**UNITED STATESSECURITIES AND EXCHANGE COMMISSION**

**Washington, DC 20549**

 

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**FORM 10-K**

 

**FOR ANNUAL AND TRANSITION REPORTS**

**PURSUANT TO SECTIONS 13 OR 15(D) OF THE**

**SECURITIES EXCHANGE ACT OF 1934**

 

**(Mark One)**

** **

x         **ANNUALREPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGEACT OF 1934**

 

**For the fiscal year ended December 31,2007**

 

o          **TRANSITION REPORT PURSUANT TO SECTION 13OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 (NO FEEREQUIRED)**

 

**For the transition period from                            to**

 

**Commissionfile 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) (Zip Code)

 

**(320) 252-1503**

(Registrant’s telephone number, Including area code)

 

**Securitiesregistered pursuant to Section 12(b) of the Act: None**

**Securitiesregistered pursuant to Section 12(g) of the Act: None**

 

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 if the registrant is a well-known seasoned issuer, as defined in Rule 405of the Securities Act

 

Yes o  No x

 

Indicateby check mark if the registrant is not required to file reports pursuant to Section 13or Section 15(d) of the Act.

 

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:

 
| Large  Accelerated Filer o |   | Accelerated  Filer o |   | Non-Accelerated Filer x                   |   | Smaller  Reporting Company o |
|---------------------------------|--------|---------------------------|--------|------------------------------------------------|--------|-----------------------------------|
|                            |   |                      |   | (Do not check if a smaller  reporting company) |   |                              |

 

Indicateby check mark if disclosure of delinquent filers pursuant to Item 405 ofRegulation S-K is not contained herein, and will not be contained, to the bestof registrant’s knowledge, in definitive proxy or information statementsincorporated by reference in Part III of this Form 10-K or anyamendment to this Form 10-K. x

 

Indicateby check mark whether the registrant is a shell company (as defined in Rule 12b-2of the Exchange Act)  Yes o  No x

 

Theaggregate market value of the voting stock held by nonaffiliates of theregistrant as of June 30, 2007: not applicable.

 

As of March 17,2008, 100 shares of common stock of the registrant, $.01 par value per share,were issued and outstanding (all of which are owned by WII Holding, Inc.).

 

**DOCUMENTS INCORPORATED BY REFERENCE:   None.**

 

 

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**WIICOMPONENTS, INC.**

** **

**FORM 10-K**

**Year Ended December 31, 2007**

 

**INDEX**

 
| **PART I**                                                                                                             | ** ** |
|-----------------------------------------------------------------------------------------------------------------------------|------------|
|                                                                                                                        |       |
| Item 1.  Business                                                                                                           | 1          |
| Item  1A. Risk Factors                                                                                                      | 3          |
| Item 1B. Unresolved Staff Comments                                                                                          | 6          |
| Item 2.  Properties                                                                                                         | 6          |
| Item  3. Legal Proceedings                                                                                                  | 7          |
| Item 4. Submission of Matters to Vote of Security  Holders                                                                  | 7          |
|                                                                                                                        |       |
| **PART II**                                                                                                            | ** ** |
|                                                                                                                        |       |
| Item 5. Market  For Registrant’s Common Equity, Related Stockholder Matters and Issuer  Purchases of Equity Securities | 7          |
| Item  6. Selected Financial Data                                                                                            | 8          |
| Item 7. Management’s Discussion and Analysis of  Financial Condition and Results of Operations                         | 9          |
| Item 7A. Quantitative and Qualitative Disclosures  about Market Risk                                                        | 18         |
| Item 8. Financial Statements and Supplementary Data                                                                         | 19         |
| Item 9. Changes in and Disagreements With Accountants  on Accounting Financial Disclosure                                   | 38         |
| Item 9A. Controls and Procedures                                                                                            | 38         |
| Item  9B. Other Information                                                                                                 | 38         |
|                                                                                                                        |       |
| **PART III**                                                                                                           | ** ** |
|                                                                                                                        |       |
| Item 10. Directors, Executive Officers and Corporate  Governance                                                            | 38         |
| Item 11. Executive Compensation                                                                                             | 40         |
| Item 12. Security Ownership of Certain Beneficial  Owners and Management and Related Stockholder Matters                    | 47         |
| Item 13. Certain Relationships and Related Party  Transactions, and Director Independence                                   | 48         |
| Item 14. Principal Accountant Fees and Services                                                                             | 49         |
|                                                                                                                        |       |
| **PART IV**                                                                                                            | ** ** |
|                                                                                                                        |       |
| Item 15. Exhibits, Financial Statement Schedules                                                                            | 49         |
| Item 16.  Signatures                                                                                                        | 55         |

 

ACCESS TO REPORTS

 

Investors may obtainaccess free of charge to the WII Components, Inc. annual report on Form 10-K,quarterly reports on Form 10-Q, current reports on Form 8-K and otherreports by visiting the WII Components web site at www.wiicomponents.com.  These reports will be available as soon asreasonably practicable following electronic filing with, or furnishing to, theSecurities and Exchange Commission.

 

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*                Inthis report, the terms “WII Components,” “we,” “our” or “us” refer to WIIComponents, Inc. and its subsidiaries on a consolidated basis and theirrespective predecessors, unless otherwise indicated or the context otherwiserequires.  In April 2003, WIIComponents, Inc. was formed by a group of investors to acquire WoodcraftIndustries, Inc., or Woodcraft, and its subsidiaries, PrimeWood, Inc.,or PrimeWood, and Brentwood Acquisition Corp., or Brentwood.  On January 9, 2007, WII Components, Inc.became a wholly owned subsidiary of WII Holding, Inc., a newly formedinvestment entity controlled by Olympus Growth Fund IV, L.P. and OlympusExecutive Fund, L.P., each of which is an investment fund managed by OlympusPartners.  WII Components conducts all ofits operations through its direct subsidiary, Woodcraft, and its indirectsubsidiaries, PrimeWood, Brentwood and Grand Valley Acquisition, Inc., orGrand Valley.  Grand Valley was mergedwith and into Woodcraft Industries, Inc. on December 31, 2006.*

 

**PART I**

# **Item 1. Business**

# ** **

**Our Company**

 

                Webelieve we are one of the leading manufacturers of hardwood cabinet doors,hardwood components and engineered wood products in the United States.  We generate approximately 94% of our salesfrom the kitchen and bath cabinet manufacturing industry.  We believe our reputation for high qualityand reliable performance has enabled us to establish strong, long-standingrelationships with our customers, which include most of the top cabinetmanufacturers in the United States.  Ourcustomers, in turn, distribute their products through various sales channels,including specialty kitchen and bath cabinet dealers, home center retailers andhomebuilders.  We generated net sales ofapproximately $55.6 million for the three months ended December 31, 2007and approximately $249.3 million for the year ended December 31,2007.

 

                Webelieve that we have one of the broadest product offerings of doors and relatedcomponents for the kitchen and bath cabinet manufacturing industry.  Our products include: (1) hardwoodcabinet door components, face frames and drawer fronts, (2) fullyassembled hardwood cabinet doors, (3) rigid thermofoil, or RTF, cabinetdoors and components, (4) veneer raised panels, or VRPs, and (5) avariety of laminated and profile-wrapped components.  We produce over 100,000 SKUs for ourcustomers, representing a wide array of styles, sizes, designs and woodspecies.  In addition, we offer a varietyof value-added services for our customers, such as new product design and developmentand kitchen-at-a-time manufacturing, or KAT, a small batch production processthat enables us to deliver semi-custom doors and components on aquick-turnaround basis.

 

                Weoperate thirteen manufacturing facilities located in Minnesota, North Dakota,Ohio, Oregon, Pennsylvania, Kansas, North Carolina, Washington, Utah andKentucky that allow us to distribute our products nationwide.  In 2005, we acquired substantially all of theassets of Dimension Moldings, Inc., and as a result of the acquisition wecommenced operations at a second Ohio facility located in Middlefield,Ohio.  In 2005, we also acquired a roughmill facility in Greenville, Pennsylvania and commenced operations at amanufacturing facility in Lansing, Kansas. In 2007, we commenced operations at manufacturing facilities in WestJordan, Utah and Monroe, Washington.  Inthe first quarter 2008, we commenced operations at a manufacturing facility inConover, North Carolina.  We have madesubstantial capital investments to broaden the scope of our manufacturingoperations from rough milling through final production, which maximizes ouryield from raw materials and allows us to meet the short lead time requirementsof our customers.  Our technical knowledgeand expertise with respect to the entire production process enable us to meetthe specifications and delivery time demands of our customers for almost anystyle of cabinet doors or components with high quality standards at acompetitive cost.  We believe we offercustomers among the shortest lead times in the industry, an important criterionin our customers’ procurement decisions.

 

                Oursenior management team has an average of 17 years of industry experienceand 16 years with our Company.  OurPresident and Chief Executive Officer, John Fitzpatrick, has over 25 yearsof experience in managing manufacturing-based companies and has led our seniormanagement team since July 2000.

 

**Our History**

 

                Oursubsidiary, Woodcraft Industries, Inc., was founded in 1945 inSt. Cloud, Minnesota, and began as a manufacturer of millwork products,including store fixtures and shipping pallets. In 1968, through an acquisition and by utilizing our millwork expertise,we began manufacturing kitchen cabinet components.  In 1989, we entered the door assemblybusiness.  Over the past 35 years,through strategic acquisitions and expansion of our manufacturing capabilities,we have become a leading U.S. hardwood cabinet door and hardwood componentmanufacturer focused primarily on the kitchen and bath cabinet industry.  We acquired our PrimeWood subsidiary in 1998,our Brentwood subsidiary in 2002, our Grand Valley subsidiary in 2004, andsubstantially all of the assets of Dimension Moldings, Inc. in 2005.  On December 31, 2006, Grand Valley wasmerged with and

 

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into Woodcraft. WII Components, Inc. was incorporated in Delaware in April 2003,in connection with the acquisition of Woodcraft and its subsidiaries.

 

                On January 9,2007, WII Holding, Inc. (“Parent”), acquired all of the outstandingcapital stock of WII Components, Inc. through the merger of a newly formedwholly owned subsidiary of Parent with and into WII Components, Inc. (the “Transaction”).  Parent is a newly formed investment entitycontrolled by Olympus Growth Fund IV, L.P.**and Olympus Executive Fund, L.P., each of which is an investment fundmanaged by Olympus Partners, a private equity firm headquartered in Stamford, Connecticut.

 

**Customers**

 

**               **We have beenservicing our top ten customers for an average of approximately 17 years,with a minimum of four years.  In 2007,sales to Masco Corporation and Elkay accounted for 36% and 18%, respectively,of our net sales.  No other customeraccounted for more than 10% of our sales in 2007.  We have experienced significant volume growthin the past five years with most of our top ten customers due to both marketshare gains and growth experienced by our customers.

 

**Sales and Marketing**

 

                Substantiallyall of our sales are made directly to cabinet manufacturers without the use ofthird party sales representatives or distributors.  Our sales and marketing group is organizedprimarily by product and geography.  Thegroup includes a sales director for all product lines, a marketing director forhardwood products, a marketing director for engineered woods, and four accountmanagers.  Over the past few years, oursales and marketing efforts have been focused on strengthening relationshipswith our most important customers and introducing new products to targetedmarkets.  Due to our long-standingrelationships with our key customers, sales and marketing involvesrelationships at multiple levels with our customers.  Accordingly, our internal sales force worksclosely with our manufacturing and marketing personnel to develop new opportunitiesin our core kitchen and bath market, which accounted for approximately 94% ofour sales in 2007, as well as our other markets, including store fixtures.  In 2007, approximately 99.2% of our netrevenues resulted from sales in the United States, while the balance ofapproximately 0.8% resulted from sales in Canada & Mexico.

 

                Wedo not rely on imported product components for any significant portion of ourbusiness.  However, we do purchaseimported components for use in our domestic manufacturing process and fordirect sale to our customers.  In 2007,our sales of imported products accounted for less than 1% of our total sales.

 

**Supply of Raw Materials**

 

                Theprimary raw materials we purchase are green, kiln-dried, and semi-processedhardwood lumber, MDF, hardwood veneer and PVC foil.  Hardwood lumber accounts for the largestportion of our material costs.  Wepurchase our lumber directly from hardwood mills, which allows us to bothleverage our scale and avoid the costs associated with intermediaries.  We purchase from a network of over 50regional mills throughout the Northern and Appalachian hardwood forest areas inclose proximity to our manufacturing facilities.  No single supplier accounted for more than 8%of our material purchases in 2007, and we are not dependent on any singlesupplier for any raw material product. Our top ten suppliers accounted for approximately 39% of the key rawmaterials we purchased in 2007.

 

                Wepurchase a variety of species of hardwood lumber, with hard maple, red oak andcherry accounting for our largest volumes. The prices of the various species have fluctuated historically onindependent supply and demand curves and are not highly correlated to oneanother.  Generally, with a lag time, wehave passed lumber price changes through to our customers by working in apartnership with them.

 

**Competition**

 

                Weoperate in the highly competitive kitchen and bath cabinet door and componentindustry.  Our competitors include otherindependent kitchen and bath cabinet door and component manufacturers andvertically integrated cabinet manufacturers who produce their own doors andcomponents.  We estimate that the cabinetdoor and component market segment in which we compete represented approximately$2.1 billion of the overall U.S. cabinet market in 2007.  We believe that independent cabinet door andcomponent manufacturers, like us, accounted for approximately $1.1 billionof this segment in 2007, while vertically integrated cabinet manufacturersaccounted for the remainder.

 

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                Weare one of the three largest manufacturers in the independent cabinet componentindustry.  We believe that in 2007 weaccounted for approximately 24% of total outsourced cabinet door and componentmarket sales, and, based on publicly available information, together withConestoga Wood Products and Appalachian Wood Products, our principalcompetitors, we accounted for approximately 49% of this market in 2007.

 

**Environmental Matters**

 

                Ouroperations and properties are subject to extensive federal, state, local andforeign environmental laws relating to protection of the environment and humanhealth and safety.  Environmental lawsand regulations are subject to frequent amendment and have become morestringent over time.  We could incur inthe future significant costs associated with compliance with, or liabilitiesunder, environmental laws and regulations, including equipment costs, disposalcosts, cleanup costs, civil and criminal penalties, injunctive relief anddenial or loss of, or imposition of significant restrictions on, environmentalpermits.  In addition, we could in thefuture be subject to suit by private parties in connection with allegedviolations of or liabilities under environmental laws and regulations.

 

**Employees**

 

**               **As of December 31,2007, we had approximately 1,674 full-time employees, 49 part-time employees,and 74 independent contractors. Currently, none of our employees are covered by a collective bargainingagreement.

 

**Item 1A. Risk Factors**

 

                Our ability to predict results or the effect ofcertain events on our operating results is inherently uncertain.  Therefore, we wish to caution each reader ofthis annual report to carefully consider the following factors and certainother factors discussed herein and in other past filings with the Securitiesand Exchange Commission.

 

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

 

                Salesto the kitchen and bath cabinet market accounted for approximately 94% of ourtotal sales for the year ended December 31, 2007.  Sales in this market are driven by new homeconstruction and home repair and remodeling activity.  New home construction and repair andremodeling activity may be significantly affected by changes in economic andother conditions, such as gross domestic product levels, employment levels,demographic trends, availability of financing, interest rates and consumerconfidence.  These factors can negativelyaffect the demand for our products.  Anydeterioration in these factors could have a material adverse effect on ourbusiness, financial condition and results of operations.

 

The Company derives a significant portion of itsrevenue as a result of the demand for its products created by the building ofnew homes, and repair and remodeling of existing homes.  During the last 18 months, the home building,repair and remodeling industry experienced a slowdown as a result of generaleconomic conditions.  Based on the Kitchen Cabinet ManufacturersAssociation data for 2007, the kitchen cabinet market is estimated to be downapproximately 12%, and this slowdown has had a negative effect on our sales andincome from operations.  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.

 

***We aredependent on major customers for a significant portion of our net sales.***

 

                Forthe year ended December 31, 2007, our top ten customers accounted forapproximately 84% of our net sales. During this period, our two largest customers accounted forapproximately 54% of our net sales.  Thepermanent loss of, or a significant decrease in the level of purchases by, oneor more of our major customers could have a material adverse effect on ourresults of operations.  The ongoing trendtoward consolidation in the cabinet manufacturing market in which our customersoperate could increase the concentration of our sales and therefore increasethese risks.

 

                Inaddition, some of our key cabinet manufacturer customers have the resources tomanufacture internally the cabinet doors and components that we sell tothem.  Despite these manufacturingcapabilities, these customers have chosen to outsource door and componentproduction to us in part due to the quality of our products and in order toreduce costs, eliminate production risks and maintain company focus.  However, these customers may not continue tooutsource door and component production in the future.  Increased levels of production insourcingcould result from a number of factors, such as shifts in our customers’

 

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business strategies, which could result from the acquisitionof another door and component manufacturer, the inability of third partysuppliers to meet product specifications and the emergence of low-costproduction opportunities in foreign countries. Any significant reduction in the level of cabinet door and componentproduction outsourcing from our cabinet manufacturing customers couldsignificantly impact our sales and, accordingly, have a material adverse effecton our business, results of operations and financial condition.

 

***Increased prices forraw materials used in our products could adversely affect our business.***

 

                Ourprofitability is affected by the prices of our raw materials, which mayfluctuate based on a number of factors beyond our control, including, amongothers, changes in supply and demand, general economic conditions, labor costs,competition and, in some cases, government regulation.  The prices for the hardwood species we use inproduction of our hardwood doors and components are subject to some volatility.  In the past calendar year the price of hardmaple, the primary hardwood specie we use, (accounting for approximately 46% ofour lumber purchases) decreased by approximately 24%, and the price of cherry,(accounting for approximately 24% of our lumber purchases) decreased by 1%.  We have no long-term supply contracts for theraw materials used in the manufacture of our products.  This means that we are subject to changes inthe prices charged by our suppliers.  Significantincreases in the prices of raw materials could materially adversely affect ourbusiness, financial condition and results of operations, especially if we arenot able to recover these costs by increasing the prices we charge ourcustomers for our products.  In 2007, theU.S. kitchen and bath cabinet industry relied heavily on domestic maple, whichis of a higher quality than imported maple. A shortage in the supply of domestic maple or certain other species oflumber could increase prices for these raw materials, which could also have amaterial adverse effect on our business, financial condition and results ofoperations.  We have attempted to passthrough cost increases to our customers, but the price increases may not fullyoffset the effects of increasing raw material costs.

 

***Interruptionsin deliveries of raw materials could adversely affect our business.***

 

                Ourdependency upon regular deliveries from suppliers means that interruptions orstoppages in such deliveries could adversely affect our operations untilarrangements with alternate suppliers could be made.  If a substantial number of our suppliers wereunable to deliver materials to us for an extended period of time, as the resultof financial difficulties, catastrophic events affecting their facilities orother factors beyond our control, or if we were unable to negotiate acceptableterms for the supply of materials with these or alternative suppliers, ourbusiness, financial condition and results of operations could suffer.  We may not be able to find acceptablealternatives, and any such alternatives could result in increased costs tous.  Even if acceptable alternatives arefound, the process of locating and securing such alternatives might bedisruptive to our business.  Extendedunavailability of a necessary raw material could cause us to ceasemanufacturing of one or more products for a period of time, which could have amaterial adverse effect on our business, financial condition and results ofoperations.

 

***Environmentalrequirements may impose significant compliance costs and liabilities on us.***

 

***               ***Our facilities aresubject to numerous federal, state and local laws relating to the protection ofthe environment.  We believe we are insubstantial compliance with all applicable requirements.  Our efforts to comply with environmentalrequirements do not remove the risk that we may be held liable, or incur finesor penalties, and that the amount of liability, fines or penalties may bematerial, for, among other things, releases of hazardous substances fromcurrent properties or any associated offsite disposal location, or forcontamination at our properties from activities conducted by previousoccupants.  Changes in environmental lawsand regulations or the discovery of previously unknown contamination or otherliabilities relating to our properties and operations could result insignificant environmental liabilities. In addition, we might incur significant capital and other costs tocomply with increasingly stringent environmental laws and enforcement policies,which would decrease our cash flow available to service our indebtedness.

 

***We face intensecompetition in our markets.***

 

                Weoperate in the highly fragmented and very competitive cabinet door andcomponent industry.  Our competitorsinclude international, national and local cabinet and cabinet component manufacturers.  These can be large consolidated operationswith manufacturing facilities in large and efficient plants, as well asrelatively small, local cabinetmakers. Some of our competitors may achieve greater market penetration incertain of the markets in which we operate, have greater financial and otherresources available and be less leveraged, which may provide them with greaterfinancial flexibility.  Moreover,companies in other building products industries may choose to compete withus.  To remain competitive, we will needto invest continuously in manufacturing, customer service and productdevelopment.  We may have to adjust theprices of some of our products to stay

 

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competitive.  Wemay not have sufficient resources to continue to make such investments or thatwe will maintain our competitive position within each of the markets we serve.

 

***Cabinetmanufacturers may increasingly rely on imported components, which couldnegatively affect our business.***

 

                Thenumber of foreign-made kitchen cabinets sold in the United States has increasedslightly in the last ten years.  Webelieve that the number of foreign-made cabinet components sold in the UnitedStates has also increased, though we do not believe any detailed study of sucha trend is currently available.  Thisincrease in sales of imported components is the result of foreign woodcomponent manufacturers improving the quality of their products and servicesand, in some cases, offering lower prices. While we currently believe that the impact of imported products in ourtarget markets is limited by, among other factors, the need for greater varietyin terms of profiles, sizes and finishes, demand for higher quality productsand short lead times, there is no assurance that demand for foreign-madeproducts will not increase in such markets. If domestic cabinet manufacturers continue to increasingly rely onforeign imports for their components, our business, financial condition andresults of operations could be materially and negatively affected.

 

***If we areunable to meet future capital requirements, our business may be adverselyaffected.***

 

                Weperiodically make capital investments to, among other things, maintain andupgrade our facilities and enhance our production processes.  As we grow our businesses, we may have toincur significant capital expenditures. We may not have, or be able to obtain, adequate funds to make all necessarycapital expenditures when required, or the amount of future capital expendituresmay be materially in excess of our anticipated or current expenditures.  If we are unable to make necessary capitalexpenditures, our product offering may become dated, our productivity may bedecreased and the quality of our products may be adversely affected, which, inturn, could negatively impact our business, financial condition and results ofoperations.

 

***Increases inthe cost of labor, union organizing activity and work stoppages at ourfacilities could materially affect our business.***

 

                Ourbusiness is labor intensive.  As aresult, our financial performance is affected by the availability of qualifiedpersonnel and the cost of labor. Currently, none of our employees are represented by labor unions.  However, there could be strikes or other typesof conflicts with personnel that may arise or we could become a target forunion organizing activity.  Strikes, workstoppages or slowdowns could result in slowdowns or closures of our or oursuppliers’ facilities.  In addition,organizations responsible for shipping our products may be impacted bystrikes.  Any interruption in theproduction or delivery of our products could reduce sales of our products andincrease our costs.

 

***We aredependent on certain key personnel, the loss of whom could materially affectour financial performance and prospects.***

 

                Ourcontinued success depends to a large extent upon the continued services of oursenior management and certain key employees. The loss of the services of any of these individuals could have amaterial adverse effect on our business, financial condition and results ofoperations.  We have no keyman lifeinsurance on any of our employees.

 

***We may not beable to successfully integrate, and may inherit significant liabilities inconnection with, future acquisitions.***

 

                Weexplore opportunities to acquire related businesses from time to time, some ofwhich could be material to us.  If wemake acquisitions, our ability to continue to grow will depend upon effectivelyintegrating these acquired companies, achieving cost efficiencies and managingthese businesses as part of our company.

 

                Wemay not be able to effectively integrate the acquired companies or successfullyimplement appropriate operational, financial and management systems andcontrols to achieve the benefits expected to result from theseacquisitions.  Our efforts to integratethese businesses could be affected by a number of factors beyond our control,including general economic conditions and increased competition.  In addition, the process of integrating thesebusinesses could cause the interruption of, or loss of momentum in, theactivities of our existing business.  Thediversion of management’s attention and any delays or difficulties encounteredin connection with the integration of these businesses could negatively impactour business and results of operations. Further, the benefits that weanticipate from these acquisitions may not materialize.

 

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                Additionally,we may be subject to unexpected claims and liabilities arising from theseacquisitions.  Such claims andliabilities could be costly to defend, could be material in amount and mayexceed either the limitations of any applicable indemnification provisions orthe financial resources of the indemnifying parties, in which event suchunexpected claims and liabilities could materially and negatively affect ourbusiness and financial performance.

 

***Our principalstockholder is in a position to affect our ongoing operations, corporatetransactions and other matters.***

 

                Asof March 17, 2008, Parent owned 100% of our outstanding voting capitalstock and Olympus Growth Fund IV, L.P. and Olympus Executive Fund, L.P. (eachof which is an investment fund managed by Olympus Partners) collectively owned86.53% of the outstanding voting capital stock of Parent.  For ease of reference, we sometimescollectively refer to Olympus Growth Fund IV, L.P. and Olympus Executive Fund,L.P. herein as the “Olympus Funds”. Olympus  Growth Fund IV, L.P. hasthe ability to control the election of our Board of Directors and the electionof the board of directors of Parent and, by virtue of its ownership in Parentand certain contractual voting rights set forth in the Parent StockholdersAgreement among the current stockholders of Parent, the outcome of other issuessubmitted to the stockholders for approval. See “Security Ownership of Certain Beneficial Owners and Management andRelated Stockholder Matters.”  We cannotassure you that the interests of Olympus Growth Fund IV, L.P.  will not conflict with the interests of theholders of our Senior Notes.  Inparticular, Olympus Growth Fund IV, L.P. may cause a change of control at a time when we do not have sufficientfunds to repurchase the notes, or to repay our New Senior Credit Facility.

 

**Item 1B. Unresolved StaffComments**

 

                None.

 

**Item 2.Properties**

 

                Ourheadquarters are located in St. Cloud, Minnesota.  We own eight and lease five manufacturingfacilities.  We believe that ourfacilities are currently operating at approximately 65-70% of overall plantcapacity.  We intend to increase currentlevels of capacity utilization while handling an increased volume ofsales.  In addition, we have increasedcapacity over time through increases in operating efficiencies and growth investmentsat our hardwood component, door and engineered woods facilities.  We expanded our Molalla, Oregon plant in 2004to create additional capacity for customers located on the West Coast.  In 2006, we completed the expansions of our (i) CabinetDoor plant in St. Cloud, Minnesota to create additional door manufacturingcapacity, and (ii) Greenville, Pennsylvania facility to add incrementalcapacity for lumber drying and roughmilling. In 2007, we completed the expansion of leased facilities in West Jordan,Utah and Monroe, Washington to add incremental door manufacturingcapacity.  In the first quarter 2008, wecompleted the expansion of a leased facility in Conover, North Carolina to addincremental door manufacturing capacity.

 

                OurWoodcraft subsidiary operates three facilities in Minnesota, two of which arelocated in St. Cloud and one of which is located in Foreston.  Our Minnesota facilities manufacture hardwoodcomponents, and one of our St. Cloud facilities also producesapproximately 58% of our hardwood doors. The hardwood door plant in St. Cloud includes high-volume hardwooddoor production together with flexible production cells required to respond tocustomer KAT orders.  Our Woodcraftdivision also has a fourth facility located in Bowling Green, Kentucky where wemanufacture hardwood components for shipment to our Minnesota facilities and toselected customers in the eastern United States.  Our Woodcraft subsidiary in 2005 acquired afacility located in Middlefield, Ohio, which manufactures hardwood componentmoldings, and also purchased a facility located in Greenville, Pennsylvania,which manufactures hardwood components for shipment to our Minnesota, BowlingGreen, and Middlefield facilities.  In2007, our Woodcraft subsidiary completed an expansion in West Jordan, Utah toproduce hardwood doors.  In the firstquarter 2008, our Woodcraft subsidiary completed an expansion in Conover, NorthCarolina to produce hardwood doors.

 

                In Wahpeton, North Dakota, our PrimeWood subsidiarymanufactures RTF doors and components, VRPs and wrapped profiles.  We believe our Wahpeton facility, whichsupplies cabinet manufacturers throughout North America, is one of the largestindependent producers of engineered woods in North America.  We acquired this facility in 1998 inconnection with our acquisition of PrimeWood, Inc.  The PrimeWood subsidiary in 2005 also beganoperations at a manufacturing facility in Lansing, Kansas that manufactures RTFdoors and components.  The Lansingfacility is located in the Lansing Correctional Institute and employs inmatesin the production of RTF components.

 

                OurBrentwood subsidiary operates a manufacturing facility in Molalla, Oregon wherewe produce hardwood and RTF doors, primarily for distribution to our customerslocated on the West Coast.  Our Molallafacility focuses primarily on KAT production of custom and semi-customproducts.  We acquired this facility in2002 in connection with our acquisition of

 

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Brentwood, Inc. In 2007, our Brentwood subsidiary completed an expansion in Monroe,Washington to produce hardwood doors.

 

                Ourformer Grand Valley subsidiary (which is now part of Woodcraft) operates amanufacturing facility in Orwell, Ohio where we produce hardwood doors throughKAT production, primarily for semi-custom products.  We acquired this facility in 2004 inconnection with our acquisition of the former Grand Valley subsidiary.

 

                Thefollowing chart sets forth information regarding our headquarters and ourthirteen manufacturing facilities:

 
| **Location**              | ** ** | **Primary Product Line**      | ** ** | **Square Footage** | ** ** | **Description of********Property Interest** |
|---------------------------|------------|-------------------------------|------------|--------------------|------------|---------------------------------------------|
| St. Cloud, Minnesota |       | Headquarters                  |       | 10,000             |       | Owned                                       |
| St. Cloud, Minnesota |       | Hardwood Doors                |       | 153,000            |       | Owned                                       |
| St. Cloud, Minnesota |       | Hardwood Components           |       | 157,450            |       | Owned                                       |
| Foreston, Minnesota       |       | Hardwood Components           |       | 137,770            |       | Owned                                       |
| Bowling Green, Kentucky   |       | Hardwood Components           |       | 116,880            |       | Owned                                       |
| Middlefield, Ohio         |       | Hardwood Components           |       | 40,000             |       | Leased                                      |
| Greenville, Pennsylvania  |       | Hardwood Components           |       | 80,000             |       | Owned                                       |
| Wahpeton, North Dakota    |       | RTF Doors and Components, VRP |       | 200,000            |       | Owned                                       |
| Lansing, Kansas           |       | RTF Doors and Components      |       | 19,000             |       | Leased                                      |
| Molalla, Oregon           |       | Hardwood and RTF Doors        |       | 100,000            |       | Owned                                       |
| Orwell, Ohio              |       | Hardwood Doors                |       | 40,000             |       | Owned                                       |
| West Jordan, Utah         |       | Hardwood Doors                |       | 40,000             |       | Leased                                      |
| Monroe, Washington        |       | Hardwood Doors                |       | 18,000             |       | Leased                                      |
| Conover, North Carolina   |       | Hardwood Doors                |       | 55,000             |       | Leased                                      |

 

**Item 3. LegalProceedings**

 

                Weare involved in various proceedings incidental to the ordinary conduct of ourbusiness.  We do not presently believethat any of the proceedings currently pending will have a material adverseeffect on our business, financial condition, cash flows or results ofoperations.

 

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

 

                None.

 

**PART II**

 

**Item 5.Market For Registrant’s Common Equity, Related Stockholder Matters and IssuerPurchases of Equity Securities**

 

Thereis no established public trading market for the common stock of WII Components, Inc.  As a result of the Transaction, WII Components, Inc.is a wholly owned subsidiary of Parent.

 

On February 24,2004, we used $39.0 million of the net proceeds from the offering of the seniornotes to make payments to our former stockholders through a combination ofdividends and redemptions of common stock. Any payment of future dividends and the amounts thereof will bedependent upon the Company’s earnings, fiscal requirements and other factorsdeemed relevant by the Company’s Board of Directors.  Certain restrictive covenants contained in theCompany’s New Senior Credit Facility and the indenture governing the seniornotes currently limit its ability to make dividend or other payments.

 

  As a result of the Transaction, alloutstanding stock options were terminated and canceled on January 9, 2007,and there are currently no stock options of the Company issued and outstanding.

 

Parentissued Restricted Stock Agreements on August 31, 2007 and September 14,2007 to certain Company management personnel totaling 55,219 shares of Parentcommon stock.  The fair value of theParents common stock was considered contributed capital to the Company and hada fair value of approximately $397,023 on the date of the grant.  The

 

7

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restricted stock becomesfully vested after seven years, or earlier, if certain milestones, as defined,are met.

 

###### **Item6. Selected Financial Data**

###### ** **

                Thefollowing table sets forth certain of our historical consolidated financialdata. We refer to the Company prior to its acquisition by its former owners on April 9,2003 as the “Predecessor.”  Foraccounting purposes, this acquisition was recorded with an effective date of April 1,2003 and accounted for using the purchase method of accounting.  Therefore, the financial information for periodsafter April 1, 2003 may not be comparable to financial information forperiods prior to April 1, 2003.  Werefer to the Company after its acquisition by its former owners on April 9,2003 as the “Successor”.  The 2007Transaction was completed on January 9, 2007, and the Transaction has beenaccounted for as a recapitalization in the Company’s financial statements, withno adjustments to the historical basis of the Company’s assets andliabilities.  The selected historicalconsolidated financial data as of and for the years ended December 31,2007, 2006, 2005, and 2004; as of and for the three months ended March 31,2003; and as of and for the nine months ended December 31, 2003 have beenderived from our audited consolidated financial statements.  Historical results are not necessarilyindicative of the results to be expected in the future.  You should read the following data inconjunction with “Management’s Discussion and Analysis of Financial Conditionand Results of Operations” and our historical consolidated financial statementsand accompanying notes included elsewhere in this annual report.

 
| ** **                                 | ** ** | **Successor**                    | ** ** | **Predecessor**                           | ** ** |
|--------------------------------------------|------------|----------------------------------|------------|-------------------------------------------|------------|
| ** **                                 | ** ** | **Year Ended December 31,** | ** ** | **Nine Months  Ended  December 31,** | ** ** | **Three Months  Ended  March 31,** | ** ** |
| ** **                                 | ** ** | **2007**                         | ** ** | **2006**                                  | ** ** | **2005 (1)** | ** ** | **2004 (2)** | ** ** | **2003** | ** ** | **2003** | ** ** |
| ** **                                 | ** ** | **(Dollars in thousands)**       | ** ** |
| **Statement of Operations Data:**          |       |                             |       |                                      |       |   |   |   |   |   |   |   |   |
| Net sales                                  |       | $                                | 249,303    |                                      | $          | 285,633 |   | $ | 259,603 |   | $ | 203,066 |   | $ | 132,647 |   | $ | 40,980 |   |
| Cost of sales                              |       | 205,063                          |       | 237,289                                   |       | 217,625 |   | 167,279 |   | 107,478 |   | 32,071 |   |
| Gross profit                               |       | 44,240                           |       | 48,344                                    |       | 41,978 |   | 35,787 |   | 25,169 |   | 8,909 |   |
| Total operating expenses (3)               |       | 24,096                           |       | 18,024                                    |       | 14,805 |   | 12,643 |   | 8,490 |   | 4,188 |   |
| Operating income                           |       | 20,144                           |       | 30,320                                    |       | 27,173 |   | 23,144 |   | 16,679 |   | 4,721 |   |
| Interest expense                           |       | 15,460                           |       | 14,038                                    |       | 13,561 |   | 12,767 |   | 6,343 |   | 835 |   |
| Other loss (income), net (4)               |       | (453                             | )          | (88                                       | )          | (50 | ) | 3,414 |   | (68 | ) | (28 | ) |
| Income tax expense                         |       | 2,096                            |       | 6,627                                     |       | 5,487 |   | 2,684 |   | 3,852 |   | 1,404 |   |
| Net earnings                               |       | $                                | 3,041      |                                      | $          | 9,743 |   | $ | 8,175 |   | $ | 4,279 |   | $ | 6,552 |   | $ | 2,510 |   |
| **Other Financial Data:**                  |       |                             |       |                                      |       |   |   |   |   |   |   |   |   |
| EBITDA (5)                                 |       | $                                | 29,309     |                                      | $          | 38,334 |   | $ | 33,983 |   | $ | 25,801 |   | $ | 20,799 |   | $ | 6,032 |   |
| EBITDA margin (6)                          |       | 11.8                             | %          | 13.4                                      | %          | 13.1 | % | 12.7 | % | 15.7 | % | 14.7 | % |
| Depreciation and  amortization (7)         |       | $                                | 8,712      |                                      | $          | 7,926 |   | $ | 6,760 |   | $ | 6,071 |   | $ | 4,052 |   | $ | 1,283 |   |
| Capital expenditures (8)                   |       | 7,629                            |       | 15,999                                    |       | 11,787 |   | 5,733 |   | 5,005 |   | 533 |   |
| Net cash provided by  operating activities |       | 20,558                           |       | 23,426                                    |       | 12,990 |   | 15,969 |   | 17,203 |   | 989 |   |
| **Balance Sheet (at end of  period):**     |       |                             |       |                                      |       |   |   |   |   |   |   |   |   |
| Total assets                               |       | $                                | 247,957    |                                      | $          | 230,314 |   | $ | 221,594 |   | $ | 194,987 |   | $ | 173,925 |   | $ | 81,091 |   |
| Long-term debt, plus  current maturities   |       | 124,202                          |       | 127,500                                   |       | 127,500 |   | 120,000 |   | 94,948 |   | 32,273 |   |
| Capital lease obligations                  |       | 530                              |       | 1,111                                     |       | 2,466 |   | 3,122 |   | 4,488 |   | 4,166 |   |
| Accumulated preferred  stock               |       | $                                | —     |                                      | $          | — |   | $ | — |   | $ | — |   | $ | — |   | $ | 28,245 |   |

 

----

(1)          In July 2005,the Company acquired substantiallyall of the assets of a moldings manufacturing company operating under the nameDimension Moldings, Inc. through anasset purchase.  The results ofoperations for this acquired business have been included in our financialstatements since the date of acquisition. Our results of operations for periods since the acquisition may not becomparable to our results of operations for the periods prior to theacquisition.

 

8

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(2)  In April 2004, the Company acquired GrandValley, Inc. through an asset purchase. The results of operations for this acquired business have been includedin our financial statements since the date of acquisition.  Our results of operations for periods sincethe acquisition may not be comparable to our results of operations for theperiods prior to the acquisition.

 

(3) Total operating expenses include$1.8 million of payments to former holders of our capital stock in thethree months ended March 31, 2003 for certain tax liabilities incurredupon the sale of our predecessor’s capital stock in connection with ouracquisition by its former owners, $0.6 million of stock compensation expense in2004 related to stock option variable accounting, $1.3 million of stockcompensation expense in 2005 related to stock option variable accounting, $3.1million of stock compensation expense in 2006 related to stock option variableaccounting, and $1.8 million of stock compensation expense in 2007 related tostock option variable accounting and transaction incentives.  In addition, 2007 includes transaction costsfor the Transaction, tender offer costs, and management advisory fees ofapproximately $7.2 million, $0.8 million, and $0.6 million, respectively.

 

(4) For the fiscal year ended December 31,2004, the Company wrote off $3.5 million of financing fees related to theold credit facility.

 

(5) EBITDA as set forth in the table belowrepresents net earnings before interest, taxes, depreciation andamortization.  We have presented EBITDAbecause we believe it is useful in evaluating our operating performancecompared to that of other companies in our industry, as the calculationeliminates the effects of long-term financing, income taxes and the accountingeffects of capital expenditures, which items may vary for companies for reasonsunrelated to overall operating performance. EBITDA is not a measurement of financial performance or liquidity underGAAP and should not be considered as an alternative to net earnings or net cashflows provided by operating activities as determined in accordance withGAAP.  Our calculation of EBITDA may notbe comparable to the calculation of similarly titled measures reported by othercompanies.

 
| ** **                    | ** ** | **Successor**                    | ** ** | **Predecessor** | ** ** |
|-------------------------------|------------|----------------------------------|------------|-----------------|------------|
| ** **                    | ** ** | **Year Ended December 31,** | ** ** | ** **      | ** ** | ** ** | ** ** |
| ** **                    | ** ** | **2007**                         | ** ** | **2006**        | ** ** | **2005** | ** ** | **2004** | ** ** | **Nine Months  Ended  December 31,  2003** | ** ** | **Three Months Ended  March 31,  2003** | ** ** |
|                          |       |                             |       |            |       |   |   |   |   |   |   |   |   |
| Net earnings                  |       | $                                | 3,041      |            | $          | 9,743 |   | $ | 8,175 |   | $ | 4,279 |   | $ | 6,552 |   | $ | 2,510 |   |
| Interest expense              |       | 15,460                           |       | 14,038          |       | 13,561 |   | 12,767 |   | 6,343 |   | 835 |   |
| Income tax expense            |       | 2,096                            |       | 6,627           |       | 5,487 |   | 2,684 |   | 3,852 |   | 1,404 |   |
| Depreciation and amortization |       | 8,712                            |       | 7,926           |       | 6,760 |   | 6,071 |   | 4,052 |   | 1,283 |   |
| EBITDA (i)                    |       | $                                | 29,309     |            | $          | 38,334 |   | $ | 33,983 |   | $ | 25,801 |   | $ | 20,799 |   | $ | 6,032 |   |

 

----

(i) EBITDA for 2007 is lower due to costs of $10.3 million related to theTransaction as discussed in more detail in the section labeled “Recapitalizationand Other Acquisition” in the “Notes to Consolidated Financial Statements”.

 

(6) Represents EBITDA divided by net sales.

 

(7) Depreciation and amortization does not includeamortization of deferred financing fees (which are included in interestexpense) for the fiscal years ended December 31, 2004, 2005, 2006 and 2007of $1.0 million, $1.0 million, $1.1 million and $2.5 million, respectively;for the three months ended March 31, 2003 of $0.1 million; and forthe nine months ended December 31, 2003 of $0.7 million.

 

(8) Includes capital expenditures in AccountsPayable at the end of the period, which have not been paid in cash.  See “Consolidated Statements of Cash Flows”included in the consolidated financial statements elsewhere in this report formore information.

 

# **Item 7. Management’sDiscussion and Analysis of Financial Condition and Results of Operations**

# ** **

*                Youshould read the following discussion in conjunction with our consolidatedfinancial statements and related notes appearing elsewhere in this annualreport.  In addition to historicalinformation, this discussion contains forward-looking*

 

9

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*statements that involve risks,uncertainties and assumptions that could cause actual results to differmaterially from management’s expectations.*

 

**Overview**

 

We are one of the leading manufacturers of hardwoodcabinet doors and components and engineered wood products in the UnitedStates.  Our products include (1) hardwoodcabinet door components, face frames and drawer fronts, (2) fullyassembled hardwood cabinet doors, (3) rigid thermofoil, or RTF, cabinetdoors 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 thirteenmanufacturing facilities located in Minnesota, North Dakota, Ohio, Oregon,Pennsylvania, Kansas, North Carolina, Washington, Utah and Kentucky that allowus to distribute our products nationwide.

 

In thepast ten years, we have consummated four strategic acquisitions that haveenhanced our market position, product breadth and geographic reach.  In June 1998, we acquired PrimeWood, amanufacturer of RTF, VRP and profile-wrapped engineered wood products based inNorth Dakota.  In July 2002, weacquired Brentwood, a manufacturer of solid wood and RTF cabinet doors locatedin Oregon.  In April 2004, weacquired Grand Valley, a manufacturer of solid wood cabinet doors located inOhio.  In July 2005, we acquiredsubstantially all of the assets of Dimension Moldings, Inc. (DMI), an Ohiocorporation, which was in the business of manufacturing hardwood componentmoldings at a facility located in Middlefield, Ohio.  Following the acquisition, our Woodcraftsubsidiary manufactures hardwood component moldings at the Middlefieldfacility.

 

                The Transaction was completed onJanuary 9, 2007.  The aggregatepurchase price paid by Parent for all of the shares of capital stock of theCompany and options to purchase shares of capital stock of the Company in theTransaction was approximately $295.5 million, less indebtedness and certainexpenses, and subject to customary adjustments. The Transaction has been accounted for as a recapitalization in theCompany’s financial statements, with no adjustments to the historical basis ofthe Company’s assets and liabilities.  The Company did not push down the basisbecause of the significance of the publicly traded debt outstanding, whichhinders the Parent’s ability to control the form of ownership of theCompany.  Parent financed the Transactionthrough the following transactions:

 

·                  borrowings of approximately $86.0 million by Parentthrough the issuance of $43.0 million in principal amount of senior pay-in-kindnotes to OCM Mezzanine Fund II, L.P. and $43.0 million in principal amount ofjunior pay-in-kind notes to Olympus Growth Fund IV, L.P.;

 

·                  the issuance and sale of equity securities of Parent(including rollover equity from management) to the Olympus Funds, co-investorsand certain members of management of approximately $86.2 million; and

 

·                  borrowings of approximately $10.2 million by theCompany under the New Senior Credit Facility (as defined below).

 

                Inconjunction with the Transaction on January 9, 2007, the Company enteredinto a new senior credit facility (the “New Senior Credit Facility”), withCredit 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.  Subject to certainconditions, the First Lien Term Facility may be increased by up to $30.0million during the life of the First Lien Term Facility at the request of theCompany with the consent from those lenders that agree to participate in suchincrease.  Subject to the foregoing,effective as of April 30, 2007, no additional borrowings are availableunder the First Lien Term Facility beyond the $9.8 million outstanding at March 31,2007.  As of December 31, 2007, themaximum amount of borrowings available to the Company under the RevolvingFacility was $12.5 million.  As of December 31,2007, borrowings of $4.4 million were outstanding under the First Lien TermFacility, and nothing was outstanding under the Revolving Facility.  As of December 31, 2007, the outstandingprincipal of

 

10

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suchindebtedness bears interest at a fluctuating rate equal to either the base rateplus 1.75% per annumor LIBOR plus 2.75% per annum. Subsequent to December 31, 2007, the interest cost was changed toeither the base rate plus 2.75% per annum or LIBOR plus 3.75% per annum.  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 December 31, 2007.  TheNew Senior Credit Facility is scheduled to mature January 2013.

 

##### **Resultsof Operations**

##### ** **

***Year Ended December 31,2007 Compared to the Year Ended December 31, 2006***

 

                Theyears ended December 31, 2007 and 2006 are shown in the table below. Thefollowing table sets forth selected operating data derived from ourconsolidated statements of earnings and presents this information as apercentage of net sales.

 

| ** **               | ** ** | **Year Ended  December 31, 2007** | ** ** | **Year Ended  December 31, 2006** | ** ** |
|--------------------------|------------|----------------------------------------|------------|----------------------------------------|------------|
| ** **               | ** ** | **(Dollars in thousands)**             | ** ** |
| Net sales                |       | $                                      | 249,303    |                                   | $          | 285,633 |   |
| *% of net sales*         |       | 100.0                                  | %          | 100.0                                  | %          |
| Cost of sales            |       | 205,063                                |       | 237,289                                |       |
| *% of net sales*         |       | 82.3                                   | %          | 83.1                                   | %          |
| Gross profit             |       | 44,240                                 |       | 48,344                                 |       |
| *% of net sales*         |       | 17.7                                   | %          | 16.9                                   | %          |
| Operating expenses       |       | 24,096                                 |       | 18,024                                 |       |
| *% of net sales*         |       | 9.7                                    | %          | 6.3                                    | %          |
| Operating income         |       | 20,144                                 |       | 30,320                                 |       |
| *% of net sales*         |       | 8.0                                    | %          | 10.6                                   | %          |
| Other expenses:          |       |                                   |       |                                   |       |
| Interest expense         |       | 15,460                                 |       | 14,038                                 |       |
| *% of net sales*         |       | 6.2                                    | %          | 4.9                                    | %          |
| Other loss (income), net |       | (453                                   | )          | (88                                    | )          |
| *% of net sales*         |       | (0.2                                   | %)         | 0.0                                    | %          |
| Income taxes             |       | 2,096                                  |       | 6,627                                  |       |
| *% of net sales*         |       | 0.8                                    | %          | 2.3                                    | %          |
| Net earnings             |       | 3,041                                  |       | 9,743                                  |       |
| *% of net sales*         |       | 1.2                                    | %          | 3.4                                    | %          |
|                          |            |                                        |            |                                        |            |  |  |

 

*                NetSales.*  Net sales decreased$36.3 million, or 12.7%, from $285.6 million for the year ended December 31,2006 to $249.3 million for the year ended December 31, 2007.  Our hardwood product line decreased $24.4 million,attributable to (i) an overall slowdown in the market that began in thethird quarter of 2006, (ii) a greater effect due to the seasonality in2007 as our customers were not operating above their capacities like they werein 2006, (iii) lower selling prices in conjunction with lower materialcosts, and (iv) to a lesser extent, a reduction due to the loss of marketshare on a hardwood door program in 2007. In addition, our engineered wood products line decreased$11.9 million, which is attributable to softness in the engineered woodproducts industry and decreases in market share.

 

*                Costof Sales.*  Cost of salesdecreased $32.2 million, or 13.6%, from $237.3 million for the yearended December 31, 2006 to $205.1 million for the year ended December 31,2007.  This decrease in cost of sales isprimarily attributable to lower material, labor, and overhead costs as a resultof lower volume of sales, but other factors include; (i) improved operational performance related toyield and labor productivities, (ii) lower stock compensation expense, (iii) favorableLIFO cost of material adjustment in 2007 resulting from the decline in hardwoodmaterials cost, and (iv) lower hardwood material costs. These werepartially offset by (i) increased multi-density fiber board and particleboard costs related to our engineered wood products line and (ii) transactionincentives incurred in connection with the Transaction.

 

*                GrossProfit.*  Gross profit decreased$4.1 million, or 8.5%, from $48.3 million for the year ended December 31,2006 to $44.2 million for the same period in 2007 as a result of thefactors described above.  As a percentageof net sales, our gross profit increased 80 basis points from 16.9% for theyear ended December 31, 2006 to 17.7% for the same period in 2007. This increase reflects (i) improved operational performance, (ii) lowerstock compensation expense, (iii) favorable LIFO cost of

 

11

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material adjustment in2007 resulting from the decline in hardwood raw materials cost, and (iv) lowerhardwood material costs.  This increasewas partially offset with (i) board cost increases related to ourengineered wood product line and (ii) incentive bonus payments incurred inconnection with the Transaction.

 

*                OperatingExpenses.*  Operatingexpenses increased $6.1 million, or 33.9%, from $18.0 million for theyear ended December 31, 2006 to $24.1 million for the year ended December 31,2007.  The increase consists primarily of (i) $6.4million, net of $0.8 million from 2006, of transaction expenses related to theTransaction, (ii) $0.8 million related to efforts to refinance a portionof the outstanding debt, (iii) $0.6 million of management advisory fees, (iv) $0.6million higher professional fees, (v) $0.2 million of depreciation, and (vi) $1.0million in transaction incentives incurred in connection with the Transaction.   These were partially offset with (i) $3.3million of lower stock compensation expense, and (ii) lower incentiveexpense.  As a percentage of sales,operating expenses increased from 6.3% for the year ended December 31,2006 to 9.7% for the same period in 2007, as a result of the factors describedabove.

 

*Operating Income.*  Operating income decreased by$10.2 million, or 33.7%, from $30.3 million for the year ended December 31,2006 to $20.1 million for the year ended December 31, 2007 as aresult of the net effect of the factors described above.

 

*Interest Expense.*  Interest expense increased $1.4 million, or10.0%, from $14.0 million for the year ended December 31, 2006 to$15.4 million for the year ended December 31, 2007.  This increase relates to (i) increasedamortization of deferred financing fees in connection with the Transaction, and(ii) a higher average debt balance due to the additional debt incurred inconjunction with the Transaction.

 

*                OtherLoss (Income).*  Other incomeincreased from $88,000for the year ended December 31, 2006 to $453,000for the year ended December 31, 2007. This increase is due to interest received from our interest bearingaccounts.

 

*                IncomeTax Expense.*  Income taxexpense decreased $4.5 million, or 68.2% from $6.6 million for theyear ended December 31, 2006 to $2.1 million for the year ended December 31,2007 as a result of lower earnings, and a higher effective tax rate.  The effective tax rate increased 30 basispoints from 40.5% in 2006 to 40.8% in 2007 due to additional state taxes owedas a result of acquisitions and permanent differences associated with theTransaction.

 

*                NetEarnings.*  Net earningsdecreased $6.7 million, or 69.1%, from $9.7 million for the year ended December 31,2006 to $3.0 million for the year ended December 31, 2007 as a resultof the factors described above.

 

***Year Ended December 31,2006 Compared to the Year Ended December 31, 2005***

 

                Theyears ended December 31, 2006 and 2005 are shown in the table below.  The following table sets forth selectedoperating data derived from our consolidated statements of earnings andpresents this information as a percentage of net sales.

 

| ** **               | ** ** | **Year Ended  December 31, 2006** | ** ** | **Year Ended  December 31, 2005** | ** ** |
|--------------------------|------------|----------------------------------------|------------|----------------------------------------|------------|
| ** **               | ** ** | **(Dollars in thousands)**             | ** ** |
| Net sales                |       | $                                      | 285,633    |                                   | $          | 259,603 |   |
| *% of net sales*         |       | 100.0                                  | %          | 100.0                                  | %          |
| Cost of sales            |       | 237,289                                |       | 217,625                                |       |
| *% of net sales*         |       | 83.1                                   | %          | 83.8                                   | %          |
| Gross profit             |       | 48,344                                 |       | 41,978                                 |       |
| *% of net sales*         |       | 16.9                                   | %          | 16.2                                   | %          |
| Operating expenses       |       | 18,024                                 |       | 14,805                                 |       |
| *% of net sales*         |       | 6.3                                    | %          | 5.7                                    | %          |
| Operating income         |       | 30,320                                 |       | 27,173                                 |       |
| *% of net sales*         |       | 10.6                                   | %          | 10.5                                   | %          |
| Other expenses:          |       |                                   |       |                                   |       |
| Interest expense         |       | 14,038                                 |       | 13,561                                 |       |
| *% of net sales*         |       | 4.9                                    | %          | 5.2                                    | %          |
| Other loss (income), net |       | (88                                    | )          | (50                                    | )          |
| *% of net sales*         |       | 0.0                                    | %          | 0.0                                    | %          |
| Income taxes             |       | 6,627                                  |       | 5,487                                  |       |
| *% of net sales*         |       | 2.3                                    | %          | 2.1                                    | %          |
| Net earnings             |       | 9,743                                  |       | 8,175                                  |       |
| *% of net sales*         |       | 3.4                                    | %          | 3.1                                    | %          |
|                          |            |                                        |            |                                        |            |  |  |

 

12

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*                NetSales.*  Net sales increased$26.0 million, or 10.0%, from $259.6 million for the year ended December 31,2005 to $285.6 million for the year ended December 31, 2006.  Our hardwood product line increased $32.0 million,attributable to (i) increases in volume due to overall industry growth andmarket share gain, (ii) the inclusion of the results of the businessacquired in the purchase of the assets of Dimension Moldings, Inc. in July 2005,and (iii) to a lesser extent, price adjustments made in response to priorincreases in raw material costs.  Thisincrease was offset by a $6.0 million decrease in sales related to ourengineered wood products line, attributable to softness in the engineered woodproducts industry and decreases in market share.

 

*                Costof Sales.*  Cost of salesincreased $19.7 million, or 9.1%, from $217.6 million for the yearended December 31, 2005 to $237.3 million for the year ended December 31,2006.  This increase in cost of sales isprimarily attributable to higher material, labor, and overhead costs as aresult of higher volume of sales, but other factors include; (i) the acquisition of the assets ofDimension Moldings, Inc. in July 2005, (ii) start-up costs inour Pennsylvania facility, (iii) board cost increases related to ourengineered wood product line, and (v) stock compensation expense.  These costs were partially offset by (i) improvedoperational performance, primarily at our Ohio and Oregon door makingfacilities, and (ii) leveraging our fixed costs over a larger sales base.

 

*                GrossProfit.*  Gross profit increased$6.3 million, or 15.0%, from $42.0 million for the year ended December 31,2005 to $48.3 million for the same period in 2006 as a result of thefactors described above.  As a percentageof net sales, our gross profit increased 70 basis points from 16.2% for theyear ended December 31, 2005 to 16.9% for the same period in 2006. This increase reflects(i) improved operational performance, primarilyat our Ohio and Oregon door making facilities, (ii) lower raw materialcosts in our hardwood product line, and (iii) leveraging our fixed costsover a larger sales base.  This increasewas partially offset with board cost increases related to our engineered woodproduct line and startup costs in our Pennsylvania facility.

 

*                OperatingExpenses.*  Operatingexpenses increased $3.2 million, or 21.6%, from $14.8 million for theyear ended December 31, 2005 to $18.0 million for the year ended December 31,2006.  The increase consists primarily of (i) $1.8million of additional stock compensation expense in 2006, (ii) $0.6million due to the inclusion of seven full months of operations of ourMiddlefield facility, which includes $0.5 million of amortization for acustomer relationship intangible asset, and (iii) $0.8 million ofadditional professional fees relating to transaction costs incurred with theTransaction.  As a percentage of sales,operating expenses increased from 5.7% for the year ended December 31,2005 to 6.3% for the same period in 2006, as a result of the factors describedabove.

 

*Operating Income.*  Operating income increased by$3.1 million, or 11.4%, from $27.2 million for the year ended December 31,2005 to $30.3 million for the year ended December 31, 2006 as aresult of the net effect of the factors described above.

 

*                InterestExpense.*  Interest expenseincreased $0.4 million, or 2.9%, from $13.6 million for the yearended December 31, 2005 to $14.0 million for the year ended December 31,2006.  This increase relates to a higher average debt balancedue to increased capital expenditures and the acquisition of the assets ofDimension Moldings, Inc. in July 2005.

 

*                OtherLoss (Income).*  Other incomeincreased from $50,000for the year ended December 31, 2005 to $88,000for the year ended December 31, 2006.

 

*                IncomeTax Expense.*  Income taxexpense increased $1.1 million, or 20.0% from $5.5 million for theyear ended December 31, 2005 to $6.6 million for the year ended December 31,2006 as a result of higher earnings, and a higher effective tax rate.  The effective tax rate increased 30 basispoints from 40.2% in 2005 to 40.5% in 2006 due to additional state taxes owedas a result of acquisitions and the Pennsylvania expansion.

 

*                NetEarnings.*  Net earningsincreased $1.5 million, or 18.3%, from $8.2 million for the year ended December 31,2005 to $9.7 million for the year ended December 31, 2006 as a resultof the factors described above.

 

13

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**Liquidity and Capital Resources**

 

                Ourprimary cash needs are working capital, capital expenditures and debtservice.  We have historically financedthese cash requirements through internally generated cash flow and funds borrowedunder our prior and existing senior secured credit facilities.

 

In February 2004,we entered into a senior secured revolving credit facility and used theproceeds from the sale of our 10% Senior Notes due 2012 to pay off the termloans and revolving line of credit under our old senior credit facility, to paya dividend of approximately $21.5 million, to repurchase an aggregate of3,317,580 shares of our voting and non-voting common stock from our formerstockholders on a proportionate basis for an aggregate purchase price ofapproximately $17.5 million or $5.29 per share, and to pay financing costsof $7.4 million.

 

In September 2005,we amended and restated our existing senior secured revolving credit facility(which is referred to herein as the “2005 Senior Credit Facility”), byexpanding the revolving line of credit capacity to $40.0 million, advancing a$7.5 million nonamortizing term loan, and allowing the flexibility to advanceup to $7.5 million through June 30, 2006 on a nonamortizing capital expenditureloan.  As of December 31, 2006, wehad not borrowed any funds under the nonamortizing capital expenditureloan.  Asof December 31, 2006, the borrowing base allowed for $34.7 millionrevolving credit.  We had no amountoutstanding under our revolving credit for the year ended December 31,2006.  As of December 31, 2006, wehad $7.5 million outstanding under the nonamortizing term loan.  The 2005 Senior Credit Facility wasterminated, and all outstanding borrowings thereunder repaid, on January 9,2007 in connection with the Transaction.

 

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 December 31, 2007, the maximumamount of borrowings available to the Company under the Revolving Facility was$12.5 million.  As of December 31,2007 borrowings of $4.4 million were outstanding under the First Lien TermFacility, and nothing was outstanding under the Revolving Facility.  As of December 31, 2007, the outstandingprincipal of such indebtedness bears interest at a fluctuating rate equal toeither the base rate plus 1.75% per annum or LIBOR plus 2.75% per annum.  Subsequent to December 31, 2007, theinterest rate was changed to either the base rate plus 2.75% per annum or LIBORplus 3.75% per annum.  We must comply with certain financial covenantsunder our New Senior Credit Facility, including maintenance of an interestcoverage ratio, a senior leverage ratio and a total leverage ratio.  We were in compliance with such covenants asof December 31, 2007.  The New Senior Credit Facility is scheduledto mature January 2013.

 

As of December 31, 2007 the weighted averageinterest rate for the Company’s outstanding debt was 9.9%.

 

                The 2005 acquisition of substantially all of theassets of Dimension Moldings, Inc, and associated fees and expenses at closingwere funded one-half by the sale of shares of the Company’s voting common stockto the Company’s former stockholders, and the remainder with operating cash anda draw down on the Company’s senior secured credit facility.  In the first quarter 2006, we paid anaccelerated earn-out payment in the amount of $2.0 million to the owners of DMIas a result of the operations of the DMI assets meeting agreed upon earningstargets.  As a result of the change in control caused bythe Transaction on January 9, 2007, the remaining $5.0 million potentialearnout obligation, which included $1.0 million accrued at June 30, 2006,was accelerated and paid.

 

                Our New Senior Credit Facilityand the indenture for the senior notes impose certain restrictions on ourability to incur indebtedness, pay dividends, make investments, grant liens,sell our assets and engage in certain other activities.  Indebtedness for borrowed money incurredunder our New Senior Credit Facility is secured by substantially all of ourassets, including our real and personal property, inventory, accountsreceivable, intellectual property and other intangibles.

 

                As of December 31, 2007, we had $0.5million of capital lease obligations, of which all was current and as of December 31,2006, we had $1.1 million of capital lease obligations, of which$0.6 million was current.

 

                As of December 31,2007, we had $19.6 million of cash and cash equivalents available for anycorporate purposes, compared to $8.0 million as of December 31, 2006.  Cash and cash equivalents as of December 31,2007 includes approximately $6.4 million related to income tax refunds due backto previous stockholders of the Company, which is included in Other Current

 

14

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Liabilitieson the Balance Sheet as of December 31, 2007.

 

                Subsequent to December 31,2007, the Company has purchased and canceled approximately $11.5 million inprincipal amount of our 10% Senior Notes at a discount.  The discount resulted in a gain ofapproximately $1.7 million.  The Companyused available cash and borrowings under its Revolving Facility for paymentthereof.

 

*Cash flow from operating activities.*  As of December 31, 2007, we had $19.6 millionof cash and cash equivalents available for working capital purposes.  As of December 31, 2006, we had $8.0million of cash and cash equivalents available for working capitalpurposes.  Cash provided by operatingactivities for the years ended December 31, 2007 and 2006 was $20.6million and $23.4 million, respectively. The decreased source of cash for operating activities is mainlyattributable to (i) lower net earnings and (ii) increased days ofreceivables outstanding.  The decreasesource of cash for operating activities was offset partially by income taxrefunds related to transaction costs from the Transaction due back to theSellers.

 

*Cash flow from investing activities.* Net cash used in investing activities was $12.9 million for theyear ended December 31, 2007 and $18.0 million for the year ended December 31,2006.  Capital expenditures in 2007 were$7.9 million compared to $16.2 million for the year ended December 31,2006.  The decrease in capitalexpenditures in 2007 is primarily due to (i) the expansion of our St.Cloud door plant in 2006, and (ii) the acquisition of equipment for ourroughmill facility in Greenville, Pennsylvania, most of which was paid in2006.  Net cash used in investingactivities for 2007 and 2006 includes $5.0 million and $2.0 million,respectively, due to Dimension Moldings, Inc. earn-out payments.

 

*Cash flow from financing activities.*  Net cashprovided by financing activities for the twelve months ended December 31,2007 totaled $3.8 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$0.6 million, (iv) principal payments on the New Senior Credit Facility of$5.8 million, and (v) a distribution on behalf of the Parent for costs inconjunction with the Merger or ongoing operations of $2.6 million, whichincludes $0.9 million to the Parent on the Parent Notes. Subsequent to December31, 2007, the Company distributed $3.6 million to the Parent on the ParentNotes.  Net cash used in financingactivities for the twelve months ended December 31, 2006 totaled $1.3million, primarily attributable to capital lease payments.

 

Weanticipate that the funds generated by operations and funds available under theNew Senior Credit Facility will be sufficient to meet working capitalrequirements and to finance capital expenditures for the foreseeable future,including the next twelve months. We cannot provide assurances that ourbusiness will generate sufficient cash flow from operations, that anticipatednet sales growth and operating improvements will be realized or that futureborrowings will be available under our New Senior Credit Facility in an amountsufficient to enable us to service our indebtedness, including the 10% SeniorNotes due 2012, or to fund our other liquidity needs. In addition, we cannotprovide assurances that we will be able to refinance any of our indebtedness,including our New Senior Credit Facility and the 10% Senior Notes due 2012, oncommercially reasonable terms, if at all. We intend to incur additional capital expenditures in the ordinarycourse of business.

 

**Schedule of Contractual Obligations**

 

                Thefollowing table details our projected payments for our contractual obligationsas of December 31, 2007.  The tableis based upon available information and certain assumptions that we believe arereasonable.

 
| ** **                           | ** ** | ** **            | ** ** | **Payments Due by Period** | ** ** | ** **    | ** ** | ** **             | ** ** |
|--------------------------------------|------------|-----------------------|------------|----------------------------|------------|---------------|------------|------------------------|------------|
| **Contractual Obligations**          | ** ** | **Less than  1 year** | ** ** | **1-3 years**              | ** ** | **3-5 years** | ** ** | **More than 5  years** | ** ** | **Total** | ** ** |
| ** **                           | ** ** | ** **            | ** ** | **(Dollars in thousands)** | ** ** | ** **    | ** ** | ** **             | ** ** |
| Long-term debt obligations           |       | $                     | 754        |                       | $          | 1,509         |       | $                      | 121,359    |   | $ | 579 |   | $ | 124,201 |   |
| Interest expense on fixed  rate debt |       | 12,000                |       | 23,970                     |       | 13,625        |       | —                 |       | 49,595 |   |
| Capital lease obligations            |       | 530                   |       | —                     |       | —        |       | —                 |       | 530 |   |
| Operating lease  obligations         |       | 1,078                 |       | 1,513                      |       | 1,160         |       | —                 |       | 3,751 |   |
| Total contractual cash  obligations  |       | $                     | 14,362     |                       | $          | 26,992        |       | $                      | 136,144    |   | $ | 579 |   | $ | 178,077 |   |

 

              In addition to the summary of contractual obligations,we will incur annual interest on outstanding variable rate debt.  As of December 31, 2007, variableinterest rate debt was $4.4 million at a weighted average interest rate of7.6%.

 

                    The Company leases certain equipment under capitallease agreements with interest rates of 4.97% to 7.29% as of December 31,2007.  The agreements expire at variousdates through 2008.

 

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From time to time, we acquire the use of certainassets, such as warehouses, forklifts, trailers, and office equipment throughoperating leases.  Many of theseoperating leases have termination penalties. However, because the assets are used in the conduct of our businessoperations, it is unlikely that any significant portion of these operatingleases would be terminated prior to the normal expiration of their leaseterms.  Therefore, we consider the riskrelated to termination penalties to be minimal.

 

**Off-Balance Sheet Arrangement**

 

                With the exception of routine operating leases, wehad no off-balance sheet financing arrangements at December 31, 2007,2006, and 2005.

 

**Inflation**

 

**               **Our cost of sales issubject to inflationary pressures on labor costs, prices of the raw materialswe use and various overhead costs.  Wegenerally have been able over time to offset the effects of inflation and pricefluctuations through a combination of sales price increases and operationalefficiencies.  We currently believe that raw material costpressure has moderated.  We continue toattempt to pass along these costs, but such efforts typically lag behind inmaterial costs and we can not guarantee a full offset.

 

**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**

 

                Thepreparation of financial statements in conformity with accounting principlesgenerally accepted in the United States of America (GAAP) requires managementto make estimates, assumptions and judgments that affect the reported amountsof assets and liabilities and disclosure of contingent assets and liabilitiesat the date of the financial statements and the reported amounts of revenuesand expenses during the reporting period. Because of the uncertainty inherent in these matters, actual resultscould differ from those estimates.  Webelieve that the estimates, assumptions and judgments involved in theaccounting policies below have the greatest potential impact on our financialstatements.

 

*                RevenueRecognition.*  We recognizerevenues and related cost of sales when title passes, which is usually uponshipment of product under FOB shipping point terms.  Returns are estimated and provided for at thetime of sale based on historical experience and current trends.

 

*                Allowancefor Doubtful Accounts.*  We makeestimates of potentially uncollectible accounts receivable.  Our reserves are based on an analysis ofcustomers’ accounts and historical write-off experience.  Our analysis includes the age of thereceivable, customer creditworthiness and general economic conditions.  We believe the results could be materiallydifferent if historical trends do not reflect actual results or if economicconditions worsened.

 

*                Goodwill.*  We evaluate goodwill for impairment annuallyor whenever an indicator of impairment occurs. If events or circumstances change, including reductions in anticipatedcash flows generated by operations, goodwill could become impaired and resultin a charge to earnings.

 

*                Impairmentof Long-Lived Assets.*  Weevaluate the carrying value of long-lived assets, such as property, plant andequipment, for impairment when events or changes in circumstances indicate thatthe carrying amount of an asset or group of assets may not be recoverable.  Assets are grouped and evaluated forimpairment at the lowest level for which there is identifiable cash flows.  If impairment indicators are present and theestimated future undiscounted cash flows are less than the carrying value ofthe asset or group of assets, the carrying value is reduced to its estimatedfair value.  Fair value is estimatedbased on the best information available, including prices for similar assets orresults of valuation techniques such as discounting estimated future cashflows.

 

*                InsuranceBenefit Accruals.*  Each accountingperiod, we estimate an amount to accrue for medical costs incurred but not yetreported under our self-funded employee medical and workers compensationinsurance plans.  We base ourdetermination

 

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on an evaluation of past rates of claim payouts andtrends in the amount of payouts.  Thisdetermination requires significant judgment and assumes past patterns arerepresentative of future payment patterns. A significant shift in usage and payment patterns within these planscould necessitate significant adjustments to these accruals in futureaccounting periods.

 

*                PurchaseAccounting.*  We accounted forour acquisitions under the purchase method of accounting and, accordingly, theacquired assets and liabilities assumed are recorded at their respective fairvalues.  The recorded values of assetsand liabilities are based on third-party estimates and valuations whenavailable.  The remaining values arebased on management’s judgments and estimates. Our financial position and results from operations may be affected bychanges in estimates and judgments.  The Transactionhas been accounted for as a recapitalization in the Company’s financialstatements, with no adjustments to the historical basis of the Company’s assetsand liabilities.  The Company did notpush down the basis because of the significance of the publicly traded debtoutstanding, which hinders the Parent’s ability to control the form ofownership of the Company.

 

*                IncomeTaxes.*** **The Company and itsParent file a consolidated federal income tax return, and federal income taxesare allocated to the Company based upon the respective taxable earnings orloss.  The Company accounts for incometaxes in accordance with the liability method of accounting, which requiresrecognition of deferred tax assets and liabilities for the expected future taxconsequences of events that were included in the consolidated financialstatements and tax returns.  Under thismethod, deferred tax assets and liabilities are determined based on thedifference between the financial statement and tax bases of assets andliabilities using enacted tax rates expected to be in effect for the year inwhich the differences are expected to reverse. The Company records a valuation allowance when it is more likely thannot that the net deferred tax assets will not be realized.

 

TheCompany is subject to audits in the tax jurisdictions in which itoperates.  Upon audit, these taxingjurisdictions could retroactively disagree with our tax treatment of certainitems.  Consequently, the actualliabilities with respect to any year may be determined long after financialstatements have been issued.  The Companyestablishes tax reserves for estimated tax exposures.  These potential exposures result from varyingapplications of statutes, rules, regulations, case law andinterpretations.  The settlement of theseexposures primarily occurs upon finalization of tax audits.  However, the amount of the exposures can alsobe impacted by changes in tax laws and other factors.  The Company believes that it has establishedthe appropriate reserves for these estimated exposures.  However, actual results may differ from theseestimates.  The resolution of these taxmatters will not have a material effect on the consolidated financial conditionof the Company, although a resolution could have a material impact on the Company’sconsolidated statement of operations for a particular future period and on theCompany’s effective tax rate.

 

**New Accounting Standards**

 

In September 2006, the FASB issued SFAS No. 157,*Fair Value Measurements*.  SFAS No. 157 defines fair value, establishesa framework for measuring fair value in generally accepted accountingprinciples and expands disclosures about fair value measurements.  This Statement applies under other accountingpronouncements that require or permit fair value measurements, the FASB havingpreviously concluded in those accounting pronouncements that fair value is therelevant measurement attribute. Accordingly, this Statement does not require any new fair valuemeasurements.  SFAS No. 157 iseffective for fiscal years beginning after December 15, 2007.  We plan to adopt SFAS No. 157 beginningin the first quarter of fiscal 2008. We are currently evaluating the impact, ifany, the adoption of SFAS No. 157 will have on our operating income or netearnings.

 

In February 2007, FASB Issued SFAS No. 159, *Establishing the Fair Value Option for FinancialAssets and Liabilities*(SFAS 159). The Financial Accounting Standards Board has issued SFAS 159 to permitall entities to choose to elect, at specified election dates, to measureeligible financial instruments at fair value. An entity shall report unrealized gains and losses on items for whichthe fair value option has been elected in earnings at each subsequent reportingdate, and recognize upfront costs and fees related to those items in earningsas incurred and not deferred.  SFAS 159applies to fiscal years beginning after November 15, 2007, or our 2008fiscal year, with early adoption permitted for an entity that has also electedto apply the provisions of SFAS 157, Fair Value Measurements.  An entity is prohibited from retrospectivelyapplying SFAS 159, unless it chooses early adoption. SFAS 159 also applies toeligible items existing at November 15, 2007 (or early adoptiondate).  We are currently evaluating theimpact, if any, the adoption of SFAS 159 will have on our operating income ornet earnings.

 

In December 2007, the FASB issuedSFAS 141(R), “Business Combinations,” which requires the acquiring entityin a business combination to recognize and measure all assets and liabilitiesassumed in the transaction and any non-controlling interest in the acquiree atfair value as of the acquisition date. SFAS 141 (R) also establishes guidance for the measurement ofthe acquirer shares issued in consideration for a business combination, therecognition of contingent consideration, the

 

17

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accountingtreatment pre-acquisition gain and loss contingencies, the treatment ofacquisition related transaction costs, and the recognition of changes in theacquirer’s income tax valuation allowance and deferred taxes.  SFAS 141(R) is effective for fiscalyears beginning after December 15, 2008 and is to be applied prospectivelyas of the beginning of the fiscal year in which the statement is applied.  Early adoption is not permitted. SFAS 141(R) willbe effective for us beginning with the 2009 fiscal year.  We are evaluating the potential impact ofSFAS 141(R), if any, on our consolidated financial statements.

 

In December 2007, the FASB issued SFAS 160, “NoncontrollingInterest in Consolidated Financial Statements — an amendment of ARB 51,”which establishes accounting and reporting standards that requirenoncontrolling interests to be reported as a component of equity.  SFAS 160 also requires that changes in aparent’s ownership interest while the parent retains its controlling interestbe accounted for as equity transactions and that any retained noncontrollingequity investment upon the deconsolidation of a subsidiary be initiallymeasured at fair value.  SFAS 160 iseffective for fiscal years beginning after December 15, 2008 and is to beapplied prospectively as of the beginning of the fiscal year in which thestatement is applied. SFAS 160 will be effective for us beginning with the2009 fiscal year.  We are evaluating thepotential impact of SFAS 160, if any, on our consolidated financial statements.

 

**Item 7A.Quantitative and Qualitative Disclosures about Market Risk**

 

                Weare subject to various market risks such as fluctuating lumber prices, interestrates, and market conditions.

 

*                CommodityPrice Risk.*  Hardwood lumberaccounts for the largest portion of our material costs. Our profitability istherefore affected by the prices of lumber which may fluctuate based on anumber of factors beyond our control, including, among others, changes insupply and demand, general economic conditions, labor costs, competition and,in some cases, government regulation. 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.

 

*                InterestRate Risk.*  We are exposed tomarket risk relating to changes in interest rates in respect of a portion ofour long-term debt and a portion of our capital leases.  As of December 31, 2007, we had $4.4million outstanding under the First Lien Term Facility issued under our NewSenior Credit Facility, all of 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, results of operations, orcash flows.

 

*Market Conditions. *The Company derives a significant portion of itsrevenue as a result of the demand for its products created by the building ofnew homes, and repair and remodeling of existing homes.  During the last 18 months, the growth in thehome building, repair and remodeling industry experienced a slowdown as aresult of general economic conditions. If this slowdown in growth were to continue or worsen over an extendedperiod of time, it could have a material adverse effect on the Company’sbusiness, financial condition or results of operations.

 

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# **Item 8. FinancialStatements and Supplementary Data**

# ** **

**REPORTOF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM**

 

Board of Directors and Stockholders WII Components, Inc.**St. Cloud, Minnesota

 

We have audited the accompanying consolidatedbalance sheet of WII Components, Inc.(a Delaware Corporation and wholly-owned subsidiary of WII Holding, Inc.)and subsidiaries (the “Company”) as of December 31, 2007 and the relatedconsolidated statements of earnings, stockholders’ equity, and cash flows forthe year then ended.  Our audit of thebasic consolidated financial statements included the financial statementschedule listed in the Index appearing under Item 15.  These financialstatements and financial statement schedule are the responsibility of theCompany’s management.  Our responsibility is to express an opinion onthese financial statements and financial statement schedule based on our audit.

 

We conducted our audit in accordance with thestandards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonableassurance about whether the financial statements are free of materialmisstatement.  The Company is not required to have, nor were we engaged toperform, an audit of its internal control over financial reporting.  Ouraudit included consideration of internal control over financial reporting as abasis for designing audit procedures that are appropriate in the circumstances,but not for the purpose of expressing an opinion on the effectiveness of theCompany’s internal control over financial reporting.  Accordingly, weexpress no such opinion.  An audit also includes examining, on a testbasis, evidence supporting the amounts and disclosures in the financial statements,assessing the accounting principles used and significant estimates made bymanagement, as well as evaluating the overall financial statementpresentation.  We believe that our audit provides a reasonable basis forour opinion.

 

In our opinion, the consolidated financialstatements referred to above present fairly, in all material respects, thefinancial position of WII Components, Inc. and subsidiaries**as of December 31, 2007, and theresults of their operations and their cash flows for the year ended, in conformitywith accounting principles generally accepted in the United States ofAmerica.  Also, in our opinion, therelated financial statement schedule, when considered in relation to the basicconsolidated financial statements taken as a whole, presents fairly in allmaterial respects the information set forth therein.

 

As disclosed in Note 2 to the consolidated financialstatements, the Company adopted Financial Accounting Standards Board (FASB)Interpretation No. 48, *Accounting for Uncertaintyin Income Taxes - An Interpretation of FASB No. 109*, effective January 1,2007.

 

*/s/ Grant Thornton LLP*

 

Minneapolis, MinnesotaMarch 28, 2008

 

 

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# ** **

# **Item 8. FinancialStatements and Supplementary Data**

# ** **

**REPORTOF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM**

 

To the Board of Directors and Stockholders of WII Components, Inc.**St. Cloud, Minnesota

 

We have audited the accompanying consolidatedbalance sheet of WII Components, Inc.and subsidiaries (the “Company”) as of December 31, 2006, and the relatedconsolidated statements of earnings, stockholders’ equity, and cash flows foreach of the two years in the period ended December 31, 2006.  Our audits also included the financialstatement schedule listed in the Index at Item 15.  These financialstatements and financial statement schedule are the responsibility of theCompany’s management.  Our responsibility is to express an opinion on thefinancial statements and financial statement schedule based on our audits.

 

We conducted our audits in accordance withthe standards of the Public Company Accounting Oversight Board (UnitedStates).  Those standards require that we plan and perform the audit toobtain reasonable assurance about whether the financial statements are free ofmaterial misstatement.  The Company is not required to have, nor were weengaged to perform, an audit of its internal control over financialreporting.  Our audits included consideration of internal control overfinancial reporting as a basis for designing audit procedures that areappropriate in the circumstances, but not for the purpose of expressing anopinion on the effectiveness of the Company’s internal control over financialreporting.  Accordingly, we express no such opinion.  An audit alsoincludes examining, on a test basis, evidence supporting the amounts anddisclosures in the financial statements, assessing the accounting principlesused and significant estimates made by management, as well as evaluating theoverall financial statement presentation.  We believe that our auditsprovide a reasonable basis for our opinion.

 

In our opinion, such consolidated financialstatements present fairly, in all material respects, the financial position ofWII Components, Inc. and subsidiaries**asof December 31, 2006, and the results of their operations and their cashflows for each of the two years ended December 31, 2006, in conformitywith accounting principles generally accepted in the United States ofAmerica.  Also, in our opinion, suchfinancial statement schedule, when considered in relation to the basicconsolidated financial statements taken as a whole, presents fairly in allmaterial respects the information set forth therein.

 

*/s/ Deloitte & ToucheLLP*

 

Minneapolis, MinnesotaMarch 27, 2007

 

 

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###### ** **

###### **WII COMPONENTS, INC.AND SUBSIDIARIES**

**CONSOLIDATEDBALANCE SHEETS**

**DECEMBER 31,2007 AND 2006**

**(In thousands,except share and per share amounts)**

 
| ** **                                                                                      | ** ** | **2007**   | ** ** | **2006**   | ** ** |
|-------------------------------------------------------------------------------------------------|------------|------------|------------|------------|------------|
| ASSETS                                                                                          | ** ** | ** ** | ** ** | ** ** | ** ** |
| CURRENT ASSETS:                                                                                 |       |       |       |       |       |
| Cash and cash equivalents                                                                       |       | $          | 19,574     |       | $          | 8,048 |   |
| Accounts receivable—net of allowance for doubtful accounts of $131  and $104, respectively |       | 13,669     |       | 11,322     |       |
| Inventories                                                                                     |       | 20,825     |       | 21,500     |       |
| Deferred income taxes                                                                           |       | 1,866      |       | 1,422      |       |
| Other current assets                                                                            |       | 614        |       | 486        |       |
| Total current assets                                                                            |       | 56,548     |       | 42,778     |       |
| PROPERTY, PLANT, AND  EQUIPMENT:                                                                |       |       |       |       |       |
| Land                                                                                            |       | 3,439      |       | 3,439      |       |
| Buildings and yards                                                                             |       | 26,023     |       | 25,703     |       |
| Equipment                                                                                       |       | 57,148     |       | 49,971     |       |
| Less accumulated depreciation                                                                   |       | (25,963    | )          | (19,237    | )          |
| Property, plant, and equipment—net                                                         |       | 60,647     |       | 59,876     |       |
| GOODWILL AND OTHER ASSETS:                                                                      |       |       |       |       |       |
| Goodwill                                                                                        |       | 112,748    |       | 108,748    |       |
| Customer relationship—net                                                                  |       | 11,581     |       | 13,239     |       |
| Noncompete agreements—net                                                                  |       | 99         |       | 384        |       |
| Other assets                                                                                    |       | 6,334      |       | 5,289      |       |
| Total goodwill and other assets                                                                 |       | 130,762    |       | 127,660    |       |
| TOTAL                                                                                           |       | $          | 247,957    |       | $          | 230,314 |   |
| **LIABILITIES AND STOCKHOLDERS’  EQUITY**                                                  | ** ** | ** ** | ** ** | ** ** | ** ** |
| CURRENT LIABILITIES:                                                                            |       |       |       |       |       |
| Current maturities of capital lease obligations                                                 |       | $          | 530        |       | $          | 581 |   |
| Current maturities of long-term debt                                                            |       | 754        |       | —     |       |
| Accounts payable                                                                                |       | 3,302      |       | 4,937      |       |
| Accrued payroll                                                                                 |       | 4,185      |       | 3,826      |       |
| Other current liabilities                                                                       |       | 20,744     |       | 12,101     |       |
| Total current liabilities                                                                       |       | 29,515     |       | 21,445     |       |
| LONG-TERM DEBT—Net of  current maturities                                                  |       | 123,448    |       | 127,500    |       |
| CAPITAL LEASE  OBLIGATIONS—Net of current maturities                                       |       | —     |       | 530        |       |
| DEFERRED INCOME TAXES                                                                           |       | 6,396      |       | 2,560      |       |
| OTHER LONG-TERM LIABILITIES                                                                     |       | 2,729      |       | 300        |       |
| COMMITMENTS AND  CONTINGENCIES (Note 7)                                                         |       |       |       |       |       |
| STOCKHOLDERS’ EQUITY:                                                                      |       |       |       |       |       |
| Common stock:                                                                                   |       |       |       |       |       |
| Voting                                                                                          |       | —     |       | 217        |       |
| Nonvoting,                                                                                      |       | —     |       | 9          |       |
| Additional paid-in capital                                                                      |       | 71,241     |       | 56,244     |       |
| Retained earnings                                                                               |       | 14,628     |       | 21,509     |       |
| Total stockholders’ equity                                                                 |       | 85,869     |       | 77,979     |       |
| TOTAL                                                                                           |       | $          | 247,957    |       | $          | 230,314 |   |

 

See notes to consolidatedfinancial statements.

 

21

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**WIICOMPONENTS, INC. AND SUBSIDIARIES**

**CONSOLIDATED STATEMENTS OF EARNINGS**

**(In thousands)**

 
| ** **                                | ** ** | **Year Ended December 31,** | ** ** |
|-------------------------------------------|------------|----------------------------------|------------|
| ** **                                | ** ** | **2007**                         | ** ** | **2006** | ** ** | **2005** | ** ** |
| NET SALES                                 |       | $                                | 249,303    |   | $ | 285,633 |   | $ | 259,603 |   |
| COST OF SALES                             |       | 205,063                          |       | 237,289 |   | 217,625 |   |
| Gross profit                              |       | 44,240                           |       | 48,344 |   | 41,978 |   |
| OPERATING EXPENSES:                       |       |                             |       |   |   |   |   |
| General and administrative                |       | 20,792                           |       | 14,869 |   | 11,581 |   |
| Selling and marketing                     |       | 3,253                            |       | 3,287 |   | 3,222 |   |
| (Gain) loss on sale of assets             |       | 51                               |       | (132 | ) | 2 |   |
| Total operating expenses                  |       | 24,096                           |       | 18,024 |   | 14,805 |   |
| OPERATING INCOME                          |       | 20,144                           |       | 30,320 |   | 27,173 |   |
| OTHER INCOME (EXPENSE):                   |       |                             |       |   |   |   |   |
| Interest income                           |       | 472                              |       | 89 |   | 45 |   |
| Interest expense                          |       | (15,460                          | )          | (14,038 | ) | (13,561 | ) |
| Other (expense) income                    |       | (19                              | )          | (1 | ) | 5 |   |
| Total other expense                       |       | (15,007                          | )          | (13,950 | ) | (13,511 | ) |
| INCOME BEFORE PROVISION  FOR INCOME TAXES |       | 5,137                            |       | 16,370 |   | 13,662 |   |
| INCOME TAXES                              |       | 2,096                            |       | 6,627 |   | 5,487 |   |
| NET EARNINGS                              |       | $                                | 3,041      |   | $ | 9,743 |   | $ | 8,175 |   |

 

See notes to consolidatedfinancial statements.

 

 

22

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**W****IICOMPONENTS, INC. AND SUBSIDIARIES**

**CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY**

**(In thousands, except share amounts)**

 
| ** **                                    | ** ** | **Common Stock** | ** ** | ** **    | ** ** | ** ** | ** ** | ** ** | ** ** |
|-----------------------------------------------|------------|------------------|------------|---------------|------------|------------|------------|------------|------------|
| ** **                                    | ** ** | **Voting**       | ** ** | **Nonvoting** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** |
| ** **                                    | ** ** | **Shares**       | ** ** | **Amount**    | ** ** | **Shares** | ** ** | **Amount** | ** ** | **Additional  Paid-in  Capital** | ** ** | **Retained  Earnings** | ** ** | **Total** | ** ** |
| BALANCE—January 1, 2005             |       | 20,734,843       |       | $             | 207        |       | 854,261    |       | $          | 9 |   | $ | 45,410 |   | $ | 3,591 |   | $ | 49,217 |   |
| Stock compensation expense                    |       |             |       |          |       |       |       |       |       | 1,780 |   |   |   | 1,780 |   |
| Stock issued to fund acquisition              |       | 1,016,488        |       | 10            |       |       |       |       |       | 4,737 |   |   |   | 4,747 |   |
| Net earnings                                  |       |             |       |          |       |       |       |       |       |   |   | 8,175 |   | 8,175 |   |
| BALANCE—December 31, 2005           |       | 21,751,331       |       | $             | 217        |       | 854,261    |       | $          | 9 |   | $ | 51,927 |   | $ | 11,766 |   | $ | 63,919 |   |
| Stock compensation expense                    |       |             |       |          |       |       |       |       |       | 4,294 |   |   |   | 4,294 |   |
| Stock issued                                  |       | 10,750           |       | 0             |       |       |       |       |       | 23 |   |   |   | 23 |   |
| Net earnings                                  |       |             |       |          |       |       |       |       |       |   |   | 9,743 |   | 9,743 |   |
| BALANCE—December 31, 2006           |       | 21,762,081       |       | $             | 217        |       | 854,261    |       | $          | 9 |   | $ | 56,244 |   | $ | 21,509 |   | $ | 77,979 |   |
| Net earnings                                  |       |             |       |          |       |       |       |       |       |   |   | 3,041 |   | 3,041 |   |
| Stock-based compensation                      |       | 100              |       |          |       |       |       |       |       | 100 |   |   |   | 100 |   |
| Recapitalization of stock                     |       | (21,762,081      | )          | (217          | )          | (854,261   | )          | (9         | )          |   |   | 226 |   | 0 |   |
| Effect of adoption of FIN48                   |       |             |       |          |       |       |       |       |       |   |   | 1,449 |   | 1,449 |   |
| Amount due to Sellers                         |       |             |       |          |       |       |       |       |       |   |   | (6,043 | ) | (6,043 | ) |
| Variable stock option pricing                 |       |             |       |          |       |       |       |       |       | 1,029 |   |   |   | 1,029 |   |
| Recapitalization-equity contribution          |       |             |       |          |       |       |       |       |       | 21,747 |   | (256 | ) | 21,491 |   |
| Recapitalization and repurchase stock options |       |             |       |          |       |       |       |       |       | (7,879 | ) | (2,689 | ) | (10,568 | ) |
| Expenses paid on behalf of Parent             |       |             |       |          |       |       |       |       |       |   |   | (2,609 | ) | (2,609 | ) |
| BALANCE—December 31, 2007           |       | 100              |       | $             | —     |       | 0          |       | $          | — |   | $ | 71,241 |   | $ | 14,628 |   | $ | 85,869 |   |

 

See notes to consolidatedfinancial statements.

 

 

23

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**WIICOMPONENTS, INC. AND SUBSIDIARIES**

**CONSOLIDATED STATEMENTS OF CASH FLOWS**

**(In thousands)**

 
| ** **                                                                           | ** ** | **Year Ended December 31,** | ** ** |
|--------------------------------------------------------------------------------------|------------|----------------------------------|------------|
| ** **                                                                           | ** ** | **2007**                         | ** ** | **2006** | ** ** | **2005** | ** ** |
| OPERATING ACTIVITIES:                                                                |       |                             |       |   |   |   |   |
| Net earnings                                                                         |       | $                                | 3,041      |   | $ | 9,743 |   | $ | 8,175 |   |
| Adjustments to reconcile net earnings to net cash provided by  operating activities: |       |                             |       |   |   |   |   |
| Depreciation and amortization                                                        |       | 8,712                            |       | 7,925 |   | 6,760 |   |
| Amortization of debt issue costs                                                     |       | 2,453                            |       | 1,077 |   | 1,054 |   |
| Deferred income taxes                                                                |       | 3,392                            |       | (1,714 | ) | (234 | ) |
| (Gain) loss on sale of property, plant, and equipment                                |       | 51                               |       | (132 | ) | 2 |   |
| Stock compensation expense                                                           |       | 1,130                            |       | 4,294 |   | 1,780 |   |
| Change in operating assets and liabilities:                                          |       |                             |       |   |   |   |   |
| Accounts receivable                                                                  |       | (2,347                           | )          | 3,360 |   | (4,750 | ) |
| Inventories                                                                          |       | 675                              |       | (730 | ) | (2,929 | ) |
| Other current assets                                                                 |       | (73                              | )          | 899 |   | 649 |   |
| Accounts payable                                                                     |       | (1,368                           | )          | (1,823 | ) | 149 |   |
| Accrued payroll and other current liabilities                                        |       | (1,943                           | )          | 227 |   | 2,334 |   |
| Current tax benefit due to Sellers                                                   |       | 6,719                            |       | — |   | — |   |
| Other long-term liabilities                                                          |       | 116                              |       | 300 |   | — |   |
| Total adjustments                                                                    |       | 17,517                           |       | 13,683 |   | 4,815 |   |
| Net cash provided by operating activities                                            |       | 20,558                           |       | 23,426 |   | 12,990 |   |
| INVESTING ACTIVITIES:                                                                |       |                             |       |   |   |   |   |
| Purchases of property, plant, and equipment                                          |       | (7,896                           | )          | (16,231 | ) | (11,136 | ) |
| DMI acquisition                                                                      |       | —                           |       | — |   | (9,289 | ) |
| DMI earn-out payment                                                                 |       | (5,000                           | )          | (2,000 | ) | — |   |
| Proceeds from sale of property, plant, and equipment                                 |       | 38                               |       | 205 |   | 234 |   |
| Change in other assets                                                               |       | —                           |       | — |   | (17 | ) |
| Net cash used in investing activities                                                |       | (12,858                          | )          | (18,026 | ) | (20,208 | ) |
| FINANCING ACTIVITIES:                                                                |       |                             |       |   |   |   |   |
| Principal payments of long-term debt                                                 |       | (14,031                          | )          | (2,256 | ) | (16,655 | ) |
| Borrowings of long-term debt                                                         |       | 10,152                           |       | 900 |   | 23,500 |   |
| Recapitalization - equity contribution                                               |       | 21,747                           |       | — |   | — |   |
| Issuance of common stock                                                             |       | —                           |       | 23 |   | 4,747 |   |
| Debt issuance costs                                                                  |       | (3,554                           | )          | — |   | (395 | ) |
| Recapitalization - repurchase of stock options                                       |       | (7,879                           | )          | — |   | — |   |
| Expenses paid on behalf of Parent                                                    |       | (2,609                           | )          | — |   | — |   |
| Net cash provided by (used in) provided by financing activities                      |       | 3,826                            |       | (1,333 | ) | 11,197 |   |
| NET INCREASE IN CASH                                                                 |       | 11,526                           |       | 4,067 |   | 3,979 |   |
| Cash and cash  equivalents—Beginning of period                                  |       | 8,048                            |       | 3,981 |   | 2 |   |
| Cash and cash  equivalents—End of period                                        |       | $                                | 19,574     |   | $ | 8,048 |   | $ | 3,981 |   |
| SUPPLEMENTAL CASH FLOW  INFORMATION:                                                 |       |                             |       |   |   |   |   |
| Cash paid for interest                                                               |       | $                                | 12,983     |   | $ | 12,884 |   | $ | 12,498 |   |
| Cash paid for income taxes                                                           |       | $                                | 714        |   | $ | 8,345 |   | $ | 3,682 |   |
| NONCASH ACTIVITY:                                                                    |       |                             |       |   |   |   |   |
| Recapitalization - repurchase of common stock funded by the Parent                   |       | $                                | 226        |   | $ | — |   | $ | — |   |
| Future tax benefit due to Sellers in other long-term liabilities                     |       | $                                | 2,313      |   | $ | — |   | $ | — |   |
| Capital Expenditures in Accounts Payable                                             |       | $                                | 152        |   | $ | 419 |   | $ | 651 |   |
| Note receivable in connection with the sale of property, plant and  equipment        |       | $                                | 111        |   | $ | 167 |   | $ | — |   |
| DMI earn out-contingent consideration                                                |       | $                                | —     |   | $ | 1,000 |   | $ | 2,000 |   |
| Effect of adoption of FIN48                                                          |       | $                                | 1,449      |   | $ | — |   | $ | — |   |

 

See notes to consolidatedfinancial statements.

 

 

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**WIICOMPONENTS, INC. AND SUBSIDIARIES**

**NOTES TOCONSOLIDATED FINANCIAL STATEMENTS**

###### **DECEMBER 31, 2007AND 2006**

###### ** **

**1. NATURE OF BUSINESS**

 

***                Company Background***  On January 9, 2007, WIIComponents, Inc. (the “Company”) was acquired by WII Holding, Inc.(“Parent”), a newly formed investment entity controlled by Olympus Growth FundIV, L.P. and Olympus Executive Fund, L.P., each of which is an investment fundmanaged by Olympus Partners. For ease of reference, these two funds are sometimescollectively 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 surviving corporationin the transaction (the “Transaction”), pursuant to an Amended and RestatedAgreement and Plan of Merger, dated as of January 5, 2007, by and amongParent, MergerCo, the Company, and Behrman Capital III L.P.  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$295.5 million, less indebtedness and certain expenses, and subject tocustomary adjustments.  The aggregatepurchase price and related fees and expenses were funded by new creditfacilities and private offerings of debt and equity securities by Parent andthe Company.  The Transaction has beenaccounted for as a recapitalization in the Company’s financial statements, withno adjustments to the historical basis of the Company’s assets andliabilities.  The Company did not pushdown the basis because of the significance of the publicly traded debtoutstanding, which hinders the Parent’s ability to control the form ofownership of the Company.

 

***                Description of Business***  The Company is a leading manufacturer of woodcabinet doors, hardwood components, and engineered wood products in the UnitedStates.  Its products are soldprincipally to leading national and regional kitchen and bathroom cabinetmanufacturers throughout the United States and North America.  Its reputation for high quality and reliableperformance has enabled the Company to establish strong, long-standingrelationships with its customers.  Itscustomers, in turn, distribute products through various sales channels,including specialty kitchen and bathroom cabinetry dealers, home centerretailers, and homebuilders.

 

***Principles ofConsolidation***  The consolidated financial statementsinclude the accounts of the Company and its wholly owned subsidiaries;Woodcraft Industries, Inc. and its wholly owned subsidiaries, PrimeWood, Inc.(“PrimeWood”) and Brentwood Acquisition, Corp. (“Brentwood”) and DimensionMoldings, Inc. (“DMI”) (Note 5). All intercompany accounts andtransactions have been eliminated in the preparation of the consolidatedfinancial statements.

 

**2. SIGNIFICANT ACCOUNTING POLICIES**

 

                ***Cash Equivalents***  All highly liquid investments with anoriginal maturity of three months or less are considered to be cashequivalents.  At times, certain bankdeposits may be in excess of federally insured limits.

 

***                Revenue Recognition***  Sales are recognized when revenue is realizedor realizable and has been earned.  TheCompany’s policy is to recognize revenue and the related cost of sales whenrisk and title passes to the customer. This is generally on the date of shipment, however certain sales areshipped FOB destination and revenue is recognized when received by thecustomer.  Freight billed to customers isincluded in sales and shipping costs are included in cost of sales.  Rights of return amounts are estimable, andthe Company records provisions for anticipated returns at the time revenue isrecognized based on historical experience and current trends.  Provisions for sales returns are recorded asa reduction of net sales.

 

 

25

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***Concentrationof Credit Risk***  The Companyreceives a significant portion of its revenue from two customers.  Loss of one or more of these customers couldadversely affect the Company’s operating results in the near term.  There are no concentrations of businesstransacted within a market or geographic area that would severely impactbusiness in the near term.  The Company’scustomers representing 10% or more of consolidated sales are as follows:

 
| ** ** | ** ** | **Year Ended December 31,** | ** ** |
|------------|------------|----------------------------------|------------|
| ** ** | ** ** | **2007**                         | ** ** | **2006** | ** ** | **2005** | ** ** |
| A          |       | 36.3                             | %          | 36.2 | % | 27.4 | % |
| B          |       | 17.9                             |       | 17.0 |   | 17.1 |   |

 

The customers that represent 10%or more of consolidated accounts receivable as of December 31 are asfollows:

 
| ** ** | ** ** | **2007** | ** ** | **2006** | ** ** |
|------------|------------|----------|------------|----------|------------|
| A          |       | 43.6     | %          | 38.5     | %          |
| B          |       | 8.7      |       | 13.5     |       |
| C          |       | 10.2     |       | 4.5      |       |

 

***AccountsReceivable ***Accounts receivablecomprises primarily trade receivables related to the sale of the Company’sproducts to its customers.  Credit is granted in thenormal course of business, without collateral or any other security, to supportamounts due.  The Company performsongoing evaluations of its customers and continuously monitors collections andpayments.  The Company records anallowance for doubtful accounts based on the aging of the underlyingreceivables, historical experience, and any specific collection issues it hasidentified.  Accounts outstanding longerthan the contractual payments terms are considered past due.  The Company writes off accounts receivablewhen they become uncollectible, and payments subsequently recorded on suchreceivables are credited to the allowance for doubtful accounts.  Accounts receivable balances written off havebeen within management’s expectations and have not exceeded allowancesprovided.

 

***Inventories ***Inventories as of December 31consisted of the following (in thousands):

 
| ** **      | ** ** | **2007** | ** ** | **2006** | ** ** |
|-----------------|------------|----------|------------|----------|------------|
| Raw materials   |       | $        | 11,021     |     | $          | 12,270 |   |
| Work in process |       | 5,187    |       | 4,768    |       |
| Finished goods  |       | 4,198    |       | 5,037    |       |
| LIFO adjustment |       | 419      |       | (575     | )          |
|            |       | $        | 20,825     |     | $          | 21,500 |   |

 

The majority of inventory isvalued at the lower of last-in, first-out (“LIFO”) cost or market. Theremainder of the inventory is valued under the first-in, first-out method(“FIFO”).  As of December 31, 2007,and 2006, inventory on the LIFO method represented 65% and 61% of the inventorybalance, respectively.

 

***Property,Plant, and Equipment***  Property,plant, and equipment are recorded at cost. Improvements are capitalized and expenditures for maintenance andrepairs are charged to operations as incurred. Depreciation is computed using the straight-line method (for financialreporting purposes) and the accelerated method (for income tax reportingpurposes).  Estimated useful lives forfinancial reporting purposes are as follows:

 
| Buildings and yards           |   | 20  - 40 years |   |
|-------------------------------|--------|----------------|--------|
| Equipment (machinery)         |   | 7  - 10 years  |   |
| Equipment (computer  related) |   | 3  - 5 years   |   |

 

Equipment includes assets under capital leases of $1.7million and $2.4 million and accumulated depreciation and amortization relatedto such assets of $0.8 million and $0.9 million at December 31, 2007 and2006, respectively.

 

Depreciation for the years ended December 31, 2007,2006, and 2005 was $6.8 million, $5.8 million, and $5.2 million, respectively.

 

***Goodwill***  The Company evaluates goodwill for impairmentat least annually or when events or changes in circumstances indicateimpairment.  The Company has elected to performits annual tests for goodwill impairment as of December 31 of eachyear.  Fair value is measured using amarket multiple valuation method.  The carryingamount of goodwill

 

26

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increasedfrom $108.7 million at December 31, 2006 to $112.7 million at December 31,2007 due to an accelerated Dimension Moldings, Inc. earn-out payment as aresult of the change in control caused by the Transaction.

 

***Customer Relationship ***Customer relationship relates to intangible assetsrecorded through previous acquisitions for relationships with significantcustomers.  The original cost of thesecustomer relationships is $16.6 million, and the related accumulatedamortization as of December 31, 2007 and 2006 is $5.0 million and $3.4million, respectively.  The intangibleassets are being amortized over the estimated life of 10 years. Amortizationfor the year ended December 31, 2007, 2006, and 2005 was $1.6 million,$1.7 million, and $1.2 million, respectively. Expected amortization is as follows for the years ended 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 to agreements with the formerowners of Brentwood, Grand Valley, and Dimension Moldings, Inc. Theoriginal cost of these noncompete agreements is $2.4 million, and the relatedaccumulated amortization as of December 31, 2007 and 2006 is $2.3 millionand $2.0 million, respectively. Noncompete rights are being amortized over the applicable terms of theagreements (5 years, 7 years, and 5 years, respectively).  The noncompete agreement with the formerowner of Brentwood was fully amortized in July 2007.  The noncompete agreements with the formerowners of Grand Valley and Dimension Moldings, Inc. are expected to befully amortized by April 2011 and July 2010, respectively.  Amortization for the years ended December 31,2007, 2006, and 2005 was $285,000, $464,000, and $453,000, respectively.  As of December 31, 2007 the noncompeteintangible asset was $0.1 million. Expected amortization is as follows for the years ended December 31(in thousands):

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

 

***                Other Assets***  Other assets primarily represent financingfees and are amortized straight-line, which approximates the effective interestmethod, over the term of the related financing agreement.  In conjunction with the 2007 Transaction, theCompany terminated its credit agreement and wrote off $0.3 million and enteredinto a new credit facility incurring additional financing fees of $3.6 million.

 

***                Impairment of Long-Lived Assets***  The Company evaluates the carrying value oflong-lived assets for impairment when events or changes in circumstances indicatethat the carrying amount of an asset may not be recoverable.  If impairment indicators are present and theestimated future undiscounted cash flows are less than the carrying value ofthe assets, the carrying value is reduced to the estimated fair value asmeasured by the associated discounted cash flows.  There was no impairment write-downs duringany of the periods presented.

 

                ***Fair Value of Financial Instruments***  The carrying amounts of cash and cashequivalents, accounts receivable, accounts payable and accrued liabilities arethe approximate fair value, because of the short maturity of theseinstruments.  The fair value of long-termdebt is based on quoted market prices for the same or similar issues or on thecurrent rates offered to the Company for a term equal to the same remainingmaturities.  The fair value of the TermLoan (Note 6) approximates the carrying amount due to the variable interestrate on this obligation.  Based on quotedmarket values, the fair value of the Senior Notes was determined to be $120.2million and $123.6 million at December 31, 2007 and December 31,2006, respectively.

 

***                Other Current Liabilities ***Other current liabilitiesconsisted of the following (in thousands):

 
| ** **                                | ** ** | **December 31,** | ** ** |
|-------------------------------------------|------------|-----------------------|------------|
| ** **                                | ** ** | **2007**              | ** ** | **2006** | ** ** |
| Self-insurance reserve                    |       | $                     | 2,887      |   | $ | 2,004 |   |
| Accrued interest expense                  |       | 4,663                 |       | 4,645 |   |
| Income tax payable                        |       | 4,058                 |       | 1,266 |   |
| Contingent consideration  of acquisitions |       | —                |       | 1,000 |   |
| Accrued Bonuses                           |       | 177                   |       | 782 |   |
| Payment due to former  shareholders       |       | 6,719                 |       | — |   |
| Other                                     |       | 2,240                 |       | 2,404 |   |
|                                      |       | $                     | 20,744     |   | $ | 12,101 |   |

 

27

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                TheCompany is partially self-insured for medical and workers’ compensation costs,subject to maximum individual stop-loss amounts.  The Company has established reserves relatedto insurance that are included in other current liabilities as noted above.

 

***                Income Taxes***  The Company and its Parent file aconsolidated federal income tax return, and federal income taxes are allocatedto the Company based upon the respective taxable earnings or loss.  The Company accounts for income taxes inaccordance with the liability method of accounting, which requires recognitionof deferred tax assets and liabilities for the expected future tax consequencesof events that were included in the consolidated financial statements and taxreturns.  Under this method, deferred taxassets and liabilities are determined based on the difference between thefinancial statement and tax basis of assets and liabilities using enacted taxrates expected to be in effect for the year in which the differences areexpected to reverse.  The Company recordsa valuation allowance when it is more likely than not that the net deferred taxassets will not be realized.

 

***Uncertain Tax Positions***  The Companyadopted the provisions of Financial Accounting Standards Board (“FASB”)Interpretation No. 48 *Accounting for Uncertaintyin Income Taxes-an interpretation of FASB Statement No. 109*(“FIN 48”), on January 1, 2007.  FIN48 clarifies the accounting for uncertainty in income taxes by definingcriteria that a tax position on an individual matter must meet before thatposition is recognized in the financial statements.  Additionally, FIN 48 provides guidance formeasurement, derecognition, classification, interest and penalties, accountingfor interim periods, disclosures and transition.  FIN 48 requires the recognition of thefinancial statement benefit of a tax position only after determining that therelevant tax authority would more likely than not sustain the positionfollowing an audit. For tax positions meeting the more-likely-than-notthreshold, the amount recognized in the financial statements is the largestbenefit that has a greater than 50 percent likelihood of being realized uponultimate settlement with the relevant tax authority.

 

                As a result of the implementation of FIN 48, theCompany recognized a $1.4 million decrease in the liability for uncertain taxpositions which, as required, was accounted for as an increase to the January 1,2007 balance of retained earnings.  Thedecrease is the result of the derecognition of certain tax positions taken inprior years that management feels are sustainable based on audit results.  A reconciliation of the beginning and endingamount of unrecognized tax benefits is as follows:

 
| Balance at January 1,  2007                              |   | $      | 113    |   |
|---------------------------------------------------------------|--------|--------|--------|--------|
| Additions based on tax  positions related to the current year |   | — |   |
| Additions for tax  positions of prior years                   |   | 3      |   |
| Reductions for tax  positions of prior years                  |   | — |   |
| Settlements                                                   |   | — |   |
| Balance at  December 31, 2007                            |   | $      | 116    |   |

 

In addition, thefollowing information required by FIN 48 is provided:

 

·                                                    Unrecognized tax benefits wereapproximately $113,000 and $116,000 as of January 1, 2007 and December 31,2007, respectively.  If theseunrecognized tax benefits were recognized approximately $116,000 would impactthe effective tax rate.  While it isexpected that the amount of unrecognized tax benefits will change in the next12 months, we do not expect the change to have a significant impact on theresults of operations or the consolidated financial position of the Company.

 

·                                                    The Company recognizes interest expenseand penalties related to the above unrecognized tax benefit within income taxexpense.  The Company had accruedinterest and penalties of approximately $22,000 and $25,000 as of January 1,2007 and December 31, 2007, respectively.

 

·                                                    The Company is currently open to an auditunder the statute of limitations by the Internal Revenue Service for the yearsending December 31, 2003 through 2006. The Company files in numerous state jurisdictions with varying statutesof limitation.  The Company’sunrecognized state tax benefits are related to state returns open from 2002through 2006 depending on each state’s statute of limitations.

 

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***Stock Options***  The Company maintained the amended 2003 Stock Optionand Grant Plan (“2003 Plan”) through January 9, 2007, at which time the2003 Plan was terminated.  In addition,all of the options, which were outstanding at the time of the Transaction weredeemed to be fully vested and then terminated on January 9, 2007.  The 2003 Plan allowed the granting of bothincentive stock options and nonqualified stock options.  Under the terms for the amended 2003 Plan, amaximum of 3,000,000 shares of stock, subject to adjustment, were madeavailable for awards to officers, employees, directors, consultants, and otherkey persons of the Company.  Awardsincluded, but were not limited to, stock options, restricted stock, unrestrictedstock awards, and substitute performance awards.  Option awards were generally granted with anexercise price equal to the calculated fair market value of the Company’sstock.  Options generally vested over fouryears and had 10-year contractual terms.

 

Information regarding stock options under all plans issummarized as follows:

 
| ** **                                     | ** ** | **Year Ended  December 31,****2007** | ** **   | **Year Ended  December 31,****2006** | ** ** | **Year Ended  December 31,****2005** | ** **                   |
|------------------------------------------------|------------|-------------------------------------------|--------------|-------------------------------------------|------------|-------------------------------------------|------------------------------|
| ** **                                     | ** ** | **Options**                               | ** **   | **Weighted  Average  Exercise  Price**    | ** ** | **Options**                               | ** **                   | **Weighted  Average  Exercise  Price** | ** ** | **Options** | ** ** | **Weighted  Average  Exercise  Price** | ** ** |
| Outstanding, beginning of period               |       | 2,518,500                                 |         | $                                         | 2.86       |                                      | 2,351,000                    |   | $ | 2.62 |   | 2,056,000 |   | $ | 2.32 |   |
| Granted                                        |       | —                                    |         | $                                         | —     |                                      | 250,000                      |   | $ | 5.51 |   | 295,000 |   | $ | 4.67 |   |
| Exercised                                      |       | —                                    |         | $                                         | —     |                                      | 10,750                       |   | $ | 2.12 |   | — |   | $ | — |   |
| Canceled                                       |       | 2,518,500                                 |         | $                                         | 2.86       |                                      | 71,750                       |   | $ | 4.26 |   | — |   | $ | — |   |
| Outstanding, end of period                     |       | —                                    |         | $                                         | —     |                                      | 2,518,500                    |   | $ | 2.86 |   | 2,351,000 |   | $ | 2.62 |   |
| Vested or expected to vest, end of period      |       | —                                    |         | $                                         | —     |                                      | 2,415,673                    |   | $ | 2.87 |   | — |   | $ | — |   |
| Exercisable, end of period                     |       | —                                    |         | $                                         | —     |                                      | 1,452,125                    |   | $ | 2.28 |   | 893,250 |   | $ | 2.09 |   |
| Weighted average fair value of options granted |       | $                     |  — |                                      |       | $                                         |     1.43 |   |   |   | $ |      1.03 |   |   |
|                                                |            |                                           |              |                                           |            |                                           |                              |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |

 

EffectiveJanuary 1, 2006 the Company adopted Statement of Financial AccountingStandards No. 123(R), *Share Based Payment*(SFAS No. 123(R)), which requires all share-based payments, includinggrants of stock options, to be recognized in the statement of operations as anoperating expense, based on their fair values over the requisite serviceperiod.  Prior to 2006, the Companyutilized the minimum value method for pro forma disclosure purposes under SFAS No. 123,*Accounting for Stock-Based Compensation*.  In conjunction with the adoption of SFAS123(R), the Company utilized the prospective transition method as permitted bySFAS 123(R).  Under this transitionmethod, SFAS No. 123(R) is applied prospectively to all new awardsissued as well as awards modified, repurchased, or canceled after the effectivedate.  The Company continued to accountfor the 2,351,000 options outstanding at the effective date of SFAS 123(R) usingthe accounting principles originally applied to those options.  The Company recorded $1,029,000, $4,294,000and $1,780,000 for the years ended December 31, 2007, 2006, and 2005,respectively, of related stock-based compensation expense.  The total income tax benefit for share-basedcompensation arrangements was $400,000, $1,739,000 and $715,000 for the yearsended December 31, 2007, 2006, and 2005, respectively.  In accordance with the prospective transitionmethod of SFAS 123(R), results for prior periods have not been restated.

 

On March 9,2006 the Company issued 10,000 stock options under the 2003 Plan to anemployee.  The options vest over a fouryear period, and have an exercise price per share of $4.74 at the date ofissuance.  The Company used theBlack-Scholes option pricing model to determine the fair value of options.  The fair value of options was calculated tobe $1.80 per share.

 

On May 31,2006 the Company issued 80,000 stock options under the 2003 Plan to anemployee.  The options vest over a fouryear period, and have an exercise price per share of $5.54 at the date ofissuance.  The Company used theBlack-Scholes option pricing model to determine fair value of options.  The fair value of options was calculated tobe $2.21 per share.

 

On May 31,2006 the Company issued 160,000 incentive stock options under the 2003 Plan toan employee.  The

 

 

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options fully vest at theearlier of a sale event or June 30, 2009, and have an exercise price pershare of $5.54 at the date of issuance. The options’ exercise price increases by $0.83 on July 1, 2007, andeach anniversary date thereafter until termination of the options.  The Company used a bi-nominal option pricingmodel to determine the average fair value of these options due to thisadjusting exercise price.  The fair valueof these options was calculated to be $1.02 per share.  The activity for these options is immaterialand is therefore not stated separately, but included in the tables above withthe other option activity.

 

In August andOctober 2005, the Company granted 255,000 and 40,000 options,respectively, under its 2003 Plan.  Thefair value of these options was estimated on the date of the grant using theBlack-Scholes option-pricing model with the following assumptions: a risk-freeinterest rate in August and October of 4.2% and 4.4%, respectively,an expected life of six years, and no volatility.

 

                ***Restricted Stock ***Parent issued Restricted Stock Agreements on August 31,2007 and September 14, 2007 to certain Company management personneltotaling 55,219 shares of Parent common stock. The fair value of the Restricted Stock was approximately $397,023 on thedate of the grant.  Based on the fairvalue of the Restricted Stock at the date of grant and related vesting, therewas $0.1 million of related compensation expense recorded for the year ending December 31,2007.  The restricted stock becomes fullyvested after seven years, or earlier, if certain milestones, as defined, aremet.  The restricted stock was consideredcontributed capital to the Company from its Parent.

 

                ***Derivative Instruments and HedgingActivities***  Allderivatives, whether designated in hedging relationships or not, are recordedon the balance sheet at fair value.  Ifthe derivative is designated in a cash flow hedge, changes in the fair value ofthe derivative are recorded in other comprehensive income and recognized in thestatement of earnings when the hedged item affects earnings.  SFAS No. 133, *Accounting for Derivative Instruments and Hedging Activities*,as amended, defines the requirements for designation and documentation ofhedging relationships as well as ongoing effectiveness assessments in order touse hedge accounting.  For a derivativethat is not designated as or does not qualify as a hedge, changes in fair valueare recognized in earnings.  Managementhas determined that the Company has no freestanding or embedded derivatives asof December 31, 2007 and 2006.  TheCompany’s policy is to not use freestanding derivatives for speculative purposes.

 

***                Use of Estimates***  The preparation of financial statements inconformity with accounting principles generally accepted in the United Statesof America requires management to make estimates and assumptions that affectthe reported amounts of assets and liabilities and disclosure of contingentassets and liabilities at the date of the financial statements and the reportedamounts of revenues and expenses during the reporting period.  Actual results could differ from thoseestimates.

 

***                New Accounting Pronouncements  ***In September 2006, the FASB issued SFASNo. 157,*Fair Value Measurements. *SFAS No. 157 defines fairvalue, establishes a framework for measuring fair value in generally acceptedaccounting principles and expands disclosures about fair value measurements.  This Statement applies under other accountingpronouncements that require or permit fair value measurements, the FASB havingpreviously concluded in those accounting pronouncements that fair value is therelevant measurement attribute.  Accordingly,this Statement does not require any new fair value measurements.  SFAS No. 157 is effective for fiscalyears beginning after December 15, 2007. We plan to adopt SFAS No. 157 beginning in the first quarter offiscal 2008.  We are currently evaluatingthe impact, if any, the adoption of SFAS No. 157 will have on ouroperating income or net earnings.

 

In February 2007, FASB Issued SFAS No. 159, *Establishing the Fair Value Option for FinancialAssets and Liabilities*(SFAS 159). The Financial Accounting Standards Board has issued SFAS 159 to permitall entities to choose to elect, at specified election dates, to measureeligible financial instruments at fair value. An entity shall report unrealized gains and losses on items for whichthe fair value option has been elected in earnings at each subsequent reportingdate, and recognize upfront costs and fees related to those items in earningsas incurred and not deferred.  SFAS 159applies to fiscal years beginning after November 15, 2007, or our 2008fiscal year, with early adoption permitted for an entity that has also electedto apply the provisions of SFAS 157, Fair Value Measurements.  An entity is prohibited from retrospectivelyapplying SFAS 159, unless it chooses early adoption.  SFAS 159 also applies to eligible itemsexisting at November 15, 2007 (or early adoption date).  The Company has not completed its analysisbut does not expect the adoption of SFAS 159 to have a material effect on theCompany’s financial condition or results of operations.

 

In December 2007, the FASB issuedSFAS 141(R), “Business Combinations,” which requires the acquiring entityin a business combination to recognize and measure all assets and liabilitiesassumed in the transaction and any non-controlling interest in the acquiree atfair value as of the acquisition date. SFAS 141 (R) also establishes guidance for the measurement ofthe acquirer shares issued in consideration for a business combination, therecognition of contingent consideration, the

 

 

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accountingtreatment pre-acquisition gain and loss contingencies, the treatment ofacquisition related transaction costs, and the recognition of changes in theacquirer’s income tax valuation allowance and deferred taxes.  SFAS 141(R) is effective for fiscalyears beginning after December 15, 2008 and is to be applied prospectivelyas of the beginning of the fiscal year in which the statement is applied.  Early adoption is not permitted.  SFAS 141(R) will be effective forus beginning with the 2009 fiscal year. We are evaluating the potential impact of SFAS 141(R), if any, onour financial statements.

 

In December 2007, theFASB issued SFAS 160, “Noncontrolling Interest in Consolidated FinancialStatements — an amendment of ARB 51,” which establishes accounting andreporting standards that require noncontrolling interests to be reported as acomponent of equity.  SFAS 160 alsorequires that changes in a parent’s ownership interest while the parent retainsits controlling interest be accounted for as equity transactions and that anyretained noncontrolling equity investment upon the deconsolidation of asubsidiary be initially measured at fair value. SFAS 160 is effective for fiscal years beginning after December 15,2008 and is to be applied prospectively as of the beginning of the fiscal yearin which the statement is applied. SFAS 160 will be effective for us beginning with the 2009 fiscalyear.  We are evaluating the potentialimpact of SFAS 160, if any, on our consolidated financial statements.

 

**3. 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. Hardwood products produce a comprehensive line ofhardwood doors and components. Engineered wood products includes rigid thermofoil doors and components,veneer raised panels, and wrapped profiles.

 

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

 

| ** **               | ** ** | **Year Ended December 31,** | ** ** |
|--------------------------|------------|----------------------------------|------------|
| ** **               | ** ** | **2007**                         | ** ** | **2006** | ** ** | **2005** | ** ** |
| Hardwood products        |       | $                                | 208,913    |   | $ | 233,392 |   | $ | 201,402 |   |
| Engineered wood products |       | 40,390                           |       | 52,241 |   | 58,201 |   |
| Total                    |       | $                                | 249,303    |   | $ | 285,633 |   | $ | 259,603 |   |

 

                Substantiallyall sales are made within North America.

 

**4. GOODWILL**

 

                Based on the impairment testperformed on December 31, 2007, the Company’s fair value exceeds thecarrying value, resulting in no goodwill impairment.

 

                Thechanges in the carrying amount of goodwill were as follows (in thousands):

 

| ** **                        | ** ** | **Year Ended December 31,** | ** ** |
|-----------------------------------|------------|----------------------------------|------------|
| ** **                        | ** ** | **2007**                         | ** ** | **2006** | ** ** | **2005** | ** ** |
| Balance—Beginning of  period |       | $                                | 108,748    |   | $ | 107,748 |   | $ | 107,601 |   |
| DMI contingent  consideration     |       | 4,000                            |       | 1,000 |   | — |   |
| Purchase accounting  adjustment   |       | —                           |       | — |   | 147 |   |
| Balance—End of period        |       | $                                | 112,748    |   | $ | 108,748 |   | $ | 107,748 |   |

 

**5. RECAPITALIZATION AND OTHERACQUISITION**

 

                OnJanuary 9, 2007, the Company was acquired by Parent, a newly formedinvestment entity controlled by Olympus Funds. The aggregate purchase price paid by Parent for all of the shares ofcapital stock of the Company and options to purchase shares of capital stock ofthe Company in the Transaction was approximately $295.5 million, lessindebtedness and certain expenses, and subject to customary adjustments.  The aggregate purchase price and related feesand expenses were funded by new credit facilities and private offerings of debtand equity securities by Parent and the Company.  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 theTransaction, the Company entered into a new senior credit facility (the “NewSenior Credit Facility”), with Credit Suisse, Cayman Islands Branch, whichprovided for (i) a senior secured first lien term loan facility in

 

 

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anaggregate principal amount of $150.0 million (the “First Lien Term Facility”)and (ii) a senior secured first lien revolving credit facility in anaggregate 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”) of which $10.0 million is available through a subfacilityin the form of letters of credit (See Note 6).

 

                In conjunction with the Transaction, the Parententered into Note Purchase Agreements with OCM Mezzanine Fund II, L.P. andOlympus Growth Fund IV, L.P.  The NotePurchase Agreement with OCM Mezzanine Fund II, L.P. consisted of $43.0 millionsenior payment-in-kind notes with no required principal amortization.  The Note Purchase Agreement with OlympusGrowth Fund IV, L.P. consisted of $43.0 million junior payment-in-kind noteswith no required principal amortization. These notes (the “Parent Notes”) are scheduled to mature in April 2012.  During the term of the Parent Notes, Parentis able at its option to pay interest on the Parent Notes through the issuanceof additional notes. The Company is not liable for, and has not otherwiseguaranteed, 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 Companywas in compliance with the restrictive covenants at December 31,2007.  In addition, the Company islimited in its ability to pay dividends or otherwise make distributions toParent under the New Senior Credit Facility and the indenture governing the 10%Senior Notes due 2012 (the “10% Senior Notes due 2012”).  The Parent Notes are not reflected in theCompany’s consolidated balance sheet due to the significance of the public debtholders’ influence on the Company’s ability to control the form of ownership.  Effective as of June 13, 2007, theParent issued an additional $20.0 million of Parent Notes to Olympus GrowthFund IV, L.P., and purchased $20.0 million of Parent Notes from OCM MezzanineFund II, L.P.

 

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

 

                On December 11, 2006, Parent and MergerCo, in anticipation of the consummationof the Transaction, entered into an employment agreement with Mr. JohnFitzpatrick, as Chief Executive Officer of MergerCo (the “New FitzpatrickEmployment Agreement”).  Pursuant to theNew Fitzpatrick Employment Agreement, upon consummation of the Transaction, theNew Fitzpatrick Employment Agreement superceded and preempted Mr. Fitzpatrick’sprior employment agreement with the Company. On January 9, 2007, byoperation of law upon consummation of the Transaction, the New FitzpatrickEmployment Agreement was assigned by MergerCo to the Company.  Under the New Fitzpatrick EmploymentAgreement, in the event (i) Mr. Fitzpatrick resigns for retirementpurposes from the employment of the Company and its subsidiaries after December 31,2009 (or such earlier date as the Company’s board of directors and Mr. Fitzpatrickmutually agree upon) and (ii) Mr. Fitzpatrick provided at leasttwelve months’ prior written notice to the Company and Parent of suchresignation, then Mr. Fitzpatrick may elect to have Parent repurchase upto 50% of the common equity securities and 50% of the preferred equitysecurities acquired by Mr. Fitzpatrick on January 9, 2007 inconnection with the Transaction at their respective fair market values.  Any such repurchase by Parent shall be subjectto applicable restrictions contained in the Delaware General Corporation Lawand in Parent’s and its subsidiaries’ debt financing agreements withunaffiliated third parties.  If any suchrestrictions prohibit any such repurchase which Parent is otherwise required tomake, the repurchase obligation is suspended until such time as Parent may makesuch repurchase under such restrictions.

 

 

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In conjunction with the Transaction, the previousstockholders of the Company will receive the benefit of certain negotiatedtransaction related tax deductions whenever such deductions are realized.  Due to this agreement, there was $6.7 millionincluded in Other Current Liabilities and $2.3 million included in OtherLong-Term Liabilities as of December 31, 2007.

 

The Company recorded expenses of $10.3 million for theyear ended December 31, 2007 related to the Transaction.  These expenses comprised $1.0 million ofcompensation expense related to accelerated vesting of stock options, $0.2million of employer related payroll taxes for the accelerated vesting of stockoptions, $1.3 million of transaction incentive expenses, $7.0 million oftransaction costs and $0.8 million of financing costs related to the tenderoffer regarding the 10% Senior Notes in the first half of 2007.  In addition to these amounts, the Companycapitalized $4.0 million into goodwill related to the accelerated DMI earn-out,and $3.6 million of deferred financing costs relating to the New Senior CreditFacility.  Parent made a capitalcontribution of $21.7 million to the Company in connection with thesetransaction costs.

 

On July 28, 2005,the Company acquired substantially all of the assets of a moldingsmanufacturing company operating under the name of DMI.  The Company paid a cash purchase price atclosing of $9.3 million, of which, was funded one-half by the sale ofshares of the Company’s voting common stock to the Company’s former stockholders,and the remainder with operating cash and a draw down on the Company’s seniorsecured credit facility.  In addition,the Company was required to pay up to an aggregate of $7.0 million if certainearnings targets are met at the end of each calendar year from 2005 to 2010,which may be accelerated upon certain events. The Company paid $2.0 million of the earn-out consideration in the firstquarter 2006.  As a result of the changein control caused by the Transaction, the remaining $5.0 million potentialearn-out obligation was accelerated and paid on January 9, 2007, whichincluded the $1.0 million accrued on June 30, 2006.  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.  The components of the purchase priceallocation are as follows (in thousands):

 
| Current assets                  |   | $      | 1,504  |   |
|---------------------------------|--------|--------|--------|--------|
| Property, plant, and  equipment |   | 1,271  |   |
| Goodwill                        |   | 1,547  |   |
| Customer Relationship           |   | 8,704  |   |
| Noncompete agreement            |   | 100    |   |
| Assets acquired                 |   | 16,726 |   |
| Liabilities assumed             |   | (437   | )      |
| Net assets acquired             |   | 16,289 |   |
| Contingent consideration        |   | (7,000 | )      |
| Closing purchase price          |   | $      | 9,289  |   |

 

**6. FINANCING ARRANGEMENTS**

 

Long-term debt consisted of thefollowing (in thousands):

 
| ** **                                                           | ** ** | **December 31,  2007** | ** ** | **December 31,  2006** | ** ** |
|----------------------------------------------------------------------|------------|-----------------------------|------------|-----------------------------|------------|
| Senior Notes (10%) due  2012                                         |       | $                           | 119,850    |                        | $          | 120,000 |   |
| First Lien Term Facility,  (7.6% at December 31, 2007) due 2013 |       | 4,352                       |       | 7,500                       |       |
| Total debt                                                           |       | 124,202                     |       | 127,500                     |       |
| Less current maturities                                              |       | 754                         |       | —                      |       |
|                                                                 |       | $                           | 123,448    |                        | $          | 127,500 |   |

 

***Senior Notes ***The Company has 10%Senior Notes outstanding due in 2012.  Subsequent to December 31, 2007, theCompany has purchased and canceled approximately $11.5 million in principalamount of our 10% Senior Notes at a discount. The discount resulted in a gain of approximately $1.7 million.  The Company used available cash andborrowings under its Revolving Facility for payment thereof.

 

Each of the Company’s subsidiaries, which are all100% owned subsidiaries of the Company, have fully and unconditionallyguaranteed the senior notes on a joint and several basis. The Company has noassets or operations independent of its subsidiaries other than the seniornotes and its investments in guarantor subsidiaries.  As a result, the Company has not presentedseparate financial statements of the subsidiary guarantors.

 

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***Credit Facility***** 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 December 31, 2007, the maximumamount of borrowings available to the Company under the Revolving Facility was$12.5 million.  As of December 31,2007 borrowings of $4.4 million were outstanding under the First Lien TermFacility, and nothing was outstanding under the Revolving Facility.  As of December 31, 2007, the outstandingprincipal of such indebtedness bears interest at a fluctuating rate equal toeither the base rate plus 1.75% per annum or LIBOR plus 2.75% per annum(effective rate of 7.58% at December 31, 2007).  Subsequent to December 31, 2007, per theAmendment No. 3 to the Credit Agreement dated February 19, 2008, theinterest rate was changed to either the base rate plus 2.75% per annum or LIBORplus 3.75% per annum.  We must comply with certain financial covenantsunder our New Senior Credit Facility, including maintenance of an interestcoverage ratio, a senior leverage ratio and a total leverage ratio.  We were in compliance with such covenants asof December 31, 2007.  The New Senior Credit Facility iscollateralized by substantially all assets of the Company and is scheduled tomature January 2013.

 

***2005 Senior Credit Facility ***Our previous senior creditfacility (which is referred to herein as the “2005 Senior Credit Facility”) wasamended and restated in September 2005, provided for revolving credit ofup to $40.0 million subject to a borrowing base, a $7.5 millionnonamortizing term loan, and a $7.5 million nonamortizing capital expenditureloan to be drawn upon through June 30, 2006.  As of June 30, 2006, the nonamortizingcapital expenditure loan had expired. The outstanding principal bore interest at a fluctuating rate equal toeither the base rate plus 23⁄4% per annum or LIBOR plus 3.0% per annum.  The 2005 Senior Credit Facility wasterminated, and all outstanding borrowings thereunder repaid on January 9,2007 in connection with the Transaction.

 

***Restrictions onIndebtedness ***Our New SeniorCredit Facility, the indenture governing the 10% Senior Notes due 2012, andParent Notes impose certain restrictions on our ability to incur indebtedness,pay dividends, make investments, grant liens, sell our assets and engage incertain other activities.  We are notliable for, and did not otherwise guarantee, any of the obligations of Parentwith respect to the Parent Notes.  We are limitedin our ability to pay dividends or otherwise make other distributions to Parentunder the New Senior Credit Facility and the indenture governing the 10% SeniorNotes due 2012.  Indebtedness for borrowed money incurred under our New Senior CreditFacility is secured by substantially all of our assets, including our real andpersonal property, inventory, accounts receivable, intellectual property andother intangibles.

 

***Maturities ofLong-Term Debt***  The Company hasmaturities of long-term debt of $0.8 million as of December 31, 2007.  The Company’s $119.9 million of 10% seniornotes are set to mature in February 2012.

 

***Capital Leases***  The Company leases certain equipment undercapital lease agreements with interest rates of 4.97% to 7.29%.  The agreements expire at various datesthrough 2008. Future minimum lease payments required under these capital leasesat December 31, 2007 are $545,000 less $15,000 representing interest.

 

**7. COMMITMENTS AND CONTINGENCIES**

 

***Operating Leases***  The Company is obligated under variousoperating leases for warehouse space and plant equipment.  Rental expense under these agreements wasapproximately $913,000, $599,000, and $289,000 for the years ended December 31,2007, 2006, and 2005.  Future minimumlease payments are as follows (in thousands) as of December 31, 2007:

 
| **Year Ending December 31** | ** ** | ** ** | ** ** |
|----------------------------------|------------|------------|------------|
| 2008                             |       | $          | 1,079      |   |
| 2009                             |       | 884        |       |
| 2010                             |       | 629        |       |
| 2011                             |       | 581        |       |
| 2012                             |       | 578        |       |
|                             |       | $          | 3,751      |   |

 

34

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***Woodcraft Industries, Inc.Retirement Assurance Plan*** The Company sponsors a 401(k) and profit sharing plan which coverscertain full-time employees who meet eligibility requirements as to age andlength of service.  Employees are allowedto make pretax contributions up to the maximum amount permitted by law.  Employer contributions to the plan are madeat the discretion of the Board of Directors. The Company’s contribution was approximately $620,000, $666,000, and$596,000 during the years ended December 31, 2007, 2006 and 2005,respectively.

 

***Litigation***  In the normal course of business, the Companyis subject to various instances of litigation. In the opinion of the Company’s management and legal counsel, theultimate settlement of such matters will not have a material adverse effect onthe Company’s financial position, results of operations, or cash flows.

 

**8. INCOME TAXES**

 

The provision for income taxes consisted of the following(in thousands):

 

| ** **                      | ** ** | **Year Ended December 31,** | ** ** |
|---------------------------------|------------|----------------------------------|------------|
| ** **                      | ** ** | **2007**                         | ** ** | **2006** | ** ** | **2005** | ** ** |
| Current provision:              |       |                             |       |   |   |   |   |
| Federal                         |       | $                                | (1,807     | ) | $ | 6,916 |   | $ | 4,465 |   |
| State                           |       | 478                              |       | 1,425 |   | 1,259 |   |
|                            |       | (1,329                           | )          | 8,341 |   | 5,724 |   |
| Deferred tax (benefit)  expense |       | 3,425                            |       | (1,714 | ) | (237 | ) |
| Provision for income taxes      |       | $                                | 2,096      |   | $ | 6,627 |   | $ | 5,487 |   |

 

The provision for income taxes differs from the amount ofincome tax determined by applying the U.S. federal tax rate to pretax incomedue to the following:

 

| ** **                                           | ** ** | **Year Ended December 31,** | ** ** |
|------------------------------------------------------|------------|----------------------------------|------------|
| ** **                                           | ** ** | **2007**                         | ** ** | **2006** | ** ** | **2005** | ** ** |
| Tax provision at federal  rate                       |       | $                                | 1,798      |   | $ | 5,730 |   | $ | 4,782 |   |
| Increase (decrease) in  income taxes resulting from: |       |                             |       |   |   |   |   |
| Nondeductible expenses                               |       | 27                               |       | 29 |   | 29 |   |
| Federal tax credits                                  |       | (125                             | )          | (125 | ) | (125 | ) |
| Section 199                                     |       | —                           |       | (209 | ) | (158 | ) |
| State income taxes—net of federal benefit       |       | 471                              |       | 970 |   | 865 |   |
| Other                                                |       | (75                              | )          | 232 |   | 94 |   |
| Provision for income taxes                           |       | $                                | 2,096      |   | $ | 6,627 |   | $ | 5,487 |   |

 

Net deferred tax assets (liabilities) consist of thefollowing components as of December 31:

 
| ** **                             | ** ** | **2007** | ** ** | **2006** | ** ** |
|----------------------------------------|------------|----------|------------|----------|------------|
| Depreciation                           |       | $        | (6,133     | )        | $          | (5,716 | ) |
| Noncompete agreements                  |       | 1,109    |       | 1,224    |       |
| Goodwill and other  amortizable assets |       | (297     | )          | (229     | )          |
| Accruals                               |       | (112     | )          | 2,774    |       |
| Inventory                              |       | (956     | )          | (592     | )          |
| Capital leases                         |       | 219      |       | 289      |       |
| Bad debt expense                       |       | 51       |       | 41       |       |
| Federal benefit of FIN48               |       | 33       |       | —   |       |
| Accrued payroll and health  insurance  |       | 1,556    |       | 1,071    |       |
| Net deferred tax  liabilities          |       | $        | (4,530     | )        | $          | (1,138 | ) |
|                                   |       |     |       |     |       |
| Current                                |       | $        | 1,866      |     | $          | 1,422 |   |
| Noncurrent                             |       | (6,396   | )          | (2,560   | )          |
|                                   |       | $        | (4,530     | )        | $          | (1,138 | ) |
|                                        |            |          |            |          |            |  |  |  |  |  |

 

TheCompany is subject to audits in the tax jurisdictions in which itoperates.  Upon audit, these taxingjurisdictions could retroactively disagree with our tax treatment of certainitems.  Consequently, the actual liabilitieswith respect to any

 

35

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year may be determinedlong after financial statements have been issued.  The Company establishes tax reserves forestimated tax exposures.  These potentialexposures result from varying applications of statutes, rules, regulations,case law and interpretations.  Thesettlement of these exposures primarily occurs upon finalization of taxaudits.  However, the amount of theexposures can also be impacted by changes in tax laws and other factors.  The Company believes that it has establishedthe appropriate reserves for these estimated exposures.  However, actual results may differ from theseestimates.  The resolution of these taxmatters will not have a material effect on the consolidated financial conditionof the Company, although a resolution could have a material impact on theCompany’s consolidated statement of earnings for a particular future period andon the Company’s effective tax rate.

 

**9. STOCKHOLDERS’ EQUITY**

 

The Company’s Amended and Restated Certificate ofIncorporation authorized the aggregate issuance of 30,000,000 shares of stockdivided into three classes: 28,000,000 shares of voting common stock, $0.01 parvalue; 1,000,000 shares of nonvoting common stock, $0.01 par value; and1,000,000 undesignated preferred stock, par value $0.01.

 

In July 2005, the Company issued 1,016,488 shares ofcommon stock for approximately $4.7 million in connection with the DimensionMoldings, Inc. acquisition (Note 5).

 

As a result of the January 9, 2007 Transaction, allthe outstanding capital stock (100 shares) of WII Components, Inc. wasacquired by WII Holding, Inc. (“Parent”) through the Transaction of anewly formed wholly owned subsidiary of Parent with and into WII Components, Inc.

 

For the period ended December 31, 2007, the Companydistributed $0.9 million to the Parent for payment on the Parent Notes. Subsequentto December 31, 2007, the Company distributed $3.6 million to the Parentfor payment on the Parent Notes.

 

**10. RELATED-PARTY TRANSACTIONS**

 

In conjunction with the 2007 Transaction, the Companyterminated its management services agreement with an affiliate of the Company’sformer largest stockholder, Behrman Capital III L.P., whereby the Company paysa transaction fee to the affiliate for services provided for each financing,refinancing, acquisition, or similar nonrecurring transaction.  The Company received services from thisaffiliate related to the acquisition of the assets of Dimension Moldings, Inc.totaling $313,000 during the year ended December 31, 2005, which wasincluded in the purchase price allocation.

 

TheCompany has noncompete agreements with the former owners of Brentwood, GrandValley, and Dimension 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.  Parent paidapproximately $3.0 million to this affiliate for services related to theTransaction, of which, $0.7 million was recorded as deferred financing fees onthe Company’s financial statements, while the remaining $2.3 million wasrecorded on the Parent’s financial statements. In addition, the affiliate will be paid $0.6 million annually by Parentfor ongoing services provided to the Parent and Company.  The Company paid a total of $3.6 million tothe Parent for these transactions during the year ended December 31, 2007.

 

Parentissued Restricted Stock Agreements on August 31, 2007 and September 14,2007 to certain Company management personnel totaling 55,219 shares of Parentcommon stock.  The fair value of theParents common stock was approximately $397,023 on the date of the grant.  The restricted stock becomes fully vestedafter seven years, or earlier, if certain milestones, as defined, are met.

 

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**11.QUARTERLY FINANCIAL DATA (UNAUDITED):**

 

The followingis a condensed summary of actual quarterly results of operations for 2007 and2006 (in thousands):

** **
| ** **       | ** ** | **First**  | ** ** | **Second** | ** ** | **Third**  | ** ** | **Fourth** | ** ** | **Year**   | ** ** |
|------------------|------------|------------|------------|------------|------------|------------|------------|------------|------------|------------|------------|
| **2007:**        | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** |
| Net sales        |       | $          | 61,006     |       | $          | 67,776     |       | $          | 64,958     |       | $          | 55,563 |   | $ | 249,303 |   |
| Gross profit     |       | 10,749     |       | 13,671     |       | 10,635     |       | 9,185      |       | 44,240     |       |
| Operating income |       | (2,462     | )          | 9,503      |       | 6,884      |       | 6,219      |       | 20,144     |       |
| Net earnings     |       | (2,341     | )          | 1,981      |       | 1,643      |       | 1,758      |       | 3,041      |       |
|             |       |       |       |       |       |       |       |       |       |       |       |
| **2006:**        | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** |
| Net sales        |       | $          | 76,341     |       | $          | 75,761     |       | $          | 69,852     |       | $          | 63,679 |   | $ | 285,633 |   |
| Gross profit     |       | 12,656     |       | 13,130     |       | 11,958     |       | 10,600     |       | 48,344     |       |
| Operating income |       | 7,895      |       | 8,665      |       | 7,495      |       | 6,265      |       | 30,320     |       |
| Net earnings     |       | 2,666      |       | 3,056      |       | 2,551      |       | 1,470      |       | 9,743      |       |

 

 

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**PART III**

 

**Item 9.Changes in and Disagreements With Accountants on Accounting and FinancialDisclosure**

 

                There were no changes in or disagreements with theaccountants on accounting and financial disclosure.

 

**Item 9A.Controls and Procedures**

 

***Disclosure Controls and Procedures.***  As required byRule 13a-15 under the Securities Exchange Act of 1934, we carried out anevaluation under the supervision and with the participation of our management,including our Chief Executive Officer and Chief Financial Officer, of theeffectiveness of the design and operation of our disclosure controls andprocedures as of the end of the period covered by this annual report.  In designing and evaluating our disclosurecontrols and procedures, we and our management recognize that any controls andprocedures, no matter how well designed and operated, can provide onlyreasonable assurance of achieving the desired control objectives, and ourmanagement necessarily was required to apply its judgment in evaluating andimplementing possible controls and procedures. Based upon that evaluation, our Chief Executive Officer and ChiefFinancial Officer have concluded that they believe that, as of the date ofcompletion of the evaluation, our disclosure controls and procedures werereasonably effective to ensure that information required to be disclosed by usin the reports we file or submit under the Exchange Act is recorded, processed,summarized and reported, within the time periods specified in the Securitiesand Exchange Commission’s rules and forms. The Chief Executive Officer and Chief Financial Officer have alsoconcluded that controls and procedures are designed to ensure that informationrequired to be disclosed is accumulated and communicated to our management,including our principal executive and principal financial officers asappropriate to allow timely decisions regarding required disclosure.  We will continue to review and document ourdisclosure controls and procedures on an ongoing basis, and may from time totime make changes aimed at enhancing their effectiveness and to ensure that oursystems evolve with our business.

 

***Changes in Internal Controls Over Financial Reporting.*** There were no changes in our internal controls over financial reportingduring our fourth fiscal quarter that have materially affected, or arereasonably likely to materially affect, our internal controls over financialreporting.

 

# **Item 9B. Other Information**

# ** **

                Not applicable.

 

**Item 10.Directors, Executive Officers and Corporate Governance**

 

                Thefollowing table sets forth the names and ages (as of March 17, 2008) ofour executive officers and directors and the positions that they hold at WIIComponents, Inc. and, where applicable, at Parent.  Directors of WII Components hold theirpositions until the annual meeting of the stockholders at which their termexpires or until their respective successors are elected and qualified.  Directors of Parent are elected pursuant tothe terms of a stockholders agreement among all of Parent’s existingstockholders.  See “Certain Relationshipsand Related Transactions - Stockholders Agreement.”  Executive officers of WII Components holdtheir positions until the annual meeting of the Board of Directors or untiltheir respective successors are elected and qualified.

 
| **Name**            | ** ** | **Age** | ** ** | **Position**                                                                                                                            |
|---------------------|------------|---------|------------|-----------------------------------------------------------------------------------------------------------------------------------------|
| John Fitzpatrick    |       | 64      |       | Director, Chief Executive Officer and President—Parent; andDirector, Chief  Executive Officer and President—WII Components    |
| Dale Herbst         |       | 39      |       | Chief Financial Officer, Treasurer and Secretary—Parent; and Chief  Financial Officer, Treasurer and Secretary—WII Components |
| Joel Beyer          |       | 48      |       | Vice President of Operations—PrimeWood                                                                                             |
| Robert S. Morris    |       | 53      |       | Director—Parent; and Director—WII Components                                                                                  |
| Louis J. Mischianti |       | 48      |       | Director—Parent; and Director —WII Components                                                                                 |
| L. David Cardenas   |       | 41      |       | Director—Parent; and Director —WII Components                                                                                 |
| Keith Heffernan     |       | 38      |       | Director—Parent; and Director —WII Components                                                                                 |

 

*                Mr. Fitzpatrick* has served asWoodcraft’s President and Chief Executive Officer since 2000.  Prior to joining us he was Chief OperatingOfficer at Nexcycle, Inc., a privately held consolidator of specialtyrecycling businesses with over $120 million of sales in the United States,Canada and the United Kingdom.  He alsowas a corporate officer of ITEQ and general manager for

 

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Graco, Inc. after spending 20 years withGeneral Electric Company, where he held various management positions in severaldivisions.  Mr. Fitzpatrick receiveda B.S. in Mechanical Engineering from the University of Notre Dame and a M.B.A.from the University of Pittsburgh.

 

                *Mr. Herbst* has served as Woodcraft’sChief Financial Officer since 2002. Since joining us in 1992, he has served as a Controller, AccountingManager and General Accountant.  Mr. Herbstreceived a B.S. in Financial Management and Accounting from the University ofNorth Dakota.

 

*                Mr. Beyer* has served as VicePresident of our PrimeWood subsidiary since 1998.  He joined PrimeWood in 1977.  Mr. Beyer has served in many capacitiesduring his career with us, including Director of Operations, Director ofEngineering, Project Engineer and Production Manager.

 

*                Mr. Morris* joined our board ofdirectors in January 2007.  Mr. Morrisfounded Olympus Partners in 1988 and serves as the Managing Partner of OlympusPartners and its affiliated investment partnerships.  Mr. Morris serves as a Director ofseveral Olympus portfolio companies, as a Director of The Waterside School, andas a Director of Hamilton College Endowment Fund where he heads The Polio Foundation’sresearch efforts in regeneration medicine. Mr. Morris received an A.B. from Hamilton College and a M.B.A. fromthe Amos Tuck School of Business at Dartmouth College.

 

*                Mr. Mischianti* joined our board ofdirectors in January 2007.  Mr. Mischiantijoined Olympus Partners as a Partner in 1994. Mr. Mischianti serves as a Director of several Olympus portfoliocompanies.  Mr. Mischianti receivedan A.B. from Yale University.

 

*                Mr. Cardenas* joined our board ofdirectors in January 2007.  Mr. Cardenasjoined Olympus Partners as a Principal in 1997 and has been a Partner ofOlympus since 1998.  Mr. Cardenasserves as a Director of several Olympus portfolio companies.  Mr. Cardenas received a B.S. from theUniversity of Virginia and a M.B.A. from the University of North Carolina.

 

*                Mr. Heffernan* joined our board ofdirectors in January 2007.  Mr. Heffernanjoined Olympus Partners as an Associate in 1998 and has been a Partner ofOlympus since 2004.  Mr. Heffernanhas served as a Director of several Olympus portfolio companies.  Mr. Heffernan received a B.S. from theWharton School of the University of Pennsylvania and a M.B.A. from the StanfordUniversity Graduate School of Business.

 

**Board of Directors**

 

                Asof March 17, 2008, Parent has a five-member board of directors consistingof Messrs. Fitzpatrick, Morris, Mischianti, Cardenas and Heffernan.  The bylaws of Parent permit the directors toincrease the size of the board of directors of Parent by resolution approved bya majority vote.  All of Parent’s stockholdersare party to a stockholders agreement whereby (i) Olympus Growth Fund IV,L.P. has the right to designate each representative to the board of directorsof Parent and each of its subsidiaries (including the Company) and (ii) thestockholders of Parent agree to take all appropriate action to fix the size ofthe board of directors of Parent at five (or such higher number as determinedby Olympus Growth Fund IV, L.P.) and to vote the shares over which theyexercise voting power in favor of the election of to the board of Parent andeach of its subsidiaries each designee to the respective board thereof asdesignated by Olympus Growth Fund IV, L.P.. As of March 17, 2008, the board of directors of each of Parent andthe Company consists of Messrs. Fitzpatrick, Morris, Mischianti, Cardenasand Heffernan.  See “CertainRelationships and Related Party Transactions and Director Independence -Stockholders Agreement.”

 

       As a private company, we do not have anaudit, compensation or nominating committee. We have not determined whether any member of our board of directors isan “audit committee financial expert” as defined in Item 407 of Regulation S-K.

 

**Compensation Committee Interlocks and Insider Participation**

 

  Our board is currently composed of five directors,of which Mr. Fitzpatrick is an executive officer of the Company and heparticipated in deliberations of the board concerning executive officercompensation during 2007 (other than his own compensation).  For adescription of the transactions between us and our directors, and entitiesaffiliated with such directors, see the sections entitled “ExecutiveCompensation” and “Certain Relationships and Related Party Transactions, andDirector Independence.”  None of our executive officers has served as amember of the board of directors or compensation committee of another entitythat had one or more of its executive officers serving as a member of our boardof directors.

 

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**Corporate Code of Ethics**

 

                Wehave a code of conduct policy for all of our officer and employees.  The Company hereby undertakes to provide acopy of its code of ethics to any person without charge, upon request.  Such request may be made by contacting theHuman Resource Department at 320-252-1503.

 

**Item 11.Executive Compensation**

 

# ***              CompensationPolicies and Practices. ***The primary objectives of our executive compensation program are to (i) attractand retain the best possible executive talent, (ii) achieve accountabilityfor performance by linking base salary and bonuses to our financialperformance, and (iii) align executives’ compensation with stockholdervalue creation.

# ** **

**             **Ourexecutive compensation programs are designed to encourage our executiveofficers to operate the business in a manner that enhances stockholdervalue.  In addition, a substantialportion of our executive’s overall compensation is tied to our financialperformance, specifically EBITDA.  Ourcompensation philosophy provides for a direct relationship between compensationand the achievement of our EBITDA goals and includes management in upsiderewards.

** **

                We have sought to achieve an overall compensationprogram that provides foundational elements such as base salary and benefitsthat are generally competitive with the marketplace, as well as an opportunityfor variable incentive compensation that is significant when financialperformance goals are met.

 

                Our executive compensation consists of the followingcomponents (i) base salary, (ii) annual cash bonus, (iii) transactionincentive bonus, and (iv) long-term incentive awards – stock option grantsor restricted stock grants.

 

***                Base Salary. ***Base salary is established based on the experience,skills, knowledge and responsibilities required of the executive officer.  When establishing the 2007 base salaries ofthe executive officers, a number of factors were considered, including theindividual’s performance and growth of duties and responsibilities.  We seek to maintain base salaries that arecompetitive with the marketplace, to allow us to attract and retain executivetalent.

 

                Salaries for executive officers are reviewed on anannual basis, at the time of a promotion or other change in level ofresponsibilities, as well as when competitive circumstances requirereview.  Increases in salary aredetermined upon increased levels of responsibility and a performanceevaluation.  The base salary of JohnFitzpatrick is determined by the Board of Directors, and Mr. Fitzpatrick,in consultation with the Board of Directors, sets the salaries for the balanceof the executives.

 

***                Annual Cash BonusIncentive. ***Executives directly affect the Company’sability to attain its strategic objectives. The annual cash bonus is designed to motivate and provide incentive toexecutives to attain those Company objectives. The Board of Directors determines Mr. Fitzpatrick’s bonuspercentage, and Mr. Fitzpatrick, in consultation with the Board ofDirectors, determines the percentage of base salary that is bonus eligible forthe other executives.  Success ismeasured on EBITDA of Woodcraft Industries, Inc., Woodcraft Division,Primewood Division, Brentwood Division, Hardwood, Engineered Wood or acombination.  The percent of plannedEBITDA achieved will determine the amount of bonus to be paid based on theirsharing percentage and their bonus percentage (as a percent of salary).  The 2007 bonus plan for Mr. Fitzpatrick,Mr. Herbst, and Mr. Beyer provided for a target cash bonus of$227,500, $56,800, and $52,500, respectively, based upon their respective basesalaries for 2007.  In 2007, the cashbonuses for Messrs. Fitzpatrick, Herbst, and Beyer were based entirely onthe amount by which actual EBITDA exceeds certain planned levels for suchyear.  They will earn no bonus if EBITDAis below a planned threshold, 100% of their target cash bonuses if EBITDA meetsthe target threshold and up to 200% of their target cash bonuses if EBITDAmeets or exceeds a predetermined maximum EBITDA threshold.  The bonuses are pro rated between thresholdand target and between target and maximum and cannot exceed 200% of the targetcash bonus.

 

**              For 2007, Mr. Fitzpatrickearned, as incentive compensation, a percentage of his base salary, up to amaximum of 130%. The incentive compensation has been determined on the basis ofthe actual EBITDA of the Company as compared to the Company’s plannedEBITDA.  Based on the Company’sperformance, Mr. Fitzpatrick will not receive a cash bonus for 2007.**

** **

                For 2007, Mr. Herbst earned, as incentivecompensation, a percentage of his base salary, up to a maximum of 80%. Theincentive compensation has been determined on the actual EBITDA of the Companyas compared to the Company’s planned EBITDA. Based on the Company’s performance, Mr. Herbst will not receive acash bonus for 2007.

 

40

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** **

**             **For 2007,Mr. Beyer earned, as incentive compensation, a percentage of his basesalary, up to a maximum of 75%.  Theincentive compensation has been determined, in part on the basis of actualEBITDA of the Company as compared to the Company’s planned EBITDA and, in part,on the basis of actual EBITDA of the PrimeWood division as compared to theplanned EBITDA for the PrimeWood division. Based on the performance of the Company and PrimeWood, Mr. Beyerwill not receive a cash bonus for 2007.

** **

***              Transaction Incentive Bonus. ***Our Named Executive Officers received a one-timeagreed upon transaction bonus in conjunction with the Transaction inrecognition of their past services to the Company.  These bonuses were approved by the boardmembers in place prior to the Transaction.

** **

***Long Term Incentive Awards.***  Through January 9, 2007, all of ourexecutive officers had received equity compensation awards in the form ofeither incentive stock options and/or non-qualified stock options.  We granted long term incentive awards in theform of stock options because it is a common method for privately-heldcompanies to provide equity incentives to executive officers.  The options were designed to align theinterests of our executive officers with our stockholders’ long-term interestsby providing them with equity-based awards that vest over a period of time andbecome exercisable upon the occurrence of certain events, as well as to rewardexecutive officers for performance.  As a result ofthe Transaction, all of the foregoing options which were outstanding at thetime of the Transaction were cashed out and terminated on January 9, 2007.

 

Parentissued Restricted Stock Agreements on August 31, 2007 and September 14,2007 to all of our executive officers. Likewise with stock options, wegranted long term incentive awards in the form of restricted stock because itis a common method for privately-held companies to provide equity incentives toexecutive officers.  The restricted stockis designed to align the interests of our executive officers with ourstockholders’ long-term interests by providing them with equity-based awardsthat vest over a period of time upon the occurrence of certain events, as wellas to reward executive officers for performance.  The restricted stock becomes fullyvested after seven years, or earlier, if certain milestones, as defined, aremet.

 

                ***Other Programs.***  Our Named Executive Officers can participatein our Company sponsored benefit programs at the same level as offered to allother employees.  These benefits includelife, health, dental, 401(k) matching, short-term disability, typicalholiday and vacation benefits, etc.  Alsooffered to the Named Executive Officers is a long-term disability plan, whichis also offered to other certain management members.

 

                ***Compensation Committee Report.***  The Board of Directors has reviewed anddiscussed with management the Compensation Discussion and Analysis provisionsincluded in this Form 10-K.  Basedon the reviews and discussions referred to above, the Board of Directorsrecommends that the Compensation Discussion and Analysis referred to above beincluded in the Form 10-K.

 

Board of Directors

John Fitzpatrick (Chair)

Robert S. Morris

Louis J. Mischianti

L. David Cardenas

Keith Heffernan

 

***                Summary Compensation Table.***  The following table sets forth informationfor 2007 and 2006 concerning compensation for services rendered in allcapacities awarded to and earned by our Chief Executive Officer, ChiefFinancial Officer, and our only other executive officer who was serving as anexecutive officer on December 31, 2007.

 

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| **Name and  Principal  Position** | ** ** | **Year** | ** ** | **Salary** | ** ** | **Bonus** | ** ** | **Stock  Awards** | ** ** | **Option  Awards** | ** ** | **Non-Equity  Incentive  Plan Compensation** | ** ** | **Change  in Pension Value and Nonqualified Deferred Compensation Earnings** | ** ** | **All  Other  Compensation (4)** | ** ** | **Total** | ** ** |
|-----------------------------------|------------|----------|------------|------------|------------|-----------|------------|-------------------|------------|--------------------|------------|----------------------------------------------|------------|------------------------------------------------------------------------------|------------|----------------------------------|------------|-----------|------------|
| John Fitzpatrick,                 |       | 2007     |       | $          | 350,000    |      | —     |              | $          | 15,115             | (1)        | —                                       |       | $                                                                            | 658,800    | (3)                              | (4)        |      | $          | 2,471,858 | (5) | $ | 3,541,118 |   |
| President and Chief               |       | 2006     |       | $          | 350,000    |      | $          | 155,233           |       |               | —     |                                         | $          | 64,383                                                                       | (2)        |                             | —     |      | (4)        |   | $ | 4,400 | (6) | $ | 574,016 |   |
| Executive Officer                 |       |     |       |       |       |      |       |              |       |               |       |                                         |       |                                                                         |       |                             |       |      |       |   |   |   |   |   |
| Dale Herbst,                      |       | 2007     |       | $          | 142,000    |      | —     |              | $          | 10,077             | (1)        | —                                       |       | $                                                                            | 250,000    | (3)                              | (4)        |      | $          | 841,619 | (5) | $ | 1,273,926 |   |
| Chief Financial Officer,          |       | 2006     |       | $          | 141,346    |      | $          | 39,381            |       | —             |       | —                                       |       | —                                                                       |       | (4)                              |       | $         | 3,534      | (6) | $ | 184,261 |   |
| Treasurer, and Secretary          |       |     |       |       |       |      |       |              |       |               |       |                                         |       |                                                                         |       |                             |       |      |       |   |   |   |   |
| Joel Beyer,                       |       | 2007     |       | $          | 140,000    |      | —     |              | $          | 6,046              | (1)        | —                                       |       | $                                                                            | 20,000     | (3)                              | (4)        |      | $          | 616,036 | (5) | $ | 800,220 |   |
| Vice President of                 |       | 2006     |       | $          | 140,000    |      | $          | 7,280             |       | —             |       | —                                       |       | —                                                                       |       | (4)                              |       |      | 5,011      | (7) | $ | 152,291 |   |
| Operations-Primewood              |       |     |       |       |       |      |       |              |       |               |       |                                         |       |                                                                         |       |                             |       |      |       |   |   |   |   |

 

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(1)                                  Represents thedollar amount recognized for financial statement reporting purposes withrespect to 2007 in accordance with SFAS 123(R) of restricted stock awards ofParent common stock.  There were noforfeitures of such shares in 2007.  SeeNote 2 “Restricted Stock” to the Company’s consolidated financial statementsfor further discussion of such restricted stock grants.

 

(2)                                  Represents the dollar amount recognized for financial statementreporting purposes with respect to 2007 in accordance with SFAS 123(R) ofoptions granted to John Fitzpatrick on May 31, 2006 to purchase 240,000 sharesof the Company’s common stock.  See Note2 “Stock Options” to the Company’s consolidated financial statements forfurther discussion of such stock options.

 

(3)                                  Represents transaction incentives paid in conjunction with theTransaction.

 

(4)                                  The Company has nopension plan or nonqualified deferred compensation plan.

 

(5)                                  Consists ofcontributions by us to his 401(k) account and compensation related to thecancellation of stock options due to the Transaction.  Contributions to the 401(k) account forJohn Fitzpatrick, Dale Herbst, and Joel Beyer was $3,600 for eachindividual.  Compensation related to thecancellation of stock options due to the Transaction for John Fitzpatrick, DaleHerbst, and Joel Beyer include $2,468,258, $838,019, and $612,436,respectively.

 

(6)                                  Consistsof contributions by us to his 401(k) account.

 

(7)                                  Includes$3,794 in contributions by us to his 401(k) account; and $1,217 in taxablewages related to an escrow payment in 2006 due to stock options held inconjunction with the April 2003 acquisition by Behrman Capital III L.P.

 

***    ****Restricted Stock**.*  The tablebelow sets forth information concerning the individual grants of restrictedstock by Parent to each of the executive officers listed below who receivedgrants in 2007.  The shares of restricted stock vest 25% per year forthe fiscal years ending 2007 through 2010, if (i) Parent’s EBITDA meetsthe applicable target EBITDA for such period and (ii) the applicableparticipant holding such restricted stock award is still an employee of Parentor one of its subsidiaries.  If, withrespect to any particular fiscal year, the applicable EBITDA target for suchyear is not achieved, half of the applicable amount will vest in thatyear.  In addition, if applicable EBITDAtarget is not achieved in a given fiscal year, a “catch up” provision allowsthe portion of such restricted stock which would otherwise remain unvested dueto the failure to achieve such EBITDA target to become vested in subsequentfiscal years, if subsequent performance targets are achieved.  All of the shares of restricted stock becomefully vested upon the occurrence of any of the following events: (i) afterseven years, provided that the applicable participant is still an employee ofParent or one its subsidiaries; and (ii) upon a sale event involving achange of control of Parent or all or substantially all of Parent’s assets on aconsolidated basis, if certain targeted rates of return on Olympus Growth FundIV, L.P.’s investment are achieved or of the board of directors of Parent soelects.  The shares of restricted stockare voting shares of common stock of Parent.

** **

                In addition to certain otherrestrictions on such shares, the shares of restricted stock are subject to certain repurchase

 

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rights in favor of Parent andOlympus Growth Fund IV, L.P. (as Parent’s majority shareholder) in the eventthat the holder of such shares ceases to be employed byParent and its subsidiaries for any reason. The repurchase price for unvested shares of restricted stock is thelesser of the holder’s original cost to purchase such shares and fair marketvalue, whereas the repurchase price for vested shares of restricted stock isthe fair market value of the shares unless the holder is terminated for cause,in which case the repurchase price for vested shares is the lesser of theholder’s original cost and fair market value.

 

                The followingtable summarizes information regarding our 2007 bonus plans and restrictedstock granted by Parent during 2007:

 

**Grants of Plan-Based Awards**

 
| ** **       | ** ** | ** **            | ** ** | ** **            | ** ** | ** **                                    | ** ** | ** **      | ** ** | ** **        | ** ** | **All Other**     | ** ** | ** ** | ** ** | ** ** | ** ** |
|------------------|------------|-----------------------|------------|-----------------------|------------|-----------------------------------------------|------------|-----------------|------------|-------------------|------------|-------------------|------------|------------|------------|------------|------------|
| ** **       | ** ** | ** **            | ** ** | ** **            | ** ** | ** **                                    | ** ** | ** **      | ** ** | ** **        | ** ** | **Stock Awards:** | ** ** | ** ** | ** ** | ** ** | ** ** |
| ** **       | ** ** | ** **            | ** ** | ** **            | ** ** | **Estimated Future Payouts Under Non-Equity** | ** ** | **Number of**   | ** ** | **Exercise or**   | ** ** | **Grant Date**    | ** ** |
| ** **       | ** ** | ** **            | ** ** | ** **            | ** ** | **Incentive Plan**                            | ** ** | **Shares of**   | ** ** | **Base Price of** | ** ** | **Fair Value of** | ** ** |
| ** **       | ** ** | ** **            | ** ** | **Approval**          | ** ** | **(1)**                                       | ** ** | **Stock**       | ** ** | **Stock Awards**  | ** ** | **Stock Awards**  | ** ** |
| **Name**         | ** ** | **Grant Date**        | ** ** | **Date**              | ** ** | **Threshold  ($)**                            | ** ** | **Target  ($)** | ** ** | **Maximum  ($)**  | ** ** | **(#)(2)**        | ** ** | **($/Sh)** | ** ** | **(3)**    | ** ** |
| John Fitzpatrick |       | January 1,  2007 |       | January 1,  2007 |       | $                                             | 15,167     |            | $          | 227,500           |       | $                 | 455,000    |       | —     |       | $          | — |   | — |   |
|             |       | August 31,  2007 |       | August 3,  2007  |       | —                                        |       | —          |       | —            |       | 8,408.95          |       | $          | .01        |       | $          | 60,460 |   |
| Dale Herbst      |       | January 1,  2007 |       | January 1,  2007 |       | $                                             | 3,787      |            | $          | 56,800            |       | $                 | 113,600    |       | —     |       | —     |   | — |   |
|             |       | August 31,  2007 |       | August 3,  2007  |       | —                                        |       | —          |       | —            |       | 5,605.97          |       | $          | .01        |       | $          | 40,307 |   |
| Joel Beyer       |       | January 1,  2007 |       | January 1,  2007 |       | 3,500                                         |       | $               | 52,500     |              | $          | 105,000           |       | —     |       | —     |       | — |   |
|             |       | August 31,  2007 |       | August 3,  2007  |       | —                                        |       | —          |       | —            |       | 3,363.58          |       | $          | .01        |       | $          | 24,184 |   |

 

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(1)          Please see “2007Bonus Plan for Messrs. Fitzpatrick, Herbst, and Beyer” and “Annual CashBonus Incentive” under “Executive Compensation” for a description of the 2007Bonus Plan.  Actual payments in respectto 2007 are shown in the “Summary Compensation” table in the column titled “Bonus”.

 

(2)          Represents therestricted stock awarded on August 31, 2007.

 

(3)          Represents the fairmarket value, under SFAS 123(R), on the date of issuance by Parent ofrestricted stock grants awarded on August 31, 2007.

 

***                2007 Bonus Plan for Messrs. Fitzpatrick,Herbst, and Beyer. ***The 2007 bonus planfor Mr. Fitzpatrick, Mr. Herbst, and Mr. Beyer provided for atarget cash bonus of $227,500, $56,800, and $52,500, respectively, based upontheir respective base salaries for 2007 of $350,000, $142,000, and $140,000,respectively.  In 2007, the cash bonusesfor Messrs. Fitzpatrick, Herbst, and Beyer were based entirely on theamount by which actual EBITDA exceeded certain planned levels for suchyear.  They were not entitled to earn abonus if actual EBITDA for the year ended December 31, 2007 was below theplanned threshold for such period, were entitled to 100% of their target cashbonuses if actual EBITDA met the target threshold and were entitled to up to200% of their target cash bonuses if EBITDA met or exceeded a pre-determinedmaximum EBITDA threshold.  The bonusesare pro rated between threshold and target and between target and maximum andcannot exceed 200% of the target cash bonus. Based on theCompany’s performance, Messrs. Fitzpatrick,Herbst, and Beyer will notreceive a cash bonus for 2007.

 

                ***Restricted Stock Plan**** *In 2007, Parentissued restricted stock awards to certain Company management personnel, withsuch grants consisting of 55,218.83 shares of Parent’s restricted common stockin the aggregate.  The shares ofrestricted stock vest 25% per year for the fiscal years ending 2007 through2010, if (i) Parent’s EBITDA meets the applicable target

 

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EBITDA for such period and (ii) the applicable participantholding such restricted stock award is still an employee of Parent or one ofits subsidiaries.  If, with respect toany particular fiscal year, the applicable EBITDA target for such year is notachieved, half of the applicable amount will vest in that year.  In addition, if applicable EBITDA target isnot achieved in a given fiscal year, a “catch up” provision allows the portionof such restricted stock which would otherwise remain unvested due to thefailure to achieve such EBITDA target to become vested in subsequent fiscalyears, if subsequent performance targets are achieved.  All of the shares of restricted stock becomefully vested upon the occurrence of any of the following events: (i) afterseven years, provided that the applicable participant is still an employee ofParent or one its subsidiaries; and (ii) upon a sale event involving achange of control of Parent or all or substantially all of Parent’s assets on aconsolidated basis, if certain targeted rates of return on Olympus Growth FundIV, L.P.’s investment are achieved or of the board of directors of Parent soelects.  The shares of restricted stockare voting shares of common stock of Parent.

 

                In addition to certain other restrictions on suchshares, the shares of restricted stock are subject to certain repurchase rightsin favor of Parent and Olympus Growth Fund IV, L.P. (as Parent’s majorityshareholder) in the event that the holder of such shares ceases to beemployed by Parent and its subsidiaries for any reason.  The repurchase price for unvested shares ofrestricted stock is the lesser of the holder’s original cost to purchase suchshares and fair market value, whereas the repurchase price for vested shares ofrestricted stock is the fair market value of the shares unless the holder isterminated for cause, in which case the repurchase price for vested shares isthe lesser of the holder’s original cost and fair market value.

 

###### **Outstanding EquityAwards at Fiscal Year-End**

 

| **Name**         | ** ** | **Number  of shares or units of stock that have not vested  (#)** | ** ** | **Market value of shares or units of stock that have not vested  ($)  (1)** | ** ** | **Equity  Incentive  Plan  Awards:  Number  of  unearned shares, units or other rights that have not vested  (#)** | ** ** | **Equity incentive plan awards: market or payout value of unearned  shares, units or other rights that have not vested  ($)** | ** ** |
|------------------|------------|-------------------------------------------------------------------|------------|-----------------------------------------------------------------------------|------------|--------------------------------------------------------------------------------------------------------------------|------------|-------------------------------------------------------------------------------------------------------------------------------|------------|
| John Fitzpatrick |       | 6,307                                                             |       | $                                                                           | 10,343     |                                                                                                               | N/A        |                                                                                                                          | N/A        |   |
| Dale Herbst      |       | 4,205                                                             |       | $                                                                           | 6,896      |                                                                                                               | N/A        |                                                                                                                          | N/A        |   |
| Joel Beyer       |       | 2,523                                                             |       | $                                                                           | 4,138      |                                                                                                               | N/A        |                                                                                                                          | N/A        |   |

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(1)   Representsthe number of restricted stock shares that have not vested, multiplied by thefair market value per share as of December 31, 2007.

 

***                Option GrantsExercised and Restricted Stock Vested.***  As a result ofthe Transaction, all of the foregoing options which were outstanding at thetime of the Transaction were cashed out and terminated on January 9,2007.  There are currently no stockoptions of the Company issued and outstanding.  Stock awards includes the vested portion asof December 31, 2007 for the Restricted Stock issued on August 31,2007.  The table below includes thenumber of options terminated and compensation received in conjunction with thetermination of options, and the number of stock awards vested in 2007 and theestimated value for those vested options.

 

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###### **Option Exercises and Restricted Stock Vested**

 

| ** **       | ** ** | **Option awards**                                  | ** ** | **Stock awards**                        | ** ** |
|------------------|------------|----------------------------------------------------|------------|-----------------------------------------|------------|
| **Name**         |       | **Number  of shares acquired on exercise (#) (1)** | ** ** | **Value  realized on exercise ($) (2)** | ** ** | **Number  of shares vested (#) (3)** | ** ** | **Value of  shares vested ($) (4)** |   |
| John Fitzpatrick |       | 860,000                                            |       | $                                       | 2,468,258  |   | 2,102 |   | $ | 3,447 |   |
| Dale Herbst      |       | 235,000                                            |       | $                                       | 838,019    |   | 1,401 |   | $ | 2,298 |   |
| Joel Beyer       |       | 175,000                                            |       | $                                       | 612,436    |   | 841 |   | $ | 1,379 |   |

 

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(1)          Allremaining unvested stock options outstanding on January 9, 2007 becamevested in conjunction with the Transaction. The options were then terminated and the difference between fair marketvalue and the exercise price was realized as compensation to each executiveofficer.

 

(2)          Represents compensation received in conjunction withthe termination of the stock options due to the Transaction.  The compensation was determined by thedifference in the fair market value per share and the exercise price per share,multiplied by the number of shares.

 

(3)          Represents the number of restricted stock sharesvested during 2007.

 

(4)          Represents the number of restricted stock sharesvested during 2007, multiplied by the fair market value per share as of December 31,2007.

 

**PensionBenefits**

 

**               **The Company has no pension benefit plan.

 

**Non-QualifiedDeferred Compensation**

 

**               **The Company has no non-qualified deferred compensationplan.

 

**Employment Agreements**

 

On December 11, 2006, Parent and a newly formedwholly owned subsidiary of Parent (“Mergerco”), in anticipation of theconsummation of the Transaction entered into employment agreements (each an “EmploymentAgreement”) with the Messrs. John Fitzpatrick, as Chief Executive Officer,Dale Herbst, as Chief Financial Officer, and Joel Beyer, as Vice President ofOperations (PrimeWood division). Pursuant to each Employment Agreement, upon consummation of theTransaction, the Employment Agreements of Messrs. Fitzpatrick, Herbst andBeyer superceded and preempted their respective 2003 Agreements.  On January 9, 2007, by operation of lawupon consummation of the Transaction, each Employment Agreement was assigned byMergerco to the Company.

 

The table below summarizes the provisions in theEmployment Agreements of our Named Executive Officers.  The Named Executive Officers will receive nocash severance payments for termination with cause, voluntary terminationwithout good reason, death, or any transaction involving a change in control ofParent or the Company.

 
| **Name**          | ** ** | **Benefit**     | ** ** | **Termination  without   Cause**                                                                    | ** ** | **Voluntary    Termination with   Good Reason**                                                     | ** ** | **Disability**                                                                                      |
|-------------------|------------|-----------------|------------|-----------------------------------------------------------------------------------------------------|------------|-----------------------------------------------------------------------------------------------------|------------|-----------------------------------------------------------------------------------------------------|
| John  Fitzpatrick |       | Cash  Severance |       | $700,000  (plus, under certain circumstances, a pro rata portion of the current year’s  bonus) |       | $700,000  (plus, under certain circumstances, a pro rata portion of the current year’s  bonus) |       | $700,000  (plus, under certain circumstances, a pro rata portion of the current year’s  bonus) |
| Dale Herbst       |       | Cash  Severance |       | $142,000  (plus, under certain circumstances, a pro rata portion of the current year’s  bonus) |       | $142,000  (plus, under certain circumstances, a pro rata portion of the current year’s  bonus) |       | $142,000  (plus, under certain circumstances, a pro rata portion of the current year’s  bonus) |
| Joel Beyer        |       | Cash  Severance |       | $140,000  (plus, under certain circumstances, a pro rata portion of the current year’s  bonus) |       | $140,000  (plus, under certain circumstances, a pro rata portion of the current year’s  bonus) |       | $140,000  (plus, under certain circumstances, a pro rata portion of the current year’s  bonus) |

 

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Mr. Fitzpatrick’s Employment Agreement providesfor an initial annual base salary of $350,000 and an annual performance-basedbonus of up to one-hundred thirty percent (130%) of his base salary for fiscalyear 2007.  Mr. Fitzpatrick’sEmployment Agreement provides for annual reviews of Mr. Fitzpatrick’s basesalary to determine whether an adjustment to his annual base salary isappropriate.  Mr. Fitzpatrick’sEmployment Agreement provides that Mr. Fitzpatrick, subject to hiseligibility, be included in all employee benefit plans established by theCompany.  Mr. Fitzpatrick’s EmploymentAgreement may be terminated at any time, with or without cause, by eitherparty.  Mr. Fitzpatrick’s EmploymentAgreement also contains non-disclosure provisions and prohibits Mr. Fitzpatrickfrom competing with the Company during the term of his employment and for aperiod of two years thereafter.  Mr. Fitzpatrickholds shares of restricted stock that are subject tocertain repurchase rights in favor of Parent and Olympus Growth Fund IV, L.P.(as Parent’s majority shareholder) in the event that the holder of such shares ceases to beemployed by Parent and its subsidiaries for any reason.  The repurchase price for unvested shares ofrestricted stock is the lesser of the holder’s original cost to purchase suchshares and fair market value, whereas the repurchase price for vested shares ofrestricted stock is the fair market value of the shares unless the holder isterminated for cause, in which case the repurchase price for vested shares isthe lesser of the holder’s original cost and fair market value.

 

                Mr. Herbst’s EmploymentAgreement provides for an initial annual base salary of $142,000 and an annualperformance-based bonus of up to eighty percent (80%) of his base salary forfiscal year 2007.  Mr. Herbst’sEmployment Agreement provides for annual reviews of Mr. Herbst’s basesalary to determine whether an adjustment to his annual base salary isappropriate.  Mr. Herbst’sEmployment Agreement provides that Mr. Herbst, subject to his eligibility,be included in all employee benefit plans established by the Company.  Mr. Herbst’s Employment Agreement may beterminated at any time, with or without cause, by either party.  Mr. Herbst’s Employment Agreement alsocontains non-disclosure provisions and prohibits Mr. Herbst from competingwith the Company during the term of his employment and for a period of one yearthereafter.  Mr. Herbst holds shares of restricted stock that are subject to certain repurchase rightsin favor of Parent and Olympus Growth Fund IV, L.P. (as Parent’s majorityshareholder) in the event that the holder of such shares ceases to beemployed by Parent and its subsidiaries for any reason.  The repurchase price for unvested shares ofrestricted stock is the lesser of the holder’s original cost to purchase suchshares and fair market value, whereas the repurchase price for vested shares ofrestricted stock is the fair market value of the shares unless the holder isterminated for cause, in which case the repurchase price for vested shares isthe lesser of the holder’s original cost and fair market value.

 

                Mr. Beyer’s EmploymentAgreement provides for an initial annual base salary of $140,000 and an annualperformance-based bonus of up to seventy-five percent (75%) of his base salaryfor fiscal year 2007.  Mr. Beyer’sEmployment Agreement provides for annual reviews of Mr. Beyer’s basesalary to determine whether an adjustment to his annual base salary isappropriate.  Mr. Beyer’s EmploymentAgreement provides that Mr. Beyer, subject to his eligibility, be includedin all employee benefit plans established by the Company.  Mr. Beyer’s Employment Agreement may beterminated at any time, with or without cause, by either party.  Mr. Beyer’s Employment Agreement alsocontains non-disclosure provisions and prohibits Mr. Beyer from competingwith the Company during the term of his employment and for a period of one yearthereafter.  Mr. Beyer holds shares of restricted stock that are subject to certain repurchase rightsin favor of Parent and Olympus Growth Fund IV, L.P. (as Parent’s majorityshareholder) in the event that the holder of such shares ceases to beemployed by Parent and its subsidiaries for any reason.  The repurchase price for unvested shares ofrestricted stock is the lesser of the holder’s original cost to purchase suchshares and fair market value, whereas the repurchase price for vested shares ofrestricted stock is the fair market value of the shares unless the holder isterminated for cause, in which case the repurchase price for vested shares isthe lesser of the holder’s original cost and fair market value.

 

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# **DirectorsCompensation**

# ** **

                Ourdirectors do not receive compensation for attending board meetings, other thanreimbursement of reasonable out-of-pocket expenses incurred in connection withattending any board meeting or any committee meetings.

 

**Item 12. SecurityOwnership of Certain Beneficial Owners and Management and Related StockholderMatters**

 

                Asof March 17, 2008, all of the Company’s capital stock is owned byParent.  As of March 17, 2008, thefollowing table sets forth certain information regarding the beneficialownership of Parent’s Series A Preferred Stock, par value $0.01 per share(“Parent Preferred”), and Common Stock, par value $0.01 per share (“ParentCommon”), by (i) each person known to us to beneficially own more than 5%of the outstanding shares of either Parent Preferred and Parent Common; (ii) eachof our directors; (iii) each named executive officer and (iv) all ofour executive officers and directors as a group.  Beneficial ownership is determined inaccordance with the rules of the SEC. These rules generally attribute beneficial ownership of shares topersons who possess sole or shared voting and/or investment power with respectto the shares shown as beneficially owned. Unless otherwise indicated in the footnotes to this table, the addressof all listed stockholders is c/o WII Components, Inc., 525 LincolnAvenue, SE, St. Cloud, Minnesota 56304.

 
| ** **                                                  | ** ** | **Parent Preferred**            | ** ** | **Parent Common**                   | ** ** |
|-------------------------------------------------------------|------------|---------------------------------|------------|-------------------------------------|------------|
| **Name of Beneficial Owner**                                | ** ** | **Shares  Beneficially  Owned** | ** ** | **Percentage  Beneficially  Owned** | ** ** | **Shares  Beneficially  Owned** | ** ** | **Percentage  Beneficially  Owned** | ** ** |
| Olympus Funds(1)                                            |       | 75,395                          |       | 93                                  | %          | 609,949 |   | 86 | % |
| Robert S. Morris(1)                                         |       | 75,395                          |       | 93                                  | %          | 609,949 |   | 86 | % |
| Louis J. Mischianti(1)                                      |       | 75,395                          |       | 93                                  | %          | 609,949 |   | 86 | % |
| L. David Cardenas(1)                                        |       | 75,395                          |       | 93                                  | %          | 609,949 |   | 86 | % |
| Keith Heffernan(1)                                          |       | 75,395                          |       | 93                                  | %          | 609,949 |   | 86 | % |
| John Fitzpatrick(2)                                         |       | 940                             |       | 1                                   | %          | 16,014 |   | 3 | % |
| Dale Herbst(3)                                              |       | 212                             |       |                                | *          | 7,317 |   | 1 | % |
| Joel Beyer(4)                                               |       | 169                             |       |                                | *          | 4,732 |   |   | * |
| All directors and executive officers as a group (7 persons) |       | 76,716                          |       | 95                                  | %          | 638,012 |   | 90 | % |

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*              Representsless than 1% of the outstanding voting capital stock.

 

(1)           Consistsof 75,003.855 shares of Parent Preferred and 606,778.23 shares of Parent Commonbeneficially owned by Olympus Growth Fund IV, L.P. and 392.059 shares of ParentPreferred and 3,171.74 shares of Parent Common beneficially owned by OlympusExecutive Fund, L.P.  The sharesbeneficially owned by Olympus Growth Fund IV, L.P. are beneficially ownedindirectly by OGP IV, LLC, the general partner of Olympus Growth Fund IV, L.P.,and by Mr. Morris, the managing member of OGP IV, LLC.  The shares beneficially owned by OlympusExecutive Fund, L.P. are beneficially owned indirectly by OEF, L.P., thegeneral partner of Olympus Executive Fund, L.P., and by RSM, Corporation, themanaging general partner of OEF, L.P, and by Robert S. Morris, the president(and sole stockholder) of RSM, Corporation.

 

Mr. Morris, a member of Parent’s board of directors,is the managing partner of Olympus Partners and is the managing member of OGPIV, LLC and is the president (and sole stockholder) of the managing generalpartner of OEF, L.P., and, in such capacities, has voting and investment powerwith respect to all shares held by the Olympus Funds and has a pecuniaryinterest in certain of those shares.  Mr. Mischianti,a member of Parent’s board of directors, is a partner of Olympus Partners andis a member of OGP IV, LLC, and, in such capacities, has a pecuniary interestin certain of those shares.  Messrs. Cardenasand Heffernan, also members of Parent’s board of directors, are partners ofOlympus Partners and are members of OGP IV, L.L.C. and, in such capacities,have a pecuniary interest in certain of the shares held by the OlympusFunds.  Each of Messrs. Morris,Mischianti, Cardenas and Heffernan disclaims beneficial ownership of the sharesowned by these entities, except to the extent of their proportionate pecuniaryinterest therein.  The address forOlympus Partners, the Olympus Funds and Messrs. Morris, Mischianti,Cardenas and Heffernan is c/o Olympus Partners, Metro Center, One StationPlace, Stamford, Connecticut, 06902.

 

(2)           Mr. Fitzpatrick’sshares are held by the John P Fitzpatrick Revocable Trust U/A 12/31/01.  Mr. Fitzpatrick is a trustee of the JohnP Fitzpatrick Revocable Trust U/A 12/31/01 and Mr. Fitzpatrick and membersof his family are the primary beneficiaries. Mr. Fitzpatrick’s shares include Parent Common shares of 7,605 andParent Common Restricted shares of 8,409.

 

(3)           Mr. Herbst’sshares include Parent Common shares of 1,711 and Parent Common Restrictedshares of 5,606.

 

(4)           Mr. Beyer’s shares includeParent Common shares of 1,369 and Parent Common Restricted shares of 3,363.

 

 

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# **Item 13. CertainRelationships and Related Party Transactions, and Director Independence**

# ** **

**Stockholders Agreement**

 

                On January 9,2007, Parent and each of Parent’s stockholders entered into a StockholdersAgreement (the “Parent Stockholders Agreement”).  Under the provisions of the ParentStockholders Agreement, the authorized number of directors on Parent’s board ofdirectors is established at 5 directors (or such higher number as determined byOlympus Growth Fund IV, L.P.) and all of the parties agree to elect as membersof our board of directors each representative designated from time to time byOlympus Growth Fund IV, L.P., as a nominee. Pursuant to the Parent Stockholders Agreement, Parent’s stockholders aresubject to certain transfer restrictions, including rights of first refusal andco-sale rights on certain transfers by Olympus Growth Fund IV, L.P.  The Olympus Growth Fund IV, L.P. (as theholders of a majority of Parent’s capital stock) and board of directors ofParent have the right to force all of the other stockholders to participate ina sale event involving a change of control of Parent or all or substantiallyall of Parent’s assets on a consolidated basis. In addition, subject to certain exceptions, all stockholders of Parenthave pre-emptive rights on future sales of equity securities of Parent.  Finally, pursuant to the Parent StockholdersAgreement, Parent granted certain customary registration rights, includingdemand, piggyback and resale shelf registration rights.  Demand registration rights were granted onlyto the holders of a majority of Parent’s capital stock.

 

**Advisory Services Agreement**

 

                Parententered into an Advisory Services Agreement, dated as of January 9, 2007,with Olympus Advisory Partners, Inc., an affiliate of the OlympusFunds.  Under this agreement, OlympusAdvisory Partners, Inc. provides Parent with advice regarding corporate,business and financial strategy, potential acquisitions, financial managementand other issues.  In addition to aquarterly consulting fee, in the event that Parent or any of its subsidiariesconsummate a capital transaction (such as an acquisition of another company, asale of Parent or any of its subsidiaries, or significant events relating tochanges in the capital structure of Parent and its subsidiaries), Parent isrequired to pay Olympus Advisory Partners, Inc. a fee for its role asParent’s advisor.  Neither the Companynor any of its subsidiaries is party to this Agreement.

 

**Indemnification Agreements**

 

                Wehave entered into indemnification agreements with our executive officers, JohnFitzpatrick and Dale Herbst.  The form ofindemnification agreement provides that the directors and officers will beindemnified for expenses incurred because of their status as a director orofficer, as applicable, to the fullest extent permitted by Delaware law and ourcertificate of incorporation and bylaws.

 

                Ourcertificate of incorporation, as amended, contains a provision permitted byDelaware law that generally eliminates the personal liability of directors formonetary damages for breaches of their fiduciary duty, including breachesinvolving negligence or gross negligence in business combinations, unless thedirector has breached his or her duty of loyalty, failed to act in good faith,engaged in intentional misconduct or a knowing violation of law, paid adividend or approved a stock repurchase or redemption in violation of theDelaware General Corporation Law or obtained an improper personal benefit.  This provision does not alter a director’sliability under the federal securities laws and does not affect theavailability of equitable remedies, such as an injunction or rescission, forbreach of fiduciary duty.  Our bylawsprovide that directors shall be, and in the discretion of the board ofdirectors, our officers and non-officer employees may be, indemnified to thefullest extent authorized by Delaware law, as it now exists or may in thefuture be amended, against all expenses and liabilities reasonably incurred inconnection with service for or on behalf of the company.  Our bylaws also provide that the right of ourdirectors and officers to indemnification shall be a contract right and shallnot be exclusive of any other right now possessed or hereafter acquired underany statute, bylaw, agreement, vote of stockholders, directors or otherwise.

 

                Insofar as indemnification forliabilities arising under the Securities Act may be permitted to our directors,officers and persons controlling us as described above, we have been advisedthat in the opinion of the SEC such indemnification is against public policy asexpressed in the Securities Act and is therefore unenforceable.  At present, there is no pending materiallitigation or proceeding involving any of our directors, officers, employees oragents in which indemnification will be required or permitted.

 

 

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**Policies and Procedures for Related Party Transactions**

 

       As aprivate company, our board of directors generally reviews our related partytransactions, although we have not historically had formal policies andprocedures regarding the review and approval of related party transactions

 

**Director Independence**

 

                Theboards of Parent and the Company are currently composed of five directors, noneof whom would qualify as an independent director based on the definition ofindependent director set forth in Rule 4200(a)(15) of the NasdaqMarketplace rules.  Because affiliates ofOlympus Funds own approximately 87% of the voting stock of Parent, and we donot otherwise have any securities listed on any securities exchange, we are notsubject to corporate governance rules that require that a board ofdirectors be composed of a majority of independent directors.

 

**Item 14. Principal Accountants andServices**

 

**               **Aggregate fees billed by the Company’sprincipal accounting firms, Grant Thornton LLP and Deloitte & Touche LLP, the member firms of Deloitte ToucheTohmatsu, and their respective affiliates for the fiscal years ended December 31,2007, and 2006, respectively:

 
| ** **                          | ** ** | **Year Ended December 31,** | ** ** |
|-------------------------------------|------------|----------------------------------|------------|
| ** **                          | ** ** | **2007**                         | ** ** | **2006** | ** ** |
| Audit Fees (a)                      |       | $                                | 119,000    |   | $ | 213,849 |   |
| Audit-Related Fees (b)              |       | —                           |       | 6,355 |   |
| Total audit and  audit-related fees |       | 119,000                          |       | 220,204 |   |
| Tax Fees (c)                        |       | —                           |       | 88,425 |   |
|                                |       |                             |       |   |   |
| Total Fees                          |       | $                                | 119,000    |   | $ | 308,629 |   |

----

(a) Fees for auditservices:

·                  In 2007, pertained to the audit of the Company’s annual financialstatement and review of the Company’s quarterly financial statements endedSeptember 30, 2007

·                  Billed in 2006 for audit of the Company’s annual financial statementsand reviews of the Company’s quarterly financial statements

 

(b) Fees foraudit-related services billed in 2006 consist of:

·                  Review of audit workpapers in connection with the sale of the Company.

 

(c) Fees for taxservices billed in 2006 consist of:

·                  Preparation of tax returns

·                  Research and assistance with earnings and profit, state matters, andother miscellaneous projects

 

**PreapprovalPolicies**

 

                The Company is not required to have a preapprovalpolicy for services performed by our independent registered pubic accountingfirm.

 

**PART IV**

 

**Item 15.Exhibits, Financial Statement Schedules**

 

(a)         List of Financial Statements, Financial Statement Schedules and Exhibits

 

(1) *Financial Statements*. Consolidated Financial Statements of WII Components, Inc. and Subsidiariesas of December 31, 2007 and 2006 and for the years ended December 31,2007, 2006 and 2005.

 

Report of IndependentRegistered Public Accounting Firms

Consolidated Balance Sheets

 

 

49

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Consolidated Statements of Earnings

Consolidated Statements of Stockholders’ Equity

Consolidated Statements of Cash Flows

Notes to ConsolidatedFinancial Statements

 

(2)  *Financial Statement Schedules*.  Allschedules for which provision is made in the applicable accounting regulationsof the SEC have been omitted as not required or not applicable, or theinformation required has been included elsewhere by reference in the financialstatements and related notes, except for Schedule II.

 

(3) *Exhibits:*

 
| **Exhibit No.** | ** ** | **Exhibit Description**                                                                                                                                                                                                                                                                                                                                                                                                                                                       |
|----------------------|------------|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| ** **           | ** ** | ** **                                                                                                                                                                                                                                                                                                                                                                                                                                                                         |
| 2.1                  |       | Amended and  Restated Agreement and Plan of Merger dated January 5, 2007, by among  WII Holding, Inc., a Delaware corporation, WII Merger Corporation, a  Delaware corporation, WII Components, Inc. and Behrman Capital III,  L.P., solely in its capacity as stockholders’ representative (incorporated  herein by reference to Exhibit 2.1 to the Company’s Annual  Report on Form 10-K filed March 30, 2007, File No. 333-115490) |
|                 |       |                                                                                                                                                                                                                                                                                                                                                                                                                                                                               |
| 3.1                  |       | Third Amended  and Restated Certificate of Incorporation of WII Components, Inc.  (incorporated herein by reference to Exhibit 3.11 to the  Company’s Annual Report on Form 10-K filed March 30, 2007, File  No. 333-115490)                                                                                                                                                                                                                         |
|                 |       |                                                                                                                                                                                                                                                                                                                                                                                                                                                                               |
| 3.2                  |       | Bylaws of WII  Merger Corporation, which are the current Bylaws of WII Components, Inc.  as a result of the Amended and Restated Agreement and Plan of Merger  (incorporated herein by reference to Exhibit 3.12 to the  Company’s Annual Report on Form 10-K filed March 30, 2007, File  No. 333-115490)                                                                                                                                            |
|                 |       |                                                                                                                                                                                                                                                                                                                                                                                                                                                                               |
| 3.3                  |       | Restated  Articles of Incorporation of Woodcraft Industries, Inc. (incorporated  herein by reference to Exhibit 3.3 to the Company’s Registration  Statement on Form S-4, as amended, File No. 333-115490)                                                                                                                                                                                                                                                |
|                 |       |                                                                                                                                                                                                                                                                                                                                                                                                                                                                               |
| 3.4                  |       | Restated Bylaws  of Woodcraft Industries, Inc. (incorporated herein by reference to  Exhibit 3.4 to the Company’s Registration Statement on Form S-4, as  amended, File No. 333-115490)                                                                                                                                                                                                                                                                   |
|                 |       |                                                                                                                                                                                                                                                                                                                                                                                                                                                                               |
| 3.5                  |       | Articles of  Incorporation of PrimeWood, Inc. (incorporated herein by reference to  Exhibit 3.5 to the Company’s Registration Statement on Form S-4, as  amended, File No. 333-115490)                                                                                                                                                                                                                                                                    |
|                 |       |                                                                                                                                                                                                                                                                                                                                                                                                                                                                               |
| 3.6                  |       | Bylaws of  PrimeWood, Inc. (incorporated herein by reference to Exhibit 3.6 to  the Company’s Registration Statement on Form S-4, as amended, File  No. 333-115490)                                                                                                                                                                                                                                                                                       |
|                 |       |                                                                                                                                                                                                                                                                                                                                                                                                                                                                               |
| 3.7                  |       | Certificate of  Incorporation of Brentwood Acquisition Corp. (incorporated herein by  reference to Exhibit 3.7 to the Company’s Registration Statement on  Form S-4, as amended, File No. 333-115490)                                                                                                                                                                                                                                                          |
|                 |       |                                                                                                                                                                                                                                                                                                                                                                                                                                                                               |
| 3.8                  |       | Bylaws of  Brentwood Acquisition Corp. (incorporated herein by reference to  Exhibit 3.8 to the Company’s Registration Statement on Form S-4, as  amended, File No. 333-115490)                                                                                                                                                                                                                                                                                |
|                 |       |                                                                                                                                                                                                                                                                                                                                                                                                                                                                               |
| 4.1                  |       | Indenture dated  as of February 18, 2004 by and among WII Components, Inc., and U.S.  Bank National Association (incorporated herein by reference to  Exhibit 4.3 to the Company’s Registration Statement on Form S-4, as  amended, File No. 333-115490)                                                                                                                                                                                             |
|                 |       |                                                                                                                                                                                                                                                                                                                                                                                                                                                                               |

 

 

50

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| ** ** | ** ** | ** **                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         |
|------------|------------|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| 4.2        |       | Registration  Rights Agreement dated as of February 18, 2004, by and among WII  Components, Inc. and the Initial Purchasers as defined therein  (incorporated herein by reference to Exhibit 4.5 to the Company’s  Registration Statement on Form S-4, as amended, File  No. 333-115490)                                                                                                                                                                                                             |
|       |       |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               |
| 4.3        |       | Form of WII  Components, Inc. 10% Senior Note due 2012 (incorporated herein by  reference to Exhibit 4.3 to the Company’s Registration Statement on  Form S-4, as amended, File No. 333-115490)                                                                                                                                                                                                                                                                                                      |
|       |       |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               |
| 4.4        |       | Supplemental  Indenture, dated as of June 25, 2004 by and among WII  Components, Inc. and the Initial Purchasers as defined therein  (incorporated herein by reference to Exhibit 4.7 to the Company’s  Amendment No. 1 to the Registration Statement on Form S-4, as  amended, File No. 333-115490)                                                                                                                                                                                            |
|       |       |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               |
| 10.1       |       | WII  Holdings, Inc. 2003 Stock Option and Grant Plan (incorporated herein by  reference to Exhibit 10.1 to the Company’s Registration Statement on  Form S-4, as amended, File No. 333-115490) **                                                                                                                                                                                                                                                                                                         |
|       |       |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               |
| 10.2       |       | Form of  Director Indemnification Agreement (incorporated herein by reference to  Exhibit 10.2 to the Company’s Registration Statement on Form S-4,  as amended, File No. 333-115490)                                                                                                                                                                                                                                                                                                                     |
|       |       |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               |
| 10.3       |       | First Lien Senior Secured Credit Agreement, dated as of  January 9, 2007, by and among WII Components, Inc. (as  successor-in-interest to WII Merger Corporation) as Borrower and Credit  Suisse, for itself and as Administrative Agent, Swing Line Lender, an L/C  Issuer and as Collateral Agent for all Lenders, and the Lenders Party thereto  (incorporated herein by reference to Exhibit 10.1 to the Company’s  Quarterly Report on Form 10-Q filed May 23, 2007, File  No. 333-115490) |
|       |       |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               |
| 10.4       |       | Amendment No. 1 To The Credit Agreement, dated as of  February 7, 2007, by and among WII Components, Inc., as Borrower,  and Credit Suisse, for itself and as Administrative Agent, Swing Line Lender,  an L/C Issuer and as Collateral Agent (incorporated herein by reference to  Exhibit 10.2 to the Company’s Quarterly Report on Form 10-Q filed  May 23, 2007, File No. 333-115490)                                                                                                  |
|       |       |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               |
| 10.5       |       | Employment Agreement dated December 11, 2006, between WII  Components, Inc. (as successor-in-interest to WII Merger Corporation),  WII Holding, Inc. and John Fitzpatrick (incorporated herein by reference  to Exhibit 10.3 to the Company’s Quarterly Report on Form 10-Q  filed May 23, 2007, File No. 333-115490) **                                                                                                                                                                             |
|       |       |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               |
| 10.6       |       | Employment Agreement dated December 11, 2006, between WII  Components, Inc. (as successor-in-interest to WII Merger Corporation),  WII Holding, Inc. and Dale Herbst (incorporated herein by reference to  Exhibit 10.4 to the Company’s Quarterly Report on Form 10-Q filed  May 23, 2007, File No. 333-115490) **                                                                                                                                                                             |
|       |       |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               |
| 10.7       |       | Employment Agreement dated December 11, 2006, between WII  Components, Inc. (as successor-in-interest to WII Merger Corporation),  WII Holding, Inc. and Joe Beyer (incorporated herein by reference to  Exhibit 10.5 to the Company’s Quarterly Report on Form 10-Q filed  May 23, 2007, File No. 333-115490) **                                                                                                                                                                               |
|       |       |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               |
| 10.8       |       | Restricted Stock Agreement dated August 31, 2007, between WII  Holding, Inc. and John Fitzpatrick (incorporated herein by  reference to Exhibit 10.1 to the Company’s Quarterly Report on  Form 10-Q filed November 13, 2007, File No. 333-115490) **                                                                                                                                                                                                                                           |
|       |       |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               |
| 10.9       |       | Restricted Stock Agreement dated August 31, 2007, between WII  Holding, Inc. and Dale Herbst (incorporated herein by  reference to Exhibit 10.2 to the Company’s                                                                                                                                                                                                                                                                                                                                               |
|       |       |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               |

 

 

51

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| ** ** | ** ** | Quarterly Report on Form 10-Q filed November 13, 2007, File  No. 333-115490) **                                                                                                                                                                                                                                                                                                                                                                                                    |
|------------|------------|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| ** ** | ** ** | ** **                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        |
| 10.10      |       | Restricted Stock Agreement dated August 31, 2007, between WII  Holding, Inc. and Joe Beyer (incorporated herein by  reference to Exhibit 10.3 to the Company’s Quarterly Report on  Form 10-Q filed November 13, 2007, File No. 333-115490) **                                                                                                                                                                                                                 |
|       |       |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              |
| 10.11      |       | Amendment No. 3 To The Credit Agreement, dated as of  February 19, 2008, by and among WII Components, Inc., as Borrower,  the lenders party thereto and Credit Suisse, acting through one or more of  its branches, or any Affiliate thereof, as Administrative Agent, Swing Line  Lender, an L/C Issuer and Collateral Agent (incorporated herein by reference  to Exhibit 10.1 to the Company’s Form 8-K filed February 20,  2007, File No. 333-115490) |
|       |       |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              |
| *10.12     |       | Amendment No. 2 To The Credit Agreement, dated as of  June 12, 2007, by and among WII Components, Inc., as Borrower, the  lenders party thereto and Credit Suisse, acting through one or more of its  branches, or any Affiliate thereof, as Administrative Agent, Swing Line  Lender, an L/C Issuer and Collateral Agent.                                                                                                                                                         |
|       |       |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              |
| 10.13      |       | Purchase and  Exchange Agreement dated April 9, 2003 by and among WII  Holdings, Inc. and The Investors and Management Stockholders as defined  therein (incorporated herein by reference to Exhibit 2.1 to the  Company’s Registration Statement on Form S-4, as amended, File  No. 333-115490)                                                                                                                                                                    |
|       |       |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              |
| 10.14      |       | Amended and  Restated Credit Agreement dated as of September 23, 2005 by and among  WII Components, Inc., Antares Capital Corporation, and the Financial  Institutions party thereto (incorporated herein by reference to  Exhibit 10.14 to the Company’s Quarterly Report on Form 10-Q, as  amended, File No. 333-115490)                                                                                                                                          |
|       |       |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              |
| 10.15      |       | Bonus Letter  Agreement between the Company and John Fitzpatrick, dated May 31,2006 **                                                                                                                                                                                                                                                                                                                                                                                                       |
|       |       |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              |
| 10.16      |       | Option Agreement  dated May 31, 2006, between the Company and John Fitzpatrick **                                                                                                                                                                                                                                                                                                                                                                                                            |
|       |       |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              |
| 10.17      |       | Option Agreement  dated May 31, 2006, between the Company and John Fitzpatrick **                                                                                                                                                                                                                                                                                                                                                                                                            |
|       |       |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              |
| *12.1      |       | Statement  Regarding Computation of Ratio of Earnings to Fixed Charges                                                                                                                                                                                                                                                                                                                                                                                                                            |
|       |       |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              |
| 21.1       |       | Subsidiaries of  the Registrant (incorporated herein by reference to Exhibit 21.1 to the  Company’s Amendment No. 1 to the Registration Statement on  Form S-4, as amended, File No. 333-115490)                                                                                                                                                                                                                                                                         |
|       |       |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              |
| *31.1      |       | Certification of  Chief Financial Officer, Treasurer, and Secretary of WII  Components, Inc., pursuant to Rules 13a-15(e) and 15d-15(e),  as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002                                                                                                                                                                                                                                                                |
|       |       |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              |
| *31.2      |       | Certification of  President and Chief Executive Officer of WII Components, Inc., pursuant  to Rules 13a-15(e) and 15d-15(e), as adopted pursuant to  Section 302 of the Sarbanes-Oxley Act of 2002                                                                                                                                                                                                                                                                            |

 

 

52

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| *32.1  |   | Certification of  Chief Financial Officer, Treasurer, and Secretary of WII  Components, Inc., pursuant to 18 U.S.C. Section 1350, as adopted  pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 |
|--------|--------|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|   |   |                                                                                                                                                                                                                   |
| *32.2  |   | Certification of  President and Chief Executive Officer of WII Components, Inc., pursuant  to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of  the Sarbanes-Oxley Actof 2002              |

----

* Filed herewith.

** Compensationarrangement.

 

 

53

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**SCHEDULE II. VALUATION AND QUALIFYINGACCOUNTS**

 

**Allowance for Doubtful Accounts**

 

Thetransactions in the allowance for doubtful accounts for the years ended December 31,2007, 2006 and 2005 were as follows (in thousands):

 

| ** **                 | ** ** | **Year Ended December 31,** | ** ** |
|----------------------------|------------|----------------------------------|------------|
| ** **                 | ** ** | **2007**                         | ** ** | **2006** | ** ** | **2005** | ** ** |
| Balance, beginning of year |       | $                                | 104        |   | $ | 118 |   | $ | 209 |   |
| Provision                  |       | 50                               |       | 21 |   | 61 |   |
| Write-offs                 |       | (23                              | )          | (35 | ) | (152 | ) |
| Balance, end of year       |       | $                                | 131        |   | $ | 104 |   | $ | 118 |   |

 

 

54

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**Item 16. Signatures**

 

Pursuant to the requirements of Section 13 or 15(d) ofthe Securities Exchange Act of 1934, the Registrant has duly caused this AnnualReport to be signed on its behalf by the undersigned thereunto duly authorized,this 28th day of March 2008:

 
|   | **WII  COMPONENTS, INC.** |
|--------|---------------------------|
|   |                      |   |
|   | By:                       | /s/ John Fitzpatrick |
|   |                      | John  Fitzpatrick, President and Chief Executive Officer |

 

Pursuant to the requirements of the SecuritiesExchange Act of 1934, this Annual Report has been signed below by the followingpersons on behalf of the registrant and in the capacities and on the datesindicated.

 
| **Signature**       | ** **              | **Title**                                   | ** ** | **Date**                                          |
|---------------------|-------------------------|---------------------------------------------|------------|---------------------------------------------------|
| ** **          | ** **              | ** **                                  | ** ** | ** **                                        |
|                | /s/ John  Fitzpatrick   |                                        |       | President and  Chief Executive Officer (Principal |   | March 28,2008 |
| John Fitzpatrick    |                    | Executive  Officer)                         |       |                                              |
|                |                    |                                        |       |                                              |
|                | /s/ Dale B. Herbst      |                                        |       | Chief Financial Officer,  Treasurer and Secretary |   | March 28,2008 |
| Dale B. Herbst      |                    | (Principal  Financial Officer and Principal |       |                                              |
|                |                    | Accounting  Officer)                        |       |                                              |
|                |                    |                                        |       |                                              |
|                | /s/ Robert S. Morris    |                                        |       | Director                                          |   | March 28,2008 |
| Robert S. Morris    |                    |                                        |       |                                              |
|                |                    |                                        |       |                                              |
|                | /s/ Louis J. Mischianti |                                        |       | Director                                          |   | March 28,2008 |
| Louis J. Mischianti |                    |                                        |       |                                              |
|                |                    |                                        |       |                                              |
|                | /s/ L. David Cardenas   |                                        |       | Director                                          |   | March 28, 2008 |
| L. David Cardenas   |                    |                                        |       |                                              |
|                |                    |                                        |       |                                              |
|                | /s/ Keith Heffernan     |                                        |       | Director                                          |   | March 28, 2008 |
| Keith Heffernan     |                    |                                        |       |                                              |

 

 

55

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