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                       SECURITIES AND EXCHANGE COMMISSION
                              Washington, DC 20549

                                    FORM 10-Q

|X|   QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
      EXCHANGE ACT OF 1934 FOR THE QUARTERLY PERIOD ENDED OCTOBER 3, 1998 OR

|_|   TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
      EXCHANGE ACT OF 1934

                             Commission file number:

                           THE WILLIAM CARTER COMPANY
               (Exact name of registrant as specified in charter)

        Massachusetts                                            04-1156680
(State or other jurisdiction of                                (IRS Employer
 incorporation or organization)                              Identification No.)

                         1590 Adamson Parkway, Suite 400
                              Morrow, Georgia 30260
          ------------------------------------------------------------
          (Address of principal executive offices, including zip code)

                                 (770) 961-8722
                                 --------------
              (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 |X| No |_|

Applicable only to corporate issuers:

As of November 17, 1998, there were 1,000 shares of Common Stock outstanding.

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<PAGE>

                                    FORM 10-Q

                           THE WILLIAM CARTER COMPANY
                                      INDEX

                                                                            Page
                                                                            ----
Part I. Financial Information

      Item 1. Financial Statements

              Condensed Consolidated Balance Sheets as of October 3, 1998
              (unaudited) and January 3, 1998                                  3

              Unaudited Condensed Consolidated Statements of Income
              for the three-month periods ended October 3, 1998 and
              September 27, 1997                                               4

              Unaudited Condensed Consolidated Statements of Income
              for the nine-month periods ended October 3, 1998 and
              September 27, 1997                                               5

              Unaudited Condensed Consolidated Statements of Cash Flows
              for the nine-month periods ended October 3, 1998 and
              September 27, 1997                                               6

              Notes to Condensed Consolidated Financial Statements
              (unaudited)                                                      7

      Item 2. Management's Discussion and Analysis of Financial
              Condition and Results of Operations                             10

Part II. Other Information                                                    14


                                       2
<PAGE>

                           THE WILLIAM CARTER COMPANY
                      CONDENSED CONSOLIDATED BALANCE SHEETS
                             (dollars in thousands)
                                   (unaudited)

                                                       October 3,     January 3,
                                                          1998          1998
                                                        --------       --------

ASSETS
Current assets:
  Cash and cash equivalents                             $  4,937       $  4,259
  Accounts receivable, net                                39,954         30,134
  Inventories                                            107,242         87,639
  Prepaid expenses and other current assets                2,426          3,390
  Deferred income taxes                                   12,192         12,910
                                                        --------       --------

    Total current assets                                 166,751        138,332
Property, plant and equipment, net                        55,597         53,011
Tradename, net                                            95,208         97,083
Cost in excess of fair value of net assets
  acquired, net                                           30,724         31,445
Deferred debt issuance costs, net                          7,019          7,980
Other assets                                               3,109          4,048
                                                        --------       --------
    Total assets                                        $358,408       $331,899
                                                        ========       ========

LIABILITIES AND STOCKHOLDER'S EQUITY
Current liabilities:
  Current maturities of long-term debt                  $    900       $    900
  Accounts payable                                        18,637         14,582
  Other current liabilities                               43,101         35,267
                                                        --------       --------

    Total current liabilities                             62,638         50,749
Revolving credit facility                                 27,200         13,000
Term loan                                                 42,750         43,200
Senior subordinated notes                                100,000        100,000
Deferred income taxes                                     39,245         39,777
Other long-term liabilities                                9,990          9,990
                                                        --------       --------
    Total liabilities                                    281,823        256,716
                                                        --------       --------
Redeemable preferred stock, par value $.01
  per share, $4,000 per share liquidation
  and redemption value, 5,000 shares
  authorized, issued and outstanding                      19,246         18,462
                                                        --------       --------
Stockholder's equity:
  Common stock, par value $.01 per share, 1000
    shares authorized, issued and outstanding                 --             --
  Additional paid-in capital                              55,270         56,721
  Retained earnings                                        2,069             --
                                                        --------       --------
    Total stockholder's equity                            57,339         56,721
                                                        --------       --------
          Total liabilities and stockholder's equity    $358,408       $331,899
                                                        ========       ========

   See accompanying notes to the condensed consolidated financial statements.


                                       3
<PAGE>

                           THE WILLIAM CARTER COMPANY
                   CONDENSED CONSOLIDATED STATEMENTS OF INCOME
                             (dollars in thousands)
                                   (unaudited)

                                                     Three-month period ended
                                                     ------------------------
                                                    October 3,     September 27,
                                                      1998             1997
                                                    ---------       ---------
Net sales                                           $ 127,243       $ 116,853
Cost of goods sold                                     78,840          74,098
                                                    ---------       ---------
Gross profit                                           48,403          42,755
Selling, general and administrative
  expenses                                             33,890          30,103
                                                    ---------       ---------
Operating income                                       14,513          12,652
Interest expense                                        4,858           4,610
                                                    ---------       ---------
Earnings before income taxes                            9,655           8,042
Income tax provision                                    3,958           3,940
                                                    ---------       ---------
Net income                                              5,697           4,102

Dividend requirements and accretion on redeemable
  Preferred stock                                        (664)           (655)
                                                    ---------       ---------
Net income applicable to common stockholder         $   5,033       $   3,447
                                                    =========       =========

   See accompanying notes to the condensed consolidated financial statements.


                                       4
<PAGE>

                           THE WILLIAM CARTER COMPANY
                   CONDENSED CONSOLIDATED STATEMENTS OF INCOME
                             (dollars in thousands)
                                   (unaudited)

                                                      Nine-month period ended
                                                   -----------------------------
                                                   October 3,      September 27,
                                                     1998              1997
                                                   ----------        -----------
Net sales                                          $ 300,171         $ 264,571
Cost of goods sold                                   189,701           166,420
                                                   ---------         --------- 
Gross profit                                         110,470            98,151
Selling, general and administrative
  expenses                                            91,629            82,328
                                                   ---------         --------- 
Operating income                                      18,841            15,823
Interest expense                                      13,980            12,957
                                                   ---------         --------- 
Earnings before income taxes                           4,861             2,866
Income tax provision                                   1,992             1,405
                                                   ---------         --------- 
Net income                                             2,869             1,461
Dividend requirements and accretion on
  redeemable Preferred stock                         (1,991)           (1,988)
                                                   ---------         ---------
Net income (loss) applicable to common             $    878          $   (527)
  stockholder                                      =========         =========
                                                   

   See accompanying notes to the condensed consolidated financial statements.


                                       5
<PAGE>

                           THE WILLIAM CARTER COMPANY
                 CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
                             (dollars in thousands)
                                   (unaudited)

                                                       Nine-month period ended
                                                     ---------------------------
                                                     October 3,    September 27,
                                                        1998           1997
                                                     ----------    -------------
Cash flows from operating activities:
  Net income                                          $  2,869       $  1,461
  Adjustments to reconcile net income to net cash
       (used in) provided by operating activities:
    Depreciation and amortization                       11,413         10,336
    Amortization of debt issuance costs                    961            969
    Deferred tax provision                                 186            240
    Effect of changes in operating assets and
        liabilities:
      Increase in accounts receivable                   (9,820)       (19,234)
      Increase in inventories                          (19,603)        (6,759)
      Decrease in prepaid expenses and other assets        891          3,469
      Increase in accounts payable and other
        liabilities                                      9,667         15,257
                                                      --------       --------
        Net cash (used in) provided by operating
          activities                                    (3,436)         5,739
                                                      --------       --------
Cash flows from investing activities:
      Capital expenditures                             (10,414)        (9,275)
      Proceeds from sale of fixed assets                    23             35
                                                      --------       --------
      Net cash used in investing activities            (10,391)        (9,240)
                                                      --------       --------
Cash flows from financing activities:
      Proceeds from revolving line of credit            94,350         77,500
      Payments of revolving line of credit             (80,150)       (68,000)
      Payment of term loan                                (450)          (450)
      Capital contribution from Holdings                    60
      Dividend to Holdings                                (320)
      Preferred stock dividend                          (1,207)        (1,220)
      Payment of debt issuance cost                    

                                                            --           (650)
    Other                                                2,222
                                                      --------       --------
         Net cash provided by financing activities      14,505          7,180
                                                      --------       --------
Net increase in cash and cash equivalents                  678          3,679
Cash and cash equivalents at beginning of period         4,259          1,961
                                                      --------       --------
Cash and cash equivalents at end of period            $  4,937       $  5,640
                                                      --------       --------

   See accompanying notes to the condensed consolidated financial statements.


                                       6
<PAGE>

                           THE WILLIAM CARTER COMPANY
              NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
                                   (unaudited)

NOTE 1 - BASIS OF PREPARATION:

      In the opinion of management, the accompanying unaudited condensed
consolidated financial statements of The William Carter Company (the "Company"
or "Carter's") contain all adjustments (consisting only of normal recurring
adjustments) necessary to present fairly the financial position of the Company
as of October 3, 1998, the results of its operations for the three-month and
nine-month periods ended October 3, 1998 and September 27, 1997, and its cash
flows for the nine-month periods ended October 3, 1998 and September 27, 1997.
Operating results for the three-month and nine-month periods ended October 3,
1998 are not necessarily indicative of the results that may be expected for the
fiscal year ending January 2, 1999. The accompanying condensed consolidated
balance sheet of the Company as of January 3, 1998 has been derived from the
audited consolidated financial statements included in the Company's fiscal 1997
Annual Report on Form 10-K.

      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 policies followed by the Company are set forth in its Annual Report
on Form 10-K in the Notes to the Company's consolidated financial statements for
the fiscal year ended January 3, 1998.

NOTE 2 - THE COMPANY:

      The Company is a manufacturer and marketer of premier branded
childrenswear under the CARTER'S, CARTER'S CLASSICS and BABY DIOR labels. The
Company manufactures its products in plants located in the southern United
States, Costa Rica, the Dominican Republic and Mexico. Products are manufactured
for wholesale distribution to major domestic retailers, and for the Company's
148 retail outlet stores that market its brand name merchandise and certain
products manufactured by other companies. The retail operations represented
approximately 40% of consolidated net sales in the third quarter and first nine
months of fiscal 1998 and approximately 36% in the third quarter and first nine
months of fiscal 1997.

                                       7
<PAGE>
                           THE WILLIAM CARTER COMPANY
              NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
                                   (unaudited)

NOTE 3 - INVENTORIES:

      Inventories consisted of the following ($000):

                                            October 3,      January 3,
                                               1998           1998
                                            ----------      ----------
            Finished goods                   $ 64,812        $50,026
            Work in process                    29,855         24,069
            Raw materials                      12,575         13,544
                                             --------        -------
            Total                            $107,242        $87,639
                                             ========        =======

NOTE 4 - LONG TERM DEBT:

      In June 1998, Carter's amended its Senior Credit Facility to benefit from
favorable changes in the interest rate environment and to support higher levels
of demand for the Company's products. The applicable interest margins for loans
which accrue interest at the Eurodollar Rate were adjusted from 2.50% to 2.25%
for the revolving credit facility and from 3.00% to 2.50% for the term loan. The
amendment provides for additional reductions in the interest margin based on the
achievement of certain leverage ratios. To support peak working capital
requirements in the second quarter, the revolving credit facility was increased
from $50.0 million to $65.0 million and the letter of credit sublimit increased
from $10.0 million to $15.0 million.

NOTE 5 - PARENT COMPANY TRANSACTIONS:

      The Company paid dividends to its parent company Carter Holdings, Inc.
("Holdings") in the amounts of approximately $136,000 and $320,000 in the
three-month and the nine-month periods ended October 3, 1998, respectively.
Proceeds from the dividends were used by Holdings to repurchase shares of
Holdings' stock owned by certain former employees of the Company. In addition,
during the first quarter of 1998, Holdings made a $60,000 capital contribution
to the Company in connection with proceeds received by Holdings from the
issuance of shares of Holdings' stock to an employee of the Company.

      On February 25, 1998, the Company's Board of Directors declared a
semiannual dividend of 12% on $20.0 million of redeemable preferred stock which
was paid to Holdings on May 1, 1998. The Company paid a similar dividend on
November 1, 1998.


                                       8
<PAGE>

                           THE WILLIAM CARTER COMPANY
              NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
                                   (unaudited)

NOTE 6 - ENVIRONMENTAL MATTERS:

      Carter's has been named as a third-party defendant in an action involving
environmental claims relating to property located near its previously owned
facility in Needham, Massachusetts. This case is in the early stages of
discovery and management intends to aggressively defend its position that it has
no liability in this matter. In 1998, the Company commenced a review in Lamar
County, Georgia of a potential claim under Georgia's environmental laws. Based
on the information available at this time, the ultimate outcome of these matters
is uncertain and, therefore, the Company is unable to determine the amount of
its liability, if any, or assess whether the resolution of these matters will
have a material adverse effect on its results of operations or financial
condition. Accordingly, no provision for any liability has been made in the
accompanying financial statements.


                                       9
<PAGE>

                                    FORM 10-Q
                           THE WILLIAM CARTER COMPANY

ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
        RESULTS OF OPERATIONS

      THE FOLLOWING MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS CONTAINS FORWARD-LOOKING STATEMENTS WHICH INVOLVE
RISKS AND UNCERTAINTIES. THE COMPANY'S ACTUAL RESULTS COULD DIFFER MATERIALLY
FROM THOSE ANTICIPATED IN THESE FORWARD-LOOKING STATEMENTS. THE COMPANY
UNDERTAKES NO OBLIGATION TO RELEASE PUBLICLY ANY REVISIONS TO THESE
FORWARD-LOOKING STATEMENTS TO REFLECT EVENTS OR CIRCUMSTANCES AFTER THE DATE
HEREOF OR TO REFLECT THE OCCURRENCE OF ANTICIPATED OR UNANTICIPATED EVENTS.

RESULTS OF OPERATIONS

Three and nine-month periods ended October 3, 1998 compared with the three and
nine-month periods ended September 27, 1997

      Consolidated net sales for the third quarter of 1998 were $127.2 million,
an increase of $10.3 million (8.9%) compared with the third quarter of 1997.
Consolidated net sales for the first nine months of 1998 were $300.2 million, an
increase of $35.6 million (13.5%) compared with the first nine months of 1997.

      The Company's wholesale sales increased $3.0 million (4.0%) to
approximately $76.7 million in the third quarter of 1998 from $73.7 million in
the third quarter of 1997. Wholesale sales in the first nine months of 1998
increased $16.7 million (10.4%) to approximately $178.3 million from $161.6
million in the first nine months of 1997. The increase in wholesale sales was
due primarily to new product line introductions, which included Special
Delivery, Baby Basics, Dreamakers and Another Bundle of JOY (acronym for "Just
One Year").

      The Company's retail outlet store sales in the third quarter of 1998 were
$50.6 million, an increase of $8.7 million (20.8%) compared with the third
quarter of 1997. Comparable store sales increased 12.4% in the third quarter of
1998 compared with the third quarter of 1997. The Company opened 7 stores and
closed 1 store in the third quarter of 1998. In the first nine months of 1998,
the Company opened 12 stores and closed 2 stores. There were 148 stores in
operation at October 3, 1998 compared with 139 stores at September 27, 1997.

      Retail sales in the first nine months of 1998 were $121.9 million, an
increase of $23.4 million (23.7%) compared with the first nine months of 1997.
Comparable store sales increased 15.6% in the first nine months of 1998. These
increases are attributed to the successful implementation of a new marketing
strategy and the benefit from new product line introductions described above.
The new marketing strategy, which was fully implemented by February 1998, was
designed to clearly communicate the value of Carter's products sold through the
outlet stores relative to comparable values offered elsewhere. Improvements in
the merchandise planning and allocation process, a more impactful and
coordinated visual display of merchandise, and improvements in customer service,
also contributed to the increase in retail sales in the first nine months of
1998.


                                       10
<PAGE>

                                    FORM 10-Q
                           THE WILLIAM CARTER COMPANY

ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
        RESULTS OF OPERATIONS (continued)

      The Company's gross profit increased $5.6 million (13.2%) to $48.4 million
in the third quarter of 1998 compared with the third quarter of 1997. In the
first nine months of 1998, gross profit increased $12.3 million (12.6%) to
$110.5 million compared with the first nine months of 1997. The improvement in
gross profit reflects the benefit derived from the growth in sales driven by new
product line introductions. In the third quarter of 1998, gross profit as a
percentage of net sales increased to 38.0% of net sales compared with 36.6% in
the third quarter of 1997. Gross profit as a percentage of net sales in the
first nine months of 1998 decreased to 36.8% compared to 37.1% in the first nine
months of 1997. The changes in gross margin as a percentage of net sales reflect
the impact of start-up costs incurred in the development of the Company's sewing
operations in Mexico in the first half of 1998. Such start-up costs are
comprised of manufacturing direct labor and facility costs not yet absorbed in
inventory due to the low level of production during the development stage.

      Selling, general and administrative expenses for the third quarter of 1998
increased $3.8 million (12.6%) to $33.9 million compared with the third quarter
of 1997. As a percentage of net sales, such expenses increased to 26.6% in the
third quarter of 1998 compared to 25.8% in the third quarter of 1997. This
increase reflects marketing costs incurred to elevate the image of the Carter's
brand. For the first nine months of 1998 selling, general and administrative
expenses increased $9.3 million (11.3%) to $91.6 million compared with the first
nine months of 1997. These expenses as a percentage of net sales decreased to
30.5% in the first nine months of 1998 compared to 31.1% in the first nine
months of 1997. The improvement in selling, general and administrative expenses
as a percentage of net sales reflects the benefit from comparable store sales
increases achieved by the Company's retail outlet stores and lower retail store
expenses relative to sales resulting from cost controls implemented in store
operations.

      Operating income for the third quarter of 1998 increased $1.9 million
(14.7%) to $14.5 million compared with the third quarter of 1997. Operating
income in the first nine months of 1998 increased $3.0 million (19.1%) to $18.8
million compared with the first nine months of 1997. This increase reflects the
changes in gross profit and selling, general and administration expenses
described above.

      Interest expense for the third quarter of 1998 increased to $4.9 million
compared with $4.6 million in the third quarter of 1997. In the first nine
months of 1998, interest expense was $14.0 million compared with $13.0 million
in the first nine months of 1997. These increases reflect the cost of higher
average revolver borrowings for working capital requirements needed to support
an increased level of demand for Carter's products. Average revolver borrowings
during the first nine months of 1998 were $27.8 million compared to $11.5
million in the first nine months of 1997. At October 3, 1998, outstanding debt
aggregated $170.9 million compared to $154.1 million at September 27, 1997.

      The Company recorded an income tax provision of $4.0 million in the third
quarter of 1998 compared with an income tax provision of $3.9 million in the
third quarter of 1997. In the first nine months of 1998 the tax provision was
$2.0 million compared with $1.4 million in the first nine months of 1997. The
Company's effective tax rate was 41% during the three month and nine month
periods ended October 3, 1998 compared to an effective tax rate of 49% for the
three month and nine month periods ended September 27, 1997. The decrease in the
effective tax rate is attributable to a higher projected pre-tax income for
1998.


                                       11
<PAGE>

                                    FORM 10-Q
                           THE WILLIAM CARTER COMPANY

ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
        RESULTS OF OPERATIONS (continued)

      As a result of the factors described above, the Company reported net
income of approximately $5.7 million and $4.1 million in the third quarters of
1998 and 1997, respectively. The net income for the first nine months of 1998
was $2.9 million compared to net income of $1.5 million in the first nine months
of 1997.

FINANCIAL CONDITION, CAPITAL RESOURCES AND LIQUIDITY

      The Company has financed its working capital, capital expenditures and
debt service requirements primarily through internally generated cash flow, in
addition to funds borrowed under the Company's revolving credit facility.

      Net accounts receivable at October 3, 1998 were $40.0 million compared
with $38.5 million at September 27, 1997. This increase reflects the higher
levels of wholesale revenues in the third quarter of 1998 as compared to the
third quarter of 1997. Due to the seasonal nature of the Company's operations,
the net accounts receivable balance at October 3, 1998 is not comparable with
the net accounts receivable balance at January 3, 1998.

      Inventories at October 3, 1998 were $107.2 million compared with $83.3
million at September 27, 1997. This increase reflects the growth in inventory
required to support higher levels of sales demand and additional inventory
required to support the Company's offshore sewing facilities, particularly the
development of two new facilities in Mexico. Inventory turnover in 1998 has
improved relative to 1997. Due to the seasonal nature of the Company's
operations, the inventory balance at October 3, 1998 is not comparable to the
net inventory balance at January 3, 1998.

      Net cash flows used in operating activities was $3.4 million for the
nine-month period ended October 3, 1998 compared to the $5.7 million provided in
the nine-month period ended September 27, 1997. This change can be attributed to
the increase in inventory levels in fiscal 1998, financed primarily through
revolver borrowings under the Senior Credit Facility.

      At October 3, 1998, the Company had $170.9 million of debt outstanding,
consisting of $100.0 million of 10 3/8% Series A Senior Subordinated Notes,
$43.7 million in term loan borrowings and $27.2 million in revolver borrowings
under the Senior Credit Facility, exclusive of approximately $7.8 million of
outstanding letters of credit. At October 3, 1998, the Company had approximately
$30.0 million of financing available under the revolving credit portion of the
Senior Credit Facility.

      The Company invested $10.4 million and $9.3 million in capital
expenditures during the first nine months of 1998 and 1997, respectively. The
Company plans to invest a total of approximately $20.0 million in capital
expenditures in 1998.

      The Company believes that cash generated from operations, together with
availability under the revolving portion of the Senior Credit Facility, will be
adequate to meet its debt service requirements, capital expenditures and working
capital needs for the foreseeable future, although no assurance can be given in
this regard.

      On February 25, 1998, the Company's Board of Directors declared a
semiannual dividend of 12% on $20.0 million of redeemable preferred stock which
was paid on May 1, 1998. The Company paid a similar dividend on November 1,
1998.


                                       12
<PAGE>

                                    FORM 10-Q
                           THE WILLIAM CARTER COMPANY

ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
        RESULTS OF OPERATIONS (continued)

EFFECTS OF INFLATION

      The Company is affected by inflation primarily through the purchase of raw
material, increased operating costs and expenses, and higher interest rates. The
effects of inflation on the Company's operations have not been material in
recent years.

SEASONALITY

      The Company experiences seasonal fluctuations in its sales and
profitability, with generally lower sales and gross profit in the first and
second quarters of its fiscal year. The Company believes that seasonality of
sales and profitability is a factor that affects the baby and children's apparel
industry generally and is primarily due to retailers' emphasis on Fall and
Holiday sales, including back to school promotions, which results in higher
sales and profitability in the third and fourth quarters. Accordingly, the
results of operations for the three-month and nine-month periods ended October
3, 1998 are not indicative of the results to be expected for the full year.

YEAR 2000

      The potential for software processing errors arising from calculations
using the Year 2000 date are a known risk. Efforts to address the Year 2000
issue commenced in 1997 when the Company began identifying, updating and
replacing hardware and software that were not Year 2000 ready. The Company has
replaced a significant portion of its at-risk legacy hardware with systems that
are Year 2000 compliant. In the software applications area, the Company is
nearing completion of the detection phase of its plan which consists of planning
and awareness, a complete inventory of software, prioritization and a detailed
assessment. The correction phase is also underway as remediation and testing of
major computer applications are being completed and made ready for the
deployment phase.

      The Company has completed an inventory of equipment and software
throughout its manufacturing plants, performed risk analyses and developed
action plans for any systems posing possible concerns. The Company is also
taking steps to examine Year 2000 implications of relationships with its
suppliers, vendors and service providers to understand their commitment to Year
2000 readiness as well as working with its electronic data interchange ("EDI")
customers to ensure Year 2000 readiness.

      As of October 3, 1998, the Company estimates the investment required to be
Year 2000 ready to be $4.0 million. Such investment will be made in the fourth
quarter of 1998 and in 1999. This level of investment was previously
contemplated in the Company's plans to upgrade its information technology
systems. The Company expects to be Year 2000 ready by June 1999.


                                       13
<PAGE>

                                    FORM 10-Q
                           THE WILLIAM CARTER COMPANY

PART II - OTHER INFORMATION:

ITEM 1. LEGAL PROCEEDINGS

      The Company is a party to various legal proceedings arising out of the
ordinary course of its business. Management believes that none of these actions,
individually or in the aggregate, will have a material adverse effect on the
results of operations or financial condition of the Company.

ITEM 2. EXHIBITS AND REPORTS ON FORM 8-K

(a)   Exhibits

EXHIBIT
NUMBER            DESCRIPTION OF EXHIBITS
------            -----------------------

*27               Financial Data Schedule

*Filed herewith

(b)   Reports on Form 8K

      No report was filed by the Registrant during the quarter ended October 3,
1998


                                       14
<PAGE>

                                   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 17, 1998                 /s/ FREDERICK J. ROWAN, II
                                            ----------------------
                                            Frederick J. Rowan, II
                                               Chairman of the
                                             Board of Directors,
                                      President and Chief Executive Officer


Date: November 17, 1998                 /s/ MICHAEL D. CASEY
                                            ----------------
                                            Michael D. Casey
                                       Senior Vice President and
                                        Chief Financial Officer


                                       15