S-1/A 1 d566832ds1a.htm AMENDMENT NO. 4 TO FORM S-1 Amendment No. 4 to Form S-1
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As filed with the Securities and Exchange Commission on October 28, 2013

 

Registration No. 333-191607

 

 

 

 

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

Amendment No. 4

to

FORM S-1

REGISTRATION STATEMENT

UNDER

THE SECURITIES ACT OF 1933

 

Norcraft Companies, Inc.

(Exact name of registrant as specified in its charter)

 

Delaware   2430   37-1738347

(State or other jurisdiction of

incorporation or organization)

 

(Primary standard industrial

classification code number)

 

(I.R.S. employer

identification number)

 

3020 Denmark Avenue, Suite 100

Eagan, MN 55121

Telephone: (800) 297-0661

(Address, including zip code, and telephone number, including area code, of registrant’s principal executive offices)

 

Leigh Ginter

Chief Financial Officer 3020 Denmark Avenue, Suite 100

Eagan, MN 55121

Telephone: (800) 297-0661

(Name, address, including zip code, and telephone number, including area code, of agent for service)

 

Copies to:

Daniel Evans, Esq.
Carl Marcellino, Esq.

Ropes & Gray LLP

1211 Avenue of the Americas

New York, NY 10036

Telephone: (212) 596-9000

Facsimile: (212) 596-9090

 

Richard Truesdell, Jr., Esq.
Davis Polk & Wardwell LLP
450 Lexington Avenue

New York, NY 10017

Telephone: (212) 450-4000

Facsimile: (212) 701-5800

 

Approximate date of commencement of proposed sale to the public: As soon as practicable after this registration statement becomes effective.

 

If any of the securities being registered on this form are to be offered on a delayed or continuous basis pursuant to Rule 415 under the Securities Act of 1933, check the following box.  ¨

 

If this form is filed to register additional securities for an offering pursuant to Rule 462(b) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering.  ¨

 

If this form is a post-effective amendment filed pursuant to Rule 462(c) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering.  ¨

 

If this form is a post-effective amendment filed pursuant to Rule 462(d) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering.  ¨

 

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act. (Check one).

 

Large accelerated filer   ¨    Accelerated filer   ¨
Non-accelerated filer   x  (Do not check if a smaller reporting company)    Smaller reporting company   ¨

 

CALCULATION OF REGISTRATION FEE

 

 

Title of Each Class of
Securities to be Registered
  Proposed
Maximum
Aggregate
Offering Price(1)
  Amount of
Registration Fee(2)

Common Stock, $0.01 par value per share

  $121,764,708   $15,684

 

 

 

(1)   Estimated solely for the purpose of calculating the registration fee in accordance with Rule 457(a) of the Securities Act of 1933, as amended (the “Securities Act”).
(2)   Previously paid.

 

The registrant hereby amends this registration statement on such date or dates as may be necessary to delay its effective date until the registrant shall file a further amendment which specifically states that this registration statement shall thereafter become effective in accordance with Section 8(a) of the Securities Act of 1933 or until the registration statement shall become effective on such date as the Commission acting pursuant to said Section 8(a), may determine.

 

 

 


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The information in this preliminary prospectus is not complete and may be changed. We may not sell these securities until the registration statement filed with the Securities and Exchange Commission is effective. This preliminary prospectus is not an offer to sell these securities and it is not soliciting an offer to buy these securities in any jurisdiction where the offer or sale is not permitted.

 

SUBJECT TO COMPLETION, DATED OCTOBER 28, 2013

 

PRELIMINARY PROSPECTUS

 

LOGO

 

5,882,353 Shares

 

Norcraft Companies, Inc.

 

Common Stock

 

$             per share

 

 

 

This is the initial public offering of our common stock. We are selling 5,882,353 shares of our common stock. We currently expect the initial public offering price to be between $16.00 and $18.00 per share of common stock.

 

We have granted the underwriters an option to purchase up to 882,353 additional shares of common stock.

 

Our common stock has been approved for listing on the New York Stock Exchange under the symbol “NCFT.”

 

 

 

We are an “emerging growth company” under the federal securities laws. Investing in our common stock involves risks. See “Risk Factors” beginning on page 18.

 

Neither the Securities and Exchange Commission nor any state securities commission has approved or disapproved of these securities or determined if this prospectus is truthful or complete. Any representation to the contrary is a criminal offense.

 

 

 

     Per Share      Total  

Public Offering Price

   $                        $                    

Underwriting Discount

   $                    $                

Proceeds to Company (before expenses)(1)

   $                    $                

 

 

(1)   Certain expenses related to the review and qualification of the offering of the shares of common stock by the Financial Regulatory Authority, Inc. (“FINRA”) will be paid by us. See “Underwriting.”

 

The underwriters expect to deliver the shares to purchasers on or about                 , 2013 through the book-entry facilities of The Depository Trust Company.

 

 

 

Citigroup   UBS Investment Bank
 
Deutsche Bank Securities   RBC Capital Markets

 

 

 

KeyBanc Capital Markets

 

  Stephens Inc.

                , 2013.


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We are responsible for the information contained in this prospectus. We have not authorized anyone to provide you with different information, and we take no responsibility for any other information others may give you. We are not, and the underwriters are not, making an offer to sell these securities in any jurisdiction where the offer or sale is not permitted. You should not assume that the information contained in this prospectus is accurate as of any date other than its date.

 

 

 

TABLE OF CONTENTS

 

     Page  

Prospectus Summary

     1   

Risk Factors

     18   

Cautionary Note Regarding Forward-Looking Statements

     33   

The Reorganization

     35   

Use of Proceeds

     40   

Dividend Policy

     41   

Capitalization

     42   

Dilution

     43   

Selected Consolidated Financial and Other Data

     45   

Unaudited Pro Forma Consolidated Financial Information

     48   

Management’s Discussion and Analysis of Financial Condition and Results of Operations

     56   

Business

     72   

Management

     82   

Executive Compensation

     87   

Certain Relationships and Related Party Transactions

     95   

Description of Indebtedness

     99   

Security Ownership of Beneficial Owners and Management

     106   

Description of Capital Stock

     108   

Shares Eligible for Future Sale

     113   

Material U.S. Federal Tax Considerations to Non-U.S. Holders of Common Stock

     116   

Underwriting

     120   

Legal Matters

     125   

Experts

     125   

Where You Can Find More Information

     125   

Index to Consolidated Financial Statements

     F-1   

 

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Market and Other Industry Data

 

Although we are responsible for all of the disclosure contained in this prospectus, we rely on and refer to market data and certain industry forecasts that were obtained from internal surveys, market research, consultant surveys, publicly available information and industry publications and surveys. Other industry and market data included in this prospectus are from internal analyses based upon data available from known sources or other proprietary research and analysis. We believe this data to be accurate as of the date of this prospectus. However, this information cannot always be verified with complete certainty due to the limitations on the availability and reliability of raw data, the voluntary nature of the data gathering process and other limitations and uncertainties.

 

Trademarks

 

We are the owner of various U.S. federal trademark registrations(®) and registration applications(TM), including for the following marks referred to in this prospectus pursuant to applicable U.S. intellectual property laws: “Norcraft Companies®,” “StarMark Cabinetry®,” “FieldstoneTM,” “Fieldstone CabinetryTM,” “Brookwood®,” “Kitchen and Bath Ideas®,” “UltraCraft®,” “Vision®,” “Destiny®,” “Entree®,” “Mid Continent CabinetryTM,” “Mid Continent Pro SeriesTM,” “Mid Continent Signature SeriesTM,” “Norcraft Cabinetry®,” “Urban EffectsTM,” and the registered Norcraft Cabinetry logo, Norcraft Companies, L.L.C. logo, and StarMark logo. Solely for convenience, some of the trademarks, service marks, trade names and copyrights referred to in this prospectus are listed without the ©, ® and symbols, but we will assert, to the fullest extent under applicable law, our rights to our trademarks, service marks, trade names and copyrights.

 

The Reorganization

 

Prior to the consummation of the offering:

 

   

Norcraft Companies LLC will be organized as a Delaware limited liability company;

 

   

all of the holders of Class A Units, Class B Units and Class C Units in Norcraft Holdings, L.P. (other than Buller Norcraft Holdings LLC and MEB Norcraft LLC) will contribute all of their Class A Units, Class B Units and Class C Units in Norcraft Holdings, L.P. to Norcraft Companies LLC in exchange for common units of Norcraft Companies LLC;

 

   

all of the holders of Class D Units in Norcraft Holdings, L.P. (other than Buller Norcraft Holdings LLC and MEB Norcraft LLC), which were issued pursuant to the Norcraft Holdings, L.P. incentive plan, will contribute (a) all of their vested Class D Units to Norcraft Companies LLC in exchange for common units of Norcraft Companies LLC and (b) all of their unvested Class D Units to Norcraft Companies LLC in exchange for unvested common units of Norcraft Companies LLC;

 

   

all of the holders of equity interests in Buller Norcraft Holdings LLC and MEB Norcraft LLC will contribute all of their equity interests in Buller Norcraft Holdings LLC and MEB Norcraft LLC, respectively, to Norcraft Companies LLC in exchange for common units of Norcraft Companies LLC;

 

   

all of the holders of equity interests in Norcraft GP, L.L.C., the general partner of Norcraft Holdings, L.P. and Norcraft Companies, L.P., will sell for nominal value all of their equity interests in Norcraft GP, L.L.C. to Norcraft Companies LLC;

 

   

Norcraft GP, L.L.C. will acquire for nominal value a 0.00001% interest in Norcraft Holdings, L.P.;

 

   

Buller Norcraft Holdings LLC and MEB Norcraft LLC will then liquidate into Norcraft Companies LLC; and

 

   

the shareholders of SKM Norcraft Corp. and Trimaran Cabinet Corp. will contribute all of the outstanding stock in SKM Norcraft Corp. and Trimaran Cabinet Corp., respectively, to Norcraft Companies, Inc. in exchange for restricted shares of common stock of Norcraft Companies, Inc. and certain rights to additional payments under a tax receivable agreement, and the names of SKM Norcraft Corp. and Trimaran Cabinet Corp. will be changed to Norcraft Holdings Corp. I and Norcraft Holdings Corp. II, respectively.

 

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As a result of these transactions, Norcraft Holdings Corp. I (formerly SKM Norcraft Corp.) and Norcraft Holdings Corp. II (formerly Trimaran Cabinet Corp.) will become wholly-owned subsidiaries of Norcraft Companies, Inc. Norcraft Companies LLC will become (i) 53.6% owned by Norcraft Holdings Corp. I, (ii) 26.8% owned by Norcraft Holdings Corp. II, (iii) 10.9% owned by the former owners of Buller Norcraft Holdings LLC, as of immediately prior to the contribution of all of the equity interests in Buller Norcraft Holdings LLC to Norcraft Companies LLC, (iv) 2.1% owned by the former owner of MEB Norcraft LLC, as of immediately prior to the contribution of all of the equity interests in MEB Norcraft LLC to Norcraft Companies LLC and (v) 6.6% owned by other current and former members of our management and board of directors. Norcraft Holdings, L.P. will be wholly-owned by Norcraft Companies LLC and Norcraft GP, L.L.C. Norcraft Intermediate Holdings, L.P. will remain a wholly-owned subsidiary of Norcraft Holdings, L.P., and Norcraft Companies, L.P. will remain a wholly-owned subsidiary of Norcraft Intermediate Holdings, L.P. We refer to these transactions as the “Reorganization” in this prospectus.

 

As a result of the Reorganization, the assets and liabilities of Norcraft Holdings, L.P. will be included in the financial statements of Norcraft Companies, Inc. at their carrying amounts as of the date of the Reorganization. The interests held by MEB Norcraft LLC, Buller Norcraft Holdings LLC and our current and former members of management and board in Norcraft Companies LLC will be reported as noncontrolling interests in the financial statements of Norcraft Companies, Inc. following the Reorganization.

 

Norcraft Companies, Inc. has not, to date, conducted any activities other than those incident to its formation and the preparation of this registration statement. Norcraft Companies, Inc. was formed solely for the purpose of reorganizing the organizational structure of Norcraft Holdings, L.P., so that the issuer is a corporation rather than a limited partnership. Norcraft Companies LLC has not, to date, conducted any activities other than those incident to its formation and to effect the Reorganization.

 

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PROSPECTUS SUMMARY

 

This summary highlights information appearing elsewhere in this prospectus. This summary is not complete and does not contain all of the information that you should consider before investing in our common stock. You should carefully read the entire prospectus, including the financial data and related notes and the section entitled “Risk Factors” before deciding whether to invest in our common stock. Unless otherwise indicated or the context otherwise requires, references in this prospectus to the “Company”, “Norcraft”, “we”, “us” and “our” refer to Norcraft Holdings, L.P. and its consolidated subsidiaries prior to the Reorganization and Norcraft Companies, Inc. and its consolidated subsidiaries after the Reorganization. References in this prospectus to years are to our fiscal years, which end on December 31. All information in this prospectus assumes no exercise of the underwriters’ option to purchase additional shares, unless otherwise noted.

 

Our Company

 

We are a leading manufacturer of kitchen and bathroom cabinetry in the U.S. and Canada, producing a broad range of high-quality cabinetry across most price points. Our business is conducted through four business divisions (each with its own president or general manager) and we market our products through seven main brands, primarily through cabinet dealers. We believe that our comprehensive product portfolio and low cost, strategically located manufacturing platform allow us to better serve our customers and provide us with a competitive advantage over other cabinet manufacturers. During the year ended December 31, 2012, we believe that approximately two-thirds of our net sales were to the home repair and remodeling market and the remaining net sales were to the new residential construction market. As of and for the twelve-month period ended September 30, 2013, we generated net sales of $330.4 million, Adjusted EBITDA of $40.4 million, a net loss of $3.7 million and had total indebtedness of $240.0 million. For a reconciliation of Adjusted EBITDA to net income, see “—Summary Historical Condensed Consolidated Financial Information.”

 

We are a single source supplier of what we believe is one of the most comprehensive product offerings in the industry that encompasses a variety of price points, styles, materials and customization levels. Our product offering includes stock and semi-custom cabinets manufactured in both framed and full access styles, and more than 600,000 door and finish combinations. We have seven main brands, encompassing the full range of products, including: Mid Continent Cabinetry, Norcraft Cabinetry, Brookwood Cabinetry, Fieldstone Cabinetry, StarMark Cabinetry, UltraCraft, and Urban Effects. We focus on product innovation and design, seeking to continuously enhance existing products and develop new products to support our brands and meet the changing demands of our customers.

 

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We sell our products primarily to kitchen and bathroom cabinet dealers. For the year ended December 31, 2012, kitchen and bathroom cabinet dealers accounted for 87% of our net sales, home builders accounted for 8% and wholesale retailers, or wholetailers, accounted for 5% of net sales. We believe our focus on kitchen and bathroom cabinet dealers enhances our ability to sell our stock and semi-custom cabinet offerings. We have an extensive network of nearly 2,000 active customers and 118 internal and independent sales representatives (of which 104 are dedicated exclusively to one of Norcraft’s divisions). We have six manufacturing facilities with significant excess capacity, North American distribution capabilities for all of our brands through two service and distribution centers, and four warehouses that are strategically located throughout the U.S. and Canada. We also operate five retail locations.

 

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Our Products

 

Our business is conducted through four business divisions that each target different segments of the cabinet market. Each of our four divisions is run by a separate president or general manager, a structure which we believe provides us with an operational advantage due to enhanced accountability and focus. We believe our multi brand strategy with differentiated products across various price points, as well as our on-time delivery and high level of customer service, provide us with a competitive advantage. Each brand represents a distinct product line with little or no overlap. As a result, we are able to aggressively market each of our brands to a broad range of customers with dedicated sales representatives without significantly competing with our other brands. We believe each brand is well recognized and highly respected throughout the industry due to attractive styling, flexibility, quality and value.

 

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The following table lists the products that we manufacture and sell:

 

Division

  

Mid Continent
Cabinetry

   StarMark Cabinetry    UltraCraft
Cabinetry
   Urban Effects

2012 Sales

   $147 million    $76 million    $42 million    $24 million

% of Total 2012 Sales

   51%    26%    15%    8%

Brands

  

LOGO

LOGO

   LOGO  

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   LOGO      LOGO  

Lines

  

Signature Series

Pro Series

      LOGO  

LOGO  

  

Average Price Per Cabinet

  

Signature Series: $267

Pro Series: $122

   Brookwood: $579

Fieldstone: $493

StarMark: $414

   Destiny: $484

Vision: $241

   Urban Effects:
$234

Customization

   Stock and Semi-custom    Semi-custom    Semi-custom    Semi-custom

Framed / Full Access

   Framed    Framed    Full Access    Full Access

Production Facilities

  

Newton, Kansas

Cottonwood, Minnesota

Lynchburg, Virginia

   Sioux Falls,
South Dakota
   Liberty, North
Carolina
   Winnipeg,
Canada

# of Door & Finish Combinations

  

150 door styles

2,500 door and finish combinations

   500 door styles

600,000 door and
finish combinations

   260 door styles

16,000 door and
finish combinations

   150 door styles

2,500 door and
finish combinations

 

Industry Overview and Trends

 

The U.S. cabinet industry is large and fragmented. According to the Freedonia Group, cabinet industry sales were $10.3 billion in 2011 and are projected to grow 49% to $15.3 billion by 2016. In 2006, prior to the severe disruptions in the market caused by the global economic downturn, cabinet industry sales were $15.0 billion. We believe there are over 5,000 cabinet manufacturers, the majority of which operate locally with fewer than 50 employees. Furthermore, we estimate that only five cabinet manufacturers, including Norcraft, had an excess of $250 million in annual cabinet sales in 2012. We believe this fragmentation provides a significant opportunity for larger manufacturers to gain market share by providing superior customer service and offering products on a national scale across a broad range of price points, styles, materials and customization levels.

 

Residential Construction Demand Drivers.    Demand for cabinets is primarily driven by repair and remodeling spending and new housing starts. We believe that a U.S. new home construction and repair and remodeling recovery is currently underway on a national basis, driven by certain key macroeconomic factors including an improving economy, increasing household formation, near historic lows of new home affordability, significant declines in homes available for sale, increased sales of existing homes and home price appreciation.

 

Total new home starts have averaged approximately 1.5 million per year from 1968 to 2012 and declined to reach historic lows for starts in 2009 at 554,000. Since then, starts have recovered to reach 783,000 in 2012, and

 

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a seasonally adjusted rate of 836,000 in June 2013. According to S&P, housing starts will grow by 24% in 2013 to reach 970,000, by 29% in 2014 to reach 1.25 million and by 25% in 2015 to reach 1.56 million.

 

Repair and remodeling spending has historically been more stable than new home construction. According to Global Insight, total annual expenditures for residential improvements peaked at $146 billion. Expenditures decreased 23% to $112 billion from 2006 to 2010 but have increased 10% since then to reach $123 billion in 2012. Global Insight projects that annual expenditures will increase to $181 billion in 2015, an increase of 46% from 2012. We believe that the primary drivers for repair and remodeling spending will continue to be growth in household formation, favorable demographics, aging of the housing stock, consumer confidence, existing home sales and home price appreciation.

 

LOGO

 

Cabinet Trends.    Kitchen and bathroom renovations, which are among the most common home improvement projects, frequently include cabinet replacement. According to Freedonia Group, cabinet demand in coming years will be boosted by homeowners’ increasing desire for larger kitchens. Whereas older homes placed less emphasis on the kitchen relative to the design and features of other common areas, current consumer preferences reflect the kitchen’s new role as a central gathering place within the home. As housing conditions and prices continue to improve, we believe cabinet customers will continue to select higher priced units with additional value-added features. Furthermore, kitchen remodeling typically provides a homeowner with one of the highest returns of home repair and remodeling projects, particularly among higher ticket projects. According to Remodeling Magazine, major and minor kitchen remodels maintain current cost-recouped ratios (defined as resale value as percent of job cost) of 69% and 75%, respectively, for midrange projects. This is well above the total repair and remodel ratio of less than 61% and meaningfully greater than 2012 (from 66% and 72% in 2012, respectively). As a result, we believe that companies focusing on selling kitchen and bath products (including cabinets) are experiencing higher sales growth than companies focusing on other interior and exterior home repair and remodeling products.

 

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Our Competitive Strengths

 

We believe that we benefit significantly from the following competitive strengths:

 

Highly Experienced and Incentivized Management Team.    Our senior management team has an average of nearly 25 years experience in the building products industry, and has demonstrated proven operational capabilities through multiple business cycles. We are led by our CEO Mark Buller, who has spent more than 25 years in the cabinet industry including the last 17 years as the CEO or division president of a cabinet manufacturer. His family has been a pioneer in the full access cabinet industry in North America, having co-founded Kitchen Craft Cabinets in 1971. Reporting to Mr. Buller, we have three divisional presidents and one general manager who have full accountability for their businesses. They each have strong operational capabilities and extensive experience working with cabinet dealers, each with strong relationships in this critical customer channel. Our senior management team is highly incentivized to succeed and we currently expect that the Buller family and our senior management team will beneficially hold approximately     % of our outstanding shares on a fully-diluted basis immediately following this offering.

 

Focus on Cabinet Dealer Network.    We believe our ability to consistently provide a superior customer value proposition has enabled us to effectively serve and strategically focus on the attractive dealer and wholetailer channels, which represents 65% of the market by sales according to Freedonia Group. Our customer value proposition is comprised of what we believe is superior customer service, accurate and timely deliveries, quality products and competitive pricing. We believe the consistent delivery of our customer value proposition has enabled us to develop strong and entrenched relationships with our extensive national network of approximately 1,700 cabinet dealers and wholetailers. Our focus specifically on cabinet dealers, which are typically specialized, owner-operated and feature comparatively complex and high margin products, allows us to target what we believe is the most attractive distribution channel. Cabinet dealers play an important role in educating the consumer about the benefits of the various cabinetry options, and as a result, they often influence the consumer’s decision at the point-of-sale given consumers are generally not familiar with a specific brand or style of cabinetry prior to their interaction with a cabinet dealer. Furthermore, a dealer must invest significantly in the brands they sell including display costs and time needed to learn the different product offerings. As a result, cabinet dealers typically carry one or two brands per price point and brand switching rates are low. The cabinet dealer channel is also oriented towards facilitated sales and customer service which is conducive to selling more customized and higher priced products such as ours, and minimizes working capital requirements as most cabinets are made-to-order.

 

Best-in-Class Cabinet Manufacturer with Multiple Premier Brands.    We are one of North America’s largest manufacturers of kitchen and bathroom cabinetry and we market our products through established national brands that are well recognized and respected by professionals and DIYs. Each of our domestic brands has been in operation for at least 25 years and covers a full line of price points, styles, materials and customization levels. Through these brands, we offer more than 600,000 door and finish combinations for cabinets with an average price range of $122-$579 per cabinet. Our comprehensive offering of cabinets allows us to compete in multiple market segments and be a one-stop supplier for customers. Additionally, our warranty expense rates have remained at consistently low levels and our on-time product delivery and completed order performance have also remained at consistently high levels. We believe these consistently high service levels have further helped us develop and sustain strong relationships with our customers.

 

Unique Organizational Structure and Strong Operational Focus.    We believe our strong performance relative to our peers is attributable in part to our unique organizational structure. Each of our four divisions is led by a separate president or general manager, who is responsible for all aspects of his division. In addition, most of our sales representatives are responsible for only one brand which we believe leads to superior product knowledge, responsiveness to consumer preferences and better customer service. This structure provides strength through enhanced accountability as each president or general manager is chiefly responsible for the performance

 

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of his division and associated brands and enhances our responsiveness to changes to market conditions. Beginning in 2006, we began to reduce our cost base in anticipation of a market slowdown. Between 2007 and 2010 we reduced our U.S. fixed cost base by approximately $19.0 million. These initiatives allowed us to maintain industry leading EBITDA margins while gaining market share through the downturn and have augmented our operating leverage, which we believe will improve our profitability as the residential housing market rebounds and volumes increase.

 

Culture of Customer Service and Product Innovation.    We have been able to maintain and grow our customer base through outstanding customer service, quick delivery time, and superior product offering and quality. Currently, we have nearly 2,000 active customers, which increased from approximately 1,900 active customers in 2010. For new customers we have obtained since 2010, our sales were approximately $69.7 million for the twelve months ended September 30, 2013. To serve our growing customer base, we have made significant investments in our employees and continue to enhance our sales team. From January 2011 through December 2012, we increased our sales force by 24% to meet increasing demand from market growth and share gains. Our sales team is important in maintaining and increasing our customer base as well as providing feedback for new product development. As part of our sustained focus on our customer value proposition we seek to continually introduce innovative new products across all of our brands to address changes in consumer preferences or to enhance our existing product offering. Sales from new product introductions over the last 2 years represent approximately 14% of our 2012 sales, excluding Urban Effects. We believe new product introductions will continue to help us capture market share.

 

Low-Cost, Strategically Located Operations.    We operate six strategically located manufacturing facilities in the U.S. and Canada, which allows us to offer national distribution. A number of our facilities are vertically integrated, enabling them to manufacture and fully assemble cabinet doors, as well as perform machining, assembly and finishing operations. With a focus on low cost sourcing, we purchased approximately 25% of our raw materials from countries with lower costs than the U.S. for the year ended December 31, 2012.

 

Our Growth Strategy

 

Our financial and operational success has been driven by a focus on our network of cabinet dealers and wholetailers and providing accurate, timely deliveries of high quality products at competitive prices, supported by strong customer service. We will continue to seek to increase market share and improve margins through the principal strategies outlined below.

 

Capitalize on Accelerating Growth in Housing and Design Trends in Cabinetry Demand.    As a leading manufacturer of cabinets, we intend to capitalize on the continued recovery in the new housing construction and repair and remodeling markets, which has increased cabinet demand. In addition, we believe cabinet demand is further lifted by design trends towards larger kitchens and more customized cabinets. We have made significant investments in our sales force, among other areas, and believe we can benefit from this growth and capture market share. We believe our broad product portfolio and significant operating leverage will result in growth across our end-markets.

 

Drive Improved Profitability.    We are highly focused on increasing Adjusted EBITDA margin going forward through a combination of leveraging our fixed costs, operational improvements, product mix and price increases. As housing conditions (new home construction and repair and remodeling) continue to improve, and demand for cabinetry continues to increase, we expect to generate significant operating leverage as capacity utilization increases. In this scenario, we would also expect to sell a greater proportion of higher margin products as customer preferences shift back towards more customized cabinets. We had peak Adjusted EBITDA margins of over 18.0% during the later portion of the year ended December 31, 2007, compared to Adjusted EBITDA

 

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margins of 12.2% for the twelve-month period ended September 30, 2013. For a reconciliation of Adjusted EBITDA to net income, see “—Summary Consolidated Financial and Other Data.”

 

Continue to Gain Market Share through Expansion of Our Cabinet Dealer Network and Other Customer Segments.    We intend to continue adding new customers to our network and to expand our sales to our existing base of nearly 2,000 active customers, including approximately 1,700 cabinet dealers and wholetailers. We believe expanding share with current cabinet dealers and attracting additional cabinet dealers to our network will result in a substantial opportunity for growth. Our four divisions, with distinct product offerings in all segments of the market, allow us to effectively manage our brand positioning and be highly responsive to our customers. We aim to maximize the sales potential of our customers by providing frequent dealer training, extensive product literature and attractive displays. In addition, we will continue to opportunistically target customer segments such as the direct to home builders channel, for profitable growth. Geographically, we have targeted cabinet dealers in Canada and certain regions of the U.S. with our Urban Effects brand. In pursuit of this initiative, we transitioned our Winnipeg, Canada plant from a component manufacturer providing door and frame parts for the Mid Continent division to the complete cabinet line producer for the Urban Effects division. This enabled the Company to generate incremental sales through both product expansion and sales territory growth. Urban Effects represents a price point opportunity in a high margin product segment. Our management team’s previous success in the Canadian marketplace has enabled us to grow Urban Effects revenue in Canada from virtually nothing in 2008 to $23.7 million in 2012, which currently represents 98% of our Canadian sales.

 

Continued New Product Introductions.    Our organic growth has been driven by our frequent and successful new product introductions and, more typically, by introducing new door styles and finishes to existing product lines. These initiatives generate new sales with cabinet dealers who seek to update their product offerings. For new products we have introduced since 2010, our sales were approximately $112.4 million, or 34.0% of our total sales, for the twelve months ended September 30, 2013. Furthermore, we have streamlined our product development cycle and significantly improved our time to market for such products, providing us with a greater opportunity to increase sales at each of our brands. We believe we will be able to continue to deliver new product introductions each year to support further organic growth.

 

Selected Risks

 

There are a number of risks and uncertainties that may affect our financial and operating performance and our growth prospects. You should carefully consider all of the risks discussed in “Risk Factors” before investing in our common stock. These risks include, but are not limited to, the following:

 

   

the recent prolonged and substantial downturn of the homebuilding industry and repair and remodeling industry and the timing and extent of the recovery therefrom;

 

   

our ability to maintain strong brands and respond to changing consumer preferences;

 

   

our dependence on senior management and key personnel, including, but not limited to, our chief executive officer and chairman of our board of directors, Mark Buller;

 

   

our ability to maintain profitability;

 

   

interruptions in deliveries of or increased prices in raw materials and/or commodities;

 

   

product shortages and relationships with key suppliers; and

 

   

payments to certain of our direct and indirect existing owners for certain tax benefits that we may claim, which amounts are expected to be substantial.

 

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Implications of being an Emerging Growth Company

 

As a company with less than $1.0 billion in revenue during our most recently completed fiscal year, we qualify as an “emerging growth company” as defined in Section 2(a) of the Securities Act of 1933, as amended, which we refer to as the Securities Act, as modified by the Jumpstart Our Business Startups Act of 2012, or the JOBS act. As an emerging growth company, we intend to take advantage of specified reduced disclosure and other requirements that are otherwise applicable generally to public companies that are not emerging growth companies. These provisions include:

 

   

Reduced disclosure about our executive compensation arrangements;

 

   

No non-binding shareholder advisory votes on executive compensation or golden parachute arrangements; and

 

   

Exemption from the auditor attestation requirement in the assessment of our internal control over financial reporting.

 

We may take advantage of these exemptions for up to five years or such earlier time that we are no longer an emerging growth company. We would cease to be an emerging growth company if we have more than $1.0 billion in annual revenues as of the end of our fiscal year, we have more than $700.0 million in market value of our stock held by non-affiliates as of the end of our second fiscal quarter, or we issue more than $1.0 billion of non-convertible debt over a three-year period. We may choose to take advantage of some but not all of these reduced disclosure obligations. We have taken advantage of reduced disclosure regarding executive compensation arrangements in this prospectus, and we may choose to take advantage of some but not all of these reduced disclosure obligations in future filings. If we do, the information that we provide stockholders may be different than you might get from other public companies in which you hold stock.

 

The JOBS Act permits an emerging growth company such as us to take advantage of an extended transition period to comply with new or revised accounting standards applicable to public companies. We are choosing to “opt out” of this provision and, as a result, we will comply with new or revised accounting standards as required when they are adopted. This decision to opt out of the extended transition period under the JOBS Act is irrevocable.

 

The Reorganization

 

Prior to the consummation of the offering:

 

   

Norcraft Companies LLC will be organized as a Delaware limited liability company;

 

   

all of the holders of Class A Units, Class B Units and Class C Units in Norcraft Holdings, L.P. (other than Buller Norcraft Holdings LLC and MEB Norcraft LLC) will contribute all of their Class A Units, Class B Units and Class C Units in Norcraft Holdings, L.P. to Norcraft Companies LLC in exchange for common units of Norcraft Companies LLC;

 

   

all of the holders of Class D Units in Norcraft Holdings, L.P. (other than Buller Norcraft Holdings LLC and MEB Norcraft LLC), which were issued pursuant to the Norcraft Holdings, L.P. incentive plan, will contribute (a) all of their vested Class D Units to Norcraft Companies LLC in exchange for common units of Norcraft Companies LLC and (b) all of their unvested Class D Units to Norcraft Companies LLC in exchange for unvested common units of Norcraft Companies LLC;

 

   

all of the holders of equity interests in Buller Norcraft Holdings LLC and MEB Norcraft LLC will contribute all of their equity interests in Buller Norcraft Holdings LLC and MEB Norcraft LLC, respectively, to Norcraft Companies LLC in exchange for common units of Norcraft Companies LLC;

 

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all of the holders of equity interests in Norcraft GP, L.L.C., the general partner of Norcraft Holdings, L.P. and Norcraft Companies, L.P., will sell for nominal value all of their equity interests in Norcraft GP, L.L.C. to Norcraft Companies LLC;

 

   

Norcraft GP, L.L.C. will acquire for nominal value a 0.00001% interest in Norcraft Holdings, L.P.;

 

   

Buller Norcraft Holdings LLC and MEB Norcraft LLC will then liquidate into Norcraft Companies LLC; and

 

   

the shareholders of SKM Norcraft Corp. and Trimaran Cabinet Corp. will contribute all of the outstanding stock in SKM Norcraft Corp. and Trimaran Cabinet Corp., respectively, to Norcraft Companies, Inc. in exchange for restricted shares of common stock of Norcraft Companies, Inc. and certain rights to additional payments under a tax receivable agreement, and the names of SKM Norcraft Corp. and Trimaran Cabinet Corp. will be changed to Norcraft Holdings Corp. I and Norcraft Holdings Corp. II, respectively.

 

As a result of these transactions, Norcraft Holdings Corp. I (formerly SKM Norcraft Corp.) and Norcraft Holdings Corp. II (formerly Trimaran Cabinet Corp.) will become wholly-owned subsidiaries of Norcraft Companies, Inc. Norcraft Companies LLC will become (i) 53.6% owned by Norcraft Holdings Corp. I, (ii) 26.8% owned by Norcraft Holdings Corp. II, (iii) 10.9% owned by the former owners of Buller Norcraft Holdings LLC, as of immediately prior to the contribution of all of the equity interests in Buller Norcraft Holdings LLC to Norcraft Companies LLC, (iv) 2.1% owned by the former owner of MEB Norcraft LLC, as of immediately prior to the contribution of all of the equity interests in MEB Norcraft LLC to Norcraft Companies LLC and (v) 6.6% owned by other current and former members of our management and board of directors. Norcraft Holdings, L.P. will be wholly-owned by Norcraft Companies LLC and Norcraft GP, L.L.C. Norcraft Intermediate Holdings, L.P. will remain a wholly-owned subsidiary of Norcraft Holdings, L.P, and Norcraft Companies, L.P. will remain a wholly-owned subsidiary of Norcraft Intermediate Holdings, L.P. We refer to these transactions as the “Reorganization” in this prospectus.

 

As a result of the Reorganization, the assets and liabilities of Norcraft Holdings, L.P. will be included in the financial statements of Norcraft Companies, Inc. at their carrying amounts as of the date of the Reorganization. The interests held by MEB Norcraft LLC, Buller Norcraft Holdings LLC and our current and former members of management and board in Norcraft Companies LLC will be reported as noncontrolling interests in the financial statements of Norcraft Companies, Inc. following the Reorganization.

 

Norcraft Companies, Inc. has not, to date, conducted any activities other than those incident to its formation and the preparation of this registration statement. Norcraft Companies, Inc. was formed solely for the purpose of reorganizing the organizational structure of Norcraft Holdings, L.P., so that the issuer is a corporation rather than a limited partnership. Norcraft Companies LLC has not, to date, conducted any activities other than those incident to its formation and to effect the Reorganization.

 

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Post-Reorganization Corporate Structure

 

Set forth below is the ownership structure of Norcraft Companies, Inc. and its subsidiaries following the consummation of this offering (assuming no exercise of the underwriters’ option to purchase additional shares) and the Reorganization.

 

LOGO

 

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Tax Receivable Agreements

 

We will indirectly acquire favorable tax attributes in connection with the Reorganization. In addition, our acquisition of units of Norcraft Companies LLC in connection with future secondary exchanges of units of Norcraft Companies LLC for restricted shares of our common stock or cash are expected to produce additional favorable tax attributes for us. These tax attributes would not be available to us in the absence of these transactions. As part of the Reorganization, we will enter into three tax receivable agreements.

 

   

Under the first of these agreements we generally will be required to pay to the holders of common stock of SKM Norcraft Corp. as of immediately prior to the Reorganization 85% of the applicable cash savings, if any, in U.S. federal, state or local tax that we actually realize (or are deemed to realize in certain circumstances) as a result of (i) the tax attributes associated with any increase in tax basis attributable to SKM Norcraft Corp.’s original acquisition of interests in Norcraft Holdings, L.P., (ii) the net operating losses of SKM Norcraft Corp. relating to taxable years ending on or before the date of the Reorganization (calculated by assuming the taxable year of SKM Norcraft Corp. closes on the date of the Reorganization) that are or become available to us and our wholly-owned subsidiaries as a result of the Reorganization, and (iii) tax benefits attributable to payments made under the tax receivable agreement.

 

   

Under the second of these agreements we generally will be required to pay to the holders of common stock of Trimaran Cabinet Corp. as of immediately prior to the Reorganization 85% of the applicable cash savings, if any, in U.S. federal, state or local tax that we actually realize (or are deemed to realize in certain circumstances) as a result of (i) the tax attributes associated with any increase in tax basis attributable to Trimaran Cabinet Corp.’s original acquisition of interests in Norcraft Holdings, L.P., (ii) the net operating losses of Trimaran Cabinet Corp. relating to taxable years ending on or before the date of the Reorganization that are or become available to us and our wholly-owned subsidiaries as a result of the Reorganization, and (iii) tax benefits attributable to payments made under the tax receivable agreement.

 

   

Under the third of these agreements we generally will be required to pay to the holders of units of Norcraft Companies LLC (other than units that we or our wholly-owned subsidiaries hold) 85% of the amount of cash savings, if any, in U.S. federal, state or local tax that we actually realize (or are deemed to realize in certain circumstances) as a result of (i) certain tax attributes that are created as a result of the exchanges of their units for restricted shares of our common stock or cash, including any basis adjustment relating to the assets of Norcraft Companies LLC and (ii) tax benefits attributable to payments made under the tax receivable agreement.

 

Under all of these agreements, we generally will retain the benefit of the remaining 15% of the applicable tax savings. See “Management’s Discussion and Analysis of Financial Condition and Results of Operations—Tax Receivable Agreements.”

 

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Our History

 

We were founded as Marshall Millworks, Inc. in 1966 as a single millwork manufacturing facility located in Marshall, Minnesota. For the next 32 years, Marshall Millworks sold its products under the Mid Continent brand and grew organically, adding capacity as needed to support growth. Marshall Millworks subsequently changed its name to Norcraft Companies, Inc. and, in 1998, Norcraft Companies, L.L.C. was formed and acquired the operating business of Norcraft Companies, Inc. In June 2000, we acquired the assets of The UltraCraft Company, located in Liberty, North Carolina, in order to expand our product offering and customer base through the addition of a semi-custom full access cabinetry line. To further expand the breadth of our product offering, market presence and manufacturing capabilities, we acquired the StarMark and Fieldstone brands with the acquisition of the assets of StarMark, Inc., located in Sioux Falls, South Dakota, in March 2002.

 

On October 21, 2003, Norcraft Holdings, L.P., a new entity formed at the direction of SKM Equity Fund III, L.P., Trimaran Fund II, L.L.C. and Mark Buller and his relatives, acquired 100% of the outstanding membership units of Norcraft Companies, L.L.C. from the then-existing unitholders. Norcraft Companies, L.L.C. converted to a Delaware limited partnership and is now Norcraft Companies, L.P.

 

Norcraft Canada Corporation became a wholly-owned subsidiary of Norcraft Companies, L.P. In addition, the members of our senior management team exchanged a majority of their membership units in Norcraft Companies, L.L.C. for limited partnership units of Norcraft Holdings, L.P. and further, forwent cash bonuses relating to the Acquisition payable after the closing in consideration for the right to receive additional limited partnership units of Norcraft Holdings, L.P. in the future. The general partner of Norcraft Companies, L.P. and Norcraft Holdings, L.P. is Norcraft GP, L.L.C., a Delaware limited liability company whose members are investors controlled by SKM Equity Fund III, Trimaran Fund II, L.L.C. and Mark Buller and his relatives.

 

Our Sponsors

 

Apax Partners, L.P. (“Apax Partners”), the successor to Saunders Karp & Megrue (“SKM”), is one of the world’s leading private equity investment groups. It operates across the United States, Europe and Asia and has more than 30 years of investing experience. Funds under the advice and management of Apax Partners globally total over $35.0 billion. These funds provide long-term equity financing to build and strengthen world-class companies. Funds advised by Apax Partners invest in companies across its global sectors of Tech & Telecom, Retail & Consumer, Media, Healthcare and Financial & Business Services.

 

Certain former members of SKM that were responsible for its investment in Norcraft Holdings, L.P. formed KarpReilly, LLC in 2007, which was engaged by Apax Partners to continue to manage the investment through representation on the board of managers of Norcraft GP, L.L.C., the general partner of Norcraft Holdings, L.P. and Norcraft Companies, L.P. KarpReilly is a private equity firm that partners with premier growth companies to help them achieve their long-term vision. KarpReilly takes an active role in working with portfolio companies to strengthen management teams and invest in systems, people and processes to support growth. KarpReilly currently manages funds and affiliates with capital commitments in excess of $500 million.

 

Trimaran Capital Partners (“Trimaran”) is a private asset management firm, headquartered in New York. Since 1995, Trimaran has completed 60 private equity investments totaling over $1.3 billion of equity capital, including investments in the manufacturing, health care, restaurants, retail, education, media, financial services and utilities sectors.

 

The Buller family has over 42 years of experience in the cabinetry industry. Herb Buller, Mark Buller’s father, co-founded Kitchen Craft Cabinets, a Canadian cabinetry maker, in 1971. Mark Buller has over 25 years of experience in the cabinetry industry and has been a chief executive officer or division president of a cabinet manufacturer during the past 17 years.

 

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As used in this prospectus, the term “Sponsors” refers to Apax Partners, KarpReilly and Trimaran. See “Certain Relationships and Related Party Transactions” and “Security Ownership of Beneficial Owners and Management” and the documents referred to herein for more information with respect to our relationship with funds advised by our Sponsors.

 

Corporate Information

 

Our principal executive offices are located at 3020 Denmark Avenue, Suite 100, Eagan, Minnesota 55121. Our telephone number is (800) 297-0661 and our website can be found at www.norcraftcompanies.com. The information on, or that can be accessed through, our website is not part of this prospectus, and you should not rely on any such information in making the decision whether to purchase our common stock.

 

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The Offering

 

Common stock offered by us

5,882,353 shares (or 6,764,706 shares if the underwriters exercise their option to purchase additional shares in full).

 

Common stock to be outstanding immediately after completion of this offering

15,831,919 shares (or 16,714,272 shares if the underwriters exercise their option to purchase additional shares in full).     

 

Common stock to be outstanding immediately after completion of this offering assuming the contribution of all common units of Norcraft Companies LLC to us for shares of our common stock

18,264,706 shares (or 19,147,059 shares if the underwriters exercise their option to purchase additional shares in full). See “The Reorganization” and “Certain Relationships and Related Party Transactions—Exchange Agreement.”                    

 

Use of proceeds

We expect to receive net proceeds, after deducting estimated offering expenses and underwriting discounts and commissions, of approximately $90.0 million, based on an assumed offering price of $17.00 per share (the mid-point of the price range set forth on the cover of this prospectus). We intend to use the proceeds from this offering to acquire common units of Norcraft Companies LLC (at a price equal to the price paid by the underwriters for shares of our common stock in this offering). Following the closing of this offering, we intend to (i) refinance Norcraft Companies, L.P.’s existing ABL Facility with a new senior secured asset-based revolving credit facility (the “New ABL Facility”) and enter into a new senior secured term loan facility (the “Term Loan Facility”) and (ii) redeem all or a portion of the senior secured second lien notes on or shortly after December 15, 2013 (the “Proposed Debt Refinancing”). Norcraft Companies LLC intends to use the net proceeds from this offering, together with net proceeds from the Term Loan Facility when drawn, to redeem all of Norcraft Companies, L.P.’s outstanding 10.5% senior secured second lien notes due 2015 on or shortly after December 15, 2013. See “Use of Proceeds” and “Description of Indebtedness—Proposed Debt Refinancing.”

 

Listing

Our common stock has been approved for listing on the New York Stock Exchange under the symbol “NCFT.”

 

Risk factors

You should read carefully the “Risk Factors” section of this prospectus for a discussion of factors that you should consider before deciding to invest in shares of our common stock.

 

References in this section to number of shares of common stock to be issued and outstanding after this offering are set forth on a pro forma basis to give effect to the Reorganization, and excludes:

 

   

1,122,712 shares of common stock issuable upon the exercise of stock options that we expect to award under the Norcraft Companies, Inc. 2013 Incentive Plan (the “2013 Incentive Plan”) to certain members of management upon the pricing of this offering, exercisable at a per share price equal to the initial public offering price of this offering; and

 

   

906,701 additional shares of common stock reserved for issuance, and not subject to outstanding options, under the 2013 Incentive Plan.

 

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Except as otherwise indicated, all information in this prospectus:

 

   

assumes no exercise of the underwriters’ option to purchase additional shares; and

 

   

assumes an initial public offering price of $17.00 per share (the midpoint of the estimated public offering price range set forth on the cover page of this prospectus).

 

Summary Consolidated Financial and Other Data

 

The following tables summarize consolidated financial information of Norcraft Holdings, L.P., our predecessor company, as well as pro forma information that reflects the impact of income taxes. We were formed on July 23, 2013 and have not, to date, conducted any activities other than those incident to our formation and the preparation of this registration statement. We were formed solely for the purpose of reorganizing the organizational structure of Norcraft Holdings, L.P., so that the issuer is a corporation rather than a limited partnership.

 

The summary historical financial data as of December 31, 2012 and 2011 and for the three years in the period ended December 31, 2012 presented in this table have been derived from our audited consolidated financial statements included elsewhere in this prospectus. The summary historical financial data as of September 30, 2013 and for the nine month periods ended September 30, 2013 and 2012 have been derived from our unaudited consolidated financial statements included elsewhere in this prospectus. The summary consolidated balance sheet data as of December 31, 2010 has been derived from our audited consolidated financial statements for such year, which are not included in this prospectus. The summary consolidated balance sheet data as of September 30, 2012 has been derived from our unaudited consolidated financial statements for such period, which are not included in this prospectus. Historical results are not necessarily indicative of the results to be expected for future periods and operating results for the nine months ended September 30, 2013 are not necessarily indicative of the results that may be expected for the fiscal year ending December 31, 2013. The unaudited pro forma information is based on assumptions and includes adjustments as explained in the notes to the table. The unaudited pro forma financial information is not necessarily indicative of the results that actually would have been achieved for this period or that may be achieved in the future.

 

This summary historical consolidated financial and other data and pro forma consolidated financial data should be read in conjunction with the disclosures set forth under “Capitalization,” “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and “Unaudited Pro Forma Consolidated Financial Information” and the consolidated financial statements and the related notes thereto appearing elsewhere in this prospectus.

 

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(Dollars in thousands)    Years Ended December 31,     Nine Months Ended
September 30,
 
     2010     2011     2012     2012     2013  
                       (unaudited)  

Consolidated Statements of Comprehensive Loss:

          

Net sales

   $ 262,568      $ 269,305      $ 288,782      $ 217,550      $ 259,202   

Cost of sales

     187,482        195,853        215,274        160,679        191,340   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Gross profit

     75,086        73,452        73,508        56,871        67,862   

Selling, general and administrative expenses

     50,402        51,099        54,144        40,729        45,875   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Income from operations

     24,684        22,353        19,364        16,142        21,987   

Other expense:

          

Interest expense, net

     25,327        25,706        25,819        19,372        19,395   

Amortization of deferred financing costs

     1,589        3,046        3,120        2,340        2,340   

Other expense, net

     26        264        (16     61        29   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total other expense

     26,942        29,016        28,923        21,773        21,764   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Net income (loss)

     (2,258     (6,663     (9,559     (5,631     223   

Other comprehensive income (loss):

          

Foreign currency translation adjustment

     1,611        (295     219        440        (309
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total other comprehensive income (loss)

     1,611        (295     219        440        (309
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Comprehensive loss

   $ (647   $ (6,958   $ (9,340   $ (5,191)      $ (86
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Consolidated Balance Sheet Data (at period end):

          

Cash and cash equivalents

   $ 28,657      $ 24,185      $ 23,019      $ 28,747      $ 38,205   

Total current assets

     65,560        63,615        65,263        74,391        90,571   

Total assets

     266,753        263,670        256,143        267,917        274,729   

Total current liabilities

     25,623        20,341        22,026        29,617        40,734   

Total liabilities

     257,062        260,615        262,201        269,872        280,888   

Members’ equity subject to put request

     12,139        8,309        6,926        7,112        13,742   

Total members’ deficit

     (2,448     (5,254     (12,984     (9,067     (19,901

Other Financial Data:

          

Capital expenditures(1)

   $ 6,469      $ 7,417      $ 7,425      $ 5,786      $ 5,813   

EBITDA(2)

   $ 39,012      $ 35,583      $ 32,657      $ 26,099      $ 31,806   

Adjusted EBITDA(2)

   $ 39,002      $ 36,766      $ 33,657      $ 26,849      $ 33,611   

Pro Forma Net Income (Loss) per Share (unaudited):

          

Pro forma net income (loss) per share:

          

Basic

  

    $ (0.83   $ 0.11   

Diluted

  

    $ (0.83   $ 0.10   

Pro forma weighted average common shares outstanding:

  

     

Basic

  

      9,949,566        9,949,566   

Diluted

  

      9,949,566        12,382,353   

 

(1)   Reflects the purchase of property, plant and equipment and the addition of display cabinets.

 

(2)   We report our financial results in accordance with U.S. generally accepted accounting principles (“U.S. GAAP”), however, management believes that the evaluation of our ongoing operating results may be enhanced by a presentation of EBITDA and Adjusted EBITDA, which are non-GAAP financial measures. We have historically presented EBITDA in our earnings releases furnished on reports filed with the SEC. As set forth below, EBITDA is net loss before interest expense, income tax expense, depreciation and amortization. Adjusted EBITDA is EBITDA adjusted for the items as set forth below.

 

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We have included EBITDA and Adjusted EBITDA in this prospectus because we believe it is useful to investors in evaluating our operating performance compared to that of other companies in our industry, as its 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. When analyzing our operating performance, investors should not consider EBITDA or Adjusted EBITDA in isolation or as a substitute for net income (loss), cash flows from operating activities or other operation statement or cash flow statement data prepared in accordance with U.S. GAAP, as they may have limitations as analytical tools. Some of these limitations are: (i) EBITDA and Adjusted EBITDA do not fully reflect our cash expenditures, future requirements for capital expenditures or contractual commitments; (ii) EBITDA and Adjusted EBITDA do not reflect changes in, or cash requirements for, our working capital needs; (iii) EBITDA and Adjusted EBITDA do not reflect the interest expense, or the cash requirements necessary to service interest or principal payments, on our debt; and (iv) although depreciation and amortization are non-cash charges, the assets being depreciated and amortized will often have to be replaced in the future, and EBITDA and Adjusted EBITDA do not reflect any cash requirements for such replacements. Additionally, our calculation of EBITDA is not necessarily comparable to those of other similarly titled measures reported by other companies. Because of these limitations, EBITDA and Adjusted EBITDA should not be considered as discretionary cash available to us to reinvest in the growth of our business or as measures of cash that will be available to us to meet our obligations. The calculation of EBITDA and Adjusted EBITDA is shown below:

 

     Years Ended December 31,      Nine Months Ended
September 30,
     Twelve Months
Ended
 
     2007      2010      2011      2012      2012      2013      September 30,
2013
 

Net income (loss)

     $29,172       $ (2,258    $ (6,663    $ (9,559      $(5,631)       $ 223       $ (3,705

Interest expense, net

     23,618         25,327         25,706         25,819         19,372         19,395         25,842   

Depreciation

     5,461         5,720         4,935         4,723         3,562         3,302         4,463   

Amortization of deferred financing costs

     1,540         1,589         3,046         3,120         2,340         2,340         3,120   

Amortization of customer relationships

     4,466         4,467         4,467         4,467         3,350         3,350         4,467   

Amortization of display cabinets

     6,703         4,142         4,005         4,113         3,053         3,159         4,219   

State taxes

     153         25         87         (26      53         37         (42
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

EBITDA

     $71,113       $ 39,012       $ 35,583       $ 32,657      

 

$26,099

  

   $ 31,806       $ 38,364   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Loss on debt extinguishment

     —           —           183         —           —           —           —     

Gain on insurance proceeds from fire in Newton, Kansas (a)

     (442)         —           —           —           —           —           —     

Sales tax refund (b)

     —           (1,010      —           —           —           —           —     

Restructuring costs associated with contemplated IPO

     —           —           —           —           —           1,055         1,055   

Management fee (c)

     1,000         1,000         1,000         1,000         750         750         1,000   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Adjusted EBITDA

     $71,671       $ 39,002       $ 36,766       $ 33,657         $26,849       $ 33,611       $ 40,419   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

 

  (a)   Net income (loss) during the year-ended December 31, 2007 includes a gain on insurance proceeds from a fire in Newton, Kansas.
  (b)   Net income (loss) during the year ended December 31, 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.
  (c)   In connection with this offering, we intend to terminate our Management and Monitoring Agreement, which includes a $1.0 million annual management fee. Certain expense reimbursement and indemnification obligations will survive the termination of the Management and Monitoring Agreement. See “Certain Relationships and Related Party Transactions—Management and Monitoring Agreement.”

 

(3)   Norcraft Companies, Inc. is subject to federal and state income taxes and will file consolidated income tax returns for federal and certain state jurisdictions. If the Reorganization had been effective as of January 1, 2012, temporary differences in the book and tax basis of our investment in Norcraft Companies, LLC would have resulted in an unaudited pro forma deferred tax liability of $31.9 million as of January 1, 2012. Based on our operating results and changes in the difference between these investment bases during the year ended December 31, 2012, this deferred tax liability would have increased by $2.4 million to $34.3 million. Based on our operating results and changes in the difference between these investment bases during the nine months ended September 30, 2013, this deferred tax liability would have increased by $1.7 million to $36.0 million.

 

Additionally, our net tax losses prior to January 1, 2012 would have resulted in an unaudited pro forma deferred income tax benefit of $13.6 million as of January 1, 2012, assuming a combined federal and state statutory income tax rate of 36.64%. However, as realization of such tax benefit would not have been more likely than not based on Management’s evaluation, we would have also established a valuation allowance of $13.6 million. Our net tax loss of $13.8 million for the year ended December 31, 2012 would have generated an additional unaudited pro forma deferred income tax benefit of $5.1 million, however, we would have also established an additional valuation allowance of $5.1 million to eliminate such pro forma tax benefit. Our net tax loss of $4.4 million for the nine months ended September 30, 2013 would have generated an additional unaudited pro forma deferred income tax benefit of $1.6 million, however, we would have also established an additional valuation allowance of $1.6 million to eliminate such pro forma tax benefit.

 

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RISK FACTORS

 

An investment in our common stock involves various risks. You should carefully consider the following risks and all of the other information contained in this prospectus before investing in our common stock. The risks described below are those which we believe are the material risks that we face. Additional risks not presently known to us or which we currently consider immaterial may also adversely affect our company. The trading price of our common stock could decline due to any of these risks, and you may lose all or part of your investment in our common stock.

 

Risks Related to Our Business and Industry

 

The Home Improvement And Home Building Industries Recently Experienced A Prolonged And Substantial Downturn, And The Timing And Extent Of Any Recovery In The Home Improvement And Home Building Industries Are Uncertain. Further Downturns In, Or A Delay In Or Only A Modest Recovery Of, These Industries Or The Economy Could Negatively Affect The Demand For And Pricing Of Our Products And Our Operating Results.

 

A significant part of our business is affected by levels of home improvement (including repair and remodeling). While the North American housing market stabilized during 2010, 2011, 2012 and early 2013, the prolonged decline in the housing market and downward pressure on prices had an adverse impact on our business. As did many other companies in our industry, we experienced decreased sales, especially for our higher end products, and we were forced to increase our discounts and promotions, which have continued. The home improvement industry is affected by changes in economic and other conditions such as gross domestic product levels, employment levels, demographic trends, availability of financing, interest rates and consumer confidence. A decrease in employment levels, consumer confidence or the availability of financing for any reason, including as a result of the recent government shutdown, could negatively affect the demand for and pricing of our products which would adversely affect our results of operations. Although the market has generally been improving, it still has not reached pre-2007 levels. Due to the severity of the previous economic downturn, the market may be even more volatile at future indications of market disruptions. As a result, low levels of consumer confidence, high levels of unemployment and downward pressure on home prices in the future may make consumers reluctant to make additional investments in existing homes, such as kitchen and bath remodeling projects. In addition, more conservative lending practices, including for home equity loans which are often used to finance repairs and remodeling during the previous economic downturn, limited the ability of consumers to finance home improvements. Any future downturn with respect to these trends facing the home improvement industry, or a delay in the recovery of such trends, may lead to decreases in demand for our products, as well as impair our ability to discontinue sales discounting and sales promotions that we continue to offer.

 

A significant part of our business is also affected by levels of new home construction, as our products are often purchased in connection with the construction of a new home. Fewer new home buyers or the failure for the number of new home buyers to increase at expected levels may lead to a decrease in demand for our products or adversely impact or prospects and future performance.

 

We cannot predict the timing and extent of any recovery to the home improvement and homebuilding industries. Any renewed economic turmoil may cause unanticipated shifts in consumer preferences and purchasing practices and in the business models and strategies of our customers. Such shifts may alter the nature and prices of products demanded by the end consumer and our customers and could adversely affect our operating performance.

 

Increases In Interest Rates And The Reduced Availability Of Financing For Home Improvements May Cause Our Sales And Profitability To Decrease.

 

In general, demand for home improvement products may be adversely affected by increases in interest rates and the reduced availability of financing. Also, trends in the financial industry which influence the requirements used by lenders to evaluate potential buyers can result in reduced availability of financing. If interest rates or

 

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lending requirements increase and consequently, the ability of prospective buyers to finance purchases of home improvement products is adversely affected, our business, financial condition and results of operations may also be adversely impacted and the impact may be material.

 

We Are Dependent On Senior Management and Key Personnel, The Loss Of Whom Could Materially Affect Our Financial Performance And Prospects.

 

Our continued success depends to a large extent upon the continued services of our senior management and certain key employees. Our chief executive officer, Mark Buller, has over 25 years of experience in the cabinetry industry. Our other senior executives have an average of nearly 25 years experience in the building product industry. The loss of the experience and services of any of these individuals could have a material adverse effect on our revenue, our financial performance and our results of operations.

 

If We Do Not Maintain Strong Brands Or Respond To Changing Consumer Preferences For Cabinet Designs And Configurations And Purchasing Practices, Demand For Our Products And Our Results Could Be Adversely Affected.

 

The cabinetry industry in general is subject to changing consumer trends, demands and preferences. Our continued success depends largely on the introduction and acceptance by our customers of new product lines that respond to such trends, demands and preferences. For example, we have seen an increase in European style, or frameless, cabinets in recent years, and our organic growth has been, and will continue to be, driven in part by our ability to respond efficiently to such changing trends. While we continue to invest in brand building and brand awareness, these initiatives may not be successful. We may not be able to successfully develop and design new brands. The uncertainties associated with developing and introducing new and improved products, such as gauging changing consumer preferences and successfully developing, manufacturing, marketing and selling these products, may impact the success of our product introductions. If our new or improved products do not gain widespread acceptance, demand for our products may decrease, which could negatively impact our operating results.

 

Although we are seeing trends for larger kitchens and bathrooms with more cabinets, if these trends shift, demand for our products could decrease. Additionally, we could in the future experience negative mix shift for certain products, with consumers demanding more value-priced products and fewer higher margin products. These shifts could negatively impact our sales and profitability. If our customers cease to increase spending on higher margin products, on which we intend to place greater emphasis, our business prospects and future performance may be adversely impacted.

 

Consumers are increasingly using the internet and mobile technology to research home improvement products and enhance their purchasing and ownership experience for these products. E-commerce is a rapidly developing area, and development of a successful e-commerce strategy involves significant time and resources. If we are unable to successfully execute our e-commerce strategies, our brands may lose share.

 

If we do not timely and effectively identify and respond to these changing consumer preferences and purchasing practices, our relationships with our customers could be harmed, the demand for our brands and products could be reduced and our results of operations could be negatively affected.

 

Increased Prices For Raw Materials Or Finished Goods Used In Our Products Or Increased Energy Costs Could Increase Our Cost Of Sales And Decrease Demand For Our Products, Which Could Adversely Affect Our Revenue Or Profitability.

 

Our profitability is affected by the prices of the raw materials and finished goods used in the manufacturing of our products. These prices may fluctuate based on a number of factors beyond our control, including, among others, changes in supply and demand, general economic conditions, labor costs, competition, import duties, tariffs, currency exchange rates and, in some cases, government regulation. For example, certain of our Chinese plywood suppliers have been and continue to be subject to U.S. tariffs. Increased prices could adversely affect

 

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our profitability or revenues. We do not have long-term supply contracts for the raw materials and finished goods used in the manufacturing of our products; however, we enter into pricing agreements with certain customers which fix their pricing for specified periods ranging from one to twelve months. Significant increases in the prices of raw materials or finished goods could adversely affect our profit margins, especially if we are not able to recover these costs by increasing the prices we charge our customers for our products. In addition, energy costs have fluctuated dramatically in the past. These fluctuations may result in an increase in our production and transportation costs for our products. We may not be able to adjust the prices of our products, especially in the short-term, to recover these cost increases in energy. A continual rise in energy costs could increase our operating costs, which could adversely affect our revenue or profitability.

 

Interruptions In Deliveries Of Raw Materials Or Finished Goods Could Adversely Affect Our Revenue Or Profitability.

 

Our dependency upon regular deliveries from particular suppliers means that interruptions or stoppages in such deliveries could adversely affect our operations until arrangements with alternate suppliers could be made. If any of our suppliers were unable to deliver materials (in particular, wood) to us for an extended period of time, as the result of financial difficulties, catastrophic events affecting their facilities or other factors beyond our control, or if we were unable to negotiate acceptable terms for the supply of materials with these or alternative suppliers, our business could suffer. We may not be able to find acceptable alternatives, and any such alternatives could result in increased costs for us. Even if acceptable alternatives are found, the process of locating and securing such alternatives might be disruptive to our business. Extended unavailability of a necessary raw material or finished good could cause us to cease manufacturing of one or more products for a period of time. In addition, the manufacturing process for UltraCraft’s Vision product line includes components which are made by an Italian manufacturer using proprietary technology. The manufacturer’s failure to deliver components could cause us to cease manufacturing the Vision line products.

 

Our International Sourcing Subjects Us To Additional Risks And Costs, Which May Differ In Each Country In Which We Do Business And May Cause Our Profitability To Decline.

 

During the fiscal year ended December 31, 2012, approximately 25% of our purchases of raw materials were from vendors outside of the U.S. and Canada. We may decide to increase our international sourcing in the future. Accordingly, our future results could be harmed by a variety of factors, including: (i) introduction of non-native invasive organisms into new environments; (ii) recessionary trends in international markets; (iii) legal and regulatory changes and the burdens and costs of our compliance with a variety of laws, including trade restrictions and tariffs; (iv) difficulties in enforcing intellectual property rights; (v) increases in transportation costs or transportation delays; (vi) work stoppages and labor strikes; (vii) fluctuations in exchange rates (particularly the value of the U.S. dollar relative to other currencies); and (viii) political unrest, terrorism and economic instability. If any of these or other factors were to render the conduct of our business in a particular country undesirable or impractical, our business and financial condition could be adversely affected.

 

Any Reduction In Availability Of Mortgage Financing Would Adversely Affect Our Business.

 

During the previous economic downturn, the mortgage lending industry experienced significant instability due to, among other things, defaults on subprime loans and a resulting decline in the market value of such loans. In light of these developments, lenders, investors, regulators and other third parties questioned the adequacy of lending standards and other credit requirements for several loan programs made available to borrowers. This led to reduced investor demand for mortgage loans and mortgage-backed securities, tightened credit requirements, reduced liquidity and increased credit risk premiums. A deterioration in credit quality among subprime and other nonconforming loans caused almost all lenders to eliminate subprime mortgages and most other loan products that are nonconforming loans, FHA/VA-eligible loans or jumbo loans (which meet conforming underwriting guidelines other than loan size). Fewer loan products and tighter loan qualifications made it more difficult for some borrowers to finance the purchase of new homes or repair or remodel existing homes. These factors

 

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reduced the demand for our products. To the extent the mortgage lending industry experiences further downturns or slowed recovery, our operations and financial results could be adversely affected.

 

Any Future Volatility Or Reduction In Liquidity In The Financial Markets Would Adversely Affect Our Business.

 

In recent years, the credit markets and the financial services industry experienced significant disruptions, characterized by the bankruptcy and failure of several financial institutions and severe limitations on credit availability. The disruptions in the financial markets adversely affected, and could continue to adversely affect, our operations in a variety of ways. The financial stability of certain of our customers was negatively impacted, which resulted in difficulties in accounts receivable collection and increased bad debt expense for us. A relapse into adverse economic conditions, including those arising from the recent government shutdown, could cause additional financial distress for our customers and could compromise the financial condition of our suppliers, which could result in non-performance by certain of our suppliers. In addition, during the downturn our own borrowing costs increased. The disruption in the global financial markets has also impacted some of the financial institutions with which we do business.

 

In addition, our borrowing costs can be affected by short and long-term debt ratings assigned by independent rating agencies which are based, in significant part, on our performance as measured by credit metrics such as interest coverage and leverage ratios. As of May 2013, our Corporate Family rating from Moody’s Global Credit Research is a B3. As of April 2013, our Corporate Credit rating from Standard & Poor’s is a B. Any decrease in our ratings could increase our cost of borrowing and/or make it more difficult for us to obtain financing in the future.

 

Inflation Could Adversely Affect Our Business And Financial Results, Particularly In A Period Of Oversupply Of Homes.

 

Our cost of sales is subject to inflationary pressures. Historically, we have been able to recover the effects of inflation through sales price increases. However, we may not be able to raise prices sufficiently to keep up with the rate of inflation in the future. Further, the market may not be willing to bear the price increases we would need to make to counteract the effects of inflation. In addition, inflation is often accompanied by higher interest rates, which historically had a negative impact on housing demand, which significantly affects our business. Moreover, the cost of capital increases as a result of inflation and the purchasing power of our cash resources declines. Current or future efforts by the government to stimulate the economy may increase the risk of significant inflation and its adverse impact on our business or financial results.

 

We May Not Effectively Compete In The Highly Fragmented And Very Competitive Cabinet Industry Market, Which May Adversely Affect Our Revenues.

 

We operate in the highly fragmented and very competitive cabinetry industry. Our competitors include national and local cabinetry manufacturers. These can be large consolidated operations which house their manufacturing facilities in large and efficient plants, as well as relatively small, local cabinetmakers. Some of our competitors have achieved substantially more market penetration in certain of the markets in which we operate. Some of our competitors have greater resources available and are less highly leveraged, which may provide them with greater financial flexibility. Moreover, companies in other building products industries may compete with us. To remain competitive, we will need to invest continuously in manufacturing, customer service and support, marketing and our dealer network. We may have to adjust the prices of some of our products to stay competitive, which would reduce our revenues. We may not have sufficient resources to continue to make such investments or maintain our competitive position within each of the markets we serve.

 

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We May Not Be Able to Increase Our Manufacturing Capacity and Our Sales Force On a Fast Enough Pace To Keep Up With Increased Demand.

 

We continually review our manufacturing and assembly operations and sourcing capabilities. Due to the recent economic recovery in the home improvement and new home construction markets, we have begun to increase our manufacturing capacity and sales force. Determining the most efficient manufacturing processes and staffing as we increase production is a challenge. Additionally, identifying and training potential candidates for employment is challenging and time consuming. We incur increased labor and raw material costs to maximize efficiencies and train new employees. If the current recovery of our markets becomes more fast-paced and robust than we anticipate, we may not be able to replace our reduced manufacturing capacity and staffing in a timely fashion and our ability to respond to increased demand could be limited. This would adversely impact our profitability and prospects.

 

Increases In The Cost Of Labor, Union Organizing Activity And Work Stoppages At Our Facilities Or The Facilities Of Our Suppliers Could Materially Affect Our Financial Performance.

 

Our business is labor intensive, and, as a result, our financial performance is affected by the availability of qualified personnel and the cost of labor. Currently, none of our employees are represented by labor unions. Strikes or other types of conflicts with personnel could arise or we may become a target for union organizing activity. Some of our direct and indirect suppliers have unionized work forces. Strikes, work stoppages or slowdowns experienced by these suppliers could result in slowdowns or closures of facilities where components of our products are manufactured. In addition, organizations responsible for shipping our products may be impacted by occasional strikes staged by the Teamsters Union. Any interruption in the production or delivery of our products could reduce sales of our products and increase our costs.

 

We Could Face Potential Product Liability Claims Relating To Products We Manufacture Or Distribute Which Could Result In Significant Costs And Liabilities, Which Would Reduce Our Profitability.

 

We face an inherent business risk of exposure to product liability claims in the event that the use of any of our products results in personal injury or property damage. We are also exposed to potential liability and product performance warranty risks that are inherent in the design, manufacture and sale of our products. In the event that any of our products prove to be defective, we may be required to recall or redesign such products, which would result in significant unexpected costs. Any insurance we maintain may not be available on terms acceptable to us or such coverage may not be adequate for liabilities actually incurred. Further, any claim or product recall could result in adverse publicity against us, which could adversely affect our sales or increase our costs.

 

Increasingly, our homebuilder customers are subject to construction defect and home warranty claims in the ordinary course of their business. Our contractual arrangements with these customers may include our agreement to defend and indemnify them against various liabilities. These claims, often asserted several years after completion of construction, can result in complex lawsuits or claims against the homebuilders and many of their subcontractors, including us, and may require us to incur defense and indemnity costs even when our products or services are not the principal basis for the claims.

 

Although we intend to defend all claims and litigation matters vigorously, given the inherently unpredictable nature of claims and litigation, we cannot predict with certainty the outcome or effect of any claim or litigation matter.

 

Compliance With Government Regulation And Industry Standards May Impose Significant Compliance Costs And Liabilities, Which Would Adversely Affect Our Competitive Position And Results Of Operations.

 

Our facilities are subject to numerous foreign, federal, state, provincial and local laws and regulations relating to pollution and the protection of the environment, including those governing emissions to air, discharges to water, storage, treatment and disposal of waste, remediation of contaminated sites and health and safety

 

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(including protection of employees and consumers). We may be held liable, or incur fines or penalties, and the amount of liability, fines or penalties may be material, for, among other things, releases of hazardous substances occurring on or emanating from current or formerly owned or operated properties or any associated offsite disposal location, or for contamination discovered at any of our properties from activities conducted by previous occupants.

 

Changes in environmental laws and regulations or the discovery of previously unknown contamination or other liabilities relating to our properties and operations could result in significant environmental liabilities. In addition to complying with current and future requirements, some of our products must be certified by industry organizations. Compliance with these regulations and industry standards may require us to alter our manufacturing and installation processes and our sourcing, which could adversely impact our competitive position. Further, if we do not effectively and timely comply with such regulations and industry standards, our results of operations could be negatively affected.

 

If We Cannot Adequately Protect Our Intellectual Property Rights, We May Lose Exclusivity In Our Brands, Which Could Reduce Our Sales And Revenue.

 

We rely on a combination of trademark, domain name registration, copyright and trade secret laws in the U.S. and other jurisdictions. We believe that brand recognition is one of several important factors in a consumer’s choice of cabinetry. Current protections may not adequately safeguard our intellectual property and we may incur significant costs to defend our intellectual property rights, which may harm our operating results. Although we are not aware that any of our intellectual property rights infringes upon the proprietary rights of third parties, third parties may make such claims in the future. Any infringement claims, whether with or without merit, could be time consuming to defend against, result in costly litigation or damages, undermine the exclusivity and value of our brands, decrease sales or require us to enter into royalty or licensing agreements that may be on terms that could have a material adverse effect on our revenue, our financial performance and our results of operations. In addition, we may be forced to pursue potential claims relating to the protection of certain products and intellectual property rights. Such claims could be time consuming, expensive and divert resources.

 

The Loss Of Or Deterioration Of Relationships With Our Sales Representatives Could Adversely Affect Our Sales And Profits.

 

We depend on the services of independent and employee sales representatives to sell a significant portion of our products and provide services and aftermarket support to our customers. Our independent sales representative agreements are typically cancelable by the sales representative after a short notice period, if any at all. Furthermore, many of these independent sales representatives also sell our competitors’ products. Sales representatives, whether independent or employees, typically have relationships with customers that enable them to effectively sell our products. The loss of a substantial number of these relationships, or our failure to maintain good relationships with our sales representatives, could materially reduce our sales and profits.

 

Disruptions In Our Relationships With Any One Of Our Key Customers Could Adversely Affect Our Results Of Operations.

 

A substantial portion of our sales is derived from our top customers. During the year ended December 31, 2012, our largest 10 customers accounted for approximately 26% of our sales. We cannot guarantee that we will be able to generate similar levels of sales from our largest customers in the future. Should one or more of these customers substantially reduce their purchases from us, our results of operations could be materially adversely affected.

 

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In The Event Of A Catastrophic Loss Of One Of Our Key Manufacturing Facilities, Our Business Would Be Adversely Affected.

 

While we manufacture our products in a large number of diversified facilities and maintain insurance covering our facilities, including business interruption insurance, a catastrophic loss of the use of all or a portion of one of our key manufacturing facilities due to accident, labor issues, weather conditions, natural disaster or otherwise, whether short or long-term, could have a material adverse effect on us.

 

Goodwill And Other Intangibles Represent A Significant Amount Of Our Net Worth, And A Write-off Could Result In Lower Reported Net Income And A Reduction Of Our Net Worth.

 

Future changes in the cost of capital, expected cash flows, or other factors may cause our goodwill to be impaired, resulting in a non-cash charge against results of operations to write-off goodwill for the amount of impairment. If a significant write-off is required, the non-cash charge could have a material adverse effect on our reported results of operations and net worth in the period of any such write-off (such write-off, however, would not reduce our consolidated net income for the purposes of the indenture governing the senior secured second lien notes).

 

In The Event Of Consolidation Of Our Dealers, Through Whom We Primarily Sell Our Products, Pressure May Be Put On Our Operating Margins, Which Could Harm Our Profitability.

 

If our dealer base were to consolidate, competition for the business of fewer dealers would intensify. If we do not provide product offerings and price points that meet the needs of our dealers, or if we lose a substantial amount of our dealer base, our profitability could decrease.

 

We May In The Future Acquire Related Businesses, Which We May Not Be Able To Successfully Integrate, In Which Case We May Be Unable To Recoup Our Investment In Those Acquisitions.

 

We may, from time to time, explore opportunities to acquire related businesses, some of which could be material to us. As of the date of this report, we have no agreements and are not in any discussions to acquire any material businesses or assets. If we do make acquisitions in the future, our ability to continue to grow will depend upon effectively integrating these acquired companies, achieving cost efficiencies and managing these businesses as part of our company. While we believe we have successfully integrated the operations we have acquired within the last ten years, we may not be able to effectively integrate newly acquired companies or successfully implement appropriate operational, financial and management systems and controls to achieve the benefits expected to result from these acquisitions. If we are unable to successfully integrate acquisitions, we may not be able to recoup our investment in those acquisitions. Our efforts to integrate these businesses could be affected by a number of factors beyond our control, such as general economic conditions and increased competition. In addition, the process of integrating these businesses could cause the interruption of, or loss of momentum in, the activities of our existing business. The diversion of management’s attention and any delays or difficulties encountered in connection with the integration of these businesses could negatively impact our business and results of operations. Further, the economic benefits that we anticipate from these acquisitions may not develop.

 

We May Inherit Significant Unexpected Third-Party Liabilities And Product Warranty Claims From Operations That We Have Acquired Or Will Acquire In The Future, Which Would Increase Our Costs.

 

We may be subject to unexpected claims and liabilities arising from acquisitions we have made or may make in the future. We have acquired operations in the past and may acquire more operations in the future. Claims or liabilities may include matters involving third party liabilities and warranty claims against those operations we have acquired or may acquire. These claims and liabilities could be costly to defend, could be material in amount and may exceed either the limitations of any applicable indemnification provisions or the financial resources of the indemnifying parties.

 

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Our Level Of Indebtedness And Significant Debt Service Obligations Could Adversely Affect Our Financial Condition Or Our Ability To Fulfill Our Obligations And Make It More Difficult For Us To Fund Our Operations.

 

As of September 30, 2013, we had total debt outstanding of $240.0 million and $7.5 million of accrued interest, consisting of $240.0 million of 10.5% senior secured second lien notes due 2015, or the senior secured second lien notes of Norcraft Companies, L.P. and Norcraft Finance Corp. (a wholly-owned finance subsidiary of Norcraft Companies, L.P.). We intend to use the proceeds of this offering to acquire common units of Norcraft Companies LLC (at a price equal to the price paid by the underwriters for shares of common stock in this offering). Norcraft Companies LLC intends to use such proceeds, together with the net proceeds from the Term Loan Facility when drawn, to redeem all of these outstanding notes on or shortly after December 15, 2013. See “Use of Proceeds.” In addition, on such date, we had approximately $4.5 million of outstanding letters of credit.

 

Because of our high level of indebtedness:

 

   

we may have difficulty satisfying our obligations with respect to the senior secured second lien notes;

 

   

we may have difficulty obtaining financing in the future for working capital, capital expenditures, acquisitions or other purposes;

 

   

we will need to use a substantial portion of our available cash flow to pay interest and principal on our debt, which will reduce the amount of money available to finance our operations and other business activities;

 

   

our debt level increases our vulnerability to general economic downturns and adverse industry conditions;

 

   

our debt level could limit our flexibility in planning for, or reacting to, changes in our business and in our industry in general;

 

   

our leverage could place us at a competitive disadvantage compared to our competitors that have less debt;

 

   

we may not have sufficient funds available, and our debt level may restrict us from raising the funds necessary, to repurchase all of the senior secured second lien notes, as applicable, tendered to us upon the occurrence of a change of control, which would constitute an event of default under the senior secured second lien notes; and

 

   

our failure to comply with the financial and other restrictive covenants in our debt instruments which, among other things, require us to maintain specified financial ratios and limit our ability to incur debt and sell assets, could result in an event of default that, if not cured or waived, could have a material adverse effect on our business or prospects.

 

For a more detailed discussion of our debt, please see our consolidated financial statements and the notes related thereto included elsewhere in this prospectus.

 

Despite Our Existing Level Of Indebtedness, We And Our Subsidiaries Will Be Able To Incur More Indebtedness. This Could Further Exacerbate The Risks Described Above, Including Our Ability To Service Our Existing Indebtedness.

 

We and our subsidiaries may be able to incur substantial additional indebtedness in the future. In December 2009, we entered into an asset-based revolving credit facility (the “ABL Facility”) that provides us with additional borrowings of up to $25.0 million, subject to a current borrowing base of approximately $21.8 million. Although our ABL Facility and the indenture governing the senior secured second lien notes contain restrictions on the incurrence of additional indebtedness, such restrictions are subject to a number of qualifications and exceptions, and under certain circumstances indebtedness incurred in compliance with such restrictions could be substantial. For example, we may incur additional debt to, among other things, finance future acquisitions, expand through internal growth, fund our working capital needs, comply with regulatory requirements, respond to competition or for general financial reasons alone. As of September 30, 2013, there were no borrowings

 

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outstanding under our ABL Facility; however, there were approximately $4.5 million letters of credit outstanding under our ABL Facility, and therefore, our total availability under the ABL Facility as of September 30, 2013, is approximately $17.3 million. To the extent new debt is added to our and our subsidiaries’ current debt levels, the risks described above would increase. We expect that any new ABL facility or Term Loan Facility we enter into in connection with the Proposed Debt Refinancing will have comparable restrictions on the incurrence of additional indebtedness as well as qualifications and exceptions.

 

To Service Our Indebtedness, We Will Require A Significant Amount Of Cash. Our Ability To Generate Cash Depends On Many Factors Beyond Our Control.

 

Our ability to make payments on and to refinance our indebtedness and to fund planned capital expenditures and research and development efforts will depend on our ability to generate cash in the future. This, to a certain extent, is subject to general economic, financial, competitive, legislative, regulatory and other factors that are beyond our control. We cannot assure you that our business will generate sufficient cash flow from operations, that currently anticipated cost savings and operating improvements will be realized on schedule or that future borrowings will be available to us under the ABL Facility in an amount sufficient to enable us to pay interest on our indebtedness or to fund our other liquidity needs. If our cash flows and capital resources are insufficient to fund our debt service obligations, we may be forced to reduce or delay capital expenditures, sell material assets or operations, obtain additional equity capital or refinance all or a portion of our indebtedness. In the absence of such operating results and resources, we could face substantial cash flow problems and might be required to sell material assets or operations to meet our debt service and other obligations. We cannot assure you as to the timing of our ability to complete such asset sales or that the proceeds which we could realize from such sales would be sufficient and we cannot assure you that we will be able to refinance any of our indebtedness, including our ABL Facility and the senior secured second lien notes, on commercially reasonable terms or at all.

 

We will be required to pay certain holders of our common stock and certain holders of units of Norcraft Companies LLC for certain tax benefits we may claim, and we expect that the payments we will be required to make will be substantial.

 

We will indirectly acquire favorable tax attributes in connection with the Reorganization. SKM Norcraft Corp. and Trimaran Cabinet Corp. currently benefit from basis adjustments arising from the 2003 acquisition transaction, and SKM Norcraft Corp. and Trimaran Cabinet Corp. also have reported net operating losses. In addition, our acquisition of units of Norcraft Companies LLC in connection with future secondary exchanges of units of Norcraft Companies LLC for restricted shares of our common stock or cash are expected to produce additional favorable tax attributes for us. When we acquire in the future units of Norcraft Companies LLC from its members, the anticipated basis adjustments may reduce the amount of tax we would otherwise be required to pay in the future. These basis adjustments may also decrease gain (or increase loss) on future dispositions of certain assets to the extent the increased tax basis is allocated to those assets. These tax attributes collectively would not be available to us in the absence of the Reorganization and the future secondary exchanges. As part of the Reorganization, we will enter into three tax receivable agreements.

 

   

Under the first of these agreements we generally will be required to pay to the holders of common stock of SKM Norcraft Corp. as of immediately prior to the Reorganization 85% of the applicable cash savings, if any, in U.S. federal, state or local tax that we actually realize (or are deemed to realize in certain circumstances) as a result of (i) the tax attributes associated with any increase in tax basis attributable to SKM Norcraft Corp.’s original acquisition of interests in Norcraft Holdings, L.P., (ii) the net operating losses of SKM Norcraft Corp. relating to taxable years ending on or before the date of the Reorganization (calculated by assuming the taxable year of SKM Norcraft Corp. closes on the date of the Reorganization) that are or become available to us and our wholly-owned subsidiaries as a result of the Reorganization, and (iii) tax benefits attributable to payments made under the tax receivable agreement.

 

   

Under the second of these agreements we generally will be required to pay to the holders of common stock of Trimaran Cabinet Corp. as of immediately prior to the Reorganization 85% of the applicable cash

 

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savings, if any, in U.S. federal, state or local tax that we actually realize (or are deemed to realize in certain circumstances) as a result of (i) the tax attributes associated with any increase in tax basis attributable to Trimaran Cabinet Corp.’s original acquisition of interests in Norcraft Holdings, L.P., (ii) the net operating losses of Trimaran Cabinet Corp. relating to taxable years ending on or before the date of the Reorganization that are or become available to us and our wholly-owned subsidiaries as a result of the Reorganization, and (iii) tax benefits attributable to payments made under the tax receivable agreement.

 

   

Under the third of these agreements we generally will be required to pay to the holders of units of Norcraft Companies LLC (other than units that we or our wholly-owned subsidiaries hold) 85% of the amount of cash savings, if any, in U.S. federal, state or local tax that we actually realize (or are deemed to realize in certain circumstances) as a result of (i) certain tax attributes that are created as a result of the exchanges of their units for restricted shares of our common stock or cash, including any basis adjustment relating to the assets of Norcraft Companies LLC and (ii) tax benefits attributable to payments made under the tax receivable agreement.

 

The payment obligations under the tax receivable agreements are obligations of Norcraft Companies, Inc., not Norcraft Companies LLC, and we expect that the payments we will be required to make under the tax receivable agreements will be substantial. Assuming no material changes in the relevant tax law and that we earn sufficient taxable income to realize all tax benefits that are the subject of the tax receivable agreements, we expect that the reduction in tax payments for us associated with (i) the Reorganization and (ii) future exchanges of units of Norcraft Companies LLC as described above would aggregate to approximately $81.1 million over 15 years from the date of this offering. With respect to the reduction in tax payments attributable to future exchanges of units of Norcraft Companies LLC for restricted shares of our common stock or cash, this calculation is based on an assumed price of $17.00 per share of our common stock (the midpoint of the price range set forth on the cover of this prospectus) and assuming all future exchanges would occur one year after this offering. Under such scenario we would be required to pay all the other parties to the tax receivable agreements 85% of the relevant tax savings, or $69.1 million in the aggregate, over the 15-year period from the date of this offering. The actual amounts may materially differ from these hypothetical amounts. For example, with respect to the tax receivable agreement entered into with pre-initial public offering investors (other than SKM Norcraft Corp., Trimaran Cabinet Corp., and their respective shareholders), potential future reductions in tax payments for us and tax receivable agreement payments by us will be calculated using the market value of our common stock at the time of exchange (or the 15 trading days immediately prior to the effective date of any exchange, where we elect to pay cash consideration for units of Norcraft Companies LLC) and the prevailing tax rates applicable to us over the life of the tax receivable agreements and will generally be dependent on us generating sufficient future taxable income to realize the benefit. Any actual increase in tax basis, as well as the amount and timing of any payments under the tax receivable agreements, will vary depending upon a number of factors, including the timing of exchanges by the holders of limited liability company units, the price of our common stock at the time of the exchange (or the 15 trading days immediately prior to the effective date of any exchange, where we elect to pay cash consideration for units of Norcraft Companies LLC), whether such exchanges are taxable, the amount and timing of the taxable income we generate in the future and the tax rate then applicable as well as the portion of our payments under the tax receivable agreements constituting imputed interest.

 

Under all of these agreements, we generally will retain the benefit of the remaining 15% of the applicable tax savings. See “Management’s Discussion and Analysis of Financial Condition and Results of Operations—Tax Receivable Agreements.” Payments under the tax receivable agreements are not conditioned on our existing owners’ continued ownership of us.

 

Payments under some or all of the tax receivable agreements are expected to give rise to certain additional tax benefits attributable to either further increases in basis or in the form of deductions for imputed interest, depending on the tax receivable agreement and the circumstances. Any such benefits are the subject of the tax receivable agreements and will increase the amounts due thereunder. In addition, the tax receivable agreements will provide for interest, at a rate equal to LIBOR, accrued from the due date (without extensions) of the corresponding tax return to the date of payment specified by the tax receivable agreements.

 

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Payments under the tax receivable agreements will be based on the tax reporting positions that we determine, consistent with the terms of the tax receivable agreements. We will not be reimbursed for any payments previously made under the tax receivable agreements if any basis increases or other benefits (including any net operating losses of SKM Norcraft Corp. and Trimaran Cabinet Corp. as of the Reorganization) are subsequently disallowed; if it is determined that excess payments have been made to a beneficiary under a tax receivable agreement, certain future payments, if any, otherwise to be made will be reduced. As a result, in certain circumstances, payments could be made under the tax receivable agreements in excess of the benefits that we actually realize in respect of the attributes to which the tax receivable agreements relate.

 

There can be no assurance that we will be able to finance our obligations under the tax receivable agreements in a manner that does not adversely affect our working capital and growth requirements, if at all.

 

In certain cases, payments under the tax receivable agreements to our existing owners may be accelerated and significantly exceed the actual benefits we realize in respect of the tax attributes subject to the tax receivable agreements.

 

Each tax receivable agreement provides that upon certain mergers, asset sales, other forms of business combinations, other changes of control or a material breach by us of such agreement, or if, at any time, the corporation elects an early termination of the tax receivable agreement, we would be required to make an immediate payment equal to the present value of the anticipated future tax benefits, which upfront payments may be made years in advance of the actual realization of such future benefits, if any of such benefits are ever realized. That immediate payment would be calculated based on certain assumptions, including that the corporate taxpayer would have sufficient taxable income to fully utilize the deductions arising from the increased tax deductions and tax basis and other benefits related to entering into the tax receivable agreements and the net operating losses would be fully utilized over a period of time. As a result, the amount of such immediate payment could be greater than the present value of the payments we would have been required to pay had such acceleration event not occurred. In these situations, our obligations under the tax receivable agreements could have a substantial negative impact on our liquidity. There can be no assurance that we will be able to finance our obligations under the tax receivable agreements in a manner that does not adversely affect our working capital and growth requirements, if at all.

 

Our ability to pay taxes and expenses, including payments under the tax receivable agreements, may be limited by our structure.

 

Upon the consummation of this offering, we and our wholly-owned subsidiaries will have no material assets other than certain tax assets and our ownership of units of Norcraft Companies LLC and will have no independent means of generating revenue. Norcraft Companies LLC is expected to be classified as a partnership for U.S. federal income tax purposes and, as such, is not expected to be subject to U.S. federal income tax (other than as a withholding agent). Instead, taxable income will be allocated to holders of its units, including us and our subsidiaries. Accordingly, we will incur income taxes on our share of any net taxable income of Norcraft Companies LLC and will also incur expenses related to our operations. Under the terms of its amended and restated limited liability company agreement, Norcraft Companies LLC will be obligated to make tax distributions to holders of its units, including us, subject to the conditions described below. In addition to tax expenses, we also will incur expenses related to our operations, including expenses under the tax receivable agreements, which we expect will be significant. Our ability to cause Norcraft Companies LLC to make distributions, which generally will be pro rata with respect to all units outstanding of Norcraft Companies LLC, in an amount sufficient to allow us to pay our taxes and operating expenses, including any payments due under the tax receivable agreements, will be subject to various factors, including the operating results of our subsidiaries, cash requirements and financial condition, the applicable provisions of Delaware law that may limit the amount of funds available for distribution to its members, compliance by Norcraft Companies LLC and its subsidiaries with restrictions, covenants and financial ratios related to existing or future indebtedness, including under our notes and our revolving credit agreement, and other agreements entered into by Norcraft Companies LLC or its subsidiaries with third parties. Although we intend to

 

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refinance our existing ABL Facility and enter into the Term Loan Facility in connection with the Proposed Debt Refinancing following the closing of this offering, there can be no assurance that we will be able to enter into the Proposed Debt Refinancing on the terms we expect, or at all. The existing indebtedness of Norcraft and its subsidiaries does not contemplate distributions for the purpose of paying operating and other expenses and liabilities of Norcraft Companies LLC or Norcraft Companies, Inc. As a result, it is possible that Norcraft Companies, Inc. will not have sufficient cash to pay all of its expenses and liabilities, including any tax liabilities. If, as a consequence of these various limitations and restrictions, we do not have sufficient funds to pay tax or other liabilities or to fund our operations, we may have to borrow funds and thus our liquidity and financial condition could be materially adversely affected. To the extent that we are unable to make payments under the tax receivable agreements for any reason, such payments will be deferred and will accrue interest at a rate equal to either LIBOR or LIBOR plus 200 basis points, depending on the cause for the deferral of payment.

 

Risks Related to Our Common Stock and this Offering

 

We Are An “Emerging Growth Company,” As Defined In The Securities Act, And We Cannot Be Certain If The Reduced Disclosure Requirements Applicable To Emerging Growth Companies Will Make Our Common Stock Less Attractive To Investors.

 

We are an “emerging growth company,” as defined in Section 2(a) of the Securities Act, as modified by the JOBS Act, and we may take advantage of certain exemptions from various reporting requirements that are applicable to other public companies that are not “emerging growth companies,” including not being required to comply with the auditor attestation requirements of Section 404 of the Sarbanes-Oxley Act (“SOX”), reduced disclosure obligations regarding executive compensation and exemptions from the requirements of holding a non-binding shareholder advisory vote on executive compensation and shareholder approval of any golden parachute payments not previously approved. As a result, our stockholders may not have access to certain information that they may deem important. We could be an emerging growth company for up to five years, although circumstances could cause us to lose that status earlier, including if our total annual gross revenues exceed $1.0 billion, if we issue more than $1.0 billion in non-convertible debt during any three-year period, or if the market value of our common stock held by non-affiliates exceeds $700.0 million as of any June 30 before that time. We cannot predict if investors will find our common stock less attractive because we may rely on these exemptions. If some investors find our common stock less attractive as a result, there may be a less active trading market for our common stock and our stock price may be more volatile.

 

Our Stock Price Could Be Extremely Volatile, And, As A Result, You May Not Be Able To Resell Your Shares At Or Above The Price You Paid For Them.

 

There has not been a public market for our common stock, and an active public market for our common stock may not develop or be sustained after this offering. In addition, the stock market in general has been highly volatile. As a result, the market price of our common stock is likely to be similarly volatile, and investors in our common stock may experience a decrease, which could be substantial, in the value of their stock, including decreases unrelated to our operating performance or prospects, and could lose part or all of their investment. The price of our common stock could be subject to wide fluctuations in response to a number of factors, including those described elsewhere in this prospectus and others such as:

 

   

variations in our operating performance and the performance of our competitors;

 

   

actual or anticipated fluctuations in our quarterly or annual operating results;

 

   

publication of research reports by securities analysts about us or our competitors or our industry;

 

   

our failure or the failure of our competitors to meet analysts’ projections or guidance that we or our competitors may give to the market;

 

   

additions and departures of key personnel;

 

   

strategic decisions by us or our competitors, such as acquisitions, divestitures, spin-offs, joint ventures, strategic investments or changes in business strategy;

 

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the passage of legislation or other regulatory developments affecting us or our industry;

 

   

speculation in the press or investment community;

 

   

changes in accounting principles;

 

   

terrorist acts, acts of war or periods of widespread civil unrest;

 

   

natural disasters and other calamities; and

 

   

changes in general market and economic conditions.

 

In the past, securities class action litigation has often been initiated against companies following periods of volatility in their stock price. This type of litigation could result in substantial costs and divert our management’s attention and resources, and could also require us to make substantial payments to satisfy judgments or to settle litigation.

 

Your Percentage Ownership In Us May Be Diluted By Future Issuances Of Capital Stock, Which Could Reduce Your Influence Over Matters On Which Stockholders Vote.

 

Following the closing of this offering, our board of directors has the authority, without action or vote of our stockholders, to issue all or any part of our authorized but unissued shares of common stock, including shares issuable upon the exercise of options, or shares of our authorized but unissued preferred stock. Issuances of common stock or voting preferred stock would reduce your influence over matters on which our stockholders vote and, in the case of issuances of preferred stock, would likely result in your interest in us being subject to the prior rights of holders of that preferred stock.

 

There May Be Sales Of A Substantial Amount Of Our Common Stock After This Offering By Our Current Stockholders, And These Sales Could Cause The Price Of Our Common Stock To Fall.

 

After this offering, there will be 15,831,919 shares of common stock outstanding (or 16,714,272, if the underwriters exercise in full their option to purchase additional shares). Of our issued and outstanding shares, all the common stock sold in this offering will be freely transferable, except for any shares held by our “affiliates,” as that term is defined in Rule 144 under the Securities Act of 1933, as amended (the “Securities Act”). Following completion of this offering, approximately 62.8% of our outstanding common stock (or 59.5% if the underwriters exercise in full their option to purchase additional shares) will be held by investment funds affiliated with the Sponsors.

 

Each of our directors, executive officers, certain former direct or indirect holders of units of Norcraft Holdings, L.P. prior to the consummation of the Reorganization and certain other stockholders (including affiliates of the Sponsors) has entered into a lock-up agreement with Citigroup Global Markets Inc. and UBS Securities LLC on behalf of the underwriters which regulates their sales of our common stock for a period of 180 days after the date of this prospectus, subject to certain exceptions. See “Shares Eligible for Future Sale—Lock-Up Agreements.”

 

Sales of substantial amounts of our common stock in the public market after this offering, or the perception that such sales will occur, could adversely affect the market price of our common stock and make it difficult for us to raise funds through securities offerings in the future. Of the shares to be outstanding after the offering, the shares offered by this prospectus will be eligible for immediate sale in the public market without restriction by persons other than our affiliates. Our remaining outstanding shares will become available for resale in the public market as shown in the chart below.

 

Number of Shares 9,949,566   Date Available for Resale                 , 2014

 

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Beginning 180 days after this offering, subject to certain exceptions, holders of shares of our common stock may require us to register their shares for resale under the federal securities laws, and holders of additional shares of our common stock would be entitled to have their shares included in any such registration statement, all subject to reduction upon the request of the underwriter of the offering, if any. See “Related Party Transactions—Arrangements With Our Investors.” Registration of those shares would allow the holders to immediately resell their shares in the public market. Any such sales or anticipation thereof could cause the market price of our common stock to decline.

 

In addition, after this offering, we intend to register shares of common stock that are reserved for issuance under our 2003 Incentive Plan. For more information, see “Shares Eligible for Future Sale—Registration Statements on Form S-8.” Once we register these shares, they can be freely sold in the public market upon issuance and vesting.

 

In addition, based on an assumed initial public offering price of $17.00 per share (the midpoint of the estimated public offering price range set forth on the cover page of this prospectus), upon consummation of the offering, certain former direct and indirect holders of units of Norcraft Holdings, L.P. prior to the consummation of the Reorganization will own an aggregate of 2,432,787 common units of Norcraft Companies LLC. Pursuant to the terms of the exchange agreement we will enter into with each such holder, from and after the first anniversary of the date of the closing of this offering each such holder may from time-to-time exchange its common units of Norcraft Companies LLC for, at our option, (x) cash consideration (calculated based on the volume-weighted average price of the common stock of Norcraft Companies, Inc. as displayed under the heading Bloomberg VWAP on the Bloomberg page designated for the common stock of Norcraft Companies, Inc. for the 15 trading days immediately prior to the effective date of any such exchange) or (y) restricted shares of common stock of Norcraft Companies, Inc. on a one-for-one basis, subject to customary conversion rate adjustments for stock splits, stock dividends and reclassifications. Shares of our common stock issuable to the pursuant to the exchange agreement would be considered “restricted securities,” as that term is defined under Rule 144. See “Certain Relationships and Related Party Transactions—Exchange Agreement.”

 

Provisions In Our Charter Documents And Delaware Law May Deter Takeover Efforts That Could Be Beneficial To Stockholder Value.

 

Our amended and restated certificate of incorporation and bylaws and Delaware law will contain provisions that could make it harder for a third party to acquire us, even if doing so might be beneficial to our stockholders. These provisions will include a classified board of directors, elimination of the ability of stockholders to call special meetings (except in limited circumstances), supermajority vote requirements for the removal of a director, advance notice procedures for stockholder proposals and supermajority vote requirements for amendments to our amended and restated certificate of incorporation and bylaws. In addition, our board of directors will have the right to issue preferred stock without stockholder approval that could be used to dilute a potential hostile acquiror. As a result, you may lose your ability to sell your stock for a price in excess of the prevailing market price due to these protective measures, and efforts by stockholders to change the direction or management of the company may be unsuccessful. See “Description of Capital Stock.”

 

If You Purchase Shares In This Offering, You Will Suffer Immediate And Substantial Dilution.

 

If you purchase shares of our common stock in this offering, you will incur immediate and substantial dilution in the net tangible book deficit of your stock, which would have been $23.64 per share as of September 30, 2013 on a pro forma basis to give effect to the consummation of the Reorganization based on an assumed initial public offering price of $17.00 per share (the mid-point of the offering range shown on the cover of this prospectus), because the price that you pay will be substantially greater than the net tangible book value per share of the shares you acquire. You will experience additional dilution upon the exercise of options and warrants to purchase our common stock, including those options currently outstanding and those granted in the future, and the issuance of restricted stock or other equity awards under our stock incentive plans. To the extent we raise additional capital by issuing equity securities, our stockholders will experience substantial additional dilution. See “Dilution.”

 

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The Sponsors Will Continue To Have Significant Influence Over Us After This Offering, Including Control Over Decisions That Require The Approval Of Stockholders, Which Could Limit Your Ability To Influence The Outcome Of Key Transactions, Including A Change Of Control.

 

We are currently controlled, and after this offering is completed will continue to be controlled, by funds affiliated with the Sponsors. Upon completion of this offering and the Reorganization, investment funds affiliated with the Sponsors will beneficially own 62.8% of our outstanding common stock (59.5% if the underwriters exercise in full their option to purchase additional shares). For as long as the Sponsors continue to beneficially own shares of common stock representing more than 50% of the voting power of our common stock, it will be able to direct the election of all of the members of our board of directors and could exercise a controlling influence over our business and affairs, including any determinations with respect to mergers or other business combinations, the acquisition or disposition of assets, the incurrence of indebtedness, the issuance of any additional common stock or other equity securities, the repurchase or redemption of common stock and the payment of dividends. Similarly, the Sponsors will have the power to determine matters submitted to a vote of our stockholders without the consent of our other stockholders, will have the power to prevent a change in our control and could take other actions that might be favorable to it. Even if its ownership falls below 50%, the Sponsors will continue to be able to strongly influence or effectively control our decisions.

 

Additionally, the Sponsors are in the business of making investments in companies and may acquire and hold interests in businesses that compete directly or indirectly with us. The Sponsors may also pursue acquisition opportunities that may be complementary to our business, and, as a result, those acquisition opportunities may not be available to us.

 

Because We Have No Current Plans To Pay Cash Dividends On Our Common Stock For The Foreseeable Future, You May Not Receive Any Return On Investment Unless You Sell Your Common Stock For A Price Greater Than That Which You Paid For It.

 

We may retain future earnings, if any, for future operations, expansion and debt repayment and have no current plans to pay any cash dividends for the foreseeable future. Any decision to declare and pay dividends in the future will be made at the discretion of our board of directors and will depend on, among other things, our results of operations, financial condition, cash requirements, contractual restrictions and other factors that our board of directors may deem relevant. In addition, our ability to pay dividends may be limited by covenants of any existing and future outstanding indebtedness we or our subsidiaries incur, including our senior credit facility. As a result, you may not receive any return on an investment in our common stock unless you sell our common stock for a price greater than that which you paid for it.

 

Further, Norcraft Companies LLC expects to make pro rata tax distributions to its equity holders calculated by reference to the taxable income of Norcraft Companies LLC and assuming such income is subject to tax at the highest combined marginal federal, state and local tax rate then applicable (including any Medicare Contribution tax on net investment income) to an individual (or, if higher, to a corporation) resident in New York, New York (assuming the maximum limitations on the use of deductions for state and local taxes). As a result of the potential differences in the amount of net taxable income allocable to us and to Norcraft Companies LLC’s other equity holders and potential differences in applicable tax rates, we may receive distributions in excess of our tax liabilities and our payment obligations under the tax receivable agreements. As discussed above, we do not currently expect to pay any cash dividends on our common stock and, to the extent we do not distribute such cash balances as dividends and instead retain such cash balances, Norcraft Companies LLC’s other equity holders would benefit from any value attributable to such accumulated cash balances as a result of their ownership of shares of common stock following an exchange of their common units of Norcraft Companies LLC pursuant to the exchange agreement we intend to enter into with them prior to the closing of this offering. See “Certain Relationships and Related Party Transactions—Exchange Agreement.”

 

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CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS

 

This prospectus includes statements that express our opinions, expectations, beliefs, plans, objectives, assumptions or projections regarding future events or future results and therefore are, or may be deemed to be, “forward-looking statements.” These forward-looking statements can generally be identified by the use of forward-looking terminology, including the terms “believes,” “expects,” “may,” “will,” “should,” “seeks,” “projects,” “approximately,” “intends,” “plans,” “estimates” or “anticipates,” or, in each case, their negatives or other variations or comparable terminology. These forward-looking statements include all matters that are not historical facts. They appear in a number of places throughout this prospectus and include statements regarding our intentions, beliefs or current expectations concerning, among other things, our results of operations, financial condition, liquidity, prospects, growth, strategies and the industries in which we and our partners operate.

 

By their nature, forward-looking statements involve risks and uncertainties because they relate to events and depend on circumstances that may or may not occur in the future. We believe that these risks and uncertainties include, but are not limited to, those described in the “Risk Factors” section of this prospectus, which include but are not limited to the following:

 

   

the timing and extent of any recovery in the home improvement and home building industries;

 

   

increasing interest rates and reduced availability of financing for home improvements;

 

   

our dependence on senior management and key personnel;

 

   

our inability to maintain strong brands or respond to changing customer preferences for cabinet designs and configurations;

 

   

increased prices for raw materials or finished goods used in our products;

 

   

increased energy costs;

 

   

interruptions in deliveries of raw materials or finished goods;

 

   

the potential risks and costs associated with international sourcing;

 

   

any reduction in availability of mortgage financing;

 

   

volatility or a reduction of liquidity in the financial markets;

 

   

our inability to pass along the effects of inflation or increased costs to our customers;

 

   

our inability to compete effectively in the highly fragmented and very competitive cabinet industry market;

 

   

our inability to increase our manufacturing capacity and sales force to keep up with demand;

 

   

increases in the cost of labor, union organizing activity and work stoppages at our facilities or the facilities of our suppliers;

 

   

potential product liability claims relating to products we manufacture or distribute;

 

   

our ability to comply with government regulation and industry standards;

 

   

our ability to adequately protect our intellectual property rights;

 

   

the loss or deterioration of relationships with our sales representatives;

 

   

disruptions in our relationships with any one of our key customers;

 

   

the effects of a catastrophic loss of one of our key manufacturing facilities;

 

   

a write-off of our goodwill and other intangibles;

 

   

the consolidation of our dealers;

 

   

the impact of future acquisitions on our business;

 

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the impact of third party liabilities or product warranty claims from operations that we may acquire in the future;

 

   

our substantial indebtedness;

 

   

our ability to incur additional indebtedness;

 

   

our ability to generate sufficient cash to fund our indebtedness and run our business; and

 

   

other risks and uncertainties inherent in our business.

 

These factors should not be construed as exhaustive and should be read with the other cautionary statements in this prospectus.

 

Although we base these forward-looking statements on assumptions that we believe are reasonable when made, we caution you that forward-looking statements are not guarantees of future performance and that our actual results of operations, financial condition and liquidity, and the development of the industry in which we operate may differ materially from those made in or suggested by the forward-looking statements contained in this prospectus. In addition, even if our results of operations, financial condition and liquidity, and the development of the industry in which we operate, are consistent with the forward-looking statements contained in this prospectus, those results or developments may not be indicative of results or developments in subsequent periods.

 

Given these risks and uncertainties, you are cautioned not to place undue reliance on these forward-looking statements. Any forward-looking statement that we make in this prospectus speaks only as of the date of such statement, and we undertake no obligation to update any forward-looking statements or to publicly announce the results of any revisions to any of those statements to reflect future events or developments. Comparisons of results for current and any prior periods are not intended to express any future trends or indications of future performance, unless specifically expressed as such, and should only be viewed as historical data.

 

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THE REORGANIZATION

 

Structure Prior to the Reorganization

 

The diagram below depicts the organizational structure of Norcraft Holdings, L.P., before giving effect to this offering and the related Reorganization. This chart is provided for illustrative purposes only and does not purport to represent all legal entities owned or controlled by us:

 

Pre-Reorganization Structure

 

The following diagram illustrates our summary organizational structure based on our pre-IPO value, assuming a public offering price of $17.00 (the midpoint of the estimated price range set forth on the cover of this prospectus):

 

LOGO

 

*   Norcraft GP, L.L.C. is the general partner of both Norcraft Holdings, L.P. and Norcraft Companies, L.P. Norcraft GP, L.L.C. does not hold any economic interest in Norcraft Holdings, L.P., but, as a general partner of each entity, it controls both entities. The members of Norcraft GP, L.L.C. are SKM Norcraft Corp., Trimaran Cabinet Corp. and HMB Norcraft Corp. Norcraft GP, L.L.C. has not been capitalized and has no assets or liabilities and no commitment to fund cash flow deficits or furnish direct or indirect financial assistance to Norcraft Companies, Inc.

 

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The Reorganization Transactions

 

As a result of the Reorganization, (i) Norcraft GP, L.L.C., the general partner of Norcraft Holdings, L.P., will become a wholly-owned subsidiary of Norcraft Companies LLC and (ii) Norcraft Companies LLC and Norcraft GP, L.L.C. will collectively own all of the units of Norcraft Holdings, L.P. We will use the net cash proceeds received in this offering to acquire common units in Norcraft Companies LLC (at a price equal to the price paid by the underwriters for shares of common stock in this offering), and Norcraft Companies LLC will then cause such proceeds to be used to redeem certain outstanding 10.5% senior secured second lien notes due 2015 of Norcraft Companies, L.P., an indirect wholly-owned subsidiary of Norcraft Holdings, L.P.

 

Prior to the Reorganization, the partnership interests in Norcraft Holdings, L.P. consist of a general partnership interest and Class A Units, Class B Units, Class C Units and Class D Units. Norcraft GP, L.L.C., an entity controlled by SKM Norcraft Corp., Trimaran Cabinet Corp. and HMB Norcraft Corp., holds the general partnership interest. Our Sponsors and certain current and former members of our management and board hold (directly or indirectly) all of the Class A Units. Certain current and former members of our management and board hold (directly or indirectly) all of the Class B Units and Class C Units. Class D Units were awarded under the 2003 Incentive Plan to MEB Norcraft LLC and certain current and former members of our management and our board.

 

In the Reorganization:

 

   

Norcraft Companies LLC will be organized as a Delaware limited liability company;

 

   

all of the holders of Class A Units, Class B Units and Class C Units in Norcraft Holdings, L.P. (other than Buller Norcraft Holdings LLC and MEB Norcraft LLC) will contribute all of their Class A Units, Class B Units and Class C Units in Norcraft Holdings, L.P. to Norcraft Companies LLC in exchange for common units of Norcraft Companies LLC;

 

   

all of the holders of Class D Units in Norcraft Holdings, L.P. (other than Buller Norcraft Holdings LLC and MEB Norcraft LLC), which were issued pursuant to the Norcraft Holdings, L.P. incentive plan, will contribute (a) all of their vested Class D Units to Norcraft Companies LLC in exchange for common units of Norcraft Companies LLC and (b) all of their unvested Class D Units to Norcraft Companies LLC in exchange for unvested common units of Norcraft Companies LLC;

 

   

all of the holders of equity interests in Buller Norcraft Holdings LLC and MEB Norcraft LLC will contribute all of their equity interests in Buller Norcraft Holdings LLC and MEB Norcraft LLC, respectively, to Norcraft Companies LLC in exchange for common units of Norcraft Companies LLC;

 

   

all of the holders of equity interests in Norcraft GP, L.L.C., the general partner of Norcraft Holdings, L.P. and Norcraft Companies, L.P., will sell for nominal value all of their equity interests in Norcraft GP, L.L.C. to Norcraft Companies LLC;

 

   

Norcraft GP, L.L.C. will acquire for nominal value a 0.00001% interest in Norcraft Holdings, L.P.;

 

   

Buller Norcraft Holdings LLC and MEB Norcraft LLC will then liquidate into Norcraft Companies LLC; and

 

   

the shareholders of SKM Norcraft Corp. and Trimaran Cabinet Corp. will contribute all of the outstanding stock in SKM Norcraft Corp. and Trimaran Cabinet Corp., respectively, to Norcraft Companies, Inc. in exchange for restricted shares of common stock of Norcraft Companies, Inc. and certain rights to additional payments under a tax receivable agreement, and the names of SKM Norcraft Corp. and Trimaran Cabinet Corp. will be changed to Norcraft Holdings Corp. I and Norcraft Holdings Corp. II, respectively.

 

Immediately following the consummation of the Reorganization, the members of Norcraft Companies LLC will consist of Norcraft Holdings Corp. I (formerly known as SKM Norcraft Corp.), Norcraft Holdings Corp. II (formerly known as Trimaran Cabinet Corp.), former holders of Buller Norcraft Holdings LLC and MEB Norcraft LLC and certain former and current members of our management and board. Members of Norcraft

 

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Companies LLC will be entitled to a proportionate share of the distributions and earnings of Norcraft Companies LLC, provided that the managing member will be entitled to non-pro rata distributions for certain fees and expenses. The number of Norcraft Companies LLC common units issued to each of Norcraft Holdings Corp. I (formerly known as SKM Norcraft Corp.), Norcraft Holdings Corp. II (formerly known as Trimaran Cabinet Corp.), former holders of Buller Norcraft Holdings LLC and MEB Norcraft LLC and certain former and current members of management and our board as described above will be determined based on a hypothetical cash distribution by Norcraft Holdings, L.P. of our pre-IPO value to the holders of Class A Units, Class B Units, Class C Units and Class D Units of Norcraft Holdings, L.P. based on the pre-Reorganization limited partnership agreement of Norcraft Holdings, L.P.

 

For example, based on an assumed public offering price of $17.00 per share (the midpoint of the estimated price range set forth in the cover page of this prospectus), our pre-IPO valuation would be $210.5 million. Based on these facts, a member of management who would be entitled to receive $1,700 in respect of such manager’s Class A Units in a hypothetical distribution of the assumed pre-IPO value of Norcraft Holdings, L.P. would receive 100 common units of Norcraft Companies LLC in the Reorganization (determined by dividing $1,700 by $17.00 (the midpoint of the estimated price range set forth on the cover of this prospectus).

 

Immediately after the consummation of the Reorganization and this offering, the only assets of Norcraft Companies, Inc. will be its direct or indirect interests in Norcraft Holdings Corp. I (formerly known as SKM Norcraft Corp.), Norcraft Holdings Corp. II (formerly known as Trimaran Cabinet Corp.) and Norcraft Companies LLC and its subsidiaries. Each share of Norcraft Companies, Inc. common stock will correspond to an economic interest held (directly or indirectly) by Norcraft Companies, Inc. in Norcraft Companies LLC. As a result of the Reorganization, the assets and liabilities of Norcraft Holdings, L.P. will be included in the financial statements of Norcraft Companies, Inc. at their carrying amounts as of the date of the Reorganization. The interests held by MEB Norcraft LLC, Buller Norcraft Holdings LLC and our current and former members of management and board in Norcraft Companies LLC will be reported as noncontrolling interests in the financial statements of Norcraft Companies, Inc. following the Reorganization.

 

Norcraft Companies Inc. was incorporated as a Delaware corporation on July 23, 2013. Norcraft Companies Inc. has not, to date, conducted any activities other than those incident to its formation and preparation of this registration statement, and following the Reorganization will have no assets other than its direct or indirect interest in Norcraft Holdings Corp. I (formerly known as SKM Norcraft Corp.), Norcraft Holdings Corp. II (formerly known as Trimaran Cabinet Corp.) and Norcraft Companies LLC and its subsidiaries. Following this offering, Norcraft Companies LLC’s subsidiaries will continue to operate the historical business of our company.

 

Prior to the Reorganization, SKM Norcraft Corp. and Trimaran Cabinet Corp. were not operating entities and had no results of operations or cash flows, other than receipt of distributions from Norcraft Holdings, L.P. or tax refunds. SKM Norcraft Corp. and Trimaran Cabinet Corp. intend to distribute any assets, other than their interests in Norcraft Holdings, L.P., to their respective shareholders prior to the Reorganization. Further, SKM Norcraft Corp. and Trimaran Cabinet Corp. have no material liabilities and will agree to indemnify Norcraft Companies, Inc. for any liabilities incurred prior to the Reorganization.

 

In connection with the consummation of the offering, we will enter into an exchange agreement with the former holders of MEB Norcraft LLC and Buller Norcraft Holdings LLC and certain members of management and our board. Pursuant to the exchange agreement, these parties will have the right, from and after the first anniversary of the date of the closing of this offering (subject to the terms of the exchange agreement), to exchange their common units in Norcraft Companies LLC for, at the option of Norcraft Companies, Inc., (x) cash consideration (calculated based on the volume-weighted average price of the common stock of Norcraft Companies, Inc. as displayed under the heading Bloomberg VWAP on the Bloomberg page designated for the common stock of Norcraft Companies, Inc. for the 15 trading days immediately prior to the effective date of any such exchange) or (y) restricted shares of common stock of Norcraft Companies, Inc. on a one-for-one basis, subject to customary conversion rate adjustments for stock splits, stock dividends and reclassifications. As a

 

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holder exchanges its Norcraft Companies LLC common units, Norcraft Companies, Inc.’s interest in Norcraft Companies LLC will be correspondingly increased. See “Certain Relationships and Related Party Transactions—Exchange Agreement.”

 

For a description of the vesting and other terms applicable to the exchange of Norcraft Companies LLC common units in the Reorganization as described above see “Compensation Discussion and Analysis—Looking Ahead: Post-IPO Compensation—Exchange of Class D Units.”

 

In addition, as a part of the Reorganization, we will, among other things, amend and restate the limited partnership agreement governing Norcraft Holdings, L.P. and enter into a new registration rights agreement with the former holders of SKM Norcraft Corp., Trimaran Cabinet Corp., Buller Norcraft Holdings LLC and MEB Norcraft LLC and certain former and current members of management and our board. See “Certain Relationships and Related Party Transactions.”

 

Effect of the Reorganization and this Offering

 

The Reorganization is intended to create a holding company that will facilitate public ownership of, and investment in, our company.

 

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The following chart summarizes our legal entity structure following the Reorganization. This chart is provided for illustrative purposes only and does not purport to represent all legal entities owned or controlled by us:

 

Post-Reorganization Structure

 

The following diagram illustrates our summary organizational structure following the consummation of this offering (assuming no exercise of the underwriters’ option to purchase additional shares) and the Reorganization:

 

LOGO

 

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USE OF PROCEEDS

 

We estimate that the net proceeds we will receive from the sale of the shares of our common stock in this offering, after deducting underwriting discounts and commissions and estimated expenses payable by us, will be approximately $90.0 million (or $104.0 million assuming the underwriters exercise their option to purchase additional shares in full). This estimate assumes an initial public offering price of $17.00 per share, the midpoint of the range set forth on the cover page of this prospectus.

 

A $1.00 increase (decrease) in the assumed initial public offering price of $17.00 per share would increase (decrease) the net proceeds to us from this offering by $5.5 million, assuming the number of shares offered by us, as set forth on the cover page of this prospectus, remains the same and after deducting estimated underwriting discounts and commissions and estimated expenses payable by us.

 

We intend to refinance our existing ABL Facility and enter into the Term Loan Facility in connection with the Proposed Debt Refinancing following the closing of this offering. We intend to use the proceeds from this offering to acquire common units of Norcraft Companies LLC (at a price equal to the price paid by the underwriters for shares of our common stock in this offering). Norcraft Companies LLC intends to use such net proceeds, together with the net proceeds from the Term Loan Facility when drawn, to redeem all of Norcraft Companies, L.P.’s outstanding 10.5% senior secured second lien notes due 2015 on or shortly after December 15, 2013. To the extent we are unable to enter into the New ABL Facility and Term Loan Facility following the closing of this offering, Norcraft Companies LLC will use the proceeds of this offering to redeem a portion of the outstanding 10.5% senior secured second lien notes. The 10.5% senior secured second lien notes were issued by Norcraft Companies, L.P. in the aggregate principal amount of $240.0 million and mature on December 15, 2015. Interest accrues on these notes and is payable semiannually on June 15 and December 15 of each year at a rate of 10.5% per annum. Under the terms of the indenture governing these notes, we may use the net proceeds from this offering to optionally redeem the notes on and after December 15 at a price equal to 102.625%, of the principal amount thereof, plus accrued and unpaid interest. See “Description of Indebtedness—Proposed Debt Refinancing.”

 

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DIVIDEND POLICY

 

Our board of directors does not currently intend to pay regular dividends on our common stock. In the future, we expect to reevaluate our dividend policy on a regular basis following this offering and may, subject to compliance with the covenants contained in Norcraft Companies, L.P.’s existing ABL Facility and senior secured second lien notes or New ABL Facility and Term Loan Facility expected to be entered into in connection with the Proposed Debt Refinancing, begin to pay dividends on our common stock.

 

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CAPITALIZATION

 

The following table sets forth our cash and cash equivalents and our consolidated capitalization as of September 30, 2013 on

 

   

a historical basis, with respect to our predecessor, Norcraft Holdings, L.P.; and

 

   

a pro forma as adjusted basis, giving effect to (i) the Reorganization and (ii) the issuance of our common stock in this offering.

 

This table should be read in conjunction with “Use of Proceeds,” “Selected Consolidated Financial and Other Data,” “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and our consolidated “Unaudited Pro Forma Consolidated Financial Information,” financial statements and related notes appearing elsewhere in this prospectus.

 

     As of September 30, 2013  
(dollars in thousands)    Predecessor
Actual
    Pro Forma As
Adjusted for
Effects of the
Reorganization
and this
Offering(1)(2)
 

Cash and equivalents

   $ 38,205      $ 128,205   
  

 

 

   

 

 

 

Debt:

    

ABL Facility(3)

   $ —        $ —     

Senior secured second lien notes payable (due in 2015 with semi-annual interest payments at 10.5%)(4)

     240,000        240,000   

Members’ equity subject to put request

     13,742        —     

Members’ equity (deficit)

     (21,220     —     

Common stock

     —          158   

Additional paid-in capital

     —          156,572   

Accumulated deficit

     —          (121,404

Accumulated other comprehensive income

     1,319        1,319   
  

 

 

   

 

 

 

Total Norcraft Companies, Inc. equity (deficit)

     (19,901     36,645   

Noncontrolling interests

     —          11,167   
  

 

 

   

 

 

 

Total equity (deficit)

     (19,901     47,812   
  

 

 

   

 

 

 

Total capitalization

   $ 233,841      $ 287,812   
  

 

 

   

 

 

 

 

  (1)   A $1.00 increase (decrease) in the assumed initial public offering price of $17.00 per share (the midpoint of the offering range shown on the cover of this prospectus) of our common stock would increase (decrease) each of our cash and equivalents, additional paid-in capital, total equity and total capitalization by $5.5 million, assuming the number of shares offered by us, as set forth on the cover page of this prospectus remains the same, and after deducting the estimated underwriting discounts and commissions and estimated expenses payable by us.

 

  (2)   We intend to refinance our existing ABL Facility and enter into the Term Loan Facility in connection with the Proposed Debt Refinancing following the closing of this offering. We intend to use the proceeds from this offering to acquire common units of Norcraft Companies LLC (at a price equal to the price paid by the underwriters for shares of our common stock in this offering). Norcraft Companies LLC intends to use such net proceeds, together with the net proceeds from the Term Loan Facility when drawn, to redeem all of Norcraft Companies, L.P.’s outstanding 10.5% senior secured second lien notes due 2015 on or shortly after December 15, 2013. Until the redemption, the net proceeds of this offering will be cash on Norcraft Companies LLC’s balance sheet.

 

  (3)   As of September 30, 2013, there were no borrowings outstanding under the ABL Facility; however, there were approximately $4.5 million of letters of credit outstanding under the ABL Facility at September 30, 2013, and therefore, total unused commitments under the ABL Facility as of September 30, 2013 was approximately $20.5 million.

 

  (4)   Excludes unamortized discount on bonds payable.

 

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DILUTION

 

If you invest in our common stock, your ownership interest will be immediately diluted to the extent of the difference between the initial public offering price per share of our common stock and the net tangible book deficit per share of our common stock after this offering. Dilution results from the fact that the initial public offering price per share of our common stock is substantially in excess of the book deficit per share of common stock attributable to the existing stockholders for the presently outstanding shares of common stock. We calculate net tangible book deficit per share of our common stock by dividing the net tangible book deficit by the number of outstanding shares of our common stock.

 

Our pro forma net tangible book deficit at September 30, 2013 was approximately $(195.1) million, or $(19.61) per share of our common stock after giving effect to the Reorganization but before giving effect to this offering. Pro forma net tangible book deficit per share before the offering has been determined by dividing net tangible book deficit (total consolidated tangible assets less total consolidated liabilities) by the number of shares of common stock outstanding at September 30, 2013, assuming that the Reorganization had taken place on September 30, 2013. Dilution in net tangible book deficit per share represents the difference between the amount per share that you pay in this offering and the net tangible book deficit per share immediately after this offering.

 

After giving effect to the receipt of the estimated net proceeds from our sale of shares in this offering, assuming an initial public offering price of $17.00 per share (the mid-point of the offering range shown on the cover of this prospectus), and the application of the estimated net proceeds therefrom as described under “Use of Proceeds,” our pro forma as adjusted net tangible book deficit at September 30, 2013 would have been approximately $(105.1) million, or $(6.64) per share of common stock. This represents an immediate decrease in net tangible book deficit per share of $12.97 to existing stockholders and an immediate increase in net tangible book deficit per share of $23.64 to you. The following table illustrates this dilution per share.

 

Assumed initial public offering price per share

     $ 17.00   

Pro forma net tangible book deficit per share at September 30, 2013

   $ (19.61  

Decrease in pro forma net tangible book deficit per share attributable to new investors in this offering

     12.97     
  

 

 

   

Pro forma net tangible book deficit per share after this offering

     $ (6.64
    

 

 

 

Dilution per share to new investors

     $ 23.64   
    

 

 

 

 

A $1.00 increase (decrease) in the assumed initial public offering price of $17.00 per share of our common stock would decrease (increase) our pro forma net tangible book deficit after giving effect to the offering by $5.5 million, or $0.35 per share, assuming no change to the number of shares of our common stock offered by us as set forth on the cover page of this prospectus, and after deducting estimated underwriting discounts and commissions and estimated expenses payable by us.

 

The following table sets forth, as of September 30, 2013, the number of shares of common stock purchased from us, the total consideration paid to us and the average price per share paid by existing stockholders and to be paid by new investors purchasing shares of common stock in this offering, before deducting underwriting discounts and commissions and estimated offering expenses payable by us.

 

     Shares Purchased     Total
Consideration(1)
    Average
Price

Per
Share
 
      Number      Percent     Amount      Percent    

Existing stockholders

     9,949,566         62.8   $ —           53.3   $ —     

New investors

     5,882,353         37.2        100.0         46.7        17.00   
  

 

 

    

 

 

   

 

 

    

 

 

   

Total

     15,831,919         100   $ 100.0         100  
  

 

 

    

 

 

   

 

 

    

 

 

   

 

(1)   Total consideration paid by existing stockholders has been set to zero, as our net tangible book value prior to this offering was a deficit.

 

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If the underwriters were to fully exercise their option to purchase additional shares of our common stock, the percentage of shares of our common stock held by existing stockholders would be 59.5%, and the percentage of shares of our common stock held by new investors would be 40.5%.

 

In addition, based on an assumed initial public offering price of $17.00 per share (the midpoint of the estimated public offering price range set forth on the cover page of this prospectus), upon consummation of the offering, certain former direct and indirect holders of units of Norcraft Holdings, L.P. prior to the consummation of the Reorganization will own an aggregate of 2,432,787 common units of Norcraft Companies LLC. Pursuant to the terms of the exchange agreement we will enter into with each such holder, from and after the first anniversary of the date of the closing of this offering each such holder may from time-to-time exchange its common units of Norcraft Companies LLC for, at our option, (x) cash consideration (calculated based on the volume-weighted average price of the common stock of Norcraft Companies, Inc. as displayed under the heading Bloomberg VWAP on the Bloomberg page designated for the common stock of Norcraft Companies, Inc. for the 15 trading days immediately prior to the effective date of any such exchange) or (y) restricted shares of common stock of Norcraft Companies, Inc. on a one-for-one basis, subject to customary conversion rate adjustments for stock splits, stock dividends and reclassifications. Shares of our common stock issuable to the pursuant to the exchange agreement would be considered “restricted securities,” as that term is defined under Rule 144. See “Certain Relationships and Related Party Transactions—Exchange Agreement.” Assuming the exchange of all common units of Norcraft Companies LLC, the percentage of our shares of common stock held by existing stockholders would be 67.8%, and the percentage of our shares held by new investors would be 32.2% (or 35.3% if the underwriters exercise their option to purchase additional shares in full).

 

To the extent any outstanding options are exercised or become vested or any additional options are granted and exercised or other equity awards are granted and become vested or other issuances of shares of our common stock are made, there may be further economic dilution to new investors.

 

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SELECTED CONSOLIDATED FINANCIAL AND OTHER DATA

 

The following tables summarize consolidated financial information of Norcraft Holdings, L.P., our predecessor company, as well as pro forma information that reflects the impact of income taxes. We were formed on July 23, 2013 and have not, to date, conducted any activities other than those incident to our formation and the preparation of this registration statement. We were formed solely for the purpose of reorganizing the organizational structure of Norcraft Holdings, L.P., so that the issuer is a corporation rather than a limited partnership.

 

This prospectus does not include financial statements of Norcraft Companies, Inc., as it has been incorporated solely for the purpose of effecting this offering and currently holds no material assets and does not engage in any operations. Prior to the consummation of the offering: (i) Norcraft Companies LLC will be organized as a Delaware limited liability company; (ii) all of the holders of Class A Units, Class B Units and Class C Units in Norcraft Holdings, L.P. (other than Buller Norcraft Holdings LLC and MEB Norcraft LLC) will contribute all of their Class A Units, Class B Units and Class C Units in Norcraft Holdings, L.P. to Norcraft Companies LLC in exchange for common units of Norcraft Companies LLC; (iii) all of the holders of Class D Units in Norcraft Holdings, L.P. (other than Buller Norcraft Holdings LLC and MEB Norcraft LLC), which were issued pursuant to the Norcraft Holdings, L.P. incentive plan, will contribute (a) all of their vested Class D Units to Norcraft Companies LLC in exchange for common units of Norcraft Companies LLC and (b) all of their unvested Class D Units to Norcraft Companies LLC in exchange for unvested common units of Norcraft Companies LLC; (iv) all of the holders of equity interests in Buller Norcraft Holdings LLC and MEB Norcraft LLC will contribute all of their equity interests in Buller Norcraft Holdings LLC and MEB Norcraft LLC, respectively, to Norcraft Companies LLC in exchange for common units of Norcraft Companies LLC; (v) all of the holders of equity interests in Norcraft GP, L.L.C., the general partner of Norcraft Holdings, L.P. and Norcraft Companies, L.P., will sell for nominal value all of their equity interests in Norcraft GP, L.L.C. to Norcraft Companies LLC; (vi) Norcraft GP, L.L.C. will acquire for nominal value a 0.00001% interest in Norcraft Holdings, L.P.; (vii) Buller Norcraft Holdings LLC and MEB Norcraft LLC will then liquidate into Norcraft Companies LLC; and (viii) the shareholders of SKM Norcraft Corp. and Trimaran Cabinet Corp. will contribute all of the outstanding stock in SKM Norcraft Corp. and Trimaran Cabinet Corp., respectively, to Norcraft Companies, Inc. in exchange for restricted shares of common stock of Norcraft Companies, Inc. and certain rights to additional payments under a tax receivable agreement, and the names of SKM Norcraft Corp. and Trimaran Cabinet Corp. will be changed to Norcraft Holdings Corp. I and Norcraft Holdings Corp. II, respectively. See “The Reorganization.”

 

The selected historical financial data as of December 31, 2012 and 2011 and for the three years in the period ended December 31, 2012 presented in this table have been derived from our audited consolidated financial statements included elsewhere in this prospectus. The selected historical data as of September 30, 2013 and for the nine month periods ended September 30, 2013 and 2012 have been derived from our unaudited consolidated financial statements included elsewhere in this prospectus. The selected consolidated balance sheet data as of December 31, 2010, 2009 and 2008 and for the two years ended December 31, 2009 has been derived from our audited consolidated financial statements for such year, which are not included in this prospectus. The selected consolidated balance sheet data as of September 30, 2012 has been derived from our unaudited consolidated financial statements for such period, which are not included in this prospectus. Historical results are not necessarily indicative of the results to be expected for future periods, and operating results for the nine months ended September 30, 2013 are not necessarily indicative of the results that may be expected for the year ended December 31, 2013.

 

This selected historical consolidated financial and other data and pro forma consolidated financial data should be read in conjunction with the disclosures set forth under “Capitalization”, “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and “Unaudited Pro Forma Consolidated Financial Information” and the consolidated financial statements and the related notes thereto appearing elsewhere in this prospectus.

 

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     Fiscal Year Ended
December 31,
    Nine months
ended
September 30,
 
(dollar amounts in thousands)   2008     2009     2010     2011     2012     2012     2013  

Statement of Comprehensive Loss Data:

             

Net sales

  $ 331,548      $ 246,804     $ 262,568      $ 269,305     $ 288,782      $ 217,550      $ 259,202   

Cost of sales

    234,427        176,512        187,482        195,853        215,274        160,679        191,340   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Gross profit

    97,121        70,292        75,086        73,452        73,508        56,871        67,862   

Selling, general and administrative expense

    64,789        49,706        50,402        51,099        54,144        40,729        45,875   

Impairment of goodwill and other intangible assets(1)

    73,938        —          —          —          —          —          —     
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Income (loss) from operations

    (41,606     20,586        24,684        22,353        19,364        16,142        21,987   

Interest expense, net

    24,694        26,340        25,327        25,706        25,819        19,372        19,395   

Amortization of deferred financing costs

    1,532        4,084        1,589        3,046        3,120        2,340        2,340   

Other expense, net

    151        1,678        26        264        (16     61        29   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total other expense

    26,377        32,102        26,942        29,016        28,923        21,773        21,764   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Net income (loss)

    (67,983     (11,516     (2,258     (6,663     (9,559     (5,631     223   

Other comprehensive income (loss):

             

Foreign currency translation adjustment

    (104     251        1,611        (295     219        440        (309
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total other comprehensive income (loss)

    (104     251        1,611        (295     219        440        (309
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Comprehensive loss

  $ (68,087   $ (11,265   $ (647   $ (6,958   $ (9,340   $ (5,191   $ (86
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 
     December 31,     September 30,  
(dollar amounts in thousands)   2008     2009     2010     2011     2012     2012     2013  

Balance Sheet Data:

             

Cash and cash equivalents

  $ 59,406      $ 20,863      $ 28,657      $ 24,185      $ 23,019      $ 28,747      $ 38,205   

Total assets

    315,013        264,584        266,753        263,670        256,143        267,917        274,729   

Total liabilities

    293,874        254,551        257,062        260,615        262,201        269,872        280,888   

Members’ equity subject to put request

    25,305        7,546        12,139        8,309        6,926        7,112        13,742   

Total members’ equity (deficit)

    (4,166     2,487        (2,448     (5,254     (12,984     (9,067     (19,901

Other Financial Data:

             

Capital expenditures(2)

  $ 7,138      $ 5,707      $ 6,469      $ 7,417      $ 7,425      $ 5,786      $ 5,813   

EBITDA(3)

  $ (23,754   $ 34,556      $ 39,012      $ 35,583      $ 32,657      $ 26,099      $ 31,806   

Adjusted EBITDA(3)

  $ 51,184      $ 36,093      $ 39,002      $ 36,766      $ 33,657      $ 26,849      $ 33,611   

 

(1)   During the fourth quarter of 2008, our actual earnings and expected future earnings decreased to a level that required us to perform additional analysis under Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (“ASC”) Topic 350, Intangibles – Goodwill and Other (“ASC 350”) to quantify the amount of impairment of goodwill and brand names. This analysis resulted in a total impairment charge of $73.9 million, of which, $60.0 million was attributable to goodwill and $13.9 million was attributable to brand names.

 

(2)   Reflects the purchase of property, plant and equipment and the addition of display cabinets.

 

(3)  

We report our financial results in accordance with U.S. generally accepted accounting principles (“U.S. GAAP”), however, management believes that the evaluation of our ongoing operating results may be enhanced by a presentation of EBITDA and Adjusted EBITDA, which are non-GAAP financial measures. We have historically presented EBITDA in our earnings releases furnished on reports filed with the SEC. As set forth below, EBITDA is net loss before interest expense, income tax expense, depreciation and amortization.

 

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Adjusted EBITDA is EBITDA adjusted for the items as set forth below.

 

We have included EBITDA and Adjusted EBITDA in this prospectus because we believe it is useful to investors in evaluating our operating performance compared to that of other companies in our industry, as its 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. When analyzing our operating performance, investors should not consider EBITDA or Adjusted EBITDA in isolation or as a substitute for net loss, cash flows from operating activities or other operation statement or cash flow statement data prepared in accordance with U.S. GAAP, as they have limitations as analytical tools. Some of these limitations are: (i) EBITDA and Adjusted EBITDA do not fully reflect our cash expenditures, future requirements for capital expenditures or contractual commitments; (ii) EBITDA and Adjusted EBITDA do not reflect changes in, or cash requirements for, our working capital needs; (iii) EBITDA and Adjusted EBITDA do not reflect the interest expense, or the cash requirements necessary to service interest or principal payments, on our debt; and (iv) although depreciation and amortization are non-cash charges, the assets being depreciated and amortized will often have to be replaced in the future, and EBITDA and Adjusted EBITDA do not reflect any cash requirements for such replacements. Additionally, our calculation of EBITDA is not necessarily comparable to those of other similarly titled measures reported by other companies. Because of these limitations, EBITDA and Adjusted EBITDA should not be considered as discretionary cash available to us to reinvest in the growth of our business or as measures of cash that will be available to us to meet our obligations. The calculation of EBITDA and Adjusted EBITDA is shown below:

 

     December 31     September 30,  
     2008     2009     2010     2011     2012     2012     2013  

Net income (loss)

   $ (67,983   $ (11,516   $ (2,258   $ (6,663   $ (9,559   $ (5,631   $ 223   

Interest expense, net

     24,694        26,340        25,327        25,706        25,819        19,372        19,395   

Depreciation

     6,291        5,794        5,720        4,935        4,723        3,562        3,302   

Amortization of deferred financing costs

     1,532        4,084        1,589        3,046        3,120        2,340        2,340   

Amortization of customer relationships

     4,467        4,466        4,467        4,467        4,467        3,350        3,350   

Amortization of display cabinets

     7,096        5,348        4,142        4,005        4,113        3,053        3,159   

State taxes

     149        40        25        87        (26     53        37   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

EBITDA

   $ (23,754   $ 34,556      $ 39,012      $ 35,583      $ 32,657      $ 26,099      $ 31,806   

Loss on debt extinguishment

     —          1,642        —          183        —          —          —     

Impairment of goodwill and other intangible assets

     73,938        —          —          —          —          —          —     

Sales tax refund(a)

     —          (1,105     (1,010     —          —          —          —     

Restructuring costs associated with contemplated IPO

     —          —          —          —          —          —          1,055   

Management fee(b)

     1,000        1,000        1,000        1,000        1,000        750        750   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Adjusted EBITDA

   $ 51,184      $ 36,093      $ 39,002      $ 36,766      $ 33,657      $ 26,849      $ 33,611   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

 

(a)   Net income (loss) during the years ended December 31, 2009 and December 31, 2010 included a sales tax refund in the amount of $1.1 million and $1.0 million, respectively, which increased net income and correspondingly increased EBITDA, but the effect has been backed out for adjusted EBITDA.
(b)   In connection with this offering, we intend to terminate our Management and Monitoring Agreement, which includes a $1.0 million annual management fee.

 

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UNAUDITED PRO FORMA CONSOLIDATED FINANCIAL INFORMATION

 

The following tables summarize consolidated financial information of Norcraft Holdings, L.P., our predecessor company, as well as pro forma information that reflects the impact of the transactions described below. We were formed on July 23, 2013 and have not, to date, conducted any activities other than those incident to our formation and the preparation of this registration statement. We were formed solely for the purpose of reorganizing the organizational structure of Norcraft Holdings, L.P., so that the issuer is a corporation rather than a limited partnership.

 

The unaudited pro forma consolidated financial information presents the consolidated statements of income (loss) and balance sheet of Norcraft Companies, Inc. and subsidiaries, assuming that all of the transactions described below had been completed as of: (i) January 1, 2012 with respect to the unaudited pro forma consolidated statements of income (loss) and (ii) September 30, 2013 with respect to the unaudited pro forma consolidated balance sheet.

 

The historical financial data as of and for the nine month period ended September 30, 2013 has been derived from our unaudited consolidated financial statements included elsewhere in this prospectus. The historical financial data for the year ended December 31, 2012 has been derived from our audited consolidated financial statements included elsewhere in this prospectus.

 

The pro forma adjustments are based on available information and upon assumptions that our management believes are reasonable in order to reflect, on a pro forma basis, the impact of the following transactions:

 

   

the reorganization transactions described in “The Reorganization”; and

 

   

the sale of 5,882,353 shares of our common stock by us in this offering at an assumed initial public offering price of $17.00 per share (the midpoint of the estimated public offering price range set forth on the cover page of this prospectus).

 

The unaudited pro forma consolidated financial information reflects the assets and liabilities of Norcraft Holdings, L.P. at their carrying amounts at the date of the Reorganization.

 

Adjustments reflected in the unaudited pro forma consolidated balance sheet give effect to events that are directly attributable to the transaction and are factually supportable. Adjustments reflected in the unaudited pro forma consolidated statements of income (loss) include those items that are directly attributable to the transaction, factually supportable and expected to have a continuing impact.

 

The unaudited pro forma consolidated financial information is included for informational purposes only and is not necessarily indicative of the results that actually would have been achieved for these periods or that may be achieved in the future.

 

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UNAUDITED PRO FORMA CONSOLIDATED STATEMENT OF INCOME (LOSS)

Year Ended December 31, 2012

(dollar amounts in thousands, except per share amounts)

 

     Norcraft
Holdings, L.P.
Actual
    Reorganization
Adjustments
          As Adjusted
Before
Offering
    Offering           Norcraft
Companies, Inc.
Pro Forma
       

Net sales

   $ 288,782      $ —          $ 288,782      $ —          $ 288,782     

Cost of sales

     215,274        —            215,274        —            215,274     
  

 

 

   

 

 

     

 

 

   

 

 

     

 

 

   

Gross profit

     73,508        —            73,508        —            73,508     

Selling, general and administrative expenses

     54,144        —          (c     54,144        —            54,144     
  

 

 

   

 

 

     

 

 

   

 

 

     

 

 

   

Income from operations

     19,364        —            19,364        —            19,364     

Other expense:

                

Interest expense, net

     25,819        —            25,819        —            25,819     

Amortization of deferred financing costs

     3,120        —            3,120        —            3,120     

Other expense, net

     (16     —            (16     —            (16  
  

 

 

   

 

 

     

 

 

   

 

 

     

 

 

   

Total other expense

     28,923        —            28,923        —            28,923     
  

 

 

   

 

 

     

 

 

   

 

 

     

 

 

   

Income (loss) before income taxes

     (9,559     —              —            (9,559  

Income tax expense (benefit)

     —          —          (a       —            —       
  

 

 

   

 

 

     

 

 

   

 

 

     

 

 

   

Net income (loss)

     (9,559     —            (9,559     —            (9,559  

Less: net income (loss) attributable to noncontrolling interests

     —          (1,878     (b     (1,878     605        (b     (1,273  
  

 

 

   

 

 

     

 

 

   

 

 

     

 

 

   

Net income (loss) attributable to Norcraft Companies, Inc.

   $ (9,559   $ 1,878        $ (7,681   $ (605     $ (8,286  
  

 

 

   

 

 

     

 

 

   

 

 

     

 

 

   

Pro forma net loss per share attributable to Norcraft Companies, Inc.

                

Basic

               $ (0.83     (d

Diluted

               $ (0.83     (d

Pro forma weighted average common shares outstanding

                

Basic

                 9,949,566        (d

Diluted

                 9,949,566        (d

 

See accompanying notes to the unaudited pro forma consolidated financial statements.

 

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UNAUDITED PRO FORMA CONSOLIDATED STATEMENT OF INCOME (LOSS)

Nine Months Ended September 30, 2013

(dollar amounts in thousands, except per share amounts)

 

     Norcraft
Holdings, L.P.
Actual
     Reorganization
Adjustments
          As Adjusted
Before
Offering
     Offering           Norcraft
Companies, Inc.
Pro Forma
     

Net sales

   $ 259,202       $ —          $ 259,202       $ —          $ 259,202     

Cost of sales

     191,340         —            191,340         —            191,340     
  

 

 

    

 

 

     

 

 

    

 

 

     

 

 

   

Gross profit

     67,862         —            67,862         —            67,862     

Selling, general and administrative expenses

     45,875         (1,055     (c     44,820         —            44,820     
  

 

 

    

 

 

     

 

 

    

 

 

     

 

 

   

Income from operations

     21,987         1,055          23,042         —            23,042     

Other expense:

                  

Interest expense, net

     19,395         —            19,395         —            19,395     

Amortization of deferred financing costs

     2,340         —            2,340         —            2,340     

Other expense, net

     29         —            29         —            29     
  

 

 

    

 

 

     

 

 

    

 

 

     

 

 

   

Total other expense

     21,764         —            21,764         —            21,764     
  

 

 

    

 

 

     

 

 

    

 

 

     

 

 

   

Income (loss) before income taxes

     223         1,055          1,278         —            1,278     

Income tax expense (benefit)

     —           —          (a     —           —            —       
  

 

 

    

 

 

     

 

 

    

 

 

     

 

 

   

Net income (loss)

     223         1,055          1,278         —            1,278     

Less: net income (loss) attributable to noncontrolling interests

     —           251        (b     251         (81     (b     170     
  

 

 

    

 

 

     

 

 

    

 

 

     

 

 

   

Net income (loss) attributable to Norcraft Companies, Inc.

   $ 223       $ 804        $ 1,027       $ 81        $ 1,108     
  

 

 

    

 

 

     

 

 

    

 

 

     

 

 

   

Pro forma net income per share attributable to Norcraft Companies, Inc.

                  

Basic

                 $ 0.11 (d)   

Diluted

                 $ 0.10 (d)   

Pro forma weighted average common shares outstanding

                  

Basic

                   9,949,566 (d)   

Diluted

                   12,382,353 (d)   

 

See accompanying notes to the unaudited pro forma consolidated financial statements.

 

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NOTES TO UNAUDITED PRO FORMA CONSOLIDATED STATEMENTS OF

INCOME (LOSS)

 

 

(a)   Norcraft Companies, Inc. is subject to U.S. federal and state income taxes and will file consolidated income tax returns in U.S. federal and certain state jurisdictions. These adjustments reflect the recognition of income tax expenses or benefits resulting from (i) our status, following the Reorganization, as a C-corporation and (ii) the contribution by the shareholders of SKM Norcraft Corp. and Trimaran Cabinet Corp. of all of the common stock in SKM Norcraft Corp. and Trimaran Cabinet Corp., respectively, to Norcraft Companies, Inc. in exchange for restricted shares of Norcraft Companies, Inc.

 

Temporary differences in the book and tax bases of our investment in Norcraft Companies LLC would have resulted in an unaudited pro forma deferred tax liability of $31.9 million as of January 1, 2012. Based on our operating results and changes in the difference between these investment bases during the year ended December 31, 2012 and the nine months ended September 30, 2013, this deferred tax liability would have increased by $2.4 million and $1.7 million, respectively.

 

Our net tax losses of $13.8 million and $4.4 million for the year ended December 31, 2012 and the nine months ended September 30, 2013, respectively, would have generated unaudited pro forma deferred income tax benefits of $5.1 million and $1.6 million, respectively, assuming a combined federal and state statutory income tax rate of 36.64%. However, as realization of such tax benefits would not have been more likely than not based on management’s evaluation, we would have also established additional valuation allowances of $5.1 million and $1.6 million, respectively, to eliminate such pro forma tax benefits.

 

(b)   The common units of Norcraft Companies LLC owned by the former holders of Buller Norcraft Holdings LLC and MEB Norcraft LLC and certain former and current members of management and our board will be considered noncontrolling interests for financial accounting purposes. The amount allocated to noncontrolling interests represents the proportional interest in the pro forma consolidated net income (loss) of Norcraft Companies LLC owned by those common unitholders.

 

The pro forma net income (loss) attributable to noncontrolling interests is computed as follows (dollar amounts in thousands):

 

     Reorganization      Offering   

Year ended December 31, 2012

    

Loss before income taxes

   $ (9,559 )   $ (9,559 )

Noncontrolling interests ownership percentage

     19.7 %     13.3 %
  

 

 

   

 

 

 

Net loss attributable to noncontrolling interests

   $ (1,878 )   $ (1,273 )
  

 

 

   

 

 

 

Nine months ended September 30, 2103

    

Income before income taxes

   $ 1,278     $ 1,278  

Noncontrolling interests ownership percentage

     19.7 %     13.3 %
  

 

 

   

 

 

 

Net income attributable to noncontrolling interests

   $ 251     $ 170  
  

 

 

   

 

 

 

 

(c)   Represents the elimination of non-recurring reorganization-related costs that have been recorded in the historical results.

 

(d)   Basic net income (loss) per share is calculated by dividing net income (loss) attributable to Norcraft Companies, Inc. by the number of basic weighted average shares outstanding. Basic weighted average shares outstanding is equal to the number of restricted shares of common stock that were exchanged for all of the outstanding stock in SKM Norcraft Corp. and Trimaran Cabinet Corp.

 

Diluted net income (loss) loss per share is calculated by dividing net income (loss) attributable to Norcraft Companies, Inc. by the number of diluted weighted average shares outstanding. Diluted weighted average shares outstanding is calculated as the sum of the basic shares outstanding and common units in Norcraft Companies LLC held by former holders of MEB Norcraft LLC and Buller Norcraft Holdings LLC and

 

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certain members of management and our board that may be exchanged for restricted shares of common stock of Norcraft Companies, Inc. on a one-for-one basis. As the common units in Norcraft Companies LLC are exchanged, the net income (loss) attributable to Norcraft Companies, Inc. will increase. See the calculations below (dollar amounts in thousands, except per share data):

 

     Year Ended
December, 31, 2012
    Nine Months Ended
September 30, 2013 
 

Basic net income (loss) per share: 

    

Net income (loss) attributable to Norcraft Companies, Inc.

   $ (8,286 )   $ 1,108  

Weighted average shares outstanding

     9,949,566       9,949,566  
  

 

 

   

 

 

 

Basic net income (loss) per share

   $ (0.83 )   $ 0.11  
  

 

 

   

 

 

 

Diluted net income (loss) per share: 

    

Net income (loss) attributable to Norcraft Companies, Inc.

   $ (8,286 )   $ 1,108  

Net income (loss) attributable to noncontrolling interests

     —         170  
  

 

 

   

 

 

 

Net income (loss)

   $ (8,286 )   $ 1,278  
  

 

 

   

 

 

 

Basic weighted average shares outstanding

     9,949,566       9,949,566  

Exchangeable common units in Norcraft Companies LLC

     —         2,432,787  
  

 

 

   

 

 

 

Diluted weighted average shares outstanding

     9,949,566       12,382,353  
  

 

 

   

 

 

 

Diluted net income (loss) per share

   $ (0.83 )   $ 0.10  
  

 

 

   

 

 

 

 

Due to the pro forma net loss of Norcraft Companies LLC for the year ended December 31, 2012, the exchange of 2,432,787 common units in Norcraft Companies LLC was excluded from the calculation of diluted net loss per share and no adjustment to the net loss attributable to noncontrolling interests was necessary since all shares were antidilutive.

 

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UNAUDITED PRO FORMA CONSOLIDATED BALANCE SHEET

As of September 30, 2013

(dollar amounts in thousands)

 

     Norcraft
Holdings, L.P.
Actual
    Reorganization
Adjustments
         As Adjusted
Before
Offering
    Offering           Norcraft
Companies, Inc.
Pro Forma
 

ASSETS

               

Current assets:

               

Cash and cash equivalents

   $ 38,205      $ —           $ 38,205      $ 90,000        (d   $ 128,205   

Trade accounts receivable, net

     26,379        —             26,379        —            26,379   

Inventories

     23,647        —             23,647        —            23,647   

Prepaid and other current assets

     2,340        —             2,340        (927     (d     1,413   
  

 

 

   

 

 

      

 

 

   

 

 

     

 

 

 

Total current assets

     90,571        —             90,571        89,073          179,644   

Non-current assets:

               

Property, plant and equipment, net

     25,377        —             25,377        —            25,377   

Goodwill

     88,476        —             88,476        —            88,476   

Intangible assets, net

     64,458        —             64,458        —            64,458   

Display cabinets, net

     5,779        —             5,779        —            5,779   

Deferred tax assets

     —          —        (a)      —          —            —     

Other assets

     68        —             68        —            68   
  

 

 

   

 

 

      

 

 

   

 

 

     

 

 

 

Total non-current assets

     184,158        —           $ 184,158        —            184,158   
  

 

 

   

 

 

      

 

 

   

 

 

     

 

 

 

Total assets

   $ 274,729      $ —           $ 274,729      $ 89,073        $ 363,802   
  

 

 

   

 

 

      

 

 

   

 

 

     

 

 

 
               

LIABILITIES AND MEMBERS’ / STOCKHOLDERS’ EQUITY (DEFICIT)

               

Current liabilities:

               

Accounts payable

   $ 14,274      $ —           $ 14,274      $ (927     (d   $ 13,347   

Accrued expenses

     26,460        —             26,460        —            26,460   
  

 

 

   

 

 

      

 

 

   

 

 

     

 

 

 

Total current liabilities

     40,734        —             40,734        (927       39,807   

Non-current liabilities:

               

Long-term debt

     240,000        —             240,000        —            240,000   

Unamortized premium on bonds payable

     97        —             97        —            97   

Amounts payable under tax receivable agreements

     —          —        (a)      —          —            —     

Deferred tax liabilities and other liabilities

     57        36,029      (a)      36,086        —            36,086   
  

 

 

   

 

 

      

 

 

   

 

 

     

 

 

 

Total non-current liabilities

     240,154        36,029           276,183        —            276,183   
  

 

 

   

 

 

      

 

 

   

 

 

     

 

 

 

Total liabilities

     280,888        36,029           316,917        (927       315,990   

Members’ equity subject to put request

     13,742        (13,742   (b)      —          —            —     

Equity (deficit):

               

Members’ equity (deficit)

     (21,220     21,220      (b)      —          —            —     

Common stock

     —          99      (b)      99        59        (d     158   

Additional paid-in capital

     —          (36,029   (a)      (36,029     (12,377 )     (c     156,572   
       113,827      (b)      113,827        89,941        (d  
       1,210      (c)      1,210        —         

Accumulated deficit

     —          (121,404  

(b)

     (121,404     —            (121,404

Accumulated other comprehensive income

     1,319        —             1,319        —            1,319   
  

 

 

   

 

 

      

 

 

   

 

 

     

 

 

 

Total Norcraft Companies, Inc. equity (deficit)

     (19,901     (21,077        (40,978     77,623          36,645   

Noncontrolling interests

     —          (1,210   (c)      (1,210     12,377        (c     11,167   
  

 

 

   

 

 

      

 

 

   

 

 

     

 

 

 

Total equity (deficit)

     (19,901     (22,287        (42,188     90,000          47,812   
  

 

 

   

 

 

      

 

 

   

 

 

     

 

 

 

Total liabilities and equity (deficit)

   $ 274,729      $ —           $ 274,729      $ 89,073        $ 363,802   
  

 

 

   

 

 

      

 

 

   

 

 

     

 

 

 

 

See accompanying notes to the unaudited pro forma consolidated financial statements.

 

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NOTES TO UNAUDITED PRO FORMA CONSOLIDATED BALANCE SHEET

 

(a)   Norcraft Companies, Inc. is subject to U.S. federal and state income taxes and will file consolidated income tax returns for U.S. federal and certain state jurisdictions. These adjustments reflect the recognition of deferred tax assets resulting from (i) our status, following the Reorganization, as a C-corporation and (ii) the contribution by the shareholders of SKM Norcraft Corp. and Trimaran Cabinet Corp. of all of the common stock in SKM Norcraft Corp. and Trimaran Cabinet Corp., respectively, to Norcraft Companies, Inc. in exchange for restricted shares of Norcraft Companies, Inc.

 

Temporary differences in the book and tax basis of our investment in Norcraft Companies LLC would have resulted in an unaudited pro forma deferred tax liability of $36.0 million as of September 30, 2013. Additionally, our net tax losses would have resulted in an unaudited pro forma deferred income tax benefit of $20.3 million as of September 30, 2013, assuming a combined federal and state statutory income tax rate of 36.64%. However, as realization of such tax benefit would not have been more likely than not based on management’s evaluation, we would have also established a valuation allowance of $20.3 million.

 

Under the tax receivable agreements associated with SKM Norcraft Corp. and Trimaran Cabinet Corp., we generally will be required to pay to the holders of common stock of SKM Norcraft Corp. and Trimaran Cabinet Corp., respectively, as of immediately prior to the Reorganization, 85% of the applicable cash savings, if any, in U.S. federal, state or local tax that we actually realize (or are deemed to realize in certain circumstances) as a result of (i) the tax attributes associated with any increase in tax basis attributable to SKM Norcraft Corp.’s and Trimaran Cabinet Corp.’s original acquisitions of interests in Norcraft Holdings, L.P., (ii) the net operating losses of SKM Norcraft Corp. and Trimaran Cabinet Corp., respectively, relating to taxable years ending on or before the date of the Reorganization that are or become available to us and our wholly-owned subsidiaries as a result of the Reorganization, (calculated by assuming the taxable year of SKM Norcraft Corp. closes on the date of the Reorganization), and (iii) tax benefits attributable to payments made under such tax receivable agreements.

 

The amounts payable under the tax receivable agreements related to the contributions of common stock of SKM Norcraft Corp. and Trimaran Cabinet Corp. are $24.6 million and $12.3 million, respectively, as of September 30, 2013. The amounts payable under the tax receivable agreements of SKM Norcraft Corp. and Trimaran Cabinet Corp. are not recognized as liabilities because, as of September 30, 2013, it is not probable that these amounts will be paid.

 

Under the tax receivable agreement associated with the exchange of Norcraft Companies LLC units for our common stock, we generally will be required to pay to the holders of units of Norcraft Companies LLC (other than units that we or our wholly-owned subsidiaries hold) 85% of the amount of cash savings, if any, in U.S. federal, state or local tax that we actually realize (or are deemed to realize in certain circumstances) as a result of (i) certain tax attributes that are created as a result of the exchanges of their units for shares of our common stock or cash, including any basis adjustment relating to the assets of Norcraft Companies LLC, and (ii) tax benefits attributable to payments made under such tax receivable agreement.

 

The deferred tax asset and the amount payable under the tax receivable agreement related to the exchange of Norcraft Companies LLC units into our common stock are $11.1 million and $32.2 million, respectively, assuming an initial public offering price of $17.00 per share (the midpoint of the estimated public offering price range set forth on the cover page of this prospectus) and assuming that all Norcraft Companies LLC units were exchanged.

 

We anticipate that we will account for the income tax effects and corresponding tax receivable agreement effects resulting from future taxable exchanges of units by unitholders of Norcraft Companies LLC for shares of our common stock by recognizing an increase in our deferred tax assets, based on enacted tax rates at the date of the exchange. Further, we will evaluate the likelihood that we will realize the benefit represented by the deferred tax asset and, to the extent that we estimate that it is more likely than not that we will not realize the benefit, we will reduce the carrying amount of the deferred tax asset with a valuation allowance.

 

(b)   As a C-Corporation, we will no longer record a members’ deficit in the consolidated balance sheet. To reflect the C-Corporation structure of our equity, we will separately present the value of our common stock, additional paid-in capital and accumulated deficit. Additionally, the put request will not exist after the reorganization, so we will reclassify the members’ equity subject to put request to permanent equity. The portion of the reclassification of members’ deficit associated with additional paid-in capital was estimated by taking the capital contributions we have received of $113.9 million less the $0.1 million attributed to the par value of the common stock. The portion of the reclassification of members’ deficit associated with accumulated deficit of $(121.4) million represents cumulative deficit less cumulative distributions paid and was calculated by taking the historical members’ deficit of $(21.2) million plus the members’ equity subject to the put request of $13.7 million less the $0.1 million attributed to the par value of the common stock and $113.8 million attributed to paid-in capital.

 

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(c)   The common units of Norcraft Companies LLC owned by the former holders of Buller Norcraft Holdings LLC and MEB Norcraft LLC and certain former and current members of our management and board will be considered noncontrolling interests for financial accounting purposes. The amount allocated to noncontrolling interests represents the proportional interest in the pro forma consolidated total equity (deficit) of Norcraft Companies LLC owned by those common unitholders.

 

The pro forma equity attributable to noncontrolling interests is computed as follows (dollar amounts in thousands):

 

     Reorganization     Offering  

Total equity (deficit)

   $ (42,188   $ 47,812   

Pro forma deferred tax adjustment attributable to Norcraft Companies, Inc.

     36,029        36,029   
  

 

 

   

 

 

 

Pro forma equity (deficit) of Norcraft Companies LLC

   $ (6,159   $ 83,841   

Noncontrolling interests ownership percentage

     19.7     13.3
  

 

 

   

 

 

 

Equity (deficit) attributable to noncontrolling interests

   $ (1,210   $ 11,167   
  

 

 

   

 

 

 

 

(d)   Represents the issuance of 5,882,353 shares of our common stock, par value $0.01 per share, at an assumed initial public offering price of $17.00 per share (the midpoint of the estimated public offering price range set forth on the cover page of this prospectus), less $7.0 million related to the underwriting discount and $3.0 million of estimated expenses.

 

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MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL

CONDITION AND RESULTS OF OPERATIONS

 

Norcraft Companies, Inc. is a newly formed Delaware corporation that has not, to date, conducted any activities other than those incident to its formation and the preparation of this registration statement. Upon the completion of the Reorganization, we will conduct our business through Norcraft Companies, L.P. and its consolidated subsidiaries. The following discussion and analysis of our financial condition and results of operations should be read together with our financial statements and related notes and other financial information appearing elsewhere in this prospectus. This discussion and analysis contains forward-looking statements that involve risk, uncertainties and assumptions. See “Special Note Regarding Forward-Looking Statements.” Our actual results could differ materially from those anticipated in the forward-looking statements as a result of many factors, including those discussed in “Risk Factors” and elsewhere in this prospectus. Except where the context otherwise requires, the terms “we,” “us,” or “our” refer to the business of Norcraft Holdings, L.P. and its consolidated subsidiaries.

 

General

 

We are a leading manufacturer of kitchen and bathroom cabinetry in the U.S. We provide our customers with a single source for a broad range of high-quality cabinetry, including stock, semi-custom and custom cabinets manufactured in both framed and frameless, or full access, construction. We market our products through seven main brands: Mid Continent Cabinetry®, Norcraft Cabinetry®, UltraCraft®, StarMark Cabinetry®, Fieldstone Cabinetry®, Brookwood® and Urban Effects™. With the exception of Norcraft Cabinetry, each of these brands represents a distinct line of cabinetry. The domestic brands have been in operation for over 25 years, with Mid Continent, our original brand, having been established in 1966. In 2008, our Winnipeg, Canada facility completed the transition to the production of cabinets for sale into the Canadian market under the Norcraft Canada and Urban Effects brands. We believe each brand is well recognized and highly respected throughout the industry for its attractive style, flexibility, quality and value.

 

In 2008 and 2009, we were affected by a significant down-turn in our industry and experienced a significant decrease in sales. In 2010, 2011 and 2012, we experienced some sales stabilization and recovery, but this was coupled with margin pressure associated with a more competitive market place. Our sales increased 7.2% for the year ended December 31, 2012 as compared with the year ended December 31, 2011, and 2.6% for the year ended December 31, 2011 as compared to the year ended December 31, 2010. Net loss increased 43.5% for the year ended December 31, 2012 as compared to the year ended December 31, 2011. Net loss increased 195.1% for the year ended December 31, 2011 as compared to the year ended December 31, 2010. Additionally, the contraction in the market caused us to be more aggressive with pricing and sales promotions. We continued these aggressive pricing and sales promotion efforts through 2010, 2011 and 2012 in order to gain market share. These sales incentives have reduced our gross profit margin percentages.

 

During the three and nine months ended September 30, 2013, we experienced significant sales growth. This sales growth varied significantly from division to division within the Company, depending on exposure to certain customers, channels and geographies, but was generally consistent with the growth in our industry as a whole. But, with the competitiveness of the industry, we continued much of our ongoing discounting and sales promotions. We are currently carefully adjusting our pricing and promotional activities, in part to offset price increases in raw materials.

 

Financial Statement Presentation

 

Net Sales.    Our net sales represent gross sales less deductions taken for sales returns, freight chargebacks and incentive rebate programs. Revenue is recorded upon delivery of product, which represents the point at which ownership transfers to the customer.

 

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Cost of Sales.    Our cost of sales is comprised of the cost of raw materials and plant costs such as labor, packaging, utilities and other facility expenses. Dimensioned wood components, wood doors, particle board, thermofoil doors and veneer panels and plywood are the most significant raw materials we purchase. We also classify shipping and handling costs as a component of cost of sales.

 

Selling, General and Administrative Expenses.    Selling, general and administrative expenses consist primarily of salaries, trade promotions, advertising, commissions, amortization of expenses relating to our display cabinets installed at our customer locations, other marketing costs, general management, insurance, accounting, tax and legal expenses, management fees payable to our principal equity holders and other expenses. We expense advertising costs as incurred. We expect that our selling, general and administrative expenses may increase in the future as we expect to incur higher incentive-based employee compensation expenses in connection with this offering. See “Executive Compensation—2013 Incentive Plan.”

 

Other Expenses.    Our non-operating expenses consist of interest, amortization of deferred financing costs and various state and local taxes.

 

Critical Accounting Policies

 

The preparation of financial statements requires management to make estimates and judgments that affect the amounts reported in the financial statements. On an ongoing basis, management evaluates its estimates which are based on historical experience and various other assumptions that are believed to be reasonable under the circumstances. Actual results may differ from these estimates under different assumptions or conditions. We believe the following accounting policies are the most critical to us in that they are important to our financial statements and they require our most difficult, subjective or complex judgments in the preparation of our financial statements.

 

Allowance for Bad Debts

 

Our customers operate in the repair and remodeling and new home construction markets and, accordingly, their creditworthiness is affected by cyclical trends and general conditions in those markets. During the past few years, the credit markets and the financial services industry have experienced significant disruptions, characterized by the bankruptcy and failure of several financial institutions and severe limitations on credit availability. The financial stability of certain of our customers has been negatively impacted, which has resulted in increased bad debt expense for us. A prolonged continuation of adverse economic conditions would cause additional financial distress for our customers. Concentrations of credit risk with respect to trade receivables are limited to some extent by our large number of customers and their geographic dispersion. For the year ended December 31, 2011, one customer accounted for approximately 13% of net sales. For the year ended December 31, 2012, there was no customer that accounted for more than 10% of net sales. We generally do not require collateral from our customers, but do maintain allowances for the estimated uncollectibility of accounts receivable based on historical experience and specifically identified at-risk accounts. The adequacy of the allowance is evaluated on an ongoing, periodic basis and adjustments are made in the period in which a change in condition occurs.

 

Finite Lived Intangible Assets

 

Finite lived intangible assets consist of customer relationships. The customer relationship intangible asset is amortized using the straight-line method over its estimated useful life of 15 years based on historical and expected customer attrition rates. Straight-line amortization reflects an appropriate allocation of cost of the intangible asset to earnings in proportion to the amount of economic benefits obtained by us in each reporting period.

 

Amortization expense related to customer relationships of $4.5 million for each of the years ended December 31, 2012, 2011 and 2010 is included in selling, general and administrative expenses in the consolidated statements of comprehensive income (loss). Annual amortization expense for each of the next five years is expected to be $4.5 million per year.

 

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Management reviews the valuation and the estimated useful lives of its finite lived intangible assets when events or circumstances indicate that the asset might be impaired, taking into consideration any events or circumstances which might result in diminished fair value or revised useful life. Management performed such a review in the fourth quarter of 2012 and no impairment was indicated.

 

Indefinite-Lived Intangible Assets and Goodwill

 

Indefinite-lived intangible assets are brand names, consisting of Mid Continent®, UltraCraft®, StarMark® and Fieldstone®. Indefinite lived intangible assets are not amortized. Instead, we make annual assessments, or as events or circumstances indicate that the asset might be impaired, separately from goodwill, to evaluate realizability of carrying values.

 

Our significant reporting units for the purpose of performing the impairment analysis tests for goodwill consist of Mid Continent, UltraCraft and StarMark. For the purpose of performing the required goodwill impairment tests, we primarily apply a present value (discounted cash flow) method to determine the fair value of the reporting units with goodwill. We perform our annual impairment test of goodwill and indefinite-lived intangible assets during the fourth quarter.

 

Our reporting units are composed of either a discrete business or an aggregation of businesses with similar economic characteristics. Certain factors may result in the need to perform an impairment test prior to the fourth quarter, including significant underperformance of our business relative to expected operating results, significant adverse economic and industry trends, and a decision to divest an individual business within a reporting unit.

 

We estimate the fair value of our reporting units, using various valuation techniques, with the primary technique being a discounted cash flow analysis. A discounted cash flow analysis requires us to make various judgmental assumptions about sales, operating margins, growth rates and discount rates. Assumptions about discount rates are based on a weighted-average cost of capital derived from observable market inputs and comparable company data. Assumptions about sales, operating margins, and growth rates are based on our forecasts, business plans, economic projections, anticipated future cash flows and marketplace data. Assumptions are also made for varying perpetual growth rates for periods beyond the long-term business plan period. The revenue projection used in 2010 assumed the beginning of market recovery in 2011, continuing into 2012. The revenue projections used in 2011 assumed market recovery in 2012, continuing into 2013. The revenue projections used in the 2012 evaluation continued these trends with 6.5% sales growth in 2013 and continued momentum in future years.

 

In 2012, we also assumed a discount rate of 12.5% and a perpetual growth rate of 3.6%. In 2011, we assumed a discount rate of 14.8% and a perpetual growth rate of 3.5%. In 2010, we assumed a discount rate of 14.0% and a perpetual growth rate of 3.5%. These rates reflected the market conditions in the respective periods.

 

The fair value of the indefinite-lived assets is determined for the annual impairment test using the Royalty Savings Method, which is a variation of the income approach. In 2012, a discount rate of 12.5% was used plus a premium of 1.0%. In 2011, a discount rate of 14.0% was used plus a premium of 1.0%. In 2010, a discount rate of 14.0% was used plus a premium of 1.0%.

 

Our first step impairment analysis for 2012, 2011 and 2010 indicated that the fair value of the reporting units approximated or exceeded their carrying values. For our UltraCraft unit, the fair value exceeded the carrying value by $0.2 million or 1.0% in 2012. The amount of goodwill allocated to the UltraCraft unit was $3.6 million. The fair value for our Mid Continent unit exceeded the carrying value by $39.6 million or 31.1% in 2012. For our StarMark unit, the fair value was $17.3 million or 20.4% in excess of the carrying value in 2012. For our Urban Effects unit, the goodwill is insignificant and our Kitchen and Bath Ideas unit does not have any goodwill. The impairment test resulted in no impairment charges in 2012, 2011 and 2010. The only changes in the value of goodwill were due to foreign currency translation adjustments.

 

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In the valuations of the key reporting units, the same valuation methods were used for each—the discounted cash flow (“DCF”) method, the market transaction method, and the guideline public company method.

 

Monitoring Impairment in 2013

 

A 1.0 percentage point increase in the discount rate would reduce the indicated fair value of the brand names by approximately $4.0 million and a 0.25 percentage point decrease in the royalty rate would reduce the indicated fair value of the brand names by approximately $5.2 million. Changes of this magnitude may be enough to indicate potential impairment, depending on changes in the other factors that affect the analysis. As of September 30, 2013, the Company has determined no events or circumstances have occurred that would indicate intangibles might be impaired. At December 31, 2013, we will perform our annual impairment tests of indefinite-lived intangible assets and goodwill. We may need to perform an impairment test of our finite-lived intangible assets in the fourth quarter of 2013, if results for any of these reporting units fall significantly below our estimates, the perpetual growth rate decreases significantly, or other key assumptions change.

 

Members’ Equity Subject to Put Request

 

The limited partnership agreement of Norcraft Holdings, L.P. provides that certain employee equity holders may request that Norcraft Holdings, L.P. repurchase limited partnership units upon their death or disability at the then fair market value. Following such a request, Norcraft Holdings, L.P. must use commercially reasonable efforts to repurchase such units, subject to limitations on the repurchase of equity contained in the senior credit facility and the indentures governing Norcraft Holdings, L.P.’s and Norcraft’s notes payable, respectively. The fair market value of these units is recorded outside of permanent equity. Any changes in the fair market value of these units are reported as changes in members’ equity subject to put request in the statement of changes in members’ equity.

 

The fair market value of a unit is estimated by dividing the current equity fair value of the Company by the number of vested units outstanding. The equity fair value of the Company is based on an earnings multiple times trailing twelve months’ EBITDA plus net cash and liability positions. The members’ equity subject to put request shown on the balance sheet is derived by multiplying the number of units subject to the put request by the estimated fair market value of each unit.

 

Product Warranties

 

We provide warranties for our products for a period ranging from five years to a lifetime warranty. Estimated costs to be incurred for such warranties are provided in the period of sale. These reserves are based on historical experience, market conditions and other assumptions and judgment by management.

 

Management Incentive Plan

 

In accordance with FASB guidance related to stock-based compensation, our methodology yields an estimate of fair value based in part on a number of management estimates, the most significant of which include future volatility and estimated incentive unit lives. Changes in these assumptions could significantly impact the estimated fair value of the incentive units.

 

Revenue Recognition

 

Revenue is recognized upon delivery of product, which represents the point at which ownership transfers to the customer. Net sales represent gross sales less deductions taken for sales returns, freight chargebacks and incentive rebate programs. These deductions are based on historical experience, market conditions and terms of the applicable marketing agreements with the customers. Taxes collected from customers are not included in revenue, but are recorded as liability until remitted to the appropriate governmental authorities.

 

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Recently Issued Accounting Pronouncements

 

In June 2011, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) No. 2011-05, Presentation of Comprehensive Income. This standard eliminates the current option to report other comprehensive income and its components in the statement of changes in equity. Under this new ASU, an entity can elect to present items of net income and other comprehensive income in a single continuous statement or in two separate, but consecutive, statements. This guidance is effective for publicly traded companies as of the beginning of a fiscal year that begins after December 15, 2011 and interim and annual periods thereafter. Early adoption is permitted, but full retrospective application is required. The Company adopted ASU 2011-05 and it did not have a material impact on the Company’s consolidated financial statements.

 

In September 2011, the FASB issued ASU No. 2011-08, Testing Goodwill for Impairment. ASU 2011-08 permits an entity to first assess qualitative factors to determine whether it is more likely than not that the fair value of a reporting unit is less than its carrying amount as a basis for determining whether it is necessary to perform the two-step goodwill impairment test. The more-likely-than-not threshold is defined as having a likelihood of more than 50 percent. Under ASU 2011-08, an entity is not required to calculate the fair value of a reporting unit unless the entity determines that it is more likely than not that its fair value is less than its carrying amount. ASU 2011-08 is effective for annual periods beginning after December 15, 2011. The Company adopted ASU 2011-08 and it did not have a material impact on the Company’s consolidated financial statements.

 

In December 2011, the FASB issued ASU No. 2011-12, Comprehensive Income (Topic 220)—Deferral of the Effective Date for Amendments to the Presentation of Reclassifications of Items Out of Accumulated Other Comprehensive Income in Account Standards Update No. 2011-05. ASU 2011-12 is effective for fiscal years, and interim periods within those years, beginning after December 15, 2011. The Company adopted ASU 2011-12 and it did not have a material impact on the Company’s consolidated financial statements.

 

In July of 2012, the FASB issued ASU No. 2012-02, Testing Indefinite-Lived Intangible Assets for Impairment. This revised standard is intended to reduce the cost and complexity of testing indefinite-lived intangible assets other than goodwill for impairment. It allows companies to perform a qualitative assessment to determine whether further impairment testing of indefinite-lived intangible assets is necessary, similar in approach to the goodwill impairment test. ASU 2012-02 is effective for annual and interim impairment tests performed for fiscal years beginning after September 15, 2012. The Company does not expect such adoption will have a material impact on the Company’s consolidated financial statements.

 

Results of Operations

 

Nine Months Ended September 30, 2013 Compared with Nine Months Ended September 30, 2012

 

The following table outlines for the periods indicated, selected operating data as a percentage of net sales.

 

     Nine months
ended
September  30,
 
     2013     2012  

Net sales

     100.0     100.0

Cost of sales

     73.8     73.9
  

 

 

   

 

 

 

Gross profit

     26.2     26.1

Selling, general and administrative expenses

     17.7     18.7
  

 

 

   

 

 

 

Income from operations

     8.5     7.4

Interest expense, net

     7.5     8.9

Amortization of deferred financing costs

     0.9     1.1
  

 

 

   

 

 

 

Net income (loss)

     0.1     (2.6 )% 
  

 

 

   

 

 

 

 

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Net Sales.    Net sales increased by $41.6 million, or 19.1%, from $217.6 million for the nine months ended September 30, 2012 to $259.2 million for the same period of 2013. The increase in sales was attributable to increases in sales in nearly all of our divisions, with Mid Continent making up about half, StarMark making up over one-third, UltraCraft making up under a quarter and the Winnipeg, Canada facility showing a modest decline. The overall increase in sales was generally driven by industry growth. Additionally, we believe we continue to increase our sales as a result of our differentiated products across various price points, on-time delivery and high level of customer service. We also believe our promotional sales programs, which consist of discounts, rebates and spiffs, contributed to our increased sales during the period.

 

Cost of Sales.    Cost of sales increased by $30.6 million, or 19.1%, from $160.7 million for the nine months ended September 30, 2012 to $191.3 million for same period of 2013. The increase was primarily attributable to the increased sales volume along with aggressive sales incentives for the nine months ended September 30, 2013. Cost of sales as a percentage of net sales decreased from 73.9% for the nine months ended September 30, 2012 to 73.8% for the same period of 2013.

 

Gross Profit.    Gross profit increased by $11.0 million, or 19.3%, from $56.9 million for the nine months ended September 30, 2012 to $67.9 million for the same period of 2013. The increase in gross profit was due to the increased net sales described above. Gross profit as a percentage of net sales increased from 26.1% for the nine months ended September 30, 2012 to 26.2% for the same period of 2013. We experienced moderate price increases on some of the material inputs used in our products during the nine months ended September 30, 2013 compared to the nine months ended September 30, 2012. These increases were largely offset by smaller factors that helped improve gross margin as a percentage of net sales, including the leverage of fixed manufacturing costs, lower freight costs, and labor efficiencies associated with increased production.

 

The timing and severity of the impact of the housing recession in 2007 through 2011 differed among our divisions, causing gross margins to diverge. Gross profit as a percentage of net sales decreased at our Mid Continent and StarMark divisions during the nine months ended September 30, 2013 as compared to the nine months ended September 30, 2012. As discussed above, this was primarily the result of discounting and other sales promotions in response to the competitive conditions in our industry. Gross profit as a percentage of net sales at our Ultracraft and Urban Effects divisions increased during the nine months ended September 30, 2013 as compared to the nine months ended September 30, 2012. Because Ultracraft is one of our smaller divisions, the sales increases that were driven by industry growth resulted in a larger effect on the leverage of fixed costs. Gross profit as a percentage of net sales for our divisions converged during the nine months ended September 30, 2013 as compared to the nine months ended September 30, 2012, a trend we expect to continue as our business continues to recover from the housing recession.

 

Selling, General and Administrative Expenses.    Selling, general and administrative expenses increased by $5.2 million, or 12.6%, from $40.7 million for the nine months ended September 30, 2012 to $45.9 million for the same period of 2013. Selling, general and administrative expenses were greater than the prior-year period because of increased sales and marketing expense to generate new customers, market our new products and support our increased sales volume, along with increased finance and administration expense to support the increased sales volume and $1.1 million in professional fees related to the corporate restructuring done in preparation for our recently announced initial public offering. Selling, general and administrative expenses as a percentage of net sales decreased from 18.7% for the nine months ended September 30, 2012 to 17.7% for the same period of 2013.

 

Income from Operations.    Income from operations increased by $5.8 million, or 36.2%, from $16.2 million for the nine months ended September 30, 2012 compared to $22.0 million for the same period of 2013. The increase in income from operations was a result of the factors described above. Income from operations as a percentage of net sales increased from 7.4% for the nine months ended September 30, 2012 to 8.5% for the same period of 2013.

 

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Interest, Amortization of Deferred Financing Fees and Other Expenses.    Interest, amortization of deferred financing fees and other expenses were flat at $21.8 million for the nine months ended September 30, 2012 and 2013. Interest, amortization of deferred financing fees and other expenses as a percentage of net sales decreased from 10.0% for the nine months ended September 30, 2012 to 8.4% for the same period of 2013.

 

Net Income (Loss).    Net income (loss) improved by $5.8 million from $5.6 million in loss for the nine months ended September 30, 2012 compared to $0.2 million of income for the same period of 2013, for the reasons described above. Net income (loss) as a percentage of net sales improved from (2.6)% for the nine months ended September 30, 2012 to 0.1% for the same period of 2013.

 

Year Ended December 31, 2012 Compared with Year Ended December 31, 2011

 

The following table outlines for the periods indicated, selected operating data as a percentage of net sales.

 

     Year Ended December 31,  
     2012     2011     2010  

Net sales

     100.0     100.0     100.0

Cost of sales

     74.5     72.7     71.4
  

 

 

   

 

 

   

 

 

 

Gross profit

     25.5     27.3     28.6

Selling, general and administrative expenses

     18.8     19.0     19.2
  

 

 

   

 

 

   

 

 

 

Income from operations

     6.7     8.3     9.4

Interest expense, net

     8.9     9.6     9.7

Amortization of deferred financing costs

     1.1     1.2     0.6
  

 

 

   

 

 

   

 

 

 

Net loss

     (3.3 )%      (2.5 )%      (0.9 )% 
  

 

 

   

 

 

   

 

 

 

 

Net Sales.    Net sales increased by $19.5 million, or 7.2%, from $269.3 million for the year ended December 31, 2011 to $288.8 million for the year ended December 31, 2012. This increase in sales was attributable to increases in sales in Mid Continent making up over half, UltraCraft making up over one-third and the Winnipeg, Canada facility making up a small increase which was offset by a decrease in StarMark. The overall increase in sales was generally driven by industry growth. Additionally, we believe we continue to increase our sales, as a result of our differentiated products across various price points, on-time delivery and high level of customer service. We also believe our promotional sales programs, which consist of discounts, rebates and spiffs, contributed to our increased sales during the period. Net sales to our largest customer were lower during the year ended December 31, 2012 as compared to 2011.

 

Cost of Sales.    Cost of sales increased by $19.4 million, or 9.9%, from $195.9 million for the year ended December 31, 2011 to $215.3 million for the year ended December 31, 2012. The increase was primarily attributable to the increased sales volume along with aggressive sales incentives in 2012. Cost of sales as a percentage of net sales increased from 72.7% for the year ended December 31, 2011 to 74.5% for 2012.

 

Gross Profit.    Gross profit increased by $0.1 million, or 0.1%, from $73.4 million for the year ended December 31, 2011 to $73.5 million for the year ended December 31, 2012. The increase in gross profit was due to the increase in net sales described above. Gross profit as a percentage of net sales decreased from 27.3% for the year ended December 31, 2011 to 25.5% for 2012. Approximately 80% of the decrease in gross profit as a percentage of net sales was the result of the discounting and other sales promotions in response to the extremely competitive conditions in our industry discussed above. Approximately 10% of the decrease in gross profit as a percentage of net sales was a result of labor inefficiencies caused by the addition of a shift of workers at one of our manufacturing facilities. The remainder of the decrease in gross profit as a percentage of net sales during the year ended December 31, 2012 compared to the year ended December 31, 2011 was caused by price increases on some of the material inputs used in our products.

 

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The timing and severity of the impact of the housing recession in 2007 through 2011 differed among our divisions, causing gross margins to diverge. For the year ended December 31, 2012, gross profit as a percentage of net sales decreased at all of our divisions as compared to the year ended December 31, 2011. As discussed above, this was primarily the result of discounting and other sales promotions in response to the competitive conditions in our industry. However, gross profit as a percentage of net sales at our Ultracraft division decreased less significantly during the year ended December 31, 2012 as compared to the year ended December 31, 2011. Because Ultracraft is one of our smaller divisions, the sales increases that were driven by industry growth resulted in a larger effect on the leverage of fixed costs. Gross profit as a percentage of net sales for our divisions converged during the year ended December 31, 2012 as compared to the year ended December 31, 2011, a trend we expect to continue as our business continues to recover from the housing recession.

 

Selling, General and Administrative Expenses.    Selling, general and administrative expenses increased by $3.1 million, or 6.0%, from $51.1 million for the year ended December 31, 2011 to $54.2 million for the year ended December 31, 2012. Selling, general and administrative expenses were greater than the prior year because of increased sales and marketing expenses to generate new sales. Selling, general and administrative expenses as a percentage of net sales decreased from 19.0% for the year ended December 31, 2011 to 18.8% for 2012.

 

Income from Operations.    Income from operations decreased by $3.0 million, or 13.4%, from $22.3 million for the year ended December 31, 2011 to $19.3 million for the year ended December 31, 2012. The decrease in income from operations was primarily the result of the factors described above. Income from operations as a percentage of net sales decreased from 8.3% for the year ended December 31, 2011 to 6.7% for 2012.

 

Interest, Amortization of Deferred Financing Fees and Other Expenses.    Interest, amortization of deferred financing fees and other expenses decreased $0.1 million, or 0.3%, from $29.0 million for the year ended December 31, 2011 to $28.9 million for the year ended December 31, 2012. This change was mainly due to loss on debt extinguishment. Interest, amortization of deferred financing fees and other expenses as a percentage of net sales decreased from 10.8% for the year ended December 31, 2011 to 10.0% for 2012.

 

Net Loss.    Net loss increased by $2.9 million from $6.7 million for the year ended December 31, 2011 compared with $9.6 million for the year ended December 31, 2012, for the reasons described above. Net loss as a percentage of net sales increased from (2.5)% for the year ended December 31, 2011 to (3.3)% for 2012.

 

Year Ended December 31, 2011 Compared with Year Ended December 31, 2010

 

Net sales.    Net sales increased by $6.7 million, or 2.6%, from $262.6 million for the year ended December 31, 2010 to $269.3 million for the year ended December 31, 2011. This growth was mostly attributable to the StarMark division while there were modest increases in net sales in the Mid Continent division and the Winnipeg, Canada facility. These increases were partially offset by a small decrease in net sales in the UltraCraft division. The overall increase in sales was generally driven by industry growth. Additionally, we believe we continue to increase our sales as a result of our differentiated products across various price points, on-time delivery and high level of customer service. We also believe our promotional sales programs, which consist of discounts, rebates and spiffs, contributed to our increased sales during the period.

 

Cost of Sales.    Cost of sales increased by $8.4 million, or 4.5%, from $187.5 million for the year ended December 31, 2010 to $195.9 million for the year ended December 31, 2011. Cost of sales in the prior year included a sales and use tax refund of $1.0 million. The remaining increase was primarily attributable to the increased sales volume in 2011. Cost of sales as a percentage of net sales increased from 71.4% for the year ended December 31, 2010 to 72.7% for 2011. Cost of sales as a percentage of net sales also increased because of promotional sales programs that lowered the net sales. For the year ended December 31, 2011, freight costs were approximately 7% of net sales.

 

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Gross Profit.    Gross profit decreased by $1.7 million, or 2.2%, from $75.1 million for the year ended December 31, 2010 to $73.4 million for the year ended December 31, 2011. The decrease in gross profit was due to the increased cost of sales described above. Gross profit as a percentage of net sales decreased from 28.6% for the year ended December 31, 2010 to 27.3% for 2011. This decrease was largely the result of the costs associated with the promotional sales programs intended to generate additional sales.

 

The timing and severity of the impact of the housing recession in 2007 through 2011 differed among our divisions, causing gross margins to diverge. However, gross profit as a percentage of net sales decreased at our Mid Continent and StarMark divisions during the year ended December 31, 2011 as compared to the year ended December 31, 2010. As discussed above, this was primarily the result of discounting and other sales promotions in response to the competitive conditions in our industry. Gross profit as a percentage of net sales at our Ultracraft and Urban Effects divisions increased during the year ended December 31, 2011 as compared to the year ended December 31, 2010. These increases were primarily a result of shifts in product and customer mix. Gross profit as a percentage of net sales for our divisions converged during the year ended December 31, 2011 as compared to the year ended December 31, 2010, a trend we expect to continue as our business continues to recover from the housing recession.

 

Selling, General and Administrative Expenses.    Selling, general and administrative expenses increased by $0.7 million, or 1.4%, from $50.4 million for the year ended December 31, 2010 to $51.1 million for the year ended December 31, 2011. Selling, general and administrative expenses were greater than the prior year mainly due to higher sales, marketing and information services expenses to generate new sales. Selling, general and administrative expenses as a percentage of net sales decreased from 19.2% for the year ended December 31, 2010 to 19.0% for 2011.

 

Income from Operations.    Income from operations decreased by $2.4 million, or 9.4%, from $24.7 million for the year ended December 31, 2010 to $22.3 million for the year ended December 31, 2011. The decrease in income from operations was primarily the result of the factors described above. Income from operations as a percentage of net sales decreased from 9.4% for the year ended December 31, 2010 to 8.3% for 2011.

 

Interest, Amortization of Deferred Financing Fees and Other Expenses.    Interest, amortization of deferred financing fees and other expenses increased $2.1 million, or 7.7%, from $26.9 million for the year ended December 31, 2010 to $29.0 million for the year ended December 31, 2011. Interest expense increased $0.4 million, amortization of deferred financing costs increased $1.4 million and other expense increased $0.3 million mainly due to the change in debt financing. Interest, amortization of deferred financing fees and other expenses as a percentage of net sales increased from 10.3% for the year ended December 31, 2010 to 10.8% for 2011.

 

Net Loss.    Net loss increased by $4.5 million from $2.2 million for the year ended December 31, 2010 compared with $6.7 million for the year ended December 31, 2011. This change was primarily the result of the factors described above. Net loss as a percentage of net sales increased from (0.9)% for the year ended December 31, 2010 to (2.5)% for 2011.

 

Liquidity and Capital Resources

 

Cash Flows

 

Our primary cash needs are working capital, capital expenditures, display cabinets, members’ tax distributions, required payments under tax receivable agreements and debt service. We finance these cash requirements through internally-generated cash flow and, if necessary, funds borrowed under credit facilities.

 

Cash provided by operating activities was $21.1 million for the nine months ended September 30, 2013, compared with $10.3 million for the same period of 2012, an increase in cash provided of $10.8 million. Of this overall increase in cash provided by operating activities, $5.8 million was due to an increase in net income, as

 

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discussed above. Additionally, net changes in operating assets and liabilities provided an additional $3.9 million of cash. More specifically, an increase in trade accounts receivable, in support of the increase in net sales, used $2.5 million of additional cash during the nine months ended September 30, 2013, compared to the nine months ended September 30, 2012. An increase in inventories, also in support of the increase in net sales, used $1.8 million of additional cash during the nine months ended September 30, 2013, compared to the nine months ended September 30, 2012. The increases in cash used by changes in trade account receivable and inventories were offset by cash provided by an increase in accounts payable and accrued expenses of $8.7 million. $1.0 million of this increase in accounts payable and accrued expenses was related to costs associated with the initial public offering. The remaining increase in accounts payable and accrued expenses was primarily to support the increase in inventories and other general activities related to the increase in sales discussed above. Cash provided by operating activities was $6.2 million for the year ended December 31, 2012, compared with $2.8 million for 2011, a decrease in cash provided of $3.4 million. Of this overall increase in cash provided by operating activities, $6.2 million was due to net changes in operating assets and liabilities. More specifically, changes in accounts payable and accrued expenses used $6.7 million less cash during the year ended December 31, 2012, compared to the year ended December 31, 2011. Most of this decrease in accounts payable and accrued expenses was a result of accrued interest related to the Company’s debt. Additionally, an increase in inventories, in support of the increase in net sales, used an additional $2.7 million of cash during the year ended December 31, 2012, compared to the year ended December 31, 2011. The increased uses of cash discussed above were partially offset by changes in trade accounts receivable and an increase in net loss of $2.9 million for the year ended December 31, 2012, compared to the year ended December 31, 2011.

 

Cash used in investing activities was $5.8 million for the nine months ended September 30, 2013 and 2012. Capital expenditures were $2.9 million for the nine months ended September 30, 2013, compared with $2.4 million for the same period of 2012, an increase of $0.5 million. Additions to display cabinets were $2.9 million for the nine months ended September 30, 2013, compared with $3.4 million for the same period of 2012, a decrease of $0.5 million. Cash used in investing activities was flat at $7.4 million for the years ended December 31, 2012 and 2011. Capital expenditures were $3.1 million for the year ended December 31, 2012, compared with $2.6 million for 2011, an increase of $0.5 million. Additions to display cabinets were $4.3 million for the year ended December 31, 2012, compared to $4.8 million during 2011, a decrease of $0.5 million.

 

Cash used in financing activities was minimal for the nine months ended September 30, 2013 and 2012. Cash provided by financing activities was minimal for the year ended December 31, 2012, compared with $0.1 million in 2011, a decrease of $0.1 million. This decrease was mainly due to the $62.4 million ($60.0 million aggregate principal amount at 1.04 premium) in additional borrowings of senior secured second lien notes during 2011 and proceeds from the issuance of member interests of $0.1 million. This was largely offset by the repurchase of the senior subordinated notes of $53.9 million and payment in financing costs of $8.5 million for the year ended December 31, 2011.

 

We generally anticipate that the funds generated by operations and current available cash balances will be sufficient to meet working capital requirements, make any required member tax distributions and to finance capital expenditures over the next twelve to eighteen months. There can be no assurance, however, that our business will generate sufficient cash flow from operations, that anticipated net sales growth and operating improvements will be realized or that future equity or debt financing will be sufficient to enable us to service our indebtedness or to fund our other liquidity needs.

 

We and our subsidiaries have from time to time repurchased certain of our debt obligations and may in the future, as part of various financing and investment strategies we may elect to pursue, purchase additional outstanding indebtedness of ours or our subsidiaries, in tender offers, open market purchases, privately negotiated transactions or otherwise. We may also sell certain assets or properties and use the proceeds to reduce our indebtedness or the indebtedness of our subsidiaries. These purchases or sales, if any, could have a material positive or negative impact on our liquidity available to repay outstanding debt obligations or on our consolidated results of operations. These transactions could also require or result in amendments to the agreements governing outstanding

 

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debt obligations or changes in our leverage or other financial ratios, including the New ABL Facility and the New Term Loan, which could have a material positive or negative impact on our ability to comply with the covenants contained in our debt agreements. These transactions, if any, will depend on prevailing market conditions, our liquidity requirements, contractual restrictions and other factors. The amounts involved may be material.

 

Debt Structure

 

ABL Facility.    In December 2009, in connection with issuance of the senior secured second lien notes, Norcraft entered into a senior secured first-lien asset-based revolving credit facility (the “ABL Facility”) pursuant to a credit agreement dated as of December 9, 2009 (the “ABL Credit Agreement”) by and among Norcraft, as borrower, Norcraft Intermediate Holdings, L.P. and other guarantors party thereto, as guarantors, the lenders party thereto and UBS Securities LLC, as arranger, bookmanager, documentation agent and syndication agent, and UBS AG, Stamford Branch, as issuing bank, administrative agent and collateral agent, and UBS Loan Finance LLC, as swingline lender. The ABL Facility provides for aggregate commitments of up to $25.0 million, including a letter of credit sub-facility and a swingline loan sub-facility, subject to a borrowing base and had a maturity date of December 9, 2013, which was subsequently amended in May 2011 to be September 15, 2015. As of September 30, 2013, the borrowing base was approximately $21.8 million.

 

The ABL Credit Agreement contains negative covenants that restrict or limit the ability of Norcraft Intermediate Holdings, L.P. and its subsidiaries from, among other things, (a) selling assets, (b) altering the business, (c) engaging in mergers, acquisitions and other business combinations, (d) declaring dividends or redeeming or repurchasing our equity interests, (e) incurring additional debt or guarantees, (f) making loans and investments, (g) incurring liens, (h) entering into transactions with affiliates, (i) engaging in sale and leaseback transactions (j) prepaying the senior secured second lien notes and any subordinated debt and (k) modifying or waiving certain material agreements and organizational documents. As of September 30, 2013, the Company was in compliance with these provisions.

 

Indebtedness under the ABL Facility is guaranteed, on a joint and several basis, by Norcraft Intermediate Holdings, L.P., Norcraft Finance Corp., Norcraft Canada Corporation and all of Norcraft’s current and future subsidiaries, subject to exceptions for foreign subsidiaries to the extent of adverse tax consequences, and is secured by a first priority security interest in substantially all of Norcraft’s and the guarantor’s existing and future property and assets, including accounts receivable, inventory, equipment, general intangibles, intellectual property, investment property, other personal property, owned real property, cash and proceeds of the foregoing.

 

As of September 30, 2013, there were no borrowings outstanding, approximately $4.5 million outstanding under a letter of credit and unused commitments of $20.5 million under the ABL Facility. The total availability under the ABL Facility as of September 30, 2013 was approximately $17.3 million. We and our subsidiaries have no undrawn letters of credit.

 

Senior Secured Second Lien Notes.    In December 2009, Norcraft and Norcraft Finance Corp., a wholly-owned finance subsidiary of Norcraft, issued, on a joint and several basis, $180.0 million aggregate principal amount of 10.5% senior secured second lien notes (the “senior secured second lien notes”). Interest accrues on the senior secured second lien notes and is payable semiannually on June 15 and December 15 of each year at a rate of 10.5% per annum, which commenced on June 15, 2010. Proceeds from the issuance of the senior secured second lien notes were used to redeem the 9% senior subordinated notes due 2011 and to make a distribution to Norcraft Holdings, L.P. which allowed Norcraft Holdings L.P. to repurchase a portion of its 9.75% senior discount notes due 2012.

 

In May 2011, Norcraft and Norcraft Finance Corp. issued, on a joint and several basis, an additional $60.0 million aggregate principal amount of these senior secured second lien notes at a 1.04 premium, for total gross proceeds of $62.4 million. Proceeds from this issuance of the senior secured second lien notes were used to make a distribution to Norcraft Holdings L.P. to allow Norcraft Holdings L.P. to repurchase the remainder of its 9.75% senior discount notes due 2012 and to pay related transaction and financing costs.

 

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Norcraft has the option to redeem the senior secured second lien notes, in whole or in part, at a redemption price equal to 105.250% (or, during the twelve month period beginning December 15, 2013, 102.625%, or 100% during the period beginning December 15, 2014 and thereafter) of the principal amount thereof, plus accrued and unpaid interest.

 

If Norcraft experiences a change of control, Norcraft may be required to offer to purchase the senior secured second lien notes at a purchase price equal to 101% of the principal amount, plus accrued interest.

 

Additionally, the terms of the indenture governing the senior secured second lien notes limit Norcraft’s ability to, among other things, incur additional indebtedness, pay dividends or make distributions or repurchase or redeem capital stock, issue stock of subsidiaries, make investments, sell assets, incur liens, enter into agreements restricting any subsidiary’s ability to pay dividends, enter into sale-leaseback transactions, enter into transaction with affiliates and consolidate, merge or sell substantially all of the assets. The terms also include events of default (including cross-default provisions), which if any of them occurs, would permit or require the principal of and accrued interest on such senior secured second lien notes to become or to be declared due and payable. As of September 30, 2013, Norcraft was in compliance with these provisions.

 

The senior secured second lien notes are guaranteed, on a joint and several basis, by Norcraft Canada Corporation and all of Norcraft’s current and future subsidiaries, subject to exceptions for foreign subsidiaries to the extent of adverse tax consequences, and is secured by a second priority security interest in substantially all of Norcraft’s, Norcraft Finance Corp.’s and the guarantors’ existing and future property and assets, including accounts receivable, inventory, equipment, general intangibles, intellectual property, investment property, other personal property, owned real property, cash and proceeds of the foregoing.

 

We intend to use the proceeds from this offering to acquire common units of Norcraft Companies LLC (at a price equal to the price paid by the underwriters for shares of our common stock in this offering). Norcraft Companies LLC intends to use such net proceeds, together with the net proceeds from the Term Loan Facility when drawn, to redeem all of Norcraft Companies, L.P.’s outstanding 10.5% senior secured second lien notes due 2015 on or shortly after December 15, 2013. To the extent we are unable to enter into the New ABL Facility and Term Loan Facility following the closing of this offering, Norcraft Companies LLC will use the proceeds of this offering to redeem a portion of Norcraft Companies, L.P.’s outstanding 10.5% senior secured second lien notes due 2015 on or shortly after December 15, 2013. Until the redemption, the net proceeds of this offering will be cash on Norcraft Companies LLC’s balance sheet.

 

Off Balance Sheet Arrangements

 

There are no off-balance sheet arrangements that have or are reasonably likely to have a current or future material effect on our financial condition, capital expenditures or capital resources that are material to investors.

 

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Contractual Obligations

 

The following is a summary of our contractual cash obligations as of December 31, 2012, including payments to be made pursuant to the Management and Monitoring Agreement:

 

Contractual Obligations

   Total      Less than
1 year
     1-2 years      3-5 years      After
5 years
 
     (in millions)  

Operating leases

   $ 6.1       $ 2.5       $ 3.1       $ 0.5       $ —     

Senior secured second lien notes (principal)

     240.0         —           240.0         —           —     

Senior secured second lien notes (interest)

     75.6         25.2         50.4         —           —     

Management fees(1)

     7.0         1.0         2.0         3.0         1.0   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Total contractual obligations(2)(3)

   $ 328.7       $ 28.7       $ 295.5       $ 3.5       $ 1.0   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

 

(1)   In October 2003, we entered into a Management and Monitoring Agreement with affiliates of each of SKM Equity Fund III, L.P. and Trimaran Fund II, L.L.C. We intend to terminate the Management and Monitoring Agreement in connection with the closing of this offering.
(2)   There were no material changes in ASC topic 740 liabilities outside of the normal course of our business.
(3)   Potential payments under our tax receivable agreements are not reflected in this table. See “—Tax Receivable Agreements”, below.

 

Tax Receivable Agreements

 

In connection with the reorganization transactions and our initial public offering, we will enter into several tax receivable agreements, or TRAs, which obligate us to make payments to direct and indirect pre-initial public offering investors in Norcraft Companies LLC. A description of each TRA is as follows:

 

   

TRA with former stockholders of SKM Norcraft Corp.    Under the first of these agreements we generally will be required to pay to the holders of common stock of SKM Norcraft Corp. as of immediately prior to the Reorganization 85% of the applicable cash savings, if any, in U.S. federal, state or local tax that we actually realize (or are deemed to realize in certain circumstances) as a result of (i) the tax attributes associated with any increase in tax basis attributable to SKM Norcraft Corp.’s original acquisition of interests in Norcraft Holdings, L.P., (ii) the net operating losses of SKM Norcraft Corp. relating to taxable years ending on or before the date of the Reorganization that are or become available to us and our wholly-owned subsidiaries as a result of the Reorganization (calculated by assuming the taxable year of SKM Norcraft Corp. closes on the date of the Reorganization), and (iii) tax benefits attributable to payments made under the tax receivable agreement.

 

   

TRA with former stockholders of Trimaran Cabinet Corp.    Under the second of these agreements we generally will be required to pay to the holders of common stock of Trimaran Cabinet Corp. as of immediately prior to the Reorganization 85% of the applicable cash savings, if any, in U.S. federal, state or local tax that we actually realize (or are deemed to realize in certain circumstances) as a result of (i) the tax attributes associated with any increase in tax basis attributable to Trimaran Cabinet Corp.’s original acquisition of interests in Norcraft Holdings, L.P., (ii) the net operating losses of Trimaran Cabinet Corp. relating to taxable years ending on or before the date of the Reorganization that are or become available to us and our wholly-owned subsidiaries as a result of the Reorganization, and (iii) tax benefits attributable to payments made under the tax receivable agreement.

 

   

TRA with Pre-Initial Public Offering Investors (other than SKM Norcraft Corp and Trimaran Cabinet Corp.).    Under the third of these agreements we generally will be required to pay to the holders of units of Norcraft Companies LLC (other than units that we or our wholly-owned subsidiaries hold) 85% of the amount of cash savings, if any, in U.S. federal, state or local tax that we actually realize (or are deemed to realize in certain circumstances) as a result of (i) certain tax attributes that are created as a result of the exchanges of their units for restricted shares of our common stock or cash, including any basis adjustment

 

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relating to the assets of Norcraft Companies LLC and (ii) tax benefits attributable to payments made under the tax receivable agreement.

 

The payment obligations under the tax receivable agreements are obligations of Norcraft Companies, Inc., not Norcraft Companies LLC, and we expect that the payments we will be required to make under the tax receivable agreements will be substantial. Assuming no material changes in the relevant tax law and that we earn sufficient taxable income to realize all tax benefits that are the subject of the tax receivable agreements, we expect that the reduction in tax payments for us associated with (i) the Reorganization and (ii) future exchanges of units of Norcraft Companies LLC as described above would aggregate to approximately $81.1 million over 15 years from the date of this offering. With respect to the reduction in tax payments attributable to future exchanges of units of Norcraft Companies LLC for restricted shares of our common stock or cash, this calculation is based on an assumed price of $17.00 per share of our common stock (the midpoint of the price range set forth on the cover of this prospectus) and assuming all future exchanges would occur one year after this offering. Under such scenario we would be required to pay all the other parties to the tax receivable agreements 85% of the relevant tax savings, or $69.1 million in the aggregate, over the 15-year period from the date of this offering. The actual amounts may materially differ from these hypothetical amounts. For example, with respect to the tax receivable agreement entered into with pre-initial public offering investors (other than SKM Norcraft Corp., Trimaran Cabinet Corp., and their respective shareholders), potential future reductions in tax payments for us and tax receivable agreement payments by us will be calculated using the market value of our common stock at the time of exchange (or the 15 trading days immediately prior to the effective date of any exchange, where we elect to pay cash consideration for units of Norcraft Companies LLC) and the prevailing tax rates applicable to us over the life of the tax receivable agreements and will generally be dependent on us generating sufficient future taxable income to realize the benefit. Any actual increase in tax basis, as well as the amount and timing of any payments under the tax receivable agreements, will vary depending upon a number of factors, including the timing of exchanges by the holders of limited liability company units, the price of our common stock at the time of the exchange (or the 15 trading days immediately prior to the effective date of any exchange, where we elect to pay cash consideration for units of Norcraft Companies LLC), whether such exchanges are taxable, the amount and timing of the taxable income we generate in the future and the tax rate then applicable as well as the portion of our payments under the tax receivable agreements constituting imputed interest.

 

Under all of these agreements, we generally will retain the benefit of the remaining 15% of the applicable tax savings. Payments under the tax receivable agreements are not conditioned on our existing owners’ continued ownership of us.

 

Payments under some or all of the tax receivable agreements are expected to give rise to certain additional tax benefits attributable to either further increases in basis or in the form of deductions for imputed interest, depending on the tax receivable agreement and the circumstances. Any such benefits are the subject of the tax receivable agreements and will increase the amounts due thereunder. In addition, the tax receivable agreements will provide for interest, at a rate equal to LIBOR, accrued from the due date (without extensions) of the corresponding tax return to the date of payment specified by the tax receivable agreements.

 

Payments under the tax receivable agreements will be based on the tax reporting positions that we determine, consistent with the terms of the tax receivable agreements. We will not be reimbursed for any payments previously made under the tax receivable agreements if any basis increases or other benefits (including any net operating losses of SKM Norcraft Corp. and Trimaran Cabinet Corp. as of the Reorganization) are subsequently disallowed; if it is determined that excess payments have been made to a beneficiary under a tax receivable agreement, certain future payments, if any, otherwise to be made will be reduced. As a result, in certain circumstances, payments could be made under the tax receivable agreements in excess of the benefits that we actually realize in respect of the attributes to which the tax receivable agreements relate.

 

Each tax receivable agreement provides that upon certain mergers, asset sales, other forms of business combinations, other changes of control or a material breach by us of such agreement, or if, at any time, the

 

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corporation elects an early termination of the tax receivable agreement, we would be required to make an immediate payment equal to the present value of the anticipated future tax benefits, which upfront payments may be made years in advance of the actual realization of such future benefits, if any of such benefits are ever realized. That immediate payment would be calculated based on certain assumptions, including that the corporate taxpayer would have sufficient taxable income to fully utilize the deductions arising from the increased tax deductions and tax basis and other benefits related to entering into the tax receivable agreements and the net operating losses would be fully utilized over a period of time. As a result, the amount of such immediate payment could be greater than the present value of the payments we would have been required to pay had such acceleration event not occurred. In these situations, our obligations under the tax receivable agreements could have a substantial negative impact on our liquidity. There can be no assurance that we will be able to finance our obligations under the tax receivable agreements in a manner that does not adversely affect our working capital and growth requirements, if at all.

 

Decisions made by our existing owners in the course of running our business, such as with respect to mergers, asset sales, other forms of business combinations or other changes in control, may influence the timing and amount of payments under the tax receivable agreements. For example, the earlier disposition of assets following an exchange or acquisition transaction will generally accelerate payments under the tax receivable agreements and increase the present value of such payments, and the disposition of assets before an exchange or acquisition transaction will increase an existing owner’s tax liability without giving rise to any rights of an existing owner to receive payments under the tax receivable agreements in a manner that does not adversely affect our working capital and growth requirements, if at all.

 

Taxes; Distributions to Our Limited Partners

 

Norcraft Holdings, L.P. and Norcraft Companies, L.P. are limited partnerships intended to be treated as either partnerships or disregarded entities for U.S. federal income tax purposes. As such, as of prior to the Reorganization income is allocated to (or treated as realized by, as applicable) the limited partners of Norcraft Holdings L.P. (including SKM Norcraft Corp and Trimaran Cabinet Corp.) for inclusion in their respective tax returns. Accordingly, no liability or provision for federal income taxes and deferred income taxes attributable to our operations are included in our financial statements. We are subject to various state and local taxes. After the Reorganization each of SKM Norcraft Corp. and Trimaran Cabinet Corp. will become part of our consolidated group and as such any taxes imposed on SKM Norcraft Corp. and Trimaran Cabinet Corp. may become liabilities of us and our group.

 

The indenture governing Norcraft Companies, L.P.’s senior secured second lien notes significantly restricts Norcraft Companies, L.P. and its subsidiaries from paying dividends and otherwise transferring assets to Norcraft Holdings, L.P. After the Reorganization, Norcraft Companies, L.P. expects to make regular distributions to Norcraft Holdings L.P., subject to certain limitations, to permit Norcraft Holdings L.P. to make further distributions directly or indirectly to Norcraft Companies LLC for distribution to its equity holders to pay taxes on our net income allocated to them. There was a $10,000 tax distribution during the year ended December 31, 2012. There were no tax distributions for the nine months ended September 30, 2013.

 

Inflation; Seasonality

 

Our cost of sales is subject to inflationary pressures and price fluctuations of the raw materials we use. Although generally we are able to recover the effects of inflation and price fluctuations through sales price increases, from time to time inflation and/or price fluctuations increase too much and too quickly for the Company to offset the increases in the period in which they occur. As a result, we may be impacted in the period in which the inflation or price fluctuations increase more substantially than in the following period in which we are able to affect sales price increases.

 

Our sales have historically been moderately seasonal and have been strongest in April through October which coincides with the construction season.

 

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Jumpstart Our Business Startups Act of 2012

 

The JOBS Act permits an “emerging growth company” such as us to take advantage of an extended transition period to comply with new or revised accounting standards applicable to public companies. We are choosing to “opt out” of this provision and, as a result, we will comply with new or revised accounting standards as required when they are adopted. This decision to opt out of the extended transition period under the JOBS Act is irrevocable.

 

Quantitative and Qualitative Disclosures About Market Risk

 

We currently do not hedge against interest rate movements or foreign currency fluctuations. The risk inherent in our market-sensitive instruments and positions is the potential loss arising from adverse changes to interest rates as discussed below.

 

Variable Interest Rates

 

Our earnings could be affected by changes in interest rates due to the impact those changes would have on interest expense from variable rate debt instruments and on interest income generated from our cash and investment balances. At September 30, 2013, we had no borrowings on our variable rate ABL Facility; however future earnings could be affected by changes in interest rates.

 

Foreign Currency

 

We have minimal exposure to market risk from changes in foreign currency exchange rates and interest rates that could affect our results of operations and financial condition. Our largest exposure comes from the Canadian dollar, where approximately 7% of our sales during the nine months ended September 30, 2013 were derived from Norcraft Canada and our revenues from such sales were denominated in Canadian dollars.

 

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BUSINESS

 

Our Company

 

We are a leading manufacturer of kitchen and bathroom cabinetry in the U.S. and Canada, producing a broad range of high-quality cabinetry across most price points. Our business is conducted through four business divisions (each with its own president or general manager) and we market our products through seven main brands, primarily through cabinet dealers. We believe that our comprehensive product portfolio and low cost, strategically located manufacturing platform allow us to better serve our customers and provide us with a competitive advantage over other cabinet manufacturers. During the year ended December 31, 2012, we believe that approximately two-thirds of our net sales were to the home repair and remodeling market and the remaining net sales were to the new residential construction market. As of and for the twelve-month period ended September 30, 2013, we generated net sales of $330.4 million, Adjusted EBITDA of $40.4 million, a net loss of $3.7 million and total indebtedness of $240.0 million. For a reconciliation of Adjusted EBITDA to net income, see “—Summary Historical Condensed Consolidated Financial Information.”

 

We are a single source supplier of what we believe is one of the most comprehensive product offerings in the industry that encompasses a variety of price points, styles, materials and customization levels. Our product offering includes stock and semi-custom cabinets manufactured in both framed and full access styles, and more than 600,000 door and finish combinations. We have seven main brands, encompassing the full range of products, including: Mid Continent Cabinetry, Norcraft Cabinetry, Brookwood Cabinetry, Fieldstone Cabinetry, StarMark Cabinetry, UltraCraft, and Urban Effects. We focus on product innovation and design, seeking to continuously enhance existing products and develop new products to support our brands and meet the changing demands of our customers.

 

We sell our products primarily to kitchen and bathroom cabinet dealers. For the year ended December 31, 2012, kitchen and bathroom cabinet dealers accounted for 87% of our net sales, home builders accounted for 8% and wholesale retailers, or wholetailers, accounted for 5% of net sales. We believe our focus on kitchen and bathroom cabinet dealers enhances our ability to sell our stock and semi-custom cabinet offerings. We have an extensive network of nearly 2,000 active customers and 118 internal and independent sales representatives (of which 104 are dedicated exclusively to one of Norcraft’s divisions). We have six manufacturing facilities and North American distribution capabilities for all of our brands through two service and distribution centers, and four warehouses that are strategically located throughout the U.S. and Canada. We also operate five retail locations.

 

Our Products

 

Our business is conducted through four business divisions that each target different segments of the cabinet market. Each of our four divisions is run by a separate president or general manager, a structure which we believe provides us with an operational advantage due to enhanced accountability and focus. We believe our multi brand strategy with differentiated products across various price points, as well as our on-time delivery and high level of customer service, provide us with a competitive advantage. Each brand represents a distinct product line with little or no overlap. As a result, we are able to aggressively market each of our brands to a broad range of customers with dedicated sales representatives without significantly competing with our other brands. We believe each brand is well recognized and highly respected throughout the industry due to attractive styling, flexibility, quality and value.

 

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Table of Contents

The following table lists the products that we manufacture and sell:

 

Division

  

Mid Continent
Cabinetry

   StarMark Cabinetry    UltraCraft
Cabinetry
   Urban Effects

2012 Sales

   $147 million    $76 million    $42 million    $24 million

% of Total 2012 Sales

   51%    26%    15%    8%

Brands

  

LOGO

LOGO

   LOGO  

LOGO  

LOGO  

   LOGO      LOGO  

Lines

  

Signature Series

Pro Series

      LOGO  

LOGO  

  

Average Price Per Cabinet

  

Signature Series: $267

Pro Series: $122

   Brookwood: $579

Fieldstone: $493

StarMark: $414

   Destiny: $484

Vision: $241

   Urban Effects:
$234

Customization

   Stock and Semi-custom    Semi-custom    Semi-custom    Semi-custom

Framed / Full Access

   Framed    Framed    Full Access    Full Access

Production Facilities

  

Newton, Kansas

Cottonwood, Minnesota

Lynchburg, Virginia

   Sioux Falls,
South Dakota
   Liberty, North
Carolina
   Winnipeg,
Canada

# of Door & Finish Combinations

  

150 door styles

2,500 door and finish combinations

   500 door styles

600,000 door and
finish combinations

   260 door styles

16,000 door and
finish combinations

   150 door styles

2,500 door and
finish combinations

 

Mid Continent Cabinetry

 

The Mid Continent and Norcraft brands comprise our Mid Continent Cabinetry division. Mid Continent manufactures a broad range of stock and semi-custom framed cabinetry, offering over 150 door styles and over 2,500 door and finish combinations. Mid Continent also offers a custom-color option. The Mid Continent product offering includes two distinct product lines: Signature Series and Pro Series, which are differentiated by door style and finish, as well as design options and construction features. Norcraft Cabinetry includes only Signature Series cabinets. Mid Continent’s products accounted for approximately 51% of our sales during the fiscal year ended December 31, 2012.

 

Signature Series

 

Mid Continent’s Signature Series, the division’s most popular product line, provides features and customization options comparable to a semi-custom product at price points competitive with stock cabinetry. The Signature Series offers numerous door style selections in various wood species with multiple door and finish combinations. In addition, the Signature Series offers a wide variety of construction upgrades and design options, such as plywood sides and full-extension, dovetail maple drawers, for added style and design. We believe that our Signature Series cabinetry appeals to consumers undertaking remodeling projects, who seek superior design flexibility and attractive appearance relative to stock cabinetry and lower cost and shorter lead-times compared to semi-custom and custom cabinetry. We also believe we appeal to home builders who seek cabinetry that differentiates their homes and gives home buyers the look and feel of custom cabinetry at an affordable price.

 

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Table of Contents

Pro Series

 

Mid Continent’s Pro Series is designed for the value-conscious customer. The Pro Series is manufactured in high quantities and a limited range of finishes with few modification options. We believe that our Pro Series cabinetry primarily appeals to builders who are seeking products for single family and multi-unit dwellings.

 

Starmark Cabinetry