UNITED STATES SECURITIES AND EXCHANGE COMMISSION

FORM 10-Q

(Mark One)

     For the quarterly period ended June 30, 2004

OR

(   ) 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.

3890 West Northwest Highway, Suite 500 Dallas, Texas 75220, (214) 630-5757

     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 (  )

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

     As of August 16, 2004, the registrant had 100 shares of Common Stock, par value $.01 per share outstanding.

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ATRIUM COMPANIES, INC. AND SUBSIDIARIES
FORM 10-Q
QUARTER ENDED JUNE 30, 2004
INDEX

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ATRIUM COMPANIES, INC. AND SUBSIDIARIES

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

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ATRIUM COMPANIES, INC. AND SUBSIDIARIES

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

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ATRIUM COMPANIES, INC. AND SUBSIDIARIES

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

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ATRIUM COMPANIES, INC. AND SUBSIDIARIES

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

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ATRIUM COMPANIES, INC. AND SUBSIDIARIES

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

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ATRIUM COMPANIES, INC. AND SUBSIDIARIES

1. Basis of Presentation

          The unaudited consolidated financial statements of Atrium Companies, Inc. (the “Company”) for the three and six months ended June 30, 2004 and 2003, and financial position as of June 30, 2004 and December 31, 2003 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, 2003 included in the Company’s amended annual report on Form 10-K/A as filed with the Securities and Exchange Commission on April 9, 2004. 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.

The Transactions or Merger

          On December 10, 2003, Atrium Corporation was acquired by a newly formed affiliate of Kenner & Company, Inc., KAT Holdings, Inc., pursuant to which KAT Holdings, Inc. merged with and into Atrium Corporation with Atrium Corporation as the surviving corporation. As a result of the Merger, the investor group described below now controls the Company and Atrium Corporation.

          The acquisition of Atrium Corporation was made by an investor group led by Kenner & Company, Inc., a New York based private investment firm, and certain members of our management, including Jeff L. Hull, our Chairman, President and Chief Executive Officer. The investor group included: KAT Holdings, L.P. and KAT Group, L.P., special purpose Kenner investment partnerships; UBS Capital Americas II, LLC; ML IBK Positions, Inc. and Merrill Lynch Ventures L.P. 2001 and management. At the closing of the Merger, $12,396 of equity securities owned by Atrium Corporation’s existing stockholders were exchanged for similar securities in KAT Holdings, Inc. and the investor group contributed an additional $251,604 to KAT Holdings, Inc., including $251,454 from ATR Acquisition, LLC, the unitholders of which are KAT Holdings, L.P., KAT Group, L.P., UBS Capital Americas II, LLC, ML IBK Positions, Inc. and Merrill Lynch Ventures L.P. 2001.

          In connection with the Merger, we renewed our existing accounts receivable securitization facility for a period of five years and refinanced our existing senior revolving credit and term loan facilities, with a new revolving credit facility of $50,000, which was undrawn at the close of the merger, and a new $180,000 term loan facility. We also issued an additional $50,000 of 10½% senior subordinated notes, or “add-on notes”, and left the existing $175,000 of 10½% senior subordinated notes outstanding. $40,000 of the new term loan facility was funded into escrow upon closing of the Merger and was released to fund a portion of the acquisition of Superior Engineered Products Corporation on December 31, 2003.

          On November 18, 2003, in connection with the Merger, we received consents from holders representing approximately 97% of the aggregate principal amount of our outstanding 10½% senior subordinated notes to:

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waive our obligations under the Indenture to make a change of control offer in connection with the merger and amend the Indenture to replace the definition of permitted holders with certain direct and indirect equity holders of ATR Acquisition, LLC and their affiliates,

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modify certain restrictions on affiliate transactions set forth in the indenture governing the notes; and

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allow for the issuance of additional notes.

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          Additionally, in connection with the Merger, Atrium Corporation repurchased its outstanding 15% Senior Pay-In-Kind Notes, with a portion of the cash proceeds of the equity contribution to KAT Holdings, Inc.

          Each of the foregoing transactions, along with the Merger, is referred to herein collectively as “the Transactions.”

Presentation

          The operations of MD Casting, Inc. (“MD Casting”), Danvid Window Company (“Danvid”), Aluminum Screen Manufacturers, Inc., Superior Engineered Products Corporation (“Superior”) and Atrium Shutters, Inc. (“Atrium Shutters”) are included since their dates of acquisition, January 31, 2003, April 1, 2003, October 1, 2003, December 31, 2003 and June 1, 2004, respectively. Collectively, the acquisitions of MD Casting, Danvid, Aluminum Screen, Superior and Atrium Shutters are referred to as the “Acquisitions.”

          The following unaudited pro forma information presents consolidated operating results as though the Acquisitions had occurred at the beginning of the periods presented.

Reclassifications

          Certain items in the prior period presentation have been reclassified to conform to the current period presentation.

2. Stock-Based Compensation

          As of June 30, 2004, the Company had several stock-based compensation plans. The Company accounts for these plans under the recognition and measurement principles of the Accounting Principles Board Opinion (“APB”) No. 25, “Accounting for Stock Issued to Employees” (“APB 25”) and related interpretations. Stock-based employee compensation costs related to the issuance of stock options is not reflected in the Company’s earnings when the options granted under those plans have an exercise price equal to or in excess of the estimated market value of the underlying common stock on the date of grant.

          The Merger resulted in certain of the previously outstanding options being purchased from the holders. The cancellation and issuance of new options along with the buy/sell agreements resulted in the majority of the 2003 option grants warranting variable accounting treatment.

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          The Financial Accounting Standards Board (“FASB”) has recently indicated that it expects to issue a proposal to change the recognition and measurement principles for equity-based compensation granted to employees. The proposed rules could be implemented as early as the end of the 2004 calendar year. Under the proposed rules, the Company would be required to recognize compensation expense related to stock options granted to employees after December 15, 2004. The compensation expense would be calculated based on the expected number of options expected to vest and would be recognized over the stock options’ vesting period. If this proposal is passed, the Company would be required to recognize compensation expense related to stock options granted to its employees, which may have a material effect on its consolidated financial position or results of operations.

          The following table illustrates the effect on the Company’s reported net loss if the Company had applied the fair value recognition provisions of Statement of Financial Accounting Standards (“SFAS”) No. 123, “Accounting for Stock-based Compensation,” to stock-based compensation plans and warrants.

          The above pro forma disclosures are not representative of pro forma effects for future periods because the determination of the fair value of all options granted excludes an expected volatility factor and additional option grants are expected.

3. Recently Issued Accounting Standards

FIN No. 46 — “Consolidation of Variable Interest Entities”:

          During January 2003, the FASB issued Financial Interpretation  (“FIN”) No. 46, “Consolidation of Variable Interest Entities” (“FIN 46”). FIN 46 is effective for variable interest entities created after January 31, 2003 and is required to be adopted for variable interest entities that existed prior to February 1, 2003 by December 31, 2003. FIN 46 is an interpretation of Accounting Research Bulletin No. 51, “Consolidated Financial Statements.” FIN 46 requires a variable interest entity to be consolidated by a company if that company is subject to a majority of the risk of loss from the variable interest entity’s activities and is entitled to receive a majority of the entity’s residual returns or both. In December 2003, the FASB issued a revision to FIN 46 to clarify some of the provisions and to exempt certain entities from its requirements. Adoption of FIN 46 has not had a material effect on the Company’s consolidated financial position or results of operations.

FIN No. 46R — “Consolidation of Variable Interest Entities”:

          During December 2003, the FASB issued a revision to FIN 46, FIN No. 46R (“FIN 46R”), to clarify some of the provisions and to exempt certain entities from its requirements. Under the new guidance, special effective date provisions apply to enterprises that have fully or partially applied FIN 46 prior to issuance of the revised interpretation. Otherwise, application of FIN 46R is required in financial statements of public entities that have interests in structures that are commonly referred to as special purpose entities (“SPE’s”) for periods ending after December 15, 2003. Application by public entities, other than business issuers, for all other types of variable interest

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entities other than SPE’s is required in financial statements for periods ending after March 15, 2004. Adoption of FIN 46R has not had a material effect on the Company’s consolidated financial position or results of operations.

4. Operating Segment Information

          The Company is engaged in the manufacture and sale of windows, doors and various other building materials throughout North America and is organized within two principal operating segments, including the Windows and Doors Segment and the Components Segment. Individual subsidiary companies are included in each of the Company’s two principal operating segments based on the way the chief operating decision maker manages the business and on the similarity of products, production processes, customers and expected long-term financial performance. In the tables below, Corporate and Other include corporate overhead costs and certain income and expense items not allocated to reportable operating segments, including expenses incurred in connection with the Merger.

          The Windows and Doors Segment fabricates, distributes and installs products primarily for the residential new construction and repair and remodel markets. The principal products sold by the segment include aluminum and vinyl windows and patio doors. The Components Segment principally manufactures component parts utilized in the fabrication of aluminum and vinyl windows and patio doors, including aluminum and vinyl extrusion, zinc die-casted hardware and fiberglass and aluminum screens.

          The Company evaluates operating segment performance based on operating earnings before allocations of corporate overhead costs. All material intrasegment sales are eliminated within each respective segment. The income statement impact of all purchase accounting adjustments, including the amortization of intangible assets, is reflected in the operating earnings of the applicable operating segment.

          Identifiable assets by operating segment are those used in operations by each segment. Corporate and Other assets are principally cash and cash equivalents, deferred tax assets, certain property, plant and equipment, deferred financing costs and retained interest in sold accounts receivable.

          Summarized financial information for the Company’s reportable operating segments is presented in the following tables:

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