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Skullcandy, Inc. 2011 Annual Report

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Skullcandy, Inc. 2011 Annual Report Skullcandy, Inc. 2011 Annual Report To our Stockholders: Fiscal 2011 was an exciting year for Skullcandy, as we demonstrated the strength of the Skullcandy brand and the power of our multi-channel and international business model. In our first year as a public company, we had the best financial performance in our history with strong net sales growth and earnings per share growth. During the year, we made key acquisitions and investments in product development, international expansion, interactive media and point of sale merchandising to support our continued long-term growth. I am very pleased with our 2011 results and excited about the momentum of our business heading into 2012. For the full year 2011, net sales increased 44.8% to $232.5 million from $160.6 million in 2010. Units sold and average sales price both increased double digits in 2011 over 2010. Gross profit dollars increased to $115.5 million from $85.5 million in the prior year period and our 2011 GAAP net income was $18.6 million, or $0.79 per diluted share based on diluted weighted average common shares outstanding of 23.6 million, compared to a net loss of $9.7 million or a loss of $0.69 per share based on diluted weighted average common shares outstanding of 14.0 million in 2010. Adjusted net income for 2011 was $23.5 million or $1.00 per diluted share, compared to $18.4 million or $0.95 per diluted share in 2010. As we move into 2012, we believe that our commitment to continue to redefine world-class audio performance and style, and our strong brand authenticity, uniquely positions us in the growing audio accessories market and gives us significant growth opportunities in light of the continued growth of mobile and portable media devices. In order to best position our company and help drive growth we remain focused on the following key strategic areas: Penetrating the domestic retail channel. Mobile accessories are becoming more brand driven and consumers are spending more on audio accessories. In 2011, our domestic sales increased 34.0%, as a result of increased shelf space with existing customers, faster sell-through and higher average selling prices. During 2011, we introduced several new and exciting products, including our FIX ear-bud, which was recognized as the accessory product of the year at the 9th annual SIMA Image Awards, and the $300 Mix Master headphones, which were designed in collaboration with Mix Master Mike of Beastie Boys. Other notable product launches in 2011 included our Uprock headphones and updated models of Titan and Chops. In April of 2012, we began the launch of a refreshed packaging concept for the Skullcandy brand. This new look will be used to introduce several new and redesigned products in 2012 which will feature leading-edge design and our distinctive Supreme Sound audio profile. Accelerating our international business. International sales increased 54.2% and accounted for 20.6% of total net sales in 2011. At the end of 2011, we sold our products in more than 70 countries through 26 independent distributors. In August 2011, we completed the purchase of all outstanding stock of Kungsbacka 57 AB, a subsidiary of 57 North AB. Kungsbacka 57 AB previously held an exclusive distribution agreement for Skullcandy products in Europe through November of 2013. Through this acquisition, we will be able to directly distribute our products throughout Europe. We subsequently opened a direct office in Switzerland and hired a number of key positions, including a Director of Operations and Finance, a Director of Consumer Electronic Sales, a Director of Specialty Sales, and a Director of Marketing. For 2012, our international strategy remains to drive demand creation through a combination of in-store merchandising, product segmentation, product education, and grassroots marketing, and we continue to evaluate other international opportunities to set up a direct distribution model. Growing our premium product offering. We launched two premium headphone styles since 2010. The first was our flagship Aviator headphones by RocNation, with a retail price of $150. The second product was our Mix Master headphone, with a retail price of $300. Our premium product offerings extend our target market, allow consumers to trade up to higher priced products and provide a halo-effect over the brand. In our product development pipeline, we have a number of premium headphone models that will be released in 2012. Increasing our online business. In 2011, online sales increased 163.2% from the addition of the Astro Gaming business, growth in web traffic and an increase in our conversion rate. Our consumers are heavy users of the internet and they come to our website to interact with the brand and the lifestyle behind Skullcandy. We are investing in people and technology to drive traffic to our websites and enrich the customer interaction experience. In addition to our US websites, we have launched select international websites with localized content and e-commerce functionality. Expanding our complementary product categories. We are always looking for ways to expand our product offering. In April 2011, we acquired the leading premium brand in gaming headphones, Astro Gaming. The acquisition gave us a credible gaming platform that we can leverage to broaden our product offering and open new distribution. During 2012, we plan to introduce a redesigned line of premium gaming headphones under the Astro Gaming brand and a new line of intermediate priced gaming headphones under the Skullcandy brand. Other complementary product categories that we are focused on include protective cases for mobile devices, speaker docks, and apparel accessories. We are very excited about the evolution of our products and brand going into 2012. We continue to evolve the Skullcandy brand around world-class audio performance and style . Our new headphone models will feature refined styling and our new proprietary sound profile dubbed Supreme Sound. In early 2012, we unveiled the brand’s updated product collection, packaging, and positioning at nine tradeshows around the world and the response has been extremely positive. More than ever before, Skullcandy is uniquely positioned in the market as a true performance lifestyle audio brand. In closing, I want to thank all of our employees in the Skullcandy family for their continued passion and dedication to the business. It really is our great people and the culture we have built that has made this company truly unique and driven us to where we are today. We remain energized and focused on having another great year at Skullcandy. Best of all, we are just getting started. Sincerely, Jeremy Andrus President & Chief Executive Officer UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-K (Mark One) È ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the fiscal year ended December 31, 2011 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 (I.R.S. Employer Incorporation or Organization) Identification Number) 1441 West Ute Boulevard, Suite 250 Park City, Utah 84098 (Address of principal executive offices) (Zip Code) Registrant’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 ‘ No È 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 È 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 È 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 È 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 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. ‘ 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 “large accelerated filer,” “accelerated filer,” and “smaller reporting company” in Rule 12b-2 of the Exchange Act. Large accelerated filer ‘ Accelerated filer ‘ Non-accelerated filer È (Do not check if a smaller reporting company) 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 È As of June 30, 2011, the last business day of the registrant’s most recently completed second quarter, there was no established public market for the registrant’s common stock.
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