**United States Securities andExchange Commission**

**WASHINGTON,D.C. 20549**

 

**FORM 10-Q**

 

**(Mark One)**

 

**ý**** QUARTERLY REPORT PURSUANT TOSECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934.**

 

### **Forthe Quarterly Period Ended September 30, 2003**

 

**OR**

 

**o**** TRANSITION REPORT PURSUANT TOSECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934.**

 

### **Forthe Transition period from            to**           

 

 

**Commission File Number: 001-14843**

 

 

**THE BOYDS COLLECTION, LTD.**

(ExactName of Registrant as Specified in its Charter)

 

| **Maryland**                                                                          |   | **52-1418730**                       |
|---------------------------------------------------------------------------------------|--------|--------------------------------------|
| (State or Other Jurisdiction of  Incorporation or  Organization)                      |   | (I.R.S. Employer Identification No.) |
|                                                                                  |   |                                 |
| **350 South Street, McSherrystown,  Pennsylvania, Attn.:  Joseph E.  Macharsky** |   | **17344**                            |
| (Address of Principal Executive Offices)                                              |   | (Zip Code)                           |

 

 

**(717) 633-9898**

(Registrant’s Telephone Number, Including AreaCode)

 

Indicate by check mark whether the Registrant (1) has filed all reportsrequired to be filed by Section 13 or 15(d) of the Securities Exchange Act of1934 during the preceding 12 months (or for such shorter period that theregistrant was required to file such reports), and (2) has been subject to suchfiling requirements for the past 90 days. Yes ý No o

 

Indicate by checkmark whether the Registrant is an accelerated filer (as defined in Rule 12b-2of the Exchange Act) Yes oNo ý

 

Indicate the number of shares outstanding of each of the issuer’sclasses of common stock, as of the latest practicable date:

 

| **Common Stock, par value $.0001 per share** |   | **58,899,202**                       |
|----------------------------------------------|--------|--------------------------------------|
| (Class)                                      |   | (Outstanding as of November 5, 2003) |

 

 

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**THE BOYDSCOLLECTION, LTD.**

 

**TABLE OFCONTENTS**

 

 
| PART I.      | FINANCIAL  INFORMATION                                                                                             |   |
|--------------|--------------------------------------------------------------------------------------------------------------------|--------|
|         |                                                                                                               |   |
| **Item 1.**  | **Financial  Statements:**                                                                                         |   |
|         |                                                                                                               |   |
|         | Condensed Consolidated Balance Sheets as  of December 31, 2002 and September 30, 2003                              |   |
|         |                                                                                                               |   |
|         | Condensed Consolidated Statements  of Income for the Three and Nine Months Ended September 30, 2002  and 2003 |   |
|         |                                                                                                               |   |
|         | Condensed Consolidated Statement  of Stockholders’ Equity for the Nine Months Ended September 30, 2003        |   |
|         |                                                                                                               |   |
|         | Condensed Consolidated Statements of Cash  Flows for the Nine Months Ended September 30, 2002 and 2003             |   |
|         |                                                                                                               |   |
|         | Notes to Condensed Consolidated  Financial Statements                                                              |   |
|         |                                                                                                               |   |
| **Item 2.**  | **Management’s  Discussion and Analysis of Financial Condition and Results of Operations**                    |   |
|         |                                                                                                               |   |
| **Item 3.**  | **Quantitative  and Qualitative Disclosures About Market Risk**                                                    |   |
|         |                                                                                                               |   |
| **Item 4.**  | **Controls and Procedures**                                                                                        |   |
|         |                                                                                                               |   |
| PART II.     | OTHER  INFORMATION                                                                                                 |   |
|         |                                                                                                               |   |
| **Item 1.**  | **Legal  Proceedings**                                                                                             |   |
|         |                                                                                                               |   |
| **Item 2.**  | **Changes  in Securities and Use of Proceeds**                                                                     |   |
|         |                                                                                                               |   |
| **Item  3.** | **Defaults Upon Senior Securities**                                                                                |   |
|         |                                                                                                               |   |
| **Item  4.** | **Submission of Matters to a Vote of Security  Holders**                                                           |   |
|         |                                                                                                               |   |
| **Item 5.**  | **Other Information**                                                                                              |   |
|         |                                                                                                               |   |
| **Item  6.** | **Exhibits and Reports on Form 8-K**                                                                               |   |
|         |                                                                                                               |   |
|         | Signatures                                                                                                         |   |
|         |                                                                                                               |   |
|         | Index to Exhibits                                                                                                  |   |

 

2

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**PART I**

**FINANCIAL INFORMATION**

 

**Item 1****.****                                  ****FinancialStatements.**

 

**THE BOYDS COLLECTION, LTD.**

**CONDENSED CONSOLIDATED BALANCE SHEETS**

**As of December 31, 2002 (Unaudited) and September 30, 2003(Unaudited)**

 

 
|                                                                                                                                           |   | **December 31,  2002** |    | **September 30,  2003** |   |
|------------------------------------------------------------------------------------------------------------------------------------------------|--------|------------------------|---------|-------------------------|--------|
|                                                                                                                                           |   | **(in thousands)**     |    |
| **ASSETS**                                                                                                                                     |   |                   |    |                    |   |
|                                                                                                                                           |   |                   |    |                    |   |
| **CURRENT  ASSETS:**                                                                                                                           |   |                   |    |                    |   |
| Cash and cash  equivalents                                                                                                                     |   | $                      | 5,875   |                    | $      | 7,843 |   |
| Accounts receivable,  less allowances of  $2,992 at December  31, 2002, and $2,364 at September 30, 2003                                  |   | 10,489                 |    | 14,919                  |   |
| Inventory - primarily  finished goods, less allowance for obsolete inventory of $5,240 at December  31, 2002, and $3,532 at September 30, 2003 |   | 9,224                  |    | 11,082                  |   |
| Inventory in transit                                                                                                                           |   | 3,166                  |    | 1,044                   |   |
| Other current assets                                                                                                                           |   | 1,026                  |    | 1,067                   |   |
| Income taxes receivable                                                                                                                        |   | 3,216                  |    | 6,058                   |   |
| Deferred income taxes                                                                                                                          |   | 21,047                 |    | 21,047                  |   |
| Total current assets                                                                                                                           |   | 54,043                 |    | 63,060                  |   |
|                                                                                                                                           |   |                   |    |                    |   |
| **PROPERTY  AND EQUIPMENT - NET **(Note 4)                                                                                                |   | 18,666                 |    | 18,143                  |   |
|                                                                                                                                           |   |                   |    |                    |   |
| **OTHER  ASSETS:**                                                                                                                             |   |                   |    |                    |   |
| Deferred debt issuance  costs                                                                                                                  |   | 1,693                  |    | 1,077                   |   |
| Deferred tax asset                                                                                                                             |   | 162,262                |    | 148,145                 |   |
| Other assets                                                                                                                                   |   | 2,689                  |    | 2,729                   |   |
| Total other assets                                                                                                                             |   | 166,644                |    | 151,951                 |   |
|                                                                                                                                           |   |                   |    |                    |   |
| **TOTAL  ASSETS**                                                                                                                              |   | $                      | 239,353 |                    | $      | 233,154 |   |
|                                                                                                                                           |   |                   |    |                    |   |
| **LIABILITIES  AND STOCKHOLDERS’ EQUITY**                                                                                                 |   |                   |    |                    |   |
|                                                                                                                                           |   |                   |    |                    |   |
| **CURRENT  LIABILITIES:**                                                                                                                      |   |                   |    |                    |   |
| Accounts payable                                                                                                                               |   | $                      | 2,569   |                    | $      | 1,606 |   |
| Accrued expenses                                                                                                                               |   | 4,340                  |    | 5,220                   |   |
| Interest payable                                                                                                                               |   | 829                    |    | 1,424                   |   |
| Current portion of  long-term debt (Note 5)                                                                                                    |   | 6,000                  |    | 23,000                  |   |
| Total current  liabilities                                                                                                                     |   | 13,738                 |    | 31,250                  |   |
|                                                                                                                                           |   |                   |    |                    |   |
| **LONG-TERM  DEBT**(Note 5)                                                                                                                    |   | 97,689                 |    | 62,392                  |   |
|                                                                                                                                           |   |                   |    |                    |   |
| **COMMITMENTS  AND CONTINGENCIES** (Notes 2 and 9)                                                                                             |   |                   |    |                    |   |
|                                                                                                                                           |   |                   |    |                    |   |
| **OTHER  LIABILITIES**                                                                                                                         |   | 126                    |    | 34                      |   |
|                                                                                                                                           |   |                   |    |                    |   |
| **STOCKHOLDERS’  EQUITY:**                                                                                                                |   |                   |    |                    |   |
| Common stock (61,838  shares issued at December 31, 2002, and  September 30, 2003, respectively) and paid-in capital in excess of par          |   | (41,221                | )       | (41,221                 | )      |
| Other comprehensive  income:                                                                                                                   |   |                   |    |                    |   |
| Accumulated other  comprehensive loss                                                                                                          |   | (50                    | )       | (94                     | )      |
| Retained earnings                                                                                                                              |   | 196,010                |    | 208,683                 |   |
| Less: Treasury shares at  cost (2,727 at December 31, 2002, and 2,939 at September 30, 2003,  respectively)                                    |   | (26,939                | )       | (27,890                 | )      |
| Total stockholders’  equity                                                                                                               |   | 127,800                |    | 139,478                 |   |
|                                                                                                                                           |   |                   |    |                    |   |
| **TOTAL  LIABILITIES AND STOCKHOLDERS’ EQUITY**                                                                                           |   | $                      | 239,353 |                    | $      | 233,154 |   |

 

See notes to condensed consolidated financial statements.

 

3

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**THE BOYDS COLLECTION, LTD.**

**CONDENSED CONSOLIDATED STATEMENTSOF INCOME**

**For the Three Months and the Nine Months Ended September 30,2002 and 2003**

**(Unaudited)**

 
|                                                |   | **Three Months Ended  September 30,**        |   | **Nine Months Ended  September 30,** |   |
|-----------------------------------------------------|--------|----------------------------------------------|--------|--------------------------------------|--------|
|                                                |   | **2002**                                     |   | **2003**                             |   | **2002** |   | **2003** |   |
|                                                |   | **(in thousands, except per share amounts)** |   |
|                                                |   |                                         |   |                                 |   |   |   |   |   |
| **NET  SALES**                                      |   | $                                            | 38,092 |                                 | $      | 31,511 |   | $ | 102,914 |   | $ | 91,078 |   |
| **COST OF  GOODS SOLD**                             |   | 13,801                                       |   | 13,210                               |   | 37,088 |   | 34,582 |   |
| **GROSS  PROFIT**                                   |   | 24,291                                       |   | 18,301                               |   | 65,826 |   | 56,496 |   |
| **SELLING,  GENERAL AND ADMINISTRATIVE EXPENSES**   |   | 7,353                                        |   | 11,277                               |   | 18,711 |   | 29,935 |   |
| **INCOME  FROM OPERATIONS**                         |   | 16,938                                       |   | 7,024                                |   | 47,115 |   | 26,561 |   |
| **OTHER  INCOME/(EXPENSE)**                         |   | 10                                           |   | (235                                 | )      | 62 |   | (262 | ) |
| **INTEREST  EXPENSE:**                              |   |                                         |   |                                 |   |   |   |   |   |
| Interest expense                                    |   | 1,634                                        |   | 1,114                                |   | 4,978 |   | 3,774 |   |
| Amortization of deferred  debt issuance costs       |   | 126                                          |   | 264                                  |   | 388 |   | 616 |   |
| **TOTAL  INTEREST EXPENSE**                         |   | 1,760                                        |   | 1,378                                |   | 5,366 |   | 4,390 |   |
|                                                |   |                                         |   |                                 |   |   |   |   |   |
| **INCOME  BEFORE PROVISION FOR INCOME TAXES**       |   | 15,188                                       |   | 5,411                                |   | 41,811 |   | 21,909 |   |
| **PROVISION  FOR INCOME TAXES**(Note 8)             |   | 3,576                                        |   | 2,888                                |   | 14,765 |   | 9,236 |   |
| **NET  INCOME**                                     |   | $                                            | 11,612 |                                 | $      | 2,523 |   | $ | 27,046 |   | $ | 12,673 |   |
|                                                |   |                                         |   |                                 |   |   |   |   |   |
|                                                |   |                                         |   |                                 |   |   |   |   |   |
| **EARNINGS  PER SHARE:**                            |   |                                         |   |                                 |   |   |   |   |   |
| Basic and Dilutive  Earnings Per Share - Net Income |   | $                                            | 0.20   |                                 | $      | 0.04 |   | $ | 0.46 |   | $ | 0.21 |   |

 

See notes to condensed consolidated financialstatements.

 

4

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**THE BOYDS COLLECTION, LTD.**

**CONDENSED CONSOLIDATED STATEMENTOF STOCKHOLDERS’ EQUITY**

**For the Nine Months Ended September 30, 2003**

**(Unaudited)**

 

 
|                             |   | **Common Stock**                    |   | **Common Stock  and Paid-in  Capital in  Excess of Par** |   |   |                | **Accumulated  Other  Comprehensive  Income/(Loss)** |                   |    |                             |   |                                  |   |    |
|----------------------------------|--------|-------------------------------------|--------|----------------------------------------------------------|--------|--------|---------------------|------------------------------------------------------|------------------------|---------|----------------------------------|--------|---------------------------------------|--------|---------|
|                             |   | **Shares  Issued And  Outstanding** |   | **Treasury  Stock**                                      |   |   | **Treasury  Stock** |                                                 | **Retained  Earnings** |    | **Other  Comprehensive  Income** |   | **Total  Stockholders’  Equity** |   |
|                             |   | **(in thousands)**                  |   |
|                             |   |                                |   |                                                     |   |   |                |                                                 |                   |    |                             |   |                                  |   |    |   |   |
| **BALANCE,  JANUARY 1, 2003**    |   | 61,838                              |   | 2,727                                                    |   | $      | (41,221             | )                                                    | $                      | (26,939 | )                                | $      | (50                                   | )      | $       | 196,010 |   |   |   | $ | 127,800 |   |
| Repurchase of Common  Stock      |   |                                |   | 212                                                      |   |   |                | $                                                    | (951                   | )       |                             |   |                                  |   |    |   | $ | (951 | ) |
| Other comprehensive  income:     |   |                                |   |                                                     |   |   |                |                                                 |                   |    |                             |   |                                  |   |    |   |   |
| Foreign currency  translation    |   | —                              |   | —                                                   |   | — |                | —                                               |                   | (46     | )                                | — |                                  | $      | (46     | ) | (46 | ) |
| Issuance of Common Stock         |   | —                              |   | —                                                   |   | — |                | —                                               |                   | 2       |                             |   |                                  | 2      |    | 2 |   |
| Net income                       |   | —                              |   | —                                                   |   | — |                | —                                               |                   | —  |                             | 12,673 |                                  | 12,673 |    | 12,673 |   |
| Comprehensive income             |   | —                              |   | —                                                   |   | — |                | —                                               |                   | (44     | )                                | — |                                  | $      | 12,629  |   | — |   |
|                             |   |                                |   |                                                     |   |   |                |                                                 |                   |    |                             |   |                                  |   |    |   |   |
| **BALANCE,  September 30, 2003** |   | 61,838                              |   | 2,939                                                    |   | $      | (41,221             | )                                                    | (27,890                | )       | $                                | (94    | )                                     | $      | 208,683 |   |   |   | $ | 139,478 |   |

 

See notes to condensedconsolidated financial statements.

 

5

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** **

**THE BOYDS COLLECTION, LTD.**

**CONDENSED CONSOLIDATED STATEMENTS OF CASHFLOWS**

**For the Nine Months Ended September 30, 2002 and 2003**

**(Unaudited)**

 
|                                                                               |   | **Nine Months Ended  September 30,** |   |
|------------------------------------------------------------------------------------|--------|--------------------------------------|--------|
|                                                                               |   | **2002**                             |   | **2003** |   |
|                                                                               |   | **(in thousands)**                   |   |
| **CASH  FLOWS FROM OPERATING ACTIVITIES:**                                         |   |                                 |   |   |   |
| Net income                                                                         |   | $                                    | 27,046 |   | $ | 12,673 |   |
| Adjustments to reconcile  net income to net cash provided by operating activities: |   |                                 |   |   |   |
| Depreciation                                                                       |   | 1,204                                |   | 1,586 |   |
| Amortization and write  off of deferred debt issuance costs                        |   | 388                                  |   | 616 |   |
| Gain/(Loss) on sale of  equipment                                                  |   | 3                                    |   | (2 | ) |
| Deferred taxes                                                                     |   | 10,698                               |   | 14,117 |   |
| Asset impairment charge                                                            |   | 254                                  |   | — |   |
| Changes in assets and  liabilities:                                                |   |                                 |   |   |   |
| Accounts receivable -  net                                                         |   | (8,710                               | )      | (4,430 | ) |
| Inventory - net                                                                    |   | (3,142                               | )      | (1,858 | ) |
| Inventory in transit                                                               |   | (143                                 | )      | 2,122 |   |
| Other current assets                                                               |   | (58                                  | )      | (41 | ) |
| Other assets                                                                       |   | (16                                  | )      | (40 | ) |
| Accounts payable                                                                   |   | 327                                  |   | (963 | ) |
| Income taxes receivable                                                            |   | 5,300                                |   | (2,842 | ) |
| Accrued expenses                                                                   |   | (445                                 | )      | 880 |   |
| Interest payable                                                                   |   | 954                                  |   | 595 |   |
| Other liabilities                                                                  |   | (18                                  | )      | (92 | ) |
| Net cash provided by  operating activities                                         |   | 33,642                               |   | 22,321 |   |
|                                                                               |   |                                 |   |   |   |
| **CASH  FLOWS FROM INVESTING ACTIVITIES:**                                         |   |                                 |   |   |   |
| Purchase of property and  equipment                                                |   | (11,240                              | )      | (1,061 | ) |
| Net cash used in  investing activities                                             |   | (11,240                              | )      | (1,061 | ) |
|                                                                               |   |                                 |   |   |   |
| **CASH  FLOWS FROM FINANCING ACTIVITIES:**                                         |   |                                 |   |   |   |
| Repayment of debt                                                                  |   | (21,000                              | )      | (18,297 | ) |
| Exercise of stock  options                                                         |   | 25                                   |   | — |   |
| Issuance of Stock                                                                  |   | —                               |   | 2 |   |
| Repurchase of common  stock                                                        |   | 3                                    |   | (951 | ) |
| Net cash used in  financing activities                                             |   | (20,972                              | )      | (19,246 | ) |
|                                                                               |   |                                 |   |   |   |
| Effect of exchange rate  changes on cash                                           |   | (11                                  | )      | (46 | ) |
|                                                                               |   |                                 |   |   |   |
| **NET  INCREASE IN CASH AND CASH EQUIVALENTS**                                     |   | 1,419                                |   | 1,968 |   |
| **CASH  AND CASH EQUIVALENTS, BEGINNING OF PERIOD**                                |   | 815                                  |   | 5,875 |   |
| **CASH  AND CASH EQUIVALENTS, END OF PERIOD**                                      |   | $                                    | 2,234  |   | $ | 7,843 |   |
| **CASH  PAID DURING THE PERIOD FOR INTEREST**                                      |   | $                                    | 4,024  |   | $ | 3,179 |   |
| **CASH  RECEIVED DURING THE PERIOD FOR INCOME TAXES**                              |   | $                                    | (1,233 | ) | $ | (2,042 | ) |

 

See notes to condensed consolidated financialstatements.

 

6

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**THE BOYDS COLLECTION, LTD.**

#### **NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS**

**(Amounts in thousands, exceptshare and per share amounts)**

**(Unaudited)**

 

 

**1.             INTERIMFINANCIAL STATEMENTS**

 

The Boyds Collection, Ltd. (“Boyds” or the“Company”) operates in two segments which consist of the Company’s wholesalegift business and the Company’s retail gift/entertainment business. InSeptember 2002, Boyds Bear Countryä store opened in Gettysburg, Pennsylvania.This retail store is being used to generate income and expand the brandawareness and image of Boyds. Substantially all of the Company’s products are sourced from foreignmanufacturers in China through buying agencies.

 

The condensed consolidated balance sheet, as ofSeptember 30, 2003, the condensed consolidated statements of income for thethree and nine months ended September 30, 2002 and 2003, the condensedconsolidated statement of stockholders’ equity for the nine months endedSeptember 30, 2003 and the condensed consolidated statements of cash flows forthe nine months ended September 30, 2002 and 2003 are unaudited.  In the opinion of management, alladjustments, consisting only of normal recurring adjustments, necessary for afair presentation of such interim financial statements have been included.  The results of operations for the three andnine months ended September 30, 2003 are not necessarily indicative of theresults to be expected for the full year. These financial statements should be read in conjunction with thefinancial statements and notes included in Boyds’ Annual Report on Form 10-Kfiled with the Securities and Exchange Commission on March 28, 2003.

 

In April 2002, the FASB issued Statement ofFinancial Accounting Standards (“SFAS”) No. 145 (“SFAS 145”), “Rescission ofFASB Statements No. 4, 44, and 64, Amendment of FASB Statement No. 13, andTechnical Corrections.” This statement is effective for fiscal years beginningafter May 15, 2002.  SFAS 145 requires,among other things, eliminating the extraordinary item treatment of debtextinguishments used as part of the Boyds’ debt management strategy. Boydsadopted this statement as of January 1, 2003 and the adoption did not have animpact on the financial statements.

 

In June 2002, the FASB issued SFAS No. 146,“Accounting for Costs Associated with Exit or Disposal Activities.”  This statement requires recording costsassociated with exit or disposal activities at their fair values when aliability has been incurred.  Underprevious guidance, certain exit costs were accrued upon management’s commitmentto an exit plan, which is generally before an actual liability has beenincurred.  Adoption of this statementwas effective as of January 1, 2003. The adoption of this pronouncement did not have an impact on thefinancial position, results of operations or cash flow of Boyds.

 

In November 2002, the FASB issued InterpretationNo. 45, “Guarantors Accounting and Disclosure Requirements forGuarantees.”  The disclosurerequirements are effective for financial statements issued after December 15,2002, and the recognition/measurement requirements are effective on aprospective basis for guarantees issued or modified after December 31,2002.  The adoption of this statementdid not have a material impact on the financial position, results of operationsor cash flow of Boyds.

 

7

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In January 2003, the FASB issued Interpretation No.46, “Consolidation of Variable Interest Entities.”  The Interpretation clarifies the application of AccountingResearch Bulletin No. 51, “Consolidated Financial Statements” to certainentities in which the equity investors do not have the characteristics of acontrolling financial interest or do not have sufficient equity at risk for theentity to finance its activities without additional subordinated financialsupport from other parties.  TheInterpretation applies immediately to variable interest entities created afterJanuary 31, 2003, or in which the Company obtains an interest after that date.  The interpretation is effective July 1, 2003to variable interest entities in which the Company has assessed the impact ofadopting this Interpretation.  Theadoption of this standard did not have a material impact on the financialposition, results of operations or cash flow of Boyds.

 

In December 2002, the FASB issued SFAS No. 148,“Accounting for Stock-Based Compensation — Transition and Disclosure.”  This statement amends SFAS No. 123“Accounting for Stock-Based Compensation,” to provide alternative methods oftransition for a voluntary change to the fair value based method of accountingfor stock-based employee compensation. In addition, this statement amends the disclosure requirements of SFASNo. 123 to require prominent disclosures in both annual and interim financialstatements about the method of accounting for stock-based compensation and theeffect of the method used on reporting results.  The disclosure provisions of this standard are effective forfiscal years ended after December 15, 2002 and have been incorporated intothese condensed consolidated financial statements and accompanying notes (seeNote 7).

 

In April 2003, the FASB issued SFAS No. 149,“Amendment of Statement 133 on Derivative Instruments and HedgingActivities.”  This statement amends andclarifies financial accounting and reporting for derivative instruments,including certain derivative instruments embedded in other contracts and forhedging activities under SFAS No. 133, “Accounting for Derivative Instrumentsand Hedging Activities.”  In general,this statement is effective for contracts entered into or modified afterSeptember 30, 2003, and for hedging relationships designated after September30, 2003.  The adoption of thisstatement is not expected to have a material impact on the financial position,results of operations or cash flow of Boyds.

 

In May 2003, the FASB issued SFAS No. 150,“Accounting for Certain Financial Instruments with Characteristics of bothLiabilities and Equity.”  This statementestablishes standards for the classification and measurement in an issuer’sstatement of financial position of certain financial instruments that embodyobligations for the issuer that are required to be classified asliabilities.  This statement iseffective for financial instruments entered into or modified after May 31,2003, and otherwise shall be effective at the beginning of the first interimperiod beginning after June 15, 2003. The provisions of the statement did not have a material impact on thefinancial position, results of operations or cash flow of Boyds.

 

 

**2.             FINANCIAL INSTRUMENTS WITHOFF-BALANCE SHEET RISK**

 

At December 31, 2002 and at September 30, 2003,Boyds had letters of credit outstanding under its bank credit agreementamounting to $5.1 million and $0.8 million, respectively.  These letters of credit represent Boyds’commitment to purchase inventory, which is to be produced and/or shipped.

 

8

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**3.             RELATED PARTY TRANSACTIONS**

 

Kohlberg, Kravis Roberts & Co., L.P. (“KKR”) isa 59% shareholder of Boyds. For the third quarter and nine months endedSeptember 30, 2002 and September 30, 2003, Boyds paid to KKR approximately $0.1million and $0.3 million for management fees and related expenses.

 

On August 12, 2003, Boyds purchased 212,250 sharesof stock from Chris Bell, COO, at the closing price of $4.48 for a total of$950,880. These shares were purchased under the Stock Repurchase Programapproved by the Board of Directors on February 17, 2000. The shares wererecorded as Treasury Stock.

 

**4.            ****PROPERTY AND EQUIPMENT**

 

Thecomponents of property and equipment at December 31, 2002 and September30, 2003 were, as follows:

 

 
|                                            |   | **December 31,  2002** |   | **September 30,  2003** |   |
|-------------------------------------------------|--------|------------------------|--------|-------------------------|--------|
|                                            |   |                   |   |                    |   |
| Land and building                               |   | $                      | 15,232 |                    | $      | 15,861 |   |
| Equipment                                       |   | 4,136                  |   | 4,571                   |   |
| Software development costs                      |   | 2,372                  |   | 2,372                   |   |
| Leasehold improvements                          |   | 1,924                  |   | 1,924                   |   |
| Furniture and fixtures                          |   | 395                    |   | 398                     |   |
| Total                                           |   | 24,059                 |   | 25,126                  |   |
| Less: accumulated depreciation and amortization |   | (5,393                 | )      | (6,983                  | )      |
| Total                                           |   | $                      | 18,666 |                    | $      | 18,143 |   |

 

 

**5.             LONG-TERM DEBT**

 

Long-termdebt is summarized as follows:

 

 
|                                                                                          |   | **December 31,  2002** |         | **September 30,  2003** |   |
|-----------------------------------------------------------------------------------------------|--------|------------------------|--------------|-------------------------|--------|
|                                                                                          |   |                   |         |                    |   |
| 9% Senior Subordinated Notes due May 15, 2008                                                 |   | $                      | 46,689       |                    | $      | 34,392 |   |
|                                                                                          |   |                   |         |                    |   |
| Credit Agreement:                                                                             |   |                   |         |                    |   |
| Secured Tranche A Term Loans due April 2005.  Interest based on LIBOR or base rate as defined |   | 57,000                 |         | 51,000                  |   |
|                                                                                          |   |                   |         |                    |   |
| Sub-Total                                                                                     |   | 103,689                |         | 85,392                  |   |
|                                                                                          |   |                   |         |                    |   |
| Less: Current portion of long-term debt                                                       |   | (6,000                 | )            | (23,000                 | )      |
|                                                                                          |   | $                      | 97,689  |                    | $      | 62,392 |   |

 

9

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The Senior Subordinated Notes have an optionalredemption feature exercisable by Boyds any time on or after May 15, 2003at 104.5% of face value. Each year thereafter, the rate decreases by 1.5%.Interest on the Notes is payable semi-annually on May 15 and November 15.

 

At September 30, 2002 and 2003, the weightedaverage interest rates in effect for the Tranche A Term Loan were 2.4% and1.8%, respectively.  In addition, theTranche A Term Loan has predetermined annual payments through April 2005.

 

The Credit Agreement contains certain covenants,including the requirement of a minimum interest coverage ratio as defined inthe agreement and substantial restrictions as to dividends and distributions.Boyds is in compliance with all applicable covenants as of September 30, 2003.The Credit Agreement also provides that the Term Loan and Senior securedrevolving credit facility be collateralized by the capital stock of Boyds’current and future subsidiaries. In addition, the Term Loan is subject tomandatory prepayment with the proceeds of certain asset sales and a portion ofBoyds’ excess cash flow as defined in the Credit Agreement.

 

The scheduled maturities of the long-termdebt, including current portion of $23.0 million due in April 2004, are asfollows:

 
| 2003       |   | $      | — |   |
|------------|--------|--------|--------|--------|
| 2004       |   | 23,000 |   |
| 2005       |   | 28,000 |   |
| 2006       |   | — |   |
| 2007       |   | — |   |
| Thereafter |   | 34,392 |   |
|       |   | $      | 85,392 |   |

 

 

**6.****                                     ****SEGMENTS OF THE COMPANY AND RELATED INFORMATION**

 

The Company operates in two segments which consistof the Company’s wholesale gift business and the Company’s retail gift/entertainmentbusiness.  These segments are evaluatedregularly by the Company’s Chief Executive Officer in deciding how to assessperformance and allocate resources. Prior to the retail operations becoming a significant portion of theCompany’s performance, the Company had only one reportable segment. As aresult, the Company has reclassified the prior year’s single segmentinformation to be consistent with the current period’s presentation.

 

The Company’s wholesale business designs, imports,and distributes resin figurines and plush animals via a global network ofindependent retailers and distributors.  The Company’s retail operation sells resin figurines, plush animals anda unique entertainment experience directly to the end consumer at itsGettysburg, Pennsylvania flagship location.

 

10

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|                   |   | **For the Three Months Ended, September 30** |   |
|------------------------|--------|----------------------------------------------|--------|
|                   |   | **2002**                                     |   | **2003** |   |
|                   |   | **Wholesale**                                |   | **Retail** |   | **Consolidated** |   | **Wholesale** |   | **Retail** |   | **Consolidated** |   |
| Sales                  |   | $                                            | 37,127 |   | $ | 965 |   | $ | 38,092 |   | $ | 26,357 |   | $ | 5,154 |   | $ | 31,511 |   |
| Gross Profit           |   | 23,589                                       |   | 702 |   | 24,291 |   | 14,370 |   | 3,931 |   | 18,301 |   |
| SG&A               |   | 6,004                                        |   | 1,349 |   | 7,353 |   | 9,313 |   | 1,964 |   | 11,277 |   |
| Income from Operations |   | 17,585                                       |   | (647 | ) | 16,938 |   | 5,057 |   | 1,967 |   | 7,024 |   |
|                        |        |                                              |        |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |

 
|                   |   | **For the Nine Months Ended, September 30** |    |
|------------------------|--------|---------------------------------------------|---------|
|                   |   | **2002**                                    |    | **2003** |   |
|                   |   | **Wholesale**                               |    | **Retail** |   | **Consolidated** |   | **Wholesale** |   | **Retail** |   | **Consolidated** |   |
| Sales                  |   | $                                           | 101,949 |   | $ | 965 |   | $ | 102,914 |   | $ | 79,969 |   | $ | 11,109 |   | $ | 91,078 |   |
| Gross Profit           |   | 65,124                                      |    | 702 |   | 65,826 |   | 47,988 |   | 8,508 |   | 56,496 |   |
| SG&A               |   | 16,973                                      |    | 1,738 |   | 18,711 |   | 24,875 |   | 5,060 |   | 29,935 |   |
| Income from Operations |   | 48,151                                      |    | (1,036 | ) | 47,115 |   | 23,113 |   | 3,448 |   | 26,561 |   |
|                   |   |                                        |    |   |   |   |   |   |   |   |   |   |   |
| Total Assets           |   | $                                           | 238,939 |   | $ | 12,445 |   | $ | 251,384 |   | $ | 220,117 |   | $ | 13,037 |   | $ | 233,154 |   |

 

 

**7.             STOCKBASED COMPENSATION**

 

At September 30, 2003, Boyds has variousstock-based employee compensation plans. The Company accounts for those plans under the recognition andmeasurement principles of APB Opinion No. 25, *Accountingfor Stock Issued to Employees*, and related Interpretations.  Under this method, compensation cost is theexcess, if any, of the quoted market price of the stock at the grant date orother measurement date over the amount an employee must pay to acquire thestock.  No stock-based employeecompensation cost is reflected in net income, as all options granted underthose plans had an exercise price equal to the market value of the underlyingcommon stock on the date of grant.  Thefollowing table illustrates the effect on net income and earnings per share ifBoyds had applied the fair value recognition method of accounting provisions ofFASB Statement No. 123, *Accounting forStock-Based Compensation*, to stock-based employee compensation.

 

11

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|                                                                                                                                          |   | **Quarter Ended  September 30** |       | **Nine Months Ended  September 30** |       |
|-----------------------------------------------------------------------------------------------------------------------------------------------|--------|---------------------------------|------------|-------------------------------------|------------|
|                                                                                                                                          |   | **2002**                        |       | **2003**                            |       | **2002** |   | **2003** |   |
|                                                                                                                                          |   |                            | ** ** |                                | ** ** |   | ** ** |   | ** ** |
| Net income, as reported                                                                                                                       |   | $                               | 11,612     |                                | $          | 2,523 |   | $ | 27,046 |   | $ | 12,673 |   |
|                                                                                                                                          |   |                            |       |                                |       |   |   |   |   |
| Deduct: Total stock-based employee compensation  expense determined under fair value based method for all awards, net of  related tax effects |   | 467                             |       | 1,271                               |       | 1,306 |   | 2,370 |   |
|                                                                                                                                          |   |                            |       |                                |       |   |   |   |   |
| Pro forma net income                                                                                                                          |   | $                               | 11,145     |                                | $          | 1,252 |   | $ | 25,740 |   | $ | 10,303 |   |
|                                                                                                                                          |   |                            |       |                                |       |   |   |   |   |
| Earnings per share:                                                                                                                           |   |                            |       |                                |       |   |   |   |   |
| Basic—as reported                                                                                                                        |   | $                               | 0.20       |                                | $          | 0.04 |   | $ | 0.46 |   | $ | 0.21 |   |
| Basic—pro forma                                                                                                                          |   | $                               | 0.19       |                                | $          | 0.02 |   | $ | 0.44 |   | $ | 0.17 |   |
|                                                                                                                                          |   |                            |       |                                |       |   |   |   |   |
| Diluted—as reported                                                                                                                      |   | $                               | 0.20       |                                | $          | 0.04 |   | $ | 0.46 |   | $ | 0.21 |   |
| Diluted—pro forma                                                                                                                        |   | $                               | 0.19       |                                | $          | 0.02 |   | $ | 0.44 |   | $ | 0.17 |   |

 

 

**8.             PROVISIONFOR INCOME TAXES**

 

For federal income tax purposes, Boyds has electedto treat the Recapitalization and Stock Purchase that occurred in April 1998 asan asset acquisition by making an Internal Revenue Code Section 338 (h)(10)election.  As a result, there is adifference between the financial reporting and tax basis of Boyds’ assets.  The difference creates deductible goodwillfor income tax purposes, and a deferred tax asset for financial reportingpurposes.  The deductible goodwill is amortizedover a period of fifteen years.  In theopinion of management, Boyds believes it is more likely than not it will havesufficient profits in the future to realize the deferred tax asset.

 

Duringthe third quarter of 2002, a subsidiary of Boyds elected to change its taxstatus from a corporation to a partnership. At the time the election was made, Boyds was, morelikely than not, able to utilize previously fully reserved net operating lossesassuming there were no future changes in the applicable tax law.  Also, effective July 1, 2002, Pennsylvaniachanged its tax law to extend the time to utilize net operating losses from tento twenty years. The change in tax law also increased the amount of netoperating losses that can be utilized in a year from $0.5 million to $2million. As a result of both the tax law change and the tax status election,Boyds recognized a $2.6 million non-operating tax benefit as a result of thereversal of previous deferred tax asset valuation allowance reserves. Duringthe third quarter of 2003, it was determined that Boyds may not be able toutilize all of the net operating losses. As a result of this and othermiscellaneous adjustments, a non-operating tax expense of $0.8 million wasrecognized.

 

**9.****                                     ****CONTINGENCIES**

 

Boyds is involved in various legal proceedings,claims and governmental audits in the ordinary course of business. In theopinion of management, the ultimate disposition of these matters will not havea material adverse effect on the financial position, results of operations andcash flows of Boyds.

 

12

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**10.****                              ****EARNINGS PER SHARE**

 

The following is a reconciliation of the numeratorsand denominators of the basic and diluted earnings per share computations forthe net income available to common stockholders:

 
|                                                                               |   | **Three Months Ended  September 30,** |   | **Nine Months Ended  September 30,** |   |
|------------------------------------------------------------------------------------|--------|---------------------------------------|--------|--------------------------------------|--------|
|                                                                               |   | **2002**                              |   | **2003**                             |   | **2002** |   | **2003** |   |
|                                                                               |   |                                  |   |                                 |   |   |   |   |   |
| Numerator for basic and diluted earnings per  share:                               |   |                                  |   |                                 |   |   |   |   |   |
| Net income                                                                         |   | $                                     | 11,612 |                                 | $      | 2,523 |   | $ | 27,046 |   | $ | 12,673 |   |
| Denominator:                                                                       |   |                                  |   |                                 |   |   |   |   |   |
| Denominator for basic earnings per share -  weighted average shares                |   | 59,066                                |   | 58,996                               |   | 59,064 |   | 59,073 |   |
| Effect of dilutive securities:                                                     |   |                                  |   |                                 |   |   |   |   |   |
| Effect of shares issuable under stock option  plans based on treasury stock method |   | 74                                    |   | 1                                    |   | 108 |   | 40 |   |
| Denominator for diluted earnings per share -  weighted average shares              |   | 59,140                                |   | 58,997                               |   | 59,172 |   | 59,113 |   |
|                                                                               |   |                                  |   |                                 |   |   |   |   |   |
| EPS - Basic                                                                        |   | $                                     | 0.20   |                                 | $      | 0.04 |   | $ | 0.46 |   | $ | 0.21 |   |
|                                                                               |   |                                  |   |                                 |   |   |   |   |   |
| EPS - Diluted                                                                      |   | $                                     | 0.20   |                                 | $      | 0.04 |   | $ | 0.46 |   | $ | 0.21 |   |

 

 

**11.****                              ****SUBSEQUENT EVENT**

 

On October 16, 2003, the Company paid $3.0 millionof the Tranche A Term Loan due April 2004. The balance on the required paymentis now $20.0 million. The Company used cash from operations to reduce the loan.

 

OnOctober 16, 2003, the Company finalized and paid $2.7 million for land in the PigeonForge, Tennessee area for the next Boyds Bear CountryTM retail store. The secondretail store is anticipated to open by the end of 2004.

 

OnOctober 21, 2003, the Company had a change in its Chief Executive Officerposition which will result in a fourth quarter charge of approximately $2.0million.

 

13

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**Item 2****.    Management’s Discussion and Analysis ofFinancial Condition and Results of Operations**

 

 

##### ***GENERAL***

 

The Company operates in two segments which consist of the Company’swholesale gift business and the Company’s retail gift/entertainmentbusiness.  Boyds is a leading designer,importer and distributor of branded, high-quality, hand crafted collectiblesand other specialty giftware products. Boyds sells its products through an extensive network of approximately14,000 accounts comprised of independent gift and collectibles retailers,premier department stores, selected catalogue retailers and other electronicand retail channels. This network of retailers is being serviced by a nationalsales force that was created in 2002. In September 2002, the Boyds Bear Countryä store opened in Gettysburg, Pennsylvania.  The Company has purchased land in Pigeon Forge, Tennessee tobegin construction on its second retail location.  This store is expected to open in December of 2004.  In the future, the Company plans to open twostores per year beginning in 2005.

 

Boyds’ sales consist of plush animals, resin figurines, and otherproducts. Other products include dolls, villages, home décor, collectors clubsales, which are generated from annual dues collected directly from consumerswho become members of Boyds’ collectors club, *The Loyal Order of Friends of Boyds*,which began in July 1996 and currently has approximately 30,000 payingmembers, and related accessories.

 

Boyds licenses its product designs to other companies for productsincluding home textiles, infant clothing and wallpaper. Boyds believes suchlicensing, in addition to providing royalty income, helps to increase consumerawareness of Boyds’ designs and brand image. Boyds reports royalty income innet sales.

 

Boyds exhibits itsproducts at many national and regional tradeshows where orders are taken byBoyds’ employees. Boyds operates almost exclusively out of a leasedoffice/distribution facility and owned retail store in the general vicinity ofGettysburg, Pennsylvania.

 

##### ***SEGMENTS***

 

The Company operates in twosegments which consist of the Company’s wholesale gift business and theCompany’s retail gift/entertainment business. These segments are evaluated regularly by the Company’s Chief ExecutiveOfficer in deciding how to assess performance and allocate resources.   Prior to the retail operations becoming asignificant portion of the Company’s performance, the Company had only onereportable segment. As a result, the Company has reclassified the prior year’ssingle segment information to be consistent with the current period’spresentation.

 

The Company’s wholesalebusiness designs, imports, and distributes resin figurines and plush animalsvia a global network of independent retailers and distributors. The Company’sretail operation sells resin figurines, plush animals and a uniqueentertainment experience directly to the end consumer currently at its Gettysburg,Pennsylvania flagship location.  TheCompany plans for one store to be added in 2004 and then two additional storesper year beginning in 2005.

** **

 

**CRITICAL ACCOUNTING POLICIES**

 

Preparing the financialstatements in conformity with accounting principles generally accepted in theUnited States of America requires that management make estimates andassumptions that affect the amounts reported in the financial statements andaccompanying notes.  Predicting futureevents is inherently an imprecise activity and as such requires the use ofjudgment.  Actual results may vary fromestimates in amounts that may be material to the financial statements.Management believes that the estimates and assumptions used in connection withthe amounts reported in Boyds’ financial statements and related disclosures arereasonable and made in good faith.

 

14

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Themost significant accounting estimates inherent in the preparation of Boyds’financial statements include estimates related to valuing the ultimatecollectability of accounts receivable and realizable value of inventory.  In addition, a significant amount ofjudgment exists in defining deferred tax valuation accounts.  The process of determining estimates isbased on several factors, including historical experience, current andanticipated economic conditions and customer profiles. Boyds continuallyreevaluates these key factors and makes adjustments to estimates whereappropriate. The following are Boyds’ critical accounting policies, some ofwhich require the application of significant estimates and assumptions.

 

•                  Sales revenue, net of returns and discounts, is recognized upon shipmentof the items, when title passes to the customer, or completion of a retailsale. The most significant financial statement line item, net sales, representstransactions consistent with Boyds’ primary business focus and meets thecriteria of Staff Accounting Bulletin No. 101, including the transfer of title,probable collectability, identified customer and no recourse.

 

•                  Accounts receivable are presented at estimated net realizable value.Boyds uses estimates in determining the collectability of its accountsreceivable and must rely on its evaluation of historical bad debts, customercredit ratings, current economic trends and changes in customer payment termsto arrive at appropriate reserves. Material differences may result in theamount and timing of earnings if actual experience differs significantly frommanagement estimates.

 

•                  Inventories are stated at the lowerof cost or market. Cost is determined under the first-in, first-out method ofaccounting. Boyds records adjustments to the value of this inventory insituations where it appears that Boyds will not be able to recover the cost ofthe product.  This lower of cost ormarket analysis is based on Boyds’ estimate of forecasted demand by customer byproduct.  A decrease in product demanddue to changing customer tastes, consumer buying patterns or loss of shelfspace to competitors could significantly impact Boyds’ evaluation of its excessand obsolete inventories.

 

•                  Under the requirements of Statementof Financial Accounting Standards (SFAS) No.142, “Goodwill and Other IntangibleAssets”, and SFAS No.144, “Accounting for the Impairment or Disposal ofLong-Lived Assets”, Boyds assesses the potential impairment of identifiableintangibles, long-lived assets and acquired goodwill whenever events or changesin circumstances indicate that the carrying value may not be recoverable.  In performing this evaluation, the Companyevaluates current and future economic and business trends to develop businessforecasts of future performance and related cash flows. Such estimates requirethe use of judgment and numerous subjective assumptions. Based on Boyds’evaluation as of January 1, 2003, there was no impairment of goodwill,identifiable intangibles or long-lived assets.

 

•                  Deferred income taxes arise becauseof differences in the treatment of income and expense items for financialreporting and income tax purposes.  Therecovery of deferred income tax assets is contingent upon applicable tax lawsand future taxable income. Situations in which management believes theprobability of recovering deferred tax assets is less likely than not, avaluation allowance is established for the amount that is less likely than notto be realized.

 

 

**FACTORSWHICH AFFECT BOYDS’ RESULTS OF OPERATIONS**

 

***Seasonality***

 

Boyds receives ordersthroughout the year and generally ships merchandise out on a first-in,first-out basis. In anticipation of the holiday season, 60% of orders areplaced between May and October. The remaining 

 

15

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40% of orders are placed between November and April.Boyds does not build a large receivables balance relative to sales because ittypically does not offer its customers long payment terms or dating programs.Boyds does not have the significant seasonal variation in its orders that itbelieves is experienced by many other giftware and collectibles companies.

 

***Foreign Exchange***

 

The dollar value ofBoyds’ assets located abroad is not significant. Boyds’ sales are primarilydenominated in United States dollars and, as a result, are not subject tochanges in exchange rates.

 

Boyds generally pays for its products in UnitedStates dollars. However, Boyds’ cost of such products fluctuates with the valueof the Chinese renminbi because Boyds imports most of its products frommanufacturers in China. Boyds’ costs could be adversely affected on ashort-term basis if the Chinese renminbi appreciates significantly relative tothe United States dollar. Conversely, its costs would be favorably affected ona short-term basis if the Chinese renminbi depreciates significantly relativeto the United States dollar. While Boyds does not do so now, in the future,Boyds may, from time to time, enter into foreign exchange contracts or prepayinventory purchases as a partial hedge against currency fluctuations.Differences between the amounts of such contracts and costs of specificmaterial purchases are included in inventory and cost of sales. Boyds intendsto manage foreign exchange risks to the extent appropriate.

 

Boyds has a growing sales operation based in Europe,but at this time Boyds does not expect any significant impact due tofluctuations in the Euro or the British Pound.

 

 

**RESULTS OFOPERATIONS**

 

Net sales consist of wholesale and retail sales ofour products, net of sales discounts, product returns and allowances,collectors club sales generated from Boyds’ collectors club and royalty incomefrom licenses held by Boyds.  Wholesalesales are primarily made on a purchase order basis.  Revenue associated with sales is recognized when title transfersto the customer, or upon completion of a retail transaction.

 

Cost of goods sold consists of product costs,freight and warehousing costs. Selling, general and administrative expensesinclude overhead, selling and marketing costs, administration and professionalfees.

 

16

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The following table sets forth the components ofnet income as a percentage of net sales for the periods indicated:

 
|                                         |   | **Quarter  Ended  September 30,** |   | **Nine Months  Ended  September 30,** |   |
|----------------------------------------------|--------|-----------------------------------|--------|---------------------------------------|--------|
|                                         |   | **2002**                          |   | **2003**                              |   | **2002** |   | **2003** |   |
|                                         |   |                              |   |                                  |   |   |   |   |   |
| Net sales                                    |   | 100.0                             | %      | 100.0                                 | %      | 100.0 | % | 100.0 | % |
| Gross profit                                 |   | 63.8                              | %      | 58.1                                  | %      | 64.0 | % | 62.0 | % |
| Selling, general and administrative expenses |   | 19.3                              | %      | 35.8                                  | %      | 18.2 | % | 32.9 | % |
| Income from operations                       |   | 44.5                              | %      | 22.3                                  | %      | 45.8 | % | 29.2 | % |
| Other exenses, net                           |   | 0.0                               | %      | 0.7                                   | %      | 0.0 | % | 0.4 | % |
| Interest expense                             |   | 4.6                               | %      | 4.4                                   | %      | 5.2 | % | 4.8 | % |
| Provision for income taxes                   |   | 9.4                               | %      | 9.2                                   | %      | 14.3 | % | 10.1 | % |
| Net income                                   |   | 30.5                              | %      | 8.0                                   | %      | 26.3 | % | 13.9 | % |

 

 

## ***Three Months Ended September 30,2003  vs. Three Months Ended September30, 2002***

 

Net sales decreased $6.6 million, or 17%, to $31.5million in the third quarter of 2003 from $38.1 million for the third quarterof 2002.  Sales of Boyds’ plush productsdecreased $4.5 million, or 20%, resin product sales decreased $2.4 million, or21%, and other product sales increased $0.3 million, or 7%.  As a percentage of net sales for thequarter, plush products represented 55%, resin products represented 30%, andother products represented 15%.

 

Wholesale sales declined $10.8 million in thequarter, or 29%, to $26.3 million in 2003 from $37.1 million in 2002.  Retail sales increased $4.2 million to $5.2million in 2003 from $1.0 million in 2002. Wholesale revenues were negatively impacted by the continuing weaknessin the channel.  The outlook for thischannel is that current sales trends will continue resulting in a decline insales of approximately 20%.   At thistime we are seeing incremental sales increases in several of our more giftableproducts, but it is not significant enough to offset declines in lines such asour dressed plush and figurines.  Retailsales are not comparable for the quarter, as the Gettysburg store did not openuntil September 2002.

 

Gross profit decreased $6.0million, or 25%, to $18.3 million in the third quarter of 2003 from $24.3million for the third quarter of 2002. Gross profit as a percentage of net sales decreased to 58% for thequarter from 64% for the same period in 2002. The dollar and the percentage decrease can be attributed to the decreasein sales, a decrease in the capitalization of certain costs into inventory,which accounted for $0.8 million of the decrease, and an increase of $1.4million in the Company’s inventory obsolescence reserve.  Wholesale gross profit decreased by $9.2million, or 39%, to $14.4 million in 2003 from $23.6 million in 2002.  Retail gross profit increased by $3.2million, to $3.9 million in 2003 from $0.7 million in 2002.

 

SG&A expense increased$3.9 million, or 53%, to $11.3 million in the third quarter of 2003 from $7.4million for the third quarter of 2002. SG&A as a percent of net sales increased to 36% for the quarterfrom   19% for the same period in2002.  The dollar and percentageincreases in SG&A expenses were a result of the national sales force andthe operational costs of Boyds Bear Countryä - Gettysburg.

 

Income from operations declined $9.9 million, or59%, to $7.0 million in the third quarter of 2003 from $16.9 million for thethird quarter of 2002.  Income fromoperations as a percentage of net sales declined to 22% for the quarter from45% for the same period in 2002.  Thedollar decline and the decline in the percentage of net sales were primarilyattributable to the decline in sales, an increase in the obsolescence reserveand the operational costs of the national sales force.

 

17

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Totalinterest expense declined $0.4 million, or 22% to $1.4 million in the thirdquarter of 2003 from $1.8 million for the third quarter of 2002.  Total interest expense as a percentage ofnet sales declined to 4% for the quarter from 5% for the same period in 2002.  The dollar decline and the decline in thepercentage of net sales were due to the reduction of debt, primarily theretirement of approximately $7.0 million in bonds, from excess cash and adecline in interest rates.

 

Provision for income taxesdecreased $0.7 million, or 19%, to $2.9 million in the third quarter of 2003from $3.6 million for the third quarter of 2002.   The provision for income taxes as a percentage of net sales was9%, which is consistent with the third quarter of 2002. The dollar decline andthe decline in the percentage of net sales were due to the decreased sales andthe increased operational costs associated with the national sales force, andestablishment of the valuation allowance for certain state taxes.  In 2002, the provision was positivelyimpacted in the third quarter by a non-operating tax benefit resulting from thecombination of a change to the Pennsylvania tax law and a change to theCompany’s tax status.

 

Netincome declined $9.1 million, or 78%, to $2.5 million in the third quarter of2003 from $11.6 million for the third quarter of 2002.  Net income as a percent of sales decreasedto 8% for the quarter from 31% for the same period in 2002.  The dollar decline and the decline in thepercentage of net sales were due primarily to the decline in sales, an increasein the obsolescence reserve and the increased costs associated with thenational sales force.

 

## ***Nine Months Ended September 30,2003 vs. Nine Months Ended September 30, 2002***

 

Netsales decreased $11.8 million, or 12%, to $91.1 million in the first ninemonths of 2003 from $102.9 million for the first nine months of 2002.  Sales of Boyds’ plush products decreased$9.4 million, or 16%, resin product sales decreased $2.1 million, or 7%, otherproduct sales declined $0.3 million, or 2%. As a percentage of net sales for the first nine months, plushrepresented 56%, resin products represented 30%, and other products represented14%.

 

Wholesalesales in the first nine months declined $21.9 million, or 22%, to $80.0 millionin 2003 from $101.9 million in 2002. Retail sales increased $10.1 million to $11.1 million in 2003 from $1.0million in 2002.  The short term, fourthquarter outlook for wholesale sales is that it is continuing at the samenegative trends as the third quarter. Retail sales are not comparable for the quarter as the Gettysburg storedid not open until September 2002.

 

Grossprofit decreased $9.3 million, or 14%, to $56.5 million in the first ninemonths of 2003 from $65.8 million for the first nine months of 2002.  Gross profit as a percentage of net salesdecreased to 62% for the first nine months of 2003 as compared to 64% for2002.  The dollar decline was primarilyattributable to the decline in sales volume and the additional obsolescencecharge of $1.4 million in the third quarter.  Wholesale gross profit decreased by $17.1 million, or 26%, to $48.0million in 2003 from $65.1 million in 2002. Retail gross profit increased by $7.8 million, to $8.5 million in 2003from $0.7 million in the first nine months of 2002.

 

SG&A expenses increased $11.2 million, or 60.0%, to $29.9 million inthe first nine months of 2003 from $18.7 million for the first nine months of2002.  SG&A as a percent of netsales increased to 33% for the first nine months from 18% for the same periodin 2002.  The dollar and the percentageincrease in SG&A expenses was a result of the operational expensesassociated with the national sales force and Boyds Bear Countryä - Gettysburg.  In the fourthquarter the Company will recognize costs associated with the change in theChief Executive Officer position of approximately $2.0 million.

 

Incomefrom operations declined $20.5 million, or 44%, to $26.6 million in the firstnine months of 2003 from $47.1 million for the first nine months of 2002.  Income from operations as a percentage ofnet sales declined to 31% for the first nine months from 46% for the sameperiod in 2002.  The dollar decline andthe decline in the percentage of net sales were primarily attributable to thedecline in sales volume and the operational costs of the national sales force.

 

18

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Total interest expense declined $1.0 million, or 19%, to $4.4 million inthe first nine months of 2003 from $5.4 million for the first nine months of2002.  Total interest expense as apercentage of net sales was 5%, which is consistent with the first nine monthsof 2002.  The dollar decline and thedecline in the percentage of net sales were due to the approximately $18.3million reduction of debt from excess cash and a decline in interest rates.

 

Provisionfor income taxes decreased $5.6 million, or 38%, to $9.2 million in the firstnine months of 2003 from $14.8 million for the first nine months of 2002.   Provision for income taxes as a percentageof net sales decreased to 10% for the first nine months from 14% for the sameperiod in 2002. In 2002, the provision was positively impacted in the thirdquarter by a non-operating tax benefit resulting from the combination of achange to the Pennsylvania tax law and a change to the Company’s tax status. In2003, the provision was negatively impacted by the establishment of a valuationallowance for certain state taxes.

 

Net income declined $14.3million, or 53%, to $12.7 million in the first nine months of 2003 from $27.0million for the first nine months of 2002. Net income as a percentage of sales decreased to 14% for the first ninemonths from 26% for the same period in 2002. The dollar and percentage declines can be attributed to the lower salesvolumes and the increased operating costs of the national sales force.

 

 

***Liquidity and Capital Resources***

 

Boyds’primary sources of liquidity are cash flow from operations and borrowings underits credit agreement, which includes a revolving credit facility. Boyds’primary uses of cash are to fund working capital requirements and to servicedebt. Cash balances increased to $7.8 million in the first nine months of 2003from $5.9 million at December 31, 2002. The increase in cash was largely a result of the cash flows generated byoperations offset by debt repayments.

 

***Operating Activities***

 

Cashprovided by operating activities decreased $11.3 million, or 34%, to $22.3million in the first nine months of 2003 from $33.6 million for the first ninemonths of 2002. The cash flow decrease was primarily attributable to thedecrease in sales and the additional costs associated with the national salesforce.

 

***Investing Activities***

 

Capitaland investment expenditures totaled $1.1 million in the first nine months of 2003as compared to $11.2 million in the first nine months of 2002. This decrease isattributable to construction costs associated with Boyds Bear Countryä - Gettysburg incurred during 2002. The construction was completedduring the fourth quarter of 2002.

 

On October 16, 2003, the Company finalized and paid$2.7 million for land in the Pigeon Forge, Tennessee area for the next BoydsBear Countryä retail store.This store will be similar to the Gettysburg store in size and appearance. Thebalance of the construction will be funded from excess cash flow. Boyds doesnot expect to incur any additional debt as a result of this construction.

 

***Financing Activities***

 

In connection with the recapitalization in 1998, Boyds issued 9% SeniorSubordinated Notes due 2008 in an amount of $165.0 million and entered into acredit agreement providing for a $325.0 million senior secured term loan,consisting of tranche A and tranche B, and a senior secured revolving creditfacility providing for borrowings up to $40.0 million. As of September 30,2003, Boyds has repaid $130.6 million of the notes, leaving a balanceoutstanding of $34.4 million. Boyds has repaid $274.0 million of the term loansunder the 

 

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credit agreement, leaving a balance outstanding of $51.0 million as ofSeptember 30, 2003. Boyds has reduced its total debt by $33.8 million in thepast twelve months.

 

On July 25, 2003, Boyds purchased and retired$7.0 million of its 9% Senior Subordinated Notes for 104.5% of face value, or$7.3 million, by exercising the redemption feature in accordance with theagreement. The company used cash from operations to retire the notes.

 

On October 16, 2003, the Company paid $3.0million of the Tranche A Term Loan due April 2004. The balance on the requiredpayment is now $20.0 million. The Company used cash from operations to reducethe loan.

 

The revolving credit facility provides loans in an aggregate amount ofup to $40.0 million.  Boyds had noborrowings outstanding under the revolving credit facility as of September 30,2003.  The revolving credit facilitywill be available to fund the working capital needs of Boyds.  Borrowings under the credit agreement bearinterest at a rate per annum, equal to a margin over either a base rate orLIBOR, at Boyds’ option. The revolving credit facility commitment willterminate on April 21, 2005. Effective April 21, 2000, the tranche A term loanis being amortized over six years. The credit agreement contains customarycovenants and events of default, including substantial restrictions on Boyds’ability to declare dividends or make distributions. The term loans are subjectto mandatory prepayment with the proceeds of certain asset sales and a portionof Boyds’ excess cash flow, as defined in the credit agreement.

 

On February 17, 2000, Boydsannounced that its Board of Directors had approved the repurchase of 3.0million shares of the Company’s common stock. As of September 30, 2003, Boydshad repurchased 344,730 shares of common stock pursuant to the Stock RepurchaseProgram for an aggregate amount of approximately $2 million. These repurchaseswere financed out of operating cash flow. Any future repurchases under theStock Repurchase Program are expected to be financed similarly or by utilizingborrowings under the revolving credit facility. Boyds plans to make suchpurchases from time to time in the open market or in private transactions.

 

On July 27, 2000, Boyds announced that its Board ofDirectors had approved a repurchase program for its outstanding 9% Series BSenior Subordinated Notes due 2008. As of September 30, 2003, Boyds hadrepurchased $64.6 million of its notes pursuant to the Bond Repurchase Program.These repurchases were financed out of operating cash flow. Any futurerepurchases under the Bond Repurchase Program are expected to be financedsimilarly or by utilizing borrowings under the revolving credit facility. Boydsplans to make such purchases from time to time in the open market or in privatetransactions.

 

Management believes that cash flow from operations and availabilityunder the revolving credit facility will provide adequate funds for Boyds’foreseeable working capital needs, planned capital expenditures, debt serviceobligations, the Stock Repurchase Program and the Bond Repurchase Program. Anyfuture acquisitions, joint ventures or other similar transactions may requireadditional capital and there can be no assurance that any such capital will beavailable to Boyds on acceptable terms, or at all. Boyds’ ability to fund itsworking capital needs, planned capital expenditures and scheduled debtpayments, to refinance indebtedness and to comply with all of the financialcovenants under its debt agreements depends on its future operating performanceand cash flow, which in turn are subject to prevailing economic conditions andto financial, business and other factors, some of which are beyond Boyds’control.

 

 

**RISK FACTORS WHICH MAY AFFECT FUTURE PERFORMANCE**

 

*Dependenceon two independent buying agencies. *Substantiallyall of the products that Boyds sells are purchased through two independentbuying agencies. One buying agency is located in Hong Kong, and the otherbuying agency is located in the United States. These two buying agencies, whichcontract with a total of 19 independent manufacturers, account forapproximately 90% of Boyds’ total imports. These two buying 

 

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agencies alsoperform a number of functions for Boyds, including collaborating in Boyds’product design and development process. As a result, Boyds is substantiallydependent on these buying agencies and the manufacturers with which theycontract. Boyds does not have long-term contracts with either of its primarybuying agencies. Boyds believes that the loss of either of its primary buyingagencies would (1) have a material adverse effect on its financial conditionand results of operations, (2) cause disruptions in its orders, (3) affect thequality of its products, and (4) possibly require it to select alternativemanufacturers.

 

*Potentialeconomic and political risks of China. *Allof Boyds’ significant manufacturers are located in China. Although Boyds hasidentified alternate manufacturers which could meet its quality and reliabilitystandards at similar costs in China and in other countries, the loss of any oneor more of its manufacturers could have a material adverse effect on itsbusiness.  Because Boyds reliesprimarily on Chinese manufacturers, it is subject to the following risks thatcould restrict its manufacturers’ ability to make its products or increase itsmanufacturing costs: (1) economic and political instability in China; (2)transportation delays; (3) restrictive actions by the Chinese government; (4)the laws and policies of the United States affecting importation of goods,including duties, quotas and taxes; (5) Chinese trade and tax laws.  In addition, Boyds’ business could beadversely affected if the Chinese renminbi appreciates significantly relativeto the United States dollar due to the cost of its products fluctuating withthe value of the Chinese renminbi.

 

*Potentialadverse trade regulations and restrictions.*  Boyds does not own or operate anymanufacturing facilities. Instead, Boyds imports substantially all of itsretail products from independent foreign manufacturers, primarily in China. Asa result, substantially all of its products are subject to United StatesCustoms Service duties and regulations. These regulations include requirementsthat Boyds disclose information regarding the country of origin on itsproducts, such as “Handmade in China.” Within its discretion, the United StatesCustoms Service may also set new regulations regarding the amount of duty to bepaid, the value of merchandise to be reported or other customs regulationsrelating to Boyds’ imported products. Failure to comply with these regulationsmay result in the imposition of additional duties or penalties or forfeiture ofmerchandise.

 

The countries in which Boyds’ products aremanufactured may impose new quotas, duties, tariffs or other charges orrestrictions. This could adversely affect Boyds’ financial condition, resultsof operations or its ability to continue to import products at current orincreased levels. In particular, Boyds’ costs could increase, or the mix ofcountries from which Boyds imports its products may be changed, if theGeneralized System of Preferences program is not renewed or extended each year.The Generalized System of Preferences program allows selected products ofbeneficiary countries to enter the United States duty free. In addition, ifcountries that are currently accorded “Most Favored Nation” status by theUnited States, such as China, cease to have such status, Boyds could beadversely affected because the cost of importing from such countries mayincrease. Boyds cannot predict what regulatory changes may occur or the type oramount of any financial impact these changes may have on it in the future.

 

*Changingconsumer tastes. *Thedemand for Boyds’ products may be quickly affected by changing consumer tastesand interests. Boyds’ results of operations depend substantially upon itsability to continue to conceive, design, source and market new pieces and uponcontinuing market acceptance of its existing and future product lines. If Boydsfails or is significantly delayed in introducing new pieces to its existingproduct lines or creating new product line concepts or if its new products donot meet with market acceptance, its results of operations may be impaired. Anumber of companies who participate in the giftware and collectibles industriesare part of large, diversified companies that have greater financial resourcesthan Boyds, offer a wider range of products and may be less affected bychanging consumer tastes.

** **

*Potentialinfringement of Boyds’  intellectualproperty.*  Boydsbelieves that its trademarks and other proprietary rights are material to itssuccess and competitive position. Accordingly, Boyds devotes resources to theestablishment and protection of its intellectual property on a worldwide basis.The actions Boyds takes to establish and protect its trademarks and otherproprietary rights may not be adequate to protect its intellectual property orto prevent imitation of its products by others. Moreover, while Boyds has not 

 

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experienced anyproprietary license infringements or legal actions that have had a materialimpact on its financial condition or results of operations, other persons have,and will likely in the future, assert rights in, or ownership of, itstrademarks and other proprietary rights. Boyds may not be able to successfullyresolve such conflicts. In addition, the laws of foreign countries may notalways protect intellectual property to the same extent as do the laws of theUnited States.

 

 

***EFFECTS OF RECENTLY ISSUED ACCOUNTINGSTANDARDS***

 

In April 2002, the FASB issued SFAS No. 145 (“SFAS145”), “Rescission of FASB Statements No. 4, 44, and 64, Amendment of FASBStatement No. 13, and Technical Corrections.” This statement is effective for fiscal years beginning after May 15,2002.  SFAS 145 requires, among otherthings, eliminating the extraordinary item treatment of debt extinguishmentsused as part of the Boyds’ debt management strategy. Boyds adopted thisstatement as of January 1, 2003 and the adoption did not have an impact on thefinancial statements.

 

In June 2002, theFASB issued SFAS No. 146, “Accounting for Costs Associated with Exit orDisposal Activities.”  This statementrequires recording costs associated with exit or disposal activities at theirfair values when a liability has been incurred.  Under previous guidance, certain exit costs were accrued uponmanagement’s commitment to an exit plan, which is generally before an actualliability has been incurred.  Adoptionof this statement was effective as of January 1, 2003.  ****The adoption of this pronouncement did not have an impacton the financial position, results of operations or cash flow of Boyds.****

 

InNovember 2002, the FASB issued Interpretation No. 45, “Guarantors Accountingand Disclosure Requirements for Guarantees.” The disclosure requirements are effective for financial statementsissued after December 15, 2002, and the recognition/measurement requirementsare effective on a prospective basis for guarantees issued or modified afterDecember 31, 2002.  The adoption of thisstatement did not have a material impact on the financial position, results ofoperations or cash flow of Boyds.

 

InJanuary 2003, the FASB issued Interpretation No. 46, “Consolidation of VariableInterest Entities.”  The Interpretationclarifies the application of Accounting Research Bulletin No. 51, “ConsolidatedFinancial Statements,” to certain entities in which the equity investors do nothave the characteristics of a controlling financial interest or do not havesufficient equity at risk for the entity to finance its activities withoutadditional subordinated financial support from other parties.  The Interpretation applies immediately tovariable interest entities created after January 31, 2003, or in which theCompany obtains an interest after that date. The interpretation is effective July 1, 2003 to variable interestentities in which the Company has assessed the impact of adopting thisInterpretation.  The adoption of thisstandard did not have a material impact on the financial position, results ofoperations or cash flow of Boyds.

 

In December 2002, the FASB issued SFAS No. 148,“Accounting for Stock-Based Compensation — Transition and Disclosure.”  This statement amends SFAS No. 123“Accounting for Stock-Based Compensation,” to provide alternative methods oftransition for a voluntary change to the fair value based method of accountingfor stock-based employee compensation. In addition, this statement amends the disclosure requirements of SFASNo. 123 to require prominent disclosures in both annual and interim financialstatements about the method of accounting for stock-based compensation and theeffect of the method used on reporting results.  The disclosure provisions of this standard are effective forfiscal years ended after December 15, 2002 and have been incorporated intothese condensed consolidated financial statements and accompanying notes (seeNote 7).

 

In April 2003, the FASBissued SFAS No. 149, “Amendment of Statement 133 on Derivative Instruments andHedging Activities.”  This statementamends and clarifies financial accounting and reporting 

 

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for derivativeinstruments, including certain derivative instruments embedded in othercontracts and for hedging activities under SFAS No. 133, “Accounting forDerivative Instruments and Hedging Activities.”  In general, this statement is effective for contracts enteredinto or modified after September 30, 2003, and for hedging relationshipsdesignated after September 30, 2003. The adoption of this statement is not expected to have a material impacton the financial position, results of operations or cash flow of Boyds.

 

In May 2003, the FASBissued SFAS No. 150, “Accounting for Certain Financial Instruments withCharacteristics of both Liabilities and Equity.”  This statement establishes standards for the classification andmeasurement in an issuer’s statement of financial position of certain financialinstruments that embody obligations for the issuer that are required to beclassified as liabilities.  Thisstatement is effective for financial instruments entered into or modified afterMay 31, 2003, and otherwise shall be effective at the beginning of the firstinterim period beginning after June 15, 2003. The provisions of the statement did not have a material impact on thefinancial position, results of operations or cash flow of Boyds.

 

**RELATED PARTYTRANSACTIONS**

 

Kohlberg,Kravis Roberts & Co. L.P. (“KKR”) is a 59% shareholder of Boyds. For thethird quarter and nine months ended September 30, 2002 and September 30, 2003,Boyds paid to KKR approximately $0.1 million and $0.3 million for managementfees and related expenses.

 

OnAugust 12, 2003, Boyds purchased 212,250 shares of stock from Chris Bell, COO,at the closing price of $4.48 for a total of $950,880. These shares werepurchased under the Stock Repurchase Program approved by the Board of Directorson February 17, 2000. The shares were recorded as Treasury Stock.

 

***FORWARD LOOKING STATEMENTS***

 

Some of the matters discussed in this report include forward-lookingstatements.  Statements that arepredictive in nature, that depend upon or refer to future events or conditionsor that include words such as “expects,” “anticipates,” “intends,” “plans,”“believes,” “estimates” and similar expressions are forward-lookingstatements.

 

The forward-looking statements in this report are based on a number ofassumptions and estimates, which are inherently subject to significantuncertainties and contingencies, many of which are beyond the control of Boyds,and reflect future business decisions that are subject to change. A variety offactors could cause actual results to differ materially from those anticipatedin Boyds’ forward-looking statements, including: the effects of economicconditions; the inability to grow Boyds’ business as planned; the loss ofeither of Boyds’ two independent buying agencies or any of its manufacturingsources; economic or political instability in the countries with which Boydsdoes business; changes to, or the imposition of, new regulations, duties, taxesor tariffs associated with the import or export of goods from or to thecountries with which Boyds does business; and other risk factors that arediscussed in this report and, from time to time, in other Securities andExchange Commission reports and filings. One or more of the factors discussedabove may cause actual results to differ materially from those expressed in orimplied by the statements in this report.

 

Readers are cautioned not to place undue reliance on these forward-lookingstatements, which speak only as of the date of such statements. Boydsundertakes no obligation to publicly release the results of any revisions tothese forward-looking statements that may be made to reflect events orcircumstances after the date of this report, or the date of such statements, asthe case may be, or to reflect the occurrence of unanticipated events.

 

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**Item 3****.             Quantitative and QualitativeDisclosures About Market Risk.**

 

Boyds faces minimal interest rate risk exposure in relation to itsoutstanding debt of $85.4 million at September 30, 2003. Of this amount, $51.0million under the Credit Agreement is subject to interest rate fluctuations. Ahypothetical 1% change in interest rates applied to the fair value of debtwould not have a material impact on earnings or cash flows of the Company.

 

Boydsfaces currency risk exposure that arises from translating the results of itsEuropean operations which are denominated in the local currency of the Euro andthe British Pound to the U.S. dollar. The currency risk exposure is notmaterial as the operations of the European subsidiary do not have a materialimpact on the Company’s earnings.

 

Boyds also faces foreign exchange risks that arise from paying in UnitedStates Dollars for products that are manufactured in China. While it does notdo so now, in the future Boyds may, from time to time, enter into foreignexchange contracts or prepay inventory purchases as a partial hedge againstcurrency fluctuations. Differences between the amounts of such contracts andcosts of specific material purchases are included in inventory and costs ofsales. Boyds intends to manage foreign exchange risks to the extentappropriate.

 

**Item 4****.             Disclosure Controls and Procedures**

 

Boyds maintains disclosure controls and procedures designed to ensure that it is able to collect the information it is required to disclose in the reports it files with the Securities and Exchange Commission (SEC), and to process, summarize and disclose this information within the time periods specified in the rules of the SEC. Boyds carried out an evaluation of its disclosure controls and procedures, under the supervision and with the participation of the Chief Executive and Chief Financial Officers, as of a date within 90 days of the filing date of this report, and based on such evaluation, Boyds’ Chief Executive and Chief Financial Officers believe that these disclosure controls and procedures are effective to ensure that Boyds is able to collect, process and disclose the information it is required to disclose in the reports it files with the SEC within the required time periods.

 

There have been no significant changes in Boyds’ internal controls or in other factors that could significantly affect these controls, subsequent to the date Boyds’ Chief Executive and Chief Financial Officers completed their evaluation, including any corrective actions with regard to significant deficiencies and material weaknesses.

 

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**PART II**

**OTHERINFORMATION**

 

 

**Item1.  Legal Proceedings.**

 

Boyds is involved invarious legal proceedings, claims and governmental audits in the ordinarycourse of business. In the opinion of management, the ultimate disposition ofthese proceedings, claims and audits will not have a material adverse effect onthe financial position, results of operations, and cash flows of Boyds.

 

**Item 2.  Changes in Securities and Use of Proceeds—None**

 

**Item 3.  Defaults Upon Senior Securities—None**

 

**Item 4.  Submission of Matters to a Vote of Security Holders—None**

 

**Item 5.  Other Information**

 

**Item 6.  Exhibits and Reports on Form 8-K.**

 

(a) Exhibits – See Index to Exhibits

 

(b) Reports on Form 8-K – During the quarter the Company filed a currentreport on Form 8-K on August 6, 2003, under item 7.  Financial Statements were reported withrespect to the issuance of a press release covering results of operations and financialcondition for the second quarter of 2003.

 

 

#### **SIGNATURES**

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

 
| Date:   November 14, 2003 |   | THE BOYDS COLLECTION, LTD. |     |
|------------------------------------------|--------|----------------------------|----------|
|                                     |   |                       |     |   |   |
|                                     |   |                       |     |   |   |
|                                     |   |                       | By:      | /s/   Jan L. Murley |   |
|                                     |   |                       | Name:    | Jan L. Murley |   |
|                                     |   |                       | Title:   | Chief Executive Officer |   |
|                                     |   |                       |     |   |   |
|                                     |   |                       | By:      | /s/ | Joseph E. Macharsky |   |
|                                     |   |                       | Name:    |   | Joseph E. Macharsky |   |
|                                     |   |                       | *Title:* | *Chief Financial Officer* |   |
|                                          |        |                            |          |  |  |  |  |  |

 

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Index to Exhibits

 

 
| **Exhibit  No.** |   | **Description**                                                                                                                                                                                                                                                                                                                                                                        |
|------------------|--------|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|             |   |                                                                                                                                                                                                                                                                                                                                                                                   |
| 3.1              |   | Amended and Restated  Articles of Incorporation of Boyds (incorporated by reference from Exhibit  3.1 of Amendment No. 1 to Boyds’ Registration Statement on Form S-1,  filed on February 8, 1999, File No. 333-69535).                                                                                                                                                           |
|             |   |                                                                                                                                                                                                                                                                                                                                                                                   |
| *3.2*            |   | *Amended and Restated Bylaws of Boyds (incorporated  by reference from Exhibit 3.2 of Amendment No. 1 to Boyds’ Registration  Statement on Form S-1, filed on February 8, 1999, File No. 333-69535)*                                                                                                                                                                              |
|             |   |                                                                                                                                                                                                                                                                                                                                                                                   |
| *4.1*            |   | *Indenture, dated as of April 21, 1998 between Boyds  and The Bank of New York, as trustee (incorporated by reference from Exhibit  4.3 of Amendment No. 1 to Boyds’ Registration Statement on Form S-1,  filed on February 8, 1999, File No. 333-69535).*                                                                                                                   |
|             |   |                                                                                                                                                                                                                                                                                                                                                                                   |
| 4.2              |   | Form of 9% Senior  Subordinated Note due 2008 (included in Exhibit 4.1)                                                                                                                                                                                                                                                                                                                |
|             |   |                                                                                                                                                                                                                                                                                                                                                                                   |
| 4.3              |   | Form of 9% Series B  Senior Subordinated Note due 2008 (included in Exhibit 4.1)                                                                                                                                                                                                                                                                                                       |
|             |   |                                                                                                                                                                                                                                                                                                                                                                                   |
| 10.1             |   | Credit Agreement, dated  as of April 21, 1998, among Boyds, the several lenders from time to time  parties thereto, DLJ Capital Funding, Inc., The Fuji Bank, Limited, New York  Branch, and Fleet National Bank (incorporated by reference from Exhibit 10.1  of Amendment No. 3 to Boyds’ Registration Statement on Form S-1, filed  on February 23, 1999, File No. 333-69535). |
|             |   |                                                                                                                                                                                                                                                                                                                                                                                   |
| 10.2             |   | Forms of Notes  evidencing loans under the Credit Agreement (included in Exhibit 10.1).                                                                                                                                                                                                                                                                                                |
|             |   |                                                                                                                                                                                                                                                                                                                                                                                   |
| 10.3             |   | 1998 Option Plan for  Key Employees of Boyds (incorporated by reference from Exhibit 10.3 of Amendment  No. 1 to Boyds’ Registration Statement on Form S-1, filed on February  8, 1999, File No. 333-69535).                                                                                                                                                                      |
|             |   |                                                                                                                                                                                                                                                                                                                                                                                   |
| 10.4             |   | 1999 Option Plan for  Key Employees of Boyds (incorporated by reference from Exhibit 4.3 of Boyds’  Registration Statement on Form S-8, filed on January 18, 2002, File No.  333-77022).                                                                                                                                                                                          |
|             |   |                                                                                                                                                                                                                                                                                                                                                                                   |
| 10.5             |   | 2000 Option Plan for  Key Employees of Boyds (incorporated by reference from Exhibit 4.4 of Boyds’  Registration Statement on Form S-8, filed on January 18, 2002, File No.  333-77022).                                                                                                                                                                                          |
|             |   |                                                                                                                                                                                                                                                                                                                                                                                   |
| 10.6             |   | 2001 Option Plan for  Key Employees of Boyds (incorporated by reference from Exhibit 4.5 of Boyds’  Registration Statement on Form S-8, filed on January 18, 2002, File No.  333-77022).                                                                                                                                                                                          |
|             |   |                                                                                                                                                                                                                                                                                                                                                                                   |
| 10.7             |   | Lease Agreement for  Boyds’ McSherrystown, Pennsylvania facility (incorporated by reference from  Exhibit 10.4 of Amendment No. 3 to Boyds’ Registration Statement on Form S-1,  filed on February 23, 1999, File No. 333- 69535).                                                                                                                                           |
|             |   |                                                                                                                                                                                                                                                                                                                                                                                   |
| 10.8             |   | Employment Agreement  dated January 28, 2000 between Jean-Andre Rougeot and Boyds (incorporated by  reference from Exhibit 10.8 of Boyds’ Annual Report on Form 10-K, filed on  March 28, 2002, File No. 001-14843).                                                                                                                                                              |
|             |   |                                                                                                                                                                                                                                                                                                                                                                                   |
| 31.1             |   | Certification Pursuant  to 15 U.S.C. Section 7241, as Adopted Pursuant to Section 302 of the  Sarbanes-Oxley Act of 2002. *                                                                                                                                                                                                                                                            |
|             |   |                                                                                                                                                                                                                                                                                                                                                                                   |
| 31.2             |   | Certification Pursuant  to 15 U.S.C. Section 7241, as Adopted Pursuant to Section 302 of the  Sarbanes-Oxley Act of 2002. *                                                                                                                                                                                                                                                            |
|             |   |                                                                                                                                                                                                                                                                                                                                                                                   |
| 32.1             |   | Certification Pursuant  to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the  Sarbanes-Oxley Act of 2002. *                                                                                                                                                                                                                                                            |
|             |   |                                                                                                                                                                                                                                                                                                                                                                                   |
| 32.2             |   | Certification Pursuant  to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the  Sarbanes-Oxley Act of 2002. *                                                                                                                                                                                                                                                            |

 

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*                 Filedherewith

 

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