##### Table of Contents



UNITED STATES SECURITIES AND EXCHANGE COMMISSION
 WASHINGTON, D.C. 20549
 FORM 10-Q
 þ
    
    QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 FOR THE QUARTERLY PERIOD ENDED JULY 1, 2006
 OR
 o
    
    TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 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
    
    (I.R.S. Employerincorporation or organization)
    
    Identification No.)
 
 7855 Haskell Avenue, Suite 200
Van Nuys, California 91406
(Address of principal executive offices) (Zip Code)
 (818) 781-1587
(Registrants telephone number, including area code)
 
 þ o
  Large Accelerated Filer o
    
    Accelerated Filer o
    
    Non-accelerated filer þ
 o þ




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##### 



EASTON-BELL SPORTS, INC. AND SUBSIDIARIES
 INDEX
 PagePART I. FINANCIAL INFORMATION:Item 1. Financial StatementsCondensed Consolidated Balance Sheets as of July 1, 2006 (unaudited) and December 31, 2005
    
    
    1Condensed Consolidated Statements of Operations and Comprehensive Income (Loss) for the Fiscal Quarter and Two Fiscal Quarters Ended July 1, 2006 and July 2, 2005 (unaudited)
    
    
    2Condensed Consolidated Statements of Cash Flows for the Two Fiscal Quarters Ended July 1, 2006 and July 2, 2005 (unaudited)
    
    
    3Notes to Condensed Consolidated Financial Statements
    
    
    4Item 2. Managements Discussion and Analysis of Financial Condition and Results of Operations
    
    
    17Item 3. Quantitative and Qualitative Disclosure About Market Risk
    
    
    25Item 4. Controls and Procedures
    
    
    25PART II. OTHER INFORMATION:Item 1. Legal Proceedings
    
    
    26Item 6. Exhibits
    
    
    26SIGNATURES
    
    
    27Certification of CEO Pursuant to Section 302Certification of CFO Pursuant to Section 302Certification of CEO and CFO Pursuant to Section 906




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##### Table of Contents



PART I. FINANCIAL INFORMATION
 
 Item 1. Financial Statements
 EASTON-BELL SPORTS, INC. AND SUBSIDIARIES
 
 CONDENSED CONSOLIDATED BALANCE SHEETS
  July 1,
    
    
    December 31,2006
    
    
    2005(Unaudited)ASSETSCurrent assets:Cash and cash equivalents
    
    $
    5,739
    
    
    $
    3,632Accounts receivable, net
    
    
    202,880
    
    
    
    87,459Inventories, net
    
    
    132,589
    
    
    
    54,950Deferred taxes
    
    
    9,932
    
    
    
    9,361Other current assets
    
    
    12,989
    
    
    
    9,414Total current assets
    
    
    364,129
    
    
    
    164,816Property, plant and equipment, net
    
    
    33,011
    
    
    
    18,945Intangible assets, net
    
    
    341,956
    
    
    
    176,544Goodwill
    
    
    197,274
    
    
    
    100,003Other assets
    
    
    29,441
    
    
    
    20,395Total assets
    
    $
    965,811
    
    
    $
    480,703LIABILITIES AND STOCKHOLDERS EQUITYCurrent liabilities:Current portion of long-term debt and capital lease
obligations
    
    $
    3,398
    
    
    $
    1,164Revolving credit facility
    
    
    9,500
    
    
    
    Accounts payable
    
    
    48,621
    
    
    
    23,090Accrued expenses
    
    
    82,816
    
    
    
    38,828Total current liabilities
    
    
    144,335
    
    
    
    63,082Long-term debt, less current portion
    
    
    471,000
    
    
    
    247,733Deferred taxes
    
    
    17,300
    
    
    
    23,151Other noncurrent liabilities
    
    
    12,163
    
    
    
    12,803Total liabilities
    
    
    644,798
    
    
    
    346,769Stockholders Equity:Common stock; $0.01 par value, 100 shares
authorized, 100 shares issued and
outstanding at July 1, 2006 and December 31,
2005, respectively
    
    
    
    
    
    
    Additional paid-in capital
    
    
    332,899
    
    
    
    144,226Accumulated deficit
    
    
    (13,706
    )
    
    
    (10,657
    )Accumulated other comprehensive income
    
    
    1,820
    
    
    
    365Total stockholders equity
    
    
    321,013
    
    
    
    133,934Total liabilities and stockholders equity
    
    $
    965,811
    
    
    $
    480,703
  1




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EASTON-BELL SPORTS, INC. AND SUBSIDIARIES
 
 CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME (LOSS)
  Fiscal Quarter Ended
    
    
    Two Fiscal Quarters EndedJuly 1,
    
    
    July 2,
    
    
    July 1,
    
    
    July 2,2006
    
    
    2005
    
    
    2006
    
    
    2005Net sales
    
    $
    198,275
    
    
    $
    103,781
    
    
    $
    309,447
    
    
    $
    191,014Cost of sales
    
    
    135,716
    
    
    
    63,755
    
    
    
    210,023
    
    
    
    119,726Gross profit
    
    
    62,559
    
    
    
    40,026
    
    
    
    99,424
    
    
    
    71,288Selling, general and administrative
expenses (exclusive of management and
restructuring
expenses and amortization of intangibles)
    
    
    40,801
    
    
    
    24,387
    
    
    
    68,098
    
    
    
    46,704Management expenses
    
    
    
    
    
    
    750
    
    
    
    8,250
    
    
    
    1,500Restructuring expenses
    
    
    269
    
    
    
    458
    
    
    
    544
    
    
    
    1,206Amortization of intangibles
    
    
    3,411
    
    
    
    2,106
    
    
    
    5,752
    
    
    
    4,220Income from operations
    
    
    18,078
    
    
    
    12,325
    
    
    
    16,780
    
    
    
    17,658Interest expense, net
    
    
    11,225
    
    
    
    5,592
    
    
    
    22,706
    
    
    
    10,682Income (loss) before income taxes
    
    
    6,853
    
    
    
    6,733
    
    
    
    (5,926
    )
    
    
    6,976Income tax expense (benefit)
    
    
    2,158
    
    
    
    3,258
    
    
    
    (2,877
    )
    
    
    3,332Net income (loss)
    
    
    4,695
    
    
    
    3,475
    
    
    
    (3,049
    )
    
    
    3,644Other comprehensive income (loss):Foreign currency translation adjustment
    
    
    1,640
    
    
    
    31
    
    
    
    1,455
    
    
    
    (123
    )Comprehensive income (loss)
    
    $
    6,335
    
    
    $
    3,506
    
    
    $
    (1,594
    )
    
    $
    3,521
  2




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##### Table of Contents



EASTON-BELL SPORTS, INC. AND SUBSIDIARIES
 
 CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
  Two Fiscal Quarters EndedJuly 1,
    
    
    July 2,2006
    
    
    2005Cash flows from operating activities:Net (loss) income
    
    $
    (3,049
    )
    
    $
    3,644Adjustments to reconcile net (loss) income to net cash
used in operating activities:Depreciation and amortization
    
    
    9,681
    
    
    
    6,774Amortization of deferred financing fees
    
    
    1,115
    
    
    
    946Early extinguishment of debt
    
    
    1,613
    
    
    
    Variable stock compensation expense
    
    
    1,540
    
    
    
    1,391Deferred income tax (benefit) provision
    
    
    (6,422
    )
    
    
    1,492Write-down of property, plant and equipment
    
    
    304
    
    
    
    127Changes in operating assets and liabilities, net
of effects from purchases of businesses:Accounts receivable, net
    
    
    (34,298
    )
    
    
    (37,424
    )Inventories
    
    
    976
    
    
    
    (10,427
    )Other current and noncurrent assets
    
    
    638
    
    
    
    716Accounts payable
    
    
    13,167
    
    
    
    2,176Accrued expenses
    
    
    2,525
    
    
    
    2,620Other current and noncurrent liabilities
    
    
    (640
    )
    
    
    (108
    )Net cash used in operating activities
    
    
    (12,850
    )
    
    
    (28,073
    )Cash flows from investing activities:Purchase of property, plant and equipment
    
    
    (7,073
    )
    
    
    (2,257
    )Purchase of businesses, net of cash acquired
    
    
    (389,657
    )
    
    
    Net cash used in investing activities
    
    
    (396,730
    )
    
    
    (2,257
    )Cash flows from financing activities:Proceeds from senior term loan
    
    
    335,000
    
    
    
    Proceeds from revolving credit facility
    
    
    65,404
    
    
    
    112,314Payments on senior term loan
    
    
    (109,462
    )
    
    
    (550
    )Payments on revolving credit facility
    
    
    (55,904
    )
    
    
    (82,314
    )Payments on capital lease obligations
    
    
    (37
    )
    
    
    (57
    )Repurchase of shares
    
    
    (4,270
    )
    
    
    Proceeds from capital contributions
    
    
    191,403
    
    
    
    605Payment of debt issuance costs
    
    
    (11,902
    )
    
    
    (272
    )Net cash provided by financing activities
    
    
    410,232
    
    
    
    29,726Effect of exchange rate changes on cash and cash equivalents
    
    
    1,455
    
    
    
    (123
    )Increase (decrease) in cash and cash equivalents
    
    
    2,107
    
    
    
    (727
    )Cash and cash equivalents, beginning of period
    
    
    3,632
    
    
    
    1,429Cash and cash equivalents, end of period
    
    $
    5,739
    
    
    $
    702
  3




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##### Table of Contents



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




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##### Table of Contents



Notes to Condensed Consolidated Financial Statements  Continued
(unaudited and in thousands except as specified)
   Business
Combinations
  Net purchase price including cost of the transaction
    
    $
    405,852Add:Liabilities assumed (mainly accounts payable and
accrued expenses)
    
    
    37,632Less:Accounts receivable
    
    
    81,123Inventory
    
    
    78,753Other current assets
    
    
    3,434Property, plant and equipment
    
    
    11,407Other assets
    
    
    696Patents
    
    
    22,000Licensing agreements
    
    
    4,300Trademarks/Tradenames (indefinite-lived)
    
    
    128,300Non-compete agreement
    
    
    1,600Customer relationships
    
    
    14,600Excess of cost over net assets acquired (goodwill)
    
    $
    97,271
  5




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##### Table of Contents



Notes to Condensed Consolidated Financial Statements  Continued
(unaudited and in thousands except as specified)
  Two Fiscal
    
    Fiscal
    
    Two FiscalQuarters
    
    Quarter
    
    Quartersended
    
    ended
    
    endedJuly 1,
    
    July 2,
    
    July 2,2006
    
    2005
    
    2005Net sales
    
    $
    364,821
    
    
    $
    179,846
    
    
    $
    315,844Net income (loss)
    
    
    (8,287
    )
    
    
    11,627
    
    
    
    (5,057
    )
 3. Restructuring Expenses
 Accounting for Costs Associated with Exit or
Disposal Activities
 6




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##### Table of Contents



Notes to Condensed Consolidated Financial Statements  Continued
(unaudited and in thousands except as specified)
 Write-downof Property,
    
    
    
    
    
    
    Employee
    
    
    FacilityPlant and
    
    
    Employee
    
    
    Retention
    
    
    ClosureEquipment
    
    
    Severance
    
    
    Payments
    
    
    Costs
    
    
    TotalBalance as of December 31,
2004
    
    $
    
    
    
    $
    
    
    
    $
    
    
    
    $
    
    
    
    $
    Provision
    
    
    
    
    
    
    567
    
    
    
    
    
    
    
    181
    
    
    
    748Less: Non-cash activity
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Cash activity
    
    
    
    
    
    
    (49
    )
    
    
    
    
    
    
    (181
    )
    
    
    (230
    )Balance as of April 2, 2005
    
    $
    
    
    
    $
    518
    
    
    $
    
    
    
    $
    
    
    
    $
    518Provision
    
    
    126
    
    
    
    (25
    )
    
    
    32
    
    
    
    325
    
    
    
    458Less: Non-cash activity
    
    
    (126
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (126
    )Cash activity
    
    
    
    
    
    
    (291
    )
    
    
    (26
    )
    
    
    (325
    )
    
    
    (642
    )Balance as of July 2, 2005
    
    $
    
    
    
    $
    202
    
    
    $
    6
    
    
    $
    
    
    
    $
    208Provision
    
    
    125
    
    
    
    
    
    
    
    13
    
    
    
    369
    
    
    
    507Less: Non-cash activity
    
    
    (125
    )
    
    
    
    
    
    
    
    
    
    
    (250
    )
    
    
    (375
    )Cash activity
    
    
    
    
    
    
    (133
    )
    
    
    (4
    )
    
    
    (119
    )
    
    
    (256
    )Balance as of December 31,
2005
    
    $
    
    
    
    $
    69
    
    
    $
    15
    
    
    $
    
    
    
    $
    84Provision
    
    
    57
    
    
    
    
    
    
    
    
    
    
    
    218
    
    
    
    275Less: Non-cash activity
    
    
    (57
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (57
    )Cash activity
    
    
    
    
    
    
    (63
    )
    
    
    (9
    )
    
    
    (218
    )
    
    
    (290
    )Balance as of April 1, 2006
    
    $
    
    
    
    $
    6
    
    
    $
    6
    
    
    $
    
    
    
    $
    12Provision
    
    
    92
    
    
    
    
    
    
    
    
    
    
    
    177
    
    
    
    269Less: Non-cash activity
    
    
    (92
    )
    
    
    
    
    
    
    
    
    
    
    (138
    )
    
    
    (230
    )Cash activity
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (39
    )
    
    
    (39
    )Balance as of July 1, 2006
    
    $
    
    
    
    $
    6
    
    
    $
    6
    
    
    $
    
    
    
    $
    12
  4. Goodwill and Other Intangible Assets
  July 1, 2006
    
    
    December 31, 2005Gross
    
    
    
    
    
    
    GrossCarrying
    
    
    Accumulated
    
    
    Carrying
    
    
    AccumulatedAmounts
    
    
    Amortization
    
    
    Amounts
    
    
    AmortizationAmortized intangible assets:Trademarks and tradenames
    
    $
    1,702
    
    
    $
    (717
    )
    
    $
    1,702
    
    
    $
    (594
    )Customer relationships
    
    
    63,880
    
    
    
    (11,949
    )
    
    
    49,280
    
    
    
    (9,262
    )Patents
    
    
    60,709
    
    
    
    (7,212
    )
    
    
    38,345
    
    
    
    (4,638
    )Licensing and other
    
    
    5,900
    
    
    
    (368
    )
    
    
    
    
    
    
    Total
    
    $
    132,191
    
    
    $
    (20,246
    )
    
    $
    89,327
    
    
    $
    (14,494
    )Indefinite-lived intangible assets:Trademarks
    
    $
    230,011
    
    
    
    
    
    
    $
    101,711
 7




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Notes to Condensed Consolidated Financial Statements  Continued
(unaudited and in thousands except as specified)
  Team
    
    
    ActionSports
    
    
    Sports
    
    
    ConsolidatedBalance as of July 1, 2006
    
    $
    139,241
    
    
    $
    58,033
    
    
    $
    197,274
 Goodwill and
Other Intangible Assets
 5. Long-Term Debt
  July 1,
    
    
    December 31,2006
    
    
    2005Senior Secured Credit Facility:Term loan facility
    
    $
    334,163
    
    
    $
    108,625U. S. revolving credit facility
    
    
    9,500
    
    
    
    8.375% Senior subordinated notes due 2012
    
    
    140,000
    
    
    
    140,000Capital lease obligations
    
    
    235
    
    
    
    272Total long-term debt
    
    
    483,898
    
    
    
    248,897Less current maturities of long-term
debt and revolver
    
    
    (12,898
    )
    
    
    (1,164
    )Long-term debt, less current portion
    
    $
    471,000
    
    
    $
    247,733
    8




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##### Table of Contents



Notes to Condensed Consolidated Financial Statements  Continued
(unaudited and in thousands except as specified)
         9




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##### Table of Contents



Notes to Condensed Consolidated Financial Statements  Continued
(unaudited and in thousands except as specified)
 Debtors Accounting for a Modification or Exchange of Debt Instruments
 6. Accrued Expenses
  July 1,2006
    
    
    December 31, 2005Accrued working capital adjustment
    
    $
    16,195
    
    
    $
    Accrued advertising
    
    
    16,122
    
    
    
    10,437Accrued salaries, wages, commissions and bonuses
    
    
    15,320
    
    
    
    9,224Accrued taxes
    
    
    5,105
    
    
    
    3,386Accrued interest expense
    
    
    4,237
    
    
    
    3,100Accrued restructuring
    
    
    2,400
    
    
    
    84Other
    
    
    23,437
    
    
    
    12,597Accrued expenses
    
    $
    82,816
    
    
    $
    38,828
 7. Inventories
   July 1,
    
    
    December 31,2006
    
    
    2005Raw materials
    
    $
    24,525
    
    
    $
    10,470Work-in-process
    
    
    4,149
    
    
    
    463Finished goods
    
    
    103,915
    
    
    
    44,017Inventories, net
    
    $
    132,589
    
    
    $
    54,950
  8. Recent Accounting Pronouncements
 Accounting for Uncertainty in Income Taxesan
interpretation of FASB Statement No. 109,
  Share-Based Payment
 10




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##### Table of Contents



Notes to Condensed Consolidated Financial Statements  Continued
(unaudited and in thousands except as specified)
  9. Segment Reporting
   Team
    
    ActionFiscal Quarter Ended
    
    Sports
    
    Sports
    
    ConsolidatedJuly 1, 2006Net sales
    
    $
    122,026
    
    
    $
    76,249
    
    
    $
    198,275Income from operations
    
    
    12,743
    
    
    
    12,021
    
    
    
    24,764Depreciation
    
    
    743
    
    
    
    890
    
    
    
    1,633Capital expenditures
    
    
    671
    
    
    
    2,682
    
    
    
    3,353July 2, 2005Net sales
    
    $
    37,562
    
    
    $
    66,219
    
    
    $
    103,781Income from operations
    
    
    7,296
    
    
    
    9,369
    
    
    
    16,665Depreciation
    
    
    406
    
    
    
    868
    
    
    
    1,274Capital expenditures
    
    
    847
    
    
    
    648
    
    
    
    1,495Team
    
    ActionTwo Fiscal Quarters Ended
    
    Sports
    
    Sports
    
    ConsolidatedJuly 1, 2006Net sales
    
    $
    162,008
    
    
    $
    147,439
    
    
    $
    309,447Income from operations
    
    
    18,340
    
    
    
    17,659
    
    
    
    35,999Depreciation
    
    
    2,085
    
    
    
    1,844
    
    
    
    3,929Capital expenditures
    
    
    1,123
    
    
    
    5,950
    
    
    
    7,073July 2, 2005Net sales
    
    $
    65,776
    
    
    $
    125,238
    
    
    $
    191,014Income from operations
    
    
    9,785
    
    
    
    16,006
    
    
    
    25,791Depreciation
    
    
    841
    
    
    
    1,713
    
    
    
    2,554Capital expenditures
    
    
    1,149
    
    
    
    1,108
    
    
    
    2,257
 11




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##### Table of Contents



Notes to Condensed Consolidated Financial Statements  Continued
(unaudited and in thousands except as specified)
 TeamSports
    
    Action Sports
    
    ConsolidatedAssetsAs of July 1, 2006
    
    $
    584,346
    
    
    $
    381,465
    
    
    $
    965,811As of December 31, 2005
    
    
    158,778
    
    
    
    321,925
    
    
    
    480,703
  Fiscal Quarter Ended
    
    
    Two Fiscal Quarters EndedJuly 1, 2006
    
    
    July 2, 2005
    
    
    July 1, 2006
    
    
    July 2, 2005Segment income from
operations
    
    $
    24,764
    
    
    $
    16,665
    
    
    $
    35,999
    
    
    $
    25,791Variable stock
compensation expense
    
    
    (1,491
    )
    
    
    (932
    )
    
    
    (1,540
    )
    
    
    (1,391
    )Management expenses
    
    
    
    
    
    
    (750
    )
    
    
    (8,250
    )
    
    
    (1,500
    )Corporate expenses
    
    
    (1,515
    )
    
    
    (94
    )
    
    
    (3,133
    )
    
    
    184Restructuring expenses
    
    
    (269
    )
    
    
    (458
    )
    
    
    (544
    )
    
    
    (1,206
    )Amortization of intangibles
    
    
    (3,411
    )
    
    
    (2,106
    )
    
    
    (5,752
    )
    
    
    (4,220
    )Consolidated income from
operations
    
    $
    18,078
    
    
    $
    12,325
    
    
    $
    16,780
    
    
    $
    17,658
 10. Product Liability and Other Contingencies
  11. Income Taxes
  12. Derivative Instruments and Hedging Activity
 Accounting for Derivative Instruments and Hedging Activities,
 12




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##### Table of Contents



Notes to Condensed Consolidated Financial Statements  Continued
(unaudited and in thousands except as specified)
   13. Stock-Based Employee Compensation
 Accounting
for Stock Issued to Employees Accounting for Stock-Based Compensation Transition
and Disclosure
   Fiscal Quarter
    
    Two FiscalEnded July 1,
    
    Quarters Ended2006
    
    July 1, 2006Selling, general and administrative expenses
    
    $
    1,491
    
    
    $
    1,540Income tax benefit
    
    
    (470
    )
    
    
    (748
    )Share based compensation expense, net of taxes
    
    $
    1,021
    
    
    $
    792
 13




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##### Table of Contents



Notes to Condensed Consolidated Financial Statements  Continued
(unaudited and in thousands except as specified)
    Fiscal Quarter
    
    Two FiscalEnded July 2,
    
    Quarters Ended2005
    
    July 2, 2005Net income, as reported
    
    $
    3,475
    
    
    $
    3,644SAR Unit based compensation expense
    
    
    932
    
    
    
    1,391Pro forma SAR Unit based
compensation expense, net of taxes
    
    
    (105
    )
    
    
    (212
    )Pro forma net income
    
    $
    4,302
    
    
    $
    4,823
  WeightedOutstanding
    
    Average StrikeSAR Units
    
    PriceOutstanding at December 31, 2005
    
    
    20,233,229
    
    
    $
    1.3593Granted
    
    
    900,000
    
    
    $
    2.1419Forfeited
    
    
    (211,400
    )
    
    $
    1.4717Redeemed
    
    
    (4,987,176
    )
    
    $
    1.4066Outstanding at March 16, 2006
    
    
    15,934,653
    
    
    $
    1.3872Granted
    
    
    14,790,282
    
    
    $
    2.1419Forfeited
    
    
    
    
    
    $
    Redeemed
    
    
    
    
    
    $
    Outstanding at July 1, 2006
    
    
    30,724,935
    
    
    $
    1.7505
 14




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##### Table of Contents



Notes to Condensed Consolidated Financial Statements  Continued
(unaudited and in thousands except as specified)
  WeightedAverage GrantSAR Units
    
    Date Fair ValueNon-vested at December 31, 2005
    
    
    14,913,406
    
    
    $
    1.3488Granted
    
    
    900,000
    
    
    $
    2.1419Forfeited
    
    
    (211,400
    )
    
    $
    1.4717Vested
    
    
    
    
    
    $
    Non-vested at March 16, 2006
    
    
    15,602,006
    
    
    $
    1.3928
 WeightedAverage GrantSAR Units
    
    Date Fair ValueGranted
    
    
    14,790,282
    
    
    $
    2.1419Forfeited
    
    
    
    
    
    $
    Vested
    
    
    (123,406
    )
    
    $
    1.0000Non-vested at July 1, 2006
    
    
    30,268,882
    
    
    $
    1.7605
 14. Warranty Obligations
   Two Fiscal Quarters EndedJuly 1,
    
    
    July 2,2006
    
    
    2005Beginning of period
    
    $
    3,047
    
    
    $
    283Warranty costs incurred during the period
    
    
    (1,816
    )
    
    
    (182
    )Accruals recorded during the period
    
    
    1,954
    
    
    
    182End of period
    
    $
    3,185
    
    
    $
    283
 15. Related Party Transactions
     15




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##### Table of Contents



Notes to Condensed Consolidated Financial Statements  Continued
(unaudited and in thousands except as specified)
  Easton Easton
     16




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##### Table of Contents



Item 2. Managements Discussion and Analysis of Financial Condition and Results of
Operations
 GENERAL
 On March 16, 2006, pursuant to a stock purchase agreement, Riddell Bell Holdings, Inc., or
Riddell Bell, acquired Easton Sports, Inc. and its subsidiaries, or Easton Sports. The
transactions relating to the acquisition are more fully described in Note 2 to the condensed
consolidated financial statements included elsewhere in this report. In connection with the
acquisition of Easton Sports, Riddell Bell changed its name to Easton-Bell Sports, Inc. In this
report, Easton-Bell Sports, Inc. and its subsidiaries are referred to as the Company.
      17




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##### Table of Contents



FORWARD-LOOKING STATEMENTS AND INFORMATION
   RESULTS OF OPERATIONS
 Net Sales
   18




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##### Table of Contents



Change Due toFiscal Quarter Ended
    
    Change
    
    AcquisitionJuly 1,
    
    July 2,2006
    
    2005
    
    $
    
    %
    
    $
    
    %Net sales for the
quarter ended
    
    $
    198,275
    
    
    $
    103,781
    
    
    $
    94,494
    
    
    
    91.1
    %
    
    $
    86,487
    
    
    
    91.5
    %Net sales for the
two quarters ended
    
    $
    309,447
    
    
    $
    191,014
    
    
    $
    118,433
    
    
    
    62.0
    %
    
    $
    101,430
    
    
    
    85.6
    %
 Fiscal Quarter EndedChange dueJuly 1,
    
    
    % of
    
    
    July 2,
    
    
    % of
    
    
    to2006
    
    
    Net Sales
    
    
    2005
    
    
    Net Sales
    
    
    acquisitionGross profit
    
    $
    62,559
    
    
    
    31.5
    %
    
    $
    40,026
    
    
    
    38.6
    %
    
    $
    17,972Selling, general and
administrative expenses
    
    
    40,801
    
    
    
    20.6
    %
    
    
    24,387
    
    
    
    23.5
    %
    
    
    13,725Management expenses
    
    
    
    
    
    
    0.0
    %
    
    
    750
    
    
    
    0.7
    %
    
    
    Restructuring and other
infrequent expenses
    
    
    269
    
    
    
    0.1
    %
    
    
    458
    
    
    
    0.5
    %
    
    
    Amortization of intangibles
    
    
    3,411
    
    
    
    1.7
    %
    
    
    2,106
    
    
    
    2.0
    %
    
    
    1,225Income from operations
    
    $
    18,078
    
    
    
    9.1
    %
    
    $
    12,325
    
    
    
    11.9
    %
    
    $
    3,022
 Two Fiscal Quarters EndedChange dueJuly 1,
    
    
    % of
    
    
    July 2,
    
    
    % of
    
    
    to2006
    
    
    Net Sales
    
    
    2005
    
    
    Net Sales
    
    
    acquisitionGross profit
    
    $
    99,424
    
    
    
    32.1
    %
    
    $
    71,288
    
    
    
    37.3
    %
    
    $
    23,304Selling, general and
administrative expenses
    
    
    68,098
    
    
    
    22.0
    %
    
    
    46,704
    
    
    
    24.5
    %
    
    
    16,645Management expenses
    
    
    8,250
    
    
    
    2.7
    %
    
    
    1,500
    
    
    
    0.8
    %
    
    
    Restructuring and other
infrequent expenses
    
    
    544
    
    
    
    0.2
    %
    
    
    1,206
    
    
    
    0.6
    %
    
    
    Amortization of intangibles
    
    
    5,752
    
    
    
    1.8
    %
    
    
    4,220
    
    
    
    2.2
    %
    
    
    1,497Income from operations
    
    $
    16,780
    
    
    
    5.4
    %
    
    $
    17,658
    
    
    
    9.2
    %
    
    $
    5,162
 Gross Profit
  Selling, General and Administrative Expenses
  19




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##### Table of Contents



Managements Discussion and Analysis of Financial Condition and Results of Operations
(Continued)
  Management expenses
  Restructuring expenses
  Amortization of Intangibles
  Interest Expense
  Provision (Benefit) for Income Taxes
  RESTRUCTURING AND OTHER INFREQUENT EXPENSES
  20




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##### Table of Contents



Managements Discussion and Analysis of Financial Condition and Results of Operations
(Continued)
 Accounting for Costs Associated with Exit or
Disposal Activities
 Write-downof Property,
    
    
    
    
    
    
    Employee
    
    
    FacilityPlant and
    
    
    Employee
    
    
    Retention
    
    
    ClosureEquipment
    
    
    Severance
    
    
    Payments
    
    
    Costs
    
    
    TotalBalance as of December 31,
2004
    
    $
    
    
    
    $
    
    
    
    $
    
    
    
    $
    
    
    
    $
    Provision
    
    
    
    
    
    
    567
    
    
    
    
    
    
    
    181
    
    
    
    748Less: Non-cash activity
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Cash activity
    
    
    
    
    
    
    (49
    )
    
    
    
    
    
    
    (181
    )
    
    
    (230
    )Balance as of April 2, 2005
    
    $
    
    
    
    $
    518
    
    
    $
    
    
    
    $
    
    
    
    $
    518Provision
    
    
    126
    
    
    
    (25
    )
    
    
    32
    
    
    
    325
    
    
    
    458Less: Non-cash activity
    
    
    (126
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (126
    )Cash activity
    
    
    
    
    
    
    (291
    )
    
    
    (26
    )
    
    
    (325
    )
    
    
    (642
    )Balance as of July 2, 2005
    
    $
    
    
    
    $
    202
    
    
    $
    6
    
    
    $
    
    
    
    $
    208Provision
    
    
    125
    
    
    
    
    
    
    
    13
    
    
    
    369
    
    
    
    507Less: Non-cash activity
    
    
    (125
    )
    
    
    
    
    
    
    
    
    
    
    (250
    )
    
    
    (375
    )Cash activity
    
    
    
    
    
    
    (133
    )
    
    
    (4
    )
    
    
    (119
    )
    
    
    (256
    )Balance as of December 31,
2005
    
    $
    
    
    
    $
    69
    
    
    $
    15
    
    
    $
    
    
    
    $
    84Provision
    
    
    57
    
    
    
    
    
    
    
    
    
    
    
    218
    
    
    
    275Less: Non-cash activity
    
    
    (57
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (57
    )Cash activity
    
    
    
    
    
    
    (63
    )
    
    
    (9
    )
    
    
    (218
    )
    
    
    (290
    )Balance as of April 1, 2006
    
    $
    
    
    
    $
    6
    
    
    $
    6
    
    
    $
    
    
    
    $
    12Provision
    
    
    92
    
    
    
    
    
    
    
    
    
    
    
    177
    
    
    
    269Less: Non-cash activity
    
    
    (92
    )
    
    
    
    
    
    
    
    
    
    
    (138
    )
    
    
    (230
    )Cash activity
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (39
    )
    
    
    (39
    )Balance as of July 1, 2006
    
    $
    
    
    
    $
    6
    
    
    $
    6
    
    
    $
    
    
    
    $
    12
  LIQUIDITY AND CAPITAL RESOURCES
   21




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Managements Discussion and Analysis of Financial Condition and Results of Operations
(Continued)
        22




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##### Table of Contents



Managements Discussion and Analysis of Financial Condition and Results of Operations
(Continued)
           23




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##### Table of Contents



Managements Discussion and Analysis of Financial Condition and Results of Operations
(Continued)
 CRITICAL ACCOUNTING POLICIES AND ESTIMATES
   Derivative Instruments and Hedging Activity Accounting for Derivatives
  Warranty Liability
 24




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##### Table of Contents



Item 3: Quantitative and Qualitative Disclosure About Market Risk
    
 Item 4: Controls and Procedures
 Evaluation of Disclosure Controls and Procedures
  Changes in Internal Control Over Financial Reporting
  25




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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 Chief
Executive Officer pursuant to
Section 302 of the Sarbanes-Oxley
Act of 2002
    
    Filed herewith31.2
    
    Certification of the Chief
Financial Officer pursuant to
Section 302 of the Sarbanes-Oxley
Act of 2002
    
    Filed herewith32.1
    
    Certification of the Chief
Executive Officer and Chief
Financial Officer pursuant to the
18 U.S.C. Section 1350, as adopted
pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002
    
    Filed herewith
 26




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##### Table of Contents



SIGNATURES
  EASTON-BELL SPORTS, INC.RegistrantDated: August 15, 2006
    
    /s/ Anthony M. PalmaAnthony M. PalmaChief Executive OfficerDated: August 15, 2006
    
    /s/ Mark TrippMark TrippChief Financial Officer(Principal Financial Officer)
 27