RECENT ACCOUNTING PRONOUNCEMENTS

ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISKS

ITEM 4. DISCLOSURE CONTROLS AND PROCEDURES

Exhibit Number

Description of Exhibits

RECENT ACCOUNTING PRONOUNCEMENTS

ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISKS

ITEM 4. DISCLOSURE CONTROLS AND PROCEDURES

Executive Vice President and Chief Financial Officer

Executive Vice President and
Chief Financial Officer

UNITED STATES SECURITIES AND EXCHANGE COMMISSION

Washington, DC 20549

FORM 10-Q

ý		QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE QUARTERLY PERIOD ENDED ~~SEPTEMBER~~JULY 285, ~~2002 OR~~2003
OR
o		TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
Commission file number: 333-22155

Commission file number:

333-22155

THE WILLIAM CARTER COMPANY

(Exact name of registrant as specified in charter)

The Proscenium 1170 Peachtree Street NE, Suite 900 Atlanta, Georgia 30309 (Address of principal executive offices, including zip code)

(404) 745-2700 (Registrant’s telephone number, including area code)

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 ý No o

Indicate by check mark whether the registrant is an accelerated filer (as defined in Rule 12b-2 of the Exchange Act). Yes o No ý

Applicable only to corporate issuers:

As of ~~November~~ 12August 19, ~~2002~~2003, there were 1,000 shares of Common Stock outstanding.

FORM 10-Q

THE WILLIAM CARTER COMPANY

(A WHOLLY-OWNED SUBSIDIARY OF CARTER HOLDINGS, INC.)

INDEX

Part I.	Financial Information	~~Financial Information~~
Item 1.	~~Item~~Financial 1.Statements	~~Financial Statements~~
		Condensed Consolidated Balance Sheets as of September 28, 2002 (Successor) (unaudited) and December 29, 2001 (Successor)
	Condensed Consolidated Balance Sheets as of July 5, 2003 (unaudited) and December 28, 2002
		Unaudited Condensed Consolidated Statements of Operations for the three-month period ended September 28, 2002 (Successor) and for the periods August 15, 2001 through September 29, 2001 (Successor) and July 1, 2001 through August 14, 2001 (Predecessor)
	Unaudited Condensed Consolidated Statements of Operations for the three and six-month periods ended July 5, 2003 and June 29, 2002
		Unaudited Condensed Consolidated Statements of Operations for the nine-month period ended September 28, 2002 (Successor) and for the periods August 15, 2001 through September 29, 2001 (Successor) and December 31, 2000 through August 14, 2001 (Predecessor)
	Unaudited Condensed Consolidated Statements of Cash Flows for the six-month periods ended July 5, 2003 and June 29, 2002
		Unaudited Condensed Consolidated Statements of Cash Flows for the nine-month period ended September 28, 2002 (Successor) and for the periods August 15, 2001 through September 29, 2001 (Successor) and December 31, 2000 through August 14, 2001 (Predecessor)
	Notes to the Unaudited Condensed Consolidated Financial Statements
		Notes to the Unaudited Condensed Consolidated Financial Statements
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations
	Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations
Item 3.	Quantitative and Qualitative Disclosures about Market Risks
	Item 3.	Quantitative and Qualitative Disclosures about Market Risks
Item 4.	Disclosure Controls and Procedures
	Item 4.	Disclosure Controls and Procedures
Part II.	Other Information
Part II.		Other Information

THE WILLIAM CARTER COMPANY

(A WHOLLY-OWNED SUBSIDIARY OF CARTER HOLDINGS, INC.)

CONDENSED CONSOLIDATED BALANCE SHEETS

(dollars in thousands, except per share data)

	Successor, at
	July 5, 2003		December 28, 2002
	September 28, 2002		December 29, 2001
	(unaudited)
ASSETS	~~(unaudited)~~
Current assets:
Cash and cash equivalents	$	274,~~215~~959	$	2435,~~692~~562
Accounts receivable, net	4859,~~430~~904		3553,~~386~~600
Inventories, net	96132,~~598~~910		89105,~~069~~700
Prepaid expenses and other current assets	65,~~919~~065		54,~~585~~903
Assets held for sale	250		875
Deferred income taxes	11,096		10,021
Deferred income taxes	9,338		9,371
Total current assets	213,934		209,786
Total current assets	188,750		164,978
Property, plant, and equipment, net	49,952		50,476
Property, plant and equipment, net	45,930		46,503
Assets held for sale	600		600
Tradename	220,233		220,233
Cost in excess of fair value of net assets acquired	139,~~276~~282		139,~~472~~282
Licensing agreements, net of accumulated amortization of $5,625 and $1,875	9,375		13,125
Licensing agreements, net of accumulated amortization of $9,375 and $6,875	5,625		8,125
Deferred debt issuance costs, net	1110,~~656~~433		1211,~~879~~248
Other assets	53,~~860~~659		64,~~372~~199
Total assets	$	~~621~~643,~~680~~118	$	~~604~~643,~~162~~349
LIABILITIES AND STOCKHOLDER’S EQUITY
Current liabilities:
Current maturities of long-term debt	$	1,~~250~~201	$	16,~~250~~346
Accounts payable	2234,~~461~~253		1834,~~765~~669
Other current liabilities	3436,~~940~~161		3438,~~438~~309
Total current liabilities	5871,~~651~~615		5479,~~453~~324
Long-term debt	~~296~~290,~~653~~742		~~297~~291,~~492~~276
Deferred income taxes	8382,~~187~~926		8483,~~375~~873
Other long-term liabilities	10,~~359~~001		10,~~127~~140
Total liabilities	~~448~~455,~~850~~284		~~446~~464,~~447~~613
Commitments and contingencies
Common stockholder’s equity:
Common stock, par value $.01 per share, 200,000 shares authorized, 1,000 shares issued and outstanding at September 28, 2002 and December 29, 2001	—		—
Common stock, voting; par value $.01 per share; 200,000 shares authorized, 1,000 shares issued and outstanding at July 5, 2003 and December 28, 2002	—		—
Additional paid-in capital	146,~~639~~745		~~144~~146,~~877~~645
Retained earnings	2641,~~191~~089		1232,~~838~~091
Total common stockholder’s equity	~~172~~187,~~830~~834		~~157~~178,~~715~~736
Total liabilities and stockholder’s equity	$	~~621~~643,~~680~~118	$	~~604~~643,~~162~~349

See accompanying notes to the unaudited condensed consolidated financial statements

THE WILLIAM CARTER COMPANY

(A WHOLLY-OWNED SUBSIDIARY OF CARTER HOLDINGS, INC.)

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(dollars in thousands)

(unaudited)

	Successor						Predecessor
	For the three-month periods ended						For the six-month periods ended
	For the three-month period ended September 28, 2002			For the period from August 15, 2001 through September 29, 2001			For the period from July 1, 2001 through August 14, 2001
	July 5, 2003			June 29, 2002			July 5, 2003			June 29, 2002
Net sales	$	~~165~~140,~~779~~008		$	88119,~~343~~095		$	65306,~~488~~001		$	243,690
Cost of goods sold	~~100~~90,~~642~~153			5573,~~668~~363			41195,~~868~~542			150,069
Gross profit	6549,~~137~~855			3245,~~675~~732			23110,~~620~~459			93,621
Selling, general and administrative expenses	43,118			19,284			20,377
Selling, general, and administrative expenses	41,843			39,642			86,764			78,913
Acquisition-related non-recurring charges (Note 1)	—			—			11,289
Royalty income	(1,903		)	(1,814		)	(4,457		)	(3,775		)
Royalty income	(2,461		)	(981		)	(1,516		)
Operating income	9,915			7,904			28,152			18,483
Operating income (loss)	24,480			14,372			(6,530		)
Interest expense, net	6,519			7,081			13,521			13,970
Interest expense, net	7,268			3,731			2,221
Income before income taxes	3,396			823			14,631			4,513
Income (loss) before income taxes and extraordinary item	17,212			10,641			(8,751		)
Provision for income taxes	1,308			317			5,633			1,738
Provision for (benefit from) income taxes	6,634			4,276			(1,041		)
Net income	$	2,088		$	506		$	8,998		$	2,775
Income (loss) before extraordinary item	10,578			6,365			(7,710		)
Extraordinary item, net of tax benefit of $4,115	—			—			6,173
Net income (loss)	$	10,578		$	6,365		(13,883		)
Dividend requirements and accretion on redeemable preferred stock							(345		)
Net loss applicable to common stockholder							$	(14,228	)

See accompanying notes to the unaudited condensed consolidated financial statements

THE WILLIAM CARTER COMPANY

(A WHOLLY-OWNED SUBSIDIARY OF CARTER HOLDINGS, INC.)

CONDENSED CONSOLIDATED STATEMENTS OF ~~OPERATIONS~~ CASH FLOWS

(dollars in thousands)

(unaudited)

	Successor						Predecessor
	For the six-month periods ended
	For the nine-month period ended September 28, 2002			For the period from August 15, 2001 through September 29, 2001			For the period from December 31, 2000 through August 14, 2001
	July 5, 2003			June 29, 2002
Net sales	$	409,469		$	88,343		$	282,727
Cash flows from operating activities:
Cost of goods sold	250,711			55,668			182,863
Net income	$	8,998		$	2,775
Gross profit	158,758			32,675			99,864
Adjustments to reconcile net income to net cash used in operating activities:
Selling, general and administrative expenses	122,031			19,284			88,895
Depreciation and amortization	9,991			8,565
Acquisition-related non-recurring charges (Note 1)	—			—			11,289
Amortization of debt issuance costs	815			815
Writedown of long-lived assets (Note 7)	—			—			3,156
Accretion of debt discount	66			65
Non-recurring charges-plant closure costs (Note 7)	—			—			1,116
Non-cash compensation expense	—			308
Royalty income	(6,236		)	(981		)	(4,993		)
Gain on sale of property, plant, and equipment	(21		)	(200		)
Operating income	42,963			14,372			401
Deferred tax benefit	(2,022		)	(661		)
Interest expense, net	21,238			3,731			10,060
Effect of changes in operating assets and liabilities:
Income (loss) before income taxes and extraordinary item	21,725			10,641			(9,659		)
(Increase) decrease in assets:
Provision for (benefit from) income taxes	8,372			4,276			(1,404		)
Accounts receivable	(6,304		)	(4,612		)
Income (loss) before extraordinary item	13,353			6,365			(8,255		)
Inventories	(27,210		)	(9,032		)
Extraordinary item, net of tax benefit of $4,115	—			—			6,173
Prepaid expenses and other assets	(672		)	1,118
Net income (loss)	$	13,353		$	6,365		(14,428		)
(Decrease) increase in liabilities:
Dividend requirements and accretion on redeemable preferred stock							(1,671		)
Accounts payable and other liabilities	(5,579		)	227
Net loss applicable to common stockholder							$	(16,099	)
Net cash used in operating activities	(21,938		)	(632		)
Cash flows from investing activities:
Capital expenditures	(6,810		)	(5,552		)
Proceeds from sale of property, plant, and equipment	275			498
Collections on loan	600			—
Net cash used in investing activities	(5,935		)	(5,054		)
Cash flows from financing activities:
Payments of term loan	(5,745		)	(937		)
Payments of capital lease obligations	(129		)	(415		)
Proceeds from contributions from Holdings	100			500
Other	3,044			—
Net cash used in financing activities	(2,730		)	(852		)
Net decrease in cash and cash equivalents	(30,603		)	(6,538		)
Cash and cash equivalents, beginning of period	35,562			24,692
Cash and cash equivalents, end of period	$	4,959		$	18,154

See accompanying notes to the unaudited condensed consolidated financial statements

THE WILLIAM CARTER COMPANY

(A WHOLLY-OWNED SUBSIDIARY OF CARTER HOLDINGS, INC.)

~~CONDENSED~~NOTES TO CONDENSED CONSOLIDATED ~~STATEMENTS~~FINANCIAL ~~OF CASH FLOWS~~STATEMENTS

(~~dollars in thousands~~unaudited)

~~(unaudited)~~NOTE 1 — BASIS OF PREPARATION:

	Successor						Predecessor
	For the nine-month period ended September 28, 2002			For the period from August 15, 2001 through September 29, 2001			For the period from December 31, 2000 through August 14, 2001
Cash flows from operating activities:
Net income (loss)	$	13,353		$	6,365		$	(14,428	)
Extraordinary loss, net of taxes	—			—			6,173
Adjustments to reconcile net income (loss) to net cash provided by (used in) operating activities:
Depreciation and amortization	13,202			2,237			12,245
Amortization of debt issuance costs	1,223			185			848
Accretion of debt discount	98			—			—
Non-cash compensation expense	762			—			60
(Payment of) provision for Acquisition-related non-recurring charges	—			(11,289		)	11,289
Writedown of long-lived assets	—			—			3,156
Non-recurring charges-plant closure costs	—			—			1,116
Gain on sale of property, plant and equipment	(209		)	—			—
Deferred tax (benefit) provision	(1,261		)	2,795			(1,659		)
Effect of changes in operating assets and liabilities:
(Increase) decrease in assets:
Accounts receivable	(12,794		)	(10,100		)	(5,782		)
Inventories	(7,529		)	5,307			(13,253		)
Prepaid expenses and other assets	(822		)	(2,825		)	1,807
Increase (decrease) in liabilities:
Accounts payable and other liabilities	5,239			1,577			(197		)
Net cash provided by (used in) operating activities	11,262			(5,748		)	1,375
Cash flows from investing activities:
Capital expenditures	(8,989		)	(2,715		)	(9,480		)
Proceeds from sale of property, plant and equipment	313			—			10
Proceeds from assets held for sale	441			—			204
Payment of buyer’s Acquisition costs	—			(3,723		)	—
Net cash used in investing activities	(8,235		)	(6,438		)	(9,266		)
Cash flows from financing activities:
Proceeds from Predecessor revolving line of credit	—			—			53,500
Payments of Predecessor revolving line of credit	—			(12,900		)	(40,600		)
Proceeds from Successor revolving line of credit	—			30,450			—
Payments of Successor revolving line of credit	—			(25,850		)	—
Proceeds from Successor term loan	—			125,000			—
Payments of Successor term loan	(937		)	—			—
Payments of Predecessor term loan	—			(38,700		)	(2,700		)
Proceeds from issuance of Successor 10.875% Senior Subordinated Notes	—			173,693			—
Payment of Predecessor 10 3/8% Senior Subordinated Notes	—			(100,000		)	—
Payments of capital lease obligations	(567		)	(163		)	(642		)
Acquisition-related dividend to Holdings	—			(128,559		)	—
Proceeds from contributions from Holdings	1,000			—			—
Payment of other dividend to Holdings	—			—			(60		)
Preferred stock dividend	—			—			(1,207		)
Payments of Successor debt issuance costs	—			(13,428		)	—
Other	—			7,181			(3,573		)
Net cash (used in) provided by financing activities	(504		)	16,724			4,718
Net increase (decrease) in cash and cash equivalents	2,523			4,538			(3,173		)
Cash and cash equivalents, beginning of period	24,692			524			3,697
Cash and cash equivalents, end of period	$	27,215		$	5,062		$	524

In our opinion, the accompanying unaudited condensed consolidated financial statements of The William Carter Company (“Carter’s,” “we,” “us,” and “our”) contain all adjustments necessary to present fairly our financial position as of July 5, 2003, the results of our operations for the three-month and six-month periods ended July 5, 2003 and June 29, 2002, and cash flows for the six-month periods ended July 5, 2003 and June 29, 2002. Operating results for the six-month period ended July 5, 2003 are not necessarily indicative of the results that may be expected for the fiscal year ending January 3, 2004. Our accompanying condensed consolidated balance sheet as of December 28, 2002 is from our audited consolidated financial statements included in our most recently filed annual report on Form 10-K.

~~See~~Certain ~~accompanying~~information ~~notes~~and tofootnote disclosures normally included in financial statements prepared in accordance with generally accepted accounting principles in the ~~unaudited~~United States of America have been condensed ~~consolidated~~or ~~financial~~omitted pursuant ~~statements~~to the rules and regulations of the Securities and Exchange Commission and the instructions to Form 10-Q. The accounting policies we follow, except as described in Note 7, are set forth in our most recently filed annual report on Form 10-K in the Notes to our Consolidated Financial Statements for the fiscal year ended December 28, 2002.

6Our fiscal year ends on the Saturday in December or January nearest the last day of December. Consistent with this policy, fiscal 2002 ended on December 28, 2002, and fiscal 2003 will end on January 3, 2004. As a result, fiscal 2003 will contain 53 weeks of financial results. The additional week in fiscal 2003 was included in the first half of 2003. Therefore, the accompanying consolidated financial statements for the first half of 2003 reflect our financial position as of July 5, 2003 and for the 27-week period then ended. The first half of 2002 ended on June 29, 2002 and included 26 weeks of financial results. The accompanying consolidated financial statements for the second quarter periods ended July 5, 2003 and June 29, 2002 each contain 13 weeks of financial results.

~~THE~~Certain ~~WILLIAM~~prior ~~CARTER~~year ~~COMPANY~~amounts have been reclassified for comparative purposes.

(ASTOCK ~~WHOLLY-OWNED~~BASED ~~SUBSIDIARY OF CARTER HOLDINGS, INC.)~~COMPENSATION:

~~NOTES~~We TOaccount ~~CONDENSED~~for ~~CONSOLIDATED~~stock-based ~~FINANCIAL~~compensation ~~STATEMENTS~~on stock options under the intrinsic value method consistent with Accounting Principles Board Opinion No. 25 (“APB 25”). Under this method, we record compensation expense equal to the difference between the exercise price of the stock option and the fair market value of the underlying stock as of the date of the option grant. For disclosure purposes only, we also estimate the impact on our net income of applying the fair value method of measuring compensation cost on stock options with the fair value determined under the minimum value method as provided by Statement of Financial Accounting Standards (“SFAS”) No. 123, “Accounting for Stock-Based Compensation” (“SFAS 123”) as amended by SFAS No. 148, “Accounting for Stock-Based Compensation-Transition and Disclosure” (“SFAS 148”).

~~(unaudited)~~6

~~NOTE~~The 1following —table ~~CHANGE~~illustrates INthe ~~OWNERSHIP~~effect on net income if compensation expense for our option grants had been determined based on the fair value as of the grant dates consistent with the methodology of SFAS 123 and SFAS 148 ($000):

The William Carter Company (“Carter’s,” “we,” “us,” and “our”) is a wholly-owned subsidiary of Carter Holdings, Inc. (“Holdings”). Holdings has no significant assets or investments other than the shares of stock of The William Carter Company. On July 12, 2001, a special purpose entity formed by Berkshire Partners LLC (“Berkshire”) and affiliates entered into a stock purchase agreement with Holdings and all of Holdings’ stockholders to acquire substantially all of the stock of Holdings except for some equity interests held by our management (the “Acquisition”). The Acquisition was consummated on August 15, 2001. Financing for the Acquisition and related transactions totaled $468.2 million and was provided by: $24.0 million in new revolving credit facility borrowings; $125.0 million in new term loan borrowings (both the revolver and term loan are part of a $185.0 million new senior credit facility entered into by us); $173.7 million of borrowings under a new senior subordinated loan facility (issued by us in connection with an August 15, 2001 private placement); and $145.5 million of capital invested by affiliates of Berkshire and other investors, which includes rollover equity by our management of $18.3 million.

	For the three-month periods ended						For the six-month periods ended
	July 5, 2003			June 29, 2002			July 5, 2003			June 29, 2002

Net income, as reported	$	2,088		$	506		$	8,998		$	2,775

Add:
Stock-based employee compensation (under APB 25) included in reported net income, net of related tax effects	4			2			8			2
Deduct:
Total stock-based employee compensation expense determined under the fair value based method (under SFAS 123 and SFAS 148) for all awards, net of related tax effects	(135		)	(123		)	(267		)	(245		)

Pro forma net income	$	1,957		$	385		$	8,739		$	2,532

~~The~~For basic ~~proceeds~~options, ofusing ~~the~~a ~~Acquisition~~minimum ~~and~~value ~~financing~~method, ~~were~~the ~~used~~fair tovalue ~~purchase~~of ~~existing~~each ~~equity~~ option as of ~~Holdings~~the date ~~($252.5~~of ~~million),~~grant ~~pay~~has ~~for~~been ~~selling~~estimated ~~stockholders~~to ~~transaction~~be ~~expenses (~~approximately $~~19.1~~10 ~~million,~~per ~~including~~share ~~$0.8~~for ~~million~~options granted in ~~debt~~2003, ~~prepayment~~$10 ~~penalties~~to ~~recorded~~$17 ~~on Holdings),~~per ~~pay~~share for ~~buyers’~~options ~~transaction~~granted ~~expenses~~in ~~($4.0 million)~~2002, ~~pay~~and ~~debt issuance costs (~~$~~13.4~~10 ~~million)~~per share ~~and~~for tooptions ~~retire~~granted ~~all~~in ~~outstanding~~2001. These ~~balances~~per onshare ~~our and~~option ~~Holdings’~~values ~~previously~~were ~~outstanding~~calculated ~~long-term~~at ~~debt~~an ~~including~~assumed ~~accrued~~risk ~~interest~~free ~~thereon~~interest ~~($174.8~~rate ~~million)~~of 2. In9% ~~addition~~for 2003, $ 4.4% ~~million~~to of3.0% ~~proceeds were held as cash~~ for ~~temporary~~2002, ~~working~~and ~~capital purposes~~5. ~~Portions~~5% offor ~~these~~2001, ~~payments~~with ~~were accomplished by~~ an ~~intercompany~~expected ~~dividend~~life of ~~$128.6~~10 ~~million from us to Holdings~~years. ~~Also in connection with the~~No ~~Acquisition,~~dividends ~~our~~were ~~redeemable preferred stock held by Holdings was cancelled~~assumed.

For ~~purposes~~performance ofoptions, ~~identification~~using ~~and~~a ~~description~~minimum value method, wethe ~~are~~fair ~~referred~~value toof each option as of the ~~“Predecessor”~~ ~~for~~date ~~the~~of ~~period~~grant ~~prior~~has been estimated to ~~the~~be ~~Acquisition,~~approximately ~~the~~$10 ~~“Successor”~~per share for ~~periods~~ ~~subsequent~~options granted in 2003, $10 to ~~the~~$17 ~~Acquisition~~per ~~and~~share ~~“Carter’s,”~~for ~~“we,”~~options ~~“us~~granted in 2002,” and ~~“our”~~$9 per share for options granted in 2001. These per share option values were calculated at the same assumed ~~both~~risk ~~periods~~free interest rates shown above with an expected life of 10 years. No dividends were assumed.

~~The Acquisition~~NOTE ~~was~~2 ~~accounted~~— ~~for~~THE as a purchase and has been reflected in our financial statements using pushdown accounting. Accordingly, the purchase price for the Acquisition, including related fees and expenses, has been allocated to our tangible and identifiable intangible assets and liabilities based upon their estimated fair values with the remainder allocated to goodwill.COMPANY:

7Carter’s is a wholly-owned subsidiary of Carter Holdings, Inc. (“Holdings”). Holdings has no significant assets or investments other than the shares of Carter’s common stock.

AWe ~~summary~~design, source, manufacture, and market premier branded childrenswear under the Carter’s, Carter’s Classics, Child of Mine, and Tykes brand names. Our products are sourced through production at company-based sewing facilities located in Costa Rica and Mexico and through contractual arrangements with third-party manufacturers throughout the world. Products ~~total~~are ~~purchase~~manufactured ~~price~~for wholesale isdistribution asto ~~follows~~major ~~($000):~~domestic retailers and for our 159 retail stores that market our brand name merchandise and certain products manufactured by other companies. Our retail operations represented approximately 40% and 46% of our consolidated net sales in the second quarter of 2003 and 2002, and approximately 37% and 45% in the first half of 2003 and 2002.

Total purchase price	$	468,193
Less-amounts retained at Holdings	(623		)
	$	467,570
Allocated to:
Cash and cash equivalents	$	7,333
Accounts receivable, net	39,570
Inventories, net	110,219
Prepaid expenses and other current assets	3,525
Property, plant and equipment	42,569
Assets held for sale	991
Licensing agreements	15,000
Tradename	220,233
Cost in excess of fair value of net assets acquired	139,276
Deferred debt issuance costs	13,427
Other assets	5,432
Accounts payable	(18,340		)
Other current liabilities	(25,936		)
Closure and exit liabilities	(2,680		)
Other long-term liabilities	(10,850		)
Net deferred tax liabilities	(72,199		)
	$	467,570

AsNOTE ~~a result~~3 of— ~~the above, our initial capitalization as of the Acquisition date consisted of ($000)~~INVENTORIES:

Borrowings on new revolving credit facility	$	24,000
Borrowings on new term loan	125,000
Borrowings under new senior subordinated note	173,693
Additional paid-in capital	144,877
Total capitalization	$	467,570

Inventories consisted of the following ($000):

Subsequent to the Acquisition, our results of operations will be significantly impacted by changes in interest expense and amortization of intangibles.

	July 5, 2003		December 28, 2002
Finished goods	$	124,861	$	99,609
Work in process	6,502		3,509
Raw materials and supplies	1,547		2,582

Total	$	132,910	$	105,700

~~The Acquisition-related~~NOTE ~~non-recurring charges in the Predecessor period July 1, 2001 through August 14, 2001 reflect special compensation of $~~4.5 ~~million~~— ~~paid to~~PARENT ~~management~~COMPANY ~~at the closing of the Acquisition and $6.8 million for sellers’ transaction costs and fees.~~TRANSACTIONS:

~~The~~During the ~~extraordinary~~first ~~charge~~quarter inof ~~the~~2003, ~~Predecessor~~Holdings ~~period~~issued ~~July~~options 1,to ~~2001~~purchase ~~through~~its ~~August~~common ~~14,~~stock to a director and certain employees. ~~2001~~Additionally, ~~reflects~~during the ~~write-off~~second quarter ended July 5, 2003, Holdings sold shares of ~~deferred~~its ~~debt~~common ~~issuance~~stock ~~costs~~to one of ~~approximately~~our directors for cash proceeds of $1100,~~991,~~000. In connection with this transaction, ~~net~~we ofrecorded acontributions ~~tax~~from ~~benefit~~Holdings ofto ~~approximately~~our additional paid-in capital in the amount of $1100,~~327,~~000. No compensation expense was recorded on these option grants or stock purchase, as the stock was purchased at its fair market value and aoptions ~~debt~~were issued with ~~prepayment~~an ~~penalty~~exercise ofprice ~~approximately~~equal ~~$4,182,000,~~to ~~net~~the fair market value of a ~~tax~~share ~~benefit~~of stock as of the ~~approximately~~date ~~$2,788,000~~of grant.

8During the second quarter ended June 29, 2002, Holdings sold shares of its common stock to one of our directors for cash proceeds of $500,000 and issued shares of its common stock to a consultant. In connection with these transactions, as well as Holdings’ stock option grants to certain employees, we recorded compensation expense during the second quarter ended June 29, 2002 in the amount of approximately $641,000, received cash of $500,000, and recorded contributions from Holdings to our additional paid-in capital in the amount of approximately $1.1 million.

~~The following~~NOTE ~~unaudited~~5 ~~pro~~— ~~forma~~GOODWILL ~~operating~~AND ~~data~~OTHER ~~presents the results of operations~~INTANGIBLE for the three-month and nine-month periods ended September 29, 2001 as if the Acquisition had occurred on December 31, 2000, with financing obtained as described above and assumes that there were no other changes in our operations. The pro forma results are not necessarily indicative of the financial results that might have occurred had the transaction actually taken place on December 31, 2000 or of future results of operations ($000)ASSETS:

	Pro forma for the three-month period ended September 29, 2001		Pro forma for the nine-month period ended September 29, 2001
Net sales	$	153,831	$	371,070
Operating income	$	20,668	$	26,988
Interest expense, net	$	7,911	$	23,073
Net income	$	7,972	$	2,490

On August 15, 2001, we adopted the provisions of SFAS No. 141, “Business Combinations” (“SFAS 141”) and applied the required provisions of SFAS No. 142, “Goodwill and Other Intangible Assets” (“SFAS 142”). Accordingly, our tradename and goodwill have been deemed to have indefinite lives and are no longer being amortized. Our licensing agreements are being amortized over the average three-year life of such agreements. Amortization expense for the second quarter and first half of 2003 and 2002 was $1.3 million and $2.5 million, respectively, and is expected to be a total of $5.0 million for fiscal 2003 and $3.1 million for 2004.

~~Excluded from~~NOTE the pro forma results for the three and nine-month periods ended September 29, 2001, shown above, are the Predecessor's Acquisition-related non-recurring charges of $4.5 million in special compensation paid to management at the closing of the Acquisition, $6.8 ~~million~~— ~~for~~SEGMENT sellers’ transaction costs and an extraordinary charge of $6.2 million (net of tax) related to the Predecessor's write-off of deferred debt issuance costs and debt prepayment penalties in connection with the Acquisition. Included in the pro forma results for the nine-month period ended September 29, 2001, shown above, are approximately $3.1 million related to the writedown of long-lived assets and $1.1 million related to other non-recurring plant closure costs which were unrelated to the Acquisition.INFORMATION:

~~NOTE~~Our 2two business —segments are “Wholesale” and “Retail.” We generally sell the same products in each business segment. Wholesale products are offered ~~BASIS~~through OFour ~~PREPARATION:~~Wholesale distribution channel while the Retail segment reflects the operations of our retail stores. Each segment’s results include the costs directly related to the segment’s revenue and all other costs are allocated based on the relationship of such costs to consolidated net sales or units produced to support each segment’s revenue.

In our opinion, our accompanying unaudited condensed consolidated financial statements contain all adjustments necessary to present fairly our financial position as of September 28, 2002 (Successor); the results of our operations for the three-month and nine-month periods ended September 28, 2002 (Successor), the Successor period August 15, 2001 through September 29, 2001, and the Predecessor periods July 1, 2001 through August 14, 2001 and December 31, 2000 through August 14, 2001; and our cash flows for the nine-month period ended September 28, 2002 (Successor), the Successor period August 15, 2001 through September 29, 2001, and the Predecessor period December 31, 2000 through August 14, 2001. Operating results for the three-month and nine-month periods ended September 28, 2002 are not necessarily indicative of the results that may be expected for the fiscal year ending December 28, 2002 (Successor). Our accompanying condensed consolidated balance sheet as of December 29, 2001 (Successor) is from our audited consolidated financial statements included in our most recently filed annual report on Form 10-K.8

Certain information and footnote disclosures normally included in financial statements prepared in accordance with generally accepted accounting principles have been condensed or omitted pursuant to the rules and regulations of the Securities and Exchange Commission and the instructions to Form 10-Q. The ~~accounting~~table ~~policies~~below wepresents ~~follow,~~certain ~~except~~segment ~~as described~~information ~~in Note 9, are set forth in our most recently filed annual report on Form 10-K in the Notes to our Consolidated Financial Statements~~ for the ~~fiscal~~periods ~~year~~indicated ~~ended December 29, 2001.~~($000):

Certain amounts from prior periods have been reclassified to conform to the current period’s presentation. These reclassifications have no effect on net income (loss) as previously reported.

	For the three-month periods ended				For the six-month periods ended
	July 5, 2003		June 29, 2002		July 5, 2003		June 29, 2002

Net sales:
Wholesale	$	83,429	$	64,168	$	192,480	$	135,228
Retail	56,579		54,927		113,521		108,462
Total net sales	$	140,008	$	119,095	$	306,001	$	243,690

EBITDA:
Wholesale	$	6,450	$	4,920	$	22,635	$	13,486
Retail	8,507		7,382		15,508		13,562
Total EBITDA	$	14,957	$	12,302	$	38,143	$	27,048

~~NOTE~~EBITDA 3shown above, —represents earnings before interest, income tax expense, depreciation, and amortization. EBITDA is presented ~~THE~~because ~~COMPANY:~~it is one measurement used by management in assessing financial performance, and we believe it is helpful to investors, securities analysts, and other interested parties in evaluating performance of companies in our industry. EBITDA is also a measure used as a basis for calculating our financial covenants under our senior credit facility. Additionally, we believe EBITDA is an accepted indicator of our ability to incur and service debt obligations and make capital expenditures. EBITDA is not a measurement of financial performance under generally accepted accounting principles in the United States of America. It should not be considered as an alternative to cash flow from operating activities, as a measure of liquidity, an alternative to net income or any other measures of performance derived in accordance with generally accepted accounting principles. Our definition and calculation of EBITDA may not be comparable to similarly titled measures used by other companies.

WeA ~~design,~~reconciliation ~~manufacture,~~of ~~source~~total ~~and~~EBITDA market premier branded childrenswear under the Carter’s and Tykes labels. Our products are sourced internationally through internally managed production at plants located in Costa Rica and Mexico and through contractual arrangements with manufacturers throughout the world. Our products are sourced for wholesale distribution to major U.S.-based retailers and for our 156 retail stores that market our brand name merchandise and certain products manufactured by other companies. Our retail operations represented approximately 44% of our consolidated net ~~sales in~~income ~~the~~is ~~third~~presented ~~quarter~~below ~~of 2002 and 2001, and approximately 44% and 45% in the first nine months of 2002 and 2001.~~($000):

	For the three-month periods ended						For the six-month periods ended
	July 5, 2003			June 29, 2002			July 5, 2003			June 29, 2002


Total EBITDA	$	14,957		$	12,302		$	38,143		$	27,048
Depreciation and amortization expense	(5,042		)	(4,398		)	(9,991		)	(8,565		)
Interest expense, net	(6,519		)	(7,081		)	(13,521		)	(13,970		)
Provision for income taxes	(1,308		)	(317		)	(5,633		)	(1,738		)
Net income	$	2,088		$	506		$	8,998		$	2,775

NOTE 47 — ~~INVENTORIES~~ RECENT ACCOUNTING PRONOUNCEMENTS:

~~Inventories~~In August 2001, the Financial Accounting Standards Board (“FASB”) issued SFAS No. 143, ~~consisted~~“Accounting for Asset Retirement Obligations” (“SFAS 143”). SFAS 143 requires recording the fair market value of an asset retirement obligation as a liability in the ~~following~~period in which a legal obligation associated with the retirement of tangible long-lived assets is incurred (~~$000~~including certain lease obligations):. SFAS 143 also requires recording an asset offsetting the initial obligation as an increase to the carrying amount of the related long-lived asset and depreciation of that cost over the life of the asset. We adopted the provisions of SFAS 143 in the first quarter of 2003, and the impact of such adoption was not material to our financial position or results of operations for the second quarter or first half of 2003.

	Successor, at
	September 28, 2002		December 29, 2001
Finished goods	$	87,067	$	80,887
Work in process	6,680		4,660
Raw materials and supplies	2,851		3,522
Total	$	96,598	$	89,069

~~NOTE~~In 5April —2002, the FASB issued SFAS No. 145, “Rescission of FASB Statements No. 4, 44, and 64, ~~PARENT~~Amendment ~~COMPANY~~of ~~TRANSACTIONS:~~FASB Statement No. 13, and Technical Corrections” (“SFAS 145”). SFAS 145 rescinds FASB Statement No. 4, which required all gains and losses from extinguishments of debt to be aggregated and, if material, classified as an extraordinary item, net of the related income tax effect. As a result, the criteria in Accounting Principles Board Opinion 30 will now be used to classify those gains and losses. The provisions of SFAS 145, as related to the rescission of FASB Statement No. 4, are effective for fiscal 2003. In the first quarter of 2003, we adopted the provisions of SFAS 145 and the extraordinary item recorded in the Predecessor period from December 31, 2000 through August 14, 2001 will be reclassified in our Annual Report on Form 10-K for the year ended January 3, 2004.

~~During~~In July 2002, the ~~nine-month~~FASB ~~period~~issued ~~ended September~~SFAS 28No. 146, ~~2002~~“Accounting for Costs Associated with Exit or Disposal Activities” (~~Successor~~“SFAS 146”),. SFAS 146 ~~Holdings~~sets ~~sold~~forth ~~shares~~various ofmodifications ~~its~~to ~~common~~existing ~~stock~~accounting toguidance, ~~two~~which ofprescribes ~~our~~the ~~directors~~conditions ~~(one~~that ~~during~~must ~~second~~be ~~quarter~~met ~~and~~in ~~one~~order ~~during~~for ~~third~~costs ~~quarter)~~associated ~~and~~with ~~issued~~contract ~~shares~~terminations, offacility ~~its~~consolidations, ~~common~~and ~~stock~~employee relocations and terminations to anbe ~~outside~~accrued ~~consultant~~and recorded as ~~partial consideration~~liabilities ~~for~~in ~~services rendered~~financial statements. ~~In connection~~Accordingly, ~~with~~SFAS ~~these~~146 ~~transactions,~~may affect asthe ~~well~~timing asof ~~Holdings’~~recognizing ~~stock~~any ~~option~~of ~~grants~~our ~~to certain~~future ~~employees,~~restructuring wecosts ~~recorded~~as ~~compensation~~well as ~~expense~~the ~~during~~amount ~~the~~recognized. SFAS ~~three~~146 ~~and~~also ~~nine-month~~establishes ~~periods~~that ~~ended~~the ~~September~~liability ~~28,~~should ~~2002~~initially inbe ~~the~~measured ~~amounts~~and ofrecorded ~~approximately~~at ~~$121,000~~fair ~~and $762,000~~value. ~~Additionally,~~The weprovisions of SFAS 146 ~~received~~are ~~cash~~required ~~proceeds~~to ofbe ~~$1.0~~applied ~~million~~prospectively ~~during~~to ~~the~~exit ~~nine-month~~or ~~period~~disposal ~~ended~~activities ~~September~~initiated 28by us after December 31, 2002. See ~~and~~Note ~~recorded~~8 ~~contributions~~to ~~from~~the ~~Holdings~~unaudited toconsolidated ~~our~~financial ~~additional~~statements regarding ~~paid-in~~our ~~capital~~decision into ~~the~~close ~~amount~~two of ~~approximately~~our ~~$1.8~~production ~~million~~facilities.

OnIn ~~August~~November 152002, ~~2001~~the FASB issued FASB Interpretation No. 45, we“Guarantor’s ~~paid~~Accounting aand Disclosure ~~dividend~~Requirements for Guarantees, Including Indirect Guarantees of Indebtedness ~~approximately~~of ~~$128~~Others” (“FIN 45”).6 FIN 45 ~~million~~requires tothat ~~Holdings~~a liability be recorded in the guarantor’s balance sheet upon issuance of a guarantee. ~~Holdings~~In ~~used~~addition, FIN ~~these~~45 ~~funds~~requires todisclosures ~~repay~~about ~~debt~~the guarantees, including indemnifications, that an entity has issued and a rollforward of the entity’s product warranty liabilities. The disclosure provisions ~~partially~~of ~~fund~~FIN ~~other~~45 ~~payments~~were ineffective ~~connection~~for ~~with~~financial ~~the~~statements ~~Acquisition~~of interim periods or annual periods ending after December 15, ~~including~~2002. In addition, we adopted the recognition provisions of FIN 45 effective ~~payment~~January to1, ~~selling~~2003 ~~stockholders~~for ~~and~~guarantees ~~option~~issued ~~holders~~or modified after December 31, 2002. The adoption of FIN 45 did not have a material impact on our financial position, results of operations, or cash flows.

~~During~~In December 2002, the ~~Predecessor~~FASB ~~period~~issued ~~from~~SFAS ~~December~~No. 31148, ~~2000~~“Accounting ~~through~~for ~~August~~Stock-Based Compensation-Transition ~~14,~~and ~~2001, we paid~~Disclosure.” aSFAS ~~dividend~~148 onprovides ~~our~~alternate ~~common~~methods ~~stock~~of ~~held~~transition byfor ~~Holdings~~a involuntary change to the ~~amount~~fair value based method of ~~approximately~~accounting for stock-based employee ~~$60,000,~~compensation. SFAS ~~the~~148 ~~proceeds~~also requires that disclosures of ~~which~~the ~~were~~pro ~~used~~forma byeffect ~~Holdings~~of tousing ~~repurchase~~the ~~shares~~fair value method of ~~Holdings’~~accounting for stock-based ~~owned~~employee bycompensation abe ~~former~~displayed ~~employee~~more ofprominently and ~~Carter’s~~in tabular format. ~~In addition~~Additionally, SFAS ~~during~~148 ~~the~~requires ~~Predecessor~~disclosure ~~period from~~of ~~December~~the ~~31,~~pro ~~2000~~forma ~~through~~effect ~~August~~of ~~14,~~using ~~2001,~~the ~~Holdings~~fair ~~made~~value method aof ~~$60,000~~accounting ~~capital contribution~~for tostock-based usemployee compensation in ~~connection~~interim ~~with~~financial statements. The ~~the~~transition ~~issuance~~and ofannual disclosure ~~shares~~requirements ofwere ~~Holdings’~~effective ~~stock to~~for anus ~~employee~~as of ~~Carter’s~~December 28, 2002. ~~This~~The interim disclosure requirements were ~~transaction~~effective ~~involved~~for nothe ~~cash~~first ~~proceeds~~quarter of fiscal 2003 and wehave ~~recognized~~been ~~$60,000~~reflected asin ~~compensation~~Note ~~expense~~1 to the unaudited condensed consolidated financial statements.

~~During~~In April 2003, the ~~Predecessor~~FASB ~~period~~issued ~~ended~~SFAS ~~August~~No. 14149, ~~2001~~“Amendment of Statement 133 on Derivative Instruments and Hedging Activities” (“SFAS 149”). SFAS 149 amends and clarifies the accounting for derivative instruments, weincluding ~~paid~~certain aderivative ~~semi-annual~~instruments ~~dividend~~embedded ofin other ~~approximately~~contracts, $1and for hedging activities under SFAS No.2 ~~million~~133, on“Accounting ~~$20~~for Derivative Instruments and Hedging Activities.0” SFAS ~~million~~149 ofis ~~redeemable~~generally ~~preferred~~effective ~~stock,~~for ~~which~~contracts entered into or ~~accrued~~modified ~~annually~~after atJune ~~12%~~30, 2003 and for hedging relationships designated after June 30, 2003. ~~All~~The adoption of ~~our~~SFAS 149 ~~redeemable~~is ~~preferred~~not ~~stock~~expected ~~held~~to byhave ~~Holdings~~a ~~was~~material ~~cancelled~~effect inon ~~connection~~our ~~with~~financial position, results of ~~the~~operations, ~~Acquisition~~or cash flows.

~~NOTE 6 — SEGMENT INFORMATION:~~10

~~Our~~In ~~two~~May 2003, ~~business~~the ~~segments~~FASB ~~are~~issued SFAS No. 150, “~~Wholesale”~~Accounting for Certain Financial Instruments with Characteristics of both Liabilities and Equity” (“~~Retail.~~SFAS 150”). WeSFAS ~~generally~~150 ~~sell~~requires ~~the~~that ~~same~~certain ~~products~~financial instruments, inwhich ~~each~~under ~~business~~previous guidance were accounted for as equity, must ~~segment~~now be accounted for as liabilities. ~~Wholesale~~ The ~~products~~financial ~~are~~instruments ~~offered~~affected include mandatorily redeemable stock, ~~through~~certain ~~our~~financial ~~Wholesale~~instruments ~~distribution~~that ~~channel~~require ~~while~~or may require the ~~Retail~~issuer ~~segment~~to ~~reflects~~buy ~~the~~back ~~operations~~some of ~~our~~its ~~retail~~shares ~~stores~~in exchange for cash or other assets and certain obligations that can be settled with shares of stock. SFAS 150 is effective for all financial instruments entered into ~~Each~~or ~~segment’s~~modified ~~results~~after ~~include~~May ~~the~~31, ~~costs~~2003 ~~directly~~and ~~related~~must be applied to ~~the~~our existing financial instruments ~~segment’s~~effective ~~revenue~~July ~~and~~6, ~~all~~2003, ~~other~~the ~~costs~~beginning ~~are~~of ~~allocated~~the ~~based~~first fiscal period after June 15, 2003. We adopted SFAS 150 on ~~the~~June ~~relationship~~1, 2003. The adoption of ~~such~~this ~~costs~~statement did tonot ~~consolidated~~have ~~net~~an ~~sales~~effect oron ~~units~~our ~~sourced~~financial toposition, ~~support~~results ~~each~~of operations, or ~~segment’s~~cash ~~revenue~~flows.

10NOTE 8 — RECENT EVENTS:

~~The~~Effective July 29, 2003, our senior credit facility was amended to, among other things, ~~table~~increase ~~below~~the ~~presents~~amount ~~certain~~of ~~segment~~the ~~information~~commitments under the revolving portion of the credit facility from $60.0 million to $75.0 million and allow for a maximum amount of commitments of up to $80.0 million, provide for a 75 basis point reduction in the ~~periods~~applicable ~~indicated~~interest margin by prepaying our existing Tranche B term loan and replacing it with a new Tranche C term loan, reduce the amount of (our mandatory loan prepayment requirement following the consummation of an initial public offering by Holdings from a prepayment of 50% or 75% of excess cash flow to 25% or 50% of excess cash flow, depending on the applicable leverage ratio, and permit a $~~000~~24.9 million dividend to Holdings’ equity holders and a $2.5 million bonus to vested option holders of Holdings as described below. Additionally, our senior credit facility was amended to provide that, upon the consummation of an initial public offering by Holdings, it is permitted to repurchase up to $61.3 million of our senior subordinated notes (including any prepayment fees): with proceeds from an equity offering and settle our obligations of up to $3.6 million under the management agreement with Berkshire Partners LLC. These payments may be made from the proceeds of an equity offering prior to being required to use 50% of the net proceeds of such an equity offering to prepay borrowings under our senior credit facility. Following the consummation of an initial public offering by Holdings, we will also be permitted to repurchase up to $15.0 million of additional senior subordinated notes.

	Wholesale		Retail		Total
Successor for the three-month period ended September 28, 2002:
Sales	$	93,604	$	72,175	$	165,779
EBITDA	$	13,166	$	15,951	$	29,117
Successor for the period from August 15, 2001 through September 29, 2001:
Sales	$	49,797	$	38,546	$	88,343
EBITDA	$	6,563	$	10,046	$	16,609
Predecessor for the period from July 1, 2001 through August 14, 2001:
Sales	$	35,770	$	29,718	$	65,488
EBITDA	$	3,402	$	4,178	$	7,580
Successor for the nine-month period ended September 28, 2002:
Sales	$	228,833	$	180,636	$	409,469
EBITDA	$	26,633	$	29,532	$	56,165
Successor for the period from August 15, 2001 through September 29, 2001:
Sales	$	49,797	$	38,546	$	88,343
EBITDA	$	6,563	$	10,046	$	16,609
Predecessor for the period from December 31, 2000 through August 14, 2001:
Sales	$	155,639	$	127,088	$	282,727
EBITDA	$	12,853	$	15,354	$	28,207

On July 31, 2003, Carter’s paid a cash dividend of approximately $24.9 million to Holdings. Holdings utilized the proceeds to pay a dividend of $24.9 million on the outstanding shares of common stock of Holdings to the stockholders of record as of July 30, 2003. At the same time, we paid a special bonus of approximately $2.5 million to Holdings’ vested option holders. This special bonus will be recorded as compensation expense during the third quarter of 2003.

AIn July 2003, ~~reconciliation~~we decided to exit two of ~~total~~our ~~EBITDA~~production ~~for~~facilities ~~reportable~~given ~~segments~~our ability to ~~consolidated~~obtain lower ~~income~~costs with third-party suppliers. Prior to planned closure dates, the facilities will be held and used for ~~(loss)~~production. During ~~before~~the ~~income~~second ~~taxes~~half of fiscal 2003 and the first half of 2004, it is ~~presented~~estimated ~~below~~that (the aggregate costs associated with such closures will be approximately $~~000):~~4.4 million, consisting primarily of accelerated depreciation, impairment charges, severance, and lease termination costs.

	Successor						Predecessor			Successor						Predecessor
	For the three-month period ended September 28, 2002			For the period from August 15, 2001 through September 29, 2001			For the period from July 1, 2001 through August 14, 2001			For the nine-month period ended September 28, 2002			For the period from August 15, 2001 through September 29, 2001			For the period from December 31, 2000 through August 14, 2001
Total EBITDA for reportable segments	$	29,117		$	16,609		$	7,580		$	56,165		$	16,609		$	28,207
Depreciation and amortization expense	(4,637		)	(2,237		)	(2,821		)	(13,202		)	(2,237		)	(12,245		)
Acquisition-related non-recurring charges	—			—			(11,289		)	—			—			(11,289		)
Writedown of long-lived assets	—			—			—			—			—			(3,156		)
Non-recurring charges-plant closure costs	—			—			—			—			—			(1,116		)
Interest expense, net	(7,268		)	(3,731		)	(2,221		)	(21,238		)	(3,731		)	(10,060		)
Consolidated income (loss) before income taxes	$	17,212		$	10,641		$	(8,751	)	$	21,725		$	10,641		$	(9,659	)

11ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS:

~~NOTE~~The 7following is —a discussion of the risks relating to our business, our results of operations, and our current financial position. You should read this discussion in conjunction with our unaudited ~~CLOSURE~~condensed OFconsolidated ~~MANUFACTURING~~financial ~~FACILITIES:~~statements and notes included elsewhere in this quarterly report. Our discussion of our results of operations and financial condition includes various forward-looking statements about our markets, the demand for our products and services, and our future results. We base these statements on certain assumptions that we consider reasonable. For further information about risks and exposures relating to our business and our company, you should read Item 3 of this quarterly report entitled “Quantitative and Qualitative Disclosures about Market Risks” and the section entitled “Risks Relating To Our Business” in our latest annual report on Form 10-K. Actual results may differ materially from those suggested by our forward-looking statements for various reasons including those discussed in Item 3. Except for any ongoing obligations to disclose material information as required by the federal securities laws, we have no intention or obligation to update forward-looking statements after we file this quarterly report.

InRESULTS ~~the first~~OF quarter of fiscal 2001, we announced our plans to close our sewing facility located in Harlingen, Texas, which subsequently closed and ceased operations on May 11, 2001. In the first quarter of 2001, we recorded a non-recurring charge of approximately $582,000 for closure costs and involuntary termination benefits and a non-cash charge of approximately $742,000 related to the writedown of the asset value of our Harlingen, Texas facility to its estimated net realizable value. As of March 30, 2002, all of the costs provided for in the first quarter of 2001 for severance and other termination benefits were paid.OPERATIONS

~~In the~~The ~~second quarter of fiscal 2001, we announced our plans to close our fabric~~following ~~printing~~table ~~operations~~sets ~~located in Barnesville~~forth, ~~Georgia,~~for ~~which subsequently closed and ceased operations on June 29, 2001. In~~ the ~~second~~periods ~~quarter of 2001~~indicated, we(i) ~~recorded~~selected astatement ~~non-recurring charge~~ of ~~approximately~~operations ~~$534,000~~data ~~for~~expressed ~~closure~~as ~~costs and involuntary termination benefits and~~ a ~~non-cash~~percentage ~~charge~~ of ~~approximately~~net ~~$2.4~~sales ~~million~~and ~~related~~(ii) to the ~~writedown~~number of ~~the~~retail ~~asset~~stores ~~value~~open ofat ~~our fabric printing operations in Barnesville, Georgia to its estimated net realizable value. As of June 29, 2002, all of~~ the ~~costs~~end ~~provided for in the second quarter~~ of ~~2001 for~~each ~~severance~~such ~~and other termination benefits were paid.~~period:

In connection with the Acquisition, we evaluated the requirements for certain manufacturing operations, which we had previously planned to maintain to support our long-term revenue growth plans. After a thorough assessment of alternative sourcing opportunities, we decided to exit certain manufacturing operations. We made this decision in connection with our new ownership in advance of the Acquisition. As a result of this decision, on October 23, 2001, we announced our plans to close our cutting and fabric warehouse operations located in Griffin, Georgia, our embroidery operation located in Milner, Georgia, our bed and bath sewing and finishing operation located in Barnesville, Georgia and our sewing facility located in San Pedro, Dominican Republic, all of which subsequently closed and ceased operations before the end of fiscal 2001. At the time of the Acquisition, we established a liability for these plant closures. As of June 29, 2002, all of the severance and other termination costs associated with these plant closures were paid.

	As a percentage of net sales
	For the three-month periods ended				For the six-month periods ended
	July 5, 2003		June 29, 2002		July 5, 2003		June 29, 2002

Wholesale sales	59.6	%	53.9	%	62.9	%	55.5	%
Retail sales	40.4		46.1		37.1		44.5

Net sales	100.0		100.0		100.0		100.0
Cost of goods sold	64.4		61.6		63.9		61.6

Gross profit	35.6		38.4		36.1		38.4
Selling, general, and administrative expenses	29.9		33.3		28.4		32.4
Royalty income	(1.4	)	(1.5	)	(1.5	)	(1.6	)

Operating income	7.1		6.6		9.2		7.6
Interest expense, net	4.7		5.9		4.4		5.7

Income before income taxes	2.4		0.7		4.8		1.9
Provision for income taxes	0.9		0.3		1.8		0.8

Net income	1.5	%	0.4	%	2.9	%	1.1	%

Number of retail stores at end of period	159		155		159		155

The assets held for sale related to the embroidery operations at Milner, Georgia were sold during the first quarter of 2002. During the second and third quarters of 2002, the assets related to our printing, sewing and finishing operations located in Barnesville, Georgia were sold. The remaining assets included in assets held for sale on the accompanying balance sheet as of September 28, 2002 represents land and building located in Barnesville, Georgia and land associated with the Harlingen, Texas facility.12

~~NOTE~~Three and six-month periods ended July 5, 82003 —compared ~~OTHER~~to ~~EXIT~~three ~~COSTS:~~and six-month periods ended June 29, 2002

InNET ~~connection~~SALES. The ~~with~~three-month ~~the~~periods ~~Acquisition~~ended July 5, 2003 and ~~our~~June ~~new~~29, ~~ownership~~2002 each contained 13 weeks of financial results. The six-month period ended July 5, we2003 ~~announced~~contained ~~our~~27 ~~decision~~weeks as compared to ~~terminate~~the ansix-month ~~initiative~~period toended ~~open~~June ~~full-price~~29, ~~retail~~2002, ~~stores~~which contained 26 weeks. AtIn ~~Acquisition~~the second quarter of fiscal 2003, weconsolidated ~~established a~~net ~~liability~~sales ~~related~~increased $20.9 million, or 17.6%, to ~~terminating~~$140.0 ~~three~~million ~~employees~~from $119.1 million in the second quarter of fiscal 2002. In the first half of 2003, ~~exiting~~consolidated anet ~~full-price~~sales ~~retail~~were ~~consulting~~$306.0 ~~contract~~million, ~~and~~an ~~providing~~increase of $62.3 million, or 25.6%, as compared with $243.7 million for ~~related~~the ~~lease~~first ~~obligations~~half of 2002. As This revenue growth is driven by strong product performance resulting from our focus on improving the value of ~~June~~our 29core products through our global sourcing network, ~~2002~~effective merchandising and pricing strategies, ~~all~~the additional week of selling in the ~~costs~~first ~~associated~~half of 2003, and the initial shipment during the second quarter of 2003 of our new Child ~~with~~of ~~exiting~~Mine ~~the~~brand ~~full~~that will be sold in substantially all Wal-~~price~~Mart ~~retail~~stores in ~~initiative~~the ~~were~~United ~~paid~~States beginning in August 2003.

~~NOTE~~Total wholesale sales increased $19.3 million, or 30.0%, to $83.4 million in the second quarter of 2003 from $64.2 million in the second quarter of 2002. In the first half of 2003, wholesale sales increased $57.3 million, or 42.3%, to $192.5 million from $135.2 million in the first half of 2002. Wholesale sales, excluding discount store channel and off-price sales, increased $4.4 million, or 8.1%, in the second quarter of 2003 to $58.5 million from $54.1 million in the second quarter of 2002. In the first half of 2003, wholesale sales, excluding discount store channel and off-price sales, increased $34.4 million, or 29.2%, to $151.9 —million ~~RECENT~~from $117.6 ~~ACCOUNTING~~million ~~PRONOUNCEMENTS:~~in the first half of 2002. These increases reflect growth in our baby and playclothes product lines. This growth has occurred at the majority of our key wholesale accounts as a result of our focus on improving the value of our core products.

InWholesale discount ~~connection~~store ~~with~~sales ~~the~~in ~~Acquisition, we adopted~~ the ~~provisions~~ ofsecond ~~Statement~~quarter of ~~Financial~~2003 ~~Accounting~~increased ~~Standards~~$12.3 ~~(“SFAS”)~~million Noto $17.8 ~~141, “Business~~million ~~Combinations”~~from ~~(“SFAS~~$5.5 ~~141”)~~million ~~and~~in ~~applied~~ the ~~required~~second ~~provisions~~quarter of ~~SFAS~~ No2002. In ~~142,~~the ~~“Goodwill~~first ~~and~~half ~~Other~~of ~~Intangible Assets” (“SFAS 142”). Accordingly~~2003, our ~~tradename~~wholesale discount ~~and~~store ~~goodwill~~sales ~~have now~~increased ~~been~~$20.3 ~~deemed~~million to ~~have~~$30.2 ~~indefinite~~million ~~lives~~from ~~and~~$9.9 ~~are~~million in nothe ~~longer~~first ~~being~~half ~~amortized~~of ~~in the Successor periods~~2002. ~~Our licensing~~Contributing ~~agreements~~to ~~are~~this ~~being~~significant ~~amortized~~growth ~~over~~was the ~~average~~initial ~~three-year~~shipment ~~life~~during ofthe ~~such~~second quarter ~~agreements,~~of as2003 itof ~~has~~our ~~been~~new ~~determined~~Child of Mine brand that ~~these~~will ~~agreements~~be ~~have~~sold ~~finite~~in ~~lives. Amortization~~substantially ~~expense~~all ~~for~~Wal-Mart ~~the~~stores ~~first~~in ~~nine~~the United ~~months~~States ofbeginning ~~2002~~in ~~was~~August $32003.8 Also contributing ~~million~~to ~~and~~this isgrowth ~~expected~~for tothe besecond ~~$5.0~~quarter ~~million~~and ~~for~~first ~~fiscal 2002,~~half ~~$5.0~~of ~~million~~2003 ~~for~~is the ~~fiscal~~continued ~~2003~~strong ~~and~~performance ~~$3.1~~of ~~million~~our ~~for~~Tykes brand ~~2004~~with Target.

12Our retail store sales were $56.6 million for the second quarter of 2003, which represented an increase of $1.7 million, or 3.0%, compared to the second quarter of 2002. Comparable store sales for the second quarter of 2003, based on 145 locations, declined 1.5% and reflect continued weakness in the economy. The primary driver of the revenue increase was incremental revenue generated from new stores opened subsequent to June 29, 2002, offset by the impact of stores closed over the last twelve months and the comparable store sales decline. In the first half of 2003, retail store sales increased $5.0 million, or 4.7%, to $113.5 million from $108.5 million in the first half of 2002. Comparable store sales for the first half of 2003, on a 27-week versus 26-week basis increased 0.5%, based on 145 locations. The drivers of the revenue increase in the first half of 2003 were incremental revenue of $7.1 million from new store openings and the comparable store sales increase of $0.5 million. The comparable store sales increase was driven by the additional week of sales included in the first half of 2003, offset by the impact of stores closed in the last twelve months of $2.6 million. Comparing the first 27 weeks of 2003 to the first 27 weeks of 2002, comparable store sales declined 3.7%, based on 145 locations. This decline reflects the effect of unfavorable weather conditions, particulary in February 2003. We opened four retail stores and closed one during the first half of 2003. There were a total of 159 stores as of July 5, 2003 compared to 155 stores at June 29, 2002. We plan to open eleven stores and close four stores during the balance of 2003.

~~The~~GROSS PROFIT. Our gross profit increased $4.1 million, or 9.0%, to $49.9 million in the second quarter of 2003 from $45.7 million in ~~calculation~~the second quarter of ~~reported~~2002. Gross profit increased $16.8 million, or 18.0%, to $110.5 million in the first half of 2003 compared to $93.6 million in the first half of 2002. Gross profit, as a percentage of net ~~income~~sales, in ~~(loss)~~the ~~adjusted~~second ~~for~~quarter ~~goodwill~~and first half of 2003 decreased to 35.6% and ~~tradename~~36.1% from 38.4% in similar periods in 2002. Such ~~amortization~~decreases ~~expense~~in gross profit, ~~net~~relative to sales, have resulted primarily from a higher mix of ~~taxes~~wholesale isrevenues, ~~shown~~which ~~below~~include ~~($000):~~discount and off-price channel revenues, that generally yield lower margins than similar products sold through our retail channel. Wholesale sales were 63% of total sales in the first half of 2003 as compared to 55% in the first half of 2002. These decreases also reflect the impact of our new pricing strategies with lower average prices on certain core products which were partially offset by additional product cost reductions achieved through the continued expansion and leverage of our global sourcing network.

	Successor				Predecessor			Successor				Predecessor
	For the three-month period ended September 28, 2002		For the period from August 15, 2001 through September 29, 2001		For the period from July 1, 2001 through August 14, 2001			For the nine-month period ended September 28, 2002		For the period from August 15, 2001 through September 29, 2001		For the period from December 31, 2000 through August 14, 2001
Reported net income (loss)	$	10,578	$	6,365	$	(13,883	)	$	13,353	$	6,365	$	(14,428	)
Add back:
Amortization expense of goodwill	—		—		100			—		—		484
Amortization expense of tradename, net of tax benefit of $124 and $598	—		—		201			—		—		977
Adjusted net income (loss)	$	10,578	$	6,365	$	(13,582	)	$	13,353	$	6,365	$	(12,967	)

WeSELLING, GENERAL, AND ADMINISTRATIVE EXPENSES. ~~adopted~~Selling, general, and administrative expenses for the ~~remaining~~second ~~provisions~~quarter of 2003 ~~SFAS~~increased ~~142~~$2.2 asmillion, ofor 5.6%, to $41.8 million from $39.6 million in the ~~beginning~~second quarter of ~~fiscal~~ 2002. ~~In accordance with this~~These ~~statement~~costs, weas ~~have~~a ~~identified~~percentage ~~our~~of ~~reporting~~net ~~units~~sales, ~~completed~~decreased anto ~~assessment~~29.9% ~~for impairment~~in the second quarter of ~~goodwill~~2003 ~~(by~~from ~~comparing~~33.3% in the ~~fair~~second ~~values~~quarter of ~~our~~2002. In ~~reporting~~the ~~units~~first tohalf of 2003, selling, general, and administrative ~~their~~expenses ~~respective~~increased ~~carrying~~$7.9 ~~values~~million, ~~including~~or ~~allocated~~9.9%, ~~goodwill)~~to ~~and~~$86.8 ~~our~~million from $78.9 million in the first half of 2002. As a ~~tradename~~percentage ~~and~~of ~~found~~net ~~that~~sales, ~~there~~these ~~was~~expenses nodecreased ~~impairment~~to 28.4% in the first half of 2003 ~~either~~from ~~asset~~32. We4% ~~are~~in ~~also~~the ~~required~~first tohalf ~~measure~~of ~~our goodwill~~2002. ~~and~~Such ~~tradename~~decreases for ~~impairment~~the onsecond atquarter ~~least~~and anfirst ~~annual~~half ~~basis~~of or2003 ifare ~~events~~due orto the benefit of leveraging operating expenses on higher levels of revenue ~~changes~~partially inoffset ~~circumstances~~by sohigher ~~dictate~~distribution costs driven by unit volume growth.

~~In October~~ROYALTY ~~2001,~~INCOME. We license the ~~Financial~~use ~~Accounting~~of ~~Standards~~the ~~Board~~Carter’s, ~~(“FASB”)~~Carter’s ~~issued~~Classics, ~~SFAS~~and ~~No. 144,~~Child ~~“Accounting~~of ~~for~~Mine ~~Impairment~~names and orsublicense ~~Disposal~~the ofTykes ~~Long-Lived~~name ~~Assets”~~to ~~(“SFAS~~certain ~~144”)~~licensees. Our royalty income in the second quarter of ~~which~~2003 ~~addresses~~was ~~financial~~approximately ~~accounting~~$1.9 ~~and~~million, ~~reporting~~an ~~for~~increase ~~the~~of ~~impairment~~4.9%, orover the second ~~disposal~~quarter of ~~long-lived assets~~2002. WeDuring the first half ~~adopted~~of ~~SFAS~~2003, ~~144~~royalty asincome was approximately $4.5 million, an increase of $0.7 million, or 18.1%, over the ~~beginning~~first half of ~~fiscal~~ 2002. These ~~and~~increases itresulted ~~did~~from ~~not~~expansion ~~have~~of aour licensed product ~~material~~placement ~~impact~~with onkey wholesale customers. We licensed our ~~financial~~Child ~~position~~of orMine ~~results~~brand to many of ~~operations~~our licensee partners for ~~the~~further brand extension into Wal-Mart, ~~third~~which ~~quarter~~will orbegin ~~the~~shipping ~~first~~in ~~nine~~the ~~months~~third quarter of ~~2002~~2003.

~~In November~~OPERATING ~~2001, the Financial Accounting Standards Board’s Emerging Issues Task Force (“EITF”) issued EITF Issue No~~INCOME. Operating ~~01-09,~~income ~~“Accounting~~ for ~~Consideration~~the ~~Given~~second byquarter aof ~~Vendor~~2003 toincreased ~~a Customer/Reseller” (“EITF 01-09”)~~$2. ~~EITF~~0 ~~01-09~~million ~~outlines the presumption that consideration given by a vendor~~ to a$9.9 ~~customer~~million iscompared to ~~be treated as a reduction of revenue, unless certain conditions are met~~$7. ~~Historically,~~9 wemillion ~~have~~in ~~accounted~~the ~~for~~second ~~accommodations~~quarter ~~and~~of ~~cooperative advertising allowances made to wholesale customers as selling expenses~~2002. WeOperating ~~adopted~~income ~~EITF~~for ~~01-09 as of~~ the ~~beginning~~first ofhalf ~~fiscal 2002 and classified these expenses as a reduction~~ of ~~revenue~~2003 ~~rather~~increased ~~than as selling expenses~~$9. ~~Accommodations~~7 ~~and~~million ~~cooperative advertising~~to ~~provisions of~~ $228.72 million ~~for the Successor period~~ from ~~August 15, 2001 through September 29, 2001,~~ $118.25 million ~~for~~in the ~~Predecessor~~first ~~period~~half ~~from~~of ~~July 1, 2001 through August 14, 2001 and $5~~2002.0 These ~~million~~increases ~~for~~reflect the ~~Predecessor~~benefit ~~period~~ from revenue ~~December 31~~growth, ~~2000~~increased ~~through~~gross ~~August 14~~profit, ~~2001~~and ~~have~~leveraging ~~been~~of ~~reclassified~~operating toexpenses as ~~conform~~described ~~with the current periods’ presentation~~above. ~~These reclassifications did not impact net income (loss).~~

InINTEREST ~~April 2002~~EXPENSE, ~~the FASB issued SFAS No~~NET. ~~145,~~Net ~~“Rescission~~interest ofexpense ~~FASB~~for ~~Statements~~the ~~No.~~second 4,quarter ~~44 and 64, Amendment~~ of ~~FASB Statement~~2003 ~~No.~~decreased ~~13, and Technical Corrections” (“SFAS 145”)~~$0. ~~SFAS~~6 million ~~145~~to ~~rescinds FASB Statement No~~$6.5 ~~4, which~~million ~~required all gains and losses~~ from ~~extinguishments~~$7.1 ofmillion ~~debt~~in tothe ~~be aggregated~~second ~~and,~~quarter ~~if material, classified as an extraordinary item, net~~ of ~~the related income tax effect~~2002. AsIn ~~a result,~~ the ~~criteria~~first inhalf ~~Accounting~~of ~~Principles~~2003, ~~Board~~interest ~~Opinion 30 will now be used to~~expense ~~classify~~decreased ~~those gains and losses~~$0. ~~The provisions~~4 ofmillion ~~SFAS 145, as related~~ to ~~the~~$13.5 ~~rescission~~million offrom ~~FASB Statement No~~$14.0 ~~4, will~~million bein ~~effective~~the ~~for~~first ~~fiscal~~half ~~2003~~of 2002. ~~We are~~These ~~currently~~decreases ~~evaluating~~were ~~the~~due ~~impact of this statement~~ to ~~determine whether we~~lower ~~need~~variable tointerest ~~reclassify~~rates aon ~~$6.2~~reduced ~~million~~levels ~~extraordinary~~of ~~item~~term ~~that~~loan weindebtedness ~~recorded in connection~~partially ~~with~~offset ~~the~~by ~~Acquisition. However,~~an ~~this reclassification~~additional ~~will~~week ~~not~~of ~~impact our reported net loss~~interest.

13INCOME TAXES. We recorded a provision for income taxes of $1.3 million in the second quarter of 2003 compared to $0.3 million in the second quarter of 2002. In the first half of 2003, we recorded a provision for income taxes of $5.6 million compared to $1.7 million in the first half of 2002. Our effective tax rate was approximately 38.5% during the second quarter and first half of 2003 and 2002.

InNET ~~July~~INCOME. As ~~2002,~~a ~~the~~result ~~FASB~~of ~~issued~~the ~~SFAS~~factors ~~No. 146~~noted above, our ~~“Accounting~~second ~~for~~quarter ~~Costs~~2003 ~~Associated~~net ~~with~~income ~~Exit~~was ~~or Disposal Activities” (“SFAS 146”)~~$2. ~~SFAS~~1 ~~146~~million ~~sets~~compared ~~forth various modifications~~ to ~~existing~~$0.5 ~~accounting~~million ~~guidance which prescribes the conditions which must be met~~ in ~~order for costs associated with contract terminations,~~ ~~facility~~the ~~consolidations,~~second ~~employee~~quarter ~~relocations~~of ~~and terminations to be accrued and recorded as liabilities in financial statements~~2002. ~~Accordingly,~~Net ~~SFAS~~income for ~~146 may affect~~ the ~~timing~~first half of ~~recognizing~~2003 ~~future restructuring~~was ~~costs~~$9.0 asmillion ~~well~~compared asto ~~the amount recognized~~$2. ~~SFAS~~8 ~~146~~million ~~also~~in ~~establishes that~~ the ~~liability should initially be~~ ~~measured~~first ~~and~~half ~~recorded at fair value. The provisions~~ of ~~SFAS 146 will be required to be applied prospectively to exit or disposal activities initiated after December 31,~~ 2002.

~~NOTE~~FINANCIAL 10CONDITION, —CAPITAL ~~RECENT~~RESOURCES, ~~EVENTS:~~AND LIQUIDITY

OnOur ~~August~~primary cash ~~23,~~needs ~~2002,~~are ~~Holdings~~working ~~filed~~capital, acapital ~~registration statement~~expenditures, ~~with the Securities~~ and ~~Exchange~~debt ~~Commission to register an initial public offering of up to $100~~service.~~0 million of its common stock.~~ ~~That registration statement has not yet become effective. If the initial public offering is completed~~Historically, ~~Holdings~~we ~~intends~~have tofinanced ~~contribute to~~these ~~us a portion of~~needs ~~its~~primarily ~~proceeds~~through ~~from~~internally ~~the~~generated ~~offering. We intend~~cash toflow ~~use~~and ~~these~~funds ~~proceeds~~borrowed tounder ~~redeem a portion of~~ our ~~outstanding~~ ~~10.875%~~ senior ~~subordinated~~credit ~~notes~~facility ~~due~~(“Credit ~~in 2011~~Facility”). at Our aprimary ~~redemption~~source ~~price~~ of ~~110.875%~~ ofliquidity ~~the~~will ~~principal~~continue ~~amount~~to ~~redeemed~~be ~~plus~~cash ~~accrued~~flow ~~and unpaid interest,~~from ~~repay~~operations aand ~~portion~~borrowings ~~of our indebtedness~~ under our ~~senior~~revolving ~~credit~~loan facility, and ~~pay Berkshire~~we ~~$3.5~~expect ~~million~~that these tosources ~~terminate~~will fund our ~~future~~ongoing ~~obligations~~requirements ~~under~~for ~~our~~debt ~~management agreement~~service ~~with~~and ~~Berkshire~~capital expenditures. InThese ~~connection with~~sources ~~this registration process, we incurred approximately $800,000~~ of ~~expenses~~ ~~related~~liquidity tomay ~~the~~be ~~offering,~~impacted ~~which~~by ~~have~~continued ~~been~~demand ~~deferred~~for ~~and~~our ~~are~~products ~~included~~and inour ~~prepaid~~ability ~~and~~to ~~other~~meet ~~current~~debt ~~assets~~covenants onunder ~~the~~our ~~accompanying~~Credit ~~balance sheet as of September 28, 2002~~Facility.

~~During~~Net ~~the~~accounts receivable ~~third~~at ~~quarter~~July ~~of 2002~~5, we2003 ~~executed~~were an$59.9 ~~artwork~~million ~~agreement~~compared ~~with~~to ~~Eric~~$40.1 ~~Carle~~million at June 29, ~~LLC~~2002 and $53.6 ~~Under~~million ~~this agreement~~at December 28, we2002. The ~~are~~increase ~~obligated~~over June 29, 2002 reflects the shipment of our Child of Mine brand to ~~pay~~Wal-Mart ~~$1.5~~and ~~million~~a higher level of other wholesale shipments in ~~minimum~~the ~~royalty~~latter ~~guarantees~~part of the second quarter ended July 5, 2003. Due to the ~~for~~seasonal nature of our operations, the ~~initial~~net ~~term~~accounts ~~which~~receivable ~~began~~balance ~~June~~at 28July 5, ~~2002~~2003 ~~and~~is ~~expires~~not ~~December~~comparable 31to the net accounts receivable balance at December 28, ~~2005~~2002.

~~ITEM~~Net inventories 2at July 5, 2003 were $132. ~~MANAGEMENT’S~~9 million compared to $98.1 million at June 29, 2002 and $105.7 million at December 28, 2002. This increase over June 29, 2002 in ~~DISCUSSION~~inventory ~~AND~~levels ~~ANALYSIS~~was OFplanned ~~FINANCIAL~~to ~~CONDITION~~support third quarter 2003 shipping requirements, including inventory required to support our new Child of Mine brand for Wal-Mart. Average inventory levels in 2003 are expected to be higher than average 2002 year-end net inventory levels of $93.8 million based on increases in forecasted demand and our focus on superior shipping performance to our customers. Due to the seasonal nature of our operations, net inventories at July 5, 2003 are not comparable to net inventories at December 28, 2002.

~~AND~~Net ~~RESULTS~~cash OFused in ~~OPERATIONS:~~operating activities for the first half of 2003 was $21.9 million compared to $0.6 million for the first half of 2002. The increase in net cash used in operating activities in the first half of 2003 compared to the first half of 2002 is primarily attributed to the increases in inventory and accounts receivable, described above, reductions in current liabilities, and partially offset by increases in net income.

~~The~~We ~~following is a discussion of the risks relating to our~~have ~~business,~~invested ~~our results of operations and our current financial position~~$6. ~~You~~8 ~~should~~million ~~read this discussion~~ in ~~conjunction~~ ~~with~~capital ~~our~~expenditures ~~condensed~~during ~~consolidated~~the ~~financial~~first ~~statements~~half ~~and~~of ~~notes~~2003 ~~included~~compared ~~elsewhere~~to ~~in this quarterly report~~$5. ~~Our~~6 ~~discussion~~million ofduring ~~our results of operations and financial condition includes various forward-looking statements about our markets,~~ the ~~demand~~first ~~for our~~half ~~products~~of ~~and services and our future results~~2002. We ~~base~~plan ~~these~~to ~~statements~~invest onan ~~certain~~additional ~~assumptions that we consider reasonable~~$16. ~~For further information~~2 ~~about~~million ~~risks~~in ~~and~~capital ~~exposures~~expenditures ~~relating~~during tothe ~~our~~remainder ~~business and our company, you should read Item 3~~ of ~~this~~fiscal ~~quarterly report entitled “Quantitative and Qualitative Disclosures about Market Risks~~2003.” ~~Actual results~~Major ~~may~~investments ~~differ~~include ~~materially~~retail ~~from those suggested by our forward-looking~~store ~~statements~~openings ~~for various reasons including those discussed in Item 2~~ and ~~Item~~remodeling, ~~3. These~~fixturing ~~risk~~programs ~~factors~~for ~~expressly~~wholesale ~~qualify~~customers, ~~all subsequent oral~~ and ~~written forward-looking statements attributable to us or~~the ~~persons~~expansion ~~acting~~of on our ~~behalf. Except for~~distribution any ongoing obligations to disclose material information as required by the federal securities laws, we have no intention or obligation to update forward-looking statements after we file this quarterly reportcenters.

~~RISKS~~At July 5, 2003, we had approximately $291.9 million of debt outstanding, consisting of ~~RELATING~~$173.9 TOmillion ~~OUR~~of ~~BUSINESS~~senior subordinated notes (the “Notes”), $118.0 million in term loan borrowings (“Term Loan”) and no borrowings on our revolving loan facility (“Revolver”), exclusive of approximately $8.7 million of outstanding letters of credit. At July 5, 2003, we had approximately $51.3 million of financing available under our Revolver. At December 28, 2002, we had approximately $297.6 million of debt outstanding, consisting of $173.9 million of Notes, $123.8 million in Term Loan borrowings and no Revolver borrowings, exclusive of approximately $16.3 million of outstanding letters of credit. The borrowings under the Revolver will be available to fund our working capital requirements, capital expenditures, and other general corporate purposes.

~~The~~Principal borrowings ~~loss~~under the Term Loan are due and payable in seventeen remaining quarterly installments of $300,267 from September 30, 2003 through September 30, 2007 and four quarterly payments of ~~one~~approximately or$28.2 million from December 31, 2007 through September 30, 2008. Interest on the Term Loan is payable at the end of interest rate reset periods, which vary in length but in no case exceed six months. The outstanding balance under the Revolver is payable in full on August 15, 2006, and interest is payable quarterly or more frequently in the event we have chosen a Eurodollar rate option available under the terms of our ~~key~~Credit ~~customers~~Facility. No ~~could~~principal ~~result~~payments are required on the Notes prior to their scheduled maturity in aAugust ~~material~~2011. Interest ~~loss~~is payable semi-annually on the Notes in February and August of each year, in the amount of approximately $9.5 million for each payment. These payments commenced on February 15, ~~revenues~~2002.

InThe ~~2001,~~terms weof the ~~derived~~consolidated ~~approximately~~excess ~~40%~~cash offlow ~~our~~condition, ~~total~~as ~~net~~required ~~sales from~~under our ~~top~~Credit Facility ~~eight~~were ~~customers. We~~effective ~~expect that~~for ~~these~~fiscal ~~customers~~2002, ~~will~~and, ~~continue~~accordingly, towe ~~represent~~made a ~~significant~~principal prepayment ~~portion~~ of ~~our sales~~approximately ~~in the future~~$4. A8 ~~significant decrease~~million inon ~~business~~March ~~from~~26, ~~one~~2003. This orexcess ~~more~~cash offlow ~~these~~condition ~~customers~~may ~~could~~result in ~~have~~future aannual ~~material adverse~~prepayments ~~effect~~depending on ~~our~~the ~~revenue~~consolidated ~~and~~excess ~~results~~cash offlow generated ~~operations~~in each year. WeThe dolenders will ~~not~~apply ~~enter~~such ~~into~~prepayments ~~formal~~first ~~sales~~to ~~contracts with~~the ~~our~~Term ~~wholesale~~Loan ~~customers~~and, ~~relying~~second, ~~instead~~to onreduce ~~long-standing relationships~~the ~~with these customers~~Revolver. AsSubject ato ~~result,~~certain weconditions ~~face~~in ~~the~~our ~~risk~~Credit ~~that~~Facility, ~~one~~we ormay ~~more~~make optional prepayments of our ~~key~~debt obligations ~~customers~~without ~~may~~premium ~~terminate its~~ or ~~their relationship with us~~penalty. ~~Without contracts~~ ~~establishing~~The ~~volume~~lenders ~~commitments from our customers, there is also a risk that we~~ will beapply ~~inaccurate~~such inoptional ~~our~~prepayments ~~forecasting~~according ~~and~~to ~~planning for production requirements~~our instruction.

~~Retail~~As provided by a management agreement with Berkshire Partners LLC (the “Management ~~trends~~Agreement”), ~~could~~we ~~result~~agreed, inamong ~~increased~~other ~~downward~~things, ~~pressure~~to pay Berkshire Partners an annual management fee of $1.65 million per year for four years, commencing on ~~our~~the first ~~prices~~anniversary of the Acquisition. We pay this fee quarterly, in advance. As described below, upon completion of an initial public offering by Holdings, this management fee requirement will be settled in full. We have agreed to pay Berkshire Partners an acquisition fee of 1% of any future financing or 1% of the value of any acquisition for their advice in connection with any future financing or acquisition.

With the growing trend toward retail trade consolidation, we increasingly depend upon a reduced number of key retailers whose bargaining strength is growing. We may be negatively affected by changes in the policies of our retail trade customers, such as inventory de-stocking, limitations on access to shelf space, scan-based trading and other conditions. Further consolidations in the retail industry could result in price and other competition that could damage our business.15

~~Our~~Effective July 29, 2003, our Credit Facility was amended to, among other things, increase the ~~dependence~~amount onof ~~foreign~~the ~~supply~~commitments ~~sources~~under ~~may~~the ~~result~~Revolver infrom ~~disruptions~~$60.0 million to ~~our~~$75.0 million and allow for a maximum amount of commitments of up to $80.0 million, ~~operations~~provide for a 75 basis point reduction in the ~~event~~applicable interest margin by prepaying our existing Tranche B term loan and replacing it with a new Tranche C term loan, reduce the amount of ~~political~~our ~~instability~~mandatory loan prepayment requirement following the consummation of an initial public offering by Holdings from a prepayment of 50% or ~~foreign~~75% ~~regulations~~of excess cash flow to 25% or 50% of excess cash flow, depending on the applicable leverage ratio, and permit a $24.9 million dividend to Holdings’ equity holders and a $2.5 million bonus to vested option holders of Holdings as described below. Additionally, our Credit Facility was amended to provide that, upon the consummation of an initial public offering by Holdings, it is permitted to repurchase up to $61.3 million of our Notes (including any prepayment fees) with proceeds from an equity offering and settle our obligations of up to $3.6 million under the Management Agreement. These payments may be made from the proceeds of an equity offering prior to being required to use 50% of the net proceeds of such an equity offering to prepay borrowings under our Credit Facility. Following the consummation of an initial public offering by Holdings, we will also be permitted to repurchase up to $15.0 million of additional Notes.

WeOn ~~currently~~July ~~source~~31, 2003, ~~substantially~~Carter’s ~~all~~paid a cash dividend of ~~our~~approximately ~~sewing,~~$24.9 million to ~~embroidery~~Holdings. Holdings ~~and~~utilized ~~cutting~~the proceeds ~~and~~to pay a ~~substantial~~dividend ~~portion~~ of ~~our~~$24.9 ~~fabric~~million ~~production~~on the outstanding shares of common ~~through~~stock ~~our~~of ~~offshore~~Holdings ~~facilities~~to ~~and~~the ~~other~~stockholders ~~offshore~~of ~~production arrangements~~record as of July 30, 2003. WeAt ~~expect~~the tosame ~~source~~time, ~~more~~ we paid a special bonus of approximately ~~our~~$2.5 ~~fabric~~million ~~production~~to ~~offshore~~Holdings’ ~~over~~vested ~~time~~option holders. We This ~~may~~payment bewas ~~adversely~~funded ~~affected~~through ~~by:~~our amended Credit Facility, as described above.

•In July 2003, we decided to exit two of our production facilities given our ability to obtain ~~political~~lower ~~instability~~costs ~~resulting~~with inthird-party suppliers. Prior to planned closure dates, the ~~disruption~~facilities ofwill ~~trade~~be ~~from~~held ~~foreign~~and used for production. During the second half of ~~countries~~fiscal in2003 ~~which~~and ~~our~~the ~~manufacturing~~first ~~facilities~~half ~~are~~of ~~located;~~2004, it is estimated that the aggregate costs associated with such closures will be approximately $4.4 million, consisting primarily of accelerated depreciation, impairment charges, severance, and lease termination costs.

•Based ~~the~~on our ~~imposition~~current level of ~~new~~operations ~~regulations~~and ~~relating~~anticipated tocost ~~imports~~savings and operating improvements, ~~duties~~we believe that cash generated from operations and available cash, ~~taxes~~together with amounts available under the Revolver, will be adequate to meet our debt service requirements, capital expenditures, and ~~other~~working capital needs for the foreseeable future, although no assurance can be given in this ~~charges~~regard. We may, however, need to refinance all or a portion of the principal amount of the Notes on ~~imports~~or prior to maturity.

~~These~~Our ~~and~~Credit Facility ~~other~~imposes ~~events~~certain ~~beyond~~covenants, ~~our~~requirements, ~~control~~and ~~could~~restrictions ~~interrupt~~on our ~~production~~actions inby ~~offshore~~us ~~facilities~~and orour ~~delay~~subsidiaries ~~receipt~~that, ofamong ~~the~~other ~~products~~things, inrestrict the ~~United~~payment ~~States,~~of ~~which~~dividends ~~may~~beyond ~~have~~the adividend ~~material~~noted ~~adverse effect on our financial condition and results of operations~~above.

~~Our~~On August 23, ~~business~~2002, Holdings filed a registration statement with the Securities and ~~reputation~~Exchange Commission ~~may~~to register an initial public offering of up to $100.0 million of its common stock. That registration statement has not yet become effective. If the initial public offering is completed, Holdings intends to contribute to the Company a portion of its net proceeds from the offering to be used ~~adversely~~to ~~affected~~repurchase ifup to $61.3 million of our ~~brand~~Notes is(including ~~associated~~any prepayment fees) and settle our obligations of up to $3.6 million under the Management Agreement. In the fourth quarter of 2002, we decided to postpone the initial public offering process given the deterioration in equity market conditions. We continue to evaluate equity market conditions and plan to proceed with ~~negative~~the ~~publicity~~offering when such conditions improve.

~~While~~EFFECTS ~~our~~OF staff and third party compliance auditors periodically visit and monitor the operations of our vendors, independent manufacturers and licensees, we do not control these vendors and independent manufacturers or their labor practices. The violation of our guidelines or labor or other laws by these vendors or independent manufacturers could interrupt or otherwise disrupt our sourcing or damage our brand image. As a result, negative publicity regarding our company, brand or products, including licensed products, could adversely affect our reputation and sales.INFLATION

15We are affected by inflation and changing prices primarily through the purchase of raw materials, increased operating costs and expenses, and higher interest rates. The effects of inflation in changing prices on our net sales, revenues, and operations have not been material in recent years. In recent years, there has been deflationary pressure on selling prices. Due to the competitive nature of the children’s apparel industry, there is no assurance that this trend will not continue. While we have been successful in offsetting such deflationary pressures through expansion of our global sourcing network, if the trend in selling prices outpaces our ability to obtain further price reductions from our global suppliers, our profitability may be affected.

~~The loss of one or more of our major suppliers for raw materials may interrupt our supplies.~~16

Of the fabrics we source in the United States, we purchase a majority from a few vendors of each material. The loss of one or more of these suppliers could interrupt our supply, which could have an adverse effect on our sales and increase our costs.SEASONALITY

We ~~operate~~experience seasonal fluctuations in our sales and profitability, with generally lower sales and gross profit in the first and second quarters of our fiscal year. Over the past five fiscal years, approximately 58% of our consolidated net sales were generated in the second half of our fiscal year. We believe, generally, that the seasonality of sales and profitability is a ~~highly~~factor ~~competitive~~that affects ~~market~~the baby and ~~our~~young ~~business~~children’s ~~will~~apparel ~~suffer~~industry, ifand weis ~~are~~primarily ~~unable~~due to retailers’ emphasis on price reductions in the first quarter, promotional ~~compete~~retailers’ ~~effectively~~and manufacturers’ emphasis on closeouts of the prior year’s product lines, and “back-to-school” and holiday shopping patterns.

~~The~~CRITICAL ~~baby~~ACCOUNTING ~~and~~POLICIES ~~young~~AND children’s apparel markets are highly competitive. Both branded and private label manufacturers compete in the baby and young children’s apparel markets. Our primary branded competitors include GAP, Gerber, Oshkosh B’Gosh and Disney-licensed products in playclothes and sleepwear. Some retailers, including several that are our customers, have significant private label product offerings in playclothes that compete with us. Because of the fragmented nature of the industry, we also compete with many small manufacturers and retailers. Some of our competitors have greater financial resources and larger customer bases than we have and are less financially leveraged than we are. As a result, these competitors may be able to:ESTIMATES

•Our ~~adapt~~discussion toand ~~changes~~analysis of our financial condition and results of operations are based upon our consolidated financial statements, which have been prepared in ~~customer~~accordance with accounting principles generally accepted in the United States of America. The preparation of these financial ~~requirements~~statements ~~more~~requires ~~quickly;~~us to make estimates and judgments that affect the reported amounts of assets, liabilities, revenues, expenses, and related disclosure of contingent assets and liabilities. We base our estimates on historical experience and on various other assumptions that are believed to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these estimates under different assumptions or conditions.

•Our significant ~~take~~accounting ~~advantage~~policies ofare ~~acquisition~~described ~~and~~in ~~other~~Note 2 to our consolidated financial statements contained in our most recently filed annual report on Form ~~opportunities~~10-K. The ~~more~~following ~~readily;~~discussion addresses our critical accounting policies, which are those that require management’s most difficult and subjective judgments, often as a result of the need to make estimates about the effect of matters that are inherently uncertain.

•Revenue recognition: We recognize wholesale revenue after shipment of products to customers, when title passes ~~devote~~and ~~greater~~when ~~resources~~all risks and rewards of ownership have transferred. As discussed in Note 2 to our consolidated financial statements contained in our most recently filed annual report on Form 10-K, in certain cases, this does not occur until the ~~marketing~~goods have reached the specified customer. We consider revenue realized or realizable and ~~sale~~earned when the product has been shipped, the sales price is fixed or determinable and collectibility is reasonably assured. In the normal course of ~~their~~business, ~~products~~we grant certain accommodations and ~~adopt~~allowances to our wholesale customers. Such amounts are reflected as reductions of net sales. Retail store revenues are ~~more~~recognized ~~aggressive~~at ~~pricing~~the ~~policies~~point ~~than~~of wesale. We reduce ~~can~~revenue for customer returns and deductions. We also maintain an allowance for doubtful accounts for estimated losses resulting from the inability of our customers to make payments. If the financial condition of our customers were to deteriorate, resulting in an impairment of their ability to make payments, an additional allowance could be required.

~~The~~Inventory: We ~~loss~~write down our inventory for estimated ofexcess ~~key~~and ~~members~~obsolescence equal to the difference between the cost of ~~our~~inventory and ~~senior~~the ~~management~~estimated ~~team~~market ~~could~~value ~~adversely~~based ~~affect~~upon ~~our~~assumptions about future demand and market conditions. If actual market ~~business~~conditions are less favorable than those we project, additional write-downs may be required.

~~Our~~Goodwill ~~success~~and ~~depends~~tradename: As ~~largely~~of onJuly ~~the~~5, ~~efforts~~2003, we have approximately $360 million in goodwill and ~~abilities~~tradename assets. The fair value of the Carter’s tradename was estimated at the Acquisition to be approximately $220 million using a discounted cash flow analysis, which examined the hypothetical cost savings that accrue as a result of our ~~senior~~ownership ~~management~~of ~~team~~the tradename. ~~Their~~The cash flows, which incorporated both ~~experience~~historical and ~~industry~~projected ~~contacts~~financial ~~significantly~~performance, ~~benefit~~were usdiscounted using a discount rate of 11%. IfThe wetradename ~~were~~was determined to ~~lose~~have an indefinite life. The carrying value of these assets is subject to annual impairment reviews as of the ~~benefit~~last day of ~~their~~each ~~experience~~fiscal year. Factors affecting such impairment reviews include the continued ~~and~~market ~~contacts,~~acceptance of our ~~business~~offered ~~could~~products and the development of new products. Impairment reviews may also be ~~adversely~~triggered ~~affected~~by any significant events or changes in circumstances. Our impairment review of goodwill is based on the estimated fair values of

~~Our substantial leverage could adversely affect our financial condition.~~17

Atthe ~~September 28, 2002, we had total debt of approximately~~underlying ~~$297~~businesses.9 These ~~million~~estimated ~~(consisting~~fair ofvalues are ~~$173.8~~based ~~million~~on ofestimates ~~senior subordinated notes and $124.1 million~~ of ~~secured~~the ~~borrowings~~future ~~under~~cash ~~our~~flows ~~senior credit facility) and common stockholder's equity~~ of ~~approximately $172.8 million. In addition, we and our subsidiaries are permitted to incur substantial additional indebtedness in~~ the ~~future~~businesses.

~~Our~~Accrued ~~substantial~~expenses: Accrued ~~indebtedness~~expenses ~~could~~for ~~have~~health ~~important~~insurance, workers compensation, incentive compensation, professional fees, and other ~~consequences. For~~outstanding ~~example~~obligations are assessed based on actual commitments, itstatistical trends, ~~could:~~and estimates based on projections and current expectations, and these estimates are updated periodically as additional information becomes available.

•Accounting ~~increase~~for income taxes: As part of the process of preparing our consolidated ~~vulnerability~~financial statements, we are required to ~~general~~estimate our actual current tax exposure (state, federal, and foreign), together with assessing ~~adverse~~permanent ~~economic~~and temporary differences resulting from differing bases and treatment ~~industry~~of ~~conditions;~~items for tax and accounting purposes, such as the carrying value of intangibles, deductibility of expenses, depreciation of property and equipment, and valuation of inventories. Temporary differences result in deferred tax assets and liabilities, which are included within our consolidated balance sheets. We must then assess the likelihood that our deferred tax assets will be recovered from future taxable income. Actual results could differ from this assessment if sufficient taxable income is not generated in future periods. To the extent we determine the need to establish a valuation allowance or increase such allowance in a period, we must include an expense within the tax provision in the accompanying unaudited condensed consolidated statement of operations.

•Stock-based compensation arrangements: We account for stock-based compensation on stock options under the intrinsic value ~~limit~~method, ~~our~~whereby ~~ability~~we torecord ~~obtain~~compensation ~~additional~~expense ~~financing~~equal to ~~fund~~the ~~future~~difference ~~working~~between the exercise price of the stock option and the fair market value of the ~~capital~~underlying stock at the date of the option grant. For disclosure purposes only, ~~capital~~we ~~expenditures~~also ~~and~~estimate ~~other~~the ~~general~~impact ~~corporate~~on ~~requirements~~our net income of applying the fair value method of measuring compensation cost on stock options with the fair value determined under the minimum value method as provided by Statement of Financial Accounting Standards (“SFAS”) No. 123, “Accounting for Stock-Based Compensation” as amended by SFAS No. 148, “Accounting for Stock-Based Compensation-Transition and Disclosure” (“SFAS 148”). For stock issued or sold outright to employees, directors, or third parties, we measure expense as the difference between the price paid by the recipient and the fair market value of ~~carry~~the ~~out~~stock ~~other~~on ~~aspects~~the date of ~~our~~issuance ~~business~~or ~~plan;~~sale. In the absence of a public market for Holdings common stock, management and the Board of Directors estimate the market value of Holdings common stock for all option grant and stock issuance dates using an approach based upon a multiple of Adjusted EBITDA less net debt. Adjusted EBITDA represents earnings before interest, income tax expense, depreciation and amortization, and also excludes Acquisition-related non-recurring charges, write-downs of long-lived assets, non-recurring charges-plant closure costs, and non-recurring charges-other. Adjusted EBITDA is not a measurement under generally accepted accounting principles.

~~• require~~Accounting usfor contingencies: From time to ~~dedicate~~time, awe ~~substantial~~are ~~portion~~named ofas ~~our~~a defendant ~~cash~~in ~~flow~~legal actions arising from normal operations. We account for such contingencies in toaccordance ~~pay~~with ~~principal~~SFAS ofNo. 5, ~~and~~“Accounting ~~interest~~for onContingencies,” ~~our~~which ~~indebtedness,~~requires ~~thereby~~us to ~~reducing~~record ~~the~~an estimated loss liability when information available prior to ~~availability~~issuance of our financial statements indicates that ~~cash~~it ~~flow~~is toprobable ~~fund~~that ~~working~~an asset ~~capital,~~has ~~capital~~been ~~expenditures~~impaired or a liability has been incurred at the date of the ~~other~~financial ~~general~~statements ~~corporate~~and ~~purposes,~~the amount of the loss can be reasonably estimated. Accounting for contingencies arising from contractual or legal proceedings requires company management to ~~carry~~use ~~out~~its ~~other~~best judgment ~~aspects~~when ofestimating ~~our~~an ~~business~~accrual related to such contingencies. As additional information becomes known, such estimates are revised and updated as necessary and may fluctuate from ~~plan;~~period to period.

~~• limit our flexibility in planning for, or reacting to, changes in our business and the industry; and~~18

~~• place us at a competitive disadvantage~~RECENT ~~compared~~ACCOUNTING ~~to our competitors that have less debt.~~PRONOUNCEMENTS

In ~~addition~~August 2001, the ~~senior~~Financial ~~credit~~Accounting ~~facility~~Standards ~~contains~~Board ~~financial~~(“FASB”) issued SFAS No. 143, “Accounting for Asset Retirement Obligations” (“SFAS 143”). SFAS 143 requires recording the fair market ~~and~~value ~~other~~of ~~restrictive~~an ~~covenants~~asset ~~that~~retirement ~~limit~~obligation ~~our~~as ~~ability~~a toliability ~~engage~~in the period in ~~activities~~which a ~~that~~legal ~~may~~obligation beassociated inwith ~~our~~the retirement of tangible long-~~term~~lived ~~best~~assets is ~~interests~~incurred (including certain lease obligations). The statement also requires recording an asset offsetting the ~~Our~~initial ~~failure~~obligation as an increase to ~~comply~~the ~~with~~carrying ~~those~~amount ~~covenants~~of ~~could~~the ~~result~~related long-lived inasset anand ~~event~~depreciation of that cost over the life of the asset. We adopted the provisions of SFAS 143 in the ~~default~~first ~~which~~quarter of 2003, ifand the impact of such adoption was not ~~cured~~material to our financial position or ~~waived,~~results ~~could~~of ~~result~~operations infor the ~~acceleration~~second ofquarter ~~all~~or first half of ~~our debt~~2003.

16In April 2002, the FASB issued SFAS No. 145, “Rescission of FASB Statements No. 4, 44, and 64, Amendment of FASB Statement No. 13, and Technical Corrections” (“SFAS 145”). SFAS 145 rescinds FASB Statement No. 4, which required all gains and losses from extinguishments of debt to be aggregated and, if material, classified as an extraordinary item, net of the related income tax effect. As a result, the criteria in Accounting Principles Board Opinion 30 will now be used to classify those gains and losses. The provisions of SFAS 145, as related to the rescission of FASB Statement No. 4, are effective for fiscal 2003. In the first quarter of 2003, we adopted the provisions of SFAS 145 and the extraordinary item recorded in the Predecessor period from December 31, 2000 through August 14, 2001 will be reclassified in our Annual Report on Form 10-K for the year ended January 3, 2004.

~~The~~In ~~current~~July 2002, the FASB issued SFAS No. 146, “Accounting for Costs Associated with Exit or Disposal Activities” (“SFAS 146”). SFAS 146 sets forth various modifications to existing accounting guidance, which prescribes the conditions which must be met in order for costs associated with contract terminations, facility consolidations, and ~~future~~employee ~~economic~~relocations ~~downturns~~and terminations to be accrued and recorded as liabilities in financial statements. Accordingly, SFAS 146 may affect the timing of recognizing any of our future restructuring costs as well as the amount ~~adversely~~recognized. SFAS ~~affect~~146 also establishes that the liability should initially be measured and recorded at fair value. The provisions of SFAS 146 are required to be applied prospectively to exit or disposal activities initiated by us after December 31, 2002. See Note 8 to the unaudited consolidated financial statements regarding our ~~sales~~decision to close two of our production facilities.

AIn November ~~downturn~~2002, in the ~~economy~~FASB ~~may~~issued ~~affect~~FASB ~~consumer~~Interpretation ~~purchases~~No. ~~of discretionary items~~45, ~~which~~ ~~could~~“Guarantor’s ~~adversely~~Accounting ~~affect our sales.~~ and ~~Our~~Disclosure ~~success~~Requirements ~~depends~~for onGuarantees, ~~the~~Including ~~sustained~~Indirect ~~demand~~Guarantees ~~for~~of Indebtedness ~~our~~of ~~products~~Others” ~~and consumer~~(“FIN ~~confidence~~45”). ~~Consumer purchases~~FIN of45 ~~discretionary~~requires ~~items,~~that ~~such~~a asliability ~~many~~be ofrecorded ~~our~~in ~~products,~~the ~~tend~~guarantor’s tobalance ~~decline~~sheet ~~during~~upon ~~recessionary~~issuance ~~periods~~of ~~when~~a ~~disposable income is lower~~guarantee. ~~These~~In ~~downturns~~addition, FIN ~~have~~45 ~~been~~requires ~~characterized~~disclosures byabout ~~diminished~~the ~~product demand~~guarantees, ~~and~~including ~~subsequent~~indemnifications, that ~~accelerated~~an ~~erosion~~entity ofhas ~~average~~issued ~~selling~~and ~~prices. A~~a ~~general~~rollforward ~~slowdown~~of in the ~~economies~~entity’s inproduct ~~which~~warranty weliabilities. The ~~sell~~disclosure ~~our~~provisions of ~~products~~FIN or45 ~~even~~were aneffective ~~uncertain~~for ~~economic~~financial ~~outlook~~statements ~~could~~of ~~adversely affect~~interim ~~consumer~~periods ~~spending~~or onannual periods ~~our~~ending ~~products~~after ~~and~~December 15, in2002. In ~~turn~~addition, ~~our~~we ~~sales~~adopted ~~and~~the ~~results~~recognition provisions of ~~operations. Since~~ ~~the~~FIN ~~third~~45 ~~quarter of~~effective ~~2000~~January 1, ~~the~~2003 ~~U.S.~~for ~~economy~~guarantees ~~has~~issued ~~shown~~or ~~signs~~modified ofafter aDecember ~~downturn~~31, 2002. IfThe ~~this~~adoption ~~general~~of ~~economic~~FIN ~~slowdown~~45 ~~continues,~~did itnot ~~may~~have ~~adversely~~a material impact on our ~~future~~financial ~~business~~position, ~~and~~results ~~operating~~of ~~results~~operations, or cash flows.

~~Governmental~~In December 2002, the FASB issued SFAS No. 148, “Accounting for Stock-Based ~~regulations~~Compensation-Transition and ~~environmental~~Disclosure.” SFAS ~~risks~~148 ~~applicable~~provides alternate methods of transition for a voluntary change to ~~our~~the ~~business~~fair ~~may~~value ~~require~~based usmethod of accounting for stock-based employee compensation. SFAS 148 also requires tothat ~~take~~disclosures ~~actions~~of ~~which~~the ~~limit~~pro ~~our~~forma ~~business~~effect of using the fair value method of accounting for stock-based employee compensation be displayed more prominently and ~~increase~~in tabular ~~our~~format. Additionally, ~~costs~~SFAS 148 requires disclosure of the pro forma effect of using the fair value method of accounting for stock-based employee compensation in interim financial statements. The transition and annual disclosure requirements were effective for us as of December 28, 2002. The interim disclosure requirements were effective for the first quarter of fiscal 2003 and have been reflected in Note 1 to the unaudited condensed consolidated financial statements.

~~Our business~~In isApril ~~subject to federal~~2003, the ~~state,~~FASB ~~provincial,~~issued ~~local~~SFAS ~~and~~No. ~~foreign laws and regulations~~149, ~~including~~“Amendment ~~regulations~~of ~~with~~Statement ~~respect~~133 toon ~~air emissions, wastewater~~Derivative ~~discharges~~Instruments and ~~the~~Hedging ~~generation,~~Activities” ~~handling,~~(“SFAS ~~storage, transportation, treatment and disposal of waste materials~~149”). ~~Although we~~SFAS ~~believe~~149 weamends ~~are~~and inclarifies ~~substantial~~the ~~compliance~~accounting ~~with~~for ~~all~~derivative ~~applicable laws and regulations~~instruments, including ~~legal~~certain ~~requirements~~derivative ~~are~~instruments ~~frequently~~embedded ~~changed~~in ~~and~~other ~~subject to interpretation~~contracts, and wefor hedging ~~are~~activities ~~unable~~under toSFAS ~~predict~~No. ~~the~~133, ~~ultimate~~“Accounting ~~cost~~for ofDerivative ~~compliance~~Instruments ~~with~~and ~~these~~Hedging ~~requirements or their effect on our operations~~Activities.” WeSFAS ~~may~~149 ~~be required to make significant~~is ~~expenditures~~generally toeffective ~~comply~~for ~~with~~contracts ~~governmental~~entered ~~laws~~into ~~and regulations. Complying with existing~~ or ~~future~~modified ~~laws~~after ~~or regulations~~June ~~may~~30, ~~materially limit our business~~ 2003 and ~~increase~~for ~~our~~hedging ~~costs.~~relationships

~~Seasonal fluctuations in the children’s apparel market may have an adverse impact on our business.~~19

~~We experience seasonal~~designated ~~fluctuations~~after inJune ~~our sales and profitability~~30, ~~with generally lower sales and gross profit in the first and second quarters of our fiscal year~~2003. WeThe ~~believe~~adoption ~~that the seasonality~~ of ~~sales and~~ ~~profitability~~SFAS is149 ~~a factor that affects the baby and young children’s apparel industry generally and~~ is ~~primarily~~not ~~due~~expected to ~~retailers’~~have ~~emphasis~~a onmaterial ~~price~~effect ~~reductions in the first quarter, promotional retailers’ and manufacturers’ emphasis~~ on ~~closeouts~~ ofour ~~the~~financial ~~prior year’s product lines and “back-to-school” and holiday shopping patterns. Accordingly~~position, ~~our~~ results of operations, ~~for~~or ~~the~~cash ~~first and second quarters of any year are not indicative of the results we expect for the full year~~flows.

~~RESULTS~~In May 2003, the FASB issued SFAS No. 150, “Accounting for Certain Financial Instruments OFwith ~~OPERATIONS~~Characteristics of both Liabilities and Equity” (“SFAS 150”). SFAS 150 requires that certain financial instruments, which under previous guidance were accounted for as equity, must now be accounted for as liabilities. The financial instruments affected include mandatorily redeemable stock, certain financial instruments that require or may require the issuer to buy back some of its shares in exchange for cash or other assets and certain obligations that can be settled with shares of stock. SFAS 150 is effective for all financial instruments entered into or modified after May 31, 2003 and must be applied to our existing financial instruments effective July 6, 2003, the beginning of the first fiscal period after June 15, 2003. We adopted SFAS 150 on June 1, 2003. The adoption of this statement did not have an effect on our financial position, results of operations, or cash flows.

The 2001 results summarized and discussed below for the three and nine-month periods ended September 29, 2001 represent the mathematical addition of the historical results for the period from July 1, 2001 through August 14, 2001 (the “Predecessor” period) and the period from August 15, 2001 through September 29, 2001 (the “Successor” period) and the mathematical addition of the period from December 31, 2000 through August 14, 2001 (the “Predecessor” period) and the period from August 15, 2001 through September 29, 2001 (the “Successor” period) for purpose of the discussion below only. While this approach is not consistent with generally accepted accounting principles, due to the new basis of accounting established at the Acquisition date, we believe it is the most practical way to comment on the results of operations.20

AsITEM ~~a result of the Acquisition, our assets and liabilities were adjusted to their estimated fair values as of August 15, 2001~~3. In QUANTITATIVE ~~addition,~~AND weQUALITATIVE ~~entered~~DISCLOSURES ~~into~~ABOUT ~~new~~MARKET financing arrangements and had a change in our capital structure. The one and one-half month period prior to the Acquisition reflects non-recurring charges, principally sellers' expenses such as management bonuses and professional fees, and an extraordinary charge for debt prepayment penalties and the write-off of deferred debt issuance costs on debt retired as a result of the Acquisition and refinancing. All periods prior to the Acquisition presented include amortization expense on our tradename and goodwill. The periods subsequent to the Acquisition reflect increased interest expense, amortization of licensing agreements and cessation of amortization on our tradename and goodwill due to the adoption of Statement of Financial Accounting Standards (“SFAS”) No. 141, “Business Combinations” (“SFAS 141”) and SFAS No. 142, “Goodwill and Other Intangible Assets” (“SFAS 142”). Accordingly, the results of operations for the Predecessor and Successor periods are not comparable.RISKS

17In the operation of our business, we have market risk exposures to global sourcing, raw material prices, and interest rates. Each of these risks and our strategies to manage our exposure to them are discussed below.

~~The~~We currently source substantially all of our production from our offshore operations and ~~following~~third-party ~~table~~manufacturers ~~sets~~located ~~forth~~in foreign countries. As a result, ~~for~~we may be adversely affected by political instability resulting in the ~~periods~~disruption ~~indicated,~~of ~~(i)~~trade ~~selected~~from ~~statement~~foreign countries, the imposition of ~~operations~~new ~~data~~regulations ~~expressed~~relating asto aimports, ~~percentage~~duties, taxes, and other charges on imports, any significant decreases in the value of the ~~net~~dollar ~~sales~~against foreign currencies, and ~~(ii)~~restrictions on the ~~number~~transfer of funds. These and other factors could result in the interruption of ~~retail~~production ~~stores~~in ~~open~~offshore atfacilities, delay receipt of the ~~end~~products ofinto ~~each~~the United States or affect our operating income. Our future performance may be subject to such ~~period~~factors, which are beyond our control, and there can be no assurance that such factors would not have a material adverse effect on our financial condition and results of operations. We carefully select our sourcing agents, and in an effort to mitigate the possible disruption in product flow, we place production in various countries we believe to be of lower risk.

	As a Percentage of Net Sales
	Three-month periods ended				Nine-month periods ended
	September 28, 2002		September 29, 2001		September 28, 2002		September 29, 2001
Wholesale sales	56.5	%	55.6	%	55.9	%	55.4	%
Retail sales	43.5		44.4		44.1		44.6
Net sales	100.0		100.0		100.0		100.0
Cost of goods sold	60.7		63.4		61.2		64.3
Gross profit	39.3		36.6		38.8		35.7
Selling, general and administrative expenses	26.0		25.8		29.8		29.2
Non-recurring charges	—		7.3		—		4.1
Royalty income	(1.5	)	(1.6	)	(1.5	)	(1.6	)
Operating income	14.8		5.1		10.5		4.0
Interest expense, net	4.4		3.9		5.2		3.7
Income before income taxes and extraordinary item	10.4		1.2		5.3		0.3
Provision for income taxes	4.0		2.1		2.0		0.8
Income (loss) before extraordinary item	6.4		(0.9	)	3.3		(0.5	)
Extraordinary item, net of tax benefit of $4.1 million	—		4.0		—		1.7
Net income (loss)	6.4	%	(4.9	)%	3.3	%	(2.2	)%
Number of retail stores at end of period	156		150		156		150

We enter into various purchase order commitments with full package suppliers. We can cancel these arrangements, although in some instances, we may be subject to a termination charge reflecting a percentage of work performed prior to cancellation. Historically, such cancellations and related termination charges have not had a material impact on our business.

~~Three~~The principal raw materials we use are finished fabrics and ~~nine-month~~trim ~~periods~~materials. Prices ~~ended~~for ~~September~~these ~~28,~~materials ~~2002~~are ~~compared~~affected toby changes ~~three~~in market demand and there can be no assurance that prices for these and other raw materials will not increase in the near future. These materials are available from more than ~~nine-month~~one ~~periods~~supplier, ~~ended~~which ~~September~~enables 29us to negotiate pricing. However, ~~2001~~the loss of one or more of these suppliers could interrupt our supply, which could have an adverse effect on our sales and increase our costs.

~~NET~~We ~~SALES. In the~~contract ~~third~~for ~~quarter~~production ofwith ~~2002,~~third ~~consolidated~~parties ~~net~~primarily ~~sales~~in ~~increased~~the ~~$11.9~~Far ~~million,~~East orand ~~7.8%,~~South and toCentral ~~$165~~America.8 While ~~million~~these ~~from~~contracts are ~~$153.8~~stated ~~million~~ in ~~the~~United ~~third~~States ~~quarter~~dollars, ofthere ~~2001. Consolidated~~can ~~net~~be ~~sales~~no ~~for~~assurance that the ~~first nine~~cost ~~months~~for ofthe ~~2002~~future ~~were~~production ~~$409.5~~of ~~million,~~our anproducts ~~increase~~will ofnot ~~$38.4~~be ~~million,~~affected orby ~~10.3%,~~exchange asrate ~~compared~~fluctuations ~~with~~between ~~$371.1~~the ~~million~~United ~~for~~States ~~the~~dollar ~~first~~and ~~nine~~the ~~months~~local currencies of ~~2001~~these contractors. ~~These~~Due ~~increases~~to ~~reflect~~ the ~~continued strength~~number of currencies ~~our~~involved, ~~product~~we ~~performance~~cannot inquantify ~~each~~the ofpotential ~~our~~impact ~~channels~~ of ~~distribution,~~future currency ~~which~~fluctuations weon ~~believe~~net isincome ~~driven~~in byfuture ~~our~~years. To ~~focus on core products~~date, ~~the~~such ~~expansion~~exchange offluctuations ~~our global~~have ~~sourcing~~not ~~capabilities,~~had ~~effective~~a ~~merchandising~~material ~~strategies~~impact ~~and~~on ~~investments~~our infinancial ~~point~~condition ofor ~~sale~~results ~~fixturing~~of operations.

~~Total~~Our operating ~~wholesale~~results ~~sales,~~are ~~excluding~~subject ~~discount~~to ~~store~~risk ~~channel~~from ~~and~~interest ~~off-price~~rate ~~sales, increased~~fluctuations ~~$6.5~~on ~~million~~our debt, orwhich carries ~~8.4%,~~variable ininterest ~~the~~rates. At ~~third~~July ~~quarter~~5, of2003, ~~2002~~outstanding todebt aggregated $82291.9 million ~~from~~, of which $76118.50 million inbore ~~the~~interest ~~third~~at ~~quarter~~a ofvariable ~~2001~~rate. ~~This~~An ~~revenue~~increase ~~growth~~of ~~was~~1% ~~driven~~in bythe anapplicable rate would increase in our ~~playclothes product~~annual ~~line~~interest ~~offset~~cost by ~~declines~~$1,180,000 ~~in our baby~~ and ~~sleepwear~~could ~~product~~have ~~lines~~an ~~due to~~adverse ~~the~~effect ~~timing~~on ofour ~~new~~net ~~product~~income ~~launches~~ and ~~unfavorable~~cash ~~market conditions~~flow. ~~Wholesale~~ Pursuant ~~sales~~to ~~increased in~~ the ~~first~~provisions ~~nine months~~ of ~~2002~~our byCredit ~~$20.2 million~~Facility, orwe ~~11.2%,~~purchased an tointerest ~~$200.5~~rate ~~million~~cap ~~from~~as ~~$180.3 million~~an ineconomic ~~the~~hedge ~~same~~against ~~period~~approximately ~~in 2001~~$31. 3 million ~~This~~of ~~revenue~~variable ~~growth~~rate ~~was~~debt. The ~~driven~~cap ~~primarily~~rate ~~by an increase in our~~is ~~playclothes~~7.0% and ~~baby~~the ~~product~~arrangement ~~lines~~expires ~~partially~~on ~~offset~~December by7, ~~lower sleepwear sales~~2004.

18ITEM 4. DISCLOSURE CONTROLS AND PROCEDURES

~~Included~~Our inChief ~~total~~Executive ~~wholesale~~Officer ~~sales~~and ~~are~~Chief ~~discount~~Financial ~~store~~Officer ~~channel~~have ~~sales,~~evaluated ~~which~~the ~~increased $1.5~~effectiveness ~~million,~~of ~~or 28.2%, in~~ the ~~third~~design ~~quarter~~and operation of ~~2002~~our todisclosure ~~$7.0~~controls ~~million~~and ~~from~~procedures ~~$5.5~~(as ~~million~~defined inunder ~~the~~Rules ~~third~~13a-15(e) ~~quarter~~and of15d-15(e) ~~2001. In~~promulgated under the ~~first~~Securities Exchange ~~nine~~Act ~~months~~ of ~~2002~~1934, ~~sales~~as ~~from~~amended) ~~this~~as ~~channel~~of ~~increased~~the ~~$2.1 million,~~end orof ~~14.2%,~~the toperiod ~~$17.0~~covered ~~million~~by ~~from $14~~this report.9 Based ~~million~~upon inthat ~~the~~evaluation, ~~first nine months~~our ofChief ~~2001. We~~Executive ~~attribute~~Officer ~~these~~and ~~increases to~~Chief ~~strong~~Financial ~~product~~Officer ~~performance~~have asconcluded ~~well~~that asour disclosure ~~floor~~controls ~~space~~and ~~gained~~procedures ~~through~~are ~~the~~adequate ~~opening of~~and ~~additional Target stores~~effective.

Our retail store sales were $72.2 million for the third quarter of 2002, which represented an increase of $3.9 million, or 5.7%, over the third quarter of 2001. This increase is primarily attributable to increased sales from our baby and playclothes product lines. Retail store sales increased $15.0 million, or 9.1%, in the first nine months of 2002 to $180.6 million from $165.6 million in the first nine months of 2001. While increases in all of our major product lines contributed to this growth, such growth was led primarily by increases in our baby and playclothes product lines. Comparable store sales in our retail store channel increased 1.7% in the third quarter of 2002 and increased 2.9% in the third quarter of 2001. For each of the third quarter periods, we opened one store. During the first nine months of 2002 and 2001, comparable store sales increased 5.6%, and 5.4%. We opened five stores during the first nine months of 2002, and opened five and closed two during the first nine months of 2001. As of September 28, 2002, we had 156 retail stores compared to 150 stores as of September 29, 2001. We plan to open seven and close four stores in the fourth quarter of 2002.21

~~GROSS~~PART ~~PROFIT. Our~~II—OTHER gross profit increased $8.8 million, or 15.7%, to $65.1 million in the third quarter of 2002 from $56.3 million in the third quarter of 2001. Gross profit, as a percentage of net sales, in the third quarter of 2002 increased to 39.3% from 36.6% as compared to 2001. In the first nine months of 2002, our gross profit increased $26.2 million, or 19.8%, to $158.8 million compared to $132.5 million in the first nine months of 2001 and as a percentage of net sales increased to 38.8% from 35.7% as compared to 2001. These increases in gross profit as a percentage of net sales for both periods were principally due to the continued expansion of our global sourcing strategy, which has enabled us to source better quality products with improved fabric and garment construction at lower costs. These improvements in gross margin also include the impact of a $1.7 million charge recorded in the third quarter of 2001 related to the amortization of the step-up in the inventory valuation at Acquisition.INFORMATION:

~~SELLING,~~ITEM ~~GENERAL AND ADMINISTRATIVE EXPENSES. Selling, general and administrative expenses for the third quarter of 2002 increased $3.5 million, or 8.7%, to $43.~~1 ~~million from $39~~.7 ~~million~~LEGAL in the third quarter of 2001. These costs, as a percentage of net sales, increased to 26.0% in the third quarter of 2002 from 25.8% in the third quarter of 2001 due primarily to increases in distribution and certain product marketing expenses. In the first nine months of 2002, selling, general and administrative expenses increased $13.9 million, or 12.8%, to $122.0 million from $108.2 million in the first nine months of 2001. These expenses, relative to sales, increased to 29.8% in the first nine months of 2002 from 29.2% in the first nine months of 2001 due to the factors noted above partially offset by the benefit from leveraging operating expenses against higher levels of revenue and $1.1 million in non-recurring costs incurred in connection with activities leading up to the Acquisition in the first nine months of 2001.PROCEEDINGS:

~~NON-RECURRING~~From ~~CHARGES~~time ~~/ WRITEDOWN OF LONG-LIVED ASSETS. As described in Note 1~~ to ~~the accompanying condensed consolidated financial statements~~ time, we ~~incurred~~ ~~Acquisition-related~~have ~~non-recurring~~been ~~charges~~involved ~~including~~in ~~$4.5~~various ~~million~~legal ~~of special~~proceedings. We ~~compensation~~believe ~~paid~~that toall ~~management~~such atlitigation ~~the~~is ~~closing of the Acquisition and~~routine ~~$6.8 million~~ in ~~sellers’~~nature ~~transaction costs~~ and ~~fees~~incidental ~~paid during the one and one-half month period ended August 14, 2001. As described in Note 7~~ to the ~~accompanying~~conduct ~~condensed consolidated financial statements, in the first quarter~~ of ~~2001,~~our ~~we recognized a non-recurring charge of approximately $582~~business,~~000~~ ~~for certain closure costs~~ and ~~involuntary~~ ~~termination benefits related to our sewing facility in Harlingen, Texas. Additionally,~~ we ~~recorded~~believe ~~a non-cash~~that ~~charge of approximately $742,000 for the writedown of the asset value~~no tosuch ~~its estimated net realizable value. In the second quarter of fiscal 2001~~litigation, weif ~~closed~~resolved ~~our~~adversely ~~fabric printing operations located in Barnesville, Georgia and recognized a non-recurring charge of approximately $534,000 related~~ to ~~certain closure costs and involuntary termination benefits. All of the costs for these plant closures provided for in fiscal 2001 were paid. Additionally~~us, wewould ~~recorded~~have a ~~non-cash~~material ~~charge~~adverse ofeffect ~~approximately~~on ~~$2.4~~our ~~million~~financial ~~for~~condition ~~the~~or ~~writedown~~results of ~~the~~operations ~~related~~or ~~asset~~cash ~~value to its estimated net realizable value~~flows.

19During 2002, a lawsuit was filed against us in which the plaintiff is claiming damages of approximately $830,000 related to an alleged oral guarantee of money owed to it by a third-party vendor. We have not provided for this exposure, as we believe that this claim is without merit and we intend to vigorously defend this matter.

~~ROYALTY~~ITEM ~~INCOME. We license the use of the Carter’s and Tykes names to certain licensees. Our royalty income in the third quarter of 2002 and 2001 was approximately $~~2.5 ~~million. During~~CHANGES ~~the~~IN ~~first nine months of 2002, royalty income was approximately $6.2 million compared to approximately $6.0 million during the first nine months of 2001.~~SECURITIES:

OPERATING INCOME. Operating income for the third quarter of 2002 increased $16.6 million to $24.5 million compared to $7.8 million in the third quarter of 2001. Operating income for the first nine months of 2002 increased $28.2 million to $43.0 million from $14.8 million in the first nine months of 2001. These increases reflect the effect of higher levels of revenue and gross profit and the impact of the non-recurring charges incurred in 2001. Excluding the non-recurring charges in 2001, operating income for the third quarter and first nine months of 2002 would have increased approximately $5.3 million, or 28.0%, and approximately $12.6 million, or 41.6%, over the third quarter and first nine months of 2001.None

~~INTEREST~~ITEM ~~EXPENSE, NET. Net interest expense for the third quarter of 2002 increased $1.~~3 ~~million to $7~~.3 ~~million~~DEFAULTS ~~from~~UPON ~~$6.0~~SENIOR million in the third quarter of 2001. In the first nine months of 2002, interest expense increased $7.4 million to $21.2 million from $13.8 million in the first nine months of 2001. This increase is a result of additional borrowings from the Acquisition and refinancing as discussed in Note 1 to the accompanying condensed consolidated financial statements.SECURITIES:

INCOME TAXES. We recorded a provision for income taxes of $6.6 million in the third quarter of 2002 compared to $3.2 million in the third quarter of 2001. In the first nine months of 2002, we recorded a provision for income taxes of $8.4 million compared to $2.9 in the first nine months of 2001. Our effective tax rate was approximately 38.5% during the first nine months of 2002; 40.2% for the one and one-half month period ended September 29, 2001; and 14.5% for the seven and one-half month period ended August 14, 2001. The 14.5% tax benefit for the seven and one-half month period ended August 14, 2001 is primarily a result of certain seller’s expenses incurred in connection with the Acquisition and goodwill amortization that are not deductible for tax purposes.None

~~EXTRAORDINARY~~ ITEM~~. As~~ ~~described in Note 1 to the accompanying condensed consolidated financial statements, we incurred an extraordinary charge of $6.2 million, net of a tax benefit of $~~4.1 ~~million,~~SUBMISSION ~~during~~OF ~~the~~MATTERS ~~one and~~TO ~~one-half~~A ~~month~~VOTE ~~period~~OF ~~ended~~SECURITY ~~August 14, 2001 in connection with the Acquisition and refinancing due to the write off of deferred debt issuance costs and debt prepayment penalties.~~HOLDERS:

NET INCOME (LOSS). Our third quarter 2002 net income was approximately $10.6 million compared to a net loss of approximately $7.5 million in the third quarter of 2001. Net income for the first nine months of 2002 was approximately $13.4 million compared to a net loss of approximately $8.1 million in the first nine months of 2001. As noted above, our 2001 results include non-recurring charges and an extraordinary item. Excluding these items, our net income for the three and nine-month periods ended September 28, 2002 would have increased approximately $2.4 million, or 29.0%, and approximately $3.0 million, or 29.6%, as compared to the three and nine-month periods ended September 29, 2001.None

~~FINANCIAL CONDITION,~~ITEM ~~CAPITAL~~5. ~~RESOURCES~~OTHER ~~AND LIQUIDITY~~INFORMATION:

Our primary cash needs are working capital, capital expenditures and debt service. Historically, we have financed these needs primarily through internally generated cash flow and funds borrowed under senior credit facilities. Our primary source of liquidity will continue to be cash flow from operations and borrowings under our credit facilities, and we expect that these sources will fund our ongoing requirements for debt service and capital expenditures. These sources of liquidity may be impacted by continued demand for our products and our ability to meet debt covenants under our credit facility.None

OnITEM ~~August 23, 2002, Holdings filed a registration statement with the Securities and Exchange Commission to register an initial public offering of up to $100~~6.~~0 million~~ ofEXHIBITS ~~its~~AND ~~common~~REPORTS ~~stock. That registration~~ON ~~statement~~FORM has not yet become effective. If the initial public offering is completed, Holdings intends to contribute to us a portion of its proceeds from the offering. We intend to use these proceeds to redeem a portion of our outstanding 10.875% senior subordinated notes due in 2011 (the “Notes”) at a8-K:

20(a) Exhibits:

redemption price of 110.875% of the principal amount redeemed plus accrued and unpaid interest, repay a portion of our indebtedness under our senior credit facility and pay Berkshire Partners LLC $3.5 million to terminate our future obligations under our management agreement with Berkshire.

Exhibit Number		Description of Exhibits
10		Second Amendment dated as of July 29, 2003 to the Credit and Guaranty Agreement dated as of August 15, 2001, as amended by that certain First Amendment dated as of March 27, 2002, among The William Carter Company, a Massachusetts corporation, Carter Holdings, Inc., a Massachusetts corporation, Carter’s de San Pedro, Inc., a Delaware corporation, Carter’s Imagination, Inc., a Delaware corporation, the Lenders from time to time party thereto, Goldman Sachs Credit Partners L.P., as Lead Arranger, Book Runner and Syndication Agent, and Fleet National Bank, as Administrative Agent and Collateral Agent.

31.1		Rule 13a-14(a)/15d-14(a) Certification

31.2		Rule 13a-14(a)/15d-14(a) Certification

32		Section 1350 Certification

~~Net~~(b) ~~cash provided~~Reports ~~by operating activities for the first nine months of 2002 was $11.3~~on ~~million~~Form ~~compared to net cash used in operating activities of $4.4 million for the first nine months of 2001.~~8-K: ~~This increase is primarily attributable to the increase in net income.~~None

Net accounts receivable at September 28, 2002 were $48.4 million compared to $49.7 million at September 29, 2001 and $35.4 million at December 29, 2001. The decrease over the third quarter 2001 reflects a higher level of wholesale shipments in the latter part of the third quarter ended September 29, 2001. Due to the seasonal nature of our operations, the net accounts receivable balance at September 28, 2002 is not comparable to the net accounts receivable balance at December 29, 2001.22

Net inventories at September 28, 2002 were $96.6 million compared to $104.9 million at September 29, 2001 and $89.1 million at December 29, 2001. This reduction compared to September 29, 2001 reflects the favorable impact of our forecasting and sourcing strategies in addition to an Acquisition-related valuation adjustment of $2.9 million which increased inventories as of September 29, 2001. Due to the seasonal nature of our operations, net inventories at September 28, 2002 are not comparable to net inventories at December 29, 2001.SIGNATURES

WePursuant ~~have~~to ~~invested $9.0 million in capital expenditures during~~ the ~~first~~requirements ~~nine months~~ of ~~2002~~ ~~compared to $12.2 million during~~ the ~~first~~Securities ~~nine~~and ~~months~~Exchange ofAct ~~2001. We plan to invest a total~~ of ~~approximately $21.0~~1934, ~~million~~the inRegistrant ~~capital expenditures in 2002.~~ has ~~Major~~duly ~~investments~~caused ~~include~~this ~~retail~~report ~~store~~to ~~openings~~be ~~and~~signed ~~remodeling, fixturing~~on ~~programs~~its ~~for~~behalf ~~wholesale~~by ~~customers and~~ the ~~expansion~~undersigned ~~of our~~thereunto ~~distribution~~duly ~~centers to support increased revenue growth~~authorized.

At September 28, 2002, we had approximately $297.9 million of debt outstanding, consisting of $173.8 million of Notes, $124.1 million in term loan borrowings and no revolver borrowings under the senior credit facility, exclusive of approximately $11.6 million of outstanding letters of credit. At September 28, 2002, we invested our available cash of $29.5 million in money market mutual funds at a tax-exempt interest rate of 1.39%, compared to borrowings of $4.6 million under the revolving portion of our senior credit facility at September 29, 2001. At September 28, 2002, we had approximately $48.4 million of financing available under our revolving loan facility. At December 29, 2001, we had approximately $298.7 million of debt outstanding, consisting of $173.7 million of Notes, $125.0 million in term loan borrowings and no revolver borrowings under the senior credit facility, exclusive of approximately $6.5 million of outstanding letters of credit. The borrowings under the revolving credit facility will be available to fund our working capital requirements, capital expenditures and other general corporate purposes.

THE WILLIAM CARTER COMPANY


	Date: August 19, 2003		/s/ FREDERICK J. ROWAN, II


		Frederick J. Rowan, II
		Chairman, President, and Chief Executive Officer

	Date: August 19, 2003			/s/ MICHAEL D. CASEY


		Michael D. Casey
		Executive Vice President and Chief Financial Officer

Principal borrowings under the term loan are due and payable in twenty-four quarterly installments of $312,500 beginning December 31, 2001 through September 30, 2007 and four quarterly payments of approximately $29.4 million from December 31, 2007 through September 30, 2008. Interest on the term loan is payable at the end of interest rate reset periods, which vary in length but in no case exceed six months. The outstanding balance of the revolving credit facility is payable in full on August 15, 2006, and interest is payable quarterly. No principal payments are required on the Notes prior to their scheduled maturity in August 2011. Interest is payable semi-annually on the Notes in February and August of each year, commencing February 15, 2002, in the amount of approximately $9.5 million for each payment.23

The senior credit facility contains mandatory and optional prepayments as defined under the agreement, including 50% of the net cash proceeds from Carter’s or Holdings issuance of equity, excluding, among other things, proceeds from any issuance of equity that arise in connection with employee stock plans or are invested in connection with a permitted acquisition and; 75% or 50% of excess cash flow, depending on the applicable leverage ratio, as both terms are defined in the senior credit facility. The excess cash flow requirement is effective for fiscal 2002 and could require us to make such mandatory prepayments, if applicable, on the senior credit facility within 90 days of the end of fiscal 2002. The lenders will apply such prepayments first to the term loan and, second, to reduce permanently the revolving credit commitments.

Subject to certain conditions, we may make optional prepayments of loans without premium or penalty. The lenders will apply such optional prepayments according to our instruction.

Based on our current level of operations, we believe that cash generated from operations and available cash, together with amounts available under the revolving credit portion of our new senior credit facility, will be adequate to meet our debt service requirements, capital expenditures and working capital needs for the foreseeable future, although no assurance can be given in this regard. We may, however, need to refinance all or a portion of the principal amount of the Notes on or prior to maturity.

The senior credit facility imposes certain covenants, requirements and restrictions on our actions and our subsidiaries that, among other things, restrict the payment of dividends.

EFFECTS OF INFLATION

We are affected by inflation and changing prices primarily through the purchase of raw materials, increased operating costs and higher interest rates. The effects of inflation in changing prices on our net sales, revenues and operations have not been material in recent years.

SEASONALITY

We experience seasonal fluctuations in our sales and profitability, with generally lower sales and gross profit in the first and second quarters of our fiscal year. Over the past five years, approximately 58% of our consolidated net sales have been generated in the second half of our fiscal year. We believe that the seasonality of sales and profitability is a factor that generally affects the baby and young children’s apparel industry and is primarily due to retailers’ emphasis on price reductions in the first quarter, promotional retailers’ and manufacturers’ emphasis on closeouts of the prior year’s product lines and “back-to-school” and holiday shopping patterns. Accordingly, the results of operations for the three and nine-month periods ended September 28, 2002 are not indicative of the results we expect for the full year.

CRITICAL ACCOUNTING POLICIES AND ESTIMATES

Our discussion and analysis of our financial condition and results of operations are based upon our condensed consolidated financial statements, which have been prepared in accordance with accounting principles generally accepted in the United States of America. The preparation of these requires us to make estimates and judgments that affect the reported amounts of assets, liabilities, revenues and expenses and related disclosure of contingent assets and liabilities. On an ongoing basis, we evaluate our estimates, including those related to bad debts, inventories, intangible assets, income taxes, restructuring, pensions and other post-retirement benefits and contingencies and litigation. We base our estimates on historical experience and on various other assumptions that are believed to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these estimates under different assumptions or conditions.

A summary of the significant accounting policies and methods used in the preparation of our consolidated financial statements is included in Note 2 to the Consolidated Financial Statements, included in our most recently filed annual report on Form 10-K. The following is a brief discussion of the more significant accounting policies and methods we use.

Revenue recognition: We recognize wholesale revenue after shipment of products to customers, when title passes and when all risks and rewards of ownership have transferred. In certain cases, this does not occur until the goods reach the specified customer. We consider revenue realized or realizable and earned when the product has been shipped, the sales price is fixed or determinable and collectibility is reasonably assured.

In the normal course of business, we grant certain accommodations and allowances to our wholesale customers. As a result of our recent adoption of the Financial Accounting Standards Board’s Emerging Issues Task Force (“EITF”) Issue No. 01-09, “Accounting for Consideration Given by a Vendor to a Customer/Reseller,” (“EITF 01-09”) these amounts are classified as a reduction of revenue. We also reduce revenue for customer returns and deductions and maintain an allowance for doubtful accounts for estimated losses resulting from the inability of our customers to make payments. If the financial condition of our customers were to deteriorate, resulting in an impairment of their ability to make payments, an additional allowance could be required. Retail store revenues are recognized at the point of sale.

Inventory: We write down our inventory for estimated excess and obsolescence equal to the difference between the cost of inventory and the estimated market value based upon assumptions about future demand and market conditions. If actual market conditions are less favorable than those projected by us, additional write-downs may be required.

Goodwill and tradename: As of September 28, 2002, we have approximately $359.5 million in goodwill and tradename assets on our balance sheet. At Acquisition, we estimated the fair value of the Carter’s tradename to be approximately $220.2 million using a discounted cash flow analysis, which examined the hypothetical cost savings that accrue as a result of our ownership of the tradename. The cash flows, which incorporated both historical and projected financial performance, were discounted using a discount rate of ten percent. We determined that the tradename has an indefinite life. The carrying value of these assets will be subject to annual impairment reviews based on the estimated fair values of the underlying businesses. These estimated fair values are based on estimates of the future cash flows of the businesses. Factors affecting these future cash flows include the continued market acceptance of our offered products and our development of new products. Impairment reviews may also be triggered by any significant events or changes in circumstances.

In connection with the Acquisition, we adopted the provisions of SFAS 141, “Business Combinations” and applied the required provisions of SFAS 142, “Goodwill and Other Intangible Assets.” Accordingly, our tradename and goodwill have now been deemed to have indefinite lives and are no longer being amortized in the Successor periods. Our licensing agreements are being amortized over the average three-year life of such agreements, as it has been determined that these agreements have finite lives. Amortization expense for the first nine months of 2002 was $3.8 million and is expected to be $5.0 million for fiscal 2002, $5.0 million for fiscal 2003 and $3.1 million for 2004.

The calculation of reported net income (loss) adjusted for goodwill and tradename amortization expense, net of taxes is shown below ($000):

	Successor				Predecessor			Successor				Predecessor
	For the three-month period ended September 28, 2002		For the period from August 15, 2001 through September 29, 2001		For the period from July 1, 2001 through August 14, 2001			For the nine-month period ended September 28, 2002		For the period from August 15, 2001 through September 29, 2001		For the period from December 31, 2000 through August 14, 2001
Reported net income (loss)	$	10,578	$	6,365	$	(13,883	)	$	13,353	$	6,365	$	(14,428	)
Add back:
Amortization expense of goodwill	—		—		100			—		—		484
Amortization expense of tradename, net of tax benefit of $124 and $598	—		—		201			—		—		977
Adjusted net income (loss)	$	10,578	$	6,365	$	(13,582	)	$	13,353	$	6,365	$	(12,967	)

We adopted the remaining provisions of SFAS 142 as of the beginning of fiscal 2002. In accordance with this statement, we have identified our reporting units, completed an assessment for impairment of goodwill (by comparing the fair values of our reporting units to their respective carrying values, including allocated goodwill) and our tradename and found that there was no impairment of either asset. We are also required to measure our goodwill and tradename for impairment on at least an annual basis or if events or changes in circumstances so dictate.

In October 2001, the Financial Accounting Standards Board (“FASB”) issued SFAS No. 144, “Accounting for Impairment or Disposal of Long-Lived Assets” (“SFAS 144”) which addresses financial accounting and reporting for the impairment or disposal of long-lived assets. We adopted SFAS 144 as of the beginning of fiscal 2002 and it did not have a material impact on our financial position or results of operations for the third quarter or the nine months of 2002.

In November 2001, the EITF issued EITF 01-09, “Accounting for Consideration Given by a Vendor to a Customer/Reseller.” EITF 01-09 outlines the presumption that consideration given by a vendor to a customer is to be treated as a reduction of revenue, unless certain conditions are met. Historically, we have accounted for accommodations and cooperative advertising allowances made to wholesale customers as selling expenses at the point at which we enter into such commitments. We adopted EITF 01-09 as of the beginning of fiscal 2002 and classified these expenses as a reduction of revenue rather than as selling expenses. Accommodations and cooperative advertising provisions of $2.7 million for the Successor period from August 15, 2001 through September 29, 2001, $1.2 million for the Predecessor period from July 1, 2001 through August 14, 2001 and $5.0 million for the Predecessor period from December 31, 2000 through August 14, 2001 have been reclassified to conform with the current periods' presentation. These reclassifications did not impact net income (loss).

In April 2002, the FASB issued SFAS No. 145, “Rescission of FASB Statements No. 4, 44 and 64, Amendment of FASB Statement No. 13, and Technical Corrections” (“SFAS 145”). SFAS 145 rescinds FASB Statement No. 4, which required all gains and losses from extinguishments of debt to be aggregated and, if material, classified as an extraordinary item, net of the related income tax effect. As a result, the criteria in Accounting Principles Board Opinion 30 will now be used to classify those gains and losses. The provisions of SFAS 145, as related to the rescission of FASB Statement No. 4, will be effective for fiscal 2003. We are currently evaluating the impact of this statement to determine whether we need to reclassify a $6.2 million extraordinary item that we recorded in connection with the Acquisition. However, this reclassification will not impact our reported net loss.

In July 2002, the FASB issued SFAS No. 146, “Accounting for Costs Associated with Exit or Disposal Activities” (“SFAS 146”). SFAS 146 sets forth various modifications to existing accounting guidance which prescribes the conditions which must be met in order for costs associated with contract terminations, facility consolidations, employee relocations and terminations to be accrued and recorded as liabilities in financial statements. Accordingly, SFAS 146 may affect the timing of recognizing future restructuring costs as well as the amount recognized. SFAS 146 also establishes that the liability should initially be measured and recorded at fair value. The provisions of SFAS 146 will be required to be applied prospectively to exit or disposal activities initiated after December 31, 2002.

In the operation of our business, we have market risk exposures to global sourcing, raw material prices and interest rates. Each of these risks and our strategies to manage the exposure are discussed below.

We currently source substantially all of our production from our offshore operations and third-party manufacturers located in foreign countries. As a result, we may be adversely affected by political instability resulting in the disruption of trade from foreign countries, the imposition of new regulations relating to imports, duties, taxes and other charges on imports and any significant decreases in the value of the dollar against foreign currencies and restrictions on the transfer of funds. Some of these and other factors could interrupt production in offshore facilities, delay receipt of the products into the United States or affect our operating income. Our future performance may be subject to such factors, which are beyond our control, and there can be no assurance that such factors would not have a material adverse effect on our financial condition and results of operations. We carefully select our sourcing agents, and in an effort to mitigate the possible disruption in product flow, we place production in various countries we believe to be of lower risk.

Additionally, we enter into various purchase order commitments with full package suppliers. We can cancel these arrangements, although in some instances, we may be subject to a termination charge reflecting a percentage of work performed prior to cancellation. Historically, such cancellations and related termination charges have not had a material impact on our business.

The principal raw materials we use are finished fabrics and trim materials. Prices for these materials are affected by changes in market demand and there can be no assurance that prices for these and other raw materials will not increase in the near future. Most of these materials are available from more than one supplier, which enables us to negotiate pricing.

Our operating results are subject to risk from interest rate fluctuations on debt, which carries variable interest rates. At September 28, 2002, outstanding debt aggregated $297.9 million, of which $124.1 million bore interest at a variable rate. An increase of 1% in the applicable rate would increase our annual interest cost by $1,241,000 and could have an adverse effect on our net income and cash flow. Pursuant to the provisions of our senior credit facility, we purchased an interest rate cap as an economic hedge against approximately $31.3 million of variable rate debt. The cap rate is 7.0% and the arrangement expires on December 7, 2004.

Based on an evaluation of our disclosure controls and procedures as of a date within 90 days of the filing date of this quarterly report, our Chief Executive Officer and Chief Financial Officer have concluded that our disclosure controls and procedures are effective in connection with our filing of this quarterly report on Form 10-Q for the period ended September 28, 2002.

There were no significant changes in our internal controls or in any other factors which could significantly affect those controls, subsequent to the date of our most recent evaluation of our internal controls, including any corrective actions with regard to any significant deficiencies or material weakness.

PART II—OTHER INFORMATION:

ITEM 1. LEGAL PROCEEDINGS:

From time to time, we have been involved in various legal proceedings. We believe that all such litigation is routine in nature and incidental to the conduct of our business, and we believe that no such litigation will have a material adverse effect on our financial condition or results of operations.

ITEM 2. CHANGES IN SECURITIES:

None

ITEM 3. DEFAULTS UPON SENIOR SECURITIES:

None

ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS:

None

ITEM 5. OTHER INFORMATION:

None

ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K:

(a) Exhibits: None

(b) Reports on Form 8-K

On August 23, 2002, we filed a current report on Form 8-K with the Securities and Exchange Commission (“SEC”). Under Item 5 of the report, we announced that Holdings had filed a registration statement with the SEC to register an initial public offering of up to $100.0 million of Holdings’ common stock.

SIGNATURES

Pursuant to the requirements of the Securities and Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

THE WILLIAM CARTER COMPANY
Date: November 12, 2002	/s/ FREDERICK J. ROWAN, II
	Frederick J. Rowan, II
	Chief Executive Officer
Date: November 12, 2002	/s/ MICHAEL D. CASEY
	Michael D. Casey
	Chief Financial Officer

CERTIFICATION

I, Frederick J. Rowan, II, certify that:

1. I have reviewed this quarterly report on Form 10-Q of The William Carter Company;

2. Based on my knowledge, this quarterly report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this quarterly report;

3. Based on my knowledge, the financial statements, and other financial information included in this quarterly report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this quarterly report;

4. The registrant’s other certifying officers and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant and we have:

a) designed such disclosure controls and procedures to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this quarterly report is being prepared;

b) evaluated the effectiveness of the registrant’s disclosure controls and procedures as of a date within 90 days prior to the filing date of this quarterly report (the “Evaluation Date”); and

c) presented in this quarterly report our conclusions about the effectiveness of the disclosure controls and procedures based on our evaluation as of the Evaluation Date;

5. The registrant’s other certifying officers and I have disclosed, based on our most recent evaluation, to the registrant’s auditors and the audit committee of registrant’s board of directors (or persons performing the equivalent function):

a) all significant deficiencies in the design or operation of internal controls which could adversely affect the registrant’s ability to record, process, summarize and report financial data and have identified for the registrant’s auditors any material weaknesses in internal controls; and

b) any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal controls; and

6. The registrant’s other certifying officers and I have indicated in this quarterly report whether or not there were significant changes in internal controls or in other factors that could significantly affect internal controls subsequent to the date of our most recent evaluation, including any corrective actions with regard to significant deficiencies and material weaknesses.

Date: November 12, 2002
	/s/ FREDERICK J. ROWAN, II
	Frederick J. Rowan, II
	Chief Executive Officer

CERTIFICATION

I, Michael D. Casey, certify that:

1. I have reviewed this quarterly report on Form 10-Q of The William Carter Company;

b) evaluated the effectiveness of the registrant’s disclosure controls and procedures as of a date within 90 days prior to the filing date of this quarterly report (the “Evaluation Date”); and

c) presented in this quarterly report our conclusions about the effectiveness of the disclosure controls and procedures based on our evaluation as of the Evaluation Date;

b) any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal controls; and

Date: November 12, 2002
	/s/ MICHAEL D. CASEY
	Michael D. Casey
	Chief Financial Officer

CERTIFICATION

Each of the undersigned in the capacity indicated hereby certifies that, to his knowledge, this Report on Form 10-Q for the quarter ended September 28, 2002 fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934, and the information contained in this Report fairly presents, in all material respects, the financial condition and results of operations of The William Carter Company.

Date: November 12, 2002	/s/ FREDERICK J. ROWAN, II
	Frederick J. Rowan, II
	Chief Executive Officer
Date: November 12, 2002	/s/ MICHAEL D. CASEY
	Michael D. Casey
	Chief Financial Officer

Massachusetts

~~04-1156680~~

(State or other jurisdiction of incorporation or organization)

~~(IRS Employer Identification No.)~~

(IRS Employer Identification No.)

The Proscenium 1170 Peachtree Street NE, Suite 900 Atlanta, Georgia 30309

(Address of principal executive offices, including zip code)

(404) 745-2700

(Registrant’s telephone number, including area code)

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