Head N.V. reported revenues increased 1.9% to €57.3 million ($82.1 mm) in the second quarter ended June 40 as strong sales of racquets offset declines in its winter and division segments. On a constant currency basis, net revenues decreased by 1.8%. Operating losses decreased to €3.8 million ($5.4 mm) from €7.0 million ($10 mm) a year earlier.

Excluding the impact of the non-cash share based compensation, and restructuring costs, operating loss would have improved to a loss of €3.3 million ($4.7 mm) from a loss of €7.7 million ($11 mm) in Q2 2008

In the half, revenues decreased 2.9% to €114.4 million ($164 mm). On a constant currency basis, net revenues decreased by 6.6%. The company's reported operating loss widened to a loss of €13.9 million ($19.9 mm) from a loss of €10.1 million ($14.5 mm) in June 2008. Excluding the impact of the non cash share based compensation, and restructuring costs, operating loss would have improved by €2.3 million ($3.3 mm) to a loss of €11.7 million ($16.8 mm) from a loss of €14.1 million ($20.2 mm) in June 2008. The net loss for the period was €17.1 million ($24.5 mm) compared to a net loss in June 2008 of €9.7 million ($13.9 mm.)

“We continue to be effected by the current uncertain economic conditions,” said Johan

Results for the three and six months ended June 30, 2009 and 2008:

Winter Sports revenues for the three months ended June 30, 2009 decreased 17.3%, to €6.5 million ($9.3 mm) from €7.9 million ($11.3 mm) in the comparable 2008 period. This decrease was due to lower sales volumes partially offset by a favorable product mix.

For the six months, Winter Sports revenues decreased by 12.5%, to €20.4 million ($29.2 mm) from €23.3 million ($33.4 mm) in the comparable 2008 period. This decrease was due to lower sales volumes of all of its winter sports except protection wear.

Eliasch said, “Whilst the first six months of the year is not a
key selling period for our winter sports business, volume sales were
down significantly in all key product groups due to lower re-orders and
sell outs: skis units sold for the period were down 21% to 60 thousand,
unit sales of bindings down 20% to 216 thousand and unit sales of boots
were down 31% to 44 thousand. Sales value did not decline to
the same extent due to the positive impact of exchange rate movements
and some increase in average prices due to improved mix resulting in an
overall decline in sales of 12.5% for the first six months of 2009
compared to the same period in 2008. We have now collected a
significant proportion of our orders for the 2009/2010 season and our
order book is, as expected, below last years level due mainly to
caution by retailers given the current suppressed consumer demand
particularly in the US.”

Racquet Sports revenues for the three months ended June 30, 2009 increased by 16.6%, to €35.9 million ($51.5 mm) from €30.8 million ($41.4 mm) in the comparable 2008 period. This increase was due to higher sales volumes and favorable product mix resulting from the launch of its new tennis racquets as well as the strengthening of the U.S. dollar against the euro.

For the six months ended June 30, 2009 Racquet Sports revenues increased by 6.2%, to €67.1 million ($96.2 mm) from €63.2 million ($90.6 mm) in the comparable 2008 period. This increase was mainly due to the strengthening of the U.S. dollar against the euro and a favorable product mix. Lower sales volumes of tennis racquets were partially offset by higher sales volumes of balls and badminton products.

Eliasch said, “Our racquets division, on the other
hand, showed some growth in the second quarter of 2009 as we launched a
new series of products under the YouTek concept in conjunction with a
brand repositioning, this compares to the second quarter last year when
no new products were launched. The launch improved volumes in the
second quarter, but overall for the first six months volumes of
racquets were still down 10% to 963 thousand. Ball sales grew
in volume for the first six months of the year by 4.8% to 3.8 million
dozen with increases in both the Penn ball in the US and in our Head
ball in Europe.”

He added, “The combination of the improved racquet mix due
to the new product launch, higher ball sales and the positive impact of
exchange rate movements, has resulted in our sales for this division
being up by 6.2% for the first six months.”


Diving revenues for the three months ended June 30, 2009 decreased by 18.7%, to €14.6 million ($20.9 mm) from €18.0 million ($25.8 mm) in the comparable 2008 period due to decreased sales. 

For the six months ended June 30, 2009, Diving revenues decreased by 16.2%, to €26.7 million ($38.3 mm) from €31.9 million ($45.7 mm) in the comparable 2008 period. This decrease was mainly driven by the overall decline in the economic environment and consumer spending as a result of the financial crisis.

Eliasch said, “As expected, our diving division has been the most effected due to its
link to travel and the relatively high price points of the products.
Overall the sales in this division have fallen by 18.4% on a constant
currency basis for the first six months of the year compared to the
first six months of 2008. We estimate on a world wide basis that the
market declined by around 15%-20% for the period, with the US being
particularly badly effected. We do not see a significant recovery in
the market in 2009.”

Licensing revenues for the three months ended June 30, 2009 increased 29.7% to €1.7 million (2.4 mm) from €1.3 million ($1.9 mm) in the comparable 2008 period.

For the six months ended June 30, 2009 Licensing revenues increased 10.6%, to €3.2 million ($4.6 mm) from €2.9 million ($4.2 mm) in the comparable 2008 period due to the strengthening of the U.S. dollar against the euro.

Sales deductions for the three months ended June 30, 2009 decreased 15.5%, to €1.5 million ($2.1 mm) from €1.8 million ($2.6 mm) in the comparable 2008 period due to promotion sales of close out products in
2008. For the six months ended June 30, 2009 sales deductions decreased 13.7%, to €3.0 million ($4.3 mm) from €3.5 million ($5 mm) in the comparable 2008 period due lower sales.

Gross Profit. For the three months ended June 30, 2009 gross profit increased to €24.6 million ($35.2 mm) from €21.1 million ($30.2 mm) in the comparable 2008 period. Gross margin increased to 42.9% in 2009 from 37.6% in the comparable 2008.

For the six months ended June 30, 2009 gross profit increased to €46.4 million ($66.5 mm) from €46.0 million ($65.9 mm) in the comparable 2008 period. Gross margin increased to 40.5% in 2009 from 39.0% in the comparable 2008 period. This increase was due to improved manufacturing costs as well as a favorable product mix in Racquet Sports.

Selling and Marketing Expense. For the three months ended June 30, 2009, selling and marketing expense increased 1.6%, to €21.8 million (31.2 mm) from €21.4 million ($30.7 mm) in the comparable 2008 period.

For the six months ended June 30, 2009, selling and marketing expense decreased 3.6%, to €44.1 million ($63.2 mm) from €45.7 million ($65.5 mm) in the comparable 2008 period. This decrease resulted from a reduction in departmental selling costs.

General and Administrative Expense. For the three months ended June 30, 2009, general and administrative expense decreased 7.5%, to €6.9 million ($9.9 mm) from €7.4 million ($10.6 mm) in the comparable 2008 period.

For the six months, general and administrative expense decreased by 5.4%, to €14.0 million ($20.1 mm) from €14.8 million ($21.2 mm) in the comparable 2008 period mainly due to tough cost management.

Share-Based Compensation Expense (Income). For the three months ended June 30, 2009, HEAD N.V. recorded €0.2 million of share-based compensation expense for its Stock Option Plans compared to €0.7 million of share-based compensation income in the comparable 2008 period.

For the six months ended June 30, 2009, the company recorded €0.2 million of share-based compensation expense for its Stock Option Plans compared to €4.1 million of share-based compensation income in the comparable 2008 period. This was a result of the increased liability as of June 30, 2009 due to the higher share price compared to December 31, 2008.

Other Operating Income, net. For the three months ended June 30, 2009, other operating income, net increased by €0.7 million, to €0.7 million from €0.0 million in the comparable 2008.

For the six months ended June 30, 2009, other operating income, net decreased by €0.5 million to €0.1 million from €0.6 million in the comparable 2008 mainly due to foreign exchange rate fluctuations.

Operating Loss. As a result of the foregoing factors, operating loss for the three months ended June 30, 2009 decreased to €3.8 million ($5.4 mm) from €7.0 million (10 mm) in the comparable 2008 period.

For the six months ended June 30, 2009, operating loss increased by €3.8 million to €13.9 million from €10.1 million in the comparable 2008 period.

Interest Expense. For the three months ended June 30, 2009, interest expense increased 14.3%, to €3.6 million ($5.4 mm) from €3.2 million ($4.6 mm) in the comparable 2008 due to €0.6 million relating to its exchange offer.

For the six months ended June 30, 2009, interest expense increased 37.4%, to €8.7 million ($12.5 mm) from €6.3 million ($9 mm) in the comparable 2008. Costs in connection with itsexchange offer of €2.5 million ($3.6 mm) were recorded.

Interest Income. For the three months ended June 30, 2009, interest income decreased 55.4%, to €0.2 million from €0.4 million in the comparable 2008 period.

For the six months ended June 30, 2009, interest income decreased by €0.3 million, or 49.7% to €0.3 million from €0.7 million in the comparable 2008 period. This decrease was due to lower cash and cash equivalents.

Other Non-operating Income, net. For the three months ended June 30, 2009, other non-operating expense, net decreased by €0.7 million to an income, net of €0.7 million from an income, net of €1.4 million in the comparable 2008 period mainly attributable to fewer foreign currency gains.

For the six months ended June 30, 2009, other non-operating income, net increased by €1.0 million to an income, net of €2.1 million from an income, net of €1.1 million in the comparable 2008 period mainly attributable to foreign currency gains.

Income Tax Benefit. For the three months ended June 30, 2009, the income tax benefit was €1.3 million, a decrease of €1.0 million compared to an income tax benefit of €2.3 million in the comparable 2008 period.
For the six months ended June 30, 2009, the income tax benefit was €3.1 million, a decrease of €1.8 million compared to an income tax benefit of €4.9 million in the comparable 2008 period. This decrease resulted from higher current income tax expenses due to a provision for potential income tax liabilities of prior years of €1.2 million and lower taxable losses before share-based compensation (income) expense as this income/expense has no tax effect.

Net Loss. As a result of the foregoing factors, for the three months ended June 30, 2009, we had a net loss of €5.3 million ($7.6 mm), compared to a net loss of €6.1 million ($8.8 mm) in the comparable 2008 period. For the six months ended June 30, 2009, Head had a net loss of €17.1 million ($24.5 mm) compared to a net loss of €9.7 million ($13.9 mm) in the comparable 2008 period.

Outlook.  Eliasch said, “For the full year 2009, we are still anticipating its sales to be lower
than those achieved in 2008. The expected decline in sales, together
with a lower cash and available for sale financial assets balance at
June, 2009 (€24.0 million) compared to the same period in 2008 (€30.7
million), combined with the cash costs of its interest expense and its capital expenditures, will result in us having to use additional lines
of credit during the third and fourth quarters this year.”

“The
company said it has been focusing on reducing its debt and interest
burden,” he added. “In April 2009, the company announced a private exchange offer
to exchange its existing €135.0 million 8.5% senior notes due 2014 for
its new 10% senior secured notes due 2014. It supplemented this with a
revised offer in July, and the offer closed on the 13th August 2009 and
was settled on the 19th of August.”

The results of the exchange
offer were that €85,723,000 of existing notes validly tendered (75.3%
taking into account the cancellation of €21.2 million 8.5% senior notes
held by a subsidiary) and have been exchanged into approximately
€43,738,000 of new secured notes and 22,491,278 ordinary shares in Head
NV.

The chairman said, “This reduced the par value of the outstanding liability to our
bondholders on our balance sheet by nearly €42.0 million and also
reduces our annual interest cost relating to these notes by nearly €3.0
million. In 2009, there will also be a one off further reduction of
interest of €3.6 million due to the non-payment of the accrued interest
to those note holder who tendered. In addition, as part of the exchange
offer, the company now has access to €10.0 million of working capital
finance in 2009, which it anticipates utilizing in the third and fourth
quarters of the year.”