ESCA 10-K Fiscal year ended Dec. 25, 2010

United States

Securities and Exchange Commission

Washington, D.C. 20549

Form 10-K

For the Fiscal Year Ended December 25, 2010

Or

For the transition period from _____________ to _____________

Commission File Number 0-6966

ESCALADE, INCORPORATED

(Exact name of registrant as specified in its charter)

Indiana		13-2739290
(State of incorporation)		(I.R.S. EIN)
817 Maxwell Ave, Evansville, Indiana		47711
(Address of Principal Executive Office)		(Zip Code)

812-467-4449

(Registrant’s Telephone Number)

Securities registered pursuant to Section 12(b) of the Act

Common Stock, No Par Value		The NASDAQ Stock Market LLC
(Title of Class)		(Name of Exchange on Which Registered)

Securities registered pursuant to section 12(g) of the Act: NONE

Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities

Yes o No x

Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act

Yes o No x

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 x No o

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).

Yes o No o

Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. o

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, or 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.

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

Indicate by checkmark whether the registrant is a shell company (as defined in Rule 12 b-2 of the Exchange Act).

Yes o No x

Aggregate market value of common stock held by nonaffiliates of the registrant as of July 10, 2010 based on the closing sale price as reported on the NASDAQ Global Market: $42,331,650

The number of shares of Registrant’s common stock (no par value) outstanding as of February 8, 2011: 12,807,318.

DOCUMENTS INCORPORATED BY REFERENCE

Certain portions of the registrant’s Proxy Statement relating to its annual meeting of stockholders scheduled to be held on April 29, 2011 are incorporated by reference into Part III of this Report.

Escalade, Incorporated and Subsidiaries

Table of Contents

			Page
Part I
	Item 1.	Business	3
	Item 1A.	Risk Factors	5
	Item 1B.	Unresolved Staff Comments	13
	Item 2.	Properties	13
	Item 3.	Legal Proceedings	14
	Item 4.	[Reserved]	14
Part II
	Item 5.	Market for the Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Securities	14
	Item 6.	Selected Financial Data	16
	Item 7.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	17
	Item 7A.	Quantitative and Qualitative Disclosures About Market Risk	25
	Item 8.	Financial Statements and Supplementary Data	25
	Item 9.	Changes in and Disagreements with Accountants on Accounting and Financial Disclosure	25
	Item 9A.	Controls and Procedures	26
	Item 9B.	Other Information	27
Part III
	Item 10.	Directors, Executive Officers and Corporate Governance	27
	Item 11.	Executive Compensation	27
	Item 12.	Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters	27
	Item 13.	Certain Relationships and Related Transactions	28
	Item 14.	Principal Accounting Fees and Services	28
Part IV
	Item 15.	Exhibits and Financial Statement Schedules	28

Part I

General

Escalade, Incorporated (“Escalade” or “Company”) operates in two business segments: Sporting Goods and Information Security and Print Finishing (formerly referred to as “Office Products” as described below). Escalade and its predecessors have more than 80 years of manufacturing and selling experience in these two industries.

The following table presents the percentages contributed to Escalade’s net sales by each of its business segments:

		2010				2009				2008
Sporting Goods			71	%			66	%			66	%
Information Security and Print Finishing			29	%			34	%			34	%
Total Net Sales			100	%			100	%			100	%

For additional segment information, see Note 14 – Operating Segment and Geographic Information in the consolidated financial statements.

Sporting Goods

Headquartered in Evansville, Indiana, Escalade Sports manufactures, imports, and distributes widely recognized sporting goods brands in family recreation, fitness, training, and hunting products through traditional department stores, mass merchandise retailers, and sporting goods specific retailers. Escalade is the world’s largest producer of table tennis tables. Some of the Company’s most recognized brands include:

Product Segment		Brand Names
Archery		Bear Archery®, Trophy Ridge®, Whisker Biscuit®
Table Tennis		STIGA®, Ping-Pong®
Basketball Backboards and Goals		Goalrilla™, Goaliath®, Silverback®
Play Systems		Woodplay®, Childlife®
Fitness		The STEP®, USWeight™
Game Tables (Hockey and Soccer)		Harvard Game®, Atomic®, Accudart®
Pool Tables and Accessories		Mosconi®, Mizerak®

In 2010, the Company has one customer in the Sporting Goods group, Dick’s Sporting Goods, which accounted for approximately 15% of total consolidated gross revenues.

Escalade Sports manufactures in the U.S.A. and Mexico and imports product from China, where the Company utilizes a number of contract manufacturers.

Certain products produced by Escalade Sports are subject to regulation by the Consumer Product Safety Commission. The Company believes it is in material compliance with all applicable regulations.

Information Security and Print Finishing

Martin Yale Group has increasingly expanded its focus on the information security requirements of larger corporate customers, governments, and strategic business partners. The Company is particularly focused on addressing information security issues including the decommissioning or destruction of data stored on optical, solid state, magnetic, and traditional media like paper to meet the increasingly strict security standards set by the National Security Administration, National Institute of Standards and Technology, Deutsches Institut fur Normung (German Institute for Standardization), the European Union, and many other governments and organizations around the world. Martin Yale Group continues to focus on the print finishing sector with a particular focus on digital print applications.

Reflecting the Company’s expanded focus on information security, the Martin Yale Group business segment is now referred to as “Information Security and Print Finishing” rather than as “Office Products.” Martin Yale has a worldwide presence with manufacturing facilities in Indiana and Germany and joint venture manufacturing facilities in the Czech Republic and Taiwan. Martin Yale Group has sales offices in the USA, Germany, United Kingdom, France, Spain, China, Italy, South Africa and Sweden.

Martin Yale Group products include: shredders, disintegrators, degaussers, paper folders, letter openers, and paper cutters/trimmers. The key Martin Yale Group brands include martin yale®, intimus®, and papermonster®.

Martin Yale Group products and services are sold directly to end-users as well as through retailers, wholesalers, catalogs, specialty dealers, and business partners. No single Martin Yale Group customer accounted for more than 10% of Information Security and Print Finishing sales during 2010.

Marketing and Product Development

The Company makes a substantial investment in product development and brand marketing to differentiate its product line from its competition. Each operating segment conducts market research and development efforts to design products which satisfy existing and emerging consumer needs. On a consolidated basis, the Company incurred research and development costs of approximately $1.9 million, $2.0 million, and $2.3 million in 2010, 2009 and 2008, respectively.

The Company also makes investments in brand marketing to properly communicate the specific attributes and qualities of its products. The Company advertises directly to the consumer or end user as well as through its retail partners in the form of advertising and other promotional allowances.

Competition

Escalade is subject to competition with various manufacturers in each product line produced or sold by Escalade. The Company is not aware of any other single company that is engaged in both the same industries as Escalade or that produces the same range of products as Escalade within such industries. Nonetheless, competition exists for many Escalade products within both the Sporting Goods and Information Security and Print Finishing industries. Some competitors are larger and have substantially greater resources than the Company. Escalade believes that its long-term success depends on its ability to strengthen its relationship with existing customers, attract new customers and develop new products that satisfy the quality and price requirements of Sporting Goods and Information Security and Print Finishing customers.

Licenses, Trademarks and Brand Names

The Company has an agreement and contract with Sweden Table Tennis AB for the exclusive right and license to distribute and produce table tennis equipment under the brand name STIGA® for the United States and Canada. The Company also owns several registered trademarks and brand names including but not limited to Ping-Pong®, Bear Archery®, Goalrilla ä , The Step®, and Wood Play® which are used in the Sporting Goods business segment and intimus® and papermonster® which are used in the Information Security and Print Finishing business segment.

Backlog and Seasonality

Sales are based primarily on standard purchase orders and in most cases orders are shipped within the same month received. Unshipped orders at the end of the fiscal year (backlog), were not material, and therefore not an indicator of future results. Increased diversity in product categories, such as playground and basketball, over the past few years has helped the Company achieve more evenly distributed revenues in Sporting Goods. The Company does not expect Sporting Goods sales to be seasonal in the future. Demand for Information Security and Print Finishing has not been seasonal and is not expected to be so in the future.

Employees

The number of employees at December 25, 2010 and December 26, 2009 for each business segment were as follows:

		2010			2009
Sporting Goods
USA		284				259
Mexico		98				104
Asia		8				8
		390				371
Information Security and Print Finishing
USA		89				93
Europe		121				128
Asia		8				8
		218				229
Total		608				600

The I.U.E./C.W.A. (United Electrical Communication Workers of America, AFL-CIO) represents hourly rated employees at the Escalade Sports’ Evansville, Indiana distribution center. There are approximately 14 covered employees at December 25, 2010. A 3-year labor contract was negotiated and renewed in April 2009; the new agreement expires on April 30, 2012. Management believes it has satisfactory relations with its employees.

Sources of Supplies

Raw materials for Escalade’s various product lines consist of wood, steel, plastics, fiberglass and packaging. Escalade relies upon suppliers in various countries and upon various third party Asian manufacturers for certain of its game tables and non-security paper shredders. The Company believes that these sources will continue to provide adequate supplies as needed and that all other materials needed for the Company’s various operations are available in adequate quantities from a variety of domestic and foreign sources.

SEC Reports

The Company’s internet site (www.escaladeinc.com) makes available free of charge to all interested parties the Company’s annual report on Form 10-K, quarterly reports on Form 10-Q, and current reports on Form 8-K, and all amendments to those reports, as well as all other reports and schedules filed electronically with the Securities and Exchange Commission (the “Commission”), as soon as reasonably practicable after such material is electronically filed with or furnished to the Commission. Interested parties may also find reports, proxy and information statements and other information on issuers that file electronically with the Commission at the Commission’s internet site (http://www.sec.gov).

Overall sales in Information Security and Print Finishing declined in 2010, as well as in 2008 and 2009. The 2010 loss is due mainly to continued weakness in the global office products channel and the government sales channel primarily in the United States and the United Kingdom and prolonged economic weakness in Spain and certain other European countries. Sales in Sporting Goods increased in 2010, reversing a decline in sales in 2006 through 2009. A significant portion of Sporting Goods 2008 and 2009 sales declines were a result of the loss of major customer. Sales in Information Security and Print Finishing may further decline in 2011 and sales in Sporting Goods may not continue to increase in 2011. Recovering or replacing these declining or lost sales will be a significant challenge. The Company cannot provide any assurance that it will be able to recover or replace all or any portion of declining or lost sales.

If the Company would lose significant customers in the future, the Company may have difficulty in replacing such lost revenues.

The Company has several large customers and historically has derived substantial revenues from those customers. The Company needs to continue to expand its customer base to minimize the effects of the loss of any single customer in the future. If sales to one or more significant customers would be lost or materially reduced, there can be no assurance that the Company will be able to replace such revenues, which losses could have a material adverse effect on the Company’s business, results of operations and financial condition.

Markets are highly competitive and the Company may not continue to compete successfully.

The market for sporting goods and information security and print finishing products is highly fragmented and intensely competitive. Escalade competes with a variety of regional, national and international manufacturers for customers, employees, products, services and other important aspects of the business. In Sporting Goods, the Company has historically sold a large percentage of its sporting goods products to mass merchandisers, and has increasingly attempted to expand sales to specialty retailer and dealer markets. Similarly, the Company has traditionally sold information security and print finishing products to office products retailers, specialty machine dealers and government channels. In addition to competition for sales into those distribution channels, vendors also must compete in sporting goods with large format sporting goods stores, traditional sporting goods stores and chains, warehouse clubs, discount stores and department stores, and in information security and print finishing products with office supply superstores, computer and electronics superstores, contract stationers, and others. Some of the current and potential competitors are larger than Escalade and have substantially greater financial resources that may be devoted to sourcing, promoting and selling their products, and may discount prices more heavily than the Company can afford.

If the Company is unable to predict or react to changes in consumer demand, it may lose customers and sales may decline.

Quarterly operating results are subject to fluctuation.

Operating results have fluctuated from quarter to quarter in the past, and the Company expects that they will continue to do so in the future. Earnings may not recover to historical levels and may fall short of either a prior fiscal period or market expectations. Factors that could cause these quarterly fluctuations include the following: international, national and local general economic and market conditions; the size and growth of the overall Sporting Goods and Information Security and Print Finishing markets; intense competition among manufacturers, marketers, distributors and sellers of products; demographic changes; changes in consumer preferences; popularity of particular designs, categories of products and sports; seasonal demand for products; the size, timing and mix of purchases of products; fluctuations and difficulty in forecasting operating results; ability to sustain, manage or forecast growth and inventories; new product development and introduction; ability to secure and protect trademarks, patents and other intellectual property; performance and reliability of products; customer service; the loss of significant customers or suppliers; dependence on distributors; business disruptions; increased costs of freight and transportation to meet delivery deadlines; changes in business strategy or development plans; general risks associated with doing business outside the United States, including, without limitation: exchange rates, import duties, tariffs, quotas and political and economic instability; changes in government regulations; any liability and other claims asserted against the Company; ability to attract and retain qualified personnel; and other factors referenced or incorporated by reference in this Form 10-K and any other filings with the Securities and Exchange Commission.

Operating results may be impacted by changes in the economy that impact business and consumer spending.

Growth may strain resources, which could adversely affect the Company’s business and financial performance.

Both the Sporting Goods and Information Security and Print Finishing businesses have grown in the past through strategic acquisitions. Growth places additional demands on management and operational systems. If the Company is not successful in continuing to support operational and financial systems, expanding the management team and increasing and effectively managing customers and suppliers, growth may result in operational inefficiencies and ineffective management of the Company’s business, which could adversely affect its business and financial performance.

The Company’s business may be adversely affected by the actions of and risks associated with third-party suppliers.

The raw materials that the Company purchases for manufacturing operations and many of the products that it sells are sourced from a wide variety of third-party suppliers. The Company cannot control the supply, design, function or cost of many of the products that are offered for sale and are dependent on the availability and pricing of key materials and products. Disruptions in the availability of raw materials used in production of these products may adversely affect sales and result in customer dissatisfaction. In addition, global sourcing of many of the products sold is an important factor in the Company’s financial performance. The ability to find qualified suppliers and to access products in a timely and efficient manner is a significant challenge, especially with respect to goods sourced outside the United States. Political instability, the financial instability of suppliers, merchandise quality issues, trade restrictions, tariffs, currency exchange rates, transport capacity and costs, inflation and other factors relating to foreign trade are beyond the Company’s control.

Intellectual property rights are valuable, and any inability to protect them could reduce the value of products.

International operations expose the Company to the unique risks inherent in foreign operations.

The Company has operations in Mexico, Europe and Asia. Foreign operations encounter risks similar to those faced by U.S. operations, as well as risks inherent in foreign operations, such as local customs and regulatory constraints, control over product quality and content, foreign trade policies, competitive conditions, foreign currency fluctuations and unstable political and economic conditions. Economic conditions and instabilities in Mexico have hampered the Company’s efforts to sell its Reynosa, Mexico facility which has been on the market since the fourth quarter of 2008. The Company’s international operations headquartered in Germany and its business relationships in Asia further increase its exposure to these foreign operating risks, which could have an adverse impact on the Company’s international income and worldwide profitability.

The Company could be adversely affected by changes in currency exchange rates and/or the value of the United States dollar.

The Company is exposed to risks related to the effects of changes in foreign currency exchange rates and the value of the United States dollar. Changes in currency exchange rates and the value of the United States dollar can have a significant impact on earnings from international operations. While the Company carefully watches fluctuations in currency exchange rates, these types of changes can have material adverse effects on the Company’s business, results of operations and financial condition.

Failure to improve and maintain the quality of internal controls over financial reporting could materially and adversely affect the ability to provide timely and accurate financial information, which could harm the Company’s reputation and share price.

Management is responsible for establishing and maintaining adequate internal controls over financial reporting for the Company to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements in accordance with generally accepted accounting principles. Management cannot be certain that weaknesses and deficiencies in internal controls will not arise or be identified or that the Company will be able to correct and maintain adequate controls over financial processes and reporting in the future. Any failure to maintain adequate controls or to adequately implement required new or improved controls could harm operating results or cause failure to meet reporting obligations in a timely and accurate manner. Ineffective internal controls over financial reporting could also cause investors to lose confidence in reported financial information, which could adversely affect the trading price of the Company’s common stock.

Disclosure controls and procedures are designed to provide reasonable assurance of achieving their objectives. However, management, including the Chief Executive Officer and Chief Financial Officer, does not expect that disclosure controls and procedures will prevent all errors and all fraud. A control system, no matter how well conceived and operated, can provide only reasonable, not absolute, assurance that the objectives of the control system are met. Further, the design of a control system must reflect the fact that there are resource constraints, and the benefits of controls must be considered relative to their costs. Because of inherent limitations in all control systems, no evaluation of controls can provide absolute assurance that all control issues and instances of fraud, if any, have been detected.

Failure to effectively implement the Company’s global integrated information system could cause incorrect information or delays in getting information which could adversely affect the performance of the Company.

The Company replaced its Enterprise Risk Planning (ERP) system with the Oracle E-Business suite at certain locations, specifically the Martin Yale North America location and one business entity within Sporting Goods. These implementations were completed as of the beginning of 2009. The Company has been in the process of re-evaluating further roll-out of the Oracle system or replacement with another system. As of the end of 2010, the Company replaced the Oracle system at Martin Yale North America and is currently assessing potential replacement of its legacy systems and the one remaining Oracle application. Should the Company decide to fully abandon the Oracle system, the remaining book value of the Oracle system of approximately $5.2 million ($3.4 million, net of tax) would be expensed over the estimated remaining economic life of the system. A decision regarding full implementation options has not been made. There can be no assurance the Company will have the necessary funds or the staff to fully avail itself of the control features inherent in the system design. Without such utility, the Company management is faced with cumbersome and time consuming efforts to manually consolidate its financial information.

The preparation of the Company’s financial statements requires the use of estimates that may vary from actual results.

The preparation of consolidated financial statements in conformity with accounting principles generally accepted in the United States requires management to make significant estimates that may affect financial statements. Due to the inherent nature of making estimates, actual results may vary substantially from such estimates, which could materially adversely affect the Company’s business, results of operations and financial condition. For more information on the Company’s critical accounting estimates, please see the Critical Accounting Estimates section of this Form 10-K.

Changes in accounting standards could impact reported earnings and financial condition.

The accounting standard setters, including the Financial Accounting Standards Board, the International Accounting Standards Board, the Securities and Exchange Commission and the Public Company Accounting Oversight Board, periodically change the financial accounting and reporting standards that govern the preparation of the Company’s consolidated financial statements. These changes can be hard to predict and apply and can materially affect how the Company records and reports its financial condition and results of operations. In some cases, the Company could be required to apply a new or revised standard retrospectively, which may result in the restatement of prior period financial statements.

The Company is a multi-national, multi-channel provider of sporting goods and information security and print finishing products. As a result, the Company’s effective tax rate is derived from a combination of applicable tax rates in the various countries, states and other jurisdictions in which the Company operates. The effective tax rate may be lower or higher than its tax rates have been in the past due to numerous factors, including the sources of income, any agreement with taxing authorities in various jurisdictions, the tax filing positions taken in various jurisdictions and changes in the political environment in the jurisdictions in which the Company operates. The Company bases estimates of an effective tax rate at any given point in time upon a calculated mix of the tax rates applicable to the Company and to estimates of the amount of business likely to be done in any given jurisdiction. The loss of one or more agreements with taxing jurisdictions, a change in the mix of business from year to year and from country to country, changes in rules related to accounting for income taxes, changes in tax laws and any of the multiple jurisdictions in which the Company operates, or adverse outcomes from tax audits that the Company may be subject to in any of the jurisdictions in which the Company operates, could result in an unfavorable change in the effective tax rate which could have an adverse effect on the Company’s business and results of operations.

The market price of Escalade’s common stock is likely to be highly volatile as the stock market in general can be highly volatile.

The public trading of Escalade’s common stock is based on many factors, which could cause fluctuation in the Company’s stock price. These factors may include, among other things:

	●	General economic and market conditions;
	●	Actual or anticipated variations in quarterly operating results;
	●	Lack of research coverage by securities analysts;
	●	Relatively low market capitalization resulting in low trading volume in the Company’s stock;
	●	If securities analysts provide coverage, our inability to meet or exceed securities analysts’ estimates or expectations;
	●	Conditions or trends in the Company’s industries;
	●	Changes in the market valuations of other companies in the Company’s industries;
	●	Announcements by the Company or the Company’s competitors of significant acquisitions, strategic partnerships, divestitures, joint ventures or other strategic initiatives;
	●	Capital commitments;
	●	Additions or departures of key personnel;
	●	Sales and repurchases of the Company’s common stock; and
	●	The ability to maintain listing of the Company’s common stock on the NASDAQ Global Market.

Through sales and marketing activities, the Company collects and stores certain information that customers provide to purchase products or services or otherwise communicate and interact with the Company. Despite instituted safeguards for the protection of such information, the Company cannot be certain that all of its systems are entirely free from vulnerability to attack. Computer hackers may attempt to penetrate the Company’s network security and, if successful, misappropriate confidential customer or business information. In addition, an employee, a contractor or other third party with whom the Company does business may attempt to circumvent the Company’s security measures in order to obtain such information or inadvertently cause a breach involving such information. Loss of customer or business information could disrupt operations, damage the Company’s reputation, and expose the Company to claims from customers, financial institutions, payment card associations and other persons, any of which could have an adverse effect on the Company’s business, results of operations and financial condition. In addition, compliance with tougher privacy and information security laws and standards may result in significant expense due to increased investment in technology and the development of new operational processes.

These risks are not exhaustive.

Other sections of this Form 10-K may include additional factors which could adversely impact the Company’s business and financial performance. Moreover, the Company operates in a very competitive and rapidly changing environment. New risk factors emerge from time to time and it is not possible for management to predict all risk factors, nor can the Company assess the impact of all factors on business or the extent to which any factor, or combination of factors, may cause actual results to differ materially from those contained in any forward-looking statements. Given these risks and uncertainties, investors should not place undue reliance on forward-looking statements as a prediction of actual results.

None.

At December 25, 2010, the Company operated from the following locations:

Location	Square Footage	Owned or Leased	Use
Sporting Goods
Evansville, Indiana, USA	359,000	Owned	Distribution; sales and marketing; administration
Olney, Illinois, USA	108,500	Leased	Manufacturing and distribution
Gainesville, Florida, USA	154,200	Owned	Manufacturing and distribution
Rosarito, Mexico	66,500	Owned	Manufacturing and distribution
Rosarito, Mexico	108,200	Leased	Manufacturing
Reynosa, Mexico	126,800	Owned	Idle
Raleigh, N. Carolina, USA	69,800	Leased	Manufacturing and distribution
Jacksonville, Florida, USA	18,000	Leased	Sales and marketing
Shanghai, China	650	Leased	Sales and sourcing

Information Security and Print Finishing
Wabash, Indiana, USA	141,000	Owned	Manufacturing and distribution; sales and marketing; administration
Markdorf, Germany	70,300	Owned	Manufacturing and distribution; sales and marketing; administration
Paris, France	1,335	Leased	Distribution; sales and marketing
Crawley, UK	8,300	Leased	Sales and marketing
Barcelona, Spain	8,600	Leased	Distribution; sales and marketing
Johannesburg, South Africa	4,800	Leased	Distribution; sales and marketing
Sollentuna, Sweden	1,400	Leased	Sales and marketing
Beijing, China	1,400	Leased	Sales and marketing

At the end of 2010, the Company has one idle facility. The Company completed the consolidation of the Mexican production facilities into the Rosarito, Mexico location in February 2009. The Reynosa facility is on the market to be sold; however, due to market conditions and tightened credit, the Company cannot be assured the facility will be sold within one year and has, therefore, classified the asset as held for use in the Company’s financial statements. The Company believes that its facilities are in satisfactory and suitable condition for their respective operations. The Company also believes that it is in material compliance with all applicable environmental regulations and is not subject to any proceeding by any federal, state or local authorities regarding such matters. The Company provides regular maintenance and service on its plants and machinery as required.

The Company is involved in litigation arising in the normal course of its business, but the Company does not believe that the disposition or ultimate resolution of such claims or lawsuits will have a material adverse affect on the business or financial condition of the Company.

The Company is not aware of any probable or levied penalties against the Company relating to the American Jobs Creation Act.

Part II

The Company’s common stock is traded under the symbol “ESCA” on the NASDAQ Global Market. The following table sets forth, for the calendar periods indicated, the high and low sales prices of the Common Stock as reported by the NASDAQ Global Market:

Prices		High				Low
2010
Fourth quarter ended December 25, 2010		$	6.65			$	4.27
Third quarter ended October 2, 2010			5.80				4.14
Second quarter ended July 10, 2010			5.52				2.46
First quarter ended March 20, 2010			3.00				2.21
2009
Fourth quarter ended December 26, 2009		$	3.07			$	1.96
Third quarter ended October 3, 2009			3.44				0.72
Second quarter ended July 11, 2009			1.48				0.43
First quarter ended March 21, 2009			1.15				0.30
2008
Fourth quarter ended December 27, 2008		$	2.54			$	0.48
Third quarter ended October 4, 2008			5.40				2.51
Second quarter ended July 12, 2008			9.14				4.80
First quarter ended March 22, 2008			9.39				8.00

The closing market price on February 9, 2011 was $5.75 per share.

Record Date	Payment Date		Amount per Common Share
March 14, 2008	March 21, 2008		$	0.25
November 22, 2010	December 6, 2010		$	0.10

There were approximately 188 holders of record of the Company’s Common Stock at February 8, 2011. The approximate number of stockholders, including those held by depository companies for certain beneficial owners, was 1,237.

SHAREHOLDER RETURN PERFORMANCE GRAPH

Set forth below is a line graph comparing the yearly percentage change in the cumulative total shareholder return on the Company’s common stock with that of the cumulative total return on the NASDAQ US Stock Market Index and the NASDAQ Non-Financial Stocks Index for the five year period ended December 25, 2010. The following information is based on an investment of $100, on January 1, 2005, in the Company’s common stock, the NASDAQ US Stock Market Index and the NASDAQ Non-Financial Stocks Index, with dividends reinvested.

COMPARISON OF FIVE YEAR CUMULATIVE TOTAL RETURN

		2005			2006			2007			2008			2009			2010
Escalade Common Stock		100			93			81			7			23			58
NASDAQ US Stock Index		100			110			119			57			83			98
NASDAQ Non-Financial Stock Index		100			110			124			57			86			102

The above performance graph does not constitute soliciting material and should not be deemed filed or incorporated by reference into any other Company filing under the Securities Act of 1933 or the Securities Exchange Act of 1934, except to the extent the Company specifically incorporates the performance graph by reference therein.

ISSUER PURCHASES OF EQUITY SECURITIES

Period

(a) Total Number of Shares (or Units) Purchased

(b) Average Price Paid per Share (or Unit)

(c) Total Number of Shares (or Units) Purchased as Part of Publicly Announced Plans or Programs

(d) Maximum Number (or Approximate Dollar Value) of Shares (or Units) that May Yet Be Purchased Under the Plans or Programs

Share purchases prior to 10/02/2010 under the current repurchase program.

982,916

$

8.84

982,916

$

2,273,939

Fourth quarter purchases:

10/03/2010 – 10/30/2010

None

None

None

No Change

10/31/2010 – 11/27/2010

None

None

None

No Change

11/28/2010 – 12/25/2010

None

None

None

No Change

Total share purchases under the current program

982,916

$

8.84

982,916

$

2,273,939

The Company has one stock repurchase program which was established in February 2003 by the Board of Directors and which initially authorized management to expend up to $3,000,000 to repurchase shares on the open market as well as in private negotiated transactions. In each of February 2005 and 2006, August 2007 and February 2008 the Board of Directors increased the remaining balance on this plan to its original level of $3,000,000. The repurchase plan has no termination date and there have been no share repurchases that were not part of a publicly announced program.

(In thousands, except per share data)

At and For Years Ended		December 25, 2010				December 26, 2009				December 27, 2008				December 29, 2007				December 30, 2006
Income Statement Data
Net revenue
Sporting Goods		$	85,815			$	76,807			$	98,039			$	129,788			$	136,733
Information Security and Print Finishing			34,841				39,192				50,647				55,788				54,732
Total net sales			120,656				115,999				148,686				185,576				191,465
Net income (loss)			6,059				1,657				(7,496	)			9,255				8,495
Weighted-average shares			12,726				12,632				12,684				12,901				13,012
Per Share Data
Basic earnings (loss) per share		$	0.48			$	0.13			$	(0.59	)		$	0.72			$	0.65
Cash dividends		$	0.10			$	—			$	0.25			$	0.22			$	0.20
Balance Sheet Data
Working capital			24,132				9,688				4,842				31,442				33,125
Total assets			127,553				127,238				147,701				152,016				150,715
Short-term bank debt			11,407				27,644				46,525				13,033				10,336
Long-term bank debt			7,500				—				—				19,135				22,609
Total stockholders’ equity			87,030				82,764				78,790				91,742				85,715

Fiscal year 2010 was positively impacted by increased sales in the Sporting Goods segment, as well as continued efforts at cost reduction, and improved margins resulting from higher sales volumes.

Fiscal year 2009 was positively impacted by significant cost reductions and consolidation of certain manufacturing and distributions facilities.

Fiscal year 2008 was negatively impacted by loss of sales to Sears, a major sporting goods retailer, impairment of certain long-lived assets and a general economic downturn.

Fiscal year 2007 was positively impacted by the sale of rights to license potential future intellectual property.

Fiscal year 2006 was adversely impacted by the completion of a plan to rationalize certain products in the Information Security and Print Finishing business.

The following section should be read in conjunction with Item 1: Business; Item 1A: Risk Factors; Item 6: Selected Financial Data; and Item 8: Financial Statements and Supplementary Data.

Forward-Looking Statements

This report contains forward-looking statements relating to present or future trends or factors that are subject to risks and uncertainties. These risks include, but are not limited to, the impact of competitive products and pricing, product demand and market acceptance, new product development, the continuation and development of key customer and supplier relationships, Escalade’s ability to control costs, general economic conditions, fluctuation in operating results, changes in the securities market, Escalade’s ability to obtain financing and to maintain compliance with the terms of such financing and other risks detailed from time to time in Escalade’s filings with the Securities and Exchange Commission. Escalade’s future financial performance could differ materially from the expectations of management contained herein. Escalade undertakes no obligation to release revisions to these forward-looking statements after the date of this report.

Overview

Escalade, Incorporated (“Escalade” or “Company”) manufactures and distributes products for two industries: Sporting Goods and Information Security and Print Finishing. As mentioned above in Item 1 - Business, the Martin Yale Group business segment historically referred to as “Office Products” is now referred to as “Information Security and Print Finishing” to more accurately describe this line of business. Martin Yale Group has increasingly focused its strategy on expanding this segment of its business to assist businesses and governments with their high security needs for handling sensitive customer, employee and business documents and information, in addition to Martin Yale’s traditional product offerings.

Within these industries the Company has successfully built a market presence in niche markets. This strategy is heavily dependent on expanding the customer base, barriers to entry, brand recognition and excellent customer service. A key strategic advantage is the Company’s established relationships with major customers that allow the Company to bring new products to market in a cost effective manner while maintaining a diversified product line and wide customer base. In addition to strategic customer relations, the Company has substantial manufacturing and import experience that enable it to be a low cost supplier.

		2010			2009			2008
Net revenue
Sporting Goods		11.7	%		-21.7	%		-24.5	%
Information Security and Print Finishing		-11.1	%		-22.6	%		-9.2	%
Total		4.0	%		-22.0	%		-19.9	%
Net income		265.6	%		122.1	%		-181.0	%

Results of Operations

The following schedule sets forth certain consolidated statement of operations data as a percentage of net revenue for the periods indicated:

		2010				2009				2008
Net revenue			100.0	%			100.0	%			100.0	%
Cost of products sold			69.2	%			70.9	%			75.4	%
Gross margin			30.8	%			29.1	%			24.6	%
Selling, administrative and general expenses			22.9	%			25.4	%			26.8	%
Impairment of assets			0.0	%			0.0	%			1.8	%
Amortization			1.1	%			2.0	%			1.5	%
Operating income (loss)			6.8	%			1.7	%			(5.5	%)

Consolidated Revenue and Gross Margin

Sales growth across most sales channels of the Sporting Goods segment resulted in an overall increase of 11.7% in Sporting Goods net revenues for 2010 compared to 2009. Revenues from the Information Security and Print Finishing business decreased 11.1% in 2010 compared to 2009. Approximately 1% of the decline in Information Security and Print Finishing revenue is due to changes in foreign exchange rates. The remaining decline is a result of continued weakness in the office products channel and the government sales channel and prolonged economic weakness in Spain and certain other European countries.

The Company continued to make productivity improvements in 2010 in the Sporting Goods segment and reduced unfavorable manufacturing variances as a result of higher sales in 2010 compared to 2009. The overall gross margin percentage in 2010 in the Sporting Goods business increased to 27.2% compared to 22.9% for 2009. The overall gross margin in 2010 decreased in the Information Security and Print Finishing business to 39.8% compared to 41.3% in 2009, primarily as a result of lower sales volume which generated under absorbed factory variances.

Consolidated Selling, General and Administrative Expenses

Consolidated selling, general and administrative expenses (“SG&A”) were $27.7 million in 2010 compared to $29.5 million in 2009, a decrease of $1.8 million or 6%. The Company was able to reduce SG&A costs and still invest additional funds in marketing efforts to promote brand recognition and new product launches.

Other Income

Other income decreased in 2010 compared to 2009, partially due to a reduction in dividend income. Additionally, in 2009, the Company recognized a one-time gain on the sale of marketable equity securities of approximately $0.4 million. This gain was a partial recovery of the previously recorded impairment. This gain, which was not repeated in 2010, was mostly offset by an increase in income from non-marketable equity investments of approximately $0.4 million. Income from non-marketable equity investments was $2.0 million in 2010 compared with $1.6 million in 2009.

Provision for Income Taxes

The effective income tax rate in 2010 was lower relative to 2009 primarily due to an over accrual of a potential tax audit liability which was settled in 2010. The effective tax rate for 2010 was 33.2% compared to 36.4% and 26.4% in 2009 and 2008 respectively. The Company expects its future effective tax rates to approximate the effective tax rate achieved in 2009.

Sporting Goods

Net revenues, operating income (loss), and net income (loss) for the Sporting Goods business segment for the three years ended December 25, 2010 were as follows:

In Thousands		2010				2009				2008
Net revenue		$	85,815			$	76,807			$	98,039
Operating income (loss)			9,171				4,610				(6,250	)
Net income (loss)			4,601				1,273				(5,428	)

Net revenue increased 11.7% in 2010 compared to 2009 with growth coming from most sales channels in the Sporting Goods segment. The Company continues to aggressively pursue opportunities to increase revenue through introduction of new products, expansion of product distribution, and increased investment in consumer marketing. Sales channels are predominately mass market retail customers, specialty retailers, and dealers.

Gross margin and profitability increased in 2010 compared with 2009. The gross margin ratio in 2010 improved to 27.2% in 2010 compared to 22.9% in the prior year. The improvement is due to continued focus on production efficiencies and better factory absorption resulting from increased sales volume. As a result, operating income as a percentage of net revenue increased to 10.7% in 2010 compared to 6.0% in 2009. Management anticipates that with additional sales growth in 2011, improvements in margins will continue. Net income for 2010 increased from 2009 due primarily to increased revenue.

Information Security and Print Finishing

Net revenue, operating income, and net income (loss) for the Information Security and Print Finishing business segment for the three years ended December 25, 2010 were as follows:

In Thousands		2010				2009				2008
Net revenue		$	34,841			$	39,192			$	50,647
Operating income			926				1,780				3,930
Net income (loss)			(187	)			1,077				1,835

Sales in the Information Security and Print Finishing business declined 11.1% in 2010 compared to 2009 primarily due to the continued weakness in the global office products channel and the government channel. The Company has widened its product range to improve its opportunities in the information security and print finishing markets. Excluding the effect of changes in foreign exchange rates, 2010 sales were down 10.5% from 2009. Sales are direct to end users, including government agencies, as well as through office products retailers, wholesalers, specialty dealers, and business partners.

Profitability in the Information Security and Print Finishing segment decreased in 2010 as evidenced by the ratio of operating income to net revenues which declined to 2.7% in 2010 compared to 4.5% in 2009. The primary reasons for this decline in profitability are under absorbed factory variances due to low sales and changes in product mix, an increasingly competitive environment, and foreign exchange rate fluctuations. Management anticipates increased sales due to a broadening of the product portfolio and enhanced focus on sales opportunities in 2011 will help improve operating income.

Financial Condition and Liquidity

The current ratio, a basic measure of liquidity (current assets divided by current liabilities), increased to 1.8 in 2010 from 1.2 in 2009. The primary reason for the improvement in current ratio is a reduction in debt to $18.9 million in 2010 down from $27.6 million in 2009. In addition, the Company restructured a portion of debt to long-term in 2010. The remaining current assets and current liabilities increased proportionally to the increase in net revenue.

The Company’s generation of cash was principally a result of increased profits resulting from stronger sales and improvements in gross margin. The Company paid a dividend in the amount of $1.3 million in 2010. As a result of improved profits, the Company was able to reduce borrowings at year end by $8.7 million which improved total bank debt as a percent of stockholders equity to 21.7% in 2010, down from 33.4% in 2009.

In 2011, the Company expects capital expenditures to be approximately $2.0 million unless the Company resumes implementation of an integrated information system, which would require additional capital expenditures. The costs and timing of resuming this project is currently being evaluated. Should the Company decide to abandon the Oracle system, the remaining book value of the Oracle system of approximately $5.2 million ($3.4 million, net of tax) would be expensed over the estimated remaining economic life of the system.

The Company’s working capital requirements are primarily funded through cash flows from operations and revolving credit agreements with its bank. During 2010, the Company’s maximum borrowings under its primary revolving credit lines totaled $27.6 million compared to $48.8 million in 2009. Total notes payable as of the end of fiscal 2010 was $18.9 million compared with $27.6 million at the end of fiscal 2009. The overall effective interest rate in 2010 was 4.9% which was slightly higher than the effective rate of 4.4% in 2009. The Company’s Credit Agreement with JPMorgan Chase Bank, N.A. matures as of May 31, 2012. The Company also maintains a multicurrency overdraft facility with its bank. The total amount outstanding under the overdraft facility at the end of fiscal 2010 was $1.6 million compared with $0.2 million at the end of fiscal 2009.

The Company has a long standing relationship with its lender and has met all financial covenants under the new agreement which was amended as of May 31, 2010. The Company has taken significant actions to preserve cash, increase liquidity and position it to operate in very difficult economic conditions. Specifically, the Company continues to benefit from the consolidation of three manufacturing plants into one thus eliminating the burdens of excess capacity that negatively affected 2008. It has increased prices, reduced head counts, and implemented other overall expense savings. As a result, as mentioned above, the Company lowered its bank debt in 2010 by approximately 31.6% to $18.9 million, excluding the amounts outstanding under the overdraft facility of $1.6 million. The Company operates in an industry which has been adversely affected by the current economic conditions.

The Company expects improvements in its overall sales levels for fiscal year 2011, above those experienced in 2010, as a result of new product offerings and expanded customer base. The Company believes that cash generated from its projected 2011 operations, and the commitment of borrowings from its primary lender will provide it with sufficient cash flows for its operations.

It is possible that if the economic conditions deteriorate, this could have adverse effects on the Company’s ability to operate profitably during fiscal year 2011. To the extent that occurs, management intends to pursue additional cost reductions and to continue realigning its infrastructure in an effort to match the Company’s overhead and cost structure with the sales level dictated by current market conditions.

New Accounting Pronouncements

Refer to Note 1 to the consolidated financial statements under the sub-heading “New Accounting Pronouncements”.

Off Balance Sheet Financing Arrangements

The Company has no financing arrangements that are not recorded on the Company’s balance sheet.

Contractual Obligations

The following schedule summarizes the Company’s contractual obligations as of December 25, 2010:

Amounts in thousands		Payments Due by Period
Contractual Obligations		Total				Less than 1 year				1 –3 years				3 – 5 years				More than 5 years
Debt		$	18,907			$	11,407			$	4,000			$	3,500			$	—
Overdraft facility			1,585				1,585				—				—				—
Future interest payments (1)			2,260				1,360				650				250				—
Operating leases			1,391				873				452				66				—
Minimum payments under royalty and license agreements			3,185				430				880				750				1,125
Total		$	27,328			$	15,655			$	5,982			$	4,566			$	1,125

Notes:

(1) Assumes that the Company will not increase borrowings under its long-term credit agreements and that the effective interest rate experienced in 2010 of 4.9% will continue for the life of the agreements.

Critical Accounting Estimates

The methods, estimates and judgments used in applying the Company’s accounting policies have a significant impact on the results reported in its financial statements. Some of these accounting policies require difficult and subjective judgments, often as a result of the need to make estimates of matters that are inherently uncertain. The most critical accounting estimates are described below and in the Notes to the Consolidated Financial Statements.

Product Warranty

The Company provides limited warranties on certain of its products, for varying periods. Generally, the warranty periods range from 90 days to one year. However, some products carry extended warranties of seven-year, ten-year, and lifetime warranties. The Company records an accrued liability and expense for estimated future warranty claims based upon historical experience and management’s estimate of the level of future claims. Changes in the estimated amounts recognized in prior years are recorded as an adjustment to the accrued liability and expensed in the current year. To the extent there are product defects in current products that are unknown to management and do not fall within historical defect rates, the product warranty reserve could be understated and the Company could be required to accrue additional product warranty costs thus negatively affecting gross margin.

Inventory Valuation Reserves

The Company evaluates inventory for obsolescence and excess quantities based on demand forecasts over specified time frames, usually one year. The demand forecast is based on historical usage, sales forecasts and current as well as anticipated market conditions. All amounts in excess of the demand forecast are deemed to be potentially excess or obsolete and a reserve is established based on the anticipated net realizable value. To the extent that demand forecasts are greater than actual demand and the Company fails to reduce manufacturing output accordingly, the Company could be required to record additional inventory reserves which would have a negative impact on gross margin.

Allowance for Doubtful Accounts

The Company provides an allowance for doubtful accounts based upon a review of outstanding receivables, historical collection information and existing economic conditions. Accounts receivable are ordinarily due between 30 and 60 days after the issuance of the invoice. Accounts are considered delinquent when more than 90 days past due. Delinquent receivables are reserved or written off based on individual credit evaluation and specific circumstances of the customer. To the extent that actual bad debt losses exceed the allowance recorded by the Company, additional reserves would be required which would increase selling, general and administrative costs.

Advertising Subsidies

The Company enters agreements with certain retailers to pay for direct advertising programs and/or provide in-store display units. These agreements are not based on retailer purchase volumes and do not obligate the retailer to continue carrying the Company’s products in future years. The Company determines the value of the advertising services based on its own research and history of providing such services. The Company expenses these costs in the period in which they are incurred as a selling expense.

CO-OP Advertising

The Company offers co-operative advertising allowances to certain retailers to encourage product promotions. These agreements are typically based on a percentage of retailer purchases up to a maximum allowance and the Company is never directly involved with the media provider. The Company accrues the estimated cost of these programs based on the sales volume of the retailer and historical trends. As costs are accrued they are recorded as a reduction in sales. To the extent that actual co-operative advertising costs exceed the Company’s estimates, additional co-operative advertising allowances would be required which would reduce net revenues.

Volume Rebates

The Company has various rebate programs with certain retailers that are based on purchase volume. Typically these programs are based on achieving specified sales volumes and the rebate is calculated as a percentage of purchases. Based on the terms of the agreement, purchase levels and historical trends the Company accrues the estimated cost of these programs and records the same as a reduction in sales. To the extent that actual rebate program costs exceed the Company’s estimates, additional rebate program allowances would be required which would reduce net revenues.

Catalog Allowances

A number of large office supply dealers operate through catalogs distributed to businesses globally. Product content is decided by the dealer each time a new catalog is issued; typically once a year. Catalog allowances are required by the dealer as an inducement to include the Company’s products. The allowance is based on a fixed cost per page and/or a percentage of purchases by the dealer. The fixed portion of the allowance is often paid when the catalog is distributed and is recognized when incurred and the variable portion is accrued based on dealer purchases and historical trends. Catalog allowances are recorded as a reduction in sales. To the extent that actual catalog costs exceed the estimated costs associated with variable agreement provisions, additional catalog allowances would be required which would negatively impact net revenues.

Impairment of Goodwill

The Company annually tests as of the last day of its fiscal year for impairment of goodwill in accordance with guidance in FASB ASC 350, Intangibles – Goodwill and Other . Management determined the assumptions and inputs utilized in the evaluation of the fair value of the Company’s two separate reporting units, discussed below. The first phase of the goodwill impairment test requires that the fair value of the applicable reporting unit be compared with its recorded value. The Company establishes fair value by using an income approach or a combination of a market approach and an income approach. The market approach uses the guideline-companies method to estimate the fair value of a reporting unit based on reported sales of publicly-held entities engaged in the same or a similar business as the reporting unit. The income approach uses the discounted cash flow method to estimate the fair value of a reporting unit by calculating the present value of the expected future cash flows of the reporting unit. The discount rate is based on a weighted average cost of capital determined using publicly-available interest rate information on the valuation date and data regarding equity, size and country-specific risk premiums/decrements compiled and published by a commercial source. The Company uses assumptions about expected future operating performance in determining estimates of those cash flows, which may differ from actual cash flows.