EAGAN, MN - Norcraft Companies, Inc. ("we", the “Company”, "Norcraft" or “Norcraft Companies”) (NYSE:NCFT), a leading manufacturer of kitchen and bathroom cabinetry in the United States and Canada, today reported financial results for the third quarter ended September 30, 2014.

“We have achieved four consecutive quarters of sales growth and margin expansion since our initial public offering nearly one year ago, and we are excited by our prospects for continued improvement,” stated Mark Buller, Chairman and Chief Executive Officer. “The demand for high quality cabinetry continues to improve, and we are further realizing the benefits of our long-term strategy to expand our presence in our core dealer channel, introduce new products at higher price points and maintain a disciplined cost structure. The expansion of our facility in Canada is a reflection of the success we have enjoyed in that market and the growth opportunities that we believe exist. With our strategy intact and our overall business improving across all our divisions, we look forward to entering 2015 well positioned.”

FINANCIAL RESULTS

Third Quarter of 2014 Compared with Third Quarter of 2013

In the third quarter of 2014, net sales increased $8.8 million, or 9.7%, to $100.4 million, as compared to $91.6 million in the third quarter of 2013. Sales increased in all of the Company’s divisions, driven largely by mix/price gains during the quarter.

Income from operations in the third quarter of 2014 increased $5.0 million, or 70.4%, to $12.0 million from $7.0 million for the third quarter of 2013. The increase was mainly attributable to leverage of fixed manufacturing costs, reduced freight costs, increased labor efficiencies and lower professional fees. These positive factors were partly offset by moderately higher material costs and increased incentive stock compensation expense from stock options issued in connection with the Company’s initial public offering in November, 2013.

Adjusted net income attributable to the Company of $4.8 million, or $0.28 per diluted share, in the third quarter of 2014 represented an increase of $3.8 million compared to adjusted net income attributable to the Company of $1.0 million in the third quarter of 2013, adjusting for one-time items in both periods. Including these one-time items, the net loss attributable to the Company of $7.3 million, or $(0.42) per diluted share, in the third quarter of 2014 represented a decrease of $7.0 million compared to a net loss attributable to the Company of $0.3 million in the third quarter of 2013. (See tables below for a discussion and reconciliation of Adjusted net income and Adjusted EPS, which are non-GAAP financial measures.)

Adjusted EBITDA in the third quarter of 2014 increased $4.1 million, or 35.9%, to $15.6 million, as compared to $11.5 million for the same quarter of 2013 (Adjusted EBITDA is a non-GAAP measure defined in the table below).

During the third quarter the Company generated $13.7 million of operating cash flow and invested $2.7 million in capital expenditures. At September 30, 2014, the Company had cash of $55.4 million and total debt of $148.9 million, as compared to cash of $39.1 million and total debt of $150.0 million at December 31, 2013.

 

 

 

 

Norcraft Companies, Inc.

Consolidated Balance Sheets

(dollar amounts in thousands, except share and per share data)

 

September 30,

December 31,

2014

2013

(unaudited)

(audited)

ASSETS

Current assets:

Cash and cash equivalents

$

55,404

$

39,106

Trade accounts receivable, net

28,518

21,449

Inventories

25,961

22,591

Prepaid and other current assets

1,336

 

2,590

 

Total current assets

111,219

85,736

Non-current assets:

Property, plant and equipment, net

25,390

25,208

Goodwill

88,459

88,466

Intangible assets, net

56,500

60,108

Display cabinets, net

6,480

5,864

Other assets

161

 

84

 

Total non-current assets

176,990

 

179,730

 

Total assets

$

288,209

 

$

265,466

 

LIABILITIES AND STOCKHOLDERS' EQUITY

Current liabilities:

Current portion of long-term debt

$

1,500

$

1,500

Accounts payable

13,025

8,523

Accrued tax distributions

393

Accrued expenses

27,184

 

21,203

 

Total current liabilities

42,102

31,226

Non-current liabilities:

Long-term debt

147,375

148,500

Unamortized discount on long-term debt

(665

)

(746

)

Amounts payable under tax receivable agreements

28,629

Deferred tax liabilities and other liabilities

19,732

 

36,560

 

Total non-current liabilities

195,071

 

184,314

 

Total liabilities

237,173

215,540

Commitments and contingencies

Equity:

Common stock, $0.01 par value; 100,000,000 shares authorized; 17,311,573 issued and outstanding at September 30, 2014 and December 31, 2013

173

173

Additional paid-in capital

53,372

51,795

Accumulated deficit

(14,996

)

(13,703

)

Accumulated other comprehensive income

603

 

845

 

Total Norcraft Companies, Inc. equity

39,152

39,110

Noncontrolling interests

11,884

 

10,816

 

Total equity

51,036

 

49,926

 

Total liabilities and equity

$

288,209

 

$

265,466

 

 

 

 

 

 

 

Norcraft Companies, Inc.

Consolidated Statements of Comprehensive Income (Loss)

(dollar amounts in thousands, except share and per share data)

(unaudited)

 

Three Months Ended

Nine Months Ended

September 30,

September 30,

2014

 

 

2013

2014

 

 

2013

Net sales

$

100,424

$

91,570

$

282,055

$

259,202

Cost of sales

72,610

 

67,708

 

205,734

 

191,340

 

Gross profit

27,814

23,862

76,321

67,862

Selling, general and administrative expenses

15,858

 

16,844

 

46,400

 

45,875

 

Income from operations

11,956

7,018

29,921

21,987

Other expense:

Interest expense, net

2,269

6,478

6,671

19,395

Amortization of deferred financing costs

151

780

456

2,340

Expense related to tax receivable agreements

33,203

37,678

Other expense, net

(9

)

5

 

(22

)

(8

)

Total other expense

35,614

 

7,263

 

44,783

 

21,727

 

Income (loss) before income taxes

(23,658

)

(245

)

(14,862

)

260

Income tax expense (benefit)

(18,058

)

12

 

(16,375

)

37

 

Net income (loss)

(5,600

)

(257

)

1,513

223

Less: net income attributable to noncontrolling interests

1,738

 

 

2,806

 

 

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

(7,338

)

(257

)

(1,293

)

223

 

Other comprehensive income (loss):

Foreign currency translation adjustment

(121

)

198

(276

)

(309

)

Less: other comprehensive loss attributable to noncontrolling interest

(15

)

 

(34

)

 

Other comprehensive income (loss) attributable to Norcraft Companies, Inc.

(106

)

198

(242

)

(309

)

 

Comprehensive income (loss)

(5,721

)

(59

)

1,237

(86

)

Less: comprehensive income attributable to noncontrolling interests

1,723

 

 

2,772

 

 

Comprehensive loss attributable to Norcraft Companies, Inc.

$

(7,444

)

$

(59

)

$

(1,535

)

$

(86

)

 

 

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

Basic and diluted

$

(0.42

)

$

(0.07

)

 

Weighted average number of common shares outstanding

Basic and diluted

17,311,573

 

17,311,573

 

 

 

 

 

Norcraft Companies, Inc.

Consolidated Statements of Cash Flows

(dollar amounts in thousands)

(unaudited)

 

Nine Months Ended

September 30,

2014

 

 

2013

Cash flows from operating activities:

Net income

$

1,513

$

223

Adjustments to reconcile net income to net cash provided by operating activities:

Depreciation and amortization of property, plant and equipment

2,984

3,302

Amortization:

Customer relationships

3,350

3,350

Deferred financing costs

456

2,340

Display cabinets

3,233

3,159

Discount amortization/accreted interest

81

(30

)

Provision for uncollectible accounts receivable

131

75

Provision for obsolete and excess inventories

438

552

Provision for warranty claims

4,130

3,285

Stock compensation expense

1,577

12

Deferred income tax expense

(16,834

)

Change in liability under tax receivable agreements

37,678

Gain on disposal of assets

(40

)

(2

)

Change in operating assets and liabilities:

Trade accounts receivable

(7,269

)

(6,279

)

Inventories

(3,855

)

(4,495

)

Prepaid expenses

1,251

(55

)

Other assets

(77

)

198

Accounts payable and accrued expenses

(2,649

)

15,484

 

Net cash provided by operating activities

26,098

21,119

Cash flows from investing activities:

Proceeds from sale of property, plant and equipment

38

3

Purchase of property, plant and equipment

(3,304

)

(2,894

)

Additions to display cabinets

(3,850

)

(2,919

)

Net cash used in investing activities

(7,116

)

(5,810

)

Cash flows from financing activities:

Payment of financing costs

(198

)

(67

)

Repayment of long-term debt

(1,125

)

Repurchase of member interests

(30

)

Proceeds from issuance of member interests

3

Distributions to members

(1,311

)

 

Net cash used in financing activities

(2,634

)

(94

)

Effect of exchange rates on cash and cash equivalents

(50

)

(29

)

Net increase in cash and cash equivalents

16,298

15,186

Cash and cash equivalents, beginning of the period

39,106

 

23,019

 

Cash and cash equivalents, end of period

$

55,404

 

$

38,205

 

Supplemental disclosure of cash paid:

Interest

$

6,543

$

12,770

Income taxes

$

398

$

Supplemental disclosure of non-cash transactions:

Unpaid tax distributions to noncontrolling interests

$

393

$

Deferred costs associated with initial public offering

$

$

927

 

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

EBITDA is net income (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. Neither 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 income (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

 

 

Nine Months Ended

 

 

Twelve Months Ended

September 30,

September 30,

September 30,

2014

 

 

2013

2014

 

 

2013

2014

Net income (loss)

$

(5,600

)

$

(257

)

$

1,513

$

223

$

(13,883

)

Interest expense, net

2,269

6,478

6,671

19,395

12,539

Depreciation

949

1,084

2,984

3,302

4,020

Amortization of deferred financing costs

151

780

456

2,340

1,115

Amortization of customer relationships

1,116

1,117

3,350

3,350

4,466

Display cabinet amortization

1,082

987

3,233

3,159

4,404

Income tax benefit

(18,058

)

12

 

(16,375

)

37

 

(15,425

)

Non-GAAP EBITDA

$

(18,091

)

$

10,201

 

$

1,832

 

$

31,806

 

$

(2,764

)

Stock compensation expense

526

1,577

1,923

(1)

Management fees

250

750

119

(2)

Restructuring costs associated with initial public offering

1,055

1,055

485

(3)

Expense related to tax receivable agreements

33,203

37,678

37,678

(4)

Loss on debt extinguishment

 

 

 

 

12,499

 

(5)

Non-GAAP adjusted EBITDA

$

15,638

 

$

11,506

 

$

41,087

 

$

33,611

 

$

49,940

 

 

(1) Prior to completion of the Company's initial public offering, the Company's board of directors adopted the Norcraft Companies, Inc. 2013 Incentive Plan. Stock compensation expense related to this plan was $0.5 million, $1.6 million and $1.9 million during the three, nine and twelve months ended September 30, 2014, respectively.

(2) In connection with the Company's initial public 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 "Related Party Transactions" footnote in Part IV, Item 15 of the Company's 2013 Annual Report on Form 10-K.

(3) Net income (loss) during the three and nine months ended September 30, 2013 included the effect of the restructuring costs associated with the Company's initial public offering in the amount of $1.1 million. Similarly, net income (loss) during the twelve months ended September 30, 2014 included the effect of the restructuring costs associated with the Company's initial public offering in the amount of $0.5 million. Both decreased net income (loss) and correspondingly decreased EBITDA, but the effect has been backed out for Adjusted EBITDA.

(4) Net income (loss) during the three, nine and twelve months ended September 30, 2014 included expense related to tax receivable agreements in the amount of $33.2 million, $37.7 million and $37.7 million, respectively, which decreased net income and correspondingly decreased EBITDA, but the effect has been backed out for Adjusted EBITDA.

(5) Net income (loss) during the twelve months ended September 30, 2014 included the effect of a loss on debt extinguishment in the amount of $12.5 million, which decreased net income (loss) and correspondingly decreased EBITDA, but the effect has been backed out for Adjusted EBITDA.

Norcraft Companies, Inc.
Reconciliation of Earnings per Share to Adjusted Earnings per Share
(dollar amounts in thousands, except per share amounts)

Earnings per share (EPS) is net income (loss) divided by the weighted average number of shares outstanding during the period. Adjusted EPS and Adjusted net income are EPS and net income (loss) before the effect of the footnoted items in the table below, respectively. The Company believes EPS, Adjusted EPS, Adjusted net income and net income (loss) are useful to investors in evaluating the Company's operating performance compared to that of other companies in the industry. Adjusted EPS and Adjusted net income are not presentations 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 Adjusted EPS or Adjusted net income in isolation or as substitutes for net income (loss), cash flows from operating activities or other operation statement or cash flow statement data prepared in accordance with U.S. GAAP. The Company's calculations of Adjusted EPS and Adjusted net income are not necessarily comparable to those of other similarly titled measures reported by other companies. The calculations of Adjusted EPS and Adjusted net income are shown below:

 

 

Three Months Ended

 

 

Nine Months Ended

September 30,

September 30,

2014

 

 

2013

2014

 

 

2013

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

$

(7,338

)

$

(257

)

$

(1,293

)

$

223

Management fees

250

750

(1)

Restructuring costs associated with initial public offering

1,055

1,055

(2)

Expense related to tax receivable agreements

33,203

37,678

(3)

Adjustment to remove tax valuation allowance reversals

(20,214

)

(20,214

)

(4)

Adjustment to tax (expense) benefit to reflect long-term expected effective tax rate

(811

)

 

(3,765

)

 

(5)

Adjusted net income attributable to Norcraft Companies, Inc.

$

4,840

 

$

1,048

 

$

12,406

 

$

2,028

 

 

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

$

(0.42

)

$

(0.07

)

Management fees

$

$

Restructuring costs associated with initial public offering

$

$

Expense related to tax receivable agreements

$

1.92

$

2.18

Adjustment to remove tax valuation allowance reversals

$

(1.17

)

$

(1.17

)

Adjustment to tax (expense) benefit to reflect long-term expected effective tax rate

$

(0.05

)

$

(0.22

)

Adjusted net income per share attributable to Norcraft Companies, Inc.

$

0.28

 

$

0.72

 

 

Denominator for basic earnings per share weighted average shares

17,311,573

17,311,573

 

(1) In connection with the Company's initial public 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 "Related Party Transactions" footnote in Part IV, Item 15 of the Company's 2013 Annual Report on Form 10-K.

(2) Net income (loss) during the three and nine months ended September 30, 2013 included the effect of the restructuring costs associated with the Company's initial public offering in the amount of $1.1 million. This decreased net income (loss) and correspondingly decreased EPS, but the effect has been backed out for Adjusted net income and Adjusted EPS.

(3) Net income (loss) during the three and nine months ended September 30, 2014 included expense related to tax receivable agreements in the amount of $33.2 million and $37.7 million, respectively, which decreased net income (loss) and correspondingly decreased EPS, but the effect has been backed out for Adjusted net income and Adjusted EPS.

(4) Net income (loss) during the three and nine months ended September 30, 2014 included the effect of an adjustment to remove significant tax reserve reversals in the amount of $20.2 million, which changed net income (loss) and correspondingly changed EPS, but the effect has been backed out for Adjusted net income and Adjusted EPS.

(5) Net income (loss) during the three and nine months ended September 30, 2014 included the effect of an adjustment to tax (expense) benefit to reflect long-term expected effective tax rate in the amount of $0.8 million and $3.8 million, respectively, which changed net income (loss) and correspondingly changed EPS, but the effect has been backed out for Adjusted net income and Adjusted EPS.

Source: Norcraft Companies, Inc.

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