Head Announces First Quarter Results

ROTTERDAM, Netherlands–(BUSINESS WIRE)–May 15, 2001–Head N.V. (NYSE:HED)(VSX:HEAD), a leading global manufacturer and marketer of sports equipment, announced today revenues of $77.4 million, a loss before tax and extraordinary items from discontinued operations of $0.9 million and a net loss of $1.7 million for the three months ended March 31, 2001, compared with revenues of $79.9 million, net income before tax and extraordinary items from discontinued operations of $0.2 million and a net loss of $0.3 million for the three months ended March 31, 2000.

Johan Eliasch, Chairman & CEO stated, “For the first three months of this year we achieved good results in the face of a mixed retail environment. Revenues were off marginally due to the continued weakness of the euro. At comparable exchange rates to this time last year, revenues would have been fractionally higher. In the first quarter we made significant investments in product launches and marketing for our well received Head Snowboard line of products and breakthrough Head Intelligence line of racquets. We should see the benefits of these investments in the second half of the year. As a result of our substantial debt repayment last year, we are now seeing the benefit of lower interest expense reflected in the first quarter’s result. Our balance sheet and cashflow are strong and we will be paying a dividend of euro 0.28 per share in June.

Our athlete endorsement program has started off the year very strongly with tremendous brand visibility and media exposure. Andre Agassi showed great form winning his second consecutive Australian Open. Our racquets are the “choice of the pros” – the number one racquet used on the ATP Tour. In skiing we sponsor some of the top athletes including 2001 Downhill World Champion Hannes Trinkl.”

Overview: We generate revenues in our principal markets by selling goods directly to retailers and to a lesser extent, by selling to distributors. We also receive licensing and royalty income. As many of our goods, especially Winter Sports goods, are shipped during a specific part of the year, we experience highly seasonal revenue streams. Following industry practice, we begin to receive orders from our customers in the Winter Sports division from March until June, during which time we book approximately three quarters of our orders for the year. We will typically begin shipment of skis, boots and bindings in July and August with the peak shipping period occurring in October and November. At this time, we will begin to receive re-orders from customers, which constitute the remaining quarter of our yearly orders. Re-orders are typically shipped in December and January. Racquet Sports and diving product revenues also experience seasonality, but to a lesser extent than Winter Sports revenues. During the first three months of any calendar year, we typically generate some 20% to 30% of our Racquet Sports and Diving product revenues, but less than 10% of our Winter Sports revenue. Thus, we typically generate only some 15% to 20% our total year gross profit in the first three months of the year, but we incur some 25% of our general and administration and sales and marketing expenses in this period.

Financial Highlights

For the three months ended March 31, 2001, total revenues decreased by $2.5 million, or 3.1%, to $77.4 million from $79.9 million in 2000. At comparable exchange rates, total revenues for the three months ended March 31, 2001 increased by 0.4%.

For the Three Months 2000 2001 Change %
in thousands $

Product category
Winter Sports 12,828 11,835 (7.7)
Racquet Sports 50,152 47,994 (4.3)
Diving 15,250 15,502 1.7
Licensing 1,643 2,030 23.6
Total Revenues $ 79,873 $ 77,361 (3.1)

Winter Sports revenues for the three months ended March 31, 2001 decreased by $1.0 million, or 7.7%, to $11.8 million from $12.8 million in 2000. At comparable exchange rates revenues in our Winter Sports division decreased by $0.3 million, or 2.7%. This decrease was due to lower sales of our ski bindings partly offset by improved sales of skis and snowboard equipment.

Racquet Sports revenues for the three months ended March 31, 2001 decreased by $2.2 million, or 4.3%, to $48.0 million from $50.2 million in 2000. At comparable exchange rates revenues in our Racquet Sports division decreased by $0.6 million, or 1.3%. This shortfall results mainly from lower sales of footwear and Penn products partly offset by higher racquets revenues.

Diving product revenues for the three months ended March 31, 2001 increased by $0.3 million, or 1.7%, to $15.5 million from $15.2 million in 2000. At comparable exchange rates, revenues from our Diving division increased by 5.4%.

Licensing revenues for the three months ended March 31, 2001 increased by $0.4 million, or 23.6%, to $2.0 million from $1.6 million in 2000 due to higher licensing fees under the existing licensing contracts.

Due to lower revenues and unfavourable product mix in our Racquet Sports division, gross profit decreased by $2.7 million, or 8.3%, to $30.2 million from $32.9 million in 2000 and in percentage terms, gross margin decreased to 39.0% in 2001 from 41.2% in 2000.

Selling and marketing expenses increased by $1.0 million due to higher advertising expenses for the introduction of our Head Snowboard lines and other new products, while general and administrative expenses decreased by $1.4 million, compared to last year and we recorded $0.6 million of termination benefits and other related cost in respect to one management employee.

Interest Expense decreased by $1.4 million, or 33.9%, to $2.8 million from $4.2 million in 2000. The decrease was due to the substantial reduction of our debt using the proceeds of our October 2000 initial public offering.

We had a foreign currency exchange gain of $4.7 million which is similar to that in 2000, due primarily to U.S. dollar/euro currency movements and their effect on our U.S. dollar denominated receivables owing to European subsidiaries. We operate in a multi-currency environment and are subject to the effects of fluctuation in exchange rates.

Net Income (Loss). As a result of the foregoing factors, for the three months ended March 31, 2001, we had a net loss of $1.7 million, compared to a net loss of $0.3 million in 2000. Liquidity and CapitalResources:

For the three months ended March 31, 2001, cash generated from operating activities increased to $29.1 million from $14.7 million in 2000 due to lower working capital requirements. About Head

We have a rich heritage. Founded in 1950 by inventor Howard Head, today Head NV is a leading global manufacturer and marketer of branded sports equipment serving the skiing, tennis and diving markets. We have a world-class portfolio of premium brands, which includes Head (alpine skis, ski boots and snowboard products, tennis, racquetball and squash racquets, athletic and outdoor footwear and apparel); Tyrolia (ski bindings); Penn (tennis balls and racquetballs) and Mares and Dacor (diving equipment).

Our strategic focus is to target the high margin, premium segments of our markets by developing highly innovative products sold at premium prices, a policy that we call “Superior Performance through Superior Technology.” This strategic focus has driven our growth.

We are a global company diversified in terms of both products and geography and one of the top suppliers of branded sports equipment to sporting goods retailers worldwide. Head offers a broad product range through over 27,000 accounts in over 80 countries.

We hold leading market share positions in all three of our product categories: Winter Sports, Racquet Sports and Diving. We have a Licensing division to leverage value from and increase visibility of our brands outside the product categories covered by our prod
uct divisions.

Based on our fully integrated sales, marketing and distribution units in our major markets, as well as the strength of our innovative new products, we have been able to increase our market shares.