UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington D.C. 20549

__________________________________

FORM 10-K



¨	ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the fiscal year ended December 31, 2012



¨	TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from to

Commission file number: 333-114924

__________________________________

Norcraft Companies, L.P.

(Exact name of registrant as specified in its certificate of limited partnership)



Delaware	36-4231718
(State or Other Jurisdiction of Incorporation or Organization)	(I.R.S. Employer Identification No.)

3020 Denmark Avenue, Suite 100

Eagan, MN 55121

(Address of Principal Executive Offices)

(800) 297-0661

(Registrant’s Telephone Number, Including Area Code)

Securities registered pursuant to 12(b) of the Act: None

Securities registered pursuant to Section 12(g) of the Act: None

__________________________________

Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes ¨ No ý

Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. Yes ý No ¨

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months, and (2) has been subject to such filing requirements for the past 90 days. Yes ¨ No ý

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Website, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes ý No ¨

Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein and will not be contained, to the best of registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. ¨

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,” and “smaller reporting company” in Rule 12b-2 of the Exchange Act. (Check one):



Large Accelerated Filer	¨	Accelerated Filer	¨

Non-Accelerated Filer	ý	Smaller Reporting Company	¨

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ¨ No ý

The aggregate market value of voting and non-voting common equity held by non-affiliates in the case of Norcraft Companies, L.P. is $0.

Norcraft Companies, L.P.

Table of Contents



		Page
PART I.
Item 1.	Business	3
Item 1A.	Risk Factors	7
Item 2.	Properties	14
Item 3.	Legal Proceedings	14
Item 4.	Mine Safety Disclosures	14

PART II.
Item 5.	Market For Registrant’s Common Equity and Related Equity Holder Matters and Issuers’ Purchases of Equity Securities	15
Item 6.	Selected Financial Data	15
Item 7.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	16
Item 7A.	Quantitative and Qualitative Disclosures About Market Risk	24
Item 8.	Financial Statements and Supplementary Data	25
Item 9.	Changes in and Disagreements With Accountants on Accounting and Financial Disclosure	25
Item 9A.	Controls and Procedures	25
Item 9B.	Other Information	25

PART III.
Item 10.	Directors, Executive Officers and Corporate Governance	26
Item 11.	Executive Compensation	28
Item 12.	Security Ownership of Certain Beneficial Owners and Management and Related Equity Holder Matters	35
Item 13.	Certain Relationships and Related Transactions and Director Independence	37
Item 14.	Principal Accountant Fees and Services	38

PART IV.
Item15.	Exhibits and Financial Statement Schedules	39

PART I

Item 1. Business

OUR COMPANY

We are a leader in manufacturing, assembling and finishing kitchen and bathroom cabinetry in the U.S. and parts of Canada. 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.

We are a single source provider of one of the most comprehensive product offerings in the industry, with national brands across a broad range of price points, styles, materials and customization levels. Our product offering was developed through both strategic acquisitions and internal development. We continuously enhance existing products and add new products to support our brands and meet the changing demands of our customers. We believe our multi brand strategy, and the resultant differentiated products across various price points, provides us with a competitive advantage. UltraCraft is our semi-custom full access cabinet line. StarMark and Brookwood are our semi-custom framed cabinet lines. Fieldstone is our high-end semi-custom and custom framed cabinet line. Mid Continent Cabinetry and Norcraft Cabinetry comprise our stock and semi-custom framed cabinet lines. Finally, Urban Effects represents a stock and semi-custom frameless cabinet line, primarily for the Canadian market. Through these brands, we currently offer more than 600,000 door and finish combinations for wood, thermofoil, high-pressure laminate and melamine cabinets ranging in average price from $100 to $550 per cabinet. With this broad range of cabinetry products, we are able to compete successfully in multiple segments of the market. We believe that during the year ended December 31, 2012, approximately two-thirds of our net sales were to the home repair and remodeling market and the remaining net sales were to the new construction market.

We sell our products primarily to kitchen and bathroom cabinetry dealers. For the year ended December 31, 2012, kitchen and bathroom cabinetry dealers accounted for 79% of our net sales, catalog stores accounted for 8%, home builders accounted for 8% and wholesale retailers, or wholetailers, accounted for 5% of net sales. We believe our focus on kitchen and cabinetry dealers enhances our ability to sell our custom and semi-custom cabinet offering. We have an extensive network of nearly 2,000 active customers and 118 internal and independent sales representatives (of which fourteen sell for more than one brand). We have North American distribution capabilities for all of our brands through six manufacturing facilities, two service and distribution centers, four warehouses and five retail locations strategically located throughout the U.S. and Canada.

In 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. We continue to believe that our broad product line coupled with our new product offerings, new customer additions, primary focus on the dealer channel, delivery of quality customer service and investment in manufacturing capacity provides a strong platform to weather the down-turn and return to growth in sales and profitability.

This annual report is that of Norcraft Companies, L.P. (“Norcraft”). Norcraft and its subsidiaries are collectively referred to as the “Company”. Norcraft Holdings, L.P. (“Holdings”) is the parent company of Norcraft. Holdings had no activity prior to its acquisition of Norcraft Companies L.L.C. (the predecessor company of Norcraft) on October 21, 2003 (the “Acquisition”).

We have one reportable segment, consisting of three divisions (Mid Continent, UltraCraft and StarMark) and one subsidiary (Norcraft Canada Corporation). As they all have similar products, production processes, types of customers, distribution methods and economic characteristics and operate in identical positions with regards to regulatory requirements, we have deemed it appropriate to aggregate them into one reportable segment.

OUR PRODUCTS

We offer a broad product line that encompasses a complete range of price points, styles, materials and customization levels. Our product offering includes stock, semi-custom and custom cabinets. We offer cabinets in both framed and full access construction and offer more than 600,000 door and finish combinations for wood, thermofoil, high-pressure laminate and melamine cabinets.

Our business is conducted through three business divisions and one subsidiary: Mid Continent Cabinetry, UltraCraft Cabinetry, StarMark Cabinetry (which includes the StarMark, Fieldstone and Brookwood brands) and Norcraft Canada, our subsidiary. Within these divisions and subsidiary, we market our products through seven brands: Mid Continent, Norcraft, UltraCraft, StarMark, Fieldstone, Brookwood and Urban Effects. Mid Continent is our original brand, dating back to 1966. The UltraCraft brand, acquired by us in 2000, was established in 1986. The StarMark, Fieldstone and Brookwood brands were acquired by us in 2002. The StarMark and Fieldstone brands were established in 1978. The Brookwood brand was established in the mid-1980s to differentiate products sold through large home centers. Today, the Brookwood brand is sold only through a catalog sales organization. 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 without significantly competing with our other brands. The Urban Effects brand was established in 2012 and is sold by Norcraft Canada. We believe our attention to brand positioning provides an advantage over some of our larger competitors who offer multiple brands in the same price point.

MID CONTINENT CABINETRY

The Mid Continent and Norcraft brands comprise our Mid Continent Cabinetry division. Mid Continent manufactures a broad range of stock 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 50% 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.

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.

ULTRACRAFT CABINETRY

UltraCraft manufactures a full range of stock and semi-custom wall, base, tall, vanity and specialty cabinets. UltraCraft offers over 260 door styles and over 16,000 door and finish combinations.

UltraCraft cabinets are full access, offering true full-overlay doors with concealed hinges and functional hardware. Full access cabinets provide flush, furniture-style, finished ends and provide greater storage space than traditional framed cabinets. The UltraCraft product offering is comprised of two distinct product lines: Destiny and Vision which are differentiated by features, finish, color, style selection, design options and price. UltraCraft’s products accounted for approximately 15% of our sales during the fiscal year ended December 31, 2012.

Destiny Line

UltraCraft’s Destiny line is our high-end semi-custom full access product offering with extensive customization options. Destiny cabinets include thousands of door and finish combinations constructed of wood, thermofoil, acrilux, metal and melamine. Over the years, we have continued to significantly expand Destiny’s product offering, adding new wood species, door styles and finishes. Destiny line products are targeted at affluent, established customers who desire upscale, smartly designed, fully-featured cabinets.

Vision Line

Ultracraft’s Vision line includes twelve door styles and twenty-four Italian “Eurotek” veneer finish combinations, a unique technology of an Italian manufacturer. The Vision manufacturing process utilizes this state of the art technology to create a high-end semi-custom style and look at a mid-range price. As a result, we believe our Vision line products are well positioned to target younger, more fashion-oriented consumers.

STARMARK CABINETRY

The StarMark, Fieldstone and Brookwood brands collectively comprise our StarMark Cabinetry division, offering over 500 door styles and over 600,000 door and finish combinations. StarMark also offers a customer-color option. This division provides high quality, attractively designed semi-custom cabinets incorporating many features of custom cabinetry at a lower price. StarMark Cabinetry collectively accounted for approximately 27% of our sales for the fiscal year ended December 31, 2012.

StarMark

StarMark is semi-custom framed kitchen and bath cabinetry targeted at both middle and upper income consumers. Kitchens are personalized for the homeowner’s lifestyle and designed by trained professionals who are experienced in using the depth of the StarMark product line to achieve a unique look and value investment for the home.

Fieldstone

Fieldstone is our higher-end, semi-custom framed cabinetry brand. This brand features an exclusive selection of products, finishes and modifications above and beyond what is available in the StarMark brand. Each kitchen is individually designed and accented by industry experts who use Fieldstone modifications, migration and exclusive finishes to achieve a custom room for their clients without a premium price. Fieldstone’s products are targeted at both middle and upper income consumers.

Brookwood

Brookwood cabinets are semi-custom, framed cabinets. Brookwood Cabinets are extensively modified and personalized for each homeowner. Brookwood products are targeted at both middle and upper income consumers.

NORCRAFT CANADA

Our Canadian division markets through its own Canadian version of the Norcraft brand and the Urban Effects brand, offering over 150 door styles and over 2,500 door and finish combinations. Norcraft Canada’s frameless cabinets, so far, are available in a limited range of finishes with fewer modification options, appealing to home builders who are seeking products for single family and multi-unit dwellings. Norcraft Canada’s products accounted for approximately 8% of our sales during the fiscal year ended December 31, 2012.

MANUFACTURING

We operate six manufacturing facilities strategically located throughout the U.S. and Canada. Our largest facility, in Newton, Kansas, is vertically integrated, enabling it to fully assemble cabinet doors, as well as perform machining, assembly and finishing operations for oak and other wood species. Our five remaining plants are primarily machining, assembly and finishing operations. At all of our sites, prior to assembly, rough milled lumber is machined. Panels, shelves, drawers, drawer fronts, doors, floors and back parts are then assembled. The cabinetry is then finished (sanded, stained, varnished and cured) and then assembled. Hardware is then added, and the final product is inspected, packaged and staged for shipment. Generally, our products are made to order and not to stock and accordingly, our finished goods inventory levels are low. Following production at one of our facilities, the finished product is shipped to our customers either directly or indirectly or via one of our two distribution centers.

Newton, Kansas along with Cottonwood, Minnesota and Lynchburg, Virginia are Mid Continent facilities, with Cottonwood and Lynchburg receiving doors manufactured by Newton and outsourcing their rough mill production of raw materials to third party vendors. Our Winnipeg, Canada facility is a Norcraft Canada facility, producing Urban Effects cabinets. Our Liberty, North Carolina facility is an UltraCraft facility, and our Sioux Falls, South Dakota facility is a StarMark facility, producing StarMark, Fieldstone and Brookwood cabinets. Liberty and Sioux Falls each outsource rough mill production. Liberty outsources door manufacturing in all wood species to third party vendors while Sioux Falls builds nearly 400 doors per day.

SALES, MARKETING AND DISTRIBUTION

We sell our products principally through our network of internal and independent sales representatives, four Kitchen and Bath Ideas retail stores and one Kitchens 2 Go retail store. The majority of our sales are through our sales representatives, who cover all areas of the U.S. and parts of Canada, and with whom we believe we have established strong relationships by providing superior customer service, timely delivery and quality products at competitive pricing.

Our sales and marketing strategy is focused on distributing our products primarily to kitchen and bath dealers and wholetailers. We estimate that the dealer and wholetailer channels accounted for approximately 65% of U.S. cabinet industry sales. In certain markets, we also sell our products directly to builders. We have developed strong relationships with our dealers by delivering superior customer service, accurate and timely deliveries, quality products and competitive pricing. We believe these relationships provide us an advantage as dealers often influence the consumer’s decision at the point-of-sale, particularly since consumers are generally not familiar with a specific brand or style of cabinetry prior to their interaction with the dealer.

We have national distribution capabilities for all of our brands and our net sales are balanced throughout the U.S. and parts of Canada. In addition, we continually monitor the sales volume and credit worthiness of our dealers to further enhance our network and we aim to maximize the sales potential of our customers by providing frequent dealer training, extensive product literature and attractive displays.

We also distribute our products through other channels on a limited basis, including national galleries, our Kitchen and Bath Ideas retail stores, Kitchens 2 Go retail stores, a catalog sales organization and other distributors. Our retail stores, which represented approximately 3% of our overall revenues in 2012, sell products from each of our divisions, as well as kitchen appliances, countertops and other kitchen and bath items.

CUSTOMERS

We primarily sell our products to kitchen and bathroom cabinetry dealers and wholesale retailers, or wholetailers, as well as directly to home builders. We have an extensive network of nearly 2,000 active customers. 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 Our customers sell our products in the repair and remodeling and new home construction markets. Other than through our retail locations, we do not generally sell our products directly to home owners.

We seek to attract and retain customers by:


•	delivering our products on time, in the specification and quantity ordered;


•	producing a quality product offering that is regularly updated with new introductions;


•	providing superior customer service and product warranties;


•	supporting dealer and distributor employees through providing cabinet displays, extensive educational programs and substantial promotional materials; and


•	utilizing a professional, nationwide network of sales representatives who have close relationships with desirable dealers.

COMPETITION

Our competitors manufacture stock, semi-custom and custom cabinetry. There are relatively low capital requirements for cabinetry assembly, and therefore it is relatively easy for small competitors to enter the industry. Many of our competitors compete on a local or regional basis, but others, like us, compete on a national basis as well. Our competitors include large consolidated operations which house their manufacturing facilities in large and efficient plants as well as relatively small, local cabinetwork manufacturers. Moreover, companies in other building products industries may compete with us.

Our competitors include American Woodmark Corporation, Fortune Brands Home & Security, Inc. and Masco Corporation as well as a large number of smaller manufacturers. We believe that we compete favorably with other manufacturers due to the breadth of our product offerings, production capacity and delivery and service.

INTELLECTUAL PROPERTY

Norcraft is the owner of various U.S. and Canadian federal trademark registrations (^®) and registration applications (^™), including for the following marks referred to in this report pursuant to applicable U.S. intellectual property laws: “Norcraft Companies^®,” “StarMark Cabinetry^®,” “Fieldstone Cabinetry^®,” “Kitchen and Bath Ideas^®,” “UltraCraft^®,” “Vision^®,” “Destiny^®,” “Mid Continent Cabinetry^™,” “Mid Continent Pro Series^™,” “Mid Continent Signature Series^™,” “Norcraft Cabinetry^®,” “Urban Effects^™,” and the Norcraft Cabinetry logo, Norcraft Companies, L.L.C. logo, and StarMark logo.

We rely on a combination of trademarks, copyrights and trade secret protection, employee and third party non-disclosure agreements and domain name registrations to protect our intellectual property. We sell many of our products under a number of registered and unregistered trademarks, which we believe are widely recognized in the cabinetry industry. With respect to proprietary know-how, we rely on trade secret protection and confidentiality agreements. Monitoring the unauthorized use of our intellectual property is difficult, and the steps we have taken may not prevent unauthorized use of our intellectual property. The disclosure or misappropriation of our intellectual property could harm our ability to protect our rights and our competitive position. To date, we have not relied on patents in operating our business.

EMPLOYEES

As of December 31, 2012, we had 1,892 employees including 1,536 manufacturing employees. Of our total employees, 960 were at Mid Continent and corporate, 254 were at UltraCraft, 488 were at StarMark and 190 were at Norcraft Canada. We believe that we have a good working relationship with our employees. None of our employees are subject to any collective bargaining agreements.

ENVIRONMENTAL REGULATION

Our operations are subject to extensive federal, state and local environmental laws and regulations relating to, among other things, the generation, storage, handling, emission, transportation and discharge of regulated materials into the environment. Permits are required for certain of our operations, and these permits are subject to revocation, modification and renewal by issuing authorities. Governmental authorities have the power to enforce compliance with their regulations, and violations may result in the payment of fines or the entry of injunctions, or both. We may also incur liability for investigation and clean-up of soil or groundwater contamination on or emanating from current or formerly owned and operated properties, or at offsite locations at which regulated materials are located where we are identified as a responsible party. We do not believe we will be required under existing environmental laws and enforcement policies to expend amounts that will have a material adverse effect on our results of operations, financial condition or cash flows. The requirements of such laws and enforcement policies, however, have generally become more stringent over time. Also, discovery of currently unknown conditions could require responses that could result in significant costs. Accordingly, we are unable to predict the ultimate cost of compliance with environmental laws and enforcement policies.

AVAILABLE INFORMATION

The Company’s Annual Report on Form 10-K, Quarterly Reports on Form 10-Q, Current Reports on Form 8-K, and amendments to reports filed pursuant to Sections 13(a) and 15(d) of the Securities Exchange Act of 1934, as amended (“Exchange Act”), are filed with the U.S. Securities and Exchange Commission (the “SEC”). Such reports and other information filed by the Company with the SEC are available free of charge on the SEC website. The public may obtain information on the operation of the Public Reference Room by calling the SEC at 1-800-SEC-0330. The SEC maintains an Internet site that contains reports, proxy and information statements and other information regarding issuers that file electronically with the SEC at www.sec.gov. The contents of these websites are not incorporated into this filing. Further, the Company’s references to the URLs for these websites are intended to be inactive textual references only.

Item 1A. Risk Factors

Our business, operations and financial condition are subject to various risks. Some of these risks are described below, and you should take these risks into account in evaluating us or any investment decision involving us. This section does not describe all risks applicable to us, our industry or our business, and it is intended only as a summary of the material risk factors.

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 December 31, 2012, we had $240.0 million of 10.5% senior secured second lien notes due 2015 of Norcraft and Norcraft Finance Corp. (a wholly-owned finance subsidiary of Norcraft), or the senior secured second lien notes. 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 Part IV, Item 15, “Exhibits and Financial Statement Schedules,” Note 6, “Long-term debt.”

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 $17.0 million. Although our ABL facility, 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 December 31, 2012, there were no borrowings 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 December 31, 2012 is approximately $12.5 million. To the extent new debt is added to our and our subsidiaries’ current debt levels, the risks described above would increase.

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 such asset sales or the proceeds which we could realize from such sales 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.

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 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.

The home improvement and home building industries are experiencing a prolonged and substantial downturn, and the duration and ultimate severity of these downturns are uncertain. Further downturns in 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 and 2012, the prolonged decline in the housing market and downward pressure on prices continues to have an adverse impact on our business. The home improvement industry may be significantly 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 could negatively affect the demand for and pricing of our products which would adversely affect our results of operations. For the past few years, the conditions within the home improvement industry have been extremely challenging as demand for home improvement continued to decline in most of our markets. Continued low levels of consumer confidence, high levels of unemployment and downward pressure on home prices have made consumers reluctant to make additional investments in existing homes, such as kitchen and bath remodeling projects. In addition, the increasing number of households with negative equity in their homes and more conservative lending practices, including for home equity loans which are often used to finance repairs and remodeling, are limiting the ability of consumers to finance home improvements. The challenges facing the home improvement industry may lead to a further decrease in demand for our products.

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. Like the home improvement industry, over the past few years, the home building industry has undergone a significant downturn, marked by declines in the demand for new homes, an oversupply of new and existing homes on the market and a reduction in the availability of financing for homebuyers. The oversupply of existing homes has been exacerbated by a growing number of home mortgage foreclosures, which is further contributing to downward pressure on home prices. Fewer new home buyers may lead to a decrease in demand for our products.

We believe that housing market conditions will continue to be challenging. We cannot predict the duration or ultimate severity of these challenging conditions. Continued depressed activity levels in consumer spending for home improvement and new home construction will continue to adversely affect our results of operations and our financial position. Furthermore, 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.

The reduction in availability of mortgage financing has adversely affected our business, and the duration and ultimate severity of the effects are uncertain.

During the past few years, the mortgage lending industry has 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 in recent years. This has 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 has caused almost all lenders to eliminate subprime mortgages and most other loan products that are not conforming loans, FHA/VA-eligible loans or jumbo loans (which meet conforming underwriting guidelines other than loan size). Fewer loan products and tighter loan qualifications have made it more difficult for some borrowers to finance the purchase of new homes or repair or remodel existing homes. These factors have served to reduce the demand for our products and have adversely affected our operations and financial results, and the duration and severity of the effects are uncertain.

We believe that the liquidity provided by Fannie Mae and Freddie Mac to the mortgage industry is very important to the housing market. These entities have reported substantial losses as a result of deteriorating housing and credit market conditions. These losses have reduced their equity, which may limit their ability to acquire mortgages. The federal government has limited the size of the home-loan portfolios and operations of these government-sponsored enterprises. Any further limitations or restrictions on the availability of the financing or on the liquidity provided by them could adversely affect interest rates, mortgage availability and sales of our products.

Continued volatility and reduction in liquidity in the financial markets have adversely affected our business, and the duration and ultimate severity of the effects are uncertain.

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 have adversely affected, and could continue to adversely affect, our operations in a variety of ways. 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 and could compromise the financial condition of our suppliers, which could result in non-performance by certain of our suppliers. In addition, our own borrowing costs are increasing and our access to capital markets may be reduced and it may become more difficult for us to obtain financing to fund operations or to refinance our existing debt obligations. 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. Our Corporate Family rating from Moody’s Global Credit Research is a B3. 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.

Increased prices for raw materials or finished goods used in our products 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. Increased prices could adversely affect 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.

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 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.

Environmental requirements applicable to our manufacturing and distribution facilities may impose significant environmental compliance costs and liabilities, which would adversely affect our results of operations.

Our facilities are subject to numerous federal, state 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 protection of worker health and safety. We believe we are in substantial compliance with all applicable requirements. However, our efforts to comply with environmental requirements do not remove the risk that we may be held liable, or incur fines or penalties, and that 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 which could make it difficult to pay the interest or principal amount of the senior secured second lien notes when due. In addition, we might incur significant capital and other costs to comply with increasingly stringent air emission control laws and enforcement policies which would decrease our cash flow available to service our indebtedness.

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.

Our response to the prolonged downturn had been to continue our focus on implementation of cost savings and containment initiatives.

We continually review our manufacturing and assembly operations and sourcing capabilities. Due to the recent downturn in the home improvement and new home construction markets, we focused on cost saving initiatives, including rationalizing our business through consolidation and integration of facilities, functions, systems and procedures and other cost saving initiatives. Certain products may also be shifted from one manufacturing or assembly facility to another. In the future, we may incur costs and charges relating to additional cost saving initiatives.

We may not fully achieve the anticipated cost savings from these initiatives. If we do not effectively balance our focus on cost savings with the need to maintain a strong sales presence for our brands, we could lose market share. If the current recovery of our markets becomes fast-paced and robust, we may not be able to replace our reduced manufacturing capacity in a timely fashion and our ability to respond to increased demand could be limited.

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.

We are dependent on certain 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 over 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 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 patent, 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.

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.

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 sales representatives to sell the majority of our products and provide services and aftermarket support to our customers. Our sales representative agreements are typically cancelable by the sales representative after a short notice period, if any at all. Furthermore, many of these sales representatives also sell our competitors’ products. The loss of a substantial number of these relationships, or our failure to maintain good relationships with these sales representatives, could materially reduce our sales and profits.

Changes in consumer preferences for cabinet designs and configurations, and our failure to respond to such changes, could adversely affect demand for our product and our results of operations.

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. Our organic growth has been driven in part by our frequent new product introductions. We may not be able to successfully develop and design new brands. Trends within the industry change often and our failure to anticipate, identify or react to changes in these trends could lead to, among other things, rejection of a new product line, reduced demand and price reductions for our products, and could adversely affect our sales.

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.

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 are controlled by our principal equity holders, which have the power to take unilateral action that could be adverse to the interests of holders of the senior secured second lien notes.

Investors controlled by SKM Equity Fund III, L.P. and Trimaran Fund II, L.L.C., through their control of our general partner, control our affairs and policies. Circumstances may occur in which the interests of these equity holders could be in conflict with the interests of the holders of the senior secured second lien notes. In addition, these equity holders may have an interest in pursuing acquisitions, divestitures or other transactions that, in their judgment, could enhance their equity investment, even though such transactions might involve risks to holders of the senior secured second lien notes. See Part III, Item 12, “Security Ownership of Certain Beneficial Owners and Management and Related Equity Holder Matters” and Part III, Item 13, “Certain Relationships and Related Transactions and Director Independence.”

Item 2. Properties

We lease our executive offices located in Eagan, Minnesota. We own six separate manufacturing facilities, three of which manufacture Mid Continent cabinets, one of which manufactures UltraCraft cabinets, one of which manufactures StarMark, Fieldstone and Brookwood cabinets and one of which manufactures Norcraft Canada and Urban Effects cabinets. In addition, we lease six other non-retail facilities which are used for service and distribution functions and storage. We also lease two and own three retail stores that are engaged in the retail distribution of our products and other non-cabinet products of other industry participants. Our buildings, machinery and equipment have been generally well maintained and are in good operating condition. We believe our facilities have sufficient capacity and are adequate for our production and distribution requirements.

Each of our facilities, by function and division, is set forth in the table below:



Location	Owned/ Leased	Approximate Square Footage	Function
Eagan, Minnesota	Leased	17,708	Headquarters
Cottonwood, Minnesota	Owned	163,000	Manufacturing—Mid Continent
Lynchburg, Virginia	Owned	160,100	Manufacturing—Mid Continent
Newton, Kansas	Owned	268,600	Manufacturing—Mid Continent
Liberty, North Carolina	Owned	213,500	Manufacturing—UltraCraft
Sioux Falls, South Dakota	Owned	233,000	Manufacturing—StarMark
Winnipeg, Manitoba	Owned	56,700	Manufacturing—Norcraft Canada
Tampa, Florida	Leased	31,200	Distribution/Service Center
Gilbert, Arizona	Leased	19,108	Distribution/Service Center
Liberty, North Carolina	Leased	36,750	Warehouse
Newton, Kansas	Leased	40,000	Warehouse
Lynchburg, Virginia	Leased	16,500	Warehouse
Winnipeg, Manitoba	Leased	60,000	Warehouse
Des Moines, Iowa	Leased	40,668	Kitchen and Bath Ideas Retail Store
Colorado Springs, Colorado	Owned	21,500	Kitchen and Bath Ideas Retail Store
Lynchburg, Virginia	Owned	5,000	Kitchen and Bath Ideas Retail Store
Sioux Falls, South Dakota	Owned	4,000	Kitchen and Bath Ideas Retail Store
Winnipeg, Manitoba	Leased	5,916	Kitchens 2 Go Retail Store

Item 3. Legal Proceedings

During the ordinary course of business, we have become and may in the future become subject to pending and threatened legal actions and proceedings. All of the current legal actions and proceedings that we are a party to are of an ordinary or routine nature incidental to our operations, the resolution of which should not have a material adverse effect on our financial condition, results of operations or cash flows. We are not currently a party to any product liability claims. The majority of the pending legal proceedings involve claims for workers compensation. These claims are generally covered by insurance, but there can be no assurance that our insurance coverage will be adequate to cover any such liability.

Item 4. Mine Safety Disclosures

Not applicable.

PART II

Item 5. Market for Registrant’s Common Equity, Related Equity Holder Matters and Issuer Purchases of Equity Securities

Norcraft does not have publicly traded stock. Holdings indirectly owns all of the outstanding equity interests in Norcraft.

Norcraft may make distributions to Holdings, subject to certain limitations, to permit Holdings to make further distributions to its equity holders to pay taxes on our net income allocated to them. Norcraft expects to make regular distributions to Holdings, subject to certain limitations, to permit Holdings to make further distributions to its equity holders to pay taxes on our net income allocated to them. Distributions to Holdings to pay interest for the years ended December 31, 2011 and 2010 were $3.9 million and $1.1 million, respectively. During 2011, there were distributions totaling $54.1 million used to retire the remainder of the 9.75% senior discount notes due 2012. There was a $10,000 tax distribution during the year ended December 31, 2012. There were no tax distributions for the years ended December 31, 2011 and 2010.

Item 6. Selected Financial Data

The selected data presented below is derived from our audited financial statements, which are included elsewhere in this report.



(dollar amounts in thousands)	Fiscal Year Ended December 31,
(dollar amounts in thousands)	2008			2009		2010		2011			2012
Statement of Comprehensive Income (Loss) Data:
Net sales	$	331,548		$	246,804	$	262,568	$	269,305		$	288,782
Cost of sales	234,427			176,512		187,482		195,853			215,274
Gross profit	97,121			70,292		75,086		73,452			73,508
Selling, general and administrative expense	64,789			49,706		50,402		51,099			54,144
Impairment of goodwill and other intangible assets (1)	73,938			—		—		—			—
Income (loss) from operations	(41,606		)	20,586		24,684		22,353			19,364
Interest expense, net	13,341			15,050		20,091		23,549			25,819
Amortization of deferred financing costs	1,063			2,895		1,376		2,454			3,120
Other expense, net	151			36		26		81			(16		)
Total other expense	14,555			17,981		21,493		26,084			28,923
Net income (loss)	(56,161		)	2,605		3,191		(3,731		)	(9,559		)
Other comprehensive income (loss):
Foreign currency translation adjustment	(104		)	251		1,611		(295		)	219
Total other comprehensive income (loss)	(104		)	251		1,611		(295		)	219
Comprehensive income (loss)	$	(56,265	)	$	2,856	$	4,802	$	(4,026	)	$	(9,340	)



	(dollar amounts in thousands)
	December 31,
	2008		2009		2010		2011 (2)		2012
Balance Sheet Data:
Cash and cash equivalents	$	59,406	$	16,731	$	28,657	$	24,185	$	23,019
Total assets	313,249		259,877		266,391		263,670		256,143
Total debt	148,000		177,097		177,586		240,166		240,127
Member’s equity (deficit)	141,669		60,771		64,774		3,055		(6,058		)

(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)	During 2011, there were distributions totaling $54.1 million used to retire the remainder of the 9.75% senior discount notes due 2012.

Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations

UNCERTAINTY OF FORWARD LOOKING STATEMENTS AND INFORMATION

This report contains ‘‘forward looking statements.’’ All statements other than statements of historical facts included in this report that address activities, events or developments that we expect, believe or anticipate will or may occur in the future are forward looking statements. Forward looking statements give our current expectations and projections relating to the financial condition, results of operations, plans, objectives, future performance and business of our company. You can identify these statements by the fact that they do not relate strictly to historical or current facts. These statements may include words such as ‘‘anticipate,’’ ‘‘estimate,’’ ‘‘expect,’’ ‘‘project,’’ ‘‘intend,’’ ‘‘plan,’’ ‘‘believe’’ and other words and terms of similar meaning in connection with any discussion of the timing or nature of future operating or financial performance or other events.

These forward looking statements are based on our expectations and beliefs concerning future events affecting us. They are subject to uncertainties and factors relating to our operations and business environment, all of which are difficult to predict and many of which are beyond our control. Although we believe that the expectations reflected in our forward looking statements are reasonable, we do not know whether our expectations will prove correct. Such expectations can be affected by inaccurate assumptions we might make or by known or unknown risks and uncertainties. Many factors mentioned in our discussion in this report, including the risks outlined under Part I, Item 1A, “Risk Factors,’’ will be important in determining future results.

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

COMPANY OVERVIEW

The following discussion of our financial condition and results of operations should be read together with the consolidated financial statements and the accompanying notes included elsewhere in this annual report. All of our operations are conducted through Norcraft Companies, L.P. ("Norcraft") and its subsidiaries. Norcraft is an indirect wholly-owned subsidiary of Norcraft Holding, L.P. ("Holdings").

Our fiscal year is the calendar year ending December 31. References to “fiscal year” mean the year ending December 31. For example, “fiscal year 2012” or “fiscal 2012” means the period from January 1, 2012 to December 31, 2012.

GENERAL

We are a leader in manufacturing, assembling and finishing kitchen and bathroom cabinetry in the U.S. and parts of Canada. 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 2.6% for the year ended December 31, 2011 and 7.2% for the year ended December 31, 2012. We expect the market recovery to gain some momentum in 2013. Net loss increased 156.2% for the year ended December 31, 2012 as compared to the year ended December 31, 2011. Net income decreased 216.9% 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 have 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.

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 due 2015. Proceeds from the issuance of the senior secured second lien notes were used to redeem the Company's 9% senior subordinated notes due 2011 and to make a distribution to Holdings which allowed Holdings to repurchase a portion of their 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 Holdings to allow Holdings to retire the remainder of its 9.75% senior discount notes due 2012 and pay related transaction and financing costs.

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.

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.

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 being 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.

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. 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.

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. We may need to perform an impairment test prior to the fourth quarter of 2013, if results for any of these reporting units fall significantly below our estimates during 2013, the perpetual growth rate decreases significantly, the discount rate increases significantly, or other key assumptions used in our fair value calculations in the fourth quarter of 2012 change.

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.

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

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	%	8.8	%	7.7	%
Amortization of deferred financing costs	1.1	%	0.9	%	0.5	%
Net income (loss)	(3.3	)%	(1.4	)%	1.2	%

Year ended December 31, 2012 compared with year ended December 31, 2011

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 the Company's market share. 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. The decrease in gross profit as a percentage of net sales was primarily a result of discounting and other sales promotions in response to the extremely competitive conditions in our industry.

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 increased $2.9 million, or 10.9%, from $26.0 million for the year ended December 31, 2011 to $28.9 million for the year ended December 31, 2012. Interest expense increased $2.3 million and amortization of deferred financing costs increased $0.6 million mainly due to new debt financing. Interest, amortization of deferred financing fees and other expenses as a percentage of net sales increased from 9.7% for the year ended December 31, 2011 to 10.0% for 2012.

Net income (loss). Net loss increased by $5.9 million from $3.7 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 (1.4)% 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 an increase in the Company’s market share.

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.

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.

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 $4.5 million, or 21.4%, from $21.5 million for the year ended December 31, 2010 to $26.0 million for the year ended December 31, 2011. Interest expense increased $3.4 million and amortization of deferred financing costs increased $1.0 million mainly due to new debt financing. Interest, amortization of deferred financing fees and other expenses as a percentage of net sales increased from 8.2% for the year ended December 31, 2010 to 9.7% for 2011.

Net income (loss). Net income (loss) decreased by $6.9 million from $3.2 million in income for the year ended December 31, 2010 compared with $3.7 million in loss for the year ended December 31, 2011. This change was primarily the result of the factors described above. Net income (loss) as a percentage of net sales decreased from 1.2% for the year ended December 31, 2010 to (1.4)% for 2011.

LIQUIDITY AND CAPITAL RESOURCES

Cash flows

Our primary cash needs are working capital, capital expenditures, display cabinets, member’s tax distributions 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 $6.2 million for the year ended December 31, 2012, compared with $6.8 million for 2011, a decrease in cash provided of $0.6 million. The decrease was primarily due to an increase in net loss of $5.9 million as discussed above offset by a change in operating assets and liabilities of $4.4 million and a change in amortization of $0.8 million for the year ended December 31, 2012 compared to 2011.

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 year ended December 31, 2012, compared with $3.8 million in 2011, a decrease of $3.8 million. This decrease was mainly due to $58.0 million of distributions to member and payment in financing costs of $8.2 million for the year ended December 31, 2011. This was all offset by 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.

We generally anticipate that the funds generated by operations and current available cash balances will be sufficient to meet working capital requirements, make 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 debt obligations or changes in our leverage or other financial ratios, 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 has a maturity date of December 9, 2013. As of December 31, 2012, the borrowing base was approximately $17.0 million.

In May 2011, the ABL Credit Agreement was modified and now has a maturity of September 2015.

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 that Norcraft currently conducts, (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 and (j) prepaying the senior secured second lien notes, the senior discount notes and any subordinated debt. As of December 31, 2012, 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 December 31, 2012, there were no borrowings outstanding, approximately $4.5 million of a letter of credit outstanding and unused commitments of $12.5 million under the ABL Facility.

We and our subsidiaries have no unused 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 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 senior secured second lien notes were used to redeem the Company's 9% senior subordinated notes due 2011 and to make a distribution to Norcraft Holdings, L.P. which allowed Holdings to repurchase a portion of its 9.75% senior discount notes due 2012.

Norcraft may redeem the senior secured second lien notes, in whole or in part, at a redemption price equal to 100% of the principal amount of the senior secured second lien notes plus a premium declining ratably to par plus accrued 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, dispose of assets, make acquisitions, make other investments, pay dividends and make various other payments. The terms also include cross-default provisions. As of December 31, 2012, Norcraft was in compliance with these provisions.

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.

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 cash obligations (2)	$	328.7	$	28.7	$	295.5	$	3.5	$	1.0


(1)	In connection with the Acquisition, 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. Pursuant to the management and monitoring agreement, we will pay such affiliate entities an aggregate annual fee of $1.0 million for so long as they maintain certain levels of equity ownership in our parent.


(2)	There were no material changes in ASC topic 740 liabilities outside of the normal course of our business.

TAXES; DISTRIBUTIONS TO OUR LIMITED PARTNERS

Norcraft Holdings, L.P., our parent company, and Norcraft are limited partnerships. As such, income is allocated to limited partners 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.

The indenture governing our senior secured second lien notes significantly restricts Norcraft and its subsidiaries from paying dividends and otherwise transferring assets to Holdings. Norcraft expects to make regular distributions to Holdings, subject to certain limitations, to permit Holdings to make further distributions 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 years ended December 31, 2011 and 2010.

INFLATION; SEASONALITY

Our cost of sales is subject to inflationary pressures and price fluctuations of the raw materials we use. We have generally been able over time to recover the effects of inflation and price fluctuations through sales price increases.

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

Item 7A. 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 December 31, 2012, 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 8% of our sales during the fiscal year ended December 31, 2012 were derived from Norcraft Canada and our revenues from such sales were denominated in Canadian dollar.

Item 8. Financial Statements and Supplementary Data

The financial statements required by this item are set forth starting on page F-1 and the related financial schedule is set forth on page S-1.

Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure

None.

Item 9A. Controls and Procedures

EVALUATION OF DISCLOSURE CONTROLS AND PROCEDURES

The Company’s management, with the participation of the Company’s Chief Executive Officer and Chief Financial Officer, has evaluated the effectiveness of the Company’s disclosure controls and procedures, as such term is defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended (the “Exchange Act”), as of the end of the period covered by this Annual Report on Form 10-K.

There are inherent limitations to the effectiveness of any system of disclosure controls and procedures, including the possibility of human error and the circumvention or overriding of the controls and procedures. Our disclosure controls and procedures are designed to provide reasonable assurance of achieving their control objectives.

Based on that evaluation, the Company’s Chief Executive Officer and Chief Financial Officer concluded that as of December 31, 2012, the Company’s disclosure controls and procedures were effective to provide reasonable assurance that the information required to be disclosed by the Company in the reports it files or submits with the Securities and Exchange Commission is recorded, processed, summarized and reported within the time periods specified in Securities and Exchange Commission rules and forms and is accumulated and communicated to our management, including the principal executive and principal financial officers, or persons performing similar functions, as appropriate to allow timely decisions regarding required disclosure.

MANAGEMENT’S REPORT ON INTERNAL CONTROL OVER FINANCIAL REPORTING

The Company’s internal control over financial reporting is a process designed by, or under the supervision of, the registrant's principal executive and principal financial officers, or persons performing similar functions, and effected by the registrant's board of directors, management, and other personnel to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. The Company’s internal control over financial reporting includes those policies and procedures that (i) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the Company; (ii) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with accounting principles generally accepted in the United States of America, and that receipts and expenditures of the Company are being made only in accordance with authorizations of management and directors and (iii) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use or disposition of the Company’s assets that could have a material effect on the financial statements.

Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.

The Company’s management is responsible for establishing and maintaining adequate internal control over financial reporting, as defined in the Exchange Act Rule 13a-15(f). The Company’s management conducted an assessment of the Company’s internal control over financial reporting based on the framework established by the Committee of Sponsoring Organizations of the Treadway Commission in Internal Control—Integrated Framework. Based on this assessment, the Company’s management has concluded that, as of December 31, 2012, the Company’s internal control over financial reporting is effective.

CHANGES IN INTERNAL CONTROL OVER FINANCIAL REPORTING

There were no changes in our internal controls over financial reporting that occurred during our most recent fiscal quarter that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

Item 9B. Other Information

None.

PART III

Item 10. Directors, Executive Officers and Corporate Governance

Norcraft GP, L.L.C. (“Norcraft GP”) is the general partner of Norcraft. The following table sets forth information about the members of the board of managers of our general partner and our executive officers:



Name	Age	Position(s)
Mark Buller	48	President, Chief Executive Officer and Manager
Kurt Wanninger	52	President, Mid Continent
Simon Solomon	60	President, UltraCraft
John Swedeen	62	President, StarMark
Leigh Ginter	47	Chief Financial Officer
Herb Buller	71	Chairman of the Board of Managers
Jay Bloom	57	Manager
David Kim	46	Manager
Michael Maselli	53	Manager
Christopher Reilly	50	Manager

Set forth below is a brief description of the business experience of each of the members of the board of managers of our general partner and our executive officers.

Mark Buller became our chief executive officer and a member of our general partner’s board of managers upon consummation of the Acquisition. Mr. 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 15 years. From 1987 to 1996, Mr. Buller served in various management positions at Kitchen Craft Cabinets, a Canadian cabinetry maker. From 1996 to 1999, Mr. Buller was president of Kitchen Craft and following its acquisition by Omega Cabinets, Ltd., Mr. Buller continued as president of Kitchen Craft from 1999 to 2000. Mr. Buller was appointed chief executive officer of Omega in 2000 and remained in that position until 2002, leaving Omega after it was sold to Fortune Brands, Inc. Mr. Buller’s leadership, executive, managerial and business experience, along with his more than 25 years of experience in the cabinetry industry, qualify him to be a manager.

Kurt Wanninger became president of our Mid Continent division in January of 2006. Mr. Wanninger has over 32 years of manufacturing industry experience, including over seven years with MasterBrand Cabinets, Inc. While at MasterBrand Cabinets, Mr. Wanninger served as the executive vice president of operations. His responsibilities included the supply chain for this $2.0 billion organization, leading 16 plants and 7,500 employees, producing 30,000 cabinets per day. Prior to Mr. Wanninger’s kitchen cabinet experience, he worked for Electrolux as the general manager of the Poulan Weedeater Division supporting $600 million in annual revenue producing gas weedeaters, chain saws and leaf blowers. Prior to joining Electrolux, Mr. Wanninger spent 17 years at a significant supplier to the automotive industry holding various operational positions. Mr. Wanninger received a bachelor’s degree in business administration from Bellevue University and an associate’s degree from Iowa Western in operations management.

Simon Solomon originally joined our company in June 2000 when we purchased UltraCraft. He continued to serve as the president of UltraCraft until his departure from the Company on August 31, 2006. He resumed his role as the president of UltraCraft after rejoining the Company on February 13, 2008. Cumulatively, he has over 18 years experience serving as the president of UltraCraft. He also has over 34 years total experience in the building industry. Prior to joining UltraCraft, Mr. Solomon worked in a variety of sales positions at Thomasville Furniture, his latest being general manager of its Armstrong Furniture division, and also served as senior vice president of sales and marketing at Lineage Home Furnishings, a subsidiary of Masco Corporation. Mr. Solomon received a bachelor’s degree in political science and history from the University of Pittsburgh and a master’s degree in international management from the American Graduate School of International Management.

John Swedeen joined our company in 2002 when we purchased StarMark. Mr. Swedeen has been in his current role as the president of StarMark since 1998. Prior to joining StarMark, he served as vice president of sales and marketing for Weiser Lock, a subsidiary of Masco Corporation. Prior to joining Masco, he served in various capacities for Ingersoll-Rand Company, most recently as vice president of marketing for its Architectural Hardware Group. Mr. Swedeen received a bachelor’s degree in business administration from Georgia State University and completed an executive education program at Stanford Graduate School of Business.

Leigh Ginter joined our company in December 1997 as corporate controller and became our chief financial officer upon consummation of the Acquisition. In October 2001, he was appointed our vice president and controller, responsible for overseeing the finances of all of our business divisions as well as monitoring our overall financial performance. Prior to joining our company, Mr. Ginter spent five years as controller for Beckman Produce, an $80 million wholesale produce distributor in St. Paul, Minnesota. Mr. Ginter began his career at Lampert Lumber, serving in a variety of accounting positions during his five years with the company. Mr. Ginter received a bachelor’s degree in accounting from Metropolitan University.

Herb Buller joined our company as chairman of our general partner’s board of managers upon the consummation of the Acquisition. Prior to joining our company, Mr. Buller founded Kitchen Craft Cabinets, a Canadian cabinetry maker, in 1971. Mr. Buller served as chief executive officer of Kitchen Craft until December 2002. Mr. Buller received a bachelor’s degree and a certificate of education from the University of Manitoba. He has served on the board of Teen Challenge, Family Life Network and Palliser Furniture. Mr. Buller’s leadership, executive, managerial and business experience, along with his more than 40 years of experience in the cabinetry industry, qualify him to be a manager.

Jay Bloom joined our company as a member of our general partner’s board of managers upon consummation of the Acquisition. Mr. Bloom is a founder and managing partner of Trimaran Fund Management L.L.C. Prior to co-founding Trimaran Fund Management L.L.C., Mr. Bloom was a vice chairman of CIBC World Markets Corp. and co-head of the CIBC Argosy Merchant Banking Funds. Prior to joining CIBC World Markets Corp. in 1995, Mr. Bloom was a founder and managing director of The Argosy Group L.P. Mr. Bloom received a bachelor’s degree and a master’s degree in business administration from Cornell University and a juris doctor from Columbia University School of Law. Mr. Bloom has served on the board of directors of Educational Services of America, Inc., El Pollo Loco, Inc., NSP Holdings LLC, PrimeCo Wireless Communications L.L.C, Standard Steel, L.L.C, Source Financial Corporation, Millennium Digital Media, L.L.C, IASIS Healthcare Corporation, Freightcar America, Inc., Accuride Corporation and Transportation Technologies Industries, Inc. Mr. Bloom’s substantial experience with portfolio companies and his private equity, financial and investment banking experience qualify him to serve as a manager.

David Kim joined our company as a member of our general partner’s board of managers upon the consummation of the Acquisition. Mr. Kim is currently a partner at Apax Partners, L.P. and was involved in Apax Partners’ investments in Contech Construction Products, Empire Pacific Windows, Tommy Bahama and RSI Home Products. Before joining Saunders, Karp & Megrue, LLC, a predecessor to Apax Partners, in March 2000, Mr. Kim was a principal with Butler Capital Corporation, a middle market private equity firm. While there, Mr. Kim was involved in Butler Capital’s investments in Omega Cabinets, Ltd., Contech Construction Products and the Beckley-Cardy Group. Prior to Butler Capital, Mr. Kim graduated from the U.S. Army Airborne and Ranger schools and served as an artillery officer. Mr. Kim received a bachelor’s degree, with honors, from West Point and a master’s degree in business administration from Harvard Business School. Mr. Kim has served as a member of the boards of Contech Construction Products, Spyder Active Sports and Empire Pacific Windows. Mr. Kim’s substantial experience with companies in the construction and cabinetry industry and his private equity, financial and business experience qualify him to serve as a manager.

Michael Maselli joined our company as a member of our general partner’s board of managers upon consummation of the Acquisition. Mr. Maselli is a managing director of Trimaran Fund Management, L.L.C. Before joining Trimaran in February 2003, Mr. Maselli worked in the Corporate and Leverage Finance Groups of CIBC World Markets. Prior to joining CIBC in 1997, Mr. Maselli served as a managing director in Bear Stearns’ corporate finance group and, prior to that, as a vice president at Kidder Peabody. Mr. Maselli received a bachelor’s degree in economics from the University of Colorado and a master’s degree in business administration, with distinction, from The A.B. Freeman School at Tulane University. Mr. Maselli has served on the board of directors of Standard Steel, L.L.C., Charlie Brown’s Acquisition Corp. and El Pollo Loco, Inc. Mr. Maselli’s extensive private equity, financial and investment banking experience qualify him to serve as a manager.

Christopher Reilly joined our company as a member of our general partner’s board of managers upon consummation of the Acquisition. Mr. Reilly is a founding partner at KarpReilly, LLC. Prior to founding KarpReilly, LLC, Mr. Reilly was a partner at Apax Partners, L.P. Before joining Saunders, Karp & Megrue, LLC, the predecessor to Apax Partners, in 1990, Mr. Reilly served in the Merchant Banking and Finance, Administration and Operations Departments of Morgan Stanley & Co. Incorporated. Prior to joining Morgan Stanley, Mr. Reilly spent two years at Bankers Trust. Mr. Reilly received a bachelor’s degree from Providence College and a master’s degree in business administration from New York University’s Leonard N. Stern School of Business. Mr. Reilly has served as a member of the board of directors of Z’Tejas, Inc., Habit Burger Grill, S.B. Restaurant Co. (Elephant Bar), Comark, Inc., Bob’s Discount Furniture, Encompass Home Health, Performance, Inc. and Wilshire Pies, Inc. Mr. Reilly’s substantial experience with portfolio companies and his private equity, financial and investment banking experience qualify him to serve as a manager.

Other than with respect to Herb Buller and Mark Buller, who are father and son, respectively, there are no family relationships among members of our general partner’s board of managers and our executive officers.

COMPANY GOVERNANCE

Our general partner’s board of managers manages our business and affairs as provided by its limited liability company agreement and conducts its business through meetings of the board of managers. Pursuant to the general partner’s limited liability company agreement, each of the representatives of Apax Partners who sit on our general partner’s board of managers, Mr. Reilly and Mr. Kim, are each entitled to cast 2.5 votes with respect to each matter which is submitted to a vote before our general partner’s board of managers. Trimaran is entitled to designate two managers, and an entity associated with our Chief Executive Officer, Mark Buller, is entitled to designate two managers, each of which will have one vote. As a result, the managers appointed by Apax Partners investors together hold a majority of the votes to be cast on each matter submitted to a vote before our general partner’s board of managers. See Part III, Item 13, “Certain Relationships and Related Transactions and Director Independence—Arrangements with Our Investors.”

AUDIT COMMITTEE

The board of managers of Norcraft GP has a separately designated standing audit committee established in accordance with Section 3(a)(58)(A) of the Securities Exchange Act of 1934, as amended (the “Exchange Act”). The members of the audit committee are Christopher Reilly, David Kim and Michael Maselli.

The board of managers of Norcraft GP has not determined whether or not any of its members who serve on the audit committee of the board of managers of Norcraft GP is an “audit committee financial expert” as that term is defined by SEC rules. The board of managers of Norcraft GP has determined, however, that the absence from its audit committee of a person who would qualify as an audit committee financial expert does not impair the ability of its audit committee to provide effective oversight of the Company’s external financial reporting and internal control over financial reporting. Accordingly, the board of managers of Norcraft GP does not intend to add a person to its membership solely for the purpose of adding an audit committee financial expert. In reaching its determination that the members of the audit committee, as it is presently constituted, have sufficient knowledge and experience to exercise effective oversight without the addition of an audit committee financial expert, the board of managers of Norcraft GP considered the knowledge gained by the current members of the audit committee in connection with their prior experience.

CODE OF ETHICS

We have adopted a code of business conduct and ethics for managers, officers (including the principal executive officer and principal financial officer) and employees, known as the “Code of Business Ethics and Conduct”. The Code of Business Ethics and Conduct is available on our website at http://www.norcraftcompanies.com. Interested parties may request a free copy of a Code of Business Ethics and Conduct from:

Norcraft Companies, L.P.

3020 Denmark Avenue, Suite 100

Eagan, MN 55121

Phone: (651)234-3300

Fax: (651)234-3398

E-mail: leigh.ginter@norcraftcompanies.com

Item 11. Executive Compensation

This compensation discussion describes the material elements of the compensation awarded to, earned by, or paid to our directors and officers who are considered “named executive officers” during our last three completed fiscal years. Named executive officers consist of the individual who served as our chief executive officer in 2010, 2011 and 2012, Mark Buller, the individual who served as our chief financial officer in 2010, 2011 and 2012, Leigh Ginter, and the most-highly compensated individuals serving as executive officers at the end of 2010, 2011 and 2012: (i) Kurt Wanninger, the president of our Mid Continent division, (ii) John Swedeen, the president of our StarMark division and (iii) Simon Solomon, the president of our UltraCraft division.

Compensation Discussion and Analysis

Compensation Philosophy

Our compensation programs are intended to attract and retain vital employees, motivating and rewarding them for outstanding performance. Some programs are geared towards the short-term, while others are intended to foster long-term performance with the goal of increasing member value over the long term. Executive compensation programs can influence all employees by establishing general compensation levels and creating an atmosphere of goals, rewards and expectations. Because we believe that every employee’s performance is important to our success, we are careful of the effect of executive compensation and incentive programs on all of our employees.

Our Compensation Committee and Compensation Process

The board of managers of Norcraft GP has a separately designated compensation committee composed of three non-employee, independent directors. The committee is responsible for establishing and administering the policies that govern both annual compensation and equity ownership. They review and approve salaries, bonus and incentive compensation, equity compensation and all other forms of compensation for our named executive officers. The compensation committee is also responsible for reviewing and administering our incentive compensation plans, equity incentive programs and other benefit plans. Currently, the members of our compensation committee are Christopher Reilly, David Kim and Michael Maselli.

Components of our executive compensation include salary, bonus, equity incentive awards, health insurance, disability and life insurance. Executive base salaries are set by the compensation committee. Our compensation committee also approves and adopts the management incentive plan for the new fiscal year and grants Class D unit awards to all of our executive officers and certain other eligible employees.

The Class D unit awards represent grants of “profits interests” in Holdings pursuant to its incentive plan. These units receive tax distributions based on our net income allocated to them. The Class D unit awards are subject to time-based vesting set forth in our incentive plan and the individual award certificate (the terms of which are set at the time of grant). Vested Class D units are convertible at the option of the holder into Class A units of Holdings at a price equal to the fair market value of a Class A unit on the date such Class D unit was granted.

We maintain health and dental insurance plans for the benefit of eligible employees, including the named executive officers. Each of these benefit plans requires the employee to pay a portion of the premium, with our company paying the remainder. We also maintain a 401(k) retirement plan that is available to all eligible employees. Life, accidental death and dismemberment and short and long term disability insurance coverage is also offered to all eligible employees and premiums are paid in full by us. We also provide company paid travel and living expense benefits, company paid automobiles and severance to eligible employees. Other voluntary benefits, such as supplemental life and accidental death insurance are also made available and paid for by the employee. The foregoing benefits are available to named executive officers on the same basis as all other eligible employees, subject to relevant regulatory requirements.

Our compensation committee performs an annual review of each executive’s complete compensation history over each of the past five years and compares it to the compensation of executives in an appropriate market comparison group. Mark Buller, the chief executive officer, makes compensation recommendations to the compensation committee for the executive officers who report to him. These executive officers are not present at the time of these discussions. Herb Buller, the chairman of our board of managers, then makes a compensation recommendation to the compensation committee for Mark Buller, our chief executive officer. As noted above, Herb Buller is Mark Buller’s father. The compensation committee ultimately determines Mark Buller’s compensation and he is not present at the time of these discussions.

We select each component of compensation to attract and retain vital executive talent, reward annual performance and provide incentive for long-term focus on strategic goals. The amount of each component of compensation is determined by or under the control of our compensation committee, which uses the following factors to determine the amount of salary and other benefits to pay each executive:


•	performance against corporate and individual goals for the previous year;


•	difficulty of achieving desired goals in the coming year;


•	value of their unique skills to support long-term performance of the Company;


•	performance of their general management responsibilities; and


•	contribution as a member of the executive management team.

These components of our overall compensation program help to achieve the potential of our operations, growing sales and profitability, providing proper compliance and regulatory guidance and helping to create a productive team.

Our allocation between current and long-term compensation attempts to ensure adequate base compensation to attract and retain vital personnel, while providing incentives to maximize long-term value for our members. We pay cash base salaries to meet the competition and reward performance on an annual basis in the form of bonus compensation. We provide non-cash compensation to reward superior long-term performance and to improve retention.

Holdings made no cash distributions, other than tax distributions, to the holders of its Class A and Class B units in Holdings during the years ended December 31, 2012, 2011 and 2010.

Compensation Committee Interlocks and Insider Participation

During the fiscal years ended December 31, 2010, 2011 and 2012, none of the members of our compensation committee was ever an employee or officer of our company. Furthermore, none of our executive officers have ever served as a director or a member of the compensation committee of another entity, one of whose executive officers served in a similar capacity at our company.

Compensation Committee Report

As described above, the current members of the compensation committee are Christopher Reilly, David Kim and Michael Maselli. Our compensation committee has reviewed and discussed the compensation process described above. Based on its review and discussion of this process, the compensation committee recommended to the board of managers of Norcraft GP that this process be included within this 10-K.

Specific Executive Compensation Disclosure

Summary Compensation Table

The following table sets forth the compensation earned by our named executive officers in 2010, 2011 and 2012.



Name and Title	Year	Salary ($)	Bonus ($)	Option Awards ($) (1)	Non-Equity Incentive Plan Compensation Earnings ($)	All Other Compensation ($) (2)	Total ($)
Mark Buller	2010	460,000	234,600	80,000	—	690	775,290
Chief Executive Officer	2011	460,000	—	—	—	690	460,690
	2012	481,063	—	—	—	690	481,753
Leigh Ginter	2010	220,000	99,000	28,584	—	609	348,193
Chief Financial Officer	2011	250,000	—	—	—	609	250,609
	2012	250,000	—	—	—	690	250,690
John Swedeen	2010	305,000	—	12,000	—	690	317,690
President, StarMark	2011	305,000	—	—	—	690	305,690
	2012	305,000	—	—	—	690	305,690
Kurt Wanninger	2010	365,000	164,250	168,689	—	690	698,629
President, Mid Continent	2011	385,000	—	—	—	690	385,690
	2012	385,000	—	—	—	690	385,690
Simon Solomon	2010	200,000	96,040	7,791	—	553	304,384
President, UltraCraft	2011	200,000	35,700	—	—	553	236,253
	2012	201,615	64,356	—	—	570	266,541


(1)	Represents Class D Units of Holdings granted to our executive officers. All Class D units are “profits interest” issued pursuant to Holdings’ incentive plan and are subject to time-based vesting. Amounts shown represent the estimated fair value of the Class D units calculated pursuant to ASC Topic 718.


(2)	Life insurance premiums.

Management Equity Incentive Plan

We adopted an Amended and Restated Management Incentive Plan in 2003, which we refer to as the incentive plan. The incentive plan provides for the grants of incentive Class D units to selected employees and other persons providing services for us. The purposes of the incentive plan are to attract and retain the best available personnel, provide additional incentives to our employees and promote the success of our business.

The compensation committee of the board of managers of Norcraft GP administers the incentive plan. The administrator has the sole discretion to grant options to employees and to determine the awards and incentive units granted under the plan. Incentive units may not be transferred other than in accordance with the agreement of limited partnership of Holdings. There are 7.2 million Class D units authorized under the plan.

Class D units issued under the incentive plan represent limited partnership interests in Holdings. The Class D units constitute “profits interests,” and therefore, are permitted to receive distributions only after specified amounts have been paid to the holders of Class A units, Class B units and Class C units of Holdings. Distributions that would otherwise have been made on Class D units will be reduced to the extent of the applicable distribution threshold. Accordingly, the amount of such distribution with respect to such a Class D unit shall be reduced up to the amount of such distribution until the aggregate amount of all such reductions equals the amount of distributions to which the holders of Class D units would be entitled to receive if, immediately prior to the issuance of such unit, the assets of Holdings were sold at their fair market value, the liabilities of Holdings were paid in full and the remaining proceeds were distributed in accordance with Holdings’ limited partnership agreement. Pursuant to the terms of Holdings' limited partnership agreement, holders of Class D units generally participate only in liquidating distributions by Holdings, and then, only to the extent vested. The holders of Class D units are also entitled to receive distributions of their allocated percentages of Holdings' taxable net income to make tax payments.

Class D units vest with time-based vesting over a three year period.

In connection with a change of control of our Company, any time-based awards will be immediately vested and any performance-based awards will be subject to immediate vesting in the event that the return received by certain of our investors as a result of such change of control transaction exceeds a specified amount. The compensation committee has discretion to change these vesting terms at the time it approves a grant of any individual award and otherwise in accordance with the terms of the plan. It further has discretion to accelerate the vesting of any award at any time. Unless otherwise determined by the compensation committee, all vesting of Class D units is contingent upon a participant’s continued employment by us and in the event of a termination of employment any unvested Class D units are immediately forfeited.

Class D units issued under the incentive plan, to the extent vested, may be converted to Class A units of Holdings at any time by the holder thereof by paying a conversion price which is generally equal to the value of a Class A unit award on the date such Class D unit award was granted. In the alternative, the Class D unit awards may be converted to Class A units through a “cashless exercise” feature set forth in the incentive plan. Upon termination of a participant’s employment other than by us for cause, the incentive plan provides that any vested Class D units must be converted to Class A units of Holdings by the participant within 30 days or such units will terminate and be forfeited. Upon termination of a participant’s employment by us for cause, the incentive plan provides that any vested Class D units will be immediately forfeited.

The incentive plan will terminate in December 2015. The board of managers of Norcraft GP may terminate the incentive plan at any time at its sole discretion. The board of managers of Norcraft GP may amend the incentive plan subject to limited restrictions.

Outstanding Equity Awards at Fiscal Year End

The following table sets forth the Class D units that have vested and that remain subject to vesting in the future for each of our named executive officers outstanding as of the end of 2012.



	Equity Awards (1)
	Number of Securities Underlying Unexercised Units Exercisable (#)	Number of Securities Underlying Unexercised Units Unexercisable (#)	Unit Exercise Price ($)
Mark Buller
Chief Executive Officer	3,403,658	—	0.16
Leigh Ginter
Chief Financial Officer	454,800	—	0.21
John Swedeen
President, StarMark	332,872	—	0.17
Kurt Wanninger
President, Mid Continent	1,054,304	—	0.35
Simon Solomon
President, UltraCraft	194,782	—	1.18

(1)

Represents Class D units of Holdings granted to these executive officers. Previously, under the terms of the Plan, the Class D units generally began to vest on the December 31 of the first full year following the date of grant, with 50% of the units typically vesting over a five year period and 50% vesting over a five year period subject to the Company meeting certain performance based criteria in each of those years. Upon vesting, each Class D unit entitles the unit holder the option to purchase one Class A unit in Holdings.

Employment Agreements and Arrangements upon Termination or Change of Control

Arrangements with Mark Buller

Mr. Buller entered into an employment agreement with us on October 21, 2003, the initial term of which expired October 20, 2006. This term automatically extends for consecutive one-year periods unless he or Holdings declines to extend the term. Mr. Buller is entitled to receive $510,000 as his base salary for 2013, with a targeted bonus of 50% of base salary, which bonus will be tied to certain financial performance and other objectives set by the board of managers of Norcraft GP. Pursuant to his employment agreement, Mr. Buller has, among other things, agreed that (i) he will not disclose any of our trade secrets or confidential information, during and after the term of his employment, (ii) he will assign and disclose to us all intellectual property and proprietary rights developed or reduced to practice that relate to our business, during and for three months after the term of his employment and (iii) he will not compete against us and will not solicit nor hire any of our current employees, regardless of the reason for his termination, during and for two years after the term of his employment.

In the event we terminate Mr. Buller’s employment without cause (as defined in his agreement) or if he terminates his employment for good reason (as defined in his agreement), he will continue to receive his base salary for eighteen months following the date of termination. He will also be entitled to receive a pro-rated portion of any bonus accrued for the year in which termination occurred (payable when the bonus would have otherwise been paid) and certain other health and welfare benefits in accordance with his agreement. If we had terminated Mr. Buller’s employment without cause or if he had terminated his employment for good reason as of December 31, 2012, Mr. Buller would have been entitled to receive an aggregate $765,000 pursuant to such provisions in his employment agreement (payment of which would be made over time and subject to the provisions of such agreement).

In the event we terminate Mr. Buller’s employment for cause or if he terminates his employment other than for good reason, we are not obligated to provide Mr. Buller any severance other than his accrued and unpaid base salary and certain other health and welfare benefits in accordance with his agreement.

In the event of Mr. Buller’s death or disability, he is entitled to receive his accrued and unpaid base salary, a pro-rated portion of any bonus accrued for the year in which his employment ceased (payable when the bonus would have otherwise been paid) and certain other health and welfare benefits in accordance with his agreement.

Buller Norcraft Holdings, L.L.C., an entity affiliated with Mr. Buller, Herb Buller and certain other members of the Buller family, currently holds 15.5 million Class A units in Holdings and MEB Norcraft, L.L.C., another entity affiliated with Mr. Buller, currently holds approximately 3.4 million Class D units in Holdings. In connection with any termination of Mr. Buller’s employment, such Class D units will be immediately forfeited. However, in the event that such termination is not by us for cause, immediately prior to such forfeiture, the holder will be entitled to convert each of the vested Class D units held by it to Class A units at a conversion price equal to the fair market value of a Class A unit of Holdings at the time such Class D unit was originally granted. The conversion price for 2.9 million of these Class D units is $0.12 and the conversion price for the remaining Class D units held by him is $0.35.

In accordance with the Holdings limited partnership agreement, if Mr. Buller’s employment is terminated by us for cause, Holdings has the option to repurchase all units held by Buller Norcraft Holdings, L.L.C. and all units held by MEB Norcraft, L.L.C. at a purchase price equal to, in the case of units considered to be beneficially held by Mr. Buller, the lower of cost or the fair market value of such units, and in the case of all other such units, the fair market value of such units. If Mr. Buller’s employment is terminated by Mr. Buller other than for good reason, Holdings has the option to repurchase all units held by Buller Norcraft Holdings, L.L.C. at a purchase price equal to the fair market value of such units. If Mr. Buller’s employment is terminated for any reason other than by us for cause, Holdings has the option to repurchase all units held by MEB Norcraft, L.L.C. at a purchase price equal to the fair market value of such units.

In addition, in the event Mr. Buller's employment is terminated due to his death or a disability, he or his estate may request that Holdings purchase his outstanding interests in Holdings for fair market value. Pursuant to its limited partnership agreement, Holdings agrees to undertake commercially reasonable effectors to purchase such interests, subject to its current financial condition permits, including without limitation the restrictions imposed by its then outstanding debt agreements.

Upon certain corporate events, including a change of control of our company, Buller Norcraft Holdings, L.L.C. is entitled to receive a change of control bonus of up to $4.0 million (pending the Company successfully achieving various financial goals and rates of return for certain investors) and has the right to purchase up to 1,478,553.86 additional Class A units for $2.00 per unit and an additional 1,478,553.86 Class A units for $2.50 per unit.

Finally, pursuant to the Holdings limited partnership agreement, Buller Norcraft Holdings, L.L.C. has a right of first offer to purchase our company upon a decision by Norcraft GP’s board of managers to engage in a sale transaction. See Part III, Item 13, “Certain Relationships and Related Transactions and Director Independence—Arrangements with Buller Investors.”

Arrangements with Other Employed Named Executive Managers

Each of Mr. Ginter and Mr. Swedeen entered into an employment agreement with us on October 21, 2003, the initial term of which expired December 31, 2004. Pursuant to each employment agreement, the employment term is automatically extended for consecutive one-year periods unless either Mr. Ginter or Mr. Swedeen, or Holdings declines to extend the term. Mr. Wanninger entered into an employment agreement with Holdings, effective as of January 17, 2006, the initial term of which expired on December 31, 2007. Pursuant to Mr. Wanninger’s employment agreement, the employment term is automatically extended for consecutive one-year periods unless he or Holdings declines to extend the term. Mr. Solomon entered into an employment agreement with us on October 21, 2003, but his employment was terminated on August 31, 2006. He subsequently rejoined us and entered into another employment agreement with us on February 13, 2008. Pursuant to Mr. Solomon’s employment agreement, Mr. Solomon or Holdings may terminate Mr. Solomon’s employment at any time and for any reason.

Pursuant to his employment agreement, Mr. Ginter is entitled to receive $250,000, Mr. Swedeen is entitled to receive $305,000, Mr. Wanninger is entitled to receive $385,000 and Mr. Solomon is entitled to receive $212,180, in each case, as such officer’s base salary for 2013, with eligibility to receive a bonus tied to certain financial and other performance objectives set by the board of managers of Norcraft GP. Pursuant to each employment agreement, each such named executive officer has, among other things, agreed that (i) he will not disclose any of our trade secrets or confidential information, during and after the term of his employment; (ii) he will assign and disclose to us all intellectual property and proprietary rights developed or reduced to practice that relate to our business, during and for three months after the term of his employment; (iii) he will not compete against us (x) until receipt of his last severance payment in the case of Mr. Ginter or Mr. Swedeen and (y) for one year following the end of employment in the case of Mr. Wanninger; and (iv) following the end of employment, he will not solicit or hire any of our current employees for (x) one year in the case of Mr. Ginter or Mr. Swedeen and (y) two years in the case of Mr. Wanninger and Mr. Solomon.

With respect to Mr. Ginter, Mr. Swedeen and Mr. Wanninger, in the event we terminate such officer’s employment without cause (as defined in his agreement) or if he terminates his employment for good reason (as defined in his agreement) he will continue to receive, in the case of Mr. Ginter and Mr. Swedeen, his base salary for at least three months following the date of termination, and in the case of Mr. Wanninger, his base salary for one year following the date of termination, plus, in each case, a pro-rated portion of any bonus accrued for the year in which termination occurred (payable when the bonus would have otherwise been paid) and certain other health and welfare benefits in accordance with his agreement. If we had terminated Mr. Ginter’s employment without cause or if he had terminated his employment for good reason as of December 31, 2012, Mr. Ginter would have been entitled to receive an aggregate $62,500 pursuant to such provisions in his employment agreement (payment of which would be made over time and subject to the provisions of such agreement). If we had terminated Mr. Swedeen’s employment without cause or if he had terminated his employment for good reason as of December 31, 2012, Mr. Swedeen would have been entitled to receive an aggregate $76,250 pursuant to such provisions in his employment agreement (payment of which would be made over time and subject to the provisions of such agreement). If we had terminated Mr. Wanninger’s employment without cause or if he had terminated his employment for good reason as of December 31, 2012, Mr. Wanninger would have been entitled to receive an aggregate $385,000 pursuant to such provisions in his employment agreement (payment of which would be made over time and subject to the provisions of such agreement). Regardless of the reason for termination of Mr. Solomon’s employment, he will not be entitled to receive any additional salary or bonus.

With respect to Mr. Ginter, Mr. Swedeen and Mr. Wanninger, in the event we terminate such officer’s employment for cause or if he terminates his employment other than for good reason, we are not obligated to provide such officer any severance other than his accrued and unpaid base salary and certain other health and welfare benefits in accordance with his agreement. Regardless of the reason for termination of Mr. Solomon’s employment, he will not be entitled to receive any severance.

Mr. Ginter currently holds 0.2 million Class A units, 0.4 million Class B units and 0.5 million Class D units in Holdings. In addition, upon certain events (including a change of control or termination of employment), Mr. Ginter is entitled to receive 0.4 million Class C units in Holdings. In connection with any termination of Mr. Ginter’s employment, such Class D units will be immediately forfeited. However, in the event that such termination is not by us for cause, immediately prior to such forfeiture, Mr. Ginter will be entitled to convert each of the vested Class D units held by him to Class A units at a conversion price equal to the fair market value of a Class A unit of Holdings at the time such Class D unit was originally granted. The conversion price for 0.3 million of the Class D units held by Mr. Ginter is $0.12 and the conversion price for the remaining Class D units held by him is $0.35. In accordance with the Holdings limited partnership agreement, if Mr. Ginter’s employment is terminated by us for cause, Holdings has the option to repurchase all units held by him at a purchase price equal to the lower of cost or the fair market value of such units. If Mr. Ginter’s employment is terminated for any reason other than by us for cause, Holdings has the option to repurchase all units held by him at a purchase price equal to the fair market value of such units.

Mr. Swedeen currently holds 0.5 million Class A units, 0.2 million Class B units and 0.3 million Class D units in Holdings. In addition, upon certain events (including a change of control or termination of employment), Mr. Swedeen is entitled to receive 0.2 million Class C units in Holdings. In connection with any termination of Mr. Swedeen’s employment, such Class D units will be immediately forfeited. However, in the event that such termination is not by us for cause, immediately prior to such forfeiture, Mr. Swedeen will be entitled to convert each of the vested Class D units held by him to Class A units at a conversion price equal to the fair market value of a Class A unit of Holdings at the time such Class D unit was originally granted. The conversion price for 0.2 million of the Class D units held by Mr. Swedeen is $0.12 and the conversion price for the remaining Class D units held by him is $0.35. In accordance with the Holdings limited partnership agreement, if Mr. Swedeen’s employment is terminated by us for cause, Holdings has the option to repurchase all units held by him at a purchase price equal to the lower of cost or the fair market value of such units. If Mr. Swedeen’s employment is terminated for any reason other than by us for cause, Holdings has the option to repurchase all units held by him at a purchase price equal to the fair market value of such units.

Mr. Wanninger currently holds 0.2 million Class A units and 1.1 million Class D units in Holdings. In connection with any termination of Mr. Wanninger’s employment, such Class D units will be immediately forfeited. However, in the event that such termination is not by us for cause, immediately prior to such forfeiture, Mr. Wanninger will be entitled to convert each of the vested Class D units held by him to Class A units at a conversion price equal to the fair market value of a Class A unit of Holdings at the time such Class D unit was originally granted. The conversion price for the Class D units held by Mr. Wanninger is $0.35. In accordance with the Holdings limited partnership agreement, if Mr. Wanninger’s employment is terminated by us for cause, Holdings has the option to repurchase all units held by him at a purchase price equal to the lower of cost or the fair market value of such units. If Mr. Wanninger’s employment is terminated for any reason other than by us for cause, Holdings has the option to repurchase all units held by him at a purchase price equal to the fair market value of such units.

Mr. Solomon currently holds 1.3 million Class A units and 0.2 million Class D units in Holdings. The Class A units were converted from an unsecured note with an unpaid principal balance and accrued interest of 1,532,278.85 on December 31, 2008. In connection with any termination of Mr. Solomon’s employment, such Class D units will be immediately forfeited. However, in the event that such termination is not by us for cause, immediately prior to such forfeiture, Mr. Solomon will be entitled to convert each of the vested Class D units held by him to Class A units at a conversion price equal to the fair market value of a Class A unit of Holdings at the time such Class D unit was originally granted. The conversion price for the Class D units held by Mr. Solomon is $1.18. In accordance with the Holdings limited partnership agreement, if Mr. Solomon’s employment is terminated by us for cause, Holdings has the option to repurchase all units held by him at a purchase price equal to the lower of cost or the fair market value of such units. If Mr. Solomon’s employment is terminated for any reason other than by us for cause, Holdings has the option to repurchase all units held by him at a purchase price equal to the fair market value of such units.

Manager Compensation

The members of our general partner’s board of managers are not separately compensated for their services as a manager, other than reimbursement of out-of-pocket expenses incurred in connection with rendering such services.

Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters

All of Norcraft’s outstanding limited partnership units are held by Norcraft Intermediate Holdings, L.P., which is in turn held entirely by Holdings. Norcraft GP is the general partner of both Norcraft and Holdings. Norcraft GP does not hold any equity interest in Norcraft or Holdings, but, as a general partner of each entity, it controls both entities. The members of our general partner are SKM Norcraft Corp., Trimaran Cabinet Corp. and HMB Norcraft Corp.

The following table provides certain information as of December 31, 2012 with respect to the beneficial ownership of the limited partnership interests of Holdings by (i) each holder known by us who beneficially owns 5% or more of the outstanding limited partnership units of Holdings, (ii) each of the members of the board of managers of the general partner of Holdings, (iii) each of our named executive officers and (iv) all of the members of the board of managers of Norcraft GP and our executive officers as a group. Unless otherwise indicated in a footnote, the business address of each equity holder is our corporate address.



Name of Partner	Class A Units (1)		Percentage Ownership Interest Class A		Class B Units (2)		Percentage Ownership Interest Class B		Class D Units (3)		Percentage Ownership Interest Class D
Norcraft GP, L.L.C.	—	(4)	—		—	(4)	—		—	(4)	—
SKM Norcraft Corp. (5)	75,950,957		56.3	%	—		—		—		—
Trimaran Cabinet Corp. (6)	37,975,478		28.1	%	—		—		—		—
Buller Norcraft Holdings, L.L.C. (7)	15,500,000		11.5	%	—		—		—		—
Mark Buller	—	(8)	—		—		—		3,403,658	(9)	48.5	%
Leigh Ginter	171,633		*		350,000		28.0	%	454,880		6.5	%
John Swedeen	472,000		*		200,000		16.0	%	332,872		4.7	%
Kurt Wanninger	157,306		*		—		—		1,054,304		15.0	%
Simon Solomon	1,298,541		1.0	%	—		—		194,782		2.8	%
Christopher Reilly	—	(10)	—		—		—		—		—
David Kim	—	(11)	—		—		—		—		—
Jay Bloom	—	(12)	—		—		—		—		—
Michael Maselli	—		—		—		—		—		—
Herb Buller	—	(13)	—		—		—		—		—
All managers and executive officers as a group, including the 10 persons listed here.	2,099,480	(14)	1.6	%	550,000		44.0	%	5,440,496		77.5	%


*	Represents less than 1%.


(1)	Class A units are fully paid non-voting units of Holdings. These units, together with the other limited partnership units described below, are entitled to receive all assets available for distribution upon liquidation. The holders of Class A units are entitled to receive distributions of their allocated percentages of our taxable net income to make tax payments.


(2)	The holder of a Class B unit is also entitled to receive, contingent upon certain corporate events, a number of Class C units equal to the number of Class B units held by the holder. The combination of the outstanding Class B units and the contingent right provided by the Class C units provides rights and privileges consistent with that of a Class A unit holder.

(3)

Class D units are “profits interests” issued pursuant to Holdings’ incentive plan. Distributions that would otherwise have been made on Class D units will be reduced to the extent of the applicable distribution threshold. These units receive tax distributions based on our net income allocated to them. Vested Class D units are convertible into Class A units at a price equal to the fair market value of a Class A unit at the time of the grant of the Class D unit. All Class D units are subject to time-based vesting.


(4)	Norcraft GP does not hold any equity interest in Norcraft or Holdings, but as general partner of each entity, controls both Norcraft and Holdings. Norcraft GP is controlled by its board of managers which is comprised of Christopher Reilly, David Kim, Michael Maselli, Jay Bloom, Mark Buller and Herb Buller.


(5)	SKM Equity Fund III, L.P. is the controlling shareholder of SKM Norcraft Corp. SKM Equity Fund III, L.P. is controlled by its general partner, SKM Partners, L.L.C., which is in turn controlled by its board of managers. SKM Partners, L.L.C.’s board of managers is comprised of Allan Karp and John Megrue.

(6)

The shareholders of Trimaran Cabinet Corp. are Trimaran Fund II, L.L.C., Trimaran Parallel Fund II, L.P., Trimaran Capital, L.L.C., CIBC Employee Private Equity Partners and CIBC MB Inc. Each of these shareholders has given a proxy of its voting rights in Trimaran Cabinet Corp. to Trimaran Fund Management, L.L.C. Trimaran Fund Management, L.L.C. is controlled by its managing members who are Jay R. Bloom, Andrew R. Heyer and Dean C. Kehler.


(7)	Buller Norcraft Holdings, L.L.C. is controlled by Mr. Mark Buller and Mr. Herbert Buller, both of whom are members.


(8)	Does not include 15,500,000 limited partnership units owned by Buller Norcraft Holdings, L.L.C. Mr. Buller, as a member and manager of Buller Norcraft Holdings, L.L.C., may be deemed to beneficially own the shares beneficially owned by Buller Norcraft Holdings, L.L.C. Mr. Buller disclaims ownership of such shares except to the extent of his pecuniary interest therein.


(9)	Mr. Mark Buller holds all of his Class D units through MEB Norcraft, L.L.C., of which he is the sole member.


(10)	Does not include 75,950,957 limited partnership units owned by SKM Norcraft Corp. Mr. Reilly as a partner of the general partner of the majority shareholder of SKM Norcraft Corp. may be deemed to beneficially own the shares beneficially owned by SKM Norcraft Corp. Mr. Reilly disclaims ownership of such shares except to the extent of his pecuniary interest therein.


(11)	Does not include 75,950,957 limited partnership units owned by SKM Norcraft Corp. Mr. Kim as a partner of the general partner of the majority shareholder of SKM Norcraft Corp. may be deemed to beneficially own the shares beneficially owned by SKM Norcraft Corp. Mr. Kim disclaims ownership of such shares except to the extent of his pecuniary interest therein.


(12)	Does not include 37,975,478 limited partnership units owned by Trimaran Cabinet Corp. Mr. Bloom as a partner of the general partner of the majority shareholder of Trimaran Cabinet Corp. may be deemed to beneficially own the shares beneficially owned by Trimaran Cabinet Corp. Mr. Bloom disclaims ownership of such shares except to the extent of his pecuniary interest therein.


(13)	Does not include 15,500,000 limited partnership units owned by Buller Norcraft Holdings, L.L.C. Mr. H. Buller, as a member of Buller Norcraft Holdings, L.L.C. may be deemed to beneficially own the shares beneficially owned by Buller Norcraft Holdings, L.L.C. Mr. H. Buller disclaims ownership of such shares except to the extent of his pecuniary interest therein.

(14)

Does not include 15,500,000 limited partnership units owned by Buller Norcraft Holdings, L.L.C. Mr. Mark Buller as a member and manager of Buller Norcraft Holdings, L.L.C. and Mr. Herbert Buller as a member of Buller Norcraft Holdings, L.L.C. may be deemed to beneficially own the shares beneficially owned by Buller Norcraft Holdings, L.L.C. Both Mr. Mark Buller and Mr. Herbert Buller disclaim ownership of such shares except, in each case, to the extent of his pecuniary interest therein. Also does not include 75,950,957 limited partnership units owned by SKM Norcraft Corp. Mr. Reilly and Mr. Kim, as partners of the general partner of the majority shareholder of SKM Norcraft Corp. may be deemed to beneficially own the shares beneficially owned by SKM Norcraft Corp. Mr. Reilly and Mr. Kim each disclaim ownership of such shares. Also does not include 37,975,478 limited partnership units owned by Trimaran Cabinet Corp. Mr. Bloom, as partner of the general partner of the majority shareholder of Trimaran Cabinet Corp. may be deemed to beneficially own the shares beneficially owned by Trimaran Cabinet Corp. Mr. Bloom disclaims ownership of such shares except to the extent of his pecuniary interest therein.

Item 13. Certain Relationships and Related Transactions and Director Independence

ARRANGEMENTS WITH OUR INVESTORS

The holders of limited partnership units of Holdings entered into a limited partnership agreement simultaneous with the closing of the Acquisition. The limited partnership agreement contains agreements among the holders of Holdings’ limited partnership units with respect to the transfer of such units, including rights of first offer, tag-along rights, drag-along rights, preemptive rights and registration rights. Units held by our managers and the investors associated with Mark Buller are subject to a right of repurchase by Holdings.

The Apax Partners and Trimaran holders and the Buller holders entered into a limited liability company agreement of Norcraft GP. Pursuant to this limited liability company agreement, each of the representatives of the Apax Partners holders who sit on Norcraft GP’s board of managers, currently Mr. Reilly and Mr. Kim, is entitled to cast 2.5 votes with respect to each matter which is submitted to a vote before Norcraft GP’s board of managers. The Trimaran holders designated two managers, and the Buller holders designated two managers, each of which have one vote. As a result, the managers appointed by the Apax Partners holders together hold a majority of the votes to be cast on each matter submitted to a vote before Norcraft GP’s board of managers. In addition, pursuant to the limited liability company agreement, the Apax Partners and Trimaran holders and the Buller holders have the right to approve certain transactions.

Upon completion of the Acquisition, we entered into a management and monitoring agreement with an affiliate of SKM Equity Fund III, L.P. and an affiliate of Trimaran Fund II, L.L.C. pursuant to which such entities provide management and monitoring services to us. These entities receive an aggregate annual management fee of $1.0 million and annual reimbursement for out-of-pocket expenses incurred in connection with the provision of such services. In 2012, management fees charged to expense were $1.0 million.

ARRANGEMENTS WITH THE BULLER INVESTORS

In connection with their investment, the Buller holders are entitled to a right of first offer to purchase our company upon a decision by Norcraft GP’s board of managers to engage in a sale transaction. Any offer made by the Buller investors pursuant to any exercise of this right is required to be an offer which allows us the time to solicit additional competing offers that we may accept in the event they are at a higher valuation or on such other material terms and conditions more favorable to us than those set forth in the offer made by the Buller holders.

In consideration of their contribution of the Winnipeg facility, the Buller holders are entitled to receive additional cash payments of up to $4.0 million and the right to acquire up to approximately 2,957,068 Class A units of Holdings upon a change of control involving a sale by the Apax Partners and Trimaran holders exceeding specified financial hurdles, if our owners following such a change of control elect not to continue Mr. Buller’s employment with us.

The Buller holders receive salaries, bonuses, employee benefit, tax distributions and expense reimbursements from the Company.

OTHER ARRANGEMENTS WITH NAMED EXECUTIVE OFFICERS

We have entered into various agreements with our named executive officers. See Part III, Item 11, “Executive Compensation.”

REVIEW, APPROVAL OR RATIFICATION OF TRANSACTIONS WITH RELATED PERSONS

Any material potential or actual conflict of interest or transaction between the Company and any “related person” of the Company must be reviewed and approved or ratified by the audit committee or, alternatively, the board of managers of Norcraft GP. SEC rules define a “related person” of the Company as any Company director (or nominee), executive officer, 5%-or-greater shareholder or immediate family member of any of these persons.

DIRECTOR INDEPENDENCE

The Company’s securities are not listed on a national securities exchange or interdealer quotation system that has requirements as to board composition. As the securities are not listed, the board of managers has made no determination as to whether or not any of its managers are independent directors as defined in the regulations of NASDAQ or the NYSE.

Item 14. Principal Accountant Fees and Services

The following table presents fees for professional services billed by Grant Thornton LLP for the audit of our annual financial statements for the fiscal years ended December 31, 2012 and 2011, and fees for other services billed by Grant Thornton LLP during the respective periods.



Type of Fees (dollars in thousands)	2012		2011
Audit fees (1)	$	222	$	210
Audit related fees (2)	12		68
Tax fees (3)	75		72
All other fees (4)	71		170


(1)	Audit fees consist of services rendered for the audit of the annual financial statements, including required quarterly reviews, statutory and regulatory filings or engagements and services that generally only the independent registered public accounting firm can reasonably be expected to provide.


(2)	Audit related fees are for assurance and related services related to consultations concerning financial accounting and reporting standards which include services primarily associated with services performed on our bond issuances and registrations and 401(k) audit.

(3)

Tax fees are for professional services rendered for tax compliance, tax advice and tax planning. Tax compliance services relate to the preparation of original and amended tax returns and claims for refunds. Tax advice and tax planning services relate to tax advice, assistance with tax audits and appeals, tax advice related to acquisitions and dispositions, management incentive plan and requests for rulings or technical advice related to matters concerning various tax authorities.


(4)	All other fees are for services other than those in the previous categories.

All decisions regarding selection of independent accounting firms and approval of accounting services and fees are made by our audit committee in accordance with the provisions of the Sarbanes-Oxley Act of 2002 and related SEC rules. There are no exceptions to the policy of securing prior approval by our audit committee for any service provided by our independent registered public accounting firm.

PART IV

Item 15. Exhibits and Financial Statement Schedules



1.	Financial Statements. See Index to Consolidated Financial Statements included on Page F-1.
2.	Financial Statement Schedule. See Schedule II, which is included on page S-1.
3.	List of Exhibits. See Index of Exhibits included on page E-1.

SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has caused this report to be signed on its behalf by the undersigned thereunto duly authorized.



		NORCRAFT COMPANIES, L.P.
		(Registrant)

/s/ Mark Buller		/s/ Leigh Ginter
Mark Buller		Leigh Ginter
President and Chief Executive Officer		Chief Financial Officer

Date:	April 1, 2013	Date:	April 1, 2013
Signing on behalf of the		Signing on behalf of the
Registrant and as principal executive officer		Registrant and as principal financial and principal accounting officer

Pursuant to the requirements of the Securities Exchange Act of 1934, this Annual Report on Form 10-K has been signed below by the following persons on behalf of the Registrant and in the capacities as of this 1st day of April 2013.



/s/ Herbert Buller		Chairman of the Board of Managers of Norcraft GP, L.L.C., the General Partner of the Registrant
Herbert Buller

/s/ Jay Bloom		Manager of Norcraft GP, L.L.C., the General Partner of the Registrant
Jay Bloom

/s/ David Kim		Manager of Norcraft GP, L.L.C., the General Partner of the Registrant
David Kim

/s/ Michael Maselli		Manager of Norcraft GP, L.L.C., the General Partner of the Registrant
Michael Maselli

/s/ Christopher Reilly		Manager of Norcraft GP, L.L.C., the General Partner of the Registrant
Christopher Reilly

/s/ Mark Buller		President, Chief Executive Officer and Manager of Norcraft GP, L.L.C., the General Partner of the Registrant
Mark Buller

Norcraft Companies, L.P.

Index to Consolidated Financial Statements



	Page
Report of Independent Registered Public Accounting Firm	F-2
Consolidated Balance Sheets at December 31, 2012 and 2011	F-3
Consolidated Statements of Comprehensive Income (Loss) for the years ended December 31, 2012, 2011 and 2010	F-4
Consolidated Statement of Changes in Member’s Equity (Deficit) for the years ended December 31, 2012, 2011 and 2010	F-5
Consolidated Statement of Cash Flows for the years ended December 31, 2012, 2011 and 2010	F-6
Notes to Consolidated Financial Statements	F-7

F-1

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

To the Board Managers

Norcraft GP, L.L.C.

We have audited the accompanying consolidated balance sheets of Norcraft Companies, L.P. (a Delaware limited partnership) and subsidiaries (the "Company") as of December 31, 2012 and 2011, and the related consolidated statements of comprehensive income (loss), changes in member’s equity (deficit), and cash flows for each of the three years in the period ended December 31, 2012. Our audits of the basic financial statements included the financial statement schedule listed in the index appearing under Item 15. These financial statements and financial statement schedule are the responsibility of the Company’s management. Our responsibility is to express an opinion on these financial statements and financial statement schedule based on our audits.

We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. The Company is not required to have, nor were we engaged to perform an audit of its internal control over financial reporting. Our audit included consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting. Accordingly, we express no such opinion. An audit also includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.

In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of Norcraft Companies, L.P. and subsidiaries as of December 31, 2012 and 2011, and the results of their operations and their cash flows for each of the three years in the period ended December 31, 2012 in conformity with accounting principles generally accepted in the United States of America. Also in our opinion, the related financial statement schedule, when considered in relation to the basic consolidated financial statements taken as a whole, presents fairly, in all material respects, the information set forth therein.



		/s/Grant Thornton LLP
Minneapolis, MN
April 1, 2013

F-2

Norcraft Companies, L.P.

Consolidated Balance Sheets

(dollar amounts in thousands)



	December 31,
	2012			2011
ASSETS
Current assets:
Cash and cash equivalents	$	23,019		$	24,185
Trade accounts receivable, net	20,264			20,092
Inventories	19,760			17,503
Prepaid and other current assets	2,220			1,835
Total current assets	65,263			63,615
Non-current assets:
Property, plant and equipment, net	25,961			27,434
Goodwill	88,484			88,479
Intangible assets, net	70,148			77,732
Display cabinets, net	6,019			5,842
Other assets	268			568
Total non-current assets	190,880			200,055
Total assets	$	256,143		$	263,670
LIABILITIES AND MEMBER’S EQUITY (DEFICIT)
Current liabilities:
Accounts payable	$	7,133		$	6,566
Accrued expenses	14,893			13,775
Total current liabilities	22,026			20,341
Non-current liabilities:
Long-term debt	240,000			240,000
Unamortized premium on bonds payable	127			166
Other liabilities	48			108
Total non-current liabilities	240,175			240,274
Total liabilities	262,201			260,615
Commitments and contingencies	—			—
Member's equity (deficit):
Member's equity (deficit)	(7,686		)	1,646
Accumulated other comprehensive income	1,628			1,409
Total member's equity (deficit)	(6,058		)	3,055
Total liabilities and member's equity (deficit)	$	256,143		$	263,670

See notes to consolidated financial statements.

F-3

Norcraft Companies, L.P.

Consolidated Statements of Comprehensive Income (Loss)

(dollar amounts in thousands)



	Year Ended December 31,
	2012			2011			2010
Net sales	$	288,782		$	269,305		$	262,568
Cost of sales	215,274			195,853			187,482
Gross profit	73,508			73,452			75,086
Selling, general and administrative expenses	54,144			51,099			50,402
Income from operations	19,364			22,353			24,684
Other expense:
Interest expense, net	25,819			23,549			20,091
Amortization of deferred financing costs	3,120			2,454			1,376
Other expense, net	(16		)	81			26
Total other expense	28,923			26,084			21,493
Net income (loss)	(9,559		)	(3,731		)	3,191

Other comprehensive income (loss):
Foreign currency translation adjustment	219			(295		)	1,611
Total other comprehensive income (loss)	219			(295		)	1,611
Comprehensive income (loss)	$	(9,340	)	$	(4,026	)	$	4,802

See notes to consolidated financial statements.

F-4

Norcraft Companies, L.P.

Consolidated Statement of Changes in Member’s Equity (Deficit)

(dollar amounts in thousands)



	Member’s Equity (Deficit)			Accumulated Other Comprehensive Income (Loss)			Total Member's Equity (Deficit)
Member's equity at January 1, 2010	$	60,678		$	93		$	60,771
Issuance of member’s interest	124			—			124
Stock compensation expense	181			—			181
Distributions to member	(1,104		)	—			(1,104		)
Comprehensive income (loss)	3,191			1,611			4,802
Member's equity at December 31, 2010	63,070			1,704			64,774
Issuance of member’s interest	139			—			139
Stock compensation expense	183			—			183
Distributions to member	(58,015		)	—			(58,015		)
Comprehensive income (loss)	(3,731		)	(295		)	(4,026		)
Member's equity at December 31, 2011	1,646			1,409			3,055
Issuance of member’s interest	50			—			50
Stock compensation expense	187			—			187
Distributions to member	(10		)	—			(10		)
Comprehensive income (loss)	(9,559		)	219			(9,340		)
Member's equity (deficit) at December 31, 2012	$	(7,686	)	$	1,628		$	(6,058	)

See notes to consolidated financial statements.

F-5

Norcraft Companies, L.P.

Consolidated Statement of Cash Flows

(dollar amounts in thousands)



	Year Ended December 31,
	2012			2011			2010
Cash flows from operating activities:
Net income (loss)	$	(9,559	)	$	(3,731	)	$	3,191
Adjustments to reconcile net income (loss) to net cash provided by operating activities:
Depreciation and amortization of property, plant and equipment	4,723			4,935			5,720
Amortization:
Customer relationships	4,467			4,467			4,467
Deferred financing costs	3,120			2,454			1,376
Display cabinets	4,113			4,005			4,142
Discount amortization/accreted interest	(39		)	180			489
Provision for uncollectible accounts receivable	168			236			589
Provision for obsolete and excess inventory	377			(280		)	(115		)
Provision for warranty claims	3,071			3,143			2,771
Stock compensation expense	187			183			181
Loss (gain) on disposal of assets	(2		)	8			(33		)
Change in operating assets and liabilities:
Trade accounts receivable	(257		)	(2,442		)	(450		)
Inventories	(2,597		)	99			(804		)
Prepaid expenses	(385		)	(276		)	48
Other assets	301			183			(655		)
Accounts payable and accrued expenses	(1,482		)	(6,421		)	(727		)
Net cash provided by operating activities	6,206			6,743			20,190
Cash flows from investing activities:
Proceeds from sale of property and equipment	13			20			49
Purchase of property, plant and equipment	(3,135		)	(2,586		)	(2,705		)
Additions to display cabinets	(4,290		)	(4,831		)	(3,764		)
Net cash used in investing activities	(7,412		)	(7,397		)	(6,420		)
Cash flows from financing activities:
Borrowings on senior secured second lien notes payable	—			62,400			—
Payment of financing costs	(3		)	(8,274		)	(882		)
Proceeds from issuance of member interests	50			139			124
Distributions to member	(10		)	(58,015		)	(1,104		)
Net cash provided by (used in) financing activities	37			(3,750		)	(1,862		)
Effect of exchange rates on cash and cash equivalents	3			(68		)	18
Net increase (decrease) in cash and cash equivalents	(1,166		)	(4,472		)	11,926
Cash and cash equivalents, beginning of the period	24,185			28,657			16,731
Cash and cash equivalents, end of period	$	23,019		$	24,185		$	28,657
Supplemental disclosure of cash flow information:
Cash paid during the period for interest	$	25,433		$	24,502		$	19,562

See notes to consolidated financial statements.

F-6

Norcraft Companies, L.P.

Notes to Consolidated Financial Statements

(dollar amounts in thousands)


1.	Basis of Presentation

The accompanying financial statements are those of Norcraft Companies, L.P. (“Norcraft”). Norcraft and its subsidiaries are collectively referred to as the “Company”. Norcraft Holdings, L.P. (“Holdings”) is the parent company of Norcraft. Holdings is no longer a part of a combined filing with Norcraft due to the retirement of the remainder of its 9.75% senior discount notes due 2012.

Norcraft GP, L.L.C. (“Norcraft GP”), a Delaware limited liability company, is the general partner of Holdings and Norcraft. Norcraft GP does not hold any equity interest in Holdings or Norcraft, but as a general partner of each entity, it controls both entities. The members of Norcraft GP are SKM Norcraft Corp., Trimaran Cabinet Corp. and Buller Norcraft Holdings, L.L.C. Norcraft GP has not been capitalized and has no assets or liabilities as of December 31, 2012 or 2011. Furthermore, Norcraft GP has no commitment to fund cash flow deficits or furnish direct or indirect financial assistance to the Company.


2.	Nature of Company

The Company is a manufacturer and national distributor of kitchen and bathroom cabinetry to dealers, wholetailers who sell to end users in the repair and remodeling and new home construction markets, contractors, builders and home centers. Manufacturing is conducted from owned premises located in Kansas, Minnesota, North Carolina, South Dakota, Virginia and Winnipeg, Canada.

The Company has aggregated its four significant operating segments into one reportable segment, based on similar products, production processes, types of customers, distribution methods and economic characteristics.


3.	Significant Accounting Policies

Cash and Cash Equivalents

For purposes of reporting cash and cash equivalents, the Company considers all highly liquid investments having maturities when acquired of three months or less when purchased to be cash equivalents.

A substantial portion of the Company’s cash is held by a single financial institution. The majority of the Company’s cash and cash equivalents exceed federal deposit insurance limits. The Company has not experienced any losses in such accounts and management believes that the Company is not exposed to any significant credit risk on cash and cash equivalents.

Trade Accounts Receivable and Concentrations of Credit Risk

The Company’s customers operate in the repair and remodeling and new home construction markets; accordingly, their credit worthiness is affected by cyclical trends and general conditions in those markets. Concentrations of credit risk with respect to accounts receivables are limited to some extent by its large number of customers and their geographic dispersion. The Company generally does not require collateral from its customers, but does maintain allowances for estimated uncollectible accounts receivable based on historical experience and specifically identified at-risk accounts. The allowance for uncollectible accounts was $0.6 million, $0.9 million and $1.1 million for the years ended December, 2012, 2011 and 2010, respectively. The adequacy of the allowance is evaluated on an ongoing and periodic basis and adjustments are made in the period in which a change in condition occurs. An account receivable is considered past due after the contractual due date is not met. Charge-off occurs when the account is deemed uncollectable.

For the years ended December 31, 2011 and 2010, one of the Company’s customers accounted for approximately 13% and 16% of net sales , respectively. The amount of accounts receivable for this customer was $1.1 million and $1.4 million at the years ended December 31, 2011 and 2010, respectively. For the year ended December 31, 2012, there was no customer that accounted for more than 10% of net sales.

Inventories

The Company states inventory at the lower of cost or market with cost established using the first-in, first-out (FIFO) method. The Company makes provisions for estimated obsolete or excess inventories based on historical experience, market conditions and other assumptions and judgments by management. Estimated losses for such obsolete or excess inventory are recorded in the periods in which those conditions arise.

F-7

Norcraft Companies, L.P.

Notes to Consolidated Financial Statements

(dollar amounts in thousands)

Property, Plant and Equipment

Property, plant and equipment are recorded at cost. Expenditures for major renewals and betterments that extend lives of assets are capitalized, while expenditures for maintenance and repairs are charged to operations as incurred. Depreciation and amortization is computed using the straight-line method over the estimated useful lives: buildings and leasehold improvements – twenty years or the life of the underlying lease, factory equipment – seven years, vehicles – five years, office and data processing equipment – three to five years. The cost and related accumulated depreciation and amortization of assets sold or otherwise disposed of are removed from the related accounts, and resulting gains or losses are reflected in operations.

Display Cabinets

The cost of display cabinets is capitalized when provided to the Company’s dealers and is amortized over thirty-six months, which represents the period they are expected to be on display for customer viewing.

Intangible Assets

Intangible assets consist of the following:



	December 31, 2012
			Subject to Amortization
	Not Subject to Amortization		Gross Carrying Amount		Accumulated Amortization			Total
Goodwill	$	88,484						$	88,484

Brand names	$	35,100						$	35,100
Customer relationships			$	67,000	$	(41,069	)	25,931
Deferred financing costs			16,123		(7,006		)	9,117
	$	35,100	$	83,123	$	(48,075	)	$	70,148



	December 31, 2011
			Subject to Amortization
	Not Subject to Amortization		Gross Carrying Amount		Accumulated Amortization			Total
Goodwill	$	88,479						$	88,479

Brand names	$	35,100						$	35,100
Customer relationships			$	67,000	$	(36,602	)	30,398
Deferred financing costs			16,120		(3,886		)	12,234
	$	35,100	$	83,120	$	(40,488	)	$	77,732

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, the Company makes annual assessments, or as events or circumstances indicate that the asset might be impaired, separately from goodwill, to evaluate realizability of carrying values.

The Company’s significant reporting units for the purpose of performing the impairment tests for goodwill consist of Mid Continent, UltraCraft and StarMark. The Company performs an annual impairment test of goodwill and indefinite-lived intangible assets during the fourth quarter.

The Company’s 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 the Company’s business relative to expected operating results, significant adverse economic and industry trends, and a decision to divest an individual business within a reporting unit.

F-8

Norcraft Companies, L.P.

Notes to Consolidated Financial Statements

(dollar amounts in thousands)

Goodwill impairment is determined using a two-step process.

•

The first step is to identify if a potential impairment exists by comparing the fair value of a reporting unit with its carrying amount, including goodwill. If the fair value of a reporting unit exceeds its carrying amount, goodwill of the reporting unit is not considered to have a potential impairment and the second step of the process is not necessary. However, if the carrying amount of a reporting unit exceeds its fair value, the second step is performed to determine if goodwill is impaired and to measure the amount of impairment loss to recognize, if any.


•	The second step, if necessary, compares the implied fair value of goodwill with the carrying amount of goodwill. If the implied fair value of goodwill exceeds the carrying amount, then goodwill is not considered impaired. However, if the carrying amount of goodwill exceeds the implied fair value, an impairment loss is recognized in an amount equal to that excess.

The Company estimates the fair value of its reporting units, using various valuation techniques, with the primary technique being a discounted cash flow analysis. A discounted cash flow analysis requires the Company 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 management’s 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 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% blended sales growth in 2013 and continued momentum in future years.

In 2012, the Company also assumed a discount rate of 12.5% and a perpetual growth rate of 3.6%. In 2011, the Company assumed a discount rate of 14.8% and a perpetual growth rate of 3.5%. In 2010, the Company 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 Company’s first step impairment analysis for 2012, 2011 and 2010 indicated that the fair value of the reporting units approximated or exceeded their carrying values. 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.

Finite lived intangible assets:

Finite lived intangible assets consist of customer relationships. The customer relationship intangible asset is being amortized using the straight-line method over its estimated useful life of fifteen 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 the Company in each reporting period.

Deferred Financing Costs:

Debt issuance costs are deferred and amortized to deferred financing expense using the interest method over the terms of the related debt. Amortization of such costs for the fiscal years 2012, 2011 and 2010 totaled approximately $3.1 million, $2.5 million and $1.4 million, respectively.

F-9

Norcraft Companies, L.P.

Notes to Consolidated Financial Statements

(dollar amounts in thousands)

Future estimated aggregate deferred financing costs amortization expense at December 31, 2012 is as follows:



Year Ending December 31,
2013	$	3,120
2014	3,120
2015	2,877

Foreign Currency Translation/Transactions

The financial statements of the Company’s Canadian subsidiary are translated into U.S. dollars for consolidation. All assets and liabilities are translated using period-end exchange rates and statements of comprehensive income (loss) items are translated using average exchange rates for the period. The resulting adjustments are recorded as comprehensive income (loss) in the statement of changes in member’s equity (deficit). Also recorded as adjustments in member’s equity (deficit) are transaction gains and losses on long-term intercompany balances for which settlement is not planned or anticipated in the foreseeable future. Other foreign currency transaction gains and losses are included in determining net income, but have not been material in any of the periods presented.

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 charge backs 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 a liability until remitted to the appropriate governmental authorities.

Shipping and Handling Costs

The Company classifies freight billings to customers as a component of net sales and the related cost is included as a component of cost of sales in the statement of comprehensive income (loss).

Advertising

The Company expenses all advertising costs as incurred. Advertising expense was $0.5 million, $0.5 million and $0.4 million for the years ended December 31, 2012, 2011 and 2010, respectively.

Volume-Based Incentives

These incentives typically involve rebates or refunds of a specified amount of cash consideration that are redeemable only if the customer completes a specified cumulative level of sales transactions. Under incentive programs of this nature, the Company estimates the anticipated rebate to be paid and allocates a portion of the estimated cost of the rebate to each underlying sales transaction with the customer. The estimated rebates are recorded as a reduction of revenue in the period of sale based on historical redemption rates.

Marketing Programs

Under these arrangements the Company agrees to reimburse certain of its customers for a portion of the costs incurred by the customer to advertise and promote certain of the Company’s products. The Company recognizes the cost of cooperative advertising programs in the period in which the advertising and promotional activity takes place. The actual costs of these programs are included in selling, general and administrative expenses in the statements of comprehensive income (loss).

Product Warranties

The Company provides warranties for its products ranging from five years up to the life of the product. Estimated costs to be incurred for such warranties are provided for in the period of sale based on historical claim rates as a component of cost of sales in the statements of comprehensive income (loss). (See Note 4, “Supplemental Financial Statement Information”)

F-10

Norcraft Companies, L.P.

Notes to Consolidated Financial Statements

(dollar amounts in thousands)

Income Taxes

The Company is a limited partnership, whereby income is allocated to the limited partners of Holdings for inclusion in their respective tax returns. Accordingly, no liability or provision for federal income taxes and deferred income taxes attributable to the Company’s operations are included in the accompanying financial statements. While the Company is subject to various state and local taxes at the entity level and files income tax returns in various jurisdictions, these amounts have historically been insignificant. The Company classifies taxes, interest and penalties as a component of other expense.

Use of Estimates

The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosures of contingent assets and liabilities at the date of the financial statements, as well as the reported amounts of revenue and expenses during the reporting period. Actual results could differ from those estimates.


4.	Supplemental Financial Statement Information

Trade Accounts Receivable

Trade accounts receivable consists of the following as of December 31:



	2012			2011
Trade accounts receivable	$	20,822		$	20,949
Less: allowance for uncollectible accounts	(558		)	(857		)
Trade accounts receivable, net	$	20,264		$	20,092

Inventories

Inventories consist of the following as of December 31:



	2012		2011
Raw materials and supplies	$	13,014	$	11,999
Work in process	2,382		2,110
Finished goods	4,364		3,394
Inventories	$	19,760	$	17,503

Supplier Concentration

The Company purchased approximately 15.2%, 14.9% and 19.4% of its raw materials during 2012, 2011 and 2010, respectively, from its largest supplier. While the loss of this vendor could negatively impact the operations of the Company in the near term, products purchased from this vendor are available through other sources.

Property, Plant and Equipment

Property, plant and equipment consist of the following as of December 31:



	2012			2011
Land	$	2,971		$	2,963
Buildings and improvements	26,104			25,478
Factory equipment	33,321			30,209
Vehicles	344			284
Office and data processing equipment	6,377			6,309
Construction in progress	499			1,740
Property, plant and equipment, gross	69,616			66,983
Less: accumulated depreciation	(43,655		)	(39,549		)
Property, plant and equipment, net	$	25,961		$	27,434

F-11

Norcraft Companies, L.P.

Notes to Consolidated Financial Statements

(dollar amounts in thousands)

Accrued Expenses

Accrued expenses consist of the following as of December 31:



	2012		2011
Salaries, wages and employee benefits	$	6,761	$	5,750
Commissions, rebates and marketing programs	2,893		2,496
Workers' compensation	1,371		1,567
Interest	1,178		1,179
Other, including product warranty accruals	2,690		2,783
Accrued expenses	$	14,893	$	13,775

Product Warranties

Product warranty activity is as follows for the years ended December 31:



	2012			2011			2010
Beginning balance	$	732		$	781		$	494
Accruals for warranties	3,071			3,143			2,771
Claims paid	(3,070		)	(3,192		)	(2,484		)
Ending balance	$	733		$	732		$	781


5.	Income Taxes

The Company accrues interest and related penalties, if applicable, on all tax exposures for which reserves have been established consistent with jurisdictional tax laws. The Company’s accrual for these tax exposures was $0.1 million, $0.1 million and $0.2 million at December 31, 2012, 2011 and 2010, respectively.

The Company is subject to tax examinations by tax authorities in numerous states until the applicable statute of limitations expire. The Company does not anticipate significant changes in the amount of unrecognized tax benefits over the next year.


6.	Long-Term Debt

Long-term debt consists of the following as of December 31:



	2012		2011
Senior secured second lien notes payable (due in 2015 with semi-annual interest payments at 10.5%)	$	240,000	$	240,000
Long-term debt	$	240,000	$	240,000

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 has a maturity date of December 9, 2013. As of December 31, 2012, the borrowing base was approximately $17.0 million.

In May 2011, the ABL Credit Agreement was modified and now has a maturity of September 2015.

F-12

Norcraft Companies, L.P.

Notes to Consolidated Financial Statements

(dollar amounts in thousands)

The ABL Credit Agreement contains negative covenants that limit the ability of Norcraft Intermediate Holdings, L.P., which is the immediate parent of Norcraft, and its subsidiaries from, among other things, (a) selling assets, (b) altering the business that Norcraft currently conducts, (c) engaging in mergers, acquisitions and other business combinations, (d) declaring dividends or redeeming or repurchasing the Company’s 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 and (j) prepaying the senior secured second lien notes, the senior discount notes and any subordinated debt. As of December 31, 2012, 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. (the immediate parent of Norcraft), Norcraft Finance Corp. (a subsidiary of Norcaft), Norcraft Canada Corporation (a subsidiary of Norcraft) 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 December 31, 2012 and 2011, there were no borrowings outstanding. At December 31, 2012 there were approximately $4.5 million of a letter of credit outstanding and unused commitments of $12.5 million under the ABL Facility.

The Company has no unused 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 Company's 9% senior subordinated notes due 2011 and to make a distribution to Holdings to allow Holdings to repurchase a portion of its 9.75% senior discount notes due 2012.

Norcraft may redeem the senior secured second lien notes, in whole or in part, at a redemption price equal to all of the principal amount of the senior secured second lien notes plus a premium declining ratably to par plus accrued interest.

F-13

Norcraft Companies, L.P.

Notes to Consolidated Financial Statements

(dollar amounts in thousands)

The following represents certain condensed consolidating financial information as of December 31, 2012 and 2011 and for the years ended December 31, 2012, 2011 and 2010 for Norcraft as co-issuer and Norcraft Finance Corp. as co-issuer and Norcraft Canada Corporation, both wholly-owned subsidiaries of Norcraft, which fully and unconditionally guarantees the senior secured second lien notes.

CONDENSED CONSOLIDATED BALANCE SHEETS

As of December 31, 2012



	Norcraft Companies, L.P. (1)			Norcraft Finance Corp (1)		Norcraft Canada			Eliminations			Consolidated Norcraft Companies, L.P.
Current assets	$	59,430		$	—	$	5,833		$	—		$	65,263
Property, plant & equipment, net	20,032			—		5,929			—			25,961
Investments in subsidiary	(1,805		)	—		—			1,805			—
Other assets	176,914			—		300			(12,295		)	164,919
Total assets	$	254,571		$	—	$	12,062		$	(10,490	)	$	256,143
Current liabilities	$	20,454		$	—	$	1,572		$	—		$	22,026
Long-term debt	240,000			—		12,295			(12,295		)	240,000
Unamortized premium on bonds payable	127			—		—			—			127
Other liabilities	48			—		—			—			48
Member’s equity (deficit)	(6,058		)	—		(1,805		)	1,805			(6,058		)
Total liabilities & member’s equity (deficit)	$	254,571		$	—	$	12,062		$	(10,490	)	$	256,143

As of December 31, 2011



	Norcraft Companies, L.P. (1)			Norcraft Finance Corp (1)		Norcraft Canada			Eliminations			Consolidated Norcraft Companies, L.P.
Current assets	$	57,816		$	—	$	5,799		$	—		$	63,615
Property, plant & equipment, net	21,312			—		6,122			—			27,434
Investments in subsidiary	(928		)	—		—			928			—
Other assets	183,768			—		293			(11,440		)	172,621
Total assets	$	261,968		$	—	$	12,214		$	(10,512	)	$	263,670
Current liabilities	$	18,639		$	—	$	1,702		$	—		$	20,341
Long-term debt	240,000			—		11,440			(11,440		)	240,000
Unamortized premium on bonds payable	166			—		—			—			166
Other liabilities	108			—		—			—			108
Member’s equity (deficit)	3,055			—		(928		)	928			3,055
Total liabilities & member’s equity (deficit)	$	261,968		$	—	$	12,214		$	(10,512	)	$	263,670


(1)	Co-issuers

F-14

Norcraft Companies, L.P.

Notes to Consolidated Financial Statements

(dollar amounts in thousands)

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)

For the Year Ended December 31, 2012



	Norcraft Companies, L.P. (1)			Norcraft Finance Corp (1)		Norcraft Canada			Eliminations			Consolidated Norcraft Companies, L.P.
Net sales	$	270,028		$	—	$	23,657		$	(4,903	)	$	288,782
Cost of sales	199,695			—		20,482			(4,903		)	215,274
Gross profit	70,333			—		3,175			—			73,508
Equity in earnings (losses) of subsidiary	(1,096		)	—		—			1,096			—
Selling, general and administrative expenses	49,991			—		4,153			—			54,144
Income (loss) from operations	19,246			—		(978		)	1,096			19,364
Other expense:
Interest expense, net	25,711			—		108			—			25,819
Amortization of deferred financing costs	3,120			—		—			—			3,120
Other expense, net	(26		)	—		10			—			(16		)
Total other expense	28,805			—		118			—			28,923
Net income (loss)	(9,559		)	—		(1,096		)	1,096			(9,559		)
Other comprehensive income (loss):
Foreign currency translation adjustment	—			—		219			—			219
Total other comprehensive income (loss)	—			—		219			—			219
Comprehensive income (loss)	$	(9,559	)	$	—	$	(877	)	$	1,096		$	(9,340	)

For the Year Ended December 31, 2011



	Norcraft Companies, L.P. (1)			Norcraft Finance Corp (1)		Norcraft Canada			Eliminations			Consolidated Norcraft Companies, L.P.
Net sales	$	251,559		$	—	$	21,990		$	(4,244	)	$	269,305
Cost of sales	181,447			—		18,650			(4,244		)	195,853
Gross profit	70,112			—		3,340			—			73,452
Equity in earnings (losses) of subsidiary	(331		)	—		—			331			—
Selling, general and administrative expenses	47,502			—		3,597			—			51,099
Income (loss) from operations	22,279			—		(257		)	331			22,353
Other expense:
Interest expense, net	23,469			—		80			—			23,549
Amortization of deferred financing costs	2,454			—		—			—			2,454
Other expense, net	87			—		(6		)	—			81
Total other expense	26,010			—		74			—			26,084
Net income (loss)	(3,731		)	—		(331		)	331			(3,731		)
Other comprehensive income (loss):
Foreign currency translation adjustment	—			—		(295		)	—			(295		)
Total other comprehensive income (loss)	—			—		(295		)	—			(295		)
Comprehensive income (loss)	$	(3,731	)	$	—	$	(626	)	$	331		$	(4,026	)


(1)	Co-issuers

F-15

Norcraft Companies, L.P.

Notes to Consolidated Financial Statements

(dollar amounts in thousands)

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)

For the Year Ended December 31, 2010



	Norcraft Companies, L.P. (1)			Norcraft Finance Corp (1)		Norcraft Canada			Eliminations			Consolidated Norcraft Companies, L.P.
Net sales	$	246,116		$	—	$	19,225		$	(2,773	)	$	262,568
Cost of sales	173,382			—		16,873			(2,773		)	187,482
Gross profit	72,734			—		2,352			—			75,086
Equity in earnings (losses) of subsidiary	(384		)	—		—			384			—
Selling, general and administrative expenses	47,730			—		2,672			—			50,402
Income (loss) from operations	24,620			—		(320		)	384			24,684
Other expense:
Interest expense, net	20,028			—		63			—			20,091
Amortization of deferred financing costs	1,376			—		—			—			1,376
Other expense, net	25			—		1			—			26
Total other expense	21,429			—		64			—			21,493
Net income (loss)	3,191			—		(384		)	384			3,191
Other comprehensive income (loss):
Foreign currency translation adjustment	—			—		1,611			—			1,611
Total other comprehensive income (loss)	—			—		1,611			—			1,611
Comprehensive income (loss)	$	3,191		$	—	$	1,227		$	384		$	4,802


(1)	Co-issuers

F-16

Norcraft Companies, L.P.

Notes to Consolidated Financial Statements

(dollar amounts in thousands)

CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS

For the Year Ended December 31, 2012



	Norcraft Companies, L.P. (1)			Norcraft Finance Corp. (1)		Norcraft Canada		Eliminations		Consolidated Norcraft Companies, L.P.
Cash flows provided by (used in) operating activities	$	4,998		$	—	$	1,208	$	—	$	6,206
Cash flows provided by (used in) investing activities	(7,522		)

NORCRAFT COMPANIES LP 10-K