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Castle Brands Announces Fourth Quarter and Fiscal 2012 Results

Operating Results Improve Due to Higher Sales and Lower Selling Expense

NEW YORK--(BUSINESS WIRE)-- Castle Brands Inc. (NYSE MKT: ROX), a developer and international marketer of premium and super-premium branded spirits and wine, today reported financial results for the quarter and year ended March 31, 2012.

Operating highlights for the fiscal year ended March 31, 2012:

"We are excited by the traction many of our brands are gaining in the U.S. market as a result of our targeted marketing efforts, especially Jefferson's bourbons and Gosling's rums. We have focused our efforts on these more profitable brands in 2012, which has allowed us to increase our gross margins and significantly improve our operating loss in 2012," stated Richard J. Lampen, President and Chief Executive Officer of Castle Brands. "We are pleased to have entered into a term sheet to increase availability under our working capital facility from $5 million to $7 million, which will provide us with additional working capital as we move toward profitability. Castle Brands expects continued increased U.S. and international case sales through organic growth, product line extensions, potential acquisitions and distribution agreements. We intend to support this growth with our existing infrastructure, and anticipate our general and administrative expenses to remain relatively flat during this period."

"The growth in U.S. sales reflects the momentum of our Gosling's rums, Jefferson's bourbons, Pallini Limoncello, Knappogue and Clontarf Irish whiskeys and Brady's Irish cream," stated John Glover, Chief Operating Officer of Castle Brands. "Initial sales of the Gosling's Dark ‘n Stormy® ready-to-drink cocktail, which was launched in February 2012, have been encouraging. We expect sales of this great new product to trend upwards in the summer months. We also expect it to expand the appeal of Gosling's to trendsetting consumers."

In the fourth quarter of fiscal 2012, the Company had net sales of $10.0 million, an 11.7% increase from net sales of $8.9 million in the comparable prior-year period. Loss from operations improved by 14.5% to $1.0 million in the fourth quarter of fiscal 2012, from $1.1 million for the prior-year period. Including the $0.2 million non-cash dividend accrued under the terms of the Company's Series A Preferred Stock, the Company had a net loss attributable to common shareholders of $1.5 million, or $(0.01) per basic and diluted share, in the fourth quarter of fiscal 2012, unchanged from the prior-year period.

EBITDA, as adjusted, for the fourth quarter of fiscal 2012 improved 51.7% to a loss of $0.3 million, compared to a loss of $0.7 million for the prior-year period.

Net sales were $35.5 million for the year ended March 31, 2012, a 10.9% increase as compared to $32.0 million for the prior-year period. Loss from operations was ($3.9) million for the year ended March 31, 2012, an improvement of 28.6% from a loss of ($5.4) million for the prior-year period. Including the $0.7 million non-cash dividend accrued under the terms of the Series A Preferred Stock, the Company had a net loss attributable to common shareholders of ($5.9) million, or $(0.06) per basic and diluted share, for the year ended March 31, 2012, a 5.7% improvement compared to a net loss attributable to common shareholders of ($6.3) million or $(0.06) per basic and diluted share, in the comparable prior-year period.

EBITDA, as adjusted, for the year ended March 31, 2012 improved 40%to a loss of ($2.4) million, compared to a loss of ($4.1) million for the prior-year period.

Non-GAAP Financial Measures

Within the information above, Castle Brands provides information regarding EBITDA, as adjusted, which is not a recognized term under GAAP (Generally Accepted Accounting Principles) and does not purport to be an alternative to operating income (loss) or net income (loss) as a measure of operating performance. Earnings before interest, taxes, depreciation and amortization, or EBITDA, adjusted for allowances for doubtful accounts and obsolete inventory, stock-based compensation expense, severance expense, other income and expense, loss from equity investment in non-consolidated affiliate, foreign exchange loss, net change in fair value of warrant liability, net income attributable to noncontrolling interests and dividend to preferred shareholders is a key metric the Company uses in evaluating its financial performance on a consistent basis across various periods. EBITDA is considered a non-GAAP financial measure as defined by Regulation G promulgated by the SEC under the Securities Act of 1933, as amended. Due to the significance of non-cash and non-recurring items, EBITDA, as adjusted, enables the Company's Board of Directors and management to monitor and evaluate the business on a consistent basis. The Company uses EBITDA, as adjusted, as a primary measure, among others, to analyze and evaluate financial and strategic planning decisions regarding future allocation of capital resources. The Company believes that EBITDA, as adjusted, eliminates items that are not indicative of its core operating performance or are based on management's estimates, such as severance expense, are due to changes in valuation, such as the effects of changes in foreign exchange or fair value of warrant liability, or do not involve a cash outlay, such as stock-based compensation expense. EBITDA, as adjusted, should be considered in addition to, rather than as a substitute for, income from operations, net income and cash flows from operating activities. Reconciliation of net loss to EBITDA, as adjusted, is presented below.

About Castle Brands Inc.

Castle Brands is a developer and international marketer of premium beverage alcohol brands including: Gosling's Rum®, Jefferson's®, Jefferson's Presidential SelectTM and Jefferson's Reserve® bourbon, Boru® vodka, Pallini® Limoncello, Raspicello and Peachcello, Knappogue Castle Whiskey®, Clontarf® Irish whiskey, Betts & SchollTM wines, cc: winesTM, Celtic Honey® liqueur, Brady's® Irish Cream, A. De Fussigny® cognacs, Travis Hasse's Original® liqueurs, Gozio® amaretto and TierrasTM tequila. Additional information concerning the Company is available on the Company's website, www.castlebrandsinc.com.

Forward Looking Statements

This press release includes statements of our expectations, intentions, plans and beliefs that constitute "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 and are intended to come within the safe harbor protection provided by those sections. These statements, which involve risks and uncertainties, related to the discussion of our business strategies and our expectations concerning future operations, margins, sales, new products and brands, potential joint ventures, potential acquisitions, expenses, profitability, liquidity and capital resources and to analyses and other information that are based on forecasts of future results and estimates of amounts not yet determinable. You can identify these and other forward-looking statements by the use of such words as "may," "will," "should," "expects," "intends," "plans," "anticipates," "believes," "thinks," "estimates," "seeks," "expects," "predicts," "could," "projects," "potential" and other similar terms and phrases, including references to assumptions. These forward looking statements are made based on expectations and beliefs concerning future events affecting us and are subject to uncertainties, risks and factors relating to our operations and business environments, all of which are difficult to predict and many of which are beyond our control, that could cause our actual results to differ materially from those matters expressed or implied by these forward looking statements. These risks include our history of losses and expectation of further losses, our ability to expand our operations in both new and existing markets, our ability to develop or acquire new brands, our relationships with distributors, the success of our marketing activities and our cost reduction efforts, the effect of competition in our industry and economic and political conditions generally, including the current recessionary economic environment and concurrent market instability. More information about these and other factors are described under the caption "Risk Factors" in Castle Brands' Annual Report on Form 10-K for the year ended March 31, 2012 and other reports we file with the Securities and Exchange Commission. When considering these forward looking statements, you should keep in mind the cautionary statements in this press release and the reports we file with the Securities and Exchange Commission. New risks and uncertainties arise from time to time, and we cannot predict those events or how they may affect us. We assume no obligation to update any forward looking statements after the date of this press release as a result of new information, future events or developments, except as required by the federal securities laws.

CASTLE BRANDS INC. AND SUBSIDIARIES

Condensed Consolidated Statements of Operations

 
 

Three months ended March 31,

(unaudited)

  Twelve months ended March 31,
2012   2011 2012   2011
Sales, net* $ 9,993,073 $ 8,948,453 $ 35,494,615 $ 31,997,276
Cost of sales* 6,441,974 5,816,581 22,694,297 20,890,019
Provision for obsolete inventory   275,000   (14,610 )   275,000   (39,199 )
 
Gross profit   3,276,099   3,146,482   12,525,318   11,146,456
 
Selling expense 2,744,126 2,793,306 10,502,478 10,756,673
General and administrative expense 1,252,066 1,241,373 4,985,566 4,897,210
Depreciation and amortization   231,641   224,706   914,361   919,751
 
Loss from operations   (951,734 )   (1,112,903 )   (3,877,087 )   (5,427,178 )
 
Other income 622 1,579
Other expense (300 )
Loss from equity investment in non-consolidated affiliate (12,361 ) (20,041 ) (28,923 ) (2,827 )
Foreign exchange loss (208,762 ) (135,761 ) (722,253 ) (308,585 )
Interest expense, net (103,801 ) (160,538 ) (589,781 ) (405,384 )
Net change in fair value of warrant liability 16,154 109,767
Income tax benefit   37,038   37,038   148,152   148,152
 
Net loss (1,223,466 ) (1,391,583 ) (4,960,125 ) (5,994,543 )
Net income attributable to noncontrolling interests   (86,915 )   (71,608 )   (272,200 )   (312,739 )
 
Net loss attributable to controlling interests   (1,310,381 )   (1,463,191 )   (5,232,325 )   (6,307,282 )
 
Dividend to preferred shareholders   (186,595 )     (714,830 )  
 
Net loss attributable to common shareholders $ (1,496,976 ) $ (1,463,191 ) $ (5,947,155 ) $ (6,307,282 )
 
Net loss per common share, basic and diluted, attributable to common shareholders $ (0.01 ) $ (0.01 ) $ (0.06 ) $ (0.06 )
 
Weighted average shares used in computation, basic and diluted, attributable to common shareholders   108,052,067   107,202,145   107,635,565   107,426,871

* Sales, net and Cost of sales include excise taxes of $1,520,204 and $1,390,658 for the three months ended March 31, 2012 and 2011, respectively, and $5,460,754 and $4,913,168 for the twelve months ended March 31, 2012 and 2011, respectively.

 

CASTLE BRANDS INC. AND SUBSIDIARIES

Reconciliation of Net Loss to EBITDA, as adjusted

 
  Three months ended   Twelve months ended

March 31,

(unaudited)

March 31,

(unaudited)

2012   2011 2012   2011
Net loss attributable to common shareholders $ (1,496,976 ) $ (1,463,191 ) $ (5,947,155 ) $ (6,307,282 )
Adjustments:
Interest expense, net 103,801 160,538 589,781 405,384
Income tax benefit (37,038 ) (37,038 ) (148,152 ) (148,152 )
Depreciation and amortization   231,641   224,706   914,361   919,751
EBITDA (loss)   (1,198,572 )   (1,114,985 )   (4,591,165 )   (5,130,299 )
Allowance for doubtful accounts 42,541 21,102 68,599 (2,063 )
Allowance for obsolete inventory 275,000 (14,610 ) 275,000 (39,199 )
Stock-based compensation expense 53,212 37,167 190,462 169,741
Severance expense 121,106 330,779
Other income (622 ) (1,579 )
Other expense 300
Loss from equity investment in non-consolidated affiliate 12,361 20,041 28,923 2,827
Foreign exchange loss 208,762 135,761 722,253 308,585
Net change in fair value of warrant liability (16,154 ) (109,767 )
Net income attributable to noncontrolling interests 86,915 71,608 272,200 312,739
Dividend to preferred shareholders   186,595     714,830  
EBITDA, as adjusted   (349,340 )   (723,432 )   (2,428,665 )   (4,048,169 )

INVESTOR CONTACTS:
KCSA Strategic Communications
Todd Fromer / Garth Russell
212-896-1215 / 212-896-1250
tfromer@kcsa.com / grussell@kcsa.com
www.kcsa.com

Source: Castle Brands Inc.

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