Natrol Announces $20 Million Impairment Charge for Prolab Division

CHATSWORTH, Calif.--Natrol Inc. (NASDAQ:NTOL) stated on Feb. 8 that it will report a $20 million impairment charge for Prolab Nutrition, which it acquired in the third quarter of fiscal 1999. Natrol purchased Prolab, a sports nutrition products marketing company, for $29 million cash and 124,270 shares.

"Prolab has not yet met our expectations," reported Dennis Jolicoeur, Natrol's chief financial officer. He said that a number of factors contribute to Prolab's lack of performance. "We remain bullish about this business unit, but prolab is worth less than its purchase price, and accounting rules dictate that a $20 million impairment write-down is appropriate."

Natrol also warned that net sales for the fourth quarter of fiscal 2001 are expected to fall approximately 13.3 percent to $15.6 million from $18.0 million experienced in the fourth quarter of fiscal 2000. Net sales for the year ended December 31, 2001, are expected to be around $76.2 million, 12.5 percent less than in fiscal 2000, when net sales were $87.1 million.

Not only will Natrol's fewer sales affect its bottom line for fiscal 2001, but so will Prolab's performance. "We had a difficult time with the integration of Prolab into Natrol because we did not have the right management team in place to coordinate a smooth transition," stated Elliott Balbert, president chief executive president of Natrol, adding that this was the company's first venture into the sports nutrition market. "That was a very key factor. But we're very excited about our future prospects with this asset."

Natrol has already taken steps to turn around Prolab's profitability. Prolab is planning to sneak preview a few new products at the Arnold Classic next month, and earlier this month, Natrol appointed Vincent Andrich to vice president of sales for Prolab. Andrich has fifteen years of experience in the sports nutrition industry, and has held the posts of vice president of sports nutrition at Weider Nutrition International, senior director of sports nutrition at EAS and senior director of marketing at MET-RX USA.

"As with what happens when negative news is released, the first reaction of folks is to focus on the negative instead of the positive," Balbert said. "In fiscal 2000, we lost $7 million. In 2001, we showed a small profit on $11 million fewer revenues. The company is debt-free with cash in the bank and continues to have a positive cash flow. So we really had a huge turnaround if you think about it. We didn't drive the top line this year, but how many companies did?" Balbert estimated that Natrol will release its audited fiscal 2001 results by the end of February.