##### Table of Contents



UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
 Washington, D.C. 20549
 
 FORM 10-Q
 
 (Mark One)
 o
    
    QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 For the quarterly period ended April 2, 2011
 OR
 o
    
    TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 For the transition period from  to
 Commission File Number: 333-123927
 
 EASTON-BELL SPORTS, INC.
 (Exact name of registrant as specified in its charter)
 
 Delaware
(State or Other Jurisdiction of 
Incorporation or Organization)
    
    20-1636283
(I.R.S. Employer
Identification No.)
 7855 Haskell Avenue, Suite 200
Van Nuys, California 91406
(Address of Principal Executive Offices)(Zip Code)
 (818) 902-5800
(Registrants Telephone Number, Including Area Code)
 
 o þ
 o o
  Large accelerated filer o
    
    Accelerated filer o
    
    Non-accelerated filer þ
(Do not check if a smaller reporting company)
    
    Smaller reporting company o
 o þ




---



##### Table of Contents



EXPLANATORY NOTE
   2




---



##### 



EASTON-BELL SPORTS, INC. AND SUBSIDIARIES
 INDEX
 PagePART I. FINANCIAL INFORMATION:Item 1. Financial StatementsConsolidated Balance Sheets as of April 2, 2011 (unaudited) and January 1, 2011
    
    
    4Consolidated Statements of Operations and Comprehensive Income for the Fiscal
Quarter Ended April 2, 2011 (unaudited) and April 3, 2010 (unaudited)
    
    
    5Consolidated Statements of Cash Flows for the Fiscal Quarter Ended April 2, 2011
(unaudited) and April 3, 2010 (unaudited)
    
    
    6Notes to Consolidated Financial Statements
    
    
    7Item 2. Managements Discussion and Analysis of Financial Condition and Results of Operations
    
    
    21Item 3. Quantitative and Qualitative Disclosures About Market Risk
    
    
    30Item 4. Controls and Procedures
    
    
    31PART II. OTHER INFORMATION:Item 1. Legal Proceedings
    
    
    32Item 1A. Risk Factors
    
    
    32Item 6. Exhibits
    
    
    32SIGNATURES
    
    
    33EX-31.1EX-31.2EX-32.1
   3




---



##### Table of Contents



PART I. FINANCIAL INFORMATION
 
 Item 1.
    
    Financial Statements
 EASTON-BELL SPORTS, INC. AND SUBSIDIARIES
 
 CONSOLIDATED BALANCE SHEETS
 (Amounts in thousands, except share and per share amounts)
 April 2,
    
    
    January 1,2011
    
    
    2011(Unaudited)ASSETSCurrent assets:Cash and cash equivalents
    
    $
    25,265
    
    
    $
    24,024Accounts receivable, net
    
    
    241,685
    
    
    
    216,166Inventories, net
    
    
    148,254
    
    
    
    141,093Prepaid expenses
    
    
    8,252
    
    
    
    7,080Deferred taxes
    
    
    16,101
    
    
    
    16,254Other current assets
    
    
    11,055
    
    
    
    8,483Total current assets
    
    
    450,612
    
    
    
    413,100Property, plant and equipment, net
    
    
    50,269
    
    
    
    49,736Deferred financing fees, net
    
    
    13,497
    
    
    
    14,248Intangible assets, net
    
    
    276,494
    
    
    
    279,047Goodwill
    
    
    206,928
    
    
    
    206,928Other assets
    
    
    1,296
    
    
    
    1,495Total assets
    
    $
    999,096
    
    
    $
    964,554LIABILITIES AND STOCKHOLDERS EQUITYCurrent liabilities:Revolving credit facility
    
    $
    62,393
    
    
    $
    38,893Current portion of capital lease obligations
    
    
    24
    
    
    
    24Accounts payable
    
    
    80,083
    
    
    
    73,148Accrued expenses
    
    
    63,295
    
    
    
    58,452Total current liabilities
    
    
    205,795
    
    
    
    170,517Long-term debt, less current portion
    
    
    346,290
    
    
    
    346,168Capital lease obligations, less current portion
    
    
    72
    
    
    
    78Deferred taxes
    
    
    48,374
    
    
    
    49,379Other noncurrent liabilities
    
    
    19,378
    
    
    
    20,774Total liabilities
    
    
    619,909
    
    
    
    586,916Stockholders equity:Common stock: $0.01 par value, 100 shares
authorized, 100 shares issued and outstanding at April
2, 2011 and January 1, 2011
    
    
    
    
    
    
    Additional paid-in capital
    
    
    360,880
    
    
    
    360,223Retained earnings
    
    
    15,339
    
    
    
    15,401Accumulated other comprehensive income
    
    
    2,968
    
    
    
    2,014Total stockholders equity
    
    
    379,187
    
    
    
    377,638Total liabilities and stockholders equity
    
    $
    999,096
    
    
    $
    964,554
   4




---



##### Table of Contents



EASTON-BELL SPORTS, INC. AND SUBSIDIARIES
 
 CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME


(Unaudited and amounts in thousands)
 Fiscal Quarter EndedApril 2,
    
    
    April 3,2011
    
    
    2010Net sales
    
    $
    203,398
    
    
    $
    194,104Cost of sales
    
    
    139,441
    
    
    
    129,342Gross profit
    
    
    63,957
    
    
    
    64,762Selling, general and administrative expenses
    
    
    50,367
    
    
    
    49,711Amortization of intangibles
    
    
    2,553
    
    
    
    3,335Income from operations
    
    
    11,037
    
    
    
    11,716Interest expense, net
    
    
    10,993
    
    
    
    11,512Income before income taxes
    
    
    44
    
    
    
    204Income tax expense
    
    
    106
    
    
    
    82Net (loss) income
    
    
    (62
    )
    
    
    122Other comprehensive income:Foreign currency translation adjustment
    
    
    954
    
    
    
    1,278Comprehensive income
    
    $
    892
    
    
    $
    1,400
   5




---



##### Table of Contents



EASTON-BELL SPORTS, INC. AND SUBSIDIARIES
 
 CONSOLIDATED STATEMENTS OF CASH FLOWS


(Unaudited and amounts in thousands)
 Fiscal Quarter EndedApril 2,
    
    
    April 3,2011
    
    
    2010Cash flows from operating activities:Net (loss) income
    
    $
    (62
    )
    
    $
    122Adjustments to reconcile net (loss) income to net cash used in operating activities:Depreciation and amortization
    
    
    7,009
    
    
    
    6,936Amortization of deferred financing fees and debt discount
    
    
    873
    
    
    
    860Equity compensation expense
    
    
    657
    
    
    
    1,160Deferred income taxes
    
    
    (852
    )
    
    
    Disposal of property, plant and equipment
    
    
    
    
    
    
    6Changes in operating assets and liabilities, net of effects from purchase of businesses:Accounts receivable, net
    
    
    (24,859
    )
    
    
    (19,269
    )Inventories, net
    
    
    (6,478
    )
    
    
    9,780Other current and noncurrent assets
    
    
    (3,545
    )
    
    
    (1,285
    )Accounts payable
    
    
    6,750
    
    
    
    (14,414
    )Accrued expenses
    
    
    4,739
    
    
    
    10,399Other current and noncurrent liabilities
    
    
    (1,396
    )
    
    
    423Net cash used in operating activities
    
    
    (17,164
    )
    
    
    (5,282
    )Cash flows from investing activities:Purchase of property, plant and equipment
    
    
    (4,916
    )
    
    
    (4,573
    )Purchase of businesses, net of cash acquired
    
    
    
    
    
    
    (1,750
    )Net cash used in investing activities
    
    
    (4,916
    )
    
    
    (6,323
    )Cash flows from financing activities:Proceeds from revolving credit facility
    
    
    30,500
    
    
    
    7,000Payments on revolving credit facility
    
    
    (7,000
    )
    
    
    Payments on capital lease obligations
    
    
    (6
    )
    
    
    (6
    )Net cash provided by financing activities
    
    
    23,494
    
    
    
    6,994Effect of exchange rate changes on cash and cash equivalents
    
    
    (173
    )
    
    
    152Net change in cash and cash equivalents
    
    
    1,241
    
    
    
    (4,459
    )Cash and cash equivalents, beginning of period
    
    
    24,024
    
    
    
    33,318Cash and cash equivalents, end of period
    
    $
    25,265
    
    
    $
    28,859
   6




---



##### Table of Contents



EASTON-BELL SPORTS, INC. AND SUBSIDIARIES
 
 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited and amounts in thousands, except as specified)
 1. Basis of Presentation
    2. Goodwill and Other Intangible Assets
  April 2, 2011
    
    
    January 1, 2011Gross
    
    
    
    
    
    
    GrossCarrying
    
    
    Accumulated
    
    
    Carrying
    
    
    AccumulatedAmounts
    
    
    Amortization
    
    
    Amounts
    
    
    AmortizationAmortized intangible assets:Trademarks and tradenames
    
    $
    1,702
    
    
    $
    (1,702
    )
    
    $
    1,702
    
    
    $
    (1,702
    )Customer relationships
    
    
    59,180
    
    
    
    (35,925
    )
    
    
    59,180
    
    
    
    (35,166
    )Patents
    
    
    60,345
    
    
    
    (37,890
    )
    
    
    60,345
    
    
    
    (36,275
    )Licensing and other
    
    
    5,900
    
    
    
    (5,900
    )
    
    
    5,900
    
    
    
    (5,721
    )Total
    
    $
    127,127
    
    
    $
    (81,417
    )
    
    $
    127,127
    
    
    $
    (78,864
    )Indefinite-lived intangible assets:Trademarks and tradenames
    
    $
    230,784
    
    
    
    
    
    
    $
    230,784
  Team
    
    
    ActionSports
    
    
    Sports
    
    
    ConsolidatedBalance as of April 2, 2011
    
    $
    145,464
    
    
    $
    61,464
    
    
    $
    206,928
 Goodwill
  7




---



##### Table of Contents



EASTON-BELL SPORTS, INC. AND SUBSIDIARIES
 NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS  (Continued)
(Unaudited and amounts in thousands, except as specified)
 3. Long-Term Debt
  April 2, 2011
    
    
    January 1, 20119.750% Senior Secured Notes
    
    $
    350,000
    
    
    $
    350,000Senior Secured Credit ABL Facility
    
    
    62,393
    
    
    
    38,893Capital lease obligations
    
    
    96
    
    
    
    102Total long-term debt
    
    
    412,489
    
    
    
    388,995Less unamortized debt discount on senior secured notes
    
    
    (3,710
    )
    
    
    (3,832
    )Less current maturities of long-term debt
    
    
    (62,417
    )
    
    
    (38,917
    )Long-term debt, less current portion
    
    $
    346,362
    
    
    $
    346,246
 9.750% Senior Secured Notes
    The ABL Facility
   8




---



##### Table of Contents



EASTON-BELL SPORTS, INC. AND SUBSIDIARIES
 NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS  (Continued)
(Unaudited and amounts in thousands, except as specified)
    Other
   4. Accrued Expenses
  April 2, 2011
    
    
    January 1, 2011Salaries, wages, commissions and bonuses
    
    $
    10,401
    
    
    $
    14,675Advertising
    
    
    5,293
    
    
    
    5,410Rebates
    
    
    5,692
    
    
    
    6,044Warranty
    
    
    2,180
    
    
    
    2,434Product liability  current portion
    
    
    5,191
    
    
    
    4,491Royalties
    
    
    1,849
    
    
    
    1,830Interest
    
    
    11,686
    
    
    
    3,689Income taxes
    
    
    1,269
    
    
    
    1,192Other
    
    
    19,734
    
    
    
    18,687Total accrued expenses
    
    $
    63,295
    
    
    $
    58,452
  9




---



##### Table of Contents



EASTON-BELL SPORTS, INC. AND SUBSIDIARIES
 NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS  (Continued)
(Unaudited and amounts in thousands, except as specified)
 5. Inventories
   April 2, 2011
    
    
    January 1, 2011Raw materials
    
    $
    21,160
    
    
    $
    19,310Work-in-process
    
    
    2,869
    
    
    
    2,364Finished goods
    
    
    124,225
    
    
    
    119,419Inventories, net
    
    $
    148,254
    
    
    $
    141,093
 6. Recent Accounting Pronouncements
 Improving Disclosures about
Fair Value Measurements
 7. Segment Reporting
   10




---



##### Table of Contents



EASTON-BELL SPORTS, INC. AND SUBSIDIARIES
 NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS  (Continued)
(Unaudited and amounts in thousands, except as specified)
  Team
    
    
    ActionFiscal Quarter Ended
    
    Sports
    
    
    Sports
    
    
    ConsolidatedApril 2, 2011Net sales
    
    $
    116,268
    
    
    $
    87,130
    
    
    $
    203,398Income from operations
    
    
    9,566
    
    
    
    11,784
    
    
    
    21,350Depreciation
    
    
    2,676
    
    
    
    1,780
    
    
    
    4,456Capital expenditures
    
    
    2,951
    
    
    
    1,965
    
    
    
    4,916April 3, 2010Net sales
    
    $
    119,433
    
    
    $
    74,671
    
    
    $
    194,104Income from operations
    
    
    17,607
    
    
    
    5,937
    
    
    
    23,544Depreciation
    
    
    2,043
    
    
    
    1,558
    
    
    
    3,601Capital expenditures
    
    
    2,112
    
    
    
    2,461
    
    
    
    4,573
 Team
    
    
    ActionSports
    
    
    Sports
    
    
    ConsolidatedAssetsAs of April 2, 2011
    
    $
    624,695
    
    
    $
    374,401
    
    
    $
    999,096As of January 1, 2011
    
    
    599,980
    
    
    
    364,574
    
    
    
    964,554
  Fiscal Quarter EndedApril 2, 2011
    
    
    April 3, 2010Segment income from operations
    
    $
    21,350
    
    
    $
    23,544Equity compensation expense
    
    
    (657
    )
    
    
    (1,160
    )Corporate expenses
    
    
    (7,103
    )
    
    
    (7,333
    )Amortization of intangibles
    
    
    (2,553
    )
    
    
    (3,335
    )Consolidated income from operations
    
    $
    11,037
    
    
    $
    11,716
 8. Product Liability, Litigation and Other Contingencies
 Product Liability
     11




---



##### Table of Contents



EASTON-BELL SPORTS, INC. AND SUBSIDIARIES
 NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS  (Continued)
(Unaudited and amounts in thousands, except as specified)
 Litigation and Other Contingencies
  9. Income Taxes
  10. Derivative Instruments and Hedging Activity
    Level 1:Quoted prices (unadjusted) in active markets that are accessible at the
measurement date for assets or liabilities. The fair value hierarchy gives the highest
priority to Level 1 inputs.
 Level 2:Observable prices that are based on inputs not quoted on active markets, but
corroborated by market data.
 Level 3:Unobservable inputs are used when little or no market data is available. The fair
value hierarchy gives the lowest priority to Level 3 inputs.
   12




---



##### Table of Contents



EASTON-BELL SPORTS, INC. AND SUBSIDIARIES
 NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS  (Continued)
(Unaudited and amounts in thousands, except as specified)
    April 2, 2011
    
    
    January 1, 2011Foreign
    
    
    
    
    
    
    ForeignU.S. Dollars
    
    
    Currency
    
    
    U.S. Dollars
    
    
    CurrencyForeign Currency Exchange Forward
Contracts:U.S. Dollars / Canadian Dollars
    
    $
    3,600
    
    
    Cdn$
    3,466
    
    
    $
    4,500
    
    
    Cdn$
    4,476
   Fair Value Measurements at Reporting Date UsingQuotedPrices inActive
    
    
    SignificantMarkets for
    
    
    Other
    
    
    SignificantIdentical
    
    
    Observable
    
    
    UnobservableAssets
    
    
    Inputs
    
    
    Inputs(Level 1)
    
    
    (Level 2)
    
    
    (Level 3)Assets:None
    
    $
    
    
    
    $
    
    
    
    $
    Liabilities:Interest rate swap
    
    $
    
    
    
    $
    48
    
    
    $
    Foreign currency exchange forward contracts
    
    
    
    
    
    
    188
    
    
    
    Total
    
    $
    
    
    
    $
    236
    
    
    $
    
 Fair Value of Financial Instruments
   April 2, 2011
    
    
    January 1, 2011Carrying
    
    
    Fair
    
    
    Carrying
    
    
    FairAmount
    
    
    Value
    
    
    Amount
    
    
    ValueFinancial liability:9.75% Senior Secured Notes
    
    $
    357,949
    
    
    $
    405,409
    
    
    $
    349,201
    
    
    $
    387,158
  13




---



##### Table of Contents



EASTON-BELL SPORTS, INC. AND SUBSIDIARIES
 NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS  (Continued)
(Unaudited and amounts in thousands, except as specified)
 11. Equity-Based Employee Compensation
    Fiscal Quarter EndedApril 2, 2011Expected term
    
    2-4 yearsDividend yield
    
    0.0%Forfeiture rate
    
    7.7%Risk-free interest rate
    
    0.16 to 0.17%Expected volatility(1)
    
    50.0%
 
 (1)
    
    Expected volatility is based upon a peer group of companies given no historical data for
the Units.   Fiscal Quarter EndedApril 2,
    
    
    April 3,2011
    
    
    2010Equity compensation expense
    
    $
    657
    
    
    $
    1,160
   14




---



##### Table of Contents



EASTON-BELL SPORTS, INC. AND SUBSIDIARIES
 NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS  (Continued)
(Unaudited and amounts in thousands, except as specified)
  Weighted AverageNumber of
    
    
    Grant DateUnits
    
    
    Exercise PriceOutstanding at January 1, 2011
    
    
    96,169,675
    
    
    $
    1.44Granted
    
    
    5,164,254
    
    
    $
    1.32Outstanding at April 2, 2011
    
    
    101,333,929
    
    
    $
    1.43Vested Units at April 2, 2011
    
    
    35,460,835
    
    
    $
    1.60
 12. Warranty Obligations
   Fiscal Quarter EndedApril 2,
    
    
    April 3,2011
    
    
    2010Beginning of period
    
    $
    2,434
    
    
    $
    3,242Warranty costs incurred during the period
    
    
    (2,034
    )
    
    
    (1,953
    )Warranty expense recorded during the period
    
    
    1,780
    
    
    
    1,544End of period
    
    $
    2,180
    
    
    $
    2,833
 13. Related Party Transactions
  Easton Easton Easton
   15




---



##### Table of Contents



EASTON-BELL SPORTS, INC. AND SUBSIDIARIES
 NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS  (Continued)
(Unaudited and amounts in thousands, except as specified)
    14. Supplemental Guarantor Condensed Financial Information
    16




---



##### Table of Contents



EASTON-BELL SPORTS, INC. AND SUBSIDIARIES
 NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS  (Continued)
(Unaudited and amounts in thousands, except as specified)
 Condensed Consolidating Balance Sheet
April 2, 2011
 Guarantor
    
    
    Non-GuarantorIssuer
    
    
    Subsidiaries
    
    
    Subsidiaries
    
    
    Eliminations
    
    
    ConsolidatedASSETSCurrent assets:Cash and cash equivalents
    
    $
    2,077
    
    
    $
    5,507
    
    
    $
    17,681
    
    
    $
    
    
    
    $
    25,265Accounts receivable, net
    
    
    
    
    
    
    217,792
    
    
    
    23,893
    
    
    
    
    
    
    
    241,685Inventories, net
    
    
    
    
    
    
    123,916
    
    
    
    24,338
    
    
    
    
    
    
    
    148,254Prepaid expenses
    
    
    1,684
    
    
    
    5,460
    
    
    
    1,108
    
    
    
    
    
    
    
    8,252Deferred taxes
    
    
    
    
    
    
    16,101
    
    
    
    
    
    
    
    
    
    
    
    16,101Other current assets
    
    
    
    
    
    
    9,170
    
    
    
    1,885
    
    
    
    
    
    
    
    11,055Total current assets
    
    
    3,761
    
    
    
    377,946
    
    
    
    68,905
    
    
    
    
    
    
    
    450,612Property, plant and equipment, net
    
    
    23,250
    
    
    
    26,047
    
    
    
    972
    
    
    
    
    
    
    
    50,269Deferred financing fees, net
    
    
    13,497
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    13,497Investments and intercompany receivables
    
    
    398,337
    
    
    
    34,390
    
    
    
    84,849
    
    
    
    (517,576
    )
    
    
    Intangible assets, net
    
    
    
    
    
    
    270,964
    
    
    
    5,530
    
    
    
    
    
    
    
    276,494Goodwill
    
    
    16,195
    
    
    
    185,542
    
    
    
    5,191
    
    
    
    
    
    
    
    206,928Other assets
    
    
    
    
    
    
    1,159
    
    
    
    137
    
    
    
    
    
    
    
    1,296Total assets
    
    $
    455,040
    
    
    $
    896,048
    
    
    $
    165,584
    
    
    $
    (517,576
    )
    
    $
    999,096LIABILITIES AND STOCKHOLDERS EQUITYCurrent liabilities:Revolving credit facility
    
    $
    62,393
    
    
    $
    
    
    
    $
    
    
    
    $
    
    
    
    $
    62,393Current portion of capital lease obligations
    
    
    
    
    
    
    24
    
    
    
    
    
    
    
    
    
    
    
    24Accounts payable
    
    
    
    
    
    
    72,878
    
    
    
    7,205
    
    
    
    
    
    
    
    80,083Accrued expenses
    
    
    15,646
    
    
    
    42,430
    
    
    
    5,219
    
    
    
    
    
    
    
    63,295Total current liabilities
    
    
    78,039
    
    
    
    115,332
    
    
    
    12,424
    
    
    
    
    
    
    
    205,795Long-term debt, less current portion
    
    
    346,290
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    346,290Capital lease obligations, less current portion
    
    
    
    
    
    
    72
    
    
    
    
    
    
    
    
    
    
    
    72Deferred taxes
    
    
    
    
    
    
    48,374
    
    
    
    
    
    
    
    
    
    
    
    48,374Other noncurrent liabilities
    
    
    
    
    
    
    11,945
    
    
    
    7,433
    
    
    
    
    
    
    
    19,378Long-term intercompany payables
    
    
    
    
    
    
    405,711
    
    
    
    71,925
    
    
    
    (477,636
    )
    
    
    Total liabilities
    
    
    424,329
    
    
    
    581,434
    
    
    
    91,782
    
    
    
    (477,636
    )
    
    
    619,909Total stockholders equity
    
    
    30,711
    
    
    
    314,614
    
    
    
    73,802
    
    
    
    (39,940
    )
    
    
    379,187Total liabilities and stockholders equity
    
    $
    455,040
    
    
    $
    896,048
    
    
    $
    165,584
    
    
    $
    (517,576
    )
    
    $
    999,096
  17




---



##### Table of Contents



EASTON-BELL SPORTS, INC. AND SUBSIDIARIES
 NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS  (Continued)
(Unaudited and amounts in thousands, except as specified)
 Condensed Consolidating Balance Sheet
January 1, 2011
 Guarantor
    
    
    Non-GuarantorIssuer
    
    
    Subsidiaries
    
    
    Subsidiaries
    
    
    Eliminations
    
    
    ConsolidatedASSETSCurrent assets:Cash and cash equivalents
    
    $
    1,981
    
    
    $
    7,049
    
    
    $
    14,994
    
    
    $
    
    
    
    $
    24,024Accounts receivable, net
    
    
    
    
    
    
    189,750
    
    
    
    26,416
    
    
    
    
    
    
    
    216,166Inventories, net
    
    
    
    
    
    
    122,116
    
    
    
    18,977
    
    
    
    
    
    
    
    141,093Prepaid expenses
    
    
    1,306
    
    
    
    4,907
    
    
    
    867
    
    
    
    
    
    
    
    7,080Deferred taxes
    
    
    
    
    
    
    16,254
    
    
    
    
    
    
    
    
    
    
    
    16,254Other current assets
    
    
    
    
    
    
    7,504
    
    
    
    979
    
    
    
    
    
    
    
    8,483Total current assets
    
    
    3,287
    
    
    
    347,580
    
    
    
    62,233
    
    
    
    
    
    
    
    413,100Property, plant and equipment, net
    
    
    21,235
    
    
    
    27,776
    
    
    
    725
    
    
    
    
    
    
    
    49,736Deferred financing fees, net
    
    
    14,248
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    14,248Investments and intercompany receivables
    
    
    370,712
    
    
    
    70,614
    
    
    
    74,634
    
    
    
    (515,960
    )
    
    
    Intangible assets, net
    
    
    
    
    
    
    273,466
    
    
    
    5,581
    
    
    
    
    
    
    
    279,047Goodwill
    
    
    16,195
    
    
    
    185,542
    
    
    
    5,191
    
    
    
    
    
    
    
    206,928Other assets
    
    
    
    
    
    
    1,355
    
    
    
    140
    
    
    
    
    
    
    
    1,495Total assets
    
    $
    425,677
    
    
    $
    906,333
    
    
    $
    148,504
    
    
    $
    (515,960
    )
    
    $
    964,554LIABILITIES AND STOCKHOLDERS EQUITYCurrent liabilities:Revolving credit facility
    
    $
    38,893
    
    
    $
    
    
    
    $
    
    
    
    $
    
    
    
    $
    38,893Current portion of capital lease obligations
    
    
    
    
    
    
    24
    
    
    
    
    
    
    
    
    
    
    
    24Accounts payable
    
    
    
    
    
    
    71,244
    
    
    
    1,904
    
    
    
    
    
    
    
    73,148Accrued expenses
    
    
    10,562
    
    
    
    41,313
    
    
    
    6,577
    
    
    
    
    
    
    
    58,452Total current liabilities
    
    
    49,455
    
    
    
    112,581
    
    
    
    8,481
    
    
    
    
    
    
    
    170,517Long-term debt, less current portion
    
    
    346,168
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    346,168Capital lease obligations, less current portion
    
    
    
    
    
    
    78
    
    
    
    
    
    
    
    
    
    
    
    78Deferred taxes
    
    
    
    
    
    
    49,379
    
    
    
    
    
    
    
    
    
    
    
    49,379Other noncurrent liabilities
    
    
    
    
    
    
    13,341
    
    
    
    7,433
    
    
    
    
    
    
    
    20,774Long-term intercompany payables
    
    
    
    
    
    
    417,140
    
    
    
    60,496
    
    
    
    (477,636
    )
    
    
    Total liabilities
    
    
    395,623
    
    
    
    592,519
    
    
    
    76,410
    
    
    
    (477,636
    )
    
    
    586,916Total stockholders equity
    
    
    30,054
    
    
    
    313,814
    
    
    
    72,094
    
    
    
    (38,324
    )
    
    
    377,638Total liabilities and stockholders equity
    
    $
    425,677
    
    
    $
    906,333
    
    
    $
    148,504
    
    
    $
    (515,960
    )
    
    $
    964,554
  18




---



##### Table of Contents



EASTON-BELL SPORTS, INC. AND SUBSIDIARIES
 NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS  (Continued)
(Unaudited and amounts in thousands, except as specified)
 Condensed Consolidating Statement of Operations
Fiscal Quarter Ended April 2, 2011
 Guarantor
    
    
    Non-GuarantorIssuer
    
    
    Subsidiaries
    
    
    Subsidiaries
    
    
    Eliminations
    
    
    ConsolidatedNet sales
    
    $
    
    
    
    $
    198,497
    
    
    $
    16,257
    
    
    $
    (11,356
    )
    
    $
    203,398Cost of sales
    
    
    
    
    
    
    136,628
    
    
    
    14,169
    
    
    
    (11,356
    )
    
    
    139,441Gross profit
    
    
    
    
    
    
    61,869
    
    
    
    2,088
    
    
    
    
    
    
    
    63,957Selling, general and administrative expenses
    
    
    9,302
    
    
    
    38,588
    
    
    
    2,477
    
    
    
    
    
    
    
    50,367Amortization of intangibles
    
    
    
    
    
    
    2,553
    
    
    
    
    
    
    
    
    
    
    
    2,553(Loss) income from operations
    
    
    (9,302
    )
    
    
    20,728
    
    
    
    (389
    )
    
    
    
    
    
    
    11,037Interest expense, net
    
    
    10,771
    
    
    
    222
    
    
    
    
    
    
    
    
    
    
    
    10,993Share of net income (loss) of subsidiaries
under equity method
    
    
    20,011
    
    
    
    (428
    )
    
    
    
    
    
    
    (19,583
    )
    
    
    (Loss) income before income taxes
    
    
    (62
    )
    
    
    20,078
    
    
    
    (389
    )
    
    
    (19,583
    )
    
    
    44Income tax expense
    
    
    
    
    
    
    67
    
    
    
    39
    
    
    
    
    
    
    
    106Net (loss) income
    
    $
    (62
    )
    
    $
    20,011
    
    
    $
    (428
    )
    
    $
    (19,583
    )
    
    $
    (62
    )
 Condensed Consolidating Statement of Operations
Fiscal Quarter Ended April 3, 2010
 Guarantor
    
    
    Non-GuarantorIssuer
    
    
    Subsidiaries
    
    
    Subsidiaries
    
    
    Eliminations
    
    
    ConsolidatedNet sales
    
    $
    
    
    
    $
    184,269
    
    
    $
    17,805
    
    
    $
    (7,970
    )
    
    $
    194,104Cost of sales
    
    
    
    
    
    
    123,409
    
    
    
    13,903
    
    
    
    (7,970
    )
    
    
    129,342Gross profit
    
    
    
    
    
    
    60,860
    
    
    
    3,902
    
    
    
    
    
    
    
    64,762Selling, general and administrative expenses
    
    
    9,692
    
    
    
    37,236
    
    
    
    2,783
    
    
    
    
    
    
    
    49,711Amortization of intangibles
    
    
    
    
    
    
    3,335
    
    
    
    
    
    
    
    
    
    
    
    3,335(Loss) income from operations
    
    
    (9,692
    )
    
    
    20,289
    
    
    
    1,119
    
    
    
    
    
    
    
    11,716Interest expense, net
    
    
    11,423
    
    
    
    88
    
    
    
    1
    
    
    
    
    
    
    
    11,512Share of net income (loss) of subsidiaries
under equity method
    
    
    21,237
    
    
    
    1,062
    
    
    
    
    
    
    
    (22,299
    )
    
    
    Income (loss) before income taxes
    
    
    122
    
    
    
    21,263
    
    
    
    1,118
    
    
    
    (22,299
    )
    
    
    204Income tax expense
    
    
    
    
    
    
    26
    
    
    
    56
    
    
    
    
    
    
    
    82Net income (loss)
    
    $
    122
    
    
    $
    21,237
    
    
    $
    1,062
    
    
    $
    (22,299
    )
    
    $
    122
  19




---



##### Table of Contents



EASTON-BELL SPORTS, INC. AND SUBSIDIARIES
 NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS  (Continued)
(Unaudited and amounts in thousands, except as specified)
 Condensed Consolidating Statement of Cash Flows
Fiscal Quarter Ended April 2, 2011
 Guarantor
    
    
    Non-GuarantorIssuer
    
    
    Subsidiaries
    
    
    Subsidiaries
    
    
    Eliminations
    
    
    ConsolidatedCash flows from operating activities:Net (loss) income
    
    $
    (62
    )
    
    $
    20,011
    
    
    $
    (428
    )
    
    $
    (19,583
    )
    
    $
    (62
    )Non-cash adjustments
    
    
    (25,119
    )
    
    
    10,690
    
    
    
    2,533
    
    
    
    19,583
    
    
    
    7,687Changes in operating assets and liabilities
    
    
    4,706
    
    
    
    (30,510
    )
    
    
    1,015
    
    
    
    
    
    
    
    (24,789
    )Net cash (used in) provided by
operating activities
    
    
    (20,475
    )
    
    
    191
    
    
    
    3,120
    
    
    
    
    
    
    
    (17,164
    )Cash flows from investing activities:Purchases of property, plant and equipment
    
    
    (2,929
    )
    
    
    (1,727
    )
    
    
    (260
    )
    
    
    
    
    
    
    (4,916
    )Net cash used in investing activities
    
    
    (2,929
    )
    
    
    (1,727
    )
    
    
    (260
    )
    
    
    
    
    
    
    (4,916
    )Cash flows from financing activities:Payments on capital lease obligations
    
    
    
    
    
    
    (6
    )
    
    
    
    
    
    
    
    
    
    
    (6
    )Proceeds from revolving credit facility, net
    
    
    23,500
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    23,500Net cash provided by (used in)
financing activities
    
    
    23,500
    
    
    
    (6
    )
    
    
    
    
    
    
    
    
    
    
    23,494Effect of exchange rate changes on cash and cash
equivalents
    
    
    
    
    
    
    
    
    
    
    (173
    )
    
    
    
    
    
    
    (173
    )Net change in cash and cash equivalents
    
    
    96
    
    
    
    (1,542
    )
    
    
    2,687
    
    
    
    
    
    
    
    1,241Cash and cash equivalents, beginning of period
    
    
    1,981
    
    
    
    7,049
    
    
    
    14,994
    
    
    
    
    
    
    
    24,024Cash and cash equivalents, end of period
    
    $
    2,077
    
    
    $
    5,507
    
    
    $
    17,681
    
    
    $
    
    
    
    $
    25,265
 Condensed Consolidating Statement of Cash Flows
Fiscal Quarter Ended April 3, 2010
 Guarantor
    
    
    Non-GuarantorIssuer
    
    
    Subsidiaries
    
    
    Subsidiaries
    
    
    Eliminations
    
    
    ConsolidatedCash flows from operating activities:Net income (loss)
    
    $
    122
    
    
    $
    21,237
    
    
    $
    1,062
    
    
    $
    (22,299
    )
    
    $
    122Non-cash adjustments
    
    
    (15,928
    )
    
    
    119
    
    
    
    2,472
    
    
    
    22,299
    
    
    
    8,962Changes in operating assets and liabilities, net
of effects from purchase of businesses
    
    
    9,907
    
    
    
    (20,338
    )
    
    
    (3,935
    )
    
    
    
    
    
    
    (14,366
    )Net cash (used in) provided by
operating activities
    
    
    (5,899
    )
    
    
    1,018
    
    
    
    (401
    )
    
    
    
    
    
    
    (5,282
    )Cash flows from investing activities:Purchases of property, plant and equipment
    
    
    (3,492
    )
    
    
    (976
    )
    
    
    (105
    )
    
    
    
    
    
    
    (4,573
    )Purchase of businesses, net of cash acquired
    
    
    
    
    
    
    (1,750
    )
    
    
    
    
    
    
    
    
    
    
    (1,750
    )Net cash used in investing activities
    
    
    (3,492
    )
    
    
    (2,726
    )
    
    
    (105
    )
    
    
    
    
    
    
    (6,323
    )Cash flows from financing activities:Payments on capital lease obligations
    
    
    
    
    
    
    (6
    )
    
    
    
    
    
    
    
    
    
    
    (6
    )Proceeds from revolving credit facility, net
    
    
    7,000
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    7,000Net cash provided by (used in)
financing activities
    
    
    7,000
    
    
    
    (6
    )
    
    
    
    
    
    
    
    
    
    
    6,994Effect of exchange rate changes on cash and cash
equivalents
    
    
    
    
    
    
    
    
    
    
    152
    
    
    
    
    
    
    
    152Net change in cash and cash equivalents
    
    
    (2,391
    )
    
    
    (1,714
    )
    
    
    (354
    )
    
    
    
    
    
    
    (4,459
    )Cash and cash equivalents, beginning of period
    
    
    9,347
    
    
    
    10,229
    
    
    
    13,742
    
    
    
    
    
    
    
    33,318Cash and cash equivalents, end of period
    
    $
    6,956
    
    
    $
    8,515
    
    
    $
    13,388
    
    
    $
    
    
    
    $
    28,859
  20




---



##### Table of Contents



Item 2.
    
    Managements Discussion and Analysis of Financial Condition and Results of Operations
   FORWARD-LOOKING STATEMENTS AND INFORMATION
   OVERVIEW
  Easton ® Bell ® Giro ® Riddell ®
    21




---



##### Table of Contents



How We Assess the Performance of Our Business
  Net Sales
 Bell Giro Easton
 Cost of Sales
  Gross Profit
  Selling, General and Administrative Expenses
  Factors Affecting our Business
 Outlook
  
    
    Economic Climate.The uncertain worldwide economic environment could cause
the reported financial information not to be indicative of future operating results or
of future financial condition. The current economic environment continues to affect
our business in a number of direct and indirect ways including: reduced consumer
demand for our products; tighter inventory management by retailers; reduced profit
margins due to pricing pressures and an unfavorable sales mix due to a higher
concentration of sales of mid to lower price point products; changes in currency
exchange rates; lack of credit availability, particularly for specialty retailers;
inflation; and business disruptions due to difficulties experienced by suppliers and
customers.
 
    
    Retail Market Conditions.As a result of the slowing worldwide economic
conditions, the retail market for sports equipment has slowed and is extremely
competitive, with strong pressure from retailers for lower prices. We have experienced
the effect of consumers trading down price points and delaying certain discretionary
purchases, which has resulted in retailers reluctance to place orders for inventory in
advance of selling seasons. Further, institutional customers have reduced or deferred
purchases due to budget constraints. These trends may continue to have a negative
impact on our businesses. We continue to address the retail environment through our
focus on innovation and product development and emphasis on multiple price points.
  22




---



##### Table of Contents




    
    Operations and Manufacturing.We intend to continue to streamline
distribution, logistics and manufacturing operations, bring uniform methodologies to
inventory management, optimize transportation, improve manufacturing efficiencies and
provide a high level of service to our customers. Over a several year period we have
transitioned production of certain products from our facilities to third party vendors
in Asia and other cost efficient sources of labor. However, as a result of our
transition of the production of products from our own facilities to third party
suppliers, we may become more vulnerable to higher levels of product defects, as well
as increased sourced product costs, and our ability to mitigate such cost increases
may be reduced.
 
    
    Interest Expense and Debt Repayment.In 2009, in connection with the
refinancing of our Companys then-existing indebtedness, or the Refinancing, we
entered into a $250.0 million senior secured asset-based revolving credit facility,
subject to availability under each of a United States and Canadian borrowing base,
which amount, subject to certain conditions, may be increased to allow borrowings of
up to $300.0 million, together with certain of our subsidiaries as Canadian Borrowers
(as defined therein) or Subsidiary Guarantors (as defined therein), with the lenders
party thereto, or the ABL Facility. As of April 2, 2011, the outstanding principal
balance under the ABL Facility was $62.4 million. In addition, we have $350.0 million
of outstanding principal amount of our Senior Secured Notes due December 2016, or the
Notes. Because our existing indebtedness requires that we use a substantial portion of
our cash flows to service interest payments, the amount of available cash flows we
will have for working capital, capital expenditures, acquisitions and other general
corporate purposes could be limited.
 
    
    Seasonality.Our business is subject to seasonal fluctuation. Sales of
cycling products and accessories occur primarily during the warm weather months. Sales
of baseball and softball products occur primarily in the late winter and early spring
months in preparation for the spring baseball and softball season. Sales of football
equipment and reconditioning services are driven primarily by football buying
patterns, where orders begin at the end of the school football season (December) and
run through to the start of the next season (August). Shipments of football products
and performance of reconditioning services reach a low point during the football
season. Sales of ice hockey equipment are driven by ice hockey buying patterns with
orders shipping in late spring for fall play. Seasonal impacts are increasingly
mitigated by the increase in snowsports and powersports sales which, to a certain
extent, counter the cycling, baseball, softball and football seasons.
 Critical Accounting Policies and Estimates
  Revenue Recognition.
 Accounts Receivable and Allowances.
  23




---



##### Table of Contents



Inventories.
 Long-lived and intangible assets.
    Income Taxes. Income Taxes.
  24




---



##### Table of Contents



Product Liability Litigation Matters and Contingencies.
 Derivative Instruments and Hedging Activity.
 Warranty Liability.
 Equity-Based Compensation.
 RESULTS OF OPERATIONS
  Fiscal Quarter EndedApril 2,
    
    
    % of
    
    
    April 3,
    
    
    % of2011
    
    
    Net Sales
    
    
    2010
    
    
    Net Sales(Dollars in millions)Net sales
    
    $
    203.4
    
    
    
    100.0
    %
    
    $
    194.1
    
    
    
    100.0
    %Cost of sales
    
    
    139.4
    
    
    
    68.5
    %
    
    
    129.3
    
    
    
    66.6
    %Gross profit
    
    
    64.0
    
    
    
    31.5
    %
    
    
    64.8
    
    
    
    33.4
    %Selling, general and administrative expenses
    
    
    50.4
    
    
    
    24.8
    %
    
    
    49.8
    
    
    
    25.7
    %Amortization of intangibles
    
    
    2.6
    
    
    
    1.3
    %
    
    
    3.3
    
    
    
    1.7
    %Income from operations
    
    $
    11.0
    
    
    
    5.4
    %
    
    $
    11.7
    
    
    
    6.0
    %
 Net Sales
  Fiscal Quarter EndedApril 2,
    
    
    April 3,
    
    
    Change2011
    
    
    2010
    
    
    $
    
    
    %(Dollars in millions)Team Sports
    
    $
    116.3
    
    
    $
    119.4
    
    
    $
    (3.1
    )
    
    
    (2.6
    )%Action Sports
    
    
    87.1
    
    
    
    74.7
    
    
    
    12.4
    
    
    
    16.6
    %$
    203.4
    
    
    $
    194.1
    
    
    $
    9.3
    
    
    
    4.8
    %
  25




---



##### Table of Contents




    
    the decision to transition sales of baseball and softball bats to later in the year to better coincide with the retail selling season;
 
    
    delayed timing of baseball and softball product shipments to the mass channel as
compared to the prior year;
 
    
    reduced demand for hockey sticks due to retail inventory levels;
 
    
    delayed timing of the performance of reconditioning services as compared to the prior
year; and
 
    
    impact of the recent NFL lock-out on sales of consumer football products;
  
    
    growth in sales of baseball and softball batting helmets and apparel;
 
    
    increased demand for baseball, softball and hockey protective equipment;
 
    
    the introduction of Easton branded lacrosse equipment; and
 
    
    favorable foreign currency exchange rates.
  
    
    higher sales of cycling helmets and accessories in all channels;
 
    
    growth in sales of power sports helmets to specialty dealers;
 
    
    growth in sales of Easton branded cycling wheels and components in the aftermarket and to OEM
customers;
 
    
    higher sales of fitness-related products in the mass channel;
 
    
    the introduction of Giro branded cycling shoes; and
 
    
    favorable foreign currency exchange rates;
  
    
    reduced sales of licensed cycling helmets and accessories in the mass channel.
 Cost of Sales
  Fiscal Quarter EndedApril 2,
    
    
    % of
    
    
    April 3,
    
    
    % of2011
    
    
    Net Sales
    
    
    2010
    
    
    Net Sales(Dollars in millions)Team Sports
    
    $
    78.4
    
    
    
    67.4%
    
    
    $
    75.3
    
    
    
    63.1%Action Sports
    
    
    61.0
    
    
    
    70.0%
    
    
    
    54.0
    
    
    
    72.3%$
    139.4
    
    
    
    68.5%
    
    
    $
    129.3
    
    
    
    66.6%
  
    
    transitioning the sales of higher-margin baseball and softball bats to later in the year
to better coincide with the retail selling season;
 
    
    sales growth in lower-margin youth football helmets;
 
    
    close-out sales of hockey products at lower margins; and
 
    
    delayed timing of higher-margin baseball and softball product shipments to the mass
channel as compared to the prior year;
  
    
    pricing gains on varsity football helmets;
 
    
    improved sales mix of hockey skates and baseball, softball and hockey protective
equipment; and
 
    
    favorable foreign currency exchange rates.
  26




---



##### Table of Contents




    
    lower expenses for excess and obsolete inventory;
 
    
    reduced close-out sales;
 
    
    sales of the recently introduced Giro branded line of cycling shoes;
 
    
    increased sales of higher-margin cycling helmets and accessories; and
 
    
    favorable foreign currency exchange rates.
 Gross Profit
  Fiscal Quarter EndedApril 2,
    
    
    % of
    
    
    April 3,
    
    
    % of2011
    
    
    Net Sales
    
    
    2010
    
    
    Net Sales(Dollars in millions)Team Sports
    
    $
    37.9
    
    
    
    32.6%
    
    
    $
    44.1
    
    
    
    36.9%Action Sports
    
    
    26.1
    
    
    
    30.0%
    
    
    
    20.7
    
    
    
    27.7%$
    64.0
    
    
    
    31.5%
    
    
    $
    64.8
    
    
    
    33.4%
  
    
    transitioning the sales of higher-margin baseball and softball bats to later in the year
to better coincide with the retail selling season;
 
    
    sales growth in lower-margin youth football helmets;
 
    
    close-out sales of hockey products; and
 
    
    timing of higher-margin baseball and softball product shipments to the mass channel;
  
    
    pricing gains on varsity football helmets;
 
    
    improved sales mix of hockey skates and baseball, softball and hockey protective
equipment; and
 
    
    favorable foreign currency exchange rates.
  
    
    lower expenses for excess and obsolete inventory;
 
    
    reduced close-out sales;
 
    
    sales of the recently introduced Giro branded line of cycling shoes;
 
    
    increased sales of higher-margin cycling helmets and accessories; and
 
    
    favorable foreign currency exchange rates.
 Selling, General and Administrative Expenses
  Amortization of Intangibles
  Interest Expense
   27




---



##### Table of Contents



Income Tax Expense
  LIQUIDITY AND CAPITAL RESOURCES
     9.750% Senior Secured Notes
   28




---



##### Table of Contents



The ABL Facility
      29




---



##### Table of Contents



Sources and Uses of Our Cash
     
 Item 3.
    
    Quantitative and Qualitative Disclosures About Market Risk
 Foreign Currency Risk
      30




---



##### Table of Contents



Interest Rate Risk
  
 Item 4.
    
    Controls and Procedures
 Evaluation of Disclosure Controls and Procedures
  Changes in Internal Control over Financial Reporting
   31




---



##### Table of Contents



PART II. OTHER INFORMATION
 
 Item 1.
    
    Legal Proceedings
   
 Item 1A.
    
    Risk Factors
  
 Item 6.
    
    Exhibits
 (a)
    
    The following exhibits are filed or incorporated by reference as part of this Form 10-Q.
Each management contract or compensation plan required to be filed as an exhibit is
identified by an asterisk (*):
 Exhibit

    
    
    
    The filings referenced forNumber

    
    Description of Exhibit
    
    incorporation by reference are:31.1
    
    
    Certification of the
Principal Executive Officer
pursuant to Section 302 of
the Sarbanes-Oxley Act of
2002
    
    Filed herewith31.2
    
    
    Certification of the
Principal Financial Officer
pursuant to Section 302 of
the Sarbanes-Oxley Act of
2002
    
    Filed herewith32.1
    
    
    Certification of the
Principal Executive Officer
and Principal Financial
Officer pursuant to the 18
U.S.C. Section 1350, as
adopted pursuant to Section
906 of the Sarbanes-Oxley
Act of 2002
    
    Filed herewith
  32




---



##### Table of Contents



SIGNATURES
  EASTON-BELL SPORTS, INC.
RegistrantDated: May 16, 2011

/s/   Paul E. HarringtonPaul E. HarringtonPresident and Chief Executive Officer
(Principal Executive Officer)Dated: May 16, 2011

/s/
Mark A. TrippMark A. TrippChief Financial Officer
(Principal Financial Officer)  33