NORCRAFT COMPANIES LP - FORM 8-K - EX-99.1 - PRESS RELEASE

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8-K - FORM 8-K - NORCRAFT COMPANIES LP	d8k.htm

Exhibit 99.1


						NEWS RELEASE FOR IMMEDIATE RELEASE

				Contact:		Leigh E. Ginter
						Chief Financial Officer
						leigh.ginter@norcraftcompanies.com
						(651) 234-3315

NORCRAFT HOLDINGS, L.P. AND NORCRAFT COMPANIES, L.P.

REPORT THIRD QUARTER 2010 RESULTS

November 10, 2010 – Eagan, Minnesota — Norcraft Holdings, L.P. (Holdings) and Norcraft Companies, L.P. (Norcraft) today reported financial results for the third quarter ended September 30, 2010. The financial results for Holdings include the accounts of its wholly-owned subsidiary, Norcraft. Holdings reflects the obligations under its $118.0 million 9 ³/4% senior discount notes due 2012. In December 2009, Norcraft and its wholly-owned subsidiary, Norcraft Finance Corp., issued $180.0 million principal amount of 10 ¹/2% senior secured second lien notes that are due in December 2015. The proceeds of these senior secured second lien notes were used to redeem $148.0 million principal amount of outstanding 9% senior subordinated notes that were due in 2011 issued by Norcraft and Norcraft Finance Corp. A portion of the proceeds, together with cash on hand, was distributed by Norcraft to Holdings and used to repurchase $64.3 million principal amount of the 9 ³/4% senior discount notes due 2012. This repurchase of the 9 ³/4% senior discount notes resulted in a loss from debt extinguishment of $1.6 million. Other than the remaining $53.7 million of the 9 ³/4% senior discount notes, cash, related deferred issuance costs, related interest and amortization expense and related debt extinguishment loss, all other assets, liabilities, income, expenses and cash flows presented for all periods represent those of Norcraft.

FINANCIAL RESULTS

Third Quarter of Fiscal 2010 Compared with Third Quarter of Fiscal 2009

Net sales increased $1.2 million, or 2.0%, from $64.7 million for the third quarter of 2009 to $65.9 million for the same quarter of 2010. Income from operations decreased $1.2 million, or 14.6%, from $8.3 million for the third quarter of 2009 to $7.1 million for the same quarter of 2010. Net income for Holdings decreased $1.3 million, from $1.7 million for the third quarter of 2009 to $0.4 million in the same quarter of 2010. Net income for Norcraft decreased $3.0 million, from $4.7 million for the third quarter of 2009 to $1.7 million for the same quarter of 2010.

Adjusted EBITDA (a non-GAAP measure and defined in the attached table) was $10.8 million for the third quarter of 2010 compared to $11.1 million for the same quarter of 2009.

“While 2010 started out strong, the expiration of the first-time home-buyer’s tax credit and other factors lead to disappointing incoming orders during the last half of the year. We expect these challenging conditions to persist through 2010 and into 2011. Our efforts to cut costs, introduce new products and sales programs continue as a result of these market conditions,” commented President and CEO, Mark Buller.

CONFERENCE CALL

Norcraft has scheduled a conference call on Monday, November 15, 2010 at 11:00 a.m. Eastern Time. To participate, dial 888-339-2688 and use the pass code 40709673. A telephonic replay will be available by calling 888-286-8010 and using pass code 53598952.

GENERAL

Norcraft Companies is a leader in manufacturing, assembling and finishing kitchen and bathroom cabinetry in the United States. We provide our customers with a single source for a broad range of high-quality cabinetry, including stock, semi-custom and custom cabinets. Our cabinets are manufactured in both framed and full access construction. We market our products through six brands: Mid Continent Cabinetry, Norcraft Cabinetry, UltraCraft, StarMark, Fieldstone and Brookwood.

-Selected Financial Data Tables Follow-

Consolidated Balance Sheets

(dollar amounts in thousands)


	Norcraft Holdings, L.P.						Norcraft Companies, L.P.
	September 30, 2010 (unaudited)			December 31, 2009			September 30, 2010 (unaudited)			December 31, 2009
ASSETS
Current assets:
Cash and cash equivalents	$	29,834		$	20,863		$	29,834		$	16,731
Trade accounts receivable, net		21,457			17,987			21,457			17,987
Inventories		19,319			16,380			19,319			16,380
Prepaid expenses		982			1,629			982			1,629


Total current assets		71,592			56,859			71,592			52,727

Property, plant and equipment, net		29,291			31,925			29,291			31,925

Other assets:
Goodwill		88,421			88,421			88,421			88,421
Brand names		35,100			35,100			35,100			35,100
Customer relationships, net		35,981			39,332			35,981			39,332
Deferred financing costs, net		7,132			7,483			6,717			6,908
Display cabinets, net		5,218			5,394			5,218			5,394
Other		50			70			50			70


Total other assets		171,902			175,800			171,487			175,225


Total assets	$	272,785		$	264,584		$	272,370		$	259,877


LIABILITIES AND MEMBERS’ EQUITY (DEFICIT)
Current liabilities:
Accounts payable	$	9,542		$	6,626		$	9,542		$	6,626
Accrued expenses		20,851			16,841			20,415			15,096


Total current liabilities		30,393			23,467			29,957			21,722

Long-term debt		233,700			233,700			180,000			180,000
Unamortized discount on bonds payable		(2,536	)		(2,903	)		(2,536	)		(2,903	)
Other liabilities		266			287			266			287

Commitments and contingencies		—			—			—			—

Members’ equity subject to put request		12,555			7,546			—			—

Members’ equity (deficit)		(1,593	)		2,487			64,683			60,771


Total liabilities and members’ equity (deficit)	$	272,785		$	264,584		$	272,370		$	259,877

Consolidated Statements of Operations

(dollar amounts in thousands)

(unaudited)


	Norcraft Holdings, L.P.
	Three Months Ended September 30,				Nine Months Ended September 30,
	2010		2009		2010		2009
Net sales	$	65,937	$	64,672	$	201,877	$	186,877
Cost of sales		46,531		44,387		142,469		133,155

Gross profit		19,406		20,285		59,408		53,722

Selling, general and administrative expenses		12,278		11,940		38,468		37,105

Income from operations		7,128		8,345		20,940		16,617

Other expense:
Interest expense, net		6,335		6,315		19,004		18,977
Amortization of deferred financing costs		427		289		1,188		1,761
Other, net		18		28		91		96


Total other expense		6,780		6,632		20,283		20,834


Net income (loss)	$	348	$	1,713	$	657	$	(4,217	)


	Norcraft Companies, L.P.
	Three Months Ended September 30,				Nine Months Ended September 30,
	2010		2009		2010		2009
Net sales	$	65,937	$	64,672	$	201,877	$	186,877
Cost of sales		46,531		44,387		142,469		133,155

Gross profit		19,406		20,285		59,408		53,722

Selling, general and administrative expenses		12,278		11,940		38,468		37,105

Income from operations		7,128		8,345		20,940		16,617

Other expense:
Interest expense, net		5,026		3,429		15,077		10,319
Amortization of deferred financing costs		374		169		1,028		1,402
Other, net		18		28		91		96


Total other expense		5,418		3,626		16,196		11,817


Net income	$	1,710	$	4,719	$	4,744	$	4,800

Consolidated Statements of Cash Flows

(dollar amounts in thousands)

(unaudited)


	Norcraft Holdings, L.P.						Norcraft Companies, L.P.
	Nine Months Ended September 30,						Nine Months Ended September 30,
	2010			2009			2010			2009
Cash flows from operating activities:
Net income (loss)	$	657		$	(4,217	)	$	4,744		$	4,800
Adjustments to reconcile net income (loss) to net cash provided by operating activities:
Depreciation and amortization of property, plant and equipment		4,417			4,330			4,417			4,330
Amortization:
Customer relationships		3,351			3,350			3,351			3,350
Deferred financing costs		1,188			1,761			1,028			1,402
Display cabinets		3,210			4,136			3,210			4,136
Discount amortization/accreted interest		367			—			367			—
Provision for uncollectible accounts receivable		140			685			140			685
Provision for obsolete and excess inventories		77			878			77			878
Provision for warranty claims		2,058			1,567			2,058			1,567
Stock compensation expense		138			117			138			117
(Gain) loss on disposal of assets		(43	)		118			(43	)		118
Change in operating assets and liabilities:
Trade accounts receivable		(3,586	)		(2,778	)		(3,586	)		(2,778	)
Inventories		(3,010	)		1,530			(3,010	)		1,530
Prepaid expenses		648			819			648			819
Other assets		20			(4	)		20			(4	)
Accounts payable and accrued expenses		5,001			(1,642	)		6,310			1,234


Net cash provided by operating activities		14,633			10,650			19,869			22,184

Cash flows from investing activities:
Proceeds from sale of property and equipment		47			9			47			9
Purchase of property, plant and equipment		(1,965	)		(1,810	)		(1,965	)		(1,810	)
Additions to display cabinets		(3,034	)		(2,852	)		(3,034	)		(2,852	)


Net cash used in investing activities		(4,952	)		(4,653	)		(4,952	)		(4,653	)

Cash flows from financing activities:
Payment in financing costs		(837	)		—			(837	)		—
Transfer to restricted cash		—			(5,618	)		—			(5,618	)
Payments on term loans to former equity holders		—			(459	)					—
Proceeds from issuance of member interests		125			—			125			—
Contributions from (distributions to) members		—			4			(1,104	)		(16,237	)


Net cash used in financing activities		(712	)		(6,073	)		(1,816	)		(21,855	)

Effect of exchange rates on cash		2			26			2			26


Net increase (decrease) in cash and cash equivalents		8,971			(50	)		13,103			(4,298	)

Cash and cash equivalents, beginning of the period		20,863			59,406			16,731			59,406


Cash and cash equivalents, end of period	$	29,834		$	59,356		$	29,834		$	55,108


Supplemental disclosure of non-cash transactions:
Change in equity subject to put request	$	5,009		$	(15,668	)	$	—		$	—

Reconciliation of Net Income (Loss) to Adjusted EBITDA

(dollar amounts in thousands)

EBITDA is net income (loss) before interest expense, income tax expense, depreciation and amortization. Adjusted EBITDA is EBITDA before the effect of a sales tax refund in the third quarter of 2009 and one in the second quarter of 2010 and a loss on debt extinguishment in the fourth quarter of 2009. We believe EBITDA and Adjusted EBITDA are useful to investors in evaluating our operating performance compared to that of other companies in our industry, as their calculation eliminates the effects of financing, income taxes and the accounting effects of capital spending, as these items may vary for different companies for reasons unrelated to overall operating performance. We also believe these financial metrics provide information relevant to investors regarding our ability to service and/or incur debt. Neither EBITDA nor Adjusted EBITDA is a presentation made in accordance with U.S. generally accepted accounting principles (“U.S. GAAP”). Accordingly, when analyzing our operating performance, investors should not consider EBITDA or Adjusted EBITDA in isolation or as substitutes for net income (loss), cash flows from operating activities or other income statement or cash flow statement data prepared in accordance with U.S. GAAP. Our calculations of EBITDA and Adjusted EBITDA are not necessarily comparable to those of other similarly titled measures reported by other companies. The calculations of EBITDA and Adjusted EBITDA are shown below:


	Norcraft Holdings, L.P. (unaudited)
	Three Months Ended September 30,					Nine Months Ended September 30,						Twelve Months Ended September 30, 2010
	2010		2009			2010			2009			Twelve Months Ended September 30, 2010

Net income (loss)	$	348	$	1,713		$	657		$	(4,217	)	$	(6,642	)
Interest expense, net		6,335		6,315			19,004			18,977			26,367
Depreciation		1,497		1,452			4,417			4,330			5,881
Amortization of deferred financing costs		427		289			1,188			1,761			3,511
Amortization of customer relationships		1,117		1,117			3,351			3,350			4,467
Display cabinet amortization		1,019		1,316			3,210			4,136			4,422
State taxes		16		30			92			100			32


Non-GAAP EBITDA	$	10,759	$	12,232		$	31,919		$	28,437		$	38,038

Loss on debt extinguishment		—		—			—			—			1,642	⁽¹⁾

Sales tax refund		—		(1,105	)⁽³⁾		(1,010	)⁽²⁾		(1,105	)⁽³⁾		(1,010	)⁽²⁾


Non-GAAP Adjusted EBITDA	$	10,759	$	11,127		$	30,909		$	27,332		$	38,670


	Norcraft Companies, L.P. (unaudited)
	Three Months Ended September 30,					Nine Months Ended September 30,						Twelve Months Ended September 30, 2010
	2010		2009			2010			2009			Twelve Months Ended September 30, 2010

Net income	$	1,710	$	4,719		$	4,744		$	4,800		$	2,549
Interest expense, net		5,026		3,429			15,077			10,319			19,808
Depreciation		1,497		1,452			4,417			4,330			5,881
Amortization of deferred financing costs		374		169			1,028			1,402			2,521
Amortization of customer relationships		1,117		1,117			3,351			3,350			4,467
Display cabinet amortization		1,019		1,316			3,210			4,136			4,422
State taxes		16		30			92			100			32


Non-GAAP EBITDA	$	10,759	$	12,232		$	31,919		$	28,437		$	39,680

Sales tax refund		—		(1,105	)⁽³⁾		(1,010	)⁽²⁾		(1,105	)⁽³⁾		(1,010	)⁽²⁾


Non-GAAP Adjusted EBITDA	$	10,759	$	11,127		$	30,909		$	27,332		$	38,670

Net income (loss) for Norcraft Holding, L.P. during the twelve months ended September 30, 2010 included a $1.6 million loss on debt extinguishment due to the repurchase of the 9 ³/4% senior discount notes which increased net loss and correspondingly decreased EBITDA, but the effect has been backed out for adjusted EBITDA.

Net income (loss) during the nine and twelve months ended September 30, 2010 included a sales tax refund in the amount of $1.0 million which increased net income and correspondingly increased EBITDA, but the effect has been backed out for adjusted EBITDA.

Net income (loss) during the three and nine months ended September 30, 2009 included sales tax refunds in the amount of $1.1 million which increased net income and correspondingly increased EBITDA, but the effect has been backed out for adjusted EBITDA.

FORWARD LOOKING STATEMENTS AND INFORMATION

Statements in this press release regarding activities, events or developments that management expects, believes or anticipates will or may occur in the future are forward looking statements. Forward looking statements may give management’s current expectations and projections relating to the financial condition, results of operations, plans, objectives, future performance and business of the companies. You can identify these statements by the fact that they do not relate strictly to historical or current facts. These statements may include words such as “anticipate,” “estimate,” “expect,” “project,” “intend,” “plan,” “believe” and other words and terms of similar meaning in connection with any discussion of the timing or nature of future operating or financial performance or other events.

These forward looking statements are based on management’s expectations and beliefs concerning future events affecting the companies. They are subject to uncertainties and factors relating to the companies’ operations and business environment, all of which are difficult to predict and many of which are beyond the companies’ control. Although management believes that the expectations reflected in its forward looking statements are reasonable, management does not know whether its expectations will prove correct. They can be affected by inaccurate assumptions that management might make or by known or unknown risks and uncertainties. Many factors that could cause actual results to differ materially from these forward looking statements include, but are not limited to, the risks outlined under Part I, Item 1A, “Risk Factors,” in the Annual Report on Form 10-K filed by the companies with the Securities and Exchange Commission.

Because of these factors, investors should not place undue reliance on any of these forward looking statements. Further, any forward looking statement speaks only as of the date on which it is made and except as required by law the companies undertake no obligation to update any forward looking statement to reflect events or circumstances after the date on which it is made or to reflect the occurrence of anticipated or unanticipated events or circumstances.

NORCRAFT COMPANIES LP - FORM 8-K - EX-99.1 - PRESS RELEASE - November 10, 2010

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