**United StatesSecurities and Exchange Commission**

**Washington, D.C. 20549**

 

**FORM 10-Q**

 

**(MarkOne)**

 
| ý |   | **QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE  SECURITIES EXCHANGE ACT OF 1934.** |
|--------|--------|-----------------------------------------------------------------------------------------------|

 

### **For the Quarterly Period Ended September 30, 2001**

 

**OR**

 
| o |   | **TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE  SECURITIES EXCHANGE ACT OF 1934.** |
|---|--------|------------------------------------------------------------------------------------------------|

 

 

### **For the 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.:  Peter H. Frost** | **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 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** | **59,107,460**                         |
|-----------------------------------------------|----------------------------------------|
| *(Class)*                                     | *(Outstanding as of November  5,2001)* |

 

 

** **

**THEBOYDS COLLECTION, LTD.**

** **

**TABLE OFCONTENTS**

** **

** **
|         |                                                                                                                     |   |
|--------------|--------------------------------------------------------------------------------------------------------------------------|--------|
|         |                                                                                                                     |   |
| PART I.      | FINANCIAL INFORMATION                                                                                                    |   |
|         |                                                                                                                     |   |
| **Item 1.**  | **Financial Statements:**                                                                                                |   |
|         |                                                                                                                     |   |
|         | Condensed  Consolidated Balance Sheets as of December 31, 2000 and September 30, 2001                                    |   |
|         |                                                                                                                     |   |
|         | Condensed  Consolidated Statements of Income for the Three Months and the Nine Months  Ended September 30, 2000 and 2001 |   |
|         |                                                                                                                     |   |
|         | Condensed  Consolidated Statement of Stockholders' Equity for the Nine Months Ended  September 30, 2001                  |   |
|         |                                                                                                                     |   |
|         | Condensed  Consolidated Statements of Cash Flows for the Nine Months Ended September 30,  2000 and 2001                  |   |
|         |                                                                                                                     |   |
|         | Notes  to Condensed Consolidated Financial Statements                                                                    |   |
|         |                                                                                                                     |   |
| **Item  2.** | **Management's  Discussion and Analysis of Financial Condition  and Results of Operations**                         |   |
|         |                                                                                                                     |   |
| **Item  3.** | **Quantitative  and Qualitative Disclosures About Market Risk**                                                          |   |
|         |                                                                                                                     |   |
| PART II.     | OTHER INFORMATION                                                                                                        |   |
|         |                                                                                                                     |   |
| **Item 1.**  | **Legal Proceedings**                                                                                                    |   |
|         |                                                                                                                     |   |
| **Item 2.**  | **Exhibits and  Reports on Form 8-K**                                                                                    |   |
|         |                                                                                                                     |   |
|         | SIGNATURES                                                                                                               |   |

 

 

**PART I**

**FINANCIALINFORMATION**

 

**Item 1.     Financial Statements.**

 

**THEBOYDS COLLECTION, LTD.**

 

**CONDENSEDCONSOLIDATED BALANCE SHEETS**

**As ofDecember 31, 2000 (Audited) and September 30, 2001 (Unaudited)**

 
|                                                                                                                                         |   | **December  31,**   |          | **September  30,** |          |
|----------------------------------------------------------------------------------------------------------------------------------------------|--------|---------------------|---------------|--------------------|---------------|
|                                                                                                                                         |   | **2000**            |          | **2001**           |          |
|                                                                                                                                         |   | **(in  thousands)** |          |
|                                                                                                                                         |   |                | ** **    |               | ** **    |
| **ASSETS**                                                                                                                                   |   |                | ** **    |               | ** **    |
|                                                                                                                                         |   |                | ** **    |               | ** **    |
| **CURRENT  ASSETS:**                                                                                                                         |   |                |          |               |          |
| Cash and cash  equivalents                                                                                                                   |   | $                   | 3,191         |               | $             | 5,477 |   |
| Accounts  receivable, less allowance for doubtful accounts of  $2,466 at December 31, 2000 and $2,694 at September 30, 2001             |   | 20,412              |     | 28,473             |     |
| Inventory -  finished goods, less allowance for obsolete inventory of $645 atDecember 31, 2000 and $3,255 at September 30, 2001              |   | 12,865              |     | 13,209             |     |
| Inventory in  transit                                                                                                                        |   | 3,102               |          | 2,393              |          |
| Other current  assets                                                                                                                        |   | 804                 |          | 694                |          |
| Income taxes  receivable                                                                                                                     |   | 5,630               |          | 1,478              |          |
| Deferred income  taxes                                                                                                                       |   | 18,672              |          | 18,672             |          |
| Total current  assets                                                                                                                        |   | 64,676              |          | 70,396             |          |
|                                                                                                                                         |   |                |          |               |          |
| **PROPERTY  AND EQUIPMENT - NET**                                                                                                            |   | 5,635               |          | 7,529              |          |
|                                                                                                                                         |   |                |          |               |          |
| **OTHER  ASSETS:**                                                                                                                           |   |                |          |               |          |
| Deferred debt  issuance costs                                                                                                                |   | 3,912               |          | 3,288              |          |
| Deferred tax  asset                                                                                                                          |   | 186,371             |          | 177,340            |          |
| Other assets                                                                                                                                 |   | 2,719               |          | 3,116              |          |
| Total other  assets                                                                                                                          |   | 193,002             |          | 183,744            |          |
| **TOTAL  ASSETS**                                                                                                                            |   | $                   | 263,313       |               | $             | 261,669 |   |
|                                                                                                                                         |   |                |          |               |          |
| **LIABILITIES  AND STOCKHOLDERS’ EQUITY**                                                                                               |   |                |          |               |          |
|                                                                                                                                         |   |                |          |               |          |
| **CURRENT  LIABILITIES:**                                                                                                                    |   |                |          |               |          |
| Accounts payable                                                                                                                             |   | $                   | 2,481         |               | $             | 1,371 |   |
| Accrued expenses                                                                                                                             |   | 4,016               |          | 3,301              |          |
| Interest payable                                                                                                                             |   | 1,933               |          | 3,269              |          |
| Current portion  of long-term debt (Note 4)                                                                                                  |   | 6,250               |          | 14,000             |          |
| Total current  liabilities                                                                                                                   |   | 14,680              |          | 21,941             |          |
|                                                                                                                                         |   |                |          |               |          |
| **LONG-TERM  DEBT**(Note 4)                                                                                                                  |   | 187,157             |          | 145,853            |          |
|                                                                                                                                         |   |                |          |               |          |
| **COMMITMENTS  AND CONTINGENCIES (Notes 2, 4 and 6)**                                                                                        |   |                |          |               |          |
|                                                                                                                                         |   |                |          |               |          |
| **OTHER  LIABILITIES**                                                                                                                       |   | 190                 |          | 190                |          |
|                                                                                                                                         |   |                |          |               |          |
| **STOCKHOLDERS'  EQUITY:**                                                                                                                   |   |                |          |               |          |
| Common stock  (61,838 shares issued and outstanding at December 31, 2000  and September 30, 2001) and paid-in capital in excess of  par |   | (41,133             | )             | (41,221            | )             |
| Accumulated  other comprehensive loss                                                                                                        |   | (7                  | )             | (19                | )             |
| Retained  earnings                                                                                                                           |   | 128,775             |          | 161,507            |          |
| Less: Treasury  shares at cost (2,685 at December 31, 2000 and 2,731 at   September 30, 2001)                                                |   | (26,349             | )             | (26,582            | )             |
| Total  stockholders’ equity                                                                                                             |   | 61,286              |          | 93,685             |          |
|                                                                                                                                         |   |                |          |               |          |
| **TOTAL  LIABILITIES AND STOCKHOLDERS’ EQUITY**                                                                                         |   | $                   | 263,313       |               | $             | 261,669 |   |

 

See notes to condensedconsolidated financial statements.

 

**THEBOYDS COLLECTION, LTD.**

 

**CONDENSEDCONSOLIDATED STATEMENTS OF INCOME**

**Forthe Three Months and the Nine Months Ended September 30, 2000 and 2001**

**(Unaudited)**

 
|                                                                                                                                                                                                                                                                        |   | **Three  Months Ended**                       |          | **Nine  Months Ended** |          |
|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|--------|-----------------------------------------------|---------------|------------------------|---------------|
|                                                                                                                                                                                                                                                                        |   | **September  30,**                            |          | **September 30,**      |          |
|                                                                                                                                                                                                                                                                        |   | **2000**                                      |          | **2001**               |          | **2000** |   | **2001** |   |
|                                                                                                                                                                                                                                                                        |   | **(in  thousands, except per share amounts)** |          |
|                                                                                                                                                                                                                                                                        |   |                                          | ** **    |                   | ** **    |   | ** ** |   | ** ** |
| **NET  SALES**                                                                                                                                                                                                                                                              |   | $                                             | 59,526        |                   | $             | 47,549 |   | $ | 151,485 |   | $ | 125,274 |   |
| **COST  OF GOODS SOLD**                                                                                                                                                                                                                                                     |   | 22,219                                        |          | 17,895                 |          | 55,504 |   | 45,616 |   |
| **GROSS  PROFIT**                                                                                                                                                                                                                                                           |   | 37,307                                        |          | 29,654                 |          | 95,981 |   | 79,658 |   |
| **SELLING,  GENERAL AND ADMINISTRATIVE EXPENSES**(Notes 3 and 7)                                                                                                                                                                                                            |   | 6,763                                         |     | 7,173                  |     | 17,624 |     | 18,102 |     |
| **INCOME  FROM OPERATIONS**                                                                                                                                                                                                                                                 |   | 30,544                                        |          | 22,481                 |          | 78,357 |   | 61,556 |   |
| **OTHER  INCOME/(EXPENSE)**                                                                                                                                                                                                                                                 |   | 39                                            |          | 61                     |          | 229 |   | 39 |   |
| **INTEREST  EXPENSE:**                                                                                                                                                                                                                                                      |   |                                          |          |                   |          |   |   |   |   |
| Interest expense                                                                                                                                                                                                                                                            |   | 5,277                                         |          | 2,841                  |          | 14,622 |   | 9,603 |   |
| Amortization of  deferred debt issuance costs                                                                                                                                                                                                                               |   | 180                                           |          | 157                    |          | 538 |   | 475 |   |
| **TOTAL  INTEREST EXPENSE**                                                                                                                                                                                                                                                 |   | 5,457                                         |          | 2,998                  |          | 15,160 |   | 10,078 |   |
| **INCOME  BEFORE PROVISION  FOR INCOME TAXES AND  EXTRAORDINARY ITEM**                                                                                                                                                                                                      |   | 25,126                                        |     | 19,544                 |     | 63,426 |     | 51,517 |     |
| **PROVISION  FOR INCOME TAXES (Note 5)**                                                                                                                                                                                                                                    |   | 10,149                                        |          | 6,517                  |          | 24,149 |   | 18,689 |   |
| **INCOME  BEFORE EXTRAORDINARY ITEM**                                                                                                                                                                                                                                       |   | 14,977                                        |          | 13,027                 |          | 39,277 |   | 32,828 |   |
| **EXTRAORDINARY  ITEM -  WRITE OFF OF DEFERRED DEBT ISSUANCE COSTS ****(NET OF $98, $40, $296 AND $54 TAX BENEFITS FOR****THE THREE MONTHS ENDED SEPTEMBER 30, 2000 AND ****2001, AND THE NINE MONTHS ENDED SEPTEMBER 30, ****2000 AND 2001, RESPECTIVELY)** |   | 174                                           |     | 71                     |     | 527 |     | 96 |     |
| **NET  INCOME**                                                                                                                                                                                                                                                             |   | $                                             | 14,803        |                   | $             | 12,956 |   | $ | 38,750 |   | $ | 32,732 |   |
|                                                                                                                                                                                                                                                                        |   |                                          |          |                   |          |   |   |   |   |
|                                                                                                                                                                                                                                                                        |   |                                          |          |                   |          |   |   |   |   |
| **EARNINGS  PER SHARE:**                                                                                                                                                                                                                                                    |   |                                          |          |                   |          |   |   |   |   |
| Basic Earnings  Per Share                                                                                                                                                                                                                                                   |   |                                          |          |                   |          |   |   |   |   |
| Income Before  Extraordinary Item                                                                                                                                                                                                                                           |   | $                                             | 0.25          |                   | $             | 0.22 |   | $ | 0.66 |   | $ | 0.56 |   |
| Extraordinary  Item - Write Off of Deferred Debt Issuance Costs                                                                                                                                                                                                             |   | -                                             |          | -                      |          | - |   | - |   |
| Net Income                                                                                                                                                                                                                                                                  |   | $                                             | 0.25          |                   | $             | 0.22 |   | $ | 0.66 |   | $ | 0.56 |   |
|                                                                                                                                                                                                                                                                        |   |                                          |          |                   |          |   |   |   |   |
| Diluted Earnings  Per Share                                                                                                                                                                                                                                                 |   |                                          |          |                   |          |   |   |   |   |
| Income Before  Extraordinary Item                                                                                                                                                                                                                                           |   | $                                             | 0.25          |                   | $             | 0.22 |   | $ | 0.66 |   | $ | 0.55 |   |
| Extraordinary  Item - Write Off of Deferred Debt Issuance Costs                                                                                                                                                                                                             |   | -                                             |          | -                      |          | (0.01 | ) | - |   |
| Net Income                                                                                                                                                                                                                                                                  |   | $                                             | 0.25          |                   | $             | 0.22 |   | $ | 0.65 |   | $ | 0.55 |   |

 

See notes to condensedconsolidated financial statements.

** **

**THEBOYDS COLLECTION, LTD.**

** **

**CONDENSEDCONSOLIDATED STATEMENT OF STOCKHOLDERS’ EQUITY**

**Forthe Nine Months Ended September 30, 2001**

**(Unaudited)**

 
|                            |   | **Common  Stock**                               |   | **Common  Stock  and Paid-in********Capital in********Excess of  Par** |   | **Treasury********Stock** |          | **Accumulated********Other********Comprehensive  Income/(Loss)** |   | **Retained********Earnings** |   | **Other********Comprehensive  Income** |   | **Totral  Stockholders'********Equity** |         |
|---------------------------------|--------|-------------------------------------------------|--------|------------------------------------------------------------------------|--------|---------------------------|---------------|------------------------------------------------------------------|--------|------------------------------|--------|----------------------------------------|--------|-----------------------------------------|--------------|
|                            |   | **Shares********Issued And********Outstanding** |   | **Treasury********Stock**                                              |   |
|                            |   | **(in  thousands)**                             |   |
|                            |   |                                            |   |                                                                   |   |                      |          |                                                             |   |                         |   |                                   |   |                                    |         |   |   |
| **BALANCE, JANUARY 1,  2001**   |   | 61,838                                          |   | 2,685                                                                  |   | $                         |  (41,133 | )                                                                | $      |  (26,349                | )      | $                                      | (7     | )                                       | $            |  128,775 |   | $ | - |   | $ |  61,286 |   |
| Issuance of common stock        |   | -                                               |   | (22                                                                    | )      | (88                       | )             | 247                                                              |   | -                            |   | -                                      |   | -                                       |         | 159 |   |
| Repurchase of common stock      |   | -                                               |   | 68                                                                     |   | -                         |          | (480                                                             | )      | -                            |   | -                                      |   | -                                       |         | (480 | ) |
| Other comprehensive income:     |   |                                            |   |                                                                   |   |                      |          |                                                             |   |                         |   |                                   |   |                                    |         |   |   |
| Foreign currency translation    |   | -                                               |   | -                                                                      |   | -                         |          | -                                                                |   | (12                          | )      | -                                      |   | (12                                     | )            | (12 | ) |
| Net income                      |   | -                                               |   | -                                                                      |   | -                         |          | -                                                                |   | -                            |   | 32,732                                 |   | 32,732                                  |         | 32,732 |   |
| Comprehensive income            |   | -                                               |   | -                                                                      |   | -                         |          | -                                                                |   | (12                          | )      | -                                      |   | $                                       |  32,720 |   | - |   |
| **BALANCE, SEPTEMBER 30, 2001** |   | 61,838                                          |   | 2,731                                                                  |   | $                         | (41,221       | )                                                                | $      | (26,582                      | )      | $                                      | (19    | )                                       | $            |   161,507 |   |   |   | $ |    93,685 |   |

 

See notes to condensed consolidatedfinancial statements.

 

**THEBOYDS COLLECTION, LTD.**

** **

**CONDENSEDCONSOLIDATED STATEMENTS OF CASH FLOWS**

**Forthe Nine Months Ended September 30, 2000 and 2001**

**(Unaudited)**

 
|                                                                               |   | **Nine  Months Ended** |   |
|------------------------------------------------------------------------------------|--------|------------------------|--------|
|                                                                               |   | **September  30,**     |   |
|                                                                               |   | **2000**               |   | **2001** |   |
|                                                                               |   | **(in  thousands)**    |   |
| **CASH  FLOWS FROM OPERATING ACTIVITIES:**                                         |   |                   |   |   |   |
| Net income                                                                         |   | $                      | 38,750 |   | $ | 32,732 |   |
| Adjustments to  reconcile net income to net cash provided by operating activities: |   |                   |   |   |   |
| Depreciation and  amortization                                                     |   | 802                    |   | 1,320 |   |
| Amortization and  write off of deferred debt issuance costs                        |   | 1,363                  |   | 624 |   |
| Deferred taxes                                                                     |   | 12,374                 |   | 9,031 |   |
| Changes in  assets and liabilities:                                                |   |                   |   |   |   |
| Accounts  receivable - net                                                         |   | (17,979                | )      | (8,061 | ) |
| Inventory - net                                                                    |   | (1,354                 | )      | (344 | ) |
| Inventory in  transit                                                              |   | 706                    |   | 709 |   |
| Other current  assets                                                              |   | 483                    |   | 110 |   |
| Other assets                                                                       |   | (31                    | )      | 21 |   |
| Accounts payable                                                                   |   | (846                   | )      | (1,110 | ) |
| Accrued  taxes/income taxes receivable                                             |   | (1,703                 | )      | 4,152 |   |
| Accrued expenses                                                                   |   | (3,677                 | )      | (715 | ) |
| Interest payable                                                                   |   | 2,064                  |   | 1,336 |   |
| Net cash  provided by operating activities                                         |   | 30,952                 |   | 39,805 |   |
|                                                                               |   |                   |   |   |   |
| **CASH  FLOWS FROM INVESTING ACTIVITIES:**                                         |   |                   |   |   |   |
| Loss on sale of  equipment                                                         |   | -                      |   | 83 |   |
| Acquisition, net  of cash acquired                                                 |   | -                      |   | (531 | ) |
| Purchase of  property and equipment                                                |   | (1,199                 | )      | (3,185 | ) |
| Net cash used in  investing activities                                             |   | (1,199                 | )      | (3,633 | ) |
|                                                                               |   |                   |   |   |   |
| **CASH  FLOWS FROM FINANCING ACTIVITIES:**                                         |   |                   |   |   |   |
| Repayment of  debt                                                                 |   | (32,000                | )      | (33,554 | ) |
| Sale of common  stock (net of related fees and expenses)                           |   | 661                    |   | - |   |
| Exercise of  stock options                                                         |   | -                      |   | 160 |   |
| Repurchase of  common stock                                                        |   | (125                   | )      | (480 | ) |
| Net cash used in  financing activities                                             |   | (31,464                | )      | (33,874 | ) |
|                                                                               |   |                   |   |   |   |
| Effect of  exchange rate changes on cash                                           |   | 21                     |   | (12 | ) |
|                                                                               |   |                   |   |   |   |
| **NET  (DECREASE) INCREASE IN CASH AND CASH EQUIVALENTS**                          |   | (1,690                 | )      | 2,286 |   |
| **CASH  AND CASH EQUIVALENTS, BEGINNING OF PERIOD**                                |   | 11,501                 |   | 3,191 |   |
| **CASH  AND CASH EQUIVALENTS, END OF PERIOD**                                      |   | $                      | 9,811  |   | $ | 5,477 |   |
| **CASH  PAID DURING THE PERIOD FOR INTEREST**                                      |   | $                      | 12,371 |   | $ | 8,268 |   |
| **CASH  PAID DURING THE PERIOD FOR INCOME TAXES**                                  |   | $                      | 13,378 |   | $ | 5,506 |   |

 

See notes to condensedconsolidated financial statements.

 

 

**THE BOYDS COLLECTION, LTD.**

 

 

#### **NOTES TO CONDENSED CONSOLIDATED FINANCIALSTATEMENTS**

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

**(Unaudited)**

 

 

**1.                INTERIMFINANCIAL STATEMENTS**

 

                TheBoyds Collection, Ltd., (“Boyds” or the “Company”) is a leading designer,importer and distributor of high-quality, hand crafted collectibles and otherspecialty giftware products. Boyds imports substantially all of its productsfrom foreign suppliers, primarily located in The People's Republic of China.

 

Thecondensed consolidated balance sheet, as of September 30, 2001, the condensedconsolidated statements of income for the three months and the nine monthsended September 30, 2000 and 2001, the condensed consolidated statement ofstockholders' equity for the nine months ended September 30, 2001 and thecondensed consolidated statements of cash flows for the nine months endedSeptember 30, 2000 and 2001 are unaudited. In the opinion of management, all adjustments, consisting only of normalrecurring adjustments, necessary for a fair presentation of such interimfinancial statements have been included. The results of operations for the nine months ended September 30, 2001are not necessarily indicative of the results to be expected for the fullyear.  These financial statements shouldbe read in conjunction with the financial statements and notes included in theAnnual Report on Form 10-K filed with the Securities and Exchange Commission onApril 2, 2001.

 

Certainreclassifications have been made to the prior years’ amounts to conform to thefiscal 2001 presentation.

 

SFASNo. 133, *Accounting for DerivativeInstruments and Hedging Activities*, is effective for all fiscalyears beginning after June 15, 2000. SFAS 133, as amended, establishes accounting and reporting standards forderivative instruments, including certain derivative instruments embedded inother contracts and for hedging activities. Under SFAS 133, certain contracts that were not formerly consideredderivatives may now meet the definition of a derivative.  Boyds adopted SFAS 133 effective January 1,2001. The adoption of SFAS 133 did not have a significant impact on thefinancial position, results of operations, or cash flows of Boyds.

 

In July2001, the Financial Accounting Standards Board ("FASB") issued Statementof Financial Accounting Standards No. 142 ("SFAS 142"),"Goodwill and Other Intangible Assets", which is effective January 1,2002. SFAS 142 requires, among other things, the discontinuance of goodwillamortization. In addition, the standard includes provisions for thereclassification of certain existing recognized intangibles as goodwill,reassessment of the useful lives of existing recognized intangibles,reclassification of certain intangibles out of previously reported goodwill andthe identification of reporting units for purposes of assessing potentialfuture impairments of goodwill. SFAS 142 also requires the Company to completea transitional goodwill impairment test six months from the date of adoption.The Company is currently assessing but has not yet determined the impact ofSFAS 142 on its financial position and results of operations.

 

In June2001, the FASB issued SFAS No. 143 (SFAS 143), "Accounting for AssetRetirement Obligations".  SFAS 143addresses financial accounting and reporting for obligations associated withthe retirement of tangible long-lived assets and the associated assetretirement costs.  SFAS 143 is effectivefor fiscal years beginning after June 15, 2002.  The Company is in the process of evaluating the impact of implementingSFAS No. 143.

 

InOctober 2001, the FASB issued SFAS No. 144, "Accounting for the Impairmentof Long-Lived Assets" which supersedes SFAS No. 121, "Accounting forthe Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposedof" and the accounting and reporting provisions of APB No. 30,"Reporting the Results of Operations - Reporting and Effects of Disposalof a Segment of a Business, and Extraordinary, Unusual and InfrequentlyOccurring Events and Transactions" for the disposal of a segment ofbusiness.  This statement is effectivefor fiscal years beginning after December 15, 2001.  SFAS No. 144 retains many of the provisions of SFAS No. 121, butaddresses certain implementation issues associated with that Statement.  The Company is currently evaluating theimpact of implementing SFAS No. 142.

 

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

 

AtDecember 31, 2000 and at September 30, 2001, Boyds had letters of creditoutstanding under bank credit agreements amounting to $8.2 million and $3.2million, respectively.  These letters ofcredit represent Boyds’ commitment to purchase inventory which is to beproduced and/or shipped.

 

**3.                RELATEDPARTY TRANSACTIONS**

 

For thethird quarter and first nine months ended September 30, 2000, Boyds paid toKohlberg, Kravis & Roberts approximately $94 and $667 respectively formanagement fees, recruitment fees and related expenses. For the third quarterand first nine months ended September 30, 2001, Boyds paid to Kohlberg, Kravis& Roberts approximately $115 and $309 respectively for management fees andrelated expenses.

 

**4.            LONG-TERM DEBT**

 

Long–termdebt is summarized as follows:

 
|                                                                                                |   | **December  31,** |          | **September  30,** |          |
|-----------------------------------------------------------------------------------------------------|--------|-------------------|---------------|--------------------|---------------|
|                                                                                                |   | **2000**          |          | **2001**           |          |
|                                                                                                |   |              | ** **    |               | ** **    |
| 9% Senior  Subordinated Notes due May 15, 2008                                                      |   | $                 | 82,657        |               | $             | 77,853 |   |
|                                                                                                |   |              |          |               |          |
| Credit  Agreement:                                                                                  |   |              |          |               |          |
| Secured Tranche  A Term Loan due April 2005.  Interest  based on LIBOR or base rate as defined |   | 88,250            |     | 82,000             |     |
| Secured  revolving loan due April 2005.  Interest  based on LIBOR or base rate as defined      |   | 22,500            |     | -                  |     |
| Sub-Total                                                                                           |   | 193,407           |          | 159,853            |          |
| Less: Current  portion of long-term debt                                                            |   | (6,250            | )             | (14,000            | )             |
|                                                                                                |   | $                 | 187,157       |               | $             | 145,853 |   |

 

At September 30, 2001,the weighted average interest rate in effect for the term loan was 4.2%.

 

                The SeniorSubordinated Notes have an optional redemption feature exercisable by Boyds anytime on or after May 15, 2003. Interest on the Notes is payablesemiannually on May 15 and November 15.

 

                The CreditAgreement contains certain covenants, including the requirement of a minimuminterest coverage ratio as defined in the agreement and substantialrestrictions as to dividends and distributions. Boyds is in compliance with allapplicable covenants as of September 30, 2001. The agreement also provides thatthe Term Loan and revolving loan commitment be secured by the capital stock ofBoyds' current and future subsidiaries. In addition, the Term Loan is subjectto mandatory prepayment with the proceeds of certain asset sales and a portionof Boyds' excess cash flow as defined in the credit agreement. Boyds has theoption of selecting its own interest period at one, two, three, six, nine ortwelve month periods.

 

The scheduled maturitiesof the long–term debt, including current portion, are as follows:

 
| 2002       |   | $       | 14,000 |   |
|------------|--------|---------|--------|--------|
| 2003       |   | 17,000  |   |
| 2004       |   | 23,000  |   |
| 2005       |   | 28,000  |   |
| Thereafter |   | 77,853  |   |
|       |   | 159,853 |   |

 

 

**5.                PROVISIONFOR INCOME TAXES**

 

                Forfederal income tax purposes, Boyds has elected to treat the Recapitalizationand Stock purchase that occurred in April 1998 as an asset acquisition bymaking an Internal Revenue Code Section 338 (h) (10) election.  As a result, there is a difference betweenthe financial reporting and tax basis of Boyds’ assets.  The difference creates deductible goodwillfor tax purposes, and a deferred tax asset for financial reportingpurposes.  The deferred tax asset willbe realized as the goodwill is amortized over a period of fifteen years.  In the opinion of management, Boyds believesit will have sufficient profits in the future to realize the deferred taxasset.

 

                OnJune 21, 2001 the Pennsylvania General Assembly passed House Bill 334. Includedin this Bill were income and franchise tax changes, backdated to January 1,2001. Boyds is currently reviewing the impact of these changes with its taxadvisors, however, it believes the final outcome will result in a decrease inits effective state tax rate during 2001 and an increase in subsequent years.

 

**6.                CONTINGENCIES**

 

Boydshas received from the State of Pennsylvania an assessment to pay additionalfranchise taxes of approximately $6.9 million for 1998, which has not beenpaid. However, a June 2001 letter issued by the State indicates that Boyds willultimately prevail in this matter.

 

                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 or results of operations of Boyds’.

 

**7.            LEGAL SETTLEMENT**

 

On March 28, 2000, Boydssettled an outstanding lawsuit related to a claim for royalties. In completeand final resolution of the suit, Boyds agreed to a settlement of the claim,resulting in a $4.4 million charge ($3.1 million after tax), which was recordedin selling, general and administrative expenses in the period ended December31, 1999, and paid in March, 2000.

 

**8.                EARNINGSPER SHARE**

 

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

 

 
|                                                                                    |   | **Three  Months Ended****September 30,** |          | **Nine  Months Ended****September 30,** |          |
|-----------------------------------------------------------------------------------------|--------|------------------------------------------|---------------|-----------------------------------------|---------------|
|                                                                                    |   | **2000**                                 |          | **2001**                                |          | **2000** |   | **2001** |   |
|                                                                                    |   | **(in  thousands)**                      |          |
|                                                                                    |   |                                     |          |                                    |          |   |   |   |   |
| Numerator for  basic and diluted earnings per share:                                    |   |                                     |          |                                    |          |   |   |   |   |
| Net income                                                                              |   | $                                        | 14,803        |                                    | $             | 12,956 |   | $ | 38,750 |   | $ | 32,732 |   |
| Denominator:                                                                            |   |                                     |          |                                    |          |   |   |   |   |
| Denominator for  basic earnings per share - weighted average shares                     |   | 59,153                                   |          | 59,099                                  |          | 59,147 |   | 59,119 |   |
| Effect of  dilutive securities:                                                         |   |                                     |          |                                    |          |   |   |   |   |
| Effect of shares  issuable under stock option plans based on treasury stock method |   | 271                                      |     | 364                                     |     | 172 |     | 329 |     |
| Denominator for  diluted earnings per share - weighted average shares                   |   | 59,424                                   |          | 59,463                                  |          | 59,319 |   | 59,448 |   |
|                                                                                         |        |                                          |               |                                         |               |  |  |  |  |  |  |  |  |

 

 

**9.                SUBSEQUENTEVENTS**

 

As of November 5, 2001,Boyds had repurchased $11.1 million of its outstanding 9% Series B SeniorSubordinated Notes due 2008, pursuant to its bond repurchase program for anaggregate amount of $11.2 million. These repurchases were financed out ofoperating cash flow.

 

**Item2.                Management’s Discussionand Analysis of Financial Condition and Results of**

**                Operations**

 

***General***

 

                Boyds is a leading designer,importer and distributor of branded, high-quality, hand crafted collectiblesand other specialty giftware products. Boyds sells its products through an extensive network of approximately18,000 accounts comprised of independent gift and collectibles retailers,premier department stores, selected catalogue retailers and other electronicand retail channels.

 

                Boyds' sales consist of plushproducts, resin products, doll products, village products, home décor productsand other products. Other products include Collectors club sales, which aregenerated from annual dues collected directly from consumers who become membersof Boyds' collectors club, *The Loyal Order of Friends of Boyds*, whichbegan in July 1996 and currently has approximately 100,000 paying members;distributor sales, which are sales of Boyds' products to independentdistributors in other countries and to certain accounts in the U.S.A., whichare shipped directly from overseas suppliers; and related clothing andaccessories.

 

                Boyds licenses its productdesigns to other companies for products including stationery, clothing and hometextiles. Boyds believes such licensing, in addition to providing royaltyincome, helps to increase consumer awareness of Boyds' designs and brand image.Boyds reports royalty income in net sales.

 

                Selling, general andadministrative expenses are comprised of overhead, selling and marketing costs,administration and professional fees. Boyds exhibits its products at manynational and regional tradeshows where orders are taken by Boyds' employees andpart-time help. Boyds operates almost exclusively out of a leasedoffice/distribution facility in McSherrystown, Pennsylvania where it believesboth labor and rental costs are attractive. These factors, combined with Boyds'access to low–cost manufacturing sources located primarily in China,result in increased operating income margins.

 

***Results of Operations***

 

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

 
|                                          |   | **Three  Months Ended****September 30,** |   | **Nine  Months Ended****September 30,** |   |
|-----------------------------------------------|--------|------------------------------------------|--------|-----------------------------------------|--------|
|                                          |   | **2000**                                 |   | **2001**                                |   | **2000** |   | **2001** |   |
|                                          |   |                                     |   |                                    |   |   |   |   |   |
| Net sales                                     |   | 100.0                                    | %      | 100.0                                   | %      | 100.0 | % | 100.0 | % |
| Gross profit                                  |   | 62.7                                     |   | 62.4                                    |   | 63.3 |   | 63.5 |   |
| Selling, general  and administrative expenses |   | 11.4                                     |   | 15.1                                    |   | 11.6 |   | 14.4 |   |
| Income from  operations                       |   | 51.3                                     |   | 47.3                                    |   | 51.7 |   | 49.1 |   |
| Other  income/(expense)                       |   | 0.1                                      |   | 0.1                                     |   | 0.1 |   | 0.0 |   |
| Total interest  expense                       |   | 9.2                                      |   | 6.3                                     |   | 10.0 |   | 8.0 |   |
| Provision for  income taxes                   |   | 17.0                                     |   | 13.7                                    |   | 15.9 |   | 14.9 |   |
| Income before  extraordinary item             |   | 25.2                                     |   | 27.4                                    |   | 25.9 |   | 26.2 |   |
| Extraordinary  item                           |   | 0.3                                      |   | 0.2                                     |   | 0.3 |   | 0.1 |   |
| Net income                                    |   | 24.9                                     | %      | 27.2                                    | %      | 25.6 | % | 26.1 | % |

 

***Three Months Ended September 30, 2001 vs. Three Months EndedSeptember 30, 2000***

 

*NetSales* - Net sales declined $12.0 million, or 20.2%, to $47.5million in the third quarter of 2001 from $59.5 million for the third quarterof 2000. Compared to the same quarter last year sales of Boyds’ plush productsdeclined $1.3 million, or 4.9%, resin product sales declined $8.9 million, or42.8%, doll product sales declined $0.9 million, or 40.9%, village productsales declined $0.1 million, or 3.6%, and home décor product sales, previouslyincluded in the all other category, increased $0.2 million, or 10.0%. As apercentage of net sales for the quarter plush products represented 52%, resinproducts represented 25%, doll products represented 3%, village productsrepresented 6% and home décor products represented 5%.

 

The sales shortfall wasdue to the continuing reduction in order volume from our accounts, particularlyin the resin category, reflecting the very challenging environment that haspersisted over the past year for our retailers, and the strategic eliminationof certain resin product categories. These were only partially offset by thelaunch of our stationery product line and increased emphasis on our home décorproduct line. In the fourth quarter Boyds launched two new concepts; Bear &Co., which features bears and bear related books directed at the children’market, and “personalization”, which enables retailers to serve those customerswho wish to customize their bears for themselves or as gifts, by embroidering apersonalized greeting on each bears sweater.

 

*GrossProfit* - Gross profit declined $7.6 million, or 20.4%, to$29.7 million in the third quarter of 2001 from $37.3 million for the thirdquarter of 2000. Gross profit as a percent of sales declined to 62.5% for thequarter from 62.7% for the same period in 2000. The dollar decline wasprimarily attributable to the decline in sales volume.

 

*Selling,General & Administrative Expenses (SG&A)*  - SG&A increased $0.4 million, or 5.9%,to $7.2 million in the third quarter of 2001 from $6.8 million for the thirdquarter of 2000. SG&A as a percent of sales increased to 15.2% for thequarter from 11.4% for the same period in 2000. The dollar increase wasprimarily due to increased expenditure on new product development, whose salesimpact will not be felt until 2002. The increase in the percent of sales wasprimarily due to the decrease in sales.

 

*Incomefrom Operations*  -Income from operations declined $8.0 million, or 26.2%, to $22.5 million in thethird quarter of 2001 from $30.5 million for the third quarter of 2000. Incomefrom Operations as a percent of sales declined to 47.4% for the quarter from51.3% for the same period in 2000. The dollar decline and the decline in thepercent of sales was primarily attributable to the decline in sales volume.

 

*TotalInterest Expense*  -Total Interest Expense declined $2.5 million, or 45.5%, to $3.0 million in thethird quarter of 2001 from $5.5 million for the third quarter of 2000. TotalInterest Expense as a percent of sales declined to 6.3% for the quarter from9.2% for the same period in 2000. The dollar decline and the decline in thepercent of sales was due to the reduction of debt from excess cash and adecline in interest rates.

 

*Provisionfor Income Taxes*  -Provision for Income Taxes declined $3.6 million, or 35.6%, to $6.5 million inthe third quarter of 2001 from $10.1 million for the third quarter of 2000.Provision for Income Taxes as a percent of sales declined to 13.7% for thequarter from 17.0% for the same period in 2000. The dollar decline was dueprimarily to the decline in sales volume. The decline in the percent of saleswas due primarily to the impact of a one-time change in the Pennsylvania StateCorporation Income Tax law, the final impact of which will not be known untilthe end of the fourth quarter 2001.

 

                *Income beforeExtraordinary Item** *- Income before Extraordinary Itemdeclined $2.0 million, or 13.3%, to $13.0 million in the third quarter of 2001from $15.0 million for the third quarter of 2000. Net Income before ExtraordinaryItem as a percent of sales increased to 27.4% for the quarter from 25.2% forthe same period in 2000. The dollar decline was primarily attributable to thedecline in sales volume. The increase in the percent of sales was primarily dueto the savings in interest expense and the lower effective tax rate more thanoffsetting the impact of the decline in sales volume.

 

*                ExtraordinaryItem*– The extraordinary items, both net of tax, of $71 and$174, recorded in the third quarter of 2001 and the third quarter of 2000,respectively, are for the write off of deferred debt issuance costs arisingfrom the early paydown of long term debt of $3.7 million and $15.0 million inthe third quarter of 2001 and the third quarter of 2000, respectively.

 

*NetIncome*– Net income declined $1.8 million, or 12.2%, to$13.0 million in the third quarter of 2001 from $14.8 million for the thirdquarter of 2000. Net income as a percent of sales increased to 27.4% for thequarter from 24.9% for the same period in 2000. The dollar decline wasprimarily attributable to the decline in sales volume. The increase in thepercent of sales was primarily due to the savings in interest expense and thelower effective tax rate more than offsetting the impact of the decline insales volume.

 

 

##### ***Nine Months EndedSeptember 30, 2001 vs. Nine Months Ended September 30, 2000***

 

*NetSales*  - Net salesdeclined $26.2 million, or 17.3%, to $125.3 million in the first nine months of2001 from $151.5 million for the first nine months of 2000. Compared to the samenine months last year sales of Boyds’ plush products declined $10.0 million, or13.5%, resin product sales declined $11.6 million, or 24.3%, doll product salesdeclined $3.4 million, or 46.6%, village product sales declined $0.2 million,or 3.6%, and home décor product sales, previously included in the all othercategory, increased $1.9 million, or 59.4%, from a low base. As a percentage ofnet sales for the first nine months plush products represented 51%, resinproducts represented 29%, doll products represented 3%, village productsrepresented 4% and home décor products represented 4%.

 

The sales shortfall was due to the continuing reduction in order volumefrom our accounts, reflecting the very challenging environment that haspersisted over the past year for our retailers, and the strategic eliminationof certain resin product categories. These were only partially offset by thelaunch of our stationery product line and increased emphasis on our home décorproduct line.

 

*Gross**Profit*  - Gross profit declined $16.3 million, or 17.0%, to $79.7 millionin the first nine months of 2001 from $96.0 million for the first nine monthsof 2000. Gross profit as a percent of sales increased to 63.6% for the firstnine months from 63.4% for the same period in 2000. The dollar decline wasprimarily attributable to the decline in sales volume.

 

*Selling,General & Administrative Expenses (SG&A) -* SG&A increased $0.5 million, or 2.8%, to$18.1 million in the first nine months of 2001 from $17.6 million for the firstnine months of 2000. SG&A as a percent of sales increased to 14.4% for thefirst nine months from 11.6% for the same period in 2000. The dollar increasewas primarily due to increased expenditure on new product development, whosesales impact will not be felt until 2002. The increase in the percent of saleswas primarily due to the decrease in sales.

 

*Incomefrom Operations* - Income from operations declined $16.8million, or 21.4%, to $61.6 million in the first nine months of 2001 from $78.4million for the first nine months of 2000. Income from Operations as a percentof sales declined to 49.2% for the first nine months from 51.7% for the sameperiod in 2000. The dollar decline and the decline in the percent of sales wasprimarily attributable to the decline in sales volume.

 

*TotalInterest Expense*  -Total Interest Expense declined $4.9 million, or 32.9%, to $10.0 million in thefirst nine months of 2001 from $14.9 million for the first nine months of 2000.Total Interest Expense as a percent of sales declined to 8.0% for the firstnine months from 9.8% for the same period in 2000. The dollar decline and thedecline in the percent of sales was due to the reduction of debt from excesscash and a decline in interest rates.

 

*Provisionfor Income Taxes*  -Provision for Income Taxes declined $5.4 million, or 22.4%, to $18.7 million inthe first nine months of 2001 from $24.1 million for the first nine months of2000. Provision for Income Taxes as a percent of sales declined to 14.9% forthe first nine months from 15.9% for the same period in 2000. The dollardecline was due primarily to the decline in sales volume. The decline in thepercent of sales was due primarily to the impact of a one-time change in thePennsylvania State Corporation Income Tax law, the final impact of which willnot be known until the end of the fourth quarter 2001.

 

* Income before Extraordinary Item**  -*Income before ExtraordinaryItem declined $6.5 million, or 16.5%, to $32.8 million in the first nine monthsof 2001 from $39.3 million for the first nine months of 2000. Net Income beforeExtraordinary Item as a percent of sales increased to 26.2% for the first ninemonths from 25.9% for the same period in 2000. The dollar decline was primarilyattributable to the decline in sales volume. The increase in the percent ofsales was primarily due to the savings in interest expense and the lowereffective tax rate more than offsetting the impact of the decline in salesvolume.

 

*Extraordinary Item*–The extraordinary items, both net of tax, of $96 and $527, recorded in thefirst nine months of 2001 and the first nine months of 2000, respectively, arefor the write off of deferred debt issuance costs arising from the earlypaydown of long term debt of $11.1 million and $44.0 million in the first ninemonths of 2001 and the first nine months of 2000, respectively.

 

*NetIncome*– Net income declined $6.0 million, or 15.5%, to $32.7million in the first nine months of 2001 from $38.7 million for the first ninemonths of 2000. Net income as a percent of sales increased to 26.1% for thefirst nine months from 25.5% for the same period in 2000. The dollar declinewas primarily attributable to the decline in sales volume. The increase in thepercent of sales was primarily due to the savings in interest expense and thelower effective tax rate more than offsetting the impact of the decline insales volume.

 

***Liquidity and Capital Resources***

 

                Boyds' primarysources of liquidity are cash flow from operations and borrowings under itscredit agreement, which includes a revolving credit facility. Boyds' primaryuses of cash are to fund working capital and to service debt. Cash flowfrom operations increased $8.8 million, or 28.4%, to $39.8 million in the firstnine months of 2001 from $31.0 million for the first nine months of 2000. Thecash flow increase was primarily attributable to the increase in accruedexpenses, and the decrease in accounts receivable – net and income taxreceivable, partially reduced by the decrease in net income and deferred taxes.Net cash used in investing activities for the first nine months of 2001, of$3.6 million, was used for capital expenditures and an acquisition. Net cashused in financing activities for the first nine months of 2001, of $33.9million, was primarily used to reduce outstanding long-term debt and wasderived primarily from net income.

 

                In connection with itsrecapitalization, Boyds issued 9% Senior Subordinated Notes due 2008 in anamount of $165.0 million and entered into a $325.0 million senior secured term loan and a senior securedrevolving credit facility providing for borrowings up to $40.0 million.As of September 30, 2001, Boyds had repaid $87.1 million of the 9% Notesleaving a balance outstanding of $77.9 million, and $243.0 million of the termloan leaving a balance outstanding of $82.0 million. Boyds had no borrowingsunder the revolving credit facility at September 30, 2001, thus the full amountavailable under the revolving credit facility is available to fund the workingcapital requirements of Boyds.

 

                Borrowings under the credit agreement bear interestat a rate per annum, equal to a margin over either a base rate or LIBOR, atBoyds’ option. Beginning April 21, 2000, the Tranche A term loan amortizes oversix years. The credit agreement contains customary covenants and events ofdefault, including substantial restrictions on Boyds’ ability to declaredividends or make distributions. The term loan is subject to mandatoryprepayment with the proceeds of certain asset sales and a portion of Boyds’excess cash flow, as defined in the credit agreement. As of December 31, 2000, the Tranche B term loan had been fully repaid.The revolving credit facility commitment will terminate on April 21,2005.

 

                Boyds does not expect to incursignificant capital expenditures for the foreseeable future, due to itssourcing arrangements with suppliers. However, between now and the Fall of 2002Boyds expects to spend approximately $16.0 million to construct and equip aflagship store and museum for the Company, which will be located in Gettysburg,Pennsylvania. The aim of this investment is to generate income and at the sametime expand the brand awareness and image of Boyds, by capitalizing on thetourist destination status of the Gettysburg area.

 

                Management believes that cashflow from operations and availability under the revolving credit facility willprovide adequate funds for Boyds’ foreseeable working capital needs, plannedcapital expenditures, debt service obligations, the common stock repurchase program and the bond repurchase program.Any future acquisitions, joint ventures or other similar transactions mayrequire additional capital and there can be no assurance that any such capitalwill be available to Boyds on acceptable terms or at all. Boyds’ ability tofund its working capital needs, planned capital expenditures and scheduled debtpayments, to refinance indebtedness and to comply with all of the financialcovenants under its debt agreements, depends on its future operatingperformance and cash flow, which in turn are subject to prevailing economicconditions and to financial, business and other factors, some of which arebeyond Boyds’ control.

 

On February 17, 2000, Boyds announced that its Boardof Directors had approved the repurchase of an additional 3,000,000 shares ofthe Company’s common stock. As of September 30, 2001, Boyds had repurchased86,580 shares of common stock pursuant to this stock repurchase program for anaggregate amount of approximately $0.6 million. These repurchases were financedout of operating cash flow. Any future repurchases under this program areexpected to be financed similarly or by utilizing borrowings under therevolving credit facility. Boyds plans to make such purchases from time to timein the open market or in private transactions.

 

On July 27, 2000, Boydsannounced that its Board of Directors had approved a repurchase program for itsoutstanding 9% Series B Senior Subordinated Notes due 2008. As of September 30,2001, Boyds had repurchased $21.1 million of its notes pursuant to this noterepurchase program. These repurchases were financed out of operating cash flow.Any future repurchases under this program are expected to be financed similarlyor by utilizing borrowings under the revolving credit facility. Boyds plans tomake such purchases from time to time in the open market or in privatetransactions.

 

***Seasonality***

 

                Boyds does not have thesignificant seasonal variation in its orders that it believes is experienced bymany other giftware and collectibles companies.  Boyds receives orders throughout the year and generally shipsmerchandise out on a first–in, first–out basis.  Approximately 40% of orders are takenbetween November and April while approximately 60% of orders are placed betweenMay and October in anticipation of the holiday season. Boyds does not build alarge receivables balance relative to sales because it typically does not offerits customers long payment terms or dating programs.

 

***Effects of Recently Issued Accounting Standards***

 

SFAS No. 133, *Accounting for Derivative Instruments and HedgingActivities*, is effective for all fiscal years beginning after June15, 2000.  SFAS 133, as amended,establishes accounting and reporting standards for derivative instruments,including certain derivative instruments embedded in other contracts and forhedging activities.  Under SFAS 133,certain contracts that were not formerly considered derivatives may now meetthe definition of a derivative.  Boyds adoptedSFAS 133 effective January 1, 2001. The adoption of SFAS 133 did not have asignificant impact on the financial position, results of operations, or cashflows of Boyds.

 

In July 2001, theFinancial Accounting Standards Board ("FASB") issued Statement ofFinancial Accounting Standards No. 142 ("SFAS 142"), "Goodwilland Other Intangible Assets", which is effective January 1, 2002. SFAS 142requires, among other things, the discontinuance of goodwill amortization. Inaddition, the standard includes provisions for the reclassification of certainexisting recognized intangibles as goodwill, reassessment of the useful livesof existing recognized intangibles, reclassification of certain intangibles outof previously reported goodwill and the identification of reporting units forpurposes of assessing potential future impairments of goodwill. SFAS 142 alsorequires the Company to complete a transitional goodwill impairment test sixmonths from the date of adoption. The Company is currently assessing but hasnot yet determined the impact of SFAS 142 on its financial position and resultsof operations.

 

In June 2001, the FASBissued SFAS No. 143 (SFAS 143), "Accounting for Asset RetirementObligations".  SFAS 143 addressesfinancial accounting and reporting for obligations associated with theretirement of tangible long-lived assets and the associated asset retirementcosts.  SFAS 143 is effective for fiscalyears beginning after June 15, 2002. The Company is in the process of evaluating the impact of implementingSFAS No. 143.

 

In October 2001, the FASBissued SFAS No. 144, "Accounting for the Impairment of Long-LivedAssets" which supersedes SFAS No. 121, "Accounting for the Impairmentof Long-Lived Assets and for Long-Lived Assets to be Disposed of" and theaccounting and reporting provisions of APB No. 30, "Reporting the Resultsof Operations - Reporting and Effects of Disposal of a Segment of a Business,and Extraordinary, Unusual and Infrequently Occurring Events andTransactions"  for the disposal ofa segment of business.  This statementis effective for fiscal years beginning after December 15, 2001.  SFAS No. 144 retains many of the provisionsof SFAS No. 121, but addresses certain implementation issues associated withthat Statement.  The Company is currentlyevaluating the impact of implementing SFAS No. 142.

 

***Foreign Exchange***

 

                The dollar value of Boyds'assets abroad is not significant. Boyds' sales are primarily denominated inUnited States dollars and, as a result, are not subject to changes in exchangerates.

 

                Boyds imports most of itsproducts from manufacturers in China. Boyds' costs could be adversely affectedon a short-term basis if the Chinese renminbi appreciates significantlyrelative to the United States dollar. Conversely, its costs would be favorablyaffected 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 productsfluctuates with the value of the Chinese renminbi. In the future, Boyds may,from time to time, enter into foreign exchange contracts or prepay inventorypurchases as a partial hedge against currency fluctuations. Differences betweenthe amounts of such contracts and costs of specific material purchases areincluded in inventory and cost of sales. Boyds intends to manage foreignexchange risks to the extent appropriate.

 

***Forward Looking Statements***

 

                Some of the matters discussed inthis report include forward–looking statements.  Statements that are predictive in nature, that depend upon orrefer to future events or conditions or that include words such as “expects,”“anticipates,” “intends,” “plans,” “believes,” “estimates” and similarexpressions are forward–looking statements.

 

                The forward–lookingstatements in this report are based on a number of assumptions and estimateswhich 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 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 differ materiallyfrom those expressed in or implied by the statements in this report.

 

                Readers are cautioned not toplace undue reliance on these forward–looking statements, which speakonly as of the date of such statements. Boyds undertakes no obligation to publiclyrelease the results of any revisions to these forward–looking statementsthat may be made to reflect events or circumstances after the date of thisreport, or the date of such statements, as the case may be, or to reflect theoccurrence of unanticipated events.

 

 

**Item3.                Quantitative andQualitative Disclosures About Market Risk.**

 

The Company facesminimal interest rate risk exposure in relation to its outstanding debt of$159.9 million at September 30, 2001. Of this amount, $82.0 million under theCredit Agreement is subject to interest rate fluctuations. A hypothetical 10%change in interest rates applied to the fair value of debt would not have amaterial impact on earnings or cash flows of the Company.

 

The Company facescurrency risk exposure that arises from translating the results of its Germanand United Kingdom operations to the U.S. dollar. The currency risk exposure isnot material as the German and United Kingdom subsidiary operations do not havea material impact on the Company's earnings.

 

**PARTII****OTHERINFORMATION**

** **

**Item1.   Legal Proceedings.**

 

Boyds has received from theState of Pennsylvania an assessment to pay additional franchise taxes ofapproximately $6.9 million for 1998, which has not been paid. However, a June2001 ruling issued by the State indicates that Boyds will ultimately prevail inthis matter.

 

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

 

Other than theabove, Boyds does not believe that there are any other pending or threatenedlegal proceedings that, if adversely determined, would have a material adverseeffect on Boyds.

 

**Item 2.   Exhibits andReports on Form 8-K.**

 

(a)           Exhibits:

 

                None.

 

(b)           Reports on Form 8-K:

 

                None.

 

**SIGNATURES**

 

Pursuant to therequirements of the Securities Exchange Act of 1934, the registrant has dulycaused this report to be signed on its behalf by the undersigned thereunto dulyauthorized.

 
| Date:       November  5, 2001 |   | The Boyds Collection, Ltd.                           |
|-------------------------------------------------------------|--------|------------------------------------------------------|
|                                                        |   |                                                 |
|                                                        |   |                                                 |
|                                                        | By:    | /s/ Christine L. Bell                                |
|                                                        |   | Christine L.  Bell                                   |
|                                                        |   | *Chief  Operating Officer, Controller and Secretary* |
|                                                        |   |                                                 |
|                                                        |   |                                                 |
|                                                        | By:    | /s/ Peter H. Frost                                   |
|                                                        |   | Peter H. Frost                                       |
|                                                        |   | *Chief  Financial Officer*                           |