<PAGE>
UNITED STATES SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
(MARK ONE)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE
SECURITIES EXCHANGE ACT OF 1934.
For the Quarterly Period Ended September 30, 1999
OR
[ ] TRANSITION 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 (I.R.S. EMPLOYER IDENTIFICATION NO.)
INCORPORATION OR ORGANIZATION)
350 South Street, McSherrystown, 17344
Pennsylvania, Attn.: Peter H. Frost
(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 X No
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 59,912,946
(CLASS) (OUTSTANDING AS OF NOVEMBER 7, 1999)
<PAGE>
2
THE BOYDS COLLECTION, LTD.
TABLE OF CONTENTS
- --------------------------------------------------------------------------------
PAGE
PART I FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
Condensed Consolidated Balance Sheets as of
September 30, 1999 and December 31, 1998 3
Condensed Consolidated Statements of Income for the
Three Months and the Nine Months Ended
September 30, 1999 and 1998 4
Condensed Consolidated Statement of Stockholders'
Equity for the Nine Months Ended September 30, 1999 5
Condensed Consolidated Statements of Cash Flows for
the Nine Months Ended September 30, 1999 and 1998 6
Notes to Condensed Consolidated Financial Statements 7
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS 12
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK 20
PART II OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS 21
ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS 21
ITEM 3. DEFAULTS UPON SENIOR SECURITIES 21
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS 21
ITEM 5. OTHER INFORMATION 21
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K 21
SIGNATURES 22
<PAGE>
3
PART I
FINANCIAL INFORMATION
Item 1. Financial Statements.
<TABLE>
<CAPTION>
THE BOYDS COLLECTION, LTD.
CONDENSED CONSOLIDATED BALANCE SHEETS AS OF SEPTEMBER 30, 1999 AND
DECEMBER 31, 1998 (UNAUDITED)
SEPTEMBER 30, DECEMBER 31,
1999 1998
(IN THOUSANDS)
<S> <C> <C>
ASSETS
CURRENT ASSETS:
Cash and cash equivalents $ 8,656 $ 11,606
Accounts receivable, less allowance for doubtful accounts of $180 in 38,980 24,355
1999 and 1998, respectively
Inventory-primarily finished goods 11,418 8,440
Inventory in transit 1,573 3,116
Other current assets 782 527
Total current assets 61,409 48,044
PROPERTY AND EQUIPMENT:
Property and equipment 4,318 2,662
Less--accumulated depreciation (1,487) (1,143)
--------- --------
Total property and equipment 2,831 1,519
OTHER ASSETS:
Deferred debt issuance costs 6,669 12,019
Deferred tax asset 222,109 234,403
Other assets 2,519 2,425
--------- --------
Total other assets 231,297 248,847
--------- --------
TOTAL ASSETS $ 295,537 $298,410
--------- --------
--------- --------
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)
CURRENT LIABILITIES:
Accounts payable 1,173 1,513
Accrued taxes 5,540 5,364
Accrued expenses 783 1,767
Interest payable 4,760 5,501
Deferred income 350 31
--------- --------
Total current liabilities 12,606 14,176
LONG-TERM DEBT 256,000 443,000
COMMITMENTS AND CONTINGENCIES (Notes 6 and 8)
STOCKHOLDERS' EQUITY (DEFICIT):
</TABLE>
<PAGE>
4
<TABLE>
<S> <C> <C>
Capital stock (61,101 and 52,588 shares issued and outstanding at (48,615) (193,043)
September 30, 1999 and December 31, 1998, respectively) and paid-in
capital in excess of par
Cumulative translation adjustments (60) --
Retained earnings 75,606 34,277
--------- --------
Total stockholders' equity (deficit) 26,931 (158,766)
--------- --------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT) $ 295,537 $298,410
--------- --------
--------- --------
</TABLE>
See notes to condensed consolidated financial statements.
<PAGE>
5
<TABLE>
<CAPTION>
THE BOYDS COLLECTION, LTD.
CONDENSED CONSOLIDATED STATEMENTS OF INCOME FOR THE THREE MONTHS
AND THE NINE MONTHS ENDED SEPTEMBER30, 1999 AND 1998
(UNAUDITED)
THREE MONTHS ENDED NINE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
1999 1998 1999 1998
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<S> <C> <C> <C> <C>
NET SALES $59,266 $52,235 $160,177 $139,965
COST OF GOODS SOLD 20,146 16,203 53,872 44,804
------- ------- -------- --------
Gross profit 39,120 36,032 106,305 95,161
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES 4,561 3,608 13,036 9,895
OTHER OPERATING INCOME 86 128 602 811
------- ------- -------- --------
INCOME FROM OPERATIONS 34,645 32,552 93,871 86,077
------- ------- -------- --------
OTHER INCOME/(EXPENSE):
Interest and dividend income 35 96 327 319
Other income -- -- -- (35)
Expenses related to the recapitalization -- -- -- (3,248)
------- ------- -------- --------
TOTAL OTHER INCOME/(EXPENSE) 35 96 327 (2,964)
------- ------- -------- --------
INTEREST EXPENSE:
Interest expense 4,896 9,579 18,171 17,935
Amortization of deferred debt issuance costs 182 635 597 1,107
------- ------- -------- --------
TOTAL INTEREST EXPENSE 5,078 10,214 18,768 19,042
------- ------- -------- --------
INCOME BEFORE PROVISION FOR INCOME TAXES AND 29,602 22,434 75,430 64,071
EXTRAORDINARY ITEM
PROVISION FOR INCOME TAXES 10,657 8,957 27,155 12.712
------- ------- -------- --------
INCOME BEFORE EXTRAORDINARY ITEM 18,945 13,477 48,275 51,359
EXTRAORDINARY ITEM:
REDEMPTION PREMIUM ON BONDS (NET OF $2,138 TAX -- -- 3,802 --
BENEFIT)
WRITE OFF OF DEFERRED DEBT ISSUANCE COSTS (NET 64 -- 3,144 --
OF $36 AND $1,768 TAX BENEFITS RESPECTIVELY)
------- ------- -------- --------
TOTAL EXTRAORDINARY ITEMS 64 -- 6,946 --
------- ------- -------- --------
NET INCOME $18,881 $13,477 $41,329 $51,359
------- ------- -------- --------
------- ------- -------- --------
PRO FORMA DATA:
HISTORICAL INCOME BEFORE EXTRAORDINARY ITEM $18,945 $13,477 $48,275 $51,359
PRO FORMA PROVISION FOR INCOME TAXES -- -- -- 12,725
------- ------- -------- --------
PRO FORMA INCOME BEFORE EXTRAORDINARY ITEM 18,945 13,477 48,275 38,634
EXTRAORDINARY ITEMS:
REDEMPTION PREMIUM ON BONDS (NET OF $2,138 TAX
BENEFIT) -- -- 3,802 --
</TABLE>
<PAGE>
<TABLE>
<S> <C> <C> <C> <C>
WRITE OFF OF DEFERRED DEBT ISSUANCE COSTS (NET OF 64 -- 3,144 --
$36 AND $1,768 TAX BENEFITS RESPECTIVELY)
------- ------- -------- --------
TOTAL EXTRAORDINARY ITEMS 64 -- 6,946 --
------- ------- -------- --------
PRO FORMA NET INCOME $18,881 $13,477 $41,329 $38,634
------- ------- ------- --------
------- ------- ------- --------
PRO FORMA EARNINGS PER SHARE:
Basic Earnings Per Share Income Before $ 0.31 $ 0.25 $ 0.81 $ 0.59
Extraordinary Items
Extraordinary Items:
- Redemption Premium on Bonds -- -- (0.06) --
- Write Off of Deferred Debt Issuance Costs -- -- (0.05) --
------- ------- -------- --------
Net Income $ 0.31 $ 0.25 $ 0.70 $ 0.59
------- ------- -------- --------
------- ------- -------- --------
Diluted Earnings Per Share Income Before 0.31 0.24 0.81 0.59
Extraordinary Items
Extraordinary Items:
- Redemption Premium on Bonds -- -- (0.06) --
- Write Off of Deferred Debt Issuance Costs -- -- (0.05) --
------- ------- ------- -------
Net Income $ 0.31 $ 0.24 $ 0.70 $ 0.59
------- ------- ------- -------
------- ------- ------- -------
</TABLE>
See notes to condensed consolidated financial statements.
<PAGE>
<TABLE>
<CAPTION>
7
THE BOYDS COLLECTION, LTD.
CONDENSED CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY FOR THE
NINE MONTHS ENDED SEPTEMBER 30, 1999
(UNAUDITED)
NUMBER OF COMMON STOCK ACCUMULATED
SHARES AND PAID-IN OTHER TOTAL OTHER
CAPITAL COMPREHENSIVE RETAINED STOCKHOLDERS COMPREHENSIVE
IN EXCESS INCOME EARNINGS EQUITY INCOME
OF PAR
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C>
BALANCE, JANUARY 1, 1999 52,588 $(193,043) $ -- $34,277 $(158,786) $ --
Sale of common stock (net of
related fees and expenses) 9,250 154,946 -- -- 153,946 --
Repurchase of common stock (737) (9,518) -- (9,518) --
------ --------- ---- ------- --------- -------
Other comprehensive income:
Foreign currency transaction -- -- (60) -- (60) (60)
Net income -- -- -- 41,329 41,329 41,329
------ --------- ---- ------- --------- -------
BALANCE, SEPTEMBER 30, 1999 61,101 $ (48,615) $(60) $75,606 $ 26,931 $41,269
------ --------- ---- ------- --------- -------
------ --------- ---- ------- --------- -------
</TABLE>
See notes to condensed consolidated financial statements.
<PAGE>
8
<TABLE>
<CAPTION>
THE BOYDS COLLECTION, LTD.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS FOR THE NINE MONTHS
ENDED SEPTEMBER 30, 1999 AND 1998 (UNAUDITED)
NINE MONTHS ENDED
SEPTEMBER 30,
1999 1998
(IN THOUSANDS)
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 41,329 $ 51,359
Adjustments to reconcile net income to net cash provided by operating
activities:
Depreciation 344 189
Amortization and write off of deferred debt issuance costs 5,350 1,107
Amortization of deferred tax asset 12,294 7,186
Loss on sale of equipment -- 36
Changes in assets and liabilities:
Accounts receivable-net (14,625) (6,272)
Inventory (2,978) (5,090)
Inventory in transit 1,543 (2,316)
Other current assets (255) (151)
Other assets (94) --
Accounts payable (340) 274
Accrued taxes 176 2,527
Accrued expenses (984) 1,621
Interest payable (741) 10,004
Deferred income 319 (1,061)
-------- --------
Net cash provided by operating activities 41,338 59,413
-------- --------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of equipment (1,656) (1,011)
Security Deposits -- (11)
Issuance of notes receivable -- (1,296)
-------- --------
Net cash used in investing activities (1,656) (2,318)
-------- --------
CASH FLOWS FROM FINANCING ACTIVITIES:
Repayment of note payable-stockholders -- (30,000)
</TABLE>
<PAGE>
9
<TABLE>
<S> <C> <C>
Due to stockholder -- 232
Issuance of debt -- 490,000
Repayment of debt (187,000) (29,500)
Recapitalization and stock repurchase (net of related fees and
expenses) -- (484,609)
Sale of common stock (net of related fees and expenses) 153,946 4,555
Capital contribution -- 3,200
Deferred debt issuance cost -- (13,857)
Repurchase of common stock (9,518) --
-------- --------
Net cash used in financing activities (42,572) (59,979)
-------- --------
Effect of exchange rate changes on cash (60) --
-------- --------
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS (2,950) (2,884)
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD 11,606 11,210
-------- --------
CASH AND CASH EQUIVALENTS, END OF PERIOD $ 8,656 $ 8,326
-------- --------
-------- --------
CASH PAID DURING THE PERIOD FOR INTEREST $ 18,739 $ 7,931
-------- --------
-------- --------
CASH PAID DURING THE PERIOD FOR INCOME TAXES $ 11,250 $ 3,000
-------- --------
-------- --------
</TABLE>
See notes to condensed consolidated financial statements.
<PAGE>
10
THE BOYDS COLLECTION, LTD.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED) (AMOUNTS IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS)
1. INTERIM FINANCIAL STATEMENTS
The Boyds Collection, Ltd., ("Boyds") is a wholesaler and
importer of giftware and imports substantially all of its products from
foreign suppliers, primarily located in The People's Republic of China.
The condensed consolidated balance sheet, as of September 30, 1999, the
related condensed consolidated statements of income for the three
months and the nine months ended September 30, 1999 and 1998, the
condensed consolidated statement of stockholders' equity for the nine
months ended September 30, 1999 and the condensed consolidated
statements of cash flows for the nine months ended September 30, 1999
and 1998 are unaudited. In the opinion of management all adjustments,
consisting only of normal recurring adjustments, necessary for a fair
presentation of such interim financial statements have been included.
The results of operations for the nine months ended September 30, 1999
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' 1998
Financial Statements, which are included in the Registration Statement
on Form S-1 (File No. 333-69535) filed with the Securities and Exchange
Commission on March 4, 1999.
2. INITIAL PUBLIC OFFERING
On March 5, 1999, Boyds issued and sold 9,250,000 shares of
common stock at $18 per share in an initial public offering and listed
its stock on the New York Stock Exchange. The proceeds to Boyds, after
deducting the underwriting discount and attorney fees, were
approximately $153.9 million. On March 12, 1999, $82.5 million of
indebtedness under the credit facility with DLJ Capital Funding, Inc.
and other lenders was repaid from the proceeds. On April 12, 1999,
Boyds paid $71.9 million to the holders of its Senior Subordinated
Notes. The payment comprised $5.9 million of redemption premium and
$66.0 million of principal.
3. RECAPITALIZATION AND FINANCINGS
On March 6, 1998, Boyds entered into a Recapitalization and
Stock Purchase Agreement with Bear Acquisition, Inc. ("Bear"). Bear was
a subsidiary of KKR 1996 Fund L.P., a limited partnership formed at the
direction of Kohlberg Kravis Roberts & Co. L.P. ("KKR"). In connection
with the closing of the Recapitalization on April 21, 1998, Boyds used
approximately $490 million of aggregate proceeds from certain
financings described below (the "Financings") and approximately $8
million of existing cash balances of Boyds to: (i) redeem (the
"Redemption") a portion of Boyds' common stock held by the existing
stockholders (the "Stockholders") for approximately $473 million and
(ii) pay transaction fees and expenses of approximately $25 million. In
addition, Bear acquired shares of common stock from the Stockholders
for approximately $184 million (the "Stock Purchase"). The Stock
Purchase, Redemption and Financings and related transactions have been
recorded as a recapitalization (the "Recapitalization"). Upon
completion of the Recapitalization, Bear owned approximately 80% of the
Common Stock and the Stockholders retained approximately 20% of the
Common Stock.
The Financings consisted of: (i) an aggregate of approximately
$325 million of bank
<PAGE>
11
borrowings by Boyds under senior secured term loans (the "Term Loans")
and (ii) $165 million aggregate principal amount of senior subordinated
notes (the "Notes"). In addition, Boyds entered into a $40 million
senior secured revolving credit facility, which is available for Boyds'
working capital requirements and to support trade letters of credit. As
at September 30, 1999, Boyds did not have any borrowings under the
revolving credit facility.
Financing costs of approximately $13,800 were classified as
deferred debt issuance costs and will be amortized over the lives of
the related debt facilities. In addition, Boyds incurred approximately
$11,800 of costs associated with the Redemption, which were charged to
paid-in capital in excess of par. Fees in the amount of $6,000 were
paid to KKR in connection with the Recapitalization.
4. FINANCIAL INSTRUMENTS WITH OFF-BALANCE SHEET RISK
At September 30, 1999 and at December 31, 1998, Boyds had
letters of credit outstanding under bank credit agreements amounting to
$9,603 and $11,172, respectively. These letters of credit represent
Boyds' commitment to purchase inventory which is to be produced and/or
shipped.
5. RELATED PARTY TRANSACTIONS AND NOTE PAYABLE - STOCKHOLDERS
Certain stockholders loaned $30,000 to Boyds at December 31,
1997, at an interest rate of 5.0%. These notes payable were repaid in
1998. Interest amounting to $333 was paid to these stockholders during
the nine months ended September 30, 1998.
For the third quarter and first nine months ended September
30, 1999, Boyds paid to KKR approximately $94 and $368, respectively,
for management fees and related expenses.
6. LONG-TERM DEBT
Long-term debt is summarized as follows:
<TABLE>
<CAPTION>
SEPTEMBER 30, DECEMBER 31,
1999 1998
------------ -----------
<S> <C> <C>
9% Senior Subordinated Notes due May 15, 2008 $ 99,000 $165,000
Credit Agreement:
Secured Tranche A Term Loans due April 2005. Interest
based on LIBOR or base rate as defined 88,250 88,250
Secured Tranche B Term Loans due April 2006. Interest
based on LIBOR or base rate as defined 68,750 189,750
-------- -------
</TABLE>
<PAGE>
12
<TABLE>
<S> <C> <C>
256,000 443,000
-------- -------
-------- -------
</TABLE>
At September 30, 1999, the weighted average interest rate in
effect for the Term Loans was 6.562%.
The Notes have an optional redemption feature any time after
May 15, 2003. Interest on the Notes is payable semiannually on May 15
and November 15.
The Credit Agreement contains certain covenants, including the
requirement of a minimum interest coverage ratio as defined in the
agreement and substantial restrictions as to dividends and
distributions. The agreement also provides that the Term Loans and
revolving loan commitment be secured by the capital stock of Boyds'
future subsidiaries. In connection with the transfer of Boyds' assets
to its wholly owned subsidiary, The Boyds Collection Ltd. L.P. ("Boyds
L.P.") in 1998, Boyds pledged its interests in Boyds L.P. In addition,
the Term Loans are subject to mandatory prepayment with the proceeds of
certain asset sales and a portion of Boyds' excess cash flow as defined
in the credit agreement. Boyds has the option of selecting its own
interest period at one, two, three, six, nine or twelve month periods.
The scheduled maturities of the long-term debt are as follows:
1999............................................... $ --
2000............................................... --
2001............................................... 6,250
2002............................................... 14,000
2003............................................... 17,000
Thereafter......................................... 218,750
Boyd's exchange offer for all of its outstanding 9% Senior
Subordinated Notes due 2008 expired at 5:00 p.m. New York City Time on
July 22, 1999. The purpose of this offer was to comply with Boyd's
obligation under the registration rights agreement entered into in
connection with the original sale of the outstanding senior
subordinated notes.
7. INCOME TAXES
Prior to April 21, 1998, Boyds had elected to be treated as an
S Corporation for federal and state income tax purposes. Boyds
subsequently elected to change its tax status from an S Corporation to
a C Corporation. The income statement reflects a provision for income
taxes for the period Boyds was a C Corporation. Pro forma income
statement data reflects pro forma income tax information as if Boyds
was a C Corporation for the entire periods presented.
For federal income tax purposes, Boyds has elected to treat
the Recapitalization and Stock Purchase as an asset acquisition by
making a Section 338 Section (h)(10) election. As a result, there is a
difference between the financial reporting and tax basis of Boyds'
assets. The difference creates deductible goodwill for tax purposes,
which creates a deferred tax asset for financial reporting purposes.
The deferred tax asset will be realized as the goodwill is amortized
over a period of fifteen years. In the opinion of management, Boyds
believes it will have sufficient profits in the future to realize the
deferred tax asset.
<PAGE>
13
8. CONTINGENCIES
Boyds is engaged in various lawsuits, either as plaintiff or
defendant, involving alleged patent infringement and breaches of
contract. In the opinion of management, based upon advice of counsel,
the ultimate outcome of these lawsuits will not have a material impact
on Boyds' financial statements.
9. EARNINGS PER SHARE:
The following is a reconciliation of the numerators and
denominators of the basic and diluted earnings per share computations:
<TABLE>
<CAPTION>
THREE MONTHS ENDED NINE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
----------------------- --------------------
1999 1998 1999 1998
------- ------- ------- -------
(IN THOUSANDS) (IN THOUSANDS)
<S> <C> <C> <C> <C>
Numerator for basic and diluted earnings
per share:
Pro forma net income $18,881 $13,477 $41,329 $38,634
------- ------- ------- -------
Denominator:
Denominator for basic
earnings per
share--weighted average
shares 61,101 52,418 59,393 94,788
Effect of dilutive securities:
Effect of shares issuable
under stock option plans
based on treasury stock
method 630 -- 641 --
------- ------- ------- -------
Denominator for diluted earnings per
share--weighted average
shares 61,731 52,418 60,034 94,788
------- ------- ------- -------
</TABLE>
10. PRO FORMA INFORMATION (UNAUDITED)
The following pro forma information for the periods presented
in 1999 give effect to the initial public offering as if it were
consummated on January 1, 1999, and for the periods presented in 1998
give effect to the initial public offering and the recapitalization and
related transactions as if such transactions were consummated on
January 1, 1998. The pro forma information excludes the effects of the
extraordinary items related to the redemption premium on the bonds and
the write off of deferred debt issuance costs:
<PAGE>
14
<TABLE>
<CAPTION>
THREE MONTHS ENDED NINE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
1999 1998 1999 1998
--------- --------- --------- ---------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C>
Historical Income from Operations $34,645 $32,552 $93,871 $86,077
Expenses Related to the Recapitalization -- -- -- 3,248
Pro Forma Interest Expense 5,044 7,188 15,551 21,727
------- ------- ------- -------
Pro Forma Income Before Income Taxes and
Extraordinary Items 29,601 25,364 78,320 61,102
------- ------- ------- -------
Pro Forma Provision for Income Taxes 10,656 10,146 28,195 24,441
------- ------- ------- -------
Pro Forma Income Before Extraordinary Items 18,945 15,218 50,125 36,661
------- ------- ------- -------
------- ------- ------- -------
Pro Forma Basic Earnings Per
Share, before Extraordinary Items 0.31 0.25 0.81 0.59
Weighted Average Basic Shares
Outstanding 61,101 61,820 61,527 61,820
Pro Forma Diluted Earnings Per
Share, before Extraordinary Items 0.31 0.24 0.81 0.59
Weighted Average Diluted Shares
Outstanding 61,731 62,365 62,168 62,104
</TABLE>
11. UNITED KINGDOM SALES SUBSIDIARY
On August 11, 1999, Boyds created its first overseas sales
subsidiary, The Boyds Collection Ltd. U.K., a private limited company
incorporated in England and Wales and located in Dunkeswell, in the
county of Devon, England. This subsidiary will focus on the expansion
of Boyds' existing business in the U.K. and serve as a platform for the
ongoing development of Boyds' product sales throughout Europe.
12. SUBSEQUENT EVENTS
On October 21, 1999, Boyds repaid a further $5.0 million of
the Tranche B Term Loans, leaving a balance outstanding of $63.75
million.
As of November 7, 1999, Boyds had repurchased 1,188,300 shares
of common stock since September 30, 1999, pursuant to its stock
repurchase program for an aggregate amount of approximately $11.6
million. These repurchases were financed out of operating cash flow.
<PAGE>
15
Item 2. Managements Discussion and Analysis of Financial Condition and Results
of Operations.
GENERAL
Boyds has grown significantly to become a leading domestic designer,
importer and distributor of branded, high-quality, hand-crafted collectibles and
other specialty giftware products. Boyds' products include resin figurines,
plush animals, porcelain dolls and boxes and related clothing and accessories.
Boyds sells its products through an extensive network of approximately 19,950
accounts comprised of independent gift and collectibles retailers, premier
department stores, selected catalogue retailers and other electronic and retail
channels.
Boyds' resin figurine and plush animal sales accounted for 84.7% and
85.8% of the third quarter and the first nine months 1999 net sales,
respectively, with other product sales, freight sales, collectors club sales and
distributor sales comprising the remainder. Freight sales represent shipping and
handling charges assessed on each order based on order size. Collectors club
sales are generated from annual dues collected directly from consumers who
become members of Boyds' collectors club, THE LOYAL ORDER OF FRIENDS OF BOYDS,
which began in July 1996 and currently has approximately 120,000 paying members.
Distributor sales represent sales of Boyds' products to independent distributors
in other countries and to certain accounts in the U.S., which are shipped
directly from overseas suppliers.
Selling, general and administrative expenses are comprised of overhead,
selling and marketing costs, administration, professional fees and Pennsylvania
capital stock taxes. Boyds exhibits its products at many national and regional
tradeshows where orders are taken by Boyds' employees and part-time help. Boyds
operates almost exclusively out of a leased office/distribution facility in
McSherrystown, Pennsylvania where it believes both labor and rental costs are
attractive. These factors, combined with Boyds' access to low-cost manufacturing
sources located primarily in China, have resulted in an operating income margin
that Boyds believes is among the highest in the industry.
Boyds licenses its product designs to other companies for products
including stationery, greeting cards and home textiles. 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 as
other operating income.
RESULTS OF OPERATIONS
The following table sets forth the components of net income as a
percentage of net sales for the periods indicated:
<TABLE>
<CAPTION>
THREE MONTHS ENDED NINE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
1999 1998 1999 1998
<S> <C> <C> <C> <C>
Net sales 100.0% 100.0% 100.0% 100.0%
Gross profit 66.0 69.0 66.3 68.0
Selling, general and administrative expenses 7.7 6.9 8.1 7.1
Other operating income 0.2 0.2 0.4 0.6
----- ----- ----- -----
</TABLE>
<PAGE>
16
<TABLE>
<S> <C> <C> <C> <C>
Income from operations 58.5 62.3 58.6 61.5
----- ----- ----- -----
Other income 0.1 0.2 0.2 0.2
Expenses related to the recapitalization -- -- -- 2.3
Interest expense 8.6 19.6 11.7 13.6
Provision for income taxes 18.0 17.1 17.0 9.1
----- ----- ----- -----
Income before extraordinary items 32.0% 25.8% 30.1% 36.7%
----- ----- ----- -----
----- ----- ----- -----
Extraordinary items (net of $36
and $3,906 tax benefit) 0.1 -- 4.3 --
----- ----- ----- -----
Net income 31.9% 25.8% 25.8% 36.7%
----- ----- ----- -----
----- ----- ----- -----
PRO FORMA INFORMATION:
Historical income from operations 58.5% 62.3% 58.6% 61.5%
Expenses related to the recapitalization -- -- -- 2.3
Pro forma interest expense 8.5 13.8 9.7 15.5
Pro forma provision for income taxes 18.0 19.4 17.6 17.5
----- ----- ----- -----
Pro forma net income before extraordinary items 32.0% 29.1% 31.3% 26.2%
----- ----- ----- -----
----- ----- ----- -----
</TABLE>
THREE MONTHS ENDED SEPTEMBER 30, 1999 VS. THREE MONTHS ENDED SEPTEMBER 30, 1998
NET SALES - Net sales increased $7.0 million, or 13.5%, to $59.3
million in the third quarter of 1999 from $52.2 million for the third quarter of
1998. Sales of Boyds' plush products increased $5.9 million, or 26.5%, compared
to the same period last year. Sales of the Boyds' resin figurine product
category decreased $1.0 million, or 4.3%, in the third quarter of fiscal 1999.
Sales of plush products represented 48% of the Company's net sales of $59.3
million in the quarter, while sales of resin figurines represented 37%. The
significant increase in sales of Boyds' plush products offset the slight
decrease in sales of its resin figurines.
GROSS PROFIT - Gross profit increased $3.1 million, or 8.6%, to $39.1
million in the third quarter of 1999 from $36.0 million for the third quarter of
1998. Gross profit as a percent of sales decreased to 66.0% for the period from
69.0% for the same period in 1998. The dollar increase in gross profit was
primarily attributable to the increase in sales volume. The decrease in gross
profit as a percent of sales was primarily attributable to a timing difference
regarding a 1998 inventory adjustment, increased inbound and outbound freight
cost and increased warehousing costs arising from higher inventory levels needed
to satisfy customer demand.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES - SG&A expenses increased
$1.0 million, or 26.4%, to $4.6 million in the third quarter of 1999 from $3.6
million for the third quarter of 1998. SG&A expenses as a percent of sales
increased to 7.7% for the period from 6.9% for the same period in 1998. The
dollar increase in SG&A was primarily due to increased administrative costs as a
result of Boyds' net sales increase and the addition of H.C. Accents, which was
acquired in November, 1998. The increase in SG&A expenses as a percent of sales
was primarily due to increased wages incurred in adding additional management
personnel.
INCOME FROM OPERATIONS - Income from operations increased $2.1 million,
or 6.4%, to $34.6 million in the third quarter of 1999 from $32.6 million for
the third quarter of 1998. The operating income margin decreased to 58.5% for
the period from 62.3% for the same period in 1998. The dollar increase in income
from operations was primarily attributable to the increase in net sales for the
period. The decrease in operating income margin was due to a decrease in gross
profit margin and an increase in
<PAGE>
17
SG&A expenses as a percent of sales for the period.
TOTAL INTEREST EXPENSE - Total interest expense decreased $5.1 million,
or 50.3%, to $5.1 million in the third quarter of 1999 from $10.2 million in the
third quarter of 1998. Total interest expense as a percent of sales decreased to
8.6% for the period from 19.6% for the same period in 1998. The decrease in
total interest expense in both dollars and as a percent of sales was due to the
application of the funds received from the initial public offering in March
1999, which reduced the debt and the deferred debt issuance costs incurred in
connection with the recapitalization, which took place in April, 1998, and
reduction of interest rates due to the deleveraging of Boyds.
INCOME TAXES - Income taxes increased $1.7 million, or 19.0%, to $10.7
million in the third quarter of 1999 from $9.0 million in the third quarter of
1998. This increase was due to the increase in taxable income, offset by a
reduction in Boyds' overall tax rate.
NET INCOME - Net income increased $5.4 million, or 40.1%, to $18.9
million in the third quarter of 1999 from $13.5 million in the third quarter of
1998. The net income margin increased to 31.9% in the third quarter of 1999 from
25.8% in the third quarter of 1998. The dollar increase in net income was due to
the increase in net sales and the decrease in interest expense as discussed
above. The increase in net income margin was attributable to the decrease in
interest expense as discussed above.
PRO FORMA INTEREST EXPENSE - Pro forma interest expense for 1999 was
calculated assuming the initial public offering occurred on January 1, 1999, and
for 1998 assuming the recapitalization and the initial public offering occurred
on January 1, 1998. Pro forma interest expense decreased $2.1 million, or 29.8%,
in the third quarter of 1999 to $5.0 million from $7.2 million for the third
quarter of 1998. Pro forma interest expense as a percent of sales decreased to
8.5% for the period from 13.8% for the same period in 1998. The decrease in pro
forma interest in both dollars and as a percent of sales was due to the
reduction of debt from excess cash and reduction of interest rates due to the
deleveraging of Boyds.
PRO FORMA INCOME TAXES - Due to a change in Boyds' state tax status the
overall tax rate fell from 40.0% in 1998 to 36% in 1999.
PRO FORMA NET INCOME BEFORE EXTRAORDINARY ITEMS - Pro forma net income
before extraordinary items increased $3.7 million, or 24.5%, to $18.9 million in
the third quarter of 1999 from $15.2 million for the third quarter of 1998. The
pro forma net income before extraordinary items margin increased to 32.0% for
the period from 29.1% for the same period in 1998. The increase in pro forma net
income before extraordinary items in both dollars and as a percent of sales was
primarily attributable to the increase in net sales and the decrease in pro
forma interest expense.
NINE MONTHS ENDED SEPTEMBER 30, 1999 VS. NINE MONTHS ENDED SEPTEMBER 30, 1998
NET SALES - Net sales increased $20.2 million, or 14.4%, to $160.2
million in the first nine months of 1999 from $140.0 million for the first nine
months of 1998. Sales of Boyds' plush products increased $17.1 million, or
28.8%, compared to the same period last year. Sales of Boyds' resin figurine
product category decreased $1.2 million, or 1.9%, in the first nine months of
fiscal 1999. Sales of plush products represented 48% of Boyds' net sales of
$160.2 million in the first nine months, while sales of resin figurines
represented 38%. The significant increase in sales of Boyds' plush products
offset the slight decrease in sales of its resin figurines.
GROSS PROFIT - Gross profit increased $11.1 million, or 11.7%, to
$106.3 million in the first nine
<PAGE>
18
months of 1999 from $95.2 million for the first nine months of 1998. Gross
profit as a percent of sales decreased to 66.4% for the period from 68.0% for
the same period in 1998. The dollar increase in gross profit was primarily
attributable to the increase in sales volume. The decrease in gross profit as a
percent of sales was primarily attributable to increased warehousing costs
arising from higher inventory levels needed to satisfy customer demand.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES - SG&A expenses increased
$3.1 million, or 31.7%, to $13.0 million in the first nine months of 1999 from
$9.9 million for the first nine months of 1998. SG&A expenses as a percent of
sales increased to 8.1% for the period from 7.1% for the same period in 1998.
The dollar increase in SG&A was primarily due to increased administrative costs
as a result of Boyds' net sales increase and the addition of H.C. Accents, which
was acquired in November, 1998. The increase in SG&A expenses as a percent of
sales was primarily due to increased wages incurred in adding additional
management personnel.
INCOME FROM OPERATIONS - Income from operations increased $7.8 million,
or 9.1%, to $93.9 million in the first nine months of 1999 from $86.1 million
for the first nine months of 1998. The operating income margin decreased to
58.6% for the period from 61.5% for the same period in 1998. The dollar increase
in income from operations was primarily attributable to the increase in net
sales for the period. The decrease in operating income margin was due to a
decrease in gross profit margin and an increase in SG&A expenses as a percent of
sales for the period.
EXPENSES RELATED TO THE RECAPITALIZATION - Transaction costs of $3.2
million for the first nine months of 1998 were related to non-recurring bonuses
paid to key employees in connection with the recapitalization.
TOTAL INTEREST EXPENSE - Total interest expense decreased $0.3 million,
or 1.4%, to $18.8 million in the first nine months of 1999 from $19.0 million
for the first nine months of 1998. Total interest expense as a percent of sales
decreased to 11.7% for the period from 13.6% for the same period in 1998. The
decrease in interest expense in both dollars and as a percent of sales was due
to the application of the funds received from the initial public offering in
March 1999, which reduced the debt and the deferred debt issuance costs incurred
in connection with the recapitalization.
INCOME TAXES - Income taxes increased $14.4 million, or 113.6%, to
$27.2 million in the first nine months of 1999 from $12.7 million in the first
nine months of 1998. This increase was due to the change in Boyds' tax status
from an S Corporation to a C Corporation in April 1998 and the increase in
taxable income.
EXTRAORDINARY ITEMS - An extraordinary item of $3.8 million, net of
tax, for the redemption premium on bonds related to the early retirement of
$66.0 million of senior subordinated notes. A second extraordinary item of $3.1
million, net of tax, for the amortization of deferred debt issuance costs
related to the early paydown of $82.5 million of other long term debt. Both of
these items resulted from the use of the proceeds of the initial public
offering, which occurred in March 1999.
NET INCOME - Net income decreased $10.0 million, or 19.5%, to $41.3
million in the first nine months of 1999 from $51.4 million in the first nine
months of 1998. The net income margin decreased to 25.8% in the first nine
months of 1999 from 36.7% in the first nine months of 1998. The decrease in net
income and net income margin was primarily due to the increase in interest
expense, income taxes and extraordinary items as discussed above.
<PAGE>
19
PRO FORMA INTEREST EXPENSE - Pro forma interest expense for 1999 was
calculated assuming the initial public offering occurred on January 1, 1999, and
for 1998 assuming the recapitalization and the initial public offering occurred
on January 1, 1998. Pro forma interest expense decreased $6.2 million, or 28.4%,
in the first nine months of 1999 to $15.6 million from $21.7 million for the
first nine months of 1998. Pro forma interest expense as a percent of sales
decreased to 9.7% for the period from 15.5% for the same period in 1998. The
decrease in pro forma interest in both dollars and as a percent of sales was due
to the reduction of debt from excess cash and reduction of interest rates due to
the deleveraging of Boyds.
PRO FORMA INCOME TAXES - Due to a change in the company's state tax
status the overall tax rate fell from 40.0% in 1998 to 36% in 1999.
PRO FORMA NET INCOME BEFORE EXTRAORDINARY ITEMS - Pro forma net income
before extraordinary items increased $13.5 million, or 36.7%, to $50.1 million
in the first nine months of 1999 from $36.7 million for the first nine months of
1998. The pro forma net income before extraordinary items margin increased to
31.3% for the period from 26.2% for the same period in 1998. The increase in pro
forma net income before extraordinary items in both dollars and as a percent of
sales was primarily attributable to the increase in net sales and the decrease
in pro forma interest expense.
LIQUIDITY AND CAPITAL RESOURCES
Historically, Boyds utilized its operating cash flow to support working
capital and ongoing capital expenditures. Cash flow from operations decreased
$18.1 million, or 30.4%, to $41.3 million for the first nine months of 1999 from
$59.4 million for the first nine months of 1998. The cash flow decrease was
primarily attributable to the decreases in net income, interest payable, accrued
expenses, and the increase in accounts receivable, partially offset by increases
in the amortization of the deferred tax asset, the amortization of deferred debt
issuance costs, deferred income, and decreases in inventory in transit and
inventory growth. Net cash used in financing activities decreased $17.3 million,
or 28.9%, to $42.6 million for the first nine months of 1999, from $60.0 million
for the first six months of 1998. The funds, realized primarily from the sale of
Boyds' stock, were used to repay outstanding debt and the fees and expenses
related to the stock sale.
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 and to service
debt.
In connection with the recapitalization, Boyds issued 9% Senior
Subordinated Notes due 2008 in an amount of $165.0 million and entered into the
credit agreement. On April 12, 1999, Boyds repaid $66.0 million of the notes,
leaving a balance outstanding of $99.0 million. Boyds has repaid $168.0 million
of the $325.0 million of term loans under the credit agreement through September
30, 1999, leaving a balance outstanding of $157.0 million. The revolving credit
facility provides loans in an aggregate amount of up to $40.0 million. Boyds
currently has no borrowings under the revolving credit facility. Thus, the full
amount available under the revolving credit facility will be available to fund
the working capital requirements of Boyds.
On May 28, 1999, Boyds' Board of Directors approved the repurchase of
up to 3 million shares of Boyds' common stock. As of September 30, 1999, Boyds
had repurchased 737,000 shares of common stock pursuant to this stock repurchase
program for an aggregate amount of approximately $9.5 million. These repurchases
were financed out of operating cash flow and approximately $4.0 million of
<PAGE>
20
borrowings under the revolving credit facility. Any future repurchases under
this program are expected to be financed similarly.
Borrowings under the credit agreement bear interest at a rate per
annum, equal to a margin over either a base rate or LIBOR, at Boyds' option. The
revolving credit facility commitment will terminate seven years after the date
of the initial funding of the credit agreement. The term loans will be amortized
over an eight-year period with no amortization in the first two years. The
credit agreement contains customary covenants and events of default, including
substantial restrictions on Boyds' ability to declare dividends or make
distributions. The term loans are subject to mandatory prepayment with the
proceeds of certain asset sales and a portion of Boyds' excess cash flow, as
defined in the credit agreement.
Boyds does not expect to incur significant capital expenditures for the
foreseeable future. Boyds does not incur significant capital expenditures due to
its sourcing arrangements with suppliers.
Management believes that cash flow from operations and availability
under the revolving loan will provide adequate funds for Boyds' foreseeable
working capital needs, planned capital expenditures and debt service
obligations. 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.
SEASONALITY
Boyds does not have significant seasonal variation in its orders. Boyds
receives orders throughout the year and generally ships merchandise out on a
first-in, first-out basis. Approximately 40% of orders are taken between
November and April while approximately 60% of orders are placed between May and
October in anticipation of the holiday season. Boyds does not build a large
receivables balance relative to sales because it typically does not offer its
customers long payment terms or dating programs.
EFFECTS OF RECENTLY ISSUED ACCOUNTING STANDARDS
During 1998, the FASB issued SFAS No. 133, "Accounting for Derivative
Instruments and Hedging Activities," which is effective for periods beginning
after June 15, 1999. During 1999, the FASB delayed the effective date for one
year to fiscal years beginning after June 15, 2000. Boyds is currently
evaluating the impact, if any, of this statement.
FOREIGN EXCHANGE
The dollar value of Boyds' assets abroad is not significant. Boyds'
sales are 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
<PAGE>
21
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 intends to manage foreign exchange risks to the extent appropriate.
YEAR 2000 COMPLIANCE
The Year 2000 issue is the result of computer programs being written to
use two digits to define year dates. Computer programs running date-sensitive
software may recognize a date using "00" as the year 1900 rather than the year
2000. This could result in systems failure or miscalculations causing
disruptions of operations. Boyds currently uses information technology for
processing orders and tracking inventory.
Management believes that Boyds' systems are Year 2000 compliant. Boyds
has purchased Year 2000 compliant software and currently has Year 2000
compliance certificates from its key software suppliers. In addition, Boyds has
substantially completed the internal testing of its information technology
systems and will continue to monitor such systems through the remainder of 1999.
Boyds has also specifically addressed internally its non-information technology
related systems and believes that there will be no significant operational
problems relating to the Year 2000 issue. Boyds has not obtained, and does not
intend to obtain, an independent verification and validation of its Year 2000
compliance.
Other than system replacements due to planned upgrades, Boyds has not
replaced any of its information technology or non-information technology systems
as a result of the Year 2000 issue.
Boyds depends heavily on its relationships with customers, buying
agencies, manufacturers and shippers. It is communicating with customers, buying
agencies, manufacturers and shippers to determine the extent to which these
third parties are moving toward Year 2000 compliance. To assess Year 2000
compliance and any potential exposure to the Year 2000 problem, Boyds is in the
process of sending surveys to such third parties. Boyds is also seeking Year
2000 compliance certificates from third parties it has identified as "critical"
to its operations, which include all of its buying agencies and manufacturers
and its most important customers and shippers. To date, all of these critical
third parties have been contacted, and Boyds has not been made aware of any Year
2000 compliance problems.
Boyds believes that any adverse effect on its relationship with
customers, buying agencies, manufacturers and shippers due to the Year 2000
problem will be lessened by the fact that it does not share information
technology. However, failure of any of these parties to have their systems
timely converted may have a material adverse effect on Boyds' business and
operations.
Boyds believes it has substantially completed its Year 2000 project.
Boyds did not incur significant incremental costs specifically in connection
with seeking to achieve Year 2000 compliance and all upgrades and system
replacements made in connection with its Year 2000 project were part of
previously planned software and hardware upgrades. Furthermore, in order to
achieve Year 2000 compliance, Boyds has needed, and expects that it will
continue to need, only existing employees who otherwise have been assigned to
the planned upgrade of Boyds' software and hardware.
Notwithstanding Boyds' progress to date, there are several ways in
which its systems could still be affected by the Year 2000 problem. First, the
software code Boyds uses in its information systems may not in fact be Year 2000
compliant in all instances. Second, Boyds may be unable to complete the
remaining upgrades to its information technology systems by the Year 2000.
Third, even if Boyds
<PAGE>
22
completes the system upgrade by the Year 2000, it may be unable to fully test
and monitor the upgrades, making it difficult for Boyds to identify and remedy
any problems that might exist. Fourth, Boyds' customers, buying agencies,
independent manufacturers and shippers may be unable to achieve Year 2000
compliance in time.
The most reasonably likely worst-case scenario resulting from Boyds'
inability, or the inability of its customers, buying agencies, manufacturers or
shippers, to become Year 2000 compliant, includes the following adverse effects:
- SUPPLY PROBLEMS. Boyds would be unable to receive products due
to year 2000-related failures on the part of its manufacturers
and suppliers causing Boyds to be unable to fulfill the orders
of many of its customers for Boyds' products.
- ORDER DIFFICULTIES. Boyds' customers would be unable to place
their orders with Boyds because of its own system failures or
those of its customers resulting in delayed or potentially
lost orders for Boyds' products.
- DELIVERY DELAYS. Boyds would be unable to deliver ordered
products to its customers on a timely basis due to a system
failure at Boyds or at one of its product shippers leading to
delays in arrival of Boyds' products and possibly dissatisfied
customers.
Boyds has not developed, and does not intend to develop, contingency
plans relating to the Year 2000 problem unless Boyds becomes aware of a Year
2000 compliance problem in its own systems or those of its manufacturers, buying
agencies, customers or shippers.
Boyds' assessment of its Year 2000 compliance is based on numerous
assumptions about future events, including third party modification plans and
other factors. However, there can be no guarantee that this assessment is
correct and actual results could differ materially from those anticipated.
Specific factors that might cause such material differences include, but are not
limited to, the availability and cost of personnel trained in this area, the
ability to locate and correct all relevant computer codes and similar
uncertainties.
INFLATION
Boyds does not believe that inflation has had a material impact on its
operations.
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;
<PAGE>
23
changes to existing, 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; the impact of Year 2000 compliance
by Boyds or those entities with which it 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 statement.
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.
Not applicable.
<PAGE>
24
PART II OTHER INFORMATION
Item 1. Legal Proceedings.
Boyds does not believe that there are any pending or threatened legal
proceedings that, if adversely determined, would have a material adverse effect
on 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.
None.
Item 6. Exhibits and Reports on Form 8-K.
(a) Exhibits:
Exhibit
NUMBER DESCRIPTION
3.1 Amendment and Restated Articles of Incorporation
(incorporated by reference from Exhibit 3.1 of Amendment
No. 1 to Boyd's Registration Statement on Form S-1,
filed on February 8, 1999, File No. 333-69535).
3. Bylaws of Boyds (incorporated by reference from Exhibit
3.2 of Amendment No. 4 to Boyd's Registration Statement
on Form S-1, filed on March 3, 1999, File No. .
333-69535).
4 Indenture, dated as of April 21, 1998, between Boyds and
The Bank of New York, as trustee (incorporated by
reference from Exhibit 4.3 of Amendment No. 1 to Boyd's
Registration Statement on Form S-1, filed on February 8,
1999, File No. 333-69535).
27 Financial Data Schedule
(b) Reports on Form 8-K:
None.
<PAGE>
25
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: November 12, 1999 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
Vice President--Finance
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM BOYD'S
UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS AS OF, AND FOR THE NINE
MONTHS ENDED, SEPTEMBER 30, 1999 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE
TO SUCH STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JAN-01-1999
<PERIOD-END> SEP-30-1999
<CASH> 8,656
<SECURITIES> 0
<RECEIVABLES> 39,160
<ALLOWANCES> 180
<INVENTORY> 12,991
<CURRENT-ASSETS> 61,409
<PP&E> 4,318
<DEPRECIATION> 1,487
<TOTAL-ASSETS> 295,537
<CURRENT-LIABILITIES> 12,606
<BONDS> 256,000
0
0
<COMMON> (48,675)
<OTHER-SE> 75,606
<TOTAL-LIABILITY-AND-EQUITY> 295,537
<SALES> 160,177
<TOTAL-REVENUES> 160,177
<CGS> 53,872
<TOTAL-COSTS> 12,434
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 18,441
<INCOME-PRETAX> 75,430
<INCOME-TAX> 27,155
<INCOME-CONTINUING> 48,275
<DISCONTINUED> 0
<EXTRAORDINARY> 6,946
<CHANGES> 0
<NET-INCOME> 41,329
<EPS-BASIC> 0.81
<EPS-DILUTED> 0.81
</TABLE>
