Natrol Reports Fourth Quarter and Fiscal 2006 Results

  
    
  
  
    
      Natrol, Inc. (Nasdaq:NTOL), a premier manufacturer and distributor of 
      nationally branded nutritional products, today reported its fiscal 
      fourth quarter and full-year results for the period ended December 31, 
      2006. For the fourth quarter, the company reported that net sales 
      increased 10.3% to $16.4 million versus $14.9 million a year ago; 
      diluted earnings per share for the fourth quarter were $0.02 versus a 
      loss of $0.12 in the fourth quarter of last year. For the full year, the 
      Company reported net sales of $65.6 million, a 2.9% decrease versus the 
      fiscal 2005 level of $67.5 million, and diluted earnings per share of 
      $0.03, a significant improvement versus the year-ago loss of $0.20 per 
      diluted share.
    
    
      Wayne Bos, Natrol’s President and Chief 
      Executive Officer, commented: “Over the course 
      of the past year, we have successfully returned our business to 
      profitability. We have controlled our costs and improved our margins and 
      positioned our business to resume meaningful long-term growth. We are 
      making careful, thoughtful investments in our brands, our market 
      presence, and our operating infrastructure to ensure that we take 
      advantage of the significant opportunities that exist for our business.”
    
    
      The Company noted that its 2006 full-year gross profit margin improved 
      to 43.4% from 34.7% in the prior year. This improvement was driven by 
      improved pricing in raw material costs, more efficient production, a 
      reduction in the mix of low-margin sales, and better inventory controls. 
      Fiscal 2006 operating expenses increased only slightly, with savings in 
      sales and marketing expenses offset by increases in general and 
      administrative costs.
    
    
      The Company noted that it had made significant progress over the course 
      of the year in a variety of areas. These included the hiring of a new 
      Chief Executive Officer and a new Chief Operating Officer, the 
      establishment of a $10 million, three-year line of credit, the 
      establishment of a U.K.-based subsidiary to further penetrate the 
      European market, the acquisition of the NuHair® 
      and Shen Min® brands of hair thinning and 
      re-growth products, and the acquisition of the exclusive U.S. 
      intellectual property rights related to the Promensil® 
      and Trinovin® brands, leading dietary 
      supplements specifically marketed to the fast-growing demographic of 
      aging adult consumers.
    
    
      Mr. Bos continued: “We remain committed to 
      both continuing to expand our existing suite of products and brands as 
      well as to exploring new opportunities. We believe that there are 
      additional opportunities in this highly fragmented market and intend to 
      use the strength of our balance sheet and, over time, our ability to 
      generate significant, positive operating cash flow to take advantage of 
      additional growth opportunities.”
    
    
      Mr. Bos concluded: “As we enter fiscal 2007, 
      we believe that we are well positioned to continue to execute on our 
      strategy to improve our operations, grow sales in our core and newly 
      acquired brands across each tier of distribution, and to leverage our 
      financial position to continue to make compelling acquisitions in a 
      variety of categories. We look forward to demonstrating the power of our 
      operating model and in flowing tangible increases in value to our 
      shareholders.”
    
    
      About Natrol – Nourishing the Potential of 
      Mind and Body™
    
    
      Natrol, Inc. (Nasdaq: NTOL), headquartered in Chatsworth, CA, has a 
      portfolio of health and wellness brands representing the highest quality 
      nutritional supplements, functional herbal teas, and sports nutrition 
      products. Natrol’s business consists of 
      ownership, management, marketing, and distribution of premium brands and 
      products, as well as nutraceutical manufacturing for its own brands and 
      on behalf of third parties. The Company’s 
      brands include Natrol®, Prolab®, 
      Laci Le Beau®, Promensil®, 
      Trinovin®, Nu Hair®, 
      and Shen Min®.
    
    
      Natrol distributes products nationally through more than 54,000 
      retailers, as well as internationally in 40 countries through 
      distribution partners and a wholly owned subsidiary in the U.K. Natrol’s 
      dedication to quality is evidenced by its commitment to high 
      manufacturing standards, earning the Company an “A” 
      rating from the Natural Products Association’s 
      GMP Certification Program – a designation 
      achieved by less than ten percent of U.S. nutrition companies. For more 
      information, visit www.Natrol.com.
    
    
      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 and Section 21E of the Securities Exchange Act of 1934. As a result 
      of a number of factors, our actual results could differ materially from 
      those set forth in the forward-looking statements. Certain factors that 
      might cause our actual results to differ materially from those in the 
      forward-looking statements include, without limitation: (i) our ability 
      to develop and execute our business plans, (ii) our ability to respond 
      to competitive challenges and changing consumer preferences, (iii) our 
      ability to consummate and integrate acquisitions, (iv) increased 
      competition, (v) unfavorable publicity about dietary supplements in 
      general or regarding our products or similar products sold by others, 
      (vi) our exposure to product liability claims, (vii) our dependence upon 
      certain large customers, and (viii) our ability to retain and attract 
      talented management and other key employees, as well as those factors 
      set forth under the heading “Risk Factors” 
      in our annual report on Form 10-K for the year ended December 31, 2006, 
      and in our other filings with the Securities and Exchange Commission.
    
    
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            Natrol, Inc. and Subsidiaries
          
          
            Consolidated Balance Sheets
          
          
            (in thousands, except share and per share data)
          
        
      
      
        
        
        
        
        
           
        
      
      
        
        
        
        
        
          December 31,
        
      
      
        
        
        
        
        
          2006 
        
        
        
        
          2005 
        
      
      
        
          Assets
        
        
        
        
        
        
        
        
        
      
      
        
          Current assets:
        
        
        
        
        
        
        
        
        
      
      
        
          Cash and cash equivalents
        
        
        
        
          $
        
        
          1,003 
        
        
        
        
          $
        
        
          3,097 
        
      
      
        
          Accounts receivable, net of allowances of $181 and $247 at December 
          31, 2006 and 2005, respectively
        
        
        
        
        
        
          
            6,485 
          
        
        
        
        
        
        
          6,723 
        
      
      
        
          Inventory
        
        
        
        
        
        
          11,788 
        
        
        
        
        
        
          11,797 
        
      
      
        
          Income taxes receivable
        
        
        
        
        
        
          375 
        
        
        
        
        
        
          439 
        
      
      
        
          Deferred income taxes
        
        
        
        
        
        
          1,630 
        
        
        
        
        
        
          2,021 
        
      
      
        
          Prepaid expenses and other current assets
        
        
        
        
           
        
        
          1,743 
        
        
        
        
           
        
        
          726 
        
      
      
        
          Total current assets
        
        
        
        
        
        
          23,024 
        
        
        
        
        
        
          24,803 
        
      
      
        
          Property and equipment:
        
        
        
        
        
        
        
        
        
      
      
        
          Building and improvements
        
        
        
        
        
        
          14,953 
        
        
        
        
        
        
          14,930 
        
      
      
        
          Machinery and equipment
        
        
        
        
        
        
          5,757 
        
        
        
        
        
        
          5,754 
        
      
      
        
          Furniture and office equipment
        
        
        
        
           
        
        
          3,013 
        
        
        
        
           
        
        
          2,900 
        
      
      
        
        
        
        
        
        
        
          23,723 
        
        
        
        
        
        
          23,584 
        
      
      
        
          Accumulated depreciation and amortization
        
        
        
        
           
        
        
          (9,912)
        
        
        
        
           
        
        
          (8,684)
        
      
      
        
          Property and equipment, net
        
        
        
        
        
        
          13,811 
        
        
        
        
        
        
          14,900 
        
      
      
        
          Property held for sale, net
        
        
        
        
        
        
          — 
        
        
        
        
        
        
          761 
        
      
      
        
          Restricted cash
        
        
        
        
        
        
          5,000 
        
        
        
        
        
        
          5,000 
        
      
      
        
          Deferred income taxes
        
        
        
        
        
        
          4,265 
        
        
        
        
        
        
          3,905 
        
      
      
        
          Goodwill, net of accumulated amortization and impairment charge of 
          $37,381
        
        
        
        
        
        
          2,026 
        
        
        
        
        
        
          2,026 
        
      
      
        
          Trademarks
        
        
        
        
        
        
          5,730 
        
        
        
        
        
        
          — 
        
      
      
        
          Other assets
        
        
        
        
           
        
        
          744 
        
        
        
        
           
        
        
          67 
        
      
      
        
          Total assets
        
        
        
        
          $
        
        
          54,600 
        
        
        
        
          $
        
        
          51,462 
        
      
      
        
          Liabilities and stockholders’ equity
        
        
        
        
        
        
        
        
        
      
      
        
          Current liabilities:
        
        
        
        
        
        
        
        
        
      
      
        
          Line of credit
        
        
        
        
          $
        
        
          3,694 
        
        
        
        
          $
        
        
          — 
        
      
      
        
          Accounts payable
        
        
        
        
        
        
          3,058 
        
        
        
        
        
        
          4,647 
        
      
      
        
          Accrued expenses
        
        
        
        
        
        
          2,558 
        
        
        
        
        
        
          2,888 
        
      
      
        
          Accrued payroll and related liabilities
        
        
        
        
        
        
          1,185 
        
        
        
        
        
        
          826 
        
      
      
        
          Current portion of long-term debt
        
        
        
        
           
        
        
          414 
        
        
        
        
           
        
        
          532 
        
      
      
        
          Total current liabilities
        
        
        
        
        
        
          10,909 
        
        
        
        
        
        
          8,893 
        
      
      
        
          Long-term debt, less current portion
        
        
        
        
        
        
          6,301 
        
        
        
        
        
        
          7,165 
        
      
      
        
          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—14,116,148 
          and 13,535,837 at December 31, 2006 and 2005, respectively
        
        
        
        
        
        
          141 
        
        
        
        
        
        
          135 
        
      
      
        
          Additional paid-in capital
        
        
        
        
        
        
          61,638 
        
        
        
        
        
        
          60,113 
        
      
      
        
          Accumulated deficit
        
        
        
        
        
        
          (24,409)
        
        
        
        
        
        
          (24,844)
        
      
      
        
          Accumulated other comprehensive income
        
        
        
        
           
        
        
          20 
        
        
        
        
           
        
        
          — 
        
      
      
        
          Total stockholders’ equity
        
        
        
        
           
        
        
          37,390 
        
        
        
        
           
        
        
          35,404 
        
      
      
        
          Total liabilities and stockholders’ equity
        
        
        
        
          $
        
        
          54,600 
        
        
        
        
          $
        
        
          51,462 
        
      
    
    
    
    
      
        
          
            Natrol, Inc. and Subsidiaries
          
          
            Consolidated Statements of Operations
          
          
            (in thousands, except share and per share data)
          
        
      
      
        
        
        
        
        
        
        
        
        
           
        
      
      
        
        
        
        
        
          Quarter Ended
        
        
        
        
          Year Ended
        
      
      
        
        
        
        
        
          December 31,
        
        
        
        
          December 31,
        
      
      
        
        
        
        
        
          2006 
        
        
        
        
          2005 
        
        
        
        
          2006 
        
        
        
        
          2005 
        
      
      
        
          Net sales
        
        
        
        
          $
        
        
          16,393 
        
        
        
        
          $
        
        
          14,867 
        
        
        
        
          $
        
        
          65,564 
        
        
        
        
          $
        
        
          67,530 
        
      
      
        
          Cost of goods sold
        
        
        
        
           
        
        
          8,736 
        
        
        
        
           
        
        
          10,742 
        
        
        
        
           
        
        
          37,131 
        
        
        
        
           
        
        
          44,107 
        
      
      
        
          Gross profit
        
        
        
        
           
        
        
          7,657 
        
        
        
        
           
        
        
          4,125 
        
        
        
        
           
        
        
          28,433 
        
        
        
        
           
        
        
          23,423 
        
      
      
        
          Selling and marketing expenses
        
        
        
        
        
        
          4,624 
        
        
        
        
        
        
          4,595 
        
        
        
        
        
        
          16,655 
        
        
        
        
        
        
          18,000 
        
      
      
        
          General and administrative expenses
        
        
        
        
           
        
        
          2,727 
        
        
        
        
           
        
        
          2,296 
        
        
        
        
           
        
        
          11,065 
        
        
        
        
           
        
        
          9,525 
        
      
      
        
          Total operating expenses
        
        
        
        
           
        
        
          7,351 
        
        
        
        
           
        
        
          6,891 
        
        
        
        
           
        
        
          27,720 
        
        
        
        
           
        
        
          27,525 
        
      
      
        
          Operating income (loss)
        
        
        
        
        
        
          306 
        
        
        
        
        
        
          (2,766)
        
        
        
        
        
        
          713 
        
        
        
        
        
        
          (4,102)
        
      
      
        
          Gain on sale of property
        
        
        
        
        
        
          — 
        
        
        
        
        
        
          — 
        
        
        
        
        
        
          230 
        
        
        
        
        
        
          — 
        
      
      
        
          Interest income
        
        
        
        
        
        
          42 
        
        
        
        
        
        
          49 
        
        
        
        
        
        
          229 
        
        
        
        
        
        
          189 
        
      
      
        
          Interest expense
        
        
        
        
           
        
        
          234 
        
        
        
        
           
        
        
          158 
        
        
        
        
           
        
        
          (690)
        
        
        
        
           
        
        
          (638)
        
      
      
        
          Income (loss) before income taxes
        
        
        
        
        
        
          114 
        
        
        
        
        
        
          (2,875)
        
        
        
        
        
        
          482 
        
        
        
        
        
        
          (4,551)
        
      
      
        
          Income tax provision (benefit)
        
        
        
        
           
        
        
          (108)
        
        
        
        
           
        
        
          (1,285)
        
        
        
        
           
        
        
          47 
        
        
        
        
           
        
        
          (1,918)
        
      
      
        
          Net income (loss)
        
        
        
        
          $
        
        
          222 
        
        
        
        
          $
        
        
          (1,590)
        
        
        
        
          $
        
        
          435 
        
        
        
        
          $
        
        
          (2,633)
        
      
      
        
          Basic income (loss) per share:
        
        
        
        
        
        
        
        
        
        
        
        
        
        
        
        
        
      
      
        
          Income (loss) per share
        
        
        
        
          $
        
        
          0.02 
        
        
        
        
          $
        
        
          (0.12)
        
        
        
        
          $
        
        
          0.03 
        
        
        
        
          $
        
        
          (0.20)
        
      
      
        
          Diluted income (loss) per share:
        
        
        
        
        
        
        
        
        
        
        
        
        
        
        
        
        
      
      
        
          Income (loss) per share
        
        
        
        
          $
        
        
          0.02 
        
        
        
        
          $
        
        
          (0.12)
        
        
        
        
          $
        
        
          0.03 
        
        
        
        
          $
        
        
          (0.20)
        
      
      
        
          Weighted-average shares outstanding:
        
        
        
        
        
        
        
        
        
        
        
        
        
        
        
        
        
      
      
        
          Basic
        
        
        
        
        
        
          13,758,285 
        
        
        
        
        
        
          13,535,526 
        
        
        
        
        
        
          13,619,783 
        
        
        
        
        
        
          13,473,647 
        
      
      
        
          Diluted
        
        
        
        
        
        
          13,923,296 
        
        
        
        
        
        
          12,355,526 
        
        
        
        
        
        
          13,746,670 
        
        
        
        
        
        
          13,473,647