##### 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 September 27, 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
(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 September 27, 2008 (unaudited) and December 29, 2007
    
    
    3Consolidated Statements of Operations and Comprehensive Income for the Fiscal Quarter and
Three Fiscal Quarters Ended September 27, 2008 (unaudited) and September 29, 2007 (unaudited)
    
    
    4Consolidated Statements of Cash Flows for the Three Fiscal Quarters Ended September 27,
2008 (unaudited) and September 29, 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
    
    
    29Item 4. Controls and Procedures
    
    
    30PART II. OTHER INFORMATION:Item 1. Legal Proceedings
    
    
    31Item 1A. Risk Factors
    
    
    31Item 6. Exhibits
    
    
    31SIGNATURES
    
    
    32EX-31.1EX-31.2EX-32.1
  2




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##### Table of Contents



PART I. FINANCIAL INFORMATION
 
 Item 1. Financial Statements
 EASTON-BELL SPORTS, INC. AND SUBSIDIARIES
 
 CONSOLIDATED BALANCE SHEETS
 (Amounts in thousands, except share and per share amounts)
 September 27,
    
    
    December 29,2008
    
    
    2007(Unaudited)ASSETSCurrent assets:Cash and cash equivalents
    
    $
    89,519
    
    
    $
    16,923Accounts receivable, net
    
    
    241,396
    
    
    
    200,380Inventories, net
    
    
    119,994
    
    
    
    135,335Prepaid expenses
    
    
    6,867
    
    
    
    9,774Deferred taxes
    
    
    6,776
    
    
    
    6,782Other current assets
    
    
    6,966
    
    
    
    5,450Total current assets
    
    
    471,518
    
    
    
    374,644Property, plant and equipment, net
    
    
    42,621
    
    
    
    40,622Deferred financing fees, net
    
    
    12,950
    
    
    
    15,633Intangible assets, net
    
    
    307,170
    
    
    
    317,225Goodwill
    
    
    203,441
    
    
    
    203,441Other assets
    
    
    9,358
    
    
    
    4,925Total assets
    
    $
    1,047,058
    
    
    $
    956,490LIABILITIES AND STOCKHOLDERS EQUITYCurrent liabilities:Current portion of long-term debt
    
    $
    3,350
    
    
    $
    3,350Revolving credit facility
    
    
    30,000
    
    
    
    5,500Current portion of capital lease obligations
    
    
    22
    
    
    
    21Accounts payable
    
    
    66,013
    
    
    
    60,586Accrued expenses
    
    
    58,259
    
    
    
    42,338Total current liabilities
    
    
    157,644
    
    
    
    111,795Long-term debt, less current portion
    
    
    464,113
    
    
    
    466,625Capital lease obligations, less current portion
    
    
    128
    
    
    
    145Deferred taxes
    
    
    43,498
    
    
    
    25,058Other noncurrent liabilities
    
    
    15,346
    
    
    
    11,880Total liabilities
    
    
    680,729
    
    
    
    615,503Stockholders equity:Common stock: $0.01 par value, 100 shares
authorized, 100 shares issued and
outstanding at September 27, 2008 and
December 29, 2007
    
    
    
    
    
    
    Additional paid-in capital
    
    
    340,221
    
    
    
    337,277Retained earnings (deficit)
    
    
    22,158
    
    
    
    (2,040
    )Accumulated other comprehensive income
    
    
    3,950
    
    
    
    5,750Total stockholders equity
    
    
    366,329
    
    
    
    340,987Total liabilities and stockholders equity
    
    $
    1,047,058
    
    
    $
    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
    
    
    Three Fiscal Quarters EndedSeptember 27,
    
    
    September 29,
    
    
    September 27,
    
    
    September 29,2008
    
    
    2007
    
    
    2008
    
    
    2007Net sales
    
    $
    203,369
    
    
    $
    188,565
    
    
    $
    606,318
    
    
    $
    569,570Cost of sales
    
    
    130,505
    
    
    
    123,217
    
    
    
    391,022
    
    
    
    369,325Gross profit
    
    
    72,864
    
    
    
    65,348
    
    
    
    215,296
    
    
    
    200,245Selling, general and administrative expenses
    
    
    46,127
    
    
    
    39,375
    
    
    
    135,767
    
    
    
    124,893Restructuring and other infrequent expenses
    
    
    
    
    
    
    488
    
    
    
    492
    
    
    
    589Amortization of intangibles
    
    
    3,352
    
    
    
    3,352
    
    
    
    10,055
    
    
    
    9,869Gain on sale of property, plant and equipment
    
    
    
    
    
    
    (487
    )
    
    
    
    
    
    
    (2,339
    )Income from operations
    
    
    23,385
    
    
    
    22,620
    
    
    
    68,982
    
    
    
    67,233Interest expense, net
    
    
    9,469
    
    
    
    10,165
    
    
    
    21,636
    
    
    
    31,950Income before income taxes
    
    
    13,916
    
    
    
    12,455
    
    
    
    47,346
    
    
    
    35,283Income tax expense
    
    
    7,573
    
    
    
    5,610
    
    
    
    23,148
    
    
    
    15,100Net income
    
    
    6,343
    
    
    
    6,845
    
    
    
    24,198
    
    
    
    20,183Other comprehensive income:Foreign currency translation adjustment
    
    
    (1,098
    )
    
    
    2,582
    
    
    
    (1,800
    )
    
    
    5,004Comprehensive income
    
    $
    5,245
    
    
    $
    9,427
    
    
    $
    22,398
    
    
    $
    25,187
  4




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EASTON-BELL SPORTS, INC. AND SUBSIDIARIES
 
 CONSOLIDATED STATEMENTS OF CASH FLOWS
 (Unaudited and amounts in thousands)
 Three Fiscal Quarters EndedSeptember 27,
    
    
    September 29,2008
    
    
    2007Cash flows from operating activities:Net income
    
    $
    24,198
    
    
    $
    20,183Adjustments to reconcile net income to net cash
provided by operating activities:Depreciation and amortization
    
    
    19,068
    
    
    
    17,216Amortization of deferred financing fees
    
    
    2,683
    
    
    
    2,744Equity compensation expense
    
    
    2,944
    
    
    
    2,123Deferred income tax expense
    
    
    18,446
    
    
    
    7,831Gain on sale of property, plant and equipment
    
    
    
    
    
    
    (2,339
    )Disposal of property, plant and equipment
    
    
    12
    
    
    
    116Changes in operating assets and liabilities,
net of effects from purchase of businesses:Accounts receivable, net
    
    
    (42,767
    )
    
    
    (38,547
    )Inventories, net
    
    
    14,617
    
    
    
    9,534Other current and noncurrent assets
    
    
    (3,042
    )
    
    
    4,634Accounts payable
    
    
    5,618
    
    
    
    1,131Accrued expenses
    
    
    16,417
    
    
    
    (14,862
    )Other current and noncurrent liabilities
    
    
    3,466
    
    
    
    (619
    )Net cash provided by operating activities
    
    
    61,660
    
    
    
    9,145Cash flows from investing activities:Purchase of property, plant and equipment
    
    
    (10,955
    )
    
    
    (11,382
    )Proceeds from sale of property held for sale
    
    
    
    
    
    
    3,331Settlement of preacquisition contingency
    
    
    
    
    
    
    2,178Purchase of businesses, net of cash acquired
    
    
    
    
    
    
    (1,569
    )Net cash used in investing activities
    
    
    (10,955
    )
    
    
    (7,442
    )Cash flows from financing activities:Payments on senior term notes
    
    
    (2,512
    )
    
    
    (2,513
    )Proceeds from revolving credit facility
    
    
    53,000
    
    
    
    99,100Payments on revolving credit facility
    
    
    (28,500
    )
    
    
    (92,600
    )Payments on capital lease obligations
    
    
    (16
    )
    
    
    (34
    )Net cash provided by financing activities
    
    
    21,972
    
    
    
    3,953Effect of exchange rate changes on cash and cash
equivalents
    
    
    (81
    )
    
    
    (211
    )Increase in cash and cash equivalents
    
    
    72,596
    
    
    
    5,445Cash and cash equivalents, beginning of period
    
    
    16,923
    
    
    
    9,899Cash and cash equivalents, end of period
    
    $
    89,519
    
    
    $
    15,344
  5




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EASTON-BELL SPORTS, INC. AND SUBSIDIARIES
 
 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
 (Unaudited and amounts in thousands, except as specified)
 1. Basis of Presentation
    2. Goodwill and Other Intangible Assets
  September 27, 2008
    
    
    December 29, 2007Gross
    
    
    
    
    
    
    GrossCarrying
    
    
    Accumulated
    
    
    Carrying
    
    
    AccumulatedAmounts
    
    
    Amortization
    
    
    Amounts
    
    
    AmortizationAmortizable intangible assets:Trademarks and tradenames
    
    $
    1,702
    
    
    $
    (1,271
    )
    
    $
    1,702
    
    
    $
    (1,086
    )Customer relationships
    
    
    59,180
    
    
    
    (24,124
    )
    
    
    59,180
    
    
    
    (20,042
    )Patents
    
    
    60,345
    
    
    
    (21,743
    )
    
    
    60,345
    
    
    
    (16,900
    )Licensing and other
    
    
    5,900
    
    
    
    (3,203
    )
    
    
    5,900
    
    
    
    (2,258
    )Total
    
    $
    127,127
    
    
    $
    (50,341
    )
    
    $
    127,127
    
    
    $
    (40,286
    )Indefinite-lived intangible assets:Trademarks and tradenames
    
    $
    230,384
    
    
    
    
    
    
    $
    230,384
  Team
    
    
    ActionSports
    
    
    Sports
    
    
    ConsolidatedBalance as of September 27, 2008 and December 29, 2007
    
    $
    141,977
    
    
    $
    61,464
    
    
    $
    203,441
 Goodwill and Other Intangible Assets
 6




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EASTON-BELL SPORTS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited and amounts in thousands, except as specified)
 3. Long-Term Debt
  September 27, 2008
    
    
    December 29, 2007Senior Secured Credit Facility:Term loan facility
    
    $
    327,463
    
    
    $
    329,975U.S. revolving credit facility
    
    
    30,000
    
    
    
    5,5008.375% Senior subordinated notes due 2012
    
    
    140,000
    
    
    
    140,000Capital lease obligations
    
    
    150
    
    
    
    166Total long-term debt
    
    
    497,613
    
    
    
    475,641Less current maturities of long-term debt
    
    
    (33,372
    )
    
    
    (8,871
    )Long-term debt, less current portion
    
    $
    464,241
    
    
    $
    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
    Other
   4. Accrued Expenses
  September 27, 2008
    
    
    December 29, 2007Salaries, wages, commissions and bonuses
    
    $
    13,633
    
    
    $
    6,875Advertising
    
    
    5,211
    
    
    
    5,017Restructuring
    
    
    122
    
    
    
    566Defective products
    
    
    618
    
    
    
    938Rebates
    
    
    5,351
    
    
    
    4,412Warranty
    
    
    3,852
    
    
    
    3,390Product liability  current portion
    
    
    3,515
    
    
    
    2,443Royalties
    
    
    1,600
    
    
    
    1,858Interest
    
    
    7,189
    
    
    
    3,227Other
    
    
    17,168
    
    
    
    13,612Total accrued expenses
    
    $
    58,259
    
    
    $
    42,338
 8




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EASTON-BELL SPORTS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited and amounts in thousands, except as specified)
 5. Inventories
   September 27, 2008
    
    
    December 29, 2007Raw materials
    
    $
    14,316
    
    
    $
    14,862Work-in-process
    
    
    2,156
    
    
    
    1,928Finished goods
    
    
    103,522
    
    
    
    118,545Inventories, net
    
    $
    119,994
    
    
    $
    135,335
 6. Recent Accounting Pronouncements
 Fair Value Measurements
 The Fair Value Option for Financial Assets and
Liabilities  Including an amendment of FASB Statement No. 115
 Business Combinations
 Disclosures about Derivative Instruments and
Hedging Activities
 9




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EASTON-BELL SPORTS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited and amounts in thousands, except as specified)
 Determination of the Useful Life of Intangible
Assets Goodwill and Other Intangible Assets
 7. Segment Reporting
   Team
    
    ActionFiscal Quarter Ended
    
    Sports
    
    Sports
    
    ConsolidatedSeptember 27, 2008Net sales
    
    $
    112,609
    
    
    $
    90,760
    
    
    $
    203,369Income from operations
    
    
    22,011
    
    
    
    11,041
    
    
    
    33,052Depreciation
    
    
    1,687
    
    
    
    1,416
    
    
    
    3,103Capital expenditures
    
    
    2,195
    
    
    
    2,047
    
    
    
    4,242September 29, 2007Net sales
    
    $
    105,904
    
    
    $
    82,661
    
    
    $
    188,565Income from operations
    
    
    19,468
    
    
    
    10,390
    
    
    
    29,858Depreciation
    
    
    1,132
    
    
    
    1,017
    
    
    
    2,149Capital expenditures
    
    
    1,072
    
    
    
    3,088
    
    
    
    4,160
 Team
    
    ActionThree Fiscal Quarters Ended
    
    Sports
    
    Sports
    
    ConsolidatedSeptember 27, 2008Net sales
    
    $
    345,837
    
    
    $
    260,481
    
    
    $
    606,318Income from operations
    
    
    67,952
    
    
    
    27,775
    
    
    
    95,727Depreciation
    
    
    4,790
    
    
    
    4,223
    
    
    
    9,013Capital expenditures
    
    
    6,805
    
    
    
    4,150
    
    
    
    10,955September 29, 2007Net sales
    
    $
    333,340
    
    
    $
    236,230
    
    
    $
    569,570Income from operations
    
    
    63,248
    
    
    
    27,036
    
    
    
    90,284Depreciation
    
    
    3,451
    
    
    
    2,954
    
    
    
    6,405Capital expenditures
    
    
    2,922
    
    
    
    8,460
    
    
    
    11,382
 Team
    
    ActionSports
    
    Sports
    
    ConsolidatedAssetsAs of September 27, 2008
    
    $
    644,509
    
    
    $
    402,549
    
    
    $
    1,047,058As of December 29, 2007
    
    
    589,965
    
    
    
    366,525
    
    
    
    956,490
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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
    
    
    Three Fiscal Quarters EndedSeptember 27, 2008
    
    
    September 29, 2007
    
    
    September 27, 2008
    
    
    September 29, 2007Segment income from operations
    
    $
    33,052
    
    
    $
    29,858
    
    
    $
    95,727
    
    
    $
    90,284Equity compensation expense
    
    
    (1,101
    )
    
    
    (722
    )
    
    
    (2,944
    )
    
    
    (2,123
    )Corporate expenses
    
    
    (5,214
    )
    
    
    (2,676
    )
    
    
    (13,254
    )
    
    
    (10,470
    )Restructuring and other infrequent expenses
    
    
    
    
    
    
    (488
    )
    
    
    (492
    )
    
    
    (589
    )Amortization of intangibles
    
    
    (3,352
    )
    
    
    (3,352
    )
    
    
    (10,055
    )
    
    
    (9,869
    )Consolidated income from operations
    
    $
    23,385
    
    
    $
    22,620
    
    
    $
    68,982
    
    
    $
    67,233
 8. Product Liability, Litigation and Other Contingencies
 Product Liability
   Litigation and Other Contingencies
  9. Income Taxes
  11




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EASTON-BELL SPORTS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited and amounts in thousands, except as specified)
 10. Derivative Instruments and Hedging Activity
 Accounting for Derivative Instruments and Hedging Activities
 th 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)
   Fair Value Measurements at Reporting Date UsingQuoted Prices in
    
    
    
    
    
    
    SignificantActive Markets for
    
    
    Significant Other
    
    
    UnobservableIdentical Assets
    
    
    Observable Inputs
    
    
    Inputs(Level 1)
    
    
    (Level 2)
    
    
    (Level 3)Assets:Interest rate swap
    
    $
    
    
    
    $
    3,880
    
    
    $
    Interest rate cap
    
    
    
    
    
    
    
    
    
    
    Total
    
    $
    
    
    
    $
    3,880
    
    
    $
    Liabilities:Foreign currency exchange forward
contracts
    
    $
    
    
    
    $
    95
    
    
    $
    
 11. Equity-Based Employee Compensation
  Share Based Payment Accounting for Stock Based
Compensation Shared Based Payment
 13




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EASTON-BELL SPORTS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited and amounts in thousands, except as specified)
  Three Fiscal Quarters EndedSeptember 27, 2008
    
    September 29, 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.   Fiscal Quarter Ended
    
    
    Three Fiscal Quarters EndedSeptember 27, 2008
    
    
    September 29, 2007
    
    
    September 27, 2008
    
    
    September 29, 2007Equity compensation expense
    
    $
    1,101
    
    
    $
    722
    
    
    $
    2,944
    
    
    $
    2,123
   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
    
    
    $
    2.06Granted
    
    
    8,127,576
    
    
    $
    1.48Forfeited
    
    
    (1,880,309
    )
    
    $
    2.14Outstanding at June 28, 2008
    
    
    29,759,495
    
    
    $
    1.90Forfeited
    
    
    (1,420,507
    )
    
    $
    1.83Outstanding at September 27, 2008
    
    
    28,338,988
    
    
    $
    1.90Vested Units at September 27, 2008
    
    
    8,751,178
    
    
    $
    2.03
 14




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EASTON-BELL SPORTS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited and amounts in thousands, except as specified)
 12. 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
    
    
    
    3,066Warranty costs incurred during the period
    
    
    (1,110
    )
    
    
    (1,519
    )Warranty cost liability recorded during the period
    
    
    1,212
    
    
    
    1,741End of third fiscal quarter
    
    $
    3,852
    
    
    $
    3,288
 13. Related Party Transactions
  Easton Easton
   15




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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)
   14. 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
September 27, 2008
 Guarantor
    
    
    Non-GuarantorIssuer
    
    
    Subsidiaries
    
    
    Subsidiaries
    
    
    Eliminations
    
    
    ConsolidatedASSETSCurrent assets:Cash and cash equivalents
    
    $
    60,252
    
    
    $
    13,930
    
    
    $
    15,337
    
    
    $
    
    
    
    $
    89,519Accounts receivable, net
    
    
    
    
    
    
    195,228
    
    
    
    46,168
    
    
    
    
    
    
    
    241,396Inventories, net
    
    
    
    
    
    
    107,262
    
    
    
    12,732
    
    
    
    
    
    
    
    119,994Prepaid expenses
    
    
    1,171
    
    
    
    5,444
    
    
    
    252
    
    
    
    
    
    
    
    6,867Deferred taxes
    
    
    552
    
    
    
    6,224
    
    
    
    
    
    
    
    
    
    
    
    6,776Other current assets
    
    
    
    
    
    
    6,311
    
    
    
    655
    
    
    
    
    
    
    
    6,966Total current assets
    
    
    61,975
    
    
    
    334,399
    
    
    
    75,144
    
    
    
    
    
    
    
    471,518Property, plant and equipment, net
    
    
    13,700
    
    
    
    27,842
    
    
    
    1,079
    
    
    
    
    
    
    
    42,621Deferred financing fees, net
    
    
    12,950
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    12,950Investments and intercompany receivables
    
    
    401,348
    
    
    
    107,372
    
    
    
    1,863
    
    
    
    (510,583
    )
    
    
    Intangible assets, net
    
    
    
    
    
    
    301,048
    
    
    
    6,122
    
    
    
    
    
    
    
    307,170Goodwill
    
    
    16,195
    
    
    
    182,055
    
    
    
    5,191
    
    
    
    
    
    
    
    203,441Other assets
    
    
    8,460
    
    
    
    898
    
    
    
    
    
    
    
    
    
    
    
    9,358Total assets
    
    $
    514,628
    
    
    $
    953,614
    
    
    $
    89,399
    
    
    $
    (510,583
    )
    
    $
    1,047,058LIABILITIES AND STOCKHOLDERS EQUITYCurrent liabilities:Current portion of long-term debt
    
    $
    3,350
    
    
    $
    
    
    
    $
    
    
    
    $
    
    
    
    $
    3,350Revolving credit facility
    
    
    30,000
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    30,000Current portion of capital lease obligations
    
    
    
    
    
    
    22
    
    
    
    
    
    
    
    
    
    
    
    22Accounts payable
    
    
    
    
    
    
    60,379
    
    
    
    5,634
    
    
    
    
    
    
    
    66,013Accrued expenses
    
    
    6,879
    
    
    
    38,988
    
    
    
    12,392
    
    
    
    
    
    
    
    58,259Total current liabilities
    
    
    40,229
    
    
    
    99,389
    
    
    
    18,026
    
    
    
    
    
    
    
    157,644Long-term debt, less current portion
    
    
    464,113
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    464,113Capital lease obligations, less current portion
    
    
    
    
    
    
    128
    
    
    
    
    
    
    
    
    
    
    
    128Deferred taxes
    
    
    
    
    
    
    39,945
    
    
    
    3,553
    
    
    
    
    
    
    
    43,498Other noncurrent liabilities
    
    
    
    
    
    
    10,043
    
    
    
    5,303
    
    
    
    
    
    
    
    15,346Long-term intercompany payables
    
    
    
    
    
    
    477,408
    
    
    
    228
    
    
    
    (477,636
    )
    
    
    Total liabilities
    
    
    504,342
    
    
    
    626,913
    
    
    
    27,110
    
    
    
    (477,636
    )
    
    
    680,729Total stockholders equity
    
    
    10,286
    
    
    
    326,701
    
    
    
    62,289
    
    
    
    (32,947
    )
    
    
    366,329Total liabilities and stockholders equity
    
    $
    514,628
    
    
    $
    953,614
    
    
    $
    89,399
    
    
    $
    (510,583
    )
    
    $
    1,047,058
 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 September 27, 2008
 Non-Guarantor
    
    
    GuarantorIssuer
    
    
    Subsidiaries
    
    
    Subsidiaries
    
    
    Eliminations
    
    
    ConsolidatedNet sales
    
    $
    
    
    
    $
    184,944
    
    
    $
    31,308
    
    
    $
    (12,883
    )
    
    $
    203,369Cost of sales
    
    
    (16
    )
    
    
    118,162
    
    
    
    25,242
    
    
    
    (12,883
    )
    
    
    130,505Gross profit
    
    
    16
    
    
    
    66,782
    
    
    
    6,066
    
    
    
    
    
    
    
    72,864Selling, general and administrative expenses
    
    
    7,204
    
    
    
    35,897
    
    
    
    3,026
    
    
    
    
    
    
    
    46,127Amortization of intangibles
    
    
    
    
    
    
    3,352
    
    
    
    
    
    
    
    
    
    
    
    3,352(Loss) income from operations
    
    
    (7,188
    )
    
    
    27,533
    
    
    
    3,040
    
    
    
    
    
    
    
    23,385Interest expense, net
    
    
    9,287
    
    
    
    231
    
    
    
    (49
    )
    
    
    
    
    
    
    9,469Share of net income of subsidiaries under equity method
    
    
    22,818
    
    
    
    2,389
    
    
    
    
    
    
    
    (25,207
    )
    
    
    Income before income taxes
    
    
    6,343
    
    
    
    29,691
    
    
    
    3,089
    
    
    
    (25,207
    )
    
    
    13,916Income tax expense
    
    
    
    
    
    
    6,873
    
    
    
    700
    
    
    
    
    
    
    
    7,573Net income
    
    $
    6,343
    
    
    $
    22,818
    
    
    $
    2,389
    
    
    $
    (25,207
    )
    
    $
    6,343
 Consolidating Statement of Operations
Fiscal Quarter Ended September 29, 2007
 Non-Guarantor
    
    
    GuarantorIssuer
    
    
    Subsidiaries
    
    
    Subsidiaries
    
    
    Eliminations
    
    
    ConsolidatedNet sales
    
    $
    
    
    
    $
    170,481
    
    
    $
    26,453
    
    
    $
    (8,369
    )
    
    $
    188,565Cost of sales
    
    
    100
    
    
    
    113,255
    
    
    
    18,231
    
    
    
    (8,369
    )
    
    
    123,217Gross profit
    
    
    (100
    )
    
    
    57,226
    
    
    
    8,222
    
    
    
    
    
    
    
    65,348Selling, general and administrative expenses
    
    
    3,429
    
    
    
    33,402
    
    
    
    2,544
    
    
    
    
    
    
    
    39,375Restructuring and other infrequent expenses
    
    
    
    
    
    
    488
    
    
    
    
    
    
    
    
    
    
    
    488Amortization of intangibles
    
    
    
    
    
    
    3,185
    
    
    
    167
    
    
    
    
    
    
    
    3,352Gain on sale of property, plant and equipment
    
    
    
    
    
    
    (487
    )
    
    
    
    
    
    
    
    
    
    
    (487
    )(Loss) income from operations
    
    
    (3,529
    )
    
    
    20,638
    
    
    
    5,511
    
    
    
    
    
    
    
    22,620Interest expense, net
    
    
    9,965
    
    
    
    225
    
    
    
    (25
    )
    
    
    
    
    
    
    10,165Share of net income of subsidiaries under equity method
    
    
    20,339
    
    
    
    3,966
    
    
    
    
    
    
    
    (24,305
    )
    
    
    Income before income taxes
    
    
    6,845
    
    
    
    24,379
    
    
    
    5,536
    
    
    
    (24,305
    )
    
    
    12,455Income tax expense
    
    
    
    
    
    
    4,040
    
    
    
    1,570
    
    
    
    
    
    
    
    5,610Net income
    
    $
    6,845
    
    
    $
    20,339
    
    
    $
    3,966
    
    
    $
    (24,305
    )
    
    $
    6,845
 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
Three Fiscal Quarters Ended September 27, 2008
 Non-Guarantor
    
    
    GuarantorIssuer
    
    
    Subsidiaries
    
    
    Subsidiaries
    
    
    Eliminations
    
    
    ConsolidatedNet sales
    
    $
    
    
    
    $
    549,529
    
    
    $
    87,018
    
    
    $
    (30,229
    )
    
    $
    606,318Cost of sales
    
    
    
    
    
    
    357,823
    
    
    
    63,428
    
    
    
    (30,229
    )
    
    
    391,022Gross profit
    
    
    
    
    
    
    191,706
    
    
    
    23,590
    
    
    
    
    
    
    
    215,296Selling, general and administrative expenses
    
    
    19,034
    
    
    
    108,004
    
    
    
    8,729
    
    
    
    
    
    
    
    135,767Restructuring and other infrequent expenses
    
    
    
    
    
    
    492
    
    
    
    
    
    
    
    
    
    
    
    492Amortization of intangibles
    
    
    
    
    
    
    10,055
    
    
    
    
    
    
    
    
    
    
    
    10,055(Loss) income from operations
    
    
    (19,034
    )
    
    
    73,155
    
    
    
    14,861
    
    
    
    
    
    
    
    68,982Interest expense, net
    
    
    21,257
    
    
    
    603
    
    
    
    (224
    )
    
    
    
    
    
    
    21,636Share of net income of subsidiaries under equity method
    
    
    64,489
    
    
    
    10,736
    
    
    
    
    
    
    
    (75,225
    )
    
    
    Income before income taxes
    
    
    24,198
    
    
    
    83,288
    
    
    
    15,085
    
    
    
    (75,225
    )
    
    
    47,346Income tax expense
    
    
    
    
    
    
    18,799
    
    
    
    4,349
    
    
    
    
    
    
    
    23,148Net income
    
    $
    24,198
    
    
    $
    64,489
    
    
    $
    10,736
    
    
    $
    (75,225
    )
    
    $
    24,198
 Consolidating Statement of Operations
Three Fiscal Quarters Ended September 29, 2007
 Non-Guarantor
    
    
    GuarantorIssuer
    
    
    Subsidiaries
    
    
    Subsidiaries
    
    
    Eliminations
    
    
    ConsolidatedNet sales
    
    $
    
    
    
    $
    524,181
    
    
    $
    78,360
    
    
    $
    (32,971
    )
    
    $
    569,570Cost of sales
    
    
    232
    
    
    
    346,210
    
    
    
    55,854
    
    
    
    (32,971
    )
    
    
    369,325Gross profit
    
    
    (232
    )
    
    
    177,971
    
    
    
    22,506
    
    
    
    
    
    
    
    200,245Selling, general and administrative expenses
    
    
    12,544
    
    
    
    104,788
    
    
    
    7,561
    
    
    
    
    
    
    
    124,893Restructuring and other infrequent expenses
    
    
    
    
    
    
    589
    
    
    
    
    
    
    
    
    
    
    
    589Amortization of intangibles
    
    
    
    
    
    
    9,376
    
    
    
    493
    
    
    
    
    
    
    
    9,869Gain on sale of property, plant and equipment
    
    
    
    
    
    
    (2,339
    )
    
    
    
    
    
    
    
    
    
    
    (2,339
    )(Loss) income from operations
    
    
    (12,776
    )
    
    
    65,557
    
    
    
    14,452
    
    
    
    
    
    
    
    67,233Interest expense, net
    
    
    31,376
    
    
    
    706
    
    
    
    (132
    )
    
    
    
    
    
    
    31,950Share of net income of subsidiaries under equity method
    
    
    64,335
    
    
    
    10,165
    
    
    
    
    
    
    
    (74,500
    )
    
    
    Income before income taxes
    
    
    20,183
    
    
    
    75,016
    
    
    
    14,584
    
    
    
    (74,500
    )
    
    
    35,283Income tax expense
    
    
    
    
    
    
    10,681
    
    
    
    4,419
    
    
    
    
    
    
    
    15,100Net income
    
    $
    20,183
    
    
    $
    64,335
    
    
    $
    10,165
    
    
    $
    (74,500
    )
    
    $
    20,183
 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
Three Fiscal Quarters Ended September 27, 2008
 Guarantor
    
    
    Non-GuarantorIssuer
    
    
    Subsidiaries
    
    
    Subsidiaries
    
    
    Eliminations
    
    
    ConsolidatedCash flows from operating activities:Net income
    
    $
    24,198
    
    
    $
    64,489
    
    
    $
    10,736
    
    
    $
    (75,225
    )
    
    $
    24,198Non-cash adjustments
    
    
    18,832
    
    
    
    (57,207
    )
    
    
    6,303
    
    
    
    75,225
    
    
    
    43,153Changes in operating assets and liabilities
    
    
    (2,928
    )
    
    
    10,848
    
    
    
    (13,611
    )
    
    
    
    
    
    
    (5,691
    )Net cash provided by operating activities
    
    
    40,102
    
    
    
    18,130
    
    
    
    3,428
    
    
    
    
    
    
    
    61,660Cash flows from investing activities:Purchase of property, plant and equipment
    
    
    (4,937
    )
    
    
    (6,004
    )
    
    
    (14
    )
    
    
    
    
    
    
    (10,955
    )Net cash used in investing activities
    
    
    (4,937
    )
    
    
    (6,004
    )
    
    
    (14
    )
    
    
    
    
    
    
    (10,955
    )Cash flows from financing activities:Payments on capital lease obligations
    
    
    
    
    
    
    (16
    )
    
    
    
    
    
    
    
    
    
    
    (16
    )Payments on senior term notes
    
    
    (2,512
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (2,512
    )Proceeds from senior secured credit facility, net
    
    
    24,500
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    24,500Net cash provided by (used in) financing activities
    
    
    21,988
    
    
    
    (16
    )
    
    
    
    
    
    
    
    
    
    
    21,972Effect of exchange rate changes on cash and cash
equivalents
    
    
    
    
    
    
    
    
    
    
    (81
    )
    
    
    
    
    
    
    (81
    )Increase in cash and cash equivalents
    
    
    57,153
    
    
    
    12,110
    
    
    
    3,333
    
    
    
    
    
    
    
    72,596Cash and cash equivalents, beginning of period
    
    
    3,099
    
    
    
    1,820
    
    
    
    12,004
    
    
    
    
    
    
    
    16,923Cash and cash equivalents, end of period
    
    $
    60,252
    
    
    $
    13,930
    
    
    $
    15,337
    
    
    $
    
    
    
    $
    89,519
 Condensed Consolidating Statement of Cash Flows
Three Fiscal Quarters Ended September 29, 2007
 Guarantor
    
    
    Non-GuarantorIssuer
    
    
    Subsidiaries
    
    
    Subsidiaries
    
    
    Eliminations
    
    
    ConsolidatedCash flows from operating activities:Net income
    
    $
    20,183
    
    
    $
    64,335
    
    
    $
    10,165
    
    
    $
    (74,500
    )
    
    $
    20,183Non-cash adjustments
    
    
    (11,405
    )
    
    
    (44,465
    )
    
    
    9,061
    
    
    
    74,500
    
    
    
    27,691Changes in operating assets and liabilities, net of
effects from purchase of businesses
    
    
    (1,799
    )
    
    
    (15,385
    )
    
    
    (21,545
    )
    
    
    
    
    
    
    (38,729
    )Net cash provided by (used in) operating
activities
    
    
    6,979
    
    
    
    4,485
    
    
    
    (2,319
    )
    
    
    
    
    
    
    9,145Cash flows from investing activities:Purchase of property, plant and equipment
    
    
    (4,313
    )
    
    
    (6,590
    )
    
    
    (479
    )
    
    
    
    
    
    
    (11,382
    )Proceeds from sale of property held for sale
    
    
    
    
    
    
    3,331
    
    
    
    
    
    
    
    
    
    
    
    3,331Settlement of preacquisition contingency
    
    
    
    
    
    
    2,178
    
    
    
    
    
    
    
    
    
    
    
    2,178Purchase of businesses, net of cash acquired
    
    
    
    
    
    
    (1,569
    )
    
    
    
    
    
    
    
    
    
    
    (1,569
    )Net cash used in investing activities
    
    
    (4,313
    )
    
    
    (2,650
    )
    
    
    (479
    )
    
    
    
    
    
    
    (7,442
    )Cash flows from financing activities:Payments on capital lease obligations
    
    
    
    
    
    
    (34
    )
    
    
    
    
    
    
    
    
    
    
    (34
    )Payments on senior term notes
    
    
    (2,513
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (2,513
    )Proceeds from senior secured credit facility, net
    
    
    6,500
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    6,500Net cash provided by (used in) financing activities
    
    
    3,987
    
    
    
    (34
    )
    
    
    
    
    
    
    
    
    
    
    3,953Effect of exchange rate changes on cash and cash
equivalents
    
    
    
    
    
    
    
    
    
    
    (211
    )
    
    
    
    
    
    
    (211
    )Increase (decrease) in cash and cash equivalents
    
    
    6,653
    
    
    
    1,801
    
    
    
    (3,009
    )
    
    
    
    
    
    
    5,445Cash and cash equivalents, beginning of period
    
    
    1,527
    
    
    
    2,685
    
    
    
    5,687
    
    
    
    
    
    
    
    9,899Cash and cash equivalents, end of period
    
    $
    8,180
    
    
    $
    4,486
    
    
    $
    2,678
    
    
    $
    
    
    
    $
    15,344
 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 EndedSeptember 27,
    
    
    % of
    
    
    September 29,
    
    
    % of2008
    
    
    Net Sales

    
    2007
    
    
    Net Sales(Dollars in millions)Net sales
    
    $
    203.4
    
    
    
    100.0
    %
    
    $
    188.6
    
    
    
    100.0
    %Cost of sales
    
    
    130.5
    
    
    
    64.2
    %
    
    
    123.2
    
    
    
    65.3
    %Gross profit
    
    
    72.9
    
    
    
    35.8
    %
    
    
    65.4
    
    
    
    34.7
    %Selling, general and administrative expenses
    
    
    46.1
    
    
    
    22.7
    %
    
    
    39.4
    
    
    
    20.9
    %Restructuring and other infrequent expenses
    
    
    
    
    
    
    0.0
    %
    
    
    0.5
    
    
    
    0.3
    %Amortization of intangibles
    
    
    3.4
    
    
    
    1.6
    %
    
    
    3.4
    
    
    
    1.8
    %Gain on sale of property, plant and equipment
    
    
    
    
    
    
    0.0
    %
    
    
    (0.5
    )
    
    
    (0.3
    %)Income from operations
    
    $
    23.4
    
    
    
    11.5
    %
    
    $
    22.6
    
    
    
    12.0
    %
 Three Fiscal Quarters EndedSeptember 27,
    
    
    % of
    
    
    September 29,
    
    
    % of2008
    
    
    Net Sales

    
    2007
    
    
    Net Sales(Dollars in millions)Net sales
    
    $
    606.3
    
    
    
    100.0
    %
    
    $
    569.6
    
    
    
    100.0
    %Cost of sales
    
    
    391.0
    
    
    
    64.5
    %
    
    
    369.3
    
    
    
    64.8
    %Gross profit
    
    
    215.3
    
    
    
    35.5
    %
    
    
    200.3
    
    
    
    35.2
    %Selling, general and administrative expenses
    
    
    135.8
    
    
    
    22.4
    %
    
    
    124.9
    
    
    
    22.0
    %Restructuring and other infrequent expenses
    
    
    0.5
    
    
    
    0.1
    %
    
    
    0.6
    
    
    
    0.1
    %Amortization of intangibles
    
    
    10.0
    
    
    
    1.6
    %
    
    
    9.9
    
    
    
    1.7
    %Gain on sale of property, plant and equipment
    
    
    
    
    
    
    0.0
    %
    
    
    (2.3
    )
    
    
    (0.4
    %)Income from operations
    
    $
    69.0
    
    
    
    11.4
    %
    
    $
    67.2
    
    
    
    11.8
    %
 23




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##### Table of Contents



Net Sales
  Fiscal Quarter Ended
    
    Three Fiscal Quarters EndedSeptember 27,
    
    
    September 29,
    
    
    Change
    
    September 27,
    
    
    September 29,
    
    
    Change2008
    
    
    2007
    
    
    $
    
    
    %
    
    2008
    
    
    2007
    
    
    $
    
    
    %(Dollars in millions)
    
    
    (Dollars in millions)Team Sports
    
    $
    112.6
    
    
    $
    105.9
    
    
    $
    6.7
    
    
    
    6.3
    %
    
    $
    345.8
    
    
    $
    333.4
    
    
    $
    12.4
    
    
    
    3.7
    %Action Sports
    
    
    90.8
    
    
    
    82.7
    
    
    
    8.1
    
    
    
    9.8
    %
    
    
    260.5
    
    
    
    236.2
    
    
    
    24.3
    
    
    
    10.3
    %$
    203.4
    
    
    $
    188.6
    
    
    $
    14.8
    
    
    
    7.8
    %
    
    $
    606.3
    
    
    $
    569.6
    
    
    $
    36.7
    
    
    
    6.4
    %
   Cost of Sales
  Fiscal Quarter Ended
    
    Three Fiscal Quarters EndedSeptember 27,
    
    
    % of
    
    
    September 29,
    
    
    % of
    
    
    September 27,
    
    
    % of
    
    
    September 29,
    
    
    % of2008
    
    
    Net Sales
    
    2007
    
    
    Net Sales
    
    2008
    
    
    Net Sales
    
    2007
    
    
    Net Sales(Dollars in millions)
    
    
    (Dollars in millions)Team Sports
    
    $
    65.7
    
    
    
    58.3
    %
    
    $
    65.3
    
    
    
    61.7
    %
    
    $
    204.6
    
    
    
    59.2
    %
    
    $
    202.8
    
    
    
    60.8
    %Action Sports
    
    
    64.8
    
    
    
    71.4
    %
    
    
    57.9
    
    
    
    70.0
    %
    
    
    186.4
    
    
    
    71.6
    %
    
    
    166.5
    
    
    
    70.5
    %$
    130.5
    
    
    
    64.2
    %
    
    $
    123.2
    
    
    
    65.3
    %
    
    $
    391.0
    
    
    
    64.5
    %
    
    $
    369.3
    
    
    
    64.8
    %
   24




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##### Table of Contents



Gross Profit
  Fiscal Quarter Ended
    
    Three Fiscal Quarters EndedSeptember 27,
    
    
    % of
    
    
    September 29,
    
    
    % of
    
    
    September 27,
    
    
    % of
    
    
    September 29,
    
    
    % of2008
    
    
    Net Sales
    
    2007
    
    
    Net Sales
    
    2008
    
    
    Net Sales
    
    2007
    
    
    Net Sales(Dollars in millions)
    
    
    (Dollars in millions)Team Sports
    
    $
    46.9
    
    
    
    41.7
    %
    
    $
    40.6
    
    
    
    38.3
    %
    
    $
    141.3
    
    
    
    40.8
    %
    
    $
    130.6
    
    
    
    39.2
    %Action Sports
    
    
    26.0
    
    
    
    28.6
    %
    
    
    24.8
    
    
    
    30.0
    %
    
    
    74.0
    
    
    
    28.4
    %
    
    
    69.7
    
    
    
    29.5
    %$
    72.9
    
    
    
    35.8
    %
    
    $
    65.4
    
    
    
    34.7
    %
    
    $
    215.3
    
    
    
    35.5
    %
    
    $
    200.3
    
    
    
    35.2
    %
   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
   LIQUIDITY AND CAPITAL RESOURCES
   Senior Secured Credit Facility
  26




---



##### Table of Contents



Senior Subordinated Notes
   Other Matters
  27




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##### Table of Contents



OUTLOOK
  
    
    Retail Market Conditions.As a result of the slowing economic conditions, the retail
market for sports equipment may soften 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 replace the remaining software
platforms used in our business operations, 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.
 28




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##### Table of Contents



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 September 27, 2008, the outstanding principal balance under
our term loan facility was $327.5 million, along with $30.0 million outstanding under our
U.S. credit facility and no borrowings under our Canadian revolving credit facility. 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.
 CRITICAL ACCOUNTING POLICIES AND ESTIMATES
  
 Item 3. Quantitative and Qualitative Disclosures About Market Risk
 Foreign Currency Risk
    29




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##### Table of Contents



Interest Rate Risk
   
 Item 4. Controls and Procedures
 Evaluation of Disclosure Controls and Procedures
  Changes in Internal Control over Financial Reporting
  30




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##### Table of Contents



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: November 6, 2008
    /s/ Paul E. HarringtonPaul E. HarringtonPresident and Chief Executive Officer
(Principal Executive Officer)Dated: November 6, 2008
    /s/ Mark A. TrippMark A. TrippChief Financial Officer
(Principal Financial Officer) 32