NATROL ANNOUNCES 2003 RESULTS

04/Apr/2004

Natrol, Inc. (NASDAQ: NTOL) today announced its results for the fourth quarter and year ended December 31, 2003. For the year ended December 31, 2003, the Company reported income from continuing operations of $19,000.

NATROL ANNOUNCES 2003 RESULTS

Chatsworth, CA -(BUSINESS WIRE) - March 31, 2003 - Natrol, Inc. (NASDAQ: NTOL) today announced its results for the fourth quarter and year ended December 31, 2003.

For the year ended December 31, 2003, the Company reported income from continuing operations of $19,000. Losses from discontinued operations and the net loss for the year were $1.5 million. This compares to income from continuing operations in 2002 of $1.4 million before the loss from discontinued operations of $688,000 and before the effect of a charge from a cumulative change in accounting principle. During 2002, the Company adopted SFAS No. 142 which addresses "Goodwill and Other Intangible Assets." In adopting SFAS 142, the Company wrote off $11.0 million of its goodwill from prior acquisitions which, net of income tax effects, resulted in a $6.8 million charge to earnings and a net loss of $6.1 million.

Net sales in 2003 increased 3.4%, or $2.4 million, to $72.7 million from $70.3 million in 2002.

For the three months ending December 31, 2003, net sales increased approximately 3.2% or $.5 million to $17.4 million from $16.9 million for the three months ended December 31, 2002. Income from continuing operations for the three months ended December 31, 2003 was $12,000 as opposed to $957,000 for the three months ended December 31, 2002. The loss from discontinued operations was $414,000 for the three months ended December 31, 2003 as compared to a loss from discontinued operations of $327,000 for the three months ended December 31, 2002. The Company's net loss for the three months ended December 31, 2003 was $402,000 as compared to net income of $630,000 for the three months ended December 31, 2002.

"The 2003 year was a transition year for us," noted Elliott Balbert, Natrol's President and Chairman. "We focused our energies on new concepts initiated in 2002 which did not deliver expected results. By year's end, we made the right decisions that were necessary to regain our focus and hopefully establish new momentum. We discontinued our multi-level marketing business, Annasa, as well as our direct marketing business, Tamsol. We also completed the consolidation of administrative and brand support functions for our Prolab subsidiary into the main Natrol facility in order to reduce overhead and make our Prolab brand a stronger contributor to our overall growth strategy and bottom line. These were hard decisions but we are confident these decisions solidify our business. Fortunately, our core Natrol, Laci Le Beau and Prolab brands are well regarded. We are now focused on these brands and are determined to make meaningful progress in 2004. Our balance sheet remains strong. Our debt at year-end was limited to mortgage debt on our headquarters and our main shipping facility. Our debt to equity ratio at year-end was favorable. Our current cash position weakened in 2003 primarily due to losses from our discontinued operations and the reclassification of $5 million of our cash as a restricted cash asset as part of an insurance program that effectively reduces our insurance cost by more than $1 million on an annualized basis when compared to the prior program. Within the last few days, we received $2 million as part of a legal settlement which will be reflected on the financial statements for the quarter ending March 31, 2004 as a reduction in goodwill. The cash improves our working capital and gives us increased confidence that we have the resources to help our business grow. We remain positive about our industry and optimistic about our future prospects."

 

The statements made in this press release which are not historical facts including statements regarding expectations for future growth of revenue and profits and trends concerning net sales, are forward looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended. As a result of a number of factors, the Company's actual results could differ materially from those set forth in the forward looking statements. Certain factors that might cause Natrol's actual results to differ materially from those set forth in the forward looking statements include adverse trends in the dietary supplements industry, intense competition, adverse effects of unfavorable publicity regarding particular products or the Company's industry generally, the Company's dependence on the introduction of successful new products, the Company's ability to gain market share and shelf space in each of its distribution channels, the Company experiencing high rates of product returns, and adverse government regulation, as well as those factors set forth under the heading "Risk Factors" in the Company's Annual Report on Form 10-K for the year ended December 31, 2002 and in the Company's other filings with Securities and Exchange Commission.


Contact:
Bob Mauser
(818) 739-6000 ext.583

Natrol, Inc. and Subsidiaries

Consolidated Balance Sheets
 (In thousands, except share and per share data)

December 31,
2003 2002
Assets
Current assets:

Cash and cash equivalents......................................................

 $2,599 $10,077
Accounts receivable, net of allowances of $635 and $409
at December 31, 2003 and 2002, respectively...................................................... 		7,698 6,780
Inventory...................................................... 9,053 8,608
Income taxes receivable....................................................... 349
Deferred income taxes...................................................... 1,110 665
Prepaid expenses and other current assets...................................................... 914 1,452
Net assets ofÊ discontinued operations 35 68
Total current assets...................................................... 21,758 27,650
Property and equipment:
Building and improvements...................................................... 15,612 15,607
Machinery and equipment...................................................... 5,215 5,067
Furniture and office equipment...................................................... 3,158 2,981
23,985 23,655
Accumulated depreciation and amortization...................................................... (7,315) (5,866)
Property and equipment, net 16,670 17,789
Restricted cash 5,000 /td>
Deferred income taxes, noncurrent...................................................... 3,902 3,853
Goodwill, net of accumulated amortization and
impairment charge of $37,381 December 31, 2002...................................................... 		4,026 4,026
Other assets...................................................... 83 39
Total assets...................................................... $51,439 $53,357
Liabilities and stockholders' equity
Current liabilities:
Accounts payable...................................................... $5,601 $4,395
Accrued expenses...................................................... 1,732 3,347
Accrued payroll and related liabilities...................................................... 772 680
Income taxes payable...................................................... 205
Current portion of long‑term debt....................................................... 325 301
Total current liabilities...................................................... 8,430 8,928
Long‑term debt, less current portion...................................................... 7,451 7,778
Commitments and contingencies
Stockholders' equity:
Preferred stock, par value of $0.01 per share:
Authorized shares÷2,000,000; Issued and outstanding shares÷none
Common stock, par value of $0.01 per share:
Authorized shares÷50,000,000
Issued and outstanding shares÷14,054,309 and 13,789,000 at
December 31, 2003 and 2002, respectively...................................................... 		141 138
Additional paid‑in capital...................................................... 62,377 62,005
Accumulated deficit...................................................... (24,079) (22,611)
38,439 39,532
Shares held in treasury, at cost÷921,900 shares at
December 31, 2003 and 2002...................................................... 		(2,881) (2,881)
Total stockholders' equity...................................................... 35,558 36,651
Total liabilities and stockholders' equity...................................................... $51,439 $53,357

Natrol, Inc. and Subsidiaries
Consolidated Statements of Operations
(In thousands)
  Three Months Ended
 December 31,		 Year Ended
 December 31,
  2003 2002 2003 2002
 
Net sales...................................................... $17,399 $16,857 $72,658 $70,260
Cost of goods sold...................................................... 10,530 8,976 44,246 41,715
 
Gross profit...................................................... 6,869 7,881 28,412 28,545
 
Selling and marketing expenses................................... 4,478 3,902 17,701 16,915
General and administrative expenses.......................... 2,236 2,222 10,063 8,744
 
Total operating expenses............................................. 6,714 6,124 27,764 25,659
 
Operating income (loss) from continuing operations...................................................... 155 1,757 648 2,886
Interest income....................................................... 38 18 54 87
Interest expense...................................................... (162) (221) (649) (731)
Income (loss) from continuing operations before income taxes...................................................... 31 1,554 53 2,242
Income tax provision...................................................... 19 597 34 861
Income (loss) from continuing operations before cumulative change in accounting principles 12 957 19 1,381
Discontinued operations:        
 (Loss) from operations of discontinued Annasa component (352) (472) (1,766) (1,068)
 (Loss) from operations of discontinued Tamsol component (281) (41) (542)

(41)
 Income tax benefit 219 186 821 421
 Loss on discontinued operations (414) (327) (1,487) (688)
Income (loss) before cumulative effect of accounting change...................................................... Ê(402) Ê630 Ê(1,468) 693
Cumulative effect of change in accounting principle,
net of income tax benefit of $4,139.........		       (6,819)
Net income (loss)...................................................... $(402) $630 $(1,468) $(6,126)
Basics and Diluted income (loss) per share:
 Income (loss) per share from continuing operations $0.00 $0.07 $0.00 $0.11
 Income (loss) per share from discontinued operations....................................................... Ê(0.03) Ê(0.02) Ê(0.11) Ê(0.06)
 Loss per share attributable to cumulative effect of change in accounting principle...........................       (0.53)
 
 Income (loss) per share............................................ $ (0.03) $ 0.05 $ (0.11) $ (0.48)
  

 
Weighted‑average shares outstanding - basic............................................. 12,945,938 12,866,285 12,904,642 12,851,947
Weighted‑average shares outstanding - diluted.......................................... 13,924,585 12,866,952 13,451,764 12,991,906