Norcraft Companies Reports Fourth Quarter and Full Year 2013 Results

- Net Sales Increase 13.0% to $80.5 Million in Fourth Quarter 2013

- Adjusted EBITDA Increases 30.0% to $8.9 Million in Fourth Quarter 2013

- Completes Initial Public Offering in November 2013 Raising Net Proceeds of $107.3 Million

- Reduces and Refinances Long-term Debt; Expected Annualized Interest Savings of $17.3 Million

EAGAN, Minn.--()--Norcraft Companies, Inc. (the “Company” or “Norcraft”) (NYSE:NCFT), a leading manufacturer of kitchen and bathroom cabinetry in the United States and Canada, today reported financial results for the fourth quarter and full year ended December 31, 2013.

“We are pleased to announce a fourth consecutive year of accelerating growth with sales up 17.6% to $339.7 million in 2013 from $288.8 million in 2012,” stated Mark Buller, Chairman and Chief Executive Officer of the Company. “The continued expansion of our operations reflects improving industry demand for quality cabinetry and continued execution on our strategy to expand our presence in our core dealer channel, deliver new products and realize price/mix gains across all our divisions.”

Mark Buller continued, “During the fourth quarter, we successfully completed our IPO, eliminated $17.3 million of annualized interest expense and grew our business. Our adjusted EBITDA increased 30.0% on net sales up 13.0% in the fourth quarter as we leveraged our cost base and implemented additional productivity enhancements. Furthermore, we are encouraged by our team’s ability to increase profitability amid modest material cost inflation and some competitiveness within the industry that persisted through the fourth quarter. As we move forward in 2014, we are closely managing our pricing, promotional activities and costs and expect to continue building on the progress we have been making.”

FINANCIAL RESULTS

Fourth Quarter of 2013 Compared with Fourth Quarter of 2012

In the fourth quarter of 2013, net sales increased $9.3 million, or 13.0%, to $80.5 million as compared to $71.2 million in the fourth quarter of 2012. Sales increased in nearly all of the Company’s divisions, driven largely by industry growth, mix/price gains and promotional activity during the quarter.

Income from operations in the fourth quarter of 2013 increased $1.4 million, or 42.0%, to $4.6 million from $3.2 million for the fourth quarter of 2012. The increase was mainly attributable to higher sales on the Company’s fixed manufacturing costs, lower freight costs and labor efficiencies associated with increased production. These positive factors were partly offset by moderately higher material costs and $0.5 million of additional corporate expenses related to the Company’s recently completed initial public offering as compared to the comparable quarter in 2012.

The net loss of $15.4 million in the fourth quarter of 2013 represented an increase of $11.5 million from the $3.9 million net loss in the fourth quarter of 2012. The net loss in the fourth quarter of 2013 included a $12.5 million loss on debt extinguishment related to the Company's previously announced redemption of senior notes.

Adjusted EBITDA in the fourth quarter of 2013 increased $2.1 million, or 30.0%, to $8.9 million as compared to $6.8 million for the same quarter of 2012 (Adjusted EBITDA is a non-GAAP measure defined in the table below).

At December 31, 2013, the Company had cash of $39.1 million and total long-term debt of $150.0 million, as compared to cash of $23.0 million and total long-term debt of $240.0 million at December 31, 2012. In November 2013, the Company completed its initial public offering, raising net proceeds of approximately $107.3 million. In connection with the offering, the Company entered into a new $150.0 million senior secured term loan facility, which matures in 2020. In December 2013, the Company completed the redemption of $240.0 million of outstanding senior secured notes, funded in part with a full draw of the senior term loan facility and the remainder funded with proceeds from the Company's initial public offering. The Company expects these transactions to lower cash interest expense by approximately $17.3 million annually.

Full Year of 2013 Compared with Full Year of 2012

For the full year of 2013, net sales increased $50.9 million, or 17.6%, to $339.7 million from $288.8 million for the full year of 2012. Income from operations of $26.6 million in the full year of 2013 increased by $7.3 million, or 37.2%, from $19.3 million in the full year of 2012. The net loss of $15.2 million in the full year of 2013 increased $5.6 million from $9.6 million in the full year of 2012.

Adjusted EBITDA of $42.5 million in the full year of 2013 increased $8.8 million, or 26.2%, compared to $33.7 million for the full year of 2012.

CONFERENCE CALL AND WEBCAST

The Company will host a conference call and webcast to discuss its results for the fourth quarter and full year of 2013 at 10:00 a.m. Eastern Time (9:00 a.m., Central Time) on March 25, 2014. Investors who wish to participate in the call should dial 877-705-6003 (inside the U.S.) or 201-493-6725 (outside the U.S.) at least 5 minutes prior to the start of the call. The live webcast will be available on the Investors section of the Company’s website at www.norcraftcompanies.com. Replays of the call will be available through April 22, 2014 and can be accessed at 877-870-5176 (U.S. callers) or 858-384-5517 (outside the U.S.) and entering the pass code 13576903.

ABOUT NORCRAFT COMPANIES

Norcraft is a leading manufacturer of kitchen and bathroom cabinetry in the United States and Canada. Norcraft provides its customers with a single source for a broad range of high-quality cabinetry, including stock and semi-custom cabinets manufactured in both framed and frameless (full access) construction. Norcraft markets its products through seven main brands: Mid Continent Cabinetry, Norcraft Cabinetry, UltraCraft, StarMark Cabinetry, Fieldstone Cabinetry, Brookwood and Urban Effects.

FORWARD LOOKING STATEMENTS AND INFORMATION

Statements in this press release regarding activities, events or developments that management expects, believes or anticipates will or may occur in the future are forward looking statements. Forward looking statements may give management’s current expectations and projections relating to the financial condition, results of operations, plans, objectives, future performance and business of the 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 management’s expectations and beliefs concerning future events affecting the company. They are subject to uncertainties and factors relating to the company’s operations and business environment, all of which are difficult to predict and many of which are beyond the company’s control. Although management believes that the expectations reflected in its forward looking statements are reasonable, management does not know whether its expectations will prove correct. Such expectations can be affected by inaccurate assumptions that management might make or by known or unknown risks and uncertainties. Many factors that could cause actual results to differ materially from these forward looking statements including, but not limited to, the risks outlined under the “Risk Factors’’ section of the Company's prospectus filed with the Securities and Exchange Commission on November 7, 2013.

Because of these factors, investors should not place undue reliance on any of these forward looking statements. Further, any forward looking statement speaks only as of the date on which it is made and, except as required by law, the Company undertakes 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.

 
Norcraft Companies, Inc.
Consolidated Balance Sheets
(dollar amounts in thousands, except share and per share data)
 
December 31,
2013   2012
ASSETS
Current assets:
Cash and cash equivalents $ 39,106 $ 23,019
Trade accounts receivable, net 21,449 20,264
Inventories 22,591 19,760
Prepaid and other current assets 2,590   2,220  
Total current assets 85,736 65,263
Non-current assets:
Property, plant and equipment, net 25,208 25,961
Goodwill 88,466 88,484
Intangible assets, net 60,108 70,148
Display cabinets, net 5,864 6,019
Other assets 84   268  
Total non-current assets 179,730   190,880  
Total assets $ 265,466   $ 256,143  
LIABILITIES AND MEMBERS' / STOCKHOLDERS' EQUITY (DEFICIT)
Current liabilities:
Current portion of long-term debt $ 1,500 $

-

Accounts payable 8,523 7,133
Accrued expenses 21,203   14,893  
Total current liabilities 31,226 22,026
Non-current liabilities:
Long-term debt 148,500 240,000
Unamortized premium (discount) on long-term debt (746 ) 127
Deferred tax liabilities and other liabilities 36,560   48  
Total non-current liabilities 184,314   240,175  
Total liabilities 216,540 262,201
Commitments and contingencies

-

-

Members' equity subject to put request

-

6,926
Equity (deficit):
Common stock, $0.01 par value; 100,000,000 shares authorized, 17,311,573 issued and outstanding at December 31, 2013 173

-

Additional paid-in capital 51,795

-

Accumulated deficit (13,703 )

-

Accumulated other comprehensive income 845 1,628
Members' deficit

-

  (14,612 )
Total Norcraft Companies, Inc. equity (deficit) 39,233 (12,984 )
Noncontrolling interests 10,816  

-

 
Total equity (deficit) 50,049   (12,984 )
Total liabilities and equity (deficit) $ 265,466   $ 256,143  
 

 
Norcraft Companies, Inc.
Consolidated Statements of Comprehensive Loss
(dollar amounts in thousands, except share and per share data)
   
Three Months Ended December 31, Year Ended December 31,
2013   2012 2013   2012
Net sales $ 80,493 $ 71,232 $ 339,695 $ 288,782
Cost of sales 59,404   54,595   250,744   215,274  
Gross profit 21,089 16,637 88,951 73,508
Selling, general and administrative expenses 16,514   13,415   62,389   54,144  
Income from operations 4,575 3,222 26,562 19,364
Other expense:
Interest expense, net 5,868 6,447 25,263 25,819
Amortization of deferred financing costs 659 780 2,999 3,120
Other expense, net 12,565   (77 ) 12,594   (16 )
Total other expense 19,092   7,150   40,856   28,923  
Loss before income taxes (14,517 ) (3,928 ) (14,294 ) (9,559 )
Income tax expense 879  

-

  879  

-

 
Net loss (15,396 ) (3,928 ) (15,173 ) (9,559 )
Less: net loss attributable to noncontrolling interests (1,798 )

-

  (1,798 )

-

 
Net loss attributable to Norcraft Companies, Inc. (13,598 ) (3,928 ) (13,375 ) (9,559 )
Other comprehensive income (loss):
Foreign currency translation adjustment (375 ) (221 ) (684 ) 219
Less: other comprehensive income (loss) attributable to noncontrolling interests (44 )

-

  (44 )

-

 
Other comprehensive loss attributable to Norcraft Companies, Inc. (331 ) (221 ) (640 ) 219
 
Comprehensive loss (15,771 ) (4,149 ) (15,857 ) (9,340 )
Less: comprehensive loss attributable to noncontrolling interests (1,842 )

-

  (1,842 )

-

 
Comprehensive loss attributable to Norcraft Companies, Inc. $ (13,929 ) $ (4,149 ) $ (14,015 ) $ (9,340 )
 
 

November 13,
2013 through
December 31, 2013

Net loss attributable to controlling and noncontrolling interests $ (15,501 )
Less: net loss attributable to noncontrolling interests $ (1,798 )
Net loss attributable to Norcraft Companies, Inc. $ (13,703 )
 
Net loss per share attributable to Norcraft Companies, Inc.
Basic and diluted $ (0.80 )
 
Weighted average common shares outstanding
Basic and diluted 17,194,076
 

 
Norcraft Companies, Inc.
Consolidated Statement of Cash Flows
(dollar amounts in thousands)
 
Year Ended December 31,
2013   2012
Cash flows from operating activities:
Net loss $ (15,173 ) $ (9,559 )
Adjustments to reconcile net loss to net cash provided by operating activities:
Depreciation and amortization of property, plant and equipment 4,338 4,723
Amortization:
Customer relationships 4,466 4,467
Deferred financing costs 2,999 3,120
Display cabinets 4,330 4,113
Discount amortization/accreted interest (34 ) (39 )
Provision for uncollectible accounts receivable 65 168
Provision for obsolete and excess inventory 555 377
Provision for warranty claims 4,441 3,071
Stock compensation expense 364 187
Deferred income tax expense 879

-

Loss on debt extinguishment 12,499

-

Gain on disposal of assets (7 ) (2 )
Change in operating assets and liabilities:
Trade accounts receivable (1,421 ) (257 )
Inventories (3,504 ) (2,597 )
Prepaid expenses (376 ) (385 )
Other assets 182 301
Accounts payable and accrued expenses 3,244   (1,482 )
Net cash provided by operating activities 17,847 6,206
Cash flows from investing activities:
Proceeds from sale of property, plant and equipment 8 13
Purchase of property, plant and equipment (3,963 ) (3,135 )
Additions to display cabinets (4,175 ) (4,290 )
Net cash used in investing activities (8,130 ) (7,412 )
Cash flows from financing activities:
Borrowings on long-term debt 149,250

-

Payment of financing costs (3,800 ) (3 )
Payment of premium paid on early redemption (6,300 )

-

Repurchase of notes payable (240,000 )

-

Proceeds from initial public offering, net of related expenses 107,324

-

Proceeds from issuance of members' interests 3 50
Repurchase of members' interests (31 )

-

Distributions to members

-

  (10 )
Net cash provided by financing activities 6,446 37
Effect of exchange rates on cash and cash equivalents (76 ) 3  
Net increase (decrease) in cash and cash equivalents 16,087 (1,166 )
Cash and cash equivalents, beginning of the period 23,019   24,185  
Cash and cash equivalents, end of period $ 39,106   $ 23,019  
Supplemental disclosure of cash flow information:
Cash paid during the period for interest $ 25,526 $ 25,433
Supplemental disclosure of non-cash transactions:
Change in equity subject to put request $ (6,926 ) $ (1,383 )
Recognition of opening deferred tax liability $ 35,621 $

-

 

Norcraft Companies, Inc.
Reconciliation of Net Loss to Adjusted EBITDA
(dollar amounts in thousands)

EBITDA is net loss before interest expense, income tax expense, depreciation and amortization. Adjusted EBITDA is EBITDA before the effect of the footnoted items in the table below. The Company believes EBITDA and Adjusted EBITDA are useful to investors in evaluating the Company's operating performance compared to that of other companies in the industry, as their calculation eliminates the effects of financing, income taxes and the accounting effects of capital spending, as these items may vary for different companies for reasons unrelated to overall operating performance. The Company also believes these financial metrics provide information relevant to investors regarding the Company's ability to service and/or incur debt. EBITDA nor Adjusted EBITDA is a presentation made in accordance with U.S. generally accepted accounting principles (“U.S. GAAP”). Accordingly, when analyzing the Company's operating performance, investors should not consider EBITDA or Adjusted EBITDA in isolation or as substitutes for net loss, cash flows from operating activities or other operation statement or cash flow statement data prepared in accordance with U.S. GAAP. The Company's calculation of EBITDA and Adjusted EBITDA are not necessarily comparable to those of other similarly titled measures reported by other companies. The calculations of EBITDA and Adjusted EBITDA are shown below:

   
Three Months Ended Year Ended
December 31, December 31,
2013 2012 2013 2012
Net loss $ (15,396 ) $ (3,928 ) $ (15,173 ) $ (9,559 )
Interest expense, net 5,868 6,447 25,263 25,819
Depreciation 1,036 1,161 4,338 4,723
Amortization of deferred financing costs 659 780 2,999 3,120
Amortization of customer relationships 1,116 1,117 4,466 4,467
Display cabinet amortization 1,171 1,060 4,330 4,113
Income tax expense 879

-

879

-

State taxes 71   (79 ) 108   (26 )
Non-GAAP EBITDA $ (4,596 ) $ 6,558   $ 27,210   $ 32,657  
Stock compensation expense 346 (1)

-

346

(1)

-

Management fees 119 (2) 250 869

(2)

1,000
Restructuring costs associated with initial public offering 485 (3)

-

1,540

(3)

-

Loss on debt extinguishment 12,499   (4)

-

  12,499  

(4)

-

 
Non-GAAP adjusted EBITDA $ 8,853   $ 6,808   $ 42,464   $ 33,657  
 

(1) Prior to completion of the offering, the Company's board of directors adopted the Norcraft Companies, Inc. 2013 Incentive Plan. Stock compensation expense related to this plan was $0.3 million during the three months and full year ended December 31, 2013.

(2) In connection with the offering, the Company terminated the Management and Monitoring Agreement, which included a $1.0 million annual management fee. Certain expense reimbursement and indemnification obligations survived the termination of the Management and Monitoring Agreement. See the "Certain Relationships and Related Party Transactions-Management and Monitoring Agreement, section of the Company's prospectus filed with the Securities and Exchange Commission on November 7, 2013.

(3) Net loss during the three months and full year ended December 31, 2013 included the effect of the restructuring costs associated with the initial public offering in the amount of $0.5 million and $1.5 million, respectively, which increased net loss and correspondingly decreased EBITDA, but the effect has been backed out for Adjusted EBITDA.

(4) Net loss during the three months and year ended December 31, 2013 included the effect of a loss on debt extinguishment in the amount of $12.5 million which increased net loss and correspondingly decreased EBITDA, but the effect has been backed out for Adjusted EBITDA.

Contacts

Norcraft Companies, Inc.
Investor Relations:
Rodny Nacier, 651-234-3302
Investorrelations@norcraftcompanies.com

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Contacts

Norcraft Companies, Inc.
Investor Relations:
Rodny Nacier, 651-234-3302
Investorrelations@norcraftcompanies.com