2 0 0 6 A N N U A L R E P O R T
Castle Brands Inc.
Annual Report 2006
M I S S I O N S T A T E M E N T
As one of the few small public companies in the global beverage
alcohol industry, our mission is to develop and grow our current
portfolio of premium brands and to complement these brands through
a combination of acquisitions, agency relationships and new product
development. We position our brands in the high-end segments of
leading internationally recognized product categories.
Everything we do is based on our core values: To be bold in our demands
on ourselves; to be clear in our relationships with all of the individuals
and organizations with which we interact; and to conduct our business
with integrity and style.
page one
Castle Brands Inc.
Chairman’s Letter
Mark Andrews
Chairman and Chief Executive Officer
D e a r S h a r e h ol de r :
Last year, we made significant progress in the implementation of our long-term strategy. We achieved
a 68% growth in revenue, 94% growth in gross profit and a 57% increase in case sales over the prior year.
We also dramatically increased our organizational capability by making very strong additions to our
executive management team, substantially expanded our distribution network into all fifty states and a
number of foreign countries, and completed our initial public offering on April 6, 2006.
Our impressive growth last fiscal year was driven by our dedication to building one of the best premium
portfolios in the industry, supported by a dedicated sales force whose abilities and expertise we believe
rival those of our biggest competitors. We placed intense emphasis on distribution, reinforcing our sales
infrastructure and investing effectively behind our brands. This strategy helped us make great strides in
our key domestic and international markets.
Our strong organic sales growth led to increased sales in four of the fastest-growing premium categories
in the industry: vodka, rum, Irish whiskey and liqueurs. In addition, the establishment of Gosling-Castle
Partners, Inc., our newly formed global export venture with the Gosling family, significantly expanded
our portfolio of brands. Also during the last year, we had the benefit of a full year’s results of Pallini
Limoncello. We were able to efficiently integrate these brands into our existing portfolio, further
emphasizing the scalability of our organization and business model. It is important to note that sales
of both Gosling’s rums and Pallini liqueurs increased significantly last year with Castle Brands as their
new importer.
We also increased our gross margin percentage by almost five percentage points and lowered general and
administrative expense as a percentage of revenue. We continued to increase sales and marketing spending
to build our brands, but these expenditures decreased significantly as a percentage of revenue and on a
per case basis as a result of our strong growth.
page two
Annual Report 2006
We are leveraging our position as one of the few small public companies in the spirits
industry to build a portfolio of exceptional premium brands. We select the categories in
which we participate based on their growth trends and economic potential. In each category,
we believe that our emerging brands of today will become the premium branded spirit
success stories of tomorrow.
While heavy investment in our brand building activities and our sales and marketing infrastructure in
fiscal 2006 led to a planned operating loss of $11.9 million, we believe we are well on track to experience
continued substantial top-line growth as part of our long-term business strategy. We have built a sales
and operating platform and are investing in our brands with a focus on what we intend to become.
With our listing on the American Stock Exchange in April, we became one of the few small public global
spirits companies in the world. This accomplishment provided the capital for us to continue to grow our
current brands aggressively. It also provides us with a public currency, which positions us to actively
pursue acquisition possibilities within the spirits industry. The organic growth of our current brands,
augmented by the strategic acquisition of complementary brands, affords us two effective routes to achieve
our sales, financial and valuation objectives.
Upon the closing of our public offering, our cash position increased significantly, all of our preferred
stock and related dividends were converted into common stock, 46% of our convertible notes payable
were converted into common stock, our other indebtedness was reduced and our shareholders’ equity
dramatically increased. As a result, we believe that becoming a public company has put Castle Brands on
stronger financial ground.
We are very proud of what we accomplished in the 2006 fiscal year. The significant time and effort put
forth to achieve these results are attributable to many groups of dedicated people: You, our shareholders,
our Board of Directors, our many business partners and all of the talented and productive people at
Castle Brands, who put their hearts and minds into the shared pursuit of making our company the brand
builder it is today and the even more substantial company we intend to become.
We thank you most sincerely for your support and we assure you that we will continue to aggressively
pursue our objective of building shareholder value.
M A R K A N D R E W S
Chairman and Chief Executive Officer
page three
Castle Brands Inc.
Building Our Brands
Our current portfolio is strongly focused in the premium segments of four of the fastest growing categories
in the spirits industry.
Vodk a
No spirit has the recognized flexibility of vodka. As the spirit at the heart of the cocktail renaissance,
vodka’s popularity allows it to be enjoyed in a wide variety of drinks and situations. Our Boru Vodka
reflects the boldness and vision associated with its namesake, Brian Boru, the legendary High King of
Ireland. It takes its quality and character from fine grain and the pure water for which Ireland is famous.
It is distilled five times for smoothness and filtered through ten feet of charcoal for increased purity.
Our flavor extensions are made with the same commitment to quality. Boru Citrus, Boru Orange and
Boru Crazzberry flavored vodkas have allowed us to enhance the visibility and flexibility of the Boru
brand. In early 2007, we plan to introduce the very handsomely redesigned bottle that is pictured in this
Annual Report. We believe that Boru Vodka will continue to represent a growth engine for our company.
Ru m
The history and rich lore surrounding rum is unmatched by any spirit category in the world. From its
association with the seas and those who set sail on them, rum instantly commands images of excitement
and adventure. Our offerings in this category are led by the highly regarded Gosling’s family of rums,
consisting of Gosling’s Black Seal, Gosling’s Gold Bermuda Rum and Gosling’s Old Rum.
In addition, we produce Sea Wynde, a premium pot-still rum with rich and robust character.
In the coming years, we anticipate that our rums will continue to reach new heights of
popularity among consumers who are looking for flavorful, top-quality brands in this
important category.
page four
Annual Report 2006
Castle Brands’ portfolio is positioned to capitalize on key drivers of growth in the
spirits industry including: An increased preference for spirits over beer and wine ; a keen
interest in trading up to premium brands; and increased consumer identification with
particular spirits brands to convey status and provide affordable luxury.
I r i s h Wh i sk e y
Irish whiskey is one of the most rapidly growing segments of the whisky category. Unlike most Scotch
whiskies, Irish whiskey is typically distilled three times, rather than twice, and no peat is used to dry the
malted barley. This produces a light, sweet, aromatic whiskey, which is immediately appealing to a wide
range of consumers. We believe that our single malt Knappogue Castle Whiskey, with its distinctive
vintage dating based on the year of distillation, is an exceptional product with unmatched character.
Another truly unique product, which was created by our Chairman’s father, is our Knappogue Castle
1951, distilled in 1951 and aged for 36 years in sherry casks. In response to growing demand for premium
Irish whiskey, we expanded our portfolio in 2001 to include our family of Clontarf Irish Whiskeys.
Clontarf is available in three expressions: single malt, reserve and a classic blend. We look forward to
developing our brands within this rapidly growing segment of the spirits industry.
L iqu e u r s & C o r di a l s
A broad, varied and growing category, liqueurs and cordials represent a very important opportunity for
growth. Each product within this category of our portfolio has a unique character and delicious flavor
profile. The demand for Irish creams prompted us to launch Brady’s Irish Cream Liqueur, which
boasts fresh dairy cream, Irish whiskey and natural flavors. Our portfolio also includes Celtic
Crossing Liqueur, which has developed a devoted and growing customer base that appreciates
its distinct combination of Irish spirits, cognac and honey flavor. Though limoncello is well
known in Italy, as the exclusive U.S. distributor of Pallini Limoncello and its flavor
extensions, we believe that we are a leader in the growth of this refreshing
and versatile drink in America. Because all of our brands can be enjoyed on
their own or in a wide variety of innovative cocktails, new consumers from
different demographics are drawn to our brands every day.
We selectively seek brands with substantial growth potential
to complement our existing portfolio. We believe that the
market contains a wide range of opportunities for us, and we
look forward to growing our family of brands through a
combination of acquisitions, agency relationships and product development.
page five
Castle Brands Inc.
Given the investment in our expanded executive team and our sales force, combined
with the impressive list of distributors who now represent us all across the U. S ., Castle
Brands has built a very scalable platform for growth, positioning us to manage far more
case sales without material incremental personnel cost.
Our Company
Keith Bellinger
President and Chief Operating Officer
Over the last year, we significantly strengthened and enhanced our company’s capabilities by selectively
adding very experienced industry leaders to our executive management team and by making important
additions to our sales, marketing, and finance groups.
In May of last year, we hired Keith Bellinger to be our President and Chief Operating Officer. Keith brings
19 years of experience in the beverage alcohol industry to Castle Brands. His most recent position before
joining Castle Brands was President of the Northern Business Unit of Allied Domecq North America, one
of Allied’s largest business units globally with annual sales of over 4 million cases.
We have also recruited two very capable leaders who report to Keith, Con Constandis who now runs
our business in the United States, Canada and Latin America, and John Soden who is in charge of our
international business. Con was previously Chief Operating Officer of Allied Domecq U.S. and prior to
that was with Seagram’s in a number of senior management positions both in the U.S. and Europe.
John was General Manager of Woodford Bourne, a wine and spirits importer in Ireland and prior to that
was with C&C PLC, a large global drinks company. With Keith, Con and John, we have the industry
experience, management skills and industry relationships to become a much larger company.
In March 2006, we also added Seth Weinberg as our General Counsel. Prior to joining our company, Seth
was an attorney in the corporate department of Kramer, Levin. Seth brings a wealth of corporate and
securities law experience to the company as well as extensive mergers and acquisitions expertise.
In the United States, we now have seven experienced Regional Managers who are assisted by sales personnel
in key markets. Collectively, this sales force sold approximately 2 million cases a year in their previous
jobs. In addition, an important milestone achieved during the year was the completion of our distribution
page six
Annual Report 2006
network in the U.S. We now have very strong distributors in all fifty states. With our current sales force
and distributor network, we believe we are very well positioned to grow substantially in the U.S. without
major additions to our sales force or new distributors.
Given the investment we have made in our expanded executive team and our sales force, combined with
the impressive list of distributors who represent us all across the country, Castle Brands has built a very
scalable platform for growth. We should be able to effectively manage far more case sales without material
incremental personnel cost.
The United States continued to be a key market for the company in fiscal 2006, where we saw sales reaching
56% of total nine-liter cases sold globally. U.S. case volume totaled 149,898, representing a more than
100% increase over the 74,190 sold in the 2005 fiscal year. Castle Brands’ Boru Vodka benefited greatly
from America’s intense interest in the imported vodka category, driving a 60% increase in Boru Vodka
case volume in the U.S. for fiscal 2006. The biggest percentage gain for our company in the U.S. was seen
in the rum category, with over a 400% lift in nine-liter case volume for the fiscal year due to the addition
of the Gosling’s rums. Our case sales of liqueurs grew 45%, while Irish whiskey grew 71%.
Our international sales, which totaled 44% of total case volume for fiscal 2006, were up from 95,870 in
2005 to 117,154 in our 2006 fiscal year, an increase of 22%. Rum was the fastest growing category for
our company’s international business, due to the addition of Gosling’s.
We are very proud of what we were able to achieve during our 2006 fiscal year. We met our annual
objectives, growing our brands and supporting them with outstanding sales personnel and an increased
marketing effort. This not only resulted in improved net sales and market share but also positioned Castle
Brands very well as we look to expand our presence in our key U.S. and international markets.
Castle Brands has seen the impressive results that expanded sales reach, improved marketing, sound
acquisitions and the right strategic alliances can deliver to the growth of our business. You can expect us to
pursue more of the same moving forward, with an unwavering focus towards building shareholder value.
page seven
Castle Brands Inc.
Castle Brands Inc.
Since 1998, we have invested over $60 million to develop our operating platform,
acquire and grow our portfolio of distinctive premium spirits brands, and build strong
U. S . and international routes to market. We expect to capitalize on this investment in the
years ahead.
A Promising Future
• We are in the second year of an ambitious five-year business plan designed to develop Castle Brands
into a top-tier performer within the premium segments of the spirits industry.
• Over the coming years, we will continue our intense focus on expanding the growth of our current portfolio
in our core growth markets, while seizing opportunities for our products in attractive new markets.
• We are actively pursuing potential new premium brands in targeted categories. Our objective is to be
the “partner of choice” for family-owned brands seeking a better route to market. We also expect that
major beverage alcohol companies will be willing to sell “non-core” brands, which we may be able to
build significantly with incremental focus and energy.
• Because our executive team, sales force, distribution network and support systems are largely in place, we
expect to see important improvement in key metrics, such as total revenue, gross margin percentage,
sales and marketing spend as a percent of revenue, and general and administrative expense as a percent
of revenue, as sales increase.
page eight
C O M M O N S T O C K
The common stock of Castle
Brands Inc. is traded on the
American Stock Exchange under
the symbol “ROX.”
D I S C L A I M E R
This Annual Report contains
forward-looking information.
These forward-looking statements
are made pursuant to the safe
harbor provisions of the Private
Securities Litigation Reform Act of
1995. Forward-looking statements
may be significantly impacted by
certain risks and uncertainties
described herein and in the
Company’s Annual Report on
Form 10-K for the year ended
March 31, 2006 filed with
the Securities and Exchange
Commission.
Corporate Information
Richard C. Morrison
Former Managing Director
Babson Capital Management
Frederick M. R. Smith
Consultant
Credit Suisse First Boston
Kevin P. Tighe
Partner
Tighe Patton Armstrong
Teasdale, PLLC
N O T I C E O F A N N U A L M E E T I N G
The annual meeting of stockholders
will be held on September 20, 2006
at 10:00 am, EST at the American
Stock Exchange, 86 Trinity Place,
New York, NY 10006.
T R A N S F E R A G E N T
Continental Stock Transfer and
Trust Company
17 Battery Place, 8th Floor
New York, NY 10004
(212) 845-3212
C O R P O R A T E C O U N S E L
Patterson Belknap Webb and
Tyler LLP
1133 Avenue of Americas
New York, NY 10036
(212) 336-2000
C O R P O R A T E H E A D Q U A R T E R S
Castle Brands Inc.
570 Lexington Avenue, 29th Floor
New York, NY 10022
(646) 356-0200
O F F I C E R S
Mark Andrews
Chairman of the Board and
Chief Executive Officer
Keith A. Bellinger
President and
Chief Operating Officer
Constantine Constandis
Managing Director–Americas and
SVP–Global Strategic Planning
John Soden
Managing Director–International
Operations
Matthew F. MacFarlane
Chief Financial Officer
T. Kelley Spillane
SVP–U.S. Sales
Seth B. Weinberg
General Counsel and Secretary
D I R E C T O R S
Mark Andrews
Chairman of the Board and
Chief Executive Officer
Castle Brands Inc.
John F. Beaudette
President
MHW, Ltd.
Robert J. Flanagan
Executive Vice President
Clark Enterprises Inc.
Phillip Frost, M.D.
Vice Chairman
Teva Pharmaceutical Industries Ltd.
Colm Leen
Group Finance Director
and Secretary
Carbery Group
designed by curran & connors, inc. / www.curran-connors.com
Castle Brands Inc. | 570 Lexington Avenue, 29th Floor | New York, NY 10022 | 646-356-0200
www.castlebrandsinc.com