<PAGE> 1
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
(X) QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 1997
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.
(Exact name of registrant as specified in its charter)
DELAWARE 75-2642488
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) 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 No X*
--- ---
* The registrant's Registration Statement on Form S-4 (Registration No.
333-20095) was declared effective on April 4, 1997. This report is hereby
filed pursuant to Rule 15d-13(a) under the Securities Exchange Act of 1934.
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ATRIUM COMPANIES, INC.
FORM 10-Q
QUARTER ENDED MARCH 31, 1997
INDEX
<TABLE>
<CAPTION>
PART I. FINANCIAL INFORMATION PAGE NO.
- ------------------------------ --------
<S> <C>
Item 1. Financial Statements (Unaudited):
Consolidated Balance Sheets - March 31, 1997 and December 31, 1996 3
Consolidated Statements of Income - Quarters ended March 31, 1997 and 1996 4
Statements of Cash Flows - Quarters ended March 31, 1997 and 1996 5
Notes to Financial Statements 6 - 8
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations 9 - 10
PART II. OTHER INFORMATION
- ---------------------------
Item 1. Legal Proceedings 11
Item 2. Change in Securities 11
Items 3, 4 and 5 are not applicable
Item 6. Exhibits and Reports on Form 8-K 11
Signatures 11
Exhibit Index 12
</TABLE>
2
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ATRIUM COMPANIES, INC.
CONSOLIDATED BALANCE SHEETS
(DOLLARS IN THOUSANDS, EXCEPT SHARE AMOUNTS)
<TABLE>
<CAPTION>
MARCH 31, DECEMBER 31,
1997 1996
--------- ---------
ASSETS (Unaudited)
<S> <C> <C>
CURRENT ASSETS:
Cash and cash equivalents ..................................... $ 18 $ 617
Equity securities - available for sale ........................ 487 --
Accounts receivable, net ...................................... 24,595 21,975
Inventories ................................................... 14,866 13,474
Prepaid expenses and other .................................... 2,876 1,765
Deferred tax asset ............................................ 2,555 2,555
--------- ---------
Total current assets ..................................... 45,397 40,386
PROPERTY, PLANT, AND EQUIPMENT, net ............................... 13,894 13,970
GOODWILL, net ..................................................... 12,001 11,963
DEFERRED FINANCING COSTS, net ..................................... 5,209 5,173
OTHER ASSETS ...................................................... 3,378 3,258
--------- ---------
Total assets ............................................. $ 79,879 $ 74,750
========= =========
LIABILITIES AND STOCKHOLDER'S EQUITY (DEFICIT)
CURRENT LIABILITIES:
Accounts payable .............................................. $ 10,718 $ 8,528
Accrued liabilities ........................................... 8,513 6,580
--------- ---------
Total current liabilities ................................ 19,231 15,108
LONG-TERM LIABILITIES:
Notes payable ................................................. 100,622 100,000
Deferred tax liability ........................................ 818 818
--------- ---------
Total long-term liabilities .......................... 101,440 100,818
--------- ---------
Total liabilities .................................... 120,671 115,926
COMMITMENTS AND CONTINGENCIES
STOCKHOLDER'S EQUITY (DEFICIT):
Common stock $.01 par value, 3,000 shares authorized,
100 shares issued and outstanding ........................ -- --
Paid-in capital ............................................... 32,084 31,936
Accumulated deficit ........................................... (72,905) (73,112)
Unrealized gain on equity securities - available for sale ..... 29 --
--------- ---------
Total stockholder's deficit .......................... (40,792) (41,176)
--------- ---------
Total liabilities and stockholder's deficit .... $ 79,879 $ 74,750
========= =========
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
3
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ATRIUM COMPANIES, INC.
CONSOLIDATED STATEMENTS OF INCOME
FOR THE QUARTERS ENDED MARCH 31, 1997 AND 1996
(DOLLARS IN THOUSANDS)
(UNAUDITED)
<TABLE>
<CAPTION>
1997 1996
-------- -------
<S> <C> <C>
NET SALES ........................................................ $ 37,846 $33,429
COST OF GOODS SOLD ............................................... 24,565 22,283
-------- -------
Gross profit ................................................. 13,281 11,146
OPERATING EXPENSES:
Selling, delivery, general and administrative expenses ....... 10,054 7,388
Stock option compensation expense ............................ 52 124
-------- -------
10,106 7,512
-------- -------
Income from operations .................................. 3,175 3,634
INTEREST EXPENSE ................................................. 2,781 1,072
OTHER INCOME (EXPENSE), net ...................................... (55) 220
-------- -------
Income before income taxes .............................. 339 2,782
PROVISION FOR INCOME TAXES ....................................... 128 941
-------- -------
NET INCOME ....................................................... $ 211 $ 1,841
======== =======
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
4
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ATRIUM COMPANIES, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE QUARTERS ENDED MARCH 31, 1997 AND 1996
(DOLLARS IN THOUSANDS)
(UNAUDITED)
<TABLE>
<CAPTION>
1997 1996
--------------------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income ...................................................... $ 211 1,841
Adjustments to reconcile net income to net cash provided by
operating activities:
Depreciation and amortization .............................. 748 463
Amortization of deferred financing costs ................... 155 83
Gain on retirement of assets ............................... (8) --
Stock option compensation expense .......................... 52 124
Changes in assets and liabilities:
Accounts receivable, net ............................... (2,620) (1,298)
Inventories ............................................ (1,392) 986
Prepaid expenses and other ............................. (1,110) 614
Accounts payable ....................................... 2,191 (311)
Accrued liabilities .................................... 1,932 685
--------------------
Net cash provided by operating activities .......... 159 3,187
--------------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of property, plant and equipment ...................... (428) (205)
Proceeds from asset sales ....................................... 10 --
Increase in other assets ........................................ (404) (601)
Purchases of short-term investments ............................. (458) --
--------------------
Net cash used in investing activities ...................... (1,280) (806)
--------------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Payment of notes payable ........................................ -- (2,474)
Proceeds from borrowings ........................................ 622 --
Deferred financing costs ........................................ (190) (5)
Capital contributions ........................................... -- 13
Net contribution from Holding ................................... 90 --
--------------------
Net cash provided by (used in) financing activities ........ 522 (2,466)
--------------------
NET DECREASE IN CASH AND CASH EQUIVALENTS .......................... (599) (85)
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD....................... 617 85
--------------------
CASH AND CASH EQUIVALENTS, END OF PERIOD ............................ $ 18 --
====================
SUPPLEMENTAL DISCLOSURE:
Cash paid during the period for:
Interest ................................................... $ 11 $ 1,017
Income taxes, net of refunds .............................. (48) 562
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
5
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ATRIUM COMPANIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 1997 AND 1996
(DOLLARS IN THOUSANDS, EXCEPT SHARE AMOUNTS)
(UNAUDITED)
1. BASIS OF PRESENTATION:
The unaudited consolidated results of operations and cash flows of Atrium
Companies, Inc. (the "Company") for the quarters ended March 31, 1997 and 1996,
and financial position as of March 31, 1997 and December 31, 1996 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
years ended December 31, 1996, 1995 and 1994 included in the Prospectus dated
April 4, 1997 included in the Company's Registration Statement on Form S-4
(Registration No. 333-20095) as filed with the Securities and Exchange
Commission (the "Registration Statement"). 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. Certain prior period
amounts have been reclassified to conform with the current period presentation.
2. EQUITY SECURITIES - AVAILABLE FOR SALE:
Investments in equity securities - available for sale are carried at market
based on quoted market prices, with unrealized gains (losses) recorded in
stockholders' equity.
3. INVENTORIES:
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 at March 31, 1997:
<TABLE>
<S> <C>
Raw materials ......................................... $ 12,572
Work-in-process ....................................... 539
Finished goods ........................................ 3,135
--------
16,246
LIFO reserve .......................................... (1,380)
--------
$ 14,866
========
</TABLE>
4. NOTES PAYABLE:
Notes payable consisted of the following at March 31, 1997:
<TABLE>
<S> <C>
Senior subordinated notes ............................. $100,000
Revolving line of credit .............................. 622
--------
$100,622
========
</TABLE>
6
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5. 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 adverse effect on the
financial position, results of operations or liquidity of the Company.
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 ("CERCLA") (the Chemical
Recycling, Inc. site in Wylie, Texas, and the Diaz Refinery site in Little
Rock, Arkansas). 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
financial position, results of operations or liquidity.
6. SUBSIDIARY GUARANTORS:
In connection with the Note offering, 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: Vinyl Building Specialties of Connecticut, Inc.,
Bishop Manufacturing Co. of New York, Inc., Bishop Manufacturing Company,
Incorporated and Bishop Manufacturing Company of New England, Inc.
(collectively, Bishop) and H-R Window Supply, Inc. (collectively, the
Subsidiary Guarantors). The Company has no nonguarantor direct or indirect
subsidiaries. The consolidated balance sheets of the Company as of March 31,
1997 and December 31, 1996 and the related statements of income for the quarter
ended March 31, 1997 and 1996 include the accounts of H-R Window Supply, Inc.
The results of operations for the quarter ended March 31, 1997 include the
operations of Bishop, however the quarter ended March 31, 1996 shown below are
not included in the Company's operations because Bishop was acquired on
September 30, 1996. The balance sheet accounts of Bishop are included in the
Company's March 31, 1997 and December 31, 1996 consolidated financial
statements. In the opinion of management separate financial statements of the
respective Subsidiary Guarantors would not provide additional material
information which would be useful in assessing the financial composition of the
Subsidiary Guarantors. No single Subsidiary Guarantor 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 described above.
Following is summarized financial information pertaining to these Subsidiary
Guarantors:
H-R Window Supply, Inc.:
<TABLE>
<CAPTION>
March 31, December 31,
1997 1996
-------------------------
<S> <C> <C>
Current assets ................................... $268 $230
Noncurrent assets ................................ -- --
Current liabilities .............................. 167 139
Noncurrent liabilities ........................... -- --
</TABLE>
<TABLE>
<CAPTION>
Quarter Ended March 31,
1997 1996
-------------------------
<S> <C> <C>
Net sales ........................................ $260 $176
Gross profit ..................................... 169 107
Net income from continuing operations ............ 49 27
</TABLE>
7
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Bishop:
<TABLE>
<CAPTION>
March 31, December 31,
1997 1996
-----------------------------
<S> <C> <C>
Current assets ................................... $ 7,763 $ 7,709
Noncurrent assets ................................ 13,233 13,242
Current liabilities .............................. 1,047 996
Noncurrent liabilities ........................... -- --
</TABLE>
<TABLE>
<CAPTION>
Quarter Ended March 31,
1997 1996
-----------------------------
<S> <C> <C>
Net sales ........................................ $ 2,509 $ 2,925
Gross profit ..................................... 940 1,273
Net income from continuing operations ............ (5) 441
</TABLE>
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. As of March 31, 1997, the maximum
amount of Senior Indebtedness the Company and its Subsidiary Guarantors
collectively, and in the aggregate, could incur was $45,000.
8
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ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
FORWARD LOOKING STATEMENTS AND RISK FACTORS
From time to time, the Company issues statements in public filings (including
this Form 10-Q) or press releases, or officers of the Company make public oral
statements with respect to the Company that may be considered forward looking
within the meaning of Section 27A of the Securities Act of 1933 and Section 21E
of the Securities Act of 1934. This Quarterly Report on Form 10-Q contains
certain forward looking statements. Actual results could differ materially
from those projected in the forward-looking statements due to a number of
factors, including but not limited to the demand for new home construction,
interest rates, job formation, migration of the inter/intra-U.S. population,
the competitive environment for the Company's products and services, the
timing of new orders, the degree of market penetration of the Company's new
products and other factors set forth herein or in the Registration Statement
and other documents filed by the Company with the Securities and Exchange
Commission.
RECENT DEVELOPMENTS
On January 15, 1997, the Company experienced a fire at its Extruders facility
located in Wylie, Texas. The fire damaged one of the Company's paint lines
related to the painting of extruded metals. This paint line has been repaired
and is in normal production. The Company has received approximately $1.2
million related to the damaged property and equipment from its respective
insurance carrier. The Company also experienced significant increased costs
related to the fire and related business interruption including: direct labor
in assuring production was complete, additional delivery expense from shipping
to alternative sites, additional scrap related to quality control
inefficiencies, and other inefficient production processes. The Company
maintains business interruption insurance and, accordingly, has made a loss
claim to its respective insurance carrier. The Company has contracted with an
external consulting group to provide assistance in this claim process and on
May 16, 1997 submitted a loss claim for approximately $1.5 million. There can
be no assurances that the Company will recover these amounts, but believes the
submitted claim is reasonable and valid.
RESULTS OF OPERATIONS
The operations of the Company are cyclical in nature and generally result in
significant increases during the peak building season during the second and
third quarters of the year. Accordingly, results of operations for the first
quarter of the Company's fiscal year are not necessarily indicative of results
expected for the full year.
Net Sales. Net sales increased by $4,417 from $33,429 during the 1996 quarter
to $37,846 during the 1997 quarter. The increase was primarily due to sales of
$3,395 at the Bishop, Kel-Star and Woodville divisions, all of which were
acquired in the second half of 1996. Additionally, the Company experienced
slight growth within its core manufacturing divisions, including Atrium Vinyl,
which commenced operations during 1995. The sales increases were partially
offset by decreases at the Company's distribution operations due to the
continued implementation of management's strategy to reduce non-profitable
sales and improve overall margins.
Cost of Sales. Cost of sales decreased from 66.7% (48.6% material and 18.1%
direct manufacturing expense) of sales during the quarter ended March 1996 to
64.9% (44.4% material and 20.5% direct manufacturing expense) of sales during
the 1997 quarter. The decrease is primarily due to decreases in raw material
prices and on-going cost reductions. These decreases were partially offset by
increased
9
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labor due to inefficiencies caused by the January fire at the Extruders
division (See: RECENT DEVELOPMENTS).
Selling, Delivery, General and Administrative Expenses. Selling, delivery,
general and administrative expenses increased $2,594 from $7,512 (which
represented 22.5% of sales during the 1996 quarter) to $10,106 (which
represented 26.7% of sales during the 1997 quarter). Delivery expense
increased $605 from $2,928, 8.8% of sales, to $3,533, 9.3% of sales. The
increase as a percentage of sales is primarily due to shipping inefficiencies
caused by the fire at the Extruders division. General and administrative
expenses increased $1,641 from $2,927, 8.8% of sales, to $4,568, 12.1% of
sales. The increase is due to general and administrative expenses of $834 at
the Bishop, Kel-Star and Woodville divisions, increases in salaries and
benefits related to the costs of additional personnel to support the Company's
growth, an increase in the provision for doubtful accounts due to increased
sales, and amortization expense related to the amortization of software
implementation costs. Selling expenses increased $423 from $1,480, 4.4% of
sales, to $1,903, 5.0% of sales. The increase in amount and as a percentage of
sales was largely due to selling expenses at Bishop, which were $295, 11.7% of
sales.
Interest Expense. Interest expense increased $1,709 from $1,072 during the
quarter ended March 1996 to $2,781 during the 1997 quarter, due largely to an
increase in average outstanding debt. The increase in outstanding debt relates
to the $100,000 Senior Subordinated Notes issued in November 1996.
LIQUIDITY AND CAPITAL RESOURCES
The Company has a $20,000 credit facility with Bankers Trust which expires
March 2002. Borrowings under the credit facility were $622 at March 31, 1997,
excluding outstanding letters of credit, totaling $250. Letters of credit
secure workers compensation benefit payments and certain other obligations.
Because of the seasonal nature of the business, the Company's borrowing
requirements are traditionally highest during the second quarter. At March 31,
1997 the Company had additional borrowing capacity of approximately $19,128.
Cash provided by operations was $159 for the quarter ended March 31, 1997 as
compared to cash provided by operations of $3,187 for the same period in 1996.
The decrease in cash provided by operations in the 1997 quarter was primarily
due to decreased net income from higher interest expense.
Capital expenditures totaled $428 in the quarter ended March 31, 1997, compared
to $205 during the same quarter in 1996. Expenditures in the 1997 period were
primarily used to increase capacity of and further automate its window
manufacturing plants.
10
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PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
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 adverse effect on the
financial position, results of operations or liquidity of the Company.
ITEM 2. CHANGE IN SECURITIES
On February 6, 1997, the Board of Directors of the Registrant's Parent
(Holding) authorized the sale of 100,000 shares of common stock of Holding to a
Director (Stephen M. Humphrey).
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
The Exhibits listed on the accompanying Exhibit Index are filed as
part of this report.
(b) Reports on Form 8-K
During the quarter ended March 31, 1997, Atrium Companies, Inc. filed
no Current Reports on Form 8- K.
SIGNATURES
Pursuant to the requirements of the Securities and Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
Atrium Companies, Inc.
(Registrant)
Date: May 19, 1997 By: /s/ Jeff L. Hull,
Corporate Controller and Secretary
(Principal Financial and
Accounting Officer)
11
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EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT DESCRIPTION
- ------- -----------
<S> <C>
27 - Financial Data Schedule
</TABLE>
12
<TABLE> <S> <C>
<ARTICLE> 5
<CIK> 0001029336
<NAME> ATRIUM COMPANIES, INC.
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> MAR-31-1997
<CASH> 18
<SECURITIES> 487
<RECEIVABLES> 25,885
<ALLOWANCES> 1,290
<INVENTORY> 14,866
<CURRENT-ASSETS> 45,397
<PP&E> 20,859
<DEPRECIATION> 6,965
<TOTAL-ASSETS> 79,879
<CURRENT-LIABILITIES> 19,231
<BONDS> 100,622
0
0
<COMMON> 0
<OTHER-SE> (40,792)
<TOTAL-LIABILITY-AND-EQUITY> 79,879
<SALES> 37,846
<TOTAL-REVENUES> 37,846
<CGS> 24,565
<TOTAL-COSTS> 24,565
<OTHER-EXPENSES> 55
<LOSS-PROVISION> 273
<INTEREST-EXPENSE> 2,781
<INCOME-PRETAX> 339
<INCOME-TAX> 128
<INCOME-CONTINUING> 211
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 211
<EPS-PRIMARY> 0
<EPS-DILUTED> 0
</TABLE>
