Head N.V. Announces Three and Nine Months Results

ROTTERDAM, Netherlands, Nov 14, 2001 (BUSINESS WIRE) — Head N.V. (NYSE: HED)(VSX: HEAD), a leading global manufacturer and marketer of sports equipment, announced today that for the 3 months ended September 30, 2001 Head had revenues of $111.1 million, income from continued operations before tax of $5.1 million and net income of $3.7 million, compared with revenues of $106.9 million, income from continued operations before tax of $18.2 million and net income of $17.7 million for the three months ended September 30, 2000.

Earnings per share for the three-month period were $0.10 compared to $0.73 for the same period in 2000.

For the nine months ended September 30, 2001 Head had revenues of $264.0 million, income from continued operations before tax of $2.8 million and a net loss of $0.5 million compared with revenues of $267.8 million, income from continued operations before tax of $11.1 million and net income of $8.6 million for the nine months ended September 30, 2000. Earnings per share for the nine month period were ($0.01) compared to $0.36 for the same period in 2000.Johan Eliasch Chairman and CEO commented, “Our top line continues to perform roughly in line with last year’s performance, however the previously discussed costs associated with the restructuring of our footwear business, the marketing cost for the Head Snowboard line and the weak retail environment have impacted our profits for the period.”

Eliasch continues, “In our press release of October 29, we discussed that while the Winter and Racquet Sports divisions which make up 80% of our business are performing well, the slowdown of our diving business in the US, and the costs associated with the establishment of Head UK, a wholly owned sales, marketing and distribution organization, for that important market and the termination of the current UK distribution agreement lead us to lower our estimate for full year operating income to a range of $19 million to $23 million.”

“Everyone in the Head organization is concentrating his or her efforts on reducing costs across the board and keeping tight controls on our inventory and receivables. At the same time, we are continuing to make long term strategic investments like Head UK, maintaining our R&D spending and rolling out our dealer extranet.”

“Fortunately our balance sheet is in good shape with low leverage and ample liquidity to run our business for the long term.”

Financial Highlights – Three Months and Nine Months Total Revenues: For the three months ended September 30, 2001 total revenues increased by $4.2 million or 3.9% to $111.1 million from $106.9 million in the comparable 2000 period. At comparable exchange rates, total revenues increased by 6.2%. For the nine months ended September 30, 2001, total revenues decreased by $3.8 million, or 1.4%, to $264.0 million from $267.8 million in the comparable 2000 period. This decrease was primarily due to currency translation adjustments resulting from the depreciation of the euro against the U.S. dollar. Excluding the effect of changes in exchange rates, total revenues for the nine months ended September 30, 2001 increased by $4.2 million, or 1.6% due to an increase in revenues from our Racquet Sports division. This increase was offset, however, by decreased revenues from Diving products and, to a lesser extent, from Winter Sports.

Winter SportsWinter Sports revenues for the three months ended September 30, 2001 decreased by $1.5 million or 2.8% to $50.0 million from $51.5 million in the comparable 2000 period. For the nine months ended September 30, 2001 Winter Sports revenues decreased by $1.8 million, or 2.8%, to $63.6 million from $65.5 million in the comparable 2000 period. Excluding the effect of changes in exchange rates, revenues in winter sports decreased by $0.2 million, or 0.3%. This decrease was due to lower sales of our ski bindings and ski boots partly offset by improved sales of skis and snowboard equipment.

Racquet SportsRacquet Sports revenues for the three months ended September 30, 2001 increased by $6.4 million or 16.0% to $46.6 million from $40.1 million in the comparable 2000 period. For the nine months ended September 30, 2001 Racquet Sports revenues increased by $1.6 million, or 1.2%, to $141.2 million from $139.6 million in the comparable 2000 period. Excluding the effect of changes in exchange rates revenues in Racquet Sports increased by $5.5 million, or 4.0%. This improvement results mainly from higher revenues achieved with tennis racquets and tennis accessories.

Diving Diving revenues for the three months ended September 30, 2001 decreased by $0.6 million or 4.0% to $13.3 million from $13.9 million in the comparable 2000 period. For the nine months ended September 30, 2001 Diving product revenues decreased by $3.5 million, or 6.2%, to $53.4 million from $56.9 million in the comparable 2000 period. Excluding the effect of changes in exchange rates, revenues from diving decreased by $1.3 million or 2.3%.

LicensingLicensing revenues for the three months ended September 30, 2001 decreased by $0.2 million to $1.1 million from $1.3 million in the comparable 2000 period. For the nine months ended September 30, 2001 Licensing revenues slightly decreased by $0.07 million, or 1.1% to $5.81 million from $5.88 million in the comparable 2000 period.

Gross ProfitFor the three months ended September 30, 2001 gross profit decreased by $1.9 million to $46.2 million from $48.1 million in the comparable 2000 period. Gross margin decreased to 41.6% 2001 from 45.0% in the comparable 2000 period. For the nine months ended September 30, 2001, gross profit decreased by $7.3 million, or 6.4%, to $106.5 million from $113.9 million in the comparable 2000 period. Gross margin decreased to 40.4% 2001 from 42.5% in the comparable 2000 period.

Selling and Marketing Expenses For the three months ended September 30, 2001 selling and marketing expenses increased by $1.6 million to $25.3 million from $23.7 million in the comparable 2000 period. For the nine months ended September 30, 2001, selling and marketing expenses increased by $4.1 million, or 5.8%, to $74.4 million from $70.3 million in the comparable 2000 period. This increase was due primarily to increased advertising expenses incurred in connection with the introduction of the Intelligence racquets and Head snowboard lines as well as an increase in premiums due to the success of our players.

General and Administrative ExpensesFor the three months ended September 30, 2001 general and administrative expenses decreased by $0.7 million or 6.6% to $8.9 million from $9.6 million in the comparable 2000 period. For the nine months ended September 30, 2001, general and administrative expenses decreased by $2.0 million, or 7.6%, to $24.3 million from $26.3 million in the comparable 2000 period. Of this decrease, $0.9 million was attributable to the gain on the sale of a building used in operations in Italy.

We also recorded $0.8 million and $1.5 million in each of the respective three months and nine months periods ended September 30, 2001 and $0.4 million and $1.0 million in each of the respective three months and nine months periods ended September 30, 2000, of non-cash compensation expense due to the grant of stock options under our stock option plans 1998 and 2001 and the resulting amortization expense.

In addition, we recorded in the nine months ended September 30, 2001, $0.6 million of termination benefits and other related costs primarily in respect of one employee who held a management position.

Operating Income As a result of the foregoing factors, operating income for the three months ended September 30, 2001 decreased by $3.3 million, or 22.7%, to $11.2 from $14.4 million in the comparable 2000 period. For the nine months ended September 30, 2001, operating income decreased by $10.5 million, or 64.7%, to $5.7 million from $16.2 million in the comparable 2000 period.

Interest ExpenseFor the three months ended September 30, 2001 interest expense decreased by $1.5 million
or 34.0% to $2.9 million from $4.3 million in the comparable 2000 period. For the nine months ended September 30, 2001, interest expense decreased by $5.1 million, or 37.8%, to $8.4 million from $13.5 million in the comparable 2000 period. The decrease was due to the partial repayment of our debts using the proceeds of the initial public offering which took place in October 2000.

Interest IncomeFor the three months ended September 30, 2001 interest income increased by $0.1 million or 69.2% to $0.2 million from $0.1 million in the comparable 2000 period. For the nine months ended September 30, 2001, interest income increased by $0.3 million, or 58.8%, to $0.8 million from $0.5 million in the comparable 2000 period. This increase was due to higher cash on hand.

Foreign Currency ExchangeFor the three months ended September 30, 2001, we showed a foreign currency exchange loss of $3.4 million, compared to a gain of $8.3 million in the comparable 2000 period. For the nine months ended September 30, 2001, we had a foreign currency exchange gain of $4.8 million, compared to a gain of $12.1 million in the comparable 2000 period. The decrease in the third quarter of 2001 as compared to the third quarter of 2000 is primarily due to the recognition of foreign exchange losses associated with the Company’s U.S. dollar denominated receivables of its European subsidiaries in 2001. We operate in a multi-currency environment and are subject to the effects of fluctuation in exchange rates.

Other Expense, netFor the three months ended September 30, 2001, other expenses, net decreased by $0.2 million to $0.04 million from $0.2 million in the comparable period. For the nine months ended September 30, 2001, other expense, net decreased by $4.1 million, or 97.1%, to $0.1 million from $4.2 million in the comparable 2000 period. A one time payment of $3.5 million was paid to the former owner of HTM in June 2000.

Income Tax ExpenseFor the three months ended September 30, 2001, income tax increased by $0.7 million to $1.1 million from $0.3 million on the comparable 2000 period. For the nine months ended September 30, 2001, income tax expense was $2.7 million, an increase of $0.8 million to the comparable 2000 period. This increase is mainly attributable to an increase in current income tax expense mainly in Austria and Italy, which is partly offset by an increase in tax losses carried forward.

Share of loss from equity investment, net of tax: This represents the Company’s share of loss from an equity investment in a distribution company purchased at the end of 2000. For the nine months ended September 30, 2001, the Company’s share of losses from this equity investment was $0.6 million.

Net IncomeAs a result of the foregoing factors, for the three months ended September 30, 2001, we had net income of $3.7 million, compared to net income of $17.7 million in the comparable 2000 period. For the nine months ended September 30, 2001, we had net loss of $0.5 million, compared to net income of $8.6 million in the comparable 2000 period.

Liquidity and Capital ResourcesFor the nine months ended September 30, 2001, cash generated from operating activities increased to $12.3 million from $8.9 million in 2000. This is mainly due to lower working capital requirements. The cash flows from operating activities and proceeds from sale of a building were used to pay a dividend of $9.5 million to our shareholders, to purchase property, plant and equipment of $12.7 million and to continue our share purchase program.We currently have $57.8 million in available unused credit facilities. We believe that we are in good standing with our lenders and that we have sufficient available credit for our needs.