Head N.V. said that for the first six months of the year, it expects net revenues at constant currency to be up to 10% below those achieved in the first six months of 2008.
“We are still experiencing difficult trading conditions, particularly in diving and to some extent in winter sports,” Head said in a statement. “In the second quarter we launched our YOUTEK Radical Series, our new tennis racquet line which has helped drive racquet sales in the second quarter compared to the second quarter of 2008, when no new racquet products were launched. Visibility of revenues for the full year remains limited. In particular, we are unable to determine whether the current downturn in the sporting goods industry will abate.”
Head added, “However, our current expectation is that our 2009 revenues will be lower than our 2008 revenues. Such a decline, combined with the large cash costs of our interest expense, our capital expenditures and our having begun 2009 with less cash than at the same period in 2008 and being subject to seasonal capital requirement peaks due to the seasonal nature of our business, will result in us 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 our working capital requirements, we could be required to generate additional cash or secure additional credit facilities. However, the exchange offer for the 8¿% senior notes due 2014 issued by our subsidiary, HTM Sport- und Freizeitgeräte AG, is expected to reduce our cash interest expense.”
Liquidity Position
Head said that in order to meet an anticipated shortfall in available cash in the third and fourth quarters of 2008, in October of the same year it entered into short-term lines of credit under which borrowings of approximately EUR5.0 million were drawn. These facilities were required to be repaid in full on December 31, 2008. All amounts outstanding under such facilities have been repaid.
“We expect that we will also have a seasonal shortfall in available cash in the third and fourth quarters of 2009,” the statement said. “In order to meet this shortfall and to execute our business strategy as planned for the remainder of 2009, even following the consummation of the exchange offer for the 8¿% senior notes due 2014 issued by HTM Sport- und Freizeitgeräte AG, we have determined that we will require an additional working capital facility of up to EUR10.0 million for the remainder of 2009. However, as of the date of this press release we have not identified a lender for this working capital facility. We cannot be sure that we will be able to obtain the necessary financing on commercially reasonable terms, if at all.”
Head said if it is unable to obtain this working capital facility or other financing it may be forced to:
reduce or delay our business activities, capital expenditures and research and development;
sell assets;
aggressively manage working capital;
raise equity capital; or
restructure or refinance all or a portion of our debt on or before maturity.
“We may not be able to accomplish any of these alternatives on a timely basis or on satisfactory terms, if at all,” Head said. “In addition, the terms of our existing and future indebtedness may limit our ability to pursue any of these alternatives.”
The company said that in July 2009, Head Sports (Hui Zhou) Corp., an entity in which we have a 82.86% controlling interest, has reached an agreement to enter into a loan agreement with Bank of China Co., Ltd (the “BoC Loan”). Head China expects to formally execute the BoC Loan in August 2009. Under the BoC Loan, Head China will be entitled to draw up to RMB 20 million, corresponding to an amount of approximately EUR2.08 million, in one or more draw-downs for the purpose of financing its working capital requirements. The BoC Loan will bear interest at a variable rate equal, for each draw-down, to the China Central Bank standard three-year term loan rate applicable on the date of such draw-down, plus a 7% margin. The interest rate will be re-set, for each draw-down, on the anniversary date of such draw-down. The loan is repayable in three installments of RMB 6 million in 2010 and RMB 7 million in each of 2011 and 2012. The BoC Loan is secured by a mortgage over land and real property of Head China located in Daya Bay, China.
