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**UNITEDSTATESSECURITIES AND EXCHANGE COMMISSION**

**Washington, DC 20549**

 

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**FORM 10-Q**

 
| **x** | **QUARTERLY REPORT PURSUANT TO SECTION 13  OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934** |
|-------|------------------------------------------------------------------------------------------------------------------|

 

**For thequarterly period ended June 30, 2009**

 

**or**

 
| **o** | **TRANSITION REPORT PURSUANT TO SECTION 13  OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934** |
|-------|-------------------------------------------------------------------------------------------------------------------|

 

**Commission file number:**

**333-115490**

 

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**WIICOMPONENTS, INC.**

(Exact name of registrant as specified in its charter)

 
| **Delaware**             | ** ** | **No. 73-1662631**              |
|--------------------------|------------|--------------------------------------|
| (State of Incorporation) | ** ** | (I.R.S. Employer Identification No.) |

 

**525 LincolnAvenue SE, St. Cloud, Minnesota 56304**

(Address of principal executive offices) (ZipCode)

 

**(320) 252-1503**

(Registrant’s telephone number, Including areacode)

 

Indicateby check mark whether the registrant (1) has filed all reports required tobe filed by Section 13 or 15(d) of the Securities Exchange Act of1934 during the preceding 12 months (or for such shorter period that theregistrant was required to file such reports) and (2) has been subject tosuch filing requirements for the past 90 days. Yes x  No o.

 

Indicate by check mark whether the registrant has submittedelectronically and posted on its corporate Web site, if any, every InteractiveData File required to be submitted and posted pursuant to Rule 405 ofRegulation S-T during the preceding 12 months (or for such shorter period thatthe registrant was required to submit and post such files). Yes o  No o.

 

Indicate by check mark whether the registrant is a large acceleratedfiler, an accelerated filer, a non-accelerated filer, or a smaller reportingcompany filer.  See definition of “acceleratedfiler and large accelerated filer” in Rule 12b-2 of the Exchange Act.  (Check one):

 

| Large Accelerated Filer o |   | Accelerated Filer o          |
|--------------------------------|--------|------------------------------|
|                           |   |                         |
| Non-accelerated Filer  x  |   | Smaller Reporting Company o. |

 

Indicate by check mark whether the registrant is a shell company (asdefined in Rule 12b-2 of the Exchange Act). Yes o  No x.

 

As of August 5, 2009, 100 shares of common stock, $.01 par valueper share, were outstanding (all of which are owned by WII Holding, Inc.).

 

 

 

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**WIICOMPONENTS, INC.**

 

**FORM 10-Q**

**QuarterEnded June 30, 2009**

 

**Tableof Contents**

 
| **Part I—Financial  Information**                                                                          |   |   |
|----------------------------------------------------------------------------------------------------------------------|--------|--------|
| Item  1. Financial Statements                                                                                        |   |   |
| Condensed  Consolidated Balance Sheets (unaudited) as of June 30, 2009 and  December 31, 2008              |   | 1      |
| Condensed  Consolidated Statements of Operations (unaudited) for the Three Months Ended  June 30, 2009 and 2008 |   | 2      |
| Condensed Consolidated Statements of Operations  (unaudited) for the Six Months Ended June 30, 2009 and 2008    |   | 3      |
| Condensed Consolidated Statements of Cash Flows  (unaudited) for the Six Months Ended June 30, 2009 and 2008    |   | 4      |
| Notes to  Condensed Consolidated Financial Statements (unaudited)                                                    |   | 5      |
| Item 2.  Management’s Discussion and Analysis of Financial Condition and Results of  Operations                 |   | 11     |
| Item 3.  Quantitative and Qualitative Disclosures about Market Risk                                                  |   | 17     |
| Item 4T. Controls  and Procedures                                                                                    |   | 18     |
|                                                                                                                 |   |   |
| **Part II-Other  Information**                                                                                  |   |   |
| Item 1. Legal Proceedings                                                                                            |   | 19     |
| Item 1A. Risk Factors                                                                                                |   | 19     |
| Item 2.  Unregistered Sales of Equity Securities and Use of Proceeds                                                 |   | 19     |
| Item 3.  Defaults Upon Senior Securities                                                                             |   | 19     |
| Item 4.  Submission of Matters to a Vote of Security Holders                                                         |   | 19     |
| Item 5. Other Information                                                                                            |   | 19     |
| Item 6. Exhibits                                                                                                     |   | 19     |
| Signatures                                                                                                           |   | 21     |

 

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**WIICOMPONENTS, INC. AND SUBSIDIARIES**

**CONDENSED CONSOLIDATED BALANCE SHEETS**

**(UNAUDITED)**

**(Inthousands)**

 
| ** **                                    | ** ** | **June 30,********2009** | ** ** | **December 31,  2008** | ** ** |
|-----------------------------------------------|------------|-------------------------------|------------|-----------------------------|------------|
| **ASSETS**                                    |       |                          |       |                        |       |
| Current  Assets:                              |       |                          |       |                        |       |
| Cash                                          |       | $                             | 11,545     |                        | $          | 14,721 |   |
| Accounts  receivable, net                     |       | 10,549                        |       | 6,603                       |       |
| Inventories                                   |       | 14,451                        |       | 13,442                      |       |
| Other  current assets                         |       | 2,580                         |       | 2,168                       |       |
| Total  current assets                         |       | 39,125                        |       | 36,934                      |       |
|                                          |       |                          |       |                        |       |
| Property,  plant, and equipment, net          |       | 53,615                        |       | 56,537                      |       |
| Goodwill                                      |       | 112,748                       |       | 112,748                     |       |
| Customer  relationship                        |       | 9,094                         |       | 9,924                       |       |
| Noncompete  agreements                        |       | 48                            |       | 65                          |       |
| Other  assets                                 |       | 4,185                         |       | 4,798                       |       |
| TOTAL                                         |       | $                             | 218,815    |                        | $          | 221,006 |   |
|                                          |       |                          |       |                        |       |
| **LIABILITIES AND STOCKHOLDERS’ EQUITY** |       |                          |       |                        |       |
| Current  Liabilities:                         |       |                          |       |                        |       |
| Current  maturities of long-term debt         |       | $                             | —     |                        | $          | 3,597 |   |
| Accounts  payable                             |       | 3,868                         |       | 1,187                       |       |
| Accrued  payroll                              |       | 3,799                         |       | 2,935                       |       |
| Due  to Parent                                |       | 4,712                         |       | 4,768                       |       |
| Other current liabilities                     |       | 8,818                         |       | 8,943                       |       |
| Total current liabilities                     |       | 21,197                        |       | 21,430                      |       |
|                                          |       |                          |       |                        |       |
| Long-term debt, net of current maturities     |       | 108,350                       |       | 108,350                     |       |
| Deferred income tax liability                 |       | 4,484                         |       | 5,217                       |       |
| Other long-term liabilities                   |       | 1,947                         |       | 1,947                       |       |
|                                          |       |                          |       |                        |       |
| Stockholders’ Equity:                    |       |                          |       |                        |       |
| Common stock                                  |       | —                        |       | —                      |       |
| Additional paid-in capital                    |       | 71,317                        |       | 71,292                      |       |
| Retained earnings                             |       | 11,520                        |       | 12,770                      |       |
| Total stockholders’ equity               |       | 82,837                        |       | 84,062                      |       |
| TOTAL                                         |       | $                             | 218,815    |                        | $          | 221,006 |   |

 

See notes to condensed consolidated financial statements (unaudited).

 

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**WII COMPONENTS, INC. AND SUBSIDIARIES**

**CONDENSED CONSOLIDATED STATEMENTSOF OPERATIONS**

**(UNAUDITED)**

**(In thousands)**

 
| ** **                                                 | ** ** | **Three Months  Ended  June 30, 2009** | ** ** | **Three Months  Ended  June 30, 2008** | ** ** |
|------------------------------------------------------------|------------|---------------------------------------------|------------|---------------------------------------------|------------|
| NET SALES                                                  |       | $                                           | 34,346     |                                        | $          | 56,104 |   |
| COST OF SALES                                              |       | 28,469                                      |       | 46,713                                      |       |
| Gross profit                                               |       | 5,877                                       |       | 9,391                                       |       |
|                                                       |       |                                        |       |                                        |       |
| OPERATING EXPENSES:                                        |       |                                        |       |                                        |       |
| General and administrative                                 |       | 2,331                                       |       | 2,484                                       |       |
| Selling and marketing                                      |       | 782                                         |       | 842                                         |       |
| Total operating expenses                                   |       | 3,113                                       |       | 3,326                                       |       |
|                                                       |       |                                        |       |                                        |       |
| OPERATING INCOME                                           |       | 2,764                                       |       | 6,065                                       |       |
|                                                       |       |                                        |       |                                        |       |
| OTHER INCOME (EXPENSE):                                    |       |                                        |       |                                        |       |
| Interest income                                            |       | —                                      |       | 8                                           |       |
| Interest expense                                           |       | (3,151                                      | )          | (3,289                                      | )          |
| Other income/expense                                       |       | 2                                           |       | 2                                           |       |
| Total other income (expense)                               |       | (3,149                                      | )          | (3,279                                      | )          |
|                                                       |       |                                        |       |                                        |       |
| (LOSS)/INCOME BEFORE (BENEFIT)/PROVISION FOR INCOME  TAXES |       | (385                                        | )          | 2,786                                       |       |
| INCOME TAX (BENEFIT)/PROVISION                             |       | (140                                        | )          | 1,153                                       |       |
| NET (LOSS) EARNINGS                                        |       | $                                           | (245       | )                                           | $          | 1,633 |   |

 

See notes to condensed consolidated financial statements (unaudited).

 

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**WII COMPONENTS, INC. AND SUBSIDIARIES**

**CONDENSED CONSOLIDATED STATEMENTSOF OPERATIONS**

**(UNAUDITED)**

**(In thousands)**

 
| ** **                                                 | ** ** | **Six Months  Ended  June 30, 2009** | ** ** | **Six Months  Ended  June 30, 2008** | ** ** |
|------------------------------------------------------------|------------|-------------------------------------------|------------|-------------------------------------------|------------|
| NET SALES                                                  |       | $                                         | 67,151     |                                      | $          | 112,123 |   |
| COST OF SALES                                              |       | 56,806                                    |       | 94,906                                    |       |
| Gross profit                                               |       | 10,345                                    |       | 17,217                                    |       |
|                                                       |       |                                      |       |                                      |       |
| OPERATING EXPENSES:                                        |       |                                      |       |                                      |       |
| General and administrative                                 |       | 4,631                                     |       | 5,243                                     |       |
| Selling and marketing                                      |       | 1,516                                     |       | 1,682                                     |       |
| Loss (Gain) on sale of assets                              |       | 11                                        |       | (1                                        | )          |
| Total operating expenses                                   |       | 6,158                                     |       | 6,924                                     |       |
|                                                       |       |                                      |       |                                      |       |
| OPERATING INCOME                                           |       | 4,187                                     |       | 10,293                                    |       |
|                                                       |       |                                      |       |                                      |       |
| OTHER INCOME (EXPENSE):                                    |       |                                      |       |                                      |       |
| Interest income                                            |       | 4                                         |       | 101                                       |       |
| Interest expense                                           |       | (6,177                                    | )          | (6,597                                    | )          |
| Gain on extinguishment of debt                             |       | —                                    |       | 1,725                                     |       |
| Other income/expense                                       |       | 3                                         |       | 5                                         |       |
| Total other income (expense)                               |       | (6,170                                    | )          | (4,766                                    | )          |
|                                                       |       |                                      |       |                                      |       |
| (LOSS)/INCOME BEFORE (BENEFIT)/PROVISION FOR INCOME  TAXES |       | (1,983                                    | )          | 5,527                                     |       |
| INCOME TAX (BENEFIT)/PROVISION                             |       | (733                                      | )          | 2,211                                     |       |
| NET (LOSS) EARNINGS                                        |       | $                                         | (1,250     | )                                         | $          | 3,316 |   |

 

See notes to condensed consolidated financial statements (unaudited).

 

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**WII COMPONENTS, INC. AND SUBSIDIARIES**

**CONDENSED CONSOLIDATED STATEMENTSOF CASH FLOWS**

**(UNAUDITED)**

**(In thousands)**

 
| ** **                                                                                         | ** ** | **Six Months  Ended  June 30, 2009** | ** ** | **Six Months  Ended  June 30, 2008** | ** ** |
|----------------------------------------------------------------------------------------------------|------------|-------------------------------------------|------------|-------------------------------------------|------------|
| OPERATING ACTIVITIES:                                                                              |       |                                      |       |                                      |       |
| Net (loss) earnings                                                                                |       | $                                         | (1,250     | )                                         | $          | 3,316 |   |
|                                                                                               |       |                                      |       |                                      |       |
| Adjustments to reconcile net (loss) earnings to net  cash provided (used) in operating activities: |       |                                      |       |                                      |       |
| Depreciation and amortization                                                                      |       | 4,269                                     |       | 4,451                                     |       |
| (Gain) Loss on sale of assets                                                                      |       | 11                                        |       | (1                                        | )          |
| Amortization of debt issuance costs                                                                |       | 750                                       |       | 760                                       |       |
| Gain on extinguishment of debt                                                                     |       | —                                    |       | (1,725                                    | )          |
| Deferred income taxes                                                                              |       | (733                                      | )          | —                                    |       |
| Stock compensation expense                                                                         |       | 25                                        |       | 25                                        |       |
|                                                                                               |       |                                      |       |                                      |       |
| Change in operating assets and liabilities:                                                        |       |                                      |       |                                      |       |
| Accounts receivable                                                                                |       | (3,946                                    | )          | (1,092                                    | )          |
| Inventories                                                                                        |       | (1,009                                    | )          | 434                                       |       |
| Other current assets                                                                               |       | (412                                      | )          | (562                                      | )          |
| Accounts payable                                                                                   |       | 2,681                                     |       | 355                                       |       |
| Accrued payroll and other current liabilities                                                      |       | 738                                       |       | (7,545                                    | )          |
| Net cash provided (used) in operating activities                                                   |       | 1,124                                     |       | (1,584                                    | )          |
|                                                                                               |       |                                      |       |                                      |       |
| INVESTING ACTIVITIES:                                                                              |       |                                      |       |                                      |       |
| Purchases of property, plant, and equipment                                                        |       | (522                                      | )          | (2,638                                    | )          |
| Proceeds from sale of property, plant and equipment                                                |       | 10                                        |       | 4                                         |       |
| Net cash used in investing activities                                                              |       | (512                                      | )          | (2,634                                    | )          |
|                                                                                               |       |                                      |       |                                      |       |
| FINANCING ACTIVITIES:                                                                              |       |                                      |       |                                      |       |
| Principal payments under long-term financing  agreements                                           |       | (3,597                                    | )          | (16,901                                   | )          |
| Debt issuance costs                                                                                |       | (136                                      | )          | (29                                       | )          |
| Distribution to Parent                                                                             |       | —                                    |       | (4,478                                    | )          |
| Borrowings of long-term debt                                                                       |       | —                                    |       | 6,600                                     |       |
| Due to Parent                                                                                      |       | (55                                       | )          | 2,007                                     |       |
| Net cash used in financing activities                                                              |       | (3,788                                    | )          | (12,801                                   | )          |
|                                                                                               |       |                                      |       |                                      |       |
| NET DECREASE IN CASH                                                                               |       | (3,176                                    | )          | (17,019                                   | )          |
| CASH—Beginning of period                                                                      |       | 14,721                                    |       | 19,574                                    |       |
|                                                                                               |       |                                      |       |                                      |       |
| CASH—End of period                                                                            |       | $                                         | 11,545     |                                      | $          | 2,555 |   |
|                                                                                               |       |                                      |       |                                      |       |
| SUPPLEMENTAL CASH FLOW INFORMATION:                                                                |       |                                      |       |                                      |       |
| Cash paid for interest                                                                             |       | $                                         | 5,518      |                                      | $          | 6,375 |   |
|                                                                                               |       |                                      |       |                                      |       |
| Cash paid for income taxes—net                                                                |       | $                                         | 112        |                                      | $          | 363 |   |

 

See notes to condensed consolidated financialstatements (unaudited).

 

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**WII COMPONENTS, INC. ANDSUBSIDIARIES**

**NOTES TOCONDENSED**

**CONSOLIDATEDFINANCIAL STATEMENTS**

**(UNAUDITED)**

 

**1. BASIS OF PRESENTATION**

 

***Company Background***— On January 9,2007, WII Components, Inc. (the “Company”) was acquired by WII Holding, Inc.(“Parent”), a newly formed investment entity controlled by two investment fundsmanaged by Olympus Partners.  For ease ofreference, these funds are sometimes collectively referred to herein as the “OlympusFunds.”  The acquisition was consummatedthrough a merger of WII Merger Corporation (“MergerCo”), a wholly ownedsubsidiary of Parent, with and into the Company with the Company being thesurviving corporation in the transaction (the “Transaction”).  The aggregate purchase price paid by Parentfor all of the shares of capital stock of the Company and options to purchaseshares of capital stock of the Company in the Transaction was approximately$293.1 million, less indebtedness and certain expenses.  The aggregate purchase price and related feesand expenses were funded by borrowings under new credit facilities by theCompany and private offerings of debt and equity securities by Parent.  The Transaction has been accounted for as arecapitalization in the Company’s financial statements, with no adjustments tothe historical basis of the Company’s assets and liabilities.  The Company did not push down the newaccounting basis because of the significance of the publicly traded debtoutstanding, which hinders Parent’s ability to control the form of ownership ofthe Company.

 

The Company prepared the accompanying unauditedcondensed consolidated financial statements following the requirements of theSecurities and Exchange Commission for interim reporting.  As permitted under those rules, certain notesor other financial information normally required by accounting principlesgenerally accepted in the United States of America have been condensed oromitted.  Therefore, the Company suggeststhat these financial statements be read in conjunction with the consolidatedfinancial statements and accompanying notes for the year ended December 31,2008 included in its Form 10-K as filed with the Securities and ExchangeCommission on March 31, 2009.  Thecondensed consolidated balance sheet as of December 31, 2008 was derivedfrom the audited consolidated financial statements at that date, but does notinclude all the information and notes required by accounting principlesgenerally accepted in the United States of America for complete presentation.

 

In management’s opinion,the accompanying unaudited condensed consolidated financial statements includeall adjustments (consisting of normal recurring items) considered necessary topresent fairly, when read in conjunction with the consolidated financialstatements and accompanying notes for the period ended December 31, 2008included in our Form 10-K as filed with the Securities and ExchangeCommission on March 31, 2009, our financial position, results ofoperations and cash flows for the periods presented.

 

The unaudited condensed consolidated financialstatements include the accounts of the Company and its wholly ownedsubsidiaries.  All intercompany accountsand transactions have been eliminated in the preparation of the consolidatedfinancial statements.

 

**2. SIGNIFICANT ACCOUNTING POLICIES**

 

***Revenue Recognition***—Sales are recognized when revenue is realized orrealizable and has been earned.  TheCompany’s policy is to recognize revenue and the related cost of sales whenrisk and title passes to the customer. This is generally on the date of shipment, however, certain sales areshipped FOB destination and revenue is recognized when received by thecustomer.  Freight billed to customers isincluded in sales and shipping costs are included in cost of sales.  The Company records an estimate foranticipated sales returns and customer discounts at the time revenue isrecognized based on historical experience and current trends.  These estimates have been consistent with theCompany’s actual experiences.  Provisionsfor estimated sales returns and customer discounts are recorded as a reductionof net sales.  For each of the threemonth and six month periods ended June 30, 2009 and June 30, 2008,the provision for estimated sales returns and customer discounts as apercentage of net sales were approximately 3%.

 

***Concentration of Credit Risk***—The Company receives a significantportion of its revenue from two customers. For the six months ended June 30, 2009 and 2008, the Company’s twolargest customers accounted for approximately 57% and 49%, respectively, of itsnet sales.  As of June 30, 2009 and December 31,2008, these two largest customers accounted for approximately 59% and 47%,respectively, of the Company’s consolidated accounts receivables balance.  The permanent loss of, or a significantdecrease in the level of purchases by, one or more of our major customers couldhave a material adverse effect on our results of operations and future cashflows.

 

***Inventories***—Inventories consisted of the following (inthousands):

 
| ** **      | ** ** | **June 30,******** 2009** | ** ** | **December 31,********2008** | ** ** |
|-----------------|------------|-------------------------------------|------------|-----------------------------------|------------|
| Raw materials   |       | $                                   | 7,459      |                              | $          | 6,977 |   |
| Work in process |       | 2,746                               |       | 2,761                             |       |
| Finished goods  |       | 2,526                               |       | 2,496                             |       |
| LIFO adjustment |       | 1,720                               |       | 1,208                             |       |
|            |       | $                                   | 14,451     |                              | $          | 13,442 |   |

 

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The majority of inventory is valued at the lower oflast-in, first-out (“LIFO”) cost or market. The remainder of the inventory is valued at the lower of first-in,first-out method (“FIFO”) cost or market. For each of the periods ended as of June 30, 2009 and December 31,2008, inventory on the LIFO method represented 61% of consolidated inventories.

 

***Goodwill***—The Company evaluates goodwill for impairment atleast annually or when events or changes in circumstances indicateimpairment.  The Company has elected toperform its annual tests for goodwill impairment as of December 31 of eachyear.  Since December 31, 2008, theCompany concluded there were no events or changes in circumstances requiring aninterim goodwill impairment analysis to be completed as of June 30,2009.  Fair value is measured using amarket multiple valuation method.  Thecarrying amount of goodwill was $112.7 million at June 30, 2009 and December 31,2008.

 

***Customer Relationship—***Customer relationships relate to intangible assetsrecorded through previous acquisitions for relationships with significantcustomers.  The original cost of thesecustomer relationships was $16.6 million, and the related accumulatedamortization as of June 30, 2009 is $7.5 million.  The intangible assets are being amortizedover the estimated life of 10 years. Amortization was $0.8 million for the six-month periods ended June 30,2009 and 2008.  Expected annualamortization is as follows for the years ending December 31 (inthousands):

 
| 2009       |   | $     | 1,658  |   |
|------------|--------|-------|--------|--------|
| 2010       |   | 1,657 |   |
| 2011       |   | 1,658 |   |
| 2012       |   | 1,657 |   |
| 2013       |   | 1,658 |   |
| Thereafter |   | 1,636 |   |

 

***Noncompete Agreement***—Noncompete agreements primarily relate to agreementswith the former owners of Brentwood, Grand Valley, and Dimension Moldings, Inc.(DMI).  The original cost of thesenoncompete agreements was $2.4 million, and the related accumulatedamortization as of June 30, 2009 is $2.3 million.  Noncompete rights are being amortized overthe applicable terms of the agreements (5 years, 7 years, and 5years, respectively).  The noncompeteagreement with the former owner of Brentwood was fully amortized in July 2007.  The noncompete agreement with the formerowners of Grand Valley and DMI are expected to be fully amortized by April 2011and July 2010, respectively. Amortization was $17,000 for the six-month periods ended June 30,2009 and 2008.  Expected annualamortization is as follows for the years ending December 31 (inthousands):

 
| 2009 |   | $  | 34     |   |
|------|--------|----|--------|--------|
| 2010 |   | 26 |   |
| 2011 |   | 5  |   |

 

***New AccountingPronouncements***— In September 2006,the FASB issued SFAS No. 157, *FairValue Measurements* (SFAS157).  SFAS 157 defines fairvalue, establishes a framework for measuring fair value in accordance withgenerally accepted accounting principles and expands disclosures about fairvalue measurements.  This Statementapplies under other accounting pronouncements that require or permit fair valuemeasurements, the FASB having previously concluded in those accountingpronouncements that fair value is the relevant measurement attribute.  Accordingly, this Statement does not requireany new fair value measurements.

 

In February 2007,FASB issued SFAS No. 159, *Establishing theFair Value Option for Financial Assets and Liabilities*(SFAS159).  The Financial Accounting StandardsBoard has issued SFAS 159 to permit all entities to choose to elect, atspecified election dates, to measure eligible financial instruments at fair value.

 

TheCompany adopted SFAS 157 and SFAS 159 on January 1, 2008.  TheCompany did not elect the fair value of accounting option for any eligibleassets; therefore, the adoption of these standards had no impact on itsfinancial statements.

 

TheCompany evaluated the remaining aspects of SFAS 157 for which the effectivedate was deferred under FSP No. 157-2. Areas impacted by the deferral relate to non-financial assets andliabilities that are measured at fair value, but are recognized or disclosed atfair value on a nonrecurring basis.  Thisdeferral applies to such items as long-lived asset groups measured at fairvalue for an impairment assessment.  TheCompany applied the effects of these remaining aspects of SFAS 157 to fairvalue measurements prospectively beginning January 1, 2009.  The adoption ofSFAS 157 did not have a material impact on the Company’s consolidated resultsof operations or financial condition.

 

In December 2007, the FASB issuedSFAS No. 141 (R), *Business Combinations*(SFAS 141(R)).  SFAS 141(R) establishesprinciples and requirements for how an acquirer recognizes and measures in itsfinancial statements the identifiable assets acquired, the liabilities assumed,any non-controlling interest in the acquirer and the goodwill acquired.  SFAS 141(R) also establishes

 

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disclosure requirements to enable the evaluation of the nature andfinancial effects of the business combination. SFAS No. 141(R) is effective for fiscal years beginning after December 15,2008.  The adoption of SFAS No. 141(R) didnot have a material impact on the Company’s consolidated results of operationsor financial condition.

 

In March 2008, the FASB issued SFAS No. 161,*Disclosures about Derivative Instruments andHedging Activities-an amendment of FASB Statement No. 133* (SFAS161).  SFAS 161 will require increaseddisclosure about: (i) an entity’s strategies and objectives for usingderivative instruments, (ii) the location and amounts of derivativeinstruments in an entity’s financial statements, (iii) how derivativeinstruments and related hedged items are accounted for under SFAS 133, *Accounting for Derivative Instruments and Hedging Activities*, and (iv) howderivative instruments and related hedged items affect its financial position,financial performance, and cash flows. Certain disclosures are required with respect to derivative featuresthat are credit-risk related.  SFAS 161is effective for the Company beginning January 1, 2009 on a prospectivebasis.  The adoption of SFAS 161 did nothave a material impact on the Company’s consolidated results of operations orfinancial condition.

 

In April 2009,the FASB issued FSP FAS 107-1 and APB 28-1, “Interim Disclosures about FairValue of Financial Instruments” (“FSP FAS 107-1”).  FSP FAS 107-1 requiresinterim reporting period disclosure about the fair value of financialinstruments, effective for interim reporting periods ending after June 15,2009.  The Company has adopted the disclosure requirements of FSP107-1.  Due to their nature, the carrying value of cash, receivables,payables and debt obligations approximates fair value on the Company’sfinancial statements.

 

In May 2009,the FASB issued Statement No. 165, *SubsequentEvents*.  Statement No. 165 incorporates guidance intoaccounting literature that was previously addressed only in auditingstandards.  The statement refers to subsequent events that provideadditional evidence about conditions that existed at the balance-sheet date as “recognizedsubsequent events”.  Subsequent events which provide evidence aboutconditions that arose after the balance-sheet date but prior to the issuance ofthe financial statements are referred to as ‘non-recognized subsequent events”. It also requires companies to disclose the date through which subsequent eventshave been evaluated and whether this date is the date the financial statementswere issued or the date the financial statements were available to beissued.  Statement No. 165 is effective for interim and annualperiods ending after June 15, 2009.  The Company has adopted this newstandard in the second quarter of 2009. The Company has evaluated subsequent events through August 13,2009, which is the date the financial statements were available to be issued.

 

In June 2009,the FASB issued Statement No. 168, *TheFASB Accounting Standards Codification and the Hierarchy of Generally AcceptedAccounting Principles*.  Statement No. 168 replaces FASBStatement No. 162, *The Hierarchy ofGenerally Accepted Accounting Principles*, and establishes the FASBAccounting Standards Codification TM (the Codification) as the source ofauthoritative accounting principles recognized by the FASB to be applied bynongovernmental entities in the preparation of financial statements inconformity with generally accepted accounting principles (GAAP). Statement No. 168 is effective for interim and annual periods ending afterSeptember 15, 2009.  The Company will begin to use the newCodification when referring to GAAP in its quarterly report on Form 10-Qfor the fiscal period ending September 30, 2009.  The Company doesnot anticipate this will have a material impact on the consolidated results ofthe Company.

 

**3. RECAPITALIZATION**

 

On January 9, 2007, theCompany was acquired by Parent, a newly formed investment entity controlled bythe Olympus Funds.  The aggregatepurchase price paid by Parent for all of the shares of capital stock of theCompany and options to purchase shares of capital stock of the Company in theTransaction was approximately $293.1 million, less indebtedness and certainexpenses.  The aggregate purchase priceand related fees and expenses were funded by borrowings under new credit facilitiesby the Company and private offerings of debt and equity securities byParent.  The Transaction has beenaccounted for as a recapitalization in the Company’s consolidated financialstatements, with no adjustments to the historical basis of the Company’s assetsand liabilities.

 

In conjunction with theTransaction, the Company entered into a senior credit facility (the “SeniorCredit Facility”), with Credit Suisse, Cayman Islands Branch, which providedfor (i) a senior secured first lien term loan facility in an aggregateprincipal amount of $150.0 million (the “First Lien Term Facility”) and (ii) asenior secured first lien revolving credit facility in an aggregate principalamount up to $25.0 million, subject to certain conditions (the “RevolvingFacility” and, together with the First Lien Term Facility, the “First LienFacilities”), of which $10.0 million is available through a sub facility in theform of letters of credit.  Please seeNote 4 below regarding recent amendments to the Company’s Senior CreditFacility.

 

In conjunction with the Transaction, Parent enteredinto note purchase agreements with OCM Mezzanine Fund II, L.P. and OlympusGrowth Fund IV, L.P (the “Note Purchase Agreements”).  The Note Purchase Agreement with OCMMezzanine Fund II, L.P. consisted of $43.0 million senior payment-in-kind noteswith no required principal amortization. The Note Purchase Agreement with Olympus Growth Fund IV, L.P. consistedof $43.0 million junior payment-in-kind notes with no required principalamortization.  These notes (the “ParentNotes”) are scheduled to mature in April 2012.  During the term of the Parent Notes, Parentis able at its option to pay interest on the Parent Notes through the issuanceof additional notes.  The Company is notliable for, and has not otherwise guaranteed, any of the obligations of Parentwith respect to the Parent Notes.  Parentand its Subsidiaries (including the Company) are, however, subject to a numberof restrictive covenants under the Note Purchase Agreements.  Parent and its 

 

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Subsidiaries (including the Company) were in compliance with allcovenants as of June 30, 2009.  Inaddition, the Company is limited in its ability to pay dividends or otherwisemake distributions to Parent under the Senior Credit Facility and the indenturegoverning the 10% Senior Notes due 2012 (the “Senior Notes”).  The Parent Notes are not reflected in theCompany’s consolidated balance sheet as the Company did not push down the newaccounting basis because of the significance of the public debt holders’influence on the Company’s ability to control the form of ownership.

 

Effective as of June 13, 2007, Parent issued anadditional $20.0 million of Parent Notes to Olympus Growth Fund IV, L.P., andrepurchased $20.0 million of Parent Notes from OCM Mezzanine Fund II, L.P.  During the twelve month period ended December 31,2008, the Company distributed $4.5 million to Parent for payment on the ParentNotes.  This distribution to Parent wasrecorded as a reduction in retained earnings.

 

In conjunction with the Transaction, Parent issuedequity securities of approximately $86.2 million (including rollover equityfrom management) to fund the equity necessary for the acquisition, consistingof $81.0 million of preferred equity securities and $5.2 million of commonequity securities.  Preferred dividendsaccrue and accumulate on the outstanding preferred equity securities at therate of 10% per annum, compounding quarterly, on the sum of its liquidationvalue per share ($1,000) plus all accumulated and unpaid dividendsthereon.  Dividends are payable as andwhen declared by Parent’s board of directors out of funds legally available forthe payment of dividends.  Such dividendsaccrue, whether or not they have been declared and whether or not there areprofits, surplus or other funds of Parent legally available for the payment ofdividends, until such time as such dividends are actually paid by Parent.  The holders of a majority of the outstandingpreferred equity securities at any time and from time to time may demand thatParent redeem all or any portion of the outstanding preferred equity securitiesby delivering to the holder(s) thereof (i) an amount of cash pershare equal to the sum of its liquidation value per share ($1,000) plus allaccumulated and unpaid dividends thereon and (ii) a number of shares ofParent’s common equity securities as determined in accordance with theredemption procedures contained in Parent’s certificate of incorporation.  If Parent does not have funds legallyavailable for any particular redemption, Parent is obligated to use those fundsthat are legally available for the redemption of such securities to redeem themaximum possible number of preferred equity securities which would otherwise beredeemed in connection with such redemption. Thereafter, when additional funds of Parent are legally available forredemption of such securities, Parent is obligated to redeem the balance ofsuch securities.  Parent is prohibitedfrom redeeming any preferred equity securities if any such redemption isprohibited under any credit facility or indenture to which Parent or any of itssubsidiaries is a party or is otherwise bound. The Company is not liable for, and has not otherwise guaranteed, any ofthese obligations of Parent with respect to the equity securities issued byParent.  These equity securities are notreflected in the Company’s consolidated balance sheet due to the significanceof the public debt holders’ influence on the Company’s ability to control theform of ownership.

 

Inconjunction with the Transaction, the previous stockholders of the Company willreceive the benefit of certain negotiated transaction related tax deductionswhenever such deductions are realized. Due to this agreement, there was $6.2 million paid during thetwelve-month period ended December 31, 2008.  As of June 30, 2009, $9,000 is includedin Other Current Liabilities and $1.9 million is included in Other Long-TermLiabilities under this agreement.

 

**4. FINANCING ARRANGEMENTS**

 

***Senior Notes ***The Company has outstanding 10% SeniorNotes due in 2012.  During thethree-months ended March 31, 2008, the Company purchased and canceledapproximately $11.5 million in principal amount of the Senior Notes for paymentof $9.8 million resulting in a gain on extinguishment of debt of approximately$1.7 million.  The Company used availablecash and borrowings under its Revolving Facility for payment thereof.

 

Each of the Company**’**s subsidiaries, which are all 100% ownedsubsidiaries of the Company, have fully and unconditionally guaranteed theSenior Notes on a joint and several basis. The Company has no assets or operations independent of itssubsidiaries.  As a result, the Companyhas not presented separate financial statements of the subsidiary guarantors.

 

***CreditFacility***** Inconjunction with the Transaction, the Company entered into the Senior CreditFacility, with Credit Suisse, Cayman Islands Branch, which provided for (i) theFirst Lien Term Facility in an aggregate principal amount of $150.0 million and(ii) the Revolving Facility in an aggregate principal amount up to $25.0million, subject to certain conditions, of which $10.0 million is availablethrough a sub facility in the form of letters of credit.  Subject to certain conditions, the First LienTerm Facility may be increased by up to $30.0 million during the life of theFirst Lien Term Facility at the request of the Company with the consent fromthose lenders that agree to participate in such increase.  Subject to the foregoing, effective as of March 30,2009, no additional borrowings are available under the First Lien TermFacility.  As of June 30, 2009, themaximum amount of borrowings available to the Company under the RevolvingFacility was $12.5 million.  As of June 30,2009, the Company had nothing outstanding under theRevolvingFacility.  As of June 30, 2009, theoutstanding principal of such indebtedness bears interest at a fluctuating rateequal to either the base rate plus 4.75% per annum or LIBOR plus 5.75% per annum(effective rate of 6.06% and 6.55% at June 30, 2009 and June 30,2008, respectively).  On March 30,2009, the Company entered into an amendment to its Senior Credit Facility,which among other things: (i) increased the applicable interest ratemargin for borrowings thereunder; (ii) eliminated the requirement that theCompany maintain corporate debt ratings; (iii) extended the date by whichthe Company must amend the indenture governing the Senior Notes to eliminatecertain of the restrictive covenants contained therein (including covenantsrelated to the incurrence of indebtedness and liens) or

 

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redeemed the Senior Notes to March 31, 2010; (iv) extendedthe Company’s ability to continue to pay cash dividends to enable Parent tomake cash interest payments on the Parent Notes to March 31, 2010; (v) increasedthe maximum total leverage ratio the Company may have at the end of eachquarterly period from December 31, 2008 through December 31, 2009; (vi) requiredpayment of the remaining balance due under the First Lien Term Facility ofapproximately $3.6 million, which was paid on March 30, 2009; and (vii) decreasedthe minimum interest coverage ratio the Company is required to maintain at theend of each quarterly period from December 31, 2008  through December 31, 2009.  The amendment also waived for the four fiscalquarters ended December 31, 2008, any default or event of default that mayhave arisen from the Company’s failure to maintain the maximum consolidatedleverage ratio and the minimum consolidated interest coverage ratio set forthin the Senior Credit Facility prior to the effective date of theamendment.  The Company must comply withcertain financial covenants under its Senior Credit Facility, includingmaintenance of an interest coverage ratio and a total leverage ratio.  The Company was in compliance with suchcovenants as of June 30, 2009.  The Senior Credit Facility is collateralizedby substantially all assets of the Company including real and personalproperty, inventory, accounts receivable, intellectual property and otherintangibles and is scheduled to mature January 2013.

 

***Restrictions on Indebtedness ***OurSenior Credit Facility and the indenture for the Senior Notes impose certainrestrictions on the Company’s ability to incur indebtedness, pay dividends,make investments, grant liens, sell assets and engage in certain otheractivities.  The subsidiary guarantors are generally not restricted intheir ability to dividend or otherwise distribute funds to the Company exceptfor restrictions imposed under applicable state corporate law.  TheCompany is limited in its ability to pay dividends or otherwise make otherdistributions to Parent under the Senior Credit Facility and the indenturegoverning the Senior Notes.  Specifically, the Senior Credit Facility, asamended,  prohibits the Company frommaking any distributions to Parent except for limited purposes, including, butnot limited to: (i) prior to March 31, 2010, the Company may pay cashdividends and distributions to Parent to enable Parent to make cash interestpayments on the acquisition loan, providedthat (x) after givingpro forma effect to such dividend or distribution, the consolidated first lienleverage ratio does not exceed 1.0 to 1.0, and (y) the amount of suchdividends and distributions shall not exceed $3,225,000 in any calendarquarter, (ii) customary and reasonable out-of-pocket expenses, legal andaccounting fees and expenses and overhead of Parent incurred in the ordinarycourse of business to the extent attributable to the business of the Companyand its subsidiaries and in the aggregate not to exceed $500,000 in any fiscalyear, and (iii) the Company may pay management fees of Parent not toexceed $750,000 in any fiscal year so long as no default has occurred. The indenture provides that the Company can generally pay dividends andmake other distributions to Parent in an amount not to exceed (i) 50% ofthe Company’s consolidated net income for the period beginning April 1,2004 and ending as of the end of the last fiscal quarter before the proposedpayment, plus (ii) 100% of the net cash proceeds received by the Companyfrom the issuance and sale of capital stock, plus (iii) the net return ofcertain investments, provided that certain conditions are satisfied, includingthat the Company has a consolidated interest coverage ratio of greater than 2.0to 1.0.  For the period ended June 30,2009, the Company’s consolidated interest coverage ratio was less than 2.0 to1.0.

 

**5. RELATED-PARTY TRANSACTIONS**

 

The Company has noncompete agreements with the formerowners of Grand Valley and Dimension Moldings, Inc.

 

Parent has a management services agreement withOlympus Advisory Partners, an affiliate of Parent’s largest stockholder. Parent is obligated to pay a transaction fee to the affiliate forservices provided to Parent and its subsidiaries, including the Company, foreach financing, refinancing, acquisition, or similar nonrecurring transaction.  Parent paid approximately $3.0 million to this affiliate for servicesrelated to the Transaction, of which, $0.7 million was recorded as deferredfinancing fees on the Company’s consolidated financial statements, while theremaining $2.3 million was recorded on Parent’s financial statements.  Inaddition, the affiliate will be paid a $150,000 quarterly advisory fee byParent for ongoing services provided to Parent and its subsidiaries, includingthe Company.  In 2008, the affiliatelowered the quarterly fee payable by Parent for the third and fourth quarters to$135,000.  The Company paid a total of $300,000 and nothing on account ofParent for the six-month periods ended June 30, 2008 and June 30,2009, respectively.  In connection with the amendments to the NotePurchase Agreements related to the Parent Notes, the $150,000 quarterly fee hasbeen deferred by the affiliate for 2009 and will be payable in 2010 orthereafter.  Although neither the Companynor any of its subsidiaries is party to this Agreement, the Company hasrecorded this expense in its statement of operations because most of the servicesrelate to its operations.

 

The Company and Parent file a consolidated federalincome tax return, and federal income taxes are allocated to the Company basedupon the respective taxable earnings or loss. The Company records income tax liabilities as an amount due toParent.   As of June 30, 2009 and December 31,2008, the Company included a total of $4.7 million and $4.8 million,respectively as an amount due to Parent for these income tax liabilities.

 

**6. BUSINESS SEGMENTS**

 

The Company conducts 93%of its business within one reportable market segment: the wood kitchen and bathproducts segment.  The Company has twoprimary product categories: hardwood products and engineered wood products.  Hardwood products produce a comprehensiveline of hardwood doors and components. Engineered wood products includes rigid thermofoil doors and components,veneer raised panels, and wrapped profiles.

 

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The Company’s sales byproduct category are as follows (in thousands):

 
| ** **                | ** ** | **Six Months Ended  June 30,** | ** ** | **Three Months Ended  June 30,** | ** ** |
|---------------------------|------------|-------------------------------------|------------|---------------------------------------|------------|
| ** **                | ** ** | **2009**                            | ** ** | **2008**                              | ** ** | **2009** | ** ** | **2008** | ** ** |
| Hardwood  products        |       | $                                   | 52,926     |                                  | $          | 92,088 |   | $ | 26,814 |   | $ | 45,595 |   |
| Engineered wood  products |       | 14,225                              |       | 20,035                                |       | 7,532 |   | 10,509 |   |
| Total                     |       | $                                   | 67,151     |                                  | $          | 112,123 |   | $ | 34,346 |   | $ | 56,104 |   |

 

Substantially all salesare made within North America.

 

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**Item 2.Management’s Discussion and Analysis of Financial Condition and Results ofOperations**

 

As used in thisManagement’s Discussion and Analysis of Financial Condition and Results ofOperations and elsewhere in this Quarterly Report on Form 10-Q, the terms “we,”“us” or “our” refer to WII Components, Inc. and its consolidatedsubsidiaries and their respective predecessors.

 

**Forward-LookingStatements**

 

Certain statements inthis report are “forward-looking statements” within the meaning of the PrivateSecurities Litigation Reform Act of 1995. Statements that are predictive in nature, that depend upon or refer tofuture events or conditions or that include words such as “believe,” “anticipate,”“expect,” “estimate,” “may,” “will,” “should,” “continue,” “plans,” “intends,” “likely”or other similar expressions are forward-looking statements.  We caution you that forward-lookingstatements involve unknown risks, uncertainties and other factors that maycause our actual results and performance to differ materially from any futureresults or performance expressed or implied by these forward-lookingstatements.  Please also see ourdiscussion of risk factors contained in Item 1A. Part II of this Report onForm 10-Q.

 

Without limiting thegenerality of the preceding statement, all statements in this report providingestimates and projections concerning or relating to the following matters areforward-looking statements:

 

·                  financial results andconditions;

 

·                  margins, costs andexpenditures;

 

·                  cash flows and growthrates;

 

·                  demand for our products;

 

·                  industry trends;

 

·                  new product and customerinitiatives;

 

·                  our current plans forcapital expenditures;

 

·                  manufacturing and othercost-saving initiatives; and

 

·                  our liquidity and capitalresources.

 

In addition, we, throughour senior management, from time to time make forward-looking public statementsconcerning our expected future operations, performance and other developments.  Such forward-looking statements arenecessarily estimates reflecting our judgment based upon current informationand involve a number of risks and uncertainties.  There can be no assurance that other factorswill not affect the accuracy of these forward-looking statements or that ouractual results will not differ materially from the results anticipated in suchforward-looking statements.  Although webelieve that these forward-looking statements are based on reasonableassumptions, you should be aware that many factors could affect our actualfinancial results or results of operations and could cause actual results todiffer materially from those expressed in the forward-looking statements.  Those factors include, among other things:

 

·                  our high degree ofleverage and significant debt service obligations;

 

·                  our ability to integrateacquired businesses;

 

·                  our need for additionalmanufacturing capacity;

 

·                  restrictions under theindenture governing the notes and our senior secured credit facility;

 

·                  changes in interest ratesand general economic conditions;

 

·                  a downturn in thehomebuilding or home repair and remodeling industry;

 

·                  changes in the price ofraw materials;

 

·                  interruptions indeliveries of raw materials or finished goods;

 

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·                  the highly competitivenature of our industry; and

 

·                  increases in the cost oflabor.

 

**Overview**

 

We are oneof the leading manufacturers of hardwood cabinet doors, hardwood components andengineered wood products in the United States. Our products include (1) hardwood cabinet door components, faceframes and drawer fronts, (2) fully assembled hardwood cabinet doors, (3) rigidthermofoil, or RTF, cabinet doors and components, (4) veneer raisedpanels, or VRPs, and (5) a variety of laminated and profile-wrappedcomponents.  We generate approximately93% of our sales from the kitchen and bath cabinet manufacturing industry.  Our customers, in turn, distribute theirproducts through various sales channels, including specialty kitchen and bathcabinet dealers, home center retailers and homebuilders.  We conduct all of our operations through ourWoodcraft, PrimeWood and Brentwood subsidiaries and we operate elevenmanufacturing facilities located in Minnesota, North Dakota, Oregon, Ohio,Kansas, Pennsylvania, North Carolina, and Kentucky that allow us to distributeour products nationwide.

 

In the past eleven years,we have consummated four strategic acquisitions that have enhanced our marketposition, product breadth and geographic reach. In June 1998, we acquired PrimeWood, a manufacturer of RTF, VRP andprofile-wrapped engineered wood products based in North Dakota.  In July 2002, we acquired Brentwood, amanufacturer of solid wood and RTF cabinet doors located in Oregon.  In April 2004, we acquired Grand Valley,a manufacturer of solid wood cabinet doors located in Ohio.  In July 2005, we acquired substantiallyall of the assets of Dimension Moldings, Inc. (DMI), an Ohio corporation,which was in the business of manufacturing hardwood component moldings at afacility located in Middlefield, Ohio. Following the acquisition, our Woodcraft subsidiary manufactures hardwoodcomponent moldings at the Middlefield facility.

 

OnJanuary 9, 2007, WII Components, Inc.(the “Company”) was acquired by WII Holding, Inc. (“Parent”), a newlyformed investment entity controlled by two investment funds managed by OlympusPartners.  For ease of reference, thesefunds are sometimes collectively referred to herein as the “Olympus Funds.”  Theacquisition was consummated through a merger of WII Merger Corporation (“MergerCo”),a wholly owned subsidiary of Parent, with and into the Company with the Companybeing the surviving corporation in the transaction (the “Transaction”).  The aggregate purchase price paid by Parentfor all of the shares of capital stock of the Company and options to purchaseshares of capital stock of the Company in the Transaction was approximately$293.1 million, less indebtedness and certain expenses.  The Transaction has been accounted for as arecapitalization in the Company’s financial statements, with no adjustments tothe historical basis of the Company’s assets and liabilities.  The Company did not push down the newaccounting basis because of the significance of the publicly traded debtoutstanding, which hinders the Parent’s ability to control the form ofownership of the Company.

 

**Resultsof Operations**

 

Asdiscussed below, we continued to experience a slowdown in net sales for the sixmonths ended June 30, 2009 that began in the second half of 2006.  This kitchen and bath industry-wide slowdownhad a negative impact on our gross profit and operating income margin percentagesdue to fixed costs becoming a higher percentage of sales.   In addition, we have continued to experiencedecreases in hardwood material prices, which generally are passed on to ourcustomers through lower selling prices in accordance with indexing agreementsthat reset approximately every 3 to 6 months. The prices we pay for hardwood materials continued to decline for thefirst 3 to 4 months of the six months ended June 30, 2009, but the pricesstabilized by the end of the six month period. These declines in our material costs will result in lower selling pricesin the second half of 2009 due to our indexing agreements with our customers.

 

***Three Months Ended June 30, 2009 Compared to the ThreeMonths Ended June 30, 2008***

 

The following tableincludes, for the three months ended June 30, 2009 and 2008, selectedoperating data derived from our condensed consolidated statements of earningsand presents this information as a percentage of net sales:

 
| ** **                      | ** ** | **Three Months  Ended  June 30, 2009** | ** ** | **Three Months  Ended  June 30, 2008** | ** ** |
|---------------------------------|------------|----------------------------------------|------------|----------------------------------------|------------|
| ** **                      | ** ** | **(dollars in thousands)**             | ** ** |
| Net  sales                      |       | $                                      | 34,346     |                                   | $          | 56,104 |   |
| *% of net sales*                | * *   | *100.0*                                | *%*        | *100.0*                                | *%*        |
| Cost  of sales                  |       | 28,469                                 |       | 46,713                                 |       |
| *% of net sales*                | * *   | *82.9*                                 | *%*        | *83.3*                                 | *%*        |
| * *                        | * *   | * *                               | * *   | * *                               | * *   |
| Gross  profit                   |       | 5,877                                  |       | 9,391                                  |       |
| *% of net sales*                | * *   | *17.1*                                 | *%*        | *16.7*                                 | *%*        |
| Operating  expenses             |       | 3,113                                  |       | 3,326                                  |       |
| *% of net sales*                | * *   | *9.1*                                  | *%*        | *5.9*                                  | *%*        |
| * *                        | * *   | * *                               | * *   | * *                               | * *   |
| Operating  income               |       | 2,764                                  |       | 6,065                                  |       |
| *% of net sales*                | * *   | *8.0*                                  | *%*        | *10.8*                                 | *%*        |
| Other  expenses (income):       |       |                                   |       |                                   |       |
| Interest  expense               |       | 3,151                                  |       | 3,289                                  |       |
| *% of net sales*                | * *   | *9.2*                                  | *%*        | *5.8*                                  | *%*        |
| Other  income, net              |       | (2                                     | )          | (10                                    | )          |
| *% of net sales*                | * *   | *-0.0*                                 | *%*        | *-0.0*                                 | *%*        |
| Income  tax (benefit) provision |       | (140                                   | )          | 1,153                                  |       |
| *% of net sales*                | * *   | *-0.4*                                 | *%*        | *2.1*                                  | *%*        |
| * *                        | * *   | * *                               | * *   | * *                               | * *   |
| Net  (loss) earnings            |       | (245                                   | )          | 1,633                                  |       |
| *% of net sales*                | * *   | *-0.7*                                 | *%*        | *2.9*                                  | *%*        |
|                                 |            |                                        |            |                                        |            |  |  |

 

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*Netsales.*  Net sales decreased $21.8 million, or 38.9%,from $56.1 million for the three months ended June 30, 2008 to $34.3million for the three months ended June 30, 2009.  Sales in our hardwood and engineered woodproduct line decreased $18.8 million and $3.0 million, respectively.  These decreases are mainly attributable to anoverall slowdown in the market that began in the second half of 2006, and to alesser extent, an approximately 4% decline in our overall selling prices,mainly due to lower hardwood material costs. We have indexing agreements with a majority of our customers, wherebyselling prices to customers are increased or decreased as our material costsincrease or decrease.

 

*Cost ofsales.*  Cost of sales decreased $18.2 million, or39.0%, from $46.7 million for the three months ended June 30, 2008 to$28.5 million for the three months ended June 30, 2009.  This decrease in cost of sales is primarilyattributable to lower material, labor and overhead costs as a result of lowervolume of sales.

 

*Grossprofit.*  Gross profit decreased $3.5 million, or37.2%, from $9.4 million for the three months ended June 30, 2008 to $5.9million for the same period in 2009.  Asa percentage of net sales, our gross profit increased 40 basis points from16.7% for the three months ended June 30, 2008 to 17.1% for the sameperiod in 2009.  This increase is relatedto (i) lower hardwood material costs, and (ii) improved operatingefficiencies.  This increase waspartially offset with spreading fixed costs over lower sales volume.

 

*Operatingexpenses.*  Operating expenses decreased$0.2 million, or 6.1%, from $3.3 million for the three months ended June 30,2008 to $3.1 million for the same period in 2009.  The decrease primarily consists of lowersalaries, including benefits, due to eliminated positions throughout 2008 and2009.

 

*Operatingincome.*  Operating income decreased by $3.3 million,or 54.1%, from $6.1 million for the three months ended June 30, 2008 to$2.8 million for the three months ended June 30, 2009 as a result of thenet effect of the factors described above.

 

*Interestexpense.*  Interest expense decreased $0.1 million, or3.0%, from $3.3 million for the three months ended June 30, 2008 to $3.2million for the three months ended June 30, 2009.  This decrease mainly relates to lowerinterest expense in 2009 due to the payment of the remaining balance of theFirst Lien Term Facility in March 2009.

 

*Otherincome.*  Other income was $10,000 and $2,000 for thethree months ended June 30, 2008 and June 30, 2009,respectively.  This income mainlyrepresents interest received from our interest bearing accounts.

 

*Incometax (benefit) provision. *Income tax provision decreased $1.3million, from an income tax expense of $1.2 million for the three months ended June 30,2008 to an income tax benefit of $0.1 million for the three months ended June 30,2009 due to decreased earnings in 2009. The effective tax rate decreased from 41.4% in 2008 to 36.4% in 2009 dueto permanent differences.

 

*Net(loss) earnings.*  Net earnings decreased $1.8 million, or112.5%, from net income of $1.6 million for the three months ended June 30,2008 to a net loss of $0.2 million for the three months ended June 30,2009 as a result of the factors described above.

 

**Results of Operations**

 

***Six Months Ended June 30, 2009Compared to the Six Months Ended June 30, 2008***

 

Thefollowing table includes, for the six months ended June 30, 2009 and forthe six months ended June 30, 2008, selected operating data derived fromour condensed consolidated statements of operations and presents thisinformation as a percentage of net sales:

 

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| ** **                     | ** ** | **WII Components, Inc.**   | ** ** |
|--------------------------------|------------|--------------------------------------|------------|
| ** **                     | ** ** | **Six Months Ended  June 30, 2009**  | ** ** | **Six Months Ended**

**June 30, 2008** | ** ** |
| ** **                     | ** ** | **(dollars in thousands)** | ** ** |
| Net sales                      |       | $                                    | 67,151     |   | $ | 112,123 |   |
| *% of net sales*               | * *   | *100.0*                              | *%*        | *100.0* | *%* |
| Cost of sales                  |       | 56,806                               |       | 94,906 |   |
| *% of net sales*               | * *   | *84.6*                               | *%*        | *84.6* | *%* |
| * *                       | * *   | * *                             | * *   | * * | * * |
| Gross profit                   |       | 10,345                               |       | 17,217 |   |
| *% of net sales*               | * *   | *15.4*                               | *%*        | *15.4* | *%* |
| Operating expenses             |       | 6,158                                |       | 6,924 |   |
| *% of net sales*               | * *   | *9.2*                                | *%*        | *6.2* | *%* |
| * *                       | * *   | * *                             | * *   | * * | * * |
| Operating income               |       | 4,187                                |       | 10,293 |   |
| *% of net sales*               | * *   | *6.2*                                | *%*        | *9.2* | *%* |
| Other expenses (income):       |       |                                 |       |   |   |
| Interest expense               |       | 6,177                                |       | 6,597 |   |
| *% of net sales*               | * *   | *9.2*                                | *%*        | *5.9* | *%* |
| Other income, net              |       | (7                                   | )          | (1,831 | ) |
| *% of net sales*               | * *   | *-0.0*                               | *%*        | *-1.7* | *%* |
| Income tax (benefit) provision |       | (733                                 | )          | 2,211 |   |
| *% of net sales*               | * *   | *-1.1*                               | *%*        | *2.0* | *%* |
| * *                       | * *   | * *                             | * *   | * * | * * |
| Net earnings (loss)            |       | (1,250                               | )          | 3,316 |   |
| *% of net sales*               | * *   | *-1.9*                               | *%*        | *3.0* | *%* |
|                                |            |                                      |            |  |  |  |  |

 

*Net sales.*  Net sales decreased $44.9 million, or40.1%, from $112.1 million for the six months ended June 30, 2008 to$67.2 million for the six months ended June 30, 2009.  Sales in our hardwood and engineered woodproduct line decreased $39.2 million and $5.7 million, respectively.  These decreases are mainly attributable to an overallslowdown in the market that began in the second half of 2006, and to a lesserextent, an approximately 4% decline in our overall selling prices, mainly dueto lower hardwood material costs.  Wehave indexing agreements with a majority of our customers, whereby sellingprices to customers are increased or decreased as our material costs increaseor decrease.

 

*Cost of sales.*  Cost of sales decreased $38.1 million,or 40.1%, from $94.9 million for the six months ended June 30, 2008to $56.8 million for the six months ended June 30, 2009.  This decrease in cost of sales is primarilyattributable to lower material, labor and overhead costs as a result of lowervolume of sales.

 

*Gross profit.*  Gross profit decreased $6.9 million, or40.1%, from $17.2 million for the six months ended June 30, 2008 to$10.3 million for the same period in 2009. As a percentage of net sales, our gross profit remained the same at 15.4%for the six months ended June 30, 2008 and for the six months endedJune30, 2009.  As a percentage of netsales, gross profit improved due to lower lumber costs, but was offset due tospreading fixed costs over lower sales volume.

 

*Operating expenses.*  Operating expenses decreased$0.7 million, or 10.1%, from $6.9 million for the six months ended June 30,2008 to $6.2 million for the same period in 2009.  The decrease primarily consists of lower salaries,including benefits, due to eliminated positions throughout 2008 and 2009.

 

*Operating income.*  Operating income decreased by$6.1 million, or 59.2%, from $10.3 million for the six months ended June 30,2008 to $4.2 million for the six months ended June 30, 2009 as aresult of the net effect of the factors described above.

 

*Interest expense.*  Interest expense decreased $0.4 million,or 6.1%, from $6.6 million for the six months ended June 30, 2008 to$6.2 million for the six months ended June 30, 2009.  This decrease mainly relates to lower interest expensein 2009 due to lower debt balances for the Senior Notes, mainly due to the$11.5 million principal reduction during the three months ended March 31,2008, and the payment of the remaining balance of the First Lien Term Facilityin the three months ended March 31, 2009.

 

*Other income.*  Other income decreased $1.8 million, from$1.8 million for the six months ended June 30, 2008 to $7,000 for the sixmonths ended June 30, 2009.  This income mainly represents interestreceived from our interest bearing accounts and 2008 also includes a $1.7million gain on the extinguishment of debt.

 

*Income tax (benefit) provision.*  Income tax provision decreased $2.9 millionfrom an income tax provision of $2.2 for the six months ended June 30,2008 to an income tax benefit of $0.7 million for the six months ended June 30,2009 as a result of lower earnings.  Theeffective tax rate decreased from 40.0% in 2008 to 37.0% in 2009 due topermanent differences.

 

*Net (loss) earnings.*  Net earnings decreased $4.6 million froma net earnings of $3.3 million for the six months ended June 30, 2008to a net loss of $1.3 million for the six months ended June 30, 2009 as aresult of the factors described above.

 

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**Liquidityand Capital Resources**

 

Our primary cash needs arefor working capital, capital expenditures and debt service.  We have historically financed these cashrequirements through internally generated cash flow and funds borrowed underour prior and existing senior secured credit facilities.

 

Inconjunction with the Transaction on January 9, 2007, the Company enteredinto the senior credit facility (as amended from time to time, the “SeniorCredit Facility”), which provided for (i) a senior secured first lien termloan facility in the initial aggregate principal amount of $150.0 million (the “FirstLien Term Facility”) and (ii) which provides for a senior secured firstlien revolving credit facility (the “Revolving Facility”) in the aggregateprincipal amount of $12.5 million.  As ofMarch 30, 2009, no additional borrowings are available under the FirstLien Term Facility.  In addition, as of June 30,2009, the maximum amount of borrowings available to the Company under theRevolving Facility was $12.5 million, of which no borrowings were outstandingas of this date.  As of June 30,2009, the outstanding principal of indebtedness under our Senior CreditFacility bears interest at a fluctuating rate equal to either the base rateplus 4.75% per annum or LIBOR plus 5.75% per annum (effective rate of 6.06% at June 30,2009).  The Company must comply withcertain financial covenants under the Senior Credit Facility, includingmaintenance of an interest coverage ratio and a total leverage ratio.  The Company was in compliance with suchcovenants as of June 30, 2009.

 

On March 30, 2009, the Company entered into anamendment to its Senior Credit Facility, which among other things: (i) increasedthe applicable interest rate margin for borrowings thereunder; (ii) eliminatedthe requirement that the Company maintain corporate debt ratings; (iii) extendedthe date by which the Company must amend the indenture governing the SeniorNotes to eliminate certain of the restrictive covenants contained therein(including covenants related to the incurrence of indebtedness and liens) orredeemed the Senior Notes to March 31, 2010; (iv) extended theCompany’s ability to continue to pay cash dividends to enable Parent to makecash interest payments on the Parent Notes to March 31, 2010; (v) increasedthe maximum total leverage ratio the Company may have at the end of eachquarterly period from December 31, 2008 through December 31, 2009; (vi) requiredpayment of the remaining balance due under the First Lien Term Facility ofapproximately $3.6 million, which was paid on March 30, 2009; and (vii) decreasedthe minimum interest coverage ratio the Company is required to maintain at theend of each quarterly period from December 31, 2008 through December 31,2009.  The amendment also waived for the four fiscal quarters ended December 31,2008, any default or event of default that may have arisen from the Company’sfailure to maintain the maximum consolidated leverage ratio and the minimumconsolidated interest coverage ratio set forth in the Senior Credit Facilityprior to the effective date of the amendment.

 

Indebtednessfor borrowed money incurred under our Senior Credit Facility is secured bysubstantially all of our assets, including our real and personal property,inventory, accounts receivable, intellectual property and other intangibles andis scheduled to mature in January 2013.

 

As of June 30, 2009,the weighted average interest rate for the Company’s outstanding debt was10.1%.

 

Our Senior CreditFacility and the indenture for the Senior Notes impose certain restrictions onour ability to incur indebtedness, pay dividends, make investments, grantliens, sell our assets and engage in certain other activities.  The subsidiaryguarantors are generally not restricted in their ability to dividend orotherwise distribute funds to the Company except for restrictions imposed underapplicable state corporate law.  The Company is limited in its ability topay dividends or otherwise make other distributions to Parent under the SeniorCredit Facility and the indenture governing the Senior Notes. Specifically, as amended, the Senior Credit Facility prohibits theCompany from making any distributions to Parent except for limited purposes,including, but not limited to: (i) prior to March 31, 2010, theCompany may pay cash dividends and distributions to Parent to enable Parent tomake cash interest payments on the Parent Notes, provided that (x) aftergiving pro forma effect to such dividend or distribution, the consolidatedfirst lien leverage ratio does not exceed 1.0 to 1.0, and (y) the amountof such dividends and distributions shall not exceed $3,225,000 in any calendarquarter, (ii) customary and reasonable out-of-pocket expenses, legal andaccounting fees and expenses and overhead of Parent incurred in the ordinarycourse of business to the extent attributable to the business of the Companyand its subsidiaries and in the aggregate not to exceed $500,000 in any fiscalyear, and (iii) the Company may pay management fees of Parent not toexceed $750,000 in any fiscal year so long as no default has occurred. The indenture provides that the Company can generally pay dividends andmake other distributions to Parent in an amount not to exceed (i) 50% ofthe Company’s consolidated net income for the period beginning April 1,2004 and ending as of the end of the last fiscal quarter before the proposedpayment, plus (ii) 100% of the net cash proceeds received by the Companyfrom the issuance and sale of capital stock, plus (iii) the net return ofcertain investments, provided that certain conditions are satisfied, includingthat the Company has a consolidated interest coverage ratio of greater than 2.0to 1.0.  For the period ended June 30,2009, the Company’s consolidated interest coverage ratio was less than 2.0 to1.0.

 

On March 30, 2009,Parent amended and obtained a waiver to the Note Purchase Agreements related tothe Parent Notes to waive the total leverage ratio that Parent and itsSubsidiaries (including the Company) were required to maintain as of December 31,2008 and to adjust the total leverage ratio that Parent and its Subsidiaries(including the Company) are required to maintain as of the end of eachquarterly period through December 31, 2009 to reflect current economicconditions.  The Parent was in compliancewith all covenants as of June 30, 2009.

 

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As of June 30,2009 and December 31, 2008, we had no capital lease obligations.

 

Each of the Company’ssubsidiaries, which are all 100% owned subsidiaries of the Company, have fullyand unconditionally guaranteed the Senior Notes on a joint and severalbasis.  The Company has no assets oroperations independent of its subsidiaries. As a result, the Company has not presented separate financial statementsof the subsidiary guarantors.

 

As of June 30,2009, we had $11.5 million of cash available for any corporate purposes,compared to $14.7 million as of December 31, 2008.

 

*Cashflow from operating activities.*  Cash providedby operating activities was $1.1 million for the six months ended June 30,2009, while cash used by operating activities for the six months ended June 30,2008 was $1.6 million.  The $2.7 millionincrease in cash provided by operating activities for the six month periodended June 30, 2009 versus the six month period ended June 30, 2008was due to: (i) a payment of $6.2 million in 2008 for income tax refundsthat were due to previous stockholders of the Company in accordance with theTransaction agreement and a more significant decrease in accounts payable in2009 of approximately $2.3 million. These were offset partially by lower net income in 2009, net of a gainon extinguishment of debt, and a more significant increase in accountsreceivable in 2009 of $2.8 million.  Daysof receivables outstanding increased by three days as of June 30, 2009versus December 31, 2008 mainly due to a majority of customers that wereclosed the last two weeks of December 2008 and certain customer paymentterms have been modified over the past year.

 

*Cashflow from investing activities.*  Net cash usedin investing activities was $0.5 million for the six months ended June 30,2009 and $2.6 million for the six months ended June 30, 2008.  Capital expenditures in the six months ended June 30,2009 were $0.5 million compared to $2.6 million for the six months ended June 30,2008.  The decrease in capitalexpenditures in 2009 is primarily due to lower capital expenditures needed forcapacity requirements.

 

*Cashflow from financing activities.*  Net cash usedin financing activities for the six months ended June 30, 2009 totaled$3.8 million primarily due to principal payments on the Senior CreditFacility.  Net cash used in financingactivities for the six months ended June 30, 2008 totaled $12.8 millionprimarily due to (i) thepurchase and cancellation of approximately $11.5 million in principal amount ofthe Senior Notes at a net of discount cost of $9.8 million, (ii) capitallease payments of $0.1 million, (iii) principal payments on the SeniorCredit Facility of $0.4 million, and (iv) a distribution on behalf of theParent for principal and interest on a portion of the Parent Notes of $4.5million.

 

For the six month periodsended June 30, 2009 and June 30, 2008, our two largest customersaccounted for approximately 57% and 49% of our net sales, respectively.  As of June 30, 2009 and December 31,2008, our two largest customers accounted for approximately 59% and 47%,respectively, of our consolidated accounts receivables balance.  The permanent loss of, or a significantdecrease in the level of purchases by, one or more of our major customers couldhave a material adverse effect on our results of operations and future cashflows.

 

We cannot provideassurances that our business will generate sufficient cash flow fromoperations, that anticipated net sales growth and operating improvements willbe realized or that future borrowings will be available under our Senior CreditFacility in an amount sufficient to enable us to service our indebtedness,including the Senior Notes, or to fund our other liquidity needs.  In addition, we cannot provide assurancesthat we will be able to refinance any of our indebtedness, including our SeniorCredit Facility and the Senior Notes, on commercially reasonable terms, if atall.

 

We derive a significantportion of our revenue as a result of demand for our products created by thebuilding of new homes, and repair and remodeling of existing homes.  During the second half of 2006, the homebuilding, and repair and remodeling industry experienced a slowdown as a resultof general economic conditions.  Thisslowdown has worsened into 2009, and has had a negative impact on our resultsof operations for the six months ended June 30, 2009.  If this slowdown were to continue or worsenover an extended period of time, it could have a material adverse effect on ourbusiness, financial condition or results of operations which may includeimpairment charges of goodwill and other long-term assets.  Although recent housing market data hasindicated that the number of home sales increased in the second quarter of 2009as compared to the previous two quarters, we are not currently seeing anysignificant increase in the demand for our products.

 

Recently, the financialmarkets experienced a period of unprecedented turmoil, including thebankruptcy, restructuring or sale of certain financial institutions and theintervention of the U.S. federal government. While the ultimate outcome of these events cannot be predicted, they mayhave a material adverse effect on our liquidity and financial condition if ourability to borrow money from our existing lenders under our Senior CreditFacility to finance our operations were to be impaired.  The crisis in the financial markets may alsohave a material adverse impact on the availability and cost of credit in thefuture.  Our ability to pay our debt orrefinance our obligations under our Senior Credit Facility or our Senior Noteswill depend on our future performance, which will be affected by, among otherthings, prevailing economic conditions. The recent financial crisis may also have an adverse effect on the U.S.,which would have a negative impact on demand for our products.  In addition, tightening of credit markets mayhave an adverse impact on our customers’ ability to finance the purchase of ourproducts or our suppliers’ ability to provide us with raw materials,

 

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either of which couldadversely affect our business and results of operations.

 

We intend to continue tomanage the business in this slower economy and its effect on our industry bydiligently reviewing our costs of doing business on a routine basis,controlling working capital in a slower business climate, and minimizing ourcapital expenditure needs.

 

We anticipate, but cannotprovide assurance, that the funds generated by operations and funds availableunder the Senior Credit Facility will be sufficient to meet working capitalrequirements and to finance capital expenditures for the foreseeable future,including the next twelve months.  Weintend to incur additional capital expenditures in the ordinary course of doingbusiness.

 

**Inflation**

 

In general, our cost ofsales is subject to inflationary pressures on labor costs, prices of the rawmaterials we use and various overhead costs. We generally have been able over time to offset the effects of inflationand price fluctuations through a combination of sales price increases andoperational efficiencies.  We currentlybelieve that raw material cost pressure has moderated.  We continue to attempt to pass along thesecosts, but such efforts typically lag behind material cost changes and we cannot guarantee a full offset.  We do notbelieve inflation had a material impact on our results of operations for thethree month period ended June 30, 2009.

 

**Seasonality**

 

Our sales historicallyhave been moderately seasonal, reflecting the temporary slow down in consumerpurchasing activity during the winter holiday season and the summer months.

 

### **Critical Accounting Policies**

 

In our Annual Report on Form 10-Kfor the year ended December 31, 2008, we identified the criticalaccounting policies, which affect our more significant estimates andassumptions used in preparing our consolidated financial statements.  The basis for developing the estimates andassumptions within our critical accounting policies is based on historicalinformation and known current trends and factors.  The estimates and assumptions are evaluatedon an ongoing basis and actual results have been within the Company’sexpectations.  We have not changed thesepolicies from those previously disclosed in our annual report.

 

TheCompany performed its SFAS 142 analysis as of December 31, 2008.  To establish fair market value, itemsconsidered were:  (1) comparablepublic company trading multiples, (2) other comparable transactionmultiples and (3) the Woodcraft transaction multiple resulting from acompetitive auction process.  Based onthe fair market value methodology and the assumptions above, as compared to theCompany’s December 31, 2008 net worth and interest-bearing indebtedness,it was concluded that no goodwill impairment existed and that the fair value ofits assets exceeded the carrying value by approximately 10 to 15%.  The Company determined there were no eventsthat would require a SFAS 142 analysis to be completed as of June 30,2009.

 

**NewAccounting Standards**

 

See Note 2 of the CondensedConsolidated Financial Statements for information pertaining to recentlyadopted accounting standards or accounting standards to be adopted in thefuture.

 

### **Item 3. Quantitative and Qualitative Disclosures aboutMarket Risk**

 

We are subject to variousmarket risks such as fluctuating lumber prices and interest rates.

 

*Commodityprice risk.*  Hardwood lumber accounts for the largestportion of our material costs.  Ourprofitability is therefore affected by the prices of lumber which may fluctuatebased on a number of factors beyond our control, including, among others, changesin supply and demand, general economic conditions, labor costs, competitionand, in some cases, government regulation. Though we are not dependent on anysingle supplier for our raw materials, we have no long-term supply contractsand thus, are subject to changes in the prices charged by our suppliers.  The prices for the primary hardwood specieswe use in the production of our hardwood doors and components are subject tosome volatility.  We generally pass throughcost increases to our customers, but the price increases may not fully offsetthe effects of increasing raw material costs.

 

*Interestrate risk.*  We are exposed to market risk relating tochanges in interest rates in respect to our Revolving Facility.  As of June 30, 2009, we had nothingoutstanding under the Revolving Facility, which bears interest at variablerates.  We believe that a one percent(1%) increase in the interest rates currently in effect would not have amaterial adverse effect on our financial condition or results of operations.

 

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### **Item 4T. Controls and Procedures**

 

(a)                                  Evaluation of disclosure controls andprocedures.

 

As required by Rule 13a-15under the Securities Exchange Act of 1934 (the “Exchange Act”), we carried outan evaluation under the supervision and with the participation of ourmanagement, including our Chief Executive Officer and Chief Financial Officer,of the effectiveness of our disclosure controls and procedures as of June 30,2009.  For purposes of the foregoing, theterm disclosure controls and procedures means controls and other procedures ofan issuer that are designed to ensure that information required to be disclosedby the issuer in the reports that it files or submits under the Exchange Act isrecorded, processed, summarized and reported, within the time periods specifiedin the Commission’s rules and forms. Disclosure controls and procedures include, without limitation, controlsand procedures designed to ensure that information required to be disclosed byan issuer in the reports that it files or submits under the Exchange Act isaccumulated and communicated to the issuer’s management, including itsprincipal executive and principal financials officers, or persons performingsimilar functions, as appropriate to allow timely decisions regarding requireddisclosure.  Our disclosure controls andprocedures are designed to provide us with a reasonably level of assurance ofachieving their objectives as outlined above. Based upon that evaluation, our Chief Executive Officer and ChiefFinancial Officer have concluded that they believe that, as of June 30,2009, our disclosure controls and procedures were effective at a reasonablelevel of assurance.

 

(b)                                 Changes in internal controls overfinancial reporting.

 

There were no changes inour internal controls over financial reporting during our second fiscal quarterthat have materially affected, or are reasonably likely to materially affect,our internal controls over financial reporting.

 

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**PART II—OTHER INFORMATION**

 

**Item1. Legal Proceedings**

 

No pending material legalproceedings.

 

**Item1A. Risk Factors**

 

TheCompany has included in its Annual Report on Form 10-K for the year ended December 31,2008, a description of certain risks and uncertainties that could affect theCompany’s business, future performance or financial condition (the “RiskFactors”).  The Risk Factors are herebyincorporated in Part II, Item 1A of this Form 10-Q.  Investors should consider the Risk Factorsprior to making an investment decision with respect to the Company’ssecurities.  We are updating the riskfactor under the heading, “Downturns in the new home construction industry,repair and remodeling activity or the economy could negatively affect ourbusiness” to read as follows:

 

***Downturns in the new homeconstruction industry, repair and remodeling activity or the economy couldnegatively affect our business.***

 

Sales to the kitchen and bath cabinet market accounts forapproximately 90-95% of our total sales. Sales in this market are driven by new home construction and home repairand remodeling activity.  New homeconstruction and repair and remodeling activity continues to be affected bychanges in economic and other conditions, such as gross domestic productlevels, employment levels, demographic trends, availability of financing,interest rates and consumer confidence. These factors can negatively affect the demand for our products.  Any deterioration in these factors could havea material adverse effect on our business, financial condition and results ofoperations.

 

The Company derives a significantportion of its revenue as a result of the demand for its products created bythe building of new homes, and repair and remodeling of existing homes.  During the second half of 2006, the homebuilding, repair and remodeling industry experienced a slowdown as a result ofgeneral economic conditions.  Thisslowdown has continued into 2009, and has had a negative impact on our resultsof operations for the six months ended June 30, 2009.  If this slowdown were to continue or worsenover an extended period of time, it could have a material adverse effect on theCompany’s business, financial condition or results of operations.  Although recent housing market data hasindicated that the number of home sales increased in the second quarter of 2009as compared to the previous two quarters, we are not currently seeing anysignificant increase in the demand for our products.

 

**Item2. Unregistered Sales of Equity Securities and Use of Proceeds**

 

None.

 

**Item3. Defaults Upon Senior Securities**

 

None.

 

**Item4. Submission of Matters to a Vote of Security Holders**

 

None.

 

**Item5. Other Information**

 

### **None.**

###  

### **Item 6. Exhibits**

 
| 31.1  | Certification of Vice  President, Treasurer and Secretary of WII Components, Inc., pursuant to  Rule 15d-14(a), as adopted pursuant to Section 302 of the  Sarbanes-Oxley Act of 2002         |
|-------|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| 31.2  | Certification of Chief  Executive Officer of WII Components, Inc., pursuant to  Rule 15d-14(a), as adopted pursuant to Section 302 of the  Sarbanes-Oxley Act of 2002                         |
| 32.1* | Certification of Vice  President, Treasurer and Secretary of WII Components, Inc., pursuant to  18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the  Sarbanes-Oxley Act of 2002 |
| 32.2* | Certification of Chief  Executive Officer of WII Components, Inc., pursuant to 18 U.S.C.  Section 1350, as adopted pursuant to Section 906 of the  Sarbanes-Oxley Act of 2002                 |

 

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*This certification shallnot be deemed “filed” for purposes of Section 18 of the SecuritiesExchange Act of 1934, or otherwise subject to the liability of that section,nor shall it be deemed to be incorporated by reference into any filing underthe Securities Act of 1933 or the Securities Exchange Act of 1934.

 

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**SIGNATURES**

 

Pursuant to therequirements of the Securities Exchange Act of 1934, the registrant has dulycaused this report to be signed on its behalf by the undersigned thereunto dulyauthorized.

 
|                         | WII COMPONENTS, INC. |
|------------------------------|----------------------|
|                         |                 |
| Dated: August 13,  2009 | By:                  |   |
|                         |                 | /s/ John Fitzpatrick |
|                         |                 | John Fitzpatrick |
|                         |                 | President and Chief  Executive Officer |
|                         |                 | (Principal Executive  Officer) |
| Dated: August 13,  2009 |                 |   |
|                         |                 | /s/ Dale B. Herbst |
|                         |                 | Dale B. Herbst |
|                         |                 | Chief Financial  Officer, Treasurer and Secretary |
|                         |                 | (Principal Financial  and Accounting Officer) |

 

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