##### Table of Contents



UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
 WASHINGTON, D.C. 20549
 FORM 10-Q
 o
    
    QUARTERLY REPORT PURSUANT TO
SECTION 13 OR 15(d) OF THE SECURITIESEXCHANGE ACT OF 1934FOR THE QUARTERLY PERIOD ENDED APRIL 1, 2006ORo
    
    TRANSITION REPORT PURSUANT TO
SECTION 13 OR 15(d) OF THESECURITIES EXCHANGE ACT OF 1934
 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) 781-1587
(Registrants telephone number, including area code)
 
  o þ
  o þ
  o þ




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##### 



EASTON-BELL SPORTS, INC. AND SUBSIDIARIES
 INDEX
 PagePART I. FINANCIAL INFORMATION:Item 1.
    
    Financial Statements.Condensed Consolidated Balance Sheets as of April 1, 2006 and December 31, 2005
    
    
    1Condensed Consolidated Statements of Operations and Comprehensive Income (Loss) for the Quarters Ended April 1, 2006 and April 2, 2005
    
    
    2Condensed Consolidated Statements of Cash Flows for the Quarters Ended April 1, 2006 and April 2, 2005
    
    
    3Notes to Condensed Consolidated Financial Statements
    
    
    4Item 2.
    
    Management's Discussion and Analysis of Financial Condition and Results of Operations.
    
    
    15Item 3.
    
    Quantitative and Qualitative Disclosure About Market Risk.
    
    
    22Item 4.
    
    Controls and Procedures.
    
    
    22PART II. OTHER INFORMATION:Item 1.
    
    Legal Proceedings.
    
    
    24Item 6.
    
    Exhibits.
    
    
    24SIGNATURES
    
    
    25Certification of Chief Executive Officer Pursuant to Section 302Certification of Chief Financial Officer Pursuant to Section 302Certification of Chief Executive Officer and Chief Financial Officer Pursuant to Section 906




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##### Table of Contents



PART I. FINANCIAL INFORMATION
 
 Item 1. Financial Statements
 
 EASTON-BELL SPORTS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
 April 1,
    
    
    December 31,2006
    
    
    2005(Unaudited)ASSETSCurrent assets:Cash and cash equivalents
    
    $
    14,218
    
    
    $
    3,632Accounts receivable, net
    
    
    178,923
    
    
    
    87,459Inventories, net
    
    
    144,984
    
    
    
    54,950Deferred taxes
    
    
    9,932
    
    
    
    9,361Other current assets
    
    
    11,744
    
    
    
    9,414Total current assets
    
    
    359,801
    
    
    
    164,816Property, plant and equipment, net
    
    
    35,913
    
    
    
    18,945Intangible assets, net
    
    
    345,002
    
    
    
    176,544Goodwill
    
    
    175,040
    
    
    
    100,003Other assets
    
    
    30,980
    
    
    
    20,395Total assets
    
    $
    946,736
    
    
    $
    480,703LIABILITIES AND STOCKHOLDERS EQUITYCurrent liabilities:Current portion of long-term debt and capital lease
obligations
    
    $
    3,408
    
    
    $
    1,164Revolving credit facility
    
    
    29,702
    
    
    
    Accounts payable
    
    
    43,344
    
    
    
    23,090Accrued expenses
    
    
    56,219
    
    
    
    38,828Total current liabilities
    
    
    132,673
    
    
    
    63,082Long-term debt, less current portion
    
    
    471,847
    
    
    
    247,733Deferred taxes
    
    
    17,300
    
    
    
    23,151Other noncurrent liabilities
    
    
    12,488
    
    
    
    12,803Total liabilities
    
    
    634,308
    
    
    
    346,769Stockholders Equity:Common stock; $0.01 par value, 100 shares
authorized, 100 shares issued and outstanding at
April 1, 2006 and December 31, 2005, respectively
    
    
    
    
    
    
    Additional paid-in capital
    
    
    330,649
    
    
    
    144,226Accumulated deficit
    
    
    (18,401
    )
    
    
    (10,657
    )Accumulated other comprehensive income
    
    
    180
    
    
    
    365Total stockholders equity
    
    
    312,428
    
    
    
    133,934Total liabilities and stockholders equity
    
    $
    946,736
    
    
    $
    480,703
  1




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EASTON-BELL SPORTS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME (LOSS)
 Quarter EndedApril 1,
    
    
    April 2,2006
    
    
    2005Net sales
    
    $
    111,172
    
    
    $
    87,233Cost of sales
    
    
    74,307
    
    
    
    55,454Gross profit
    
    
    36,865
    
    
    
    31,779Selling, general and administrative expenses (exclusive of
amortization of intangibles and management fees)
    
    
    27,241
    
    
    
    22,834Management fees
    
    
    8,250
    
    
    
    750Restructuring and other infrequent expenses
    
    
    275
    
    
    
    748Amortization of intangibles
    
    
    2,341
    
    
    
    2,114Income (loss) from operations
    
    
    (1,242
    )
    
    
    5,333Interest expense, net
    
    
    11,481
    
    
    
    5,090Other expense
    
    
    56
    
    
    
    Income (loss) before income taxes
    
    
    (12,779
    )
    
    
    243Income tax (benefit) expense
    
    
    (5,035
    )
    
    
    74Net income (loss)
    
    
    (7,744
    )
    
    
    169Other comprehensive loss:Foreign currency translation adjustment
    
    
    (185
    )
    
    
    (154
    )Comprehensive
income (loss)
    
    $
    (7,929
    )
    
    $
    15
  2




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EASTON-BELL SPORTS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
 Quarter EndedApril 1,
    
    
    April 2,2006
    
    
    2005Cash flows from operating activities:Net income (loss)
    
    $
    (7,744
    )
    
    $
    169Adjustments to reconcile net income (loss) to net cash
used in operating activities:Depreciation and amortization
    
    
    4,637
    
    
    
    3,394Deferred debt issuance cost amortization
    
    
    593
    
    
    
    470Early extinguishment of debt
    
    
    1,613
    
    
    
    Variable stock compensation expense
    
    
    49
    
    
    
    458Deferred income tax benefit
    
    
    (6,422
    )
    
    
    (204
    )Changes in operating assets and liabilities, net
of effects from purchases of businesses:Accounts receivable, net
    
    
    (10,341
    )
    
    
    (20,407
    )Inventories
    
    
    (11,281
    )
    
    
    (7,857
    )Other current and noncurrent assets
    
    
    556
    
    
    
    (1,139
    )Accounts payable
    
    
    7,890
    
    
    
    1,978Accrued expenses
    
    
    (5,671
    )
    
    
    574Other current and noncurrent liabilities
    
    
    (312
    )
    
    
    (469
    )Net cash used in operating activities
    
    
    (26,433
    )
    
    
    (23,033
    )Cash flows from investing activities:Purchase of property, plant and equipment
    
    
    (3,720
    )
    
    
    (761
    )Purchase of businesses, net of cash acquired
    
    
    (389,657
    )
    
    
    Net cash used in investing activities
    
    
    (393,377
    )
    
    
    (761
    )Cash flows from financing activities:Proceeds from senior term loan
    
    
    335,000
    
    
    
    Proceeds from revolving credit facility
    
    
    65,404
    
    
    
    83,168Payments on senior term loan
    
    
    (108,625
    )
    
    
    (275
    )Payments on revolving credit facility
    
    
    (35,702
    )
    
    
    (59,900
    )Payments on capital lease obligations
    
    
    (17
    )
    
    
    (33
    )Proceeds from capital contributions
    
    
    186,423
    
    
    
    Payment of
deferred debt issuance costs
    
    
    (11,902
    )
    
    
    Net cash provided by financing activities
    
    
    430,581
    
    
    
    22,960Effect of exchange rate changes on cash and cash equivalents
    
    
    (185
    )
    
    
    (154
    )Increase (decrease) in cash and cash equivalents
    
    
    10,586
    
    
    
    (988
    )Cash and cash equivalents, beginning of period
    
    
    3,632
    
    
    
    1,429Cash and cash equivalents, end of period
    
    $
    14,218
    
    
    $
    441
  3




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EASTON-BELL SPORTS, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
( )
 1. Basis of Presentation
   2. Acquisition of Easton Sports
     4




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Notes to Condensed Consolidated Financial Statements  Continued
(unaudited and in thousands except as specified)
 
   Business
Combinations
  Net purchase price including cost of the transaction
    
    $
    389,657Add:Liabilities assumed (mainly accounts payable and
accrued expenses)
    
    
    35,232Less:Accounts receivable
    
    
    81,123Inventory
    
    
    78,753Other current assets
    
    
    3,434Property, plant and equipment
    
    
    15,046Other assets
    
    
    696Patents
    
    
    22,000Licensing agreements
    
    
    4,300Trademarks/Tradenames (indefinite-lived)
    
    
    128,300Non-Compete agreement
    
    
    1,600Customer relationships
    
    
    14,600Excess of cost over net assets acquired (goodwill)
    
    $
    75,037
   5




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##### Table of Contents



Notes to Condensed Consolidated Financial Statements  Continued
(unaudited and in thousands except as specified)
 
 Quarter ended
    
    Quarter endedApril 1,
    
    April 2,2006
    
    2005Net sales
    
    $
    166,546
    
    
    $
    151,704Net income
    
    
    3,848
    
    
    
    (1,557
    )
 3. Restructuring and Other Infrequent Expenses
 Accounting for Costs Associated with Exit or Disposal Activities
 Write-downof Property,
    
    
    
    
    
    
    Employee
    
    
    FacilityPlant and
    
    
    Employee
    
    
    Retention
    
    
    ClosureEquipment
    
    
    Severance
    
    
    Payments
    
    
    Costs
    
    
    TotalBalance as of December 31,
2004
    
    $
    
    
    
    $
    
    
    
    $
    
    
    
    $
    
    
    
    $
    Provision
    
    
    
    
    
    
    567
    
    
    
    
    
    
    
    181
    
    
    
    748Cash activity
    
    
    
    
    
    
    (50
    )
    
    
    
    
    
    
    (181
    )
    
    
    (231
    )Balance as of April 2, 2005
    
    $
    
    
    
    $
    517
    
    
    $
    
    
    
    $
    
    
    
    $
    517Provision
    
    
    250
    
    
    
    (25
    )
    
    
    46
    
    
    
    694
    
    
    
    965Less: Non-cash activity
    
    
    (250
    )
    
    
    
    
    
    
    
    
    
    
    (250
    )
    
    
    (500
    )Cash activity
    
    
    
    
    
    
    (423
    )
    
    
    (31
    )
    
    
    (444
    )
    
    
    (898
    )Balance as of December 31,
2005
    
    
    
    
    
    
    69
    
    
    
    15
    
    
    
    
    
    
    
    84Provision
    
    
    57
    
    
    
    
    
    
    
    
    
    
    
    218
    
    
    
    275Less: Non-cash activity
    
    
    (57
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (57
    )Cash activity
    
    
    
    
    
    
    (63
    )
    
    
    (9
    )
    
    
    (218
    )
    
    
    (290
    )Balance as of April 1, 2006
    
    $
    
    
    
    $
    6
    
    
    $
    6
    
    
    $
    
    
    
    $
    12
  4. Goodwill and Other Intangible Assets
  6




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Notes to Condensed Consolidated Financial Statements  Continued
(unaudited and in thousands except as specified)
 
 April 1, 2006
    
    
    December 31, 2005GrossCarrying
    
    
    Accumulated
    
    
    Gross Carrying
    
    
    AccumulatedAmounts
    
    
    Amortization
    
    
    Amounts
    
    
    AmortizationAmortized intangible assets:Trademarks and tradenames
    
    $
    1,702
    
    
    $
    (655
    )
    
    $
    1,702
    
    
    $
    (594
    )Customer relationships
    
    
    63,880
    
    
    
    (10,530
    )
    
    
    49,280
    
    
    
    (9,262
    )Patents
    
    
    60,345
    
    
    
    (5,598
    )
    
    
    38,345
    
    
    
    (4,638
    )Licensing and other
    
    
    5,900
    
    
    
    (53
    )
    
    
    
    
    
    
    Total
    
    $
    131,827
    
    
    $
    (16,836
    )
    
    $
    89,327
    
    
    $
    (14,494
    )Indefinite-lived intangible assets:Trademarks
    
    $
    230,011
    
    
    
    
    
    
    $
    101,711
  Team
    
    
    ActionSports
    
    
    Sports
    
    
    ConsolidatedBalance as of April 1, 2006
    
    $
    117,007
    
    
    $
    58,033
    
    
    $
    175,040
 Goodwill and Other Intangible Assets
 5. Long-Term Debt
  April 1,
    
    
    December 31,2006
    
    
    2005Senior Secured Credit Facility:Term loan facility
    
    $
    335,000
    
    
    $
    108,625U. S. revolving credit facility
    
    
    27,846
    
    
    
    Canadian revolving credit facility
    
    
    1,856
    
    
    
    8.375% Senior subordinated notes due 2012
    
    
    140,000
    
    
    
    140,000Capital lease obligations
    
    
    255
    
    
    
    272Total long-term debt
    
    
    504,957
    
    
    
    248,897Less current maturities of long-term debt
    
    
    33,110
    
    
    
    1,164Long-term debt, less current portion
    
    $
    471,847
    
    
    $
    247,733
  7




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Notes to Condensed Consolidated Financial Statements  Continued
(unaudited and in thousands except as specified)
 
        8




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Notes to Condensed Consolidated Financial Statements  Continued
(unaudited and in thousands except as specified)
 
    Debtors Accounting for a Modification or Exchange of Debt Instruments
  6. Inventories
   April 1,
    
    
    December 31,2006
    
    
    2005Raw materials
    
    $
    26,063
    
    
    $
    10,470Work-in-process
    
    
    4,671
    
    
    
    463Finished goods
    
    
    114,250
    
    
    
    44,017Inventories, net
    
    $
    144,984
    
    
    $
    54,950
  7. Recent Accounting Pronouncements
 Share-Based Payment
 9




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##### Table of Contents



Notes to Condensed Consolidated Financial Statements  Continued
(unaudited and in thousands except as specified)
 
 8. Segment Reporting
   TeamQuarter Ended
    
    Sports
    
    
    Action Sports
    
    
    ConsolidatedApril 1, 2006Net sales
    
    $
    45,703
    
    
    $
    65,469
    
    
    $
    111,172Income from operations
    
    
    4,341
    
    
    
    6,950
    
    
    
    11,291Depreciation
    
    
    1,342
    
    
    
    954
    
    
    
    2,296Capital expenditures
    
    
    452
    
    
    
    3,268
    
    
    
    3,720April 2, 2005Net sales
    
    $
    28,214
    
    
    $
    59,019
    
    
    $
    87,233Income from operations
    
    
    2,490
    
    
    
    7,385
    
    
    
    9,875Depreciation
    
    
    435
    
    
    
    845
    
    
    
    1,280Capital expenditures
    
    
    302
    
    
    
    459
    
    
    
    761
 TeamSports
    
    
    Action Sports
    
    
    ConsolidatedAssetsAs of April 1, 2006
    
    $
    602,867
    
    
    $
    343,869
    
    
    $
    946,736As of December 31, 2005
    
    
    158,778
    
    
    
    321,925
    
    
    
    480,703
  Quarter EndedApril 1,
    
    
    April 2,2006
    
    
    2005Segment income from operations
    
    $
    11,291
    
    
    $
    9,875Variable
stock compensation expense
    
    
    (49
    )
    
    
    (458
    )Management fees
    
    
    (8,250
    )
    
    
    (750
    )Corporate expenses
    
    
    (1,618
    )
    
    
    (472
    )Restructuring and other infrequent expense
    
    
    (275
    )
    
    
    (748
    )Amortization of intangibles
    
    
    (2,341
    )
    
    
    (2,114
    )Consolidated income (loss) from operations
    
    $
    (1,242
    )
    
    $
    5,333
 10




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Notes to Condensed Consolidated Financial Statements  Continued
(unaudited and in thousands except as specified)
 
 9. Product Liability and Other Contingencies
  10. Income Taxes
  11. Derivative Instruments and Hedging Activity
 Accounting for Derivative Instruments and Hedging Activities
  12. Stock-Based Employee Compensation
 Accounting
for Stock Issued to Employees Accounting for Stock-Based
Compensation Transition and Disclosure
 11




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Notes to Condensed Consolidated Financial Statements  Continued
(unaudited and in thousands except as specified)
 
    13. Warranty Obligations
   Quarter EndedApril 1,
    
    
    April 2,2006
    
    
    2005beginning balance
    
    $
    2,764
    
    
    $
    Warranty costs incurred during the period
    
    
    (417
    )
    
    
    Accruals recorded during the period
    
    
    481
    
    
    
    Ending balance
    
    $
    2,828
    
    
    $
    
 14. Related Party Transactions
   12




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Notes to Condensed Consolidated Financial Statements  Continued
(unaudited and in thousands except as specified)
 
    Easton Easton
    13




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Notes to Condensed Consolidated Financial Statements  Continued
(unaudited and in thousands except as specified)
 
  14




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Item 2. Managements Discussion and Analysis of Financial Condition and Results of Operations
 GENERAL
 On March 16, 2006, pursuant to a stock purchase agreement, Riddell Bell Holdings, Inc., or
Riddell Bell, acquired Easton Sports, Inc. and its subsidiaries, or Easton Sports. The
transactions relating to the acquisition are more fully described in Note 2 to the condensed
consolidated financial statements included elsewhere in this report. In connection with the
acquisition of Easton Sports, Riddell Bell changed its name to Easton-Bell Sports, Inc. In this
report, Easton-Bell Sports, Inc. and its subsidiaries are referred to as the Company.
     15




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##### Table of Contents



RESULTS OF OPERATIONS
 Net Sales
   Quarter EndedApril 1,
    
    
    % of
    
    
    April 2,
    
    
    % of
    
    
    Change due to2006
    
    
    Net Sales
    
    
    2005
    
    
    Net Sales
    
    
    acquisitionGross profit
    
    $
    36,865
    
    
    
    33.2
    %
    
    $
    31,779
    
    
    
    36.4
    %
    
    $
    5,332Selling, general and
administrative expenses
    
    
    27,241
    
    
    
    24.5
    %
    
    
    22,834
    
    
    
    26.2
    %
    
    
    2,920Management fees
    
    
    8,250
    
    
    
    7.4
    %
    
    
    750
    
    
    
    0.9
    %
    
    
    Restructuring and other
infrequent expenses
    
    
    275
    
    
    
    0.3
    %
    
    
    748
    
    
    
    0.8
    %
    
    
    Amortization of intangibles
    
    
    2,341
    
    
    
    2.1
    %
    
    
    2,114
    
    
    
    2.4
    %
    
    
    272Income (loss) from operations
    
    $
    (1,242
    )
    
    
    (1.1
    )%
    
    $
    5,333
    
    
    
    6.1
    %
    
    $
    2,140
 Gross Profit
  Selling, General and Administrative Expenses
  Management fees
  16




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Managements Discussion and Analysis of Financial Condition and Results of Operations
(Continued)
 
 Restructuring and Other Infrequent Items
  Amortization of Intangibles
  Interest Expense
  Provision (Benefit) for Income Taxes
  RESTRUCTURING AND OTHER INFREQUENT EXPENSES
 Accounting for Costs Associated with Exit or Disposal Activities
 17




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Managements Discussion and Analysis of Financial Condition and Results of Operations
(Continued)
 
 Write-downof Property,
    
    
    
    
    
    
    Employee
    
    
    FacilityPlant and
    
    
    Employee
    
    
    Retention
    
    
    ClosureEquipment
    
    
    Severance
    
    
    Payments
    
    
    Costs
    
    
    TotalBalance as of December 31,
2004
    
    $
    
    
    
    $
    
    
    
    $
    
    
    
    $
    
    
    
    $
    Provision
    
    
    
    
    
    
    567
    
    
    
    
    
    
    
    181
    
    
    
    748Cash activity
    
    
    
    
    
    
    (50
    )
    
    
    
    
    
    
    (181
    )
    
    
    (231
    )Balance as of April 2, 2005
    
    $
    
    
    
    $
    517
    
    
    $
    
    
    
    $
    
    
    
    $
    517Provision
    
    
    250
    
    
    
    (25
    )
    
    
    46
    
    
    
    694
    
    
    
    965Less: Non-cash activity
    
    
    (250
    )
    
    
    
    
    
    
    
    
    
    
    (250
    )
    
    
    (500
    )Cash activity
    
    
    
    
    
    
    (423
    )
    
    
    (31
    )
    
    
    (444
    )
    
    
    (898
    )Balance as of December 31,
2005
    
    
    
    
    
    
    69
    
    
    
    15
    
    
    
    
    
    
    
    84Provision
    
    
    57
    
    
    
    
    
    
    
    
    
    
    
    218
    
    
    
    275Less: Non-cash activity
    
    
    (57
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (57
    )Cash activity
    
    
    
    
    
    
    (63
    )
    
    
    (9
    )
    
    
    (218
    )
    
    
    (290
    )Balance as of April 1, 2006
    
    $
    
    
    
    $
    6
    
    
    $
    6
    
    
    $
    
    
    
    $
    12
  LIQUIDITY AND CAPITAL RESOURCES
     18




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##### Table of Contents



Managements Discussion and Analysis of Financial Condition and Results of Operations
(Continued)
 
         19




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##### Table of Contents



Managements Discussion and Analysis of Financial Condition and Results of Operations
(Continued)
 
         CRITICAL ACCOUNTING POLICIES AND ESTIMATES
  20




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##### Table of Contents



Managements Discussion and Analysis of Financial Condition and Results of Operations
(Continued)
 
   Derivative Instruments and Hedging Activity Accounting for Derivatives
 Warranty Liability
 
 21




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##### Table of Contents



Item 3: Quantitative and Qualitative Disclosure About Market Risk
   
 Item 4: Controls and Procedures
 Evaluation of Disclosure Controls and Procedures
  Changes in Internal Control Over Financial Reporting
  Forward-Looking Statements and Information
   22




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23




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PART II. OTHER INFORMATION
 
 Item 1. Legal Proceedings
  
 Item 6. Exhibits
  The filings referenced forExhibit
    
    
    
    incorporation by referenceNumber
    
    Description of Exhibit
    
    are:31.1
    
    Certification of the Chief
Executive Officer pursuant to
Section 302 of the
Sarbanes-Oxley Act of 2002
    
    Filed herewith31.2
    
    Certification of the Chief
Financial Officer pursuant to
Section 302 of the
Sarbanes-Oxley Act of 2002
    
    Filed herewith32.1
    
    Certification of the Chief
Executive Officer and Chief
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
 24




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##### Table of Contents



SIGNATURES
  EASTON-BELL SPORTS, INC.
Registrant/s/ Mark TrippMark TrippDated: May 16, 2006
    Chief Financial Officer
(Principal Financial Officer) 25