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8-K - EASTON-BELL SPORTS, INC. 8-K - EASTON-BELL SPORTS, INC.a50063250.htm

Exhibit 99.1

Easton-Bell Sports, Inc. Reports 7% Sales Increase and Growth in Net Income of 57% for the Third Quarter 2011

Earnings Conference Call Scheduled for 2 p.m. Eastern Time on Wednesday, November 9, 2011

VAN NUYS, Calif.--(BUSINESS WIRE)--November 9, 2011--Easton-Bell Sports, Inc. (the “Company”), a leading designer, developer and marketer of branded sports equipment, protective products and related accessories, will discuss its financial results for the fiscal quarter ended October 1, 2011 on a conference call to be held on Wednesday, November 9, 2011, beginning at 2 p.m. Eastern Time.

Results for the Third Quarter ended October 1, 2011

The Company had net sales of $212.5 million for the third quarter of fiscal 2011, an increase of 6.9% as compared to $198.8 million of net sales for the third quarter of fiscal 2010. Net income increased by $1.7 million, or 56.5% during the quarter. The increase in net income resulted from the sales growth and a 60 bps margin improvement, with net income also benefiting from reduced interest and income tax expenses.

“We are pleased with our sales and margin growth driven by our new product launches, which allowed us to continue to invest in our brands while also increasing our profitability in the quarter,” said Paul Harrington, President and Chief Executive Officer.

Team Sports net sales increased $14.2 million or 13.9% in the third quarter of fiscal 2011, as compared to the third quarter of fiscal 2010, or 13.0% on a constant currency basis. The sales growth resulted from successful new product launches of Easton baseball and softball bats and ice hockey sticks during the quarter and continued market share gains in Riddell football helmets and apparel.

Action Sports net sales decreased $0.5 million or 0.5% for the third quarter of fiscal 2011, as compared to the third quarter of fiscal 2010, or 1.0% on a constant currency basis. The decrease reflects the negative impact on snow helmet sales from the overall softness in the European market due to high retail inventory levels from last season, mostly offset by double-digit increases in sales of Easton branded wheels and components and strong demand for the recently introduced line of Giro cycling shoes.

The Company’s gross margin for the third quarter of fiscal 2011 was 35.6%, as compared to 35.0% for the third quarter of fiscal 2010. The margin gain was driven by a strong sales mix of football helmets and increased sales of higher margin cycling helmets, which was dampened by reduced sales of snow helmets in Europe and close-out sales of ice hockey equipment.

The Company’s operating expenses increased $5.3 million or 10.8% and 90 bps as a percentage of net sales during the third quarter of fiscal 2011, as compared to the third quarter of fiscal 2010. The increase related to variable costs to support the sales growth and planned investments.

The Company’s Adjusted EBITDA was $28.8 million for the third quarter of fiscal 2011, an increase of $0.8 million or 2.9% as compared to the third quarter of fiscal 2010.

A detailed reconciliation of Adjusted EBITDA to net income, which the Company considers to be the most closely comparable GAAP financial measure, is included in the section entitled “Reconciliation of Non-GAAP Financial Measures,” which appears at the end of this press release.


Balance Sheet Items

Net debt totaled $359.0 million (total debt of $382.6 million less cash of $23.6 million) as of October 1, 2011, an increase of $3.5 million compared to net debt of $355.5 million as of October 2, 2010. The increase in net debt relates to increased working capital requirements to support the sales growth. Working capital as of October 1, 2011 was $255.8 million as compared to $234.5 million as of October 2, 2010.

The Company had substantial borrowing capability as of October 1, 2011, with $174.7 million of additional borrowing ability under the revolving credit facility and liquidity of $198.3 million when including the $23.6 million of cash.

Easton-Bell Sports, Inc.

Easton-Bell Sports, Inc. is a leading designer, developer and marketer of branded sports equipment, protective products and related accessories. The Company markets and licenses products under such well-known brands as Easton, Bell, Giro, Riddell and Blackburn. The Company’s products incorporate leading technology and designs and are used by professional athletes and enthusiasts alike. Headquartered in Van Nuys, California, the Company has thirty facilities worldwide. More information is available at www.eastonbellsports.com.

Conference Call Webcast and Dial-in Information

Interested parties may listen to the conference call via webcast at: http://www.media-server.com/m/p/62p77r39. In addition, interested parties may listen directly to the call by dialing 1-866-510-0704 (within the United States and Canada) or 1-617-597-5362 (outside the United States and Canada). The pass code for the call is 60471580. A replay of the call will be available on November 10 through November 16, 2011 by dialing 1-888-286-8010 (within the United States and Canada) or 1-617-801-6888 (outside the United States and Canada). The pass code for both replay phone numbers is 12626775.

“Safe Harbor” Statement under Private Securities Litigation Reform Act of 1995

This press release may include forward-looking statements that reflect the Company’s current views about future events and financial performance. All statements other than statements of historical facts included in this press release that address activities, events or developments that the Company expects, believes or anticipates will or may occur in the future are forward-looking statements, as that term is defined in the Private Securities Litigation Reform Act of 1995. Words such as “estimates,” “expects,” “anticipates,” “projects,” “plans,” “intends,” “believes,” “forecasts” 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 are forward-looking statements.

Although the Company believes that the expectations reflected in its forward-looking statements are reasonable, the Company does not know whether its expectations will prove correct. They can be affected by inaccurate assumptions that the Company might make or by known or unknown risks and uncertainties including: (i) the level of competition in the sporting goods industry; (ii) legal and regulatory requirements, including changes in the laws that relate to use of our products and changes in product performance standards maintained by athletic governing bodies; (iii) the success of new products; (iv) whether we can successfully market our products, including use of our products by high profile athletes; (v) the Company’s dependence on and relationships with its major customers; (vi) fluctuations in costs of raw materials; (vii) risks associated with using foreign suppliers including increased transportation costs, potential supply chain disruption and foreign currency exchange rate fluctuations; (viii) the Company’s labor relations; (ix) departure of key personnel; (x) failure to protect the Company’s intellectual property or guard against infringement of the intellectual property rights of others; (xi) product liability claims; (xii) the timing, cost and success of opening or closing manufacturing facilities; (xiii) the Company’s level of indebtedness; (xiv) interest rate risks; (xv) the ability to successfully complete and integrate acquisitions and realize expected synergies; (xvi) an increase in return rates; (xvii) negative publicity about our products or the athletes that use them; (xviii) the seasonal nature of our business; (xix) failure to maintain an effective system of internal controls; and (xx) other risks outlined under “Risk Factors” in the Company’s 2010 Annual Report on Form 10-K.

These forward-looking statements are expressed in good faith and the Company believes 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 the Company’s 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 the Company’s expectations. The forward-looking statements in this press release speak only as of the date of this release and, except as required by law, the Company undertakes 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.


                         

EASTON-BELL SPORTS, INC. AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS

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

 

 

October 1,

2011

January 1,

2011

October 2,

2010

(Unaudited) (Unaudited)
ASSETS
Current assets:
Cash and cash equivalents $ 23,641 $ 24,024 $ 26,560
Accounts receivable, net 231,933 216,166 219,473
Inventories, net 145,411 141,093 127,976
Prepaid expenses 3,838 7,080 4,133
Deferred taxes 15,976 16,254 12,607
Other current assets   9,299     8,483   9,440
Total current assets 430,098 413,100 400,189
Property, plant and equipment, net 52,724 49,736 48,176
Deferred financing fees, net 13,147 14,248 15,000
Intangible assets, net 271,807 279,047 281,636
Goodwill 206,928 206,928 206,819
Other assets   1,654     1,495   1,438
Total assets $ 976,358   $ 964,554 $ 953,258
 
LIABILITIES AND STOCKHOLDER’S EQUITY
Current liabilities:
Revolving credit facility $ 36,000 $ 38,893 $ 35,893
Current portion of capital lease obligations 25 24 23
Accounts payable 66,509 73,148 62,373
Accrued expenses   71,754     58,452   67,447
Total current liabilities 174,288 170,517 165,736
Long-term debt, less current portion 346,541 346,168 346,051
Capital lease obligations, less current portion 59 78 84
Deferred taxes 52,292 49,379 45,598
Other noncurrent liabilities   18,516     20,774   20,850
Total liabilities   591,696     586,916   578,319
Stockholder’s equity:
Common stock: $0.01 par value, 100 shares authorized, 100 shares issued and outstanding at October 1, 2011, January 1, 2011 and October 2, 2010
Additional paid-in capital 362,810 360,223 359,444
Retained earnings 22,963 15,401 15,348
Accumulated other comprehensive (loss) income   (1,111 )   2,014   147
Total stockholder’s equity   384,662     377,638   374,939
Total liabilities and stockholder’s equity $ 976,358   $ 964,554 $ 953,258
 
 

               

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

 

October 1,

2011

     

October 2,

2010

October 1,

2011

     

October 2,

2010

Net sales $ 212,467 $ 198,834 $ 627,778 $ 595,695
Cost of sales   136,808     129,245   417,137     392,403
Gross profit 75,659 69,589 210,641 203,292
Selling, general and administrative expenses 54,294 49,015 156,681 144,302
Amortization of intangibles   2,339     2,589   7,240     9,175
Income from operations 19,026 17,985 46,720 49,815
Interest expense, net   10,635     11,132   32,728     33,807
Income before income taxes 8,391 6,853 13,992 16,008
Income tax expense   3,713     3,863   6,430     7,935
Net income 4,678 2,990 7,562 8,073
Other comprehensive income:
Foreign currency translation adjustment   (4,398 )   2,887   (3,125 )   373
Comprehensive income $ 280   $ 5,877 $ 4,437   $ 8,446
 
 

Reconciliation of Non-GAAP Financial Measures

This press release contains a financial measure called Adjusted EBITDA, which is not calculated in accordance with U.S. generally accepted accounting principles (“GAAP”). In this press release we have presented Adjusted EBITDA on an actual basis for the third fiscal quarter ended October 1, 2011 and the third fiscal quarter ended October 2, 2010.

We believe Adjusted EBITDA is a useful supplemental measure in evaluating the performance of our operating businesses and provides greater transparency into our consolidated and combined results of operations. Adjusted EBITDA is used by our management to perform such evaluation and in measuring compliance with debt covenants relating to certain of our borrowing arrangements. Adjusted EBITDA should not be considered in isolation or as a substitute for net income or other income statement data prepared in accordance with GAAP. We believe Adjusted EBITDA facilitates company-to-company operating performance comparisons by excluding potential differences caused by variations in capital structures (affecting net interest expense), taxation and the age and book depreciation of facilities (affecting relative depreciation expense), which may vary for different companies for reasons unrelated to operating performance. We also believe that Adjusted EBITDA is frequently used by securities analysts, investors and other interested parties in their evaluation of companies, many of which present an Adjusted EBITDA measure when reporting their results. In addition, we believe that our presentation of Adjusted EBITDA provides investors with helpful information about the calculation of some of the financial covenants that are contained in our Senior Secured Credit Facilities.

Adjusted EBITDA has limitations as an analytical tool and you should not consider it in isolation or as a substitute for analyzing our results as reported under GAAP. Some of these limitations are as follows:

  • Adjusted EBITDA does not reflect changes in, or cash requirements for, our working capital needs;
  • Adjusted EBITDA does not reflect our interest expense, or the cash requirements necessary to service interest or principal payments, on our debt;
  • Adjusted EBITDA does not reflect our income tax expense or the cash requirements to pay our taxes;
  • Adjusted EBITDA does not reflect historical cash expenditures or future requirements for capital expenditures or contractual commitments;
  • although depreciation and amortization are non-cash charges, the assets being depreciated and amortized will often have to be replaced in the future, and Adjusted EBITDA does not reflect any cash requirements for such replacements; and
  • other companies in our industry may calculate Adjusted EBITDA differently so it may not be comparable.

To compensate for these limitations, however, we rely primarily on our GAAP results and use Adjusted EBITDA only as supplemental information.

The calculation of Adjusted EBITDA and a reconciliation of that measure to net income, the most comparable GAAP measure, for the third fiscal quarters ended October 1, 2011 and October 2, 2010 are set forth below (amounts in thousands):

                     
2011 2010
 
Net income for the third fiscal quarter $ 4,678 $ 2,990
 
Interest expense, net 10,635 11,132
Provision for taxes based on income 3,713 3,863
Depreciation expense

5,000

4,741
Amortization expense 2,339 2,589
Non-cash equity compensation expense 1,226 755
Other allowable adjustments under the Company's Senior Secured Credit Facilities (1)  

1,169

  1,870
Adjusted EBITDA, as reported pursuant to the Company's Senior Secured Credit Facilities for the fiscal quarter $ 28,760 $ 27,940
 
      (1)     Represents actual expenses permitted to be excluded pursuant to the Company's Senior Secured Credit Facilities. Such amount represents: (i) charges related to the issuance of capital stock or debt, (ii) unrealized (gains)/losses relating to hedging activities, (iii) expenses paid in connection with employee severance, retention, relocation and contract termination, consolidation of facilities and other non-recurring expenses and charges and (iv) expense reimbursements to our financial sponsors.

CONTACT:
Easton-Bell Sports, Inc.
Mark Tripp, 818-902-5803