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UNITED STATES SECURITIES AND EXCHANGE COMMISSION

Form 10-Q

Commission file number: 333-20095

Atrium Companies, Inc.

1341 W. Mockingbird Lane,

     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.

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ATRIUM COMPANIES, INC. AND SUBSIDIARIES

FORM 10-Q

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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

      The unaudited consolidated financial statements of Atrium Companies, Inc. (the “Company”) for the three and nine months ended September 30, 2003 and 2002, and financial position as of September 30, 2003 and December 31, 2002 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, 2002 included in the Company’s annual report on Form 10-K as filed with the Securities and Exchange Commission on March 31, 2003. 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.

      As of September 30, 2003, 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,” and related interpretations. Stock-based employee compensation costs related to the issuance of stock options is not reflected in the Company’s earnings, as all options granted under those plans had an exercise price equal to or in excess of the estimated market value of the underlying common stock on the date of grant.

      The following table illustrates the effect on the Company’s reported net income 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 may be granted.

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      During January 2003, the Financial Accounting Standards Board (“FASB”) issued FASB Interpretation (“FIN”) No. 46, “Consolidation of Variable Interest Entities” (“FIN 46”). FIN 46 provides guidance for companies having ownership of variable interest entities, typically referred to as special purpose entities, in determining whether to consolidate such variable interest entities. FIN 46 has immediate applicability for variable interest entities created after January 31, 2003 or interest in variable interests created after that date. For interests in variable interest entities, FIN 46 is expected to become effective on December 31, 2003. The Company is considering the implications of FIN 46, however they do not expect that adoption will have a significant effect on their financial statements.

      In August 2001, the FASB issued SFAS No. 143, “Accounting for Asset Retirement Obligations” (“SFAS 143”). SFAS 143 addresses financial accounting and reporting obligations associated with the retirement of tangible long-lived assets and the associated asset retirement costs. Under SFAS 143, the fair value of a liability for an asset retirement obligation covered under the scope of SFAS 143 would be recognized in the period in which the liability is incurred, with an offsetting increase in the carrying amount of the related long-lived asset. Adoption of SFAS 143 has not had a significant effect on the Company.

      In April 2002, the FASB issued SFAS No. 145, “Rescission of FASB Statements No. 4, 44, and 64, Amendment of FASB Statement No. 13, and Technical Corrections” (“SFAS 145”). SFAS 145 rescinds SFAS No. 4, “Reporting Gains and Losses from Extinguishment of Debt,” requiring that gains and losses from the extinguishment of debt be classified as extraordinary items only if certain criteria are met. SFAS 145 also amends SFAS No. 13, “Accounting for Leases,” and the required accounting for sale-leaseback transactions and certain lease modifications that have economic effects that are similar to sale-leaseback transactions. SFAS 145 was adopted by the Company on January 1, 2003. During April of 2003, the Company expensed $29 of deferred financing fees in connection with their 2002 excess cash flow payment (see Note 5). The loss associated with the debt retirement is included in interest expense on the Company’s financial statements.

      In July 2002, the FASB issued SFAS No. 146, “Accounting for Costs Associated with Exit or Disposal Activities” (“SFAS 146”). SFAS 146 requires that a liability for a cost associated with an exit or disposal activity be recognized initially at fair value when the liability is incurred. The Company adopted SFAS 146 on January 1, 2003. Adoption of SFAS 146 did not have a significant effect on the Company.

      In April 2003, the FASB issued SFAS No. 149, “Amendment of Statement 133 on Derivative Instruments and Hedging Activities” (“SFAS 149”). SFAS 149 amends and clarifies the accounting and reporting for derivative contracts, including hedging instruments. The amendments and clarifications under SFAS 149 generally serve to codify the conclusions reached by the Derivative Implementation Group, to incorporate other FASB projects on financial instruments, and to clarify other implementation issues. SFAS 149 became effective prospectively for derivative contracts entered into or modified by the Company after June 30, 2003. Adoption of SFAS 149 has not had a significant impact on the Company.

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      In May 2003, the FASB issued SFAS No. 150, “Accounting for Certain Financial Instruments with Characteristics of both Liabilities and Equity” (“SFAS 150”). SFAS 150 requires that certain financial instruments, which under previous guidance were accounted for as equity, must now be accounted for as liabilities. The financial instruments affected include mandatorily redeemable stock, certain financial instruments that require or may require the issuer to buy back some of its shares in exchange for cash or other assets and certain obligations that can be settled with shares of stock. SFAS 150 is effective for all financial instruments entered into or modified after May 31, 2003 and must be applied to the Company’s existing financial instruments effective July 1, 2003. On October 29, 2003, the FASB deferred the provisions of paragraphs 9 and 10 and related guidance in the appendices of this pronouncement as they apply to mandatorily redeemable noncontrolling interests. Adoption of the effective provisions of SFAS 150 have not had a significant effect on the Company, the Company does not expect that the deferred provisions will have a significant effect on the Company.

      During November 2002, the FASB issued FIN No. 45, “Guarantor’s Accounting and Disclosure Requirements for Guarantees, Including Indirect Guarantees of Indebtedness of Others” (“FIN 45”). FIN 45 generally requires a guarantor to recognize a liability for obligations arising from guarantees. FIN 45 also requires new disclosures for guarantees meeting certain criteria outlined in the pronouncement. The recognition and measurement provisions of FIN 45 are applicable on a prospective basis for guarantees issued or modified after December 31, 2002. The Company’s consolidated financial statements have not been affected as a result of adopting this pronouncement.

      Inventories are valued at the lower of cost or market using the last-in, first-out (LIFO) method of accounting. Work-in-process and finished goods inventories consist of materials, labor and manufacturing overhead. Inventories consisted of the following:

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      Notes payable consisted of the following:

      The senior subordinated notes (the “Notes”) and credit agreement require the Company to meet certain financial tests pertaining to total leverage, senior leverage, interest coverage, fixed charge coverage and maximum capital expenditures. As of September 30, 2003, the Company was in compliance with all related covenants.

      Additionally, the term loans have an “excess cash flows” provision mandating additional principal payments if certain cash flow targets are met during the year. For 2002 and 2001, the excess cash flow payments were $1,058 and $684, respectively. These amounts are required to be paid within 100 days of the fiscal year end. In December 2002, the Company voluntarily pre-paid $6,544 on the term loans, which reduced the mandated excess cash flow payment for 2002 to $1,058, which was paid in April 2003.

      The Company has an interest rate swap agreement to hedge exposure to interest rate fluctuations. As of September 30, 2003, the Company had an interest rate swap with a notional amount totaling $100,000. The swap expires in November 2003.

      The Company has four unionized facilities within the State of Texas, all of which are represented by the Union of Needletrades, Industrial and Textile Employees (“UNITE!”). During May of 2001, the Company entered into a new three-year collective bargaining agreement with UNITE! which will expire in 2004.

      The Company is involved in various stages of investigation and cleanup related to environmental protection matters, some of which relate to waste disposal sites. The potential costs related to such matters and the possible impact thereof on future operations are uncertain due in part to: the uncertainty as to the extent of pollution; the complexity of government laws and regulations and their interpretations; the varying costs and effectiveness of alternative cleanup technologies and methods; the uncertain level of insurance or other types of recovery; and the questionable level of the Company’s involvement. The Company was named in 1988 as a potentially responsible party (“PRP”) in two superfund sites pursuant to the Comprehensive Environmental Response Compensation and Liability Act of 1980, as amended.

      The Company is a PRP at the Chemical Recycling, Inc. or “CRI” Superfund site in Wylie, Texas. The Company is a very small contributor at the CRI site, being assigned approximately 2.788% of the damages based on its waste volume at the site. The site was a solvent reclamation facility, and the Company sent paint waste to the site for recycling. The site has soil and groundwater contamination. Major removal actions have occurred and a Work Plan for Risk Assessment/ Feasibility Study was submitted to the Environmental Protection Agency (“EPA”) in October 1996. According to the studies performed by the site’s steering committee, affected groundwater has not migrated off-site. According to the EPA general counsel in charge of

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      The second site is the Diaz Refinery site in Jackson County, Arkansas. There is no documentation linking the Company to the site. In connection with a De Minimis Buyout Agreement, the Company paid $11 to exclude itself from future liability. Because of the lack of documentation linking the Company to the site and the De Minimis Buyout Agreement, it is not expected that the Company will incur any additional costs. Records indicate that, through agreements with the site’s steering committee and the Arkansas Department of Pollution Control (the “ADPCE”), the Company will not receive any orders or be allocated further costs for continuing work because the Company does not have a volume contribution assigned to the site (because of the lack of records showing it used the site). The facility was a solvent recovery, supplemental fuel blending and hazardous waste facility from the mid 1970s to 1988, resulting in impacted soil and groundwater. In 1995, the ADPCE approved a work plan and no further requirements have been assigned. Additionally, monitoring actions were completed in 2000 and no further activities have occurred since then.

      The Company believes that based on the information currently available, including the substantial number of other PRP’s and relatively small share allocated to it at such sites, its liability, if any, associated with either of these sites will not have a material adverse effect on the Company’s consolidated financial position, results of operations or liquidity.

      The Company owned one parcel of real estate that requires future costs related to environmental clean-up. The estimated costs of clean-up have been reviewed by third-party sources and are expected not to exceed $150. The previous owner of the property has established an escrow of $400 to remediate the associated costs. The Company sold this property in December 1999. The Company has established a letter of credit of $250 to cover any costs of remediation exceeding the previous owner’s escrow. The Company believes the existing escrow amount is adequate to cover costs associated with this clean-up.

      In connection with the sale of one of the Company’s facilities in December 2002, a $250 escrow was established. The escrow is receivable upon the Company obtaining an environmental certification on the building. The Company is currently in the process of applying for the certification and expects to be refunded the entire $250 escrow paid at closing during 2003.

      In addition to the foregoing contingencies, the Company is party to various claims, legal actions and complaints arising in the ordinary course of business. In the opinion of management, all such matters are without merit or are of such kind, or involve such amounts, that an unfavorable disposition would not have a material effect on the consolidated financial position, results of operations or liquidity of the Company.

      During the first nine months of 2003, the accrued provisions for Wing Industries, Inc. (“Wing”) increased by $13 primarily due to a special charge recorded in the amount of $375 for a legal settlement that was larger than initially anticipated, offset by $362 in legal fees and exit costs related to idle facilities, leaving a remaining accrual of $653 for unpaid liabilities. In the same period, the Company decreased its accrued provisions for the Woodville closing by $142 for a legal settlement and miscellaneous facility closure expenses, reducing the remaining accrual to $90.

      On January 31, 2003, the Company, through its newly-formed and wholly-owned subsidiary, MD Casting, Inc. (“MD Casting”), acquired substantially all of the operating assets of Miniature Die Casting of Texas, L.P. for a purchase price of $3,250 in cash excluding transaction fees of approximately $108, and the assumption of certain liabilities with an additional amount of up to $600 to be paid over three years upon the achievement of certain financial targets. MD Casting is a zinc die cast hardware manufacturer located in Fort Worth, Texas. The Company financed the acquisition through its revolving credit facility.

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      The acquisition was accounted for in accordance with SFAS No. 141, “Business Combinations” (“SFAS 141”). The aggregate purchase price has been allocated to the underlying assets and liabilities based upon their respective estimated fair market values at the date of acquisition. The excess of purchase price over the estimated fair value of the net assets acquired (“goodwill”) was $2,960. The results of MD Casting’s operations were included in the Company’s consolidated financial statements beginning on February 1, 2003. The purchase price allocation is as follows:

      On April 1, 2003, the Company acquired substantially all of the assets of Danvid Window Company (“Danvid”), a wholly-owned subsidiary of American Architectural Products Corporation (“AAPC”), for approximately $5,550 in cash, excluding transaction fees of $179, and the assumption of certain liabilities. The Company financed the acquisition through its revolving credit facility. The assets of Danvid have been acquired out of bankruptcy (with both Danvid and AAPC operating as a debtor-in-possession under Chapter 11) pursuant to an auction sale under Sections 363 and 365 of the Bankruptcy Code. The acquisition of Danvid, an aluminum and vinyl window and door manufacturer, located in Dallas, Texas, further strengthens the Company’s market share in the Southern regions of the United States.

      The acquisition was accounted for in accordance with SFAS 141 and the results of operations were included in the Company’s consolidated financial statements beginning on April 1, 2003. The aggregate purchase price has been allocated to the underlying assets and liabilities based upon their respective estimated fair market values at the date of acquisition. The excess purchase price over the fair market value of the net assets acquired (“goodwill”) was $1,226. The purchase price allocation is as follows:

      On October 28, 2003, Atrium Corporation, the Company’s parent, entered into a definitive agreement providing for the acquisition of Atrium Corporation by an investor group led by an affiliate of Kenner & Company, Inc. (“Kenner”), a New York-based private investment firm, UBS Capital Americas and certain members of Atrium management. Kenner has received financing commitments from CIBC World Markets

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      Pursuant to the agreement, each outstanding share of Atrium Corporation’s common stock and each option, with the exception of some shares and options owned by certain members of management (which will be exchanged), will be acquired by KAT Holdings, Inc. (a newly formed affiliate of Kenner & Company), and all outstanding indebtedness (including accrued interest) will continue to be outstanding or refinanced. The transaction, as contemplated, will be in compliance with the 10 1/2% Senior Subordinated Notes (due 2009) indenture. Under the indenture, the Company is required to make an offer to purchase its 10 1/2% Senior Subordinated Notes and will either commence the offer within 30 days after the closing of the transaction or solicit a consent to leave the 10 1/2% Senior Subordinated Notes outstanding. In connection with the transaction, the Company also intends on renewing its accounts receivable securitization facility and refinancing its existing senior credit facility with a new senior credit facility arranged by CIBC World Markets and UBS Investment Bank.

      The acquisition is expected to be completed during the fourth quarter of 2003 and is subject to the availability of certain financing, the expiration of the applicable waiting period under the Hart-Scott-Rodino Act and other conditions.

      On October 1, 2003, the Company acquired substantially all of the assets of Aluminum Screen Manufacturing, Ltd., L.L.P., a Texas registered limited liability partnership and Texas limited partnership, Aluminum Screen Products, Inc., a Nevada corporation and Aztex Screen Products, L.L.C., an Arizona limited liability corporation (collectively, “Aluminum Screen”) for $16.5 million in cash. Aluminum Screen is a screen manufacturer based in Dallas, Texas with additional operations in Houston, Phoenix, Las Vegas and Ciudad Juarez, Mexico. The transaction was effected through the Company’s newly-formed subsidiary, Aluminum Screen Manufacturers, Inc., a Delaware corporation and was funded through a combination of borrowings under the Company’s revolving credit facility and accounts receivable securitization facility.

      The acquisition will be accounted for in accordance with SFAS 141. The aggregate purchase price will be allocated to the underlying assets and liabilities based upon their respective estimated fair market values at the date of acquisition. The results of the acquired business will be included in the Company’s consolidated financial statements beginning on October 1, 2003.

      On October 1, 2003, the state district court in Boulder, Colorado granted final approval of a settlement agreement between the Company and its subsidiary, formerly known as Champagne Industries, Inc. (“Champagne,” renamed Atrium Door and Window Company of the Rockies), and 63 named plaintiffs who claimed to represent a purported class of approximately 4,500 homeowners. The plaintiffs sued the Company and Champagne, along with three other home builder and home product manufacturer defendants, for claims arising out of Champagne’s sale of its Imperial wood window between 1987 and 1997. Under the terms of the approved settlement, Champagne’s insurance carriers paid approximately $18,450 to the Company for a settlement that will be used to compensate the approximately 4,500 class members, either through a one-time liquidated payment or through a payment that would be used by class members for the repair and replacement of their windows. In addition, Champagne will offer to sell a fixed number of replacement windows to the class members at a reduced price from Champagne’s retail list price, which will in no event be below Champagne’s cost to manufacture the replacement product. Under the terms of the approved settlement, neither the Company nor Champagne will pay any cash to the class members and both the Company and Champagne were released from any liability arising from any claims asserted or that could have been asserted by the plaintiffs in this litigation, including any claims associated with the Imperial window. In addition, as part of the approved settlement, the home builder co-defendant withdrew with prejudice its cross-claim against Champagne.

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      As of September 30, 2003, the Company had cash of $6,471 as a result of the receipt of a portion of the settlement from the Company’s insurance carriers, a receivable in the amount of $11,979 for the portion of the settlement remaining to be funded by the Company’s insurance carriers, and a liability in the amount of $18,450 for the settlement. On October 25, 2003, the Company paid $18,450 to class members using cash received from the Company’s insurance carriers.

      The Company’s payment obligations under the Notes are fully and unconditionally guaranteed, jointly and severally (collectively, the “Subsidiary Guarantees”) on a senior subordinated basis, by its wholly-owned subsidiaries: Atrium Door and Window Company of the Northeast, Atrium Door and Window Company of Arizona, Atrium Door and Window Company — West Coast, Atrium Vinyl, Inc. (formerly known as Heat, Inc.), Thermal Industries, Inc., Atrium Door and Window Company of the Northwest (formerly known as Best Built, Inc.), Atrium Door and Window Company of the Rockies (formerly known as Champagne Industries, Inc.), Wing Industries, Inc., R.G. Darby Company, Inc., Total Trim, Inc, Atrium Extrusion Systems, Inc. (formerly known as VES, Inc.) and MD Casting, Inc. (collectively, the “Guarantor Subsidiaries”). The following subsidiaries do not guarantee the Company’s Notes: Atrium Funding Corporation, Atrium Ventanas de Mexico and Atrium Servicios de Mexico (collectively, the “Non-Guarantor Subsidiaries”). The operations and cash flows of all subsidiaries are presented for all periods covered except for the operations of MD Casting, which are presented since its date of acquisition on January 31, 2003 and Atrium Ventanas de Mexico and Atrium Servicios de Mexico, which are presented since their inception in March 2002. The balance sheet information includes all subsidiaries as of September 30, 2003 and all subsidiaries except for MD Casting, as of December 31, 2002. In the opinion of management, separate financial statements of the respective Guarantor Subsidiaries would not provide additional material information, which would be useful in assessing the financial composition of the Guarantor Subsidiaries. None of the Guarantor Subsidiaries has any significant legal restrictions on the ability of investors or creditors to obtain access to its assets in event of default on the Subsidiary Guarantee other than its subordination to senior indebtedness.

      The Notes and the Subsidiary Guarantees are subordinated to all existing and future Senior Indebtedness of the Company. The indenture governing the Notes contains limitations on the amount of additional indebtedness (including senior indebtedness) which the Company may incur.

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ATRIUM COMPANIES, INC. AND SUBSIDIARIES

CONSOLIDATING BALANCE SHEET