Head NV Amends its 2009 Financial Statements.

Head N.V. and HTM Sport GmbH, a subsidiary of Head N.V., said it amended its 2009 financial statements. The sports equipment company said the adjustment “which is one off (non recurring) and technical in its nature has no effect on the key indicators of operating performance and has no implications for the economics or cash generation of the business.”

In a statement, Head said that as a result of evolution of the application of IFRS and a review of its accounts by the Netherlands Authority for the Financial Markets (AFM), certain financial information of the company's previously issued financial statements for the year ended Dec, 31, 2009 will be amended in the 2010 financial statements. The amendment relates to the accounting treatment for a 2009 private exchange offer to exchange HTM's (a subsidiary of Head N.V.'s) outstanding EUR 135 million 8.5% senior notes due 2014 for HTM's newly issued secured noted and Head N.V. ordinary shares.

The decision was taken on Nov. 23 in the meeting of the Audit Committee and the Company's Board of Directors.

Reasons for Amendment

The company said the evaluation of the application of IFRS and a review of its financial statements by the AFM has caused the AFM, on the basis of their interpretation of relevant accounting standards, to recommend that it reconsider the attributable fair values for accounting purposes of the Senior Secured Notes and Shares issued at the time of the Exchange Offer.

Said Head N.V., “The application of IFRS in this area is highly complex and involves significant judgment. While management is still of the opinion that the current accounting treatment accurately reflects the fair value of the Senior Secured Notes and Shares at the time of issue, it is also satisfied that the alternative view of the AFM has sufficient merit that the adjustments proposed can be agreed upon. In this way the company is able to both satisfy the AFM and prevent a prolonged discussion on what is considered to be a highly technical matter. The fair values have been reassessed and as a result changes are to be made to the accounting of these transactions in accordance with IAS 8.

The effect would have resulted in a reduction of the previously reported gain on exchange by 5.4% from EUR 40.3 million to EUR 38.1 million, a decrease in non-current borrowings of EUR 12.2 million to EUR 80.1 million and an increase in equity of EUR 11.1 million to EUR 159.6 million.

Financial Impact

The fair value of the Shares and Senior Secured Notes issued have been amended as follows:

1. The ordinary shares in Head N.V. which were issued to the Note holders and in connection with the Working Capital Guarantee pursuant to the Exchange Offer at the time of the Exchange Offer were recorded at EUR 0.01 per share. This reflected the fair value as determined by management when preparing the financial statements 2009 based on the illiquidity of the market of the shares and the given economic and financial circumstances of the Company at that time. These shares will be corrected to value them at their respective quoted market prices as of their transaction dates of 14th of August 2009 and the 30th July 2009, at EUR 0.35 and EUR 0.30 respectively.

2. The fair value of the newly issued Senior Secured Notes was recorded at the time of the Exchange Offer at a par value of EUR 43.738 million. In light of the above amendment of the fair value of the Shares, management has also reconsidered the measurement of the Senior Notes at the time of the exchange. Based on the Exchange Offer to the Note holders to receive Senior Secured Notes and Shares, the fair value of this consideration is assessed on the market price of the old Senior Notes at the time of the exchange. This has resulted in a consequential amendment to the initial measurement of the newly issued Senior Secured Note at the date of exchange. The corrected fair value for the newly issued Senior Secured Notes will be EUR 30.1 million.

Had these amendments been reflected in the 2009 consolidated financial statements, the impact would have been as follows:

EUR million                              As      As
                                   reported amended
Balance Sheet
Deferred tax asset                     49.2    48.1
Equity*                               148.5   159.6
Borrowings                             92.3    80.1
Profit and Loss
Interest and other finance expense   (11.3)  (12.8)
Gain on exchange of senior notes *     40.3    38.1
Profit before tax                      38.8    35.1
Income tax expense                   (16.4)  (17.6)
Net result                             22.3    17.5
Earnings per share in EUR              0.40    0.31

* The increase in the equity of EUR11.1m is due to a decrease in retained earnings for the year of EUR4.8m plus the adjustment to the fair value of the shares issued to Note holders (EUR7.6m) plus the impact of the adjustment to the fair value of the shares issued in connection with the working capital guarantee (EUR8.2m). The reduction on the gain on the sale of senior notes arises from an adjustment to the fair value of the Senior Secured Notes (EUR13.7m) less the adjustment to the fair value of the shares issued to the Note holders (EUR7.6m) less the adjustment to the fair value of the shares issued in connection with the working capital guarantee (EUR8.2m).

Ongoing Financial Impact

Each year from the date of the Exchange Offer until the expiry of the new Senior Secured Notes, the difference that has arisen between the fair value of the newly issued Notes and the par value of these Notes will be amortized interest expense in the Consolidated Statement of Comprehensive Income which will amount to approximately EUR 3.8 million, EUR 4.8 million and EUR 3.6 million for the years ended December 31, 2010, 2011 and 2012 respectively.