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UNITED STATES 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 September 30, 2003
 
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

      Indicate by check mark whether the registrant is an accelerated filer (as defined in Rule 12b-2 of the Act).     Yes o          No þ

      As of November 3, 2003, the registrant had 100 shares of Common Stock, par value $.01 per share outstanding.

TABLE OF CONTENTS

CONSOLIDATED BALANCE SHEETS
CONSOLIDATED STATEMENTS OF OPERATIONS For the Three Months Ended September 30, 2003 and 2002
CONSOLIDATED STATEMENTS OF OPERATIONS For the Nine Months Ended September 30, 2003 and 2002
CONSOLIDATED STATEMENT OF STOCKHOLDER’S EQUITY AND OTHER COMPREHENSIVE LOSS For the Nine Months Ended September 30, 2003
CONSOLIDATED STATEMENTS OF CASH FLOWS For the Nine Months Ended September 30, 2003 and 2002
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations
Item 3. Quantitative and Qualitative Disclosures About Market Risk
Item 4. Controls and Procedures
PART II. OTHER INFORMATION
Item 1. Legal Proceedings
Item 6. Exhibits and Reports on Form 8-K
SIGNATURES
EX-31.1 Certification of Chief Executive Officer
EX-31.2 Certification of Chief Financial Officer

Table of Contents

ATRIUM COMPANIES, INC. AND SUBSIDIARIES

FORM 10-Q

Quarter Ended September 30, 2003

INDEX

             
Page
PART I. FINANCIAL INFORMATION        
Item 1.
  Consolidated Financial Statements (unaudited):        
    Consolidated Balance Sheets as of September 30, 2003 and December 31, 2002     2  
    Consolidated Statements of Operations for the Three Months Ended September 30, 2003 and 2002     3  
    Consolidated Statements of Operations for the Nine Months Ended September 30, 2003 and 2002     4  
    Consolidated Statement of Stockholder’s Equity and Other Comprehensive Loss for the Nine Months Ended September 30, 2003     5  
    Consolidated Statements of Cash Flows for the Nine Months Ended September 30, 2003 and 2002     6  
    Notes to Consolidated Financial Statements     7-22  
Item 2.
  Management’s Discussion and Analysis of Financial Condition and Results of Operations     23-28  
Item 3.
  Quantitative and Qualitative Disclosures about Market Risk     28  
Item 4.
  Controls and Procedures     28  
 
PART II. OTHER INFORMATION        
Item 1.
  Legal Proceedings     28-29  
Items 2, 3, 4 and 5 are not applicable        
Item 6.
  Exhibits and Reports on Form 8-K     29  
Signatures     30  

1

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ATRIUM COMPANIES, INC. AND SUBSIDIARIES

 
CONSOLIDATED BALANCE SHEETS
(dollars in thousands, except share amounts)
                       
September 30, December 31,
2003 2002
(unaudited)
ASSETS
CURRENT ASSETS:
               
 
Cash and cash equivalents
  $ 8,604     $ 1,131  
 
Accounts receivable, net
    4,520       1,847  
 
Retained interest in sold accounts receivable
    32,111       25,209  
 
Other receivable — litigation settlement
    11,979       —  
 
Inventories
    47,057       33,712  
 
Prepaid expenses and other current assets
    5,946       6,109  
 
Deferred tax asset
    2,128       1,324  
     
     
 
   
Total current assets
    112,345       69,332  
PROPERTY, PLANT AND EQUIPMENT, net
    60,232       55,322  
GOODWILL, net
    349,425       345,239  
DEFERRED FINANCING COSTS, net
    8,194       10,293  
OTHER ASSETS, net
    10,461       8,134  
     
     
 
   
Total assets
  $ 540,657     $ 488,320  
     
     
 
 
LIABILITIES AND STOCKHOLDER’S EQUITY
CURRENT LIABILITIES:
               
 
Current portion of notes payable
  $ 4,609     $ 6,524  
 
Accounts payable
    33,318       22,535  
 
Other payable — litigation settlement
    18,450       —  
 
Accrued liabilities
    34,217       31,442  
     
     
 
   
Total current liabilities
    90,594       60,501  
     
     
 
LONG-TERM LIABILITIES:
               
 
Notes payable
    289,101       291,501  
 
Deferred tax liability
    2,128       1,324  
 
Other long-term liabilities
    2,348       560  
     
     
 
   
Total long-term liabilities
    293,577       293,385  
     
     
 
   
Total liabilities
    384,171       353,886  
     
     
 
COMMITMENTS AND CONTINGENCIES
               
STOCKHOLDER’S EQUITY:
               
 
Common stock $.01 par value, 3,000 shares authorized, 100 shares issued and outstanding
    —       —  
 
Paid-in capital
    203,959       203,684  
 
Accumulated deficit
    (47,007 )     (64,810 )
 
Accumulated other comprehensive loss
    (466 )     (4,440 )
     
     
 
     
Total stockholder’s equity
    156,486       134,434  
     
     
 
     
Total liabilities and stockholder’s equity
  $ 540,657     $ 488,320  
     
     
 

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

2

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ATRIUM COMPANIES, INC. AND SUBSIDIARIES

 
CONSOLIDATED STATEMENTS OF OPERATIONS
For the Three Months Ended September 30, 2003 and 2002
(dollars in thousands)
(unaudited)
                   
2003 2002
NET SALES
  $ 166,873     $ 144,763  
COST OF GOODS SOLD
    111,914       95,977  
     
     
 
Gross profit
    54,959       48,786  
     
     
 
OPERATING EXPENSES:
               
Selling, delivery, general and administrative expenses (excluding securitization, stock compensation and amortization expense)
    33,461       30,301  
 
Securitization expense
    355       325  
 
Stock compensation expense
    100       75  
 
Amortization expense
    1,092       845  
     
     
 
SELLING, DELIVERY, GENERAL AND ADMINISTRATIVE EXPENSES
    35,008       31,546  
Special charge
    375       —  
     
     
 
      35,383       31,546  
     
     
 
 
Income from operations
    19,576       17,240  
INTEREST EXPENSE
    8,329       8,913  
OTHER EXPENSE, net
    (5 )     (132 )
     
     
 
Income before income taxes
    11,242       8,195  
PROVISION FOR INCOME TAXES
    343       248  
     
     
 
NET INCOME
  $ 10,899     $ 7,947  
     
     
 

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

3

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ATRIUM COMPANIES, INC. AND SUBSIDIARIES

 
CONSOLIDATED STATEMENTS OF OPERATIONS
For the Nine Months Ended September 30, 2003 and 2002
(dollars in thousands)
(unaudited)
                   
2003 2002
NET SALES
  $ 442,237     $ 406,233  
COST OF GOODS SOLD
    299,705       273,157  
     
     
 
Gross profit
    142,532       133,076  
     
     
 
OPERATING EXPENSES:
               
Selling, delivery, general and administrative expenses (excluding securitization, stock compensation and amortization expense)
    94,352       87,888  
 
Securitization expense
    867       879  
 
Stock compensation expense
    552       308  
 
Amortization expense
    3,067       2,475  
     
     
 
SELLING, DELIVERY, GENERAL AND ADMINISTRATIVE EXPENSES
    98,838       91,550  
Special charge
    375       3,948  
     
     
 
      99,213       95,498  
     
     
 
 
Income from operations
    43,319       37,578  
INTEREST EXPENSE
    25,025       26,883  
OTHER INCOME, net
    159       265  
     
     
 
Income before income taxes
    18,453       10,960  
PROVISION FOR INCOME TAXES
    650       478  
     
     
 
NET INCOME
  $ 17,803     $ 10,482  
     
     
 

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

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ATRIUM COMPANIES, INC. AND SUBSIDIARIES

 
CONSOLIDATED STATEMENT OF STOCKHOLDER’S EQUITY
AND OTHER COMPREHENSIVE LOSS
For the Nine Months Ended September 30, 2003
(dollars in thousands, except share amounts)
(unaudited)
                                                   
Accumulated
Common Stock Other Total
Paid-in Accumulated Comprehensive Stockholder’s
Shares Amount Capital Deficit Loss Equity
Balance, December 31, 2002
    100     $ —     $ 203,684     $ (64,810 )   $ (4,440 )   $ 134,434  
Non-cash stock compensation expense
    —       —       300       —       —       300  
Distribution to Atrium Corporation
    —       —       (25 )     —       —       (25 )
Comprehensive income:
                                               
 
Net income
    —       —       —       17,803       —       17,803  
 
Net fair market value adjustment of derivative instruments, net of tax of $0
    —       —       —       —       3,974       3,974  
     
     
     
     
     
     
 
Total comprehensive income
    —       —       —       17,803       3,974       21,777  
     
     
     
     
     
     
 
Balance, September 30, 2003
    100     $ —     $ 203,959     $ (47,007 )   $ (466 )   $ 156,486  
     
     
     
     
     
     
 

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

5

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ATRIUM COMPANIES, INC. AND SUBSIDIARIES

 
CONSOLIDATED STATEMENTS OF CASH FLOWS
For the Nine Months Ended September 30, 2003 and 2002
(dollars in thousands)
(unaudited)
                       
2003 2002
CASH FLOWS FROM OPERATING ACTIVITIES:
               
 
Net income
  $ 17,803     $ 10,482  
 
Adjustments to reconcile net income to net cash flows provided by operating activities:
               
 
Depreciation and amortization
    12,577       10,965  
 
Non-cash stock compensation expense
    300       225  
 
Amortization of deferred financing costs
    2,076       2,140  
 
Write-off of deferred financing costs
    29       —  
 
Accretion of discount on notes payable
    170       152  
 
Amortization of gain from sale/leaseback of building
    (22 )     (32 )
 
Special charges
    375       456  
 
Loss on sale of receivables
    308       664  
 
Loss (gain) on disposals of assets
    (14 )     1  
 
Advances from litigation settlement
    6,471       —  
 
Changes in assets and liabilities, net of acquisitions:
               
   
Accounts receivable
    (2,492 )     528  
   
Retained interest in sold accounts receivable
    (16,593 )     (12,915 )
   
Sale of accounts receivable
    12,900       (4,400 )
   
Inventories
    (11,568 )     (1,296 )
   
Prepaid expenses and other current assets
    187       563  
   
Accounts payable
    10,386       8,271  
   
Accrued liabilities and other long-term liabilities
    4,086       1,829  
     
     
 
     
Net cash provided by operating activities
    36,979       17,633  
     
     
 
CASH FLOWS FROM INVESTING ACTIVITIES:
               
 
Purchases of property, plant and equipment
    (11,029 )     (10,362 )
 
Proceeds from sales of assets
    415       194  
 
Acquisitions
    (9,087 )     —  
 
Other assets
    (3,861 )     (2,933 )
     
     
 
     
Net cash used in investing activities
    (23,562 )     (13,101 )
     
     
 
CASH FLOWS FROM FINANCING ACTIVITIES:
               
 
Payments of notes payable and capital lease obligations
    (58 )     (18 )
 
Deferred financing costs
    (7 )     —  
 
Scheduled principal payments on term loans
    (4,097 )     (4,114 )
 
Additional principal payments on term loans
    (1,058 )     (684 )
 
Distributions to Atrium Corporation
    (25 )     (168 )
 
Checks drawn in excess of bank balances
    (699 )     4,686  
     
     
 
     
Net cash used in financing activities
    (5,944 )     (298