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UNITED STATES SECURITIES AND EXCHANGE COMMISSION

Form 10-Q

Commission file number: 333-20095

Atrium Companies, Inc.

3890 West Northwest Highway

     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 May 12, 2004, the registrant had 100 shares of Common Stock, par value $.01 per share outstanding.

ATRIUM COMPANIES, INC. AND SUBSIDIARIES

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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 months ended March 31, 2004 and 2003, and financial position as of March 31, 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.

      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 10 1/2% senior subordinated notes, or “add-on notes”, and left the existing $175,000 of 10 1/2% 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 10 1/2% senior subordinated notes to:

	•	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,
	•	modify certain restrictions on affiliate transactions set forth in the indenture governing the notes; and
	•	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.”

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

      The following unaudited pro forma information presents consolidated operating results as though the 2003 acquisitions had occurred at the beginning of the periods presented. For the three month period ended March 31, 2004 there is no difference between the actual and pro forma information because the acquisitions have been included in operations for the full period.

      As of March 31, 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, 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 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.

      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.

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      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.

      During January 2003, the FASB issued 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.

      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 entities other that 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.

      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

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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 vinyl and aluminum windows and doors. The Components Segment principally manufactures component parts utilized in the fabrication of aluminum and vinyl windows and 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 goodwill and intangible assets amortization, 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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(1)	Capital expenditures are net of proceeds from sales of assets.

      In connection with the Merger, the Company recorded a special charge in the amount of $2,556. The expenses associated with the Merger include $2,385 related to warrants issued to Mr. Hull and $171 for accrued management retention bonuses to be paid on December 10, 2004.

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      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:

      Notes payable consisted of the following:

      The senior subordinated notes and credit agreement require the Company to meet certain financial tests pertaining to total leverage, senior leverage, interest coverage and fixed charge coverage. As of March 31, 2004, the Company was in compliance with all related covenants.

      The Current Credit Agreement has an “excess cash flows” provision mandating additional principal payments if certain cash flow targets are met during the year. The excess cash flow payment is due no later than 100 days after the end of each fiscal year, commencing with the fiscal year ending December 31, 2004. For 2004 the Company is required to make an additional principal payment in an amount equal to the excess of 75% of their excess cash flow, as defined in the credit agreement, less any voluntary prepayments made on the term loans during the fiscal year. The 2004 excess cash flow payment will be paid in 2005, if applicable.

      On November 1, 2000, the Company entered into a $100,000 interest rate swap agreement to limit the effect of changes in interest rates on long-term borrowings. Under the agreement, the Company paid interest

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at a fixed rate of 6.66% on the notional amount and receives interest therein at the three-month LIBOR on a quarterly basis. This swap expired 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 three-year collective bargaining agreement with UNITE! which will expire in 2004. We have begun negotiations for a new collective bargaining agreement and expect to renew the collective bargaining agreement shortly.

      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 is a potentially responsible party (“PRP”) at the Chemical Recycling, Inc. or “CRI” Superfund site in Wylie, Texas, pursuant to the Comprehensive Environmental Response Compensation and Liability Act of 1980, as amended. 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 the site, the site is low priority compared to other sites in the region. There are 115 PRP’s at this site with approximately 85 that are members of the site’s steering committee. Two main PRP’s, Glidden and Sherwin Williams, account for approximately 46% of all liability. The Company’s costs to date associated with this site have been approximately $78, with a current credit for overpayment of $30.

      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 site, its liability, if any, associated with this site will not have a material adverse effect on the Company’s consolidated financial position, results of operations or cash flows.

      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 expects a closure certificate to be issued by January 2005, at which time the letter of credit will expire. 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 innocent ownership 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 during 2004.

      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

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material adverse effect on the consolidated financial position, results of operations or cash flows of the Company.

      During the first quarter of 2004, the accrued provisions for Wing Industries, Inc. (“Wing”) decreased by $85 primarily due to payments on remaining lease obligations, leaving a remaining accrual of $319 for unpaid liabilities. In the same period, the Company decreased its accrued provisions for the Woodville closing by $11 for miscellaneous facility closure expenses, reducing the remaining accrual to $72.

      The 2003 Acquisitions described below have been accounted for in accordance with SFAS No. 141, “Business Combinations” and the results of their operations are included in the Company’s financial statements from the date of their respective acquisition.

      On December 31, 2003, the Company acquired all of the outstanding capital stock of Superior, a California corporation, for a purchase price of $52,500, including $47,500 in cash and $5,000 in Atrium Corporation common stock. Transaction fees related to the acquisition of Superior were $429. Superior, based in Ontario, California, is a manufacturer of windows and other building materials. The cash portion of the transaction was funded with $40,000 of term loan borrowings previously held in escrow and $7,500 borrowed under the Company’s accounts receivable securitization facility. The purchase price is allocated as follows:

      On October 1, 2003, the Company completed the acquisition of substantially all of the operating assets of Aluminum Screen for $16,500 in cash, excluding transaction fees of approximately $768. Aluminum Screen, a screen manufacturer based in Dallas, Texas, with additional operations in Houston, Phoenix, Las Vegas and Ciudad Juarez, Mexico, is a supplier to the window and patio door industry. The transaction was effected through Atrium’s newly-formed subsidiary, Aluminum Screen Manufacturers, Inc., a Delaware corporation,

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and was funded through a combination of borrowings under both the Company’s revolving credit facility and accounts receivable securitization facility. The purchase price is allocated as follows:

      On April 1, 2003, the Company acquired substantially all of the assets of Danvid, a wholly-owned subsidiary of American Architectural Products Corporation (“AAPC”), for approximately $5,550 in cash and the assumption of certain liabilities. The proceeds used to complete the transaction were funded through the Company’s 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 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 assets acquired (“goodwill”) was $1,668, the Company also incurred $275 in transaction fees in connection with the transaction. The purchase price is allocated as follows:

      On January 31, 2003, the Company, through its newly-formed and wholly-owned subsidiary, MD Casting, completed the acquisition of substantially all of the operating assets of Miniature Die Casting of Texas, L.P., a Texas limited partnership, for a purchase price of $3,250, excluding transaction fees of approximately $144, 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 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 $3,121. The purchase price is allocated as follows:

      The Company’s payment obligations under the Notes are fully and unconditionally guaranteed, jointly and severally, on a senior subordinated basis, by its wholly-owned subsidiaries (collectively, the “Subsidiary Guarantees”): 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.), Superior Engineered Products Corporation, MD Casting, Inc. and Aluminum Screen Manufacturers, 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 Superior, which are presented since its date of acquisition on December 31, 2003; Aluminum Screen, which are presented since its date of acquisition on October 1, 2003 and MD Casting, which are presented since its date of acquisition on January 31, 2003. The balance sheet information includes all subsidiaries as of December 31, 2003 and all subsidiaries except for Superior, Aluminum Screen and 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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CONSOLIDATING BALANCE SHEET