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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, DC 20549

FORM 10-K

FOR ANNUAL AND TRANSITION REPORTS

PURSUANT TO SECTIONS 13 OR 15(D) OF THE

SECURITIES EXCHANGE ACT OF 1934

(Mark One)

For the fiscal year ended December 31, 2010

For the transition period from              to             

Commission file number: 333-115490

WII COMPONENTS, INC.

(Exact name of registrant as specified in its charter)

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)

Securities registered pursuant to Section 12(b) of the Act: None

Securities registered pursuant to Section 12(g) of the Act: None

Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act
Yes o  No x

Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act.
Yes x  No o

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports) and (2) has been subject to such filing requirements for the past 90 days.  Yes x  No o

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Website, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).  Yes o  No o

Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. x

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

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

The aggregate market value of the voting stock held by nonaffiliates of the registrant as of June 30, 2010: not applicable.

As of  March 28, 2011, 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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WII COMPONENTS, INC.

FORM 10-K

Year Ended December 31, 2010

INDEX

ACCESS TO REPORTS

Investors may obtain access 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 other reports by visiting the WII Components web site at www.wiicomponents.com.  These reports will be available as soon as reasonably practicable following electronic filing with, or furnishing to, the Securities and Exchange Commission.

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In this report, the terms “WII Components,” “we,” “our,” “Company,” or “us” refer to WII Components, Inc. and its subsidiaries on a consolidated basis and their respective predecessors, unless otherwise indicated or the context otherwise requires.  In April 2003, WII Components, Inc. was formed by a group of investors to acquire Woodcraft Industries, 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 formed investment entity controlled by Olympus Growth Fund IV, L.P. and Olympus Executive Fund L.P., which are affiliated investment funds headquartered in Stamford, Connecticut (together with other affiliated entities, “Olympus”).  WII Components conducts all of its operations through its direct subsidiary, Woodcraft, and its indirect subsidiaries, PrimeWoodand Brentwood.

PART I

Item 1. Business

Our Company

We believe we are one of the leading manufacturers of hardwood cabinet doors, hardwood components and engineered wood products in the United States.  In 2010, we generated approximately 93% of our sales from the kitchen and bath cabinet manufacturing industry.  We believe our reputation for high quality and reliable performance has enabled us to establish strong, long-standing relationships with our customers, which include most of the top cabinet manufacturers in the United States.  Our customers, in turn, distribute their products through various sales channels, including specialty kitchen and bath cabinet dealers, home center retailers and homebuilders.  We generated net sales of approximately $33.7 million for the three months ended December 31, 2010 and approximately $145.4 million for the year ended December 31, 2010.

We believe that we have one of the broadest product offerings of doors and related components for the kitchen and bath cabinet manufacturing industry.  Our products include: (1) hardwood cabinet door components, face frames and drawer fronts, (2) fully assembled hardwood cabinet doors, (3) rigid thermofoil, or RTF, cabinet doors and components, (4) veneer raised panels, or VRPs, and (5) a variety of laminated and profile-wrapped components.  We produce over 200,000 SKUs for our customers, representing a wide array of styles, sizes, designs and wood species.  In addition, we offer a variety of value-added services for our customers, such as new product design and development and kitchen-at-a-time manufacturing, or KAT, a small batch production process that enables us to deliver semi-custom doors and components on a quick-turnaround basis.

We operate twelve manufacturing facilities located in Minnesota, North Dakota, Ohio, Oregon, Pennsylvania, Kansas, North Carolina, West Virginia, and Kentucky that allow us to distribute our products nationwide.  In 2005, we acquired substantially all of the assets of Dimension Moldings, Inc., and as a result of the acquisition we commenced operations at a second Ohio facility located in Middlefield, Ohio.  In 2005, we also acquired a rough mill facility in Greenville, Pennsylvania and commenced operations at a manufacturing facility in Lansing, Kansas.  In 2007, we commenced operations at manufacturing facilities in West Jordan, Utah and Monroe, Washington.  Each of these facilities in Utah and Washington contributed minimal capacity to the Company and were closed in the second half of 2008 due to the slowdown in the industry.  In 2008, we commenced operations at a manufacturing facility in Conover, North Carolina.  In the fourth quarter of 2009, we commenced operations at a manufacturing facility in Moorefield, West Virginia that adds minimal production capacity to the Company.  Overall, we have made substantial capital investments to broaden the scope of our manufacturing operations from rough milling through final production, which maximizes our yield from raw materials and allows us to meet the short lead time requirements of our customers.  Our technical knowledge and expertise with respect to the entire production process enable us to meet the specifications and delivery time demands of our customers for almost any style of cabinet doors or components with high quality standards at a competitive cost.  We believe we offer customers among the shortest lead times in the industry, an important criterion in our customers’ procurement decisions.

Our senior management team has an average of 20 years of industry experience and 19 years with our Company.  Our President and Chief Executive Officer, John Fitzpatrick, has over 25 years of experience in managing manufacturing-based companies and has led our senior management team since July 2000.

Our History

Our subsidiary, Woodcraft Industries, Inc., was founded in 1945 in St. 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 assembly business.  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 component manufacturer 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, and substantially all of the assets of Dimension Moldings, Inc. in 2005.  On December 31, 2006, Grand Valley was

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merged with and 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 outstanding capital stock of WII Components, Inc. through the merger of a newly formed wholly owned subsidiary of Parent with and into WII Components, Inc. (the “Transaction”).  At that time, Parent was a newly formed investment entity controlled by Olympus.

Products

We believe that we have one of the broadest product offerings of doors and related components for the kitchen and bath cabinet manufacturing industry.  Our products include:  (1) hardwood cabinet door components, face frames and drawer fronts, (2) fully assembled hardwood cabinet doors, (3) rigid thermofoil, or RTF, cabinet doors and components, (4) veneer raised panels, or VRPs, and (5) a variety of laminated and profile-wrapped components.  We produce over 200,000 SKUs for our customers, representing a wide array of styles, designs and wood species.  In addition, we offer a variety of value-added services for our customers, such as new product design and development and kitchen-at-a-time manufacturing, or KAT, a small batch production process that enables us to deliver semi-custom doors and components on a quick-turnaround basis.  See Note 3 to our consolidated financial statements included in this report under “Financial Statements and Supplementary Data” for additional information on our products.

Customers

We have been servicing our top ten customers for an average of approximately 18 years, with a minimum of six years.  In 2010, sales to Masco Corporation and Elkay accounted for 38% and 18%, respectively, of our net sales.  No other customer accounted for more than 10% of our sales in 2010.  We have experienced lower sales volume over the past four years with most of our top ten customers due to the overall market decline related to lower demand for new homes and remodeling of existing homes.

Sales and Marketing

Substantially all of our sales are made directly to cabinet manufacturers without the use of third party sales representatives or distributors.  Our sales and marketing group is organized primarily by product and geography.  The group includes a sales director for all product lines, a marketing director for hardwood products, and four account managers.  Over the past few years, our sales and marketing efforts have been focused on strengthening relationships with our most important customers and introducing new products to targeted markets.  Due to our long-standing relationships with our key customers, sales and marketing involves relationships at multiple levels with our customers.  Accordingly, our internal sales force works closely with our manufacturing and marketing personnel to develop new opportunities in our core kitchen and bath market, which accounted for approximately 93% of our sales in 2010, as well as our other markets, including store fixtures.  In 2010, approximately 98% of our net revenues resulted from sales in the United States, while the balance resulted from sales in Canada and Mexico.

We do not rely on imported product components for any significant portion of our business.  However, we do purchase imported components for use in our domestic manufacturing process and for direct sale to our customers.  In 2010, our sales of imported products accounted for 2% of our total sales.

Seasonality

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

Supply of Raw Materials

The primary raw materials we purchase are green, kiln-dried, and semi-processed hardwood lumber, MDF, hardwood veneer and PVC foil.  Hardwood lumber accounts for the largest portion of our material costs.  We purchase our lumber directly from hardwood mills, which allows us to both leverage our scale and avoid the costs associated with intermediaries.  We purchase from a network of over 50 regional mills throughout the Northern and Appalachian hardwood forest areas in close proximity to our manufacturing facilities.  No single supplier accounted for more than 6% of our material purchases in 2010, and we are not dependent on any single supplier for any raw material product.  Our top ten suppliers accounted for approximately 32% of the key raw materials we purchased in 2010.

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We purchase a variety of species of hardwood lumber, with hard maple, cherry, soft maple and red oak accounting for our largest volumes.  The prices of the various species have fluctuated historically on independent supply and demand curves and are not highly correlated to one another.  Generally, we have been able to pass lumber price changes through to our customers in a three to twelve month time period by working in a partnership with them.  Our ability to pass through these price changes to our customers is dependent on prevailing economic and competitive conditions.

Competition

We operate in the highly competitive kitchen and bath cabinet door and component industry.  Our competitors include other independent kitchen and bath cabinet door and component manufacturers and vertically integrated cabinet manufacturers who produce their own doors and components.  We estimate that the cabinet door and component market segment in which we compete represented approximately $1.1 billion of the overall U.S. cabinet market in 2010.  We believe that independent cabinet door and component manufacturers, like us, accounted for approximately $0.55 billion of this segment in 2010, while vertically integrated cabinet manufacturers accounted for the remainder.

We are one of the three largest manufacturers in the independent cabinet component industry.  We believe that in 2010 we accounted for approximately 26% of total outsourced cabinet door and component market sales, and together with our principal competitors Conestoga Wood Products and Appalachian Wood Products, based on publicly available information and management estimates, accounted for approximately 49% of this market in 2010.

Environmental Matters

Our operations and properties are subject to extensive federal, state, local and foreign environmental laws relating to protection of the environment and human health and safety.  Environmental laws and regulations are subject to frequent amendment and have become more stringent over time.  We could incur in the future significant costs associated with compliance with, or liabilities under, environmental laws and regulations, including equipment costs, disposal costs, cleanup costs, civil and criminal penalties, injunctive relief and denial or loss of, or imposition of significant restrictions on, environmental permits.  In addition, we could in the future be subject to suit by private parties in connection with alleged violations of or liabilities under environmental laws and regulations.

Employees

As of December 31, 2010, we had approximately 1,026 full-time employees, 12 part-time employees, and 73 leased employees.  Currently, none of our employees are covered by a collective bargaining agreement.

Item 1A. Risk Factors

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

Downturns in the new home construction industry, repair and remodeling activity or the economy could negatively affect our business.

Sales to the kitchen and bath cabinet market accounted for approximately 93% of our total sales for the year ended December 31, 2010.  Sales in this market are driven by new home construction and home repair and remodeling activity.  New home construction and repair and remodeling activity continues to be affected by changes in economic and other conditions, such as gross domestic product levels, employment levels, demographic trends, availability of financing, interest rates and consumer confidence.  These factors can negatively affect the demand for our products.  Any deterioration in these factors could have a material adverse effect on our business, financial condition and results of operations.

The Company derives a significant portion of its revenue as a result of the demand for its products created by the building of new homes, and repair and remodeling of existing homes.  During the second half of 2006, the home building, repair and remodeling industry experienced a slowdown as a result of general economic conditions.  The slowdown continued throughout 2010, and based on the Kitchen Cabinet Manufacturers Association data for 2010, the kitchen cabinet market is estimated to be down approximately 4% as compared to 2009.  This slowdown has had, and continues to have, a negative effect on our sales and income from operations.  If this slowdown were to continue or worsen over an extended period of time, it could have a material adverse effect on the Company’s business, financial condition or results of operations.

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Economic conditions and disruptions in the credit and financial markets could have an adverse effect on our business, financial condition and results of operations.

Over the last couple years, the financial markets experienced a period of unprecedented turmoil, including the bankruptcy, restructuring or sale of certain financial institutions and the intervention of the U.S. federal government. While the ultimate outcome of these events cannot be predicted, they may have a material adverse effect on our liquidity and financial condition if our ability to borrow money from our lenders under our new credit agreement to finance our operations were to be impaired. The crisis in the financial markets may also have a material adverse impact on the availability and cost of credit in the future. Our ability to pay our debt or refinance our obligations under our new credit agreement or 10% Senior Notes due 2012 (the “Senior Notes”) will depend on our future performance, which will be affected by, among other things, prevailing economic conditions. The financial crisis may also have an adverse effect on the U.S., which would have a negative impact on demand for our products. In addition, tightening of credit markets may have an adverse impact on our customers’ ability to finance the purchase of our products or our suppliers’ ability to provide us with raw materials, either of which could adversely affect our business and results of operations.

Our debt agreements contain certain restrictions that limit our flexibility in operating our business, and our failure to comply with these covenants could result in an acceleration of our indebtedness.

We are subject to a number of debt agreements, including our new credit agreement that we executed on March 24, 2011 (the “New Credit Agreement”), the indenture governing the Senior Notes and the $23.0 million non-interest bearing note issued on December 30, 2010 by our Parent (the “New Parent Note”), which contain covenants that restrict our ability to incur indebtedness, pay dividends, make investments, grant liens, sell our assets and engage in certain other activities.  In addition, our New Credit Agreement and New Parent Note require us to comply with certain consolidated financial ratios and financial tests. Our ability to meet these financial ratios and financial tests may be affected by events beyond our control, including a prolonged downturn in the housing market.  On March 30, 2009, we amended and obtained waivers to our prior senior credit facility to, among other things, adjust the interest coverage ratio and total leverage ratio that we were required to maintain as of December 31, 2008, and as of the end of each quarterly period through December 31, 2009 to reflect current economic conditions.  On March 26, 2010, we amended our prior senior credit facility again to, among other things, adjust the interest coverage ratio and total leverage ratio that we were required to maintain as of  March 31, 2010 and at the end of each quarterly period through December 31, 2010.  On those same dates, Parent undertook similar transactions with respect to its previously outstanding Parent notes, which were extinguished on December 30, 2010 in connection with the Recapitalization (as defined herein).  Any breach of the covenants in our debt agreements could result in a default of the obligations under such debt agreement and cause a cross-default under one or more of our other debt agreements.  If there were an event of default under one of the debt agreements that was not cured or waived, the lenders under such debt agreement could cause all amounts outstanding thereunder to be due and payable immediately.  Our assets and cash flow may not be sufficient to fully repay borrowings under our debt agreements if accelerated upon an event of default.

To service our indebtedness, we will require a significant amount of cash.  Our ability to generate cash depends on many factors beyond our control, and any failure to meet our debt service obligations could harm our business, financial condition and results of operations.

Our cash interest expense for the year ended December 31, 2010 was approximately $11.0 million.  In addition, our outstanding Senior Notes in an aggregate principal amount of $108.4 million are scheduled to mature on February 15, 2012.  Our ability to make payments on and to refinance our indebtedness, including the Senior Notes, and to fund working capital needs and planned capital expenditures will depend on our ability to generate cash in the future.  This, to a certain extent, is subject to general economic, financial, competitive, business, legislative, regulatory and other factors that are beyond our control.  Based on our current level of operations, we do not expect that we will have sufficient cash flows from operations to repay the Senior Notes at their current scheduled maturity in 2012.  As a result, we will need to refinance such Senior Notes prior to that time.

If our business does not generate sufficient cash flow from operations or if future borrowings are not available to us in an amount sufficient to enable us to pay our indebtedness, including the Senior Notes, or to fund our other liquidity needs, we may need to refinance all or a portion of our indebtedness, including the Senior Notes, on or before the maturity thereof, sell assets, reduce or delay capital investments or seek to raise additional capital, any of which could have a material adverse effect on our operations.  In addition, we may not be able to affect any of these actions, if necessary, on commercially reasonable terms or at all.  Our ability to restructure or refinance our indebtedness, including the Senior Notes, will depend on the condition of the capital markets and our financial condition at such time.  Any refinancing of our debt could be at higher interest rates and may require us to comply with more onerous covenants, which could further restrict our business operations.  The terms of existing or future debt instruments, including the indenture governing the Senior Notes, may limit

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or prevent us from taking any of these actions.  Our inability to generate sufficient cash flow to satisfy our debt service obligations, or to refinance or restructure our obligations on commercially reasonable terms or at all, would have an adverse effect, which could be material, on our business, financial condition and results of operations, as well as on our ability to satisfy our obligations in respect of the Senior Notes.

In addition, if we are unable to meet our debt service obligations under the Senior Notes, the holders of the Senior Notes would have the right to cause the entire principal amount of the Senior Notes to become immediately due and payable.  If the amounts outstanding under these instruments are accelerated, we cannot assure you that our assets will be sufficient to repay in full the money owed to our debt holders, including holders of the Senior Notes.

We are dependent on major customers for a significant portion of our net sales.

For the year ended December 31, 2010, our top ten customers accounted for approximately 88% of our net sales.  During this period, our two largest customers accounted for approximately 56% of our net sales.  The permanent loss of, or a significant decrease in the level of purchases by, one or more of our major customers could have a material adverse effect on our results of operations.  Future consolidation in the cabinet manufacturing market in which our customers operate could increase the concentration of our sales and therefore increase these risks.  For more information regarding our significant customers, see “Business — Customers.”

In addition, some of our key cabinet manufacturer customers have the resources to manufacture internally the cabinet doors and components that we sell to them.  Despite these manufacturing capabilities, these customers have chosen to outsource door and component production to us in part due to the quality of our products and in order to reduce costs, eliminate production risks and maintain company focus.  However, these customers may not continue to outsource door and component production in the future.  Increased levels of production insourcing could result from a number of factors, such as shifts in our customers’ business strategies, which could result from the acquisition of another door and component manufacturer, the inability of third party suppliers to meet product specifications and the emergence of low-cost production opportunities in foreign countries.  Any significant reduction in the level of cabinet door and component production outsourcing from our cabinet manufacturing customers could significantly impact our sales and, accordingly, have a material adverse effect on our business, results of operations and financial condition.

Increased prices for raw materials used in our products could adversely affect our business.

Our profitability is affected by the prices of our raw materials, which may fluctuate based on a number of factors beyond our control, including, among others, changes in supply and demand, general economic conditions, labor costs, competition and, in some cases, government regulation.  The prices for the hardwood species we use in production of our hardwood doors and components are subject to some volatility.  In the past calendar year the price of hard maple, the primary hardwood specie we use, (accounting for approximately 40% of our lumber purchases) increased by approximately 6%, and the price of cherry, (accounting for approximately 29% of our lumber purchases) increased by 8%.  We have no long-term supply contracts for the raw materials used in the manufacture of our products.  This means that we are subject to changes in the prices charged by our suppliers.  Recently, we have experienced moderate increases in the price we pay for our hardwood materials.  Significant increases in the prices of raw materials could materially adversely affect our business, financial condition and results of operations, especially if we are not able to recover these costs by increasing the prices we charge our customers for our products.  In 2010, the U.S. kitchen and bath industry relied heavily on domestic maple, which is of a higher quality than imported maple.  A shortage in the supply of domestic maple or certain other species of lumber could increase prices for these raw materials, which could also have a material adverse effect on our business, financial condition and results of operations.  Generally, we have been able to pass through cost increases to our customers in a three to twelve month time period, but the price increases may not fully offset the effects of increasing raw material costs.  Our ability to pass through these price changes to our customers is dependent on prevailing economic and competitive conditions.

Interruptions in deliveries of raw materials could adversely affect our business.

Our dependency upon regular deliveries from suppliers means that interruptions or stoppages in such deliveries could adversely affect our operations until arrangements with alternate suppliers could be made.  If a substantial number of our suppliers were unable to deliver materials to us for an extended period of time, as the result of financial difficulties, catastrophic events affecting their facilities or other factors beyond our control, or if we were unable to negotiate acceptable terms for the supply of materials with these or alternative suppliers, our business, financial condition and results of operations could suffer.  We may not be able to find acceptable alternatives, and any such alternatives could result in increased costs to us.  Even if acceptable alternatives are found, the process of locating and securing such alternatives might be disruptive to our business.

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Extended unavailability of a necessary raw material could cause us to cease manufacturing of one or more products for a period of time, which could have a material adverse effect on our business, financial condition and results of operations.

Environmental requirements may impose significant compliance costs and liabilities on us.

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

We face intense competition in our markets.

We operate in the highly fragmented and very competitive cabinet door and component industry.  Our competitors include international, national and local cabinet and cabinet component manufacturers.  These can be large consolidated operations with manufacturing facilities in large and efficient plants, as well as relatively small, local cabinetmakers.  Some of our competitors may achieve greater market penetration in certain of the markets in which we operate, have greater financial and other resources available and be less leveraged, which may provide them with greater financial flexibility.  Moreover, companies in other building products industries may choose to compete with us.  To remain competitive, we will need to invest continuously in manufacturing, customer service and product development.  We may have to adjust the prices of some of our products to stay competitive.  In this regard, we have faced increased pricing pressure in light of the current economic slowdown.  We may not have sufficient resources to continue to make such investments to maintain our competitive position within each of the markets we serve.

Cabinet manufacturers may increasingly rely on imported components, which could negatively affect our business.

The number of foreign-made kitchen cabinets sold in the United States has increased slightly in the last ten years.  We believe that the number of foreign-made cabinet components sold in the United States has also increased, though we do not believe any detailed study of such a trend is currently available.  This increase in sales of imported components is the result of foreign wood component manufacturers improving the quality of their products and services and, in some cases, offering lower prices.  While we currently believe that the impact of imported products in our target markets is limited by, among other factors, the need for greater variety in terms of profiles, sizes and finishes, demand for higher quality products and short lead times, there is no assurance that demand for foreign-made products will not increase in such markets.  If domestic cabinet manufacturers continue to increasingly rely on foreign imports for their components, our business, financial condition and results of operations could be materially and negatively affected.

If we are unable to meet future capital requirements, our business may be adversely affected.

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

Increases in the cost of labor, union organizing activity and work stoppages at our facilities could materially affect our business.

Our business is labor intensive.  As a result, our financial performance is affected by the availability of qualified personnel and the cost of labor.  Currently, none of our employees are represented by labor unions.  However, there could be strikes or other types of conflicts with personnel that may arise or we could become a target for union organizing activity.  Strikes, work stoppages or slowdowns could result in slowdowns or closures of our or our suppliers’ facilities.  In addition, organizations responsible for shipping our products may be impacted by strikes.  Any interruption in the production or delivery of our products could reduce sales of our products and increase our costs.

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The application of ASC 350 resulted in the recognition of a significant non-cash impairment charge for 2009 and no impairment charge for 2010. Going forward, we may incur impairment charges on our goodwill and other intangible assets with indefinite lives, which could negatively impact our business, financial condition and results of operations.

In accordance with ASC 350, we test goodwill and other intangible assets for impairment during the fourth quarter of each year and on an interim date should factors or indicators become apparent that would require an interim test.  In recent periods we have taken significant charges relating to the impairment of goodwill.  See Note 4 to our consolidated financial statements and “Management’s Discussion and Analysis of Financial Condition and Results of Operations—Critical Accounting Policies.”

As discussed in Note 4 to the consolidated financial statements included in this Annual Report on Form 10-K, we performed our annual impairment test as of December 31, 2010, and concluded there was no goodwill impairment.  We performed our annual impairment test as of December 31, 2009, and concluded that our goodwill was impaired.  Therefore, we recognized $13.6 million in goodwill impairment charges during the fourth quarter of fiscal 2009.

As of December 31, 2010, goodwill and other intangible assets with indefinite lives represented approximately 54% of our total assets.  If in the future, we determine that there has been an impairment, our financial results for the relevant period would be reduced by the amount of the impairment, net of any income tax effects, which could have an adverse effect on our financial condition and results of operations.

We are dependent on certain key personnel, the loss of whom could materially affect our financial performance and prospects.

Our continued success depends to a large extent upon the continued services of our senior management and certain key employees.  The loss of the services of any of these individuals could have a material adverse effect on our business, financial condition and results of operations.  We have no key-man life insurance on any of our employees.

We may not be able to successfully integrate, and may inherit significant liabilities in connection with, future acquisitions.

We explore opportunities to acquire related businesses from time to time, some of which could be material to us.  If we make acquisitions, our ability to continue to grow will depend upon effectively integrating these acquired companies, achieving cost efficiencies and managing these businesses as part of our company.

We may not be able to effectively integrate the acquired companies or successfully implement appropriate operational, financial and management systems and controls to achieve the benefits expected to result from these acquisitions.  Our efforts to integrate these 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 these businesses could cause the interruption of, or loss of momentum in, the activities of our existing business.  The diversion of management’s attention and any delays or difficulties encountered in connection with the integration of these businesses could negatively impact our business and results of operations. Further, the benefits that we anticipate from these acquisitions may not materialize.

Additionally, we may be subject to unexpected claims and liabilities arising from these acquisitions.  Such claims and liabilities could be costly to defend, could be material in amount and may exceed either the limitations of any applicable indemnification provisions or the financial resources of the indemnifying parties, in which event such unexpected claims and liabilities could materially and negatively affect our business and financial performance.

Our principal stockholder is in a position to affect our ongoing operations, corporate transactions and other matters.

As of March 28, 2011, Parent owned 100% of our outstanding voting capital stock and Olympus Growth Fund IV, L.P. and Olympus Executive Fund, L.P. collectively owned 81.55% of the outstanding voting capital stock of Parent.  For ease of reference, we sometimes collectively 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. has the ability to control the election of our Board of Directors and the election of the board of directors of Parent and, by virtue of its ownership in Parent and certain contractual voting rights set forth in the Parent Stockholders Agreement among the current stockholders of Parent, the outcome of other issues submitted to the stockholders for approval.  See “Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters.”  We cannot assure you that the interests of Olympus Growth Fund IV, L.P. will not conflict with the interests of the holders of our Senior Notes.  In particular, Olympus Growth Fund IV, L.P. may cause a change of control at a time when we do not have sufficient funds to repurchase our Senior Notes or to repay any outstanding borrowings under our New Credit Agreement.

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Item 1B. Unresolved Staff Comments

None.

Item 2. Properties

Our headquarters are located in St. Cloud, Minnesota.  We own eight and lease four manufacturing facilities.  We believe that our facilities are currently operating at approximately 45-50% of overall plant capacity.  We intend to increase current levels of capacity utilization while handling an increased volume of sales.  In addition, we have increased capacity over time through increases in operating efficiencies and growth investments at our hardwood component, door and engineered woods facilities.  We expanded our Molalla, Oregon plant in 2004 to create additional capacity for customers located on the West Coast.  In 2006, we completed the expansions of our (i) Cabinet Door plant in St. Cloud, Minnesota to create additional door manufacturing capacity, and (ii) Greenville, Pennsylvania facility to add incremental capacity for lumber drying and rough milling.  In 2007, we completed the expansion of leased facilities in West Jordan, Utah and Monroe, Washington to add incremental door manufacturing capacity.  Each of these facilities in Utah and Washington contributed minimal capacity to the Company and were closed in the second half of 2008 due to the slowdown in the industry.  In 2008, we completed the expansion of a leased facility in Conover, North Carolina to add incremental door manufacturing capacity.  In the fourth quarter 2009, we commenced operations at a manufacturing facility in Moorefield, West Virginia that adds minimal RTF production capacity.

Our Woodcraft subsidiary operates three facilities in Minnesota, two of which are located in St. Cloud and one of which is located in Foreston.  Our Minnesota facilities manufacture hardwood components, and one of our St. Cloud facilities also produces approximately 51% of our hardwood doors.  The hardwood door plant in St. Cloud includes high-volume hardwood door production together with flexible production cells required to respond to customer KAT orders.  Our Woodcraft division also has a fourth facility located in Bowling Green, Kentucky where we manufacture hardwood components for shipment to our Minnesota and Ohio facilities.  Our Woodcraft subsidiary in 2005 acquired a facility located in Middlefield, Ohio, which manufactures hardwood component moldings, and also purchased a facility located in Greenville, Pennsylvania, which manufactures hardwood components for shipment to our Minnesota and Ohio facilities.  In 2008, our Woodcraft subsidiary completed an expansion in Conover, North Carolina to produce hardwood doors.

In Wahpeton, North Dakota, our PrimeWood subsidiary manufactures RTF doors and components, VRPs and wrapped profiles.  We believe our Wahpeton facility, which supplies cabinet manufacturers throughout North America, is one of the largest independent producers of engineered woods in North America.  We acquired this facility in 1998 in connection with our acquisition of PrimeWood, Inc.  The PrimeWood subsidiary in 2005 also began operations at a manufacturing facility in Lansing, Kansas that manufactures RTF doors and components.  The Lansing facility is located in the Lansing Correctional Institute and employs inmates in the production of RTF components.  In the fourth quarter 2009, our PrimeWood subsidiary commenced operations at a manufacturing facility in Moorefield, West Virginia that added minimal RTF production capacity.

Our Brentwood subsidiary operates a manufacturing facility in Molalla, Oregon where we produce hardwood and RTF doors, primarily for distribution to our customers located on the West Coast.  Our Molalla facility focuses primarily on KAT production of custom and semi-custom products.  We acquired this facility in 2002 in connection with our acquisition of Brentwood, Inc.  In 2007, our Brentwood subsidiary completed an expansion in Monroe, Washington to produce hardwood doors, which ultimately was closed in the second half of 2008 due to the slowdown in the industry.

Our former Grand Valley subsidiary (which is now part of Woodcraft) operates a manufacturing facility in Orwell, Ohio where we produce hardwood doors through KAT production, primarily for semi-custom products.  We acquired this facility in 2004 in connection with our acquisition of the former Grand Valley subsidiary.

The following chart sets forth information regarding our headquarters and our twelve manufacturing facilities:

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We also lease a number of non-manufacturing facilities utilized for warehousing.  These facilities are deemed to not be material.

All of our facilities are pledged as collateral under our New Credit Agreement.

Item 3. Legal Proceedings

We are involved in various proceedings incidental to the ordinary conduct of our business.  We do not presently believe that any of the proceedings currently pending will have a material adverse effect on our business, financial condition, cash flows or results of operations.

Item 4.

Reserved.

PART II

Item 5. Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities

There is 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.

We became a wholly owned subsidiary of Parent on January 9, 2007.  Since that time, we have made cash dividends to, and made other distributions on account of the, Parent from time to time to enable Parent to (i) make cash interest payments on the Former Parent Notes (as defined herein), (ii) pay its customary and reasonable out-of-pocket expenses, legal and accounting fees and expenses and overhead incurred on account of its ownership of us, and (iii) pay the fees under a management services agreement between Parent and an affiliate of Olympus Funds.  These payments totaled approximately $0.3 million in 2010, $0.1 million in 2009, and $5.0 million in 2008.  The payments in 2009 and 2010 are recorded as an intercompany note receivable, included with other current assets, between Parent and Company.  We expect to make similar payments to or on account of Parent in the foreseeable future.  Any payment of future dividends and the amounts thereof will be dependent upon the Company’s earnings, fiscal requirements and other factors deemed relevant by the Company’s Board of Directors.  Certain restrictive covenants contained in the Company’s New Credit Agreement and the indenture governing the Senior Notes currently restrict our ability to make dividends or other payments to Parent.  See “Management’s Discussion and Analysis of Financial Condition and Results of Operations - Liquidity and Capital Resources” for a detailed discussion of such restrictions.

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

Parent issued restricted stock on August 31, 2007 and September 14, 2007 to certain members of our management totaling 55,219 shares of Parent common stock.  The fair value of the Parent common stock was considered contributed capital to the Company and had a fair value of approximately $397,000 on the date of the grant.  The restricted stock becomes fully vested after seven years, or earlier, if certain milestones described in the underlying grant agreements are met.  In 2009, 1,121 shares of restricted stock were repurchased due to the termination of a member of management.  In 2010, 841 shares of restricted stock were repurchased due to the termination of a member of management.  All of the remaining shares of restricted stock of Parent were converted into a nominal number of shares and became fully vested in connection with the Recapitalization (as defined herein) on December 30, 2010.

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Item 6. Selected Financial Data

The following table sets forth certain of our historical consolidated financial data. The Transaction was completed on January 9, 2007, and the Transaction has been accounted for as a recapitalization in the Company’s financial statements, with no adjustments to the historical basis of the Company’s assets and liabilities. The selected historical consolidated financial data as of and for the years ended December 31, 2010, 2009, 2008, 2007 and 2006 have been derived from our audited consolidated financial statements. Historical results are not necessarily indicative of the results to be expected in the future. You should read the following data in conjunction with “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and our historical consolidated financial statements and accompanying notes included elsewhere in this annual report.

(1) Total operating expenses include $3.1 million of stock compensation expense in 2006 related to stock option accounting, and $1.8 million of compensation expense in 2007 related to stock option accounting and transaction incentives.  In addition, 2007 includes transaction costs for the Transaction, tender offer costs, and management advisory fees of approximately $7.2 million, $0.8 million, and $0.6 million, respectively.  Total operating expenses in 2008 include $0.6 million for management advisory fees.  Total operating expenses in 2009 include $0.5 million of accrued expenses related to management advisory fees and $13.6 million for a goodwill impairment charge.  Total operating expenses in 2010 include $0.5 million of accrued expenses related to management advisory fees.

(2) For the fiscal year ended December 31, 2008, the Company recognized $1.7 million of gains on the extinguishment of debt.

(3) Depreciation and amortization does not include amortization of deferred financing fees (which are included in interest expense) for the fiscal years ended December 31, 2006, 2007, 2008, 2009 and 2010 of $1.1 million, $2.5 million, $1.5 million, $1.5 million and $1.5 million, respectively.

Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations

You should read the following discussion in conjunction with our consolidated financial statements and related notes appearing elsewhere in this annual report.  In addition to historical information, this discussion contains forward-looking statements that involve risks, uncertainties and assumptions that could cause actual results to differ materially from management’s expectations.

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Overview

We are one of the leading manufacturers of hardwood cabinet doors and components and engineered wood products in the United States.  Our products include (1) hardwood cabinet door components, face frames and drawer fronts, (2) fully assembled hardwood cabinet doors, (3) rigid thermofoil, or RTF, cabinet doors and components, (4) veneer raised panels, or VRPs, and (5) a variety of laminated and profile-wrapped components.  In 2010, we generated approximately 93% of our sales from the kitchen and bath cabinet manufacturing industry.  Our customers, in turn, distribute their products through various sales channels, including specialty kitchen and bath cabinet dealers, home center retailers and homebuilders.  We conduct all of our operations through our Woodcraft, PrimeWood and Brentwood subsidiaries and we operate twelve manufacturing facilities located in Minnesota, North Dakota, Ohio, Oregon, Pennsylvania, Kansas, North Carolina, West Virginia, and Kentucky that allow us to distribute our products nationwide.

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

2007 Acquisition

On January 9, 2007, WII Components, Inc. (the “Company”) was acquired by WII Holding, Inc. (“Parent”), a newly formed investment entity controlled by two investment funds managed by Olympus Partners.  For ease of reference, these funds are sometimes collectively referred to herein as the “Olympus Funds.”  The acquisition was consummated through a merger of WII Merger Corporation (“AcquisitionCo”), a wholly owned subsidiary of Parent, with and into the Company with the Company being the surviving corporation in the transaction (the “Transaction”).  The aggregate purchase price paid by Parent for all of the shares of capital stock of the Company and options to purchase shares of capital stock of the Company in the Transaction was approximately $293.1 million, less indebtedness and certain expenses.  The Transaction has been accounted for as a recapitalization in the Company’s financial statements, with no adjustments to the historical basis of the Company’s assets and liabilities.  The Company did not push down the new accounting basis because of the significance of the publicly traded debt outstanding, which hinders the Parent’s ability to control the form of ownership of the Company.

2010 Recapitalization

On December 30, 2010, Parent completed a comprehensive recapitalization (the “Recapitalization”) pursuant to the terms of a Recapitalization Agreement, dated December 30, 2010 (the “Recapitalization Agreement”), by and among Parent, WII Parent Merger Corp., a newly formed entity (“MergerCo”), OCM Mezzanine Fund II, L.P. (“OCM”) and Olympus Growth Fund IV, L.P. (“Olympus Fund IV”) and a Note Exchange Agreement, dated December 30, 2010, between OCM and MergerCo (the “Exchange Agreement” and together with the Recapitalization Agreement, the “Recap Agreements”).

Pursuant to the Recap Agreements: (i) OCM transferred to MergerCo all of its shares of Series A Preferred Stock and Common Stock of Parent and its Parent notes in an aggregate principal amount of approximately $33.6 million (including accrued and unpaid interest thereon) and, in exchange therefore, MergerCo issued to OCM an aggregate of 29,713.91 shares of its Common Stock and new unsecured non-interest bearing senior note in a principal amount of $23.0 million (the “New Parent Note”); and (ii) Olympus Fund IV transferred to MergerCo all of the shares of Series A Preferred Stock of Parent held by Olympus Fund IV and its Parent notes in an aggregate principal amount of approximately $114.9 million (including accrued and unpaid interest thereon) and, in exchange therefor, MergerCo issued to Olympus Fund IV an aggregate of 139,071.406 shares of its Common Stock. Immediately thereafter, MergerCo was merged with and into Parent (the “Recap Merger”), with Parent continuing as the surviving corporation in the Recap Merger (as such, the “Surviving Corporation”).  Pursuant to the Recap Merger, subject to the terms and conditions of the Recapitalization Agreement, (i) each share of Common Stock of MergerCo outstanding immediately prior to the Recap Merger was converted into the right to receive one share of Common Stock of the Surviving Corporation, (ii) each share of Series A Preferred Stock of Parent outstanding immediately prior to the Recap Merger (other than shares held by Parent or MergerCo) was converted into the right to receive one share of Common Stock of the Surviving Corporation, (iii) each share of Common Stock of the Parent outstanding immediately prior to the Recap Merger (other than shares held by Parent or MergerCo) was converted into the right to receive one thousandth of a share of Common Stock of the Surviving Corporation and (iv) each share of capital stock

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of Parent or MergerCo held by Parent or MergerCo was cancelled without consideration.  The Parent notes transferred to MergerCo in connection with the Recapitalization were extinguished in connection with the Recap Merger and the New Parent Note issued by MergerCo was assumed by Parent, as the Surviving Corporation, by operation of law in the Recap Merger.

As a result of the Recapitalization, the Olympus Funds and OCM own approximately 82% and 17%, respectively, of the outstanding Common Stock of Parent, as the Surviving Corporation.

Results of Operations

As discussed below, we continued to experience the industry-wide slowdown in net sales for the twelve months ended December 31, 2010 that began in the second half of 2006.  While sales for the twelve months ended December 31, 2010 are much lower than sales for the same period of 2006, 2007 and 2008, they are higher than sales for the twelve months ended December 31, 2009.  We believe this is due to:  (i) the short-term impact of personal income tax incentives related to acquiring a new or existing home in the first half of 2010, (ii) market share gain by our Company, and (iii) certain successful promotions by a few of our customers.  The kitchen and bath industry-wide slowdown had a negative impact on our gross profit and operating income margin percentages due to fixed costs becoming a higher percentage of sales.  In addition, we continued to experience decreases in hardwood material prices from the fourth quarter of 2006 through the second quarter of 2009, which generally were passed on to our customers.  We have informal agreements with most customers that reset prices in the future period based on the movement of hardwood lumber costs in the prior period.  The length of the period varies by customer from three to twelve months.  While the prices we paid for hardwood materials continued to decline through April 2009, they stabilized by mid-year 2009 and began to increase in December 2009 through June 2010.  Since June 2010, hardwood lumber costs have been stable to slightly down.  The declines in our material costs through April 2009 resulted in lower selling prices in the second half of 2009 and into the first half of 2010 due to our indexing agreements with our customers.  Our ability to pass through these price changes to our customers is dependent on prevailing economic and competitive conditions.

Year Ended December 31, 2010 Compared to the Year Ended December 31, 2009

The years ended December 31, 2010 and 2009 are shown in the table below. The following table sets forth selected operating data derived from our consolidated statements of operations and presents this information as a percentage of net sales.

Net Sales.  Net sales increased $14.9 million, or 11.4%, from $130.5 million for the year ended December 31, 2009 to $145.4 million for the year ended December 31, 2010.  Sales in our hardwood and engineered wood product line increased $14.8 million and $0.1 million, respectively.  These increases are mainly attributable to (i) an overall modest increase in the market primarily due to personal income tax incentives that existed in that period related to acquiring a new or existing home

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in the first half of 2010, (ii) market share gain by our Company, and (iii) certain successful promotions by a few of our customers.  These increases were partially offset with an approximately 2% decline in our overall selling prices, mainly due to the decline of hardwood lumber costs during 2009.  We have informal indexing agreements with a majority of our customers, whereby selling prices to customers in the future periods are increased or decreased based on hardwood lumber cost changes in the prior periods.

Cost of Sales.  Cost of sales increased $14.0 million, or 12.7%, from $110.1 million for the year ended December 31, 2009 to $124.1 million for the year ended December 31, 2010.  This increase in cost of sales is primarily attributable to higher material, labor and overhead costs as a result of higher sales volume.

Gross Profit.  Gross profit increased $0.9 million, or 4.4%, from $20.4 million for the year ended December 31, 2009 to $21.3 million for the same period in 2010 as a result of the factors described above.  As a percentage of net sales, our gross profit decreased 90 basis points from 15.6% for the year ended December 31, 2009 to 14.7% for the same period in 2010.  This decrease is related to (i) lower selling prices in 2010 due to lower hardwood lumber costs during 2009, (ii) higher lumber costs during the first half of 2010 and (iii) higher premiums for purchases of kiln dried lumber in 2010.  This decrease was partially offset by (i) improved operating efficiencies in 2010 and (ii) the absorption of fixed costs over higher sales volume.

Operating Expenses.  Operating expenses decreased $13.9 million, or 53.9%, from $25.8 million for the year ended December 31, 2009 to $11.9 million for the year ended December 31, 2010.  The decrease primarily consists of (i) $13.6 million goodwill impairment in 2009, (ii) $0.3 million due to decreased allowance for doubtful accounts expense in 2010, and (iii) $0.1 million due to lower customer relationship amortization expense in 2010.  As a percentage of sales, operating expenses decreased from 19.7% for the year ended December 31, 2009 to 8.2% for the same period in 2010, as a result of the factors described above.

Operating Income.  Operating income increased by $14.8 million, or 274.1%, from a loss of $5.4 million for the year ended December 31, 2009 to an income of $9.4 million for the year ended December 31, 2010 as a result of the net effect of the factors described above.

Interest Expense.  Interest expense was $12.4 million for the year ended December 31, 2009 and for the year ended December 31, 2010.

Other Income.  Other income decreased $4,000 from $23,000 for the year ended December 31, 2009 to $19,000 for the year ended December 31, 2010.

Income Tax Expense (Benefit).  Income tax benefit decreased $2.9 million from a benefit of $2.6 million for the year ended December 31, 2009 to an expense of $0.3 million for the year ended December 31, 2010 as a result of higher earnings and a higher effective tax rate prior to accounting for a valuation allowance against deferred tax assets in 2010.  The effective tax rate decreased from 14.8% in 2009 to (11.5%) in 2010 mainly due to a valuation allowance against deferred tax assets.

Net Loss.  Net loss decreased $11.8 million from $15.2 million for the year ended December 31, 2009 to $3.4 million for the year ended December 31, 2010 as a result of the factors described above.

Year Ended December 31, 2009 Compared to the Year Ended December 31, 2008

The years ended December 31, 2009 and 2008 are shown in the table below. The following table sets forth selected operating data derived from our consolidated statements of operations and presents this information as a percentage of net sales.

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Net Sales.  Net sales decreased $62.9 million, or 32.5%, from $193.4 million for the year ended December 31, 2008 to $130.5 million for the year ended December 31, 2009.  Sales in our hardwood and engineered wood product line decreased $55.4 million and $7.5 million, respectively.  These decreases are mainly attributable to an overall slowdown in the market that began in the second half of 2006, and to a lesser extent, an approximately 5% decline in our overall selling prices, mainly due to lower hardwood material costs.  We have indexing agreements with a majority of our customers, whereby selling prices to customers are generally increased or decreased, but with a three to twelve month lag time, as our material costs increase or decrease.

Cost of Sales.  Cost of sales decreased $56.5 million, or 33.9%, from $166.6 million for the year ended December 31, 2008 to $110.1 million for the year ended December 31, 2009.  This decrease in cost of sales is primarily attributable to (i) lower material, labor and overhead costs as a result of lower volume of sales, and, to a lesser extent, (ii) lower hardwood material costs.

Gross Profit.  Gross profit decreased $6.3 million, or 23.6%, from $26.7 million for the year ended December 31, 2008 to $20.4 million for the same period in 2009 as a result of the factors described above.  As a percentage of net sales, our gross profit increased 180 basis points from 13.8% for the year ended December 31, 2008 to 15.6% for the same period in 2009.  As a percentage of sales, gross profit improved due to lower lumber costs and improved operating efficiencies.  This increase was partially offset with spreading fixed costs over lower sales volume.

Operating Expenses.  Operating expenses increased $11.9 million, or 85.6%, from $13.9 million for the year ended December 31, 2008 to $25.8 million for the year ended December 31, 2009.  The increase primarily consists of (i) $13.6 million goodwill impairment and (ii) $0.2 million due to increased allowance for doubtful accounts expense in 2009.  The increase was partially offset by (i) approximately $0.8 million lower salaries, including benefits, due to eliminated positions throughout 2008 and 2009, (ii) $0.8 million due to a long-lived asset write-off in conjunction with the closing of our West Jordan, Utah facility in 2008, and, to a lesser extent, (iii) $0.2 million lower professional fees, and (iv) $0.1 million lower travel costs.  We concluded there were no triggering events or changes in circumstances requiring an interim goodwill impairment analysis to be completed during the first three quarters of 2009.  As a percentage of sales, operating expenses increased from 7.2% for the year ended December 31, 2008 to 19.7% for the same period in 2009, as a result of the factors described above.

Operating Income.  Operating income decreased by $18.2 million, or 142.2%, from $12.8 million for the year ended December 31, 2008 to a loss of $5.4 million for the year ended December 31, 2009 as a result of the net effect of the factors described above.

Interest Expense.  Interest expense decreased $0.6 million, or 4.6%, from $13.0 million for the year ended December 31, 2008 to $12.4 million for the year ended December 31, 2009.  This decrease relates to lower interest expense in 2009 due to the $3.5 million principal reduction during the three months ended March 31, 2009 on the First Lien Term Facility.

Other Income.  Other income decreased $1.8 million from $1.9 million for the year ended December 31, 2008 to $23,000 for the year ended December 31, 2009.  This income represents interest received from our interest bearing accounts and 2008 also includes a $1.7 million gain on the extinguishment of debt.

Income Tax (Benefit) Expense.  Income tax expense decreased $2.9 million from $0.3 million for the year ended December 31, 2008 to a benefit of $2.6 million for the year ended December 31, 2009 as a result of lower earnings, and a lower effective tax rate.  The effective tax rate decreased 500 basis points from 19.8% in 2008 to 14.8% in 2009 due to state taxes and permanent differences.

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Net (Loss) Earnings.  Net earnings decreased $16.5 million from $1.3 million for the year ended December 31, 2008 to $15.2 million net loss for the year ended December 31, 2009 as a result of the factors described above.

Liquidity and Capital Resources

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

As of December 31, 2010, we had $7.1 million of cash and cash equivalents available for any corporate purposes, compared to $13.1 million as of December 31, 2009.

As of December 31, 2010, the weighted average interest rate for the Company’s outstanding debt was 10.1%.  As of December 31, 2010 and 2009, we had no capital lease obligations.

Financing Arrangements

Prior Senior Credit Facility

In conjunction with the Transaction, we entered into a senior credit facility (the “Senior Credit Facility”), with Credit Suisse, Cayman Islands Branch, which provided for (i) a senior secured first lien term loan facility in an aggregate principal amount of $150.0 million (the “First Lien Term Facility”) and (ii) a senior secured first 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”) of which $10.0 million was available through a subfacility in the form of letters of credit.  On March 30, 2009, we repaid all amounts outstanding under the First Lien Term Facility and no additional borrowings were available thereunder.  As of December 31, 2010, the maximum amount of borrowings available to the Company under the Revolving Facility was $12.5 million.  As of December 31, 2010, we had no outstanding borrowings under the Revolving Facility.  Borrowings under the Revolving Facility accrued interest at a fluctuating rate equal to either the base rate plus 4.75% per annum or LIBOR plus 5.75% per annum (effective rate of 8.00% at December 31, 2010 using the base rate plus 4.75%).  We were required to comply with certain financial covenants under our Senior Credit Facility, including maintenance of an interest coverage ratio and a total leverage ratio.  We were in compliance with all of our covenants as of December 31, 2010.

On March 30, 2009, we entered into an amendment to our Senior Credit Facility, which among other things: (i) increased the applicable interest rate margin for borrowings thereunder; (ii) eliminated the requirement that we maintain corporate debt ratings; (iii) extended the date by which we had to amend the indenture governing the Senior Notes to eliminate certain of the restrictive covenants contained therein (including covenants related to the incurrence of indebtedness and liens) or redeem the Senior Notes to March 31, 2010; (iv) extended our ability to continue to pay cash dividends to enable Parent to make cash interest payments on the Parent Notes to March 31, 2010; (v) increased the maximum total leverage ratio we could have at the end of each quarterly period from December 31, 2008 through December 31, 2009; (vi) required payment of remaining balance due under the First Term Lien Facility of approximately $3.6 million; and (vii) decreased the minimum interest coverage ratio we were required to maintain at the end of each quarterly period from December 31, 2008 through December 31, 2009.  The amendment also waived for the four fiscal quarters ended December 31, 2008, any default or event of default that may have arisen from our failure to maintain the maximum consolidated leverage ratio and the minimum consolidated interest coverage ratio set forth in the Senior Credit Facility prior to the effective date of the amendment.

On March 26, 2010, we entered into an amendment to our Senior Credit Facility, which among other things: (i) extended the date by which we had to amend the indenture governing the Senior Notes to eliminate certain of the restrictive covenants contained therein (including covenants related to the incurrence of indebtedness and liens) or redeem the Senior Notes to March 31, 2011; (ii) increased the maximum total leverage ratio we could have at the end of each quarterly period from March 31, 2010 through December 31, 2010; (iii) added an asset-based borrowing base as a condition to borrowing under the Senior Credit Facility; (iv) extended our ability to continue to pay cash dividends to enable Parent to make cash interest payments on the Parent Notes to March 31, 2011; and (v) decreased the minimum interest coverage ratio we were required to maintain at the end of each quarterly period from March 31, 2010 through December 31, 2010.

Parent Notes

In conjunction with the Transaction, the Parent entered into Note Purchase Agreements in 2007 with OCM and

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Olympus Fund IV, L.P. pursuant to which it issued to OCM $43.0 million senior payment-in-kind notes with no required principal amortization and to Olympus Fund IV, L.P. $43.0 million junior payment-in-kind notes with no required principal amortization (collectively, the “Former Parent Notes”).  The Former Parent Notes were scheduled to mature in April 2012.  On March 30, 2009, Parent amended and obtained a waiver to the Note Purchase Agreements related to the Former Parent Notes to waive the total leverage ratio that we were required to maintain as of December 31, 2008 and to adjust the total leverage ratio that we were required to maintain as of the end of each quarterly period through December 31, 2009 to reflect current economic conditions.  In addition, in connection with this amendment and waiver, the $150,000 quarterly advisory fee payable by Parent to an affiliate of the Olympus Funds under the advisory services agreement discussed below, was deferred for each quarter of 2010 and 2009, and will be payable in 2012 or thereafter.  See “Certain Relationships and Related Party Transactions, and Director Independence — Advisory Services Agreement” for additional information regarding the advisory services agreement.

On March 26, 2010, Parent also amended the Former Parent Notes to, among other things, adjust the total leverage ratio we were required to maintain as of the end of each quarterly period through December 31, 2010.

In connection with the Recapitalization, all of the Former Parent Notes were extinguished and the New Parent Note in a principal amount of $23.0 million was issued to OCM.  The New Parent Note is non-interest bearing and has an initial maturity date of April 9, 2012.  The note purchase agreement governing the New Parent Note provides that if we refinance or amend and extend the Senior Notes, and Olympus requests OCM to amend the New Parent Note, so long as we do not raise more than $120.0 million of indebtedness in connection therewith, each of OCM and Parent have agreed to, among other things, to extend the maturity date of the New Parent Note to be one year after the maturity date of the Senior Notes as refinanced or amended and extended, but in no event later than 2017.  The Company is not liable for, and has not otherwise guaranteed, any of the obligations of Parent with respect to the New Parent Note.  The Company is, however, subject to a number of restrictive covenants in the note exchange agreement with respect to the New Parent Note.

New Credit Agreement

On March 24, 2011, the Company entered into a new credit agreement (the “New Credit Agreement”) with General Electric Capital Corporation, as a lender, swingline lender and agent for all lenders and the other financial institutions party thereto (“GECC”), to replace the Senior Credit Facility.  The New Credit Agreement provides for a $20.0 million revolving credit facility, including a letter of credit subfacility of $5.0 million.  Availability of borrowings under the New Credit Agreement is subject to a customary borrowing base calculation.  Assuming the New Credit Agreement was in place as of December 31, 2010, the Company would have been able to borrow approximately $20.0 million under the New Credit Agreement under the borrowing base calculation.  Borrowings under the New Credit Agreement may be made to refinance the Senior Notes (so long as after giving effect to such consummation, the availability under the New Credit Agreement is not less than $5.0 million), to provide for working capital, and for general corporate purposes.  The New Credit Agreement matures on December 31, 2011 if the Company has not refinanced or extended the Senior Notes or four months prior to the maturity of any new notes issued to refinance the Senior Notes, in no event later than March 24, 2015.  Indebtedness for borrowed money incurred under our New Credit Agreement is secured by substantially all of our assets, including our real and personal property, inventory, accounts receivable, intellectual property and other intangibles.  Borrowings under the New Credit Agreement bear interest at a fluctuating rate equal to either the base rate plus 1.25% per annum or LIBOR rate plus 2.50% per annum.  We must comply with certain financial covenants under our New Credit Agreement.

Senior Notes

The Company has outstanding Senior Notes in an aggregate principal amount of $108.4 million.  The Senior Notes mature on February 15, 2012.  During the three months ended March 31, 2008, the Company purchased and canceled approximately $11.5 million in principal amount of the Senior Notes for payment of $9.8 million resulting in a gain on extinguishment of debt of approximately $1.7 million.  The Company used available cash and borrowings under its Revolving Facility for payment thereof.

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

Certain Dividend Restrictions

Our New Credit Agreement and the indenture for the Senior Notes impose certain restrictions on our ability to incur

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indebtedness, pay dividends, make investments, grant liens, sell our assets and engage in certain other activities.  The subsidiary guarantors under our New Credit Agreement and Senior Notes are generally not restricted in their ability to dividend or otherwise distribute funds to the Company except for restrictions imposed under applicable state corporate law.  The Company is limited in its ability to pay dividends or otherwise make other distributions to Parent under the New Credit Agreement and the indenture governing the Senior Notes.  Specifically, the New Credit Agreement prohibits the Company from making any distributions to Parent except for limited purposes, including, but not limited to:  (i) overhead expenses, professional fees, directors fees, and expenses of Parent incurred in the ordinary course of business in the aggregate not to exceed $1.0 million in any fiscal year, and (ii) the Company may pay management fees of Parent not to exceed $750,000 in any fiscal year, plus a 1% transaction fee pursuant to the terms of the Management Agreement, as well as any previously accrued but unpaid management fees and transaction fees for any previous fiscal years without regards to this $750,000 limitation, so long as no default has occurred.  The indenture provides that the Company can generally pay dividends and make other distributions to Parent in an amount not to exceed (i) 50% of the Company’s consolidated net income for the period beginning April 1, 2004 and ending as of the end of the last fiscal quarter before the proposed payment, plus (ii) 100% of the net cash proceeds received by the Company from the issuance and sale of capital stock, plus (iii) the net return of certain investments, provided that certain conditions are satisfied, including that the Company has a consolidated interest coverage ratio of greater than 2.0 to 1.0.  For the twelve month period ended December 31, 2010, the Company’s consolidated interest coverage ratio was less than 2.0 to 1.0.

Cash Flow Information

Cash flow provided by (used in) operating activities.  As of December 31, 2010 and 2009, we had $7.1 million and $13.1 million, respectively, of cash and cash equivalents available for working capital purposes.  Cash used by operating activities for the year ended December 31, 2010 was $3.8 million and cash provided by operating activities for the year ended December 31, 2009 was $3.9 million.  The increased source of cash used by operating activities is mainly attributable to (i) higher inventories in 2010 of $4.7 million, whereas, inventories had increased $1.0 million in 2009, (ii) an increase in net accounts receivable in 2010 of $4.9 million, whereas net accounts receivable had increased $4.2 million in 2009, and (iii) a decrease in accounts payable in 2010 of $0.7 million whereas accounts payable had increased $2.8 million in 2009.  Days of receivables outstanding increased by approximately 21 days as of December 31, 2010 compared to December 31, 2009 due to certain customer payment terms being modified over the past year.

Cash flow used in investing activities.  Net cash used in investing activities was $1.9 million for the year ended December 31, 2010 and $1.6 million for the year ended December 31, 2009.  Capital expenditures in 2010 were $1.9 million compared to $1.7 million for the year ended December 31, 2009.

Cash flow used in financing activities.  Net cash used in financing activities for the year ended December 31, 2010 totaled $0.4 million primarily due to (i) debt issuance costs of $50,000, and (ii) $0.3 million of payments made on behalf of Parent.  Net cash used in financing activities for the year ended December 31, 2009 totaled $3.9 million primarily due to (i) principal payments on the Senior Credit Facility of $3.6 million, (ii) debt issuance costs of $0.1 million, and (iii) a $0.2 million decrease in the amount due to Parent related to income tax obligations.

Liquidity Considerations

For years ended December 31, 2010 and December 31, 2009, our two largest customers accounted for approximately 56% and 60%, respectively, of our net sales.  As of December 31, 2010 and December 31, 2009, our two largest customers accounted for approximately 62% and 72%, respectively, of our consolidated accounts receivables balance.  The permanent loss of, or a significant decrease in the level of purchases by, one or more of our major customers could have a material adverse effect on our results of operations and future cash flows.

We cannot provide assurances that our business will generate sufficient cash flow from operations, that anticipated net sales growth and operating improvements will be realized or that future borrowings will be available under our New Credit Agreement in an amount sufficient to enable us to service our indebtedness, including the Senior Notes, or to fund our other liquidity needs.  In addition, we cannot provide assurances that we will be able to refinance any of our indebtedness, including any borrowings under our New Credit Agreement and the Senior Notes, on commercially reasonable terms, if at all.  The Company cannot provide assurance it will be able to obtain waivers for non-compliance in the future, if necessary.

The Company derives a significant portion of its revenue as a result of the demand for its products created by the building of new homes, and repair and remodeling of existing homes.  During the second half of 2006, the home building, repair and remodeling industry experienced a slowdown as a result of general economic conditions.  The slowdown continued throughout 2010, and based on the Kitchen Cabinet Manufacturers Association data for 2010, the kitchen cabinet

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market is estimated to be down approximately 4% as compared to 2009.  This slowdown has had, and continues to have, a negative effect on our sales and income from operations.  If this slowdown were to continue or worsen over an extended period of time, it could have a material adverse effect on the Company’s business, financial condition or results of operations.

Over the last couple years, the financial markets experienced a period of unprecedented turmoil, including the bankruptcy, restructuring or sale of certain financial institutions and the intervention of the U.S. federal government.  While the ultimate outcome of these events cannot be predicted, they may have a material adverse effect on our liquidity and financial condition if our ability to borrow money from our existing lenders under our New Credit Agreement to finance our operations were to be impaired.  The crisis in the financial markets may also have a material adverse impact on the availability and cost of credit in the future.  Our ability to pay our debt or refinance our obligations under our New Credit Agreement or the Senior Notes will depend on our future performance, which will be affected by, among other things, prevailing economic conditions.  The recent financial crisis may also have an adverse effect on the U.S., which would have a negative impact on demand for our products.  In addition, tightening of credit markets may have an adverse impact on our customers’ ability to finance the purchase of our products or our suppliers’ ability to provide us with raw materials, either of which could adversely affect our business and results of operations.

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

We anticipate, but cannot provide assurance, that the funds generated by operations and funds available under the New Credit Agreement will be sufficient to meet working capital requirements and to finance capital expenditures for the foreseeable future, including the next twelve months.  We intend to incur additional capital expenditures in the ordinary course of doing business.

Schedule of Contractual Obligations

The following table details our projected payments for our contractual obligations as of December 31, 2010.  The table is based upon available information and certain assumptions that we believe are reasonable.

As of December 31, 2010, we had no outstanding indebtedness with a variable interest rate.

From time to time, we acquire the use of certain assets, such as warehouses, forklifts, trailers, and office equipment through operating leases.  Many of these operating leases have termination penalties.  However, because the assets are used in the conduct of our business operations, it is unlikely that any significant portion of these operating leases would be terminated prior to the normal expiration of their lease terms.  Therefore, we consider the risk related to termination penalties to be minimal.

Off-Balance Sheet Arrangements

With the exception of routine operating leases, we had no off-balance sheet financing arrangements at December 31, 2010, 2009 and 2008.

Inflation

Our cost of sales is subject to inflationary pressures on labor costs, prices of the raw materials we use and various overhead costs.  We generally have been able over time to offset the effects of inflation and price fluctuations through a combination of sales price increases and operational efficiencies.  Raw material cost pressure increased beginning in the fourth quarter 2009 and continued through the first half of 2010.  Subsequent to the first half 2010, raw material costs have modestly declined through December 31, 2010.  We continue to attempt to pass along these costs to our customers, but such

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efforts typically lag three to twelve months behind material cost changes and we cannot guarantee a full offset.  Our ability to pass through these price changes to our customers is dependent on prevailing economic and competitive conditions.

Seasonality

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

Critical Accounting Policies

The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America (GAAP) requires management to make estimates, assumptions and judgments that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period.  Because of the uncertainty inherent in these matters, actual results could differ from those estimates.  We believe that the estimates, assumptions and judgments involved in the accounting policies below have the greatest potential impact on our financial statements.

The basis for developing the estimates and assumptions within our critical accounting policies is based on historical information and known current trends and factors.  The estimates and assumptions are evaluated on an ongoing basis and actual results have been within the Company’s expectations, unless noted differently below.  We have not changed these policies from those previously disclosed.

Revenue Recognition.  We recognize revenues and related cost of sales when title passes, which is usually upon shipment of product under FOB shipping point terms.  Returns are estimated and provided for at the time of sale based on historical experience and current trends.

Allowance for Doubtful Accounts.  We make estimates of potentially uncollectible accounts receivable.  Our reserves are based on an analysis of customers’ accounts and historical write-off experience.  Our analysis includes the age of the receivable, customer creditworthiness and general economic conditions.  We believe the results could be materially different if historical trends do not reflect actual results or if economic conditions worsened.

Goodwill.  We evaluate goodwill for impairment annually or whenever an indicator of impairment occurs.  If events or circumstances change, including reductions in anticipated cash flows generated by operations, goodwill could become further impaired and result in a charge to earnings.  If a goodwill impairment charge was recorded, the Company’s compliance with financing arrangement covenant ratios would not be impacted as these ratios exclude non-cash charges.

The Company performed its ASC 350 analysis as of December 31, 2010.  To establish fair market value, items considered were:  (1) comparable public company trading multiples, (2) other comparable transaction multiples and (3) the Woodcraft transaction multiple resulting from a competitive auction process.

We placed limited weight on the comparable public company trading multiples because the public companies are not considered sufficiently similar to Woodcraft to draw meaningful fair value comparisons.  For example, the OEM cabinet manufacturers are burdened by consumer brand and style risk and other building products companies are competing in markets which have greater commoditization and/or greater exposure to new home construction than Woodcraft.  Additionally, the large conglomerate businesses are typically more diversified to draw meaningful fair value comparisons to Woodcraft.

We placed limited weight on the comparable transactions because there have been no comparable transactions since 2007.  Given the significant changes in the overall economic conditions and their impact on our industry since 2007, comparable transaction multiples from 2007, in our opinion, are not relevant for purposes of establishing fair value as of December 31, 2010.  The comparable transaction valuation multiple analysis from 2007 aggregated mean and median valuation multiples that were slightly higher than the transaction multiple associated with our January 2007 transaction.  Although a net discount could be applied to these multiples in valuing our business because of our smaller size (partially offset by a premium, in our opinion, for our more attractive business model), we believe any such discount is unnecessary because of the occurrence of cyclical multiple expansion, as discussed below.

In January 2007, Woodcraft was acquired through a competitive bidding process which established a fair market value based on a multiple of EBITDA for the prior twelve month period.  This multiple was then adjusted to account for the cyclical multiple expansion occurring as a result of the slowdown in housing that had been occurring since 2006.  We believe

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valuation multiples in cyclical industries tend to compress at higher points in a cycle and expand at lower points in a cycle.  We refer to this trend as “cyclical multiple expansion.”  As of December 31, 2010, we have advanced four years into the current housing downturn and, in our opinion, are closer to the lower point in this cycle.  Accordingly, we believe this has resulted in expanded multiples.  Moreover, given the severity of the current downturn, we would expect the magnitude of such multiple expansion to be significant.  To account for these expanded multiples, we have applied premiums of 40-50% to the January 2007 Woodcraft transaction multiple to compute a low and high range of fair value.  The low and high premium was based on similar multiple expansions experienced by companies within similar industries from 2006 through 2010.  The companies used to calculate the cyclical multiple expansion for our annual goodwill analysis have been consistent from year to year.  If the number of comparable companies increases or decreases or the cyclical multiple expansion calculations change within these comparable companies, our goodwill impairment analysis could be affected.

As of December 31, 2010, based on the fair market value methodology and assumptions discussed above, as compared to the Company’s net worth and interest-bearing indebtedness, we have concluded that no goodwill impairment existed and that the fair value of our assets exceeded the carrying value by approximately 5 to 10%.  As of December 31, 2009, the Company determined its carrying value exceeded its fair value resulting in a goodwill impairment charge of $13.6 million.

Impairment of Long-Lived Assets.  We evaluate the carrying value of long-lived assets, such as property, plant and equipment, for impairment when events or changes in circumstances indicate that the carrying amount of an asset or group of assets may not be recoverable.  Assets are grouped and evaluated for impairment at the lowest level for which there is identifiable cash flows.  If impairment indicators are present and the estimated future undiscounted cash flows are less than the carrying value of the asset or group of assets, the carrying value is reduced to its estimated fair value.  Fair value is estimated based on the best information available, including prices for similar assets or results of valuation techniques such as discounting estimated future cash flows.

Due to lower sales and earnings for the twelve months ended December 31, 2010 and 2009, the Company performed an ASC 360 impairment test.  Based on an undiscounted cash flows model, the Company’s carrying value of long-lived assets was adequate and no write-down was necessary.  Separate from the undiscounted cash flow model, it was determined a triggering event occurred in 2008, in conjunction with the decision to discontinue manufacturing operations at our West Jordan, Utah facility.  This long-lived asset impairment totaled $0.7 million in 2008 due to certain long-lived assets that will not be utilized in the future.

Insurance Benefit Accruals.  Each accounting period, we estimate an amount to accrue for costs incurred but not yet reported under our self-funded employee medical and workers compensation insurance plans.  We base our determination on an evaluation of past rates of claim payouts and trends in the amount of payouts.  This determination requires significant judgment and assumes past patterns are representative of future payment patterns.  A significant shift in usage and payment patterns within these plans could necessitate significant adjustments to these accruals in future accounting periods.

Purchase Accounting.  We accounted for our acquisitions under the purchase method of accounting and, accordingly, the acquired assets and liabilities assumed were recorded at their respective fair values.  The recorded values of assets and liabilities are based on third-party estimates and valuations when available.  The remaining values are based on management’s judgments and estimates.  The Transaction has been accounted for as a recapitalization in the Company’s financial statements, with no adjustments to the historical basis of the Company’s assets and liabilities.  The Company did not push down the basis because of the significance of the publicly traded debt outstanding, which hinders the Parent’s ability to control the form of ownership of the Company.

Income Taxes.  The Company and its Parent file a consolidated federal income tax return, and federal income taxes are allocated to the Company based upon the respective taxable earnings or loss.  The Company accounts for income taxes in accordance with the liability method of accounting, which requires recognition of deferred tax assets and liabilities for the expected future tax consequences of events that were included in the consolidated financial statements and tax returns.  Under this method, deferred tax assets and liabilities are determined based on the difference between the financial statement and tax basis of assets and liabilities using enacted tax rates expected to be in effect for the year in which the differences are expected to reverse.  The Company records a valuation allowance when it is more likely than not that the net deferred tax assets will not be realized.

The Company is subject to audits in the tax jurisdictions in which it operates.  Upon audit, these taxing jurisdictions could retroactively disagree with our tax treatment of certain items.  Consequently, the actual liabilities with respect to any year may be determined long after financial statements have been issued.  The Company establishes tax reserves for estimated tax exposures.  These potential exposures result from varying applications of statutes, rules, regulations, case law

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and interpretations.  The settlement of these exposures primarily occurs upon finalization of tax audits.  However, the amount of the exposures can also be impacted by changes in tax laws and other factors.  The Company believes that it has established the appropriate reserves for these estimated exposures.  However, actual results may differ from these estimates.  The resolution of these tax matters will not have a material effect on the consolidated financial condition of the Company, although a resolution could have a material impact on the Company’s consolidated statement of operations for a particular future period and on the Company’s effective tax rate.

New Accounting Standards

In January 2010, the FASB issued Accounting Standards Update (“ASU”) 2010-06, “Fair Value Measurements and Disclosures (Topic 820)—Improving Disclosures about Fair Value Measurements”.  This guidance requires reporting entities to provide information about movements of assets among Levels 1 and 2 of the three-tier fair value hierarchy established by ASC 820 and provide a reconciliation of purchases, sales, issuance, and settlements of financial instruments valued with a Level 3 method, which is used to price the hardest to value instruments. Entities must provide fair value measurement disclosures for each class of financial assets and liabilities.  The guidance was effective for interim and annual periods that begin after December 15, 2009 except for certain Level 3 activity disclosure requirements that are effective for fiscal years beginning after December 15, 2010 and interim periods within those fiscal years.  The adoption of this guidance did not have a material impact on the Company’s consolidated financial statements.

In July 2010, the FASB issued ASU 2010-20, “Receivables (Topic 310), Disclosures about the Credit Quality of Financing Receivables and the Allowance for Credit Losses,” which includes loans, trade accounts receivable, notes receivable, credit cards, leveraged leases, direct financing leases, and sales-type leases.  The term does not include receivables measured at fair value or the lower of cost of fair value and debt securities among others.  It also defines two levels of disaggregation for disclosure: portfolio segment and class of financing receivables.  A portfolio segment is defined as the level at which an entity determines its allowance for credit losses.  A class of financing receivable is defined as a group of finance receivables determined on the basis of their initial measurement attribute (i.e., amortized cost of purchased credit impaired), risk characteristics, and an entity’s method for monitoring and assessing credit risk.  The ASU requires an entity to provide additional disclosures including, but not limited to, a rollforward schedule of the allowance for credit losses (with the ending allowance balance further disaggregated based on impairment methodology) and the related ending balance of the finance receivable presented by portfolio segment, and the aging of past due financing receivables at the end of the period, the nature and extent of troubled debt restructurings that occurred during the period and their impact on the allowance for credit losses, the nature and extent of troubled debt restructurings that occurred within the last year, that have defaulted in the current reporting period, and their impact on the allowance for credit losses, the nonaccrual status of financing receivables, and impaired financing receivables, presented by class.  The extensive new disclosures of information as of the end of a reporting period are effective for both interim and annual reporting periods ending after December 15, 2010.  Specific items regarding activity that occurred before the issuance of the ASU, such as the allowance rollforward and modification disclosures are required for periods beginning after December 15, 2010.  The adoption of this guidance did not have a material impact on the Company’s consolidated financial statements.

In December 2010, the FASB issued ASU 2010-28, “Intangibles — Goodwill and Other (Topic 350), When to Perform Step 2 of the Goodwill Impairment Test for Reporting Units with Zero or Negative Carrying Amounts, a consensus of the FASB Emerging Issues Task Force”, which affects all entities that have recognized goodwill and have one or more reporting units whose carrying amount for purposes of performing Step 1 of the goodwill impairment test is zero or negative.  The ASU modifies Step 1 so that for those reporting units, an entity is required to perform Step 2 of the goodwill impairment test if it is more likely than not that a goodwill impairment exists.  In determining whether it is more likely than not that goodwill impairment exists, an entity should consider whether there are any adverse qualitative factors indicating that an impairment may exist.  The qualitative factors are consistent with existing guidance, which requires that goodwill of a reporting unit be tested for impairment between annual tests if an event occurs or circumstances change that would more likely than not reduce the fair value of a reporting unit below its carrying amount.  For public entities, this guidance is effective for fiscal years, and interim periods within those years, beginning after December 15, 2010.  Adoption of ASU 2010-28 is not expected to have a significant impact on the Company’s consolidated financial statements.

In December 2010, the FASB issued ASU 2010-29, “Business Combinations (Topic 805), Disclosure of Supplementary ProForma Information for Business Combinations, a consensus of the FASB Emerging Issues Task Force”, which requires that the pro forma information be presented as if the business combination occurred at the beginning of the prior annual reporting period for purposes of calculating both the current reporting period and the prior reporting period pro forma financial information.  The ASU also requires that this disclosure be accompanied by a narrative description of the amount and nature of material nonrecurring pro forma adjustments.  The amendments in this ASU are effective for business combinations with effective dates on or after the beginning of the first annual reporting period beginning on or after

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December 15, 2010.  Prospective application is required with early adoption permitted.  The Company is currently assessing the impact of the adoption of this ASU on the consolidated financial statements.

In January 2011, the FASB issued ASU 2011-01, “Receivables (Topic 310) — Deferral of the Effective Date of Disclosures about Troubled Debt Restructurings in Update No. 2010-20”, which deferred the effective date of the disclosure requirements for public entities about troubled debt restructurings in ASU 2010-20, to be concurrent with the effective date of the guidance for troubled debt restructuring which is currently anticipated to be effective for interim and annual periods after June 15, 2011.  The Company does not anticipate the new guidance will have a material impact on the consolidated financial statements.

Item 7A. Quantitative and Qualitative Disclosures about Market Risk

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

Commodity Price Risk.  Hardwood lumber accounts for the largest portion of our material costs. Our profitability is therefore affected by the prices of lumber which may fluctuate based on a number of factors beyond our control, including, among others, changes in supply and demand, general economic conditions, labor costs, competition and, in some cases, government regulation.  Though we are not dependent on any single supplier for our raw materials, we have no long-term supply contracts and thus, are subject to changes in the prices charged by our suppliers.  The prices for the primary hardwood species we use in the production of our hardwood doors and components are subject to some volatility.  We generally pass through cost increases to our customers, but such efforts typically lag three to twelve months behind material cost changes and we cannot guarantee a full offset.  Our ability to pass through these price changes to our customers is dependent on prevailing economic and competitive conditions.

Interest Rate Risk.  We are exposed to market risk relating to changes in interest rates in respect of a portion of our long-term debt.  As of December 31, 2010, we had no outstanding indebtedness which bears interest at a variable rate.  We believe that a one percent (1%) increase in the interest rates currently in effect would not have a material adverse effect on our financial condition or results of operations.

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Item 8. Financial Statements and Supplementary Data

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

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

We have audited the accompanying consolidated balance sheets of WII Components, Inc. (a Delaware Corporation and wholly-owned subsidiary of WII Holding, Inc.) and subsidiaries (the “Company”) as of December 31, 2010 and 2009 and the related consolidated statements of operations, stockholders’ equity, and cash flows for each of the three years in the period ended December 31, 2010.  Our audits of the basic consolidated financial statements included the financial statement schedule listed in the Index appearing under Item 15.  These financial statements and financial statement schedule are the responsibility of the Company’s management.  Our responsibility is to express an opinion on these financial statements and financial statement schedule based on our audits.

We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States).  Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement.  The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting.  Our audits included consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting.  Accordingly, we express no such opinion.  An audit also includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation.  We believe that our audits provide a reasonable basis for our opinion.

In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of WII Components, Inc. and subsidiaries as of December 31, 2010 and 2009, and the results of their operations and their cash flows for each of the three years in the period ended December 31, 2010, in conformity with accounting principles generally accepted in the United States of America.  Also, in our opinion, the related financial statement schedule, when considered in relation to the basic consolidated financial statements taken as a whole, presents fairly in all material respects the information set forth therein.

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WII COMPONENTS, INC. AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS

DECEMBER 31, 2010 AND 2009

(In thousands)

See notes to consolidated financial statements.

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WII COMPONENTS, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF OPERATIONS

(In thousands)

See notes to consolidated financial statements.

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WII COMPONENTS, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY

(In thousands, except share amounts)

See notes to consolidated financial statements.

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WII COMPONENTS, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS

(In thousands)

See notes to consolidated financial statements.

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WII COMPONENTS, INC. AND SUBSIDIARIES