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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: 333-54122

Atrium Corporation

(Exact name of registrant as specified in its charter)
     
Delaware   75-2814598
(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 170,906 shares of Common Stock, par value $.01 per share outstanding.

TABLE OF CONTENTS

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

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ATRIUM CORPORATION

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 Stockholders’ 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     7-15  
Item 2.
  Management’s Discussion and Analysis of Financial Condition and Results of Operations     16-21  
Item 3.
  Quantitative and Qualitative Disclosures about Market Risk     21  
Item 4.
  Controls and Procedures     21  
 
PART II. OTHER INFORMATION        
Item 1.
  Legal Proceedings     22  
Items 2, 3, 4 and 5 are not applicable        
Item 6.
  Exhibits and Reports on Form 8-K     22  
Signatures     23  

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ATRIUM CORPORATION

CONSOLIDATED BALANCE SHEETS

(dollars in thousands, except share amounts)
                     
September 30, December 31,
2003 2003
(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
    1,300       922  
     
     
 
   
Total current assets
    111,517       68,930  
PROPERTY, PLANT AND EQUIPMENT, net
    60,232       55,322  
GOODWILL, net
    349,425       345,239  
DEFERRED FINANCING COSTS, net
    11,909       14,401  
OTHER ASSETS, net
    10,461       8,134  
     
     
 
   
Total assets
  $ 543,544     $ 492,026  
     
     
 
LIABILITIES AND STOCKHOLDERS’ 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
    34,216       31,441  
     
     
 
   
Total current liabilities
    90,593       60,500  
     
     
 
LONG-TERM LIABILITIES:
               
 
Notes payable
    335,420       329,880  
 
Deferred tax liability
    1,300       922  
 
Other long-term liabilities
    2,348       560  
     
     
 
   
Total long-term liabilities
    339,068       331,362  
     
     
 
   
Total liabilities
    429,661       391,862  
     
     
 
COMMON STOCK SUBJECT TO MANDATORY REDEMPTION
    15,604       15,604  
     
     
 
COMMITMENTS AND CONTINGENCIES
               
STOCKHOLDERS’ EQUITY:
               
 
Common stock $01 par value, 245,000 shares authorized, 170,906 and 170,700 shares issued and outstanding at September 30, 2003 and December 31, 2002, respectively
    2       2  
 
Paid-in capital
    179,979       179,704  
 
Accumulated deficit
    (81,236 )     (90,706 )
 
Accumulated other comprehensive loss
    (466 )     (4,440 )
     
     
 
   
Total stockholders’ equity
    98,279       84,560  
     
     
 
   
Total liabilities and stockholders’ equity
  $ 543,544     $ 492,026  
     
     
 

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

2

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ATRIUM CORPORATION

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       30,313  
 
Securitization expense
    355       325  
 
Stock compensation expense
    100       75  
 
Amortization expense
    1,092       845  
     
     
 
SELLING, DELIVERY, GENERAL AND ADMINISTRATIVE
               
 
EXPENSES
    35,008       31,558  
Special charge
    375       —  
     
     
 
      35,383       31,558  
     
     
 
 
Income from operations
    19,576       17,228  
INTEREST EXPENSE
    11,197       11,377  
OTHER EXPENSE, net
    (5 )     (132 )
     
     
 
Income before income taxes
    8,374       5,719  
PROVISION FOR INCOME TAXES
    343       248  
     
     
 
NET INCOME
  $ 8,031     $ 5,471  
     
     
 

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

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ATRIUM CORPORATION

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       87,900  
 
Securitization expense
    867       879  
 
Stock compensation expense
    552       308  
 
Amortization expense
    3,067       2,475  
     
     
 
SELLING, DELIVERY, GENERAL AND ADMINISTRATIVE EXPENSES
    98,838       91,562  
Special charge
    375       3,948  
     
     
 
      99,213       95,510  
     
     
 
 
Income from operations
    43,319       37,566  
INTEREST EXPENSE
    33,358       33,796  
OTHER INCOME, net
    159       265  
     
     
 
Income before income taxes
    10,120       4,035  
PROVISION FOR INCOME TAXES
    650       478  
     
     
 
NET INCOME
  $ 9,470     $ 3,557  
     
     
 

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

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ATRIUM CORPORATION

CONSOLIDATED STATEMENT OF STOCKHOLDERS’ EQUITY

AND OTHER COMPREHENSIVE LOSS
For the Nine Months Ended September 30, 2003
(dollars in thousands, except share amounts)
(unaudited)
                                                   
Accumulated
Class A Other Total
Paid-in Accumulated Comprehensive Stockholders’
Shares Amount Capital Deficit Loss Equity
Balance, December 31, 2002
    170,700     $ 2     $ 179,704     $ (90,706 )   $ (4,440 )   $ 84,560  
Issuance of Class A Shares
    231       —       300       —       —       300  
Repurchase of Class A shares
    (25 )     —       (25 )     —       —       (25 )
Comprehensive income:
                                               
 
Net income
    —       —       —       9,470       —       9,470  
 
Net fair market value adjustment of derivative instruments, net of tax of $0
    —       —       —       —       3,974       3,974  
     
     
     
     
     
     
 
Total comprehensive income
    —       —       —       9,470       3,974       13,444  
     
     
     
     
     
     
 
Balance, September 30, 2003
    170,906     $ 2     $ 179,979     $ (81,236 )   $ (466 )   $ 98,279  
     
     
     
     
     
     
 

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

5

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ATRIUM CORPORATION

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
  $ 9,470     $ 3,557  
 
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
    2,469       2,533  
 
Write-off of deferred financing costs
    29       —  
 
Accretion of discount on notes payable
    170       152  
 
Accretion of discount on senior payment-in-kind notes
    7,940       6,512  
 
Amortization of gain from sale/leaseback of building
    (22 )     (32 )
 
Special Charges
    375       456  
 
Loss on sale of receivables
    308       664  
 
Gain (loss) 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       1,804  
     
     
 
     
Net cash provided by operating activities
    36,979       17,588  
     
     
 
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 capital lease obligations
    (58 )     (18 )
 
Deferred financing costs
    (7 )     —  
 
Proceeds from the issuance of common stock
    —       1  
 
Repurchase of stock options and common stock
    (25 )     (124 )
 
Scheduled principal payments on term loans
    (4,097 )     (4,114 )
 
Additional principal payments on term loans
    (1,058 )     (684 )
 
Checks drawn in excess of bank balances
    (699 )     4,686