##### 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 March 29, 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. 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
  Large accelerated filer
o
    
    Accelerated filer
o
    
    Non-accelerated filer
þ
    
    Smaller reporting company o(Do not check if a smaller reporting company)
 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 March 29, 2008 (unaudited) and December 29, 2007
    
    
    3Consolidated Statements of Operations and Comprehensive Income for the Fiscal Quarter Ended
March 29, 2008 (unaudited) and March 31, 2007 (unaudited)
    
    
    4Consolidated Statements of Cash Flows for the Fiscal Quarter Ended March 29, 2008 (unaudited) and
March 31, 2007 (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
    
    
    28Item 1A. Risk Factors
    
    
    28Item 6. Exhibits
    
    
    28SIGNATURES
    
    
    29Employment Agreement with Daniel J ArmentCertification of the Principal Executive Officer pursuant to Section 302Certification of the Principal Financial Officer pursuant to Section 302Certification of the Principal Executive Officer and Principal Financial Officer 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)
 March 29,
    
    
    December 29,2008
    
    
    2007(Unaudited)ASSETSCurrent assets:Cash and cash equivalents
    
    $
    16,918
    
    
    $
    16,923Accounts receivable, net
    
    
    221,958
    
    
    
    200,380Inventories, net
    
    
    122,177
    
    
    
    135,335Prepaid expenses
    
    
    11,433
    
    
    
    9,774Deferred taxes
    
    
    6,782
    
    
    
    6,782Other current assets
    
    
    4,848
    
    
    
    5,450Total current assets
    
    
    384,116
    
    
    
    374,644Property, plant and equipment, net
    
    
    41,237
    
    
    
    40,622Deferred financing fees, net
    
    
    14,738
    
    
    
    15,633Intangible assets, net
    
    
    313,873
    
    
    
    317,225Goodwill
    
    
    203,441
    
    
    
    203,441Other assets
    
    
    5,284
    
    
    
    4,925Total assets
    
    $
    962,689
    
    
    $
    956,490LIABILITIES AND STOCKHOLDERS EQUITYCurrent liabilities:Current portion of long-term debt
    
    $
    3,350
    
    
    $
    3,350Revolving credit facility
    
    
    8,000
    
    
    
    5,500Current portion of capital lease obligations
    
    
    21
    
    
    
    21Accounts payable
    
    
    56,525
    
    
    
    60,586Accrued expenses
    
    
    46,251
    
    
    
    42,338Total current liabilities
    
    
    114,147
    
    
    
    111,795Long-term debt, less current portion
    
    
    465,788
    
    
    
    466,625Capital lease obligations, less current portion
    
    
    139
    
    
    
    145Deferred taxes
    
    
    25,718
    
    
    
    25,058Other noncurrent liabilities
    
    
    13,503
    
    
    
    11,880Total liabilities
    
    
    619,295
    
    
    
    615,503Stockholders equity:Common stock: $0.01 par value, 100 shares
authorized, 100 shares issued and
outstanding at March 29, 2008 and December
29, 2007
    
    
    
    
    
    
    Additional paid-in capital
    
    
    338,109
    
    
    
    337,277Accumulated earnings (deficit)
    
    
    356
    
    
    
    (2,040
    )Accumulated other comprehensive income
    
    
    4,929
    
    
    
    5,750Total stockholders equity
    
    
    343,394
    
    
    
    340,987Total liabilities and stockholders equity
    
    $
    962,689
    
    
    $
    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 EndedMarch 29,
    
    
    March 31,2008
    
    
    2007Net sales
    
    $
    182,139
    
    
    $
    174,634Cost of sales
    
    
    121,119
    
    
    
    116,121Gross profit
    
    
    61,020
    
    
    
    58,513Selling, general and administrative expenses
    
    
    43,635
    
    
    
    42,226Restructuring and other infrequent expenses
    
    
    175
    
    
    
    49Amortization of intangibles
    
    
    3,352
    
    
    
    3,165Income from operations
    
    
    13,858
    
    
    
    13,073Interest expense, net
    
    
    9,797
    
    
    
    10,906Income before income taxes
    
    
    4,061
    
    
    
    2,167Income tax expense
    
    
    1,665
    
    
    
    888Net income
    
    
    2,396
    
    
    
    1,279Other comprehensive income:Foreign currency translation adjustment
    
    
    (821
    )
    
    
    232Comprehensive income
    
    $
    1,575
    
    
    $
    1,511
  4




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##### Table of Contents



EASTON-BELL SPORTS, INC. AND SUBSIDIARIES
 
 CONSOLIDATED STATEMENTS OF CASH FLOWS
 (Unaudited and amounts in thousands)
 Fiscal Quarter EndedMarch 29,
    
    
    March 31,2008
    
    
    2007Cash flows from operating activities:Net income
    
    $
    2,396
    
    
    $
    1,279Adjustments to reconcile net income to net cash
provided by (used in) operating activities:Depreciation and amortization
    
    
    6,276
    
    
    
    5,609Amortization of deferred financing fees
    
    
    895
    
    
    
    1,105Equity compensation expense
    
    
    832
    
    
    
    695Deferred income tax expense
    
    
    660
    
    
    
    34Gain on sale of property, plant and equipment
    
    
    
    
    
    
    (7
    )Changes in operating assets and liabilities,
net of effects from purchase of business:Accounts receivable, net
    
    
    (22,399
    )
    
    
    (14,724
    )Inventories, net
    
    
    12,522
    
    
    
    (5,328
    )Other current and noncurrent assets
    
    
    (1,416
    )
    
    
    1,229Accounts payable
    
    
    (3,914
    )
    
    
    (5,978
    )Accrued expenses
    
    
    4,193
    
    
    
    (7,058
    )Other current and noncurrent liabilities
    
    
    1,623
    
    
    
    (317
    )Net cash provided by (used in)
operating activities
    
    
    1,668
    
    
    
    (23,461
    )Cash flows from investing activities:Purchase of property, plant and equipment
    
    
    (3,569
    )
    
    
    (4,221
    )Settlement of preacquisition contingency
    
    
    
    
    
    
    2,178Purchase of business, net of cash acquired
    
    
    
    
    
    
    (500
    )Net cash used in investing activities
    
    
    (3,569
    )
    
    
    (2,543
    )Cash flows from financing activities:Payments on senior term notes
    
    
    (837
    )
    
    
    (838
    )Proceeds from revolving credit facility
    
    
    18,000
    
    
    
    48,600Payments on revolving credit facility
    
    
    (15,500
    )
    
    
    (25,300
    )Payments on capital lease obligations
    
    
    (6
    )
    
    
    (9
    )Net cash provided by financing activities
    
    
    1,657
    
    
    
    22,453Effect of exchange rate changes on cash and cash
equivalents
    
    
    239
    
    
    
    232Decrease in cash and cash equivalents
    
    
    (5
    )
    
    
    (3,319
    )Cash and cash equivalents, beginning of period
    
    
    16,923
    
    
    
    9,899Cash and cash equivalents, end of period
    
    $
    16,918
    
    
    $
    6,580
  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
 References to the Company refer to Easton-Bell Sports, Inc. and its consolidated
subsidiaries. References to Easton, Bell and Riddell refer to Easton Sports, Inc. and its
consolidated subsidiaries, Bell Sports Corp. and its consolidated subsidiaries, and Riddell Sports
Group, Inc. and its consolidated subsidiaries, respectively, in each case, prior to its acquisition
by Easton-Bell Sports, Inc. Easton-Bell Sports, Inc. is a subsidiary of RBG Holdings Corp. (RBG),
which is a subsidiary of EB Sports Corp., which is a subsidiary of Easton-Bell Sports, LLC, the
ultimate parent company (the Parent).
   2. Restructuring
  Recognition of Liabilities in
Connection with a Purchase Business Combination
 Fiscal Quarter EndedMarch 29, 2008FacilityEmployee
    
    
    ClosureSeverance
    
    
    Costs
    
    
    TotalBalance as of beginning of period
    
    $
    196
    
    
    $
    370
    
    
    $
    566Costs accrued and expensed during the quarter
    
    
    
    
    
    
    175
    
    
    
    175Less: amounts paid during the quarter
    
    
    (50
    )
    
    
    (545
    )
    
    
    (595
    )Balance as of end of period
    
    $
    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
  March 29, 2008
    
    
    December 29, 2007Gross
    
    
    
    
    
    
    GrossCarrying
    
    
    Accumulated
    
    
    Carrying
    
    
    AccumulatedAmounts
    
    
    Amortization
    
    
    Amounts
    
    
    AmortizationAmortizable intangible assets:Trademarks and tradenames
    
    $
    1,702
    
    
    $
    (1,148
    )
    
    $
    1,702
    
    
    $
    (1,086
    )Customer relationships
    
    
    59,180
    
    
    
    (21,403
    )
    
    
    59,180
    
    
    
    (20,042
    )Patents
    
    
    60,345
    
    
    
    (18,514
    )
    
    
    60,345
    
    
    
    (16,900
    )Licensing and other
    
    
    5,900
    
    
    
    (2,573
    )
    
    
    5,900
    
    
    
    (2,258
    )Total
    
    $
    127,127
    
    
    $
    (43,638
    )
    
    $
    127,127
    
    
    $
    (40,286
    )Indefinite-lived intangible assets:Trademarks and tradenames
    
    $
    230,384
    
    
    
    
    
    
    $
    230,384
  Team
    
    
    ActionSports
    
    
    Sports
    
    
    ConsolidatedBalance as of March 29, 2008 and December 29, 2007
    
    $
    141,977
    
    
    $
    61,464
    
    
    $
    203,441
 Goodwill and Other Intangible Assets
 4. Long-Term Debt
  March 29, 2008
    
    
    December 29, 2007Senior Secured Credit Facility:Term loan facility
    
    $
    329,138
    
    
    $
    329,975U.S. revolving credit facility
    
    
    8,000
    
    
    
    5,5008.375% Senior subordinated notes due 2012
    
    
    140,000
    
    
    
    140,000Capital lease obligations
    
    
    160
    
    
    
    166Total long-term debt
    
    
    477,298
    
    
    
    475,641Less current maturities of long-term debt
    
    
    (11,371
    )
    
    
    (8,871
    )Long-term debt, less current portion
    
    $
    465,927
    
    
    $
    466,770
 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
   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. Accrued Expenses
  March 29, 2008
    
    
    December 29, 2007Salaries, wages, commissions and bonuses
    
    $
    9,770
    
    
    $
    6,875Advertising
    
    
    5,014
    
    
    
    5,017Restructuring
    
    
    146
    
    
    
    566Defective products
    
    
    1,094
    
    
    
    938Rebates
    
    
    4,470
    
    
    
    4,412Warranty
    
    
    3,508
    
    
    
    3,390Product liability  current portion
    
    
    2,693
    
    
    
    2,443Royalties
    
    
    2,125
    
    
    
    1,858Interest
    
    
    6,288
    
    
    
    3,227Other
    
    
    11,143
    
    
    
    13,612Total accrued expenses
    
    $
    46,251
    
    
    $
    42,338
 6. Inventories
   March 29, 2008
    
    
    December 29, 2007Raw materials
    
    $
    16,204
    
    
    $
    14,862Work-in-process
    
    
    2,313
    
    
    
    1,928Finished goods
    
    
    103,660
    
    
    
    118,545Inventories, net
    
    $
    122,177
    
    
    $
    135,335
 7. Recent Accounting Pronouncements
 Fair Value Measurements
 The Fair Value Option for Financial Assets and
Liabilities  Including an amendment of FASB Statement No. 115
 9




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EASTON-BELL SPORTS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited and amounts in thousands, except as specified)
 Business Combinations
 Disclosures about Derivative Instruments and
Hedging Activities
 8. Segment Reporting
   Team
    
    ActionFiscal Quarter Ended
    
    Sports
    
    Sports
    
    ConsolidatedMarch 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
    
    
    
    3,569March 31, 2007Net sales
    
    $
    101,975
    
    
    $
    72,659
    
    
    $
    174,634Income from operations
    
    
    12,930
    
    
    
    6,162
    
    
    
    19,092Depreciation
    
    
    1,164
    
    
    
    1,280
    
    
    
    2,444Capital expenditures
    
    
    1,296
    
    
    
    2,925
    
    
    
    4,221
 Team
    
    ActionSports
    
    Sports
    
    ConsolidatedAssetsAs of March 29, 2008
    
    $
    593,916
    
    
    $
    368,773
    
    
    $
    962,689As of December 29, 2007
    
    
    589,965
    
    
    
    366,525
    
    
    
    956,490
 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 EndedMarch 29, 2008
    
    
    March 31, 2007Segment income from operations
    
    $
    22,727
    
    
    $
    19,092Equity compensation expense
    
    
    (832
    )
    
    
    (695
    )Corporate expenses
    
    
    (4,510
    )
    
    
    (2,110
    )Restructuring and other infrequent expenses
    
    
    (175
    )
    
    
    (49
    )Amortization of intangibles
    
    
    (3,352
    )
    
    
    (3,165
    )Consolidated income from operations
    
    $
    13,858
    
    
    $
    13,073
 9. Product Liability, Litigation and Other Contingencies
 Product Liability
   Litigation and Other Contingencies
  10. Income Taxes
 Accounting for Uncertainty in Income Taxes-an
interpretation of FASB Statement No. 109, Accounting for 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)
  11. 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)
 12. Equity-Based Employee Compensation
  Share Based Payment Accounting for Stock Based
Compensation Shared Based Payment
  Risk-free interest rate
    
    
    1.5 to 2.0
    %Expected term
    
    4 yearsExpected volatility(1)
    
    
    46.0
    %Dividend yield
    
    
    0.0
    %Forfeiture rate
    
    
    7.7
    %
 
 (1)
    
    Expected volatility is based upon a peer group of companies given
no historical data for the Units.   Fiscal Quarter
    
    
    Fiscal QuarterEnded
    
    
    EndedMarch 29, 2008
    
    
    March 31, 2007Equity compensation expense
    
    $
    832
    
    
    $
    695
  13




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EASTON-BELL SPORTS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited and amounts in thousands, except as specified)
  Weighted AverageNumber 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
    
    
    $
    2.06Vested Units at March 29, 2008
    
    
    6,645,099
    
    
    $
    2.03
 13. Warranty Obligations
   Fiscal Quarter EndedMarch 29,
    
    
    March 31,2008
    
    
    2007Beginning of period
    
    $
    3,390
    
    
    $
    2,981Warranty costs incurred during the period
    
    
    (1,307
    )
    
    
    (1,501
    )Warranty cost liability recorded during the period
    
    
    1,425
    
    
    
    1,083End of period
    
    $
    3,508
    
    
    $
    2,563
 14. 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)
    15. 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
March 29, 2008
 Guarantor
    
    
    Non-GuarantorIssuer
    
    
    Subsidiaries
    
    
    Subsidiaries
    
    
    Eliminations
    
    
    ConsolidatedASSETSCurrent assets:Cash and cash equivalents
    
    $
    2,556
    
    
    $
    3,116
    
    
    $
    11,246
    
    
    $
    
    
    
    $
    16,918Accounts receivable, net
    
    
    
    
    
    
    198,638
    
    
    
    23,320
    
    
    
    
    
    
    
    221,958Inventories, net
    
    
    
    
    
    
    102,805
    
    
    
    19,372
    
    
    
    
    
    
    
    122,177Prepaid expenses
    
    
    1,320
    
    
    
    9,691
    
    
    
    422
    
    
    
    
    
    
    
    11,433Deferred taxes
    
    
    552
    
    
    
    6,230
    
    
    
    
    
    
    
    
    
    
    
    6,782Other current assets
    
    
    
    
    
    
    3,496
    
    
    
    1,352
    
    
    
    
    
    
    
    4,848Total current assets
    
    
    4,428
    
    
    
    323,976
    
    
    
    55,712
    
    
    
    
    
    
    
    384,116Property, plant and equipment, net
    
    
    12,372
    
    
    
    27,692
    
    
    
    1,173
    
    
    
    
    
    
    
    41,237Deferred financing fees, net
    
    
    14,738
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    14,738Investments and intercompany receivables
    
    
    432,273
    
    
    
    41,828
    
    
    
    21,263
    
    
    
    (495,364)
    
    
    
    Intangible assets, net
    
    
    
    
    
    
    307,594
    
    
    
    6,279
    
    
    
    
    
    
    
    313,873Goodwill
    
    
    16,195
    
    
    
    182,055
    
    
    
    5,191
    
    
    
    
    
    
    
    203,441Other assets
    
    
    
    
    
    
    5,281
    
    
    
    3
    
    
    
    
    
    
    
    5,284Total assets
    
    $
    480,006
    
    
    $
    888,426
    
    
    $
    89,621
    
    
    $
    (495,364
    )
    
    $
    962,689LIABILITIES AND STOCKHOLDERS EQUITYCurrent liabilities:Current portion of long-term debt
    
    $
    3,350
    
    
    $
    
    
    
    $
    
    
    
    $
    
    
    
    $
    3,350Revolving credit facility
    
    
    8,000
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    8,000Current portion of capital lease obligations
    
    
    
    
    
    
    21
    
    
    
    
    
    
    
    
    
    
    
    21Accounts payable
    
    
    
    
    
    
    49,840
    
    
    
    6,685
    
    
    
    
    
    
    
    56,525Accrued expenses
    
    
    500
    
    
    
    38,688
    
    
    
    7,063
    
    
    
    
    
    
    
    46,251Total current liabilities
    
    
    11,850
    
    
    
    88,549
    
    
    
    13,748
    
    
    
    
    
    
    
    114,147Long-term debt, less current portion
    
    
    465,788
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    465,788Capital lease obligations, less current portion
    
    
    
    
    
    
    139
    
    
    
    
    
    
    
    
    
    
    
    139Deferred taxes
    
    
    
    
    
    
    22,165
    
    
    
    3,553
    
    
    
    
    
    
    
    25,718Other noncurrent liabilities
    
    
    
    
    
    
    8,200
    
    
    
    5,303
    
    
    
    
    
    
    
    13,503Long-term intercompany payables
    
    
    
    
    
    
    453,828
    
    
    
    7,102
    
    
    
    (460,930
    )
    
    
    Total liabilities
    
    
    477,638
    
    
    
    572,881
    
    
    
    29,706
    
    
    
    (460,930
    )
    
    
    619,295Total stockholders equity
    
    
    2,368
    
    
    
    315,545
    
    
    
    59,915
    
    
    
    (34,434
    )
    
    
    343,394Total liabilities and stockholders equity
    
    $
    480,006
    
    
    $
    888,426
    
    
    $
    89,621
    
    
    $
    (495,364
    )
    
    $
    962,689
 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
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
 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 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 and other infrequent 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 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
 Condensed Consolidating Statement of Operations
Fiscal Quarter Ended March 31, 2007
 Non-Guarantor
    
    
    GuarantorIssuer
    
    
    Subsidiaries
    
    
    Subsidiaries
    
    
    Eliminations
    
    
    ConsolidatedNet sales
    
    $
    
    
    
    $
    168,539
    
    
    $
    18,949
    
    
    $
    (12,854
    )
    
    $
    174,634Cost of sales
    
    
    42
    
    
    
    114,543
    
    
    
    14,390
    
    
    
    (12,854
    )
    
    
    116,121Gross profit
    
    
    (42
    )
    
    
    53,996
    
    
    
    4,559
    
    
    
    
    
    
    
    58,513Selling, general and administrative expenses
    
    
    3,772
    
    
    
    35,868
    
    
    
    2,586
    
    
    
    
    
    
    
    42,226Restructuring and other infrequent expenses
    
    
    
    
    
    
    49
    
    
    
    
    
    
    
    
    
    
    
    49Amortization of intangibles
    
    
    
    
    
    
    3,005
    
    
    
    160
    
    
    
    
    
    
    
    3,165(Loss) income from operations
    
    
    (3,814
    )
    
    
    15,074
    
    
    
    1,813
    
    
    
    
    
    
    
    13,073Interest expense, net
    
    
    10,747
    
    
    
    241
    
    
    
    (82
    )
    
    
    
    
    
    
    10,906Share of net income of subsidiaries under equity method
    
    
    15,306
    
    
    
    1,180
    
    
    
    
    
    
    
    (16,486
    )
    
    
    Income (loss) before income taxes
    
    
    745
    
    
    
    16,013
    
    
    
    1,895
    
    
    
    (16,486
    )
    
    
    2,167Income tax expense
    
    
    
    
    
    
    173
    
    
    
    715
    
    
    
    
    
    
    
    888Net income (loss)
    
    $
    745
    
    
    $
    15,840
    
    
    $
    1,180
    
    
    $
    (16,486
    )
    
    $
    1,279
 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 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 year
    
    
    3,099
    
    
    
    1,820
    
    
    
    12,004
    
    
    
    
    
    
    
    16,923Cash and cash equivalents, end of year
    
    $
    2,556
    
    
    $
    3,116
    
    
    $
    11,246
    
    
    $
    
    
    
    $
    16,918
 Condensed Consolidating Statement of Cash Flows
Fiscal Quarter Ended March 31, 2007
 Guarantor
    
    
    Non-GuarantorIssuer
    
    
    Subsidiaries
    
    
    Subsidiaries
    
    
    Eliminations
    
    
    ConsolidatedCash flows from operating activities:Net income (loss)
    
    $
    745
    
    
    $
    15,559
    
    
    $
    1,181
    
    
    $
    (16,206
    )
    
    $
    1,279Non-cash adjustments
    
    
    (17,792
    )
    
    
    7,887
    
    
    
    1,135
    
    
    
    16,206
    
    
    
    7,436Changes in operating assets and liabilities, net of
effects from purchase of business
    
    
    (4,347
    )
    
    
    (23,623
    )
    
    
    (4,206
    )
    
    
    
    
    
    
    (32,176
    )Net cash used in operating activities
    
    
    (21,394
    )
    
    
    (177
    )
    
    
    (1,890
    )
    
    
    
    
    
    
    (23,461
    )Cash flows from investing activities:Purchases of property, plant and equipment
    
    
    (1,939
    )
    
    
    (2,149
    )
    
    
    (133
    )
    
    
    
    
    
    
    (4,221
    )Settlement of preacquisition contingency
    
    
    
    
    
    
    
    
    
    
    2,178
    
    
    
    
    
    
    
    2,178Purchase of business, net of cash acquired
    
    
    
    
    
    
    (500
    )
    
    
    
    
    
    
    
    
    
    
    (500
    )Net cash (used in) provided by investing activities
    
    
    (1,939
    )
    
    
    (2,649
    )
    
    
    2,045
    
    
    
    
    
    
    
    (2,543
    )Cash flows from financing activities:Payments on capital lease obligations
    
    
    
    
    
    
    (9
    )
    
    
    
    
    
    
    
    
    
    
    (9
    )Payments on senior term notes
    
    
    (838
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (838
    )Proceeds from senior secured credit facility, net
    
    
    23,300
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    23,300Net cash provided by (used in) financing activities
    
    
    22,462
    
    
    
    (9
    )
    
    
    
    
    
    
    
    
    
    
    22,453Effect of exchange rate changes on cash and cash
equivalents
    
    
    
    
    
    
    
    
    
    
    232
    
    
    
    
    
    
    
    232(Decrease) increase in cash and cash equivalents
    
    
    (871
    )
    
    
    (2,835
    )
    
    
    387
    
    
    
    
    
    
    
    (3,319
    )Cash and cash equivalents, beginning of year
    
    
    1,527
    
    
    
    2,685
    
    
    
    5,687
    
    
    
    
    
    
    
    9,899Cash and cash equivalents, end of year
    
    $
    656
    
    
    $
    (150
    )
    
    $
    6,074
    
    
    $
    
    
    
    $
    6,580
 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
  20




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##### Table of Contents



Cost of Sales
  Gross Profit
  Selling, General and Administrative Expenses
  RESULTS OF OPERATIONS
  Fiscal Quarter EndedMarch 29,
    
    
    % of
    
    
    March 31,
    
    
    % of2008
    
    
    Net Sales
    
    
    2007
    
    
    Net Sales(Dollars in millions)Net sales
    
    $
    182.1
    
    
    
    100.0
    %
    
    $
    174.6
    
    
    
    100.0
    %Cost of sales
    
    
    121.1
    
    
    
    66.5
    %
    
    
    116.1
    
    
    
    66.5
    %Gross profit
    
    
    61.0
    
    
    
    33.5
    %
    
    
    58.5
    
    
    
    33.5
    %Selling, general and administrative expenses
    
    
    43.6
    
    
    
    23.9
    %
    
    
    42.2
    
    
    
    24.2
    %Restructuring and other infrequent expenses
    
    
    0.2
    
    
    
    0.1
    %
    
    
    
    
    
    
    0.0
    %Amortization of intangibles
    
    
    3.3
    
    
    
    1.9
    %
    
    
    3.2
    
    
    
    1.8
    %Income from operations
    
    $
    13.9
    
    
    
    7.6
    %
    
    $
    13.1
    
    
    
    7.5
    %
 Net Sales
  Fiscal Quarter EndedMarch 29,
    
    
    March 31,
    
    
    Change2008
    
    
    2007
    
    
    $
    
    
    %(Dollars in millions)Team Sports
    
    $
    100.8
    
    
    $
    102.0
    
    
    $
    (1.2
    )
    
    
    (1.2
    %)Action Sports
    
    
    81.3
    
    
    
    72.6
    
    
    
    8.7
    
    
    
    12.0
    %$
    182.1
    
    
    $
    174.6
    
    
    $
    7.5
    
    
    
    4.3
    %
  21




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##### Table of Contents



Cost of Sales
  Fiscal Quarter EndedMarch 29,
    
    
    % of
    
    
    March 31,
    
    
    % of2008
    
    
    Net Sales
    
    
    2007
    
    
    Net Sales(Dollars in millions)Team Sports
    
    $
    63.4
    
    
    
    62.9
    %
    
    $
    65.7
    
    
    
    64.4
    %Action Sports
    
    
    57.7
    
    
    
    71.0
    %
    
    
    50.4
    
    
    
    69.4
    %$
    121.1
    
    
    
    66.5
    %
    
    $
    116.1
    
    
    
    66.5
    %
  Gross Profit
  Fiscal Quarter EndedMarch 29,
    
    
    % of
    
    
    March 31,
    
    
    % of2008
    
    
    Net Sales
    
    
    2007
    
    
    Net Sales(Dollars in millions)Team Sports
    
    $
    37.4
    
    
    
    37.1
    %
    
    $
    36.3
    
    
    
    35.6
    %Action Sports
    
    
    23.6
    
    
    
    29.0
    %
    
    
    22.2
    
    
    
    30.6
    %$
    61.0
    
    
    
    33.5
    %
    
    $
    58.5
    
    
    
    33.5
    %
  Selling, General and Administrative Expenses
  Restructuring Expenses
  Amortization of Intangibles
  22




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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 quarter
    
    
    (0.1
    )
    
    
    (0.6
    )
    
    
    (0.7
    )Balance as of March 29, 2008
    
    $
    0.1
    
    
    $
    
    
    
    $
    0.1
  LIQUIDITY AND CAPITAL RESOURCES
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Senior Secured Credit Facility
      Senior Subordinated Notes
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Other Matters
         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.
    
    Introduction of New Products.  In 2008, we expect to introduce several new products that
capitalize on the strength of our brands. Those introductions include a new line of snow
goggles and cycling sunglasses under the Girobrand and an expanded line of premium
composite and aluminum bats and composite hockey sticks, along with the introduction of
hockey helmets under the Eastonbrand. Other new products include premium cycling and snow
helmets under the Belland Girobrands and an expanded line of carbon fiber wheels under the
Eastonbrand. Successful new product introductions have historically driven enthusiasm for
our brands and resulted in higher average selling prices and higher gross profit margins. We
also expect that we will enter adjacent categories and sports from time-to-time through
either organic initiatives or through acquisitions.
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
    
    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,
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 new 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 March 29, 2008, the outstanding principal balance under our
term loan facility was $329.1 million and we had $8.0 million outstanding under our
U.S. revolving credit facility. We expect our interest expense in 2008 to decrease due to
lower borrowing rates and reduced debt levels. We presently hedge our
variable interest rate debt, and our actual interest expense will be partially determined by
LIBOR trends.
 CRITICAL ACCOUNTING POLICIES AND ESTIMATES
  
 Item 3. Quantitative and Qualitative Disclosures About Market Risk
 Foreign Currency Risk
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Interest Rate Risk
   
 Item 4. Controls and Procedures
 Evaluation of Disclosure Controls and Procedures
  Changes in Internal Control over Financial Reporting
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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:10.1
    
    Employment Agreement with Daniel J. Arment
    
    Filed herewith31.1
    
    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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SIGNATURES
  EASTON-BELL SPORTS, INC.
RegistrantDated: May 13, 2008
    /s/ Paul E. HarringtonPaul E. HarringtonChief Executive Officer and President
(Principal Executive Officer)Dated: May 13, 2008
    /s/ Mark A. TrippMark A. TrippChief Financial Officer
(Principal Financial Officer) 29