As anticipated, the poor snow last year is now adversely impacting Head N.V. results in the third quarter as retailers remain conservative in their orders of skis and snowboards. Heavy declines in Winter Sports were partially offset by gains in all other divisions for Head.

Sales in the Winter Sports Division for the quarter were down 30.5% due to lower volumes across all product categories. This decline has been in line with management’s preseason outlook, but the lower production activity has also negatively affected gross margins in the division, which fell 250 basis points from 40.1% in Q3 of 2006 to 37.6% in Q3 of 2007. Management anticipates that volumes in Winter Sports will continue to be lower than the prior year in the fourth quarter as well.

By category, sales of skis declined 19.6% to €21.5 million ($29.6 mm) compared to €26.8 million ($34.1 mm) last year. Binding sales dropped 42.9% to €11.2 million ($15.5 mm) compared to €19.7 million ($25.1 mm) last year. Boot sales dropped 33.3% to €11.7 million ($16.1 mm) compared to €17.6 million ($22.4 mm) last year. Sales of snowboard equipment also declined for the quarter, falling 30.5% to €4.4 million ($6.0 mm) compared to €6.3 million ($8.1 mm) last year.

In terms of actual production so far in 2007, Head has produced 215,000 pairs of skis, a 31.5% decline from 314,000 pairs at  the same time last year. Binding production is down to 697,000 pairs from 961,000 pairs, a 27.7% decline. Boots decreased to 193,000 pairs compared to 304,000 pairs, a 36.5% decrease and snowboard equipment went from 145,000 units to 109,000, a 24.8% decline in production. The only area where Head increased production was in protection, which grew 3.2% to 32,000 units.

Winter Sports sales in North America have grown from 26% of the business Q3 '06 to 31% of the business in Q3 '07. While sales were down in the region when measured in Euros, the Winter Sports business was actually up 7.6% in Q3 when measured in dollars. This gain was more than offset by currency conversions and hefty 30%+ declines in Winter Sports sales in the rest of the world and Europe. Management estimates that the overall U.S. market will decline approximately 6% this year, while Europe will decline around 30%. Currently, preseason orders for Alpine skiing are down between 25% and 30% due to the high inventory levels and caution among retailers.

However, looking at the season ahead, management fells cautiously optimistic. So far, the season has started out “quite well” with cold weather opening skiing on a lot of glaciers in Europe. In terms of contingencies for another slow winter, management said that they will be forced to cap production capacity and “undertake whatever other restructuring efforts that are possible.” Management said that they have €20 million to €30 million in cash and marketable securities as well.

In the Racquet Sports Division, the weakening of the Dollar against the Euro is resulting in reduction in reported sales for in the quarter. North America is the largest Racquet Sports market for Head. The reported 0.1% decline in Racquet Sports sales for the quarter was actually a 7.6% increase in sales if measured in U.S. dollars. Overall, the division would have reported a 12.3% increase in sales in dollars. Gross margins for the quarter increased 60 basis points to 38.3% compared to 37.7% for the same period last year.

The Diving division continues to perform well after coming off of a long slow period. Head management believes that they have gained market share during 2007.

Diving revenues are up due to strong performance at the Mares brand. Gross margins in the division declined 230 basis points for the quarter to 33.6%.

By brand, Mares accounts for the vast majority of Head’s diving sales, with €9.6 million ($13.1 mm) in sales for the quarter, up 1.9% compared to €9.4 million ($12.0 mm) last year. By contrast, the second largest brand, Spora, reported €700,000 in sales this quarter, a 44.2% increase compared to €500,000 in sales last year.

Licensing revenues increased 16.7% to €1.4 million ($1.9 mm) during the third quarter.

The declines in sales, coupled with tighter margins in winter sports cut operating profit by 47.4% to €8.8 million ($12.1 mm). This drop translated into a 62.6% decline in net income. Looking forward, Head management still expects an operating loss for the full-year of 2007.