e10vq

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

(Mark One)


o		QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended September 27, 2008


o		TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from to

Commission File Number: 333-123927

EASTON-BELL SPORTS, INC.

(Exact name of registrant as specified in its charter)


Delaware		20-1636283
(State or other jurisdiction of incorporation or organization)		(I.R.S. Employer Identification No.)

7855 Haskell Avenue, Suite 200
Van Nuys, California 91406
(Address of principal executive offices)(Zip Code)

(818) 902-5800
(Registrant’s telephone number, including area code)

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 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 October 31, 2008, 100 shares of Easton-Bell Sports, Inc. common stock were outstanding.

PART I. FINANCIAL INFORMATION

Item 1. Financial Statements

EASTON-BELL SPORTS, INC. AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS

(Amounts in thousands, except share and per share amounts)


	September 27,		December 29,
	2008		2007
	(Unaudited)
ASSETS

Current assets:
Cash and cash equivalents	$	89,519	$	16,923
Accounts receivable, net		241,396		200,380
Inventories, net		119,994		135,335
Prepaid expenses		6,867		9,774
Deferred taxes		6,776		6,782
Other current assets		6,966		5,450

Total current assets		471,518		374,644
Property, plant and equipment, net		42,621		40,622
Deferred financing fees, net		12,950		15,633
Intangible assets, net		307,170		317,225
Goodwill		203,441		203,441
Other assets		9,358		4,925

Total assets	$	1,047,058	$	956,490


LIABILITIES AND STOCKHOLDER’S EQUITY

Current liabilities:
Current portion of long-term debt	$	3,350	$	3,350
Revolving credit facility		30,000		5,500
Current portion of capital lease obligations		22		21
Accounts payable		66,013		60,586
Accrued expenses		58,259		42,338

Total current liabilities		157,644		111,795
Long-term debt, less current portion		464,113		466,625
Capital lease obligations, less current portion		128		145
Deferred taxes		43,498		25,058
Other noncurrent liabilities		15,346		11,880

Total liabilities		680,729		615,503

Stockholder’s equity:
Common stock: $0.01 par value, 100 shares authorized, 100 shares issued and outstanding at September 27, 2008 and December 29, 2007		—		—
Additional paid-in capital		340,221		337,277
Retained earnings (deficit)		22,158		(2,040	)
Accumulated other comprehensive income		3,950		5,750

Total stockholder’s equity		366,329		340,987

Total liabilities and stockholder’s equity	$	1,047,058	$	956,490

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						Three Fiscal Quarters Ended
	September 27,			September 29,			September 27,			September 29,
	2008			2007			2008			2007
Net sales	$	203,369		$	188,565		$	606,318		$	569,570
Cost of sales		130,505			123,217			391,022			369,325

Gross profit		72,864			65,348			215,296			200,245
Selling, general and administrative expenses		46,127			39,375			135,767			124,893
Restructuring and other infrequent expenses		—			488			492			589
Amortization of intangibles		3,352			3,352			10,055			9,869
Gain on sale of property, plant and equipment		—			(487	)		—			(2,339	)

Income from operations		23,385			22,620			68,982			67,233
Interest expense, net		9,469			10,165			21,636			31,950

Income before income taxes		13,916			12,455			47,346			35,283
Income tax expense		7,573			5,610			23,148			15,100

Net income		6,343			6,845			24,198			20,183
Other comprehensive income:
Foreign currency translation adjustment		(1,098	)		2,582			(1,800	)		5,004

Comprehensive income	$	5,245		$	9,427		$	22,398		$	25,187

See accompanying notes to consolidated financial statements.

EASTON-BELL SPORTS, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS

(Unaudited and amounts in thousands)


	Three Fiscal Quarters Ended
	September 27,			September 29,
	2008			2007
Cash flows from operating activities:
Net income	$	24,198		$	20,183
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization		19,068			17,216
Amortization of deferred financing fees		2,683			2,744
Equity compensation expense		2,944			2,123
Deferred income tax expense		18,446			7,831
Gain on sale of property, plant and equipment		—			(2,339	)
Disposal of property, plant and equipment		12			116
Changes in operating assets and liabilities, net of effects from purchase of businesses:
Accounts receivable, net		(42,767	)		(38,547	)
Inventories, net		14,617			9,534
Other current and noncurrent assets		(3,042	)		4,634
Accounts payable		5,618			1,131
Accrued expenses		16,417			(14,862	)
Other current and noncurrent liabilities		3,466			(619	)

Net cash provided by operating activities		61,660			9,145

Cash flows from investing activities:
Purchase of property, plant and equipment		(10,955	)		(11,382	)
Proceeds from sale of property held for sale		—			3,331
Settlement of preacquisition contingency		—			2,178
Purchase of businesses, net of cash acquired		—			(1,569	)

Net cash used in investing activities		(10,955	)		(7,442	)

Cash flows from financing activities:
Payments on senior term notes		(2,512	)		(2,513	)
Proceeds from revolving credit facility		53,000			99,100
Payments on revolving credit facility		(28,500	)		(92,600	)
Payments on capital lease obligations		(16	)		(34	)

Net cash provided by financing activities		21,972			3,953

Effect of exchange rate changes on cash and cash equivalents		(81	)		(211	)
Increase in cash and cash equivalents		72,596			5,445

Cash and cash equivalents, beginning of period		16,923			9,899

Cash and cash equivalents, end of period	$	89,519		$	15,344

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

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, in each case, prior to its acquisition by Easton-Bell Sports, Inc. Easton-Bell Sports, Inc. is a wholly-owned subsidiary of RBG Holdings Corp. (“RBG”), which is a wholly-owned subsidiary of EB Sports Corp., which is a wholly-owned subsidiary of Easton-Bell Sports, LLC, our ultimate parent company (our “Parent”).

These unaudited consolidated financial statements of the Company included herein have been prepared by the Company in accordance with accounting principles generally accepted in the United States (GAAP) for interim financial information and the rules and regulations of the Securities and Exchange Commission. 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 the Company’s audited financial statements and notes thereto included in the Company’s Annual Report on Form 10-K for the year ended December 29, 2007. Certain reclassifications of previously reported financial information were made to conform to the current presentation. Results for interim periods are not necessarily indicative of the results for the year.

The Company’s quarterly periods are 13-week periods ending on the Saturday nearest to the last day of each quarter. As a result, the Company’s third quarter of fiscal year 2008 ended on September 27, and the third quarter of fiscal year 2007 ended on September 29.

2. Goodwill and Other Intangible Assets

The Company’s acquired intangible assets are as follows:


	September 27, 2008					December 29, 2007
	Gross					Gross
	Carrying		Accumulated			Carrying		Accumulated
	Amounts		Amortization			Amounts		Amortization
Amortizable intangible assets:
Trademarks and tradenames	$	1,702	$	(1,271	)	$	1,702	$	(1,086	)
Customer relationships		59,180		(24,124	)		59,180		(20,042	)
Patents		60,345		(21,743	)		60,345		(16,900	)
Licensing and other		5,900		(3,203	)		5,900		(2,258	)

Total	$	127,127	$	(50,341	)	$	127,127	$	(40,286	)

Indefinite-lived intangible assets:
Trademarks and tradenames	$	230,384				$	230,384

Goodwill by segment as of September 27, 2008 and December 29, 2007 is as follows:


	Team		Action
	Sports		Sports		Consolidated
Balance as of September 27, 2008 and December 29, 2007	$	141,977	$	61,464	$	203,441

Goodwill is tested for impairment in each of the Company’s segments on an annual basis in December, and more often if indications of impairment exist as required under SFAS No. 142, Goodwill and Other Intangible Assets. The results of the Company’s analyses conducted in 2007 indicated that no reduction in the carrying amount of goodwill was required.

EASTON-BELL SPORTS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited and amounts in thousands, except as specified)

3. Long-Term Debt

Long-term debt consisted of the following:


	September 27, 2008			December 29, 2007
Senior Secured Credit Facility:
Term loan facility	$	327,463		$	329,975
U.S. revolving credit facility		30,000			5,500
8.375% Senior subordinated notes due 2012		140,000			140,000
Capital lease obligations		150			166

Total long-term debt		497,613			475,641
Less current maturities of long-term debt		(33,372	)		(8,871	)

Long-term debt, less current portion	$	464,241		$	466,770

Senior Secured Credit Facility

On March 16, 2006, in connection with the Easton acquisition, the Company entered into a Credit and Guaranty Agreement (the “Credit Agreement”) which provided for (i) a $335,000 term loan facility, (ii) a $70,000 U.S. revolving credit facility and (iii) a Cdn $12,000 Canadian revolving credit facility. All three facilities are scheduled to mature in March 2012. The Company’s U.S. and Canadian revolving credit facilities are available to provide financing for working capital and general corporate purposes. At September 27, 2008, the Company had $327,463 outstanding under the term loan facility, $30,000 outstanding under the U.S. revolving credit facility and no borrowings under the Canadian revolving credit facility.

The applicable margin percentage for the term loan is initially 1.75% for the London Interbank Offered Rate (“LIBOR”) and 0.75% for the U.S. base rate, which is subject to adjustment to 1.50% for LIBOR and 0.50% for the U.S. base rate based upon the Company’s leverage ratio as calculated under the Credit Agreement. The applicable margin percentages for the revolving loan facilities are 2.00% for LIBOR or Canadian bankers’ acceptance rate and 1.00% for the U.S. and Canadian base rates. The applicable margin percentage for the revolving loan facilities varies between 2.25% and 1.50% for LIBOR or Canadian bankers’ acceptance rate, or between 1.25% and 0.50% for the U.S. and Canadian base rates, based upon the Company’s leverage ratio as calculated under the Credit Agreement.

The Company is the borrower under the term loan facility and U.S. revolving credit facility and the Company’s Canadian subsidiaries are the borrowers under the Canadian revolving credit facility. Under the Credit Agreement, RBG and certain of the Company’s domestic subsidiaries have guaranteed all of the obligations (both U.S. and Canadian) under the Credit Agreement, and the Company and certain of the Company’s Canadian subsidiaries have guaranteed the obligations under the Canadian revolving credit facility. Under the terms of the pledge and security agreement entered into by the Company and certain of the Company’s domestic subsidiaries, as well as the terms set forth in the other U.S. collateral documents, the Company and such subsidiaries have granted security with respect to substantially all of their real and personal property as collateral for the U.S. and Canadian obligations (and related guarantees) under the Credit Agreement. Under the terms of the Canadian pledge and security agreement entered into by the Canadian borrowers and certain of the Company’s domestic subsidiaries, as well as the terms set forth in the Canadian collateral documents, the Canadian borrowers and such subsidiaries have granted security with respect to substantially all of their real and personal property as collateral for the obligations (and related guarantees) under the Canadian revolving credit facility, and in the case of the Company’s domestic subsidiaries, the obligations (and related guarantees) under the Credit Agreement generally.

The Credit Agreement limits the Company’s ability to incur or assume additional indebtedness, make investments and loans, engage in certain mergers or other fundamental changes, dispose of assets, make distributions or pay dividends or repurchase stock, prepay subordinated debt, enter into transactions with affiliates, engage in sale-leaseback transactions and limits capital expenditures. In addition, the Credit Agreement requires the Company to comply on a quarterly and annual basis with certain financial covenants, including a maximum total leverage ratio test, a minimum interest coverage ratio test and an annual maximum capital expenditure limit.

EASTON-BELL SPORTS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited and amounts in thousands, except as specified)

The Credit Agreement contains events of default customary for such financings, including but not limited to nonpayment of principal, interest, fees or other amounts when due; violation of covenants; failure of any representation or warranty to be true in all material respects when made or deemed made; cross default and cross acceleration to certain indebtedness; certain ERISA events; change of control; dissolution, insolvency and bankruptcy events; material judgments; and actual or asserted invalidity of the guarantees or security documents. Some of these events of default allow for grace periods and materiality concepts. As of September 27, 2008, the Company was in compliance with all of its covenants under the Credit Agreement.

Senior Subordinated Notes

On September 30, 2004, the Company issued $140,000 of 8.375% senior subordinated notes due 2012. The Company’s indebtedness under its senior subordinated notes was not amended in connection with the acquisition of Easton and otherwise remains outstanding. The senior subordinated notes are general unsecured obligations and are subordinated in right of payment to all existing and future senior indebtedness. Interest is payable on the notes semi-annually on April 1 and October 1 of each year. The Company may currently redeem the notes, in whole or in part, at 104.188% of their principal amount, plus accrued interest. This declines to 102.094% of their principal amount, plus accrued interest at any time on or after October 1, 2009, and then further declines to 100% of their principal amount, plus accrued interest, at any time on or after October 1, 2010.

The indenture governing the senior subordinated notes contains certain restrictions on the Company, including restrictions on its ability to incur indebtedness, pay dividends, make investments, grant liens, sell assets and engage in certain other activities. The senior subordinated notes are guaranteed by all of the Company’s domestic subsidiaries.

Cash payments for interest were $4,204 and $6,860 for the fiscal quarters ended September 27, 2008 and September 29, 2007, respectively. For the first three fiscal quarters, cash payments for interest were $18,802 and $26,638 for 2008 and 2007, respectively.

Other

The Company has arrangements with various banks to issue standby letters of credit or similar instruments, which guarantee the Company’s obligations for the purchase of certain inventories and for potential claims exposure for insurance coverage. Outstanding letters of credit issued under the revolving credit facility totaled $3,782 and $2,956 at September 27, 2008 and September 29, 2007, respectively.

The Company amortized $894 and $536 of debt issuance costs during the third fiscal quarter of 2008 and 2007, respectively. For the first three fiscal quarters, the Company amortized $2,683 and $2,744 of debt issuance costs for 2008 and 2007, respectively.

4. Accrued Expenses

Accrued expenses consist of the following:


	September 27, 2008		December 29, 2007
Salaries, wages, commissions and bonuses	$	13,633	$	6,875
Advertising		5,211		5,017
Restructuring		122		566
Defective products		618		938
Rebates		5,351		4,412
Warranty		3,852		3,390
Product liability — current portion		3,515		2,443
Royalties		1,600		1,858
Interest		7,189		3,227
Other		17,168		13,612

Total accrued expenses	$	58,259	$	42,338

EASTON-BELL SPORTS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(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:


	September 27, 2008		December 29, 2007
Raw materials	$	14,316	$	14,862
Work-in-process		2,156		1,928
Finished goods		103,522		118,545

Inventories, net	$	119,994	$	135,335

6. Recent Accounting Pronouncements

In September 2006, the Financial Accounting Standards Board (“FASB”) issued FASB Statement (“SFAS”) No. 157, Fair Value Measurements (“SFAS 157”) which defines fair value, establishes a framework for measuring fair value and requires enhanced disclosures about fair value measurements. SFAS 157 requires companies to disclose the fair value of their financial instruments according to a fair value hierarchy, as defined therein. SFAS 157 may require companies to provide additional disclosures based on that hierarchy. SFAS 157 was to be effective for financial statements issued for fiscal years beginning after November 15, 2007 and interim periods within those fiscal years. In February 2008, the FASB issued FASB Staff Position No. 157-2, Effective Date of FASB Statement No. 157, which delayed for one year the applicability of the SFAS 157 fair-value measurements to certain nonfinancial assets and liabilities. The Company adopted SFAS 157 as of December 30, 2007, except as it applies to those nonfinancial assets and liabilities affected by the one-year delay. The partial adoption of SFAS 157 did not have a material impact on the Company’s consolidated financial position or results of operations. The Company is currently evaluating the potential impact of adopting the remaining provisions of SFAS 157 on its consolidated financial position and results of operations.

In February 2007, the FASB issued SFAS No. 159, The Fair Value Option for Financial Assets and Liabilities — Including an amendment of FASB Statement No. 115 (“SFAS 159”). SFAS 159 expands the use of fair value accounting but does not affect existing standards which requires assets or liabilities to be carried at fair value. The objective of SFAS 159 is to improve financial reporting by providing companies with the opportunity to mitigate volatility in reported earnings caused by measuring related assets and liabilities differently without having to apply complex hedge accounting provisions. Under SFAS 159, a company may elect to use fair value to measure eligible items at specified election dates and report unrealized gains and losses on items for which the fair value option has been elected in earnings at each subsequent reporting date. Eligible items include, but are not limited to, accounts and loans receivable, available-for-sale and held-to-maturity securities, equity method investments, accounts payable, guarantees, issued debt and firm commitments. On December 30, 2007, the Company adopted SFAS 159 and has not elected to use fair value measurement on any assets or liabilities under this statement.

In December 2007, the FASB issued SFAS No. 141 (revised 2007), Business Combinations (“SFAS 141(R)”). SFAS 141(R) establishes principles and requirements for how an acquirer recognizes and measures in its financial statements the identifiable assets acquired, the liabilities assumed, any noncontrolling interest in the acquiree and the goodwill acquired. SFAS 141(R) also establishes disclosure requirements to enable the evaluation of the nature and financial effects of the business combination. SFAS 141(R) is effective for fiscal years beginning after December 15, 2008. The Company will adopt SFAS 141(R) in the first quarter of fiscal 2009 and apply the provisions of this statement for any acquisition after the adoption date.

In March 2008, the FASB issued SFAS No. 161, Disclosures about Derivative Instruments and Hedging Activities (“SFAS 161”). This statement requires companies to provide enhanced disclosures about (a) how and why they use derivative instruments, (b) how derivative instruments and related hedged items are accounted for under Statement 133 and its related interpretations and (c) how derivative instruments and related hedged items affect a company’s financial position, financial performance, and cash flows. SFAS 161 is effective for financial statements issued for fiscal years and interim periods beginning after November 15, 2008. The Company will adopt the new disclosure requirements on or before the required effective date. As SFAS 161 does not change current accounting practice, there will be no impact on the consolidated financial statements.

EASTON-BELL SPORTS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited and amounts in thousands, except as specified)

In April 2008, the FASB issued FSP FAS 142-3, Determination of the Useful Life of Intangible Assets (“FSP FAS 142-3”). FSP FAS 142-3 amends the factors that should be considered in developing renewal or extension assumptions used to determine the useful life of a recognized intangible asset under SFAS No. 142, Goodwill and Other Intangible Assets (“SFAS 142”). The intent of FSP FAS 142-3 is to improve the consistency between the useful life of a recognized intangible asset under SFAS 142 and the period of expected cash flows used to measure the fair value of the asset under SFAS 141(R) and other applicable accounting literature. FSP FAS 142-3 is effective for financial statements issued for fiscal years beginning after December 15, 2008 and must be applied prospectively to intangible assets acquired after the effective date. The Company is currently evaluating the potential impact, if any, of FSP FAS 142-3 on its consolidated financial statements.

7. Segment Reporting

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

Segment results for the fiscal quarter and three fiscal quarters ended September 27, 2008 and September 29, 2007, respectively, are as follows:


	Team		Action
Fiscal Quarter Ended	Sports		Sports		Consolidated
September 27, 2008
Net sales	$	112,609	$	90,760	$	203,369
Income from operations		22,011		11,041		33,052
Depreciation		1,687		1,416		3,103
Capital expenditures		2,195		2,047		4,242
September 29, 2007
Net sales	$	105,904	$	82,661	$	188,565
Income from operations		19,468		10,390		29,858
Depreciation		1,132		1,017		2,149
Capital expenditures		1,072		3,088		4,160


	Team		Action
Three Fiscal Quarters Ended	Sports		Sports		Consolidated
September 27, 2008
Net sales	$	345,837	$	260,481	$	606,318
Income from operations		67,952		27,775		95,727
Depreciation		4,790		4,223		9,013
Capital expenditures		6,805		4,150		10,955
September 29, 2007
Net sales	$	333,340	$	236,230	$	569,570
Income from operations		63,248		27,036		90,284
Depreciation		3,451		2,954		6,405
Capital expenditures		2,922		8,460		11,382


	Team		Action
	Sports		Sports		Consolidated
Assets
As of September 27, 2008	$	644,509	$	402,549	$	1,047,058
As of December 29, 2007		589,965		366,525		956,490

EASTON-BELL SPORTS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited and amounts in thousands, except as specified)

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


	Fiscal Quarter Ended						Three Fiscal Quarters Ended
	September 27, 2008			September 29, 2007			September 27, 2008			September 29, 2007
Segment income from operations	$	33,052		$	29,858		$	95,727		$	90,284
Equity compensation expense		(1,101	)		(722	)		(2,944	)		(2,123	)
Corporate expenses		(5,214	)		(2,676	)		(13,254	)		(10,470	)
Restructuring and other infrequent expenses		—			(488	)		(492	)		(589	)
Amortization of intangibles		(3,352	)		(3,352	)		(10,055	)		(9,869	)

Consolidated income from operations	$	23,385		$	22,620		$	68,982		$	67,233

8. Product Liability, Litigation and Other Contingencies

Product Liability

The Company is subject to various product liability claims and/or suits brought against it for claims involving damages for personal injuries or deaths. Allegedly, these injuries or deaths relate to the use by claimants of products manufactured by the Company and, in certain cases, products manufactured by others. The ultimate outcome of these claims, or potential future claims, cannot be determined. Management obtains an actuarial analysis and has established an accrual for probable losses based on this analysis, which considers, among other factors, the Company’s 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.

The 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 Company’s first layer excess policy is written under a multi-year program with a combined limit of $20,000 excess of $3,000 expiring in January 2009. The Company also carries an annually-renewed second layer excess liability policy providing an additional limit of $20,000 excess of $23,000 expiring in January 2009, for a total limit of $43,000. For claims occurring prior to August 1, 2008, the primary portion of the Company’s product liability coverage is written with a $3,000 limit per occurrence, structured as a limit of $2,250 (fully funded by the Company) excess of a $750 self-insured retention. For claims occurring on or after August 1, 2008, the primary portion of the Company’s product liability coverage is written with a $2,000 limit per occurrence excess of a $1,000 self-insured retention for helmets and $500 self-insured retention for all other products.

Litigation and Other Contingencies

In addition to the matters discussed in the preceding paragraphs, the Company is a party to various non-product liability legal claims and actions incidental to its business, including without limitation, claims relating to intellectual property as well as employment related matters. Management believes that none of these claims or actions, either individually or in the aggregate, is material to its business or financial condition.

9. Income Taxes

The Company recorded income tax expenses of $23,148 and $15,100 for the first three fiscal quarters ended September 27, 2008, and September 29, 2007, respectively. The Company’s effective tax rate was 48.9% through the first three fiscal quarters of 2008, as compared to 42.8% through the first three fiscal quarters of 2007. For the first three fiscal quarters of 2008, the difference between the effective rate and the statutory rate is primarily attributable to the permanent difference for equity compensation expense and the permanent difference for Section 956 U.S. income recognition related to Canada’s investment in U.S. property. For the first three fiscal quarters of 2007, the difference between the effective rate and the statutory rate is primarily attributable to the permanent difference for equity compensation expense.

EASTON-BELL SPORTS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited and amounts in thousands, except as specified)

10. Derivative Instruments and Hedging Activity

SFAS No. 133, Accounting for Derivative Instruments and Hedging Activities (“SFAS 133”), established accounting and reporting standards for derivative instruments and hedging activities and requires that all derivatives be included on the balance sheet as an asset or liability measured at fair value and that changes in fair value be recognized currently 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 September 27, 2008, the Company had not designated any of its derivative instruments as hedges, and therefore, has recorded the changes in fair value in the Consolidated Statements of Operations and Comprehensive Income.

On September 2, 2008, the Company revised an interest rate swap agreement that it had entered into effective April 15, 2008. The interest rate swap has an initial fixed USD LIBOR of 2.921%, changing 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 has a notional amount of $275,000 which decreases to $250,000 on April 15, 2009 and to $225,000 on April 15, 2010. The settlement dates for the swap occur monthly on the 15^th of each month commencing November 17, 2008 through April 15, 2010 and thereafter quarterly on the 15^th 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, under SFAS 133 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.

As stated in Note 6, the Company adopted SFAS 157 as of December 30, 2007, except as it applies to those nonfinancial assets and liabilities affected by the one-year delay. To increase consistency and comparability in fair value measurements, SFAS 157 establishes 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, the 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.

At September 27, 2008, 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 $3,880 at September 27, 2008 and is recorded in the non-current portion of other assets in the accompanying Consolidated Balance Sheets with the corresponding credit to interest expense. During the third fiscal quarter of 2008, interest expense reflects $92 related to the swap and $1,421 related to the change in the fair value of the swap.

The Company has a foreign subsidiary that entered into foreign currency exchange forward contracts to reduce its risk related to inventory purchases. At September 27, 2008, there were contracts in effect for the purchase of U.S. $3,500 aggregated notional amounts, or approximately Cdn $3,622. At December 29, 2007, there were contracts in effect for the purchase of U.S. $12,500 aggregated notional amounts, or approximately Cdn $12,231. These contracts are not designated as hedges, and therefore, under SFAS 133 they are recorded at fair value at each balance sheet date, with the resulting change charged or credited to cost of sales in the accompanying Consolidated Statements of Operations and Comprehensive Income. As of September 27, 2008 and December 29, 2007, the fair value of the foreign currency exchange forward contracts, using Level 2 inputs from a third party bank, represented liabilities of approximately $95 and $636, respectively. These amounts are recorded in accrued expenses in the accompanying Consolidated Balance Sheets. Changes in the fair value of the foreign currency exchange contracts are reflected in earnings each period.

EASTON-BELL SPORTS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited and amounts in thousands, except as specified)

Under its Credit Agreement, the Company was required to have interest rate hedging agreements in place by June 15, 2006 such that not less than 50% of its outstanding term and senior subordinated indebtedness is fixed rate indebtedness. On June 6, 2006, the Company entered into an interest rate cap for $125,000 of its outstanding term indebtedness. As of September 27, 2008 and December 29, 2007, with the addition of the interest rate swap effective April 2008, the Company had approximately 100% and 56.4%, respectively, of its outstanding term and senior subordinated indebtedness in fixed rate indebtedness. During the first three fiscal quarters of 2008 and 2007, additional interest expense of $80 for both periods related to the interest rate cap was recorded. The fair market value of the interest rate cap, using Level 2 inputs from a third party bank was zero at both September 27, 2008 and December 29, 2007.

The assets and liabilities measured at fair value on a recurring basis subject to the disclosure requirements of FAS 157 at September 27, 2008, were as follows:


	Fair Value Measurements at Reporting Date Using
	Quoted Prices in				Significant
	Active Markets for		Significant Other		Unobservable
	Identical Assets		Observable Inputs		Inputs
	(Level 1)		(Level 2)		(Level 3)
Assets:
Interest rate swap	$	—	$	3,880	$	—
Interest rate cap		—		—		—

Total	$	—	$	3,880	$	—


Liabilities:
Foreign currency exchange forward contracts	$	—	$	95	$	—

11. Equity-Based Employee Compensation

On March 16, 2006, the Parent adopted its 2006 Equity Incentive Plan (the “2006 Plan”), which amended and restated its 2003 Equity Incentive Plan. The 2006 Plan provides for the issuance of Class B Common Units of the Parent (“Units”), which represent profit interests in the Parent. Accordingly, Class B unit holders are entitled to share in the distribution of profits of the Parent above a certain threshold, which is defined as the fair value of the Unit at the date of grant. The Units issued under the 2006 Plan vest based on both time and performance. Time vesting occurs over a four-year period measured from the date of the grant and performance vesting is based on achievement of the Company’s performance goals for 2009 and 2010. In addition, a portion of the Units, whether subject to time or performance vesting, become vested in the event of an initial public offering. If a change of control occurs and a holder of the Units is continuously employed by the Company until such change of control, then a portion of the unvested time based Units and performance Units will vest in various amounts depending on the internal rate of return achieved by certain investors in the Parent as a result of the change of control. The Units qualify as equity instruments.

Effective January 1, 2006, the Company adopted SFAS No. 123R, Share Based Payment (“SFAS 123R”), which was finalized in December 2004 and amended SFAS No. 123, Accounting for Stock Based Compensation, using the prospective transition method. Under SFAS 123R the Company uses the Black-Scholes Option Pricing Model to determine the fair value of the Units granted, similar to an equity SAR (Stock Appreciation Right). This model uses such factors as the market price of the underlying Units at date of issuance, floor of the Unit (dividend threshold), the expected term of the Unit, which is approximately four years, utilizing the simplified method as set forth in Staff Accounting Bulletin (SAB) No. 107, Shared Based Payment.

EASTON-BELL SPORTS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited and amounts in thousands, except as specified)

During the three fiscal quarters ended September 27, 2008 and September 29, 2007, the following assumptions were used in the Black-Scholes Option Pricing Model:


	Three Fiscal Quarters Ended
	September 27, 2008		September 29, 2007
Expected term		4 years		4 years
Dividend yield		0.0%		0.0%
Forfeiture rate		7.7%		7.7%
Risk-free interest rate		1.5 to 2.0%		5.1 to 5.2%
Expected volatility(1)		39.0 to 46.0%		46.0%


(1)		Expected volatility is based upon a peer group of companies given no historical data for the Units.

The Company records compensation expense using the fair value of the Units granted after the adoption of SFAS 123R that are time vesting over the vesting service period on a straight-line basis including those Units that are subject to graded vesting. Compensation expense for the performance based vesting Units is recognized when it becomes probable that the performance conditions will be met. As of September 27, 2008, the Company has not recognized any compensation expense for the performance based vesting Units as it is not probable that the performance conditions will be met.

The Company recognized the following unit based compensation expense, included in selling, general and administrative expenses for its Units during the fiscal quarter and three fiscal quarters ended September 27, 2008 and September 29, 2007:


	Fiscal Quarter Ended				Three Fiscal Quarters Ended
	September 27, 2008		September 29, 2007		September 27, 2008		September 29, 2007
Equity compensation expense	$	1,101	$	722	$	2,944	$	2,123

As of September 27, 2008, there was $14,999 of unrecognized compensation costs, net of estimated forfeitures, related to the Units, comprised of $6,852 related to time based vesting units and $8,147 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.

The Company’s Unit activity under the Plan for the three fiscal quarters ended September 27, 2008 is as follows:


				Weighted Average
	Number of			Grant Date
	Units			Fair Value
Outstanding at December 29, 2007		27,056,989		$	2.10
Granted		1,650,000		$	1.76
Forfeited		(5,194,761	)	$	2.14

Outstanding at March 29, 2008		23,512,228		$	2.06
Granted		8,127,576		$	1.48
Forfeited		(1,880,309	)	$	2.14

Outstanding at June 28, 2008		29,759,495		$	1.90
Forfeited		(1,420,507	)	$	1.83

Outstanding at September 27, 2008		28,338,988		$	1.90

Vested Units at September 27, 2008		8,751,178		$	2.03

EASTON-BELL SPORTS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited and amounts in thousands, except as specified)

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, material usage 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 the Company’s product warranty liability for the first three fiscal quarters ended September 27, 2008 and September 29, 2007.


	2008			2007
Beginning of fiscal year	$	3,390		$	2,981
Warranty costs incurred during the period		(1,307	)		(1,502	)
Warranty cost liability recorded during the period		1,425			1,445

End of first fiscal quarter		3,508			2,924
Warranty costs incurred during the period		(2,115	)		(1,501	)
Warranty cost liability recorded during the period		2,357			1,643

End of second fiscal quarter		3,750			3,066
Warranty costs incurred during the period		(1,110	)		(1,519	)
Warranty cost liability recorded during the period		1,212			1,741

End of third fiscal quarter	$	3,852		$	3,288

13. Related Party Transactions

Jas. D. Easton, Inc. is an affiliate of James L. Easton, a member of the board of managers of the Parent, and former owner of Easton. On February 1, 2006, the Company entered into a Stock Purchase Agreement with Jas. D. Easton, Inc., to acquire 100% of the outstanding capital stock of Easton, and the Company consummated the acquisition of Easton on March 16, 2006. Pursuant to the transaction, the Company paid the seller $385,000 in cash. In addition, a post-closing adjustment of $16,195 was paid in July 2006, based on the determination of closing working capital. The stock purchase agreement contains customary representations, warranties and covenants. In addition, the stock purchase agreement provides that Jas. D. Easton, Inc. will indemnify the Company for breaches of its representations, warranties and covenants, subject to certain baskets and caps. Simultaneous with the closing of the acquisition of Easton, Jas. D. Easton, Inc. purchased equity in the Parent pursuant to a subscription agreement in an aggregate amount of $25,000.

In connection with the acquisition of Easton, 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 the 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.

The Company has entered into a right of first offer agreement with Jas. D. Easton, Inc. and Easton Technical Products, Inc. pursuant to which the 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.

Affiliates of Jas. D. Easton, Inc. and James L. Easton own certain of the properties currently leased by Easton. During the fiscal quarter ended September 27, 2008 and September 29, 2007, Easton paid approximately $254 and $729, respectively, in rent pursuant to such affiliate leases. During the first three fiscal quarters ended September 27, 2008 and September 29, 2007, Easton paid approximately $1,033 and $2,172, respectively, in rent pursuant to such affiliate leases.

EASTON-BELL SPORTS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited and amounts in thousands, except as specified)

On October 1, 2004, Bell entered into a consulting agreement with Terry Lee, a member of the board of managers of the Parent and the board of directors of the Company. Pursuant to the terms of the consulting agreement, Mr. Lee agreed to provide the Company and its 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 the Company elects not to extend the agreement.

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

14. Supplemental Guarantor Condensed Financial Information

In September 2004, in connection with the acquisition of Bell, the Company (presented as “issuer” in the following tables) issued $140,000 of 8.375% senior subordinated notes due 2012. The senior subordinated notes are general unsecured obligations and are subordinated in right of payment to all existing or future senior indebtedness. The indenture governing the senior subordinated notes contains certain restrictions on us, including restrictions on our ability to incur indebtedness, pay dividends, make investments, grant liens, sell assets and engage in certain other activities. The senior subordinated notes are guaranteed by all of our domestic subsidiaries (the “Guarantors”). Each subsidiary guarantor is wholly owned and the guarantees are full and unconditional and joint and several. All other subsidiaries of the Company do not guarantee the senior subordinated notes (the “Non-Guarantors”).

The following condensed consolidating financial statements present the results of operations, financial position and cash flows of (i) the Issuer, (ii) the Guarantors, (iii) the Non-Guarantors and (iv) eliminations to arrive at the information for the Company on a consolidated basis for the third fiscal quarter of 2008, the first three fiscal quarters of 2008 and the respective comparable periods in 2007. Separate financial statements and other disclosures concerning the Guarantors are not presented because 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
(Unaudited and amounts in thousands, except as specified)

Condensed Consolidating Balance Sheet
September 27, 2008


			Guarantor		Non-Guarantor
	Issuer		Subsidiaries		Subsidiaries		Eliminations			Consolidated
ASSETS

Current assets:
Cash and cash equivalents	$	60,252	$	13,930	$	15,337	$	—		$	89,519
Accounts receivable, net		—		195,228		46,168		—			241,396
Inventories, net		—		107,262		12,732		—			119,994
Prepaid expenses		1,171		5,444		252		—			6,867
Deferred taxes		552		6,224		—		—			6,776
Other current assets		—		6,311		655		—			6,966

Total current assets		61,975		334,399		75,144		—			471,518
Property, plant and equipment, net		13,700		27,842		1,079		—			42,621
Deferred financing fees, net		12,950		—		—		—			12,950
Investments and intercompany receivables		401,348		107,372		1,863		(510,583	)		—
Intangible assets, net		—		301,048		6,122		—			307,170
Goodwill		16,195		182,055		5,191		—			203,441
Other assets		8,460		898		—		—			9,358

Total assets	$	514,628	$	953,614	$	89,399	$	(510,583	)	$	1,047,058


LIABILITIES AND STOCKHOLDER’S EQUITY

Current liabilities:
Current portion of long-term debt	$	3,350	$	—	$	—	$	—		$	3,350
Revolving credit facility		30,000		—		—		—			30,000
Current portion of capital lease obligations		—		22		—		—			22
Accounts payable		—		60,379		5,634		—			66,013
Accrued expenses		6,879		38,988		12,392		—			58,259

Total current liabilities		40,229		99,389		18,026		—			157,644
Long-term debt, less current portion		464,113		—		—		—			464,113
Capital lease obligations, less current portion		—		128		—		—			128
Deferred taxes		—		39,945		3,553		—			43,498
Other noncurrent liabilities		—		10,043		5,303		—			15,346
Long-term intercompany payables		—		477,408		228		(477,636	)		—

Total liabilities		504,342		626,913		27,110		(477,636	)		680,729
Total stockholder’s equity		10,286		326,701		62,289		(32,947	)		366,329

Total liabilities and stockholder’s equity	$	514,628	$	953,614	$	89,399	$	(510,583	)	$	1,047,058

EASTON-BELL SPORTS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited and amounts in thousands, except as specified)

Condensed Consolidating Balance Sheet
December 29, 2007


			Guarantor		Non-Guarantor
	Issuer		Subsidiaries		Subsidiaries		Eliminations			Consolidated
ASSETS

Current assets:
Cash and cash equivalents	$	3,099	$	1,820	$	12,004	$	—		$	16,923
Accounts receivable, net		—		175,637		24,743		—			200,380
Inventories, net		—		119,087		16,248		—			135,335
Prepaid expenses		964		8,510		300		—			9,774
Deferred taxes		534		6,248		—		—			6,782
Other current assets		—		4,615		835		—			5,450

Total current assets		4,597		315,917		54,130		—			374,644
Property, plant and equipment, net		11,109		28,224		1,289		—			40,622
Deferred financing fees, net		15,633		—		—		—			15,633
Investments and intercompany receivables		435,874		38,353		21,137		(495,364	)		—
Intangible assets, net		—		310,946		6,279		—			317,225
Goodwill		16,195		182,055		5,191		—			203,441
Other assets		—		4,919		6		—			4,925

Total assets	$	483,408	$	880,414	$	88,032	$	(495,364	)	$	956,490


LIABILITIES AND STOCKHOLDER’S EQUITY

Current liabilities:
Current portion of long-term debt	$	3,350	$	—	$	—	$	—		$	3,350
Revolving credit facility		5,500		—		—		—			5,500
Current portion of capital lease obligations		—		21		—		—			21
Accounts payable		—		57,362		3,224		—			60,586
Accrued expenses		—		33,388		8,950		—			42,338

Total current liabilities		8,850		90,771		12,174		—			111,795
Long-term debt, less current portion		466,625		—		—		—			466,625
Capital lease obligations, less current portion		—		145		—		—			145
Deferred taxes		—		21,256		3,802		—			25,058
Other noncurrent liabilities		1,140		5,437		5,303		—			11,880
Long-term intercompany payables		—		453,586		6,765		(460,351	)		—

Total liabilities		476,615		571,195		28,044		(460,351	)		615,503
Total stockholder’s equity		6,793		309,219		59,988		(35,013	)		340,987

Total liabilities and stockholder’s equity	$	483,408	$	880,414	$	88,032	$	(495,364	)	$	956,490

EASTON-BELL SPORTS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited and amounts in thousands, except as specified)

Consolidating Statement of Operations
Fiscal Quarter Ended September 27, 2008


						Non-
				Guarantor		Guarantor
	Issuer			Subsidiaries		Subsidiaries			Eliminations			Consolidated
Net sales	$	—		$	184,944	$	31,308		$	(12,883	)	$	203,369
Cost of sales		(16	)		118,162		25,242			(12,883	)		130,505

Gross profit		16			66,782		6,066			—			72,864
Selling, general and administrative expenses		7,204			35,897		3,026			—			46,127
Amortization of intangibles		—			3,352		—			—			3,352

(Loss) income from operations		(7,188	)		27,533		3,040			—			23,385
Interest expense, net		9,287			231		(49	)		—			9,469
Share of net income of subsidiaries under equity method		22,818			2,389		—			(25,207	)		—

Income before income taxes		6,343			29,691		3,089			(25,207	)		13,916
Income tax expense		—			6,873		700			—			7,573

Net income	$	6,343		$	22,818	$	2,389		$	(25,207	)	$	6,343

Consolidating Statement of Operations
Fiscal Quarter Ended September 29, 2007


							Non-
				Guarantor			Guarantor
	Issuer			Subsidiaries			Subsidiaries			Eliminations			Consolidated
Net sales	$	—		$	170,481		$	26,453		$	(8,369	)	$	188,565
Cost of sales		100			113,255			18,231			(8,369	)		123,217

Gross profit		(100	)		57,226			8,222			—			65,348
Selling, general and administrative expenses		3,429			33,402			2,544			—			39,375
Restructuring and other infrequent expenses		—			488			—			—			488
Amortization of intangibles		—			3,185			167			—			3,352
Gain on sale of property, plant and equipment		—			(487	)		—			—			(487	)

(Loss) income from operations		(3,529	)		20,638			5,511			—			22,620
Interest expense, net		9,965			225			(25	)		—			10,165
Share of net income of subsidiaries under equity method		20,339			3,966			—			(24,305	)		—

Income before income taxes		6,845			24,379			5,536			(24,305	)		12,455
Income tax expense		—			4,040			1,570			—			5,610

Net income	$	6,845		$	20,339		$	3,966		$	(24,305	)	$	6,845

EASTON-BELL SPORTS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited and amounts in thousands, except as specified)

Consolidating Statement of Operations
Three Fiscal Quarters Ended September 27, 2008


						Non-
				Guarantor		Guarantor
	Issuer			Subsidiaries		Subsidiaries			Eliminations			Consolidated
Net sales	$	—		$	549,529	$	87,018		$	(30,229	)	$	606,318
Cost of sales		—			357,823		63,428			(30,229	)		391,022

Gross profit		—			191,706		23,590			—			215,296
Selling, general and administrative expenses		19,034			108,004		8,729			—			135,767
Restructuring and other infrequent expenses		—			492		—			—			492
Amortization of intangibles		—			10,055		—			—			10,055

(Loss) income from operations		(19,034	)		73,155		14,861			—			68,982
Interest expense, net		21,257			603		(224	)		—			21,636
Share of net income of subsidiaries under equity method		64,489			10,736		—			(75,225	)		—

Income before income taxes		24,198			83,288		15,085			(75,225	)		47,346
Income tax expense		—			18,799		4,349			—			23,148

Net income	$	24,198		$	64,489	$	10,736		$	(75,225	)	$	24,198

Consolidating Statement of Operations
Three Fiscal Quarters Ended September 29, 2007


							Non-
				Guarantor			Guarantor
	Issuer			Subsidiaries			Subsidiaries			Eliminations			Consolidated
Net sales	$	—		$	524,181		$	78,360		$	(32,971	)	$	569,570
Cost of sales		232			346,210			55,854			(32,971	)		369,325

Gross profit		(232	)		177,971			22,506			—			200,245
Selling, general and administrative expenses		12,544			104,788			7,561			—			124,893
Restructuring and other infrequent expenses		—			589			—			—			589
Amortization of intangibles		—			9,376			493			—			9,869
Gain on sale of property, plant and equipment		—			(2,339	)		—			—			(2,339	)

(Loss) income from operations		(12,776	)		65,557			14,452			—			67,233
Interest expense, net		31,376			706			(132	)		—			31,950
Share of net income of subsidiaries under equity method		64,335			10,165			—			(74,500	)		—

Income before income taxes		20,183			75,016			14,584			(74,500	)		35,283
Income tax expense		—			10,681			4,419			—			15,100

Net income	$	20,183		$	64,335		$	10,165		$	(74,500	)	$	20,183

EASTON-BELL SPORTS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited and amounts in thousands, except as specified)

Condensed Consolidating Statement of Cash Flows
Three Fiscal Quarters Ended September 27, 2008


				Guarantor			Non-Guarantor
	Issuer			Subsidiaries			Subsidiaries			Eliminations			Consolidated
Cash flows from operating activities:
Net income	$	24,198		$	64,489		$	10,736		$	(75,225	)	$	24,198
Non-cash adjustments		18,832			(57,207	)		6,303			75,225			43,153
Changes in operating assets and liabilities		(2,928	)		10,848			(13,611	)		—			(5,691	)

Net cash provided by operating activities		40,102			18,130			3,428			—			61,660
Cash flows from investing activities:
Purchase of property, plant and equipment		(4,937	)		(6,004	)		(14	)		—			(10,955	)

Net cash used in investing activities		(4,937	)		(6,004	)		(14	)		—			(10,955	)
Cash flows from financing activities:
Payments on capital lease obligations		—			(16	)		—			—			(16	)
Payments on senior term notes		(2,512	)		—			—			—			(2,512	)
Proceeds from senior secured credit facility, net		24,500			—			—			—			24,500

Net cash provided by (used in) financing activities		21,988			(16	)		—			—			21,972
Effect of exchange rate changes on cash and cash equivalents		—			—			(81	)		—			(81	)

Increase in cash and cash equivalents		57,153			12,110			3,333			—			72,596
Cash and cash equivalents, beginning of period		3,099			1,820			12,004			—			16,923

Cash and cash equivalents, end of period	$	60,252		$	13,930		$	15,337		$	—		$	89,519

Condensed Consolidating Statement of Cash Flows
Three Fiscal Quarters Ended September 29, 2007


				Guarantor			Non-Guarantor
	Issuer			Subsidiaries			Subsidiaries			Eliminations			Consolidated
Cash flows from operating activities:
Net income	$	20,183		$	64,335		$	10,165		$	(74,500	)	$	20,183
Non-cash adjustments		(11,405	)		(44,465	)		9,061			74,500			27,691
Changes in operating assets and liabilities, net of effects from purchase of businesses		(1,799	)		(15,385	)		(21,545	)		—			(38,729	)

Net cash provided by (used in) operating activities		6,979			4,485			(2,319	)		—			9,145
Cash flows from investing activities:
Purchase of property, plant and equipment		(4,313	)		(6,590	)		(479	)		—			(11,382	)
Proceeds from sale of property held for sale		—			3,331			—			—			3,331
Settlement of preacquisition contingency		—			2,178			—			—			2,178
Purchase of businesses, net of cash acquired		—			(1,569	)		—			—			(1,569	)

Net cash used in investing activities		(4,313	)		(2,650	)		(479	)		—			(7,442	)
Cash flows from financing activities:
Payments on capital lease obligations		—			(34	)		—			—			(34	)
Payments on senior term notes		(2,513	)		—			—			—			(2,513	)
Proceeds from senior secured credit facility, net		6,500			—			—			—			6,500

Net cash provided by (used in) financing activities		3,987			(34	)		—			—			3,953
Effect of exchange rate changes on cash and cash equivalents		—			—			(211	)		—			(211	)

Increase (decrease) in cash and cash equivalents		6,653			1,801			(3,009	)		—			5,445
Cash and cash equivalents, beginning of period		1,527			2,685			5,687			—			9,899

Cash and cash equivalents, end of period	$	8,180		$	4,486		$	2,678		$	—		$	15,344

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

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 the financial condition, results of operations, plans, objectives, future performance and business of our Company. 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, including the risks outlined under “Risk Factors” in our 2007 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 innovative sports equipment, protective products and related accessories under authentic brands. We offer products that are used in baseball, softball, ice hockey, football, lacrosse and other team sports and in various action sports, including cycling, snow sports, powersports and skateboarding. We currently sell a broad range of products primarily under four brands — Easton (baseball, softball, ice hockey and cycling equipment), Bell (cycling and action sports helmets and accessories), Giro (cycling and snow sports helmets and accessories) and Riddell (football and baseball equipment and reconditioning services). Together, these brands represent the vast majority of our sales.

For the fiscal quarters ended September 27, 2008 and September 29, 2007, we had two reportable segments: Team Sports and Action Sports. Our Team Sports segment primarily consists of football, baseball, softball, ice hockey 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, snow sports 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. The majority 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 and other team sports products and reconditioning services related to certain of these products. All of Bell’s activity and Easton’s cycling activity is reflected in our Action Sports segment, which primarily consists of helmets, equipment, components and accessories for cycling, snow sports and powersports and fitness related products.

Cost of Sales

Cost of sales includes the direct cost of purchased merchandise, inbound freight, factory operating costs, distribution and shipping expenses. 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 revenues 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. Our gross profit may not be comparable to other sporting goods companies, as we include costs related to distribution and freight in cost of sales. In addition, 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, whereas other companies may state inventories on a last-in, first-out basis.

Selling, General and Administrative Expenses

Selling, general and administrative (“SG&A”) expenses include all operating expenses not included in cost of sales, primarily, selling, marketing, administrative payroll, research and development, 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.

RESULTS OF OPERATIONS

The following table sets forth, for the periods indicated, the percentage relationship to net sales of certain items included in the Company’s Consolidated Statements of Operations and Comprehensive Income:


	Fiscal Quarter Ended
	September 27,		% of			September 29,			% of
	2008		Net Sales			2007			Net Sales
	(Dollars in millions)
Net sales	$	203.4		100.0	%	$	188.6			100.0	%
Cost of sales		130.5		64.2	%		123.2			65.3	%

Gross profit		72.9		35.8	%		65.4			34.7	%
Selling, general and administrative expenses		46.1		22.7	%		39.4			20.9	%
Restructuring and other infrequent expenses		—		0.0	%		0.5			0.3	%
Amortization of intangibles		3.4		1.6	%		3.4			1.8	%
Gain on sale of property, plant and equipment		—		0.0	%		(0.5	)		(0.3	%)

Income from operations	$	23.4		11.5	%	$	22.6			12.0	%


	Three Fiscal Quarters Ended
	September 27,		% of			September 29,			% of
	2008		Net Sales			2007			Net Sales
	(Dollars in millions)
Net sales	$	606.3		100.0	%	$	569.6			100.0	%
Cost of sales		391.0		64.5	%		369.3			64.8	%

Gross profit		215.3		35.5	%		200.3			35.2	%
Selling, general and administrative expenses		135.8		22.4	%		124.9			22.0	%
Restructuring and other infrequent expenses		0.5		0.1	%		0.6			0.1	%
Amortization of intangibles		10.0		1.6	%		9.9			1.7	%
Gain on sale of property, plant and equipment		—		0.0	%		(2.3	)		(0.4	%)

Income from operations	$	69.0		11.4	%	$	67.2			11.8	%

Net Sales

The following table sets forth for the periods indicated, net sales for each of our segments:


	Fiscal Quarter Ended									Three Fiscal Quarters Ended
	September 27,		September 29,		Change					September 27,		September 29,		Change
	2008		2007		$		%			2008		2007		$		%
	(Dollars in millions)									(Dollars in millions)
Team Sports	$	112.6	$	105.9	$	6.7		6.3	%	$	345.8	$	333.4	$	12.4		3.7	%
Action Sports		90.8		82.7		8.1		9.8	%		260.5		236.2		24.3		10.3	%

	$	203.4	$	188.6	$	14.8		7.8	%	$	606.3	$	569.6	$	36.7		6.4	%

Net sales for the third fiscal quarter of 2008 increased $14.8 million, or 7.8% as compared to the third fiscal quarter of 2007. Team Sports net sales increased $6.7 million, or 6.3% as compared to the prior year. Team Sports net sales increased due to increased sales of football and ice hockey equipment and apparel, which was partially offset by decreased sales of baseball and softball equipment and reconditioning services. Action Sports net sales increased $8.1 million, or 9.8% as compared to the prior year. Action Sports net sales increased due to increased sales of cycling helmets and accessories, snow sports helmets and eyewear.

During the first three first fiscal quarters of 2008, net sales increased $36.7 million, or 6.4% as compared to the first three fiscal quarters of 2007. Team Sports net sales increased $12.4 million, or 3.7% as compared to the prior year. Team Sports net sales increased due to increased sales of football and ice hockey equipment and apparel, which was partially offset by decreased sales of baseball and softball equipment and collectible football helmets. Action Sports net sales increased $24.3 million, or 10.3% as compared to the prior year. Action Sports net sales increased due to increased sales of cycling helmets, accessories and components, snow sports helmets, eyewear and fitness related products, which was partially offset by decreased sales of powersports helmets.

Cost of Sales

The following table sets forth for the periods indicated, cost of sales for each of our segments:


	Fiscal Quarter Ended										Three Fiscal Quarters Ended
	September 27,		% of			September 29,		% of			September 27,		% of			September 29,		% of
	2008		Net Sales			2007		Net Sales			2008		Net Sales			2007		Net Sales
	(Dollars in millions)										(Dollars in millions)
Team Sports	$	65.7		58.3	%	$	65.3		61.7	%	$	204.6		59.2	%	$	202.8		60.8	%
Action Sports		64.8		71.4	%		57.9		70.0	%		186.4		71.6	%		166.5		70.5	%

	$	130.5		64.2	%	$	123.2		65.3	%	$	391.0		64.5	%	$	369.3		64.8	%

For the third fiscal quarter of 2008, cost of sales was 64.2% of net sales, as compared to 65.3% of net sales for the third fiscal quarter of 2007. Team Sports cost of sales was 58.3% of net sales, as compared to 61.7% of net sales in the same period of the prior year. The decrease in Team Sports cost of sales as a percentage of net sales primarily relates to the cost savings realized from transitioning the manufacturing of certain aluminum products from the United States to Asia and increased selling prices to our customers, partially offset by the negative impact of foreign exchange rate movements. Action Sports cost of sales was 71.4% of net sales, as compared to 70.0% of net sales in the same period of the prior year. The increase in Action Sports cost of sales as a percentage of net sales primarily relates to increased product costs and inventory reserves, partially offset by increased selling prices to our customers.

During the first three first fiscal quarters of 2008, cost of sales was 64.5% of net sales, as compared to 64.8% of net sales for the first three fiscal quarters of 2007. Team Sports cost of sales was 59.2% of net sales, as compared to 60.8% of net sales in the same period of the prior year. The decrease in Team Sports cost of sales as a percentage of net sales primarily relates to the cost savings realized from transitioning the manufacturing of certain aluminum products from the United States to Asia and increased selling prices to our customers, partially offset by the negative impact of foreign exchange rate movements. Action Sports cost of sales was 71.6% of net sales, as compared to 70.5% of net sales in the same period of the prior year. The increase in Action Sports cost of sales as a percentage of net sales primarily relates to increased product costs, retailer markdown incentives and inventory reserves, partially offset by increased selling prices to our customers.

Gross Profit

The following table sets forth for the periods indicated, gross profit for each of our segments:


	Fiscal Quarter Ended										Three Fiscal Quarters Ended
	September 27,		% of			September 29,		% of			September 27,		% of			September 29,		% of
	2008		Net Sales			2007		Net Sales			2008		Net Sales			2007		Net Sales
	(Dollars in millions)										(Dollars in millions)
Team Sports	$	46.9		41.7	%	$	40.6		38.3	%	$	141.3		40.8	%	$	130.6		39.2	%
Action Sports		26.0		28.6	%		24.8		30.0	%		74.0		28.4	%		69.7		29.5	%

	$	72.9		35.8	%	$	65.4		34.7	%	$	215.3		35.5	%	$	200.3		35.2	%

For the third fiscal quarter of 2008, gross profit was 35.8% of net sales as compared to 34.7% of net sales for the third fiscal quarter of 2007. Team Sports gross margin of 41.7% increased 3.4 percentage points compared to the third fiscal quarter of 2007. The increase is primarily due to the cost savings realized from transitioning the manufacturing of certain aluminum products from the United States to Asia and increased selling prices to our customers, partially offset by the negative impact of foreign exchange rate movements. Action Sports gross margin of 28.6% decreased 1.4 percentage points compared to the third fiscal quarter of 2007, primarily due to increased product costs and inventory reserves, partially offset by increased selling prices to our customers.

During the first three fiscal quarters of 2008, gross profit was 35.5% of net sales as compared to 35.2% of net sales for the first three fiscal quarters of 2007. Team Sports gross margin of 40.8% increased 1.6 percentage points compared to the first three fiscal quarters of 2007. The increase is primarily due to the cost savings realized from transitioning the manufacturing of certain aluminum products from the United States to Asia and increased selling prices to our customers, partially offset by the negative impact of foreign exchange rate movements. Action Sports gross margin of 28.4% decreased 1.1 percentage points compared to the first three fiscal quarters of 2007, primarily due to increased product costs, retailer markdown incentives and inventory reserves, partially offset by increased selling prices to our customers.

Selling, General and Administrative Expenses

SG&A expenses increased $6.7 million, or 17.0% for the third fiscal quarter of 2008, as compared to the third fiscal quarter of 2007. The increase primarily relates to investments in information technology, incentive compensation, employee termination costs, equity compensation, product liability and variable selling expenses related to increased sales, partially offset by a reduction in marketing expenses.

For the first three fiscal quarters of 2008, SG&A expenses increased $10.9 million, or 8.7% as compared to the first three fiscal quarters of 2007. The increase primarily relates to investments in research and development and information technology, incentive compensation, employee termination costs, equity compensation, product liability and variable selling expenses related to increased sales, partially offset by a reduction in marketing and Sarbanes-Oxley compliance expenses.

Restructuring and Other Infrequent Expenses

Restructuring expenses decreased $0.1 million for the first three fiscal quarters of 2008, as compared to the comparable period in 2007. The decrease relates to non-recurring expenses related to facility closure costs.

Amortization of Intangibles

Amortization of intangibles of $3.4 million for the third fiscal quarter of 2008 was the same as the third fiscal quarter of 2007.

For the first three fiscal quarters of 2008, amortization of intangibles increased $0.1 million, or 1.0% as compared to the first three fiscal quarters of 2007. The increase was due to a purchase accounting adjustment that reduced the 2007 amortization.

Interest Expense

Interest expense decreased $0.7 million during the third fiscal quarter of 2008, as compared to the third fiscal quarter of 2007. The decrease was due to lower borrowing rates and lower debt levels as compared to the third fiscal quarter of 2007, partially offset by a $1.4 million increase in interest expense from the change in fair value of the interest rate swap.

For the first three fiscal quarters of 2008, interest expense decreased $10.3 million, or 32.3% as compared to the first three fiscal quarters of 2007. The decrease was due in part to the $3.9 million adjustment to interest expense to reflect the change in the fair value of the interest rate swap during the period, along with reduced debt levels and lower borrowing rates in 2008. Changes in the fair value of the interest rate swap, which is not designated as a hedge, will be recorded through earnings as part of interest expense throughout the term of the swap.

Income Tax Expense

Income tax expense was $7.6 million for the third fiscal quarter of 2008, as compared to an income tax expense of $5.6 million for the third fiscal quarter of 2007. The effective tax rate was 54.4% for the third fiscal quarter of 2008, as compared to an effective tax rate of 45.0% for the third fiscal quarter of 2007. For the fiscal quarter ended September 27, 2008, the difference between the effective rate and the statutory rate is primarily attributable to the permanent differences for equity compensation expense and Section 956 U.S. income recognition related to Canada’s investment in U.S. property. For the fiscal quarter ended September 29, 2007, the difference between the effective rate and the statutory rate is primarily attributable to the permanent difference for equity compensation expense.

For the first three fiscal quarters ended September 27, 2008, and September 29, 2007, income tax expense was $23.1 million and $15.1 million, respectively. The effective tax rate was 48.9% for the first three fiscal quarters of 2008, as compared to 42.8% for the first three fiscal quarters of 2007. For the first three fiscal quarters of 2008, the difference between the effective rate and the statutory rate is primarily attributable to the permanent differences for equity compensation expense and Section 956 U.S. income recognition related to Canada’s investment in U.S. property. For the first three fiscal quarters of 2007, the difference between the effective rate and the statutory rate is primarily attributable to the permanent difference for equity compensation expense.

LIQUIDITY AND CAPITAL RESOURCES

Our financing requirements are subject to variations due to seasonal changes in working capital levels. Internally generated funds are supplemented when necessary from external sources, primarily our revolving credit facility.

The cash generated from operating activities and the availability under our Credit Agreement (defined below) are the principal sources of liquidity. Based on our current level of operations and anticipated cost savings and operational improvements, we believe our cash flow from operations, available cash and available borrowings under our Credit Agreement will be adequate to meet our liquidity needs for at least the next twelve months. We cannot assure that the business will generate sufficient cash flow from operations, that currently anticipated cost savings and operating improvements will be realized on schedule or that future borrowings will be available to us under our Credit Agreement in an amount sufficient to enable us to repay our indebtedness, including our senior subordinated notes, or to fund our other liquidity needs. As a result, we may have to request relief from our lenders on occasion with respect to financial covenant compliance.

Senior Secured Credit Facility

In connection with the acquisition of Easton, we, together with RBG and certain of our domestic and Canadian subsidiaries, entered into a senior secured Credit and Guaranty Agreement (“the Credit Agreement”) with Wachovia Bank, National Association, as the administrative agent, and a syndicate of lenders. The Credit Agreement provides for a $335.0 million term loan facility, a $70.0 million U.S. revolving credit facility and a Cdn $12.0 million Canadian revolving credit facility. All three facilities are scheduled to mature in March 2012. As of September 27, 2008, we had $327.5 million outstanding under the term loan facility, $30.0 million outstanding under our U.S. revolving credit facility, no borrowings under our Canadian revolving credit facility and also had availability to borrow an additional $36.2 million and Cdn $12.0 million under the U.S. revolving credit facility and Canadian revolving credit facility, respectively.

The interest rates per annum applicable to the loans under our Credit Agreement, other than swingline loans, 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 a Canadian bankers’ acceptance rate. Swingline loans 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 term loan is initially 1.75% for LIBOR and 0.75% for the U.S. base rate, which is subject to adjustment to 1.50% for LIBOR and 0.50% for the U.S. base rate based upon the Company’s leverage ratio as calculated under the Credit Agreement. The applicable margin percentage for the revolving loan facilities are initially 2.00% for LIBOR or Canadian bankers’ acceptance rate and 1.00% for the U.S. and Canadian base rates. The applicable margin percentage for the revolving loan facilities varies between 2.25% and 1.50% for LIBOR or Canadian bankers’ acceptance rate, or between 1.25% and 0.50% for the U.S. and Canadian base rates, based upon the leverage ratio as calculated under the Credit Agreement.

Under our Credit Agreement, RBG and certain of our domestic subsidiaries have guaranteed all of our obligations (both U.S. and Canadian), and we and certain of our Canadian subsidiaries have guaranteed the obligations under the Canadian portion of our revolving credit facility. Additionally, we and our subsidiaries have granted security with respect to substantially all of our real and personal property as collateral for our U.S. and Canadian obligations (and related guarantees) under our Credit Agreement. Furthermore, certain of our domestic subsidiaries and certain of our other Canadian subsidiaries have granted security with respect to substantially all of their real and personal property as collateral for the obligations (and related guarantees) under our Canadian revolving credit facility, and in the case of our domestic subsidiaries, the obligations (and related guarantees) under our Credit Agreement generally.

Our Credit Agreement imposes limitations on our ability and the ability of our subsidiaries to incur, assume or permit to exist additional indebtedness, create or permit liens on their assets, make investments and loans, engage in certain mergers or other fundamental changes, dispose of assets, make distributions or pay dividends or repurchase stock, prepay subordinated debt, enter into transactions with affiliates, engage in sale-leaseback transactions and make capital expenditures. In addition, our Credit Agreement requires us to comply on a quarterly and annual basis with certain financial covenants, including a maximum total leverage ratio test, a minimum interest coverage ratio test and an annual maximum capital expenditure limit. As of September 27, 2008, we were in compliance with all of our covenants under our Credit Agreement.

Our Credit Agreement contains events of default customary for such financings, including but not limited to nonpayment of principal, interest, fees or other amounts when due; violation of covenants; failure of any representation or warranty to be true in all material respects when made or deemed made; cross default and cross acceleration to certain indebtedness; certain ERISA events; change of control; dissolution, insolvency and bankruptcy events; material judgments; and actual or asserted invalidity of the guarantees or security documents. Some of these events of default allow for grace periods and materiality concepts.

Senior Subordinated Notes

In September 2004, in connection with the acquisition of Bell, we issued $140.0 million of 8.375% senior subordinated notes due 2012 (the “Notes”). The Notes are general unsecured obligations and are subordinated in right of payment to all existing or future senior indebtedness. Interest is payable on the Notes semi-annually on April 1 and October 1 of each year. We may currently redeem the Notes, in whole or in part, at 104.188% of the principal amount, plus accrued interest. This declines to 102.094% of the principal amount, plus accrued interest at any time on or after October 1, 2009, and then further declines to 100% of the principal amount, plus accrued interest, at any time on or after October 1, 2010.

The indenture governing the Notes contains certain restrictions on us, including restrictions on our ability to incur indebtedness, pay dividends, make investments, grant liens, sell assets and engage in certain other activities. The Notes are guaranteed by all of our domestic subsidiaries.

Other Matters

We have 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. Outstanding letters of credit issued under the revolving credit facility totaled $3.8 million and $3.0 million at September 27, 2008 and September 29, 2007, respectively.

Cash provided by operating activities was $61.7 million for the first three fiscal quarters of 2008, as compared to cash provided by operating activities of $9.1 million in the first three fiscal quarters of 2007. The increase in the generation of cash during the first three fiscal quarters of 2008 versus the first three fiscal quarters of 2007 primarily relates to earnings growth and the impact of efficiencies in the utilization of inventory and increased accrued expenses. Management’s expectations are for working capital requirements to build through the first three quarters, and then decline in the last fiscal quarter of the year. We had $313.9 million in working capital as of September 27, 2008, as compared to $262.8 million at December 29, 2007.

Accounts receivable was $41.0 million higher at September 27, 2008 than at December 29, 2007, partially offset by a decrease in inventory of $15.3 million and an increase in accounts payable of $5.4 million. The increase in accounts receivable is related to the normal increase in seasonal business in both segments. The decrease in inventory results from operational and supply-chain initiatives and the increase in accounts payable relates to improved vendor leverage.

Cash used in investing activities was $11.0 million for the first three fiscal quarters of 2008, as compared to $7.4 million used in the first three fiscal quarters of 2007. The $11.0 million used in the first three quarters of 2008 was related to investments in information technology and the purchase of property, plant and equipment. During the first three quarters of 2007, $11.4 million was used for investments in information technology and the purchase of property, plant and equipment and $1.5 million was used for the acquisitions of Shanghai Cyclo and Pro-Line Team Sports, Inc., all of which was partially offset by proceeds of $3.3 million from the sale of property, plant and equipment and the settlement of a preacquisition contingency for $2.2 million.

Capital expenditures for the first three fiscal quarters of 2008 were $11.0 million, as compared to $11.4 million for the first three fiscal quarters of 2007. Capital expenditures made for both periods were primarily related to the implementation of our ERP system and enhancing new and existing products.

Cash provided by financing activities was $22.0 million for the first three fiscal quarters of 2008, as compared to cash provided by financing activities of $4.0 million for the first three fiscal quarters of 2007. The increase in cash provided by financing activities in 2008 reflects additional borrowings under the credit facility as a precaution to guarantee liquidity during the recent credit market turmoil.

Our debt to capitalization ratio, which is total debt divided by the sum of total debt and stockholder’s equity, was 57.6% and 58.2% at September 27, 2008 and December 29, 2007, respectively. The decrease was attributable to increased stockholder’s equity related to net income generated during the first three fiscal quarters of 2008, partially offset by increased borrowing levels.

From time to time, we review and will continue to review acquisition opportunities as well as changes in the capital markets. If we were to consummate a significant acquisition or elect to take advantage of favorable opportunities in the capital markets, we may supplement availability or revise the terms under our Credit Agreement or complete public or private offerings of debt securities.

OUTLOOK

Although other factors will likely impact us, including some we do not foresee, we believe our performance for 2008 will be affected by the following:

	•		Retail Market Conditions. As a result of the slowing economic conditions, the retail market for sports equipment may soften and is extremely competitive, with strong pressure from retailers for lower prices. However, despite these trends, our focus on innovation and providing the “best in class” products has been a proven recipe during strong economic times and one that we are confident will be successful, albeit at a slower pace, during “softer” economic times.

	•		ERP Implementation. We continue to plan for our long-term growth by investing in our operations management and infrastructure. We are in the process of implementing SAP’s ERP system, an enterprise-wide software platform encompassing finance, sales and distribution, manufacturing and materials management. This program will replace the remaining software platforms used in our business operations, which are legacy platforms used by our predecessor companies. We expect that this enterprise-wide software solution will enable management to better and more efficiently conduct our operations and gather, analyze and assess information across all business segments and geographic locations. However, we may experience difficulties in implementing ERP in our business operations or in operating our business under SAP’s ERP, any of which could disrupt our operations, including our ability to timely ship and track product orders to customers, project inventory requirements, manage our supply chain and otherwise adequately service our customers. Further, the cost to implement SAP’s ERP could be higher than initially anticipated.

			We employ an implementation team of specialists and expect to complete our phased roll-out of ERP across all of our businesses in 2009. When completed, we expect that the system will streamline reporting and enhance internal controls.

	•		Operations and Manufacturing. In 2008, we began a comprehensive three year effort to further streamline our distribution, logistics and manufacturing operations worldwide. During 2007, we contracted with a well-known operations consulting group to identify and scope our options to lower costs, improve customer service and gain incremental capacity from our supply chain. This is part of the continuing plan to support our long-term growth by investing in our operations management and infrastructure. This process will ultimately bring uniform methodologies for inventory management, transportation optimization, manufacturing efficiency and the delivery of a high level of customer service to each of our businesses. We expect that this enterprise-wide implementation will change the size, nature and number of our distribution and manufacturing facilities with minimal risk to ongoing operations. We will utilize an implementation team of Easton-Bell operation’s executives and expect to complete our phased roll-out across all of our businesses by 2010. When completed, we expect to have lowered the costs to produce and deliver our products to the marketplace through an infrastructure built to meet the needs of our long-term growth plans. However, as we have in the past and may continue in the future to transition the production of products from our own facilities to third party suppliers, we may become more vulnerable to increased sourced product costs and our ability to mitigate such cost increases may be diminished.

	•		Interest Expense and Debt Repayment. In connection with our acquisition of Easton, we entered into a senior secured credit facility providing for a $335.0 million term loan facility, a $70.0 million U.S. revolving credit facility and a Cdn $12.0 million Canadian revolving credit facility. As of September 27, 2008, the outstanding principal balance under our term loan facility was $327.5 million, along with $30.0 million outstanding under our U.S. credit facility and no borrowings under our Canadian revolving credit facility. We expect our interest expense for the full year 2008 to decrease due to lower borrowing rates, the impact of our interest rate swap agreement and reduced debt levels.

CRITICAL ACCOUNTING POLICIES AND ESTIMATES

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. 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. A description of critical accounting policies and related judgments and estimates that affect the preparation of the consolidated financial statements is set forth in our Annual Report on Form 10-K dated December 29, 2007.

Item 3. Quantitative and Qualitative Disclosures About Market Risk

Foreign Currency Risk

Our net sales and expenses are predominantly denominated in U.S. dollars. The majority of our net sales were in U.S. dollars, with substantially all of the remaining sales in Canadian dollars, Taiwan dollars and Euros. In addition, we purchase a number of materials abroad, including finished goods and raw materials from third parties. A significant amount of these purchases were from vendors in Asia, the majority of which were located in mainland China. We may decide to increase our international sourcing in the future. As a result, we have exposure to currency exchange risks.

Most of what we purchase in Asia is finished goods rather than raw materials. As a result, with respect to many of our products, we do not immediately experience the impact of commodity price changes or higher manufacturing wages. Such costs are generally passed on to us only after the vendors have experienced them for some time. However, because we generally purchase these goods in U.S. dollars, changes in the value of the U.S. dollar can have a more immediate effect on the cost of our purchases. If we are unable to increase our prices to a level sufficient to cover any increased costs, it could adversely affect our margins.

One of our foreign subsidiaries enters into foreign currency exchange forward contracts to reduce its risks related to inventory purchases. At September 27, 2008, there were foreign currency forward contracts in effect for the purchase of U.S. $3.5 million aggregated notional amounts, or approximately Cdn $3.6 million. In the future, if we feel our foreign currency exposure has increased, we may consider entering into additional hedging transactions to help mitigate that risk.

Considering both the anticipated cash flows from firm purchase commitments and anticipated purchases for the next quarter and the foreign currency instruments in place at September 27, 2008, a hypothetical 10% movement of the U.S. dollar relative to other currencies would not have a material adverse affect on our expected quarterly earnings or cash flows. This analysis is dependent on actual purchases during the next quarter occurring within 90% of budgeted forecasts. The effect of the hypothetical change in exchange rates ignores the effect this movement may have on other variables, including competitive risk. If it were possible to quantify this competitive impact, the results could well be different than the sensitivity effects shown above. In addition, it is unlikely currencies would uniformly strengthen or weaken relative to the U.S. dollar. In reality, some currencies may weaken while others may strengthen. Moreover, any movement of the U.S. dollar relative to other currencies and its impact on material costs would likely be partially offset by the impact on revenues due to our sales internationally and the conversion of those international sales into U.S. dollars.

Interest Rate Risk

We are exposed to market risk from changes in interest rates that can affect our operating results and overall financial condition. In connection with our acquisition of Easton, we entered into our Credit Agreement consisting of a $335.0 million term loan facility, a $70.0 million U.S. revolving credit facility and a Cdn $12.0 million Canadian revolving credit facility. As of September 27, 2008, the outstanding principal balance under our term loan facility was $327.5 million, along with $30.0 million outstanding under our U.S. revolving credit facility and no borrowings under our Canadian revolving credit facility. The interest rates on the term loan and outstanding amounts under the revolving credit facilities are based on the prime rate or LIBOR plus an applicable margin percentage.

As of June 15, 2006, our Credit Agreement required us to have interest rate agreements in place such that not less than 50% of our outstanding term and senior subordinated indebtedness is fixed rate indebtedness. In June 2006, we entered into an interest rate cap for $125.0 million of our outstanding term indebtedness and in April 2008 we entered into an interest rate swap agreement with an initial notional amount of $275.0 million. As of September 27, 2008, with the addition of the interest rate swap, approximately 100% of our outstanding term and senior subordinated indebtedness was fixed rate indebtedness.

Item 4. Controls and Procedures

Evaluation of Disclosure Controls and Procedures

As of September 27, 2008, the end of the fiscal period covered by this quarterly report, we performed an evaluation, under the supervision and with the participation of management, including our Principal Executive Officer and Principal Financial Officer, of the effectiveness of the design and operation of our disclosure controls and procedures pursuant to Rule 13a-15 and Rule 15d-15 of the Securities Exchange Act of 1934, as amended (the “Exchange Act”). Based on that evaluation, our Principal Executive Officer and Principal Financial Officer each concluded that our disclosure controls and procedures are effective to ensure that information required to be disclosed in the reports that we file or submit under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the Securities and Exchange Commission’s rules and forms.

Changes in Internal Control over Financial Reporting

No change in our internal control over financial reporting occurred during the period covered by this report that materially affected, or is reasonably likely to affect, our internal control over financial reporting.

PART II. OTHER INFORMATION

Item 1. Legal Proceedings

We are currently involved in various suits and claims all of which constitute ordinary, routine litigation incidental to the business. We believe that none of the claims or actions, either individually or in the aggregate, is material to our business or financial condition.

Item 1A. Risk Factors

There have been no material changes to the risk factors disclosed in our Annual Report on Form 10-K for the year ended December 29, 2007. The materialization of any risks and uncertainties identified in Forward-Looking Statements contained in this report together with those previously disclosed in the Form 10-K or those that are presently unforeseen could result in significant adverse effects on our financial condition, results of operations and cash flows. See Part I, Item 2. “Management’s Discussion and Analysis of Financial Condition and Results of Operations — Forward-Looking Statements and Information” in this report.

Item 6. Exhibits

(a) The following documents are filed as part of this Form 10-Q:


		The filings referenced for
Exhibit		incorporation by reference
Number	Description of Exhibit	are:
31.1	Certification of the Principal Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002	Filed herewith

31.2	Certification of the Principal Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002	Filed herewith

32.1	Certification of the Principal Executive Officer and Principal Financial Officer pursuant to the 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002	Filed herewith


	EASTON-BELL SPORTS, INC. Registrant
Dated: November 6, 2008	/s/ Paul E. Harrington
	Paul E. Harrington
	President and Chief Executive Officer (Principal Executive Officer)


Dated: November 6, 2008	/s/ Mark A. Tripp
	Mark A. Tripp
	Chief Financial Officer (Principal Financial Officer)

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	Page
PART I. FINANCIAL INFORMATION:
Item 1. Financial Statements
Consolidated Balance Sheets as of September 27, 2008 (unaudited) and December 29, 2007		3
Consolidated Statements of Operations and Comprehensive Income for the Fiscal Quarter and Three Fiscal Quarters Ended September 27, 2008 (unaudited) and September 29, 2007 (unaudited)		4
Consolidated Statements of Cash Flows for the Three Fiscal Quarters Ended September 27, 2008 (unaudited) and September 29, 2007 (unaudited)		5
Notes to Consolidated Financial Statements		6
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations		22
Item 3. Quantitative and Qualitative Disclosures About Market Risk		29
Item 4. Controls and Procedures		30
PART II. OTHER INFORMATION:
Item 1. Legal Proceedings		31
Item 1A. Risk Factors		31
Item 6. Exhibits		31
SIGNATURES		32
EX-31.1
EX-31.2
EX-32.1