BOYDS COLLECTION LTD - 10-Q Quarterly Report

UNITED STATES SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 10-Q

(Mark One)

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

For the Quarterly Period Ended March 31, 2005

oTRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934.

For the Transition period from to

Commission File Number: 001-14843

THE BOYDS COLLECTION, LTD.

(Exact Name of Registrant as Specified in its Charter)

Maryland		52-1418730
(State or Other Jurisdiction of Incorporation or Organization)		(I.R.S. Employer Identification No.)

350 South Street, McSherrystown, Pennsylvania, Attn.: Joseph E. Macharsky		17344
(Address of Principal Executive Offices)		(Zip Code)

(717) 633-9898

(Registrant’s Telephone Number, Including Area Code)

Indicate by check mark whether the Registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ý No o

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

Indicate the number 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)

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

See notes to condensed consolidated financial statements.

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	)

See notes to condensed consolidated financial statements.

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 condensed consolidated financial statements.

THE BOYDS COLLECTION, LTD.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

For the Three 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

See notes to condensed consolidated financial statements.

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

1. INTERIM FINANCIAL STATEMENTS

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

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

In December of 2004, the Financial Accounting Standards Board (“FASB”) issued Statement of Financial Accounting Standards (“SFAS”) No. 123R, Share-Based Payment (“SFAS 123R”). SFAS 123R addresses the accounting for share-based payments to employees, including grants of employee stock options. Under the new standard, companies will no longer be able to account for share-based compensation transactions using the intrinsic method in accordance with APB Opinion No. 25, Accounting for Stock Issued to Employees. Instead, companies will be required to account for such transactions using a fair-value method and recognize the related expense associated with share-based payments in the consolidated statement of operations. In April 2005, the Securities and Exchange Commission delayed the effective date for SFAS No. 123R until the first quarter of fiscal 2006, and allows, but does not require, companies to restate the full fiscal year of 2005 or retroactive restatement to earlier periods to reflect the impact of expensing share-based payments under SFAS 123R. The Company has not yet determined which fair-value method and transitional provision it will follow. The Company is currently assessing the impact that SFAS 123R will have on the financial position, results of operations and cash flows of Boyds.

In March 2005, the Securities and Exchange Commission (“SEC”) issued Staff Accounting Bulletin No. (“SAB”) 107 regarding the Staff’s interpretation of Share-Based Payments. This interpretation provides the Staff’s view regarding interactions between SFAS No. 123R and certain SEC rules and regulations and provides interpretations of the valuation of share-based payments for public companies. The interpretive guidance is intended to assist companies in applying the provisions of SFAS No. 123R and investors and users of the financial statements in analyzing the information provided. The Company will adopt SAB 107 in connection with its adoption of SFAS No. 123R.

4. PROPERTY AND EQUIPMENT

The components of property and equipment at December 31, 2004 and March 31, 2005 were, as follows:

	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, the FASB issued SFAS No. 142, Goodwill and Other Intangible Assets, which was effective January 1, 2002. SFAS No.142 requires, among other things, the discontinuance of goodwill amortization. The Company stopped amortizing its goodwill as of January 1, 2002. The Company tested for impairment by comparing the fair value of the reporting unit with the carrying value of that unit. Fair value was determined based on the discounted cash flow method. As a result of the Company’s impairment test completed in the first quarter of 2005, the Company recorded an impairment loss of $2.6 million to reduce the carrying value of goodwill to zero. The impairment was due to the wholesale segment’s operating performance.

6. LONG-TERM DEBT

Long-term debt 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 Senior Subordinated Notes have an optional redemption feature exercisable by Boyds any time 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 on May 15 and November 15.

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

The New Credit Agreement contains a revolving credit facility “the New Revolver” with capacity of up to $20 million and a New Term Loan of $45 million. The New Credit Agreement has an interest rate of either a base rate, which is the higher 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 $3.6 million of deferred financing costs associated with this transaction. The New Credit Agreement requires no scheduled principal payments until the entire outstanding amount of debt is required to be repaid at maturity in February, 2008. There are certain prepayment penalties for amounts paid on the New Term Loan and New Revolver prior to maturity.

At December 31, 2004 and March 31, 2005, the weighted average interest rates in effect for the Term Loan and New Term Loan were 1.75% and 15.25%, respectively. At December 31, 2004 and March 31, 2005, the weighted average interest rate in effect for the Revolver and New Revolver were 3.38% and 15.25%, respectively.

The New Credit Agreement contains financial covenants, tested quarterly, of minimum adjusted EBITDA (as defined in the New Credit Agreement), maximum senior leverage and maximum total leverage relating to 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 a total leverage ratio greater than 4.5 to 1.0. At the end of the third and fourth quarters of 2005, Boyds must have an adjusted minimum EBITDA of $17 million. The New Credit Agreement also contains customary covenants, including covenants that restrict the Company’s ability to incur additional indebtedness, make capital expenditures, pay dividends

on and redeem capital stock, make other restricted payments, make investments, sell its assets and enter into consolidations, mergers and transfers of all or substantially all of its assets.

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

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

7. SEGMENTS OF THE COMPANY AND RELATED INFORMATION

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

The Company’s wholesale business designs, imports, and distributes resin figurines, plush animals, and other specialty giftware products via a global network of independent retailers and distributors. The Company’s retail operation sells resin figurines, plush animals, specialty giftware products and provides a unique entertainment experience directly to the end consumer at its Gettysburg, Pennsylvania flagship location and Pigeon Forge, Tennessee location. Additional retail stores are planned in Myrtle Beach, 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

8. STOCK-BASED COMPENSATION

At March 31, 2005, Boyds had various stock-based employee compensation plans. The Company measures compensation expense for its stock-based employee compensation plans using the intrinsic value method. Boyds has adopted the disclosure only provision of SFAS No. 148 “Accounting for Stock-Based Compensation — Transition and Disclosure,” (“SFAS No. 148”) an amendment of SFAS No. 123; therefore no compensation expense was recognized for the Company’s stock option plans. Had compensation expense for the Company’s stock option plans been determined based on the fair value at the grant date for awards under the Company’s stock plan, consistent with the methodology prescribed under SFAS No. 148, the Company’s net income/(loss) and net income/(loss) per common 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. PROVISION FOR INCOME TAXES

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

10. CONTINGENCIES

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

11. EARNINGS PER SHARE

The following is a reconciliation of the numerators and denominators of the basic and diluted earnings per share computations for the net income/(loss) available to common stockholders:

	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	)

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

The following discussion should be read in conjunction with the financial information and related notes included elsewhere in this report.

GENERAL

Boyds is a leading domestic designer, importer and distributor of branded, high-quality, handcrafted collectibles and other specialty giftware products. Boyds sells its products primarily through an extensive network of approximately 14,000 accounts comprised of independent gift and collectibles retailers, premier department stores, selected catalogue retailers and other electronic and retail channels. Boyds also sells its products directly to consumers through its two retail stores Boyds Bear Countryä - Gettysburg and Boyds Bear Countryä - Pigeon Forge. The Company has signed options for leases on additional locations in Myrtle Beach, South Carolina and Branson, Missouri.

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

Boyds also has several licensing agreements for its branded product. The more significant agreements would include NASCAR and M&M’S^® Brand Characters. Boyds expects to begin delivering M&M Boyds products to stores in late 2005.

Boyds licenses its product designs to other companies for products including home textiles, infant clothing and wallpaper. Boyds believes such licensing, in addition to providing royalty income, helps to increase consumer awareness of Boyds’ designs and brand image. Boyds reports royalty income in net sales.

Boyds exhibits its products at select national 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, and owns a second retail store in Pigeon Forge, Tennessee. Boyds also leases warehouse space in Dunkeswell, United Kingdom, and Dordrecht, The Netherlands.

SEGMENTS

The Company’s wholesale business designs, imports, and distributes resin figurines, plush animals and other specialty giftware products via a global network of independent retailers and distributors. The Company’s retail operation sells resin figurines, plush animals, other specialty giftware products and provides a unique entertainment experience, directly to the end consumer currently at its Gettysburg, Pennsylvania flagship location and Pigeon Forge, Tennessee location. The Company has signed options for leases on additional locations in Myrtle Beach, South Carolina and Branson, Missouri.

CRITICAL ACCOUNTING POLICIES

Preparing the Company’s financial statements in conformity with accounting principles generally accepted in the United States of America requires that management make estimates and assumptions that affect the amounts reported in the financial statements and accompanying notes. Predicting future events is inherently an imprecise activity and as such requires the use of judgment. Actual results may vary from estimates in amounts that may be material to the financial statements. Management believes that the estimates and assumptions used in connection with the amounts reported in Boyds’ financial statements and related disclosures are reasonable and made in good faith.

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

• For the wholesale business, Boyds records sales when persuasive evidence of an arrangement exists, the price is fixed or determinable, items are shipped and the collectibility of the resulting receivable is reasonable assured. For the retail business, Boyds recognizes sales upon customer receipt of the merchandise. The most significant financial statement line item, net sales, represents transactions consistent with Boyds’ primary business focus and meets the criteria of Staff Accounting Bulletin No. 101, including the transfer of title, probable collectibility, identified customer and no resource.

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

• Accounts receivable are presented at estimated net realizable value. Boyds uses estimates in determining the collectability of its accounts receivable and must rely on its evaluation of historical bad debts, customer credit ratings, current economic trends and changes in customer payment terms to arrive at appropriate reserves.

• Inventories are stated at the lower of cost or market. Cost is determined under the first-in, first-out method of accounting. Boyds records adjustments to the value of inventory in situations where it appears that Boyds will not be able to recover the cost of the product. This lower of cost or market analysis is based on Boyds’ estimate of forecasted demand by customer by product. A

decrease in product demand due to changing customer tastes, consumer buying patterns or loss of shelf space to competitors could significantly impact Boyds’ evaluation of its excess and obsolete inventories.

• Under the requirements of SFAS No.142, “Goodwill and Other Intangible Assets”, and SFAS No.144, “Accounting for the Impairment or Disposal of Long-Lived Assets”, the Company tested for impairment by comparing the fair value of the reporting unit with the carrying value of that unit. Fair value was determined based on the discounted cash flow method. As a result of the Company’s impairment test completed in the first quarter of 2005, the Company recorded an impairment loss of $2.6 million to reduce the carrying value of goodwill to zero. The impairment was due to the wholesale segment’s operating performance.

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

FACTORS WHICH AFFECT BOYDS’ RESULTS OF OPERATIONS

Seasonality

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

Foreign Exchange

The dollar value of Boyds’ assets abroad is not significant. Boyds’ sales are primarily denominated in United States dollars and, as a result, are not subject to changes in exchange rates.

Boyds imports most of its products from manufacturers in China. Boyds’ costs could be adversely affected on a short-term basis if the Chinese renminbi appreciates significantly relative to the United States dollar. Conversely, its costs would be favorably affected on a short-term basis if the Chinese renminbi depreciates significantly relative to the United States dollar. Although Boyds generally pays for its products in United States dollars, the cost of such products fluctuates with the value of the Chinese renminbi. In the future, Boyds may, from time to time, enter into foreign exchange contracts or prepay inventory purchases as a partial hedge against currency fluctuations. Differences between the amounts of such contracts and costs of specific material purchases are included in inventory and cost of sales. Boyds’ policy is to not capitalize any gains or losses associated with foreign currency transactions or foreign exchange contracts. Boyds intends to manage foreign exchange risks to the extent appropriate.

Boyds has growing sales operations based in Europe and Canada, but at this time Boyds does not expect any significant impact due to fluctuations in the Euro, the British Pound or the Canadian dollar.

RESULTS OF OPERATIONS

Net sales consist of sales of our products, net of sales discounts, product returns and allowances, retail sales from the Boyds Bear Country^TM retail stores, collectors club sales generated from members of Boyds’ collectors club and royalty income from licenses held by Boyds. Wholesale sales are primarily made on a purchase order basis. Revenue associated with sales is recognized when products are shipped to the customer or upon the completion of a retail transaction.

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

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

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

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

	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 of 2005, the Company’s net sales decreased by 30%, which can primarily be attributed to the wholesale segment’s decrease of 37% partially offset by an increase of 58% in the retail segment. The primary driver to the decreased wholesale net sales was the sales forces restructuring in the fourth quarter of 2004. The disruption from this change significantly impacted the Company’s bookings (cancelable orders) in its several national accounts and smaller accounts for the first quarter which were down 22%, compared to the bookings for the same period in 2004. Retail net sales were positively impacted by the addition of the Company’s second store in Pigeon Forge, Tennessee.

The Company’s net profit for the first quarter decreased by $80.0 million to a loss of $77.2 million as compared to the same period in 2004. This decrease can be attributed to a significant increase in the Company’s allowance for its deferred tax asset, the write off of its goodwill, lower sales, and an increase in the inventory obsolescence reserve.

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

Three Months 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 first quarter 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%. As a percentage of net sales for the first quarter, plush represented 57%, resin products represented 27%, and other products represented 16%.

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

Retail net sales increased $1.2 million, or 58%, to $3.3 million in the first quarter of 2005 from $2.1 million in the first quarter of 2004. Same store retail net sales decreased by $0.2 million, or 10%, to $1.8 million in the first quarter from $2.0 million from the first quarter of 2004. This decline can be attributed to the reduced tourist traffic and poor weather in the Gettysburg area.

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

Selling, General & Administrative Expenses (“SG&A”)- SG&A expenses increased $0.8 million, or 8%, to $10.7 million in the first quarter of 2005 from $9.9 million for the first quarter of 2004. SG&A as a percent of net sales increased to 58% for the first quarter from 38% for the same period in 2004. The dollar increase in SG&A expenses was a result of $1.4 million relating to operating expenses in our new Boyds Bear Countryä location in Pigeon Forge, Tennessee, which opened in November 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.

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

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

Total interest expense - Total interest expense 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 outstanding debt increased for the first quarter of 2005 by $1.0 million. This increase is due to a higher interest rate on the Company’s outstanding debt. Additionally, the amortization expense associated with the deferred financing costs have increased by $0.1 million as a result of costs associated with the new credit agreement.

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

Net Loss— Net profit decreased $80.1 million to a loss of $77.3 million in the first 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 impairment of goodwill and the increase in the deferred tax asset valuation, described above, net loss would have been $3.1 million.

Liquidity and Capital Resources

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

Operating Activities

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

Investing Activities

Capital and investment expenditures totaled $0.4 million in the first three months of 2005 as compared to $1.9 million in the first three months of 2004. This decrease in expenditures was the result of no major additional construction costs relating to the Boyds Bear Country^TM — Pigeon Forge, Tennessee and Myrtle Beach, South Carolina locations.

Financing Activities

In connection with the recapitalization 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 credit facility providing for borrowings up to $40.0 million. During the first quarter, the company had additional borrowings of $10.0 million on the revolving credit facility. On February 23, 2005, the Company entered into a new credit agreement and used the proceeds to extinguish the outstanding tranche A (the “term loan”) and revolving credit facility (the “revolver”) in the amounts of $28.0 million and $22.8 million, respectively.

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

The New Credit Agreement contains financial covenants, tested quarterly, of minimum adjusted EBITDA, (as defined in the New Credit Agreement), maximum senior leverage and maximum total leverage relating to 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 total leverage ratio greater than 4.5 to 1.0. At the end of the third and fourth quarters 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 to incur additional indebtedness, make capital expenditures, pay dividends on and redeem capital stock, make other restricted payments, make investments, sell its assets and enter into consolidations, mergers and transfers of all or substantially all of its assets.

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

On July 27, 2000, Boyds announced that its Board of Directors had approved a repurchase program for its outstanding 9% Series B Senior Subordinated Notes due 2008. As of March 31, 2005, Boyds had repurchased $52.3 million of its notes pursuant to this note repurchase program. These repurchases were financed out of operating cash flow and the revolving credit facility. Any future repurchases under this program are expected to be financed similarly. Boyds may make such purchases from time to time in the open market or in private transactions.

Management believes that cash flow from operations and availability under the new credit agreement revolving credit facility will provide adequate funds for Boyds’ foreseeable working capital needs, planned capital expenditures, debt service obligations, the Stock Repurchase Program and the Bond Repurchase Program. Any future acquisitions, joint ventures or other similar transactions may require additional capital and there can be no assurance that any such capital will be available to Boyds on acceptable terms, or at all. Boyds’ ability to fund its working capital needs, planned capital expenditures and scheduled debt payments, to refinance indebtedness and to comply with all of the financial covenants under its debt agreements depends on its future operating performance and cash flow, which in turn are subject to prevailing economic conditions and to financial, business and other factors, some of which are beyond Boyds’ control.

RISK FACTORS WHICH MAY AFFECT FUTURE PERFORMANCE

Changing distribution channels. The Company’s historic distribution channels, mainly independent retailers, have seen significant declines in traffic for several years. Consumers have migrated to larger, more convenient retailers, which provide for a full array of products and services. If the Company is unable to migrate it sales distribution to channels which mirror consumers buying tendencies, then its revenues could be significantly impacted.

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

Dependence on two independent buying agencies. Substantially all of the products that Boyds sells are purchased through two independent buying agencies. One buying agency is located in Hong Kong, and the other buying agency is located in the United States. These two buying agencies, which contract with a total of 19 independent manufacturers, account for approximately 90% of Boyds’ total imports. These two buying agencies also perform a number of functions for Boyds, including collaborating in Boyds’ product design and development process. As a result, Boyds is substantially dependent on these buying agencies and the manufacturers with which they contract. Boyds does not have long-term contracts with either of its primary buying agencies. Boyds believes that the loss of either of its primary buying agencies would (1) have a material adverse affect on its financial condition and results of operations, (2) cause disruptions in its orders, (3) affect the quality of its products, and (4) possibly require it to select alternative manufacturers. In 2004, the Company began contracting its plush buying with three additional buying groups in an effort to mitigate this risk.

Potential economic and political risks of China. All of Boyds’ significant manufacturers are located in China. Although Boyds has identified alternate manufacturers which could meet its quality and reliability standards at similar costs in China and in other countries, the loss of any one or more of its manufacturers could have a material adverse effect on its business. Because Boyds relies primarily on Chinese manufacturers, it is subject to the following risks that could restrict its manufacturers’ ability to make its products or increase its manufacturing costs: (1) economic and political instability in China; (2) transportation delays; (3) restrictive actions by the Chinese government; (4) the laws and policies of the United States affecting importation of goods, including duties, quotas and taxes; (5) Chinese trade and tax laws. In particular, Boyds’ business could be adversely affected if the Chinese renminbi appreciates significantly relative to the United States dollar due to the cost of its products fluctuating with the value of the Chinese renminbi.

Potential adverse trade regulations and restrictions. Boyds does not own or operate any manufacturing facilities. Instead, Boyds imports substantially all of its retail products from independent foreign manufacturers, primarily in China. As a result, substantially all of its products are subject to United States Customs Service duties and regulations. These regulations include requirements that Boyds disclose information regarding the country of origin on its products, such as “Handmade in China.” Within its discretion, the United States Customs Service may also set new regulations regarding the amount of duty to be paid, the value of merchandise to be reported or other customs regulations relating to Boyds’ imported products. Failure to comply with these regulations may result in the imposition of additional duties or penalties or forfeiture of merchandise.

Potential foreign restrictions or additional costs. The countries in which Boyds’ products are manufactured may impose new quotas, duties, tariffs or other charges or restrictions. This could adversely affect Boyds’ financial condition, results of operations or its ability to continue to import products at current or increased levels. In particular, Boyds’ costs could increase, or the mix of countries from which Boyds imports its products may be changed, if the Generalized System of Preferences program is not renewed or extended each year. The Generalized System of Preferences program allows selected products of beneficiary countries to enter the United States duty free. In addition, if countries that are currently accorded “Most Favored Nation” status by the United States, such as China, cease to have such status, Boyds could be adversely affected. Boyds cannot predict what regulatory changes may occur or the type or amount of any financial impact these changes may have on it in the future.

Potential infringement of Boyds’ intellectual property. Boyds believes that its trademarks and other proprietary rights are material to its success and competitive position. Accordingly, Boyds devotes resources to the establishment and protection of its intellectual property on a worldwide basis. The actions Boyds takes to establish and protect its trademarks and other proprietary rights may not be adequate to protect its intellectual property or to prevent imitation of its products by others. Moreover, while Boyds has not experienced any proprietary license infringements or legal actions that have had a material impact on its financial condition or results of operations, other persons have and will likely in the future assert rights in, or ownership of, its trademarks and other proprietary rights. Boyds may not be able to successfully resolve such conflicts. In addition, the laws of foreign countries may not always protect intellectual property to the same extent as do the laws of the United States.

Retail Capital Expenditures. When the Company progresses with its retail expansion plans, it may need to make significant capital expenditures. In the event that the format that the Company has designed or the locations that the Company has selected, and will select in the future, become unprofitable, the Company will have to write down the investments made in these properties. In addition, if these properties become underperforming, the Company may have difficulty in making any future debt obligation payments.

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

EFFECTS OF RECENTLY ISSUED ACCOUNTING STANDARDS

In December of 2004, the FASB issued Statement of Financial Accounting Standards (“SFAS”) No. 123R, Share-Based Payment (“SFAS 123R”). SFAS 123R addresses the accounting for share-based payments to employees, including grants of employee stock options. Under the new standard, companies will no longer be able to account for share-based compensation transactions using the intrinsic method in accordance with APB Opinion No. 25, Accounting for Stock Issued to Employees. Instead, companies will be required to account for such transactions using a fair-value method and recognize the related expense associated with share-based payments in the consolidated statement of operations. In April 2005, the Securities and Exchange Commission delayed the effective date for SFAS No. 123R until the first quarter of fiscal 2006, and allows, but does not require, companies to restate the full fiscal year of 2005 or retroactive restatement to earlier periods to reflect the impact of expensing share-based payments under SFAS 123R. The Company has not yet determined which fair-value method and transitional provision it will follow. The Company is currently assessing the impact that SFAS 123R will have on the financial position, results of operations and cash flows of Boyds.

interpretations of the valuation of share-based payments fro public companies. The interpretive guidance is intended to assist companies in applying the provisions of SFAS No. 123R and investors and users of the financial statements in analyzing the information provided. The Company will adopt SAB 107 in connection with its adoption of SFAS No. 123R.

In June 2002, the FASB issued SFAS No. 146, Accounting for Costs Associated with Exit or Disposal Activities. This statement requires recording costs associated with exit or disposal activities at their fair 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 of this statement was required at the beginning of fiscal year 2003. The Company adopted the provisions of this statement in the first quarter of 2003, which were incorporated in the consolidated financial statements. The adoption of this 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. This Statement amends the guidance in Accounting Research Bulletin (“ARB”) No 43, Chapter 4, Inventory Pricing, to clarify the accounting for abnormal amounts of idle facility expense, freight, handling costs, and wasted material (spoilage). This Statement requires that these items be recognized as current-period charges regardless of whether they meet the criterion of “so abnormal.” In addition, this Statement requires that allocation of fixed production overhead to the costs of conversion be based on the normal capacity of production facilities. The provisions of this Statement are effective for inventory costs incurred during fiscal years beginning after June 15, 2005. The adoption of this Statement is not expected to have a material impact on the financial position, results of operations or cash flow of Boyds.

In December 2004, the FASB issued SFAS No. 153, Exchange of Nonmonetary Assets — An Amendment of APB Opinion No. 29, Accounting for Nonmonetary Transactions. SFAS No. 153 eliminates the exception from fair value measurement from nonmonetary exchanges of similar productive assets in paragraph 21(b) of APB Opinion. 29 and replaces it with an exception for exchanges that do not have commericial substance. 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 the financial position, results of operations or cash flow of Boyds.

RELATED PARTY 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 to KKR approximately $0.1 million for management fees and related expenses. KKR has waived all management fees for 2005. Any related expenses incurred by KKR in 2005 will be paid by Boyds.

FORWARD LOOKING STATEMENTS

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

The forward-looking statements 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 business decisions that are subject to change. A variety of factors could

cause actual results to differ materially from those anticipated in Boyds’ forward-looking statements, including: the effects of economic conditions; the inability to grow Boyds’ business as planned; the loss of either of Boyds’ two independent buying agencies or any of its manufacturing sources; economic or political instability in the countries with which Boyds does business; changes to, or the imposition of, new regulations, duties, taxes or tariffs associated with the import or export of goods from or to the countries with which Boyds does business; and other risk factors that are discussed in this report and, from time 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 materially from those expressed in or implied by the statements in this report.

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

Item 3. Quantitative and Qualitative Disclosures About Market Risk.

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

Boyds faces currency risk exposure that arises from translating the results of its European and Canadian operations that are denominated in the local currency of the Euro, the British Pound and the Canadian dollar, to the U.S. dollar. The currency risk exposure is not material as the operations of the European and Canadian subsidiaries do not have a material impact on the Company’s earnings.

Boyds also faces foreign exchange risks that arise from paying in United States Dollars for products that are manufactured in China. 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 a partial hedge against currency fluctuations. Differences between the amounts of such contracts and costs of specific material purchases are included in inventory and costs of sales. Boyds intends to manage foreign exchange risks to the extent appropriate.

Item 4. Disclosure Controls and Procedures

Boyds maintains disclosure controls and procedures designed to ensure that it is able to collect the information it is required to disclose in the reports it files with the Securities and Exchange Commission (“SEC”), and to process, summarize and disclose this information within the time periods specified in the rules of the SEC. Boyds carried out an evaluation of its disclosure controls and procedures, under the supervision and with the participation of the Chief Executive and Chief Financial Officers, as of March 31, 2005, and based on such evaluation, Boyds’ Chief Executive and Chief Financial Officers believe that these disclosure controls and procedures are effective to ensure that Boyds is able to collect, process and disclose the information it is required to disclose in the reports it files with the SEC within the required time periods.

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

PART II

OTHER INFORMATION

Item 1. Legal Proceedings.

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

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

Item 3. Defaults Upon Senior Securities—None

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

Item 5. Other Information

Item 6. Exhibits

(a) Exhibits — See Index to Exhibits

SIGNATURES

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

Date: May 16, 2005

THE BOYDS COLLECTION, LTD.

	By:	/s/ Jan L. Murley
	Name:	Jan L. Murley
	Title:	Chief Executive Officer

	By:	/s/ Joseph E. Macharsky
	Name:	Joseph E. Macharsky
	Title:	Chief Financial Officer

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 Financial Condition 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

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.)*