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 September 30, 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 September 30, 2013 and December 31, 2012	3
Consolidated Statements of Comprehensive Loss for the three and nine months ended September 30, 2013 and 2012	4
Consolidated Statement of Changes in Member’s Equity (Deficit) for the nine months ended September 30, 2013	5
Consolidated Statement of Cash Flows for the nine months ended September 30, 2013 and 2012	6
Notes to Consolidated Financial Statements	7
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations	17
Item 3. Quantitative and Qualitative Disclosures of Market Risk	23
Item 4. Controls and Procedures	24

PART II. OTHER INFORMATION
Item 1. Legal Proceedings	25
Item 1A. Risk Factors	25
Item 6. Exhibits	25

SIGNATURES	26

PART I. FINANCIAL INFORMATION

Item 1.

Norcraft Companies, L.P.

Consolidated Balance Sheets

(dollar amounts in thousands)



	September 30,			December 31,
	2013			2012
	(unaudited)
ASSETS
Current assets:
Cash and cash equivalents	$	38,205		$	23,019
Trade accounts receivable, net	26,379			20,264
Inventories	23,647			19,760
Prepaid and other current assets	2,340			2,220
Total current assets	90,571			65,263
Non-current assets:
Property, plant and equipment, net	25,377			25,961
Goodwill	88,476			88,484
Intangible assets, net	64,458			70,148
Display cabinets, net	5,779			6,019
Other assets	68			268
Total non-current assets	184,158			190,880
Total assets	$	274,729		$	256,143
LIABILITIES AND MEMBER’S EQUITY (DEFICIT)
Current liabilities:
Accounts payable	$	14,274		$	7,133
Accrued expenses	26,460			14,893
Total current liabilities	40,734			22,026
Non-current liabilities:
Long-term debt	240,000			240,000
Unamortized premium on bonds payable	97			127
Other liabilities	57			48
Total non-current liabilities	240,154			240,175
Total liabilities	280,888			262,201
Commitments and contingencies	—			—
Member’s equity (deficit):
Member’s equity (deficit)	(7,478		)	(7,686		)
Accumulated other comprehensive income	1,319			1,628
Total member’s equity (deficit)	(6,159		)	(6,058		)
Total liabilities and member’s equity (deficit)	$	274,729		$	256,143

See notes to unaudited consolidated financial statements.

Norcraft Companies, L.P.

Consolidated Statements of Comprehensive Loss

(dollar amounts in thousands)

(unaudited)



	Three Months Ended						Nine Months Ended
	September 30,						September 30,
	2013			2012			2013			2012
Net sales	$	91,570		$	73,863		$	259,202		$	217,550
Cost of sales	67,708			55,360			191,340			160,679
Gross profit	23,862			18,503			67,862			56,871
Selling, general and administrative expenses	16,844			13,849			45,875			40,729
Income from operations	7,018			4,654			21,987			16,142
Other expense:
Interest expense, net	6,478			6,461			19,395			19,372
Amortization of deferred financing costs	780			780			2,340			2,340
Other expense, net	17			10			29			61
Total other expense	7,275			7,251			21,764			21,773
Net income (loss)	(257		)	(2,597		)	223			(5,631		)

Other comprehensive income (loss):
Foreign currency translation adjustment	198			500			(309		)	440
Total other comprehensive income (loss)	198			500			(309		)	440
Comprehensive loss	$	(59	)	$	(2,097	)	$	(86	)	$	(5,191	)

See notes to unaudited 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 (deficit) at January 1, 2013	$	(7,686	)	$	1,628		$	(6,058	)
Issuance of member’s interest	3			—			3
Stock compensation expense	12			—			12
Repurchase of member's interest	(30		)	—			(30		)
Comprehensive income (loss)	223			(309		)	(86		)
Member's equity (deficit) at September 30, 2013	$	(7,478	)	$	1,319		$	(6,159	)

See notes to unaudited consolidated financial statements.

Norcraft Companies, L.P.

Consolidated Statement of Cash Flows

(dollar amounts in thousands)

(unaudited)



	Nine Months Ended
	September 30,
	2013			2012
Cash flows from operating activities:
Net income (loss)	$	223		$	(5,631	)
Adjustments to reconcile net income (loss) to net cash provided by operating activities:
Depreciation and amortization of property, plant and equipment	3,302			3,562
Amortization:
Customer relationships	3,350			3,350
Deferred financing costs	2,340			2,340
Display cabinets	3,159			3,053
Discount amortization/accreted interest	(30		)	(29		)
Provision for uncollectible accounts receivable	75			186
Provision for obsolete and excess inventories	552			(47		)
Provision for warranty claims	3,285			2,419
Stock compensation expense	12			141
Gain on disposal of assets	(2		)	(3		)
Change in operating assets and liabilities:
Trade accounts receivable	(6,279		)	(3,766		)
Inventories	(4,495		)	(2,722		)
Prepaid expenses	(55		)	363
Other assets	198			268
Accounts payable and accrued expenses	15,484			6,796
Net cash provided by operating activities	21,119			10,280
Cash flows from investing activities:
Proceeds from sale of property, plant and equipment	3			5
Purchase of property, plant and equipment	(2,894		)	(2,387		)
Additions to display cabinets	(2,919		)	(3,399		)
Net cash used in investing activities	(5,810		)	(5,781		)
Cash flows from financing activities:
Payment of financing costs	(67		)	(3		)
Proceeds from issuance of member interests	3			50
Repurchase of member's interests	(30		)	—
Distributions to member	—			(10		)
Net cash provided by (used in) financing activities	(94		)	37
Effect of exchange rates on cash and cash equivalents	(29		)	26
Net increase in cash and cash equivalents	15,186			4,562
Cash and cash equivalents, beginning of the period	23,019			24,185
Cash and cash equivalents, end of period	$	38,205		$	28,747
Supplemental disclosure of cash flow information:
Cash paid during the period for interest	$	12,770		$	12,776
Supplemental schedule of non-cash investing and financing activities:
Deferred costs associated with contemplated initial public offering	$	927		$	—

See notes to unaudited 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 September 30, 2013 and for the three and nine months ended September 30, 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:



	September 30, 2013			December 31, 2012
Trade accounts receivable	$	27,046		$	20,822
Less: allowance for uncollectible accounts	(667		)	(558		)
Trade accounts receivable, net	$	26,379		$	20,264


3.	Inventories

Inventories consist of the following:



	September 30, 2013		December 31, 2012
Raw materials and supplies	$	14,091	$	13,014
Work in process	2,920		2,382
Finished goods	6,636		4,364
Inventories	$	23,647	$	19,760


4.	Intangible Assets

Intangible assets consist of the following:



	September 30, 2013
			Subject to Amortization
	Not Subject to Amortization		Gross Carrying Amount		Accumulated Amortization			Total
Goodwill	$	88,476						$	88,476

Brand names	$	35,100						$	35,100
Customer relationships			$	67,000	$	(44,419	)	22,581
Deferred financing costs			16,123		(9,346		)	6,777
	$	35,100	$	83,123	$	(53,765	)	$	64,458

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 and nine months ended September 30, 2013 to indicate that the assets, whether or not subject to amortization, should be evaluated for potential impairment. Under our accounting policy, the Company reviews intangible assets for impairment annually during the fourth quarter of each year or when events or circumstances indicate that potential impairment may exist.


5.	Accrued Expenses

Accrued expenses consist of the following:



	September 30, 2013		December 31, 2012
Salaries, wages and employee benefits	$	9,906	$	6,761
Commissions, rebates and marketing programs	3,501		2,893
Workers’ compensation	1,398		1,371
Interest	7,476		1,178
Other, including product warranty accruals	4,179		2,690
Accrued expenses	$	26,460	$	14,893

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



	September 30, 2013			September 30, 2012
Beginning balance - December 31	$	733		$	732
Accruals for warranties	3,285			2,419
Claims paid	(3,100		)	(2,339		)
Ending balance - September 30	$	918		$	812


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 or nine months ended September 30, 2013.

Norcraft Companies, L.P.

Notes to Consolidated Financial Statements

(dollar amounts in thousands)

(unaudited)

Compensation expense related to Class D units was negligible for the three and nine months ended September 30, 2013 and $0.05 million and $0.14 million for the three and nine months ended September 30, 2012, respectively. Because individuals receiving these Class D unit awards are employees of Norcraft, the compensation expense is recorded at the Norcraft level.

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



	Nine Months Ended
	September 30, 2013
	Units		Weighted- Average Exercise Price
Beginning balance	6,961,577		$	0.26
Granted	—		—
Exercised	(108,333	)	$	0.35
Forfeited/expired	(16,667	)	$	0.39
Ending balance	6,836,577		$	0.26
Exercisable	6,776,577		$	0.26

The intrinsic values of the issued Class D units and exercisable Class D units at September 30, 2013 were each $2.5 million.

The Plan will terminate in December 2015.


7.	Long-Term Debt

Long-term debt consists of the following:



	September 30, 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 had a maturity date of December 9, 2013, which was subsequently amended in May 2011 to be September 15, 2015. As of September 30, 2013, the borrowing base was approximately $21.8 million.

The ABL Credit Agreement contains negative covenants that restrict or limit the ability of Norcraft Intermediate Holdings, L.P., which is the immediate parent of Norcraft, and its subsidiaries from, among other things, (a) selling assets, (b) altering the business, (c) engaging in mergers, acquisitions and other business combinations, (d) declaring dividends or redeeming or repurchasing 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, (j) prepaying the senior secured second lien notes and any subordinated debt and (k) modifying or waiving certain material agreements and organizational documents. As of September 30, 2013, the Company was in compliance with these provisions.

Norcraft Companies, L.P.

Notes to Consolidated Financial Statements

(dollar amounts in thousands)

(unaudited)

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.

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

Senior Secured Second Lien Notes

In December 2009, Norcraft and Norcraft Finance Corp., a wholly owned finance subsidiary of Norcraft, issued, on a joint and several basis, $180.0 million aggregate principal amount of 10.5% senior secured second lien notes (the “senior secured second lien notes”). Interest accrues on the senior secured second lien notes and is payable semiannually on June 15 and December 15 of each year at a rate of 10.5% per annum, which commenced on June 15, 2010. Proceeds from the issuance of the senior secured second lien notes were used to redeem the 9% senior subordinated notes due 2011 and to make a distribution to Holdings which allowed 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 repurchase 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 to105.250% (or, during the twelve month period beginning December 15, 2013, 102.625%, or 100% during the period beginning December 15, 2014 and thereafter) of the principal amount thereof, plus accrued and unpaid interest.

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

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

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

Norcraft Companies, L.P.

Notes to Consolidated Financial Statements

(dollar amounts in thousands)

(unaudited)

The following represents certain condensed consolidating financial information as of September 30, 2013 and December 31, 2012 and for the periods ended September 30, 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 September 30, 2013 (unaudited)



	Norcraft Companies, L.P. (1)			Norcraft Finance Corp. (1)		Norcraft Canada			Eliminations			Consolidated Norcraft Companies, L.P.
Current assets	$	85,090		$	—	$	5,481		$	—		$	90,571
Property, plant & equipment, net	19,906			—		5,471			—			25,377
Investments in subsidiary	(2,394		)	—		—			2,394			—
Other assets	170,189			—		303			(11,711		)	158,781
Total assets	$	272,791		$	—	$	11,255		$	(9,317	)	$	274,729
Current liabilities	$	38,796		$	—	$	1,938		$	—		$	40,734
Long-term debt	240,000			—		11,711			(11,711		)	240,000
Unamortized premium on bonds payable	97			—		—			—			97
Other liabilities	57			—		—			—			57
Member’s equity (deficit)	(6,159		)	—		(2,394		)	2,394			(6,159		)
Total liabilities & member’s equity (deficit)	$	272,791		$	—	$	11,255		$	(9,317	)	$	274,729

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 September 30, 2013 (unaudited)



	Norcraft Companies, L.P. (1)			Norcraft Finance Corp. (1)		Norcraft Canada			Eliminations			Consolidated Norcraft Companies, L.P.
Net sales	$	86,591		$	—	$	6,515		$	(1,536	)	$	91,570
Cost of sales	63,871			—		5,373			(1,536		)	67,708
Gross profit	22,720			—		1,142			—			23,862
Equity in earnings (losses) of subsidiary	136			—		—			(136		)	—
Selling, general and administrative expenses	15,875			—		969			—			16,844
Income (loss) from operations	6,981			—		173			(136		)	7,018
Other expense:
Interest expense, net	6,447			—		31			—			6,478
Amortization of deferred financing costs	780			—		—			—			780
Other expense, net	11			—		6			—			17
Total other expense	7,238			—		37			—			7,275
Net income (loss)	(257		)	—		136			(136		)	(257		)
Other comprehensive income (loss):
Foreign currency translation adjustment	—			—		198			—			198
Total other comprehensive income (loss)	—			—		198			—			198
Comprehensive income (loss)	$	(257	)	$	—	$	334		$	(136	)	$	(59	)

For the Three Months Ended September 30, 2012 (unaudited)
	Norcraft Companies, L.P. (1)			Norcraft Finance Corp. (1)		Norcraft Canada			Eliminations			Consolidated Norcraft Companies, L.P.
Net sales	$	68,763		$	—	$	6,485		$	(1,385	)	$	73,863
Cost of sales	51,193			—		5,552			(1,385		)	55,360
Gross profit	17,570			—		933			—			18,503
Equity in earnings (losses) of subsidiary	(177		)	—		—			177			—
Selling, general and administrative expenses	12,773			—		1,076			—			13,849
Income (loss) from operations	4,620			—		(143		)	177			4,654
Other expense:
Interest expense, net	6,432			—		29			—			6,461
Amortization of deferred financing costs	780			—		—			—			780
Other expense, net	5			—		5			—			10
Total other expense	7,217			—		34			—			7,251
Net income (loss)	(2,597		)	—		(177		)	177			(2,597		)
Other comprehensive income (loss):
Foreign currency translation adjustment	—			—		500			—			500
Total other comprehensive income (loss)	—			—		500			—			500
Comprehensive income (loss)	$	(2,597	)	$	—	$	323		$	177		$	(2,097	)


(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 Nine Months Ended September 30, 2013 (unaudited)



	Norcraft Companies, L.P. (1)			Norcraft Finance Corp. (1)		Norcraft Canada			Eliminations			Consolidated Norcraft Companies, L.P.
Net sales	$	245,049		$	—	$	18,169		$	(4,016	)	$	259,202
Cost of sales	179,908			—		15,448			(4,016		)	191,340
Gross profit	65,141			—		2,721			—			67,862
Equity in earnings (losses) of subsidiary	(280		)	—		—			280			—
Selling, general and administrative expenses	42,947			—		2,928			—			45,875
Income (loss) from operations	21,914			—		(207		)	280			21,987
Other expense:
Interest expense, net	19,315			—		80			—			19,395
Amortization of deferred financing costs	2,340			—		—			—			2,340
Other expense, net	36			—		(7		)	—			29
Total other expense	21,691			—		73			—			21,764
Net income (loss)	223			—		(280		)	280			223
Other comprehensive income (loss):
Foreign currency translation adjustment	—			—		(309		)	—			(309		)
Total other comprehensive income (loss)	—			—		(309		)	—			(309		)
Comprehensive income (loss)	$	223		$	—	$	(589	)	$	280		$	(86	)

For the Nine Months Ended September 30, 2012 (unaudited)
	Norcraft Companies, L.P. (1)			Norcraft Finance Corp. (1)		Norcraft Canada			Eliminations			Consolidated Norcraft Companies, L.P.
Net sales	$	203,009		$	—	$	18,242		$	(3,701	)	$	217,550
Cost of sales	148,607			—		15,773			(3,701		)	160,679
Gross profit	54,402			—		2,469			—			56,871
Equity in earnings (losses) of subsidiary	(795		)	—		—			795			—
Selling, general and administrative expenses	37,544			—		3,185			—			40,729
Income (loss) from operations	16,063			—		(716		)	795			16,142
Other expense:
Interest expense, net	19,301			—		71			—			19,372
Amortization of deferred financing costs	2,340			—		—			—			2,340
Other expense, net	53			—		8			—			61
Total other expense	21,694			—		79			—			21,773
Net income (loss)	(5,631		)	—		(795		)	795			(5,631		)
Other comprehensive income (loss):
Foreign currency translation adjustment	—			—		440			—			440
Total other comprehensive income (loss)	—			—		440			—			440
Comprehensive income (loss)	$	(5,631	)	$	—	$	(355	)	$	795		$	(5,191	)


(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 Nine Months Ended September 30, 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	$	20,927		$	—	$	192		$	—		$	21,119
Cash flows from investing activities:
Proceeds from sale of property, plant and equipment	3			—		—			—			3
Purchase of property, plant and equipment	(2,371		)	—		(523		)	—			(2,894		)
Additions to display cabinets	(2,902		)	—		(17		)	—			(2,919		)
Intercompany borrowings	584			—		—			(584		)	—
Net cash provided by (used in) investing activities	(4,686		)	—		(540		)	(584		)	(5,810		)
Cash flows from financing activities:
Payment of financing costs	(67		)	—		—			—			(67		)
Proceeds from issuance of member interests	3			—		—			—			3
Repurchase of member's interests	(30		)	—		—			—			(30		)
Intercompany borrowings	—			—		(584		)	584			—
Net cash provided by (used in) financing activities	(94		)	—		(584		)	584			(94		)
Effect of exchange rates on cash and cash equivalents	—			—		(29		)	—			(29		)
Net increase (decrease) in cash and cash equivalents	16,147			—		(961		)	—			15,186
Cash and cash equivalents, beginning of period	21,818			—		1,201			—			23,019
Cash and cash equivalents, end of period	$	37,965		$	—	$	240		$	—		$	38,205
(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 Nine Months Ended September 30, 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	$	9,585		$	—	$	695		$	—		$	10,280
Cash flows from investing activities:
Proceeds from sale of property, plant and equipment	—			—		5			—			5
Purchase of property, plant and equipment	(1,839		)	—		(548		)	—			(2,387		)
Additions to display cabinets	(3,399		)	—		—			—			(3,399		)
Intercompany borrowings	(631		)	—		—			631			—
Net cash provided by (used in) investing activities	(5,869		)	—		(543		)	631			(5,781		)
Cash flows from financing activities:
Payment of financing costs	(3		)	—		—			—			(3		)
Proceeds from issuance of member interests	50			—		—			—			50
Distributions to member	(10		)	—		—			—			(10		)
Intercompany borrowings	—			—		631			(631		)	—
Net cash provided by (used in) financing activities	37			—		631			(631		)	37
Effect of exchange rates on cash and cash equivalents	—			—		26			—			26
Net increase (decrease) in cash and cash equivalents	3,753			—		809			—			4,562
Cash and cash equivalents, beginning of period	24,305			—		(120		)	—			24,185
Cash and cash equivalents, end of period	$	28,058		$	—	$	689		$	—		$	28,747


(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

Cautionary Note Regarding Forward-Looking Statements and Information

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

condition, liquidity, prospects, growth, strategies and the industries in which we and our partners operate.

By their nature, forward-looking statements involve risks and uncertainties because they relate to events and depend on circumstances that may or may not occur in the future. We believe that these risks and uncertainties include, but are not limited to the following:

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

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

• our dependence on senior management and key personnel;

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

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

• increased energy costs;

• interruptions in deliveries of raw materials or finished goods;

• the potential risks and costs associated with international sourcing;

• any reduction in availability of mortgage financing;

• volatility or a reduction of liquidity in the financial markets;

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

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

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

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

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

• our ability to comply with government regulation and industry standards;

• our ability to adequately protect our intellectual property rights;

• the loss or deterioration of relationships with our sales representatives;

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

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

• a write-off of our goodwill and other intangibles;

• the consolidation of our dealers;

• the impact of future acquisitions on our business;

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

• our substantial indebtedness;

• our ability to incur additional indebtedness;

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

• other risks and uncertainties inherent in our business.

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

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

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

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

Results of Operations

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



	Three Months Ended				Nine Months Ended
	September 30,				September 30,
	2013		2012		2013		2012
Net sales	100.0	%	100.0	%	100.0	%	100.0	%
Cost of sales	73.9	%	75.0	%	73.8	%	73.9	%
Gross profit	26.1	%	25.0	%	26.2	%	26.1	%
Selling, general and administrative expenses	18.4	%	18.7	%	17.7	%	18.7	%
Income from operations	7.7	%	6.3	%	8.5	%	7.4	%
Interest expense, net	7.1	%	8.7	%	7.5	%	8.9	%
Amortization of deferred financing costs	0.9	%	1.1	%	0.9	%	1.1	%
Net income (loss)	(0.3	)%	(3.5	)%	0.1	%	(2.6	)%

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

Net Sales. Net sales increased by $17.7 million, or 24.0%, from $73.9 million for the three months ended September 30, 2012 to $91.6 million for the same period of 2013. The increase in sales was attributable to increases in sales in all of our divisions, with Mid Continent making up roughly half, StarMark making up over one-third, UltraCraft making up under a quarter and the Winnipeg, Canada facility showing a modest increase. The overall increase in sales was generally driven by industry growth. Additionally, we believe we continue to increase our sales as a result of our differentiated products across various price points, on-time delivery and high level of customer service. We also believe our promotional sales programs, which consist of discounts, rebates and spiffs, contributed to our increased sales during the period.

Cost of Sales. Cost of sales increased by $12.3 million, or 22.3%, from $55.4 million for the three months ended September 30, 2012 to $67.7 million for same period of 2013. The increase was primarily attributable to the increased sales volume. Cost of sales as a percentage of net sales decreased from 75.0% for the three months ended September 30, 2012 to 73.9% for the same period of 2013.

Gross Profit. Gross profit increased by $5.4 million, or 29.0%, from $18.5 million for the three months ended September 30, 2012 to $23.9 million for the same period of 2013. The increase in gross profit was due to the increased net sales described above. Gross profit as a percentage of net sales increased from 25.0% for the three months ended September 30, 2012 to 26.1% for the same period of 2013. Approximately 80% of the increase in gross profit as a percentage of net sales was the result of labor efficiencies associated with increased production. Also, we experienced price increases on some of the material inputs used in our products, but this was largely offset by leverage of fixed manufacturing costs. The remainder of the increase in gross profit as a percentage of net sales was from a decrease in freight costs.

The timing and severity of the impact of the housing recession in 2007 through 2011 differed amount our divisions, causing margins to diverge. Gross profit as a percentage of net sales increased at our Mid Continent, Ultracraft and Urban Effects divisions during the three months ended September 30, 2013 compared to the three months ended September 30, 2012. As discussed above, this was primarily the result of labor efficiencies associated with increased production. Gross profit as a percentage of net sales decreased at our Starmark division during these same periods. This was primarily the result of price increases on some of the material inputs used in our products. Gross profit as a percentage of net sales for our divisions converged during the three months ended September 30, 2013, as compared to the three months ended September 30, 2012, a trend we expect to continue as our business continues to recover from the housing recession.

Selling, General and Administrative Expenses. Selling, general and administrative expenses increased by $3.1 million, or 21.6%, from $13.8 million for the three months ended September 30, 2012 to $16.9 million for the same period of 2013. Selling, general and administrative expenses were greater than the prior-year period because of increased sales and marketing expense to generate new customers, market our new products and support our increased sales volume, along with increased finance and administration expense to support the increased sales volume and $1.1 million in professional fees related to the corporate restructuring done in preparation for our recently announced initial public offering. Selling, general and administrative expenses as a percentage of net sales decreased from 18.7% for the three months ended September 30, 2012 to 18.4% for the same period of 2013.

Income from Operations. Income from operations increased by $2.3 million, or 50.8%, from $4.7 million for the three months ended September 30, 2012 compared to $7.0 million for the same period of 2013. The increase in income from operations was a result of the factors described above. Income from operations as a percentage of net sales increased from 6.3% for the three months ended September 30, 2012 to 7.7% 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 $7.3 million for the three months ended September 30, 2012 and 2013. Interest, amortization of deferred financing fees and other expenses as a percentage of net sales decreased from 9.8% for the three months ended September 30, 2012 to 8.0% for the same period of 2013.

Net Income (Loss). Net income (loss) improved by $2.3 million from $2.6 million in loss for the three months ended September 30, 2012 compared to $0.3 million of loss for the same period of 2013, for the reasons described above. Net income (loss) as a percentage of net sales improved from (3.5)% for the three months ended September 30, 2012 to (0.3)% for the same period of 2013.

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

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

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

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

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

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

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

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

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

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 $21.1 million for the nine months ended September 30, 2013, compared with $10.3 million for the same period of 2012, an increase in cash provided of $10.8 million. The increase in net income (loss) of $5.8 million for the nine months ended September 30, 2013, as discussed above, and a change in operating assets and liabilities of $3.9 million accounted for the majority of the increase in cash provided.

Cash used in investing activities was $5.8 million for the nine months ended September 30, 2013 and 2012. Capital expenditures were $2.9 million for the nine months ended September 30, 2013, compared with $2.4 million for the same period of 2012, an increase of $0.5 million. Additions to display cabinets were $2.9 million for the nine months ended September 30, 2013, compared with $3.4 million for the same period of 2012, a decrease of $0.5 million.

Cash used in financing activities was minimal for the nine months ended September 30, 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 had a maturity date of December 9, 2013, which was subsequently amended in May 2011 to be September 15, 2015. As of September 30, 2013, the borrowing base was approximately $21.8 million.

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

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

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

Senior Secured Second Lien Notes. In December 2009, Norcraft and Norcraft Finance Corp., a wholly owned finance subsidiary of Norcraft, issued, on a joint and several basis, $180.0 million aggregate principal amount of 10.5% senior secured second lien notes (the “senior secured second lien notes”). Interest accrues on the senior secured second lien notes and is payable semiannually on June 15 and December 15 of each year at a rate of 10.5% per annum, which commenced on June 15, 2010. Proceeds from the issuance of the senior secured second lien notes were used to redeem the 9% senior subordinated notes due 2011 and to make a distribution to Norcraft Holdings, L.P. which allowed 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 105.250% (or, during the twelve month period beginning December 15, 2013, 102.625%, or 100% during the period beginning December 15, 2014 and thereafter) of the principal amount thereof, plus accrued and unpaid interest.

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

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

See PART II, Item 7, "Management's Discussion and Analysis of Financial Condition and Results of Operations" in our Fiscal 2012 Annual Report on Form 10-K for the details of our contractual obligations. Under the terms of the indenture governing the senior secured second lien notes, we are subject to various negative covenants. Additionally, we have contractual obligations related to operating leases and management fees.

Taxes; Distributions to our Limited Partners

Holdings, our parent company, and Norcraft are limited partnerships intended to be treated as either partnerships or disregarded entities for U.S. federal income tax purposes. As such, income is allocated to (or treated as realized by, as applicable) 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 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 were no tax distributions for the nine months ended September 30, 2013.

Inflation; Seasonality

Our cost of sales is subject to inflationary pressures and price fluctuations of the raw materials we use. 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 September 30, 2013, we had no borrowings on our variable rate ABL facility; however future earnings could be affected by changes in interest rates.

Foreign Currency

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

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 September 30, 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 September 30, 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 material product liability claims. The majority of the pending legal proceedings involve claims for workers compensation, which are generally covered by insurance, but there can be no assurance that our insurance coverage will be adequate to cover any resulting 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:	October 21, 2013	Date:	October 21, 2013
Signing on behalf of the Registrant and as Principal Executive Officer		Signing on behalf of the Registrant and as Principal Accounting Officer

NORCRAFT COMPANIES LP 10-Q