Table of Contents

 

 

 

**UNITED STATES**

**SECURITIES AND EXCHANGECOMMISSION**

**Washington, DC 20549**

 

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**FORM 10-Q**

 

**x****                             ****QUARTERLY REPORT PURSUANT TOSECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934**

 

**For the quarterly period ended September 30, 2009**

 

**or**

 

**o****                                ****TRANSITION REPORT PURSUANTTO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934**

 

**Commission file number:**

**333-115490**

 

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**WII COMPONENTS, INC.**

(Exactname of registrant as specified in its charter)

 

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

 

**525 Lincoln Avenue SE, St. Cloud, Minnesota 56304**

(Addressof principal executive offices) (Zip Code)

 

**(320)252-1503**

(Registrant’stelephone number, Including area code)

 

Indicate by check markwhether the registrant (1) has filed all reports required to be filed by Section13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months(or for such shorter period that the registrant was required to file suchreports) and (2) has been subject to such filing requirements for the past 90 days.  Yes x No o.

 

Indicateby check mark whether the registrant has submitted electronically and posted onits corporate Web site, if any, every Interactive Data File required to besubmitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of thischapter) during the preceding 12 months (or for such shorter period that theregistrant was required to submit and post such files).  Yes o No o.

 

Indicate by check markwhether the registrant is a large accelerated filer, an accelerated filer, anon-accelerated filer, or a smaller reporting company filer.  See definition of “large accelerated filer,” “acceleratedfiler,” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.:

 

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

 

Indicate by check markwhether the registrant is a shell company (as defined in Rule 12b-2 of the ExchangeAct).  Yes o No x.

 

As of November 10, 2009, 100shares of common stock, $.01 par value per share, were outstanding (all ofwhich are owned by WII Holding, Inc.).

 

 

 

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**WIICOMPONENTS, INC.**

 

**FORM 10-Q**

**QuarterEnded September 30, 2009**

 

**Table ofContents**

 
| **Part I—Financial Information**                                                                                |   |
|----------------------------------------------------------------------------------------------------------------------|--------|
| Item 1.  Financial Statements                                                                                        |   |
| Condensed Consolidated  Balance Sheets (unaudited) as of September 30, 2009 and December 31, 2008                    | 1      |
| Condensed Consolidated  Statements of Operations (unaudited) for the Three Months Ended September 30,  2009 and 2008 | 2      |
| Condensed Consolidated  Statements of Operations (unaudited) for the Nine Months Ended September 30,  2009 and 2008  | 3      |
| Condensed  Consolidated Statements of Cash Flows (unaudited) for the Nine Months Ended  September 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                 | 10     |
| Item 3.  Quantitative and Qualitative Disclosures about Market Risk                                                  | 16     |
| Item 4T. Controls  and Procedures                                                                                    | 17     |
|                                                                                                                 |   |
| **Part II-Other  Information**                                                                                       |   |
| Item 1. Legal  Proceedings                                                                                           | 18     |
| Item 1A. Risk  Factors                                                                                               | 18     |
| Item 2.  Unregistered Sales of Equity Securities and Use of Proceeds                                                 | 18     |
| Item 3. Defaults  Upon Senior Securities                                                                             | 18     |
| Item 4. Submission  of Matters to a Vote of Security Holders                                                         | 18     |
| Item 5. Other  Information                                                                                           | 18     |
| Item 6. Exhibits                                                                                                     | 18     |
| Signatures                                                                                                           | 20     |

 

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**WII COMPONENTS, INC. ANDSUBSIDIARIES**

**CONDENSEDCONSOLIDATED BALANCE SHEETS**

**(UNAUDITED)**

**(In thousands)**

 
| ** **                                     | ** ** | **September 30,********2009** | ** ** | **December 31,  2008** | ** ** |
|------------------------------------------------|------------|-------------------------------|------------|------------------------|------------|
| **ASSETS**                                     |       |                          |       |                   |       |
| Current Assets:                                |       |                          |       |                   |       |
| Cash                                           |       | $                             | 10,767     |                   | $          | 14,721 |   |
| Accounts  receivable, net                      |       | 11,295                        |       | 6,603                  |       |
| Inventories                                    |       | 13,658                        |       | 13,442                 |       |
| Other current  assets                          |       | 2,263                         |       | 2,168                  |       |
| Total current  assets                          |       | 37,983                        |       | 36,934                 |       |
|                                           |       |                          |       |                   |       |
| Property, plant,  and equipment, net           |       | 52,499                        |       | 56,537                 |       |
| Goodwill                                       |       | 112,748                       |       | 112,748                |       |
| Customer  relationship                         |       | 8,680                         |       | 9,924                  |       |
| Noncompete  agreements                         |       | 39                            |       | 65                     |       |
| Other assets                                   |       | 3,805                         |       | 4,798                  |       |
| TOTAL                                          |       | $                             | 215,754    |                   | $          | 221,006 |   |
|                                           |       |                          |       |                   |       |
| **LIABILITIES  AND STOCKHOLDERS’ EQUITY** |       |                          |       |                   |       |
| Current  Liabilities:                          |       |                          |       |                   |       |
| Current  maturities of long-term debt          |       | $                             | —     |                   | $          | 3,597 |   |
| Accounts payable                               |       | 4,312                         |       | 1,187                  |       |
| Accrued payroll                                |       | 3,295                         |       | 2,935                  |       |
| Due to Parent                                  |       | 4,529                         |       | 4,768                  |       |
| Other current liabilities                      |       | 6,621                         |       | 8,943                  |       |
| Total current liabilities                      |       | 18,757                        |       | 21,430                 |       |
|                                           |       |                          |       |                   |       |
| Long-term debt, net of current maturities      |       | 108,350                       |       | 108,350                |       |
| Deferred income tax liability                  |       | 4,194                         |       | 5,217                  |       |
| Other long-term liabilities                    |       | 2,156                         |       | 1,947                  |       |
|                                           |       |                          |       |                   |       |
| Stockholders’ Equity:                     |       |                          |       |                   |       |
| Common stock                                   |       | —                        |       | —                 |       |
| Additional paid-in capital                     |       | 71,329                        |       | 71,292                 |       |
| Retained earnings                              |       | 10,968                        |       | 12,770                 |       |
| Total stockholders’ equity                |       | 82,297                        |       | 84,062                 |       |
| TOTAL                                          |       | $                             | 215,754    |                   | $          | 221,006 |   |

 

Seenotes to condensed consolidated financial statements (unaudited).

 

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**WIICOMPONENTS, INC. AND SUBSIDIARIES**

**CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS**

**(UNAUDITED)**

**(Inthousands)**

 
| ** **                                                | ** ** | **Three Months  Ended  September 30, 2009** | ** ** | **Three Months  Ended  September 30, 2008** | ** ** |
|-----------------------------------------------------------|------------|---------------------------------------------|------------|---------------------------------------------|------------|
| NET SALES                                                 |       | $                                           | 31,087     |                                        | $          | 46,986 |   |
| COST OF SALES                                             |       | 26,033                                      |       | 40,396                                      |       |
| Gross profit                                              |       | 5,054                                       |       | 6,590                                       |       |
|                                                      |       |                                        |       |                                        |       |
| OPERATING EXPENSES:                                       |       |                                        |       |                                        |       |
| General and administrative                                |       | 2,078                                       |       | 2,333                                       |       |
| Selling and marketing                                     |       | 738                                         |       | 755                                         |       |
| Gain on sale of assets                                    |       | (3                                          | )          | (2                                          | )          |
| Total operating expenses                                  |       | 2,813                                       |       | 3,086                                       |       |
|                                                      |       |                                        |       |                                        |       |
| OPERATING INCOME                                          |       | 2,241                                       |       | 3,504                                       |       |
|                                                      |       |                                        |       |                                        |       |
| OTHER INCOME (EXPENSE):                                   |       |                                        |       |                                        |       |
| Interest income                                           |       | 7                                           |       | 18                                          |       |
| Interest expense                                          |       | (3,092                                      | )          | (3,246                                      | )          |
| Other income/expense                                      |       | 2                                           |       | (1                                          | )          |
| Total other income (expense)                              |       | (3,083                                      | )          | (3,229                                      | )          |
|                                                      |       |                                        |       |                                        |       |
| (LOSS)/INCOME BEFORE (BENEFIT)/PROVISION FOR INCOME TAXES |       | (842                                        | )          | 275                                         |       |
| INCOME TAX (BENEFIT)/PROVISION                            |       | (290                                        | )          | 130                                         |       |
| NET (LOSS) EARNINGS                                       |       | $                                           | (552       | )                                           | $          | 145 |   |

 

Seenotes to condensed consolidated financial statements (unaudited).

 

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**WIICOMPONENTS, INC. AND SUBSIDIARIES**

**CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS**

**(UNAUDITED)**

**(Inthousands)**

 
| ** **                                                | ** ** | **Nine Months  Ended  September 30, 2009** | ** ** | **Nine Months  Ended  September 30, 2008** | ** ** |
|-----------------------------------------------------------|------------|--------------------------------------------|------------|--------------------------------------------|------------|
| NET SALES                                                 |       | $                                          | 98,238     |                                       | $          | 159,110 |   |
| COST OF SALES                                             |       | 82,839                                     |       | 135,302                                    |       |
| Gross profit                                              |       | 15,399                                     |       | 23,808                                     |       |
|                                                      |       |                                       |       |                                       |       |
| OPERATING EXPENSES:                                       |       |                                       |       |                                       |       |
| General and administrative                                |       | 6,709                                      |       | 7,577                                      |       |
| Selling and marketing                                     |       | 2,254                                      |       | 2,437                                      |       |
| Loss (Gain) on sale of assets                             |       | 8                                          |       | (3                                         | )          |
| Total operating expenses                                  |       | 8,971                                      |       | 10,011                                     |       |
|                                                      |       |                                       |       |                                       |       |
| OPERATING INCOME                                          |       | 6,428                                      |       | 13,797                                     |       |
|                                                      |       |                                       |       |                                       |       |
| OTHER INCOME (EXPENSE):                                   |       |                                       |       |                                       |       |
| Interest income                                           |       | 11                                         |       | 119                                        |       |
| Interest expense                                          |       | (9,269                                     | )          | (9,843                                     | )          |
| Gain on extinguishment of debt                            |       | —                                     |       | 1,725                                      |       |
| Other income/expense                                      |       | 5                                          |       | 4                                          |       |
| Total other income (expense)                              |       | (9,253                                     | )          | (7,995                                     | )          |
|                                                      |       |                                       |       |                                       |       |
| (LOSS)/INCOME BEFORE (BENEFIT)/PROVISION FOR INCOME TAXES |       | (2,825                                     | )          | 5,802                                      |       |
| INCOME TAX (BENEFIT)/PROVISION                            |       | (1,023                                     | )          | 2,341                                      |       |
| NET (LOSS) EARNINGS                                       |       | $                                          | (1,802     | )                                          | $          | 3,461 |   |

 

Seenotes to condensed consolidated financial statements (unaudited).

 

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**WIICOMPONENTS, INC. AND SUBSIDIARIES**

**CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS**

**(UNAUDITED)**

**(Inthousands)**

 
| ** **                                                                                         | ** ** | **Nine Months  Ended  September 30, 2009** | ** ** | **Nine Months  Ended  September 30, 2008** | ** ** |
|----------------------------------------------------------------------------------------------------|------------|--------------------------------------------|------------|--------------------------------------------|------------|
| OPERATING ACTIVITIES:                                                                              |       |                                       |       |                                       |       |
| Net (loss) earnings                                                                                |       | $                                          | (1,802     | )                                          | $          | 3,461 |   |
|                                                                                               |       |                                       |       |                                       |       |
| Adjustments to reconcile net (loss) earnings to net cash provided  (used) in operating activities: |       |                                       |       |                                       |       |
| Depreciation and amortization                                                                      |       | 6,326                                      |       | 6,595                                      |       |
| (Gain) loss on sale of assets                                                                      |       | 8                                          |       | (3                                         | )          |
| Amortization of debt issuance costs                                                                |       | 1,130                                      |       | 1,135                                      |       |
| Gain on extinguishment of debt                                                                     |       | —                                     |       | (1,725                                     | )          |
| Deferred income taxes                                                                              |       | (1,023                                     | )          | —                                     |       |
| Stock compensation expense                                                                         |       | 37                                         |       | 38                                         |       |
|                                                                                               |       |                                       |       |                                       |       |
| Change in operating assets and liabilities:                                                        |       |                                       |       |                                       |       |
| Accounts receivable                                                                                |       | (4,692                                     | )          | 654                                        |       |
| Inventories                                                                                        |       | (216                                       | )          | 2,417                                      |       |
| Other current assets                                                                               |       | (95                                        | )          | (179                                       | )          |
| Accounts payable                                                                                   |       | 3,125                                      |       | 40                                         |       |
| Accrued payroll and other current liabilities                                                      |       | (1,953                                     | )          | (10,540                                    | )          |
| Net cash provided by operating activities                                                          |       | 845                                        |       | 1,893                                      |       |
|                                                                                               |       |                                       |       |                                       |       |
| INVESTING ACTIVITIES:                                                                              |       |                                       |       |                                       |       |
| Purchases of property, plant, and equipment                                                        |       | (1,053                                     | )          | (3,326                                     | )          |
| Proceeds from sale of property, plant and equipment                                                |       | 26                                         |       | 6                                          |       |
| Change in other assets                                                                             |       | —                                     |       | 55                                         |       |
| Net cash used in investing activities                                                              |       | (1,027                                     | )          | (3,265                                     | )          |
|                                                                                               |       |                                       |       |                                       |       |
| FINANCING ACTIVITIES:                                                                              |       |                                       |       |                                       |       |
| Principal payments under long-term financing agreements                                            |       | (3,597                                     | )          | (17,162                                    | )          |
| Debt issuance costs                                                                                |       | (136                                       | )          | (29                                        | )          |
| Distribution to Parent                                                                             |       | —                                     |       | (4,478                                     | )          |
| Borrowings of long-term debt                                                                       |       | —                                     |       | 6,600                                      |       |
| Due to Parent                                                                                      |       | (39                                        | )          | 2,091                                      |       |
| Net cash used in financing activities                                                              |       | (3,772                                     | )          | (12,978                                    | )          |
|                                                                                               |       |                                       |       |                                       |       |
| NET DECREASE IN CASH                                                                               |       | (3,954                                     | )          | (14,350                                    | )          |
| CASH—Beginning of period                                                                      |       | 14,721                                     |       | 19,574                                     |       |
|                                                                                               |       |                                       |       |                                       |       |
| CASH—End of period                                                                            |       | $                                          | 10,767     |                                       | $          | 5,224 |   |
|                                                                                               |       |                                       |       |                                       |       |
| SUPPLEMENTAL CASH FLOW INFORMATION:                                                                |       |                                       |       |                                       |       |
| Cash paid for interest                                                                             |       | $                                          | 10,967     |                                       | $          | 11,895 |   |
|                                                                                               |       |                                       |       |                                       |       |
| Cash paid for income taxes—net                                                                |       | $                                          | 147        |                                       | $          | 410 |   |

 

Seenotes to condensed consolidated financial statements (unaudited).

 

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**WII COMPONENTS, INC. ANDSUBSIDIARIES**

**NOTES TO CONDENSED**

**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 funds managed byOlympus Partners.  For ease of reference,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 derived fromthe 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 Exchange Commissionon March 31, 2009, our financial position, results of operations and cash flowsfor 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 consolidated financialstatements.

 

**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 nine month periods ended September 30, 2009 and September 30, 2008,the provision for estimated sales returns and customer discounts as apercentage of net sales was approximately 3%.

 

***Concentration of Credit Risk***—The Company receives a significantportion of its revenue from two customers. For the nine months ended September 30, 2009 and 2008, the Company’s twolargest customers accounted for approximately 55% and 51%, respectively, of itsnet sales.  As of September 30, 2009 and December31, 2008, these two largest customers accounted for approximately 66% 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):

 
| ** **      | ** ** | **September 30,********2009** | ** ** | **December 31,********2008** | ** ** |
|-----------------|------------|-------------------------------|------------|------------------------------|------------|
| Raw materials   |       | $                             | 6,744      |                         | $          | 6,977 |   |
| Work in process |       | 2,759                         |       | 2,761                        |       |
| Finished goods  |       | 2,515                         |       | 2,496                        |       |
| LIFO adjustment |       | 1,640                         |       | 1,208                        |       |
|            |       | $                             | 13,658     |                         | $          | 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. As of September 30, 2009 and December 31, 2008, inventory on the LIFOmethod represented 60% and 61%, respectively, 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 September 30,2009.  Fair value is measured using amarket multiple valuation method.  Thecarrying amount of goodwill was $112.7 million at September 30, 2009 and December31, 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 September 30, 2009 is $7.9 million.  The intangible assets are being amortizedover the estimated life of 10 years. Amortization was $1.2 million for the nine-month periods ended September30, 2009 and 2008.  Expected annualamortization is as follows for the years ending December 31 (in thousands):

 
| 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 September 30, 2009 is $2.3 million.  Noncompete rights are being amortized overthe applicable terms of the agreements (5 years, 7 years, and 5 years,respectively).  The noncompete agreementwith 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 $26,000 for the nine-month periods ended September 30,2009 and 2008.  Expected annualamortization is as follows for the years ending December 31 (in thousands):

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

 

***New AccountingPronouncements***—In September 2006, the FinancialAccounting Standards Board (“FASB”) issued a new accounting standard, nowincluded in Accounting Standards Codification (“ASC”) 820 (formerly SFAS 157), “FairValue Measurements and Disclosures” to define fair value, establish a frameworkfor measuring fair value, and expand disclosures about fair valuemeasurements.  We adopted this standardeffective January 1, 2008.  The adoptionof this standard did not have a material effect on our financial position orresults of operations.

 

In December 2007, the FASB issued ASC 805 (formerlySFAS 141R), “Business Combinations”.  ASC805 establishes principles and requirements for how identifiable assets,liabilities assumed, non-controlling interests in an acquirer, and goodwill arerecognized and measured in an acquirer’s financial statements.  ASC 805 also establishes disclosurerequirements to assist users in evaluating the nature and financial effects ofbusiness combinations.  This standard iseffective for fiscal years beginning after December 15, 2008.  The adoption of this statement did not have amaterial effect on the Company’s financial position or results of operations.

 

In March 2008, the FASB issued ASC 815 (formerly SFAS161) “Derivatives and Hedging”.  ASC 815establishes, among other things, additional disclosure requirements forderivative instruments and for hedging activities.  ASC 815 is effective for the Companybeginning January 1, 2009 on a prospective basis.  The adoption of this statement did not have amaterial effect on the Company’s financial position or results of operations.

 

In April 2009, the FASB issued guidance that requiresinterim reporting period disclosure about the fair value of certain financialinstruments, effective for interim reporting periods ending after June 15,2009.  The Company has adopted thesedisclosure requirements.  Due to theirnature, the carrying value of cash, receivables, payables and debt obligationsapproximates fair value.

 

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In May2009, the FASB issued ACS 855 (formerly SFAS 165), “Subsequent Events”.  ACS855 incorporates guidance into accounting literature that was previouslyaddressed only in auditing standards.  The statement refers to subsequent events thatprovide additional evidence about conditions that existed at the balance-sheetdate as “recognized subsequent 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 disclosethe date through which subsequent events have been evaluated and whether thisdate is the date the financial statements were issued or the date the financialstatements were available to be issued.  The disclosure requirements of ASC 855 areeffective for interim and annual periods ending after June 15, 2009.  The Company has adopted this new standard.

 

In June2009, the FASB issued guidance that establishes the FASB Accounting StandardsCodification (the Codification) as the source of authoritative accountingprinciples recognized by the FASB to be applied by nongovernmental entities inthe preparation of financial statements in conformity with generally acceptedaccounting principles (GAAP).  Use of thenew Codification is effective for interim and annual periods ending after September15, 2009.  The Company has used the newCodification in reference to GAAP in this quarterly report on Form 10-Q andsuch use has not impacted the consolidated results of the 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 the Companyand 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 creditfacilities by the Company and private offerings of debt and equity securitiesby Parent.  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 OCM MezzanineFund II, L.P. consisted of $43.0 million senior payment-in-kind notes with norequired principal amortization.  TheNote Purchase Agreement with Olympus Growth Fund IV, L.P. consisted of $43.0million 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, Parent is able at its option to payinterest on the Parent Notes through the issuance of additional notes.  The Company is not liable for, and has nototherwise guaranteed, any of the obligations of Parent with respect to theParent Notes.  Parent and itsSubsidiaries (including the Company) are, however, subject to a number ofrestrictive covenants under the Note Purchase Agreements.  Parent and its Subsidiaries (including theCompany) were in compliance with all covenants as of September 30, 2009.  In addition, the Company is limited in itsability to pay dividends or otherwise make distributions to Parent under theSenior Credit Facility and the indenture governing the 10% Senior Notes due2012 (the “Senior Notes”). The Parent Notes are not reflected in the Company’s consolidated balancesheet as the Company did not push down the new accounting basis because of thesignificance of the public debt holders’ influence on the Company’s ability tocontrol 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 December31, 2008, the Company distributed $4.5 million to Parent for payment on theParent Notes.  This distribution toParent was recorded 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 per share equal tothe sum of its liquidation value per share ($1,000) plus all accumulated andunpaid dividends thereon and (ii) a number of shares of Parent’s common equitysecurities as determined in accordance with the redemption procedures containedin Parent’s certificate of incorporation. If Parent does not have funds legally available for any particularredemption, Parent is obligated to use 

 

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those funds that are legally available for the redemption of suchsecurities to redeem the maximum possible number of preferred equity securitieswhich would otherwise be redeemed in connection with such redemption.  Thereafter, when additional funds of Parentare legally available for redemption of such securities, Parent is obligated toredeem the balance of such securities. Parent is prohibited from redeeming any preferred equity securities ifany such redemption is prohibited under any credit facility or indenture towhich Parent or any of its subsidiaries is a party or is otherwise bound.  The Company is not liable for, and has nototherwise guaranteed, any of these obligations of Parent with respect to theequity securities issued by Parent. These equity securities are not reflected in the Company’s consolidatedbalance sheet due to the significance of the public debt holders’ influence onthe Company’s ability to control the form 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 September 30, 2009, $2.2 million is included in Other Long-TermLiabilities under this agreement.

 

**4. FINANCING ARRANGEMENTS**

 

***Senior Notes***** **The Company has outstanding 10% Senior Notes due in2012.  During the three-months ended March31, 2008, the Company purchased and canceled approximately $11.5 million inprincipal amount of the Senior Notes for payment of $9.8 million resulting in again on extinguishment of debt of approximately $1.7 million.  The Company used available cash andborrowings 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 March30, 2009, no additional borrowings are available under the First Lien TermFacility.  As of September 30, 2009, themaximum amount of borrowings available to the Company under the RevolvingFacility was $12.5 million.  As of September30, 2009, the Company had nothing outstanding under the RevolvingFacility.  As of September 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 6.00% and 7.45% at September 30, 2009 and September30, 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 rate margin forborrowings thereunder; (ii) eliminated the requirement that the Companymaintain corporate debt ratings; (iii) extended the date by which the Companymust amend the indenture governing the Senior Notes to eliminate certain of therestrictive covenants contained therein (including covenants related to theincurrence of indebtedness and liens) or redeemed the Senior Notes to March 31,2010; (iv) extended the Company’s ability to continue to pay cash dividends toenable Parent to make cash interest payments on the Parent Notes to March 31,2010; (v) increased the maximum total leverage ratio the Company may have atthe end of each quarterly period from December 31, 2008 through December 31,2009; (vi) required payment of the remaining balance due under the First LienTerm Facility of approximately $3.6 million, which was paid on March 30, 2009;and (vii) decreased the minimum interest coverage ratio the Company is requiredto maintain at the end of each quarterly period from December 31, 2008 through December31, 2009.  The amendment also waived forthe four fiscal quarters ended December 31, 2008, any default or event ofdefault that may have arisen from the Company’s failure to maintain the maximumconsolidated leverage ratio and the minimum consolidated interest coverageratio set forth in the Senior Credit Facility prior to the effective date ofthe amendment.  The Company must complywith certain 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 September 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 guarantorsare generally not restricted in their ability to dividend or otherwisedistribute funds to the Company except for restrictions imposed underapplicable 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, as amended, prohibits the Company from making anydistributions to Parent except for limited purposes, including, but not limitedto: (i) prior to March 31, 2010, the Company may pay cash dividends anddistributions to Parent to enable Parent to make cash interest payments on theacquisition loan, providedthat (x) after giving pro forma effect tosuch dividend or distribution, the consolidated first lien leverage ratio doesnot exceed 1.0 to 1.0, and (y) the amount of such dividends and distributionsshall not exceed $3,225,000 in any calendar quarter, (ii) customary andreasonable out-of-pocket expenses, legal and 

 

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accounting fees and expenses and overhead of Parent incurred in theordinary course of business to the extent attributable to the business of theCompany and its subsidiaries and in the aggregate not to exceed $500,000 in anyfiscal year, 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 cangenerally pay dividends and make other distributions to Parent in an amount notto exceed (i) 50% of the Company’s consolidated net income for the periodbeginning April 1, 2004 and ending as of the end of the last fiscal quarter beforethe proposed payment, plus (ii) 100% of the net cash proceeds received by theCompany from the issuance and sale of capital stock, plus (iii) the net returnof certain investments, provided that certain conditions are satisfied,including that the Company has a consolidated interest coverage ratio ofgreater than 2.0 to 1.0.  For the periodended September 30, 2009, the Company’s consolidated interest coverage ratiowas less than 2.0 to 1.0.

 

**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 with anaffiliate of Olympus Growth Fund IV, L.P., Parent’s largest stockholder.  Parent is obligated to pay a transaction feeto the affiliate for services provided to Parent and its subsidiaries,including the Company, for each financing, refinancing, acquisition, or similarnonrecurring transaction.  Under thisagreement, the Parent paid approximately $3.0 million for services related tothe Transaction, of which, $0.7 million was recorded as deferred financing feeson the Company’s consolidated financial statements, while the remaining $2.3million was recorded on Parent’s financial statements.  In addition, the affiliate will be paid a$150,000 quarterly advisory fee by Parent for ongoing services provided toParent and its subsidiaries, including the Company. In 2008, the quarterly fee payableby Parent was lowered for the third and fourth quarters to $135,000. TheCompany paid a total of $435,000 and nothing on account of Parent for the ninemonth periods ended September 30, 2008 and September 30, 2009,respectively. In connection with the amendments to the Note Purchase Agreementsrelated to the Parent Notes, the quarterly fee has been deferred for 2009 andwill be payable in 2010 or thereafter. For the first three quarters of 2009, theaffiliate has agreed that the fee payable will continue to be at the reducedamount of $135,000 per quarter. Although neither the Company nor any of itssubsidiaries is party to this Agreement, the Company has recorded this expensein its statement of operations because most of the services relate to itsoperations.

 

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 to Parent.  As of September 30, 2009 and December 31,2008, the Company included a total of $4.5 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 woodproducts.  Hardwood products produce acomprehensive line of hardwood doors and components.  Engineered wood products includes rigidthermofoil doors and components, veneer raised panels, and wrapped profiles.

 

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

 
| ** **                | ** ** | **Nine Months Ended  September 30,** | ** ** | **Three Months Ended  September 30,** | ** ** |
|---------------------------|------------|--------------------------------------|------------|---------------------------------------|------------|
| ** **                | ** ** | **2009**                             | ** ** | **2008**                              | ** ** | **2009** | ** ** | **2008** | ** ** |
| Hardwood  products        |       | $                                    | 77,043     |                                  | $          | 130,426 |   | $ | 24,116 |   | $ | 38,337 |   |
| Engineered wood  products |       | 21,195                               |       | 28,684                                |       | 6,971 |   | 8,649 |   |
| Total                     |       | $                                    | 98,238     |                                  | $          | 159,110 |   | $ | 31,087 |   | $ | 46,986 |   |

 

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 this Management’s Discussion and Analysisof Financial Condition and Results of Operations and elsewhere in thisQuarterly Report on Form 10-Q, the terms “we,” “us” or “our” refer to WIIComponents, Inc. and its consolidated subsidiaries and their respectivepredecessors.

 

**Forward-Looking Statements**

 

Certain statements in this report are “forward-lookingstatements” within the meaning of the Private Securities Litigation Reform Actof 1995.  Statements that are predictivein nature, that depend upon or refer to future events or conditions or thatinclude words such as “believe,” “anticipate,” “expect,” “estimate,” “may,” “will,”“should,” “continue,” “plans,” “intends,” “likely” or other similar expressionsare forward-looking statements.  Wecaution you that forward-looking statements involve unknown risks, uncertaintiesand other factors that may cause our actual results and performance to differmaterially from any future results or performance expressed or implied by theseforward-looking statements.  Please alsosee our discussion of risk factors contained in Item 1A. Part II of this Reporton Form 10-Q.

 

Without limiting the generality of the precedingstatement, all statements in this report providing estimates and projectionsconcerning or relating to the following matters are forward-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, through our senior management, fromtime to time make forward-looking public statements concerning our expectedfuture 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

 

·                  changes in the cost oflabor.

 

**Overview**

 

We areone of the leading manufacturers of hardwood cabinet doors, hardwood componentsand engineered wood products in the United States.  Our products include (1) hardwood cabinetdoor components, face frames and drawer fronts, (2) fully assembled hardwoodcabinet doors, (3) rigid thermofoil, or RTF, cabinet doors and components, (4) veneerraised panels, 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 fourstrategic acquisitions that have enhanced our market position, product breadthand geographic reach.  In June 1998, weacquired PrimeWood, a manufacturer of RTF, VRP and profile-wrapped engineeredwood products based in North Dakota.  In July2002, we acquired Brentwood, a manufacturer of solid wood and RTF cabinet doorslocated in Oregon.  In April 2004, weacquired Grand Valley, a manufacturer of solid wood cabinet doors located inOhio.  In July 2005, we acquiredsubstantially all of the assets of Dimension Moldings, Inc. (DMI), an Ohiocorporation, which was in the business of manufacturing hardwood componentmoldings at a facility located in Middlefield, Ohio.  Following the acquisition, our Woodcraftsubsidiary manufactures hardwood component moldings at the Middlefieldfacility.

 

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.”  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.

 

**Results of Operations**

 

As discussed below, wecontinued to experience a slowdown in net sales for the nine months ended September30, 2009 that began in the second half of 2006. This kitchen and bath industry-wide slowdown had a negative impact onour gross profit and operating income margin percentages due to fixed costsbecoming 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 three to six months.  The prices we pay for hardwood materialscontinued to decline for the first three to four months of 2009, but stabilizedby mid 2009.  These declines in ourmaterial costs resulted in lower selling prices in the three month periodending September 30, 2009 due to our indexing agreements with our customers.

 

***Three Months Ended September30, 2009 Compared to the Three Months Ended September 30, 2008***

 

The following table includes, for the three monthsended September 30, 2009 and 2008, selected operating data derived from ourcondensed consolidated statements of earnings and presents this information asa percentage of net sales:

 
| ** **                      | ** ** | **Three Months  Ended********September 30, 2009** | ** ** | **Three Months  Ended********September 30, 2008** | ** ** |
|---------------------------------|------------|---------------------------------------------------|------------|---------------------------------------------------|------------|
| ** **                      | ** ** | **(dollars in thousands)**                        | ** ** |
| Net sales                       |       | $                                                 | 31,087     |                                              | $          | 46,986 |   |
| *% of  net sales*               | * *   | *100.0*                                           | *%*        | *100.0*                                           | *%*        |
| Cost of sales                   |       | 26,033                                            |       | 40,396                                            |       |
| *% of  net sales*               | * *   | *83.7*                                            | *%*        | *86.0*                                            | *%*        |
| * *                        | * *   | * *                                          | * *   | * *                                          | * *   |
| Gross profit                    |       | 5,054                                             |       | 6,590                                             |       |
| *% of  net sales*               | * *   | *16.3*                                            | *%*        | *14.0*                                            | *%*        |
| Operating  expenses             |       | 2,813                                             |       | 3,086                                             |       |
| *% of  net sales*               | * *   | *9.1*                                             | *%*        | *6.6*                                             | *%*        |
| * *                        | * *   | * *                                          | * *   | * *                                          | * *   |
| Operating income                |       | 2,241                                             |       | 3,504                                             |       |
| *% of  net sales*               | * *   | *7.2*                                             | *%*        | *7.4*                                             | *%*        |
| Other expenses  (income):       |       |                                              |       |                                              |       |
| Interest expense                |       | 3,092                                             |       | 3,246                                             |       |
| *% of  net sales*               | * *   | *9.9*                                             | *%*        | *6.9*                                             | *%*        |
| Other income,  net              |       | (9                                                | )          | (17                                               | )          |
| *% of  net sales*               | * *   | *-0.0*                                            | *%*        | *-0.0*                                            | *%*        |
| Income tax  (benefit) provision |       | (290                                              | )          | 130                                               |       |
| *% of  net sales*               | * *   | *-0.9*                                            | *%*        | *0.3*                                             | *%*        |
| * *                        | * *   | * *                                          | * *   | * *                                          | * *   |
| Net (loss)  earnings            |       | (552                                              | )          | 145                                               |       |
| *% of  net sales*               | * *   | *-1.8*                                            | *%*        | *0.3*                                             | *%*        |
|                                 |            |                                                   |            |                                                   |            |  |  |

 

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*Netsales.*  Net sales decreased $15.9 million, or 33.8%,from $47.0 million for the three months ended September 30, 2008 to $31.1million for the three months ended September 30, 2009.  Sales in our hardwood and engineered woodproduct line decreased $14.2 million and $1.7 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 5% 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 $14.4 million, or35.6%, from $40.4 million for the three months ended September 30, 2008 to$26.0 million for the three months ended September 30, 2009.  This decrease in cost of sales is primarilyattributable to (i) lower material, labor and overhead costs as a result oflower volume of sales, and, to a lesser extent, (ii) lower hardwood materialcosts.

 

*Grossprofit.*  Gross profit decreased $1.5 million, or22.7%, from $6.6 million for the three months ended September 30, 2008 to $5.1million for the same period in 2009.  Asa percentage of net sales, our gross profit increased 230 basis points from14.0% for the three months ended September 30, 2008 to 16.3% for the sameperiod in 2009.  This increase is relatedto lower hardwood material costs and improved operating efficiencies.  This increase was partially offset withspreading fixed costs over lower sales volume.

 

*Operatingexpenses.*  Operating expenses decreased $0.3 million, or9.7%, from $3.1 million for the three months ended September 30, 2008 to $2.8million for the same period in 2009.  Thedecrease primarily consists of (i) lower salaries, including benefits, due toeliminated positions throughout 2008 and 2009, and, to a lesser extent, and (ii)lower professional fees.

 

*Operatingincome.*  Operating income decreased by $1.2 million,or 34.3%, from $3.5 million for the three months ended September 30, 2008 to$2.3 million for the three months ended September 30, 2009 as a result of thenet effect of the factors described above.

 

*Interestexpense.*  Interest expense decreased $0.1 million, or3.1%, from $3.2 million for the three months ended September 30, 2008 to $3.1million for the three months ended September 30, 2009.  This decrease mainly relates to lower interestexpense in 2009 due to the payment of the remaining balance of the First LienTerm Facility in March 2009.

 

*Otherincome.*  Other income was $17,000 and $9,000 for thethree months ended September 30, 2008 and September 30, 2009,respectively.  This income mainlyrepresents interest received from our interest bearing accounts.

 

*Incometax (benefit) provision. *Income tax provision decreased $0.4million, from an income tax expense of $0.1 million for the three months ended September30, 2008 to an income tax benefit of $0.3 million for the three months ended September30, 2009 due to decreased earnings in 2009. The effective tax rate decreased from 47.3% in 2008 to 34.4% in 2009 dueto permanent differences.

 

*Net(loss) earnings.*  Net earnings decreased $0.7 million from anet income of $0.1 million for the three months ended September 30, 2008 to anet loss of $0.6 million for the three months ended September 30, 2009 as aresult of the factors described above.

 

**Results ofOperations**

 

***Nine Months Ended September 30, 2009 Compared to the Nine Months Ended September30, 2008***

 

The following table includes,for the nine months ended September 30, 2009 and for the nine months ended September30, 2008,

 

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selected operating data derived from ourcondensed consolidated statements of operations and presents this informationas a percentage of net sales:

 
| ** **                     | ** ** | **WII Components, Inc.**                        | ** ** |
|--------------------------------|------------|-------------------------------------------------|------------|
| ** **                     | ** ** | **Nine Months Ended********September 30, 2009** | ** ** | **Nine Months Ended********September 30, 2008** | ** ** |
| ** **                     | ** ** | **(dollars in thousands)**                      | ** ** |
| Net sales                      |       | $                                               | 98,238     |   | $ | 159,110 |   |
| *% of net sales*               | * *   | *100.0*                                         | *%*        | *100.0* | *%* |
| Cost of sales                  |       | 82,839                                          |       | 135,302 |   |
| *% of net sales*               | * *   | *84.3*                                          | *%*        | *85.0* | *%* |
| * *                       | * *   | * *                                        | * *   | * * | * * |
| Gross profit                   |       | 15,399                                          |       | 23,808 |   |
| *% of net sales*               | * *   | *15.7*                                          | *%*        | *15.0* | *%* |
| Operating expenses             |       | 8,971                                           |       | 10,011 |   |
| *% of net sales*               | * *   | *9.1*                                           | *%*        | *6.3* | *%* |
| * *                       | * *   | * *                                        | * *   | * * | * * |
| Operating income               |       | 6,428                                           |       | 13,797 |   |
| *% of net sales*               | * *   | *6.5*                                           | *%*        | *8.7* | *%* |
| Other expenses (income):       |       |                                            |       |   |   |
| Interest expense               |       | 9,269                                           |       | 9,843 |   |
| *% of net sales*               | * *   | *9.4*                                           | *%*        | *6.2* | *%* |
| Other income, net              |       | (16                                             | )          | (1,848 | ) |
| *% of net sales*               | * *   | *-0.0*                                          | *%*        | *-1.2* | *%* |
| Income tax (benefit) provision |       | (1,023                                          | )          | 2,341 |   |
| *% of net sales*               | * *   | *-1.0*                                          | *%*        | *1.5* | *%* |
| * *                       | * *   | * *                                        | * *   | * * | * * |
| Net earnings (loss)            |       | (1,802                                          | )          | 3,461 |   |
| *% of net sales*               | * *   | *-1.8*                                          | *%*        | *2.2* | *%* |
|                                |            |                                                 |            |  |  |  |  |

 

*Net sales.*  Net sales decreased $60.9 million, or 38.3%,from $159.1 million for the nine months ended September 30, 2008 to $98.2 millionfor the nine months ended September 30, 2009. Sales in our hardwood and engineered wood product line decreased $53.4 millionand $7.5 million, respectively.  These decreases are mainly attributableto an overall slowdown in the market that began in the second half of 2006, andto a lesser 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 of sales.*  Cost of sales decreased $52.5 million, or 38.8%,from $135.3 million for the nine months ended September 30, 2008 to $82.8 millionfor the nine months ended September 30, 2009. This decreasein cost of sales is primarily attributable to (i) lower material, labor andoverhead costs as a result of lower volume of sales, and, to a lesser extent, (ii)lower hardwood material costs.

 

*Gross profit.*  Gross profit decreased $8.4 million, or35.3%, from $23.8 million for the nine months ended September 30, 2008 to $15.4million for the same period in 2009.  Asa percentage of net sales, our gross profit increased 70 basis points from15.0% for the nine months ended September 30, 2008 to 15.7% for the same periodin 2009.  As a percentage of net sales,gross profit improved due to lower lumber costs and improved operatingefficiencies.  This increase waspartially offset with spreading fixed costs over lower sales volume.

 

*Operating expenses.*  Operating expenses decreased $1.0 million, or10.0%, from $10.0 million for the nine months ended September 30, 2008 to $9.0 millionfor the same period in 2009.  The decrease primarily consists of (i) lowersalaries, including benefits, due to eliminated positions throughout 2008 and2009, and, to a lesser extent, (ii) lower professional fees, and (iii) loweramortization costs.

 

*Operating income.*  Operating income decreased by $7.4 million,or 53.6%, from $13.8 million for the nine months ended September 30, 2008 to$6.4 million for the nine months ended September 30, 2009 as a result of thenet effect of the factors described above.

 

*Interest expense.*  Interest expense decreased $0.5 million, or5.1%, from $9.8 million for the nine months ended September 30, 2008 to $9.3 millionfor the nine months ended September 30, 2009. This decreasemainly relates to lower interest expense in 2009 due to lower debt balances forthe Senior Notes, mainly due to the $11.5 million principal reduction duringthe three months ended March 31, 2008, and the payment of the remaining balanceof the First Lien Term Facility in the three months ended March 31, 2009.

 

*Other income.*  Other income decreased $1.8 million, from$1.8 million for the nine months ended September 30, 2008 to $16,000 for thenine months ended September 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 $3.3 millionfrom an income tax provision of $2.3 for the nine 

 

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months ended September 30, 2008 to an incometax benefit of $1.0 million for the nine months ended September 30, 2009 as aresult of lower earnings.  The effectivetax rate decreased from 40.3% in 2008 to 36.2% in 2009 due to permanentdifferences.

 

*Net (loss) earnings.*  Net earnings decreased $5.3 million from netearnings of $3.5 million for the nine months ended September 30, 2008 to a netloss of $1.8 million for the nine months ended September 30, 2009 as a resultof the factors described above.

 

**Liquidity and Capital Resources**

 

Our primary cash needsare for 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.

 

In conjunction with theTransaction on January 9, 2007, the Company entered into the senior credit facility(as amended from time to time, the “Senior Credit Facility”), which providedfor (i) a senior secured first lien term loan facility in the initial aggregateprincipal amount of $150.0 million (the “First Lien Term Facility”) and (ii) whichprovides for a senior secured first lien revolving credit facility (the “RevolvingFacility”) in the aggregate principal amount of $12.5 million.  As of March 30, 2009, no additionalborrowings are available under the First Lien Term Facility.  In addition, as of September 30, 2009, themaximum amount of borrowings available to the Company under the RevolvingFacility was $12.5 million, of which no borrowings were outstanding as of thisdate.  As of September 30, 2009, theoutstanding principal of indebtedness under our Senior Credit Facility bearsinterest at a fluctuating rate equal to either the base rate plus 4.75% perannum or LIBOR plus 5.75% per annum (effective rate of 6.00% at September 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 September 30, 2009.

 

On March 30,2009, the Company entered into an amendment to its Senior Credit Facility,which among other things: (i) increased the applicable interest rate margin forborrowings thereunder; (ii) eliminated the requirement that the Companymaintain corporate debt ratings; (iii) extended the date by which the Companymust amend the indenture governing the Senior Notes to eliminate certain of therestrictive covenants contained therein (including covenants related to theincurrence of indebtedness and liens) or redeemed the Senior Notes to March 31,2010; (iv) extended the Company’s ability to continue to pay cash dividends toenable Parent to make cash interest payments on the Parent Notes to March 31,2010; (v) increased the maximum total leverage ratio the Company may have atthe end of each quarterly period from December 31, 2008 through December 31,2009; (vi) required payment of the remaining balance due under the First LienTerm Facility of approximately $3.6 million, which was paid on March 30, 2009;and (vii) decreased the minimum interest coverage ratio the Company is requiredto maintain at the end of each quarterly period from December 31, 2008 through December31, 2009.  The amendment also waived forthe four fiscal quarters ended December 31, 2008, any default or event ofdefault that may have arisen from the Company’s failure to maintain the maximumconsolidated leverage ratio and the minimum consolidated interest coverageratio set forth in the Senior Credit Facility prior to the effective date ofthe amendment.

 

Indebtedness for borrowedmoney incurred under our Senior Credit Facility is secured by substantially allof our assets, including our real and personal property, inventory, accountsreceivable, intellectual property and other intangibles and is scheduled tomature in January 2013.

 

As of September 30, 2009, the weighted averageinterest rate for the Company’s outstanding debt was 10.1%.

 

Our Senior Credit Facility and the indenture for theSenior Notes impose certain restrictions on our ability to incur indebtedness,pay dividends, make investments, grant liens, sell our assets and engage incertain 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.  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,as amended, the Senior Credit Facility prohibits the Company from making anydistributions to Parent except for limited purposes, including, but not limitedto: (i) prior to March 31, 2010, the Company may pay cash dividends anddistributions to Parent to enable Parent to make cash interest payments on the ParentNotes, provided that (x) after giving pro forma effect to such dividend ordistribution, the consolidated first lien leverage ratio does not exceed 1.0 to1.0, and (y) the amount of such dividends and distributions shall not exceed$3,225,000 in any calendar quarter, (ii) customary and reasonable out-of-pocketexpenses, legal and accounting fees and expenses and overhead of Parentincurred in the ordinary course of business to the extent attributable to thebusiness of the Company and its subsidiaries and in the aggregate not to exceed$500,000 in any fiscal year, and (iii) the Company may pay management fees ofParent not to exceed $750,000 in any fiscal year so long as no default hasoccurred.  The indenture provides thatthe Company can generally pay dividends and make other distributions to Parentin an amount not to exceed (i) 50% of the Company’s consolidated net income forthe period beginning April 1, 2004 and ending as of the end of the last fiscalquarter before the proposed payment, plus (ii) 100% of the net cash proceedsreceived by the Company from the issuance and sale of capital stock, plus (iii)the net return of certain investments, provided that certain conditions aresatisfied, including that the Company has a consolidated interest coverageratio of greater than 2.0 to 1.0.  Forthe period ended September 30, 2009, the Company’s consolidated interestcoverage ratio was less than 2.0 to 1.0.

 

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On March 30, 2009, Parent amended and obtained awaiver to the Note Purchase Agreements related to the Parent Notes to waive thetotal leverage ratio that Parent and its Subsidiaries (including the Company)were required to maintain as of December 31, 2008 and to adjust the totalleverage ratio that Parent and its Subsidiaries (including the Company) arerequired to maintain as of the end of each quarterly period through December 31,2009 to reflect current economic conditions. The Parent was in compliance with all covenants as of September 30,2009.

 

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

 

Each of the Company’s subsidiaries, which are all 100%owned subsidiaries of the Company, have fully and unconditionally guaranteedthe Senior 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.

 

As of September 30, 2009,we had $10.8 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 $0.8 million for the nine months ended September 30,2009, while cash provided by operating activities for the nine months ended September30, 2008 was $1.9 million.  The $1.1million decrease in cash provided by operating activities for the nine monthperiod ended September 30, 2009 versus the nine month period ended September 30,2008 was due to: (i) lower net income in 2009, net of a gain on extinguishmentof debt, (ii) higher inventories in 2009 of $2.6 million, and (iii) an increasein accounts receivable in 2009 of $5.3 million. Days of receivables outstanding increased by eight days as of September 30,2009 versus December 31, 2008 mainly due to a majority of customers that wereclosed the last two weeks of December 2008 and certain customer payment termshave been modified over the past year. These were offset partially by an increase in accounts payable in 2009of approximately $3.1 million and a payment of $6.2 million in 2008 for incometax refunds that were due to previous stockholders of the Company in accordancewith the Transaction agreement

 

*Cashflow from investing activities.*  Net cash usedin investing activities was $1.0 million for the nine months ended September 30,2009 and $3.3 million for the nine months ended September 30, 2008.  Capital expenditures in the nine months endedSeptember 30, 2009 were $1.0 million compared to $3.3 million for the ninemonths ended September 30, 2008.  Thedecrease in capital expenditures in 2009 is primarily due to lower capitalexpenditures needed for capacity requirements.

 

*Cashflow from financing activities.*  Net cash usedin financing activities for the nine months ended September 30, 2009 totaled$3.8 million primarily due to principal payments on the Senior CreditFacility.  Net cash used in financingactivities for the nine months ended September 30, 2008 totaled $13.0 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) capital leasepayments of $0.2 million, (iii) principal payments on the Senior CreditFacility of $0.6 million, and (iv) a distribution on behalf of the Parent forprincipal and interest on a portion of the Parent Notes of $4.5 million.  The cash used in financing activities for thenine months ended September 30, 2008 was partially offset with cash provided byfinancing activities due to a $2.1 million increase for the amount Due toParent related to income tax obligations.

 

For the nine month periods ended September 30, 2009and September 30, 2008, our two largest customers accounted for approximately55% and 51% of our net sales, respectively. As of September 30, 2009 and December 31, 2008, our two largestcustomers accounted for approximately 66% and 47%, respectively, of ourconsolidated accounts receivables balance. The permanent loss of, or a significant decrease in the level ofpurchases by, one or more of our major customers could have a material adverseeffect on our results of operations and future cash flows.

 

We cannot provide assurances that our business willgenerate sufficient cash flow from operations, that anticipated net salesgrowth and operating improvements will be realized or that future borrowingswill be available under our Senior Credit Facility in an amount sufficient toenable us to service our indebtedness, including the Senior Notes, or to fundour other liquidity needs.  In addition,we cannot provide assurances that we will be able to refinance any of ourindebtedness, including our Senior Credit Facility and the Senior Notes, oncommercially reasonable terms, if at all.

 

We derive a significant portion of our revenue as aresult of demand for our products created by the building of new homes, andrepair and remodeling of existing homes. During the second half of 2006, the home building, and repair andremodeling industry experienced a slowdown as a result of general economicconditions.  This slowdown has worsenedinto 2009, and has had a negative impact on our results of operations for the threeand nine months ended September 30, 2009. If this slowdown were to continue or worsen over an extended period oftime, it could have a material adverse effect on our business, financialcondition or results of operations which may include impairment charges ofgoodwill and other long-term assets.

 

Recently, the financial markets experienced a periodof unprecedented turmoil, including the bankruptcy, restructuring or sale ofcertain financial institutions and the intervention of the U.S. federalgovernment.  While the ultimate outcomeof these events cannot be predicted, they may have a material adverse effect onour liquidity and financial condition if our ability to borrow money from ourexisting lenders under our Senior Credit Facility to finance our operationswere to be impaired.  The crisis in thefinancial 

 

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markets may also have a material adverse impact on the availability andcost of credit in the future.  Ourability to pay our debt or refinance our obligations under our Senior CreditFacility or our Senior Notes will depend on our future performance, which willbe affected by, among other things, prevailing economic conditions.  The recent financial crisis may also have anadverse effect on the U.S., which would have a negative impact on demand forour products.  In addition, tightening ofcredit markets may have an adverse impact on our customers’ ability to financethe purchase of our products or our suppliers’ ability to provide us with rawmaterials, either of which could adversely affect our business and results ofoperations.

 

We intend to continue to manage the business in thisslower economy and its effect on our industry by diligently reviewing our costsof doing business on a routine basis, controlling working capital in a slowerbusiness climate, and minimizing our capital expenditure needs.

 

We anticipate, but cannot provide assurance, that thefunds generated by operations and funds available under the Senior CreditFacility will be sufficient to meet working capital requirements and to financecapital expenditures for the foreseeable future, including the next twelvemonths.  We intend to incur additionalcapital expenditures in the ordinary course of doing business.

 

**Inflation**

 

In general, our cost of sales is subject toinflationary pressures on labor costs, prices of the raw materials we use andvarious overhead costs.  We generallyhave been able over time to offset the effects of inflation and pricefluctuations through a combination of sales price increases and operationalefficiencies.  We currently believe thatraw material cost pressure has moderated. We continue to attempt to pass along these costs, but such effortstypically lag behind material cost changes and we can not guarantee a fulloffset.  We do not believe inflation hada material impact on our results of operations for the three month period endedSeptember 30, 2009.

 

**Seasonality**

 

Our sales historically have been moderately seasonal,reflecting the temporary slow down in consumer purchasing activity during thewinter holiday season and the summer months.

 

### **Critical Accounting Policies**

 

In our Annual Report on Form 10-K for the year ended December31, 2008, we identified the critical accounting policies, which affect our moresignificant estimates and assumptions used in preparing our consolidatedfinancial statements.  The basis fordeveloping the estimates and assumptions within our critical accountingpolicies is based on historical information and known current trends andfactors.  The estimates and assumptionsare evaluated on an ongoing basis and actual results have been within theCompany’s expectations.  We have notchanged these policies from those previously disclosed in our annual report.

 

TheCompany performed its goodwill impairment (ASC 350) analysis as of December 31,2008.  To establish fair market value,items considered were: (1) comparable public company trading multiples, (2) othercomparable transaction multiples and (3) the Woodcraft transaction multipleresulting from a competitive auction process. Based on the fair market value methodology and the assumptions above, ascompared to the Company’s December 31, 2008 net worth and interest-bearingindebtedness, it was concluded that no goodwill impairment existed and that thefair value of its assets exceeded the carrying value by approximately 10 to15%.  The Company determined there wereno events that would require an ASC 350 analysis to be completed as of September30, 2009.

 

**New Accounting Standards**

 

See Note 2 of theCondensed Consolidated Financial Statements for information pertaining torecently adopted accounting standards or accounting standards to be adopted inthe future.

 

### **Item 3. Quantitative andQualitative Disclosures about Market Risk**

 

We are subject to various market risks such asfluctuating 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,changes in supply and demand, general economic conditions, labor costs,competition and, in some cases, government regulation. Though we are notdependent on any single supplier for our raw materials, we have no long-termsupply contracts and thus, are subject to changes in the prices charged by oursuppliers.  The prices for the primaryhardwood species we use in the production of our hardwood doors and componentsare subject to some volatility.  Wegenerally pass through cost increases to our customers, but the price increasesmay not fully offset the 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 September 30, 2009, we had nothingoutstanding under the Revolving Facility, which bears interest at variablerates.  We believe that a 

 

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one percent (1%) increase in the interest rates currently in effectwould not have a material adverse effect on our financial condition or resultsof operations.

 

### **Item 4T. Controls andProcedures**

 

(a)           Evaluationof disclosure controls and procedures.

 

As required by Rule 13a-15 under the SecuritiesExchange Act of 1934 (the “Exchange Act”), we carried out an evaluation underthe supervision and with the participation of our management, including ourChief Executive Officer and Chief Financial Officer, of the effectiveness ofour disclosure controls and procedures as of September 30, 2009.  For purposes of the foregoing, the termdisclosure controls and procedures means controls and other procedures of anissuer that are designed to ensure that information required to be disclosed bythe 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 September 30,2009, our disclosure controls and procedures were effective at a reasonablelevel of assurance.

 

(b)          Changesin internal controls over financial reporting.

 

There were no changes in our internal controls overfinancial reporting during our third fiscal quarter that have materiallyaffected, or are reasonably likely to materially affect, our internal controlsover financial reporting.

 

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**PART II—OTHER INFORMATION**

 

**Item 1. Legal Proceedings**

 

No pending material legalproceedings.

 

**Item 1A. Risk Factors**

 

The Company has includedin its Annual Report on Form 10-K for the year ended December 31, 2008, adescription of certain risks and uncertainties that could affect the Company’sbusiness, future performance or financial condition (the “Risk Factors”).  The Risk Factors are hereby incorporated in PartII, Item 1A of this Form 10-Q.  Investorsshould consider the Risk Factors prior to making an investment decision withrespect to the Company’s securities.  Weare updating the risk factor under the heading, “Downturns in the new homeconstruction industry, repair and remodeling activity or the economy couldnegatively affect our business” to read as follows:

 

***Downturnsin the new home construction industry, repair and remodeling activity or theeconomy could negatively affect our business.***

 

Sales to the kitchen and bath cabinetmarket account for approximately 90-95% of our total sales.  Sales in this market are driven by new homeconstruction and home repair and remodeling activity.  New home construction and repair andremodeling activity continues to be affected by changes in economic and otherconditions, such as gross domestic product levels, employment levels,demographic trends, availability of financing, interest rates and consumerconfidence.  These factors can negativelyaffect the demand for our products.  Anydeterioration in these factors could have a material adverse effect on ourbusiness, financial condition and results of operations.

 

The Company derives asignificant portion of its revenue as a result of the demand for its productscreated by the building of new homes, and repair and remodeling of existinghomes.  During the second half of 2006,the home building, repair and remodeling industry experienced a slowdown as aresult of general economic conditions. This slowdown has continued into 2009, and has had a negative impact onour results of operations for the three and nine months ended September 30,2009.  If this slowdown were to continueor worsen over an extended period of time, it could have a material adverseeffect on the Company’s business, financial condition or results of operations.

 

**Item 2. Unregistered Sales of Equity Securities and Use ofProceeds**

 

None.

 

**Item 3. Defaults Upon Senior Securities**

 

None.

 

**Item 4. Submission of Matters to a Vote of Security Holders**

 

None.

 

**Item 5. Other Information**

### ** **

### **None.**

 

### **Item 6.Exhibits**

 

31.1         Certification of Vice President, Treasurer andSecretary of WII Components, Inc., pursuant to Rule 15d-14(a), as adoptedpursuant to Section 302 of the Sarbanes-Oxley Act of 2002

31.2         Certification of Chief Executive Officer of WIIComponents, Inc., pursuant to Rule 15d-14(a), as adopted pursuant to Section 302of the Sarbanes-Oxley Act of 2002

32.1*      Certification of Vice President, Treasurer andSecretary of WII Components, Inc., pursuant to 18 U.S.C. Section 1350, asadopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002

32.2*      Certification of Chief Executive Officer of WIIComponents, Inc., pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section906 of the Sarbanes-Oxley Act of 2002

 

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*This certification shall not be deemed “filed” for purposes of Section18 of the Securities Exchange Act of 1934, or otherwise subject to theliability of that section, nor shall it be deemed to be incorporated byreference into any filing under the Securities Act of 1933 or 

 

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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: November 12, 2009 | By:                  |
|                     |                 | /s/ John Fitzpatrick |
|                     |                 | John Fitzpatrick |
|                     |                 | President and Chief Executive Officer |
|                     |                 | (Principal Executive Officer) |
| Dated: November 12, 2009 |                 |   |
|                     |                 | /s/ Dale B. Herbst |
|                     |                 | Dale B. Herbst |
|                     |                 | Chief Financial Officer, Treasurer and Secretary |
|                     |                 | (Principal Financial and Accounting Officer) |

 

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