Back to GetFilings.com

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

FORM 10-K

Commission file numbers:

001-31829 and 333-22155

CARTER'S, INC.
THE WILLIAM CARTER COMPANY
(Exact names of registrants as specified in their charters)

SECURITIES REGISTERED PURSUANT TO SECTION 12(b) OF THE ACT:

SECURITIES REGISTERED PURSUANT TO SECTION 12(g) OF THE ACT:
None

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

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

The common equity of Carter's, Inc. was not publicly traded as of the end of our most recently completed second fiscal quarter, and accordingly Carter's, Inc. does not meet the definition of an accelerated filer under Rule 12b-2 of the Securities Exchange Act of 1934.

There were 27,985,360 shares of Carter's, Inc.'s common stock with a par value of $0.01 per share outstanding as of the close of business on March 19, 2004.

DOCUMENTS INCORPORATED BY REFERENCE

Portions of the definitive proxy statement to be filed with the Securities and Exchange Commission pursuant to Regulation 14A relating to the Annual Meeting of Shareholders of Carter's, Inc., to be held on May 14, 2004, will be incorporated by reference in Part III of this Form 10-K. Carter's, Inc. intends to file such proxy statement with the SEC not later than 120 days after its fiscal year ended January 3, 2004.

This Form 10-K is a combined annual report being filed separately by two registrants: Carter's, Inc. and The William Carter Company. Unless the context indicates otherwise, any reference in this report to "TWCC" refers to The William Carter Company, the wholly-owned operating subsidiary of Carter's, Inc. "Carter's," "we," "us," and "our" refer to Carter's, Inc. together with TWCC.

The William Carter Company meets the conditions set forth in the General Instructions I(1)(a) and (b) of Form 10-K, and is filing this form with the reduced disclosure format pursuant to General Instruction I(2).

CARTER'S, INC.
AND THE WILLIAM CARTER COMPANY

INDEX TO ANNUAL REPORT ON FORM 10-K
FOR THE FISCAL YEAR ENDED JANUARY 3, 2004

PART I

        For convenience, unless the context indicates otherwise, in this filing on Form 10-K, "TWCC" refers to The William Carter Company, the wholly-owned operating subsidiary of Carter's, Inc. "Carter's," "we," "us," and "our" refer to Carter's, Inc. together with TWCC.

        Our market share data is based on information provided by the NPD Group, Inc. References to market share in this annual report mean our share expressed as a percentage of total retail revenues of a market unless otherwise indicated. The baby's and young children's market includes products in sizes 3 months to size 7.

ITEM 1. BUSINESS

        On September 30, 2003, Carter Holdings, Inc., a Massachusetts corporation, re-incorporated in Delaware and changed its name by forming and subsequently merging with and into its new wholly-owned Delaware subsidiary. The surviving company is named Carter's, Inc. Carter's, Inc. derives all of its operating income and cash flow from TWCC, a Massachusetts corporation. Carter's, Inc. has no assets or investments other than the shares of stock of TWCC.

        Carter's is the largest branded marketer of apparel for babies and young children in the United States based on our 2003 market share of 6.7%. This share grew from 4.8% in 2002. Over our 139 years of operation, Carter's has become one of the most highly recognized and most trusted brand names in the children's apparel industry. We focus on providing high-quality, basic products at prices that deliver an attractive value to consumers. We sell our products under the Carter's and Carter's Classics brands in our wholesale channel to approximately 370 department store, national chain, and specialty store accounts. Additionally, we operate 169 Carter's retail stores located primarily in premier outlet centers throughout the United States. We also sell our products in the mass channel under the Tykes brand in over 1,200 Target stores and under our Child of Mine brand in over 2,900 Wal-Mart stores. Our wholesale channel represented 51% of our total net sales, our retail stores represented 37% of our total net sales, and the mass channel represented 12% of our total net sales for the fiscal year ended January 3, 2004.

        Since 1992, when the current management team joined Carter's, we have increased net sales from $227 million to $704 million. Over the past five years, we have increased net sales at a compounded annual growth rate of 11.8%, and we have increased operating income from $27.4 million to $74.6 million, yielding a compounded annual growth rate of approximately 22.2%. During this five-year period, our pre-tax results were decreased in 1999 by plant closure costs of $7.1 million, in 2001 by acquisition-related charges of $11.3 million, debt extinguishment charges of $12.5 million, and plant closure costs of $4.0 million, and in 2003 by debt extinguishment charges of $9.5 million, a management fee termination charge of $2.6 million, and plant closure costs of $1.0 million.

        Carter's baby and sleepwear core products are basic, high-volume apparel for babies and young children and include bodysuits, pajamas, blanket sleepers, gowns, bibs, towels, washcloths, and receiving blankets. Our top ten baby and sleepwear core products accounted for more than 80% of our baby and sleepwear net sales in 2003. We believe these core products are consumer staples and are insulated from changes in fashion trends. Whether they are shopping for their own children or purchasing gifts, consumers provide consistent demand for our products as they start wardrobes for the four million babies born each year and replace clothing outgrown by babies and young children. In 2003, we sold over 148 million units of Carter's products to our wholesale customers, mass channel customers, and through our retail stores, an increase of approximately 42% from 2002.

        In the department store, national chain, outlet, specialty store, and off-price sales channels, we are the largest brand of apparel for babies and young children with 9.3% of the market, up from 7.3% last year. Our aggregate market shares in fiscal 2003 in these channels were approximately 25% for layette

1

and 27% for sleepwear for babies and young children, which represent greater than four and three times, respectively, the market shares of the next largest brands. In these channels, our share of the playclothes market for babies and young children grew from 4.8% in 2002 to 7.1% in 2003.

        Carter's top wholesale customers are leading children's retailers in the United States and include: Kohl's, Babies "R" Us, JCPenney, Sears, May Company, Federated, and Mervyn's. In the fourth quarter of 2000, we began selling our products in the mass channel by launching the Tykes brand in all Target stores nationwide. In June of 2003, we began shipping products under our new Child of Mine brand, which are now being sold in substantially all Wal-Mart stores in the United States. In addition, we extend the reach of the Carter's, Carter's Classics, Tykes, and Child of Mine brands in our channels through licensing arrangements with 18 marketers of related baby and young children's products who collectively generated $142.4 million of branded wholesale and mass channel sales in 2003, resulting in $11.0 million of royalty income to us. See "Business—Products and Markets—Licensed Products" for a listing of our licensees.

        Principal executive offices are located at The Proscenium, 1170 Peachtree Street NE, Suite 900, Atlanta, Georgia 30309, and our telephone number is (404) 745-2700. Our Internet address is www.carters.com. We make our SEC filings available through our Internet website and in print upon request. We also make available on our Internet website, the Carter's Code of Business Ethics and Professional Conduct, our Corporate Governance Principles, and the charters for the Compensation, Audit, and Nominating and Corporate Governance Committees of the Board of Directors.

PRODUCTS AND MARKETS

        We design, source, manufacture, and market a broad array of baby and young children's apparel. We have three cross-functional product teams focused on baby, sleepwear, and playclothes. These teams are skilled in identifying and developing high-volume, core products. Each team includes members from design, sourcing, product development, forecasting, and supply chain logistics. The teams follow a disciplined approach to fabric usage, color rationalization, and productivity and are supported by a dedicated art department and state-of-the-art design systems. We also license our brand names to other companies to create a complete collection of coordinating products, such as bedding, strollers, underwear, shoes, room décor, and toys. The licensing team directs the use of our designs, art, and selling strategies to all licensees.

        We believe this disciplined approach to product design reduces risk and large seasonal fluctuations while shortening the development cycle. Our product strategy is built on developing and marketing high-volume, core products that are differentiated by creative art and application. We design our products with simple and cost-effective construction. A high percentage of the products continue from season to season with the same fabric and construction, and are varied only through color and the artistic application of embroideries, colors, and/or prints. We have a validation process for testing and introducing products. Artwork, color, and product silhouettes are tested with consumers, key wholesale accounts, and an internal creative steering committee. We also apply quantitative measurements such as pre-season bookings, tests of new products prior to launch in retail stores, weekly over-the-counter selling results, and daily re-order rates on baby products.

Baby

        We are the leading brand in layette. In fiscal 2003, we generated $303.1 million in net sales of these products, in all of our sales channels, representing 43% of our total net sales.

        In fiscal 2003, in the department, national chain, outlet, specialty store, and off-price sales channels, our aggregate market share based on retail sales was approximately 25% for layette, which represents greater than four times the market share of the next largest brand. We sell a complete range of layette products for newborns, primarily made of cotton. Our layette products include bodysuits,

2

undershirts, towels, washcloths, receiving blankets, layette gowns, bibs, caps, and booties. We attribute our leading market position to our brand strength, distinctive print designs, artistic applications, reputation for quality, and ability to manage our dedicated floor space for our retail customers. We tier our products through marketing programs targeted toward gift-givers, experienced mothers, and first-time mothers. Carter's Classics consists of small coordinated layette programs designed for first-time mothers and gift-givers. Carter's Starters, the largest component of our layette business, provides mothers with all the essentials in value-focused multi-packs.

Sleepwear

        Carter's sleepwear products include pajamas, cotton long underwear, and blanket sleepers in sizes 12 months to 7. In fiscal 2003, we generated $159.2 million in net sales of these products, in all of our sales channels, or 23% of our total net sales.

        We are the leading supplier of sleepwear for babies and young children within the department, national chain, outlet, specialty store, and off-price sales channels in the United States. In fiscal 2003, in these channels, our market share was approximately 27%, which represents more than three times the market share of the next largest brand. As in layette, we try to differentiate our sleepwear products from the competition by offering high-volume, core products with creative artwork utilizing consumer-tested prints and embroideries.

Playclothes

        Carter's playclothes products include knit and woven cotton apparel for everyday use in sizes 3 months to 7. In fiscal 2003, we generated $186.2 million in net sales of these products, or 26% of our total net sales. The market for baby and young children's playclothes in fiscal 2003 was more than five times the size of the layette and sleepwear markets combined. The playclothes market in the department, national chain, outlet, specialty store, and off-price sales channels in 2003 was $8.5 billion and our market share in those channels was approximately 7.1%, up from 4.8% in 2002. We continue to focus on strengthening our playclothes products by developing a base of high-volume, core products that utilize original print designs and innovative artistic applications. We believe this product focus, in addition to our high brand name awareness, strong wholesale customer relationships, and expanded global sourcing network, is increasing our playclothes sales.

Other Products

        The remainder of our product offering includes bedding, outerwear, shoes, socks, diaper bags, gift sets, toys, room décor, and hair accessories. In fiscal 2003, we generated $55.3 million in sales of these other products in our retail stores.

Licensed Products

        We extend our consumer reach by licensing our brands to 18 marketers of related products. These licensing partners develop and sell products through our multiple sales channels while leveraging our brand strength, customer relationships, and artwork. Our license agreements require strict adherence to our quality and compliance standards and to a multi-step product approval process. We are very involved with each of our licensing partners in developing the products and ensuring they fit within our vision of high-quality, core products at a good value to the consumer. In addition, we work closely with our wholesale and mass channel customers and our licensees to gain dedicated real estate for licensed product categories. Our licensed products provide our customers and consumers with a range of Carter's, Carter's Classics, Tykes, and Child of Mine products that complement and expand upon our

3

core baby and young children's apparel. In fiscal 2003, our licensees, who are listed below, generated net sales of $142.4 million on which we earned $11.0 million in royalty income.

MULTIPLE SALES CHANNELS

        We have expanded our consumer reach by increasing sales to our wholesale accounts, opening new retail stores, and expanding into the mass channel. We sell our products to top retailers in the country and through our own retail outlet and strip center stores. In fiscal 2003, sales through the wholesale channel accounted for 51% of our total net sales, sales through our retail stores accounted for 37% of our total net sales, while sales through the mass channel accounted for 12% of our total net sales. In 2003, we derived approximately 45.7% of our total net sales from our top eight customers. We expect that these customers will continue to represent a significant portion of our sales in the future. However, we do not enter into long-term sales contracts with our key customers, relying instead on long-standing relationships with these customers and on our position in the marketplace. As a result, we face the risk that one or more of our key customers may significantly decrease its or their business with us or terminate its or their relationships with us. Any such decrease or termination or a decrease in our key customers' business could result in a material decrease in our revenue. In 2003, no one wholesale or mass channel customer accounted for more than 10% of our consolidated net sales.

        Business segment financial information for the wholesale, retail, and mass channel segments is contained in ITEM 8 "Financial Statements and Supplementary Data," Note 14—"Segment Information" to the accompanying consolidated financial statements.

Wholesale Channel

        Our top wholesale customers are leading children's retailers in the United States and include: Kohl's, Babies "R" Us, JCPenney, Sears, May Company, Federated, and Mervyn's. We sell our products in the United States through a network of approximately 30 sales professionals. Our sales professionals work with their department or specialty store accounts to establish annual plans for our layette and baby apparel products within the Carter's line which we refer to as core basics. Once we establish an annual plan with an account, we place the majority of our accounts on our weekly automatic reorder plan for core basics. Automatic reorder allows us to plan our sourcing requirements and benefits our

4

wholesale customers and us by maximizing our customers' in-stock positions, thereby improving sales and profitability. Our sleepwear and playclothes products are planned and ordered seasonally as we introduce new products.

        We intend to drive continued growth with our wholesale customers through our focus on managing our key accounts' business through product mix, fixturing, brand presentation, and advertising. We believe that we maintain strong account relationships and drive brand growth through frequent meetings with our key wholesale customers.

Retail Channel

        We operate 169 retail stores in 39 states, of which 149 are in outlet centers and 20 are in strip centers. These stores carry a complete assortment of first-quality baby and young children's apparel, accessories, and gift items. Our stores average approximately 4,900 square feet per location and are distinguished by an easy, consumer-friendly shopping environment. We believe our consistent and well-defined pricing strategy, coupled with a broad assortment of basic products, has made our stores a destination location within many outlet and strip centers.

        We have established a disciplined real estate selection process whereby we fully assess all new locations based on demographic factors, retail adjacencies, and population density. We believe that we are located in many of the premier outlet centers in the United States and that we are successfully adding high-volume strip center locations to our portfolio.

Mass Channel

        The market for baby and young children's apparel in the mass channel was $5.6 billion in 2003, or 31%, of total baby and young children's apparel sales. In the fourth quarter of 2000, we entered the mass channel by launching the Tykes brand in all Target stores nationwide. The Tykes product line includes layette, sleepwear, and baby playclothes along with a range of licensed products, such as hosiery, bedding, toys, and room décor products. During the second quarter of 2003, we launched our Child of Mine brand in substantially all Wal-Mart stores in the United States.

MARKETING

        Our strategy has been to drive our brand image as the leader in baby and young children's apparel and to consistently provide quality products at a great value to consumers. We employ a disciplined marketing strategy, which identifies and focuses on core products. This marketing strategy focuses on brand and product presentation at the consumer point-of-purchase as we continue to invest in providing our major retail customers with display units that clearly present our core products on their retail floors. We also strive to provide our wholesale and mass channel customers with consistent, premium service, including delivering and replenishing products on time to fulfill customer and consumer needs.

        We believe that we have strengthened our brand image with the consumer with our marketing focus on differentiating our core products through fabric improvements, new artistic applications, and new packaging and presentation strategies. We also attempt to differentiate our products through store-in-store shops and advertising with wholesale and mass channel customers.

PRODUCT SOURCING

        Growth in recent years has been driven by strong product performance made possible through our global sourcing network. We have hired additional people with experience in sourcing products from the Far East, such as the ability to evaluate vendors, familiarity with foreign supply sources, and experience in sourcing logistics particular to the Far East. We have recruited people with these skills

5

from Disney, Mast Industries, The Limited, The Gap, and other apparel companies. In connection with our global sourcing initiatives we have closed our domestic manufacturing operations, including textile, printing, cutting, embroidery, and sewing facilities. We also closed three offshore sewing facilities. Fabric we previously produced is currently purchased from third-party manufacturers. We continue to operate two sewing facilities in Mexico.

        Since launching our global sourcing initiative, we have experienced significant increases in product quality, lower product costs, and improvement in product margins, enabling us to more competitively price our products, accelerate revenue growth, increase sales, and successfully enter the mass channel. We will attempt to realize further benefits and cost reductions through advanced information systems, the expansion of global sourcing relationships, reductions in stock-keeping units and product complexity, and our continued focus on core product offerings.

        Our network consists of approximately 100 vendors located in more than 15 countries. We believe that our sourcing arrangements are sufficient to meet our current operating requirements and provide significant capacity for growth.

DEMOGRAPHIC TRENDS

        In the United States, there were approximately four million births reported in 2002 and demographers project a progressive increase in births over the next 20 years. Favorable demographic trends further support continued strength in the market for baby and young children's products. Highlights of these trends include:

•

parents are having children later in life and have higher incomes when their children are born;



•

40% of all births are first children, which we believe leads to higher initial spending; and



•

grandparents are a large and growing market and are spending more money on their grandchildren than previous generations spent.

COMPETITION

        The baby and young children's apparel markets are highly competitive. Competition generally is based upon product quality, brand name recognition, price, selection, service, and convenience. Both branded and private label manufacturers compete in the baby and young children's apparel markets. Our primary competitors include Oshkosh B'Gosh, Gerber, Disney, and private label product offerings. We also compete with specialty store retailers, including The Gap, Gymboree, and The Children's Place. Most retailers, including our customers, have significant private label product offerings in playclothes and baby that compete with us. Because of the highly fragmented nature of the industry, we also compete with many small manufacturers and retailers. We believe, however, that our combination of brand strength, size, and operational expertise positions us well against these competitors.

ENVIRONMENTAL MATTERS

        We are subject to various federal, state, and local laws that govern activities or operations that may have adverse environmental effects. Noncompliance with these laws and regulations can result in significant liabilities, penalties, and costs. Generally, compliance with environmental laws has not had a material impact on our operations, but there can be no assurance that future compliance with such laws will not have a material adverse effect on our operations.

TRADEMARKS, COPYRIGHTS, AND LICENSES

        We own many trademarks and tradenames, including Carter's®, Carter's® Classics, Celebrating Childhood™, Celebrating Imagination®, Child of Mine®, Jiffon®, Just One Year®, and Nevabind® as well

6

as copyrights, many of which are registered in the United States and in 60 foreign countries. Under an agreement with The Little Tikes Company, we have licensed the right to use and sublicense the Tykes trademark for use on certain products sold primarily at Target stores.

        We license the Carter's, Carter's Classics, and Child of Mine names, and sublicense the Tykes name along with many of our trademarks and tradenames to third-party manufacturers to produce and distribute children's apparel and related products such as diaper bags, room décor, socks, strollers, hair accessories, outerwear, underwear, bedding, plush toys, and shoes. We license the rights to John Lennon's Real Love artwork collection and the artwork of Eric Carle under agreements that expire December 31, 2004 and December 31, 2005.

EMPLOYEES

        As of January 3, 2004, we had 4,214 employees, 1,870 of whom were employed on a full-time basis in our domestic operations, 1,013 of whom were employed on a part-time basis in our domestic operations, and 1,331 of whom were employed on a full-time basis in our offshore operations. None of our employees are unionized. We have had no labor-related work stoppages and believe that our labor relations are good.

ITEM 2. PROPERTIES

        We operate 169 leased retail stores located primarily in premier outlet and strip centers across the United States, having an average size of approximately 4,900 square feet. Generally, leases have an average term of approximately five years with additional five-year renewal options. Domestically, we own three distribution facilities, two in Georgia and one in Pennsylvania. We also own two office buildings in Georgia. We lease office space in four buildings, two in Georgia, one in Connecticut, and one in New York. We lease one distribution facility in Georgia. In February 2001, we entered into a ten-year lease agreement for our corporate office in Atlanta, Georgia. In January 2003, we entered into a seven-year lease agreement, with a cancellation option after four years, for a new distribution facility in Stockbridge, Georgia. Internationally, we lease two sewing facilities in Mexico and two facilities in Costa Rica. The leases in Costa Rica will be terminated at the end of March 2004, as a result of the recent plant closures. Aggregate lease commitments as of January 3, 2004 for the above rental properties are as follows: fiscal 2004—$17.9 million; fiscal 2005—$15.4 million; fiscal 2006—$12.8 million; fiscal 2007—$9.8 million; fiscal 2008—$6.6 million, and $14.7 million for the balance of these commitments beyond fiscal 2008.

ITEM 3. LEGAL PROCEEDINGS

        From time to time, we have been involved in various legal proceedings. We believe that all of 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, cash flows, or results of operations.

        On August 21, 2002, a lawsuit was filed against us in the state court of Fulton County, State of Georgia by T.N.S. Mills, Inc. and Bowling Green Spinning Company in which the plaintiffs are claiming damages of approximately $830,000 related to an alleged oral guarantee of money owed to them 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.

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

        On October 9, 2003, the stockholders of Carter's, Inc. acted by written consent to approve our 2003 Equity Incentive Plan and our Amended and Restated Annual Incentive Compensation Plan.

        No other matters were submitted to our stockholders during the fourth quarter of fiscal 2003.

7

PART II

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

        Since October 24, 2003, Carter's, Inc.'s common stock has traded on the New York Stock Exchange under the symbol CRI. Prior to October 24, 2003, Carter's, Inc.'s common stock was not publicly traded. The last reported sale price per share of Carter's common stock on March 17, 2004 was $30.30, and on that date there were 3,171 holders of record of Carter's, Inc.'s common stock.

        The following table sets forth for the period indicated the high and low sales prices per share of common stock as reported by the New York Stock Exchange:

DIVIDENDS

        On July 31, 2003, we paid a cash dividend of approximately $24.9 million on the outstanding shares of Carter's, Inc.'s common stock 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 our vested option holders. This special bonus was recorded as compensation expense during the third quarter of 2003.

        Provisions in the senior credit facility restrict us from paying future dividends and making other distributions and transfers (see Note 5 to the accompanying consolidated financial statements included in ITEM 8 of this Annual Report on Form 10-K). We do not anticipate paying additional cash dividends on Carter's, Inc.'s common stock in the foreseeable future but intend to retain future earnings, if any, for debt reduction, reinvestment in the future operation, and expansion of our business and related development activities. Any future determination to pay cash dividends will be at the discretion of our board of directors and will depend upon our financial condition, results of operations, terms of financing arrangements, capital requirements, and such other factors as our board of directors deems relevant. Provisions in the indenture governing TWCC's senior subordinated notes restrict its ability to pay dividends to Carter's, Inc. except to the extent that TWCC has cumulative net income, in which case it may use 50% of such amount to pay dividends or make other restricted payments.

8

EQUITY COMPENSATION PLAN INFORMATION

        The following table shows certain information concerning Carter's, Inc.'s common stock to be issued in connection with our equity compensation plans as of January 3, 2004:

        For a discussion of our equity compensation plans, see Note 6 to the accompanying consolidated financial statements included in ITEM 8 of this Annual Report on Form 10-K.

RECENT SALES OF UNREGISTERED SECURITIES

        The following information is furnished with regard to all securities sold by the registrant during the fiscal year ended January 3, 2004, which were not registered under the Securities Act.

(a)

On February 20, 2003, July 8, 2003, and September 17, 2003, Carter's, Inc. issued options, under its 2003 Equity Incentive Plan, to purchase 76,800, 84,000, and 237,200 shares, respectively, of its common stock to employees and directors. Carter's, Inc. did not receive any consideration for these options. All options issued under the plan expire ten years from the date of grant. The weighted-average exercise price of the options granted on February 20, 2003 was $9.88 and the weighted-average exercise price of the options granted on July 8, 2003 and September 17, 2003 was $13.95.



(b)

On May 17, 2003 and September 17, 2003, Carter's, Inc. sold an aggregate of 45,975 shares of its common stock for aggregate consideration of approximately $600,000. These shares were purchased by John R. Welch and Thomas Whiddon, each of whom is a director of Carter's, Inc. Based on representations made by these purchasers, Carter's believes that each of these purchasers was a sophisticated and accredited investor. No general solicitation was made in connection with any of these sales.

        The securities referenced in clause (a) were issued in reliance on the exemption from registration provided by Rule 701 of the Securities and Exchange Commission promulgated under the Securities Act of 1933, as amended, as securities issued pursuant to certain compensatory benefit plans and contracts relating to compensation.

        Based on the circumstances described in clause (b) above, the securities referenced in clause (b) were issued in reliance upon the exemption from registration provided by Section 4(2) of the Securities Act of 1933, as amended, and Rule 506 of the Securities and Exchange Commission promulgated thereunder, as transactions by an issuer not involving a public offering.

9

USE OF PROCEEDS

        The registration statement on Form S-1 (SEC file No. 333-98679) for our initial public offering was declared effective October 24, 2003, covering an aggregate of 5,390,625 shares of common stock sold by us and 1,796,875 shares sold by the selling stockholders, primarily Berkshire Partners LLC, and its affiliates, including the underwriters' over-allotment option. The aggregate price of the offering for Carter's, Inc. and the selling stockholders was $136,562,500. The lead underwriter for our initial public offering was Goldman, Sachs & Co.

        On October 29, 2003, we completed the initial public offering of Carter's, Inc.'s common stock. The gross proceeds to us from the offering totaled $102.4 million. We incurred $1.3 million in expenses, in connection with the offering, and paid an underwriting discount of $7.2 million. Net proceeds to us from the offering totaled $93.9 million. On November 28, 2003, we used approximately $68.7 million of the proceeds to redeem approximately $61.3 million in outstanding 10.875% senior subordinated notes and pay a redemption premium of approximately $6.7 million and $0.7 million in related accrued interest charges. We used approximately $2.6 million of the net proceeds to terminate the Berkshire Partners LLC management agreement. We also used approximately $11.3 million to prepay amounts outstanding under the term loan as required by the senior credit facility. The remaining proceeds of approximately $11.3 million were utilized for working capital and other general corporate purposes.

ITEM 6. SELECTED FINANCIAL DATA

        The following table sets forth selected financial and other data as of and for the five fiscal years ended January 3, 2004 (fiscal 2003). As a result of certain adjustments made in connection with the acquisition of Carter's, Inc. by a special purpose entity formed by Berkshire Partners LLC ("Berkshire Partners"), its affiliates, and associated investors (the "Acquisition"), the results of operations for fiscal 2003 and 2002 and the period from August 15, 2001 through December 29, 2001 (the "Successor" periods) are not comparable to prior periods. The selected financial data for the five fiscal years ended January 3, 2004 were derived from our Audited Consolidated Financial Statements. Our fiscal year ends on the Saturday in December or January nearest to the last day of December. Consistent with this policy, fiscal 2003 ended on January 3, 2004 and fiscal 2002 ended on December 28, 2002. As a result, fiscal 2003 contained 53 weeks of financial results and fiscal 2002 contained 52 weeks of financial results.

10

        The following table should be read in conjunction with ITEM 7 "Management's Discussion and Analysis of Financial Condition and Results of Operations" and ITEM 8 "Financial Statements and Supplementary Data."

See Notes to Selected Financial Data.

11

NOTES TO SELECTED FINANCIAL DATA

        (a)    As a result of the Acquisition, we adjusted our assets and liabilities to their estimated fair values as of August 15, 2001. In addition, we entered into new financing arrangements and changed our capital structure in connection with the Acquisition. At the time of the Acquisition, we adopted the provisions of Statements of Financial Accounting Standards ("SFAS") No. 141, "Business Combinations" ("SFAS 141") and SFAS No. 142, "Goodwill and Other Intangible Assets" ("SFAS 142"), which affect the amortization of goodwill and other intangibles. Accordingly, the results as of the end of and for the Successor period from August 15, 2001 through December 29, 2001, the Successor fiscal years 2002 and 2003 are not comparable to prior periods.

        (b)    On a pro forma basis, assuming SFAS 142 was in effect for all periods presented, pro forma (loss) income before income taxes and cumulative effect of change in accounting principle for revenue recognition would have been $(21.8) million for the Predecessor period from December 31, 2000 through August 14, 2001, $25.1 million for the Predecessor fiscal year 2000, and $(2.3) million for the Predecessor fiscal year 1999. Pro forma net (loss) income would have been $(15.5) million for the Predecessor period from December 31, 2000 through August 14, 2001, $14.9 million for the Predecessor fiscal year 2000, and $(1.5) million for the Predecessor fiscal year 1999.

        (c)    The stockholder's equity of TWCC as of January 3, 2004 equals that of Carter's, Inc., however, its components of common stock and additional paid-in capital accounts are different. Subsequent to the Acquisition described in Note (a) above, there are substantially no differences in the statements of operations and cash flows of Carter's, Inc. and TWCC and substantially no differences in the balance sheet other than the components of stockholder's equity. Prior to the Acquisition described in Note (a) above, differences existed between Carter's, Inc. and TWCC that resulted from the treatment of $20.0 million in outstanding 12% senior subordinated notes on Carter's, Inc. (formerly Carter Holdings, Inc.). The proceeds of these senior subordinated notes were used by Carter's, Inc. to purchase all of the outstanding redeemable preferred stock of TWCC. As a result, there were differences in the statements of operations between Carter's, Inc. and TWCC in interest expense, debt issuance amortization expense, and income tax expense. Differences in the balance sheets between Carter's, Inc. and TWCC included deferred debt issuance costs, current and deferred taxes, taxes payable, current and long-term debt, and equity. The following provides a reconciliation of the differences in net (loss) income between Carter's, Inc. and TWCC as of and for the Predecessor period from December 31, 2000 through August 14, 2001 and for the Predecessor fiscal years ended December 30, 2000 and January 1, 2000 in addition to TWCC's balance sheet, cash flow, and other data ($000):

12