MARKET   EUROPE     SOCKS     OTHER      TOTAL
                                           ----------  ----------  -------  ---------  --------  ---------
<S>                                         <C>          <C>        <C>      <C>       <C>        <C>
        Goodwill at beginning of year       $ 38,029     $ 1,000             $ 3,386   $1,119     $43,534
        Changes during the year:
          Goodwill arising from
               acquisition of
               operations, see note 2b                                753                             753
          Adjustment to purchase
             price,
               see note 2c                     2,003                                                2,003
                                           ----------  ----------  -------  ---------  --------  ---------
        Goodwill at end of year             $ 40,032     $ 1,000    $ 753    $ 3,386   $1,119    $ 46,290
                                           ==========  ==========  =======  =========  ========  =========
</TABLE>

b)      The following table illustrates the Group's results, adjusted to
        eliminate the effect of goodwill amortization expense for the following
        years:

<TABLE>
<CAPTION>
                                                          ---------------------------------
                                                             2003        2002       2001
                                                          ----------  ----------  ---------
                                                                     $ IN THOUSANDS
                                                                (EXCEPT PER SHARE DATA)
                                                          ---------------------------------
<S>                                                        <C>         <C>        <C>
      Net income, as reported                              $ 23,352    $ 16,626   $ 11,424
      Net income, as reported                              $ 23,352    $ 16,626   $ 11,424
      Add:
         Goodwill amortization                                                       1,505
         Equity method goodwill amortization                                           120
                                                          ----------  ----------  ---------
      Adjusted net income                                  $ 23,352    $ 16,626   $ 13,049
                                                          ==========  ==========  =========
      Earnings per share:
         Basic - as reported                                  $1.28       $0.88      $0.60
         Goodwill amortization                                                       $0.07
         Equity method goodwill amortization                                         $0.01
                                                          ----------  ----------  ---------
         Basic - adjusted                                     $1.28       $0.88      $0.68
                                                          ==========  ==========  =========
         Diluted - as reported                                $1.24       $0.88      $0.60
         Goodwill amortization                                                       $0.07
         Equity method goodwill amortization                                         $0.01
                                                          ----------  ----------  ---------
         Diluted - adjusted                                   $1.24       $0.88      $0.68
                                                          ==========  ==========  =========
</TABLE>

                                      F-27
<PAGE>

                           DELTA GALIL INDUSTRIES LTD.
                            (An Israeli corporation)
             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

NOTE 7 - EMPLOYEE RIGHTS UPON RETIREMENT:

a.      Employee related obligations are composed as follows:

                                                    DECEMBER 31
                                             -----------------------
                                                 2003         2002
                                             ----------   ----------
                                                   IN THOUSANDS
                                             -----------------------

          Accrued severance pay                 $5,442       $4,996
          Obligation in respect of defined
              benefit plans                      1,290        1,363
                                             ----------   ----------
                                                $6,732       $6,359
                                             ==========   ==========

        As of December 31, 2003 and 2002, the Group had deposits of $ 5.1
        million and $ 4.0 million, respectively, with funds managed by major
        Israeli insurance companies, which are earmarked by management to cover
        the severance pay liability in respect of Israeli employees. Under FAS
        No. 132, "Employers Disclosures About Pensions and Other Post Retirement
        Benefits", such deposits are not considered to be "plan assets". The
        total contribution expected to be paid by the Group for Israeli funds
        plans during 2004 is approximately $1.0 million.

        Costs of pension and severance pay charged to income in the years ended
        December 31, 2003, 2002 and 2001 were $ 7.0 million, $ 6.5 million and $
        5.9 million respectively (in 2003, 2002 and 2001, excluding $ 813
        thousands, $ 651 thousands and $ 806 thousands, respectively, relating
        to the termination of employment, which were charged to restructuring
        expenses, see note 13g.

        The loss from deposits in respect of severance pay were $ 214 thousands,
        $ 624 thousands and $ 180 thousands in the years ended December 31,
        2003, 2002 and 2001, respectively.

        The main terms of the various arrangements with employees are described
        in b. below. Further details relating to defined benefit plans, as
        required by FAS 132, are presented in c. below.


                                      F-28
<PAGE>

                           DELTA GALIL INDUSTRIES LTD.
                            (An Israeli corporation)
             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

NOTE 7 - EMPLOYEE RIGHTS UPON RETIREMENT (continued):

B.      TERMS OF ARRANGEMENTS:

        1)      The Company and Israeli subsidiaries

                Israeli law generally requires payment of severance pay and/or
                pensions upon dismissal of an employee or upon termination of
                employment in certain other circumstances. The following
                principal plans relate to employee rights upon retirement, as
                applicable to Israeli companies in the Group:

                a)      Pension plans for the majority of the Group's employees
                        - under collective labor agreements, these external
                        pension plans cover the severance pay liability. The
                        pension and severance pay liabilities covered by these
                        plans are not reflected in the financial statements as
                        the pension and severance pay risks have been
                        irrevocably transferred to the pension funds.

                b)      Insurance policies for employees in managerial positions
                        - these policies provide coverage for severance pay and
                        pension liabilities of managerial personnel. Under labor
                        agreements these insurance policies are, subject to
                        certain limitations, the property of the employees.

                c)      Severance pay liabilities not covered by the pension
                        funds are fully provided for in these consolidated
                        financial statements, as if it was payable at each
                        balance sheet date on an undiscounted basis, based upon
                        the number of years of service and the most recent
                        monthly salary of the Group's employees in Israel.

        2)      Non-Israeli subsidiary

                A U.S. subsidiary provides various defined benefit pension plans
                to its employees, see c below.

                At December 31, 2003, the assets of the defined benefit pension
                plan are primarily invested in group annuity contracts with an
                insurance company. The plan was frozen effective January 1996.

                Contributions to the defined contribution 401(k) plan are based
                on a percentage of annual salaries. The Company generally
                matches 25% of each participant's pretax contribution up to 4%
                of the participant's annual compensation.

                                      F-29
<PAGE>

                           DELTA GALIL INDUSTRIES LTD.
                            (An Israeli corporation)
             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

NOTE 7 - EMPLOYEE RIGHTS UPON RETIREMENT (continued):

C.      CERTAIN DETAILS RELATING TO DEFINED BENEFIT PLANS:

<TABLE>
<CAPTION>
                                                                     2003            2002
                                                                 ------------    ------------
                                                                         IN THOUSANDS
                                                                 ----------------------------
<S>                                                                   <C>             <C>
CHANGE IN BENEFIT OBLIGATION:
   Benefit obligation at beginning of year                            $3,150          $2,837
   Interest cost                                                         183             190
   Actuarial loss                                                          7             312
   Benefit paid                                                         (195)           (189)
                                                                 ------------    ------------
Benefit obligation at end of year                                     $3,145          $3,150
                                                                 ------------    ------------
CHANGE IN PLAN ASSETS:

   Fair value of plan assets at beginning of year                     $2,931          $2,843
   Actual return on plan assets                                          152             168
   Employer contribution                                                                  99
   Benefit paid, including plan expenses                                (195)           (189)
                                                                 ------------    ------------
Fair value of plan assets at end of year                              $2,888          $2,921
                                                                 ------------    ------------
RECONCILIATION OF FUNDED STATUS:
   Funded status (carryforward obligations)                            $(257)          $(229)
   Unrecognized net actuarial loss                                     1,290           1,363
   Adjustment to recognize minimum liability                          (1,290)         (1,363)
                                                                 ------------    ------------
Prepaid / pension cost (accrued)                                       $(257)          $(229)
                                                                 ============    ============

<CAPTION>

                                                          2003          2002           2001
                                                    --------------  -------------  -------------
<S>                                                       <C>           <C>           <C>
WEIGHTED AVERAGE ASSUMPTIONS AT END OF YEAR:
   Discount rate                                          6.00%         6.25%         7.00%
   Expected return on plan assets                         6.25%         6.50%         7.75%
   Rate of compensation increase                            N/A           N/A           N/A


   The consolidated components of net periodic benefits costs are as follows:

                                                               YEAR ENDED DECEMBER 31
                                                    --------------------------------------------
                                                          2003          2002           2001
                                                    --------------  -------------  -------------
                                                                    IN THOUSANDS
                                                    --------------------------------------------
   Interest cost                                           $183          $190           $83
   Actual return on plan assets                            (152)         (134)          (75)
   Net amortization                                          80            57            23
                                                           $111          $113           $31
</TABLE>

                                      F-30
<PAGE>

                           DELTA GALIL INDUSTRIES LTD.
                            (An Israeli corporation)
             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

NOTE 8 - LONG-TERM LIABILITIES - BANK LOANS AND OTHER LIABILITY:

A.      COMPOSITION:

<TABLE>
<CAPTION>
                                                              WEIGHTED
                                                               AVERAGE
                                                            INTEREST RATE*
                                                           ---------------        DECEMBER 31
                                                             DECEMBER 31,    ----------------------
                                                                 2003          2003         2002
                                                           ---------------   ---------    ---------
                                                                  %              IN THOUSANDS
                                                                 ---         ----------------------
<S>                                                              <C>          <C>          <C>
Bank loans - in dollars or linked thereto                        2.5          $18,857      $28,286
Bank loans - in Canadian dollars                                 2.9            5,191        4,996
Other liability -
    Obligation under capital lease, see note 1g
       and c. below - in dollars                                 8.6            1,097        1,155
                                                                             ---------    ---------
                                                                               25,145       34,437
Less - current maturities                                                      10,436       10,257
                                                                             ---------    ---------
                                                                              $14,709      $24,180
                                                                             =========    =========
</TABLE>

        * Some of the loans bear interest at variable rates (mainly on a Libor +
        1.2%).

b.      Total liabilities (net of current maturities) mature in the following
        years after balance sheet dates:

                                                  DECEMBER 31
                                        -----------------------------
                                            2003             2002
                                        ------------     ------------
                                                 IN THOUSANDS
                                        -----------------------------


        Second year                          $10,440          $10,261
        Third year                             1,018           10,266
        Fourth year                            1,024              844
        Fifth year                             1,031              850
        Sixth year and thereafter              1,196            1,959
                                        ------------     ------------
                                             $14,709          $24,180
                                        ============     ============


                                      F-31
<PAGE>

                           DELTA GALIL INDUSTRIES LTD.
                            (An Israeli corporation)
             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

NOTE 8 - LONG-TERM LIABILITIES - BANK LOANS AND OTHER LIABILITY (continued):

c.      A subsidiary of the Company has entered into operating lease agreements
        for a building it uses; the lease will expire in the year 2014.

        Following are the future minimum lease payments, by years, under capital
        lease and the present value of the net minimum lease payments as of
        December 31, 2003:

                                                                 IN
                                                              THOUSANDS
                                                            ------------

              First year - current maturities                    $ 158
              Second year                                          158
              Third year                                           158
              Fourth year                                          158
              Fifth year                                           158
              Sixth year and thereafter                            950
                                                                 1,740
              Less - amount representing interest                  643
                                                            ------------
                                                               $ 1,097
                                                            ============

1)      The balance of liabilities is fully secured by floating charges in an
        unlimited amount on all the assets and rights of the Company and the
        assets of its subsidiaries, and/or by fixed charges on the major portion
        of the Group's fixed assets.

2)      A subsidiary is a party to a credit agreement, which was amended, as of
        June 14, 2003, with Bank Leumi U.S.A and Bank Hapoalim B.M. Borrowings
        under the credit agreement are secured by substantially all of the
        assets of the subsidiary. The credit agreement provides for $ 86 million
        in loans, of which $ 26 million are long term loans and the reminder is
        short term credit. The principal of the term loans is payable in 14
        equal quarterly installments of approximately $1.9 million each until
        December 1, 2005. As of December 31, 2003 the utilized credit line was $
        31.4 million.


                                      F-32
<PAGE>

                          DELTA GALIL INDUSTRIES LTD..
                            (An Israeli corporation)
             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

NOTE 9 - COMMITMENTS AND CONTINGENT LIABILITIES:

A.      COMMITMENTS

        The Company and its subsidiaries lease 27 facilities under operating
        leases. The leases (including extension options) for 20 facilities
        expire on various dates between 2005 and 2025 and the remaining leases
        expired in 2004. The Company intends to renew some of these leases. The
        minimum future annual lease payment over each of the years 2004 to 2008
        will amount to $ 5.5 million. In the period from 2009 to the end of the
        lease periods, the cumulative lease payments will amount to $ 13.7
        million. The lease expenses for each of the years 2003, 2002 and 2001
        were $ 7.2 million, $ 6.6 million and $ 7.3 million, respectively.

B.      CONTINGENT LIABILITIES - GUARANTEES

        The company and its subsidiaries signed a guarantee, each for other,
        which is unlimited in amount to all of the group's liabilities.

NOTE 10 - SHAREHOLDERS' EQUITY:

A.      SHARE CAPITAL:

        1)      The Company's shares are traded on the Tel-Aviv Stock Exchange
                ("TASE") and in the form of American Depositary Shares
                ("ADS's"), each of which represents one ordinary share, on the
                Nasdaq National Market in the United States. On December 31,
                2003, the closing price per ADS on Nasdaq was $ 15.75; the
                shares were quoted on the TASE on that date at NIS 69.7 ($
                15.9).

        2)      In December 2002, the Company purchased 565,000 of the Company's
                shares for an amount of $ 6,215 thousands (representing $ 11.0
                per share).

        3)      On September 28, 2001, the Company's Board of Directors approved
                the repurchase of Company shares for an amount of up to $ 3.0
                million. During 2002 and 2001 the Company purchased 282,483 and
                96,017 shares, respectively, in the open market at an average
                price of $ 7.58 and $ 9.0 per share in a total amount of $ 2,141
                thousands and $ 860 thousands, respectively.

        4)      Pursuant to a purchase agreement dated January 5, 2001 (see note
                2c), the Company issued 454,020 ordinary shares of NIS 1 par
                value.

        5)      As of December 31, 2003 and 2002, the balance of shares issued
                by the Company for the purpose of future exercise of employee
                stock options, which is held by a trustee company, is 87,638 and
                100,447 shares, respectively.

        6)      The shares held by the Company have no voting rights and are not
                entitled to receive dividends.

                                      F-33
<PAGE>

                           DELTA GALIL INDUSTRIES LTD.
                            (An Israeli corporation)
             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

NOTE 10 - SHAREHOLDERS' EQUITY (continued):

B.      STOCK OPTIONS PLANS FOR EMPLOYEES AND THE COMPANY'S CEO:

1)      On May 10, 1998, the Company's Board of Directors approved an employee
        stock option plan for the grant, without consideration, of up to 304,696
        options, exercisable in purchase of 319,931 ordinary shares of NIS 1 par
        value of the Company, to thirteen senior employees of the Company and/or
        its subsidiaries. All of the above options were granted in June 1998.
        The exercise price of each option is $ 8.297, based on the quoted price
        of the Company's shares on the last day of trade prior to the Board of
        Directors' resolution ($ 9.22), less 10%. The options vest in four equal
        batches.

        As of December 31, 2002, all the options are fully vested. The options
        are exercisable over three years period, commencing on the date that is
        two years after the date such option vested. Any option not exercised
        within the said five years will expire. The options expire over the
        years 2003-2006.

2)      On September 10, 1998, the Company's Board of Directors approved a plan
        for the grant, at no consideration, of up to 100,000 options to its CEO,
        which are exercisable in purchase of 100,000 shares of NIS 1 par value
        of the Company. All of said options were granted in September 1998. The
        exercise price of each option is $ 7.90, based on the quoted price of
        the Company's share on the last day of trade prior to the Board of
        Directors' resolution ($ 8.77), less 10%. The options vest in four equal
        batches. As of December 31, 2003, all the options are fully vested. The
        exercise terms under the CEO's plan are identical to those of the
        employees plan.

3)      On June 4, 2000, the Company's Board of Directors approved an employee
        stock option plan for the grant, without consideration, of up to 809,000
        options (including 100,000 options to its CEO), exercisable in purchase
        of 809,000 ordinary shares of NIS 1 par value of the Company, to 70
        senior employees of the Group ("the optionees"). All the options were
        granted on August 6, 2000. The exercise price of each option is $ 21.07,
        based on the quoted price of the Company's shares on the last day of
        trade prior to the Board of Directors' resolution.

        The options vest in four equal batches: the first, second, third and
        fourth batches vest in August 2001, 2002, 2003 and 2004, respectively.
        The options are exercisable over a three years period, commencing one
        year after the vesting date of each batch.

4)      On October 23, 2002, the Company's Board of Directors approved an
        employee stock option plan for the grant, without consideration, of up
        to 1,100,000 options (including 100,000 options to its CEO), exercisable
        in purchase of 1,100,000 ordinary shares of NIS 1 par value of the
        Company. The exercise price of each option is the higher of the quoted
        price of the Company's shares on the grant day or $ 9.

        On November 22, 2002, the Company granted 1,004,500 options to 97 senior
        employees of the Group (including 100,000 options to the CEO) at an
        exercise price of $ 9. The options vest in four equal batches. The
        first, second, third and fourth batches will vest in November 2003,
        2004, 2005 and 2006, respectively. The options are exercisable over a
        three-year period, commencing one year after the vesting date of the
        first batch and on the vesting date of the second, third and fourth
        batch.

                                      F-34
<PAGE>

                          DELTA GALIL INDUSTRIES LTD..
                            (An Israeli corporation)
             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

NOTE 10 - SHAREHOLDERS' EQUITY (continued):

        On May 2003 the Company granted 30,000 options to three employees of the
        Group at an exercise price of $10.76. The options are exercisable over a
        three-year period, commencing one year after the vesting date of the
        first batch and on the vesting date of the second, third and fourth
        batch.

        At December 31, 2003 122,000 options remain available for grant under
        the plan.

5)      The grant of options to Israeli employees under the Company's plans is
        subject to the terms stipulated by Section 102 and 102A of the Israeli
        Income Tax Ordinance. Inter-alia, that Section provides that the Company
        will be allowed to claim as an expense for tax purposes the amounts
        credited to the employees as a benefit, when the related tax is payable
        by the employee.

6)      The rights pertaining to the ordinary shares issued upon exercise of the
        options will be identical to those of the other ordinary shares of the
        Company.

7)      Following is a summary of the status of the Company's stock option
        plans:

<TABLE>
<CAPTION>
                                                                        YEAR ENDED DECEMBER 31
                                            ---------------------------------------------------------------------------------
                                                       2003                       2002                      2001
                                            -------------------------- -------------------------- ---------------------------
                                                             WEIGHTED                  WEIGHTED                   WEIGHTED
                                                              AVERAGE                  AVERAGE                     AVERAGE
                                                             EXERCISE                  EXERCISE                   EXERCISE
                                                NUMBER*       PRICE**     NUMBER*       PRICE**       NUMBER*      PRICE**
                                            -------------- ----------- ------------- ------------ ------------- -------------
<S>                                            <C>            <C>        <C>            <C>          <C>           <C>
Options outstanding at beginning of year       2,038,562      $ 13.07    1,076,940      $ 17.10      1,156,642     $ 17.29
Changes during the year:
    Granted                                       30,000      $ 10.76    1,004,500      $  9.00
    Exercised                                   (180,109)     $  7.91       (2,003)     $  8.30         (8,077)    $  8.30
    Forfeited                                   (57,751)      $ 11.35      (40,875)     $ 18.11        (71,625)    $ 21.07
                                            --------------             -------------              -------------
Options outstanding at end of year             1,830,702      $ 13.50    2,038,562      $ 13.07      1,076,940     $ 17.10
                                            ==============             =============              =============
Options exercisable at end of year               528,952      $ 17.15      405,880      $ 16.94        534,315     $ 11.76
                                            ==============             =============              =============
</TABLE>

*    Represents the number of shares arising upon exercise of options, based on
     the conversion ratio.
**   Per option.

8)   The fair value of options granted during 2003 and 2002 was $ 35 thousands
     and $ 1.7 million, respectively. The fair value of each option granted is
     estimated on the date of grant using the Black & Scholes option-pricing
     model, with the following weighted average assumptions:

                                                  2003        2002
                                               ----------  ----------

       Dividend yield                                 5%           5%
                                               ==========  ==========
       Expected volatility                         27.33%      30.94%
                                               ==========  ==========
       Risk-free interest rate                         1%          2%
                                               ==========  ==========
       Expected life - in years                      4.58        5.58
                                               ==========  ==========

                                      F-35
<PAGE>

                           DELTA GALIL INDUSTRIES LTD.
                            (An Israeli corporation)
             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

NOTE 10 - SHAREHOLDERS' EQUITY (continued):

9)   The following table summarizes information regarding options outstanding at
     December 31, 2003:

                NUMBER OF SHARES ISSUABLE UPON EXERCISE OF OPTIONS
-----------------------------------------------------------------------------
               OUTSTANDING                          VESTED       EXERCISABLE
----------------------------------------------- --------------- -------------
                              WEIGHTED AVERAGE
                BALANCE AT       REMAINING         BALANCE AT      BALANCE AT
   EXERCISE     DECEMBER 31,  CONTRACTUAL LIFE    DECEMBER 31,    DECEMBER 31,
    PRICES         2003            YEARS             2003            2003
-------------  ------------- ------------------ --------------- -------------
    $8.30         107,452           1.8             107,452        107,452
    $7.90          50,000           2.4              50,000         50,000
   $21.07         690,250           3.0             532,125        371,500
    $9.00         953,000           4.7             238,250
   $10.76          30,000           5.1
                ---------                           -------        -------
                1,830,702                           927,827        528,952
                =========                           =======        =======

C.   RETAINED EARNINGS

     1)   In determining the amount of retained earnings available for
          distribution as a dividend, the Companies Law stipulates that the cost
          of the Company's shares acquired by the Company (that are presented as
          a separate item in the statement of changes in shareholders' equity)
          has to be deducted from the amount of retained earnings.

     2)   Dividends are declared and paid in dollars. On March 2004, the Company
          declared the distribution of a dividend of approximately $ 2.2
          million, payable to shareholders of record on March 21, 2004 ($ 0.12
          per share).

NOTE 11 - TAXES ON INCOME:

A.   THE COMPANY AND CERTAIN ISRAELI SUBSIDIARIES (HEREAFTER - THE COMPANIES):

     1)   Tax benefits under the Israeli Law for the Encouragement of Capital
          Investments, 1959 ("the law")

          The Company and certain Israeli subsidiary have received investment
          grants from the State of Israel. In the event of failure to comply
          with the terms attached to the receipt of those grants, the companies
          may be required to refund the amount of the grants, in whole or in
          part, with linkage differences to the Israeli CPI and interest from
          the date of receipt.

                                      F-36
<PAGE>

                          DELTA GALIL INDUSTRIES LTD..
                            (An Israeli corporation)
             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

NOTE 11 - TAXES ON INCOME (continued):

     The abovementioned companies have registered floating charges on all their
     assets in favor of the State of Israel as security for compliance with the
     terms relating to the grants.

     Under the law, by virtue of the "approved enterprise" status granted to
     certain of their enterprises, the Company and its Israeli subsidiary are
     entitled to various tax benefits, as follows:

a)   Reduced tax rates

     During the period of benefits - 7 to 10 years commencing in the first year
     in which the companies earn taxable income from the approved enterprises
     (provided the maximum period to which it is restricted by law has not
     elapsed) - a reduced tax rate of 25% applies, instead of the regular tax
     rate, see (4) below. Some of the approved enterprises are eligible for a
     tax exemption for the first two years commencing in the year in which the
     companies first earn taxable income.

     The proportion of the Company's taxable income entitled to benefits of
     reduced tax rates is calculated on the basis of the ratio between the
     turnover of the approved enterprise and the whole turnover of the Company.
     The turnover applicable to the approved enterprise is calculated, as a
     general rule, by taking the increase resulting from the comparison of the
     Company's turnover with its "base" turnover, which is prescribed as being
     the turnover during the last year before the operation of the approved
     enterprise, or such other basis as is stipulated in the instrument of
     approval.

     The period of benefits in respect of certain enterprises expired in 1994,
     while the period of benefits in respect of other enterprises expires in
     2006. The Company first derived income from approved enterprises in 1998.

     In the event of distribution of cash dividends out of income, which was tax
     exempt as above, the companies would have to pay the 25% tax in respect of
     the amount distributed.

b)   Accelerated depreciation

     The companies are entitled to claim accelerated depreciation in respect of
     buildings, machinery and equipment used by approved enterprises during the
     first five tax years of the operation of these assets.

c)   Conditions for entitlement to the benefits

                                      F-37
<PAGE>

     The entitlement to the above benefits is conditional upon the companies
     fulfilling the conditions stipulated by the law, regulations published
     thereunder and the instruments of approval for the specific investments in
     approved enterprises. In the event of failure to comply with these
     conditions, the benefits may be cancelled and the companies may be required
     to refund the amount of the benefits, in whole or in part, with the
     addition of linkage differences to the Israeli CPI and interest.












                                      F-38
<PAGE>

                          DELTA GALIL INDUSTRIES LTD..
                            (An Israeli corporation)
             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

NOTE 11 - TAXES ON INCOME (continued):

     2)   Measurement of results for tax purposes under the Income Tax
          (Inflationary Adjustments) Law, 1985 (the "inflationary adjustments
          law")

          Under the inflationary adjustments law, results for tax purposes are
          measured in real terms, having regard to the changes in the Israeli
          CPI. Under income tax regulations, the Company and a certain
          subsidiary are entitled to adjust their results for tax purposes on
          the basis of the changes in the exchange rate of the dollar, instead
          of the changes in the Israeli CPI. Commencing 2001 the Company and
          this subsidiary chose to do so.

          As explained in note 1a(4), the financial statements were measured in
          dollars. For the years in which the result for tax purposes are
          measured in real terms, having regard to the changes in the Israeli
          CPI, the difference between the changes in the Israeli CPI and the
          exchange rate of the dollar - both on an annual and a cumulative basis
          - caused differences between taxable income and income reflected in
          these financial statements. Paragraph 9(f) of FAS 109 creates an
          exception which prohibits the recognition of deferred tax liabilities
          or assets that arise from differences between the financial reporting
          and tax bases of assets and liabilities that are remeasured from the
          local currency into dollars using historical exchange rates, and that
          result from (i) changes in exchange rates, or (ii) indexing for tax
          purposes.

     3)   Tax benefits under the Law for the Encouragement of Industry
          (Taxation), 1969

          The Company and certain Israeli subsidiary are "industrial companies"
          as defined by this law. As such, these companies are entitled to
          certain tax benefits, consisting mainly of accelerated depreciation,
          as stipulated by regulations published under the inflationary
          adjustments law, and the right to claim public issuance expenses as a
          deduction for tax purposes.

          Pursuant to this law, the Company files consolidated tax returns with
          the said subsidiary.


                                      F-39
<PAGE>

                          DELTA GALIL INDUSTRIES LTD..
                            (An Israeli corporation)
             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

NOTE 11 - TAXES ON INCOME (continued):

     4)   Tax rates in Israel applicable to income not derived from approved
          enterprises

          Income not eligible for the approved enterprise benefits mentioned in
          (1) above is taxed at the regular rate of 36%.

B.   NON-ISRAELI SUBSIDIARIES

     Non-Israeli subsidiaries are taxed according to the tax laws in their
     country of residence.

C.   CARRYFORWARD TAX LOSSES

     Carryforward tax losses as of December 31, 2003 and 2002, aggregate $ 33
     million and $ 22 million, respectively.

     Carryforward tax losses and "real" losses in Israel may be utilized
     indefinitely.

D.   DEFERRED INCOME TAXES:

     1)   The deferred income taxes are composed as follows:

<TABLE>
<CAPTION>
                                                                      DECEMBER 31
                                                              ------------------------
                                                                  2003        2002
                                                              -----------  -----------
                                                                    IN THOUSANDS
                                                              ------------------------
<S>                                                              <C>          <C>
            Property, plant and equipment                        $13,975      $13,945
            Inventories                                             (907)      (1,242)
            Provisions for employee related obligations           (1,551)      (1,242)
            Other                                                   (321)       1,005
            In respect of carryforward tax losses
               (see c. above)                                    (10,360)      (7,151)
                                                              -----------  -----------
               Total                                                $836       $5,315
                                                              ===========  ===========
</TABLE>

                                      F-40
<PAGE>

                          DELTA GALIL INDUSTRIES LTD..
                            (An Israeli corporation)
             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

NOTE 11 - TAXES ON INCOME (continued):

     2)   Deferred income taxes are presented in the balance sheets among:

                                                         DECEMBER 31
                                                 ---------------------------
                                                    2003             2002
                                                 ------------   ------------
                                                        IN THOUSANDS
                                                 ---------------------------

              Current asset                          $(5,464)       $(8,311)
              Long-term asset                                          (745)
              Long term liability                      6,300         14,371
                                                 ------------   ------------
                                                        $836         $5,315
                                                 ============   ============

E.   INCOME BEFORE INCOME TAXES IS COMPOSED AS FOLLOWS:

                                                    YEAR ENDED DECEMBER 31
                                             ----------------------------------
                                                 2003        2002        2001
                                             ----------  ----------  ----------
                                                        IN THOUSANDS
                                             ----------------------------------

              The Company and its Israeli
                 Subsidiaries                  $(4,832)    $(8,658)    $(1,446)
              Non-Israeli subsidiaries          36,263      31,930      19,365
                                             ----------  ----------  ----------
                                               $31,431     $23,272     $17,919
                                             ==========  ==========  ==========

F.   TAXES ON INCOME INCLUDED IN THE STATEMENTS OF INCOME:

                                                    YEAR ENDED DECEMBER 31
                                             ----------------------------------
                                                 2003        2002        2001
                                             ----------  ----------  ----------
                                                        IN THOUSANDS
                                             ----------------------------------
           Current:
              Israeli                             $746        $353        $191
              Non-Israeli                       10,292       4,963       4,015
                                             ----------  ----------  ----------
                                                11,038       5,316       4,206
                                             ----------  ----------  ----------
           Deferred:
              Israeli                          $(4,075)    $(1,796)       $881
              Non-Israeli                          520       2,236         749
                                             ----------  ----------  ----------
                                                (3,555)        440       1,630
                                             ----------  ----------  ----------
           For previous years :
              Israeli                            $(30)      $(112)         $69
              Non-Israeli                        (113)         135         (29)
                                             ----------  ----------  ----------
                                                 (143)          23          40
                                             ----------  ----------  ----------
                                                $7,340      $5,779      $5,876
                                             ==========  ==========  ==========

                                      F-41
<PAGE>

                          DELTA GALIL INDUSTRIES LTD..
                            (An Israeli corporation)
             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

NOTE 11 - TAXES ON INCOME (continued):

G.   Following is a reconciliation of the theoretical tax expense, assuming all
     income is taxed at the regular tax rates applicable to income of companies
     in Israel (36%) and the actual tax expense:

<TABLE>
<CAPTION>
                                                                     YEAR ENDED DECEMBER 31
                                                              ----------------------------------
                                                                  2003        2002        2001
                                                              ----------  ----------  ----------
                                                                         IN THOUSANDS
                                                              ----------------------------------
<S>                                                              <C>        <C>         <C>
  Income before taxes on income, as reported in
    the consolidated statements of income                        $31,431    $23,272     $17,919
                                                              ==========  ==========  ==========
  Theoretical tax expense                                        $11,315     $8,378      $6,450
  Additional tax expenses arising from reduced tax
    rate on losses from an approved enterprise                       380        958          68
  Decrease in tax arising from different tax rate
    applicable to non-Israeli subsidiaries                        (2,834)    (3,886)     (2,029)
                                                              ----------  ----------  ----------
                                                                   8,861      5,450       4,489
  Increase in taxes resulting from recomputation the
    deferred taxes due to the change in the basis of
    adjustment - from the changes in the Israeli CPI
    to the  changes in exchange rate of the dollar,
    see a(2) above.                                                                       2,126
  Increase (decrease) in taxes resulting from
    permanent differences:
    Disallowable deductions                                           36         22         432
    Sundry - net                                                  (1,557)       307      (1,171)
                                                              ----------  ----------  ----------
  Taxes on income - in the consolidated statements
    of income                                                     $7,340     $5,779      $5,876
                                                              ==========  ==========  ==========
</TABLE>

H.   TAX ASSESSMENTS

     Tax assessments for the Company and most of its subsidiaries are final
     through the tax year 1999.

                                      F-42
<PAGE>

                          DELTA GALIL INDUSTRIES LTD..
                            (An Israeli corporation)
             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

NOTE 12 - MONETARY BALANCES IN NON-DOLLAR CURRENCIES:

A.   AS FOLLOWS:

<TABLE>
<CAPTION>
                                                           DECEMBER 31, 2003
                                                  ------------------------------------
                                                                           OTHER NON-
                                                    ISRAELI     POUND        DOLLAR
                                                   CURRENCY    STERLING    CURRENCIES
                                                  ----------  ----------  ------------
                                                             IN THOUSANDS
<S>                                                 <C>         <C>          <C>
ASSETS :
    Current assets                                  $16,120     $23,733      $10,982
                                                   =========   =========    =========
    Long-term receivables (including
       current maturities)                             $419
                                                   =========
Liabilities:
    Current liabilities                             $32,727     $15,226      $18,961
                                                   =========   =========    =========
    Long-term liabilities - long-term loan
       (including current maturities)                                         $5,191
                                                                            =========
</TABLE>

     The above balances do not include Israeli currency balances linked to the
     dollar. The Company establishes the currency of the short-term bank credit
     with the purpose of minimizing currency exposure of monetary assets.

B.   DATA REGARDING CHANGES IN EXCHANGE RATES AND THE ISRAELI CPI:

<TABLE>
<CAPTION>
                                                              YEAR ENDED DECEMBER 31
                                                        --------------------------------
                                                           2003       2002        2001
                                                        ---------  ----------  ---------
<S>                                                       <C>          <C>         <C>
Increase (decrease) in the exchange
    rate of Israeli currency in relation to:
    The dollar                                            (7.6%)       7.3%        9.3%
    The pound sterling                                     2.8%       19.3%        6.1%
Rate of (decrease) increase in the Israeli CPI            (1.9%)       6.5%        1.4%
</TABLE>

                                      F-43
<PAGE>

                           DELTA GALIL INDUSTRIES LTD.
                            (An Israeli corporation)
             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

NOTE 13 - SUPPLEMENTARY FINANCIAL STATEMENT INFORMATION:

     BALANCE SHEETS:
<TABLE>
<CAPTION>
                                                                         DECEMBER 31
                                                                   -----------------------
                                                                      2003         2002
                                                                   ----------   ----------
                                                                        IN THOUSANDS
                                                                   -----------------------
<S>                                                                  <C>          <C>
     A.  ACCOUNTS RECEIVABLE:
         1) Trade:
            Outside Israel                                           $73,728      $85,315
            In Israel                                                 11,995       10,286
                                                                   ----------   ----------
                                                                     $85,723      $95,601
                                                                   ==========   ==========
            Allowance for doubtful accounts:
                Opening balance                                       $1,131       $3,671
                K-mart
                Hamashbir                                                             859
                Other                                                                  95
            Decrease due to bad debts
                K-mart                                                             (3,494)
                Other                                                   (123)
            Increase due to an acquisition of a new subsidiary            30
                                                                   ----------   ----------
            Closing balance                                           $1,038       $1,131
                                                                   ==========   ==========
            Principal customers (see note 1n and 16b):
                Customer 1                                           $18,890      $18,916
                                                                   ==========   ==========
                Customer 2                                           $16,500      $14,601
                                                                   ==========   ==========
                Customer 3                                           $15,907      $14,754
                                                                   ==========   ==========
         2) Other:
            Investment grant receivable                                 $576         $900
            Government departments - mainly
                value added tax refundable                             4,500        3,125
            Prepaid expenses                                           2,046        1,539
            Deposits                                                     663          521
            Income receivable                                             96          353
            Employees                                                    512          553
            Receivables from subcontractors                            1,157         1,221
            Sundry                                                     1,112        1,102
                                                                   ----------   ----------
                                                                     $10,662       $9,314
                                                                   ==========   ==========
</TABLE>

                                      F-44
<PAGE>

                           DELTA GALIL INDUSTRIES LTD.
                            (An Israeli corporation)
             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

NOTE 13 - SUPPLEMENTARY FINANCIAL STATEMENT INFORMATION (continued):

                                                            DECEMBER 31
                                                     ------------------------
                                                        2003           2002
                                                     ----------    ----------
                                                            IN THOUSANDS
                                                     ------------------------
B.   INVENTORIES:
        Finished products                              $94,338       $86,306
        Products in process                             21,380        21,305
        Raw materials and supplies                      19,918        20,274
        Packaging and maintenance materials              7,348         5,478
                                                     ----------    ----------
                                                      $142,984      $133,363
                                                     ==========    ==========

C.   SHORT-TERM BANK CREDIT

     The weighted average interest rate of short-term bank credit as of December
     31, 2003 is 1.9%. A subsidiary is a party to a credit agreement, which was
     amended, as of June 14, 2003, with Bank Leumi U.S.A and Bank Hapoalim B.M.
     Borrowings under the credit agreement are secured by substantially all of
     the assets of the subsidiary. The credit agreement provides for up to $ 60
     million in short term credit.

     Unutilized short-term credit lines of the Group as of December 31, 2003 and
     2002 aggregated to $ 54.6 million and $ 56 million, respectively.

                                                            DECEMBER 31
                                                     ------------------------
                                                        2003           2002
                                                     ----------    ----------
                                                            IN THOUSANDS
                                                     ------------------------
D.   ACCOUNTS PAYABLE AND ACCRUALS - OTHER:
        Employees and employee institutions            $10,339        $6,474
        Provision for vacation and recreation pay        4,463         4,359
        Income tax payable                               1,612           525
        Accrued expenses                                12,442        11,185
        Accrued expenses - restructuring costs           6,163
        In respect of shares purchase, see note 2c       6,700         2,003
        In respect of derivatives, see note 14b          2,657           718
        Other                                            3,766         1,095
                                                     ----------    ----------
                                                       $48,142       $26,359
                                                     ==========    ==========

STATEMENTS OF INCOME:

                                                 2003       2002        2001
                                              ---------  ----------  ---------
                                                       IN THOUSANDS
                                              --------------------------------

E.   NET REVENUES - classified by type:

      Revenues from textile products          $580,130    $567,298    $555,655
      Revenues from hotel services*                                      3,108
                                              ---------  ----------  ---------
                                              $580,130    $567,298    $558,763
                                              =========  ==========  =========

                                 * See note 3b.

                                      F-45
<PAGE>

                           DELTA GALIL INDUSTRIES LTD.
                            (An Israeli corporation)
             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

NOTE 13 - SUPPLEMENTARY FINANCIAL STATEMENT INFORMATION (continued):

                                                 2003       2002        2001
                                              ---------  ----------  ---------
                                                       IN THOUSANDS
                                              --------------------------------

F.   COST OF REVENUES - CLASSIFIED BY TYPE:
      Cost of textile products                $466,378    $456,738    $452,948
      Cost of hotel services*                                            2,778
                                              ---------  ----------  ---------
                                              $466,378    $456,738    $455,726
                                              =========  ==========  =========

                                 * See note 3b

G.   RESTRUCTURING EXPENSES

     During 2003, 2002 and 2001, the Group ceased the operations of some of its
     facilities under three different restructuring plans. As a result, the
     Group's workforce was reduced by approximately 219, 899 and 257 employees,
     respectively. The Group's restructuring expenses in 2003, 2002 and 2001 - $
     1,007 thousands, $1,065 thousands and $900 thousands, respectively, consist
     of approximately - $813 thousands, $651 thousands and $806 thousands,
     respectively, employees' severance and related costs and $194 thousands, $
     414 thousands and $ 94 thousands in respect of impairment of assets,
     respectively.

H.   FINANCIAL EXPENSES - NET:

                                                 2003       2002        2001
                                              ---------  ----------  ---------
                                                       IN THOUSANDS
                                              --------------------------------

Interest expenses                                $4,749     $4,286      $7,171
Interest income                                    (281)       (92)        (13)
Exchange differences and other - net                557        939      (2,326)
loss (gain) from derivatives instruments            612        323         (81)
                                              ---------  ----------  ---------
                                                 $5,637     $5,456      $4,751
                                              =========  ==========  =========

                                      F-46
<PAGE>

                           DELTA GALIL INDUSTRIES LTD.
                            (An Israeli corporation)
             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

NOTE 13 - SUPPLEMENTARY FINANCIAL STATEMENT INFORMATION (continued):

I.   EARNINGS PER SHARE

     Following is data relating to the weighted average number of shares used in
     the computation of diluted earnings per share:

<TABLE>
<CAPTION>
                                                              2003       2002        2001
                                                           ---------  ----------  ---------
                                                                    IN THOUSANDS
                                                           --------------------------------
<S>                                                           <C>         <C>        <C>
        Weighted average number of
            shares used in the computation of
            basic earnings per share                          18,313      18,914     19,175
        Add:
            Net additional shares from the anticipated
                exercise of stock options                        450          13         24
                                                           ---------  ----------  ---------
        Weighted average number of
            shares used in the computation of
            diluted earnings per share                        18,763      18,927     19,199
                                                           =========  ==========  =========
</TABLE>

NOTE 14 - FINANCIAL INSTRUMENTS AND RISK MANAGEMENT:

A.   GENERAL

     The Group operates internationally, which gives rise to exposure to market
     risks mainly from changes in exchange rates of foreign currencies in
     relation to the dollar. Derivative financial instruments ("derivatives")
     are utilized by the Group to reduce these risks, as explained in this note.
     As the counter parties to these derivatives are Israeli banks, the Company
     considers the inherent credit risks remote. The Company does not hold or
     issue derivative financial instruments for trading purposes.

B.   FOREIGN EXCHANGE RISK MANAGEMENT

     The Company enters into most foreign currency derivatives - forward
     exchange contracts - in order to protect itself from the risk that the
     eventual non-dollar net cash flows resulting from sales of products and
     from salaries, wages and related expenses, will be affected by changes in
     exchange rates. The term of most of these contracts is less than one year.

     These transactions are mainly for the exchange of pounds sterling, Euro and
     NIS into dollars.

                                      F-47
<PAGE>

                           DELTA GALIL INDUSTRIES LTD.
                            (An Israeli corporation)
             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

NOTE 14 - FINANCIAL INSTRUMENTS AND RISK MANAGEMENT (continued):

     For forward exchange contracts designated as cash flow hedges, gains and
     losses are recorded in other comprehensive income (loss) until the foreign
     currency denominated sales, salaries, wages and related expenses
     transactions are recognized in earnings.

     The following table summarizes changes in other comprehensive income (loss)
     related to derivatives that are classified as cash flow hedges held by the
     Company during the period from January 1, 2001 (the date of adoption of FAS
     133) through December 31, 2003:

<TABLE>
<CAPTION>
                                                              2003       2002        2001
                                                           ---------  ----------  ---------
                                                                    IN THOUSANDS
                                                           --------------------------------
<S>                                                          <C>         <C>          <C>
        Balance at beginning of year                           $(583)      $225
        Changes in fair value of derivatives - loss           (2,905)    (2,114)      (215)
        Reclassification into earnings from other
             comprehensive income (loss)                       1,297        943        541
        Net of tax effect                                        474        363       (101)
                                                           ---------  ----------  ---------
        Balance at end of year                               $(1,717)     $(583)      $225
                                                           =========  ==========  =========
</TABLE>

     Hedge ineffectiveness had impact on earnings for 2003 of $ 0.5 million loss
     and had no material impact on earnings for the years ended December 31,
     2002 and 2001. No cash flow hedges were discontinued during the years ended
     December 31, 2003 and 2002. The Company estimates that net derivative
     losses (before tax) of approximately $2,450 thousands included in
     accumulated other comprehensive income at December 31, 2003 will be
     reclassified into earnings during the next six months.

     As of December 31, 2003, the Company had entered into hedging transactions
     for the exchange of $ 30 million into pounds sterling at an average rate of
     $ 1.64 per pound sterling. These transactions will be released into
     earnings during 2004.

C.   FAIR VALUE OF FINANCIAL INSTRUMENTS

     The financial instruments of the Group consist mainly of non-derivative
     assets and liabilities (items included in working capital, long-term
     receivables - in insignificant amounts - and long-term liabilities); the
     Group also has derivatives.

     In view of their nature, the fair value of the financial instruments
     included in working capital of the Group is usually identical or close to
     their carrying value. The fair value of long-term receivables and long-term
     loans also approximates their carrying value, since they bear interest at
     rates close to the prevailing market rates, or are in immaterial amounts.
     The fair values derivatives as of December 31, 2003 and 2002 are $ 2,657
     thousands and $ 718 thousands, respectively.

                                      F-48
<PAGE>

                           DELTA GALIL INDUSTRIES LTD.
                            (An Israeli corporation)
             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

NOTE 15 - "RELATED PARTIES" - TRANSACTIONS AND BALANCES:

     A.   TRANSACTIONS WITH RELATED PARTIES:

<TABLE>
<CAPTION>
                                                            YEAR ENDED DECEMBER 31
                                                       --------------------------------
                                                          2003       2002        2001
                                                       ---------  ----------  ---------
                                                                IN THOUSANDS
                                                       --------------------------------
<S>                                                       <C>        <C>        <C>
             Net revenues from textile products           $2,433     $4,922     $10,305
                                                       =========  ==========  =========
             Purchases and other expenses                   $249       $410        $416
                                                       =========  ==========  =========
</TABLE>

     The above transactions were made with one of the Company's shareholders in
     the ordinary course of business, at prices agreed upon in negotiations
     between the parties, taking into account the volume of orders, at customary
     supplier credit terms.

     As to options granted to the Company's CEO, see note 10b.

     B.   RELATED PARTIES BALANCES:

                                                              DECEMBER 31
                                                         --------------------
                                                            2003       2002
                                                         ---------  ---------
                                                              IN THOUSANDS
                                                         --------------------

         Current receivables - presented in the balance
            sheets among "accounts receivable - trade"       $251      $1,124
                                                         =========  =========
         Current liabilities - presented under "accounts
            payable and accruals"                             $28        $106
                                                         =========  =========

                                      F-49
<PAGE>

                           DELTA GALIL INDUSTRIES LTD.
                            (An Israeli corporation)
             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

NOTE 16 - SEGMENT INFORMATION :

     A.   INFORMATION ON OPERATING SEGMENTS:

          OPERATING SEGMENTS:

          1)   General:

               As of 2002, the Company conducts its worldwide operations in four
               operating segments as follows:

               -U.S mass market, U.S upper market and Europe- these segments are
               engaged in manufacturing and marketing of intimate apparel to
               various customers in the U.S and European markets.
               -Socks- the segment is engaged in manufacturing and marketing of
               socks to various customers in the U.S and European markets.

               Other operations include wholesale and retail operations in the
               Israeli market and the textile infrastructure operations which
               comprised manufacturing of fabric, elastic tapes and seam free
               products.

               Segments information for the year 2001 is not provided since it
               is impracticable to do so due to the fact that during 2002, the
               Company's management decided to make changes to the structure of
               the internal divisions' in order to enhance customer
               relationships and to improve the services provided to various
               customers at both a qualitative and procedural level.

          2)   Information on revenues, profit (losses) and assets of the
               reportable operating segments:

               a)   Measurement of revenues, profit (losses) and assets of the
                    operating segments:

               The measurement of revenues, profit (losses) and assets of the
               reportable operating segments is based on the same accounting
               principles applied in these financial statements, except for:

          1)   The effect of hedging transactions that were excluded from
               segment data.

          2)   The Company fully consolidates the operating results of certain
               subsidiary in its consolidated financial statements, while for
               operating segment data the Company includes only its share
               (approximately 50.1%) in the operating profits of this subsidiary
               as part of the US Upper market segment.

               Segment profits (losses) reflect the income (loss) from
               operations of the segment and do not include financial expenses,
               other income, income tax expenses, share in profits (losses) of
               associated companies and minority interest, since those items are
               not allocated to the segments. Sale price of intersegment revenue
               is based on negotiation between the segments and when applicable
               upon market price.

                                      F-50
<PAGE>

                           DELTA GALIL INDUSTRIES LTD.
                            (An Israeli corporation)
             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

NOTE 16 - SEGMENT INFORMATION (continued):

b)   Financial data relating to reportable operating segments:

<TABLE>
<CAPTION>

                                      US MASS     US UPPER
                                       MARKET      MARKET       EUROPE       SOCKS      OTHER     ADJUSTMENTS     TOTAL
                                     ----------  ----------  ------------  ---------  ---------  ------------- -----------
                                                                      (U.S. $ IN THOUSANDS)
                                     -------------------------------------------------------------------------------------
<S>                                    <C>          <C>         <C>          <C>        <C>       <C>      <C>   <C>
Year ended December 31, 2003:
     Net revenues:
       To unaffiliated customers       $218,959     $57,927     $176,827     $91,044    $36,673   $(1,300) (1)   $580,130
       Intersegment                                   8,587          563         759     32,726       (42,635)     - ;-
                                     ----------  ----------  ------------  ---------  ---------  ------------- -----------
     Total net revenues                $218,959     $66,514     $177,390     $91,803    $69,399      $(43,935)   $580,130
                                     ==========  ==========  ============  =========  =========  ============= ===========
     Operating income (loss)            $24,780    $(1,694)   $4,453 (4)      $9,322   $(5,081)     $5,036 (2)    $36,816
                                     ==========  ==========  ============  =========  =========  ============= ===========
     Assets (at end of year)           $137,548     $33,486     $109,035     $76,003    $60,797    $34,015 (3)   $450,884
                                     ==========  ==========  ============  =========  =========  ============= ===========
     Depreciation and amortization       $1,477      $2,000       $4,359      $2,464     $3,589           $641    $14,530
                                     ==========  ==========  ============  =========  =========  ============= ===========
</TABLE>

(1)  Results of hedge transactions
(2)  Including mainly capital gain in an amount of $ 3,645 thousands, the effect
     of hedge transactions in an amount of $ 1,300 thousands and $600 thousands
     which represents the minority share in the operating profits of certain
     subsidiary - included in the US Upper market - which is partly consolidated
     for segment purposes and fully consolidated in the consolidated financial
     statements.
(3)  Includes general corporate assets not assignable to segments.
(4)  Includes restructuring costs in the amount of $ 1,007 thousands in Europe.

                                      F-51
<PAGE>

                           DELTA GALIL INDUSTRIES LTD.
                            (An Israeli corporation)
             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

NOTE 16 - SEGMENT INFORMATION (continued):

<TABLE>
<CAPTION>

                                      US MASS     US UPPER
                                       MARKET      MARKET       EUROPE       SOCKS      OTHER     ADJUSTMENTS     TOTAL
                                     ----------  ----------  ------------  ---------  ---------  ------------- -----------
                                                                      (U.S. $ IN THOUSANDS)
                                     -------------------------------------------------------------------------------------
<S>                                    <C>          <C>         <C>          <C>        <C>       <C>      <C>   <C>
Year ended December 31, 2002:
     Net revenues:
       To unaffiliated customers       $202,024     $78,875     $170,265     $83,601    $33,493      $(960)(1)   $567,298
       Intersegment                                   5,900          706       1,651     42,823       (51,080)      - ;-
                                     ----------  ----------  ------------  ---------  ---------  ------------- -----------
     Total net revenues                $202,024     $84,775     $170,971     $85,252    $76,316      $(52,040)   $567,298
                                     ==========  ==========  ============  =========  =========  ============= ===========
     Operating income (loss) (3)        $14,575     $(1,625)     $10,205      $8,145    $(5,092)     $1,560(4)    $27,768
                                     ==========  ==========  ============  =========  =========  ============= ===========
     Assets (at end of year)           $143,443     $45,763     $105,402     $52,579    $58,009    $35,862 (2)   $441,058
                                     ==========  ==========  ============  =========  =========  ============= ===========
     Depreciation and amortization       $1,215      $1,890       $3,942      $2,718     $3,514           $803    $14,082
                                     ==========  ==========  ============  =========  =========  ============= ===========
</TABLE>

(1)  Results of hedge transactions
(2)  Includes general corporate assets not assignable to segments.
(3)  Includes restructuring costs in the amount of $ 673 thousands in Europe and
     $ 392 thousands in US Mass Market.
(4)  Including mainly the effect of hedge transactions in an amount of $ 960
     thousands and $ 1,025 thousands which represents the minority share in the
     operating profits of certain subsidiary - included in the US Upper market -
     which is partly consolidated for segment purposes and fully consolidated in
     the consolidated financial statements.

                                      F-52
<PAGE>

                           DELTA GALIL INDUSTRIES LTD.
                            (An Israeli corporation)
             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

NOTE 16 - SEGMENT INFORMATION (continued):

     B.   GEOGRAPHICAL INFORMATION:

<TABLE>
<CAPTION>
                                                           YEAR ENDED DECEMBER 31
                                                    ------------------------------------
                                                        2003        2002         2001
                                                    -----------  ----------  -----------
                                                                IN THOUSANDS
                                                    ------------------------------------
<S>                                                   <C>         <C>          <C>
1)   Revenues from textile products (attributed to
     geographic area based on the location of the
     customers):
     North America                                    $300,708    $303,103     $310,664
     United Kingdom                                    187,885     181,302      156,768
     Europe (other than U.K.)                           48,766      44,409       45,868
     Israel                                             42,771      38,484       42,355
                                                    -----------  ----------  -----------
                                                      $580,130    $567,298     $555,655
                                                    ===========  ==========  ===========
</TABLE>

2)   The net balance of the Company's long lived assets, by geographic location,
     are as follows:

                                      F-53
<PAGE>

<TABLE>
<CAPTION>
                                                                DECEMBER 31
                                                    ------------------------------------
                                                        2003        2002         2001
                                                    -----------  ----------  -----------
                                                                IN THOUSANDS
                                                    ------------------------------------
<S>                                                   <C>         <C>          <C>
     Israel                                            $60,108     $64,998      $68,439
     Egypt                                              22,218      20,940       19,143
     Eastern Europe                                     11,719       6,803
     Jordan                                              9,666      10,510       11,435
     United States                                       8,369       7,284        5,482
     Ireland                                             5,450
     United Kingdom                                      4,429       7,740        8,712
     Other                                               2,918       3,326        4,186
                                                    -----------  ----------  -----------
                                                      $124,877    $121,601     $117,397
                                                    ===========  ==========  ===========
<CAPTION>

                                                           YEAR ENDED DECEMBER 31
                                                    ------------------------------------
                                                        2003        2002         2001
                                                    -----------  ----------  -----------
                                                                IN THOUSANDS
                                                    ------------------------------------
<S>                                                   <C>         <C>          <C>
3)   Revenues from principal customers:
     Customer 1                                       $179,120    $174,195     $153,330
                                                    ===========  ==========  ===========
     Customer 2                                        $86,829    $ 65,317
                                                    ===========  ==========
     Customer 3                                        $82,472    $76,910       $64,332
                                                    ===========  ==========  ===========
</TABLE>

                                      F-54
<PAGE>

                           DELTA GALIL INDUSTRIES LTD.
                            (An Israeli corporation)

                                   SCHEDULE I

                         Allowance for doubtful accounts

<TABLE>
<CAPTION>
                                                                DECEMBER 31
                                                    ------------------------------------
                                                        2003        2002         2001
                                                    -----------  ----------  -----------
                                                                IN THOUSANDS
                                                    ------------------------------------
<S>                                                   <C>         <C>          <C>
       Allowance for doubtful accounts:
           Opening balance                             $ 1,131     $ 3,671      $   923
           K-mart                                                                 3,494
           Hamashbir                                                   859
           Other                                                        95
       Decrease due to bad debts
           K-mart                                                   (3,494)        (746)
           Other                                          (123)
Increase due to an acquisition of a new subsidiary          30
                                                    -----------  ----------  -----------
       Closing balance                                 $ 1,038     $ 1,131      $ 3,671
                                                    ===========  ==========  ===========
</TABLE>





                                      F-55

<PAGE>

INDEPENDENT AUDITOR'S REPORT TO THE MEMBERS OF DELTA TEXTILES (LONDON) LIMITED

We have audited the balance sheets of Delta Textiles (London) Limited ("the
Company") as at 31 December 2003 and 31 December 2002 and the related statements
of income, changes in shareholders' equity and cash flows for each of the three
years in the period ended 31 December 2003. These financial statements are the
responsibility of the Company's Board of Directors and management. Our
responsibility is to express an opinion on these financial statements based on
our audits.

We conducted our audits in accordance with generally accepted auditing standards
in the United Kingdom and in the United States of America. 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 the significant estimates made by management, as
well as evaluating the overall annual accounts presentation. We believe that our
audit provides a reasonable basis for our opinion.

In our opinion, the aforementioned financial statements present fairly, in all
material respects, the financial position of the Company as at 31 December 2003
and 31 December 2002 and the results of its operations, changes in its
shareholders' equity and its cash flows for each of the three years in the
period ended 31 December 2003, in conformity with generally accepted accounting
principles in the United Kingdom. In addition they present fairly, in all
material respects, the financial position of the Company as at 31 December 2003
and 31 December 2002 and the results of its operations for each of the three
years in the period ended 31 December 2002 and the generally accepted accounting
principles in the United States of America.



BAKER TILLY

Registered Auditor
Chartered Accountants
2 Bloomsbury Street
London WC1B 3ST

10 May 2004

<PAGE>

ERNST & YOUNG    ALLIED FOR ACCOUNTING & AUDITING      Phone: +20 2 336 2000
                 37 El Ahrar Street, Mobica Tower      Fax: +20 2 760 0818
                 P.O. Box 97 Dokki, Giza-Egypt         CAIRO.OFFICE@EG.EY.COM
                                                       www.ey.com/eyme


To the shareholders of
DELTA TEXTILE EGYPT (S.A.E.)


We have audited the balance sheets of DELTA TEXTILE EGYPT (S.A.E.) as of
December 31, 2003 and 2002 and the related statements of income, changes in
shareholder's equity and cash flows for each of the three years in the period
ended December 31, 2003. These financial statements are the responsibility of
the Company's Board of Directors and management. Our responsibility is to
express an opinion on these financial statements based on our audits.

We conducted our audits in accordance with generally accepted auditing standards
(GAAS) in U.S. 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 annual accounts
presentation. We believe that our audit provides a reasonable basis for our
opinion.

In our opinion, the aforementioned financial statements present fairly, in all
material respects, the financial position of the Company as of December 31, 2003
and 2002, and the results of its operations, changes in its shareholders' equity
and its cash flows for each of the three years in the period ended December 31,
2003, in conformity with generally accepted accounting principles ("GAAP") in
the United States.



EMAD H. RAGHEB
FFSAA - FEST
(RAA - 3678)

CAIRO MAY 10, 2004

<PAGE>

ERNST & YOUNG    ALLIED FOR ACCOUNTING & AUDITING      Phone: +20 2 336 2000
                 37 El Ahrar Street, Mobica Tower      Fax: +20 2 760 0818
                 P.O. Box 97 Dokki, Giza-Egypt         CAIRO.OFFICE@EG.EY.COM
                                                       www.ey.com/eyme


To the shareholders of
DELTA SOURCING EGYPT (L.L.C)


We have audited the balance sheets of DELTA SOURCING EGYPT (L.L.C) as of
December 31, 2003 and 2002 and the related statements of income, changes in
shareholder's equity and cash flows for each of the three years in the period
ended December 31, 2003. These financial statements are the responsibility of
the Company's Board of Directors and management. Our responsibility is to
express an opinion on these financial statements based on our audits.

We conducted our audits in accordance with generally accepted auditing standards
(GAAS) in U.S. 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 annual accounts
presentation. We believe that our audit provides a reasonable basis for our
opinion.

In our opinion, the aforementioned financial statements present fairly, in all
material respects, the financial position of the Company as of December 31, 2003
and 2002, and the results of its operations, changes in its shareholders' equity
and its cash flows for each of the three years in the period ended December 31,
2003, in conformity with generally accepted accounting principles ("GAAP") in
the United States.



EMAD H. RAGHEB
FFSAA - FEST
(RAA - 3678)

CAIRO MAY 10, 2004