1. Business and Summary of Significant Accounting Policies

Organization and Business

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

Our Company is a designer, developer and marketer of sporting goods and related accessories under authentic brands. Our products are used in baseball, softball, ice hockey, football and other team sports, and in various action sports, including cycling, snowsports, 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 snowsports helmets and accessories) and Riddell (football and reconditioning services).

Reporting Period

Our Company follows a 52/53 week fiscal year, which ends on the Saturday closest to December 31. Fiscal years 2013, 2012 and 2011 were comprised of 52 weeks and ended on December 28, 2013, December 29, 2012 and December 31, 2011, respectively.

Principles of Consolidation

The consolidated financial statements of our Company and subsidiaries have been prepared in accordance with accounting principles generally accepted in the United States. All significant intercompany accounts and transactions have been eliminated.

Adjustment to Prior Year Financial Statements

In the Consolidated Statements of Stockholder’s Equity, the Distribution to RBG in 2012 has been reclassified from Additional Paid-in Capital to Retained Earnings. The effect of the reclassification is also reflected in the Stockholder’s equity section of the Consolidated Balance Sheet for 2012. This reclassification has no effect on total stockholder’s equity or on the previously reported income (loss).

Reclassification

Certain amounts in the December 29, 2012 consolidated financial statements have been reclassified for comparative purposes to conform to the presentation in the December 28, 2013 consolidated financial statements. These reclassifications have no effect on the previously reported income (loss).

Cash and Cash Equivalents

Our Company considers all investments with an original maturity of three months or less to be cash equivalents. Cash equivalents at December 28, 2013 and December 29, 2012 were $43,698 and $40,852, respectively.

Accounts Receivable and Concentration of Credit Risk

Accounts receivable at December 28, 2013 and December 29, 2012 are net of allowances for doubtful accounts of $7,833 and $8,738, respectively. We sell our products to a wide range of customers. Our customers are not geographically concentrated. As of December 28, 2013 and December 29, 2012, 34.0% and 31.4%, respectively, of our gross accounts receivable were attributable to our top ten customers. In 2013, 2012 and 2011, one customer accounted for 12.6%, 12.9%, and 13.9% of our net sales, respectively, but no other customer accounted for more than 10% of our net sales. Our Company’s top ten customers accounted for approximately 32.2%, 31.6% and 34.8% of our net sales for 2013, 2012 and 2011, respectively. Ongoing credit evaluations of customers are performed and collateral on trade accounts receivable is generally not required. An allowance is determined based on the age of the accounts receivable balance and specific charge-off history. Trade accounts receivable are charged to the allowance when we determine that the receivable will not be collectable. Trade accounts receivable balances are determined to be delinquent when the amount is past due based on the payment terms with our customer.

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. Provisions for excess and obsolete inventories are based on our assessment of excess and obsolete inventory on a product-by-product basis. At December 28, 2013 and December 29, 2012, we had a reserve for excess and obsolete inventories of $10,951 and $15,267, respectively. Inventories, which are net of excess and obsolete inventory, consisted of the following at December 28, 2013 and December 29, 2012:

	2013		2012
Raw materials	$	21,093	$	27,275
Work-in-process		2,737		3,710
Finished goods		103,101		110,731
	$	126,931	$	141,716

Property, Plant and Equipment

Property, plant and equipment are stated at acquisition cost less accumulated depreciation. Property under capital lease is recorded at the lower of fair market value of the asset or the present value of future minimum lease payments. Repairs and maintenance costs that do not extend the lives of property and equipment are expensed as incurred.

Depreciation, which includes amounts amortized under capital leases, is being computed using the straight-line method over the estimated useful lives of the related assets, except for leasehold improvements, which are depreciated over the lesser of the lease term or their useful life, as follows:

Buildings and leasehold improvements		Ten to twenty years
Machinery and equipment		Three to seven years
Office equipment and furniture		Three to five years
Computer equipment and software		Three to five years

Property, plant and equipment consisted of the following at December 28, 2013 and December 29, 2012:

	2013			2012
Land	$	105		$	105
Building and leasehold improvements		14,471			15,062
Machinery and equipment		55,913			51,640
Office equipment and furniture		4,095			5,280
Computer equipment and software		68,897			57,885
Construction in progress		30,700			16,702
		174,181			146,674
Less accumulated depreciation		(104,896	)		(91,125	)
	$	69,285		$	55,549

Depreciation expense relating to all property, plant and equipment amounted to $20,992, $21,593 and $19,230 for 2013, 2012 and 2011, respectively.

Capitalized costs of internal use software is amortized on a straight-line basis over the estimated useful life commencing from the date the software asset is ready for its intended use.

In 2013, our Company purchased $914 of property, plant and equipment, for which cash payment had not yet been made as of December 28, 2013.

Goodwill and Intangible Assets

Goodwill and other indefinite-lived intangible assets resulting from acquisitions are not amortized. A fair value method of testing goodwill and other indefinite-lived intangible assets for impairment is completed on an annual basis, or on an interim basis if an event occurs or circumstances change that would indicate impairment or reduce the fair value of the indefinite-lived intangible asset or a reporting unit (for goodwill) below its carrying value. Our Company’s annual impairment assessments are performed as of the fiscal year end date by determining an estimate of the fair value of our indefinite-lived intangible assets or, for goodwill, the fair value of the reporting units to evaluate whether an impairment exists. A reporting unit is an operating segment or one level below an operating segment (e.g., a component). A component of an operating segment is a reporting unit if the component constitutes a business for which discrete financial information is available and our executive management team regularly reviews the operating results of that component.

The results of our Company’s annual analysis indicated that no impairment occurred in the carrying amount of goodwill and other indefinite-lived intangible assets in 2013, 2012 or 2011, and that none of the reporting units was at risk of failing the impairment test as of the date of each respective impairment assessment. We also reviewed our finite-lived intangible assets and noted no impairment occurred in the carrying amount in 2013, 2012 or 2011.

Our Company’s acquired intangible assets were as follows at December 28, 2013 and December 29, 2012:

	December 28, 2013					December 29, 2012
	Gross Carrying Amounts		Accumulated Amortization			Gross Carrying Amounts		Accumulated Amortization
Amortizable intangible assets:
Trademarks and tradenames	$	1,702	$	(1,702	)	$	1,702	$	(1,702	)
Customer relationships		62,514		(45,660	)		62,514		(41,893	)
Patents		60,345		(53,024	)		60,345		(49,130	)
Licensing and other		7,043		(6,365	)		7,043		(6,145	)
Total	$	131,604	$	(106,751	)	$	131,604	$	(98,870	)
Indefinite-lived intangible assets:
Trademarks and licenses	$	244,541				$	233,164

Our Company amortizes certain acquired intangible assets on a straight-line basis over estimated useful lives of 4 to 20 years for customer relationships, 7 to 19 years for patents and 4 to 9 years for licensing and other agreements. As of December 28, 2013, the weighted average life is 11.9 years for customer relationships, 10.2 years for patents, 4.7 years for licensing and other agreements and the overall weighted average life for acquired intangible assets is approximately 10.7 years. For 2013, 2012 and 2011 acquired intangible asset amortization was $7,881, $10,394, and $9,612, respectively. We estimate that amortization of existing intangible assets will be $6,912, $6,203, $3,235, $2,610 and $780 for 2014, 2015 2016, 2017 and 2018, respectively.

Our Company does not amortize most of our trademarks, which are determined to have indefinite lives. The Riddell tradename has been in existence since 1929. The Riddell brand is currently one of the most widely recognized and sold football helmet brands in the world. This brand is one of the primary product lines of our Company’s business and management plans to use the trademark for an indefinite period of time. We plan to continue to make investments in product development to enhance the value of the brand in the future. There are no legal, regulatory, contractual, competitive, economic or other factors that we are aware of that our Company believes would limit the useful life of the trademark. The Riddell trademark registration can be renewed in the countries in which we operate at a nominal cost.

As a result of our Company’s acquisition of Bell in September 2004, we identified the Bell, Giro and Blackburn trademarks as indefinite-lived assets. The Bell, Giro and Blackburn trademarks have been in existence since 1952, 1986 and 1988, respectively. We plan to use these trademarks for an indefinite period of time and will continue to make investments in product development to enhance the value of the brands in the future. There are no legal, regulatory, contractual, competitive, economic or other factors that we are aware of that our Company believes would limit the useful life of the trademarks. The Bell, Giro and Blackburn trademark registrations can be renewed in the countries in which we operate at a nominal cost.

As a result of our Company’s acquisition of Easton in March 2006, we identified the Easton trademark as an indefinite-lived asset. The Easton brand has been in existence since 1922 and we plan to use this trademark for an indefinite period of time and will continue to make investments in product development to enhance the value of the brand in the future. There are no legal, regulatory, contractual, competitive, economic or other factors that we are aware of that our Company believes would limit the useful life of the Easton trademark.

There were no material changes to goodwill during 2012. Changes in the carrying amount of goodwill during the year ended December 28, 2013 and December 29, 2012 are summarized as follows:

	Team Sports			Action Sports		Consolidated
Balance at December 31, 2011	$	146,326		$	62,371	$	208,697
Activity		—			—		—
Balance at December 29, 2012		146,326			62,371		208,697
Write-off of lacrosse		(958	)		—		(958	)
Balance at December 28, 2013	$	145,368		$	62,371	$	207,739

During the first fiscal quarter of 2012, Riddell acquired certain assets and assumed certain liabilities of an athletic equipment reconditioning and uniform supply company for a purchase price of approximately $5,150 consisting of cash and contingent consideration. As a result, the carrying amount of customer relationships related to our Team Sports segment increased by $3,334.

During the third fiscal quarter of 2012, Bell acquired certain international trademark rights and domain names for its powersports business for a cash purchase price of $2,500. As a result, in our Action Sports segment, the carrying amount of indefinite-lived trademarks increased by $2,380 and finite-lived licensing and other increased by $120.

During the second fiscal quarter 2013, our Company made the decision to discontinue selling lacrosse equipment. This decision resulted in the write-off of $958 of goodwill directly associated with lacrosse.

During the third fiscal quarter of 2013, Bell acquired an entity whose principal asset was a license to distribute certain Bell products throughout the world (excluding USA, Mexico and Canada). As a result, the carrying amount of indefinite-lived intangible assets related to our Action Sports segment increased by $11,377, of which $8,662 was paid in cash.

Long-Lived Assets

Our Company reviews our long-lived assets for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. An impairment loss is recognized when the undiscounted future cash flows estimated to be generated by the asset to be held and used are not sufficient to recover the unamortized balance of the asset. An impairment loss would be recognized based on the difference between the carrying values and estimated fair value. The estimated fair value will be determined based on either the discounted future cash flows or other appropriate fair value methods with the amount of any such deficiency charged to income in the current year. If the asset being tested for recoverability was acquired in a business combination, amortizable intangible assets resulting from the acquisition that are related to the asset are included in the assessment. Estimates of future cash flows are based on many factors, including current operating results, expected market trends and competitive influences. We also evaluate the amortization periods assigned to our intangible assets to determine whether events or changes in circumstances warrant revised estimates of useful lives. Assets to be disposed of by sale are reported at the lower of the carrying amount or fair value, less estimated costs to sell. During 2013, 2012 and 2011, except as noted above with lacrosse, we did not have any other impairment of long-lived assets.

Deferred Financing Fees

Deferred financing fees are being amortized by the straight-line method over the term of the related debt, which does not vary significantly from the effective interest method. In connection with the Amendment in May 2011, $120 of debt issuance costs that were associated with a former syndicate member that did not participate in the Amendment were written-off. We also incurred bank fees and other costs of $1,282, which have been recorded as debt issuance costs. We amortized $2,659, $2,658 and $2,788 of debt issuance fees during 2013, 2012 and 2011, respectively, which is included in Interest expense, net.

Income Taxes

Deferred tax liabilities and assets are recognized for the expected future tax consequences of events that have been included in the financial statements or tax returns. Deferred tax liabilities and assets are determined based on the difference between the financial statement and tax bases of assets and liabilities (excluding non-deductible goodwill) using enacted tax rates in effect for the years in which the differences are expected to become recoverable or payable. Our Company is included in the consolidated tax return of EB Sports.

Revenue Recognition

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

Warranty Obligations

Our Company records a product warranty obligation at the time of sale based on our historical experience. We estimate our 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 our Company’s product warranty liability for 2013 and 2012.

	Year Ended
	2013			2012
Beginning of year	$	2,889		$	2,240
Warranty costs incurred during the period		(6,285	)		(5,610	)
Warranty expense recorded during the period		6,666			6,259
End of year	$	3,270		$	2,889

Advertising Costs

Our Company expenses all advertising costs as incurred. Cooperative advertising costs are recorded as a reduction of sales at the time the revenue is earned. Advertising costs were $5,580, $5,759 and $5,846, for 2013, 2012 and 2011, respectively.

Shipping and Handling

All shipping and handling fees billed to our customers are included as a component of net sales. Shipping and handling costs incurred by us are included in cost of sales.

Research and Development Expenses

Our Company expenses all research and development costs as incurred. Research and development expenses were approximately $27,549, $29,236 and $23,369 for 2013, 2012 and 2011, respectively, and are included in selling, general and administrative expenses.

Use of Estimates

The preparation of financial statements in conformity with accounting principles generally accepted in the United States requires our management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and reported amount of revenues during the reporting period. Actual results could differ from those estimates. The estimates made by our management primarily relate to accounts receivable allowances, inventory reserves, product liability reserves, deferred income taxes, intangible assets, goodwill and certain other liabilities.

Foreign Currency Translation

The financial position and results of operations outside the United States are measured using the local currency as the functional currency. Revenues and expenses are translated into United States dollars at average exchange rates prevailing during the fiscal period, and assets and liabilities are translated using the exchange rates at the balance sheet date. Translation adjustments are included in accumulated other comprehensive (loss) income in stockholder’s equity. Gains and losses, which result from foreign currency transactions, are included in earnings.

Fair Values of Financial Instruments

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

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

	December 28, 2013				December 29, 2012
	Carrying Amount		Fair Value		Carrying Amount		Fair Value
Financial liability:
9.750% Senior Secured Notes	$	350,678	$	369,049	$	349,973	$	379,034

Equity-Based Employee Compensation

Our Company expenses Class B Common Units, or Units, granted under our Parent’s equity incentive plan, or the Incentive Plan, based upon the fair market value of such Units calculated under the Black-Scholes option pricing model or the Monte Carlo simulation pricing model on the date of grant. We amortize the fair market value of the Units granted over the vesting period of the Units.

Recent Accounting Pronouncements

In February 2013, the FASB issued a new standard that requires an entity to provide information about the amounts reclassified out of accumulated other comprehensive income by component for those items reclassified to net income in their entirety in the same reporting period. For other amounts that are not required to be reclassified in their entirety to net income, an entity is required to cross-reference to other disclosures required under GAAP that provide additional detail about those amounts. The new standard is effective for fiscal years beginning after December 15, 2012. The provisions of this standard did not have a material impact on our Company’s consolidated financial statements.

In July 2013, the FASB issued guidance on the financial statement presentation of an unrecognized tax benefit when a net operating loss carryforward, a similar tax loss, or a tax credit carryforward exists. The guidance is effective prospectively for fiscal years, and interim periods within those years, beginning after December 15, 2013, with an option for early adoption. The provisions of this standard did not have a material impact on our Company’s consolidated financial statements.