3-1 Final Project Milestone One: Financial Performance and Health

For this assignment, I have chosen to review the company Skull Candy. **The grading rubric is attached, along with three years of the SEC filings with have the statements needed on them. should be approximately 8-10 pages long (excluding title page, spreadsheets and
graphs, and references list). It should be double spaced, with 12-point Times New Roman font and one-inch margins, and should use the latest guidelines for APA
formatting for references and citations. Please also include your name, course name, and submission date on the title page.
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SKULLCANDY, INC.
FORM
10-K
(Annual Report)
Filed 03/17/14 for the Period Ending 12/31/13
Address
Telephone
CIK
Symbol
SIC Code
Industry
Sector
1441 West Ute Blvd
SUITE 250
park City, UT 84098
435-940-1545
0001423542
SKUL
3651 – Household Audio and Video Equipment
Audio & Video Equipment
Consumer Cyclical
http://www.edgar-online.com
© Copyright 2014, EDGAR Online, Inc. All Rights Reserved.
Distribution and use of this document restricted under EDGAR Online, Inc. Terms of Use.
Table of Contents
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
__________________________________________________
FORM 10-K
(Mark One)

ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT
OF 1934
For the fiscal year ended December 31, 2013
or

TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the transition period from
to
__________________________________________________
Commission file number 001-35240
__________________________________________________
SKULLCANDY, INC.
(Exact name of registrant as specified in its charter)
Delaware
56-2362196
(State or Other Jurisdiction of
Incorporation or Organization)
(I.R.S. Employer
Identification Number)
1441 West Ute Boulevard, Suite 250
Park City, Utah
84098
(Address of principal executive offices)
(Zip Code)
Registrantâ??s telephone number, including area code: (435) 940-1545
Securities registered pursuant to Section 12(b) of the Act:
Title of Class
Name of Exchange on which registered
Common Stock, $0.0001 par value per share
The NASDAQ Global Market
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 Act. Yes
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
No 
No

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 
No
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate website, if any, every Interactive Data
File required to be submitted and posted pursuant to Rule 405 of Regulations S-T (§ 232.405 of this chapter) during the preceding 12 months (or
for such shorter period that the registrant was required to submit and post such files). Yes 
No
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K (§ 229.405 of this chapter) is not contained
herein, and will not be contained, to the best of registrantâ??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.
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting
company. See the definitions of â??large accelerated filer,â? â??accelerated filer,â? and â??smaller reporting companyâ? in Rule 12b-2 of the Exchange
Act.
Large accelerated filer

Non-accelerated filer

(Do not check if a smaller reporting company)
Accelerated filer

Smaller reporting company

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act). Yes
No 
As of June 28, 2013, the last business day of the registrantâ??s most recently completed second quarter, the aggregate value of the registrants
common stock held by non-affiliates was approximately $97,195,000.
As of March 10, 2014, there were 27,778,248 shares of the registrantâ??s common stock, par value $0.0001, outstanding.
__________________________________________________
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the Proxy Statement for the Annual Meeting of Shareholders to be held May 14, 2014 are incorporated by reference into Part III
of this Annual Report on Form 10-K where indicated.
Table of Contents
SKULLCANDY, INC.
ANNUAL REPORT ON FORM 10-K
For Fiscal Year Ended December 31, 2013
Page
PART I.
Item 1.
Item 1A.
Item 1B.
Item 2.
Item 3.
Item 4.
Item 5.
Item 6.
Item 7.
Item 7A.
Item 8.
Item 9.
Item 9A.
Item 9B.
Item 10.
Item 11.
Item 12.
Item 13.
Item 14.
Item 15.
Signatures
Business
Risk Factors
Unresolved Staff Comments
Properties
Legal Proceedings
Mine Safety Disclosures
PART II.
Market for Registrantâ??s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity
Securities
Selected Consolidated Financial Data
Managementâ??s Discussion and Analysis of Financial Condition and Results of Operations
Qualitative and Quantitative Disclosures about Market Risk
Financial Statements and Supplementary Data
Changes in and Disagreements With Accountants on Accounting and Financial Disclosure
Controls and Procedures
Other Information
PART III.
Directors, Executive Officers and Corporate Governance
Executive Compensation
Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters
Certain Relationships and Related Transactions and Director Independence
Principal Accountant Fees and Services
PART IV.
Exhibits, Consolidated Financial Statements and Financial Statement Schedules
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37
Table of Contents
PART I
Item 1.
Business
This annual report contains forward-looking statements. The words â??may,â? â??will,â? â??plan,â? â??believe,â? â??expect,â? â??anticipate,â? â??intend,â?
â??estimateâ? and other expressions that are predictions of or indicate future events and trends and that do not relate to historical matters identify
forward-looking statements. Although forward-looking statements reflect our current views, reliance should not be placed on forward-looking
statements because they involve known and unknown risks, uncertainties and other factors, which may cause the actual results, performance or
achievements to differ materially from anticipated future results, performance or achievements expressed or implied by such forward-looking
statements. Forward-looking statements speak only as of the date the statements are made. We undertake no obligation to publicly update or
revise any forward-looking statement, whether as a result of new information, future events, changed circumstances or otherwise. These
forward-looking statements are subject to numerous risks and uncertainties, including the risks and uncertainties described under â??Risk
Factorsâ? in Item 1A of this Form 10-K, â??Managementâ??s Discussion and Analysis of Financial Condition and Results of Operations,â? and
elsewhere in this Form 10-K. We qualify all of our forward-looking statements by these cautionary statements.
Overview
We are the original lifestyle and performance audio brand inspired by the creativity and irreverence of youth culture. We design, market
and distribute audio and gaming headphones, earbuds, speakers and other accessories under the Skullcandy, Astro Gaming and 2XL by
Skullcandy brands. We launched in 2003 and quickly became an international audio brand by bringing innovation, bold color, character and
performance to an otherwise monochromatic audio space. Our products are sold and distributed through a variety of channels in the U.S. and
approximately 80 countries worldwide. We offer a wide array of styles and price points and are expanding into complementary audio products
and categories such as sports performance, women’s and Bluetoothâ?¢ offerings, as well as partnerships with leading manufacturers to license our
brand and enhance audio quality.
We pioneered the distribution of headphones in specialty retailers focused on action sports and the youth lifestyle, such as Zumiez, Tillyâ??s
and hundreds of independent snow, skate and surf retailers. Through this channel we reach consumer influencers, individuals who help establish
and maintain the credibility and authenticity of our brand. Building on this foundation, we have successfully expanded our distribution to leading
consumer electronics, sporting goods, mobile phone and big box retailers such as Best Buy, Dickâ??s Sporting Goods, AT&T Wireless and Target.
We also produce and market gaming headphones. We acquired Astro Gaming in April 2011 as part of our strategy to position ourselves in
the premium end of the gaming category with a leading, authentic brand. Astro Gaming is based in San Francisco, California and develops and
markets high-performance, feature-rich products to dedicated gamers, through both the direct-to-consumer channel and through a growing global
network of retailers.
We were incorporated in Delaware in 2003. Our principal executive offices are located at 1441 West Ute Boulevard, Suite 250, Park City,
Utah 84098, and our telephone number is (435) 940-1545. Our principal website address is www.skullcandy.com . Information contained on our
website does not constitute part of, and is not incorporated by reference into, this annual report.
Corporate Information
This annual report on Form 10-K contains references to our trademarks Skullcandy®, Ink’d®, 2XL®, and our skull logo. All other
trademarks or trade names referred to in this prospectus are the property of their respective owners.
Our Competitive Strengths
We believe that the following strengths differentiate us from our competitors.
Leading, Authentic Lifestyle Brand. Skullcandy fuses music, art, fashion and sports, all of which permeate youth culture, into our
products. Our brand symbolizes a fun, young and irreverent lifestyle combined with creativity for an active consumer. We believe the power of
our brand can drive strong market share.
3
Table of Contents
Brand Authenticity Reinforced Through High Impact Sponsorships. We were one of the first headphone brands to sponsor leading
athletes, DJs, musicians, artists and events within sports and the indie and hip-hop music genres. We partner with leading athletes such as NBA
all-stars Kevin Durant, Derrick Rose, Kyrie Irving and James Harden, three-time world champion surfer Mick Fanning, X-Games gold
medalists, and Olympians Mark McMorris and Bobby Brown, international skateboarders Eric Koston and Sean Malto as well as NFL great
Stevie Johnson and numerous other musicians, athletes, models and youth culture influencers. These ambassadors embody the brand and also
provide us with trend and product ideas.
Track Record of Innovation. Skullcandy was founded on innovation and bases its products on materials, technologies and processes. We
have significant product and innovation capabilities with our in-house product development and advanced concepts engineering team, or ACE.
Our leading innovations include the following: Crusher technology which recreates the experience of feeling soundwaves at a live concert, and
being more immersed through tactile vibrations in all forms of entertainment such as television, movies and gaming; Sticky Gel and Fix
technologies, which provide ultra secure fit and comfort so earbuds “never fall out”; and Off-Axis technology, which provides for enhanced
sound quality and fit. We focus on disruptive innovations that change how our constantly connected influencer consumer experiences audio
entertainment. We have also engineered and incorporated Skullcandy Supreme Sound, our proprietary and patent pending audio profile, into our
product designs.
Targeted Distribution Model. We control the distribution and mix of our products to protect our brand and authenticity. We pioneered the
distribution of headphones in specialty retailers focused on action sports and the youth lifestyle. Building on this foundation, we have
successfully expanded our distribution to leading consumer electronics, sporting goods, mobile phone and big box retailers.
Proven Management Team and Deep-Rooted Company Culture. We have assembled a proven and talented management team that is led
by Hoby Darling, our President and Chief Executive Officer, who joined the Company in March 2013 and brings deep brand, product and
distribution expertise having previously worked with leading brands including Nike, Converse and Volcom. Our management team shares a
passion for music, art, film, sports and overall youth culture, and possesses substantial experience in product development, marketing,
merchandising, digital operations and finance. Our culture and brand image enable us to successfully attract and retain highly talented employees
who share our passion for innovation, creativity, sports and youth culture.
Financial Information About Segments and Geographic Regions
Information regarding our segments and the geographic areas in which we operate is contained in Note 8 to our Consolidated Financial
Statements for the two years ended December 31, 2013 (full year data for the year ended December 31, 2011 is unavailable).
Our Products
Overview
We currently focus our product offerings in two overall categories: audio entertainment and gaming. We market products in each of these
categories implementing a multi-brand, multi-segment strategy that enables us to reach new consumer segments and enhance our product
segmentation across various sales channels. Audio entertainment products represented 85.2% of consolidated net sales and gaming headphones
represented 14.8% of consolidated net sales for the year ended December 31, 2013.
Audio
Our lifestyle audio headphone product offerings have evolved from one model in 2003 to over 25 headphone models as of December 31,
2013, plus Bluetoothâ?¢ speakers, sports performance, and women’s offerings, as well as licensing partnerships for computers, apparel and other
accessories. Our audio headphone products represented approximately 97% of our audio net sales in the year ended December 31, 2013 while
accessories, apparel and Bluetoothâ?¢ speakers represent 3% of total audio net sales as of December 31, 2013. Many of our headphone models
include in-line microphones and volume control buttons compatible with the latest generation of smartphones. We seek to continually
incorporate the latest technology into our product offerings to enhance performance, functionality and audio fun.
Gaming
Our gaming headphone products include products under the Astro Gaming brand and the Skullcandy Gaming brand. Astro Gaming
markets high-performance and feature-rich products for dedicated gamers. The brand’s flagship product, the A50, is a $300 wireless Dolby
Headphone-enabled 7.1 surround sound gaming headset that integrates KleerNet lossless audio processing to deliver a fully immersive gaming
experience. The Skullcandy Gaming brand draws from our unique heritage to
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Table of Contents
inject lifestyle and street culture into the world of gaming. We developed Skullcandy Gaming to offer a differentiated brand and product
experience delivering high-performance gaming headsets developed by Astro Gaming at accessible prices to casual gamers.
Product Design and Development
We are a company built on our passion for product and design innovation. Our success is tied to our ability to consistently deliver
innovative and disruptive designs, products, features and benefits to our customers.
Our product design and development teams work closely with our music, sports and other ambassadors, the category management team
and with our in-house team of engineers, designers and artists to plan, conceptualize, develop and commercialize our products. Our team is
comprised of individuals intimately connected to the Skullcandy culture and lifestyle who incorporate their passion for the brand into their work.
We utilize innovative materials, technologies and processes in the design, development and manufacturing of all of our products. Our
design team is continuously identifying and tracking trends in the market and with our ambassadors and influencers that are the most meaningful
to a brand and to product-performance conscious consumers. Our engineers and quality teams are dedicated to creating remarkable products that
exceed our customersâ?? expectations regarding acoustic performance, fit, comfort, durability and style. We utilize a field testing program along
with our athletes, musicians, and influencers to validate assumptions in our conceptualization and planning phases and also to validate our
product performance during development.
Our product development team is capable of speed-to-market projects, strategic stage-gate engineering, and hybrid vendor-internally
engineered processes for designing, validating and launching new products. By having our industrial design team in-house, working alongside
our model and prototyping shop, and our mechanical, acoustic and electrical engineering teams, we are able to reduce the concept-to-market
timeline while enhancing our quality, innovation and performance. Our in-house industrial design, engineering, advanced concept engineering
and reliability testing teams enable designs to be rapidly created, prototyped and validated quickly before designs are released for
commercialization.
Products are generally engineered in-house to our proprietary Supreme Sound audio profile through a collaborative and iterative process.
Supreme Sound incorporates a unique balance of low, mid-range and high frequencies to create a signature balanced tonal experience based on
attacking bass, natural vocals and precision highs. Through our in-house engineering of the mechanical and acoustic components of our products
we are not only able to balance performance, quality and cost, but optimize our products for elevated performance, quality, and margin.
We currently utilize third party contract manufacturers to facilitate the commercialization of our products from tooling through the
sampling of products. Our internal reliability testing laboratory is used for mechanical, electrical, chemical, acoustic, transportation and
environmental validation and we also utilize third party testing companies for reliability and compliance testing. We are able to closely monitor
our production in our foreign vendorsâ?? facilities by utilizing our Shenzhen office resources and local staff to support quality, delivery, capacity,
and sourcing efforts.
We can typically bring new products from concept to market in 8 to 18 months depending on the technology integration and complexity
of the product. In situations where we are launching new products based on existing designs that do not require tooling, we can accelerate the
concept-to-market process to approximately 4 to 9 months.
Marketing
Our marketing department employs a multi-pronged marketing strategy that includes sponsorship of athletes, musicians, artists, influencers
and events as well as a combination of interactive and traditional advertising. Engaging in activities and marketing initiatives that are organic to
our core consumer, strengthens our brand authenticity and creates awareness for new consumers. Our brand authenticity is driven by the
Skullcandy and Astro family of athletes, artists, gamers and trendsetters and as well as our ability to provide innovative, trend right product.
As the brand grows globally, we plan to maintain and build on our authenticity, create lasting partnerships and bring music and
entertainment deeper into our consumersâ?? lifestyle. We believe that grassroots activation, cultural engagement and creative collaboration will
continue to drive the growth of our authentic brands, including Skullcandy, Astro Gaming and 2XL by Skullcandy.
Sponsorships and Brand Ambassadors
We build relationships that run deeper than a traditional sponsorship agreement by seeking to create unique opportunities for each member
of the “Skullcandy family.” Ou …
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