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SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

Form 10-Q

     
(Mark One)
   
þ
  QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
 
    For the quarterly period ended June 30, 2002
 
or
 
o
   TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
 
    For the transition period from           to

Commission file number: 333-20095

Atrium Companies, Inc.

(Exact name of registrant as specified in its charter)
     
Delaware   75-2642488
(State or other jurisdiction of
incorporation or organization)		   (I.R.S. Employer
Identification Number)

1341 W. Mockingbird Lane, Suite 1200W, Dallas, Texas 75247, (214) 630-5757

(Address of principal executive offices, including zip code and telephone number, including area code)

     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 þ          No o

TABLE OF CONTENTS

ATRIUM COMPANIES, INC. CONSOLIDATED BALANCE SHEETS
ATRIUM COMPANIES, INC. CONSOLIDATED STATEMENTS OF OPERATIONS
ATRIUM COMPANIES, INC. CONSOLIDATED STATEMENTS OF OPERATIONS
ATRIUM COMPANIES, INC. CONSOLIDATED STATEMENT OF STOCKHOLDER’S EQUITY AND OTHER COMPREHENSIVE LOSS
ATRIUM COMPANIES, INC. CONSOLIDATED STATEMENTS OF CASH FLOWS
ATRIUM COMPANIES, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
PART II OTHER INFORMATION
SIGNATURES
EX-99.1 Certification by Chief Executive Officer
EX-99.2 Certification by Chief Financial Officer

Table of Contents

ATRIUM COMPANIES, INC.

FORM 10-Q

Quarter Ended June 30, 2002

INDEX

             
Page

PART I

FINANCIAL INFORMATION
Item 1.
  Consolidated Financial Statements (Unaudited):        
    Consolidated Balance Sheets as of June 30, 2002 and December 31, 2001     2  
    Consolidated Statements of Operations for the Three Months Ended June 30, 2002 and 2001     3  
    Consolidated Statements of Operations for the Six Months Ended June 30, 2002 and 2001     4  
    Consolidated Statement of Stockholder’s Equity and Other Comprehensive Loss for the Six Months Ended June 30, 2002     5  
    Consolidated Statements of Cash Flows for the Six Months Ended June 30, 2002 and 2001     6  
    Notes to Consolidated Financial Statements     7-19  
Item 2.
  Management’s Discussion and Analysis of Financial Condition and Results of Operations     20-23  
Item 3.
  Quantitative and Qualitative Disclosures about Market Risk     23-24  

PART II

OTHER INFORMATION
Item 1.
  Legal Proceedings     24  
Items 2, 3, 4 and 5 are not applicable        
Item 6.
  Exhibits and Reports on Form 8-K     24  
Signatures     25  

1

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ATRIUM COMPANIES, INC.

CONSOLIDATED BALANCE SHEETS

(Dollars in thousands, except share amounts)
                     
June 30, December 31,
2002 2001
(Unaudited)
ASSETS
CURRENT ASSETS:
               
 
Cash and cash equivalents
  $ 2,098     $ 1,247  
 
Accounts receivable, net
    3,842       3,895  
 
Retained interest in sold accounts receivable
    29,561       14,373  
 
Inventories
    37,745       36,737  
 
Prepaid expenses and other current assets
    4,356       4,819  
 
Deferred tax asset
    1,773       1,426  
     
     
 
   
Total current assets
    79,375       62,497  
PROPERTY, PLANT AND EQUIPMENT, net
    56,715       55,755  
GOODWILL, net
    345,239       345,239  
DEFERRED FINANCING COSTS, net
    11,923       13,350  
OTHER ASSETS, net
    7,336       7,366  
     
     
 
   
Total assets
  $ 500,588     $ 484,207  
     
     
 
 
LIABILITIES AND STOCKHOLDER’S EQUITY
CURRENT LIABILITIES:
               
 
Current portion of notes payable
  $ 5,493     $ 6,191  
 
Accounts payable
    33,102       18,539  
 
Accrued liabilities
    26,981       29,671  
     
     
 
   
Total current liabilities
    65,576       54,401  
     
     
 
LONG-TERM LIABILITIES:
               
 
Notes payable
    306,220       304,363  
 
Deferred tax liability
    1,773       1,426  
 
Other long-term liabilities
    542       707  
 
Swaps contract liability
    5,443       6,821  
     
     
 
   
Total long-term liabilities
    313,978       313,317  
     
     
 
   
Total liabilities
    379,554       367,718  
     
     
 
COMMITMENTS AND CONTINGENCIES
               
STOCKHOLDER’S EQUITY:
               
 
Common stock $.01 par value, 3,000 shares authorized, 100 shares issued and outstanding
    —       —  
 
Paid-in capital
    203,403       203,552  
 
Accumulated deficit
    (76,259 )     (78,794 )
 
Accumulated other comprehensive loss
    (6,110 )     (8,269 )
     
     
 
   
Total stockholder’s equity
    121,034       116,489  
     
     
 
   
Total liabilities and stockholder’s equity
  $ 500,588     $ 484,207  
     
     
 

The accompanying notes are an integral part of the consolidated financial statements.

2

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ATRIUM COMPANIES, INC.

CONSOLIDATED STATEMENTS OF OPERATIONS

For the Three Months Ended June 30, 2002 and 2001
(Dollars in thousands)
(Unaudited)
                   
2002 2001
NET SALES
  $ 148,181     $ 141,570  
COST OF GOODS SOLD
    98,938       97,726  
     
     
 
Gross profit
    49,243       43,844  
     
     
 
OPERATING EXPENSES:
               
Selling, delivery, general and administrative expenses (excluding securitization, stock compensation and amortization expense)
    30,959       27,214  
 
Securitization expense
    298       —  
 
Stock compensation expense
    158       568  
 
Amortization expense
    826       3,598  
     
     
 
SELLING, DELIVERY, GENERAL AND ADMINISTRATIVE EXPENSES
    32,241       31,380  
Special charge
    3,948       139  
     
     
 
      36,189       31,519  
     
     
 
 
Income from operations
    13,054       12,325  
INTEREST EXPENSE
    8,938       9,503  
OTHER INCOME (EXPENSE), net
    181       (83 )
     
     
 
Income before income taxes
    4,297       2,739  
PROVISION FOR INCOME TAXES
    74       296  
     
     
 
NET INCOME
  $ 4,223     $ 2,443  
     
     
 

The accompanying notes are an integral part of the consolidated financial statements.

3

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ATRIUM COMPANIES, INC.

CONSOLIDATED STATEMENTS OF OPERATIONS

For the Six Months Ended June 30, 2002 and 2001
(Dollars in thousands)
(Unaudited)
                   
2002 2001
NET SALES
  $ 261,470     $ 252,193  
COST OF GOODS SOLD
    177,180       173,800  
     
     
 
Gross profit
    84,290       78,393  
     
     
 
OPERATING EXPENSES:
               
Selling, delivery, general and administrative expenses (excluding securitization, stock compensation and amortization expense)
    57,587       51,910  
 
Securitization expense
    554       —  
 
Stock compensation expense
    233       713  
 
Amortization expense
    1,630       7,133  
     
     
 
SELLING, DELIVERY, GENERAL AND ADMINISTRATIVE EXPENSES
    60,004       59,756  
Special charge
    3,948       139  
     
     
 
      63,952       59,895  
     
     
 
 
Income from operations
    20,338       18,498  
INTEREST EXPENSE
    17,970       19,508  
OTHER INCOME, net
    397       56  
     
     
 
Income (loss) before income taxes
    2,765       (954 )
PROVISION FOR INCOME TAXES
    230       510  
     
     
 
NET INCOME (LOSS)
  $ 2,535     $ (1,464 )
     
     
 

The accompanying notes are an integral part of the consolidated financial statements.

4

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ATRIUM COMPANIES, INC.

CONSOLIDATED STATEMENT OF STOCKHOLDER’S EQUITY

AND OTHER COMPREHENSIVE LOSS
For the Six Months Ended June 30, 2002
(Dollars in thousands, except share amounts)
(Unaudited)
                                                   
Retained Accumulated
Common Stock Earnings Other Total
Paid-in (Accumulated Comprehensive Stockholder’s
Shares Amount Capital Deficit) Income (Loss) Equity
Balance, December 31, 2001
    100     $ —     $ 203,552     $ (78,794 )   $ (8,269 )   $ 116,489  
Distributions to Atrium Corporation, net
    —       —       (149 )     —       —       (149 )
Comprehensive income:
                                               
 
Net income
    —       —       —       2,535       —       2,535  
 
Net fair market value adjustment of derivative instruments, net of tax of $0
    —       —       —       —       2,159       2,159  
     
     
     
     
     
     
 
Total comprehensive income
    —       —       —       2,535       2,159       4,694  
     
     
     
     
     
     
 
Balance, June 30, 2002
    100     $ —     $ 203,403     $ (76,259 )   $ (6,110 )   $ 121,034  
     
     
     
     
     
     
 

The accompanying notes are an integral part of the consolidated financial statements.

5

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ATRIUM COMPANIES, INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS

For the Six Months Ended June 30, 2002 and 2001
(Dollars in thousands)
(Unaudited)
                       
2002 2001
CASH FLOWS FROM OPERATING ACTIVITIES:
               
 
Net income (loss)
  $ 2,535     $ (1,464 )
 
Adjustments to reconcile net income (loss) to net cash provided by (used in) operating activities:
               
 
Depreciation and amortization
    7,107       11,861  
 
Non-cash stock compensation expense
    150       (25 )
 
Amortization of deferred financing costs
    1,501       1,274  
 
Accretion of discount on notes payable
    100       89  
 
Accretion of gain from interest rate collars
    —       (164 )
 
Amortization of gain from sale/leaseback of building
    (26 )     (3 )
 
Provision for bad debts
    496       444  
 
Special charge
    1,176       —  
 
Gain on sales of assets
    (13 )     (11 )
 
Changes in assets and liabilities:
               
   
Accounts receivable
    (16,630 )     (13,818 )
   
Sale of accounts receivable
    1,000       —  
   
Inventories
    (1,008 )     (241 )
   
Prepaid expenses and other current assets
    389       (336 )
   
Accounts payable
    12,608       5,483  
   
Accrued liabilities
    (3,351 )     (5,488 )
     
     
 
     
Net cash provided by (used in) operating activities
    6,034       (2,399 )
     
     
 
CASH FLOWS FROM INVESTING ACTIVITIES:
               
 
Purchases of property, plant and equipment
    (6,505 )     (8,669 )
 
Proceeds from sales of assets
    57       42  
 
Other assets
    (1,600 )     (2,384 )
     
     
 
     
Net cash used in investing activities
    (8,048 )     (11,011 )
     
     
 
CASH FLOWS FROM FINANCING ACTIVITIES:
               
 
Payments of notes payable and capital lease obligations
    (14 )     (152 )
 
Net borrowings under revolving credit facility
    4,500       1,500  
 
Scheduled principal payments on term notes
    (2,744 )     (2,980 )
 
Additional principal payments on term notes
    (684 )     —  
 
Contributions (distributions) to Atrium Corporation, net
    (149 )     8,930  
 
Checks drawn in excess of bank balances
    1,956       4,149  
 
Capitalized deferred financing costs
    —       (246 )
     
     
 
     
Net cash provided by financing activities
    2,865       11,201  
     
     
 
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS
    851       (2,209 )
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD
    1,247       4,646  
     
     
 
CASH AND CASH EQUIVALENTS, END OF PERIOD
  $ 2,098     $ 2,437  
     
     
 

The accompanying notes are an integral part of the consolidated financial statements.

6

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ATRIUM COMPANIES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

June 30, 2002 and 2001
(Dollars in thousands, except share amounts)
(Unaudited)

1.     Basis of Presentation

      The unaudited consolidated financial statements of Atrium Companies, Inc. (the “Company”) for the three and six months ended June 30, 2002 and 2001, and financial position as of June 30, 2002 and December 31, 2001 have been prepared in accordance with generally accepted accounting principles for interim financial reporting, the instructions to Form 10-Q and Rule 10-01 of Regulation S-X. Accordingly, they do not include all of the information and footnotes required by generally accepted accounting principles for complete financial statements.

      These consolidated financial statements and footnotes should be read in conjunction with the Company’s audited financial statements for the fiscal year ended December 31, 2001 included in the Company’s Form 10-K as filed with the Securities and Exchange Commission on April 1, 2002. In the opinion of management, all adjustments (consisting of normal recurring adjustments) considered necessary for a fair presentation of the interim financial information have been included. The results of operations for any interim period are not necessarily indicative of the results of operations for a full year. Certain reclassifications have been made to the 2001 balances to conform to the 2002 presentation.

2.     New Accounting Pronouncements

      In August 2001, the Financial Accounting Standards Board (“FASB”) issued Statement of Financial Accounting Standards (“SFAS”) No. 143, “Accounting for Asset Retirement Obligations” (“SFAS 143”). SFAS 143 addresses financial accounting and reporting obligations associated with the retirement of