Skullcandy Announces Record Fourth Quarter and 2012 Net Sales

Skullcandy Announces Record Fourth Quarter and 2012 Net Sales

PARK CITY, Utah, March 7, 2013 (GLOBE NEWSWIRE) -- Skullcandy, Inc.
(Nasdaq:SKUL) today announced financial results for the fourth quarter and
full year ended December 31, 2012.

Select Highlights

  *Fourth quarter net sales increased 21.0% to $101.0 million
  *Fourth quarter GAAP net income was $11.5 million, or $0.41 per diluted
    share
  *Fourth quarter non-GAAP adjusted net income was $13.2 million, or $0.47
    per diluted share
  *Annual net sales increased 28.1% to $297.7 million
  *Annual GAAP net income increased 39.1% to $25.9 million, or $0.92 per
    diluted share
  *Annual non-GAAP adjusted net income increased 19.3% to $28.0 million, or
    $1.00 per diluted share

"We are pleased with our overall fourth quarter results during what was a
challenging environment," said Rick Alden, Skullcandy's Interim Chief
Executive Officer. "Our intention in 2013 is to tighten our original
distribution strategy and make key investments in product development and
demand creation while endeavoring to reengage the consumer at the point of
sale. I am confident that, with the solid foundation already in place and the
talented group of people working here, we can accomplish our near-term
objectives while creating a stronger, more efficient company for the future."

Fourth Quarter Results

Net sales in the fourth quarter of 2012 increased 21.0% to $101.0 million from
$83.4 million in the same quarter of the prior year. North America net sales
in the fourth quarter increased 12.0% to $82.7 million from $73.8 million in
the same quarter of the prior year. International net sales in the fourth
quarter increased 90.2% to $18.3 million from $9.6 million in the same quarter
of the prior year. The increase in North America net sales was primarily
driven by increased Astro Gaming sales of $13.6 million. The increase in
international net sales was primarily driven by increased sales in Europe.

Gross profit in the fourth quarter of 2012 increased 8.5% to $45.2 million
from $41.6 million in the same quarter of the prior year. Gross profit as a
percentage of net sales, or gross margin, was 44.7% in the fourth quarter of
2012 compared to 49.9% in the same quarter of the prior year.The decrease in
gross margin is due to increased sales of lower margin products, increased
sales in lower margin channels and discounting.

Selling, general and administrative expenses in the fourth quarter 2012
increased 29.8% to $27.5 million and included $1.5 million of bad debt expense
due to the bankruptcy filing of a major retail customer and $0.7 million of
expenses associated with the settlement of a patent litigation matter.As a
percentage of net sales, selling, general and administrative expenses
increased to 27.2% from 25.4% in the same quarter of the prior year.

Net income attributable to Skullcandy, Inc. in the fourth quarter of 2012 was
$11.5 million, or $0.41 per diluted share, based on 27.8 million diluted
weighted average common shares outstanding.Net income attributable to
Skullcandy, Inc. in the same quarter of the prior year was $12.3 million, or
$0.44 per diluted share, based on 28.0 million diluted weighted average common
shares outstanding.Excluding certain expenses related to the bankruptcy
filing of a major retail customer in Europe and expenses associated with the
settlement of a patent litigation matter, non-GAAP adjusted net income in the
fourth quarter of 2012 was $13.2 million, or $0.47 per diluted share based on
27.8 million diluted weighted average common shares outstanding.Non-GAAP
adjusted net income in the same quarter of the prior year was $13.2 million,
or $0.47 per diluted share based on 28.0 million diluted weighted average
common shares outstanding.For a reconciliation of non-GAAP adjusted net
income to net income and non-GAAP diluted earnings per share to GAAP earnings
per share, see the accompanying tables at the end of this release.

Balance Sheet Highlights

As of December 31, 2012, cash and cash equivalents totaled $19.3 million
compared to $23.3 million at December 31, 2011 and the Company had no
long-term debt.As of December 31, 2012, the Company had $27.8 million of
availability under its credit facility.Inventory decreased 5.5% to $41.6
million as of December 31, 2012 from $44.0 million as of December 31,
2011.Accounts receivable increased 50.8%, or $25.7 million, to $76.3 million
as of December 31, 2012.The increase is primarily due to increased
receivables of $13.7 million at Astro Gaming due to the launch of Astro
products at certain retail stores and an increase in other international
receivables, as well as an overall increase in fourth quarter sales in 2012
compared to 2011.

Call Information

A conference call to discuss the fourth quarter and annual 2012 results is
scheduled for today, March 7, 2013, at 4:30 PM Eastern Time/2:30 PM Mountain
Time. A broadcast of the call will be available on the Company's website,
www.skullcandy.com. Analysts and investors can participate in the live call by
dialing (719) 457-2679. In addition, a replay of the call will be available
shortly after the conclusion of the call and remain available through March
14, 2013. To access the telephone replay, listeners should dial (858) 384-5517
and enter ID #9284479.

About Skullcandy, Inc.

Skullcandy is a leading global designer, marketer and distributor of
performance audio and gaming headphones and other accessory related products
under the Skullcandy, Astro Gaming and 2XL by Skullcandy brands. Skullcandy
was launched in 2003 and quickly became one of the world's most distinct audio
brands by bringing unique technology, color, character and performance to an
otherwise monochromatic space; helping to revolutionize the audio arena by
introducing headphones, earbuds and other audio and wireless lifestyle
products that possess unmistakable style and exceptional performance. The
Company's products are sold and distributed through a variety of channels in
the U.S. and approximately 80 countries worldwide. Visit skullcandy.com, or
join us at facebook.com/skullcandy or on Twitter @skullcandy.

Forward-Looking Statements

Certain statements in this press release and oral statements made from time to
time by representatives of the Company are forward-looking statements within
the meaning of the Private Securities Litigation Reform Act of 1995. In
particular, statements regarding the Company's guidance, outlook, future
financial and operating results and any other statements about the Company's
future expectations, beliefs or prospects expressed by management are
forward-looking statements. These forward-looking statements are based on
management's current expectations and beliefs, but they involve a number of
risks and uncertainties that could cause actual results or events to differ
materially from those indicated by such forward-looking statements.Important
factors that could cause actual results to differ materially from expectations
are disclosed under the "Risk Factors" section of the 2011 10-K filed with the
Securities and Exchange Commission on March 23, 2012 and in the Company's most
recent Form 10-Q for the quarter ended September 30, 2012. Readers are urged
not to place undue reliance on these forward-looking statements, which speak
only as of the date hereof. The Company does not undertake any obligation to
update or alter any forward-looking statements, whether as a result of new
information, future events or otherwise

Non-GAAP Measures

Non-GAAP adjusted net income and non-GAAP adjusted fully diluted earnings per
share, for the periods presented, represents diluted net income per share
excluding the impact of expenses associated with the second and third
contingent payments pursuant to the securities purchase and redemption
agreement (a historical capital transaction), a reserve for uncollectible
receivables resulting from the bankruptcy filing of a major retail customer
and expenses associated with the settlement of patent litigation and other
litigation. Management does not believe these expenses correlate to the
underlying performance of the business. As a result, the Company believes that
non-GAAP adjusted net income and non-GAAP adjusted fully diluted earnings per
share provides important additional information for measuring its performance,
provides consistency and comparability with the Company's past financial
performance, facilitates period to period comparisons of the Company's
operations, and facilitates comparisons with other peer companies, many of
which use similar non-GAAP financial measures to supplement their GAAP
results. The Company's management team uses these metrics to evaluate the
Company's business and believes they are a measure used frequently by
securities analysts and investors. Non-GAAP adjusted net income and adjusted
fully diluted earnings per share do not represent, and should not be used as a
substitute for net income and diluted earnings per share, as determined in
accordance with GAAP. The Company's method of calculating non-GAAP adjusted
net income and adjusted fully diluted earnings per share may differ from that
of other companies.

                          -Financial Tables Follow-

                                      

                                                                
SKULLCANDY, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(in thousands of dollars, except share and per share information)
(unaudited)
                                                       
                            Three Months Ended December Twelve Months Ended
                             31,                         December 31,
                            2012          2011          2012       2011
Net sales                    $100,970     $83,413      $297,686  $232,469
Cost of goods sold           55,815       41,786       156,766   116,930
Gross profit                 45,155       41,627       140,920   115,539
Selling, general and         27,492       21,183       99,436    73,378
administrative expenses
Income from operations       17,663       20,444       41,484    42,161
Other (income) expense       (139)        45           453       1,761
Interest expense             186          84           641       1,089
Interest expense—related     —            —            —         6,384
party
Income before income taxes   17,616       20,315       40,390    32,927
and noncontrolling interests
Income tax expense           6,183        7,983        14,574    14,306
Net income                   11,433       12,332       25,816    18,621
Net loss (income)
attributable to              30            (11)          63         (4)
noncontrolling interests
Preferred dividends          —            —            —         (17 )
Net income attributable to   $11,463      $12,321      $25,879   $18,600
Skullcandy, Inc.
                                                                
Net income per common share
attributable to Skullcandy,                                      
Inc.
Basic                        $0.42        $0.45        $0.94     $0.93
Diluted                      0.41         0.44         0.92      0.79
Weighted average common                                          
shares outstanding
Basic                        27,593,290    27,241,718    27,405,017 20,078,579
Diluted                     27,848,927    27,968,585    27,980,983 23,573,962

                                      

                                                       
SKULLCANDY, INC.
CONSOLIDATED BALANCE SHEETS
(in thousands of dollars)
(unaudited)

                                             As of December31,
                                             2012       2011
Assets                                                  
Current assets:                                         
Cash and cash equivalents                     $19,345   $23,302
Accounts receivable, net                      76,307    50,616
Inventories                                   41,567    43,975
Prepaid expenses and other current assets     5,604     8,499
Deferred taxes                                2,943     3,978
Total current assets                          145,766   130,370
Property and equipment, net                   16,000    10,294
Intangibles                                   12,481    13,678
Goodwill                                      13,867    13,867
Deferred financing fees                       161       402
Total assets                                  $188,275  $168,611
                                                       
Liabilities and stockholders' equity                    
Current liabilities:                                    
Accounts payable                              $22,887   $23,206
Accrued liabilities                           21,047    25,100
Bank line of credit                           —        9,884
Total current liabilities                     43,934    58,190
Deferred taxes                                2,219     3,609
Stockholders' equity:                                   
Common stock                                  3         3
Treasury stock                                (43,294)  (43,294 )
Additional paid-in capital                    128,676   119,042
Accumulated other comprehensive income (loss) (22)      118
Retained earnings                             56,218    30,339
Total Skullcandy stockholders' equity         141,581   106,208
Noncontrolling interests                      541       604
Total stockholders' equity                    142,122   106,812
Total liabilities and stockholders' equity    $ 188,275 $ 168,611
                                                       

                                      

                                                                   
SKULLCANDY, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands of dollars)
(unaudited)
                                                        Twelve Months Ended
                                                         December 31,
                                                        2012        2011
Operating activities                                                
Net income                                               $ 25,816   $ 18,621
Adjustments to reconcile net income to net cash provided            
by operating activities:
Depreciation and amortization                           6,220      2,031
Loss on disposal of fixed assets                        7          123
Provision for doubtful accounts                         3,617      333
Deferred income taxes                                   (355)    805
Noncash interest expense                                241        6,643
Stock-based compensation expense                        6,563      5,243
Changes in operating assets and liabilities, net of                 
effects of acquisitions:
Accounts receivable                                     (29,287)   (4,219)
Inventories                                             2,433      (13,966)
Prepaid expenses and other                              2,679      (4,633 )
Accounts payable                                        (343)      7,616
Accrued liabilities                                     (4,049)    10,206
Net cash provided by operating activities                13,542     28,803
Investing activities                                                
Purchase of property and equipment                        (10,475) (7,559)
Purchase of intangible assets                            (244)     (31)
Business acquisitions                                    —          (29,462 )
Net cash used in investing activities                    (10,719 )   (37,052 )
Financing activities                                                
Net repayments on bank line of credit                     (9,884)   (919)
Repayment of long-term debt                              —          (46,780 )
Proceeds from issuance of common stock, net of issuance  —         69,902
costs
Capital contribution by joint venture partner            —          600
Proceeds from exercise of stock options and warrants     2,366      1,140
Income tax benefit related to exercise of stock options  705        1,171
Net cash provided by (used in) financing activities      (6,813)    25,114
Effect of exchange rate changes on cash and cash         33         (25 )
equivalents
Net increase (decrease) in cash and cash equivalents     (3,957)     16,840
Cash and cash equivalents, beginning of period           23,302     6,462
Cash and cash equivalents, end of period                 $ 19,345    $ 23,302
                                                                   

                               SKULLCANDY, INC.
                             SEGMENT INFORMATION
                                 (unaudited)

Prior to the Company's acquisition of Kungsbacka 57 AB in August of 2011, the
Company operated in one business segment. The North America segment primarily
consists of Skullcandy and Astro Gaming product sales to customers in the
United States and Mexico (through the Company's joint venture). The
international segment primarily includes Skullcandy product sales to customers
in Europe and Asia that are served by the Company's European and Asian
operations.Included in the North America segment for the three months ended
December 31, 2012 and 2011 and twelve months ended December 31, 2012 and 2011
are net sales of $8.9 million and $5.2 million and $26.1 million and $33.8
million, respectively, that represent products that were sold from North
America to retailers and distributors in other countries.The international
segment for the twelve months ended December 31, 2011 only includes activity
from August26, 2011 through December31, 2011.

                                                              
                    ThreeMonthsEndedDecember 31, Twelve
                                                     MonthsEndedDecember 31,
                    2012            2011          2012       2011
Net sales                                                      
North America       $82,650        $73,783        $250,262    $218,437
International       18,320         9,630          47,424      14,032
Consolidated         100,970        83,413         297,686     232,469
                                                              
Gross profit                                                   
North America       36,357         37,289         117,199     109,639
International       8,798          4,338          23,721      5,900
Consolidated         45,155        41,627         140,920     115,539
                                                              
Income from                                                    
operations
North America       14,171        18,189         31,869     38,913
International       3,492        2,255          9,615     3,248
Consolidated         $17,663        $20,444        $41,484     $42,161



SKULLCANDY, INC.
RECONCILIATION OF NET INCOME TO NON-GAAP ADJUSTED NET INCOME
(in thousands of dollars)
(unaudited)
                                                                
                                                                
                             Threemonths             Twelvemonths
                              ended December 31,       ended December 31,
                             2012         2011        2012         2011
                                                                
                                                                
Net income                   $11,433      $12,332     $25,816      $18,621
Net loss (income)
attributable to               30           (11)        63           (4)
noncontrolling interests
Second contingent payment
pursuant to the securities    —          —         —          2,199
purchase and redemption
agreement (1)
Third contingent payment
pursuant to the securities    —          —         —          1,392
purchase and redemption
agreement (2)
Legal and settlement expenses
associated with litigation,   —          831         418          1,266
net of tax benefit (3)
Legal and settlement expenses
associated with patent        427          —         435          —
litigation, net of tax
benefit (4)
Bad debt expense associated
with bankruptcy filing of a   1,263        —         1,263        —
major retail customer, net of
tax benefit (5)
Non-GAAP adjusted net income $13,153      $13,152     $27,995      $23,474
                                                                
                                                                
(1) This item is recorded in interest expense in the Consolidated Statements
of Operations.This expense was not deductible for tax purposes.
(2) This item is recorded in other expense in the Consolidated Statements of
Operations.This expense was not deductible for tax purposes.
(3) This item is recorded in selling, general and administrative expenses in
the Consolidated Statements of Operations.It is reflected in the schedule
above net of tax benefit of $502 thousand for the three months ended December
31, 2011 and $249 thousand and $765 thousand for the twelve months ended
December 31, 2012 and 2011, respectively.
(4) This item is recorded in selling, general and administrative expenses in
the Consolidated Statements of Operations.It is reflected in the schedule
above net of tax benefit of $249 thousand and $254 thousand for the three and
twelve months ended December 31, 2012, respectively.
(5) This item is recorded in selling, general and administrative expenses in
the Consolidated Statements of Operations.It is reflected in the schedule
above net of tax benefit of $194 thousand.


SKULLCANDY, INC.
RECONCILIATION OF DILUTED EARNINGS PER SHARE - GAAP TO DILUTED EARNINGS PER
SHARE – NON-GAAP
(unaudited)
                                                                  
                                        Threemonths       Twelvemonths
                                         ended December 31, endedDecember 31,
                                        2012      2011     2012      2011
                                                                  
Diluted earnings per share - GAAP       $0.41     $0.44    $0.92     $0.79
Second contingent payment pursuant to
the securities purchase and redemption   —       —       —        0.09
agreement
Third contingent payment pursuant to the
securities purchase and redemption       —      —       —      0.06
agreement
Legal and settlement expenses associated —        0.03     0.01      0.06
with litigation, net of tax benefit (1)
Legal and settlement expenses associated
with patent litigation, net of tax       0.01      —       0.02      —
benefit (1)
Bad debt expense associated with
bankruptcy filing of a major retail      0.05    —       0.05    —
customer, net of tax benefit (1)
Diluted earnings per share – non-GAAP   $0.47     $0.47    $1.00     $1.00
                                                                  
(1) These items are reflected net of the tax benefit

CONTACT: ICR
         Brendon Frey / Joe Teklits
         203-682-8200
         Brendon.Frey@icrinc.com
         Joseph.Teklits@icrinc.com