Head N.V. said for the three months ended March 31, 2009, reported net revenues decreased 7.2% to 57.2 million ($74.8 million). On a constant currency basis, net revenues decreased by over 10%. Reported Operating loss deteriorated by 7.0 million ($9.2 million) to a loss of 10.1 million ($13.2 million) from a loss of 3.1 million ($4.1 million) in Q1 2008, and the net loss for the period was 11.8 million ($15.4 million) compared to a net loss in Q1 08 of 3.6 million ($4.7 million).
Chairman and CEO Johan Eliasch commented, “We are beginning to see the impact of the financial crisis in our results and current bookings. The first quarter showed a double digit decline in both our diving divisions sales (12.9%) and our winter sports sales (10.1%). Sales in our racquet sports division declined by 3.8%.
“The decline was brought about by lower sales volumes in key product groups, – the units of skis sold in Q1 2009 versus Q1 2008 fell by 17% to 48.3 thousand pairs and boots decreased by nearly 24% to 38 thousand pairs,” he continued.
“In our racquets division, racquet units sold were down nearly 23% to 404 thousand units. Some of the decline in racquet sales was offset by a small increase in the units of balls sold (2.8%) and the impact of strengthening of the US$ against the Euro helped reported sales.
The financial crisis not only impacted our sales, but our gross margins as consumers bought cheaper products impacting our product mix and profitability. Gross margin for the three months reduced from 40.3% in 2008 to 38.1% in 2009.
“Whilst we have yet to complete our winter season bookings and, in a turbulent market, have no real visibility of our racquet sports and diving divisions sales for the full year, our bookings suggest that sales will be below last years levels. In winter sports our bookings are currently running 9% behind and in our diving division they are 20% behind. Racquet sports bookings are broadly in line with prior years.”
An expected decline in sales, together with a lower cash balance at March 31, 2009 (37.6 million, $49.2 million) compared to the same period in 2008 (53.8 million, $70.4 million), combined with the cash costs of interest expense and capital expenditures, will result in the company managing its working capital more aggressively particularly during the third and fourth quarters of this year. To the extent, such actions are insufficient to fund working capital requirements, the company could be required to generate additional cash or secure additional credit facilities.
The company is also focusing on reducing its debt burden. In April 2009, the company announced a private exchange offer to exchange its outstanding 135.0 million ($176.6 million) 8.5 % Senior Notes due 2014 for its new 10% Senior Secured Notes due 2014. The purpose of the exchange offer is to reduce the companys overall indebtedness and related interest expense. The exchange offer will expire on May 22, 2009. The Exchange Offer, if successful, is expected to reduce our cash interest expense.
The company will no longer be holding quarterly conference calls.
Winter Sports revenues for the three months ended March 31, 2009 decreased by 1.6 million ($2.1 million), or 10.1%, to 13.9 million from 15.4 million in the comparable 2008 period. This decrease was due to lower sales volumes of skis and ski boots compared to sales volumes of the first quarter 2008, which was partially offset by higher sales volumes for bindings and protection wear (helmets).
Racquet Sports revenues for the three months ended March 31, 2009 decreased by 1.2 million ($1.6 million), or 3.8%, to 31.2 million ($40.8 million) from 32.4 million in the comparable 2008 period. This decrease was due to lower sales volumes mainly for racquets, partially offset by the strengthening of the U.S. dollar against the euro in the reporting period.
Diving revenues for the three months ended March 31, 2009 decreased by 1.8 million ($2.4 million), or 12.9%, to 12.1 million ($15.8 million) from 13.9 million ($18.2 million) in the comparable 2008 period. This decrease was mainly driven by the overall decline in the economic environment and consumer spending.
Licensing revenues for the three months ended March 31, 2009 decreased by 0.1 million ($0.1 million), or 5.5%, to 1.5 million ($2.0 million) from 1.6 million ($2.1 million) in the comparable 2008 period due to fewer licensing agreements.
Sales deductions for the three months ended March 31, 2009 decreased by 0.2 million ($0.3 million), or 11.8%, to 1.5 million ($2.0 million) from 1.7 million ($2.2 million) in the comparable 2008 period due to decreased sales.
Gross Profit
Selling and Marketing Expense. For the three months ended March 31, 2009, selling and marketing expense decreased by 2.0 million ($2.6 million), or 8.2%, to 22.3 million ($29.2 million) from 24.3 million ($31.8 million) in the comparable 2008 period. This decrease was mainly due to lower advertising costs and lower costs for shipments and sales commissions.
General and Administrative Expense
Share-Based Compensation Income
Other Operating Expense (Income), net
Operating Loss
Interest Expense
Interest and Investment Income
Other Non-operating Income, net
Income Tax Benefit
For the year 2009, the company is required to consider when it will be able to use our tax loss carry-forwards to offset taxable income and may, as a consequence, be required to write-down a portion of our deferred tax assets. In the event such a write-down is necessary under applicable accounting rules, it could significantly increase the company's deferred tax expense and negatively affect our net income.
Net Loss
Liquidity and Capital Resources
“Payments from the company's customers are our principal source of liquidity,” said Eliasch. “Additional sources of liquidity include our credit facility, financing under capital lease arrangements and vendor financing. The cash provided by these sources has a variety of uses. Most importantly, we must pay our employees and vendors for the services and materials they supply. Additional uses include capital expenditures, development of new products, payment of interest, extension of credit to our customers, and other general funding of our day-to-day operations.
“For the three months ended March 31, 2009, cash generated from operating activities increased by 1.3 million ($1.7 million), or 6.8%, to 19.7 million ($25.8 million) from 18.4 million ($24.1 million) in the comparable 2008 period. This was mainly due to lower working capital needs resulting from a higher decrease in accounts receivable and lower inventory increase. The cash flow from operating activities was used to purchase property, plant and equipment of 1.5 million ($2.0 million), redeem borrowings of 4.0 million ($5.2 million) and to increase cash on hand,” he continued.
“As of March 31, 2009, we have in place 112.0 million ($146.5 million) senior notes due 2014, 12.3 million ($16.1 million) long-term obligations under a sale-leaseback agreement and a mortgage agreement due 2017, a liability against our venture partner of 2.7 million ($3.5 million) and 7.6 million ($9.9 million) other long-term debt comprising secured loans in Italy, Japan and the Czech Republic. In addition, we used lines of credit with several banks in Austria and Japan of 21.4 million ($28.0 million).
“As of March 31, 2009, we had 31.7 million ($41.5 million) cash on hand (included 0.3 million ($0.4 million) restricted cash) and 5.9 million ($7.7 million) available-for-sale financial assets (predominantly money market funds) mainly held in euro which were restricted. In addition, we had 5.2 million ($6.8 million) available credit lines.”
The lower cash balance including available-for-sale financial assets at March 31, 2009 (37.6 million. $49.2 million) compared to the same period in 2008 (53.8 million, $70.4 million), combined with the cash costs of interest expense and capital expenditures, will result in the company having to manage our working capital more aggressively particularly during the third and fourth quarters of this year. To the extent, such actions are insufficient to fund its working capital requirements, the company could be required to generate additional cash or secure additional credit facilities. However, the Exchange Offer, if successful, is expected to reduce cash interest expense.