Item 1. DESCRIPTION OF BUSINESS
General
The Boyds Collection, Ltd. ("Boyds") is a leading designer, importer and distributor of high-quality, hand-crafted collectibles and other specialty giftware products. Boyds sells its products 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, as well as its own flagship retail store in Gettysburg, Pennsylvania. Boyds imports substantially all of its products from manufacturers in China through buying agencies.
History
Boyds was founded in 1979 by Gary and Justina Lowenthal as a small antique business in Boyds, Maryland. By 1984, Boyds had begun to reproduce and sell miniature houses, duck decoys and merino wool teddy bears to selected retail outlets. In 1984, Boyds also introduced its first major plush product, a unique, fully-jointed wool teddy bear named Matthew™, and the Gnomes Homes™, a small collection of hand-sculpted miniature cast resin houses. Boyds relocated from Maryland to southern Pennsylvania in 1987 and expanded its product line to include other plush animals and related accessories including miniature clothes, furniture and ornaments. Boyds began distributing its plush animal lines to department stores and gift retailers, opting against selling to mass merchandisers, major discount stores and toy chains. In 1993, Boyds began selling cast resin figurines with the introduction of its Bearstones™ line. More recent introductions of products include porcelain dolls in 1997 and the resin villages in 2000. In 1998, Boyds acquired H.C. Accents, a home décor company and in 2001, J & T Designs, a Christmas gift company. In September 2002, Boyds opened Boyds Bear Country™ retail store in Gettysburg, Pennsylvania. The retail store serves as a tourist attraction that has to help expand brand awareness, as well as a sales channel for visitors. Also in 2002, Boyds began to replace its in-house sales force with the roll out of a national direct sales force. The new sales force is expected to increase sales made to gift retailers by strengthening relations with current customers and creating new customers.
Business Segments
Boyds has determined that it operates in one segment, giftware and collectibles. In addition, less than 3% of total revenue is derived from customers outside the United States and almost all long lived assets are located in the United States. No customer represents more than 10% of total revenue, and Boyds retail operations do not generate more than 10% of total revenue.
Product Lines
Since 1982, Boyds' product lines have expanded from plush bears to include other plush animals such as hares, moose and cats, as well as resin figurines, villages, porcelain dolls and other products, as described below.
Plush Animals
Boyds began selling its plush animals in 1982. The plush animal category consists of both dressed and non-dressed animals, most of which are fully jointed with sewn-in joints for arms, legs and heads. Today, the plush animal category has grown to encompass over 400 different items ranging from 21/2" miniatures to 40" large animals.
Boyds' non-dressed plush animal lines include the Huggle-Fluffs™, the Artisan Series™, The Mohair Bears™, J.B. Bean & Associates™, the Archive Collection™ and Angels and Friends™ ornaments. The
largest revenue-generating line in this plush category is Boyds' J.B. Bean & Associates™, featuring fully-jointed bears, hares, moose, lambs and other animals.
Introduced in 1992, the popularity of Boyds' T.J.'s Best Dressed™, line, characterized by fully jointed bears, cats, moose and other animals dressed in stylish, hand-sewn outfits, has helped create additional brand awareness for Boyds.
Retail prices for the plush animals generally range from $4 to $95. Animals in the plush animal category are made of various materials with outer coverings ranging from acrylic plush to custom-dyed chenille and wool. Interiors are filled with plastic pellets for the beanbag animals and 100% acrylic fiberfill for the other animals.
Resin Figurines
Boyds' resin figurine category currently consists of the main collection, Bearstones™, and sub-collections, Dollstones™, Charming Angels™, Shoebox Bears™ and Faeriéssence™. Together, these categories include over 300 styles of finely detailed, hand-painted miniature cast resin bears, other animals and people.
Boyds introduced the Bearstones™ in 1993 with ten different styles. Since its introduction, Boyds has expanded the offerings to include additional figurines, resin jewelry, ornaments, waterballs, Shoebox Bears™, votive holders, ceramics, picture frames, and desk accessories.
The Dollstones™ line of products, introduced in 1995, is based on nostalgic themes and includes figurines of children depicted with animals, waterballs, votive holders and musicals.
Pieces in the resin figurine category are generally priced between $9 and $60 at retail. Each figurine is inscribed with Boyds' distinctive symbol of authenticity, a hidden bear paw, and a bottom stamp indicating the name, edition and piece number. Many figurines contain famous quotes which help the customers identify with the piece. The items are packaged individually with a certificate of authenticity describing the product.
Dolls
In the fall of 1997, Boyds introduced limited edition porcelain dolls which Boyds continues to expand. The dolls range in size from 12 inches to 16 inches in height and are generally priced from $15 to $80 at retail.
Villages
In 2000, Boyds introduced its first village, Boydstown, which has been followed by Kringles Village and Boydsenbeary Acres. The villages are made from resin and are whimsical reproductions of houses and other buildings. They are generally priced between $20 and $40 at retail.
Other Products
Boyds sells over 300 additional items ranging from miniature furniture, wooden accessories and glasses, through cast iron products, resin accessories, to home décor. In addition various printed and promotional materials are sold to support Boyds product lines.
New Product Introductions
Boyds continually evaluates new product ideas and regularly introduces new product lines that maintain Boyds' whimsical and "Folksy with Attitude" themes. During fiscal 2002, Boyds concentrated
on broadening the giftability of its core resin figurine and plush animal products, and introduced the following new lines:
•Baby Boyds™, a new plush line of safe and cuddly friends for the little ones in our lives.
•Teabearies™, each resin piece expresses a special sentiment and features an adorable lil' teddy restin' in an antique-style teacup.
•Holy Cows!™, our funny lil' resin farm cows feature wire wings and mim cowbells, and some are set on springs to jiggle about!
•Lil' Wings™, resin bear angels that celebrate life's simple pleasures.
•Faerietots™, wee ones inspired by our own babies and their sweet expressions, designed in resin.
•Snuggle-B's™, soft cloth plush dolls add a homespun charm to country décor. They have yarn hair; big soft shoes, and cheerfully mismatched garments.
Product Design and Development
Boyds' creative design team works with its manufacturers, primarily in the People's Republic of China, to create prototypes and refine the product's appearance for review by Boyds. Boyds also works with its buying agencies and manufacturers in order to ensure the product can be produced at an acceptable cost per unit, without compromising quality, given a certain level of production.
Intellectual Property
Trademarks.
Boyds has obtained 25 United States, 3 European, and 3 Japanese trademark registrations for trademarks and logos related to its resin figurines and plush animals. These registrations allow Boyds to use on an exclusive basis these trademarks and logos in the United States in connection with its products. If Boyds continues to use such trademarks and logos and makes timely filings with, and pays all required fees to, the United States Patent and Trademark Office, its trademark registrations can exist in perpetuity. Boyds also has common-law trademark rights to the extent it uses unregistered names and logos on its various products. The strength and scope of these rights is determined by the geographic extent and duration of their use. Additionally, to the extent that the packaging and overall visual impact of Boyds' products is inherently distinctive or has acquired distinctiveness through sales in the marketplace, Boyds has proprietary rights in such "trade dress" of its products.
Copyrights.
Boyds has secured more than 527 copyright registrations for its products with the United States Copyright Office. Boyds may enforce these rights in United States courts with regard to infringements occurring in the United States and also, to varying extents, in foreign jurisdictions with regard to infringements occurring outside the United States. In addition, Boyds has copyrights in the original expression contained in other products that it has created, whether or not those copyrights have been registered. In all events, Boyds' copyright in its products is limited in scope to the original, creative expression embodied in them and does not extend to elements drawn from public sources or to functional elements. For all products created by or on behalf of Boyds since its founding date, the U.S. copyright currently runs for a term of 95 years from the date of their creation.
Licenses
Boyds licenses its product designs to other companies for products including home textiles, infant clothing and wallpaper. The licensing contracts range from 2 to 5 years in duration. Boyds believes such
licensing arrangements provide a significant benefit to Boyds business by generating royalty income and increasing consumer awareness of Boyds' designs and brand image.
Boyds protects its intellectual property rights, both through policing any potential infringement by third parties and registering such rights, when appropriate, with applicable government authorities. Boyds believes that its trademarks and other proprietary rights are material to its success and competitive position.
Sourcing of Products
Boyds coordinates its production and cooperative development efforts primarily through two buying agencies with whom it has established long-term business relationships. These buying agencies perform a number of functions for Boyds, including collaborating in its product design and development process, identifying suitable manufacturers for its products and supervising its manufacturers to assure the proper quality and timing of Boyds' orders.
Boyds does not own or operate any manufacturing facilities and imports most of its products from manufacturers in the Pacific Rim, primarily The People's Republic of China. Boyds' ability to import products and thereby satisfy customer orders is affected by the availability of, and demand for, quality production capacity abroad. Boyds competes with other importers of collectibles for the limited number of foreign manufacturing sources which can produce detailed, high-quality products at affordable prices. Boyds is subject to the following risks inherent in foreign manufacturing: the laws and policies of the United States affecting the importation of goods (including duties, quotas and taxes); restrictive actions by foreign governments; fluctuations in currency exchange rates; nationalizations; and foreign trade and tax laws.
Substantially all of Boyds' products are subject to customs duties and regulations pertaining to the importation of goods, including requirements for the marking of certain information regarding the country of origin on Boyds' products. The United States and the foreign countries in which Boyds' products are manufactured may, from time to time, impose new quotas, duties, tariffs or other charges or restrictions, or adjust presently prevailing quotas, duty or tariff levels, which could adversely affect Boyds' financial condition or results of operations or its ability to continue to import products at current or increased levels. Boyds cannot predict what regulatory changes may occur or the type or amount of any possible financial impact on Boyds in the future.
Although Boyds believes that the loss of either of its two primary buying agencies would have a short-term material adverse effect on its financial condition and results of operations, it believes that alternative buying agencies would be available in the long-term and such alternative buying agencies would be able to work directly with Boyds' manufacturers.
Boyds' domestic products are shipped by ocean freight to the United States and then by truck to Boyds' 209,000 square-foot distribution center in McSherrystown, Pennsylvania. Boyds ships the majority of its products to its nationwide retailer network via United Parcel Service.
Distribution Network and Customers
Boyds has a large national distribution network, which includes approximately 14,000 independent retail gift and collectibles accounts, high-end department stores and selected catalogue retailers, representing approximately 20,000 individual retail outlets. Boyds' resin figurine product line is sold through a network of authorized dealers consisting of approximately 7,600 accounts, selected primarily from Boyds' plush-only dealers. The top ten accounts comprised approximately 19.5% of net sales during fiscal 2002.
Boyds believes it has low annual customer account turnover among its resin dealers and normal turnover for its other dealers. Turnover among non-resin dealers occurs primarily in small accounts,
which become inactive due to ownership changes, poor credit or lack of commitment to Boyds' products. Accounts which became inactive during fiscal 2002 represented approximately 8.0% of Boyds' fiscal 2001 net sales. Boyds generally does not offer dating terms or volume discounts.
In September 2002, Boyds opened Boyds Bear Country™ retail store in Gettysburg, Pennsylvania. The store serves as a tourist attraction that is expected to help expand brand awareness, as well as a sales channel for visitors. Boyds also sells its products to its collectors club members known as Friends of Boyds.
Sales & Marketing of Products
Boyds generates its order volume through a new nationwide direct sales force, catalogue mailings to its retailers, trade show sales, and its team of telemarketers. Boyds sends catalogues and promotional mailings to all retailers at least twice a year for its spring and fall product offerings. In 2002, Boyds began rolling out a nationwide sales force to interact directly with its customers and replace its current telemarketing model. By the end of 2002, approximately 60% of the direct sales force were hired and in place, with the remaining 40% expected to be in place by the end of the second quarter of 2003. This new sales force will operate in concert with a more focused customer service/telemarketing group and will interact directly with customers, thereby strengthening relations with current customers and creating new customers. Boyds leases showroom space in Atlanta and Dallas.
Seasonality
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 have the significant seasonal variation in its orders that it believes is experienced by many other giftware and collectibles companies.
Competition with Producers of Collectibles and Giftware Products
Boyds competes generally for the disposable income of consumers and, in particular, with other producers of fine quality collectibles, specialty giftware and home decorative accessory products. The collectibles area, in particular, is affected by changing consumer tastes and interests. The giftware and collectibles industries are highly competitive, with a large number of both large and small participants. Boyds' competitors distribute their products through independent gift retailers, department stores, mass merchandisers and catalogue retailers or through direct response marketing. Boyds believes the principal elements of competition in the giftware and collectibles industries are product design and quality, product and brand name loyalty, product display and price. Boyds believes its competitive position is enhanced by a variety of factors, including the innovativeness, quality and enduring themes of Boyds' products, its reputation among retailers and consumers, its in-house design expertise, its sourcing and marketing capabilities and the pricing of its products. Some of Boyds' competitors, however, are part of large, diversified companies having greater financial resources and a wider range of products than Boyds. In addition, this industry is subject to intense competition from small and large companies, each having the ability to create unique, appealing products at relatively low entry cost.
Employees
Boyds currently employs a total of 437 full time individuals, 351 of whom are located in Pennsylvania. None of these employees are represented by labor unions. Boyds also uses contract labor to work at the various trade shows around the nation.
Item 2.
Item 2. PROPERTIES
Showrooms, Warehousing, Distribution Facilities and Retail
Boyds leases approximately 209,000 square feet of distribution and warehouse space in McSherrystown, Pennsylvania. Boyds' existing distribution center includes two loading docks, two automated conveyor systems and 180,000 square feet of storage area, which are in good operating condition. Boyds' lease expires in 2009. Attached to the warehouse area is Boyds' 24,000 square-foot corporate headquarters which is subject to the same lease provisions. Boyds also leases office space in Illinois and showroom space in Atlanta and Dallas. Management believes that its current facilities are suitable and adequate for Boyds' planned growth needs for the next several years, and vacant land is available on-site for additional expansion should it be necessary.
Boyds Bear Country™ sits on 128.2 acres in Gettysburg, PA, which is owned by Boyds. The retail store comprises approximately 130,000 square feet.
Development and Upgrades of Management Information Systems
Boyds' management information systems have been developed through the modification of off-the-shelf software programs to serve Boyds' current needs. Boyds launched its official company website on November 15, 1999 at www.BoydsStuff.com. which, among other things, permits interested collectors to sign-up for club membership online. On February 14, 2001, Boyds implemented its B2B website which permits Boyds' dealers to place their orders, review order status, check their accounts and conduct other related matters via a "business-to-business" link.
During 2001, Boyds invested in the implementation of a sales interface system that was expected to improve sales force efficiency and effectiveness. Due to implementation difficulties during the fourth quarter of 2001, the system was reduced to its net realizable value.
Item 3.
Item 3. 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 or results of operations of Boyds.
Item 4.
Item 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None.
PART II
Item 5.
Item 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
Since Boyds' initial public offering of 16,000,000 shares of its common stock, par value $.0001 per share ("Common Stock") on March 4, 1999, Boyds' Common Stock has been listed on the New York Stock Exchange ("NYSE") under the symbol "FOB". To date, the NYSE has been the principal market for the exchange of the freely tradable shares of Boyds' Common Stock. The following table shows, on a per share basis, the high and low prices for the Boyds' Common Stock for the periods indicated as reported on the New York Stock Exchange:
As of March 20, 2003, the approximate number of holders of record of Boyds' Common Stock was 588. Since its initial public offering in 1999, Boyds has not paid cash dividends on its Common Stock; however, Boyds may consider paying cash dividends in the future. Boyds intends to retain its earnings to finance the development and growth of its business and to service its debt. Currently Boyds is subject to restrictions that limit its ability to declare and pay cash dividends on its Common Stock under certain covenants contained in Boyds' debt agreements.
Item 6.
Item 6. SELECTED FINANCIAL DATA
FIVE YEAR FINANCIAL SUMMARY
Item 7.
Item 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following discussion and analysis of the results of operations for the three fiscal years ended December 31, 2000, 2001 and 2002, respectively, has been derived from and should be read in conjunction with the consolidated financial statements, included elsewhere in this annual report.
General
Boyds is a leading domestic designer, importer and distributor of branded, high-quality, hand-crafted 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 new retail store Boyds Bear Country in Gettysburg, PA.
Boyds' product lines include plush animals, resin figurines, porcelain dolls, villages and others. The following table sets forth Boyds' plush animals, resin figurines, dolls, villages and other product sales and their percentage of Boyds' net sales for the last three fiscal years ended December 31, 2002:
The most important categories within the plush product line are the dressed animals in the T. J's. Best Dressed™ collection, introduced in 1992, and the other custom-designed plush animals. Boyds began selling non-dressed plush animals in 1982 and has since introduced product collections which currently include Baby Boyds™, J. B. Bean & Associates™, the Archive Collection™, Mohair Bears™ and Huggle-Fluffs™.
The major figurine product within the resin figurines product line is Bearstones™ which Boyds introduced in late 1993. In early 1994, Boyds introduced another resin figurine line known as Folkstones™, followed by Dollstones™ in late 1995. Boyds also established a network of dealers in 1994, selected primarily from Boyds' plush-only dealers, that were authorized to carry Boyds' resin figurine product lines. These dealers currently number approximately 7,600 accounts.
The porcelain doll product line was launched in the fall of 1997. This product line has now expanded and offers a range of dolls from 12 inches to 16 inches.
The villages product line was launched in January 2000 and consists of resin houses and related "village" accessories.
Included in other sales are collectors' club sales which 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 48,500 paying members. This category also includes sales from H. C. Accents, a home décor company acquired by Boyds in October, 1998, and royalty income generated by licensing contracts.
Boyds exhibits its products at many national and regional tradeshows where orders are taken by Boyds' employees. Boyds operates primarily out of a leased office/distribution facility in McSherrystown, Pennsylvania which it believes provides attractive labor and rental costs. Boyds also owns and operates Boyds Bear Country store in Gettysburg, PA.
Critical Accounting Policies
Preparing the financial statements in conformity with generally accepted accounting principles requires that management make estimates and assumptions that affect the amounts reported in the financial statements and accompanying notes. Predicating 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 valuing the ultimate collectability of accounts receivable and realizable value of inventory. In addition, a significant amount of judgment exists in defining deferred tax valuation accounts. 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.
•Sales revenue, net of returns and discounts, is recognized upon shipment of the items, when title passes to the customer, or completion of a retail sale. The most significant financial statement line item, net sales, represents transactions consistent with Boyds' primary business focus and meet the criteria of Staff Accounting Bulletin No. 101, including the transfer of title, probable collectability, identified customer and no recourse.
•Accounts receivable are presented at estimated net realizable value. Boyds uses estimates in determining the collectibility 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. Material differences may result in the amount and timing of earnings if actual experience differs significantly from management estimates.
•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 this 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 Statement of Financial Accounting Standards (SFAS) Nos. 142 and 144, Boyds assessed the potential impairment of identifiable intangibles, long-lived assets and acquired goodwill whenever events or changes in circumstances indicated that the carrying value may not be recoverable. In performing this evaluation, the Company evaluated current and future economic and business trends to develop business forecasts of future performance and related cash flows. Such estimates require the use of judgment and numerous subjective assumptions. As of January 1, 2002, based on its evaluation, Boyds determined that there was no impairment of goodwill, identifiable intangibles or long-lived assets.
•Deferred income taxes arise because of differences in the treatment of income and expense items for financial reporting and income tax purposes. The recovery of deferred income tax assets is contingent upon applicable tax laws and management's assessment of future operating results. In situations which management believes the probability of benefiting from deferred tax assets is less likely than not, a valuation allowance is established for the amount that is less likely than not to be utilized.
Boyds' accounting policies are more fully described in Item 8 - Financial Statements and Supplementary Data, Notes to the Consolidated Financial Statements, Note 2.
Factors Which Affect Boyds' Results of Operations
Seasonality
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 have the significant seasonal variation in its orders that it believes is experienced by many other giftware and collectibles companies. 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.
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 intends to manage foreign exchange risks to the extent appropriate.
Acquisition
On April 25, 2001, Boyds acquired all of the issued and outstanding shares of capital stock of J & T Design ("J & T"). J & T is a designer and distributor of Christmas gift products. J & T's results from operations are included in Boyds' consolidated statement of income subsequent to April 25, 2001. The aggregate purchase price was approximately $0.5 million paid in cash. The purchase price was assigned to the acquired assets, primarily inventory and accounts receivable, based on their fair market values. In addition, Boyds has recorded goodwill of approximately $0.5 million, included in other assets, related to the excess of the purchase price over the fair value of assets acquired which was being amortized using the straight line method over 20 years until the implementation of SFAS 142 on January 1, 2002. The impact of suspending the amortization of goodwill in 2002 had an immaterial impact to the comparison of financial results to 2001.
Results of Operations
Net sales consist of sales of our products, net of sales discounts, product returns and allowances, collectors club sales generated from members of Boyds' collectors club and royalty income from licenses held by Boyds. 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.
Cost of goods sold consists of product costs, freight and warehousing costs. Selling, general and administrative expenses include overhead, selling and marketing costs, and administration and professional fees.
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 periods indicated:
Fiscal Year Ended December 31, 2002 vs. Fiscal Year Ended December 31, 2001
Net Sales-Net sales declined $22.1 million, or 14.4%, to $131.3 million in the full year 2002 from $153.5 million for full year 2001. Sales of Boyds' plush products declined $4.8 million, or 5.4%, resin product sales declined $8.4 million, or 19.3%, doll product sales declined $2.7 million, or 53.7%, village product sales declined $3.9 million, or 64.6%, and home décor product sales declined $1.6 million, or 20.9%. As a percentage of net sales for the full year, plush products represented 57%, resin products represented 26%, doll products represented 2%, village products represented 2% and home décor products represented 3%. The sales declines can be attributed to the slowing economy and the reluctance of our retailers to make forward looking purchases during these difficult times. These sales declines were only partially offset by the impact of our new direct sales force and the opening of our retail store, Boyds Bear Country™.
Gross profit-Gross profit declined $7.3 million, or 8.1%, to $83.1 million in the full year 2002 from $90.4 million for the full year 2001. Gross profit as a percentage of net sales increased to 63.3% for the full year from 58.9% for the same period in 2001. The dollar decline was primarily attributable to the decline in sales volume. The percentage increase was attributable to the opening of Boyds Bear Country and the inventory obsolescence charge in 2002 being $6.9 million less than in 2001 as a result of Boyds adjusting its purchasing strategy to align with the economic conditions affecting its customers.
Selling, General & Administrative Expenses (SG&A)-SG&A decreased $0.6 million, to $27.9 million in the full year 2002 from $28.5 million for the full year 2001. SG&A as a percent of net sales increased to 21.2% for the full year from 18.5% for the same period in 2001. The increase in SG&A expenses was a result of the startup costs of the new sales force and Boyds Bear Country™.
Income from operations-Income from operations declined $6.7 million, or 10.8%, to $55.2 million in the full year 2002 from $61.9 million for the full year 2001. Income from operations as a percentage of net sales increased to 42.1% for the full year from 40.3% for the same period in 2001. The dollar decline was attributable to the decline in sales volume. The increase in the percentage of net sales can be attributed to the opening of Boyds Bear Country and the inventory obsolescence charge in 2002 being $6.9 million less than in 2001 as a result of Boyds adjusting its purchasing strategy to align with the economic conditions affecting its customers.
Total interest expense-Total interest expense declined $5.5 million, or 44.1% to $7.0 million in the full year 2002 from $12.5 million for the full year 2001. Total interest expense as a percentage of net sales declined to 5.3% for the full year from 8.1% for the same period in 2001. The dollar decline and the decline in the percentage of net sales were due to the reduction of debt from excess cash and a decline in interest rates.
Income taxes-Income taxes increased $4.8 million, or 39.4%, to $17.0 million in the full year of 2002 from $12.2 million for the full year 2001. Provision for income taxes as a percentage of net sales increased to 12.9% for the full year from 7.9% for the same period in 2001. The dollar and the percentage increase were due to the impact of a change in the 2001 Pennsylvania State Corporation Income Tax regulations, which resulted in an increase to the deferred tax asset and a reduction in income tax expense.
Fiscal Year Ended December 31, 2001 vs. Fiscal Year Ended December 31, 2000
Net Sales-Net sales declined $30.6 million, or 16.6%, to $153.5 million in 2001 from $184.0 million for 2000. Net sales of Boyds' plush products decreased $10.4 million, or 11.5%, resin product sales decreased $13.5 million, or 23.9%, doll product sales decreased $4.6 million, or 48.7%, village product sales decreased $0.1 million, or 2.1%, and other product sales decreased $2.0 million, or 8.8%. The sales decrease for the year ended December 31, 2001 was primarily due to the continuing reduction in order volume from our retailers. During 2001, our retailers have faced an increasingly challenging environment that has resulted in conservative product purchases. In addition, we have strategically eliminated certain resin product categories. These decreases were only partially offset by the launch of our stationery product line and the growth of our home décor product line.
Gross Profit-Gross profit declined $22.9 million, or 20.2%, to $90.4 million in 2001 from $113.3 million for 2000. Gross profit as a percent of sales declined to 58.9% for 2001 from 61.6% for 2000. The dollar decline was primarily attributable to the respective declines in sales volume and to a provision for slow moving inventory of $6.0 million, representing 3.9% of current year sales, taken in the fourth quarter as a result of weakening economic conditions, causing retailers to reduce inventory levels.
Selling, General & Administrative Expenses (SG&A)-SG&A increased $2.6 million, or 9.9%, to $28.5 million in 2001 from $25.9 million for 2000. SG&A as a percent of sales increased to 18.5% for 2001 from 14.1% for the same period in 2000. The dollar increase for the year was primarily due to the impairment of assets of $2.1 million during the fourth quarter and increased expenditures on new product development, whose sales impact will not be felt until 2002. The increase in the percent of sales was primarily due to the decrease in sales and the impairment of assets.
Income from Operations-Income from operations declined $23.4 million, or 26.8%, to $64.0 million in 2001 from $87.4 million for 2000. Income from operations as a percent of sales declined to 41.7% for the year from 47.5% for the same period in 2000. The dollar decline and the decline in the percent of sales were primarily attributable to the decline in sales volume and the $6.0 million charge for slow moving inventory in the fourth quarter as a result of weakening economic conditions, causing retailers to reduce inventory levels.
Total Interest Expense-Total interest expense declined $7.0 million, or 36.0%, to $12.5 million in 2001 from $19.5 million for 2000. Total interest expense as a percent of sales declined to 8.1% for the year from 10.6% for 2000. The dollar decline and the decline in the percent of sales were due to the reduction of debt from excess cash and a decline in interest rates.
Income Taxes-Income taxes declined $14.0 million, or 53.6%, to $12.2 million in 2001 from $26.2 million for 2000. Income taxes as a percent of sales declined to 7.9% for the year from 14.2% for the same period in 2000. The dollar decline and the decline in the percent of sales were due primarily
to the decline in sales volume and to the impact of a change in the Pennsylvania State Corporation Income Tax regulations, which resulted in an increase in the company's deferred tax asset and a reduction in income tax expense.
Extraordinary Items-The $0.7 million charge, net of tax, relates to the write-off of deferred debt issuance costs arising from the early pay down of long-term debt. The $0.9 million loss, net of tax, relates to the repurchase of Boyds' bonds above par.
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. In 2002, Boyds' primary uses of cash were capital expenditures related to the construction of Boyds Bear Country™, working capital and to debt service. Cash balances increased $5.0 million during 2002. The increase in cash at year-end was due to the timing on the tranche A debt. A $3 million payment was made in January of 2003. We believe that the credit agreement in place, as well as our cash flow from operations, will be sufficient to meet our operating needs and capital expenditures over the next twelve months.
Operating Activities
Cash provided by operating activities decreased $3.6 million, or 6.2%, to $54.2 million in 2002 from $57.8 million in 2001. The cash flow decrease was primarily attributable to the decrease in revenues.
Investing Activities
Capital and investment expenditures totaled $12.6 million in 2002. During 2002, Boyds incurred approximately $12.1 million in capital expenditures related to Boyds Bear Country™.
Financing Activities
In connection with the recapitalization in 1998, Boyds issued 9% Senior Subordinated Notes due 2008 in an amount of $165.0 million and 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 of up to $40.0 million. On April 12, 1999, Boyds repaid $66.0 million of the notes, and has subsequently repaid a further $52.3 million, leaving a balance outstanding of $46.7 million. At December 31, 2002, Boyds has repaid $268.0 million of the term loans under the credit agreement, leaving a balance outstanding of $57.0 million at December 31, 2002.
Boyds had no outstanding balance on the revolving credit facility at December 31, 2002. Thus, the unused balance available under the revolving credit facility will be available to fund the working capital requirements of Boyds. 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 on April 21, 2005. Effective April 21, 2000, the tranche A term loan is
amortizing over six years. The credit agreement contains customary covenants and events of default, including substantial restrictions on Boyds' ability to declare dividends or make distributions. The tranche A term loans is 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. As of December 31, 2000, the tranche B term loan had been fully repaid.
On February 17, 2000, Boyds announced that its Board of Directors had approved the repurchase of 3.0 million shares of Boyds' common stock. As of December 31, 2002, Boyds had repurchased 132,480 shares of common stock pursuant to this stock repurchase program for an aggregate amount of approximately $1.0 million. These repurchases were financed out of operating cash flow. Any future repurchases under this program are expected to be financed similarly or by utilizing borrowings under the revolving credit facility.
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 December 31, 2002, 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 revolving credit facility will provide adequate funds for Boyds' foreseeable working capital needs, planned capital expenditures, debt service obligations, the common 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 that May Affect Future Performance
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 effect 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.
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.
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.
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.
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.
Recently Issued Accounting Standards
In July 2001, the Financial Accounting Standards Board ("FASB") issued Statement of Financial Accounting Standards No. 142 ("SFAS 142"), "Goodwill and Other Intangible Assets", which was effective January 1, 2002. SFAS 142 requires, among other things, the discontinuance of goodwill amortization. In addition, the standard includes provisions for the reclassification of certain existing recognized intangibles as goodwill, reassessment of the useful lives of existing recognized intangibles,
reclassification of certain intangibles out of previously reported goodwill and the identification of reporting units for purposes of assessing potential future impairments of goodwill. SFAS 142 also required the Company to complete a transitional goodwill impairment test six months from the date of adoption. The result of this impairment test identified that as of January 1, 2002 there were no impairments of goodwill or intangible assets to be recorded. Boyds will continue to conduct impairment tests annually in the first quarter of each fiscal year or sooner if circumstances require. As of January 1, 2002, Boyds discontinued the amortization of all goodwill. Amortization for the twelve months ended December 31, 2001 and 2000 was $136,000 and $127,000 respectively.
In October 2001, the FASB issued SFAS No. 144 ("SFAS 144"), "Accounting for the Impairment of Long-Lived Assets" which supersedes SFAS No. 121 ("SFAS 121"), "Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed of" and the accounting and reporting provisions of APB No. 30, "Reporting the Results of Operations-Reporting and Effects of Disposal of a Segment of a Business, and Extraordinary, Unusual and Infrequently Occurring Events and Transactions" for the disposal of a segment of business. This statement is effective for fiscal years beginning after December 15, 2001. SFAS 144 retains many of the provisions of SFAS 121, but addresses certain implementation issues associated with that Statement. Boyds adopted this standard on January 1, 2002 and has determined that the adoption did not have any impact on its financial position, results of operations or cash flows.
In April 2002, the FASB issued SFAS No. 145 ("SFAS 145"), "Rescission of FASB Statements No. 4, 44, and 64, Amendment of FASB Statement No. 13, and Technical Corrections." This statement is effective for fiscal years beginning after May 15, 2002. SFAS 145 requires, among other things, eliminating the extraordinary item treatment of debt extinguishments used as part of the Boyds' debt management strategy will require the reclassification of 2000 and 2001 extraordinary items to interest expense in 2003.
In June 2002, the FASB issued SFAS No. 146 ("SFAS 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 is required at the beginning of fiscal year 2003. Management does not expect that adoption of this pronouncement will have a material effect on the financial position, results of operations or cash flow of Boyds.
In December 2002, the FASB issued SFAS No. 148 ("SFAS 148"), "Accounting for Stock-Based Compensation-Transition and Disclosure, an amendment of FASB Statement No. 123" which amends SFAS No. 123 ("SFAS 123"), "Accounting for Stock-Based Compensation" and the reporting provisions of APB No. 30, "Interim Financial Reporting." SFAS 148 provides alternative methods of transition for a voluntary change to the fair value based method of accounting for stock-based employee compensation and require prominent disclosures in both annual and interim financial statements about the method of accounting for stock-based employee compensation and the effect of the method used on reported results. Boyds adopted the disclosure provision of this standard on December 31, 2002 and has determined that the adoption did not have any impact on the financial position, results of operations or cash flows of 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 7A.
Item 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Boyds faces minimal interest rate risk exposure in relation to its outstanding debt of $103.7 million at December 31, 2002. Of this amount, $57.0 million is subject to interest rate fluctuations. A hypothetical 1% change in interest rates applied to the fair value of debt would not have a material impact on earnings or cash flows of Boyds.
Boyds faces currency risk exposure that arises from translating the results of its European operations to the U.S. dollar. The currency risk exposure is not material as the European subsidiary operations do not have a material impact on Boyds' earnings.
Item 8.
Item 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
Index to Consolidated Financial Statements and Schedule
INDEPENDENT AUDITORS' REPORT
To the Board of Directors and Stockholders of
The Boyds Collection, Ltd. and Subsidiaries
McSherrystown, Pennsylvania
We have audited the accompanying consolidated balance sheets of The Boyds Collection, Ltd. and Subsidiaries (the "Company") as of December 31, 2001 and 2002, and the related consolidated statements of income, stockholders' equity, and cash flows for each of the three years in the period ended December 31, 2002. Our audits also included the consolidated financial statement schedule listed in the Index at Item 15. These consolidated financial statements and consolidated financial statement schedule are the responsibility of the Company's management. Our responsibility is to express an opinion on these consolidated financial statements and consolidated financial statement schedule based on our audits.
We conducted our audits in accordance with auditing standards generally accepted in the United States of America. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.
In our opinion, such consolidated financial statements present fairly, in all material respects, the financial position of the Company, at December 31, 2001 and 2002, and the results of its operations and its cash flows for each of the three years in the period ended December 31, 2002 in conformity with accounting principles generally accepted in the United States of America. Also, in our opinion, such consolidated financial statement schedule, when considered in relation to the basic consolidated financial statements taken as a whole, presents fairly in all material respects the information set forth therein.
DELOITTE & TOUCHE LLP
Baltimore, Maryland
February 25, 2003
THE BOYDS COLLECTION, LTD.
CONSOLIDATED BALANCE SHEETS
See notes to consolidated financial statements.
THE BOYDS COLLECTION, LTD.
CONSOLIDATED STATEMENTS OF INCOME
See notes to consolidated financial statements.
THE BOYDS COLLECTION, LTD.
CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
See notes to consolidated financial statements.
THE BOYDS COLLECTION, LTD.
CONSOLIDATED STATEMENTS OF CASH FLOWS
See notes to consolidated financial statements.
THE BOYDS COLLECTION, LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
For the years ended December 31, 2000, 2001 and 2002
1. GENERAL
The Boyds Collection, Ltd., ("Boyds") is a primary wholesaler and importer of resin figurines and plush animals that are distributed to retail operations primarily throughout the United States. Boyds also operates its flagship retail store, Boyds Bear Country, located in Gettysburg, PA. Substantially all of its products are sourced from foreign manufacturers in China through buying agencies.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Principles of Consolidation-The accompanying consolidated financial statements include the accounts of Boyds and its wholly owned subsidiaries. All significant intercompany accounts and transactions have been eliminated.
Revenue Recognition-Sales revenue, net of returns and discounts, is recognized upon shipment of the items, when title passes to the customer or completion of a retail transaction.
Cash and Cash Equivalents-Boyds considers all short-term interest-bearing investments with original maturities of three months or less to be cash equivalents.
Inventories-Inventories are stated at the lower of cost or market. Cost is determined under the first-in, first-out method of accounting. Inventory in-transit consists of purchases from foreign suppliers for which title has passed to Boyds.
Property and Equipment-Property and equipment is stated at cost. For assets acquired prior to January 1, 1999 depreciation is computed using the declining balance method over the estimated useful lives of the various assets. Beginning January 1, 1999, all new assets purchased are depreciated using the straight line method over the estimated useful lives. The estimated useful lives of furniture and fixtures range from five to seven years and the estimated useful lives of equipment range from three to seven years. The estimated useful lives of leasehold improvements is the lesser of the estimated life of the improvement or the term of the lease.
Software Development Costs-During 1999, Boyds adopted the AICPA's Statement of Position 98-1, "Accounting for the Costs of Computer Software Developed or Obtained for Internal Use". Accordingly, certain computer software project costs incurred during the application development stage have been capitalized and are being amortized on a straight line basis over a period of three years. Such costs include external direct costs of materials and services consumed in developing internal-use software and payroll costs for employees who are directly associated with the internal-use computer software project, and are included in property and equipment on the consolidated balance sheet.
Goodwill-Goodwill represents the cost in excess of the fair value of net assets acquired. In July 2001, the Financial Accounting Standards Board ("FASB") issued Statement of Financial Accounting Standards No. 142 ("SFAS 142"), "Goodwill and Other Intangible Assets", which was effective January 1, 2002. SFAS 142 requires, among other things, the discontinuance of goodwill amortization. In addition, the standard includes provisions for the reclassification of certain existing recognized intangibles as goodwill, reassessment of the useful lives of existing recognized intangibles, reclassification of certain intangibles out of previously reported goodwill and the identification of reporting units for purposes of assessing potential future impairments of goodwill. SFAS 142 also requires the Company to complete a transitional goodwill impairment test six months from the date of adoption. The result of this impairment test identified that as of January 1, 2002 there were no
impairments of goodwill or intangible assets to be recorded. Boyds will continue to conduct impairment tests annually in the first quarter of each fiscal year or sooner if circumstances require. As of January 1, 2002, Boyds discontinued the amortization of all goodwill. Amortization for the twelve months ended December 31, 2001 and 2000 was $136,000 and $127,000, respectively.
Deferred Debt Issuance Costs-Boyds amortizes deferred debt issuance costs using the interest method over the life of the debt. Amortization of deferred debt issuance costs as a result of the prepayment of the related debt is accelerated to the date of the prepayment and is included as an extraordinary item in the consolidated statements of income.
Impairment Accounting-Boyds reviews the recoverability of its long-lived and intangible assets, when events or changes in circumstances occur that indicate that the carrying value of the assets may not be recoverable. The measurement of possible impairment is based on Boyds' ability to recover the carrying value of the asset from the expected future undiscounted cash flows generated. The measurement of impairment requires management to use estimates of expected future cash flows. If an impairment loss existed, the amount of the loss would be recorded in the consolidated statements of income. It is possible that future events or circumstances could cause these estimates to change.
In October 2001, the FASB issued SFAS No. 144 ("SFAS 144"), "Accounting for the Impairment of Long-Lived Assets" which supersedes SFAS No. 121 ("SFAS 121"), "Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed of" and the accounting and reporting provisions of APB No. 30, "Reporting the Results of Operations-Reporting and Effects of Disposal of a Segment of a Business, and Extraordinary, Unusual and Infrequently Occurring Events and Transactions" for the disposal of a segment of business. This statement is effective for fiscal years beginning after December 15, 2001. SFAS 144 retains many of the provisions of SFAS 121, but addresses certain implementation issues associated with that Statement. Boyds adopted this standard on January 1, 2002 and has determined that the adoption did not have a significant impact on the financial position, results of operations or cash flows of Boyds.
In the first quarter of 2002, Boyds reduced capitalized software costs to its net realizable value through an impairment charge totaling $0.3 million, recorded in selling, general and administrative expenses on the consolidated statement of income. During the fourth quarter of 2001, Boyds reduced capitalized software costs to its net realizable value through an impairment charge totaling $2.1 million, recorded in selling, general and administrative expenses on the consolidated statement of income. The software costs were associated with a sales interface system that was expected to improve sales force efficiency and effectiveness.
Fair Value of Financial Instruments-Management considers that the carrying amount of financial instruments, including cash, accounts receivable, accounts payable and accrued expenses, approximates fair value. Interest on long-term bank debt is payable at variable rates which approximates fair market value. The fair value of the 9% senior subordinated notes (the notes), face value of $46.7 million, was $46.6 million at December 31, 2002.
Foreign Currency Translation-Assets and liabilities of Boyds' foreign subsidiaries are translated at year-end exchange rates while revenue and expenses are translated at weighted average rates prevailing during the year. Foreign currency translation adjustments are reported as a separate component of other comprehensive income/(loss) in the consolidated statement of stockholders' equity.
Income Taxes-Boyds accounts for income taxes in accordance with Statement of Financial Accounting Standards ("SFAS") No. 109, Accounting for Income Taxes, which requires an asset and liability approach to accounting for income taxes. Deferred income tax assets and liabilities are computed annually for differences between the financial statement and tax bases of assets and liabilities that will result in taxable or deductible amounts in the future, based on enacted tax laws and rates applicable to periods in which the differences are expected to affect taxable income. Income taxes/benefit is the tax payable/receivable for the period plus or minus the change during the period in deferred income tax assets and liabilities. Deferred tax assets are reduced by a valuation allowance when, in the opinion of management, it is more likely than not that some portion or all of the deferred tax assets will be realized.
Stock-Based Compensation-At December 31, 2002, Boyds has various stock-based employee compensation plans, which are described more fully in Note 14. 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. The following table illustrates the effect on net income and earnings per share if Boyds had applied the fair value recognition method of accounting provisions of FASB Statement No. 123, Accounting for Stock-Based Compensation, to stock-based employee compensation.
Segment Reporting-SFAS No. 131, Disclosures about Segments of an Enterprise and Related Information requires enterprises to report certain information about products and services, activities in different geographic areas and reliance on major customers and to disclose certain segment information in their financial statements. The basis for determining an enterprise's operating segments is the manner in which financial information is used internally by the enterprise's chief operating decision
maker. Boyds has determined that it operates in one segment, collectibles. In addition, less than 3% of total revenue is derived from customers outside the United States and substantially all long lived assets are located in the United States. No customer represents more than 10% of total revenue, nor does retail operations generate more than 10% of total revenue.
Use of Estimates-The preparation of financial statements, in conformity with generally accepted accounting principles, requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements, and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates.
Concentration of suppliers-Substantially all of the products that Boyds sells are purchased through two independent buying agencies.
Other Recently Issued Accounting Standards-In April 2002, the FASB issued SFAS No. 145 ("SFAS 145"), "Rescission of FASB Statements No. 4, 44, and 64, Amendment of FASB Statement No. 13, and Technical Corrections." This statement is effective for fiscal years beginning after May 15, 2002. SFAS 145 requires, among other things, eliminating the extraordinary item treatment of debt extinguishments used as part of the Boyds' debt management strategy will require the reclassification of 2000 and 2001 extraordinary items to interest expense in 2003.
In June 2002, the FASB issued SFAS No. 146 ("SFAS 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 is required at the beginning of fiscal year 2003. Management does not expect that adoption of this pronouncement will have a material effect on the financial position, results of operations or cash flow of Boyds.
In December 2002, the FASB issued SFAS No. 148 ("SFAS 148"), "Accounting for Stock-Based Compensation-Transition and Disclosure, an amendment of FASB Statement No. 123" which amends SFAS No. 123 ("SFAS 123"), "Accounting for Stock-Based Compensation" and the reporting provisions of APB No. 30, "Interim Financial Reporting." SFAS 148 provides alternative methods of transition for a voluntary change to the fair value based method of accounting for stock-based employee compensation and require prominent disclosures in both annual and interim financial statements about the method of accounting for stock-based employee compensation and the effect of the method used on reported results. Boyds adopted the disclosure provision of this standard on December 31, 2002 and has determined that the adoption did not have any impact on the financial position, results of operations or cash flows of Boyds.
3. PROPERTY AND EQUIPMENT
The components of property and equipment at December 31, 2001 and 2002 were, as follows:
Depreciation expense on property and equipment was $1.1 million, $1.4 million and $1.6 million in 2000, 2001 and 2002, respectively.
4. ACQUISITION
On April 25, 2001, Boyds acquired all of the issued and outstanding shares of capital stock of J & T Design ("J & T"). J & T is a designer and distributor of Christmas gift products. J & T's results from operations are included in Boyds' consolidated statement of income subsequent to April 25, 2001. The aggregate purchase price was approximately $0.5 million paid in cash. The purchase price was assigned to the acquired assets, primarily inventory and accounts receivable, based on their fair market values. In addition, Boyds has recorded goodwill of approximately $0.5 million, included in other assets, related to the excess of the purchase price over the fair value of assets acquired which was being amortized using the straight line method over 20 years until the implementation of SFAS 142 on January 1, 2002. The impact of suspending the amortization of Goodwill in 2002 had an insignificant impact on the financial results as compared to 2001.
5. CONCENTRATION OF CREDIT RISK
Boyds maintains cash balances at several financial institutions located in Pennsylvania. Accounts at each institution are secured by the Federal Deposit Insurance Corporation up to $100,000. Uninsured balances aggregated $0.5 million and $4.8 million at December 31, 2001 and 2002, respectively. At December 31, 2001 and 2002, no customer accounted for more than 10% of accounts receivable.
6. LEASE COMMITMENTS
Boyds leases certain office, warehouse and showroom facilities under non-cancellable operating leases. Rent expense amounted to $1.6 million, $1.6 million and $1.4 million for the years ended
December 31, 2000, 2001 and 2002, respectively. At December 31, 2002, the future minimum lease commitments for the non-cancellable operating leases are as follows:
7. FINANCIAL INSTRUMENTS WITH OFF-BALANCE SHEET RISK
At December 31, 2001 and 2002, Boyds had letters of credit outstanding under bank credit agreements amounting to $6.3 million and $5.1 million, respectively. These letters of credit represent Boyds' commitment to purchase inventory which is to be produced and/or shipped.
8. RELATED PARTY TRANSACTIONS
Kohlberg Kravis Roberts & Co. L.P. ("KKR") represents a 59% stockholder of Boyds. For the years ended December 31, 2000, 2001 and 2002 Boyds paid to KKR approximately $0.4 million, $0.4 million and $0.4 million, respectively, for management fees and related expenses. Amounts payable to KKR at December 31, 2001 and 2002 were $0.1 million.
In 2001, Boyds purchased approximately 111 acres of land from New Farm Operating, Inc., whose sole stockholder is Justina Lowenthal, wife of director and Chairman Emeritus Gary Lowenthal. The purchase price was $0.5 million. This land was used for Boyds Bear Country™, which is included in property and equipment. In the opinion of management, this transaction was executed on terms comparable to an arms length transaction.
9. LONG-TERM DEBT
Long-term debt is summarized as follows:
The Notes have an optional redemption feature exercisable by Boyds any time on or after May 15, 2003. Interest on the Notes is payable semiannually on May 15 and November 15. The secured revolving credit facility provides for borrowings of up to $40.0 million.
For the years ended December 31, 2001 and 2002, the weighted average interest rates in effect for the Term Loan was 2.917% and 2.165%, respectively. For the year ended December 31, 2001, the weighted average interest rate in effect for the revolving loan was 3.247%. In addition, the term loan has predetermined annual payments through April 2005.
The Credit Agreement contains certain covenants, including the requirement of a minimum interest coverage ratio as defined in the agreement and substantial restrictions as to dividends and distributions. Boyds is in compliance with all applicable covenants as of December 31, 2002. The agreement also provides that the Term Loan and revolving loan commitment be secured by the capital stock of Boyds' current and future subsidiaries. In addition, the Term Loan is 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:
10. PROVISION FOR INCOME TAXES
Income tax expense consists of the following:
A reconciliation of the statutory federal income tax rate and the effective rate of the provision for income taxes consists of the following:
The tax effect of significant items comprising the Company's deferred tax assets and liabilities are as follows:
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, and 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.
11. CONTINGENCIES
In addition, 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 or results of operations of Boyds.
12. LEGAL SETTLEMENT
On March 28, 2000, Boyds settled an outstanding lawsuit related to a claim for royalties. In complete and final resolution of the suit, Boyds agreed to a settlement of the claim, resulting in a $4.4 million charge ($3.1 million after tax), which was recorded in selling, general and administrative expenses in the period ended December 31, 1999, and paid in March of 2000.
13. STOCKHOLDERS' EQUITY
Capital Stock-As of December 31, 2001 and 2002, Boyds had 100 million shares of capital stock (par value $0.0001), authorized and 59.1 million and 59.1 million shares outstanding, respectively. The Board of Directors is authorized to issue the unissued portion of the authorized shares in another class or series of stock, including preferred stock.
During 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. On May 28, 1999, Boyds announced a common stock share repurchase program and, as of December 31, 2002, the Company had repurchased 2,954,200 shares of its common stock under this plan. On February 17, 2000, Boyds announced a further common stock share repurchase program and, as of December 31, 2002, the Company had repurchased 132,480 shares of its common stock under this plan.
14. EMPLOYEE BENEFIT PLANS
Employee Savings and Retirement Plan-Boyds has a 401(K) Plan that allows eligible employees to contribute up to $11,000 of their salary.
Stock Option Plan-Boyds has granted stock options under various incentive stock option plans (the "Plans") which provide for the granting to certain employees and directors of options to acquire Boyds' common stock. The option prices of stock which may be purchased under the Plans are not less than the fair value of common stock on the dates of the grants.
Outstanding options issued to employees vest and become exercisable over a five-year period from the date of grant. The outstanding options expire ten years from the date of grant or upon an employee's retirement or termination from Boyds, and are contingent upon continued employment during the applicable five-year period.
Boyds has reserved a total of 5,579,033 shares for issuance under the Plans, of which 2,377,432 shares remain reserved at December 31, 2002 for future issuances. The following table summarizes information about fixed stock options at December 31, 2002:
Accounting for Stock-Based Compensation-Boyds has elected to continue to account for its employee stock-based compensation plans under APB Opinion No. 25. The pro forma disclosures of net earnings and net earnings per share as if the fair value based method of accounting defined in SFAS No. 123 had been applied are shown below. For purposes of the pro forma disclosures, the estimated fair value of the options is assumed to be amortized to expense over the options' vesting period.
Pro forma information regarding net income and earnings per common share has been estimated at the date of grant using the Black-Scholes option pricing model based on the following assumptions:
The weighted average fair value of options granted during 2000, 2001 and 2002 was $4.6 million, $3.1 million and $3.7 million, respectively.
The following table summarizes information about stock options outstanding at December 31, 2002:
Earnings Per Share-Basic EPS excludes dilution and is computed by dividing earnings available to common stockholders by the weighted average number of common shares outstanding for the period. Similar to fully diluted EPS, diluted EPS reflects the potential dilution of securities that could share in the earnings.
The following is a reconciliation of the numerators and denominators of the basic and diluted earnings per share computations for the income and net income available to common stockholders:
15. QUARTERLY FINANCIAL INFORMATION (Unaudited)
The following table shows results of operations for each of the quarters during fiscal 2001 and 2002:
(1)Fiscal 2001 income from operations included $2.1 million for impairment of assets and a $6.0 million provision for slow moving inventory on a pretax basis in the fourth quarter. (2)The Company's business is seasonal with 64% and 61% of sales occurring in the first and third fiscal quarters combined for 2001 and 2002, respectively.
Item 9.
Item 9.
CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE
Not applicable.
PART III
Item 10.
Item 10. DIRECTORS AND EXECUTIVE OFFICERS
Information concerning the directors and executive officers of the Company, their terms of office, the periods during which they have served, their personal business experience, is included in the Company's definitive Proxy Statement for its 2003 Annual Meeting of stockholders and is specifically incorporated herein by reference.
Item 11.
Item 11. EXECUTIVE COMPENSATION
Information regarding compensation of the Company's directors and officers is included in the Company's definitive Proxy Statement for its 2003 Annual Meeting of stockholders and is specifically incorporated herein by reference.
Item 12.
Item 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
Information with respect to the beneficial ownership of the outstanding shares of the Company's Common Stock by (i) all persons owning of record, or beneficially to the knowledge of the Company, more than five percent of the outstanding shares, (ii) each director and executive officer of the Company individually, and (iii) all directors and officers of the Company as a group, is included in the Company's definitive Proxy Statement for its 2003 Annual Meeting of stockholders and is specifically incorporated herein by reference.
Item 13.
Item 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Information regarding certain relationships and transactions between the Company and its directors, director-nominees, executive officers, and the family members of these individuals is included in the Company's definitive Proxy Statement for its 2003 Annual Meeting of stockholders and is specifically incorporated herein by reference.
Item 14.
Item 14. CONTROLS AND PROCEDURES
Based on an evaluation of Boyds' disclosure controls and procedures conducted within 90 days prior to the date of this report, Boyds' principal executive officer and principal financial officer have concluded that such controls and procedures effectively ensure that information required to be disclosed by Boyds in reports that the company files or submits under the Securities Exchange Act of 1934 is recorded, processed, summarized, and reported within the time periods specified in the SEC rules and forms.
There were no significant changes in internal controls or in other factors that could significantly affect these controls subsequent to the date of their evaluation.
PART IV
Item 15.
Item 15. EXHIBITS, FINANCIAL STATEMENT SCHEDULE AND REPORTS ON FORM 8-K
(a) 1. Consolidated Financial Statements:
The index for the consolidated financial statements is under Item 8 of this form 10K.
2. Consolidated Financial Statement Schedule:
Schedule of valuation and qualifying accounts
THE BOYDS COLLECTION, LTD.
Valuation and Qualifying Accounts
(b) Exhibits
Exhibit
No.
Description
3.1
Amended and Restated Articles of Incorporation of Boyds (incorporated by reference from Exhibit 3.1 of Amendment No. 1 to Boyds' Registration Statement on Form S-1, filed on February 8, 1999, File No. 333-69535).
3.2
Amended and Restated Bylaws of Boyds (incorporated from Exhibit 3.2 of Boyds' Annual Report on Form 10-K, filed on March 30, 2000 (File No. 001-14843).
4.1
Indenture, dated as of April 21, 1998 between Boyds and The Bank of New York, as trustee (incorporated by reference from Exhibit 4.3 of Amendment No. 1 to Boyds' Registration Statement on Form S-1, filed on February 8, 1999, File No. 333-69535).
4.2
Form of 9% Senior Subordinated Note due 2008 (included in Exhibit 4.1)
4.3
Form of 9% Series B Senior Subordinated Note due 2008 (included in Exhibit 4.1)
10.1
Credit Agreement, dated as of April 21, 1998, among Boyds, the several lenders from time to time parties thereto, DLJ Capital Funding, Inc., The Fuji Bank, Limited, New York Branch, and Fleet National Bank (incorporated by reference from Exhibit 10.1 of Amendment No. 3 to Boyds' Registration Statement on Form S-1, filed on February 23, 1999, File No. 333-69535).
10.2
Forms of Notes evidencing loans under the Credit Agreement (included in Exhibit 10.1).
10.3
1998 Option Plan for Key Employees of Boyds (incorporated by reference from Exhibit 10.3 of Amendment No. 1 to Boyds' Registration Statement on Form S-1, filed on February 8, 1999, File No. 333-69535).
10.4
1999 Option Plan for Key Employees of Boyds (incorporated by reference from Exhibit 4.3 of Boyds' Registration Statement on Form S-8, filed on January 18, 2002, File No. 333-77022).
10.5
2000 Option Plan for Key Employees of Boyds (incorporated by reference from Exhibit 4.4 of Boyds' Registration Statement on Form S-8, filed on January 18, 2002, File No. 333-77022).
10.6
2001 Option Plan for Key Employees of Boyds (incorporated by reference from Exhibit 4.5 of Boyds' Registration Statement on Form S-8, filed on January 18, 2002, File No. 333-77022).
10.7
Lease Agreement for Boyds' McSherrystown, Pennsylvania facility (incorporated by reference from Exhibit 10.4 of Amendment No. 3 to Boyds' Registration Statement on Form S-1, filed on February 23, 1999, File No. 333-69535).
10.8
Employment Agreement dated January 28, 2000 between Jean-Andre Rougeot and Boyds (incorporated by reference from Exhibit 10.8 of Boyds' Annual Report on Form 10-K, filed on March 28, 2002, File No. 001-14843).
List of subsidiaries (incorporated by reference from Exhibit 21 of Boyds' Registration Statement on Form S-4, filed May 28, 1999, File No. 333-79647).
Consent of Deloitte & Touche LLP.*
99.1
Certification Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.*
99.2
Certification Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.*
*Filed herewith. (c) Reports on Form 8-K
No reports on Form 8-K were filed during the last quarter of the period covered by this report.
Item 16. PRINCIPAL ACCOUNTANT FEES AND SERVICES
Information regarding principal account fees and services is included in the company's definitive proxy statement for its 2003 annual meeting of stockholders and specifically included herein by reference.
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) 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, in the City of McSherrystown, State of Pennsylvania on the 28th day of March, 2003.
THE BOYDS COLLECTION, LTD.
By:
/s/ CHRISTINE L. BELL Christine L. Bell
Chief Operating Officer and Secretary
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons in the capacities indicated on March 28, 2003.
Signature
Title
/s/ JEAN-ANDRE ROUGEOT Jean-Andre Rougeot
Chief Executive Officer and Director
/s/ CHRISTINE L. BELL Christine L. Bell
Chief Operating Officer and Secretary
/s/ JOSEPH E. MACHARSKY Joseph E. Macharsky
Chief Financial Officer
/s/ GARY M. LOWENTHAL Gary M. Lowenthal
Chairman Emeritus
/s/ HENRY R. KRAVIS Henry R. Kravis
Director
/s/ GEORGE R. ROBERTS George R. Roberts
Director
/s/ SCOTT M. STUART Scott M. Stuart
Director
/s/ MARC S. LIPSCHULTZ Marc S. Lipschultz
Director
/s/ TIMOTHY BRADY Timothy Brady
Director
/s/ JOSEPH Y. BAE Joseph Y. Bae
Director
/s/ ANN T. BUIVID Ann T. Buivid
Director
/s/ JAMES F. MCCANN James F. McCann
Director
CERTIFICATION PURSUANT TO
SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002
I, Jean-Andre Rougeot, Chief Executive Officer of The Boyds Collection, Ltd. (the "Company"), certify that:
1.I have reviewed this annual report on Form 10-K of The Boyds Collection, Ltd.;
2.Based on my knowledge, this annual report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this annual report;
3.Based on my knowledge, the financial statements, and other financial information included in this annual report, fairly present in all material respects the financial condition, results of operations and cash flows of the Company as of, and for, the periods presented in this annual report;
4.The Company's other certifying officers and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-14 and 15d-14) for the Company and we have:
a)Designed such disclosure controls and procedures to ensure that material information relating to the Company, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this annual report is being prepared;
b)Evaluated the effectiveness of the Company's disclosure controls and procedures as of a date within 90 days prior to the filing date of this annual report (the "Evaluation Date"); and
c)Presented in this annual report our conclusions about the effectiveness of the disclosure controls and procedures based on our evaluation as of the Evaluation Date;
5.The Company's other certifying officers and I have disclosed, based on our most recent evaluation, to the Company's auditors and the audit committee of the Company's board of directors (or persons performing the equivalent functions):
a)All significant deficiencies in the design or operation of internal controls which could adversely affect the Company's ability to record, process, summarize and report financial data and have identified for the Company's auditors any material weaknesses in internal controls; and
b)Any fraud, whether or not material, that involves management or other employees who have a significant role in the Company's internal controls; and
6.The Company's other certifying officers and I have indicated in this annual report whether there were significant changes in internal controls or in other factors that could significantly affect internal controls subsequent to the date of our most recent evaluation, including any corrective actions with regard to significant deficiencies and material weaknesses.
/s/ JEAN-ANDRE ROUGEOT Jean-Andre Rougeot
Chief Executive Officer
Date: March 28, 2003
CERTIFICATION PURSUANT TO
SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002
I, Joseph Macharsky, Chief Financial Officer of The Boyds Collection, Ltd. (the "Company"), certify that:
1.I have reviewed this annual report on Form 10-K of The Boyds Collection, Ltd.;
2.Based on my knowledge, this annual report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this annual Report;
3.Based on my knowledge, the financial statements, and other financial information included in this annual report, fairly present in all material respects the financial condition, results of operations and cash flows of the Company as of, and for, the periods presented in this annual report;
4.The Company's other certifying officers and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-14 and 15d-14) for the Company and we have:
a)Designed such disclosure controls and procedures to ensure that material information relating to the Company, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this quarterly report is being prepared;
b)Evaluated the effectiveness of the Company's disclosure controls and procedures as of a date within 90 days prior to the filing date of this annual report (the "Evaluation Date"); and
c)Presented in this annual report our conclusions about the effectiveness of the disclosure controls and procedures based on our evaluation as of the Evaluation Date;
5.The Company's other certifying officers and I have disclosed, based on our most recent evaluation, to the Company's auditors and the audit committee of the Company's board of directors (or persons performing the equivalent functions):
a)All significant deficiencies in the design or operation of internal controls which could adversely affect the Company's ability to record, process, summarize and report financial data and have identified for the Company's auditors any material weaknesses in internal controls; and
b)Any fraud, whether or not material, that involves management or other employees who have a significant role in the Company's internal controls; and
6.The Company's other certifying officers and I have indicated in this annual report whether there were significant changes in internal controls or in other factors that could significantly affect internal controls subsequent to the date of our most recent evaluation, including any corrective actions with regard to significant deficiencies and material weaknesses.
/s/ JOSEPH E. MACHARSKY Joseph E. Macharsky
Chief Financial Officer
Date: March 28, 2003
DOCUMENTS INCORPORATED BY REFERENCE
PART I
Item 1. DESCRIPTION OF BUSINESS
Item 2. PROPERTIES
Item 3. LEGAL PROCEEDINGS
Item 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
PART II
Item 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
Item 6. SELECTED FINANCIAL DATA
Item 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Item 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Item 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
INDEPENDENT AUDITORS' REPORT
THE BOYDS COLLECTION, LTD. CONSOLIDATED BALANCE SHEETS
THE BOYDS COLLECTION, LTD. CONSOLIDATED STATEMENTS OF INCOME
THE BOYDS COLLECTION, LTD. CONSOLIDATED STATEMENTS OF CASH FLOWS
THE BOYDS COLLECTION, LTD. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS For the years ended December 31, 2000, 2001 and 2002
PART III
Item 10. DIRECTORS AND EXECUTIVE OFFICERS
Item 11. EXECUTIVE COMPENSATION
Item 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
Item 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Item 14. CONTROLS AND PROCEDURES
PART IV
THE BOYDS COLLECTION, LTD. Valuation and Qualifying Accounts
Item 16. PRINCIPAL ACCOUNTANT FEES AND SERVICES
SIGNATURES
CERTIFICATION PURSUANT TO SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002
CERTIFICATION PURSUANT TO SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002