UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington D.C. 20549

________________________________

FORM 10-Q

________________________________



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

For the quarterly period ended March 31, 2013



¨	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		(I.R.S. Employer
Incorporation or Organization)		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)

________________________________

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 (or for such shorter period that the registrant was required to file such reports), 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 Web site, 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 whether the registrant is a large accelerated filer, accelerated filer, non-accelerated filer or smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act. (Check one):



Large Accelerated Filer	¨	Accelerated Filer	¨

Non-Accelerated Filer	x	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.

Norcraft Companies, L.P.

Table of Contents



	Page
PART I FINANCIAL INFORMATION
Item 1. Unaudited Condensed Consolidated Financial Statements
Consolidated Balance Sheets at March 31, 2013 and December 31, 2012	3
Consolidated Statements of Comprehensive Loss for the three months ended March 31, 2013 and 2012	4
Consolidated Statement of Changes in Member’s Equity for the three months ended March 31, 2013	5
Consolidated Statement of Cash Flows for the three months ended March 31, 2013 and 2012	6
Notes to Consolidated Financial Statements	7
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations	15
Item 3. Quantitative and Qualitative Disclosures of Market Risk	19
Item 4. Controls and Procedures	19

PART II OTHER INFORMATION
Item 1. Legal Proceedings	20
Item 1A. Risk Factors	20
Item 6. Exhibits	20

SIGNATURES	21

PART I. FINANCIAL INFORMATION

Item 1.

Norcraft Companies, L.P.

Consolidated Balance Sheets

(dollar amounts in thousands)



	March 31, 2013(unaudited)			December 31, 2012
ASSETS
Current assets:
Cash and cash equivalents	$	27,431		$	23,019
Trade accounts receivable, net	24,973			20,264
Inventories	21,674			19,760
Prepaid and other current assets	1,808			2,220
Total current assets	75,886			65,263
Non-current assets:
Property, plant and equipment, net	25,562			25,961
Goodwill	88,479			88,484
Intangible assets, net	68,252			70,148
Display cabinets, net	5,804			6,019
Other assets	191			268
Total non-current assets	188,288			190,880
Total assets	$	264,174		$	256,143
LIABILITIES AND MEMBER’S EQUITY (DEFICIT)
Current liabilities:
Accounts payable	$	11,134		$	7,133
Accrued expenses	20,436			14,893
Total current liabilities	31,570			22,026
Non-current liabilities:
Long-term debt	240,000			240,000
Unamortized premium on bonds payable	117			127
Other liabilities	51			48
Total non-current liabilities	240,168			240,175
Total liabilities	271,738			262,201
Commitments and contingencies	—			—
Member’s equity (deficit):
Member’s equity (deficit)	(9,001		)	(7,686		)
Accumulated other comprehensive income	1,437			1,628
Total member’s equity (deficit)	(7,564		)	(6,058		)
Total liabilities and member’s equity (deficit)	$	264,174		$	256,143

See notes to consolidated financial statements.

Norcraft Companies, L.P.

Consolidated Statements of Comprehensive Loss

(dollar amounts in thousands)

(unaudited)



	Three Months Ended
	March 31,
	2013			2012
Net sales	$	77,348		$	67,862
Cost of sales	57,578			49,942
Gross profit	19,770			17,920
Selling, general and administrative expenses	13,856			13,179
Income from operations	5,914			4,741
Other expense:
Interest expense, net	6,447			6,450
Amortization of deferred financing costs	780			780
Other expense, net	10			27
Total other expense	7,237			7,257
Net loss	(1,323		)	(2,516		)

Other comprehensive income (loss):
Foreign currency translation adjustment	(191		)	223
Total other comprehensive income (loss)	(191		)	223
Comprehensive loss	$	(1,514	)	$	(2,293	)

See notes to consolidated financial statements.

Norcraft Companies, L.P.

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

(dollar amounts in thousands)

(unaudited)



	Member’s Equity (Deficit)			Accumulated Other Comprehensive Income (Loss)			Total Member’s Equity (Deficit)
Member's equity at January 1, 2013	$	(7,686	)	$	1,628		$	(6,058	)
Issuance of member’s interest	3			—			3
Stock compensation expense	5			—			5
Comprehensive loss	(1,323		)	(191		)	(1,514		)
Member's equity (deficit) at March 31, 2013	$	(9,001	)	$	1,437		$	(7,564	)

See notes to consolidated financial statements.

Norcraft Companies, L.P.

Consolidated Statement of Cash Flows

(dollar amounts in thousands)

(unaudited)



	Three Months Ended
	March 31,
	2013			2012
Cash flows from operating activities:
Net loss	$	(1,323	)	$	(2,516	)
Adjustments to reconcile net loss to net cash provided by operating activities:
Depreciation and amortization of property, plant and equipment	1,112			1,157
Amortization:
Customer relationships	1,116			1,117
Deferred financing costs	780			780
Display cabinets	1,136			1,019
Discount amortization/accreted interest	(10		)	(10		)
Provision for uncollectible accounts receivable	51			(14		)
Provision for obsolete and excess inventories	66			69
Provision for warranty claims	753			757
Stock compensation expense	5			46
Gain on disposal of assets	—			(1		)
Change in operating assets and liabilities:
Trade accounts receivable	(4,807		)	(2,678		)
Inventories	(2,011		)	(1,625		)
Prepaid expenses	410			269
Other assets	77			78
Accounts payable and accrued expenses	8,823			7,719
Net cash provided by operating activities	6,178			6,167
Cash flows from investing activities:
Proceeds from sale of property, plant and equipment	—			2
Purchase of property, plant and equipment	(816		)	(484		)
Additions to display cabinets	(921		)	(1,136		)
Net cash used in investing activities	(1,737		)	(1,618		)
Cash flows from financing activities:
Proceeds from issuance of member interests	3			—
Distributions to member	—			(10		)
Net cash provided by (used in) financing activities	3			(10		)
Effect of exchange rates on cash and cash equivalents	(32		)	6
Net increase in cash and cash equivalents	4,412			4,545
Cash and cash equivalents, beginning of the period	23,019			24,185
Cash and cash equivalents, end of period	$	27,431		$	28,730

See notes to consolidated financial statements.

Norcraft Companies, L.P.

Notes to Consolidated Financial Statements

(dollar amounts in thousands)

(unaudited)


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.

The accompanying financial statements have been prepared in accordance with generally accepted accounting principles for interim financial information and with the instructions to Form 10-Q and Article 10 of Regulation S-X. Accordingly, the interim consolidated financial statements and accompanying notes included herein should be read in conjunction with the more detailed information contained in the Company’s Annual Report on Form 10-K for the year ended December 31, 2012, as filed with the Securities and Exchange Commission. The unaudited interim consolidated financial statements as of March 31, 2013 and 2012 and for the three months ended March 31, 2013 and 2012 include all normal recurring adjustments which management considers necessary for the fair presentation of financial position, results of operations and cash flows for the interim periods.


2.	Trade Accounts Receivable

Trade accounts receivable consists of the following:



	March 31, 2013			December 31, 2012
Trade accounts receivable	$	25,588		$	20,822
Less: allowance for uncollectible accounts	(615		)	(558		)
Trade accounts receivable, net	$	24,973		$	20,264


3.	Inventories

Inventories consist of the following:



	March 31, 2013		December 31, 2012
Raw materials and supplies	$	13,196	$	13,014
Work in process	2,708		2,382
Finished goods	5,770		4,364
Inventories	$	21,674	$	19,760


4.	Intangible Assets

Intangible assets consist of the following:



	March 31, 2013
			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	$	(42,185	)	24,815
Deferred financing costs			16,123		(7,786		)	8,337
	$	35,100	$	83,123	$	(49,971	)	$	68,252

Norcraft Companies, L.P.

Notes to Consolidated Financial Statements

(dollar amounts in thousands)

(unaudited)



	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

There were no events or circumstances during the three months ended March 31, 2013 to indicate that the assets, whether or not subject to amortization, should be evaluated for potential impairment.


5.	Accrued Expenses

Accrued expenses consist of the following:



	March 31, 2013		December 31, 2012
Interest	$	7,475	$	1,178
Salaries, wages and employee benefits	5,813		6,761
Commissions, rebates and marketing programs	2,630		2,893
Other, including product warranty accruals	3,127		2,690
Workers’ compensation	1,391		1,371
Accrued expenses	$	20,436	$	14,893

Product warranty accrual activity for the three months ended is as follows:



	March 31, 2013			March 31, 2012
Beginning balance – December 31	$	733		$	732
Accruals for warranties	753			757
Claims paid	(786		)	(734		)
Ending balance - March 31	$	700		$	755


6.	Stock-Based Compensation

The Company has a management incentive plan, (the “Plan”) which provides for the grants of incentive Class D limited partnership units in Holdings to selected employees of the Company.

Under the terms of the Plan, the Class D units vest with time-based vesting over three years. Upon vesting, each Class D unit entitles the unit holder the option to purchase one Class A unit in Holdings. All Class D units are issued with an exercise price equal to the then fair value of Holdings’ Class A units as determined by the Company.

The fair value of the Class D units granted is based on the Black-Scholes option-pricing model. In accordance with Accounting Standards Codification (“ASC”) Topic 718, the Company is required to incorporate a volatility factor in the fair value calculation. The volatility factor is developed through the use of a sample of peer group companies consisting of publicly-traded companies that operate in the Company’s same industry. The Company granted no incentive Class D units during the three months ended March 31, 2013.

Compensation expense related to Class D units was negligible for the three months ended March 31, 2013 and $0.05 million for the three months ended March 31, 2012. Because individuals receiving these Class D unit awards are employees of Norcraft, the compensation expense is recorded at the Norcraft level.

Norcraft Companies, L.P.

Notes to Consolidated Financial Statements

(dollar amounts in thousands)

(unaudited)

A summary of Class D Unit activity under the Plan is as follows:



	Three Months Ended
	March 31, 2013
	Units		Weighted- Average Exercise Price
Beginning balance	6,961,577		$	0.26
Granted	—		—
Exercised	(8,333	)	$	0.39
Forfeited/expired	(16,667	)	$	0.39
Ending balance	6,936,577		$	0.26
Exercisable	6,776,577		$	0.26

The intrinsic values of the issued Class D units and exercisable Class D units at March 31, 2013 were each $0.5 million.

The Plan will terminate in December 2015.


7.	Long-Term Debt

Long-term debt consists of the following:



	March 31, 2013		December 31, 2012
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 the 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 March 31, 2013, the borrowing base was approximately $20.9 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., 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 March 31, 2013, the Company was in compliance with these provisions.

Indebtedness under the ABL Facility is guaranteed, on a joint and several basis, by Norcraft Intermediate Holdings, L.P.(the immediate parent of Norcraft), Norcraft Finance Corp. (a subsidiary of Norcraft), 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.

Norcraft Companies, L.P.

Notes to Consolidated Financial Statements

(dollar amounts in thousands)

(unaudited)

As of March 31, 2013, there were no borrowings outstanding, approximately $4.5 million of a letter of credit outstanding and unused commitments of $16.4 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 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.

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 to pay related transaction and financing costs.

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.

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 March 31, 2013, Norcraft was in compliance with these provisions.

Norcraft Companies, L.P.

Notes to Consolidated Financial Statements

(dollar amounts in thousands)

(unaudited)

The following represents certain condensed consolidating financial information as of March 31, 2013 and December 31, 2012 and for the periods ended March 31, 2013 and 2012 for Norcraft as co-issuer and for 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 March 31, 2013 (unaudited)



	Norcraft Companies, L.P. (1)			Norcraft Finance Corp. (1)		Norcraft Canada			Eliminations			Consolidated Norcraft Companies, L.P.
Current assets	$	71,124		$	—	$	4,762		$	—		$	75,886
Property, plant & equipment, net	19,918			—		5,644			—			25,562
Investments in subsidiary	(2,357		)	—		—			2,357			—
Other assets	173,877			—		310			(11,461		)	162,726
Total assets	$	262,562		$	—	$	10,716		$	(9,104	)	$	264,174
Current liabilities	$	29,958		$	—	$	1,612		$	—		$	31,570
Long-term debt	240,000			—		11,461			(11,461		)	240,000
Unamortized premium on bonds payable	117			—		—			—			117
Other liabilities	51			—		—			—			51
Member’s equity (deficit)	(7,564		)	—		(2,357		)	2,357			(7,564		)
Total liabilities & member’s equity (deficit)	$	262,562		$	—	$	10,716		$	(9,104	)	$	264,174

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


(1)	Co-issuers

Norcraft Companies, L.P.

Notes to Consolidated Financial Statements

(dollar amounts in thousands)

(unaudited)

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)

For the Three Months Ended March 31, 2013 (unaudited)



	Norcraft Companies, L.P. (1)			Norcraft Finance Corp. (1)		Norcraft Canada			Eliminations			Consolidated Norcraft Companies, L.P.
Net sales	$	72,888		$	—	$	5,571		$	(1,111	)	$	77,348
Cost of sales	53,816			—		4,873			(1,111		)	57,578
Gross profit	19,072			—		698			—			19,770
Equity in earnings (losses) of subsidiary	(361		)	—		—			361			—
Selling, general and administrative expenses	12,819			—		1,037			—			13,856
Income (loss) from operations	5,892			—		(339		)	361			5,914
Other expense:
Interest expense, net	6,423			—		24			—			6,447
Amortization of deferred financing costs	780			—		—			—			780
Other expense, net	12			—		(2		)	—			10
Total other expense	7,215			—		22			—			7,237
Net income (loss)	(1,323		)	—		(361		)	361			(1,323		)
Other comprehensive income (loss):
Foreign currency translation adjustment	—			—		(191		)	—			(191		)
Total other comprehensive income (loss)	—			—		(191		)	—			(191		)
Comprehensive income (loss)	$	(1,323	)	$	—	$	(552	)	$	361		$	(1,514	)

For the Three Months Ended March 31, 2012 (unaudited)
	Norcraft Companies, L.P. (1)			Norcraft Finance Corp. (1)		Norcraft Canada			Eliminations			Consolidated Norcraft Companies, L.P.
Net sales	$	63,030		$	—	$	5,937		$	(1,105	)	$	67,862
Cost of sales	45,843			—		5,204			(1,105		)	49,942
Gross profit	17,187			—		733			—			17,920
Equity in earnings (losses) of subsidiary	(286		)	—		—			286			—
Selling, general and administrative expenses	12,183			—		996			—			13,179
Income (loss) from operations	4,718			—		(263		)	286			4,741
Other expense:
Interest expense, net	6,430			—		20			—			6,450
Amortization of deferred financing costs	780			—		—			—			780
Other expense, net	24			—		3			—			27
Total other expense	7,234			—		23			—			7,257
Net income (loss)	(2,516		)	—		(286		)	286			(2,516		)
Other comprehensive income (loss):
Foreign currency translation adjustment	—			—		223			—			223
Total other comprehensive income (loss)	—			—		223			—			223
Comprehensive income (loss)	$	(2,516	)	$	—	$	(63	)	$	286		$	(2,293	)


(1)	Co-issuers

Norcraft Companies, L.P.

Notes to Consolidated Financial Statements

(dollar amounts in thousands)

(unaudited)

CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS

For the Three Months Ended March 31, 2013 (unaudited)



	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	$	6,305		$	—	$	(127	)	$	—		$	6,178
Cash flows provided by (used in) investing activities	(790		)	—		(113		)	(834		)	(1,737		)
Cash flows provided by (used in) financing activities	3			—		(834		)	834			3
Effect of exchange rates on cash and cash equivalents	—			—		(32		)	—			(32		)
Net increase (decrease) in cash and cash equivalents	5,518			—		(1,106		)	—			4,412
Cash and cash equivalents, beginning of period	21,818			—		1,201			—			23,019
Cash and cash equivalents, end of period	$	27,336		$	—	$	95		$	—		$	27,431

For the Three Months Ended March 31, 2012 (unaudited)
	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	$	5,742		$	—	$	425		$	—		$	6,167
Cash flows provided by (used in) investing activities	(1,795		)	—		(115		)	292			(1,618		)
Cash flows provided by (used in) financing activities	(10		)	—		292			(292		)	(10		)
Effect of exchange rates on cash and cash equivalents	—			—		6			—			6
Net increase (decrease) in cash and cash equivalents	3,937			—		608			—			4,545
Cash and cash equivalents, beginning of period	24,305			—		(120		)	—			24,185
Cash and cash equivalents, end of period	$	28,242		$	—	$	488		$	—		$	28,730


(1)	Co-issuers

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.

Norcraft Companies, L.P.

Notes to Consolidated Financial Statements

(dollar amounts in thousands)

(unaudited)


8.	Recently Issued Accounting Pronouncements

In July of 2012, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update ("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 adoption of this standard is not expected to have a significant impact on the Company’s consolidated financial statements.

In February 2013, the FASB issued ASU No. 2013-02, Reporting of Amounts Reclassified out of Accumulated Other Comprehensive Income. This update improves the reporting of reclassifications out of accumulated other comprehensive income. The amendment is effective prospectively for annual or interim reporting periods beginning after December 15, 2012, for public companies and are effective for reporting periods beginning after December 15, 2013, for private companies. The adoption of this standard is not expected to have a significant impact on the Company’s consolidated financial statements.

In February 2013, the FASB issued ASU No. 2013-04, Obligations Resulting from Joint and Several Liability Arrangements for which the Total Amount of the Obligation Is Fixed at the Reporting Date. The standard addresses the recognition, measurement, and disclosure of certain obligations resulting from joint and several liability arrangements for which the total amount of the obligation is fixed at the reporting date, including debt arrangements, other contractual obligations, and settled litigation and judicial rulings. The new guidance is to be applied retrospectively to all prior periods presented for those obligations beginning after December 15, 2013 or for nonpublic entities beginning after December 15, 2014. The adoption of this standard is not expected to have a significant impact on the Company’s consolidated financial statements.

Item 2. 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.

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 such statement is made or to reflect the occurrence of anticipated or unanticipated events or circumstances.

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 quarterly report. Additionally, the following discussion should be read together with the Selected Financial Data and our consolidated financial statements and the accompanying notes included in our 2012 Annual Report on Form 10-K. All of our operations are conducted through Norcraft Companies, L.P. (“Norcraft”) and its subsidiaries. Norcraft is an indirect wholly-owned subsidiary of Norcraft Holdings, L.P. (“Holdings”). The words “Company”, “we”, “us” and “our” refer to Norcraft and its subsidiaries.

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^TM. 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.

During the three months ended March 31, 2013, we experienced modest sales growth. This sales growth varied significantly from division to division within the Company, depending on exposure to certain customers, channels and geographies, but was generally consistent with the growth in our industry as a whole. But, with the competitiveness of the industry, much of the discounting and sales promotions have continued and our margins were negatively impacted. We are currently carefully adjusting our pricing, promotional activities and costs, in part to offset possible price increases in raw materials, and expect future margins to gradually improve along with sales.

Results of Operations

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



	Three months ended March 31,
	2013		2012
Net sales	100.0	%	100.0	%
Cost of sales	74.5	%	73.6	%
Gross profit	25.5	%	26.4	%
Selling, general and administrative expenses	17.9	%	19.4	%
Income from operations	7.6	%	7.0	%
Interest expense, net	8.3	%	9.5	%
Amortization of deferred financing costs	1.0	%	1.2	%
Net loss	(1.7	)%	(3.7	)%

Three Months Ended March 31, 2013 Compared with Three Months Ended March 31, 2012

Net Sales. Net sales increased by $9.5 million, or 14.0%, from $67.9 million for the three months ended March 31, 2012 to $77.4 million for the same period of 2013. The increase in sales was attributable to increases in sales in nearly all of our divisions, with Mid Continent making up over half, StarMark and UltraCraft making up under a quarter and the Winnipeg, Canada facility showing a modest decline. The overall increase in sales was generally driven by industry growth. Additionally, we believe we continue to increase the Company’s market share. Net sales to our largest customer were lower during the quarter ended March 31, 2013 as compared to the quarter ended March 31, 2012.

Cost of Sales. Cost of sales increased by $7.6 million, or 15.3%, from $50.0 million for the three months ended March 31, 2012 to $57.6 million for same period of 2013. The increase was primarily attributable to the increased sales volume along with aggressive sales incentives for the three months ended March 31, 2013. Cost of sales as a percentage of net sales increased from 73.6% for the three months ended March 31, 2012 to 74.5% for the same period of 2013.

Gross Profit. Gross profit increased by $1.9 million, or 10.3%, from $17.9 million for the three months ended March 31, 2012 to $19.8 million for the same period of 2013. The increase in gross profit was due to the increased net sales described above. Gross profit as a percentage of net sales decreased from 26.4% for the three months ended March 31, 2012 to 25.5% for the same period of 2013. The decrease in gross profit as a percentage of net sales was primarily a result of discounting and other sales promotions done in response to the competitive conditions in our industry.

Selling, General and Administrative Expenses. Selling, general and administrative expenses increased by $0.7 million, or 5.1%, from $13.2 million for the three months ended March 31, 2012 to $13.9 million for the same period of 2013. Selling, general and administrative expenses were greater than the prior-year period because of increased sales and marketing expense to generate new customers, market our new products and support our increased sales volume. Selling, general and administrative expenses as a percentage of net sales decreased from 19.4% for the three months ended March 31, 2012 to 17.9% for the same period of 2013.

Income from Operations. Income from operations increased by $1.2 million, or 24.7%, from $4.7 million for the three months ended March 31, 2012 compared to $5.9 million for the same period of 2013. The increase in income from operations was a result of the factors described above. Income from operations as a percentage of net sales increased from 7.0% for the three months ended March 31, 2012 to 7.6% for the same period of 2013.

Interest, Amortization of Deferred Financing Fees and Other Expenses. Interest, amortization of deferred financing fees and other expenses were flat at $7.2 million for the three months ended March 31, 2012 and 2013. Interest, amortization of deferred financing fees and other expenses as a percentage of net sales decreased from 10.7% for the three months ended March 31, 2012 to 9.3% for the same period of 2013.

Net Loss. Net loss decreased by $1.2 million from $2.5 million for the three months ended March 31, 2012 compared to $1.3 million for the same period of 2013, for the reasons described above. Net loss as a percentage of net sales improved from (3.7%) for the three months ended March 31, 2012 to (1.7%) for the same period of 2013.

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 three months ended March 31, 2013 and 2012. The decrease in net loss of $1.2 million for the three months ended March 31, 2013, as discussed above, was offset by a change in operating assets and liabilities of $1.2 million.

Cash used in investing activities was $1.7 million for the three months ended March 31, 2013, compared with $1.6 million for the same period of 2012, an increase in cash used of $0.1 million. Capital expenditures were $0.8 million for the three months ended March 31, 2013, compared with $0.5 million for the same period of 2012, an increase of $0.3 million. Additions to display cabinets were $0.9 million for the three months ended March 31, 2013, compared with $1.1 million for the same period of 2012, a decrease of $0.2 million.

Cash used in financing activities was minimal for the three months ended March 31, 2013 and 2012.

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 March 31, 2013, the borrowing base was approximately $20.9 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 March 31, 2013, the Company was in compliance with these provisions.

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

As of March 31, 2013, there were no borrowings outstanding, approximately $4.5 million in a letter of credit outstanding and unused commitments of $16.4 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 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.

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.

Taxes; Distributions to our Limited Partners

Norcraft Holdings, L.P, our parent company, and Norcraft Companies, L.P. (“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 no tax distribution during the three months ended March 31, 2013.

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.

Critical Accounting Polices

In our Annual Report on Form 10-K for the year ended December 31, 2012, we identified the critical accounting policies which affect our more significant estimates and assumptions used in preparing our consolidated financial statements. The basis for developing the estimates and assumptions within our critical accounting policies is based on historical information and known current trends and factors. The estimates and assumptions are evaluated on an ongoing basis and actual results have been within the Company’s expectations. We have not changed these policies from those previously disclosed in our annual report.

Item 3. Quantitative and Qualitative Disclosures of 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 March 31, 2013, we had no borrowings on our variable rate ABL facility; however future earnings could be affected by changes in interest rates.

Foreign Currency

We have minimal exposure to market risk from changes in foreign currency exchange rates and interest rates that could affect our results of operations and financial condition. Our largest exposure comes from the Canadian dollar, where approximately 6% of our sales during the three months ended March 31, 2013 were derived from Norcraft Canada and our revenues from such sales were denominated in Canadian dollars.

Item 4. 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 of March 31, 2013.

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 March 31, 2013 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.

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.

PART II. OTHER INFORMATION

Item 1. 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 1A. Risk Factors

There have been no material changes to the risk factors disclosed in the Company’s Annual Report on Form 10-K for the year ended December 31, 2012. The materialization of any risks and uncertainties identified in Part I, Item 2, “Uncertainty of Forward Looking Statements and Information” contained in this report together with those previously disclosed in the Form 10-K or those that are presently unforeseen could result in material adverse effects on our financial condition, results of operations and cash flows.

Item 6. Exhibits



31.1		Certification by Mark Buller pursuant to Rule 13a-14(a) and 15d-14(a), as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.

31.2		Certification by Leigh Ginter pursuant to Rule 13a-14(a) and 15d-14(a), as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.

32.1		Certification by Mark Buller pursuant to Section 1350, Chapter 63 of Title 18, United States Code, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

32.2		Certification by Leigh Ginter pursuant to Section 1350, Chapter 63 of Title 18, United States Code, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

101.INS		XBRL Instance Document

101.SCH		XBRL Taxonomy Extension Schema

101.CAL		XBRL Taxonomy Extension Calculation Linkbase

101.DEF		XBRL Taxonomy Extension Definition Linkbase

101.LAB		XBRL Taxonomy Extension Label Linkbase

101.PRE		XBRL Taxonomy Extension Presentation Linkbase

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:	May 15, 2013	Date:	May 15, 2013
Signing on behalf of the Registrant and as Principal Executive Officer		Signing on behalf of the Registrant and as Principal Executive Officer

NORCRAFT COMPANIES LP 10-Q