Skull Candy Inc Executive Summary Analysis

by Jason Shaw
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Skull Candy Inc

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
  • 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
  • To develop a proven management teamand deeprooted business culture that meets the employees’ obligation sand requirements towards labor

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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

The trade registry sign of Skull Candy is SKUL, which was licenced on 20 July 2010.

2.2 Analysis of Consolidated Financial Data

The group’s major basic profits come from Skull Sweets, Astros Gamming and 2XL sales of headphones and audio devices that trade under the market names of the company. The total profits comprise the sums paid to dealers for cargo shipment and storage as well.

            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 investment also saw a decline of $0.2 million from $0.6 million in 2012 to $0.4 million in 2013. The revolving credit facility did not have any unpaid borrowings until 31 December 2013 and 2012.

2.35 Income Taxes

By 2013, the income tax gain had stood at $2.9 million relative to the income tax loss of $14.6 million in 2012, at the time of the publication of the financial statements. The company’s accrued effective tax rate was 48.7 percent and 36.0 percent for 2013 and 2012, respectively. This improvement in the effective rate of income tax will be brought about as a consequence of the company’s equity option swap scheme, 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-control includes a variation of the Mexico joint venture of the company acquired by other investors that are already in the midst of a joint venture. Skull candy Inc’s Net Loss Attribute is also a consideration to remember. Skull candy, Inc.’s loss was $3.0, a drop of $28.9 million relative to 2012’s accrued net profits.

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.

References
  • Edgar (2014) online available at: http://www.edgar-online.com

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