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

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 (State or Other Jurisdiction of Incorporation or Organization)		20-1636283 (I.R.S. Employer Identification No.)

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes o No þ.

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes o No o.

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act. (Check one):

Large accelerated filer o		Accelerated filer o		Non-accelerated filer þ (Do not check if a smaller reporting company)		Smaller reporting company o

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes o No þ.

As of May 16, 2011, 100 shares of Easton-Bell Sports, Inc. common stock were outstanding.

 

 

EXPLANATORY NOTE

The Company is a voluntary filer of reports required of companies with public securities under Sections 13 or 15(d) of the Securities Exchange Act of 1934.

EASTON-BELL SPORTS, INC. AND SUBSIDIARIES

INDEX

		Page
PART I. FINANCIAL INFORMATION:
Item 1. Financial Statements
Consolidated Balance Sheets as of April 2, 2011 (unaudited) and January 1, 2011			4
Consolidated Statements of Operations and Comprehensive Income for the Fiscal Quarter Ended April 2, 2011 (unaudited) and April 3, 2010 (unaudited)			5
Consolidated Statements of Cash Flows for the Fiscal Quarter Ended April 2, 2011 (unaudited) and April 3, 2010 (unaudited)			6
Notes to Consolidated Financial Statements			7
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations			21
Item 3. Quantitative and Qualitative Disclosures About Market Risk			30
Item 4. Controls and Procedures			31
PART II. OTHER INFORMATION:
Item 1. Legal Proceedings			32
Item 1A. Risk Factors			32
Item 6. Exhibits			32
SIGNATURES			33
EX-31.1
EX-31.2
EX-32.1

PART I. FINANCIAL INFORMATION

Item 1.		Financial Statements

EASTON-BELL SPORTS, INC. AND SUBSIDIARIES

		April 2,				January 1,
		2011				2011
		(Unaudited)
ASSETS
Current assets:
Cash and cash equivalents		$	25,265			$	24,024
Accounts receivable, net			241,685				216,166
Inventories, net			148,254				141,093
Prepaid expenses			8,252				7,080
Deferred taxes			16,101				16,254
Other current assets			11,055				8,483
Total current assets			450,612				413,100
Property, plant and equipment, net			50,269				49,736
Deferred financing fees, net			13,497				14,248
Intangible assets, net			276,494				279,047
Goodwill			206,928				206,928
Other assets			1,296				1,495
Total assets		$	999,096			$	964,554
LIABILITIES AND STOCKHOLDER’S EQUITY
Current liabilities:
Revolving credit facility		$	62,393			$	38,893
Current portion of capital lease obligations			24				24
Accounts payable			80,083				73,148
Accrued expenses			63,295				58,452
Total current liabilities			205,795				170,517
Long-term debt, less current portion			346,290				346,168
Capital lease obligations, less current portion			72				78
Deferred taxes			48,374				49,379
Other noncurrent liabilities			19,378				20,774
Total liabilities			619,909				586,916
Stockholder’s equity:
Common stock: $0.01 par value, 100 shares authorized, 100 shares issued and outstanding at April 2, 2011 and January 1, 2011			—				—
Additional paid-in capital			360,880				360,223
Retained earnings			15,339				15,401
Accumulated other comprehensive income			2,968				2,014
Total stockholder’s equity			379,187				377,638
Total liabilities and stockholder’s equity		$	999,096			$	964,554

See accompanying notes to consolidated financial statements.

EASTON-BELL SPORTS, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME
(Unaudited and amounts in thousands)

		Fiscal Quarter Ended
		April 2,				April 3,
		2011				2010
Net sales		$	203,398			$	194,104
Cost of sales			139,441				129,342
Gross profit			63,957				64,762
Selling, general and administrative expenses			50,367				49,711
Amortization of intangibles			2,553				3,335
Income from operations			11,037				11,716
Interest expense, net			10,993				11,512
Income before income taxes			44				204
Income tax expense			106				82
Net (loss) income			(62	)			122
Other comprehensive income:
Foreign currency translation adjustment			954				1,278
Comprehensive income		$	892			$	1,400

See accompanying notes to consolidated financial statements.

EASTON-BELL SPORTS, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited and amounts in thousands)

		Fiscal Quarter Ended
		April 2,				April 3,
		2011				2010
Cash flows from operating activities:
Net (loss) income		$	(62	)		$	122
Adjustments to reconcile net (loss) income to net cash used in operating activities:
Depreciation and amortization			7,009				6,936
Amortization of deferred financing fees and debt discount			873				860
Equity compensation expense			657				1,160
Deferred income taxes			(852	)			—
Disposal of property, plant and equipment			—				6
Changes in operating assets and liabilities, net of effects from purchase of businesses:
Accounts receivable, net			(24,859	)			(19,269	)
Inventories, net			(6,478	)			9,780
Other current and noncurrent assets			(3,545	)			(1,285	)
Accounts payable			6,750				(14,414	)
Accrued expenses			4,739				10,399
Other current and noncurrent liabilities			(1,396	)			423
Net cash used in operating activities			(17,164	)			(5,282	)
Cash flows from investing activities:
Purchase of property, plant and equipment			(4,916	)			(4,573	)
Purchase of businesses, net of cash acquired			—				(1,750	)
Net cash used in investing activities			(4,916	)			(6,323	)
Cash flows from financing activities:
Proceeds from revolving credit facility			30,500				7,000
Payments on revolving credit facility			(7,000	)			—
Payments on capital lease obligations			(6	)			(6	)
Net cash provided by financing activities			23,494				6,994
Effect of exchange rate changes on cash and cash equivalents			(173	)			152
Net change in cash and cash equivalents			1,241				(4,459	)
Cash and cash equivalents, beginning of period			24,024				33,318
Cash and cash equivalents, end of period		$	25,265			$	28,859

See accompanying notes to consolidated financial statements.

EASTON-BELL SPORTS, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited and amounts in thousands, except as specified)

1. Basis of Presentation

Easton-Bell Sports, Inc. is a wholly-owned subsidiary of RBG Holdings Corp., or RBG, which, in turn, is a wholly-owned subsidiary of EB Sports Corp., or EB Sports, of which 100% of the issued and outstanding voting common stock is owned by Easton-Bell Sports, LLC, the ultimate parent company, or our Parent. Unless otherwise indicated, all references in this Form 10-Q to Easton-Bell, we, us, our, and the Company refer to Easton-Bell Sports, Inc. and its consolidated subsidiaries. References to Easton, Bell and Riddell refer to Easton Sports, Inc. and its consolidated subsidiaries, Bell Sports Corp. and its consolidated subsidiaries and Riddell Sports Group, Inc. and its consolidated subsidiaries, respectively.

The accompanying unaudited consolidated financial statements included herein have been prepared by our Company in accordance with accounting principles generally accepted in the United States, or GAAP, for interim financial information and the rules and regulations of the Securities and Exchange Commission or the SEC. Accordingly, they do not include all of the information and footnotes required by GAAP for complete financial statements. In the opinion of management, normal recurring adjustments considered necessary for a fair presentation have been reflected in these consolidated financial statements. These unaudited consolidated financial statements should be read in conjunction with our Company’s audited financial statements and notes thereto included in our Company’s Annual Report on Form 10-K for the year ended January 1, 2011. Results for interim periods are not necessarily indicative of the results for the year.

Our Company’s fiscal quarters are 13-week periods ending on Saturdays. As a result, our Company’s first quarter of fiscal year 2011 ended on April 2, and the first quarter of fiscal year 2010 ended on April 3.

2. Goodwill and Other Intangible Assets

Acquired intangible assets are as follows:

		April 2, 2011								January 1, 2011
		Gross								Gross
		Carrying				Accumulated				Carrying				Accumulated
		Amounts				Amortization				Amounts				Amortization
Amortized intangible assets:
Trademarks and tradenames		$	1,702			$	(1,702	)		$	1,702			$	(1,702	)
Customer relationships			59,180				(35,925	)			59,180				(35,166	)
Patents			60,345				(37,890	)			60,345				(36,275	)
Licensing and other			5,900				(5,900	)			5,900				(5,721	)
Total		$	127,127			$	(81,417	)		$	127,127			$	(78,864	)
Indefinite-lived intangible assets:
Trademarks and tradenames		$	230,784							$	230,784

Goodwill by segment is as follows:

		Team				Action
		Sports				Sports				Consolidated
Balance as of April 2, 2011		$	145,464			$	61,464			$	206,928

Goodwill and other indefinite-lived intangible assets are tested for impairment at each of our Company’s segments on an annual basis in December, and more often if indications of impairment exist as required under the Financial Accounting Standards Board or the FASB’s Accounting Standards Codification 350-20 Goodwill. The results of our Company’s analyses conducted in 2010 indicated that no impairment in the carrying amount of goodwill and other indefinite-lived intangible assets had occurred. During the first fiscal quarter of 2011, there were no indicators of impairment to goodwill and intangible assets. There were no acquisitions and no material changes to goodwill during the first fiscal quarter of 2011.

EASTON-BELL SPORTS, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
(Unaudited and amounts in thousands, except as specified)

3. Long-Term Debt

Long-term debt consisted of the following:

		April 2, 2011				January 1, 2011
9.750% Senior Secured Notes		$	350,000			$	350,000
Senior Secured Credit ABL Facility			62,393				38,893
Capital lease obligations			96				102
Total long-term debt			412,489				388,995
Less unamortized debt discount on senior secured notes			(3,710	)			(3,832	)
Less current maturities of long-term debt			(62,417	)			(38,917	)
Long-term debt, less current portion		$	346,362			$	346,246

9.750% Senior Secured Notes

In December 2009, in connection with the refinancing of our Company’s then-existing indebtedness, or the Refinancing, we issued $350,000 of 9.750% Senior Secured Notes, due December 2016, or the Notes. Interest is payable on the Notes semi-annually on June 1 and December 1 of each year. We may redeem some or all of the Notes prior to December 1, 2012 at a price equal to 100.00% of the principal amount, plus accrued and unpaid interest and a make-whole premium. We may redeem all or any of the Notes on or after December 1, 2012 and prior to December 1, 2013 at 107.313% of the principal amount of the Notes, plus accrued and unpaid interest. Then we may redeem all or any of the Notes on or after December 1, 2013 and prior to December 1, 2014 at 104.875% of the principal amount of the Notes, plus accrued and unpaid interest. Then we may redeem all or any of the Notes on or after December 1, 2014 and prior to December 1, 2015 at 102.438% of the principal amount of the Notes, plus accrued and unpaid interest. At any time on or after December 1, 2015, our Company may redeem all or any of the Notes at 100.00% of the principal amount of the Notes, plus accrued and unpaid interest. In addition, during any twelve month period commencing on the issue date prior to December 1, 2012, we may redeem up to 10% of aggregate principal amount of the Notes at a price equal to 103.00% of their principal amount, plus accrued and unpaid interest. At any time prior to December 1, 2012, we may also redeem up to 35.00% of the aggregate principal amount of the Notes at a price equal to 109.750% of the principal amount of the Notes, plus accrued and unpaid interest, with the net cash proceeds of one or more equity offerings of our Company. We are not required to make mandatory redemption or sinking fund payments with respect to the Notes. However, the Notes will become due and payable on October 1, 2015 unless on or prior to August 28, 2015, the indebtedness of EB Sports under its senior secured credit agreement with Wachovia Bank, N.A. and the lenders party thereto, or the New Holdco Facility, has been either repaid or refinanced with indebtedness with a stated maturity that is at least 91 days after the maturity date of the Notes.

Among other provisions, the indenture governing the Notes contains certain restrictions that limit our Company’s ability to (1) incur, assume or guarantee additional debt, (2) pay dividends and make other restricted payments, (3) create liens, (4) use the proceeds from sales of assets and subsidiary stock, (5) enter into sale and leaseback transactions, (6) enter into agreements that restrict dividends from subsidiaries, (7) change our business, (8) enter into transactions with affiliates and (9) transfer all or substantially all of our assets or enter into merger or consolidation transactions. The indenture governing the Notes also requires us to make an offer to repurchase the Notes at 101.00% of the principal amount following a change of control of our Company, and at 100.00% of the principal amount with the proceeds of certain sales of assets and subsidiary stock.

Subject to certain exceptions, the indenture governing the Notes permits our Company and our restricted subsidiaries to incur additional indebtedness, including senior indebtedness and secured indebtedness. In addition, the indenture will not limit the amount of indebtedness that our direct or indirect parent entities, including EB Sports and RBG, may incur.

The ABL Facility

Concurrently with the issuance of the Notes on December 3, 2009, our Company entered into a $250,000 senior secured asset-based revolving credit facility, subject to availability under each of a United States and Canadian borrowing base, which the amount, subject to certain conditions, may be increased to allow borrowings of up to $300,000, together with certain of our subsidiaries as Canadian Borrowers (as defined therein) or Subsidiary Guarantors (as defined therein), with the lenders party thereto, or the ABL Facility. The unused portion of the ABL Facility (subject to borrowing base availability) is to be drawn from time to time for general corporate purposes (including permitted acquisitions) and working capital needs. At April 2, 2011, we had $62,393 outstanding under the ABL facility and $167,349 in availability.

EASTON-BELL SPORTS, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
(Unaudited and amounts in thousands, except as specified)

Certain of the Company’s wholly-owned domestic subsidiaries, and all subsidiaries that guarantee the Notes (currently only our wholly-owned domestic subsidiaries) guarantee all of our obligations (both United States and Canadian) under the ABL Facility. In addition, our wholly-owned Canadian subsidiaries guarantee the obligation of the Canadian borrowings under the Canadian sub-facility under the ABL Facility. Furthermore, we and our wholly-owned domestic subsidiaries, subject to certain exceptions, grant security with respect to substantially all of our personal property as collateral for our obligations (and related guarantees) under the ABL Facility, including a first-priority security interest in cash and cash equivalents, lockbox and deposit accounts, accounts receivable, inventory, other personal property relating to such inventory and accounts receivable and all proceeds therefrom and a second-priority security interest in substantially all of our equipment and all assets that secure the Notes on a first-priority basis. The obligations of our Canadian subsidiaries that are borrowers under the Canadian sub-facility of the ABL Facility are secured, subject to certain exceptions and permitted liens, on a first-priority lien basis, by substantially all of the assets of our wholly-owned Canadian subsidiaries and our domestic subsidiaries’ assets on the same basis as borrowings under the ABL Facility. At April 2, 2011, we had a zero balance outstanding under the Canadian ABL facility.

The interest rates per annum applicable to the loans under the ABL Facility, other than swingline loans and protective advances, equal an applicable margin percentage plus, at our option, (1) in the case of U.S. dollar denominated loans, a U.S. base rate or LIBOR, and (2) in the case of Canadian dollar denominated loans, a Canadian base rate, or CDOR. Swingline loans and protective advances bear interest at the U.S. base rate for U.S. dollar denominated loans and the Canadian base rate for Canadian dollar denominated loans. The applicable margin percentage for the ABL Facility is initially 3.75% for LIBOR or CDOR and 2.75% for the base rate, which is subject to adjustment to 3.25% for LIBOR or CDOR and 2.25% for the base rate based upon our average excess borrowing availability as calculated under the credit agreement for the ABL Facility. In addition to paying interest on outstanding principal under the ABL Facility, we are required to pay a commitment fee, in relation to the unutilized commitments, which is initially 0.75% per annum and may be adjusted to 0.50% based upon our utilization of the ABL Facility (increasing when utilization is lower and decreasing when utilization is higher). We are also required to pay customary letter of credit fees.

The ABL Facility requires that if excess gross availability is less than the greater of a specified percentage of the gross borrowing base and a specified dollar amount, we must comply with a minimum fixed charge coverage ratio test. In addition, the ABL Facility includes negative covenants that, subject to significant exceptions, limit our ability and the ability of RBG and its subsidiaries, including the Company, to, among other things (1) incur additional debt, (2) create liens, (3) transfer all or substantially all of their assets or enter into merger or consolidation transactions, (4) change their business, (5) make investments, loans, advances, guarantees and acquisitions, (6) transfer or sell assets, (7) enter into sale and leaseback transactions, (8) enter into swap agreements, (9) enter into transactions with affiliates and (10) enter into agreements that restrict dividends from subsidiaries.

Other

Our Company has arrangements with various banks to issue standby letters of credit or similar instruments, which guarantee our obligations for the purchase of certain inventories and for potential claims exposure for insurance coverage. At April 2, 2011 and January 1, 2011, outstanding letters of credit issued under the revolving credit facilities both totaled $3,306. The amount of unused lines of credit at April 2, 2011 and January 1, 2011, were $167,349 and $162,902, respectively.

Cash payments for interest were $2,162 and $476 for the fiscal quarters ended April 2, 2011 and April 3, 2010, respectively. We amortized $751 of debt issuance costs during the first fiscal quarter of 2011 and 2010.

4. Accrued Expenses

Accrued expenses consist of the following:

		April 2, 2011				January 1, 2011
Salaries, wages, commissions and bonuses		$	10,401			$	14,675
Advertising			5,293				5,410
Rebates			5,692				6,044
Warranty			2,180				2,434
Product liability — current portion			5,191				4,491
Royalties			1,849				1,830
Interest			11,686				3,689
Income taxes			1,269				1,192
Other			19,734				18,687
Total accrued expenses		$	63,295			$	58,452

EASTON-BELL SPORTS, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
(Unaudited and amounts in thousands, except as specified)

5. Inventories

Inventories are stated at the lower of cost (determined on a first-in, first-out basis) or market and include material, labor and factory overhead.

Inventories consisted of the following:

		April 2, 2011				January 1, 2011
Raw materials		$	21,160			$	19,310
Work-in-process			2,869				2,364
Finished goods			124,225				119,419
Inventories, net		$	148,254			$	141,093

6. Recent Accounting Pronouncements

In January 2010, the FASB issued ASU 2010-06 to amend the topic of Improving Disclosures about Fair Value Measurements. As a result of this ASU, our Company is required to disclose separately the amounts of significant transfers in and out of Level 1 and Level 2 fair value measurements and the related reasoning for the transfer. Also included in the new disclosure requirements is the separate presentation of purchases, sales, issuances and settlements on a gross basis in the reconciliation for significant unobservable inputs, or Level 3 inputs. Further, this ASU clarifies existing fair value disclosures about the level of disaggregation and about inputs and valuation techniques used to measure fair value for either Level 2 or Level 3 measurements. The new disclosures and clarifications of existing disclosures are effective for interim and annual reporting periods beginning after December 15, 2009, except for the disclosures about purchases, sales, issuances and settlements in the roll-forward of activity in Level 3 fair value measurements. These Level 3 specific disclosures are effective for fiscal years beginning after December 15, 2010 and for interim periods within those fiscal years. The adoption of the disclosures required for our Company during the first fiscal quarter of 2011 did not have a material impact on our Company’s financial statement disclosures.

7. Segment Reporting

Our Company has two reportable segments: Team Sports and Action Sports. Our Team Sports segment primarily consists of football, baseball, softball, ice hockey, lacrosse and other team sports products and reconditioning services related to certain of these products. Our Action Sports segment consists primarily of helmets, equipment, components and accessories for cycling, snowsports and powersports and fitness related products. Following the acquisition of Easton, our Action Sports segment began to include Easton’s cycling business. Our Company evaluates segment performance primarily based on income from operations excluding equity compensation expense, management expenses, restructuring and other infrequent expenses, amortization of intangibles and corporate expenses. Our selling, general and administrative expenses, excluding corporate expenses, are charged to each segment based on where the expenses are incurred. Segment income from operations as presented by our Company may not be comparable to similarly titled measures used by other companies. As a result, the components of income from operations for one segment may not be comparable to another segment.

EASTON-BELL SPORTS, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
(Unaudited and amounts in thousands, except as specified)

Segment results for the fiscal quarters ended April 2, 2011 and April 3, 2010, respectively, are as follows:

		Team				Action
Fiscal Quarter Ended		Sports				Sports				Consolidated
April 2, 2011
Net sales		$	116,268			$	87,130			$	203,398
Income from operations			9,566				11,784				21,350
Depreciation			2,676				1,780				4,456
Capital expenditures			2,951				1,965				4,916
April 3, 2010
Net sales		$	119,433			$	74,671			$	194,104
Income from operations			17,607				5,937				23,544
Depreciation			2,043				1,558				3,601
Capital expenditures			2,112				2,461				4,573

		Team				Action
		Sports				Sports				Consolidated
Assets
As of April 2, 2011		$	624,695			$	374,401			$	999,096
As of January 1, 2011			599,980				364,574				964,554

A reconciliation from the segment information to the Consolidated Statements of Operations and Comprehensive Income is set forth below:

		Fiscal Quarter Ended
		April 2, 2011				April 3, 2010
Segment income from operations		$	21,350			$	23,544
Equity compensation expense			(657	)			(1,160	)
Corporate expenses			(7,103	)			(7,333	)
Amortization of intangibles			(2,553	)			(3,335	)
Consolidated income from operations		$	11,037			$	11,716

8. Product Liability, Litigation and Other Contingencies

Product Liability

Our Company is subject to various product liability claims and/or suits brought against us for claims involving damages for personal injuries or deaths. Allegedly, these injuries or deaths relate to the use by claimants of products manufactured by our Company and, in certain cases, products manufactured by others. The ultimate outcome of these claims, or potential future claims, cannot be determined. Our management obtains an actuarial analysis and has established an accrual for probable losses based on this analysis, which considers, among other factors, our previous claims history and available information on alleged claims. However, due to the uncertainty involved with estimates, actual results could vary substantially from those estimates.

In the opinion of management, amounts accrued for exposures relating to product liability claims and other legal proceedings are adequate and, accordingly, the ultimate resolution of these matters is not expected to have a material adverse effect on our Company’s consolidated financial statements. As of April 2, 2011, our Company had no known probable but inestimable exposures relating to product liability or other legal proceedings that are expected to have a material adverse effect on our Company. There can be no assurance, however, that unanticipated events will not require our Company to increase the amount it has accrued for any matter or accrue for a matter that has not been previously accrued because it was not considered probable.

Our Company maintains product liability insurance coverage under various policies. These policies provide coverage against claims resulting from alleged injuries sustained during the respective policy periods, subject to policy terms and conditions. The primary portion of our product liability coverage is written under a policy expiring in July 2011 with a $2,000 limit per occurrence excess of a $1,000, $50 and $500 self-insured retention for helmets, soft goods and all other products, respectively. Our Company’s first layer excess policy is written under a liability policy with a limit of $25,000 excess of $3,000 expiring in January 2012. We also carry a second layer excess liability policy providing an additional limit of $15,000 excess of $28,000 expiring January 2012, for a total limit of $43,000.

EASTON-BELL SPORTS, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
(Unaudited and amounts in thousands, except as specified)

Litigation and Other Contingencies

We are involved in various non-product liability claims and actions, including employment related matters as well as claims relating to potential infringement of intellectual property rights of others. In 2002, one of our competitors sued us in Canadian Federal Court alleging infringement of a hockey skate patent. In 2010, we received an unfavorable judgment against us in relation to such claim, which we have appealed. If the appeal is unsuccessful, the plaintiffs will enter a procedure in Canadian Federal Court to determine the monetary relief to be granted. Because the documents necessary to establish an accurate assessment of any potential liability have not been disclosed to us, it is not possible to accurately estimate any potential resulting liability at this time. However, management believes that this claim will not be material to our business or financial condition.

9. Income Taxes

Our Company recorded income tax expense of $106 and $82 for the fiscal quarters ended April 2, 2011, and April 3, 2010, respectively. Our Company’s effective tax rate was 240.9% for the first fiscal quarter of 2011, as compared to 40.2% for the first fiscal quarter of 2010. For the fiscal quarter ended April 2, 2011, the difference between the effective rate and the statutory rate is primarily attributable to interest on unrecognized tax benefits and state income tax adjustments, which increased tax expense by $58 and $27, respectively. Other factors driving the difference between the effective rate and the statutory rate for the fiscal quarter ended April 2, 2011 and April 3, 2010, includes the permanent difference for equity compensation expense and state income taxes.

10. Derivative Instruments and Hedging Activity

Our Company accounts for all derivatives on the balance sheet as an asset or liability measured at fair value and changes in fair values are recognized in earnings unless specific hedge accounting criteria are met for cash flow or net investment hedges. If such hedge accounting criteria are met, the change is deferred in stockholder’s equity as a component of accumulated other comprehensive income. The deferred items are recognized in the period the derivative contract is settled. As of April 2, 2011, we had not designated any of our derivative instruments as hedges, and therefore, have recorded the changes in fair value in the Consolidated Statements of Operations and Comprehensive Income.

In 2008, our Company entered an interest rate swap agreement with Wachovia Bank, N.A. The interest rate swap had an initial fixed USD LIBOR of 2.921%, and was subsequently revised to a fixed USD LIBOR of 2.811% for the period commencing October 15, 2008, through April 14, 2010 and thereafter a fixed USD LIBOR of 2.921% until the expiration of the agreement on April 15, 2011. The swap had a notional amount of $275,000 which decreased to $250,000 on April 15, 2009 and would decrease to $225,000 on April 15, 2010. The settlement dates for the swap occurred monthly on the 15th of each month commencing November 17, 2008 through April 15, 2010 and thereafter quarterly on the 15th of each July, October, January and April until the expiration of the agreement on April 15, 2011. On December 4, 2009, we entered into an amended and restated swap transaction confirmation with Wachovia Bank, N.A., pursuant to which we agreed to repay $5,982 on December 7, 2009, which was a portion of the outstanding amount owed under the interest rate swap agreement, and the swap notional amount was reduced to $60,000. On December 7, 2009, our Company, Wachovia Bank, N.A. and JPMorgan Chase Bank, N.A. entered into a novation confirmation pursuant to which Wachovia Bank, N.A. transferred its position under the revised swap to JPMorgan Chase Bank, N.A. The settlement dates for the revised swap occurred on the 15th of each month commencing December 15, 2009 through April 15, 2010 and thereafter quarterly on the 15th of each July, October, January and April until the expiration of the agreement on April 15, 2011. The swap agreement is not designated as a hedge, and therefore is recorded at fair value at each balance sheet date, with the resulting changes in fair value charged or credited to interest expense in the accompanying Consolidated Statements of Operations and Comprehensive Income each period.

Our Company uses a fair value hierarchy that prioritizes observable and unobservable inputs used to measure fair value into three broad levels, which are described below:

Level 1: Quoted prices (unadjusted) in active markets that are accessible at the measurement date for assets or liabilities. The fair value hierarchy gives the highest priority to Level 1 inputs.

Level 2: Observable prices that are based on inputs not quoted on active markets, but corroborated by market data.

Level 3: Unobservable inputs are used when little or no market data is available. The fair value hierarchy gives the lowest priority to Level 3 inputs.

In determining fair value, our Company utilizes valuation techniques that maximize the use of observable inputs and minimize the use of unobservable inputs to the extent possible, as well as considers counterparty credit risk in its assessment of fair value.

EASTON-BELL SPORTS, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
(Unaudited and amounts in thousands, except as specified)

At April 2, 2011, the swap fair value was determined through the use of a model that considers various assumptions, including time value, yield curves, as well as other relevant economic measures, which are inputs that are classified as Level 2 from a third party bank. The fair value of the swap was a liability of $48 and $453 at April 2, 2011 and January 1, 2011, respectively and is recorded in the current portion of other liabilities at April 2, 2011 in the accompanying Consolidated Balance Sheets with the corresponding charge to interest expense. During the first fiscal quarter of 2011, interest expense reflects $380 related to the swap and a credit of $405 related to the change in the fair value of the swap. During the first fiscal quarter of 2010, interest expense reflected $387 related to the swap and a credit of $135 related to the change in the fair value of the swap.

Our Company has foreign currency exchange forward contracts in place to reduce our risk related to inventory purchases and foreign currency based accounts receivable. These contracts are not designated as hedges, and therefore, under current accounting standards are recorded at fair value at each balance sheet date, with the resulting change charged or credited to selling, general and administrative expenses in the accompanying Consolidated Statements of Operations and Comprehensive Income.

The foreign currency exchange contracts in aggregated notional amounts in place to exchange United States Dollars at April 2, 2011 and January 1, 2011 were as follows:

April 2, 2011

January 1, 2011

Foreign

Foreign

U.S. Dollars

Currency

U.S. Dollars

Currency

Foreign Currency Exchange Forward Contracts:

U.S. Dollars / Canadian Dollars

$

3,600

Cdn$

3,466

$

4,500

Cdn$

4,476

As of April 2, 2011 and January 1, 2011, the fair value of the foreign currency exchange forward contracts, using Level 2 inputs from a third party bank, represented a liability of approximately $188 and $93, respectively. Changes in the fair value of the foreign currency exchange contracts are reflected in selling, general and administrative expenses each period.

The assets and liabilities measured at fair value on a recurring basis, subject to the disclosure requirements of ASC 820 at April 2, 2011, were as follows:

		Fair Value Measurements at Reporting Date Using
		Quoted
		Prices in
		Active				Significant
		Markets for				Other				Significant
		Identical				Observable				Unobservable
		Assets				Inputs				Inputs
		(Level 1)				(Level 2)				(Level 3)
Assets:
None		$	—			$	—			$	—
Liabilities:
Interest rate swap		$	—			$	48			$	—
Foreign currency exchange forward contracts			—				188				—
Total		$	—			$	236			$	—

Fair Value of Financial Instruments

The carrying amounts reported in our Company’s Consolidated Balance Sheets for “Cash and cash equivalents,” “Accounts receivable, net” and “Accounts payable” approximates fair value because of the immediate or short-term maturity of these financial instruments. The fair value amount of long-term debt under our Company’s 9.75% Notes are based on quoted market prices for the same or similar issues on borrowing rates available to our Company for loans with similar terms and average maturities.

The estimated fair values of the Company’s long-term debt including accrued interest were as follows:

		April 2, 2011								January 1, 2011
		Carrying				Fair				Carrying				Fair
		Amount				Value				Amount				Value
Financial liability:
9.75% Senior Secured Notes		$	357,949			$	405,409			$	349,201			$	387,158

EASTON-BELL SPORTS, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
(Unaudited and amounts in thousands, except as specified)

11. Equity-Based Employee Compensation

On March 16, 2006, our Parent adopted the 2006 Equity Incentive Plan, or the Incentive Plan. Our Parent amended the Incentive Plan in December 2009 to allow for certain new grants. The Incentive Plan provides for the issuance of Class B Common Units of our Parent, or Units, which are intended to be profits interests. Such Units qualify as equity instruments of our Parent. The holders of these Units are entitled to share in the distribution of profits above a certain threshold, or the distribution threshold. For any particular such Unit, the distribution threshold is the fair value of a Class A Common Unit of our Parent on the date of grant. Our Parent has made grants of these Units pursuant to the Incentive Plan since its adoption. Generally, so long as the Unit holder is employed or remains a member of the board of managers of our Parent, these Units vest over time (generally a four-year period) or upon achievement of certain company performance goals. Subject to certain conditions, Units are also eligible to vest in the event of an initial public offering or change of control. In December 2009, our Parent issued new Class B Common Units and amended certain existing Class B Common Units, which, in each case, are eligible, subject to certain conditions, for additional distributions from our Parent in the event that certain company performance goals are met through 2012. In addition, in December 2009, our Parent agreed to amend and restate certain existing Class B Common Units to revise the distribution threshold of such Units to an amount commensurate with the then fair market value of a Class A Common Unit. As of April 2, 2011, there were 105,152,750.854 Units authorized for grant pursuant to the Incentive Plan.

Our Company uses the Black-Scholes Option Pricing Model to determine the fair value of the Units granted, similar to an equity Stock Appreciation Right or SAR. This model uses the simplified method and such factors as the market price of the underlying Units at date of issuance. For grants issued during the first fiscal quarter of 2011, an exercise price of $1.32 was used. The weighted average grant date fair value of Units granted during the first fiscal quarter of 2011 amounted to $0.30.

During the fiscal quarter ended April 2, 2011, the following assumptions were used in the Black-Scholes Option Pricing Model to value the Units:

		Fiscal Quarter Ended
		April 2, 2011
Expected term		2-4 years
Dividend yield		0.0%
Forfeiture rate		7.7%
Risk-free interest rate		0.16 to 0.17%
Expected volatility(1)		50.0%

Our Company records compensation expense using the fair value of the Units granted with time vesting over the vesting service period on a straight-line basis. Compensation expense for the performance based vesting Units is recognized when it becomes probable that the performance conditions will be met. As of April 2, 2011, we have not recognized any compensation expense for the performance based vesting Units as it is not probable that the performance conditions will be met.

Our Company recognized compensation expense, included in selling, general and administrative expenses for its Units during the first fiscal quarters of 2011 and 2010 as follows:

		Fiscal Quarter Ended
		April 2,				April 3,
		2011				2010
Equity compensation expense		$	657			$	1,160

As of April 2, 2011, there was $19,093 of unrecognized compensation costs, net of actual and estimated forfeitures related to the Units. This was comprised of $4,627 related to time based vesting Units and $14,466 related to the performance based vesting Units. The unrecognized cost related to the time based vesting Units is expected to be amortized over a weighted average service period of approximately 2 years. The unrecognized cost related to the performance based vesting Units will be recognized when it becomes probable that the performance conditions will be met.

EASTON-BELL SPORTS, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
(Unaudited and amounts in thousands, except as specified)

Our Company’s Unit activity under the Incentive Plan for the first fiscal quarter of 2011 is as follows:

						Weighted Average
		Number of				Grant Date
		Units				Exercise Price
Outstanding at January 1, 2011			96,169,675			$	1.44
Granted			5,164,254			$	1.32
Outstanding at April 2, 2011			101,333,929			$	1.43
Vested Units at April 2, 2011			35,460,835			$	1.60

12. Warranty Obligations

The Company records a product warranty obligation at the time of sale based on the Company’s historical experience. The Company estimates its warranty obligation by reference to historical product warranty return rates, material usage and service delivery costs incurred in correcting the product. Should actual product warranty return rates, replacement product costs or service delivery costs differ from the historical rates, revisions to the estimated warranty liability would be required.

The following is a reconciliation of the changes in our Company’s product warranty liability:

		Fiscal Quarter Ended
		April 2,				April 3,
		2011				2010
Beginning of period		$	2,434			$	3,242
Warranty costs incurred during the period			(2,034	)			(1,953	)
Warranty expense recorded during the period			1,780				1,544
End of period		$	2,180			$	2,833

13. Related Party Transactions

We, our Parent and certain of its other subsidiaries entered into management agreements with Fenway Partners, LLC and Fenway Partners Resources, Inc., each an affiliate of Fenway Partners Capital Fund II, L.P., in September 2004. Pursuant to these management agreements, as subsequently amended, Fenway Partners, LLC and Fenway Partners Resources, Inc. provide advisory services in connection with certain types of transactions and will be entitled to receive a fee equal to the greater of $1.0 million or 1.5% of the gross value of such transaction, plus reimbursement of fees and expenses incurred in connection with such transactions. The management agreements include customary indemnification provisions in favor of these entities and their affiliates and have initial terms of ten years.

In connection with the acquisition of Easton in 2006, Easton and various affiliates of James L. Easton (including Jas. D. Easton, Inc.) entered into various technology license and trademark license agreements with respect to certain intellectual property owned or licensed by Easton, including the Easton brand name. Pursuant to these agreements, Easton has granted each of Jas D. Easton, Inc., James L. Easton Foundation, Easton Development, Inc. and Easton Sports Development Foundation a name license for use of the Easton name solely as part of their respective company names. In addition, Easton has granted each of Easton Technical Products, Inc. and Hoyt Archery, Inc. a license to certain trademarks, including the Easton brand solely in connection with specific products or services, none of which are currently competitive with our Company’s products or services. Easton has also granted each of these entities a license to certain technology solely in connection with specific products and fields. Easton has also entered into a patent license agreement with Easton Technical Products, Inc., which grants it a license to exploit the inventions disclosed in the patent solely within specific fields. Lastly, Easton entered into a trademark license agreement with Easton Technical Products, Inc., which grants Easton a license to use certain trademarks solely in connection with specific products or services.

Our Company has entered into a right of first offer agreement with Jas. D. Easton, Inc. and Easton Technical Products, Inc. pursuant to which our Company is to receive the opportunity to purchase Easton Technical Products, Inc. prior to any third party buyer. The term of the right of first offer agreement extends until the earliest of (i) March 16, 2016, (ii) the date Easton Technical Products, Inc. no longer uses the name “Easton,” (iii) the effectiveness of any initial public offering by Easton Technical Products, Inc. and (iv) the consummation of any sale of such company or a controlling interest therein effectuated in accordance with the terms of the right of first offer agreement.

EASTON-BELL SPORTS, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
(Unaudited and amounts in thousands, except as specified)

Affiliates of Jas. D. Easton, Inc. and James L. Easton own certain of the properties currently leased by Easton. For the first fiscal quarters of 2011 and 2010, rent payments pursuant to such affiliate leases were $297 and $288, respectively.

On October 1, 2004, Bell entered into a consulting agreement with Terry Lee, a member of the board of managers of our Parent and the board of directors of our Company. Pursuant to the terms of the consulting agreement, Mr. Lee agreed to provide us and our affiliates with certain consulting services relating to Bell. In exchange for his services, Mr. Lee is entitled to annual compensation of $100. The term of Mr. Lee’s consulting agreement is for one year and will automatically extend for additional one-year terms until our Company elects not to extend the agreement.

Effective August 2008, our Parent has agreed to compensate Richard Wenz, a member of the board of managers of our Parent and the board of directors of our Company, for his services as Chair of our Company’s Audit Committee. Mr. Wenz will be paid an annual compensation of $50 for his services.

14. Supplemental Guarantor Condensed Financial Information

In December 2009, in connection with the Refinancing, we issued $350,000 of 9.750% Senior Secured Notes due 2016, or the Notes. The indenture governing the Notes contains certain restrictions on us, including restrictions on our ability to incur indebtedness, pay dividends, grant liens, sell assets and engage in certain other activities. The Notes are guaranteed by all of our domestic subsidiaries, or Guarantors. Each subsidiary guarantor is wholly owned and the guarantees are full and unconditional and joint and several. All other subsidiaries of our Company, or Non-Guarantors, do not guarantee the Notes.

The following condensed consolidating financial statements present the results of operations, financial position and cash flows of (i) Issuer, (ii) Guarantors, (iii) Non-Guarantors and (iv) eliminations to arrive at the information for our Company on a consolidated basis for the first fiscal quarter of 2011 and the respective comparable periods for fiscal 2010. Separate financial statements and other disclosures concerning the Guarantors are not presented because our management does not believe such information is material to investors. Therefore, each of the Guarantors is combined in the presentation below.

EASTON-BELL SPORTS, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
(Unaudited and amounts in thousands, except as specified)

Condensed Consolidating Balance Sheet
April 2, 2011

						Guarantor				Non-Guarantor
		Issuer				Subsidiaries				Subsidiaries				Eliminations				Consolidated
ASSETS
Current assets:
Cash and cash equivalents		$	2,077			$	5,507			$	17,681			$	—			$	25,265
Accounts receivable, net			—				217,792				23,893				—				241,685
Inventories, net			—				123,916				24,338				—				148,254
Prepaid expenses			1,684				5,460				1,108				—				8,252
Deferred taxes			—				16,101				—				—				16,101
Other current assets			—				9,170				1,885				—				11,055
Total current assets			3,761				377,946				68,905				—				450,612
Property, plant and equipment, net			23,250				26,047				972				—				50,269
Deferred financing fees, net			13,497				—				—				—				13,497
Investments and intercompany receivables			398,337				34,390				84,849				(517,576	)			—
Intangible assets, net			—				270,964				5,530				—				276,494
Goodwill			16,195				185,542				5,191				—				206,928
Other assets			—				1,159				137				—				1,296
Total assets		$	455,040			$	896,048			$	165,584			$	(517,576	)		$	999,096
LIABILITIES AND STOCKHOLDER’S EQUITY
Current liabilities:
Revolving credit facility		$	62,393			$	—			$	—			$	—			$	62,393
Current portion of capital lease obligations			—				24				—				—				24
Accounts payable			—				72,878				7,205				—				80,083
Accrued expenses			15,646				42,430				5,219				—				63,295
Total current liabilities			78,039				115,332				12,424				—				205,795
Long-term debt, less current portion			346,290				—				—				—				346,290
Capital lease obligations, less current portion			—				72				—				—				72
Deferred taxes			—				48,374				—				—				48,374
Other noncurrent liabilities			—				11,945				7,433				—				19,378
Long-term intercompany payables			—				405,711				71,925				(477,636	)			—
Total liabilities			424,329				581,434				91,782				(477,636	)			619,909
Total stockholder’s equity			30,711				314,614				73,802				(39,940	)			379,187
Total liabilities and stockholder’s equity		$	455,040			$	896,048			$	165,584			$	(517,576	)		$	999,096

EASTON-BELL SPORTS, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
(Unaudited and amounts in thousands, except as specified)

Condensed Consolidating Balance Sheet
January 1, 2011

						Guarantor				Non-Guarantor
		Issuer				Subsidiaries				Subsidiaries				Eliminations				Consolidated
ASSETS
Current assets:
Cash and cash equivalents		$	1,981			$	7,049			$	14,994			$	—			$	24,024
Accounts receivable, net			—				189,750				26,416				—				216,166
Inventories, net			—				122,116				18,977				—				141,093
Prepaid expenses			1,306				4,907				867				—				7,080
Deferred taxes			—				16,254				—				—				16,254
Other current assets			—				7,504				979				—				8,483
Total current assets			3,287				347,580				62,233				—				413,100
Property, plant and equipment, net			21,235				27,776				725				—				49,736
Deferred financing fees, net			14,248				—				—				—				14,248
Investments and intercompany receivables			370,712				70,614				74,634				(515,960	)			—
Intangible assets, net			—				273,466				5,581				—				279,047
Goodwill			16,195				185,542				5,191				—				206,928
Other assets			—				1,355				140				—				1,495
Total assets		$	425,677			$	906,333			$	148,504			$	(515,960	)		$	964,554
LIABILITIES AND STOCKHOLDER’S EQUITY
Current liabilities:
Revolving credit facility		$	38,893			$	—			$	—			$	—			$	38,893
Current portion of capital lease obligations			—				24				—				—				24
Accounts payable			—				71,244				1,904				—				73,148
Accrued expenses			10,562				41,313				6,577				—				58,452
Total current liabilities			49,455				112,581				8,481				—				170,517
Long-term debt, less current portion			346,168				—				—				—				346,168
Capital lease obligations, less current portion			—				78				—				—				78
Deferred taxes			—				49,379				—				—				49,379
Other noncurrent liabilities			—				13,341				7,433				—				20,774
Long-term intercompany payables			—				417,140				60,496				(477,636	)			—
Total liabilities			395,623				592,519				76,410				(477,636	)			586,916
Total stockholder’s equity			30,054				313,814				72,094				(38,324	)			377,638
Total liabilities and stockholder’s equity		$	425,677			$	906,333			$	148,504			$	(515,960	)		$	964,554

EASTON-BELL SPORTS, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
(Unaudited and amounts in thousands, except as specified)

Condensed Consolidating Statement of Operations
Fiscal Quarter Ended April 2, 2011

						Guarantor				Non-Guarantor
		Issuer				Subsidiaries				Subsidiaries				Eliminations				Consolidated
Net sales		$	—			$	198,497			$	16,257			$	(11,356	)		$	203,398
Cost of sales			—				136,628				14,169				(11,356	)			139,441
Gross profit			—				61,869				2,088				—				63,957
Selling, general and administrative expenses			9,302				38,588				2,477				—				50,367
Amortization of intangibles			—				2,553				—				—				2,553
(Loss) income from operations			(9,302	)			20,728				(389	)			—				11,037
Interest expense, net			10,771				222				—				—				10,993
Share of net income (loss) of subsidiaries under equity method			20,011				(428	)			—				(19,583	)			—
(Loss) income before income taxes			(62	)			20,078				(389	)			(19,583	)			44
Income tax expense			—				67				39				—				106
Net (loss) income		$	(62	)		$	20,011			$	(428	)		$	(19,583	)		$	(62	)

Condensed Consolidating Statement of Operations
Fiscal Quarter Ended April 3, 2010

						Guarantor				Non-Guarantor
		Issuer				Subsidiaries				Subsidiaries				Eliminations				Consolidated
Net sales		$	—			$	184,269			$	17,805			$	(7,970	)		$	194,104
Cost of sales			—				123,409				13,903				(7,970	)			129,342
Gross profit			—				60,860				3,902				—				64,762
Selling, general and administrative expenses			9,692				37,236				2,783				—				49,711
Amortization of intangibles			—				3,335				—				—				3,335
(Loss) income from operations			(9,692	)			20,289				1,119				—				11,716
Interest expense, net			11,423				88				1				—				11,512
Share of net income (loss) of subsidiaries under equity method			21,237				1,062				—				(22,299	)			—
Income (loss) before income taxes			122				21,263				1,118				(22,299	)			204
Income tax expense			—				26				56				—				82
Net income (loss)		$	122			$	21,237			$	1,062			$	(22,299	)		$	122

EASTON-BELL SPORTS, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
(Unaudited and amounts in thousands, except as specified)

Condensed Consolidating Statement of Cash Flows
Fiscal Quarter Ended April 2, 2011

						Guarantor				Non-Guarantor
		Issuer				Subsidiaries				Subsidiaries				Eliminations				Consolidated
Cash flows from operating activities:
Net (loss) income		$	(62	)		$	20,011			$	(428	)		$	(19,583	)		$	(62	)
Non-cash adjustments			(25,119	)			10,690				2,533				19,583				7,687
Changes in operating assets and liabilities			4,706				(30,510	)			1,015				—				(24,789	)
Net cash (used in) provided by operating activities			(20,475	)			191				3,120				—				(17,164	)
Cash flows from investing activities:
Purchases of property, plant and equipment			(2,929	)			(1,727	)			(260	)			—				(4,916	)
Net cash used in investing activities			(2,929	)			(1,727	)			(260	)			—				(4,916	)
Cash flows from financing activities:
Payments on capital lease obligations			—				(6	)			—				—				(6	)
Proceeds from revolving credit facility, net			23,500				—				—				—				23,500
Net cash provided by (used in) financing activities			23,500				(6	)			—				—				23,494
Effect of exchange rate changes on cash and cash equivalents			—				—				(173	)			—				(173	)
Net change in cash and cash equivalents			96				(1,542	)			2,687				—				1,241
Cash and cash equivalents, beginning of period			1,981				7,049				14,994				—				24,024
Cash and cash equivalents, end of period		$	2,077			$	5,507			$	17,681			$	—			$	25,265

Condensed Consolidating Statement of Cash Flows
Fiscal Quarter Ended April 3, 2010

						Guarantor				Non-Guarantor
		Issuer				Subsidiaries				Subsidiaries				Eliminations				Consolidated
Cash flows from operating activities:
Net income (loss)		$	122			$	21,237			$	1,062			$	(22,299	)		$	122
Non-cash adjustments			(15,928	)			119				2,472				22,299				8,962
Changes in operating assets and liabilities, net of effects from purchase of businesses			9,907				(20,338	)			(3,935	)			—				(14,366	)
Net cash (used in) provided by operating activities			(5,899	)			1,018				(401	)			—				(5,282	)
Cash flows from investing activities:
Purchases of property, plant and equipment			(3,492	)			(976	)			(105	)			—				(4,573	)
Purchase of businesses, net of cash acquired			—				(1,750	)			—				—				(1,750	)
Net cash used in investing activities			(3,492	)			(2,726	)			(105	)			—				(6,323	)
Cash flows from financing activities:
Payments on capital lease obligations			—				(6	)			—				—				(6	)
Proceeds from revolving credit facility, net			7,000				—				—				—				7,000
Net cash provided by (used in) financing activities			7,000				(6	)			—				—				6,994
Effect of exchange rate changes on cash and cash equivalents			—				—				152				—				152
Net change in cash and cash equivalents			(2,391	)			(1,714	)			(354	)			—				(4,459	)
Cash and cash equivalents, beginning of period			9,347				10,229				13,742				—				33,318
Cash and cash equivalents, end of period		$	6,956			$	8,515			$	13,388			$	—			$	28,859

Item 2.		Management’s Discussion and Analysis of Financial Condition and Results of Operations

The following discussion should be read in conjunction with our consolidated financial statements and the related notes, included elsewhere in this Form 10-Q.

Unless otherwise indicated, all references in this Form 10-Q to Easton-Bell, we, us, our, and the Company refer to Easton-Bell Sports, Inc. and its consolidated subsidiaries. References to Easton, Bell and Riddell refer to Easton Sports, Inc. and its consolidated subsidiaries, Bell Sports Corp. and its consolidated subsidiaries and Riddell Sports Group, Inc. and its consolidated subsidiaries, respectively. Easton-Bell Sports, Inc. is a wholly-owned subsidiary of RBG Holdings Corp., or RBG, which, in turn, is a wholly-owned subsidiary of EB Sports Corp., or EB Sports, of which 100% of the issued and outstanding voting common stock is owned by Easton-Bell Sports, LLC, the ultimate parent company, or our Parent.

FORWARD-LOOKING STATEMENTS AND INFORMATION

This quarterly report includes forward-looking statements. All statements other than statements of historical fact included in this report that address activities, events or developments that we expect, believe or anticipate will or may occur in the future are forward-looking statements. Forward-looking statements give our current expectations and projections relating to our financial condition, results of operations, plans, objectives, future performance and business. These statements can be identified by the fact that they do not relate strictly to historical or current facts. Forward-looking statements may include words such as “anticipate,” “estimate,” “expect,” “project,” “intend,” “plan,” “believe” and other words and terms of similar meaning in connection with any discussion of the timing or nature of future operating or financial performance or other events. Although we believe that the expectations reflected in our forward-looking statements are reasonable, we do not know whether our expectations will prove correct. The factors mentioned in our discussion in this quarterly report, as well as the risks outlined under “Risk Factors” in our 2010 Annual Report on Form 10-K, will be important in determining future results.

These forward-looking statements are expressed in good faith and we believe there is a reasonable basis for them. However, there can be no assurance that the events, results or trends identified in these forward-looking statements will occur or be achieved. Investors should not place undue reliance on any of our forward-looking statements because they are subject to a variety of risks, uncertainties, and other factors that could cause actual results to differ materially from our expectations. Furthermore, any forward-looking statement speaks only as of the date on which it is made and except as required by law, we undertake no obligation to update any forward-looking statement to reflect events or circumstances after the date on which it is made or to reflect the occurrence of anticipated or unanticipated events or circumstances.

OVERVIEW

We are a leading designer, developer and marketer of branded sports equipment, protective products and related accessories. We offer products that are used in baseball, softball, ice hockey, football, lacrosse and other team sports, and in various action sports, including cycling, snowsports, powersports and skateboarding. Sports enthusiasts at all levels, from recreational participants to professional athletes, choose our products for their innovative designs and advanced materials, which provide a performance or protective advantage. Throughout our history, our focus on research and development has enabled us to introduce attractive and innovative products, many of which have set new standards for performance in their respective sports. As a result, we are able to consistently enter new product categories and expand and improve our existing product lines.

We currently sell a broad range of products primarily under four well-known brands—Easton^® (baseball, softball, ice hockey and lacrosse equipment, apparel and cycling components), Bell^® (cycling and action sports helmets and accessories), Giro^® (cycling and snowsports helmets and accessories) and Riddell^® (football equipment and reconditioning services). Together, these brands represent the vast majority of our revenues. We believe that our brands are among the most recognized in the sporting goods industry as demonstrated by our leading market share in many of our core categories.

We sell our products through diverse channels of distribution including: (i) specialty retailers that cater to sports enthusiasts who typically seek premium products at the highest performance levels, (ii) national and regional full-line sporting goods retailers and distributors, (iii) institutional buyers such as educational institutions and athletic leagues and (iv) mass retailers that offer a focused selection of products at entry-level and mid-level price points. As a function of our flexible, low fixed-cost production model, we are able to leverage the expertise of our vendor partners in order to reduce the overhead and capital intensity generally associated with manufacturing.

We have two reportable segments: Team Sports and Action Sports. Our Team Sports segment primarily consists of football, baseball, softball, ice hockey, lacrosse and other team sports products and reconditioning services related to certain of these products. Our Action Sports segment primarily consists of helmets, equipment, components and accessories for cycling, snowsports and powersports and fitness related products.

How We Assess the Performance of Our Business

In assessing the performance of our business, we consider a variety of performance and financial measures. The key measures for determining how our business is performing are net sales growth by segment, gross profit and selling, general and administrative expenses.

Net Sales

Net sales reflect our revenues from the sale of our products and services less returns, discounts and allowances. It also includes licensing income that we collect. Substantially all of Easton’s activity and all of Riddell’s activity is reflected in our Team Sports segment, which primarily consists of football, baseball, softball, ice hockey, lacrosse and other team sports products and reconditioning services related to certain of these products. All of Bell’s activity, including the Bell brand and the Giro brand and the Easton branded cycling products are reflected in our Action Sports segment, which primarily consists of helmets, equipment, components and accessories for cycling, snowsports and powersports and fitness related products.

Cost of Sales

Cost of sales includes the direct cost of purchased merchandise, inbound freight, factory operating costs (including depreciation), warranty costs, distribution and shipping expenses, including outbound freight. Cost of sales generally changes as we incur higher or lower costs from our vendors, experience better or worse productivity in our factories and increase or decrease inventory levels as certain fixed overhead is included in inventory. A shift in the composition of our net sales can also result in higher or lower cost of sales as our gross profit margins differ by product. We review our inventory levels on an ongoing basis to identify slow-moving materials and products and generally reserve for excess and obsolete inventory. If we misjudge the market for our products, we may be faced with significant excess inventory and need to allow for higher charges for excess and obsolete inventory. Such charges have reduced our gross profit in some prior periods and may have a material adverse impact depending on the amount of the charge.

Gross Profit

Gross profit is equal to our net sales minus our cost of sales. Gross profit margin measures gross profit as a percentage of our net sales. We state inventories at the lower of cost (determined on a first-in, first-out basis) or market and include material, labor and factory overhead costs. Our gross profit may not be fully comparable to other sporting goods companies, as we include costs related to distribution and freight in cost of sales.

Selling, General and Administrative Expenses

Selling, general and administrative, or SG&A, expenses include all operating expenses not included in cost of sales, primarily, selling, marketing, administrative payroll, research and development, product liability, insurance and non-manufacturing lease expense, as well as certain depreciation and amortization. Other than selling expenses, these expenses generally do not vary proportionally with net sales. As a result, SG&A expenses as a percentage of net sales are usually higher in the winter season than the summer season due to the seasonality of net sales.

Factors Affecting our Business

Outlook

Although other factors will likely impact us, including some we do not foresee, we believe our performance for 2011 may be affected by the following:

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Economic Climate. The uncertain worldwide economic environment could cause the reported financial information not to be indicative of future operating results or of future financial condition. The current economic environment continues to affect our business in a number of direct and indirect ways including: reduced consumer demand for our products; tighter inventory management by retailers; reduced profit margins due to pricing pressures and an unfavorable sales mix due to a higher concentration of sales of mid to lower price point products; changes in currency exchange rates; lack of credit availability, particularly for specialty retailers; inflation; and business disruptions due to difficulties experienced by suppliers and customers.

•

Retail Market Conditions. As a result of the slowing worldwide economic conditions, the retail market for sports equipment has slowed and is extremely competitive, with strong pressure from retailers for lower prices. We have experienced the effect of consumers trading down price points and delaying certain discretionary purchases, which has resulted in retailers reluctance to place orders for inventory in advance of selling seasons. Further, institutional customers have reduced or deferred purchases due to budget constraints. These trends may continue to have a negative impact on our businesses. We continue to address the retail environment through our focus on innovation and product development and emphasis on multiple price points.

•

Operations and Manufacturing. We intend to continue to streamline distribution, logistics and manufacturing operations, bring uniform methodologies to inventory management, optimize transportation, improve manufacturing efficiencies and provide a high level of service to our customers. Over a several year period we have transitioned production of certain products from our facilities to third party vendors in Asia and other cost efficient sources of labor. However, as a result of our transition of the production of products from our own facilities to third party suppliers, we may become more vulnerable to higher levels of product defects, as well as increased sourced product costs, and our ability to mitigate such cost increases may be reduced.

•

Interest Expense and Debt Repayment. In 2009, in connection with the refinancing of our Company’s then-existing indebtedness, or the Refinancing, we entered into a $250.0 million senior secured asset-based revolving credit facility, subject to availability under each of a United States and Canadian borrowing base, which amount, subject to certain conditions, may be increased to allow borrowings of up to $300.0 million, together with certain of our subsidiaries as Canadian Borrowers (as defined therein) or Subsidiary Guarantors (as defined therein), with the lenders party thereto, or the ABL Facility. As of April 2, 2011, the outstanding principal balance under the ABL Facility was $62.4 million. In addition, we have $350.0 million of outstanding principal amount of our Senior Secured Notes due December 2016, or the Notes. Because our existing indebtedness requires that we use a substantial portion of our cash flows to service interest payments, the amount of available cash flows we will have for working capital, capital expenditures, acquisitions and other general corporate purposes could be limited.

•

Seasonality. Our business is subject to seasonal fluctuation. Sales of cycling products and accessories occur primarily during the warm weather months. Sales of baseball and softball products occur primarily in the late winter and early spring months in preparation for the spring baseball and softball season. Sales of football equipment and reconditioning services are driven primarily by football buying patterns, where orders begin at the end of the school football season (December) and run through to the start of the next season (August). Shipments of football products and performance of reconditioning services reach a low point during the football season. Sales of ice hockey equipment are driven by ice hockey buying patterns with orders shipping in late spring for fall play. Seasonal impacts are increasingly mitigated by the increase in snowsports and powersports sales which, to a certain extent, counter the cycling, baseball, softball and football seasons.

Critical Accounting Policies and Estimates

The discussion and analysis of our financial condition and results of operations are based upon the consolidated financial statements which have been prepared in accordance with U.S. generally accepted accounting principles, or GAAP. The preparation of these financial statements requires management to make estimates and judgments that affect the reported amounts of assets, liabilities, revenues and expenses, and related disclosure of contingent assets and liabilities. On an on-going basis, management evaluates estimates, including those related to reserves, intangible assets, income taxes and contingencies. Management bases these estimates on historical experience and on various other assumptions that are believed to be reasonable under the circumstances. Actual results may differ from these estimates under different assumptions or conditions.

Revenue Recognition. Sales of products are recognized when title passes and risks of ownership have been transferred to our customer, which usually is upon shipment. Title generally passes to the dealer or distributor upon shipment from our facilities and the risk of loss upon damage, theft or destruction of the product in transit is the responsibility of the dealer, distributor or third party carrier. Reconditioning revenue is recognized upon the completion of services. Allowances for sales returns, discounts and allowances, including volume-based customer incentives are estimated and recorded concurrent with the recognition of the sale. Royalty income, which is not material, is recorded when earned based upon contract terms with licensees which provide for royalties.

Accounts Receivable and Allowances. We review the financial condition and creditworthiness of potential customers prior to contracting for sales and record accounts receivable at their face value upon completion of the sale to our customers. We record an allowance for doubtful accounts based upon management’s estimate of the amount of uncollectible receivables. This estimate is based upon prior experience including historic losses as well as current economic conditions. The estimates can be affected by changes in the retail industry, customer credit issues and customer bankruptcies. Since we cannot predict future changes in the retail industry and financial stability of our customers, actual future losses from uncollectible accounts may differ from our estimates. If the financial condition of our customers were to deteriorate, resulting in their inability to make payments, a larger allowance might be required. In the event we determine that a smaller or larger allowance is appropriate, we would record a credit or a charge to selling, general and administrative expense in the period in which such a determination is made. Uncollectible receivables are written-off once management has determined that further collection efforts will not be successful. We generally do not require collateral from our customers.