Easton-Bell Operating Earnings Surge on 8.3% Q2 Sales Growth

The company generated operating income of $20.1 million for the second quarter of fiscal 2010, an increase of 36.0% as compared to $14.8 million of operating income in the second quarter of fiscal 2009.

“Overall we are pleased with our results,” said Paul Harrington, president and CEO. “The increase in second quarter sales at higher margins combined to increase our operating leverage and allowed us to fund investments in new product introductions. With consumer spending still uncertain in the near to mid-term these investments will be critical to growing future market share.”

Team Sports net sales increased $8.4 million or 8.3% in the second quarter of fiscal 2010, as compared to the second quarter of fiscal 2009 due to increased sales of football, baseball and softball equipment, and NFL collectible football helmets, partially offset by lower sales of ice hockey skates.

Action Sports net sales increased $7.0 million or 8.1% in the second quarter of fiscal 2010, as compared to the second quarter of fiscal 2009 due to increased sales of cycling helmets, accessories and wheels and snowsports eyewear.

The company’s gross margin for the second quarter of fiscal 2010 was 34.0%, as compared to 32.2% for the second quarter of fiscal 2009. The margin improvement related primarily to better sales mix, improved manufacturing efficiencies and gains in foreign currency exchange rates.

The company’s operating expenses for both the second quarter of fiscal 2010 and fiscal 2009 were 22.5% of net sales. In the second quarter of fiscal 2010, the company incurred higher variable expenses associated with the sales growth, research and development expenses to support future growth initiatives, and incentive compensation, partially offset by a benefit from foreign currency hedges, all as compared to the second quarter of fiscal 2009.

The company’s Adjusted EBITDA was $27.7 million for the second quarter of fiscal 2010, an increase of $3.7 million or 15.3% as compared to $24.0 million of Adjusted EBITDA (exclusive of the $12.9 million equity cure) for the second quarter of fiscal 2009. 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 $378.0 million (total debt of $413.4 million less cash of $35.4 million) as of July 3, 2010, a decrease of $4.5 million compared to the net debt amount at Jan. 2, 2010 of $382.5 million. Working capital as of July 3, 2010 was $222.3 million as compared to $211.2 million as of Jan. 2, 2010. Inventories declined $7.3 million or 5.7% during the first half of fiscal 2010 while sales increased 6.6%. Overall inventories are of a higher quality which contributed to our margin improvement for the quarter and first half.

The company had substantial borrowing capacity and liquidity as of July 3, 2010, with $125.9 million of additional borrowing ability under the revolving credit facility and liquidity of $161.3 million when including the $35.4 million of cash.