Executive Summary of Skull Candy Inc - Case Study Example

Executive Summary of Skull Candy Inc Skull Candy Report available at: http://www.edgar-online.com SKULLCANDY INC Fiscal Year Ended December 31st, 2013 Part I 1.1 Business Skull Candy Inc is well and effectively competitor in the business sector. The firm has developed some strategies to achieve their objectives towards realization of their future dreams, vision and a better business operation. These include: To be the leading authentic lifestyle brand among the competing sectors of business. To be the brand authenticity through high impact sponsorship from the able and willing parties and donors To develop a proven record of accomplishment in innovation targeted distribution model in the supply and distribution chain. To develop a proven management team and deep rooted business culture that meets the employees’ obligations and requirements towards labor production. 1.2 Risks Factors The incapability of the business to realize the future growth and development may have very negative effects towards to the firm’s future operating results. The reputation of the firm cannot have a rise by the existing or available strategies used in designing and marketing efforts. This is applicable since they do not properly result in a positive development towards the firm’s reputation and recognition of its brands. The firm in the end may not be able to have a successful implementation of growth and the strategies in place. This firm may also fail to compete effectively, which causes their net sales and market share to decline. Stagnation in the popularity or growth of the portable media device, smart phone and gaming console markets or if the products are no longer compatible with the devices may affect the business and financial condition. The results of operations cause material harm if the firm is unable to forecast accurately on demand for their products. There is also a fluctuation in the net sales and operational income on a seasonal basis. These may have an adverse affects to the financial condition of the retailers and distributors. The business may suffer if any of their manufacturers fail to use acceptable labor practices. If the firm experiences problems with their distribution network for domestic and international retailers, their ability to deliver their products to the market could too have an adverse affects. The current executive officers are critical to the loss and the success of any of these personnel, or other key individuals harm the business and brand image. If the company has no access to intellectual property rights or enforce rights against third parties who violate those rights hence the business could suffer. The product liability or warranty claims may end up in notable direct or indirect costs, which subject the firm to experience greater returns from retailers than expected. In such a case, the net sales suffer a decline in the end. The stock price is also subject to volatility. The credit facility provides their lenders with a first-priority lien against all assets and consists of financial obligations and other requirements on actions, which in turn, could limit the operational flexibility. If the internal controls over financial reporting are not of considerate, the business and stock price could attract negative impact. 1.3 Properties The executive office is at Utah on a 28000sq foot and another 11000 sq feet at California that is set for space expansion plus another 7500 sq feet for gaming purposes. In China, there is a total 20000 sq feet for other future development purposes and lastly, another 1000 sq feet in Tokyo, Japan, which serves as a marketing office site. 1.4 Legal Proceedings Anybody is free to sue the business at his or her own will just as the way the company also has the authority to sue any individual or person for any legal matters arising in a court of law. Part II 2.1 Registrations for Trade Skull Candy’s registration trade symbol is SKUL that was registered on 20 July 2010. 2.2 Analysis of Consolidated Financial Data The chief basic earnings of the company are from headphones and audio accessories sales under the Skull Candy, Astros Gamming and 2XL who operate under the company’s brand names. The net sales include the amounts billed to retailers for shipping and handling of cargos too. The product costs, packaging, freight, duties and warehousing all have an influence the cost of goods sold. Due to high labor costs and other related costs incurred in China, the company, therefore, experiences higher production costs. If the distributors could have elimination from the supply chain, the gross margin, therefore, could have decreased. Marketing and advertising expenses, wages, payroll and employees’ beneficiaries form part of the general and administrative expenses incurred by the business. They include the advertising costs, brand building fixtures, trade sponsorships, product promotions and sponsorship of athletes. 2.3 Management Discussions Analysis The net sales of the company have basis from the sale of the headphones and audio accessories under the Skull Candy, Astor Gamming and the Skull Candy brand names. Gross profit results from the cost of goods sold while total sells includes the total expenses incurred by the business. It is from this point that the net profit can have proper computation. 2.31 Analysis of the Results of Operations There was a decrease in the net sales to the tune of $87.6 million, which is a 29.4% decrease as compared to $ 210.1million in the year 2013 from $297.7 million in the year 2012. North America had a decrease in the net sales from $67.6 million equivalent to 30.4 % when compared to $155 million that is 73.8% of the net sales in the year 2013. In the past year, $222.6 million or 74.8 million of the net sales was accrued. Increased gaming and audio competition also went down at approximately 48.9% when compared to the year 2012. There was a decrease in the international sales of up to $55.1 million equivalent to 26.2% of the year 2013 net sales when compared to $75.1 million, equivalent to 25.2% of the previous year 2012. 2.32 Gross Profit The firm had a decrease in gross profit to $46.3 million, or 33.2%, to $93.1 million in 2013 from $139.4 million in 2012. As net sales, or gross margin profit reduce to 2.5 percentage points to 44.3% in 2013 from 46.8% in 2012. A case study of North America shows that the gross margin decreased to 2.3 percentage points to 43.9% from 46.2% in 2012. The international gross margin also had a reduced to 4.2 percentage points to 45.8% from 50.0% in 2012. 2.34 Interest Expense Interest expense also witnessed a decrease of $0.2 million, to $0.4 million in 2013 from $0.6 million in 2012. By December 31, 2013 and 2012, there were no any outstanding borrowings on the revolving credit facility. 2.35 Income Taxes By the time of releasing the financial report, the income tax benefit stood at $2.9 million by 2013 in comparison to the income tax expense of $14.6 million in 2012. For 2013 and 2012, the company’s accrued effective tax rate was 48.7% and 36.0%, respectively. This change in the effective income tax rate is could be brought by the result of the stock option exchange program the firm completed in September 2013. 2.36 Net Loss The total net loss in 2013 was $3.0 million, compared to net income of $25.8 in 2012. This shows a decrease of $28.8 million. 2.37 Non-controlling Interest Non- controlling entails a combination of the company’s Mexico joint venture achieved from other partners who are also in a joint venture process. Net Loss Attribute to Skull candy Inc is also a factor to consider. Loss in Skull candy, Inc. was $3.0, $28.9 million decrement in comparison to the accrued net income of the year 2012. 3.0 Liquidity and Capital Resources The firm’s primary cash needs are working capital and capital expenditures. In the previous scenarios, the firm had been financing such needs with operating cash flows and borrowings under their credit facility. These sources of liquidity may have an impact on fluctuations in demand for the products, ongoing investments in the infrastructure and expenditures on marketing and advertising. The company has been financing the primary cash need. The working capital and the capital expenditures have facilitation through the operating cash flows and borrowings results from credit facilities. The fluctuation in demand for the products, ongoing investments on infrastructure and the expenditure on marketing and advertising may influence the sources of liquidity mentioned. The net cash provided by operating actions in the year 2013, was $23.5 million, distributed amongst the net loss of $3.0 million, $11.8million on non-cash items, $14.7million on capital and other related activities. Non-cash items had $9.4 million of depreciation and amortization, $2.2million for the loss of disposal fixed assets, $1.3 for doubtful accounts and $3.6 million offset by reduction in accounts payable to $6.3million. The net cash used for the investing activities in the year 2013 was $ 4.1million for the purchase of the property and equipments. A total of $0.2 million was available for net cash used for financing activities, which majorly consisted of debt issuance costs. 4.0 Indebtedness The firm entered into a credit agreement on August 19, 2013 with Wells Fargo Bank National Association, which gave them a credit of $50 million. This credit facility is a security by guaranteeing of the company’s assets as surety for this borrowed credit. 5.0 Contractual Obligations The Company has leased an office through non-cancellable operating losses although these leases expire at different dates in the year 2018. Musicians, artists and athletes, are also under contractual obligations with the company on a 3-year term basis. Finally, the company also has contractual obligations with the warehouse distribution services through a third party supply chain providers. 6.0 Indemnification The officers and directors have indemnification in the occurrence of certain events during this period. The officers or directors are also equally in the same capacity. However, this indemnification is unlimited. Part III 3.1 Corporate Governance Information pertaining to the directors and executive officers required by this item will be in “Directors, Executive Officers and Corporate Governance” 3.2 Executive Compensation Information pertaining to this item is available in executive compensation and analysis in the main Statement, which has incorporation herein by reference. 3.3 Beneficial Owners’ Security Ownership and Management Related Stockholder Matters. Information in this item will be in “Security of Beneficial Owners and Equity Compensation Plan Information” in the Proxy Statement, which is found in reference report. 3.5 Director Independence, related transactions and relationships The information pertaining to this item is in “Certain Person transactions, Relationships, and Corporate Governance” that is realized from reference. 3.6 Principal Accountant Fees and Services Report relating to this item is in Pre-Approval of Audit and Non-Audit Services in the Proxy Statement, which has incorporation herein. Part IV 4.1 Signatures Through the pursuance to the requirements in securities exchange act of 1934 Section 13 or 15(d), the register has effectively made this report has verification by the relevant authorities in charge. Through the pursuance Securities Exchange Act of 1934, the register has effectively made this report be having verification from the relevant authorities in charge. SKULLCANDY, INC. Jason Hodell HOBY DARLING Chief Financial Officer Most senior executive officer and the director S. Hoby Darling DOUG COLLIER Senior Financial Officer Chairperson of the Board Rick Alden Jay Brown Director Director Jeff Kearl Scott Olivet Director Director Heidi O'Neill Director References Edgar (2014) online available at: http://www.edgar-online.com Read More