**UNITEDSTATES SECURITIES AND EXCHANGE 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 March 31, 2005**

 

**        OR**

 

   o**TRANSITIONREPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934.**

 

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

### ** **

**CommissionFile Number: 001-14843**

 

**THE BOYDS COLLECTION, LTD.**

(Exact Name ofRegistrant 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’sTelephone Number, Including Area Code)

 

Indicate by checkmark whether the Registrant (1) has filed all reports required to be filed bySection 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding12 months (or for such shorter period that the registrant was required to filesuch reports), and (2) has been subject to such filing requirements for thepast 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 o No ý

 

Indicate thenumber of shares outstanding of each of the issuer’s classes of common stock,as of the latest practicable date:

 

| **Common  Stock, par value $.0001 per share** | ** ** | **59,008,133**                      |
|-----------------------------------------------|------------|-------------------------------------|
| (Class)                                       |       | (Outstanding as of  April 26, 2005) |

 

 

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**THE BOYDS COLLECTION, LTD.**

 

**TABLE OF CONTENTS**

 
| PART I.            | FINANCIAL INFORMATION                                                                                     |   |
|--------------------|-----------------------------------------------------------------------------------------------------------|--------|
|               |                                                                                                      |   |
| **Item 1.**        | **Financial Statements:**                                                                                 |   |
|               |                                                                                                      |   |
|               | Condensed  Consolidated Balance Sheets as of December 31,  2004 and March 31, 2005                        |   |
|               |                                                                                                      |   |
|               | Condensed  Consolidated Statements of Income for the Three  Months Ended March 31, 2004 and 2005          |   |
|               |                                                                                                      |   |
|               | Condensed  Consolidated Statement of Stockholders’ Equity  for the Three Months Ended March 31, 2005 |   |
|               |                                                                                                      |   |
|               | Condensed  Consolidated Statements of Cash Flows for the  Three Months Ended March 31, 2004 and 2005      |   |
|               |                                                                                                      |   |
|               | Notes  to Condensed Consolidated Financial Statements                                                |   |
|               |                                                                                                      |   |
| **Item  2. ** | **Management’s  Discussion and Analysis of FinancialCondition and Results of Operations **      |   |
|               |                                                                                                      |   |
| **Item  3.**       | **Quantitative  and Qualitative Disclosures About  Market Risk**                                          |   |
|               |                                                                                                      |   |
| **Item 4.**        | **Disclosure  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**                                                                                              |   |
|               |                                                                                                      |   |
|               | Signatures                                                                                           |   |
|               |                                                                                                      |   |
|               | Index to Exhibits                                                                                    |   |

 

 

2

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**PART I**

**FINANCIAL INFORMATION**

 

**Item 1.    Financial Statements.**

 

**THE BOYDS COLLECTION, LTD.**

**CONDENSED CONSOLIDATED BALANCE SHEETS**

**As of December 31, 2004 and March 31, 2005**

**Unaudtied**

 
| ** **                                                                                                                                 | ** ** | **December 31,**   | ** ** | **March 31,** | ** ** |
|--------------------------------------------------------------------------------------------------------------------------------------------|------------|--------------------|------------|---------------|------------|
| ** **                                                                                                                                 | ** ** | **2004**           | ** ** | **2005**      | ** ** |
| ** **                                                                                                                                 | ** ** | **(in thousands)** | ** ** |
| **ASSETS**                                                                                                                                 | ** ** | ** **         | ** ** | ** **    | ** ** |
| ** **                                                                                                                                 | ** ** | ** **         | ** ** | ** **    | ** ** |
| **CURRENT  ASSETS:**                                                                                                                       |       |               |       |          |       |
| Cash and cash equivalents                                                                                                                  |       | $                  | 354        |          | $          | 3,157 |   |
| Accounts  receivable, less allowances of $2,390 at December 31, 2004, and $2,147 at  March 31, 2005                                        |       | 8,581              |       | 9,587         |       |
| Inventory -  primarily finished goods, less allowance for obsolete inventory of $2,719 at  December 31, 2004, and $4,084 at March 31, 2005 |       | 13,462             |       | 15,325        |       |
| Inventory in  transit                                                                                                                      |       | 2,666              |       | 320           |       |
| Other current  assets                                                                                                                      |       | 854                |       | 828           |       |
| Deferred income  taxes                                                                                                                     |       | 19,485             |       | 10,738        |       |
| Total current  assets                                                                                                                      |       | 45,402             |       | 39,955        |       |
|                                                                                                                                       |       |               |       |          |       |
| **PROPERTY  AND EQUIPMENT - NET (Note 4)**                                                                                                 |       | 35,081             |       | 34,910        |       |
|                                                                                                                                       |       |               |       |          |       |
| **OTHER  ASSETS:**                                                                                                                         |       |               |       |          |       |
| Deferred debt  issuance costs                                                                                                              |       | 645                |       | 4,068         |       |
| Deferred tax  asset                                                                                                                        |       | 145,435            |       | 83,811        |       |
| Other assets                                                                                                                               |       | 2,997              |       | 416           |       |
| Total other  assets                                                                                                                        |       | 149,077            |       | 88,295        |       |
|                                                                                                                                       |       |               |       |          |       |
| **TOTAL  ASSETS**                                                                                                                          |       | $                  | 229,560    |          | $          | 163,160 |   |
|                                                                                                                                       |       |               |       |          |       |
| **LIABILITIES  AND STOCKHOLDERS’ EQUITY**                                                                                             |       |               |       |          |       |
|                                                                                                                                       |       |               |       |          |       |
| **CURRENT  LIABILITIES:**                                                                                                                  |       |               |       |          |       |
| Accounts payable                                                                                                                           |       | $                  | 4,420      |          | $          | 2,518 |   |
| Accrued expenses                                                                                                                           |       | 5,708              |       | 4,669         |       |
| Income taxes  payable                                                                                                                      |       | 474                |       | 103           |       |
| Interest payable                                                                                                                           |       | 570                |       | 2,026         |       |
| Total current  liabilities                                                                                                                 |       | 11,172             |       | 9,316         |       |
|                                                                                                                                       |       |               |       |          |       |
| **LONG-TERM  DEBT (Note 6)**                                                                                                               |       | 75,142             |       | 87,592        |       |
|                                                                                                                                       |       |               |       |          |       |
| **COMMITMENTS  AND CONTINGENCIES**  (Notes 2 and 10)                                                                                       |       |               |       |          |       |
|                                                                                                                                       |       |               |       |          |       |
| **STOCKHOLDERS’  EQUITY:**                                                                                                            |       |               |       |          |       |
| Common stock  (61,838 shares issued at December 31, 2004, and March 31, 2005, respectively)  and paid-in capital in excess of par          |       | (41,221            | )          | (41,254       | )          |
| Other  comprehensive income:                                                                                                               |       |               |       |          |       |
| Accumulated  other comprehensive loss                                                                                                      |       | (407               | )          | (127          | )          |
| Retained  earnings                                                                                                                         |       | 212,312            |       | 135,020       |       |
| Less: Treasury  shares at cost (2,834 at December 31, 2004, and 2,830 at March 31, 2005)                                                   |       | (27,438            | )          | (27,387       | )          |
| Total  stockholders’ equity                                                                                                           |       | 143,246            |       | 66,252        |       |
|                                                                                                                                       |       |               |       |          |       |
| **TOTAL  LIABILITIES AND STOCKHOLDERS’ EQUITY**                                                                                       |       | $                  | 229,560    |          | $          | 163,160 |   |
|                                                                                                                                            |            |                    |            |               |            |  |  |  |

 

Seenotes to condensed consolidated financial statements.

 

3

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**THE BOYDS COLLECTION, LTD.**

**CONDENSED CONSOLIDATED STATEMENTS OF INCOME**

**For the Three Months Ended March 31, 2004 and 2005**

**(Unaudited)**

 

 
| ** **                                                 | ** ** | **Three Months Ended**                       | ** ** |
|------------------------------------------------------------|------------|----------------------------------------------|------------|
| ** **                                                 | ** ** | **March 31,**                                | ** ** |
| ** **                                                 | ** ** | **2004**                                     | ** ** | **2005** | ** ** |
| ** **                                                 | ** ** | **(in thousands, except per share amounts)** | ** ** |
|                                                       |       |                                         |       |   |   |
| **NET  SALES**                                             |       | $                                            | 26,337     |   | $ | 18,533 |   |
| **COST OF  GOODS SOLD**                                    |       | 10,454                                       |       | 10,131 |   |
| **GROSS  PROFIT**                                          |       | 15,883                                       |       | 8,402 |   |
| **SELLING,  GENERAL AND ADMINISTRATIVE EXPENSES**          |       | 9,926                                        |       | 10,701 |   |
| **IMPAIRMENT  OF GOODWILL (Note 5)**                       |       | —                                       |       | 2,600 |   |
| **INCOME/(LOSS)  FROM OPERATIONS**                         |       | 5,957                                        |       | (4,899 | ) |
| **OTHER  INCOME/(EXPENSE)**                                |       | (78                                          | )          | (124 | ) |
| **INTEREST  EXPENSE:**                                     |       |                                         |       |   |   |
| Interest expense                                           |       | 1,014                                        |       | 1,980 |   |
| Amortization of  deferred debt issuance costs              |       | 80                                           |       | 204 |   |
| **TOTAL  INTEREST EXPENSE**                                |       | 1,094                                        |       | 2,184 |   |
|                                                       |       |                                         |       |   |   |
| **INCOME/(LOSS)  BEFORE PROVISION FOR INCOME TAXES**       |       | 4,785                                        |       | (7,207 | ) |
| **PROVISION  FOR INCOME TAXES (Note 9)**                   |       | 1,990                                        |       | 70,085 |   |
| **NET  INCOME/(LOSS)**                                     |       | $                                            | 2,795      |   | $ | (77,292 | ) |
|                                                       |       |                                         |       |   |   |
| **EARNINGS/(LOSS)  PER SHARE:**                            |       |                                         |       |   |   |
| Basic and  Dilutive Earnings Per Share - Net Income/(Loss) |       | $                                            | 0.05       |   | $ | (1.31 | ) |

 

Seenotes to condensed consolidated financial statements.

 

4

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**THE BOYDS COLLECTION, LTD.**

**CONDENSED CONSOLIDATED STATEMENT OF STOCKHOLDERS’ EQUITY**

**For the Three Months Ended March 31, 2005**

**(Unaudited)**

 
| ** **                    | ** ** | **Common  Stock**   | ** ** | **Common  Stock** | ** ** | **Accumulated**    | ** ** | ** **        | ** ** | ** **   | ** ** | ** **   | ** ** | ** **             | ** ** |
|-------------------------------|------------|---------------------|------------|-------------------|------------|--------------------|------------|-------------------|------------|--------------|------------|--------------|------------|------------------------|------------|
| ** **                    | ** ** | **Shares**          | ** ** | ** **        | ** ** | **and  Paid-in**   | ** ** | **Other**         | ** ** | ** **   | ** ** | ** **   | ** ** | **Total**              | ** ** | **Other** | ** ** |
| ** **                    | ** ** | **Issued  And**     | ** ** | **Treasury**      | ** ** | **Capital  in**    | ** ** | **Comprehensive** | ** ** | **Retained** | ** ** | **Treasury** | ** ** | **Stockholders’** | ** ** | **Comprehensive** | ** ** |
| ** **                    | ** ** | **Outstanding**     | ** ** | **Stock**         | ** ** | **Excess  of Par** | ** ** | **Income/(Loss)** | ** ** | **Earnings** | ** ** | **Stock**    | ** ** | **Equity**             | ** ** | **Income** | ** ** |
| ** **                    | ** ** | **(in  thousands)** | ** ** |
|                          |       |                |       |              |       |               |       |              |       |         |       |         |       |                   |       |   |   |
| **BALANCE,  JANUARY 1, 2005** |       | 61,838              |       | 2,834             |       | $                  | (41,221    | )                 | $          | (407         | )          | $            | 212,312    |                   | $          | (27,438 | ) | $ | 143,246 |   |   |   |
| Issuance of  common stock     |       |                |       | (4                | )          | (33                | )          |              |       |         |       | 51           |       | 18                     |       |   |   |
| Other comprehensive  income:  |       |                |       |              |       |               |       |              |       |         |       |         |       |                   |       |   |   |
| Foreign currency  translation |       | —              |       | —            |       | —             |       | 280               |       | —       |       | —       |       | 280                    |       | $ | 280 |   |
| Net loss                      |       | —              |       | —            |       | —             |       | —            |       | (77,292      | )          | —       |       | (77,292                | )          | (77,292 | ) |
| Comprehensive  loss           |       | —              |       | —            |       | —             |       | —            |       | —       |       | —       |       | —                 |       | $ | (77,012 | ) |
|                          |       |                |       |              |       |               |       |              |       |         |       |         |       |                   |       |   |   |
| **BALANCE,  March 31, 2005**  |       | 61,838              |       | 2,830             |       | $                  | (41,254    | )                 | $          | (127         | )          | $            | 135,020    |                   | (27,387    | ) | $ | 66,252 |   |   |   |
|                               |            |                     |            |                   |            |                    |            |                   |            |              |            |              |            |                        |            |  |  |  |  |  |  |  |  |

 

See notes to condensedconsolidated financial statements.

 

5

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**THE BOYDSCOLLECTION, LTD.**

**CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS**

**For theThree Months Ended March 31, 2004 and 2005**

**(Unaudited)**

 
| ** **                                                                                           | ** ** | **Three Months Ended** | ** ** |
|------------------------------------------------------------------------------------------------------|------------|------------------------|------------|
| ** **                                                                                           | ** ** | **March 31,**          | ** ** |
| ** **                                                                                           | ** ** | **2004**               | ** ** | **2005** | ** ** |
| ** **                                                                                           | ** ** | **(in thousands)**     | ** ** |
| **CASH  FLOWS FROM OPERATING ACTIVITIES:**                                                           |       |                   |       |   |   |
| Net  income/(loss)                                                                                   |       | $                      | 2,795      |   | $ | (77,292 | ) |
| Adjustments to  reconcile net income/(loss) to net cash provided by/(used in) operating  activities: |       |                   |       |   |   |
| Depreciation and  amortization                                                                       |       | 471                    |       | 577 |   |
| Amortization and  write off of deferred debt issuance costs                                          |       | 80                     |       | 204 |   |
| Loss on sale of  equipment                                                                           |       | (3                     | )          | — |   |
| Deferred taxes                                                                                       |       | 4,432                  |       | 70,371 |   |
| Impairment of  goodwill                                                                              |       | —                 |       | 2,600 |   |
| Changes in  assets and liabilities:                                                                  |       |                   |       |   |   |
| Accounts  receivable - net                                                                           |       | (3,024                 | )          | (1,006 | ) |
| Inventory - net                                                                                      |       | (75                    | )          | (1,863 | ) |
| Inventory in  transit                                                                                |       | 2,178                  |       | 2,346 |   |
| Other current  assets                                                                                |       | 26                     |       | 11 |   |
| Other assets                                                                                         |       | (1                     | )          | (19 | ) |
| Accounts payable                                                                                     |       | 8                      |       | (1,902 | ) |
| Accrued expenses                                                                                     |       | (705                   | )          | (1,039 | ) |
| Accrued  taxes/Income taxes receivable                                                               |       | (1,538                 | )          | (371 | ) |
| Interest payable                                                                                     |       | 772                    |       | 1,456 |   |
| Net cash  provided by/ (used in) operating activities                                                |       | 5,416                  |       | (5,927 | ) |
|                                                                                                 |       |                   |       |   |   |
| **CASH  FLOWS FROM INVESTING ACTIVITIES:**                                                           |       |                   |       |   |   |
| Purchase of  property and equipment                                                                  |       | (1,890                 | )          | (391 | ) |
| Net cash used in  investing activities                                                               |       | (1,890                 | )          | (391 | ) |
|                                                                                                 |       |                   |       |   |   |
| **CASH  FLOWS FROM FINANCING ACTIVITIES:**                                                           |       |                   |       |   |   |
| Net payments on  credit agreement, “Revolver”                                              |       | (3,500                 | )          | (12,750 | ) |
| Payment on  credit agreement, “Term Loan”                                                  |       | —                 |       | (28,000 | ) |
| Borrowings from  credit agreement, “New Term Loan”                                         |       | —                 |       | 45,000 |   |
| Net Borrowings  from credit agreement, “New Revolver”                                      |       | —                 |       | 8,200 |   |
| Deferred debt  issuance costs                                                                        |       | —                 |       | (3,627 | ) |
| Exercise of  stock options                                                                           |       | —                 |       | 51 |   |
| Tax benefit from  exercise of stock options                                                          |       | —                 |       | (33 | ) |
| Net cash (used  in)/ provided by financing activities                                                |       | (3,500                 | )          | 8,841 |   |
|                                                                                                 |       |                   |       |   |   |
| Effect of  exchange rate changes on cash                                                             |       | 36                     |       | 280 |   |
|                                                                                                 |       |                   |       |   |   |
| **NET  INCREASE IN CASH AND CASH EQUIVALENTS**                                                       |       | 62                     |       | 2,803 |   |
| **CASH  AND CASH EQUIVALENTS, BEGINNING OF PERIOD**                                                  |       | 4,173                  |       | 354 |   |
| **CASH  AND CASH EQUIVALENTS, END OF PERIOD**                                                        |       | $                      | 4,235      |   | $ | 3,157 |   |
| **CASH  PAID DURING THE PERIOD FOR INTEREST**                                                        |       | $                      | 242        |   | $ | 524 |   |
| **CASH  PAID/(RECEIVED) DURING THE PERIOD FOR INCOME TAXES**                                         |       | $                      | (934       | ) | $ | 35 |   |

 

Seenotes to condensed consolidated financial statements.

 

6

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**THE BOYDS COLLECTION, LTD.NOTES TO CONDENSEDCONSOLIDATED FINANCIAL STATEMENTS(Amounts in thousands, except share and per share amounts)(Unaudited)**

 

**1.             INTERIMFINANCIAL STATEMENTS**

 

                TheBoyds Collection, Ltd. (“Boyds” or the “Company”) operates in two segments,which consist of the Company’s wholesale gift/collectible business and theCompany’s retail gift/entertainment business. In September 2002, Boyds BearCountryä store opened in Gettysburg,Pennsylvania. In November 2004, the Company opened its second retail store inPigeon Forge, Tennessee. These retail stores are being used to generate incomeand expand the brand awareness and image of Boyds. Substantially all of theCompany’s products are sourced from foreign manufacturers in China throughbuying agencies.

 

The condensedconsolidated balance sheet as of March 31, 2005, the condensed consolidatedstatements of income for the three months ended March 31, 2004 and 2005, thecondensed consolidated statement of stockholders’ equity for the three monthsended March 31, 2005 and the condensed consolidated statements of cash flowsfor the three months ended March 31, 2004 and 2005 are unaudited. In theopinion of management, all adjustments, necessary for a fair presentation ofsuch interim financial statements have been included. The results of operationsfor the three months ended March 31, 2005 are not necessarily indicative of theresults to be expected for the full year. These financial statements should beread in conjunction with the financial statements and notes included in Boyds’Annual Report on Form 10-K filed with the Securities and Exchange Commission onMarch 30, 2005.

 

InDecember of 2004, the Financial Accounting Standards Board (“FASB”) issuedStatement of Financial Accounting Standards (“SFAS”) No. 123R, *Share-Based Payment* (“SFAS 123R”). SFAS 123R addresses theaccounting for share-based payments to employees, including grants of employeestock options. Under the new standard, companies will no longer be able toaccount for share-based compensation transactions using the intrinsic method inaccordance with APB Opinion No. 25, *Accounting for StockIssued to Employees.*Instead, companies will be required to accountfor such transactions using a fair-value method and recognize the relatedexpense associated with share-based payments in the consolidated statement ofoperations. In April 2005, the Securities and Exchange Commission delayed theeffective date for SFAS No. 123R until the first quarter of fiscal 2006, andallows, but does not require, companies to restate the full fiscal year of 2005or retroactive restatement to earlier periods to reflect the impact ofexpensing share-based payments under SFAS 123R. The Company has not yetdetermined which fair-value method and transitional provision it will follow.The Company is currently assessing the impact that SFAS 123R will have on thefinancial position, results of operations and cash flows of Boyds.

InMarch 2005, the Securities and Exchange Commission (“SEC”) issued StaffAccounting Bulletin No. (“SAB”) 107 regarding the Staff’s interpretation ofShare-Based Payments. This interpretation provides the Staff’s view regardinginteractions between SFAS No. 123R and certain SEC rules and regulations andprovides interpretations of the valuation of share-based payments for publiccompanies. The interpretive guidance is intended to assist companies inapplying the provisions of SFAS No. 123R and investors and users of thefinancial statements in analyzing the information provided. The Company willadopt SAB 107 in connection with its adoption of SFAS No. 123R.

 

7

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In November of 2004,the FASB issued SFAS No. 151, *Inventory Costs-anAmendment of ARB No. 43.*This Statement amends the guidance inAccounting Research Bulletin (“ARB”) No 43, Chapter 4, *InventoryPricing,* to clarify the accounting for abnormal amounts of idlefacility expense, freight, handling costs, and wasted material (spoilage). ThisStatement requires that these items be recognized as current-period chargesregardless of whether they meet the criterion of “so abnormal.” In addition,this Statement requires that allocation of fixed production overhead to thecosts of conversion be based on the normal capacity of production facilities.The provisions of this Statement are effective for inventory costs incurredduring fiscal years beginning after June 15, 2005. The adoption of thisStatement is not expected to have a material impact on the financial position,results of operations or cash flow of Boyds.

 

InDecember 2004, the FASB issued SFAS No. 153, *Exchange ofNonmonetary Assets* — An Amendment of APB Opinion No. 29, *Accounting for Nonmonetary Transactions*. SFAS No. 153eliminates the exception from fair value measurement from nonmonetary exchangesof similar productive assets in paragraph 21(b) of APB Opinion No. 29 andreplaces it with an exception for exchanges that do not have commericialsubstance. SFAS No. 153 is effective for periods beginning after June 15, 2005.The adoption of this Statement is not expected to have a material impact on thefinancial position, results of operations or cash flow of Boyds.

 

**2.             FINANCIALINSTRUMENTS WITH OFF-BALANCE SHEET RISK**

 

                AtDecember 31, 2004 and at March 31, 2005, Boyds had letters of creditoutstanding under its credit agreement amounting to $4.6 million and $1.8million, respectively. These letters of credit represent Boyds’ commitment topurchase inventory which is to be produced and/or shipped.

 

**3.             RELATEDPARTY TRANSACTIONS**

 

                Kohlberg,Kravis Roberts & Co. L.P. and its affiliates (collectively, “KKR”) is a 59%shareholder of Boyds. For the first quarter ended March 31, 2004 Boyds paid toKKR approximately $0.1 million for management fees and related expenses. KKRhas waived all management fees for 2005. Any related expenses incurred by KKRin 2005 will be paid by Boyds.

 

8

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

 

                The components ofproperty and equipment at December 31, 2004 and March 31, 2005 were, asfollows:

 
| ** **                                       | ** ** | **December 31,** | ** ** | **March 31,** | ** ** |
|--------------------------------------------------|------------|------------------|------------|---------------|------------|
| ** **                                       | ** ** | **2004**         | ** ** | **2005**      | ** ** |
|                                             |       |             |       |          |       |
| Land                                             |       | $                | 3,570      |          | $          | 3,570 |   |
| Building                                         |       | 28,346           |       | 28,439        |       |
| Construction in  progress                        |       | 1,449            |       | 1,690         |       |
| Equipment                                        |       | 5,407            |       | 5,453         |       |
| Software  development costs                      |       | 2,479            |       | 2,479         |       |
| Leasehold  improvements                          |       | 1,944            |       | 1,949         |       |
| Furniture and  fixtures                          |       | 1,076            |       | 1,082         |       |
| Total                                            |       | 44,271           |       | 44,662        |       |
| Less: accumulated  depreciation and amortization |       | (9,190           | )          | (9,752        | )          |
| Total                                            |       | $                | 35,081     |          | $          | 34,910 |   |

 

 

**5.****                                     ****GOODWILL ASSETS**

 

 In July 2001, theFASB issued SFAS No. 142, *Goodwill and OtherIntangible Assets*, which was effective January 1, 2002. SFAS No.142requires, among other things, the discontinuance of goodwill amortization. TheCompany stopped amortizing its goodwill as of January 1, 2002. The Companytested for impairment by comparing the fair value of the reporting unit withthe carrying value of that unit. Fair value was determined based on thediscounted cash flow method. As a result of the Company’s impairment testcompleted in the first quarter of 2005, the Company recorded an impairment lossof $2.6 million to reduce the carrying value of goodwill to zero. The impairmentwas due to the wholesale segment’s operating performance.

 

9

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**6.             LONG-TERMDEBT**

 

                Long-termdebt is summarized as follows:

 
| ** **                                                                          | ** ** | **December 31,** | ** ** | **March 31,** | ** ** |
|-------------------------------------------------------------------------------------|------------|------------------|------------|---------------|------------|
| ** **                                                                          | ** ** | **2004**         | ** ** | **2005**      | ** ** |
| ** **                                                                          | ** ** | ** **       | ** ** | ** **    | ** ** |
| 9% Senior  Subordinated Notes due May 15, 2008                                      |       | $                | 34,392     |          | $          | 34,392 |   |
|                                                                                |       |             |       |          |       |
| Credit  Agreement:                                                                  |       |             |       |          |       |
| Secured Tranche  A Term Loan due April 2005 (the “Term Loan”)             |       |             |       |          |       |
| Interest based  on LIBOR or base rate as defined                                    |       | 28,000           |       | —        |       |
| Secured  revolving credit facility due April 2005 (the “Revolver”)        |       |             |       |          |       |
| Interest based  on LIBOR or base rate as defined                                    |       | 12,750           |       | —        |       |
|                                                                                |       |             |       |          |       |
| New Credit  Agreement:                                                              |       |             |       |          |       |
| Secured Term  Loan due February 2008 (the “New Term Loan”)                |       |             |       |          |       |
| Interest based  on LIBOR or base rate as defined                                    |       | —           |       | 45,000        |       |
| Secured  revolving credit facility due February 2008 (the “New Revolver”) |       |             |       |          |       |
| Interest based  on LIBOR or base rate as defined                                    |       | —           |       | 8,200         |       |
|                                                                                |       |             |       |          |       |
|                                                                                |       | $                | 75,142     |          | $          | 87,592 |   |

 

                The SeniorSubordinated Notes have an optional redemption feature exercisable by Boyds anytime on or after May 15, 2004 at 103% of face value. Each year thereafter,the rate decreases by 1.5%. Interest on the Notes is payable semiannually onMay 15 and November 15.

 

                OnFebruary 23, 2005, the Company entered into a new $45 million credit agreement,the “New Credit Agreement” and used the proceeds to extinguish the CreditAgreement including the Term Loan of $28 million and the outstanding Revolverof $12.75 million.

 

                TheNew Credit Agreement contains a revolving credit facility “the New Revolver” withcapacity of up to $20 million and a New Term Loan of $45 million. The NewCredit Agreement has an interest rate of either a base rate, which is thehigher of the prime lending rate or 0.50% above the federal funds effective rate,plus 9.50% or LIBOR plus 11.00%. The Company incurred approximately $3.6million of deferred financing costs associated with this transaction. The NewCredit Agreement requires no scheduled principal payments until the entireoutstanding amount of debt is required to be repaid at maturity in February,2008. There are certain prepayment penalties for amounts paid on the New TermLoan and New Revolver prior to maturity.

 

At December 31, 2004and March 31, 2005, the weighted average interest rates in effect for the TermLoan and New Term Loan were 1.75% and 15.25%, respectively.  At December 31, 2004 and March 31, 2005, theweighted average interest rate in effect for the Revolver and New Revolver were3.38% and 15.25%, respectively.

 

                The New Credit Agreement contains financialcovenants, tested quarterly, of minimum adjusted EBITDA (as defined in the NewCredit Agreement), maximum senior leverage and maximum total leverage relatingto the last twelve months. At the end of the third and fourth quarters of 2005,Boyds must maintain a senior leverage ratio no greater than 2.5 to 1.0 or atotal leverage ratio greater than 4.5 to 1.0. At the end of the third andfourth quarters of 2005, Boyds must have an adjusted minimum EBITDA of $17million. The New Credit Agreement also contains customary covenants, includingcovenants that restrict the Company’s ability to incur additional indebtedness,make capital expenditures, pay dividends

 

10

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on and redeem capital stock, make otherrestricted payments, make investments, sell its assets and enter intoconsolidations, mergers and transfers of all or substantially all of its assets.

 

The scheduled maturitiesof the Company’s long-term debt are as follows:

 

| 2005   |   |   |   | $      | — |   |
|--------|--------|--------|--------|--------|--------|--------|
| 2006   |   |   |   | — |   |
| 2007   |   |   |   | — |   |
| 2008   |   |   |   | 87,592 |   |
|   |   |   |   | $      | 87,592 |   |

 

 

**7.             SEGMENTSOF THE COMPANY AND RELATED INFORMATION**

 

                TheCompany operates in two segments which consist of the Company’s wholesalegift/collectible business and the Company’s retail gift/entertainment business.These segments are evaluated regularly by the Company’s Chief Executive Officerin deciding how to assess performance and allocate resources. Prior to theretail operations becoming a significant portion of the Company’s performance,the Company had only one reportable segment.

 

                TheCompany’s wholesale business designs, imports, and distributes resin figurines,plush animals, and other specialty giftware products via a global network ofindependent retailers and distributors.   TheCompany’s retail operation sells resin figurines, plush animals, specialtygiftware products and provides a unique entertainment experience directly tothe end consumer at its Gettysburg, Pennsylvania flagship location and PigeonForge, Tennessee location. Additional retail stores are planned in MyrtleBeach, South Carolina and Branson, Missouri.

 

 
| ** **                       | ** ** | **For the Three Months Ended, March 31,** | ** ** |
|----------------------------------|------------|-------------------------------------------|------------|
| ** **                       | ** ** | **2004**                                  | ** ** | **2005** | ** ** |
| ** **                       | ** ** | **Wholesale**                             | ** ** | **Retail** | ** ** | **Consolidated** | ** ** | **Wholesale** | ** ** | **Retail** | ** ** | **Consolidated** | ** ** |
| Sales                            |       | $                                         | 24,268     |   | $ | 2,069 |   | $ | 26,337 |   | $ | 15,274 |   | $ | 3,259 |   | $ | 18,533 |   |
| Gross Profit                     |       | 14,357                                    |       | 1,526 |   | 15,883 |   | 6,133 |   | 2,269 |   | 8,402 |   |
| SG&A                         |       | 8,066                                     |       | 1,860 |   | 9,926 |   | 7,535 |   | 3,166 |   | 10,701 |   |
| Impairment of  Goodwill          |       | —                                    |       | — |   | — |   | 2,600 |   | — |   | 2,600 |   |
| Income/(Loss) from  Operations   |       | $                                         | 6,291      |   | $ | (334 | ) | $ | 5,957 |   | $ | (4,002 | ) | $ | (897 | ) | $ | (4,899 | ) |
|                             |       |                                      |       |   |   |   |   |   |   |   |   |   |   |
| Total Assets                     |       | $                                         | 202,111    |   | $ | 20,249 |   | $ | 222,360 |   | $ | 125,290 |   | $ | 37,120 |   | $ | 162,410 |   |
| Capital  Expenditures            |       | 118                                       |       | 1,772 |   | 1,890 |   | 57 |   | 334 |   | 391 |   |
| Depreciation  & Amortization |       | 267                                       |       | 204 |   | 471 |   | 211 |   | 366 |   | 577 |   |
|                                  |            |                                           |            |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |

 

 

11

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**8.             STOCK-BASEDCOMPENSATION**

 

At March 31, 2005, Boyds hadvarious stock-based employee compensation plans. The Company measurescompensation expense for its stock-based employee compensation plans using theintrinsic value method. Boyds has adopted the disclosure only provision of SFASNo. 148 *“Accounting for Stock-Based Compensation —Transition and Disclosure,”* (“SFAS No. 148”) an amendment of SFASNo. 123; therefore no compensation expense was recognized for the Company’sstock option plans. Had compensation expense for the Company’s stock optionplans been determined based on the fair value at the grant date for awardsunder the Company’s stock plan, consistent with the methodology prescribedunder SFAS No. 148, the Company’s net income/(loss) and net income/(loss) percommon share would have approximated the pro forma amounts indicated below:

 

 

| ** **                                                                                                                                    | ** ** | **Three Months Ended** | ** ** |
|-----------------------------------------------------------------------------------------------------------------------------------------------|------------|------------------------|------------|
| ** **                                                                                                                                    | ** ** | **March 31,**          | ** ** |
| ** **                                                                                                                                    | ** ** | **2004**               | ** ** | **2005** | ** ** |
| ** **                                                                                                                                    | ** ** | ** **             | ** ** | ** ** | ** ** |
| Net  income/(loss), as reported                                                                                                               |       | $                      | 2,795      |   | $ | (77,292 | ) |
|                                                                                                                                          |       |                   |       |   |   |
| Deduct: Total  stock-based employee compensation expense determined under fair value based  method for all awards, net of related tax effects |       | 557                    |       | 407 |   |
|                                                                                                                                          |       |                   |       |   |   |
| Pro forma net  income/(loss)                                                                                                                  |       | $                      | 2,238      |   | $ | (77,699 | ) |
|                                                                                                                                          |       |                   |       |   |   |
| Earnings per  share:                                                                                                                          |       |                   |       |   |   |
| Basic—as  reported                                                                                                                       |       | $                      | 0.05       |   | $ | (1.31 | ) |
| Basic—pro forma                                                                                                                          |       | $                      | 0.04       |   | $ | (1.31 | ) |
|                                                                                                                                          |       |                   |       |   |   |
| Diluted—as  reported                                                                                                                     |       | $                      | 0.05       |   | $ | (1.31 | ) |
| Diluted—pro  forma                                                                                                                       |       | $                      | 0.04       |   | $ | (1.31 | ) |

 

 

**9.             PROVISIONFOR INCOME TAXES**

 

                As of March 31, 2005, the Companyhas net deferred tax assets of approximately $94.5 million or approximately 58%of total assets, consisting of tax carryforwards that will begin to expire in2023 until the end of 2033. The recovery of the deferred income tax assets iscontingent upon applicable tax laws and realization of these deferred taxassets. In the first quarter of 2005, the Company recorded tax expense of $70million as a result of recording a $71.6 additional valuation allowance againstits deferred tax assets. This valuation allowance results from reducedestimates by management of future taxable income in each of the federal, state,and foreign tax jurisdictions during the carry forward period and theconclusion by management that it is no longer more likely than not that thisamount of deferred tax assets will be realized under the criteria of SFAS No.109, *Accounting for Income Taxes.* The Companywill continue to evaluate the need for further valuation allowances under thiscriteria; such further adjustments could be significant. The Company will needto generate approximately $240 million of taxable income over the next 30 yearsto fully realize the federal net deferred tax assets.

 

12

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**10.          CONTINGENCIES**

 

                Boydsis involved in various legal proceedings, claims and governmental audits in theordinary course of business. In the opinion of management, the ultimatedisposition of these matters will not have a material adverse effect on thefinancial position, results of operations or cash flows of Boyds.

 

**11.          EARNINGSPER SHARE**

 

The following is areconciliation of the numerators and denominators of the basic and dilutedearnings per share computations for the net income/(loss) available to commonstockholders:

 

 
| ** **                                                                         | ** ** | **Three Months Ended** | ** ** |
|------------------------------------------------------------------------------------|------------|------------------------|------------|
| ** **                                                                         | ** ** | **March 31,**          | ** ** |
| ** **                                                                         | ** ** | **2004**               | ** ** | **2005** | ** ** |
| ** **                                                                         | ** ** | ** **             | ** ** | ** ** | ** ** |
| Numerator for  basic and diluted earnings per share:                               |       |                   |       |   |   |   |   |
| Net  income/(loss)                                                                 |       | $                      | 2,795      |   | $ | (77,292 | ) |
| Denominator:                                                                       |       |                   |       |   |   |
| Denominator for  basic earnings per share - weighted average shares                |       | 59,004                 |       | 59,006 |   |
| Effect of  dilutive securities:                                                    |       |                   |       |   |   |
| Effect of shares  issuable under stock option plans based on treasury stock method |       | —                 |       | 81 |   |
| Denominator for  diluted earnings per share - weighted average shares              |       | 59,004                 |       | 59,087 |   |
|                                                                               |       |                   |       |   |   |
| EPS - Basic                                                                        |       | $                      | 0.05       |   | $ | (1.31 | ) |
|                                                                               |       |                   |       |   |   |
| EPS - Diluted                                                                      |       | $                      | 0.05       |   | $ | (1.31 | ) |

 

 

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**Item 2.    Management’s Discussion and Analysis of Financial Condition andResults of Operations**

 

                The following discussion shouldbe read in conjunction with the financial information and related notesincluded elsewhere in this report.

 

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

 

Boyds is a leading domestic designer, importerand distributor of branded, high-quality, handcrafted collectibles and otherspecialty giftware products. Boyds sells its products primarily through anextensive network of approximately 14,000 accounts comprised of independentgift and collectibles retailers, premier department stores, selected catalogueretailers and other electronic and retail channels. Boyds also sells itsproducts directly to consumers through its two retail stores *Boyds Bear Country**ä**- Gettysburg* and *Boyds Bear Country**ä**- Pigeon Forge.*The Company has signed options for leases on additional locations in MyrtleBeach, South Carolina and Branson, Missouri.

 

                Boyds’ sales consist of plushanimals, resin figurines, and other products. Other products include collectorsclub sales, home décor, stationary and accessories. Collectors club sales aregenerated from annual dues collected directly from members of Boyds’ collectorsclub, *The Loyal Order of Friends of Boyds*,which began in July 1996 and currently has approximately 20,000 payingmembers, as well as from the sale of related accessories.

 

                Boyds also has several licensingagreements for its branded product. The more significant agreements wouldinclude NASCAR and M&M’S ®Brand Characters. Boyds expects to begindelivering M&M Boyds products to stores in late 2005.

 

                Boyds licenses its productdesigns to other companies for products including home textiles, infantclothing and wallpaper. Boyds believes such licensing, in addition to providingroyalty income, helps to increase consumer awareness of Boyds’ designs andbrand image. Boyds reports royalty income in net sales.

 

##### ***               ***Boyds exhibits its products at selectnational and regional tradeshows where orders are taken by Boyds’ employees.Boyds operates almost exclusively out of a leased office/distribution facility,owns one retail store in the general vicinity of Gettysburg, Pennsylvania, andowns a second retail store in Pigeon Forge, Tennessee. Boyds also leaseswarehouse space in Dunkeswell, United Kingdom, and Dordrecht, The Netherlands.

 

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

 

The Company operates in two segments which consist ofthe Company’s wholesale gift/collectible business and the Company’s retailgift/entertainment business. These segments are evaluated regularly by theCompany’s Chief Executive Officer in deciding how to assess performance andallocate resources.   Prior to the retailoperations becoming a significant portion of the Company’s performance, theCompany had only one reportable segment.

 

                The Company’swholesale business designs, imports, and distributes resin figurines, plushanimals and other specialty giftware products via a global network ofindependent retailers and distributors. The Company’s retail operation sellsresin figurines, plush animals, other specialty giftware products and providesa unique entertainment experience, directly to the end consumer currently atits Gettysburg, Pennsylvania flagship location and Pigeon Forge, Tennesseelocation. The Company has signed options for leases on additional locations inMyrtle Beach, South Carolina and Branson, Missouri.

 

14

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**CRITICAL ACCOUNTINGPOLICIES**

** **

Preparing the Company’s financial statements inconformity with accounting principles generally accepted in the United Statesof America requires that management make estimates and assumptions that affectthe amounts reported in the financial statements and accompanying notes. Predictingfuture events is inherently an imprecise activity and as such requires the useof judgment. Actual results may vary from estimates in amounts that may bematerial to the financial statements. Management believes that the estimatesand assumptions used in connection with the amounts reported in Boyds’financial statements and related disclosures are reasonable and made in goodfaith.

 

                The most significant accounting estimates inherent inthe preparation of Boyds’ financial statements include estimates related to thevaluation of the deferred tax assets, determining the ultimate collectabilityof accounts receivable and the realizable value of inventory. The process ofdetermining estimates is based on several factors, including historical experience,current and anticipated economic conditions and customer profiles. Boydscontinually reevaluates these key factors and makes adjustments to estimateswhere appropriate. The following are Boyds’ critical accounting policies, someof which require the application of significant estimates and assumptions.

 

•                  For the wholesale business, Boyds records saleswhen persuasive evidence of an arrangement exists, the price is fixed ordeterminable, items are shipped and the collectibility of the resulting receivableis reasonable assured. For the retail business, Boyds recognizes sales uponcustomer receipt of the merchandise. The most significant financial statementline item, net sales, represents transactions consistent with Boyds’ primarybusiness focus and meets the criteria of Staff Accounting Bulletin No. 101,including the transfer of title, probable collectibility, identified customerand no resource.

 

•                  As of March 31, 2005, the Company has net deferred tax assets ofapproximately $94.5 million or approximately 58% of total assets, consisting oftax carryforwards that will begin to expire in 2023 until the end of 2033. Therecovery of the deferred income tax assets is contingent upon applicable taxlaws and realization of these deferred tax assets. In the first quarter of2005, the Company recorded tax expense of $70 million as a result of recordinga $71.6 additional valuation allowance against its deferred tax assets. Thisvaluation allowance results from reduced estimates by management of future taxableincome in each of the federal, state, and foreign tax jurisdictions during thecarry forward period and the conclusion by management that it is no longer morelikely than not that this amount of deferred tax assets will be realized underthe criteria of SFAS No. 109, Accounting for Income Taxes. The Company willcontinue to evaluate the need for further valuation allowances under thiscriteria; such further adjustments could be significant. The Company will needto generate approximately $240 million of taxable income over the next 30 yearsto fully realize the federal net deferred tax assets.

 

•                  Accounts receivable are presented at estimatednet 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.

 

•                  Inventories are stated at thelower of cost or market. Cost is determined under the first-in, first-outmethod of accounting.Boyds records adjustments to the value of inventory in situations where itappears that Boyds will not be able to recover the cost of the product. Thislower of cost or market analysis is based on Boyds’ estimate of forecasteddemand by customer by product. A

 

15

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decrease inproduct demand due to changing customer tastes, consumer buying patterns orloss of shelf space to competitors could significantly impact Boyds’ evaluationof its excess and obsolete inventories.

 

•                  Under the requirements of SFAS No.142, “Goodwill andOther Intangible Assets”, and SFAS No.144, “Accounting for the Impairment orDisposal of Long-Lived Assets”, theCompany tested for impairment by comparing the fair value of the reporting unitwith the carrying value of that unit. Fair value was determined based on thediscounted cash flow method. As a result of the Company’s impairment testcompleted in the first quarter of 2005, the Company recorded an impairment lossof $2.6 million to reduce the carrying value of goodwill to zero. Theimpairment was due to the wholesale segment’s operating performance.

 

•                  Boyds has various stock-based employee compensationplans. The Company accounts for those plans under the recognition andmeasurement principles of APB Opinion No. 25, “Accounting for Stock Issued toEmployees”, and related Interpretations. Under this method, compensation costis the excess, if any, of the quoted market price of the stock at the grantdate or other measurement date over the amount an employee must pay to acquirethe stock. No stock-based employee compensation cost is reflected in netincome, as all options granted under those plans had an exercise price equal tothe market value of the underlying common stock on the date of grant.

 

**FACTORS WHICH AFFECT BOYDS’ RESULTSOF OPERATIONS**

 

***Seasonality***

 

Boyds recognizes revenues throughout the year andgenerally ships merchandise on a first-in, first-out basis. Approximately 45%of revenues are recorded during the first and second quarters whileapproximately 55% of revenues are recorded during the third and fourth quartersin anticipation of the holiday season. Boyds does not have the significantseasonal variation in its revenues that it believes is experienced by manyother giftware, collectibles or retail companies.

 

***Foreign Exchange***

 

                Thedollar value of Boyds’ assets abroad is not significant. Boyds’ sales areprimarily denominated in United States dollars and, as a result, are not subjectto changes in exchange rates.

 

                Boydsimports most of its products from manufacturers in China. Boyds’ costs could beadversely affected on a short-term basis if the Chinese renminbi appreciatessignificantly relative to the United States dollar. Conversely, its costs wouldbe favorably affected on a short-term basis if the Chinese renminbi depreciatessignificantly relative to the United States dollar. Although Boyds generallypays for its products in United States dollars, the cost of such products fluctuateswith the value of the Chinese renminbi. In the future, Boyds may, from time totime, enter into foreign exchange contracts or prepay inventory purchases as apartial hedge against currency fluctuations. Differences between the amounts ofsuch contracts and costs of specific material purchases are included ininventory and cost of sales. Boyds’ policy is to not capitalize any gains orlosses associated with foreign currency transactions or foreign exchangecontracts. Boyds intends to manage foreign exchange risks to the extentappropriate.

 

16

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                Boyds has growing sales operations based inEurope and Canada, but at this time Boyds does not expect any significantimpact due to fluctuations in the Euro, the British Pound or the Canadiandollar.

 

**RESULTS OF OPERATIONS**

 

Net sales consist of sales of our products, net of sales discounts,product returns and allowances, retail sales from the *Boyds BearCountryTM* retail stores, collectors club sales generatedfrom members of Boyds’ collectors club and royalty income from licenses held byBoyds. Wholesale sales are primarily made on a purchase order basis. Revenueassociated with sales is recognized when products are shipped to the customeror upon the completion of a retail transaction.

 

                Boyds’ gross profit margins may not be comparable tothe gross profit margins of certain other entities due to the classification ofcertain costs. Boyds includes items such as purchasing and receiving costs,internal transfer costs, and the costs of its distribution network in cost ofgoods sold. Boyds includes its inspection costs in selling, general andadministrative (“SG&A”) expenses. Other entities may classify theirexpenses differently.

 

Inaccordance with Emerging Issues Task Force (“EITF”) No. 00-10, “Accounting forShipping and Handling Fees and Costs”, Boyds records amounts billed tocustomers related to shipping and handling as revenue and all expenses relatedto shipping and handling as cost of goods sold.

 

                Otherincome consists of interest income and exchange rate gain/loss.

 

                The following table sets forththe components of net income as a percentage of net sales for the periodindicated:

 
| ** **                                    | ** ** | **Three Months** | ** ** |
|-----------------------------------------------|------------|------------------|------------|
| ** **                                    | ** ** | **Ended**        | ** ** |
| ** **                                    | ** ** | **March 31,**    | ** ** |
| ** **                                    | ** ** | **2004**         | ** ** | **2005** | ** ** |
|                                          |       |             |       |   |   |
| Net sales                                     |       | 100.0            | %          | 100.0 | % |
| Gross profit                                  |       | 60.3             | %          | 45.3 | % |
| Selling, general  and administrative expenses |       | 37.7             | %          | 57.7 | % |
| Impairment of  assets                         |       | 0.0              | %          | 14.0 | % |
| Income/(loss)  from operations                |       | 22.6             | %          | (26.4 | )% |
| Other income  (expenses), net                 |       | (0.2             | )%         | (0.7 | )% |
| Interest expense                              |       | 4.2              | %          | 11.8 | % |
| Provision for  income taxes                   |       | 7.6              | %          | 378.2 | % |
| Net  income/(loss)                            |       | 10.6             | %          | (417.1 | )% |

 

 

## ***Executive Overview***

 

In the first quarter of2005, the Company’s net sales decreased by 30%, which can primarily beattributed to the wholesale segment’s decrease of 37% partially offset by anincrease of 58% in the retail segment. The primary driver to the decreasedwholesale net sales was the sales forces restructuring in the fourth quarter of2004. The disruption from this change significantly impacted the Company’s bookings(cancelable orders) in its several national accounts and smaller accounts forthe first quarter which were down 22%, compared to the bookings for the sameperiod in 2004. Retail net sales were positively impacted by the addition ofthe Company’s second store in Pigeon Forge, Tennessee.

 

17

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## *               *TheCompany’s net profit for the first quarter decreased by $80.0 million to a lossof $77.2 million as compared to the same period in 2004. This decrease can beattributed to a significant increase in the Company’s allowance for itsdeferred tax asset, the write off of its goodwill, lower sales, and an increasein the inventory obsolescence reserve.

 

Cash used in operations inthe first quarter of 2005 was $5.9 million compared to $5.4 million in the sameperiod in 2004. In the first quarter of 2005, the Company had a net increase ofapproximately $12.5 million of debt and invested approximately $0.4 million ofcash in property and equipment. In the three months of 2004, the Company repaidapproximately $3.5 million of debt and invested approximately $1.9 of cash, ofwhich $1.6 million related to the building of *Boyds Bear Country**TM**- Pigeon Forge*.

 

## ***ThreeMonths Ended March 31, 2005 vs. Three Months Ended March 31, 2004***

 

*Net Sales*— Net sales decreased $7.8 million, to $18.5 million in the firstquarter of 2005 from $26.3 million for the same quarter in 2004. Sales of Boyds’plush products decreased $3.7 million, or 26%, resin product sales decreased$3.3 million, or 40%, and other product sales decreased $0.8 million, or 23%. Asa percentage of net sales for the first quarter, plush represented 57%, resinproducts represented 27%, and other products represented 16%.

 

Wholesalenet sales in the first quarter of 2005 declined $9.0 million, or 37%, to $15.2million from $24.2 million for the same quarter in 2004. The decline can beprimarily attributed to lower bookings in the fourth quarter of 2004, whichwere 44% lower than booking for the same period in 2003. The restructuring ofthe Sales Force in late October of 2004 and slowness in a select number ofnational accounts were the contributors to these reduced bookings. At the endof the first quarter, bookings (cancelable orders), were down 22% compared tolast year’s bookings. This decline in bookings can be attributed to selectednational accounts and the Company’s smaller field accounts, which werepartially offset by growth in our medium to large field accounts.

 

Retailnet sales increased $1.2 million, or 58%, to $3.3 million in the first quarterof 2005 from $2.1 million in the first quarter of 2004. Same store retail netsales decreased by $0.2 million, or 10%, to $1.8 million in the first quarterfrom $2.0 million from the first quarter of 2004. This decline can beattributed to the reduced tourist traffic and poor weather in the Gettysburgarea.

 

*Gross profit* - Gross profit decreased $7.5 million, or 47%, to $8.4 million in thefirst quarter of 2005 from $15.9 million for the first quarter of 2004. Grossprofit as a percentage of net sales decreased to 45.3% for the first quarter of2005 as compared to 60.3% for 2004. The dollar decline was primarilyattributable to reduced sales, a incremental charge of $1.4 million increase inthe Company’s inventory obsolescence allowance, and an increased product mixshift to lower margin product. Wholesale gross profit decreased by $8.3million, or 58%, to $6.1 million in the first quarter of 2005 from $14.4million in the first quarter of 2004. Retail gross profit increased by $0.8million, to $2.3 million in the first quarter of 2005 from $1.5 million in thefirst quarter of 2004.

 

                *Selling, General& Administrative Expenses (“SG&A”)*- SG&A expensesincreased $0.8 million, or 8%, to $10.7 million in the first quarter of 2005from $9.9 million for the first quarter of 2004. SG&A as a percent of netsales increased to 58% for the first quarter from 38% for the same period in2004. The dollar increase in SG&A expenses was a result of $1.4 million relatingto operating expenses in our new Boyds Bear Countryälocation in Pigeon Forge, Tennessee, which opened inNovember 2004, and $0.5 in call center expenses, which were partially offset by$0.8 million in lower wage costs stemming from our cost saving initiatives.

 

18

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*Impairment of Goodwill Assets*— The Company recorded a goodwill impairment charge of $2.6 million forthe first quarter of 2005. The charge is attributed to the goodwill impairmenttesting as prescribed by SFAS 142, Goodwill and Other Intangibles due to thewholesale segment’s operating performance.

 

*Income from operations* - Income from operations declined $10.9 million to a loss of $4.9million in the first quarter of 2005 from an income of $6.0 million in thefirst quarter of 2004. Income from operations as a percentage of net salesdeclined to a negative 26% in the first quarter of 2005 from 23% in the firstquarter of 2004.

 

                *Total interest expense* - Total interestexpense increased to $2.2 million for the first quarter of 2005 as compared to$1.1 million for the first quarter of 2004. Interest expense on outstandingdebt increased for the first quarter of 2005 by $1.0 million. This increase isdue to a higher interest rate on the Company’s outstanding debt. Additionally,the amortization expense associated with the deferred financing costs haveincreased by $0.1 million as a result of costs associated with the new creditagreement.

 

*Income taxes -* Income taxes increased $68.1 million to $70.1 million in the firstquarter of 2005 as compared to $2.0 million for the first quarter of 2004. Theprovision was impacted by the recording a $71.6 million valuation allowanceagainst its deferred tax assets. The valuation allowance reserves a portion ofthe deferred tax assets that may not be realized by estimated future taxableincome. The valuationallowance was recorded in the first quarter of 2005 due to the continuation ofthe poor economic climate and the results in the first quarter of 2005. The amount of the deferred tax asset considered realizable could bereduced in the near term if estimates of future taxable income in each of thefederal, state, and foreign jurisdictions, during the carryforward period arefurther reduced. Such further adjustments could be significant.

 

*Net Loss—* Net profit decreased $80.1 million to a loss of $77.3 million in thefirst quarter of 2005 from a $2.8 million income for the first quarter of 2004.Excluding the impact of the two non-cash charges consisting of the impairmentof goodwill and the increase in the deferred tax asset valuation, describedabove, net loss would have been $3.1 million.

 

*Liquidityand Capital Resources*

 

**               **Boyds’ primary sources ofliquidity are cash flow from operations and borrowings under its creditagreement, which includes a revolving credit facility. Boyds’ primary uses ofcash are to fund working capital requirements to service debt. Cash balancesincreased to $3.2 million in the first three months of 2005 as compared to thebalances at December 2004.

 

*Operating Activities*

 

***               ***Cash provided by operating activitiesdecreased $11.3 million, to a negative $5.9 million in the first three monthsof 2004 from $5.4 million for the first three months of 2004. The cash flowdecrease was primarily attributable to the decrease in sales, increases ininventory levels, decrease in payables and accrued expenses offset by adecrease in inventory in transit.

 

*Investing Activities*

 

***               *** Capital and investment expenditures totaled $0.4million in the first three months of 2005 as compared to $1.9 million in thefirst three months of 2004. This decrease in expenditures was the result of nomajor additional construction costs relating to the *Boyds BearCountry**TM* — Pigeon Forge, Tennessee and Myrtle Beach, SouthCarolina locations.

 

19

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*Financing Activities*

 

                In connection with therecapitalization in 1998, Boyds entered into a credit 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. During the firstquarter, the company had additional borrowings of $10.0 million on the revolvingcredit facility. On February 23, 2005, the Company entered into a new creditagreement and used the proceeds to extinguish the outstanding tranche A (the “termloan”) and revolving credit facility (the “revolver”) in the amounts of $28.0million and $22.8 million, respectively.

 

The New Credit Agreement contains a revolvingcredit facility with capacity of up to $20 million and a new term loan of $45million. During the first three months of 2005, the Company utilized $8.2million of this revolving facility. Borrowings under the credit agreement bearinterest at a rate per annum, equal to a margin over either a base rate, whichis the higher of the prime lending rate or 0.50% above the federal fundseffective rate, plus 9.50% or LIBOR plus 11.00%.

 

The New Credit Agreement contains financialcovenants, tested quarterly, of minimum adjusted EBITDA, (as defined in the NewCredit Agreement), maximum senior leverage and maximum total leverage relatingto the last twelve months. At the end of the third and fourth quarters of 2005,Boyds may not have a senior leverage ratio greater than 2.5 to 1.0 or a totalleverage ratio greater than 4.5 to 1.0. At the end of the third and fourthquarters of 2005, Boyds must have an adjusted minimum EBITDA of $17 million. Additionally,the New Credit Agreement has covenants that restrict the Company’s ability toincur additional indebtedness, make capital expenditures, pay dividends on andredeem capital stock, make other restricted payments, make investments, sellits assets and enter into consolidations, mergers and transfers of all orsubstantially all of its assets.

 

On February 17, 2000, Boyds announced that its Boardof Directors had approved the repurchase of 3.0 million shares of the Company’scommon stock. As of March 31, 2005, Boyds had repurchased 344,730 shares ofcommon stock pursuant to the stock repurchase program for an aggregate amountof approximately $1 million. These repurchases were financed out of operatingcash flow. Any future repurchases under this program are limited by the NewCredit Agreement to an aggregate amount not to exceed $1.0 million.

 

OnJuly 27, 2000, Boyds announced that its Board of Directors had approved arepurchase program for its outstanding 9% Series B Senior Subordinated Notesdue 2008. As of March 31, 2005, Boyds had repurchased $52.3 million of itsnotes pursuant to this note repurchase program. These repurchases were financedout of operating cash flow and the revolving credit facility. Any futurerepurchases under this program are expected to be financed similarly. Boyds maymake such purchases from time to time in the open market or in privatetransactions.

 

                Management believes that cashflow from operations and availability under the new credit agreement revolvingcredit facility will provide adequate funds for Boyds’ foreseeable workingcapital needs, planned capital expenditures, debt service obligations, the Stock Repurchase Program and the BondRepurchase Program. Any future acquisitions, joint ventures or othersimilar transactions may require additional capital and there can be noassurance that any such capital will be available to Boyds on acceptable terms,or at all. Boyds’ ability to fund its working capital needs, planned capitalexpenditures and scheduled debt payments, to refinance indebtedness and tocomply with all of the financial covenants under its debt agreements depends onits future operating performance and cash flow, which in turn are subject toprevailing economic conditions and to financial, business and other factors,some of which are beyond Boyds’ control.

 

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**RISK FACTORS WHICH MAYAFFECT FUTURE PERFORMANCE**

** **

*Changing distribution channels***.**  The Company’s historic distribution channels,mainly independent retailers, have seen significant declines in traffic forseveral years.  Consumers have migrated to larger, more convenientretailers, which provide for a full array of products and services.  Ifthe Company is unable to migrate it sales distribution to channels whichmirror consumers buying tendencies, then its revenues could be significantlyimpacted.

 

*Changingconsumer tastes.*  The demand for Boyds’ products may be quicklyaffected by changing consumer tastes and interests. Boyds’ results ofoperations depend substantially upon its ability to continue to conceive,design, source and market new pieces and upon continuing market acceptance ofits existing and future product lines. If Boyds fails or is significantlydelayed in introducing new pieces to its existing product lines or creating newproduct line concepts or if its new products do not meet with marketacceptance, its results of operations may be impaired. A number of companieswho participate in the giftware and collectibles industries are part of large,diversified companies that have greater financial resources than Boyds andoffer a wider range of products and may be less affected by changing consumertastes.

 

*Dependenceon two independent buying agencies*.  Substantially all of the products that Boydssells are purchased through two independent buying agencies. One buying agencyis located in Hong Kong, and the other buying agency is located in the UnitedStates. These two buying agencies, which contract with a total of 19independent manufacturers, account for approximately 90% of Boyds’ totalimports. These two buying agencies also perform a number of functions forBoyds, including collaborating in Boyds’ product design and developmentprocess. As a result, Boyds is substantially dependent on these buying agenciesand the manufacturers with which they contract. Boyds does not have long-termcontracts with either of its primary buying agencies. Boyds believes that theloss of either of its primary buying agencies would (1) have a material adverseaffect on its financial condition and results of operations, (2) causedisruptions in its orders, (3) affect the quality of its products, and (4)possibly require it to select alternative manufacturers. In 2004, the Companybegan contracting its plush buying with three additional buying groups in aneffort to mitigate this risk.

 

*Potentialeconomic and political risks of China.*  All of Boyds’ significant manufacturers arelocated in China. Although Boyds has identified alternate manufacturers whichcould meet its quality and reliability standards at similar costs in China andin other countries, the loss of any one or more of its manufacturers could havea material adverse effect on its business. Because Boyds relies primarily onChinese manufacturers, it is subject to the following risks that could restrictits manufacturers’ ability to make its products or increase its manufacturingcosts: (1) economic and political instability in China; (2) transportationdelays; (3) restrictive actions by the Chinese government; (4) the laws andpolicies of the United States affecting importation of goods, including duties,quotas and taxes; (5) Chinese trade and tax laws. In particular, Boyds’business could be adversely affected if the Chinese renminbi appreciatessignificantly relative to the United States dollar due to the cost of itsproducts fluctuating with the 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.

 

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*Potentialforeign restrictions or additional costs.*  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. Boyds cannot predict what regulatory changes may occur orthe type or amount of any financial impact these changes may have on it in thefuture.

 

*Potentialinfringement of Boyds’ intellectual property.*  Boyds believes that its trademarks and otherproprietary rights are material to its success and competitive position.Accordingly, Boyds devotes resources to the establishment and protection of itsintellectual property on a worldwide basis. The actions Boyds takes toestablish and protect its trademarks and other proprietary rights may not beadequate to protect its intellectual property or to prevent imitation of itsproducts by others. Moreover, while Boyds has not experienced any proprietarylicense infringements or legal actions that have had a material impact on itsfinancial condition or results of operations, other persons have and willlikely in the future assert rights in, or ownership of, its trademarks andother proprietary rights. Boyds may not be able to successfully resolve suchconflicts. In addition, the laws of foreign countries may not always protectintellectual property to the same extent as do the laws of the United States.

 

*RetailCapital Expenditures*.  When the Company progresses with its retailexpansion plans, it may need to make significant capital expenditures. In theevent that the format that the Company has designed or the locations that theCompany has selected, and will select in the future, become unprofitable, theCompany will have to write down the investments made in these properties. Inaddition, if these properties become underperforming, the Company may havedifficulty in making any future debt obligation payments.

 

*RetailProperty Leases.  *The Company has entered into property leases associated with futuredevelopment sites in Myrtle Beach, South Carolina and Branson, Missouri. In theevent that the Company does not build its stores on these locations, theCompany will be required to expense the development costs that it has incurredto date on each site. The expenditures as of March 31, 2005 are $1.6 millionand $0.1 million for Myrtle Beach and Branson, respectively.

 

***EFFECTSOF RECENTLY ISSUED ACCOUNTING STANDARDS***

 

InDecember of 2004, the FASB issued Statement of Financial Accounting Standards (“SFAS”)No. 123R, *Share-Based Payment* (“SFAS 123R”). SFAS123R addresses the accounting for share-based payments to employees, includinggrants of employee stock options. Under the new standard, companies will nolonger be able to account for share-based compensation transactions using theintrinsic method in accordance with APB Opinion No. 25, *Accountingfor Stock Issued to Employees.*Instead, companies will be requiredto account for such transactions using a fair-value method and recognize therelated expense associated with share-based payments in the consolidatedstatement of operations. In April 2005, the Securities and Exchange Commissiondelayed the effective date for SFAS No. 123R until the first quarter of fiscal2006, and allows, but does not require, companies to restate the full fiscalyear of 2005 or retroactive restatement to earlier periods to reflect theimpact of expensing share-based payments under SFAS 123R. The Company has notyet determined which fair-value method and transitional provision it willfollow. The Company is currently assessing the impact that SFAS 123R will haveon the financial position, results of operations and cash flows of Boyds.

 

InMarch 2005, the Securities and Exchange Commission (“SEC”) issued StaffAccounting Bulletin No. (“SAB”) 107 regarding the Staff’s interpretation ofShare-Based Payments. This interpretation provides the Staff’s view regardinginteractions between SFAS No. 123R and certain SEC rules and regulations andprovides

 

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interpretationsof the valuation of share-based payments fro public companies. The interpretiveguidance is intended to assist companies in applying the provisions of SFAS No.123R and investors and users of the financial statements in analyzing theinformation provided. The Company will adopt SAB 107 in connection with itsadoption of SFAS No. 123R.

 

InJune 2002, the FASB issued SFAS No. 146, *Accountingfor Costs Associated with Exit or Disposal 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 upon management’s commitment to an exit plan,which is generally before an actual liability has been incurred. Adoption ofthis statement was required at the beginning of fiscal year 2003. The Companyadopted the provisions of this statement in the first quarter of 2003, whichwere incorporated in the consolidated financial statements. The adoption ofthis statement did not have a material impact on the financial position,results of operations or cash flow of Boyds.

 

In November of 2004, the FASB issued SFAS No.151, *Inventory Costs-an Amendment of ARB No. 43.*ThisStatement amends the guidance in Accounting Research Bulletin (“ARB”) No 43,Chapter 4, *Inventory Pricing,* to clarify theaccounting for abnormal amounts of idle facility expense, freight, handlingcosts, and wasted material (spoilage). This Statement requires that these itemsbe recognized as current-period charges regardless of whether they meet thecriterion of “so abnormal.” In addition, this Statement requires thatallocation of fixed production overhead to the costs of conversion be based onthe normal capacity of production facilities. The provisions of this Statementare effective for inventory costs incurred during fiscal years beginning afterJune 15, 2005. The adoption of this Statement is not expected to have amaterial impact on the financial position, results of operations or cash flowof Boyds.

 

In December 2004, the FASBissued SFAS No. 153, *Exchange of NonmonetaryAssets* — An Amendment of APB Opinion No. 29, *Accountingfor Nonmonetary Transactions*. SFAS No. 153 eliminates the exceptionfrom fair value measurement from nonmonetary exchanges of similar productiveassets in paragraph 21(b) of APB Opinion. 29 and replaces it with an exceptionfor exchanges that do not have commericial substance. SFAS No. 153 is effectivefor periods beginning after June 15, 2005. The adoption of this Statement isnot expected to have a material impact on the financial position, results ofoperations or cash flow of Boyds.

 

**RELATED PARTYTRANSACTIONS**

 

Kohlberg, Kravis Roberts & Co. L.P. and itsaffiliates (collectively, “KKR”) is a 59% shareholder of Boyds. For the firstquarter ended March 31, 2004, Boyds paid to KKR approximately $0.1 million formanagement fees and related expenses. KKR has waived all management fees for2005. Any related expenses incurred by KKR in 2005 will be paid by Boyds.

 

***FORWARDLOOKING STATEMENTS***

 

                Some of the matters discussed inthis report include forward-looking statements. 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-looking statements.

 

                The forward-lookingstatements in this report are based on a number of assumptions and estimates,which are inherently subject to significant uncertainties and contingencies,many of which are beyond the control of Boyds, and reflect future businessdecisions that are subject to change. A variety of factors could

 

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cause actualresults to differ materially from those anticipated in Boyds’ forward-lookingstatements, including: the effects of economic conditions; the inability togrow Boyds’ business as planned; the loss of either of Boyds’ two independentbuying agencies or any of its manufacturing sources; economic or politicalinstability in the countries with which Boyds does business; changes to, or theimposition of, new regulations, duties, taxes or tariffs associated with theimport or export of goods from or to the countries with which Boyds doesbusiness; and other risk factors that are discussed in this report and, fromtime to time, in other Securities and Exchange Commission reports and filings.One or more of the factors discussed above may cause actual results to differmaterially from those expressed in or implied by the statements in this report.

 

Readers are cautioned not to place undue reliance onthese forward-looking statements, which speak only as of the date of suchstatements. Boyds undertakes no obligation to publicly release the results ofany revisions to these forward-looking statements that may be made toreflect events or circumstances after the date of this report, or the date ofsuch statements, as the case may be, or to reflect the occurrence ofunanticipated events.

 

**Item 3.    Quantitative and Qualitative Disclosures About Market Risk.**

 

Boyds faces minimal interest rate risk exposure inrelation to its outstanding debt of $87.6 million at March 31, 2005. Of thisamount, $53.2 million under the Credit Agreement is subject to interest ratefluctuations. A hypothetical 1% change in interest rates, approximately $0.5million, applied to the fair value of debt would have a material impact onearnings or cash flows of the Company.

 

Boyds faces currency risk exposure that arises fromtranslating the results of its European and Canadian operations that aredenominated in the local currency of the Euro, the British Pound and theCanadian dollar, to the U.S. dollar. The currency risk exposure is not materialas the operations of the European and Canadian subsidiaries do not have amaterial impact on the Company’s earnings.

 

Boyds also faces foreign exchange risks that arisefrom paying in United States Dollars for products that are manufactured inChina. While it does not do so now, in the future Boyds may, from time to time,enter into foreign exchange contracts or prepay inventory purchases as apartial hedge against currency fluctuations. Differences between the amounts ofsuch contracts and costs of specific material purchases are included ininventory and costs of sales. Boyds intends to manage foreign exchange risks tothe extent appropriate.

 

**Item 4.    Disclosure Controls and Procedures**

 

Boyds maintains disclosure controls and proceduresdesigned to ensure that it is able to collect the information it is required todisclose in the reports it files with the Securities and Exchange Commission (“SEC”),and to process, summarize and disclose this information within the time periodsspecified in the rules of the SEC. Boyds carried out an evaluation of itsdisclosure controls and procedures, under the supervision and with theparticipation of the Chief Executive and Chief Financial Officers, as of March31, 2005, and based on such evaluation, Boyds’ Chief Executive and ChiefFinancial Officers believe that these disclosure controls and procedures areeffective to ensure that Boyds is able to collect, process and disclose theinformation it is required to disclose in the reports it files with the SECwithin the required time periods.

 

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

 

24

 

 

**PART II**

**OTHERINFORMATION**

 

**Item 1. Legal Proceedings.**

 

                Boyds is involved in variouslegal proceedings, claims and governmental audits in the ordinary course ofbusiness. In the opinion of management, the ultimate disposition of theseproceedings, claims and audits will not have a material adverse effect on thefinancial 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**

 

**               **(a) Exhibits — See Index to Exhibits

 

#### **SIGNATURES**

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

 

Date:                    May 16, 2005

THEBOYDS 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**                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             |
|        |       |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        |
| 31.1        |       | Certification  of Chief Executive Officer Pursuant to Rule 13a-14(a) and 15d-14(a) *                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        |
| *31.2*      | * *   | *Certification  of Chief Financial Officer Pursuant to Rule 13a-14(a) and 15d-14(a) **                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      |
| *32.1*      | * *   | *Certification  of Chief Executive Officer Pursuant to 18 U.S.C. Section 1350, as Adopted  Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. (This  certification is being furnished in accordance with the Sarbanes-Oxley Act of  2002 and Commission Release No. 34-47551 and shall not be deemed “filed” with  the Commission for purposes of Section 18 of the Exchange Act, or otherwise  subject to the liability of that section, and shall not be deemed to be  incorporated by reference into any filing under the Securities Act of the  Exchange Act, except to the extent that the Registrant specifically  incorporates it by reference.)** |
| *32.2*      | * *   | *Certification  of Chief Financial Officer Pursuant to 18 U.S.C. Section 1350, as Adopted  Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. (This certification  is being furnished in accordance with the Sarbanes-Oxley Act of 2002 and  Commission Release No. 34-47551 and shall not be deemed “filed” with the  Commission for purposes of Section 18 of the Exchange Act, or otherwise  subject to the liability of that section, and shall not be deemed to be  incorporated by reference into any filing under the Securities Act of the  Exchange Act, except to the extent that the Registrant specifically  incorporates it by reference.)** |

 

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*  Filed herewith

 

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**Exhibit 31.1**

 

CERTIFICATION PURSUANTTO

SECTION 302 OF THESARBANES-OXLEY ACT OF 2002

 

I, Jan L. Murley,certify that:

 

1.             I have reviewed this quarterlyreport on Form 10-Q of The Boyds Collection, Ltd.;

 

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

 

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

 

4.             The registrant’s other certifyingofficer and I are responsible for establishing and maintaining disclosurecontrols and procedures (as defined in Exchange Act Rules 13a-15(e) and15d-15(e)) for the registrant and have:

 

a)             Designed such disclosure controlsand procedures, or caused such disclosure control and procedures to be designedunder our supervision, to ensure that material information relating to theregistrant, including its consolidated subsidiaries, is made known to us byothers within those entities, particularly during the period in which thisreport is being prepared;

 

b)            Evaluated the effectiveness of theregistrant’s disclosure controls and procedures and presented in this reportour conclusions about the effectiveness of the disclosure controls andprocedures, as of the end of the period covered by this report based on suchevaluation, and

 

c)             Disclosed in this report any changein the registrant’s internal control over financial reporting that occurredduring the registrant’s most recent fiscal quarter that has materiallyaffected, or is reasonably likely to materially affect, the registrant’sinternal control over financial reporting; and

 

 

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5.             The registrant’s other certifyingofficer and I have disclosed, based on our most recent evaluation of internalcontrol over financial reporting, to the registrant’s auditors and the auditcommittee of the registrant’s board of directors (or persons performing theequivalent functions):

 

a)             All significant deficiencies andmaterial weaknesses in the design or operation of internal control overfinancial reporting which are reasonably likely to adversely affect theregistrant’s ability to record, process, summarize and report financial information;and

 

b)            Any fraud, whether or not material,that involves management or other employees who have a significant role in theregistrant’s internal controls over financial reporting.

 
| /s/ Jan L. Murley |
|-------------------|

Jan L. Murley

Chief Executive Officer

Date: May 16, 2005

 

 

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**Exhibit 31.2**

 

CERTIFICATION PURSUANTTO

SECTION 302 OF THESARBANES-OXLEY ACT OF 2002

 

I, Joseph E. Macharsky,certify that:

 

1.             I have reviewed this quarterlyreport on Form 10-Q of The Boyds Collection, Ltd.;

 

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

 

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

 

4.             The registrant’s other certifyingofficer and I are responsible for establishing and maintaining disclosurecontrols and procedures (as defined in Exchange Act Rules 13a-15(e) and15d-15(e)) for the registrant and we have:

 

a)             Designed such disclosure controlsand procedures, or caused such disclosure control and procedures to be designedunder our supervision, to ensure that material information relating to theregistrant, including its consolidated subsidiaries, is made known to us byothers within those entities, particularly during the period in which thisreport is being prepared;

 

b)            Evaluated the effectiveness of theregistrant’s disclosure controls and procedures and presented in this reportour conclusions about the effectiveness of the disclosure controls andprocedures, as of the end of the period covered by this report based on suchevaluation, and

 

c)             Disclosed in this report any changein the registrant’s internal control over financial reporting that occurredduring the registrant’s most recent fiscal quarter that has materiallyaffected, or is reasonably likely to materially affect, the registrant’sinternal control over financial reporting; and

 

 

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5.             The registrant’s other certifyingofficer and I have disclosed, based on our most recent evaluation of internalcontrol over financial reporting, to the registrant’s auditors and the auditcommittee of the registrant’s board of directors (or persons performing theequivalent functions):

 

a)             All significant deficiencies andmaterial weaknesses in the design or operation of internal control overfinancial reporting which are reasonably likely to adversely affect theregistrant’s ability to record, process, summarize and report financialinformation; and

 

b)            Any fraud, whether or not material,that involves management or other employees who have a significant role in theregistrant’s internal controls over financial reporting.

 
| /s/ Joseph E.  Macharsky |
|--------------------------|

Joseph E. Macharsky

Chief Financial Officer

Date: May 16, 2005

 

 

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**Exhibit 32.1**

 

CERTIFICATION PURSUANT TO

18 U.S.C. SECTION 1350,

AS ADOPTED PURSUANT TO

SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

 

In connection with the Quarterly Report of The BoydsCollection, Ltd. (the “Company”) on Form 10-Q for the period ended March 31,2005 as filed with the Securities and Exchange Commission on the date hereof(the “Report”), I, Jan L. Murley, Chief Executive Officer of the Company,certify pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906of the Sarbanes-Oxley Act of 2002, that:

 

1)         The Report fully complies with the requirements of section13 (a) or 15 (d) of the Securities Exchange Act of 1934; and

 

2)         The information contained in the Report fairly presents, inall material respects, the financial condition and results of operations of theCompany.

 

*Asigned original of this written statement required by Section 906, or otherdocument authenticating, acknowledging, or otherwise adopting the signaturethat appears in typed form within the electronic version of this writtenstatement required by Section 906, has been provided to The Boyds Collection,Ltd. and will be retained by The Boyds Collection, Ltd. and furnished to theSecurities and Exchange Commission or its staff upon request.*

 
| /s/ Jan L. Murley        |
|--------------------------|
| Jan L. Murley            |
| Chief Executive  Officer |
| May 16, 2005             |

 

 

 

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**Exhibit 32.2**

 

CERTIFICATION PURSUANT TO

18 U.S.C. SECTION 1350,

AS ADOPTED PURSUANT TO

SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

 

In connection with the Quarterly Report of The BoydsCollection, Ltd. (the “Company”) on Form 10-Q for the period ended March 31,2005 as filed with the Securities and Exchange Commission on the date hereof(the “Report”), I, Joseph E. Macharsky, Chief Financial Officer of the Company,certify pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906of the Sarbanes-Oxley Act of 2002, that:

 

1)         The Report fully complies with the requirements of section13 (a) or 15 (d) of the Securities Exchange Act of 1934; and

 

2)         The information contained in the Report fairly presents, inall material respects, the financial condition and results of operations of theCompany.

 

*Asigned original of this written statement required by Section 906, or otherdocument authenticating, acknowledging, or otherwise adopting the signaturethat appears in typed form within the electronic version of this writtenstatement required by Section 906, has been provided to The Boyds Collection,Ltd. and will be retained by The Boyds Collection, Ltd. and furnished to theSecurities and Exchange Commission or its staff upon request.*

 
| /s/ Joseph E. Macharsky  |
|--------------------------|
| Joseph E.  Macharsky     |
| Chief Financial  Officer |
| May 16, 2005             |

 

 

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