##### 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 June 28, 2008
 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. EmployerIdentification 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
  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 June 28, 2008 (unaudited) and December 29, 2007
    
    
    3Consolidated Statements of Operations and Comprehensive Income for the Fiscal Quarter and Two Fiscal
Quarters Ended June 28, 2008 (unaudited) and June 30, 2007 (unaudited)
    
    
    4Consolidated Statements of Cash Flows for the Two Fiscal Quarters Ended June 28, 2008 (unaudited) and
June 30, 2007 (unaudited)
    
    
    5Notes to Consolidated Financial Statements
    
    
    6Item 2. Managements Discussion and Analysis of Financial Condition and Results of Operations
    
    
    22Item 3. Quantitative and Qualitative Disclosures About Market Risk
    
    
    30Item 4. Controls and Procedures
    
    
    31PART II. OTHER INFORMATION:Item 1. Legal Proceedings
    
    
    31Item 1A. Risk Factors
    
    
    31Item 6. Exhibits
    
    
    31SIGNATURES
    
    
    32Certification of the Principal Executive Officer Pursuant to Section 302Certification of the Principal Financial Officer Pursuant to Section 302Certification of the PEO and PFO Pursuant to Section 906
  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)
 June 28,
    
    
    December 29,2008
    
    
    2007(Unaudited)ASSETSCurrent assets:Cash and cash equivalents
    
    $
    28,176
    
    
    $
    16,923Accounts receivable, net
    
    
    243,731
    
    
    
    200,380Inventories, net
    
    
    115,732
    
    
    
    135,335Prepaid expenses
    
    
    6,929
    
    
    
    9,774Deferred taxes
    
    
    6,782
    
    
    
    6,782Other current assets
    
    
    7,222
    
    
    
    5,450Total current assets
    
    
    408,572
    
    
    
    374,644Property, plant and equipment, net
    
    
    41,394
    
    
    
    40,622Deferred financing fees, net
    
    
    13,844
    
    
    
    15,633Intangible assets, net
    
    
    310,521
    
    
    
    317,225Goodwill
    
    
    203,441
    
    
    
    203,441Other assets
    
    
    11,095
    
    
    
    4,925Total assets
    
    $
    988,867
    
    
    $
    956,490LIABILITIES AND STOCKHOLDERS EQUITYCurrent liabilities:Current portion of long-term debt
    
    $
    3,350
    
    
    $
    3,350Revolving credit facility
    
    
    
    
    
    
    5,500Current portion of capital lease obligations
    
    
    21
    
    
    
    21Accounts payable
    
    
    59,150
    
    
    
    60,586Accrued expenses
    
    
    47,792
    
    
    
    42,338Total current liabilities
    
    
    110,313
    
    
    
    111,795Long-term debt, less current portion
    
    
    464,950
    
    
    
    466,625Capital lease obligations, less current portion
    
    
    134
    
    
    
    145Deferred taxes
    
    
    38,877
    
    
    
    25,058Other noncurrent liabilities
    
    
    14,610
    
    
    
    11,880Total liabilities
    
    
    628,884
    
    
    
    615,503Stockholders equity:Common stock: $0.01 par value, 100 shares
authorized, 100 shares issued and
outstanding at June 28, 2008 and December
29, 2007
    
    
    
    
    
    
    Additional paid-in capital
    
    
    339,120
    
    
    
    337,277Retained earnings (deficit)
    
    
    15,815
    
    
    
    (2,040
    )Accumulated other comprehensive income
    
    
    5,048
    
    
    
    5,750Total stockholders equity
    
    
    359,983
    
    
    
    340,987Total liabilities and stockholders equity
    
    $
    988,867
    
    
    $
    956,490
  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 Ended
    
    
    Two Fiscal Quarters EndedJune 28,
    
    
    June 30,
    
    
    June 28,
    
    
    June 30,2008
    
    
    2007
    
    
    2008
    
    
    2007Net sales
    
    $
    220,810
    
    
    $
    206,370
    
    
    $
    402,949
    
    
    $
    381,004Cost of sales
    
    
    139,398
    
    
    
    129,986
    
    
    
    260,517
    
    
    
    246,107Gross profit
    
    
    81,412
    
    
    
    76,384
    
    
    
    142,432
    
    
    
    134,897Selling, general and administrative expenses
    
    
    46,004
    
    
    
    43,291
    
    
    
    89,639
    
    
    
    85,517Restructuring and other infrequent expenses
    
    
    317
    
    
    
    52
    
    
    
    492
    
    
    
    101Amortization of intangibles
    
    
    3,352
    
    
    
    3,352
    
    
    
    6,704
    
    
    
    6,517Income from operations
    
    
    31,739
    
    
    
    29,689
    
    
    
    45,597
    
    
    
    42,762Interest expense, net
    
    
    2,370
    
    
    
    10,878
    
    
    
    12,167
    
    
    
    21,785Gain on sale of property, plant and equipment
    
    
    
    
    
    
    (1,852
    )
    
    
    
    
    
    
    (1,852
    )Income before income taxes
    
    
    29,369
    
    
    
    20,663
    
    
    
    33,430
    
    
    
    22,829Income tax expense
    
    
    13,909
    
    
    
    8,602
    
    
    
    15,575
    
    
    
    9,491Net income
    
    
    15,460
    
    
    
    12,061
    
    
    
    17,855
    
    
    
    13,338Other comprehensive income:Foreign currency translation adjustment
    
    
    119
    
    
    
    2,190
    
    
    
    (702
    )
    
    
    2,422Comprehensive income
    
    $
    15,579
    
    
    $
    14,251
    
    
    $
    17,153
    
    
    $
    15,760
  4




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EASTON-BELL SPORTS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited and amounts in thousands)
 Two Fiscal Quarters EndedJune 28,
    
    
    June 30,2008
    
    
    2007Cash flows from operating activities:Net income
    
    $
    17,855
    
    
    $
    13,338Adjustments to reconcile net income to net cash
provided by (used in) operating activities:Depreciation and amortization
    
    
    12,614
    
    
    
    11,397Amortization of deferred financing fees
    
    
    1,789
    
    
    
    2,208Equity compensation expense
    
    
    1,843
    
    
    
    1,402Deferred income tax expense
    
    
    13,819
    
    
    
    6,050Gain on sale of property, plant and equipment
    
    
    
    
    
    
    (1,852
    )Disposal of property, plant and equipment
    
    
    4
    
    
    
    75Changes in operating assets and liabilities, net
of effects from purchase of business:Accounts receivable, net
    
    
    (44,155
    )
    
    
    (47,227
    )Inventories, net
    
    
    19,102
    
    
    
    7,648Other current and noncurrent assets
    
    
    (5,097
    )
    
    
    4,065Accounts payable
    
    
    (1,329
    )
    
    
    (1,719
    )Accrued expenses
    
    
    5,716
    
    
    
    (17,397
    )Other current and noncurrent liabilities
    
    
    2,730
    
    
    
    (722
    )Net cash provided by (used in) operating
activities
    
    
    24,891
    
    
    
    (22,734
    )Cash flows from investing activities:Purchase of property, plant and equipment
    
    
    (6,718
    )
    
    
    (7,222
    )Proceeds from sale of property held for sale
    
    
    
    
    
    
    2,741Settlement of preacquisition contingency
    
    
    
    
    
    
    2,178Purchase of businesses, net of cash acquired
    
    
    
    
    
    
    (1,569
    )Net cash used in investing activities
    
    
    (6,718
    )
    
    
    (3,872
    )Cash flows from financing activities:Payments on senior term notes
    
    
    (1,675
    )
    
    
    (1,675
    )Proceeds from revolving credit facility
    
    
    23,000
    
    
    
    88,100Payments on revolving credit facility
    
    
    (28,500
    )
    
    
    (61,600
    )Payments on capital lease obligations
    
    
    (11
    )
    
    
    (23
    )Net cash (used in) provided by financing activities
    
    
    (7,186
    )
    
    
    24,802Effect of exchange rate changes on cash and cash
equivalents
    
    
    266
    
    
    
    (268
    )Increase (decrease) in cash and cash equivalents
    
    
    11,253
    
    
    
    (2,072
    )Cash and cash equivalents, beginning of period
    
    
    16,923
    
    
    
    9,899Cash and cash equivalents, end of period
    
    $
    28,176
    
    
    $
    7,827
  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. Restructuring
  Recognition of Liabilities in
Connection with a Purchase Business Combination
 FacilityEmployee
    
    
    ClosureSeverance
    
    
    Costs
    
    
    TotalBalance as of December 29, 2007
    
    $
    196
    
    
    $
    370
    
    
    $
    566Costs accrued and expensed during the first fiscal quarter
    
    
    
    
    
    
    175
    
    
    
    175Less: amounts paid during the first fiscal quarter
    
    
    (50
    )
    
    
    (545
    )
    
    
    (595
    )Balance as of March 29, 2008
    
    $
    146
    
    
    $
    
    
    
    $
    146Costs accrued and expensed during the second fiscal quarter
    
    
    
    
    
    
    317
    
    
    
    317Less: amounts paid during the second fiscal quarter
    
    
    
    
    
    
    (317
    )
    
    
    (317
    )Balance as of June 28, 2008
    
    $
    146
    
    
    $
    
    
    
    $
    146
  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. Goodwill and Other Intangible Assets
  June 28, 2008
    
    
    December 29, 2007Gross
    
    
    
    
    
    
    GrossCarrying
    
    
    Accumulated
    
    
    Carrying
    
    
    AccumulatedAmounts
    
    
    Amortization
    
    
    Amounts
    
    
    AmortizationAmortizable intangible assets:Trademarks and tradenames
    
    $
    1,702
    
    
    $
    (1,209
    )
    
    $
    1,702
    
    
    $
    (1,086
    )Customer relationships
    
    
    59,180
    
    
    
    (22,763
    )
    
    
    59,180
    
    
    
    (20,042
    )Patents
    
    
    60,345
    
    
    
    (20,130
    )
    
    
    60,345
    
    
    
    (16,900
    )Licensing and other
    
    
    5,900
    
    
    
    (2,888
    )
    
    
    5,900
    
    
    
    (2,258
    )Total
    
    $
    127,127
    
    
    $
    (46,990
    )
    
    $
    127,127
    
    
    $
    (40,286
    )Indefinite-lived intangible assets:Trademarks and tradenames
    
    $
    230,384
    
    
    
    
    
    
    $
    230,384
  Team
    
    
    ActionSports
    
    
    Sports
    
    
    ConsolidatedBalance as of June 28, 2008 and December 29, 2007
    
    $
    141,977
    
    
    $
    61,464
    
    
    $
    203,441
 Goodwill and Other Intangible Assets
 4. Long-Term Debt
  June 28, 2008
    
    
    December 29, 2007Senior Secured Credit Facility:Term loan facility
    
    $
    328,300
    
    
    $
    329,975U.S. revolving credit facility
    
    
    
    
    
    
    5,5008.375% Senior subordinated notes due 2012
    
    
    140,000
    
    
    
    140,000Capital lease obligations
    
    
    155
    
    
    
    166Total long-term debt
    
    
    468,455
    
    
    
    475,641Less current maturities of long-term debt
    
    
    (3,371
    )
    
    
    (8,871
    )Long-term debt, less current portion
    
    $
    465,084
    
    
    $
    466,770
 Senior Secured Credit Facility
   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
    8




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EASTON-BELL SPORTS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited and amounts in thousands, except as specified)
 Other
   5. Accrued Expenses
  June 28, 2008
    
    
    December 29, 2007Salaries, wages, commissions and bonuses
    
    $
    11,675
    
    
    $
    6,875Advertising
    
    
    4,979
    
    
    
    5,017Restructuring
    
    
    146
    
    
    
    566Defective products
    
    
    689
    
    
    
    938Rebates
    
    
    5,756
    
    
    
    4,412Warranty
    
    
    3,750
    
    
    
    3,390Product liability  current portion
    
    
    2,845
    
    
    
    2,443Royalties
    
    
    1,839
    
    
    
    1,858Interest
    
    
    4,266
    
    
    
    3,227Other
    
    
    11,847
    
    
    
    13,612Total accrued expenses
    
    $
    47,792
    
    
    $
    42,338
 6. Inventories
   June 28, 2008
    
    
    December 29, 2007Raw materials
    
    $
    15,709
    
    
    $
    14,862Work-in-process
    
    
    1,994
    
    
    
    1,928Finished goods
    
    
    98,029
    
    
    
    118,545Inventories, net
    
    $
    115,732
    
    
    $
    135,335
 7. Recent Accounting Pronouncements
 Fair Value Measurements
 9




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EASTON-BELL SPORTS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited and amounts in thousands, except as specified)
 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
 8. Segment Reporting
   Team
    
    ActionFiscal Quarter Ended
    
    Sports
    
    Sports
    
    ConsolidatedJune 28, 2008Net sales
    
    $
    132,305
    
    
    $
    88,505
    
    
    $
    220,810Income from operations
    
    
    30,765
    
    
    
    9,184
    
    
    
    39,949Depreciation
    
    
    1,546
    
    
    
    1,440
    
    
    
    2,986Capital expenditures
    
    
    2,337
    
    
    
    812
    
    
    
    3,149June 30, 2007Net sales
    
    $
    125,453
    
    
    $
    80,917
    
    
    $
    206,370Income from operations
    
    
    29,957
    
    
    
    8,603
    
    
    
    38,560Depreciation
    
    
    1,157
    
    
    
    1,281
    
    
    
    2,438Capital expenditures
    
    
    527
    
    
    
    2,460
    
    
    
    2,987
 10




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EASTON-BELL SPORTS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited and amounts in thousands, except as specified)
 Team
    
    ActionTwo Fiscal Quarters Ended
    
    Sports
    
    Sports
    
    ConsolidatedJune 28, 2008Net sales
    
    $
    233,088
    
    
    $
    169,861
    
    
    $
    402,949Income from operations
    
    
    46,126
    
    
    
    16,550
    
    
    
    62,676Depreciation
    
    
    3,050
    
    
    
    2,860
    
    
    
    5,910Capital expenditures
    
    
    4,611
    
    
    
    2,107
    
    
    
    6,718June 30, 2007Net sales
    
    $
    227,428
    
    
    $
    153,576
    
    
    $
    381,004Income from operations
    
    
    42,596
    
    
    
    16,031
    
    
    
    58,627Depreciation
    
    
    2,320
    
    
    
    2,560
    
    
    
    4,880Capital expenditures
    
    
    1,850
    
    
    
    5,372
    
    
    
    7,222
 Team
    
    ActionSports
    
    Sports
    
    ConsolidatedAssetsAs of June 28, 2008
    
    $
    613,236
    
    
    $
    375,631
    
    
    $
    988,867As of December 29, 2007
    
    
    589,965
    
    
    
    366,525
    
    
    
    956,490
  Fiscal Quarter Ended
    
    
    Two Fiscal Quarters EndedJune 28, 2008
    
    
    June 30, 2007
    
    
    June 28, 2008
    
    
    June 30, 2007Segment income from operations
    
    $
    39,949
    
    
    $
    38,560
    
    
    $
    62,676
    
    
    $
    58,627Equity compensation expense
    
    
    (1,011
    )
    
    
    (706
    )
    
    
    (1,843
    )
    
    
    (1,402
    )Corporate expenses
    
    
    (3,530
    )
    
    
    (4,761
    )
    
    
    (8,040
    )
    
    
    (7,845
    )Restructuring and other infrequent expenses
    
    
    (317
    )
    
    
    (52
    )
    
    
    (492
    )
    
    
    (101
    )Amortization of intangibles
    
    
    (3,352
    )
    
    
    (3,352
    )
    
    
    (6,704
    )
    
    
    (6,517
    )Consolidated income from operations
    
    $
    31,739
    
    
    $
    29,689
    
    
    $
    45,597
    
    
    $
    42,762
 9. Product Liability, Litigation and Other Contingencies
 Product Liability
   Litigation and Other Contingencies
  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. Income Taxes
  11. Derivative Instruments and Hedging Activity
 Accounting for Derivative Instruments and Hedging Activities
 th
       12




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EASTON-BELL SPORTS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited and amounts in thousands, except as specified)
   12. Equity-Based Employee Compensation
  Share Based Payment Accounting for Stock Based
Compensation Shared Based Payment
  Two Fiscal Quarters EndedJune 28, 2008
    
    June 30, 2007Expected term
    
    4 years
    
    4 yearsDividend yield
    
    0.0%
    
    0.0%Forfeiture rate
    
    7.7%
    
    7.7%Risk-free interest rate
    
    1.5 to 2.0%
    
    5.1 to 5.2%Expected volatility(1)
    
    39.0 to 46.0%
    
    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 Ended
    
    
    Two Fiscal Quarters EndedJune 28, 2008
    
    
    June 30, 2007
    
    
    June 28, 2008
    
    
    June 30, 2007Equity compensation expense
    
    $
    1,011
    
    
    $
    706
    
    
    $
    1,843
    
    
    $
    1,402
   WeightedAverageNumber of
    
    
    Grant DateUnits
    
    
    Fair ValueOutstanding at December 29, 2007
    
    
    27,056,989
    
    
    $
    2.10Granted
    
    
    1,650,000
    
    
    $
    1.76Forfeited
    
    
    (5,194,761
    )
    
    $
    2.14Outstanding at March 29, 2008
    
    
    23,512,228
    
    
    $
    2.06Granted
    
    
    8,127,576
    
    
    $
    1.48Forfeited
    
    
    (1,880,309
    )
    
    $
    2.14Outstanding at June 28, 2008
    
    
    29,759,495
    
    
    $
    1.90Vested Units at June 28, 2008
    
    
    8,137,366
    
    
    $
    2.04
 13. Warranty Obligations
   2008
    
    
    2007Beginning of fiscal year
    
    $
    3,390
    
    
    $
    2,981Warranty costs incurred during the period
    
    
    (1,307
    )
    
    
    (1,502
    )Warranty cost liability recorded during the period
    
    
    1,425
    
    
    
    1,445End of first fiscal quarter
    
    
    3,508
    
    
    
    2,924Warranty costs incurred during the period
    
    
    (2,115
    )
    
    
    (1,501
    )Warranty cost liability recorded during the period
    
    
    2,357
    
    
    
    1,643End of second fiscal quarter
    
    $
    3,750
    
    
    $
    3,066
 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. Related Party Transactions
  Easton Easton
    15




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EASTON-BELL SPORTS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited and amounts in thousands, except as specified)
 15. Supplemental Guarantor Condensed Financial Information
   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
June 28, 2008
 Guarantor
    
    
    Non-GuarantorIssuer
    
    
    Subsidiaries
    
    
    Subsidiaries
    
    
    Eliminations
    
    
    ConsolidatedASSETSCurrent assets:Cash and cash equivalents
    
    $
    12,996
    
    
    $
    10,205
    
    
    $
    4,975
    
    
    $
    
    
    
    $
    28,176Accounts receivable, net
    
    
    
    
    
    
    199,830
    
    
    
    43,901
    
    
    
    
    
    
    
    243,731Inventories, net
    
    
    
    
    
    
    98,435
    
    
    
    17,297
    
    
    
    
    
    
    
    115,732Prepaid expenses
    
    
    772
    
    
    
    5,816
    
    
    
    341
    
    
    
    
    
    
    
    6,929Deferred taxes
    
    
    552
    
    
    
    6,230
    
    
    
    
    
    
    
    
    
    
    
    6,782Other current assets
    
    
    
    
    
    
    6,549
    
    
    
    673
    
    
    
    
    
    
    
    7,222Total current assets
    
    
    14,320
    
    
    
    327,065
    
    
    
    67,187
    
    
    
    
    
    
    
    408,572Property, plant and equipment, net
    
    
    12,793
    
    
    
    27,462
    
    
    
    1,139
    
    
    
    
    
    
    
    41,394Deferred financing fees, net
    
    
    13,844
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    13,844Investments and intercompany receivables
    
    
    421,999
    
    
    
    45,439
    
    
    
    14,860
    
    
    
    (482,298
    )
    
    
    Intangible assets, net
    
    
    
    
    
    
    304,242
    
    
    
    6,279
    
    
    
    
    
    
    
    310,521Goodwill
    
    
    16,195
    
    
    
    182,055
    
    
    
    5,191
    
    
    
    
    
    
    
    203,441Other assets
    
    
    5,301
    
    
    
    5,794
    
    
    
    
    
    
    
    
    
    
    
    11,095Total assets
    
    $
    484,452
    
    
    $
    892,057
    
    
    $
    94,656
    
    
    $
    (482,298
    )
    
    $
    988,867LIABILITIES AND STOCKHOLDERS EQUITYCurrent liabilities:Current portion of long-term debt
    
    $
    3,350
    
    
    $
    
    
    
    $
    
    
    
    $
    
    
    
    $
    3,350Current portion of capital lease obligations
    
    
    
    
    
    
    21
    
    
    
    
    
    
    
    
    
    
    
    21Accounts payable
    
    
    
    
    
    
    49,690
    
    
    
    9,460
    
    
    
    
    
    
    
    59,150Accrued expenses
    
    
    6,780
    
    
    
    31,270
    
    
    
    9,742
    
    
    
    
    
    
    
    47,792Total current liabilities
    
    
    10,130
    
    
    
    80,981
    
    
    
    19,202
    
    
    
    
    
    
    
    110,313Long-term debt, less current portion
    
    
    464,950
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    464,950Capital lease obligations, less current portion
    
    
    
    
    
    
    134
    
    
    
    
    
    
    
    
    
    
    
    134Deferred taxes
    
    
    
    
    
    
    35,324
    
    
    
    3,553
    
    
    
    
    
    
    
    38,877Other noncurrent liabilities
    
    
    
    
    
    
    9,307
    
    
    
    5,303
    
    
    
    
    
    
    
    14,610Long-term intercompany payables
    
    
    
    
    
    
    447,636
    
    
    
    
    
    
    
    (447,636
    )
    
    
    Total liabilities
    
    
    475,080
    
    
    
    573,382
    
    
    
    28,058
    
    
    
    (447,636
    )
    
    
    628,884Total stockholders equity
    
    
    9,372
    
    
    
    318,675
    
    
    
    66,598
    
    
    
    (34,662
    )
    
    
    359,983Total liabilities and stockholders equity
    
    $
    484,452
    
    
    $
    892,057
    
    
    $
    94,656
    
    
    $
    (482,298
    )
    
    $
    988,867
 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 Balance Sheet
December 29, 2007
 Guarantor
    
    
    Non-GuarantorIssuer
    
    
    Subsidiaries
    
    
    Subsidiaries
    
    
    Eliminations
    
    
    ConsolidatedASSETSCurrent assets:Cash and cash equivalents
    
    $
    3,099
    
    
    $
    1,820
    
    
    $
    12,004
    
    
    $
    
    
    
    $
    16,923Accounts receivable, net
    
    
    
    
    
    
    175,637
    
    
    
    24,743
    
    
    
    
    
    
    
    200,380Inventories, net
    
    
    
    
    
    
    119,087
    
    
    
    16,248
    
    
    
    
    
    
    
    135,335Prepaid expenses
    
    
    964
    
    
    
    8,510
    
    
    
    300
    
    
    
    
    
    
    
    9,774Deferred taxes
    
    
    534
    
    
    
    6,248
    
    
    
    
    
    
    
    
    
    
    
    6,782Other current assets
    
    
    
    
    
    
    4,615
    
    
    
    835
    
    
    
    
    
    
    
    5,450Total current assets
    
    
    4,597
    
    
    
    315,917
    
    
    
    54,130
    
    
    
    
    
    
    
    374,644Property, plant and equipment, net
    
    
    11,109
    
    
    
    28,224
    
    
    
    1,289
    
    
    
    
    
    
    
    40,622Deferred financing fees, net
    
    
    15,633
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    15,633Investments and intercompany receivables
    
    
    435,874
    
    
    
    38,353
    
    
    
    21,137
    
    
    
    (495,364
    )
    
    
    Intangible assets, net
    
    
    
    
    
    
    310,946
    
    
    
    6,279
    
    
    
    
    
    
    
    317,225Goodwill
    
    
    16,195
    
    
    
    182,055
    
    
    
    5,191
    
    
    
    
    
    
    
    203,441Other assets
    
    
    
    
    
    
    4,919
    
    
    
    6
    
    
    
    
    
    
    
    4,925Total assets
    
    $
    483,408
    
    
    $
    880,414
    
    
    $
    88,032
    
    
    $
    (495,364
    )
    
    $
    956,490LIABILITIES AND STOCKHOLDERS EQUITYCurrent liabilities:Current portion of long-term debt
    
    $
    3,350
    
    
    $
    
    
    
    $
    
    
    
    $
    
    
    
    $
    3,350Revolving credit facility
    
    
    5,500
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    5,500Current portion of capital lease obligations
    
    
    
    
    
    
    21
    
    
    
    
    
    
    
    
    
    
    
    21Accounts payable
    
    
    
    
    
    
    57,362
    
    
    
    3,224
    
    
    
    
    
    
    
    60,586Accrued expenses
    
    
    
    
    
    
    33,388
    
    
    
    8,950
    
    
    
    
    
    
    
    42,338Total current liabilities
    
    
    8,850
    
    
    
    90,771
    
    
    
    12,174
    
    
    
    
    
    
    
    111,795Long-term debt, less current portion
    
    
    466,625
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    466,625Capital lease obligations, less current portion
    
    
    
    
    
    
    145
    
    
    
    
    
    
    
    
    
    
    
    145Deferred taxes
    
    
    
    
    
    
    21,256
    
    
    
    3,802
    
    
    
    
    
    
    
    25,058Other noncurrent liabilities
    
    
    1,140
    
    
    
    5,437
    
    
    
    5,303
    
    
    
    
    
    
    
    11,880Long-term intercompany payables
    
    
    
    
    
    
    453,586
    
    
    
    6,765
    
    
    
    (460,351
    )
    
    
    Total liabilities
    
    
    476,615
    
    
    
    571,195
    
    
    
    28,044
    
    
    
    (460,351
    )
    
    
    615,503Total stockholders equity
    
    
    6,793
    
    
    
    309,219
    
    
    
    59,988
    
    
    
    (35,013
    )
    
    
    340,987Total liabilities and stockholders equity
    
    $
    483,408
    
    
    $
    880,414
    
    
    $
    88,032
    
    
    $
    (495,364
    )
    
    $
    956,490
 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)
 Consolidating Statement of Operations
Fiscal Quarter Ended June 28, 2008
 Non-Guarantor
    
    
    GuarantorIssuer
    
    
    Subsidiaries
    
    
    Subsidiaries
    
    
    Eliminations
    
    
    ConsolidatedNet sales
    
    $
    
    
    
    $
    194,969
    
    
    $
    35,908
    
    
    $
    (10,067
    )
    
    $
    220,810Cost of sales
    
    
    3
    
    
    
    125,640
    
    
    
    23,822
    
    
    
    (10,067
    )
    
    
    139,398Gross profit
    
    
    (3
    )
    
    
    69,329
    
    
    
    12,086
    
    
    
    
    
    
    
    81,412Selling, general and administrative expenses
    
    
    6,387
    
    
    
    36,536
    
    
    
    3,081
    
    
    
    
    
    
    
    46,004Restructuring and other infrequent expenses
    
    
    
    
    
    
    317
    
    
    
    
    
    
    
    
    
    
    
    317Amortization of intangibles
    
    
    
    
    
    
    3,352
    
    
    
    
    
    
    
    
    
    
    
    3,352(Loss) income from operations
    
    
    (6,390
    )
    
    
    29,124
    
    
    
    9,005
    
    
    
    
    
    
    
    31,739Interest expense, net
    
    
    2,212
    
    
    
    206
    
    
    
    (48
    )
    
    
    
    
    
    
    2,370Share of net income of subsidiaries under equity method
    
    
    24,062
    
    
    
    6,396
    
    
    
    
    
    
    
    (30,458
    )
    
    
    Income (loss) before income taxes
    
    
    15,460
    
    
    
    35,314
    
    
    
    9,053
    
    
    
    (30,458
    )
    
    
    29,369Income tax expense
    
    
    
    
    
    
    11,252
    
    
    
    2,657
    
    
    
    
    
    
    
    13,909Net income (loss)
    
    $
    15,460
    
    
    $
    24,062
    
    
    $
    6,396
    
    
    $
    (30,458
    )
    
    $
    15,460
 Consolidating Statement of Operations
Fiscal Quarter Ended June 30, 2007
 Non-Guarantor
    
    
    GuarantorIssuer
    
    
    Subsidiaries
    
    
    Subsidiaries
    
    
    Eliminations
    
    
    ConsolidatedNet sales
    
    $
    
    
    
    $
    185,161
    
    
    $
    32,958
    
    
    $
    (11,749
    )
    
    $
    206,370Cost of sales
    
    
    90
    
    
    
    118,412
    
    
    
    23,233
    
    
    
    (11,749
    )
    
    
    129,986Gross profit
    
    
    (90
    )
    
    
    66,749
    
    
    
    9,725
    
    
    
    
    
    
    
    76,384Selling, general and administrative expenses
    
    
    5,343
    
    
    
    35,518
    
    
    
    2,430
    
    
    
    
    
    
    
    43,291Restructuring and other infrequent expenses
    
    
    
    
    
    
    52
    
    
    
    
    
    
    
    
    
    
    
    52Amortization of intangibles
    
    
    
    
    
    
    3,186
    
    
    
    166
    
    
    
    
    
    
    
    3,352(Loss) income from operations
    
    
    (5,433
    )
    
    
    27,993
    
    
    
    7,129
    
    
    
    
    
    
    
    29,689Interest expense, net
    
    
    10,663
    
    
    
    240
    
    
    
    (25
    )
    
    
    
    
    
    
    10,878Gain on sale of property, plant and equipment
    
    
    
    
    
    
    (1,852
    )
    
    
    
    
    
    
    
    
    
    
    (1,852
    )Share of net income of subsidiaries under equity method
    
    
    28,690
    
    
    
    5,019
    
    
    
    
    
    
    
    (33,709
    )
    
    
    Income (loss) before income taxes
    
    
    12,594
    
    
    
    34,624
    
    
    
    7,154
    
    
    
    (33,709
    )
    
    
    20,663Income tax expense
    
    
    
    
    
    
    6,467
    
    
    
    2,135
    
    
    
    
    
    
    
    8,602Net income (loss)
    
    $
    12,594
    
    
    $
    28,157
    
    
    $
    5,019
    
    
    $
    (33,709
    )
    
    $
    12,061
 19




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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)
 Consolidating Statement of Operations
Two Fiscal Quarters Ended June 28, 2008
 Non-Guarantor
    
    
    GuarantorIssuer
    
    
    Subsidiaries
    
    
    Subsidiaries
    
    
    Eliminations
    
    
    ConsolidatedNet sales
    
    $
    
    
    
    $
    364,585
    
    
    $
    55,710
    
    
    $
    (17,346
    )
    
    $
    402,949Cost of sales
    
    
    16
    
    
    
    239,661
    
    
    
    38,186
    
    
    
    (17,346
    )
    
    
    260,517Gross profit
    
    
    (16
    )
    
    
    124,924
    
    
    
    17,524
    
    
    
    
    
    
    
    142,432Selling, general and administrative expenses
    
    
    11,830
    
    
    
    72,106
    
    
    
    5,703
    
    
    
    
    
    
    
    89,639Restructuring and other infrequent expenses
    
    
    
    
    
    
    492
    
    
    
    
    
    
    
    
    
    
    
    492Amortization of intangibles
    
    
    
    
    
    
    6,704
    
    
    
    
    
    
    
    
    
    
    
    6,704(Loss) income from operations
    
    
    (11,846
    )
    
    
    45,622
    
    
    
    11,821
    
    
    
    
    
    
    
    45,597Interest expense, net
    
    
    11,970
    
    
    
    372
    
    
    
    (175
    )
    
    
    
    
    
    
    12,167Share of net income of subsidiaries under equity method
    
    
    41,671
    
    
    
    8,347
    
    
    
    
    
    
    
    (50,018
    )
    
    
    Income (loss) before income taxes
    
    
    17,855
    
    
    
    53,597
    
    
    
    11,996
    
    
    
    (50,018
    )
    
    
    33,430Income tax expense
    
    
    
    
    
    
    11,926
    
    
    
    3,649
    
    
    
    
    
    
    
    15,575Net income (loss)
    
    $
    17,855
    
    
    $
    41,671
    
    
    $
    8,347
    
    
    $
    (50,018
    )
    
    $
    17,855
 Consolidating Statement of Operations
Two Fiscal Quarters Ended June 30, 2007
 Non-Guarantor
    
    
    GuarantorIssuer
    
    
    Subsidiaries
    
    
    Subsidiaries
    
    
    Eliminations
    
    
    ConsolidatedNet sales
    
    $
    
    
    
    $
    353,700
    
    
    $
    51,907
    
    
    $
    (24,603
    )
    
    $
    381,004Cost of sales
    
    
    132
    
    
    
    232,955
    
    
    
    37,623
    
    
    
    (24,603
    )
    
    
    246,107Gross profit
    
    
    (132
    )
    
    
    120,745
    
    
    
    14,284
    
    
    
    
    
    
    
    134,897Selling, general and administrative expenses
    
    
    9,115
    
    
    
    71,386
    
    
    
    5,016
    
    
    
    
    
    
    
    85,517Restructuring and other infrequent expenses
    
    
    
    
    
    
    101
    
    
    
    
    
    
    
    
    
    
    
    101Amortization of intangibles
    
    
    
    
    
    
    6,191
    
    
    
    326
    
    
    
    
    
    
    
    6,517(Loss) income from operations
    
    
    (9,247
    )
    
    
    43,067
    
    
    
    8,942
    
    
    
    
    
    
    
    42,762Interest expense, net
    
    
    21,411
    
    
    
    481
    
    
    
    (107
    )
    
    
    
    
    
    
    21,785Gain on sale of property, plant and equipment
    
    
    
    
    
    
    (1,852
    )
    
    
    
    
    
    
    
    
    
    
    (1,852
    )Share of net income of subsidiaries under equity method
    
    
    43,996
    
    
    
    6,199
    
    
    
    
    
    
    
    (50,195
    )
    
    
    Income (loss) before income taxes
    
    
    13,338
    
    
    
    50,637
    
    
    
    9,049
    
    
    
    (50,195
    )
    
    
    22,829Income tax expense
    
    
    
    
    
    
    6,641
    
    
    
    2,850
    
    
    
    
    
    
    
    9,491Net income (loss)
    
    $
    13,338
    
    
    $
    43,996
    
    
    $
    6,199
    
    
    $
    (50,195
    )
    
    $
    13,338
 20




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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
Two Fiscal Quarters Ended June 28, 2008
 Guarantor
    
    
    Non-GuarantorIssuer
    
    
    Subsidiaries
    
    
    Subsidiaries
    
    
    Eliminations
    
    
    ConsolidatedCash flows from operating activities:Net income (loss)
    
    $
    28,756
    
    
    $
    41,671
    
    
    $
    8,347
    
    
    $
    (60,919
    )
    
    $
    17,855Non-cash adjustments
    
    
    (9,061
    )
    
    
    (20,144
    )
    
    
    (1,645
    )
    
    
    60,919
    
    
    
    30,069Changes in operating assets and liabilities
    
    
    531
    
    
    
    (9,576
    )
    
    
    (13,988
    )
    
    
    
    
    
    
    (23,033
    )Net cash provided by (used in) operating
activities
    
    
    20,226
    
    
    
    11,951
    
    
    
    (7,286
    )
    
    
    
    
    
    
    24,891Cash flows from investing activities:Purchase of property, plant and equipment
    
    
    (3,154
    )
    
    
    (3,554
    )
    
    
    (10
    )
    
    
    
    
    
    
    (6,718
    )Net cash used in investing activities
    
    
    (3,154
    )
    
    
    (3,554
    )
    
    
    (10
    )
    
    
    
    
    
    
    (6,718
    )Cash flows from financing activities:Payments on capital lease obligations
    
    
    
    
    
    
    (11
    )
    
    
    
    
    
    
    
    
    
    
    (11
    )Payments on senior term notes
    
    
    (1,675
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (1,675
    )Payments on senior secured credit facility, net
    
    
    (5,500
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (5,500
    )Net cash used in financing activities
    
    
    (7,175
    )
    
    
    (11
    )
    
    
    
    
    
    
    
    
    
    
    (7,186
    )Effect of exchange rate changes on cash and cash
equivalents
    
    
    
    
    
    
    
    
    
    
    266
    
    
    
    
    
    
    
    266Increase (decrease) in cash and cash equivalents
    
    
    9,897
    
    
    
    8,386
    
    
    
    (7,030
    )
    
    
    
    
    
    
    11,253Cash and cash equivalents, beginning of period
    
    
    3,099
    
    
    
    1,820
    
    
    
    12,004
    
    
    
    
    
    
    
    16,923Cash and cash equivalents, end of period
    
    $
    12,996
    
    
    $
    10,206
    
    
    $
    4,974
    
    
    $
    
    
    
    $
    28,176
 Condensed Consolidating Statement of Cash Flows
Two Fiscal Quarters Ended June 30, 2007
 Guarantor
    
    
    Non-GuarantorIssuer
    
    
    Subsidiaries
    
    
    Subsidiaries
    
    
    Eliminations
    
    
    ConsolidatedCash flows from operating activities:Net income (loss)
    
    $
    13,338
    
    
    $
    43,996
    
    
    $
    6,199
    
    
    $
    (50,195
    )
    
    $
    13,338Non-cash adjustments
    
    
    (31,304
    )
    
    
    (6,586
    )
    
    
    6,975
    
    
    
    50,195
    
    
    
    19,280Changes in operating assets and liabilities, net of
effects from purchase of business
    
    
    (2,432
    )
    
    
    (36,067
    )
    
    
    (16,853
    )
    
    
    
    
    
    
    (55,352
    )Net cash (used in) provided by operating
activities
    
    
    (20,398
    )
    
    
    1,343
    
    
    
    (3,679
    )
    
    
    
    
    
    
    (22,734
    )Cash flows from investing activities:Purchase of property, plant and equipment
    
    
    (3,289
    )
    
    
    (3,680
    )
    
    
    (253
    )
    
    
    
    
    
    
    (7,222
    )Proceeds from sale of property held for sale
    
    
    
    
    
    
    2,741
    
    
    
    
    
    
    
    
    
    
    
    2,741Settlement of preacquisition contingency
    
    
    
    
    
    
    2,178
    
    
    
    
    
    
    
    
    
    
    
    2,178Purchase of businesses, net of cash acquired
    
    
    
    
    
    
    (1,569
    )
    
    
    
    
    
    
    
    
    
    
    (1,569
    )Net cash used in investing activities
    
    
    (3,289
    )
    
    
    (330
    )
    
    
    (253
    )
    
    
    
    
    
    
    (3,872
    )Cash flows from financing activities:Payments on capital lease obligations
    
    
    
    
    
    
    (23
    )
    
    
    
    
    
    
    
    
    
    
    (23
    )Payments on senior term notes
    
    
    (1,675
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (1,675
    )Proceeds from senior secured credit facility, net
    
    
    26,500
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    26,500Net cash provided by (used in) financing activities
    
    
    24,825
    
    
    
    (23
    )
    
    
    
    
    
    
    
    
    
    
    24,802Effect of exchange rate changes on cash and cash
equivalents
    
    
    
    
    
    
    
    
    
    
    (268
    )
    
    
    
    
    
    
    (268
    )Increase (decrease) in cash and cash equivalents
    
    
    1,138
    
    
    
    990
    
    
    
    (4,200
    )
    
    
    
    
    
    
    (2,072
    )Cash and cash equivalents, beginning of period
    
    
    1,527
    
    
    
    2,685
    
    
    
    5,687
    
    
    
    
    
    
    
    9,899Cash and cash equivalents, end of period
    
    $
    2,665
    
    
    $
    3,675
    
    
    $
    1,487
    
    
    $
    
    
    
    $
    7,827
 21




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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
  22




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##### Table of Contents



Cost of Sales
  Gross Profit
  Selling, General and Administrative Expenses
  RESULTS OF OPERATIONS
  Fiscal Quarter EndedJune 28,
    
    
    % of
    
    
    June 30,
    
    
    % of2008
    
    
    Net Sales
    
    
    2007
    
    
    Net Sales(Dollars in millions)Net sales
    
    $
    220.8
    
    
    
    100.0
    %
    
    $
    206.4
    
    
    
    100.0
    %Cost of sales
    
    
    139.4
    
    
    
    63.1
    %
    
    
    130.0
    
    
    
    63.0
    %Gross profit
    
    
    81.4
    
    
    
    36.9
    %
    
    
    76.4
    
    
    
    37.0
    %Selling, general and administrative expenses
    
    
    46.0
    
    
    
    20.8
    %
    
    
    43.2
    
    
    
    20.9
    %Restructuring and other infrequent expenses
    
    
    0.3
    
    
    
    0.2
    %
    
    
    0.1
    
    
    
    0.1
    %Amortization of intangibles
    
    
    3.4
    
    
    
    1.5
    %
    
    
    3.4
    
    
    
    1.6
    %Income from operations
    
    $
    31.7
    
    
    
    14.4
    %
    
    $
    29.7
    
    
    
    14.4
    %
 Two Fiscal Quarters EndedJune 28,
    
    
    % of
    
    
    June 30,
    
    
    % of2008
    
    
    Net Sales
    
    
    2007
    
    
    Net Sales(Dollars in millions)Net sales
    
    $
    402.9
    
    
    
    100.0
    %
    
    $
    381.0
    
    
    
    100.0
    %Cost of sales
    
    
    260.5
    
    
    
    64.7
    %
    
    
    246.1
    
    
    
    64.6
    %Gross profit
    
    
    142.4
    
    
    
    35.3
    %
    
    
    134.9
    
    
    
    35.4
    %Selling, general and administrative expenses
    
    
    89.6
    
    
    
    22.2
    %
    
    
    85.5
    
    
    
    22.5
    %Restructuring and other infrequent expenses
    
    
    0.5
    
    
    
    0.1
    %
    
    
    0.1
    
    
    
    0.0
    %Amortization of intangibles
    
    
    6.7
    
    
    
    1.7
    %
    
    
    6.5
    
    
    
    1.7
    %Income from operations
    
    $
    45.6
    
    
    
    11.3
    %
    
    $
    42.8
    
    
    
    11.2
    %
 23




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##### Table of Contents



Net Sales
  Fiscal Quarter Ended
    
    
    Two Fiscal Quarters EndedJune 28,
    
    
    June 30,
    
    
    Change
    
    
    June 28,
    
    
    June 30,
    
    
    Change2008
    
    
    2007
    
    
    $
    
    
    %
    
    
    2008
    
    
    2007
    
    
    $
    
    
    %(Dollars in millions)
    
    
    (Dollars in millions)Team Sports
    
    $
    132.3
    
    
    $
    125.5
    
    
    $
    6.8
    
    
    
    5.4%
    
    
    $
    233.1
    
    
    $
    227.4
    
    
    $
    5.7
    
    
    
    2.5%Action Sports
    
    
    88.5
    
    
    
    80.9
    
    
    
    7.6
    
    
    
    9.4%
    
    
    
    169.8
    
    
    
    153.6
    
    
    
    16.2
    
    
    
    10.5%$
    220.8
    
    
    $
    206.4
    
    
    $
    14.4
    
    
    
    7.0%
    
    
    $
    402.9
    
    
    $
    381.0
    
    
    $
    21.9
    
    
    
    5.7%
   Cost of Sales
  Fiscal Quarter Ended
    
    
    Two Fiscal Quarters EndedJune 28,
    
    
    % of
    
    
    June 30,
    
    
    % of
    
    
    June 28,
    
    
    % of
    
    
    June 30,
    
    
    % of2008
    
    
    Net Sales
    
    
    2007
    
    
    Net Sales
    
    
    2008
    
    
    Net Sales
    
    
    2007
    
    
    Net Sales(Dollars in millions)
    
    
    (Dollars in millions)Team Sports
    
    $
    75.2
    
    
    
    56.8%
    
    
    $
    71.9
    
    
    
    57.3%
    
    
    $
    138.6
    
    
    
    59.5%
    
    
    $
    137.7
    
    
    
    60.6%Action Sports
    
    
    64.2
    
    
    
    72.5%
    
    
    
    58.1
    
    
    
    71.8%
    
    
    
    121.9
    
    
    
    71.8%
    
    
    
    108.4
    
    
    
    70.6%$
    139.4
    
    
    
    63.1%
    
    
    $
    130.0
    
    
    
    63.0%
    
    
    $
    260.5
    
    
    
    64.7%
    
    
    $
    246.1
    
    
    
    64.6%
   24




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##### Table of Contents



Gross Profit
  Fiscal Quarter Ended
    
    
    Two Fiscal Quarters EndedJune 28,
    
    
    % of
    
    
    June 30,
    
    
    % of
    
    
    June 28,
    
    
    % of
    
    
    June 30,
    
    
    % of2008
    
    
    Net Sales
    
    
    2007
    
    
    Net Sales
    
    
    2008
    
    
    Net Sales
    
    
    2007
    
    
    Net Sales(Dollars in millions)
    
    
    (Dollars in millions)Team Sports
    
    $
    57.1
    
    
    
    43.2%
    
    
    $
    53.6
    
    
    
    42.7%
    
    
    $
    94.5
    
    
    
    40.5%
    
    
    $
    89.7
    
    
    
    39.4%Action Sports
    
    
    24.3
    
    
    
    27.5%
    
    
    
    22.8
    
    
    
    28.2%
    
    
    
    47.9
    
    
    
    28.2%
    
    
    
    45.2
    
    
    
    29.4%$
    81.4
    
    
    
    36.9%
    
    
    $
    76.4
    
    
    
    37.0%
    
    
    $
    142.4
    
    
    
    35.3%
    
    
    $
    134.9
    
    
    
    35.4%
   Selling, General and Administrative Expenses
   Restructuring and Other Infrequent Expenses
  Amortization of Intangibles
   25




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##### Table of Contents



Interest Expense
  Income Tax Expense
   RESTRUCTURING
  Recognition of Liabilities in
Connection with a Purchase Business Combination
 FacilityEmployee
    
    
    ClosureSeverance
    
    
    Costs
    
    
    Total(Dollars in millions)Balance as of December 29, 2007
    
    $
    0.2
    
    
    $
    0.4
    
    
    $
    0.6Costs accrued and expensed during the quarter
    
    
    
    
    
    
    0.2
    
    
    
    0.2Less: amounts paid during the first fiscal quarter
    
    
    (0.1
    )
    
    
    (0.6
    )
    
    
    (0.7
    )Balance as of March 29, 2008
    
    
    0.1
    
    
    
    
    
    
    
    0.1Costs accrued and expensed during the quarter
    
    
    
    
    
    
    0.3
    
    
    
    0.3Less: amounts paid during the second fiscal quarter
    
    
    
    
    
    
    (0.3
    )
    
    
    (0.3
    )Balance as of June 28, 2008
    
    $
    0.1
    
    
    $
    
    
    
    $
    0.1
  26




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##### Table of Contents



LIQUIDITY AND CAPITAL RESOURCES
   Senior Secured Credit Facility
     27




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##### Table of Contents



Senior Subordinated Notes
   Other Matters
        28




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##### Table of Contents



OUTLOOK
  
    
    Retail Market Conditions.As a result of the slowing U.S. 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, our focus on
innovation and providing the best in class products has been a proven recipe during strong
economic times and one that we are confident will be successful, albeit at a slower pace,
during softer economic times.
    
    ERP Implementation.We continue to plan for our long-term growth by investing in our
operations management and infrastructure. We are in the process of implementing 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
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.In 2008, we began a comprehensive three year effort to
further streamline our distribution, logistics and manufacturing operations worldwide.
During 2007, we contracted with a well-known operations consulting group to identify and
scope our options to lower costs, improve customer service and gain incremental capacity
from our supply chain. This is part of the continuing plan to support our long-term growth
by investing in our operations management and infrastructure. This process will ultimately
bring uniform methodologies for inventory management, transportation optimization,
manufacturing efficiency and the delivery of a high level of customer service to each of our
businesses. We expect that this enterprise-wide implementation will change the size, nature
and number of our distribution and manufacturing facilities with minimal risk to ongoing
operations. We will utilize an implementation team of Easton-Bell operations executives and
expect to complete our phased roll-out across all of our businesses by 2010. When completed,
we expect to have lowered the costs to produce and deliver our products to the marketplace
through an infrastructure built to meet the needs of our long-term growth plans. 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 diminished.
    
    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 June 28, 2008, the outstanding principal balance under our
term loan facility was $328.3 million and we had zero outstanding under our U.S. and
Canadian revolving credit facilities. We expect our interest expense for the full year 2008
to decrease due to lower borrowing rates, the impact of our interest rate swap agreement and
reduced debt levels.
 29




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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
  30




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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
 31




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##### Table of Contents



SIGNATURES
  EASTON-BELL SPORTS, INC.
RegistrantDated: August 11, 2008
    /s/ Paul E. HarringtonPaul E. HarringtonPresident and Chief Executive Officer
(Principal Executive Officer)Dated: August 11, 2008
    /s/ Mark A. TrippMark A. TrippChief Financial Officer
(Principal Financial Officer) 32