Table of Contents

 

 

 

**UNITED STATESSECURITIES AND EXCHANGE COMMISSION**

**Washington, DC 20549**

 

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**FORM 10-Q**

 

**x****                             ****QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THESECURITIES EXCHANGE ACT OF 1934**

 

**For thequarterly period ended September 30, 2008**

 

**or**

 

**o****                                ****TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THESECURITIES EXCHANGE ACT OF 1934**

 

**Commission file number:**

**333-115490**

 

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**WII COMPONENTS, INC.**

(Exact name 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**

(Address of principal executive offices) (ZipCode)

 

**(320) 252-1503**

(Registrant’s telephone number, Including areacode)

 

Indicateby check mark whether the registrant (1) has filed all reports required tobe filed by Section 13 or 15(d) of the Securities Exchange Act of1934 during the preceding 12 months (or for such shorter period that theregistrant was required to file such reports) and (2) has been subject tosuch filing requirements for the past 90 days.

 

Yes x No o.

 

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

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

 

Indicateby check mark whether the registrant is a shell company (as defined in Rule 12b-2of the Exchange Act).

 

Yes o No x.

 

Asof November 5, 2008, 100 shares of common stock, $.01 par value per share,were outstanding (all of which are owned by WII Holding, Inc.).

 

 

 

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Table of Contents

 

**WII COMPONENTS, INC.**

 

**FORM 10-Q**

**Quarter Ended September 30, 2008**

 

**Table of Contents**

 
| **Part I—Financial Information**                                                                              |   |   |
|-------------------------------------------------------------------------------------------------------------------------|--------|--------|
| Item 1. Financial Statements                                                                                            |   |   |
| Condensed Consolidated Balance Sheets (unaudited) as  of September 30, 2008 and December 31, 2007             |   | 1      |
| Condensed Consolidated Statements of Earnings  (unaudited) for the Three Months Ended September 30, 2008 and 2007  |   | 2      |
| Condensed Consolidated Statements of Earnings  (unaudited) for the Nine Months Ended September 30, 2008 and 2007   |   | 3      |
| Condensed Consolidated Statements of Cash Flows  (unaudited) for the Nine Months Ended September 30, 2008 and 2007 |   | 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                                                                                        |   | 16     |
|                                                                                                                    |   |   |
| **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                                                                                                              |   | 19     |

 

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**WII COMPONENTS, INC. AND SUBSIDIARIES**

**CONDENSED CONSOLIDATED BALANCESHEETS**

**(UNAUDITED)**

**(In thousands)**

 
| ** **                                    | ** ** | **September 30,  2008** | ** ** | **December 31,  2007** | ** ** |
|-----------------------------------------------|------------|------------------------------|------------|-----------------------------|------------|
| **ASSETS**                                    |       |                         |       |                        |       |
| Current Assets:                               |       |                         |       |                        |       |
| Cash                                          |       | $                            | 5,224      |                        | $          | 19,574 |   |
| Accounts receivable, net                      |       | 13,015                       |       | 13,669                      |       |
| Inventories                                   |       | 18,408                       |       | 20,825                      |       |
| Other current assets                          |       | 2,659                        |       | 2,480                       |       |
| Total current assets                          |       | 39,306                       |       | 56,548                      |       |
|                                          |       |                         |       |                        |       |
| Property, plant, and equipment, net           |       | 58,644                       |       | 60,647                      |       |
| Goodwill                                      |       | 112,748                      |       | 112,748                     |       |
| Customer relationship                         |       | 10,338                       |       | 11,581                      |       |
| Noncompete agreements                         |       | 73                           |       | 99                          |       |
| Other assets                                  |       | 5,173                        |       | 6,334                       |       |
| TOTAL                                         |       | $                            | 226,282    |                        | $          | 247,957 |   |
|                                          |       |                         |       |                        |       |
| **LIABILITIES AND STOCKHOLDER’S EQUITY** |       |                         |       |                        |       |
| Current Liabilities:                          |       |                         |       |                        |       |
| Current maturities of long-term debt          |       | $                            | 1,063      |                        | $          | 1,284 |   |
| Accounts payable                              |       | 3,342                        |       | 3,302                       |       |
| Accrued payroll                               |       | 3,543                        |       | 4,185                       |       |
| Due to Parent                                 |       | 6,149                        |       | 4,058                       |       |
| Other current liabilities                     |       | 6,788                        |       | 16,686                      |       |
| Total current liabilities                     |       | 20,885                       |       | 29,515                      |       |
|                                          |       |                         |       |                        |       |
| Long-term debt, net of current maturities     |       | 111,382                      |       | 123,448                     |       |
| Deferred income tax liability                 |       | 6,396                        |       | 6,396                       |       |
| Other long-term liabilities                   |       | 2,729                        |       | 2,729                       |       |
|                                          |       |                         |       |                        |       |
| Stockholder’s Equity:                    |       |                         |       |                        |       |
| Common stock                                  |       | —                       |       | —                      |       |
| Additional paid-in capital                    |       | 71,279                       |       | 71,241                      |       |
| Retained earnings                             |       | 13,611                       |       | 14,628                      |       |
| Total stockholders’ equity               |       | 84,890                       |       | 85,869                      |       |
| TOTAL                                         |       | $                            | 226,282    |                        | $          | 247,957 |   |

 

See notes to condensed consolidated financial statements (unaudited).

 

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**WII COMPONENTS, INC. AND SUBSIDIARIES**

**CONDENSED CONSOLIDATED STATEMENTSOF EARNINGS**

**(UNAUDITED)**

**(In thousands)**

 
| ** **                               | ** ** | **Three Months  Ended  September 30, 2008** | ** ** | **Three Months  Ended  September 30, 2007** | ** ** |
|------------------------------------------|------------|------------------------------------------------------------|------------|------------------------------------------------------------|------------|
| NET SALES                                |       | $                                                          | 46,986     |                                                       | $          | 64,958 |   |
| COST OF SALES                            |       | 40,396                                                     |       | 54,324                                                     |       |
| Gross profit                             |       | 6,590                                                      |       | 10,634                                                     |       |
|                                     |       |                                                       |       |                                                       |       |
| OPERATING EXPENSES:                      |       |                                                       |       |                                                       |       |
| General and administrative               |       | 2,333                                                      |       | 2,882                                                      |       |
| Selling and marketing                    |       | 755                                                        |       | 869                                                        |       |
| Gain on sale of assets                   |       | (2                                                         | )          | (1                                                         | )          |
| Total operating expenses                 |       | 3,086                                                      |       | 3,750                                                      |       |
|                                     |       |                                                       |       |                                                       |       |
| OPERATING INCOME                         |       | 3,504                                                      |       | 6,884                                                      |       |
|                                     |       |                                                       |       |                                                       |       |
| OTHER INCOME (EXPENSE):                  |       |                                                       |       |                                                       |       |
| Interest income                          |       | 18                                                         |       | 149                                                        |       |
| Interest expense                         |       | (3,246                                                     | )          | (3,821                                                     | )          |
| Other expense                            |       | (1                                                         | )          | (1                                                         | )          |
| Total other income (expense)             |       | (3,229                                                     | )          | (3,673                                                     | )          |
|                                     |       |                                                       |       |                                                       |       |
| INCOME BEFORE PROVISION FOR INCOME TAXES |       | 275                                                        |       | 3,211                                                      |       |
| INCOME TAX PROVISION                     |       | 130                                                        |       | 1,568                                                      |       |
| NET EARNINGS                             |       | $                                                          | 145        |                                                       | $          | 1,643 |   |

 

See notes to condensed consolidated financial statements (unaudited).

 

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**WII COMPONENTS, INC. AND SUBSIDIARIES**

**CONDENSED CONSOLIDATED STATEMENTSOF EARNINGS**

**(UNAUDITED)**

**(In thousands)**

 
| ** **                         | ** ** | **Nine Months  Ended  September 30, 2008** | ** ** | **Nine Months  Ended**

**September 30, 2007** | ** ** |
|------------------------------------|------------|-----------------------------------------------------------|------------|---------------------------------------------------------------|------------|
| NET SALES                          |       | $                                                         | 159,110    |                                                          | $          | 193,740 |   |
| COST OF SALES                      |       | 135,302                                                   |       | 158,686                                                       |       |
| Gross profit                       |       | 23,808                                                    |       | 35,054                                                        |       |
|                               |       |                                                      |       |                                                          |       |
| OPERATING EXPENSES:                |       |                                                      |       |                                                          |       |
| General and administrative         |       | 7,577                                                     |       | 18,557                                                        |       |
| Selling and marketing              |       | 2,437                                                     |       | 2,521                                                         |       |
| (Gain) loss on sale of assets      |       | (3                                                        | )          | 51                                                            |       |
| Total operating expenses           |       | 10,011                                                    |       | 21,129                                                        |       |
|                               |       |                                                      |       |                                                          |       |
| OPERATING INCOME                   |       | 13,797                                                    |       | 13,925                                                        |       |
|                               |       |                                                      |       |                                                          |       |
| OTHER INCOME (EXPENSE):            |       |                                                      |       |                                                          |       |
| Interest income                    |       | 119                                                       |       | 298                                                           |       |
| Interest expense                   |       | (9,843                                                    | )          | (11,677                                                       | )          |
| Other income (expense)             |       | 1,729                                                     |       | (2                                                            | )          |
| Total other income (expense)       |       | (7,995                                                    | )          | (11,381                                                       | )          |
|                               |       |                                                      |       |                                                          |       |
| INCOME BEFORE INCOME TAX PROVISION |       | 5,802                                                     |       | 2,544                                                         |       |
| INCOME TAX PROVISION               |       | 2,341                                                     |       | 1,261                                                         |       |
| NET EARNINGS                       |       | $                                                         | 3,461      |                                                          | $          | 1,283 |   |

 

See notes to condensed consolidated financial statements (unaudited).

 

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**WII COMPONENTS, INC. AND SUBSIDIARIES**

**CONDENSED CONSOLIDATED STATEMENTSOF CASH FLOWS**

**(UNAUDITED)**

**(In thousands)**

 
| ** **                                                                           | ** ** | **Nine Months  Ended  September 30, 2008** | ** ** | **Nine Months  Ended  September 30, 2007** | ** ** |
|--------------------------------------------------------------------------------------|------------|-----------------------------------------------------------|------------|-----------------------------------------------------------|------------|
| OPERATING ACTIVITIES:                                                                |       |                                                      |       |                                                      |       |
| Net earnings                                                                         |       | $                                                         | 3,461      |                                                      | $          | 1,283 |   |
|                                                                                 |       |                                                      |       |                                                      |       |
| Adjustments to reconcile net earnings to  net cash provided by operating activities: |       |                                                      |       |                                                      |       |
| Depreciation and amortization                                                        |       | 6,595                                                     |       | 6,550                                                     |       |
| (Gain) loss on sale of assets                                                        |       | (3                                                        | )          | 51                                                        |       |
| Amortization of debt issue costs                                                     |       | 1,135                                                     |       | 1,940                                                     |       |
| Gain on extinguishment of debt                                                       |       | (1,725                                                    | )          | —                                                    |       |
| Deferred income taxes                                                                |       | —                                                    |       | (33                                                       | )          |
| Stock compensation expense                                                           |       | 38                                                        |       | 1,420                                                     |       |
| Current portion of tax benefit due to  Seller                                        |       | —                                                    |       | (4,106                                                    | )          |
|                                                                                 |       |                                                      |       |                                                      |       |
| Change in operating assets and liabilities:                                          |       |                                                      |       |                                                      |       |
| Accounts receivable                                                                  |       | 654                                                       |       | (8,405                                                    | )          |
| Inventories                                                                          |       | 2,417                                                     |       | 1,019                                                     |       |
| Other current assets                                                                 |       | (179                                                      | )          | 3,995                                                     |       |
| Accounts payable                                                                     |       | 40                                                        |       | 1,533                                                     |       |
| Due to Parent                                                                        |       | 2,091                                                     |       | —                                                    |       |
| Accrued payroll and other current  liabilities                                       |       | (10,540                                                   | )          | (3,167                                                    | )          |
| Other long-term liabilities                                                          |       | —                                                    |       | 114                                                       |       |
| Net cash provided by operating activities                                            |       | 3,984                                                     |       | 2,194                                                     |       |
|                                                                                 |       |                                                      |       |                                                      |       |
| INVESTING ACTIVITIES:                                                                |       |                                                      |       |                                                      |       |
| Purchases of property, plant, and equipment                                          |       | (3,326                                                    | )          | (5,897                                                    | )          |
| Proceeds from sale of assets                                                         |       | 6                                                         |       | 38                                                        |       |
| Changes in other assets                                                              |       | 55                                                        |       | —                                                    |       |
| DMI earn-out payment                                                                 |       | —                                                    |       | (4,000                                                    | )          |
| Net cash used in investing activities                                                |       | (3,265                                                    | )          | (9,859                                                    | )          |
|                                                                                 |       |                                                      |       |                                                      |       |
| FINANCING ACTIVITIES:                                                                |       |                                                      |       |                                                      |       |
| Principal payments under long-term  financing agreements                             |       | (17,162                                                   | )          | (9,061                                                    | )          |
| Recapitalization – equity contribution                                          |       | —                                                    |       | 21,747                                                    |       |
| Debt issuance costs                                                                  |       | (29                                                       | )          | (3,616                                                    | )          |
| Recapitalization – repurchase of stock  options                                 |       | —                                                    |       | (7,879                                                    | )          |
| Expenses paid on behalf of Parent                                                    |       | —                                                    |       | (1,678                                                    | )          |
| Distribution to Parent                                                               |       | (4,478                                                    | )          | —                                                    |       |
| Borrowings of long-term debt                                                         |       | 6,600                                                     |       | 10,152                                                    |       |
| Net cash (used in) provided by financing  activities                                 |       | (15,069                                                   | )          | 9,665                                                     |       |
|                                                                                 |       |                                                      |       |                                                      |       |
| NET (DECREASE) INCREASE IN CASH                                                      |       | (14,350                                                   | )          | 2,000                                                     |       |
| CASH—Beginning of period                                                        |       | 19,574                                                    |       | 8,048                                                     |       |
|                                                                                 |       |                                                      |       |                                                      |       |
| CASH—End of period                                                              |       | $                                                         | 5,224      |                                                      | $          | 10,048 |   |
|                                                                                 |       |                                                      |       |                                                      |       |
| SUPPLEMENTAL CASH FLOW INFORMATION:                                                  |       |                                                      |       |                                                      |       |
| Cash paid for interest                                                               |       | $                                                         | 11,895     |                                                      | $          | 12,772 |   |
|                                                                                 |       |                                                      |       |                                                      |       |
| Cash paid for income taxes—net                                                  |       | $                                                         | 410        |                                                      | $          | 626 |   |
| NONCASH ACTIVITY:                                                                    |       |                                                      |       |                                                      |       |
| Recapitalization – repurchase of common  stock funded by the Parent             |       | $                                                         | —     |                                                      | $          | 226 |   |
|                                                                                 |       |                                                      |       |                                                      |       |
| Future tax benefit due to Seller in:                                                 |       |                                                      |       |                                                      |       |
| Other current assets                                                                 |       | $                                                         | —     |                                                      | $          | (5,985 | ) |
| Other current liabilities                                                            |       | $                                                         | —     |                                                      | $          | 7,073 |   |
| Other long-term liabilities                                                          |       | $                                                         | —     |                                                      | $          | 2,004 |   |
| Deferred income taxes                                                                |       | $                                                         | —     |                                                      | $          | 2,945 |   |
|                                                                                 |       |                                                      |       |                                                      |       |
| Capital expenditures in accounts payable                                             |       | $                                                         | —     |                                                      | $          | 348 |   |

 

See notes to condensed consolidated financial statements (unaudited).

 

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**WII COMPONENTS, INC. AND SUBSIDIARIES**

**NOTES TO CONDENSED**

**CONSOLIDATED FINANCIAL STATEMENTS**

**(UNAUDITED)**

 

**1.  BASIS OFPRESENTATION**

 

***Company Background-***  On January 9, 2007, WII Components, Inc. (the “Company”) wasacquired by WII Holding, Inc. (“Parent”), a newly formed investment entitycontrolled by investment funds managed by Olympus Partners.  For ease of reference, these funds aresometimes collectively referred to herein as the “Olympus Funds.”  The acquisition was consummated through amerger of WII Merger Corporation (“MergerCo”), a wholly owned subsidiary ofParent, with and into the Company with the Company being the survivingcorporation 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 debt outstanding,which hinders the Parent’s ability to control the form of ownership of theCompany.

 

TheCompany prepared the accompanying unaudited condensed consolidated financialstatements following the requirements of the Securities and Exchange Commissionfor interim reporting.  As permittedunder those rules, certain notes or other financial information normallyrequired by accounting principles generally accepted in the United States ofAmerica have been condensed or omitted. Therefore, the Company suggests that these financial statements be readin conjunction with the consolidated financial statements and accompanyingnotes for the year ended December 31, 2007 included in its Form 10-Kas filed with the Securities and Exchange Commission on March 28, 2008.  The condensed consolidated balance sheet asof December 31, 2007 has been derived from the audited consolidatedfinancial statements at that date, but does not include all the information andnotes required by accounting principles generally accepted in the United Statesof America for complete presentation.

 

Inmanagement’s opinion, the accompanying unaudited condensed consolidatedfinancial statements include all adjustments (consisting of normal recurringitems) considered necessary to present fairly, when read in conjunction withthe consolidated financial statements and accompanying notes for the periodended December 31, 2007 included in our Form 10-K as filed with theSecurities and Exchange Commission on March 28, 2008, our financialposition, results of operations and cash flows for the periods presented.

 

Theunaudited condensed consolidated financial statements include the accounts ofthe Company and its wholly owned subsidiaries. All intercompany accounts and transactions have been eliminated in thepreparation of the consolidated financial statements.

 

**2. SIGNIFICANT ACCOUNTING POLICIES**

 

***Revenue Recognition-*** Sales are recognized when revenue isrealized or realizable and has been earned. The Company’s policy is to recognize revenue and the related cost ofsales when risk and title passes to the customer.  This is generally on the date of shipment,however, certain sales are shipped FOB destination and revenue is recognizedwhen received by the customer.  Freightbilled to customers is included in sales and shipping costs are included incost of sales.  The Company records anestimate for anticipated sales returns and customer discounts at the timerevenue is recognized 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 ninemonths period ended September 30, 2008 and September 30, 2007, theprovision for estimated sales returns and customer discounts as a percentage ofnet sales were 3.2% and 3.1%, respectively.

 

***Concentration of Credit Risk***- For each of the nine month periods ended September 30,2008 and September 30, 2007, our two largest customers accounted forapproximately 51% of our net sales.  Asof September 30, 2008 and December 31, 2007, our two largestcustomers accounted for approximately 54% and 53%, 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.

 

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

 
| ** **      | ** ** | **September 30,  2008** | ** ** | **December 31,  2007** | ** ** |
|-----------------|------------|------------------------------|------------|-----------------------------|------------|
| Raw materials   |       | $                            | 9,627      |                        | $          | 11,021 |   |
| Work in process |       | 4,181                        |       | 5,187                       |       |
| Finished goods  |       | 3,366                        |       | 4,198                       |       |
| LIFO adjustment |       | 1,234                        |       | 419                         |       |
|            |       | $                            | 18,408     |                        | $          | 20,825 |   |

 

Themajority of inventory is valued at the lower of last-in, first-out (“LIFO”)cost or market.  The remainder of theinventory is valued under the first-in, first-out method (“FIFO”).  As of September 30, 2008 and December 31,2007, inventory on the LIFO method represented 66% and 65%, respectively, ofconsolidated inventories.

 

***Goodwill***—TheCompany evaluates goodwill for impairment at least annually or when events or changesin circumstances indicate impairment. The Company has elected to perform its annual tests for goodwillimpairment as of December 31 of each year. Fair value is measured using a market multiple valuation method.  The carrying amount of goodwill was $112.7million at September 30, 2008 and December 31, 2007.

 

***CustomerRelationship—***Customerrelationships relate to intangible assets recorded through previousacquisitions for relationships with significant customers.  The original cost of these customerrelationships was $16.6 million, and the related accumulated amortization as ofSeptember 30, 2008 is $6.3 million. The intangible assets are being amortized over the estimated life of 10years.  Amortization was $1,243,000 forthe nine-month periods ended September 30, 2008 and 2007.  Expected annual amortization is as followsfor the years ending December 31 (in thousands):

 
| 2008      |   | $     | 1,657  |   |
|-----------|--------|-------|--------|--------|
| 2009      |   | 1,658 |   |
| 2010      |   | 1,657 |   |
| 2011      |   | 1,658 |   |
| 2012      |   | 1,657 |   |
| 2013-2015 |   | 3,294 |   |

 

***Noncompete Agreement***—Noncompete agreements primarily relate toagreements with the former owners of Brentwood, Grand Valley, and DimensionMoldings, Inc.  The original cost ofthese noncompete agreements was $2.4 million, and the related accumulatedamortization as of September 30, 2008 is $2.3 million.  Noncompete rights are being amortized overthe applicable terms of the agreements (5 years, 7 years, and 5years, respectively).  The noncompeteagreement with the former owner of Brentwood was fully amortized in July 2007.  The noncompete agreement with the formerowners of Grand Valley and Dimension Moldings, Inc. are expected to befully amortized by April 2011 and July 2010, respectively.  Amortization was $26,000 and $277,000 for thenine-month periods ended September 30, 2008 and 2007, respectively.  Expected annual amortization is as followsfor the years ending December 31 (in thousands):

 
| 2008 |   | $  | 34     |   |
|------|--------|----|--------|--------|
| 2009 |   | 34 |   |
| 2010 |   | 26 |   |
| 2011 |   | 5  |   |

 

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

 

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

 

In December 2007, The FASB issued SFAS No. 141 (R),Business Combinations or SFAS 141(R). SFAS 141(R) establishes principles and requirements for how anacquirer recognizes and measures in its financial statements the identifiableassets acquired, the liabilities assumed, any non-controlling interest in theacquirer and the goodwill acquired.  SFAS141(R) also establishes disclosure requirements to enable the evaluationof the nature and financial effects of the business combination.  SFAS No. 141(R) is effective forfiscal years beginning after December 15, 2008.  The Company does not expect the adoption ofSFAS No. 141(R) to have any significant impact on the Company’saccounting treatment for business combinations on a prospective basis beginningin the period it is adopted.

 

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The Companyadopted SFAS 157 & SFAS 159 on January 1, 2008.  The Companydid not elect the fair value of accounting option for any eligible assets;therefore, the adoption of these standards had no impact on our financialstatements.

 

In February 2008, the FASB issued FSP SFAS 157-2, Effective Dateof FASB Statement No. 157 (“FSP SFAS 157-2”).  FSP 157-2 delays the effective date of SFAS157 for non-financial assets and non-financial liabilities, except those thatare recognized or disclosed at fair value in the financial statements on arecurring basis (at least annually).  The Company will adopt SFAS 157 fornon-financial assets and non-financial liabilities on December 31, 2008,and does not anticipate this adoption to have a material impact on ourfinancial statements.

 

In March 2008, the FASB issued SFAS No. 161,“Disclosures about Derivative Instruments and Hedging Activities-an amendmentof FASB Statement No. 133” SFAS No. 161 which will require increaseddisclosure about: (i) an entity’s strategies and objectives for usingderivative instruments, (ii) the location and amounts of derivativeinstruments in an entity’s financial statements, (iii) how derivativeinstruments and related hedged items are accounted for under SFAS No 133, “Accountingfor Derivative Instruments and Hedging Activities,” and (iv) howderivative instruments and related hedged items affect its financial position,financial performance, and cash flows. Certain disclosures will also be required with respect to derivativefeatures that are credit-risk related. SFAS No. 161 is effective for the Company beginning January 1,2009 on a prospective basis.  The Companydoes not expect this standard to have a material impact on our consolidatedresults of operations or financial condition.

 

**3. RECAPITALIZATION AND OTHER ACQUISITIONS**

 

On January 9, 2007, the Company was acquired byParent, a newly formed investment entity controlled by the Olympus Funds.  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 the Companyand private offerings of debt and equity securities by Parent.  The Transaction has been accounted for as arecapitalization in the Company’s consolidated financial statements, with noadjustments to the historical basis of the Company’s assets and liabilities.

 

In conjunction with the Transaction, the Companyentered into a new senior credit facility (the “New Senior Credit Facility”),with Credit Suisse, Cayman Islands Branch, which provided for (i) a seniorsecured first lien term loan facility in an aggregate principal amount of$150.0 million (the “First Lien Term Facility”) and (ii) a senior securedfirst lien revolving credit facility in an aggregate principal amount up to$25.0 million, subject to certain conditions (the “Revolving Facility” and,together with the First Lien Term Facility, the “First Lien Facilities”), ofwhich $10.0 million is available through a subfacility in the form of lettersof credit.

 

Inconjunction with the Transaction, the Parent entered into Note PurchaseAgreements with OCM Mezzanine Fund II, L.P. and Olympus Growth Fund IV,L.P.  The Note Purchase Agreement withOCM Mezzanine Fund II, L.P. consisted of $43.0 million senior payment-in-kind notes with no required principalamortization.  The Note PurchaseAgreement with Olympus Growth Fund IV, L.P. consisted of $43.0 million juniorpayment-in-kind notes with no required principal amortization.  These notes (the “Parent Notes”) arescheduled 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 the ParentNotes.  The Company is, however, subjectto a number of restrictive covenants under the Note Purchase Agreements.  The Company was in compliance with therestrictive covenants at September 30, 2008.  In addition, the Company is limited in itsability to pay dividends or otherwise make distributions to Parent under theNew Senior Credit Facility and the indenture governing the 10% Senior Notes due2012 (the “Senior Notes”).  The ParentNotes are not reflected in the Company’s consolidated balance sheet due to thesignificance of the public debt holders’ influence on the Company’s ability tocontrol the form of ownership.  Effectiveas of June 13, 2007, the Parent issued an additional $20.0 million ofParent Notes to Olympus Growth Fund IV, L.P., and repurchased $20.0 million ofParent Notes from OCM Mezzanine Fund II, L.P. During the nine month period ended September 30, 2008, the Companydistributed $4.5 million to the Parent for payment on the Parent Notes.  This distribution to the Parent was recordedas a reduction in retained earnings.

 

Inconjunction with the Transaction, Parent issued equity securities ofapproximately $86.2 million (including rollover equity from management) to fundthe equity necessary for the acquisition, consisting of $81.0 million ofpreferred equity securities and $5.2 million of common equity securities.  Preferred dividends accrue and accumulate onthe outstanding preferred equity securities at the rate of 10% per annum,compounding quarterly, on the sum of its liquidation value per share ($1,000)plus all accumulated and unpaid dividends thereon.  Dividends are payable as and when declared byParent’s board of directors out of funds legally available for the payment ofdividends.  Such dividends accrue,whether or not they have been declared and whether or not there are profits,surplus or other funds of Parent legally available for the payment ofdividends, until such time as such dividends are actually paid by Parent.  The holders of a majority of the outstandingpreferred equity securities at any time and from time to time may demand thatParent redeem all or any portion of the outstanding preferred equity securitiesby delivering to the holder(s) thereof (i) an amount of cash pershare equal to the sum of its liquidation value per share ($1,000) plus allaccumulated and unpaid dividends thereon and (ii) a number 

 

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of shares of Parent’s common equity securities as determined inaccordance with the redemption procedures contained in Parent’s certificate ofincorporation.  If Parent does not havefunds legally available for any particular redemption, Parent is obligated touse 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 thethree-month period ended March 31, 2008. As of September 30, 2008, $0.5 million is included in Other CurrentLiabilities and $2.3 million is included in Other Long-Term Liabilities underthis agreement.

 

TheCompany recorded expenses of $9.9 million in the three months ended March 31,2007 related to the Transaction.  Theseexpenses comprised $1.0 million of compensation expense related to acceleratedvesting of stock options, $0.2 million of employer related payroll taxes forthe accelerated vesting of stock options, $1.3 million of transaction incentiveexpenses, $7.0 million of transaction costs and $0.4 million of deferredfinancing costs related to refinanced indebtedness.  In addition to these amounts, the Companycapitalized $4.0 million of transaction costs into goodwill related to theaccelerated earn-out, and $3.6 million of deferred financing costs relating tothe New Senior Credit Facility.  Parentmade a capital contribution of $21.7 million to the Company in connection withthese transaction costs.

 

OnJuly 28, 2005, the Company acquired substantially all of the assets of amoldings manufacturing company operating under the name of DMI.  The Company paid a cash purchase price atclosing of $9.3 million, of which one-half was funded by the sale ofshares of the Company’s voting common stock to the Company’s formerstockholders, and the remainder with operating cash and a draw down on theCompany’s then-existing senior secured credit facility.  In addition, the Company was required to payup to an aggregate of $7.0 million if certain earnings targets are met at theend of each calendar year from 2005 to 2010, which may be accelerated uponcertain events.  The Company paid $2.0million of the earn-out consideration in the first quarter 2006.  As a result of the change in control causedby the Transaction, the remaining $5.0 million potential earn-out obligationwas accelerated and paid on January 9, 2007.  As a result of the additional earn-outconsideration paid, the total purchase price, including earn-out oracceleration obligations, resulted in goodwill of $5.1 million due to thepurchase price in excess of the net assets acquired.  The acquired assets of DMI are now operatedand owned by Woodcraft Industries, Inc., the Company’s subsidiary.

 

**4. FINANCING ARRANGEMENTS**

 

TheCompany has outstanding 10% Senior Notes due in 2012.  During the three months ended March 31,2008, 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.

 

In conjunction with the Transaction on January 9,2007, the Company entered into the New Senior Credit Facility with CreditSuisse, Cayman Islands Branch, which provided for (i) the First Lien TermFacility in an aggregate principal amount of $150.0 million and (ii) theRevolving Facility in an aggregate principal amount up to $25.0 million,subject to certain conditions, of which $10.0 million is available through asubfacility in the form of letters of credit. Subject to certain conditions, the First Lien Term Facility may beincreased by up to $30.0 million during the life of the First Lien TermFacility at the request of the Company with the consent from those lenders thatagree to participate in such increase. Subject to the foregoing, effective as of April 30, 2007, noadditional borrowings are available under the First Lien Term Facility beyondthe $9.8 million outstanding at March 31, 2007.  As of September 30, 2008, the maximumamount of borrowings available to the Company under the Revolving Facility was$12.5 million.  As of September 30,2008, borrowings of $3.8 million were outstanding under the First Lien TermFacility and nothing was outstanding under the Revolving Facility.  As of September 30, 2008, theoutstanding principal of such indebtedness bears interest at a fluctuating rateequal to either the base rate plus 2.75% per annum or LIBOR plus 3.75% per annum (effective rate of 7.45% at September 30,2008).  We must comply with certainfinancial covenants under our New Senior Credit Facility, including maintenanceof an interest coverage ratio, a senior leverage ratio and a total leverageratio.  We were in compliance with suchcovenants as of September 30, 2008.  The New Senior Credit Facility iscollateralized by substantially all assets of the Company and is scheduled tomature in January 2013.

 

OurNew Senior Credit Facility and the indenture for the Senior Notes imposecertain restrictions on our ability to incur indebtedness, pay dividends, makeinvestments, grant liens, sell our assets and engage in certain otheractivities.  Indebtedness for borrowedmoney incurred under our New Senior Credit Facility is secured by substantiallyall of our assets, including our real and personal property, inventory,accounts receivable, intellectual property and other intangibles.

 

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Eachof the Company’s subsidiaries, which are all 100% owned subsidiaries of theCompany, have fully and unconditionally guaranteed the senior notes on a jointand several basis. The Company has no assets or operations independent of itssubsidiaries.  As a result, the Company has not presented separatefinancial statements of the subsidiary guarantors.  The subsidiaryguarantors are generally not restricted in their ability to dividend orotherwise distribute funds to the Company except for restrictions imposed underapplicable state corporate law.  The Company is limited in its ability topay dividends or otherwise make other distributions to Parent under the NewSenior Credit Facility and the indenture governing the 10% Senior Notes. Specifically, the New Senior Credit Facility prohibits the Company frommaking any distributions to Parent except for limited purposes, including, butnot limited to: (i) prior to March 31, 2009, the Company may pay cashdividends and distributions to Parent to enable Parent to make cash interestpayments on the acquisition loan, provided that (x) after givingpro forma effect to such dividend or distribution, the Consolidated First LienLeverage Ratio does not exceed 1.0 to 1.0, and (y) the amount of suchdividends and distributions shall not exceed $3,225,000 in any calendarquarter, (ii) customary and reasonable out-of-pocket expenses, legal andaccounting fees and expenses and overhead of Parent incurred in the ordinarycourse of business to the extent attributable to the business of the Companyand its subsidiaries and in the aggregate not to exceed $500,000 in any fiscalyear, and (iii) the Company may pay management fees of Parent not toexceed $750,000 in any fiscal year so long as no default has occurred. The indenture provides that the Company can generally pay dividends andmake other distributions to Parent in an amount not to exceed (i) 50% of theCompany’s consolidated net income for the period beginning April 1, 2004and ending as of the end of the last fiscal quarter before the proposed payment,plus (ii) 100% of the net cash proceeds received by the Company from theissuance and sale of capital stock, plus (iii) the net return of certaininvestments, provided that certain conditions are satisfied, including that theCompany has a Consolidated Coverage Ratio of greater than 2.0 to 1.

 

**5. RELATED-PARTY TRANSACTIONS**

 

TheCompany has noncompete agreements with the former owners of Grand Valley andDimension Moldings, Inc.

 

Parenthas a management services agreement with Olympus Advisory Partners, anaffiliate of the Parent’s largest stockholder. Parent is obligated to pay a transaction fee to the affiliate forservices provided for each financing, refinancing, acquisition, or similarnonrecurring transaction.  The affiliatewill be paid $0.6 million annually by Parent for ongoing services provided tothe Parent and Company.  The Company paida total of $435,000 and $400,000 to the Parent for these services during thenine-month periods ended September 30, 2008 and 2007, respectively; andthe Company paid a total of $135,000 and $150,000 to the Parent for theseservices during each of the three-month periods ended September 30, 2008and 2007, respectively.

 

TheCompany and its Parent file a consolidated federal income tax return, andfederal income taxes are allocated to the Company based upon the respectivetaxable earnings or loss.  The Companyrecords income tax liabilities as an amount due to Parent.   As of September 30, 2008 and December 31,2007, the Company included a total of $6.1 million and $4.1 million,respectively as an amount due to Parent for these income tax liabilities.

 

**6. BUSINESS SEGMENTS**

 

TheCompany conducts 94% of its business within one reportable market segment: thewood kitchen and bath products segment. The Company has two primary product categories: hardwood products andengineered wood products.  Hardwoodproducts produce a comprehensive line of hardwood doors and components.  Engineered wood products includes rigidthermofoil doors and components, veneer raised panels, and wrapped profiles.

 

TheCompany’s sales by product category are as follows (in thousands):

 
| ** **               | ** ** | **Nine Months Ended  September 30,** | ** ** | **Three Months Ended  September 30,** | ** ** |
|--------------------------|------------|-----------------------------------------------------|------------|------------------------------------------------------|------------|
| ** **               | ** ** | **2008**                                            | ** ** | **2007**                                             | ** ** | **2008** | ** ** | **2007** | ** ** |
| Hardwood products        |       | $                                                   | 130,426    |                                                 | $          | 162,332 |   | $ | 38,337 |   | $ | 54,984 |   |
| Engineered wood products |       | 28,684                                              |       | 31,408                                               |       | 8,649 |   | 9,974 |   |
| Total                    |       | $                                                   | 159,110    |                                                 | $          | 193,740 |   | $ | 46,986 |   | $ | 64,958 |   |

 

Substantially all sales aremade within North America.

 

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**Item 2. Management’s Discussion and Analysis of Financial Condition andResults of Operations**

 

Asused in this Management’s Discussion and Analysis of Financial Condition andResults of Operations and elsewhere in this Quarterly Report on Form 10-Q,the terms “we,” “us” or “our” refer to WII Components, Inc. and itsconsolidated subsidiaries and their respective predecessors.

 

**Forward-Looking Statements**

 

Certainstatements in this report are “forward-looking statements” within the meaningof the Private Securities Litigation Reform Act of 1995.  Statements that are predictive in nature,that depend upon or refer to future events or conditions or that include wordssuch as “believe,” “anticipate,” “expect,” “estimate,” “may,” “will,” “should,”“continue,” “plans,” “intends,” “likely” or other similar expressions areforward-looking statements.  We cautionyou that forward-looking statements involve unknown risks, uncertainties andother 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 thisReport on Form 10-Q.

 

Withoutlimiting the generality of the preceding statement, all statements in thisreport providing estimates and projections concerning or relating to thefollowing 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.

 

Inaddition, we, through our senior management, from time to time makeforward-looking public statements concerning our expected future operations andperformance and other developments.  Suchforward-looking statements are necessarily estimates reflecting our judgmentbased upon current information and involve a number of risks anduncertainties.  There can be no assurancethat other factors will not affect the accuracy of these forward-lookingstatements or that our actual results will not differ materially from theresults anticipated in such forward-looking statements.  Although we believe that theseforward-looking statements are based on reasonable assumptions, you should beaware that many factors could affect our actual financial results or results ofoperations and could cause actual results to differ materially from thoseexpressed 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 foradditional manufacturing 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;

 

·                  the highly competitivenature of our industry; and

 

·                  increases in the cost oflabor.

 

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**Overview**

 

We believethat we are one of the leading manufacturers of hardwood doors, hardwoodcomponents and engineered wood products for the kitchen and bath cabinet marketin the United States.  Our productsinclude (1) hardwood cabinet door components, face frames and drawer fronts,(2) fully assembled hardwood cabinet doors, (3) rigid thermofoil, orRTF, cabinet doors and components, (4) veneer raised panels, or VRPs, and (5) avariety of laminated and profile-wrapped components.  We generate approximately 94% of our salesfrom 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 twelvemanufacturing facilities located in Minnesota, North Dakota, Oregon, Ohio,Kansas, Pennsylvania, Utah, North Carolina, and Kentucky that allow us todistribute our products nationwide.

 

In the past ten years, we have consummatedfour strategic acquisitions that have enhanced our market position, productbreadth and geographic reach.  In June 1998,we acquired PrimeWood, a manufacturer of RTF, VRP and profile-wrapped engineeredwood products based in North Dakota.  In July 2002,we acquired Brentwood, a manufacturer of solid wood and RTF cabinet doorslocated in Oregon.  In April 2004,we acquired 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), whichwas in the business of manufacturing hardwood component moldings at a facilitylocated in Middlefield, Ohio.  Followingthe acquisition, our Woodcraft subsidiary manufactures hardwood componentmoldings at the Middlefield facility.

 

On January 9,2007, WII Components, Inc.(the “Company”) was acquired by WII Holding, Inc. (“Parent”), a newlyformed investment entity controlled by investment funds managed by OlympusPartners.  For ease of reference, thesefunds are sometimes collectively referred to herein as the “Olympus Funds.”  The acquisition was consummated through amerger of WII Merger Corporation (“MergerCo”), a wholly owned subsidiary ofParent, with and into the Company with the Company being the survivingcorporation 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,we continued to experience a slowdown in net sales for the three months andnine months ended September 30, 2008 that began in the second half of2006.  This slowdown is industry-wide inthe kitchen and bath industry and had a negative impact on our gross profit andoperating income margin percentages due to fixed costs becoming a higherpercentage of sales.   In addition, wehave continued to see decreases in the price we pay for hardwood materials,which ultimately are passed on to our customers through lower selling prices inaccordance with indexing agreements generally within 3 to 6 months.  While the prices we pay for hardwoodmaterials have continued to decline, the decline has slowed in 2008 versus2007, which has resulted in modest declines on our gross profit and operatingincome margin percentages due to the lag of material cost adjustments from 2007affecting 2008 selling prices.

 

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***Three Months Ended September 30, 2008Compared to the Three Months Ended September 30, 2007***

 

Thefollowing table includes, for the three months ended September 30, 2008and 2007, selected operating data derived from our condensed consolidatedstatements of earnings and presents this information as a percentage of netsales:

 
| ** **               | ** ** | **WII Components, Inc.**                         | ** ** |
|--------------------------|------------|------------------------------------------------------------|------------|
| ** **               | ** ** | **Three Months  Ended  September 30, 2008** | ** ** | **Three Months  Ended  September 30, 2007** | ** ** |
| ** **               | ** ** | **(dollars in thousands)**                       | ** ** |
| Net sales                |       | $                                                          | 46,986     |   | $ | 64,958 |   |
| *% of net sales*         | * *   | *100.0*                                                    | *%*        | *100.0* | *%* |
| Cost of sales            |       | 40,396                                                     |       | 54,324 |   |
| *% of net sales*         | * *   | *86.0*                                                     | *%*        | *83.6* | *%* |
| * *                 | * *   | * *                                                   | * *   | * * | * * |
| Gross profit             |       | 6,590                                                      |       | 10,634 |   |
| *% of net sales*         | * *   | *14.0*                                                     | *%*        | *16.4* | *%* |
| Operating expenses       |       | 3,086                                                      |       | 3,750 |   |
| *% of net sales*         | * *   | *6.6*                                                      | *%*        | *5.8* | *%* |
| * *                 | * *   | * *                                                   | * *   | * * | * * |
| Operating income         |       | 3,504                                                      |       | 6,884 |   |
| *% of net sales*         | * *   | *7.4*                                                      | *%*        | *10.6* | *%* |
| Other expenses (income): |       |                                                       |       |   |   |
| Interest expense         |       | 3,246                                                      |       | 3,821 |   |
| *% of net sales*         | * *   | *6.9*                                                      | *%*        | *5.9* | *%* |
| Other income, net        |       | (17                                                        | )          | (148 | ) |
| *% of net sales*         | * *   | *-0.0*                                                     | *%*        | *-0.2* | *%* |
| Income tax provision     |       | 130                                                        |       | 1,568 |   |
| *% of net sales*         | * *   | *0.3*                                                      | *%*        | *2.4* | *%* |
| * *                 | * *   | * *                                                   | * *   | * * | * * |
| Net earnings             |       | 145                                                        |       | 1,643 |   |
| *% of net sales*         | * *   | *0.3*                                                      | *%*        | *2.5* | *%* |
|                          |            |                                                            |            |  |  |  |  |

 

*Net sales.*  Net sales decreased $17.9million, or 27.6%, from $64.9 million for the three months ended September 30,2007 to $47.0 million for the three months ended September 30, 2008.  Sales in our hardwood and engineered woodproduct line decreased $16.6 million and $1.3 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 approximatety 4% decline in our overall selling prices mainlydue to lower hardwood material costs.  Wehave indexing agreements with a majority of our customers, whereby sellingprices to customers are increased or decreased as our material costs increaseor decrease.

 

*Cost of sales.*  Cost of sales decreased$13.9 million, or 25.6%, from $54.3 million for the three monthsended September 30, 2007 to $40.4 million for the three months ended September 30,2008.  This decrease in cost of sales isprimarily attributable to lower material, labor and overhead costs as a resultof lower volume of sales.

 

*Gross profit.*  Gross profit decreased$4.0 million, or 37.7%, from $10.6 million for the three months ended September 30,2007 to $6.6 million for the same period in 2008.  As a percentage of net sales, our grossprofit decreased 240 basis points from 16.4% for the three months ended September 30,2007 to 14.0% for the same period in 2008. This decrease is related to spreading fixed costs over lower salesvolume and lower selling prices in 2008 mainly dueto material cost decreases that have occurred over the past year.   This decrease was partially offset by lowerhardwood material costs in 2008 versus 2007.

 

*Operating expenses.*  Operating expenses decreased$0.6 million, or 16.2%, from $3.7 million for the three months ended September 30,2007 to $3.1 million for the same period in 2008.  The decrease primarily consists of (i) $0.2million of lower incentive compensation expense, (ii) $0.2 million oflower salaries due to eliminated positions in 2008, and (iii) $0.1 millionof lower professional fees in 2008.

 

*Operating income.*  Operating income decreased by$3.4 million, or 49.3%, from $6.9 million for the three months ended September 30,2007 to $3.5 million for the three months ended September 30, 2008 asa result of the net effect of the factors described above.

 

*Interest expense.*  Interest expense decreased$0.6 million, or 15.8%, from $3.8 million for the three months ended September 30,2007 to $3.2 million for the three months ended September 30,2008.  This decrease relates to (i) $0.2million in lower amortized deferred financing fees in 2008, and (ii) lowerinterest expense in 2008 due to lower debt balances for the Senior Notes,mainly due to the $11.5 million principal reduction during the three monthsended March 31, 2008, and the First Lien Term Facility.

 

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*Other income.*  Other income was $149,000 and$18,000 for the three months ended September 30, 2007 and September 30,2008, respectively.  This income mainly representsinterest received from our interest bearing accounts.

 

*Income tax provision. *Income taxprovision decreased $1.5 million, from an income tax expense of $1.6 millionfor the three months ended September 30, 2007 to $0.1 million for thethree months ended September 30, 2008 due to decreased earnings in2008.  The effective tax rate decreasedfrom 48.8% in 2007 to 47.3% in 2008 due to the impact of permanent differencesassociated with the Transaction in 2007.

 

*Net earnings.*  Net earnings decreased$1.5 million from a net income of $1.6 million for the three monthsended September 30, 2007 to $0.1 million for the three months ended September 30,2008 as a result of the factors described above.

 

***Nine Months Ended September 30, 2008Compared to the Nine Months Ended September 30, 2007***

 

Thefollowing table includes, for the nine months ended September 30, 2008 andfor the nine months ended September 30, 2007, selected operating dataderived from our condensed consolidated statements of operations and presentsthis information as a percentage of net sales:

 
| ** **               | ** ** | **WII Components, Inc.**                            | ** ** |
|--------------------------|------------|---------------------------------------------------------------|------------|
| ** **               | ** ** | **Nine Months Ended  September 30, 2008** | ** ** | **Nine Months Ended  September 30, 2007** | ** ** |
| ** **               | ** ** | **(dollars in thousands)**                          | ** ** |
| Net sales                |       | $                                                             | 159,110    |   | $ | 193,740 |   |
| *% of net sales*         | * *   | *100.0*                                                       | *%*        | *100.0* | *%* |
| Cost of sales            |       | 135,302                                                       |       | 158,686 |   |
| *% of net sales*         | * *   | *85.0*                                                        | *%*        | *81.9* | *%* |
| * *                 | * *   | * *                                                      | * *   | * * | * * |
| Gross profit             |       | 23,808                                                        |       | 35,054 |   |
| *% of net sales*         | * *   | *15.0*                                                        | *%*        | *18.1* | *%* |
| Operating expenses       |       | 10,011                                                        |       | 21,129 |   |
| *% of net sales*         | * *   | *6.3*                                                         | *%*        | *10.9* | *%* |
| * *                 | * *   | * *                                                      | * *   | * * | * * |
| Operating income         |       | 13,797                                                        |       | 13,925 |   |
| *% of net sales*         | * *   | *8.7*                                                         | *%*        | *7.2* | *%* |
| Other expenses (income): |       |                                                          |       |   |   |
| Interest expense         |       | 9,843                                                         |       | 11,677 |   |
| *% of net sales*         | * *   | *6.2*                                                         | *%*        | *6.0* | *%* |
| Other income, net        |       | (1,848                                                        | )          | (296 | ) |
| *% of net sales*         | * *   | *-1.2*                                                        | *%*        | *-0.2* | *%* |
| Income tax provision     |       | 2,341                                                         |       | 1,261 |   |
| *% of net sales*         | * *   | *1.5*                                                         | *%*        | *0.7* | *%* |
| * *                 | * *   | * *                                                      | * *   | * * | * * |
| Net earnings             |       | 3,461                                                         |       | 1,283 |   |
| *% of net sales*         | * *   | *2.2*                                                         | *%*        | *0.7* | *%* |
|                          |            |                                                               |            |  |  |  |  |

 

*Net sales.*  Net sales decreased$34.6 million, or 17.9%, from $193.7 million for the nine monthsended September 30, 2007 to $159.1 million for the nine months ended September 30,2008.  Sales in our hardwood andengineered wood product line decreased $31.9 million and $2.7 million,respectively.  These decreases are mainly attributable to anoverall slowdown in the market that began in the second half of 2006, and,  to a lesser extent, an approximatety 4%decline in our overall selling prices mainly due to lower hardwood materialcosts.  We have indexing agreements witha majority of our customers, whereby selling prices to customers are increasedor decreased as our material costs increase or decrease.

 

*Cost of sales.*  Cost of sales decreased$23.4 million, or 14.7%, from $158.7 million for the nine monthsended September 30, 2007 to $135.3 million for the nine months ended September 30,2008.  This decrease in cost of sales is primarily attributable to lowermaterial, labor and overhead costs as a result of lower volume of sales.

 

*Gross profit.*  Gross profit decreased $11.*2* million, or 32.0%, from$35.0 million for the nine months ended September 30, 2007 to$23.8 million for the same period in 2008. As a percentage of net sales, our gross profit decreased 310 basispoints from 18.1% for the nine months ended September 30, 2007 to 15.0%for the same period in 2008.  This decrease is related to (i) spreadingfixed costs over lower sales volume and lower selling pricesin 2008 mainly due to material cost decreases that have occurred over the pastyear.   This decrease was partiallyoffset by lower hardwood material costs in 2008 versus 2007.

 

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*Operatingexpenses.*  Operating expenses decreased$11.1 million, or 52.6%, from $21.1 million for the nine months endedSeptember 30, 2007 to $10.0 million for the same period in 2008.  The decrease consists of approximately; (i) $7.2 million of transactionexpenses in 2007 related to the Transaction, (ii) $0.5 million in 2007related to efforts to refinance a portion of the outstanding debt, (iii) $1.0million of transaction incentives incurred in 2007 in connection with theTransaction, (iv) $1.2 million related to lower stock compensation expenseand lower salaries due to eliminated positions in 2008, (v) $0.4 millionof lower professional fees, and (vi) $0.6 million of lower incentivecompensation expense.

 

*Operating income.*  Operating income decreased by$0.1 million, or 0.7%, from $13.9 million for the nine months ended September 30,2007 to $13.8 million for the nine months ended September 30, 2008 asa result of the net effect of the factors described above.

 

*Interest expense.*  Interest expense decreased$1.9 million, or 16.2%, from $11.7 million for the nine months ended September 30,2007 to $9.8 million for the nine months ended September 30,2008.  This decrease relates to (i) $0.8 million in lower deferredfinancing fees in 2008, and (ii) lower interest expense in 2008 due tolower debt balances for the Senior Notes, mainly due to the $11.5 millionprincipal reduction during the three months ended March 31, 2008, and theFirst Lien Term Facility.

 

*Other income.*  Other income increased $1.5million, from $0.3 million for the nine months ended September 30, 2007 to$1.8 million for the nine months ended September 30, 2008.  Thisincome represents interest received from our interest bearing accounts and 2008also includes $1.7 million for gain on the extinguishment of debt.

 

*Income tax provision.*  Incometax expense increased $1.0 million from an income tax provision of $1.3 for thenine months ended September 30, 2007 to an income tax provision of $2.3million for the nine months ended September 30, 2008 as a result of higherearnings.  The effective tax ratedecreased from 49.6% in 2007 to 40.3% in 2008 due to permanent differences associated with the Transaction.

 

*Net earnings.*  Net earnings increased$2.2 million from net earnings of $1.3 million for the nine monthsended September 30, 2007 to $3.5 million for the nine months ended September 30,2008 as a result of the factors described above.

 

**Liquidity and Capital Resources**

 

Ourprimary cash needs are working capital, capital expenditures and debtservice.  We have historically financed these cash requirements through internallygenerated cash flow and funds borrowed under our existing senior secured creditfacilities.

 

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

 

Eachof the Company’s subsidiaries, which are all 100% owned subsidiaries of the Company,have fully and unconditionally guaranteed the Senior Notes on a joint and several basis.  The Company has no assets or operationsindependent of its subsidiaries.  As aresult, the Company has not presented separate financial statements of the subsidiaryguarantors.

 

In conjunction with the Transaction on January 9,2007, the Company entered into the New Senior Credit Facility with CreditSuisse, Cayman Islands Branch, which provided for (i) the First Lien TermFacility in an aggregate principal amount of $150.0 million and (ii) theRevolving Facility in an aggregate principal amount up to $25.0 million,subject to certain conditions, of which $10.0 million is available through asubfacility in the form of letters of credit. Subject to certain conditions, the First Lien Term Facility may beincreased by up to $30.0 million during the life of the First Lien TermFacility at the request of the Company with the consent from those lenders whoagree to participate in such increase. Subject to the foregoing, effective as of April 30, 2007, noadditional borrowings are available under the First Lien Term Facility beyondthe $9.8 million outstanding at March 31, 2007.  As of September 30, 2008, the maximumamount of borrowings available to the Company under the Revolving Facility was$12.5 million.  As of September 30,2008, borrowings of $3.8 million were outstanding under the First Lien TermFacility and nothing was outstanding under the Revolving Facility.  As of September 30, 2008, theoutstanding principal of such indebtedness bears interest at a fluctuating rateequal to either the base rate plus 2.75% per annum or LIBOR plus 3.75% per annum (effective rate of 7.45%at September 30, 2008).  We mustcomply with certain financial covenants under our New Senior Credit Facility,including maintenance of an interest coverage ratio, a senior leverage ratioand a total leverage ratio.  We were incompliance with such covenants as of September 30, 2008.  Indebtednessfor borrowed money incurred under our New Senior Credit Facility is secured bysubstantially all of our assets, including our real and personal property,inventory, accounts receivable, intellectual property and other intangibles andis scheduled to mature in January 2013.

 

Asof September 30, 2008, the weighted average interest rate for the Company’soutstanding debt was 9.9%.

 

OurNew Senior Credit Facility and the indenture for the Senior Notes imposecertain restrictions on our ability to incur indebtedness, pay dividends, makeinvestments, grant liens, sell our assets and engage in certain otheractivities.

 

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Thesubsidiary guarantors are generally not restricted in their ability to dividendor otherwise distribute funds to the Company except for restrictions imposedunder applicable state corporate law.  The Company is limited in itsability to pay dividends or otherwise make other distributions to Parent underthe New Senior Credit Facility and the indenture governing the 10% SeniorNotes.  Specifically, the New Senior Credit Facility prohibits the Companyfrom making any distributions to Parent except for limited purposes, including,but not limited to: (i) prior to March 31, 2009, the Company may paycash dividends and distributions to Parent to enable Parent to make cashinterest payments on the acquisition loan, provided that (x) aftergiving pro forma effect to such dividend or distribution, the ConsolidatedFirst Lien Leverage Ratio does not exceed 1.0 to 1.0, and (y) the amountof such dividends and distributions shall not exceed $3,225,000 in any calendarquarter, (ii) customary and reasonable out-of-pocket expenses, legal andaccounting fees and expenses and overhead of Parent incurred in the ordinarycourse of business to the extent attributable to the business of the Companyand its subsidiaries and in the aggregate not to exceed $500,000 in any fiscalyear, and (iii) the Company may pay management fees of Parent not toexceed $750,000 in any fiscal year so long as no default has occurred. The indenture provides that the Company can generally pay dividends andmake other distributions to Parent in an amount not to exceed (i) 50% ofthe Company’s consolidated net income for the period beginning April 1,2004 and ending as of the end of the last fiscal quarter before the proposedpayment, plus (ii) 100% of the net cash proceeds received by the Company fromthe issuance and sale of capital stock, plus (iii) the net return of certaininvestments, provided that certain conditions are satisfied, including that theCompany has a Consolidated Coverage Ratio of greater than 2.0 to 1.

 

As of September 30,2008 and December 31, 2007, we had capital lease obligations of $0.3million and $0.5 million, respectively, all of which was classified as current.

 

As of September 30,2008, we had $5.2 million of cash and cash equivalents available for anycorporate purposes, compared to $19.6 million as of December 31, 2007.  Cash and cash equivalents as of December 31,2007 included approximately $6.2 million related to income tax refunds due toprevious stockholders of the Company, which is included in Other CurrentLiabilities on the Balance Sheet as of December 31, 2007, and paid duringthe three months ended March 31, 2008.

 

*Cash flowfrom operating activities.*  Cash provided by operatingactivities was $4.0 million for the nine months ended September 30, 2008,while cash provided by operating activities for the nine months ended September 30,2007 was $2.2 million.  The increase incash provided by operating activities is mainly attributable higher netearnings and decreased accounts receivable in 2008 versus 2007.  This was offset partially by the payment of$6.2 million for income tax refunds that were due to previous stockholders ofthe Company related to deductible transaction costs.   Days of receivables outstanding and theaccounts receivables balance have not increased as of September 30, 2008versus December 31, 2007.

 

*Cash flowfrom investing activities.*  Net cash used in investingactivities was $3.3 million for the nine months ended September 30, 2008and $9.9 million for the nine months ended September 30, 2007.  Capital expenditures in the nine months endedSeptember 30, 2008 were $3.3 million compared to $5.9 million for thenine months ended September 30, 2007. The decrease in capital expenditures in 2008 is primarily due to lowercapital expenditures needed for capacity requirements.  Net cash used in investing activities for thenine months ended September 30, 2007 includes $4.0 million due to anaccelerated Dimension Moldings, Inc. earn-out payment in conjunction withthe Transaction.

 

*Cash flowfrom financing activities.*  Net cash used by financingactivities for the nine months ended September 30, 2008 totaled $15.1million primarily due to (i) the purchase and cancellation ofapproximately $11.5 million in principal amount of the Senior Notes at a net ofdiscount cost of $9.8 million, (ii) capital lease payments of $0.2million, (iii) principal payments on the New Senior Credit Facility 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.  Netcash provided by financing activities for the nine months ended September 30,2007 totaled $9.7 million primarily due to (i) capital contributions of$21.7 million that funded debt issuance costs of $3.6 million and stock optionpayments of $7.9 million, (ii) borrowings of long-term debt under the NewSenior Credit Facility of $10.2 million that funded the payoff of the 2005Senior Credit Facility of $7.5 million, (iii) capital lease payments of$0.3 million, (iv) principal payments on the New Senior Credit Facility of$1.1 million, and (v) a distribution on behalf of the Parent for costs inconjunction with the Transaction of $1.7 million.

 

For the nine month periodsended September 30, 2008 and September 30, 2007, our two largestcustomers accounted for approximately 51% of our net sales.  As of September 30, 2008 and December 31,2007, our two largest customers accounted for approximately 54% and 53%,respectively, of our consolidated accounts receivables balance.  The permanent loss of, or a significantdecrease in the level of purchases by, one or more of our major customers couldhave a material adverse effect on our results of operations and future cashflows.

 

We anticipate that the fundsgenerated by operations and funds available under the New 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.

 

We cannot provide assurancesthat our business will generate sufficient cash flow from operations, thatanticipated net sales growth and operating improvements will be realized orthat future borrowings will be available under our New Senior Credit Facilityin an amount sufficient to enable us to service our indebtedness, including theSenior Notes, or to fund our other liquidity needs.  In addition, we cannot provide assurancesthat we will be able to refinance any of our indebtedness, including our NewSenior Credit 

 

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Facilityand the Senior Notes, on commercially reasonable terms, if at all.  We derive a significant portion of ourrevenue as a result of demand for our products created by the building of newhomes, and repair and remodeling of existing homes.  During the second half of 2006, the homebuilding, and repair and remodeling industry experienced a slowdown as a resultof general economic conditions.  Thisslowdown has continued into 2008, and has had a negative impact on our resultsof operations for the nine months ended September 30, 2008.  If this slowdown were to continue or worsenover an extended period of time, it could have a material adverse effect on ourbusiness, financial condition or results of operations.

 

**Inflation**

 

Ourcost of sales is subject to inflationary pressures on labor costs, prices ofthe raw materials we use and various overhead costs.  We generally have been able over time tooffset the effects of inflation and price fluctuations through a combination ofsales price increases and operational efficiencies.

 

**Seasonality**

 

Oursales historically have been moderately seasonal, reflecting the temporary slowdown in consumer purchasing activity during the winter holiday season and thesummer months.

 

### **Critical Accounting Policies**

 

Inour Annual Report on Form 10-K for the year ended December 31, 2007,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 has recently commenced its information gathering process in preparationfor its annual goodwill impairment analysis which is completed as of December 31.  The Company believes there will not be agoodwill impairment however additional information and assessments remain to becompleted at this time.

 

**New Accounting Standards**

 

SeeNote 2 of the Condensed Consolidated Financial Statements for informationpertaining to recently adopted accounting standards or accounting standards tobe adopted in the future.

 

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

 

Weare subject to various market risks such as fluctuating lumber prices andinterest rates.

 

*Commodity price risk.* Hardwood lumber accounts for the largest portion of our material costs.  Our profitability is therefore affected bythe prices of lumber which may fluctuate based on a number of factors beyondour control, including, among others, changes in supply and demand, generaleconomic conditions, labor costs, competition and, in some cases, governmentregulation. Though we are not dependent on any single supplier for our rawmaterials, we have no long-term supply contracts and thus, are subject tochanges in the prices charged by our suppliers. The prices for the primary hardwood species we use in the production ofour hardwood doors and components are subject to some volatility.

 

*Interest rate risk.*  We are exposed to market riskrelating to changes in interest rates in respect of a portion of our long-termdebt and a portion of our capital leases. As of September 30, 2008, we had $3.8 million outstanding under theFirst Lien Term Facility, which bears interest at variable rates.  In addition, as of that date, we hadapproximately $0.3 million of capital leases that bear interest at variablerates.  We believe that a one percent(1%) increase in the interest rates currently in effect would not have amaterial adverse effect on our financial condition or results of operations.

 

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

 

(a)           Evaluation of disclosure controls andprocedures.

 

Asrequired by Rule 13a-15 under the Securities Exchange Act of 1934 (the “ExchangeAct”), we carried out an evaluation under the supervision and with theparticipation of our management, including our Chief Executive Officer andChief Financial Officer, of the effectiveness of our disclosure controls andprocedures as of September 30, 2008. For purposes of the foregoing, the term disclosure controls andprocedures means controls and other procedures of an issuer that are designedto ensure that information required to be disclosed by the issuer in thereports that it files or submits under the Exchange Act is recorded, processed,summarized and reported, within the time periods specified in the Commission’s rules andforms.  Disclosure controls andprocedures include, 

 

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withoutlimitation, controls and procedures designed to ensure that informationrequired to be disclosed by an issuer in the reports that it files or submitsunder the Exchange Act is accumulated and communicated to the issuer’smanagement, including its principal executive and principal financialsofficers, or persons performing similar functions, as appropriate to allowtimely decisions regarding required disclosure. Our disclosure controls and procedures are designed to provide us with areasonably level of assurance of achieving their objectives as outlined above.  Based upon that evaluation, our ChiefExecutive Officer and Chief Financial Officer have concluded that they believethat, as of September 30, 2008, our disclosure controls and procedureswere effective at a reasonable level of assurance.  In reaching this conclusion, the ChiefExecutive Officer and Chief Financial Officer noted that we failed to includein our Annual Report on Form 10-K for the year ended December 31,2007 a report by management on the Company’s internal control over financialreporting and the certifications contained in Exhibits 31.1 and 31.2 to thatAnnual Report and our Quarterly Report on Form 10-Q for the quarterlyperiod ended March 31, 2008 did not include the required certificationsrelating to the Company’s internal controls over financial reporting asrequired by applicable SEC regulations. We became aware of these reporting deficiencies subsequent to June 30,2008 and corrected our disclosure controls and procedures prior to September 30,2008 to correct these omissions and amended the appropriate reports.

 

(b)           Changes in internal controls overfinancial reporting.

 

Therewere no changes in our internal controls over financial reporting during ourthird fiscal quarter that have materially affected, or are reasonably likely tomaterially affect, our internal controls over financial reporting.

 

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**PART II—OTHER INFORMATION**

 

**Item 1. Legal Proceedings**

 

Nopending material legal proceedings.

 

**Item 1A. Risk Factors**

 

The Company has included in its Annual Report on Form 10-Kfor the year ended December 31, 2007, a description of certain risks anduncertainties that could affect the Company’s business, future performance orfinancial condition (the “Risk Factors”). The Risk Factors are hereby incorporated in Part II, Item IA ofthis Form 10-Q.  Investors shouldconsider the Risk Factors prior to making an investment decision with respectto the Company’s securities.

 

In addition, the following Risk Factor should beconsidered prior to making an investment decision with respect to the Company’ssecurities:

 

***If the current slowdown in thehome building, repair and remodeling industry continues for an extended periodof time, it could have a material adverse effect on the Company’s business,financial condition or results of operations. ***TheCompany derives a significant portion of its revenue as a result of the demandfor its products created by the building of new homes, and repair andremodeling of existing homes.  During thesecond half of 2006, the home building, repair and remodeling industryexperienced a slowdown as a result of general economic conditions.  This slowdown has continued into 2008, andhas had a negative impact on our results of operations for the nine monthsended September 30, 2008.  If thisslowdown were to continue or worsen over an extended period of time, it couldhave a material adverse effect on the Company’s business, financial conditionor results of operations.

 

***Current economicconditions and disruptions in the credit and financial markets could have anadverse effect on our business, financial condition and results ofoperations. ***Recently, the financial markets experienced aperiod of unprecedented turmoil, including the bankruptcy, restructuring orsale of certain financial institutions and the intervention of the U.S. federalgovernment. While the ultimate outcome of these events cannot be predicted,they may have a material adverse effect on our liquidity and financialcondition if our ability to borrow money from our existing lenders under our NewSenior Credit Facility to finance our operations were to be impaired. Thecrisis in the financial markets may also have a material adverse impact on theavailability and cost of credit in the future. Our ability to pay our debt orrefinance our obligations under our New Senior Credit Facility will depend onour future performance, which will be 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 of credit markets may have an adverseimpact on our customers’ ability to finance the purchase of our products or oursuppliers’ ability to provide us with raw materials, either of which couldadversely affect our business and results of operations.

 

**Item 2. Unregistered Sales of Equity Securities andUse of Proceeds**

 

None.

 

**Item 3. Defaults Upon Senior Securities**

 

None.

 

**Item 4. Submission of Matters to a Vote of SecurityHolders**

 

None.

 

**Item 5. Other Information**

 

### **None.**

 

### **Item 6. Exhibits**

 

31.1                         Certification of Vice President, Treasurerand Secretary of WII Components, Inc., pursuant to Rule 15d-14(a), asadopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002

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

32.1*                  Certification of Vice President, Treasurerand Secretary of WII Components, Inc., pursuant to 18 U.S.C. Section 1350,as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002

32.2*                  Certification of Chief Executive Officer ofWII Components, Inc., pursuant to 18 U.S.C. Section 1350, as adoptedpursuant to Section 906 of the Sarbanes-Oxley Act of 2002

 

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*Thiscertification shall not be deemed “filed” for purposes of Section 18 ofthe Securities Exchange Act of 1934, or otherwise subject to the liability ofthat section, nor shall it be deemed to be incorporated by reference into anyfiling under the Securities Act of 1933 or the Securities Exchange Act of 1934.

 

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**SIGNATURES**

 

Pursuantto the requirements of the Securities Exchange Act of 1934, the registrant hasduly caused this report to be signed on its behalf by the undersigned thereuntoduly authorized.

 

|                           |   | WII  COMPONENTS, INC. |
|--------------------------------|--------|-----------------------|
|                           |   |                  |
| Dated:  November 14, 2008 |   | By:                   |
|                           |   |                  | /s/  John Fitzpatrick |
|                           |   |                  | John  Fitzpatrick |
|                           |   |                  | President  and Chief Executive Officer |
|                           |   |                  | (Principal  Executive Officer) |
| Dated:  November 14, 2008 |   |                  |   |
|                           |   |                  | /s/  Dale B. Herbst |
|                           |   |                  | Dale  B. Herbst |
|                           |   |                  | Chief  Financial Officer, Treasurer and Secretary |
|                           |   |                  | (Principal  Financial and Accounting Officer) |

 

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