##### 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 4, 2009
 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
    
    20-1636283(State or other jurisdiction of 
incorporation or organization)
    
    (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 oAccelerated filer oNon-accelerated filer þ(Do not check if a smaller reporting company)Smaller reporting company o o þ




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##### 



EASTON-BELL SPORTS, INC. AND SUBSIDIARIES
 INDEX
 PagePART I. FINANCIAL INFORMATION:Item 1. Financial StatementsConsolidated Balance Sheets as of April 4, 2009 (unaudited) and January 3, 2009
    
    
    3Consolidated Statements of Operations and Comprehensive Income for the Fiscal Quarter
Ended April 4, 2009 (unaudited) and March 29, 2008 (unaudited)
    
    
    4Consolidated Statements of Cash Flows for the Fiscal Quarter Ended April 4, 2009
(unaudited) and March 29, 2008 (unaudited)
    
    
    5Notes to Consolidated Financial Statements
    
    
    6Item 2. Managements Discussion and Analysis of Financial Condition and Results of Operations
    
    
    20Item 3. Quantitative and Qualitative Disclosures About Market Risk
    
    
    26Item 4. Controls and Procedures
    
    
    27PART II. OTHER INFORMATION:Item 1. Legal Proceedings
    
    
    27Item 1A. Risk Factors
    
    
    27Item 6. Exhibits
    
    
    27SIGNATURES
    
    
    28EX-31.1EX-31.2EX-32.1
  2




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##### 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 4,
    
    
    January 3,2009
    
    
    2009(Unaudited)ASSETSCurrent assets:Cash and cash equivalents
    
    $
    26,014
    
    
    $
    41,301Accounts receivable, net
    
    
    222,464
    
    
    
    213,561Inventories, net
    
    
    145,077
    
    
    
    147,163Prepaid expenses
    
    
    8,560
    
    
    
    8,183Deferred taxes
    
    
    9,126
    
    
    
    9,128Other current assets
    
    
    9,046
    
    
    
    7,605Total current assets
    
    
    420,287
    
    
    
    426,941Property, plant and equipment, net
    
    
    46,168
    
    
    
    45,874Deferred financing fees, net
    
    
    11,161
    
    
    
    12,055Intangible assets, net
    
    
    300,466
    
    
    
    303,818Goodwill
    
    
    203,541
    
    
    
    203,456Other assets
    
    
    1,015
    
    
    
    5,501Total assets
    
    $
    982,638
    
    
    $
    997,645LIABILITIES AND STOCKHOLDERS EQUITYCurrent liabilities:Current portion of long-term debt
    
    $
    3,350
    
    
    $
    12,405Revolving credit facility
    
    
    3,000
    
    
    
    Current portion of capital lease obligations
    
    
    20
    
    
    
    22Accounts payable
    
    
    72,684
    
    
    
    81,245Accrued expenses
    
    
    40,236
    
    
    
    50,397Total current liabilities
    
    
    119,290
    
    
    
    144,069Long-term debt, less current portion
    
    
    451,650
    
    
    
    443,383Capital lease obligations, less current portion
    
    
    119
    
    
    
    123Deferred taxes
    
    
    40,023
    
    
    
    39,794Other noncurrent liabilities
    
    
    23,488
    
    
    
    23,252Total liabilities
    
    
    634,570
    
    
    
    650,621Stockholders equity:Common stock: $0.01 par value, 100 shares
authorized, 100 shares issued and
outstanding at April 4, 2009 and January 3,
2009
    
    
    
    
    
    
    Additional paid-in capital
    
    
    342,124
    
    
    
    341,197Retained earnings
    
    
    12,348
    
    
    
    11,373Accumulated other comprehensive loss
    
    
    (6,404
    )
    
    
    (5,546
    )Total stockholders equity
    
    
    348,068
    
    
    
    347,024Total liabilities and stockholders equity
    
    $
    982,638
    
    
    $
    997,645
  3




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EASTON-BELL SPORTS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME
(Unaudited and amounts in thousands)
 Fiscal Quarter EndedApril 4,
    
    
    March 29,2009
    
    
    2008Net sales
    
    $
    184,851
    
    
    $
    182,139Cost of sales
    
    
    124,676
    
    
    
    121,119Gross profit
    
    
    60,175
    
    
    
    61,020Selling, general and administrative expenses
    
    
    46,895
    
    
    
    43,635Restructuring expenses
    
    
    
    
    
    
    175Amortization of intangibles
    
    
    3,352
    
    
    
    3,352Income from operations
    
    
    9,928
    
    
    
    13,858Interest expense, net
    
    
    8,327
    
    
    
    9,797Income before income taxes
    
    
    1,601
    
    
    
    4,061Income tax expense
    
    
    626
    
    
    
    1,665Net income
    
    
    975
    
    
    
    2,396Other comprehensive income:Foreign currency translation adjustment
    
    
    (858
    )
    
    
    (821
    )Comprehensive income
    
    $
    117
    
    
    $
    1,575
  4




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EASTON-BELL SPORTS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited and amounts in thousands)
 Fiscal Quarter EndedApril 4,
    
    
    March 29,2009
    
    
    2008Cash flows from operating activities:Net income
    
    $
    975
    
    
    $
    2,396Adjustments to reconcile net income to net cash (used in)
provided by operating activities:Depreciation and amortization
    
    
    6,722
    
    
    
    6,276Amortization of deferred financing fees
    
    
    894
    
    
    
    895Equity compensation expense
    
    
    927
    
    
    
    832Deferred income tax expense
    
    
    231
    
    
    
    660Disposal of property, plant and equipment
    
    
    3
    
    
    
    Changes in operating assets and liabilities:Accounts receivable, net
    
    
    (9,222
    )
    
    
    (22,399
    )Inventories, net
    
    
    1,942
    
    
    
    12,522Other current and noncurrent assets
    
    
    2,583
    
    
    
    (1,416
    )Accounts payable
    
    
    (8,570
    )
    
    
    (3,914
    )Accrued expenses
    
    
    (10,035
    )
    
    
    4,193Other current and noncurrent liabilities
    
    
    236
    
    
    
    1,623Net cash (used in) provided by operating activities
    
    
    (13,314
    )
    
    
    1,668Cash flows from investing activities:Purchase of property, plant and equipment
    
    
    (3,675
    )
    
    
    (3,569
    )Net cash used in investing activities
    
    
    (3,675
    )
    
    
    (3,569
    )Cash flows from financing activities:Payments on senior term notes
    
    
    (788
    )
    
    
    (837
    )Proceeds from revolving credit facility
    
    
    4,500
    
    
    
    18,000Payments on revolving credit facility
    
    
    (1,500
    )
    
    
    (15,500
    )Payments on capital lease obligations
    
    
    (6
    )
    
    
    (6
    )Net cash provided by financing activities
    
    
    2,206
    
    
    
    1,657Effect of exchange rate changes on cash and cash equivalents
    
    
    (504
    )
    
    
    239Decrease in cash and cash equivalents
    
    
    (15,287
    )
    
    
    (5
    )Cash and cash equivalents, beginning of period
    
    
    41,301
    
    
    
    16,923Cash and cash equivalents, end of period
    
    $
    26,014
    
    
    $
    16,918
  5




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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 4, 2009
    
    
    January 3, 2009Gross
    
    
    
    
    
    
    GrossCarrying
    
    
    Accumulated
    
    
    Carrying
    
    
    AccumulatedAmounts
    
    
    Amortization
    
    
    Amounts
    
    
    AmortizationAmortizable intangible assets:Trademarks and tradenames
    
    $
    1,702
    
    
    $
    (1,394
    )
    
    $
    1,702
    
    
    $
    (1,333
    )Customer relationships
    
    
    59,180
    
    
    
    (26,844
    )
    
    
    59,180
    
    
    
    (25,484
    )Patents
    
    
    60,345
    
    
    
    (24,974
    )
    
    
    60,345
    
    
    
    (23,358
    )Licensing and other
    
    
    5,900
    
    
    
    (3,833
    )
    
    
    5,900
    
    
    
    (3,518
    )Total
    
    $
    127,127
    
    
    $
    (57,045
    )
    
    $
    127,127
    
    
    $
    (53,693
    )Indefinite-lived intangible assets:Trademarks and tradenames
    
    $
    230,384
    
    
    
    
    
    
    $
    230,384
  Team
    
    
    ActionSports
    
    
    Sports
    
    
    ConsolidatedBalance as of January 3, 2009
    
    $
    141,992
    
    
    $
    61,464
    
    
    $
    203,456Adjustment to purchase price allocations
    
    
    85
    
    
    
    
    
    
    
    85Balance as of April 4, 2009
    
    $
    142,077
    
    
    $
    61,464
    
    
    $
    203,541
 Goodwill and Other Intangible Assets
  6




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EASTON-BELL SPORTS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited and amounts in thousands, except as specified)
 3. Long-Term Debt
  April 4, 2009
    
    
    January 3, 2009Senior Secured Credit Facility:Term loan facility
    
    $
    315,000
    
    
    $
    315,788U.S. revolving credit facility
    
    
    3,000
    
    
    
    8.375% Senior subordinated notes due 2012
    
    
    140,000
    
    
    
    140,000Capital lease obligations
    
    
    139
    
    
    
    145Total long-term debt
    
    
    458,139
    
    
    
    455,933Less current maturities of long-term debt
    
    
    (6,370
    )
    
    
    (12,427
    )Long-term debt, less current portion
    
    $
    451,769
    
    
    $
    443,506
 Senior Credit Agreement
     7




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EASTON-BELL SPORTS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited and amounts in thousands, except as specified)
  Senior Subordinated Notes
    Other
   4. Accrued Expenses
  April 4, 2009
    
    
    January 3, 2009Salaries, wages, commissions and bonuses
    
    $
    8,907
    
    
    $
    13,717Advertising
    
    
    4,258
    
    
    
    4,919Restructuring
    
    
    122
    
    
    
    146Defective products
    
    
    714
    
    
    
    656Rebates
    
    
    4,011
    
    
    
    4,160Warranty
    
    
    3,691
    
    
    
    3,663Product liability  current portion
    
    
    4,137
    
    
    
    3,647Royalties
    
    
    1,599
    
    
    
    1,771Interest
    
    
    1,916
    
    
    
    6,335Other
    
    
    10,881
    
    
    
    11,383Total accrued expenses
    
    $
    40,236
    
    
    $
    50,397
 8




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EASTON-BELL SPORTS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited and amounts in thousands, except as specified)
 5. Inventories
   April 4, 2009
    
    
    January 3, 2009Raw materials
    
    $
    20,525
    
    
    $
    17,083Work-in-process
    
    
    2,341
    
    
    
    2,567Finished goods
    
    
    122,211
    
    
    
    127,513Inventories, net
    
    $
    145,077
    
    
    $
    147,163
 6. Recent Accounting Pronouncements
 Fair Value Measurements
 The Fair Value Option for Financial Assets and
Liabilities  Including an amendment of FASB Statement No. 115
 Business Combinations
 Disclosures about Derivative Instruments and
Hedging Activities
 9




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EASTON-BELL SPORTS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited and amounts in thousands, except as specified)
 Determination of the Useful Life of Intangible
Assets
 Hierarchy of Generally Accepted Accounting
Principles
 7. Segment Reporting
   Team
    
    ActionFiscal Quarter Ended
    
    Sports
    
    Sports
    
    ConsolidatedApril 4, 2009Net sales
    
    $
    107,811
    
    
    $
    77,040
    
    
    $
    184,851Income from operations
    
    
    13,544
    
    
    
    6,197
    
    
    
    19,741Depreciation
    
    
    1,876
    
    
    
    1,494
    
    
    
    3,370Capital expenditures
    
    
    2,654
    
    
    
    1,021
    
    
    
    3,675March 29, 2008Net sales
    
    $
    100,783
    
    
    $
    81,356
    
    
    $
    182,139Income from operations
    
    
    15,361
    
    
    
    7,366
    
    
    
    22,727Depreciation
    
    
    1,504
    
    
    
    1,420
    
    
    
    2,924Capital expenditures
    
    
    2,274
    
    
    
    1,295
    
    
    
    3,569
 Team
    
    ActionSports
    
    Sports
    
    ConsolidatedAssetsAs of April 4, 2009
    
    $
    598,430
    
    
    $
    384,208
    
    
    $
    982,638As of January 3, 2009
    
    
    609,793
    
    
    
    387,852
    
    
    
    997,645
 10




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EASTON-BELL SPORTS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited and amounts in thousands, except as specified)
  Fiscal Quarter EndedApril 4, 2009
    
    
    March 29, 2008Segment income from operations
    
    $
    19,741
    
    
    $
    22,727Equity compensation expense
    
    
    (927
    )
    
    
    (832
    )Corporate expenses
    
    
    (5,534
    )
    
    
    (4,510
    )Restructuring expenses
    
    
    
    
    
    
    (175
    )Amortization of intangibles
    
    
    (3,352
    )
    
    
    (3,352
    )Consolidated income from operations
    
    $
    9,928
    
    
    $
    13,858
 8. Product Liability, Litigation and Other Contingencies
 Product Liability
   Litigation and Other Contingencies
  9. Income Taxes
  11




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EASTON-BELL SPORTS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited and amounts in thousands, except as specified)
 10. Derivative Instruments and Hedging Activity
 Accounting for Derivative Instruments and Hedging Activities
         12




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EASTON-BELL SPORTS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited and amounts in thousands, except as specified)
   Fair Value Measurements at Reporting Date UsingQuoted Prices in
    
    
    
    
    
    
    SignificantActive Markets for
    
    
    Significant Other
    
    
    UnobservableIdentical Assets
    
    
    Observable Inputs
    
    
    Inputs(Level 1)
    
    
    (Level 2)
    
    
    (Level 3)Assets:None
    
    $
    
    
    
    $
    
    
    
    $
    Liabilities:Interest rate swap
    
    $
    
    
    
    $
    7,903
    
    
    $
    
 11. Equity-Based Employee Compensation
  Share Based Payment Accounting for Stock Based
Compensation Shared Based Payment
  Fiscal Quarter EndedMarch 29, 2008Expected term
    
    4 yearsDividend yield
    
    
    0.0%Forfeiture rate
    
    
    7.7%Risk-free interest rate
    
    
    1.5 to 2.0%Expected volatility(1)
    
    
    46.0%
 
 (1)
    
    Expected volatility is based upon a peer group of companies given no
historical data for the Units.  13




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EASTON-BELL SPORTS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited and amounts in thousands, except as specified)
  Fiscal Quarter EndedApril 4, 2009
    
    
    March 29, 2008Equity compensation expense
    
    $
    927
    
    
    $
    832
   Weighted AverageNumber of
    
    Grant DateUnits
    
    Fair ValueOutstanding at January 3, 2009
    
    
    27,898,556
    
    
    $
    1.90Forfeited
    
    
    (210,000
    )
    
    $
    1.76Outstanding at April 4, 2009
    
    
    27,688,556
    
    
    $
    1.90Vested Units at April 4, 2009
    
    
    10,953,235
    
    
    $
    1.98
 12. Warranty Obligations
   Fiscal Quarter EndedApril 4,
    
    
    March 29,2009
    
    
    2008Beginning of period
    
    $
    3,663
    
    
    $
    3,390Warranty costs incurred during the period
    
    
    (991
    )
    
    
    (1,307
    )Warranty expense recorded during the period
    
    
    1,019
    
    
    
    1,425End of period
    
    $
    3,691
    
    
    $
    3,508
 13. Related Party Transactions
 Easton Easton
 14




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EASTON-BELL SPORTS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited and amounts in thousands, except as specified)
     14. Supplemental Guarantor Condensed Financial Information
   15




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EASTON-BELL SPORTS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited and amounts in thousands, except as specified)
 Condensed Consolidating Balance Sheet
April 4, 2009
 Guarantor
    
    
    Non-GuarantorIssuer
    
    
    Subsidiaries
    
    
    Subsidiaries
    
    
    Eliminations
    
    
    ConsolidatedASSETSCurrent assets:Cash and cash equivalents
    
    $
    11,034
    
    
    $
    10,434
    
    
    $
    4,546
    
    
    $
    
    
    
    $
    26,014Accounts receivable, net
    
    
    
    
    
    
    198,034
    
    
    
    24,430
    
    
    
    
    
    
    
    222,464Inventories, net
    
    
    
    
    
    
    128,053
    
    
    
    17,024
    
    
    
    
    
    
    
    145,077Prepaid expenses
    
    
    1,101
    
    
    
    7,023
    
    
    
    436
    
    
    
    
    
    
    
    8,560Deferred taxes
    
    
    
    
    
    
    9,126
    
    
    
    
    
    
    
    
    
    
    
    9,126Other current assets
    
    
    
    
    
    
    8,622
    
    
    
    424
    
    
    
    
    
    
    
    9,046Total current assets
    
    
    12,135
    
    
    
    361,292
    
    
    
    46,860
    
    
    
    
    
    
    
    420,287Property, plant and equipment, net
    
    
    17,962
    
    
    
    27,369
    
    
    
    837
    
    
    
    
    
    
    
    46,168Deferred financing fees, net
    
    
    11,161
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    11,161Investments and intercompany receivables
    
    
    415,069
    
    
    
    80,867
    
    
    
    14,763
    
    
    
    (510,699
    )
    
    
    Intangible assets, net
    
    
    
    
    
    
    294,456
    
    
    
    6,010
    
    
    
    
    
    
    
    300,466Goodwill
    
    
    16,195
    
    
    
    182,155
    
    
    
    5,191
    
    
    
    
    
    
    
    203,541Other assets
    
    
    1,015
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    1,015Total assets
    
    $
    473,537
    
    
    $
    946,139
    
    
    $
    73,661
    
    
    $
    (510,699
    )
    
    $
    982,638LIABILITIES AND STOCKHOLDERS EQUITYCurrent liabilities:Current portion of long-term debt
    
    $
    3,350
    
    
    $
    
    
    
    $
    
    
    
    $
    
    
    
    $
    3,350Revolving credit facility
    
    
    3,000
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    3,000Current portion of capital lease obligations
    
    
    
    
    
    
    20
    
    
    
    
    
    
    
    
    
    
    
    20Accounts payable
    
    
    
    
    
    
    63,580
    
    
    
    9,104
    
    
    
    
    
    
    
    72,684Accrued expenses
    
    
    3,589
    
    
    
    32,252
    
    
    
    4,395
    
    
    
    
    
    
    
    40,236Total current liabilities
    
    
    9,939
    
    
    
    95,852
    
    
    
    13,499
    
    
    
    
    
    
    
    119,290Long-term debt, less current portion
    
    
    451,650
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    451,650Capital lease obligations, less current portion
    
    
    
    
    
    
    119
    
    
    
    
    
    
    
    
    
    
    
    119Deferred taxes
    
    
    
    
    
    
    40,023
    
    
    
    
    
    
    
    
    
    
    
    40,023Other noncurrent liabilities
    
    
    
    
    
    
    16,055
    
    
    
    7,433
    
    
    
    
    
    
    
    23,488Long-term intercompany payables
    
    
    
    
    
    
    477,636
    
    
    
    
    
    
    
    (477,636
    )
    
    
    Total liabilities
    
    
    461,589
    
    
    
    629,685
    
    
    
    20,932
    
    
    
    (477,636
    )
    
    
    634,570Total stockholders equity
    
    
    11,948
    
    
    
    316,454
    
    
    
    52,729
    
    
    
    (33,063
    )
    
    
    348,068Total liabilities and stockholders equity
    
    $
    473,537
    
    
    $
    946,139
    
    
    $
    73,661
    
    
    $
    (510,699
    )
    
    $
    982,638
 16




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##### Table of Contents



EASTON-BELL SPORTS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited and amounts in thousands, except as specified)
 Condensed Consolidating Balance Sheet
January 3, 2009
 Guarantor
    
    
    Non-GuarantorIssuer
    
    
    Subsidiaries
    
    
    Subsidiaries
    
    
    Eliminations
    
    
    ConsolidatedASSETSCurrent assets:Cash and cash equivalents
    
    $
    14,829
    
    
    $
    9,823
    
    
    $
    16,649
    
    
    $
    
    
    
    $
    41,301Accounts receivable, net
    
    
    
    
    
    
    190,615
    
    
    
    22,946
    
    
    
    
    
    
    
    213,561Inventories, net
    
    
    
    
    
    
    133,933
    
    
    
    13,230
    
    
    
    
    
    
    
    147,163Prepaid expenses
    
    
    1,246
    
    
    
    6,638
    
    
    
    299
    
    
    
    
    
    
    
    8,183Deferred taxes
    
    
    
    
    
    
    9,128
    
    
    
    
    
    
    
    
    
    
    
    9,128Other current assets
    
    
    
    
    
    
    7,492
    
    
    
    113
    
    
    
    
    
    
    
    7,605Total current assets
    
    
    16,075
    
    
    
    357,629
    
    
    
    53,237
    
    
    
    
    
    
    
    426,941Property, plant and equipment, net
    
    
    16,884
    
    
    
    28,105
    
    
    
    885
    
    
    
    
    
    
    
    45,874Deferred financing fees, net
    
    
    12,055
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    12,055Investments and intercompany receivables
    
    
    407,926
    
    
    
    97,353
    
    
    
    5,352
    
    
    
    (510,631
    )
    
    
    Intangible assets, net
    
    
    
    
    
    
    297,740
    
    
    
    6,078
    
    
    
    
    
    
    
    303,818Goodwill
    
    
    16,195
    
    
    
    182,070
    
    
    
    5,191
    
    
    
    
    
    
    
    203,456Other assets
    
    
    5,501
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    5,501Total assets
    
    $
    474,636
    
    
    $
    962,897
    
    
    $
    70,743
    
    
    $
    (510,631
    )
    
    $
    997,645LIABILITIES AND STOCKHOLDERS EQUITYCurrent liabilities:Current portion of long-term debt
    
    $
    12,405
    
    
    $
    
    
    
    $
    
    
    
    $
    
    
    
    $
    12,405Current portion of capital lease obligations
    
    
    
    
    
    
    22
    
    
    
    
    
    
    
    
    
    
    
    22Accounts payable
    
    
    
    
    
    
    76,438
    
    
    
    4,807
    
    
    
    
    
    
    
    81,245Accrued expenses
    
    
    3,118
    
    
    
    38,881
    
    
    
    8,398
    
    
    
    
    
    
    
    50,397Total current liabilities
    
    
    15,523
    
    
    
    115,341
    
    
    
    13,205
    
    
    
    
    
    
    
    144,069Long-term debt, less current portion
    
    
    443,383
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    443,383Capital lease obligations, less current portion
    
    
    
    
    
    
    123
    
    
    
    
    
    
    
    
    
    
    
    123Deferred taxes
    
    
    
    
    
    
    39,794
    
    
    
    
    
    
    
    
    
    
    
    39,794Other noncurrent liabilities
    
    
    
    
    
    
    15,819
    
    
    
    7,433
    
    
    
    
    
    
    
    23,252Long-term intercompany payables
    
    
    
    
    
    
    477,636
    
    
    
    
    
    
    
    (477,636
    )
    
    
    Total liabilities
    
    
    458,906
    
    
    
    648,713
    
    
    
    20,638
    
    
    
    (477,636
    )
    
    
    650,621Total stockholders equity
    
    
    15,730
    
    
    
    314,184
    
    
    
    50,105
    
    
    
    (32,995
    )
    
    
    347,024Total liabilities and stockholders equity
    
    $
    474,636
    
    
    $
    962,897
    
    
    $
    70,743
    
    
    $
    (510,631
    )
    
    $
    997,645
 17




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##### Table of Contents



EASTON-BELL SPORTS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited and amounts in thousands, except as specified)
 Condensed Consolidating Statement of Operations
Fiscal Quarter Ended April 4, 2009
 Non-Guarantor
    
    
    GuarantorIssuer
    
    
    Subsidiaries
    
    
    Subsidiaries
    
    
    Eliminations
    
    
    ConsolidatedNet sales
    
    $
    
    
    
    $
    178,212
    
    
    $
    18,144
    
    
    $
    (11,505
    )
    
    $
    184,851Cost of sales
    
    
    
    
    
    
    121,014
    
    
    
    15,167
    
    
    
    (11,505
    )
    
    
    124,676Gross profit
    
    
    
    
    
    
    57,198
    
    
    
    2,977
    
    
    
    
    
    
    
    60,175Selling, general and administrative expenses
    
    
    7,274
    
    
    
    37,170
    
    
    
    2,451
    
    
    
    
    
    
    
    46,895Amortization of intangibles
    
    
    
    
    
    
    3,352
    
    
    
    
    
    
    
    
    
    
    
    3,352(Loss) income from operations
    
    
    (7,274
    )
    
    
    16,676
    
    
    
    526
    
    
    
    
    
    
    
    9,928Interest expense, net
    
    
    8,152
    
    
    
    187
    
    
    
    (12
    )
    
    
    
    
    
    
    8,327Share of net income (loss) of subsidiaries
under equity method
    
    
    16,401
    
    
    
    439
    
    
    
    
    
    
    
    (16,840
    )
    
    
    Income (loss) before income taxes
    
    
    975
    
    
    
    16,928
    
    
    
    538
    
    
    
    (16,840
    )
    
    
    1,601Income tax expense
    
    
    
    
    
    
    527
    
    
    
    99
    
    
    
    
    
    
    
    626Net income (loss)
    
    $
    975
    
    
    $
    16,401
    
    
    $
    439
    
    
    $
    (16,840
    )
    
    $
    975
 Condensed Consolidating Statement of Operations
Fiscal Quarter Ended March 29, 2008
 Non-Guarantor
    
    
    GuarantorIssuer
    
    
    Subsidiaries
    
    
    Subsidiaries
    
    
    Eliminations
    
    
    ConsolidatedNet sales
    
    $
    
    
    
    $
    169,616
    
    
    $
    19,802
    
    
    $
    (7,279
    )
    
    $
    182,139Cost of sales
    
    
    13
    
    
    
    114,021
    
    
    
    14,364
    
    
    
    (7,279
    )
    
    
    121,119Gross profit
    
    
    (13
    )
    
    
    55,595
    
    
    
    5,438
    
    
    
    
    
    
    
    61,020Selling, general and administrative expenses
    
    
    5,443
    
    
    
    35,570
    
    
    
    2,622
    
    
    
    
    
    
    
    43,635Restructuring expenses
    
    
    
    
    
    
    175
    
    
    
    
    
    
    
    
    
    
    
    175Amortization of intangibles
    
    
    
    
    
    
    3,352
    
    
    
    
    
    
    
    
    
    
    
    3,352(Loss) income from operations
    
    
    (5,456
    )
    
    
    16,498
    
    
    
    2,816
    
    
    
    
    
    
    
    13,858Interest expense, net
    
    
    9,758
    
    
    
    166
    
    
    
    (127
    )
    
    
    
    
    
    
    9,797Share of net income (loss) of subsidiaries
under equity method
    
    
    17,610
    
    
    
    1,951
    
    
    
    
    
    
    
    (19,561
    )
    
    
    Income (loss) before income taxes
    
    
    2,396
    
    
    
    18,283
    
    
    
    2,943
    
    
    
    (19,561
    )
    
    
    4,061Income tax expense
    
    
    
    
    
    
    673
    
    
    
    992
    
    
    
    
    
    
    
    1,665Net income (loss)
    
    $
    2,396
    
    
    $
    17,610
    
    
    $
    1,951
    
    
    $
    (19,561
    )
    
    $
    2,396
 18




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##### Table of Contents



EASTON-BELL SPORTS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited and amounts in thousands, except as specified)
 Condensed Consolidating Statement of Cash Flows
Fiscal Quarter Ended April 4, 2009
 Guarantor
    
    
    Non-GuarantorIssuer
    
    
    Subsidiaries
    
    
    Subsidiaries
    
    
    Eliminations
    
    
    ConsolidatedCash flows from operating activities:Net income (loss)
    
    $
    975
    
    
    $
    16,401
    
    
    $
    439
    
    
    $
    (16,840
    )
    
    $
    975Non-cash adjustments
    
    
    (10,125
    )
    
    
    8,296
    
    
    
    (6,234
    )
    
    
    16,840
    
    
    
    8,777Changes in operating assets and liabilities
    
    
    5,102
    
    
    
    (22,390
    )
    
    
    (5,778
    )
    
    
    
    
    
    
    (23,066
    )Net cash (used in) provided by operating activities
    
    
    (4,048
    )
    
    
    2,307
    
    
    
    (11,573
    )
    
    
    
    
    
    
    (13,314
    )Cash flows from investing activities:Purchases of property, plant and equipment
    
    
    (1,959
    )
    
    
    (1,690
    )
    
    
    (26
    )
    
    
    
    
    
    
    (3,675
    )Net cash used in investing activities
    
    
    (1,959
    )
    
    
    (1,690
    )
    
    
    (26
    )
    
    
    
    
    
    
    (3,675
    )Cash flows from financing activities:Payments on capital lease obligations
    
    
    
    
    
    
    (6
    )
    
    
    
    
    
    
    
    
    
    
    (6
    )Payments on senior term notes
    
    
    (788
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (788
    )Proceeds from senior secured credit facility, net
    
    
    3,000
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    3,000Net cash provided by (used in) financing activities
    
    
    2,212
    
    
    
    (6
    )
    
    
    
    
    
    
    
    
    
    
    2,206Effect of exchange rate changes on cash and cash equivalents
    
    
    
    
    
    
    
    
    
    
    (504
    )
    
    
    
    
    
    
    (504
    )(Decrease) increase in cash and cash equivalents
    
    
    (3,795
    )
    
    
    611
    
    
    
    (12,103
    )
    
    
    
    
    
    
    (15,287
    )Cash and cash equivalents, beginning of period
    
    
    14,829
    
    
    
    9,823
    
    
    
    16,649
    
    
    
    
    
    
    
    41,301Cash and cash equivalents, end of period
    
    $
    11,034
    
    
    $
    10,434
    
    
    $
    4,546
    
    
    $
    
    
    
    $
    26,014
 Condensed Consolidating Statement of Cash Flows
Fiscal Quarter Ended March 29, 2008
 Guarantor
    
    
    Non-GuarantorIssuer
    
    
    Subsidiaries
    
    
    Subsidiaries
    
    
    Eliminations
    
    
    ConsolidatedCash flows from operating activities:Net income (loss)
    
    $
    2,396
    
    
    $
    17,610
    
    
    $
    1,951
    
    
    $
    (19,561
    )
    
    $
    2,396Non-cash adjustments
    
    
    (1,466
    )
    
    
    (8,280
    )
    
    
    (1,152
    )
    
    
    19,561
    
    
    
    8,663Changes in operating assets and liabilities
    
    
    (996
    )
    
    
    (6,602
    )
    
    
    (1,793
    )
    
    
    
    
    
    
    (9,391
    )Net cash (used in) provided by operating activities
    
    
    (66
    )
    
    
    2,728
    
    
    
    (994
    )
    
    
    
    
    
    
    1,668Cash flows from investing activities:Purchases of property, plant and equipment
    
    
    (2,140
    )
    
    
    (1,426
    )
    
    
    (3
    )
    
    
    
    
    
    
    (3,569
    )Net cash used in investing activities
    
    
    (2,140
    )
    
    
    (1,426
    )
    
    
    (3
    )
    
    
    
    
    
    
    (3,569
    )Cash flows from financing activities:Payments on capital lease obligations
    
    
    
    
    
    
    (6
    )
    
    
    
    
    
    
    
    
    
    
    (6
    )Payments on senior term notes
    
    
    (837
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (837
    )Proceeds from senior secured credit facility, net
    
    
    2,500
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    2,500Net cash provided by (used in) financing activities
    
    
    1,663
    
    
    
    (6
    )
    
    
    
    
    
    
    
    
    
    
    1,657Effect of exchange rate changes on cash and cash equivalents
    
    
    
    
    
    
    
    
    
    
    239
    
    
    
    
    
    
    
    239(Decrease) increase in cash and cash equivalents
    
    
    (543
    )
    
    
    1,296
    
    
    
    (758
    )
    
    
    
    
    
    
    (5
    )Cash and cash equivalents, beginning of period
    
    
    3,099
    
    
    
    1,820
    
    
    
    12,004
    
    
    
    
    
    
    
    16,923Cash and cash equivalents, end of period
    
    $
    2,556
    
    
    $
    3,116
    
    
    $
    11,246
    
    
    $
    
    
    
    $
    16,918
 19




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##### 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
  How We Assess the Performance of Our Business
  Net Sales
 Giro
 20




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##### Table of Contents



Cost of Sales
  Gross Profit
  Selling, General and Administrative Expenses
  RESULTS OF OPERATIONS
  Fiscal Quarter EndedApril 4,
    
    
    % of
    
    March 29,
    
    
    % of2009
    
    
    Net Sales
    
    2008
    
    
    Net Sales(Dollars in millions)Net sales
    
    $
    184.9
    
    
    
    100.0
    %
    
    $
    182.1
    
    
    
    100.0
    %Cost of sales
    
    
    124.7
    
    
    
    67.4
    %
    
    
    121.1
    
    
    
    66.5
    %Gross profit
    
    
    60.2
    
    
    
    32.6
    %
    
    
    61.0
    
    
    
    33.5
    %Selling, general and administrative expenses
    
    
    47.0
    
    
    
    25.4
    %
    
    
    43.6
    
    
    
    23.9
    %Restructuring expenses
    
    
    
    
    
    
    
    
    
    
    0.2
    
    
    
    0.1
    %Amortization of intangibles
    
    
    3.3
    
    
    
    1.8
    %
    
    
    3.3
    
    
    
    1.9
    %Income from operations
    
    $
    9.9
    
    
    
    5.4
    %
    
    $
    13.9
    
    
    
    7.6
    %
 Net Sales
  Fiscal Quarter EndedApril 4,
    
    
    March 29,
    
    
    Change2009
    
    
    2008
    
    
    $
    
    
    %(Dollars in millions)Team Sports
    
    $
    107.8
    
    
    $
    100.8
    
    
    $
    7.0
    
    
    
    6.9
    %Action Sports
    
    
    77.1
    
    
    
    81.3
    
    
    
    (4.2
    )
    
    
    (5.2
    %)$
    184.9
    
    
    $
    182.1
    
    
    $
    2.8
    
    
    
    1.5
    %
  21




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##### Table of Contents



Cost of Sales
  Fiscal Quarter EndedApril 4,
    
    
    % of
    
    March 29,
    
    
    % of2009
    
    
    Net Sales
    
    2008
    
    
    Net Sales(Dollars in millions)Team Sports
    
    $
    68.8
    
    
    
    63.8
    %
    
    $
    63.4
    
    
    
    62.9
    %Action Sports
    
    
    55.9
    
    
    
    72.5
    %
    
    
    57.7
    
    
    
    71.0
    %$
    124.7
    
    
    
    67.4
    %
    
    $
    121.1
    
    
    
    66.5
    %
  Gross Profit
  Fiscal Quarter EndedApril 4,
    
    
    % of
    
    March 29,
    
    
    % of2009
    
    
    Net Sales
    
    2008
    
    
    Net Sales(Dollars in millions)Team Sports
    
    $
    39.0
    
    
    
    36.2
    %
    
    $
    37.4
    
    
    
    37.1
    %Action Sports
    
    
    21.2
    
    
    
    27.5
    %
    
    
    23.6
    
    
    
    29.0
    %$
    60.2
    
    
    
    32.6
    %
    
    $
    61.0
    
    
    
    33.5
    %
  Selling, General and Administrative Expenses
  Restructuring Expenses
  Amortization of Intangibles
  Interest Expense
  Income Tax Expense
  22




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##### Table of Contents



LIQUIDITY AND CAPITAL RESOURCES
   Senior Secured Credit Facility
     23




---



##### Table of Contents



Senior Subordinated Notes
   Other Matters
       24




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##### Table of Contents



OUTLOOK
  
    
    Economic Climate.The uncertain worldwide economic environment could cause the reported
financial information not to be necessarily indicative of future operating results or of
future financial condition.
    
    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. However, despite these trends, we are confident
that our focus on innovation and providing the best in class products will be successful,
albeit at a slower pace, during these softer economic times.
    
    ERP Implementation.We continue to plan for our long-term growth by investing in our
operations management and infrastructure. We are finalizing the implementation of SAPs ERP
system, an enterprise-wide software platform encompassing finance, sales and distribution,
manufacturing and materials management. This program will ultimately replace the various
software platforms used in our business operations, many of which are legacy platforms used
by our predecessor companies. We expect that this enterprise-wide software solution will
enable management to better and more efficiently conduct our operations and gather, analyze
and assess information across all business segments and geographic locations. However, we
may experience difficulties in implementing ERP in our business operations or in operating
our business under SAPs ERP, any of which could disrupt our operations, including our
ability to timely ship and track product orders to customers, project inventory
requirements, manage our supply chain and otherwise adequately service our customers.
Further, the cost to implement SAPs ERP could be higher than initially anticipated. We
employ an implementation team of specialists and expect to complete our phased roll-out of
SAPs ERP across all of our businesses in 2009. When completed, we expect that the system
will streamline reporting and enhance internal controls.
    
    Operations and Manufacturing.A significant part of our strategic plan involves
streamlining our distribution, logistics and manufacturing operations. As a result of this,
a critical component of our long-term growth plans reflect investment in operations
management and infrastructure to bring uniform methodologies to inventory management,
optimize transportation, improve manufacturing efficiencies and provide a high level of
service to our customers. To facilitate this process we made organizational changes in 2008
to better position us to:
 
    
    Enhance margins through development of a sourcing strategy to reduce product costs and
inventory levels
    
    Improve logistics capabilities to better service customers
    
    Leverage SAP ERP capabilities as the organization finalizes its transition to one software
platform
 We expect to lower the cost to produce and deliver our products to the marketplace through an
infrastructure designed to meet the needs of our long-term growth plans with minimal risk to
ongoing operations. However, as we have in the past and may continue in the future to
transition the production of products from our own facilities to third party suppliers, we may
become more vulnerable to increased sourced product costs and our ability to mitigate such cost
increases may be reduced.
    
    Interest Expense and Debt Repayment.In connection with our acquisition of Easton, we
entered into a senior secured credit facility providing for a $335.0 million term loan
facility, a $70.0 million U.S. revolving credit facility and a Cdn $12.0 million Canadian
revolving credit facility. As of April 4, 2009, the outstanding principal balance under our
term loan facility was $315.0 million, along with $3.0 million outstanding under our U.S.
revolving credit facility and no borrowings under our Canadian revolving credit facility. We
expect our interest expense in 2009 to decrease due to reduced debt levels, lower borrowing
rates and the impact of our interest rate swap agreement.
 
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##### Table of Contents



CRITICAL ACCOUNTING POLICIES AND ESTIMATES
  
 Item 3. Quantitative and Qualitative Disclosures About Market Risk
 Foreign Currency Risk
     Interest Rate Risk
   26




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##### Table of Contents



Item 4. Controls and Procedures
 Evaluation of Disclosure Controls and Procedures
  Changes in Internal Control over Financial Reporting
  
 PART II. OTHER INFORMATION
 
 Item 1. Legal Proceedings
  
 Item 1A. Risk Factors
  
 Item 6. Exhibits
  The filings referenced forExhibit
    
    
    
    incorporation by referenceNumber
    
    Description of Exhibit
    
    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
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##### Table of Contents



SIGNATURES
  EASTON-BELL SPORTS, INC.
RegistrantDated: May 14, 2009
    /s/ Paul E. HarringtonPaul E. HarringtonChief Executive Officer and President
(Principal Executive Officer)Dated: May 14, 2009
    /s/ Mark A. TrippMark A. TrippChief Financial Officer
(Principal Financial Officer) 28