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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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FORM 8-K
CURRENT REPORT
PURSUANT TO SECTION 13 OR 15(D)
OF THE SECURITIES EXCHANGE ACT OF 1934
DATE OF REPORT (DATE OF EARLIEST EVENT REPORTED): MARCH 27, 1998
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ATRIUM COMPANIES, INC.
(Exact name of Registrant as specified in its charter)
DELAWARE 333-20095 75-2642488
(State or other (Commission File Number) (I.R.S. Employer
jurisdiction of incorporation) Identification Number)
1341 W. MOCKINGBIRD LANE
SUITE 1200W 75247
DALLAS, TEXAS (Zip code)
(Address of principal
executive offices)
Registrant's telephone number, including area code: (214) 630-5757
N/A
(former address if changed since last report)
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ITEM 2. ACQUISITION OR DISPOSITION OF ASSETS
On March 4, 1998, Atrium Companies, Inc. (the "Company") signed an
agreement to purchase substantially all of the assets of Masterview Window
Company, L.L.C. (the "Acquisition"), a privately held aluminum window and door
company located in Phoenix, Arizona. The purchase price for the Acquisition,
which closed on March 27, 1998, was approximately $25.7 million. The Company
financed the Acquisition with funds borrowed under a new amended and restated
credit agreement provided by Bankers Trust Company. $17.5 million of the
purchase price was borrowed under a term loan issued under the new credit
agreement and $10.0 million, representing the remaining $8.2 million of the
purchase price and approximately $1.8 million for transaction fees and expenses,
were drawn under a $20.0 million revolving credit line provided under the new
credit agreement. The term of the amended and restated credit agreement is six
years expiring March 2004.
ITEM 5. OTHER EVENTS
In connection with the Acquisition, the Company entered into an amended
and restated credit agreement (the "Credit Agreement") dated as of March 27,
1998, providing for borrowing in the amounts described in Item 2. above. Annual
unused commitment fees are currently 0.5% of the unborrowed portion of the $20.0
million revolving credit facility. Borrowing rates are based upon the lender's
prime rate plus a margin of 1.25% or a Eurodollar-based rate plus a margin of
2.25%. The term credit facility is payable in equal quarterly installments
aggregating $1.2 million in 1998, $2.2 million in 1999, $3.0 million in 2000,
$3.2 million in 2001, $3.4 million in 2002, and $3.6 million in 2003, with the
remaining payment of $900,000 due and payable on March 31, 2004.
The Company is required to make mandatory prepayments of the term loan
and, after repayment in full of the term loans, reductions of the revolving
credit commitments (along with a corresponding repayment of revolving loans in
excess of the reduced commitment), at times and subject to certain exceptions,
in respect of (a) 100% of the net proceeds of issuances of equity and debt,
sales of assets, and condemnations and casualty proceeds, and (b) with respect
to the term loans only, 75% of excess cash flow (subject to reductions to 50%
based on the Company meeting a certain leverage ratio).
The revolving credit facility terminates on March 31, 2004. The term
credit facility also terminates on March 31, 2004. At March 31, 1998, the
Company had approximately $9.2 million of availability under the revolving
credit facility, net of outstanding borrowings of $10.0 million and
outstanding letters of credit in the aggregate amount of $0.8 million and no
availability under the term credit facility.
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Item 7. Financial Statements and Exhibits
(a) Financial Statements of Business Acquired
Report of Independent Accountants (see page 4)
Statement of Financial Position as of December 31, 1997 (see page 5)
Statement of Operations for the year ended December 31, 1997 (see
page 6)
Statement of Changes in Members' Equity for the year ended December
31, 1997 (see page 7)
Statement of Cash Flows for the year ended December 31, 1997 (see
page 8)
Notes to Financial Statements (see page 9)
(b) Pro Forma Financial Information
It is currently impracticable to provide the pro forma financial
information required by Article 11 of Regulation S-X. This pro forma
financial information will be filed as soon as it is available, but
not later than June 12, 1998.
(c) Exhibits
*2.1 Asset Purchase Agreement dated as of March 4, 1998, among
Masterview Window Company, L.L.C., Atrium Companies, Inc.
and, for the limited purposes set forth therein, BancBoston
Ventures, Inc.
*99.1 Amended and Restated Credit Agreement dated as of March 27,
1998 by and among Atrium Corporation, Atrium Companies,
Inc., the Banks party thereto and Bankers Trust Company, as
Agent.
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* Filed herewith
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REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors and Members of
Masterview Window Company, L.L.C.
We have audited the accompanying statement of financial position of Masterview
Window Company, L.L.C. as of December 31, 1997, and the related statements of
operations, changes in members' equity, and cash flows for the year ended
December 31, 1997. These financial statements are the responsibility of the
Company's management. Our responsibility is to express an opinion on these
financial statements based on our audit.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and the significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audit provides a reasonable basis
for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Masterview Window Company,
L.L.C. as of December 31, 1997 and the results of its operations and its
cash flows for the year ended December 31, 1997, in conformity with generally
accepted accounting principles.
COOPERS & LYBRAND, L.L.P.
Phoenix, Arizona
March 9, 1998
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MASTERVIEW WINDOW COMPANY, L.L.C.
STATEMENT OF FINANCIAL POSITION
December 31, 1997
1997
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ASSETS
Cash and cash equivalents .................................... $ 4,400
Restricted cash .............................................. 208,850
Trade accounts receivable, net of allowance for doubtful
accounts of $43,389 ........................................ 3,298,606
Inventories, net ............................................. 1,665,458
Prepaids and other current assets ............................ 77,864
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Total current assets ............................... 5,255,178
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Property and equipment, net .................................. 2,767,428
Goodwill, net ................................................ 9,857,552
Deferred financing costs, net ................................ 155,930
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Total assets ....................................... $18,036,088
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LIABILITIES AND MEMBERS' EQUITY
Accounts payable ............................................. $ 1,598,178
Accrued liabilities .......................................... 602,448
Bank overdraft ............................................... 182,613
Current maturities of long-term debt ......................... 800,000
Deferred revenue ............................................. 381,073
Other current liabilities .................................... 16,842
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Total current liabilities .......................... 3,581,154
Long-term debt ............................................... 6,408,974
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Total liabilities .................................. 9,990,128
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MEMBERS' EQUITY
Class A units, 3,210 units authorized, issued
and outstanding ........................................ 3,210,000
Class B units, 45,161.3 units authorized, issued, and
outstanding ............................................ 4,835,960
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8,045,960
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Total liabilities and members' equity .............. $18,036,088
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The accompanying notes are an integral part of these financial statements.
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MASTERVIEW WINDOW COMPANY, L.L.C.
STATEMENT OF OPERATIONS
for the year ended December 31, 1997
1997
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Sales ...................................................... $25,007,188
Cost of Sales .............................................. 19,055,655
-----------
Gross profit ............................................. 5,951,533
Selling, general and administrative expenses ............... 2,375,036
-----------
Income from operations ..................................... 3,576,497
Interest expense ........................................... 738,409
Other expenses ............................................. 61,928
Amortization expense ....................................... 738,778
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Net income ............................................... $ 2,037,382
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The accompanying notes are an integral part of these financial statements.
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MASTERVIEW WINDOW COMPANY, L.L.C.
STATEMENT OF CHANGES IN MEMBERS' EQUITY
for the year ended December 31, 1997
CLASS A CLASS B
MEMBERS MEMBERS TOTAL
----------- ----------- -----------
Balance, December 31, 1996 ............. $ 3,045,459 $ 3,586,766 $ 6,632,225
Net income ............................. 282,302 1,755,080 2,037,382
Distributions to members ............... (117,761) (505,886) (623,647)
----------- ----------- -----------
Balance, December 31, 1997 ............. $ 3,210,000 $ 4,835,960 $ 8,045,960
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The accompanying notes are an integral part of these financial statements.
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MASTERVIEW WINDOW COMPANY, L.L.C.
STATEMENT OF CASH FLOWS
for the year ended December 31, 1997
1997
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Cash flows from operating activities:
Net income .................................................... $ 2,037,382
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization .......................... 1,064,353
Loss on disposal of property and equipment ............. 17,625
Change in operating assets and liabilities, net:
Accounts receivable ................................. (78,844)
Inventories ......................................... 379,789
Prepaids and other current assets ................... 207,586
Accounts payable .................................... (415,361)
Accrued liabilities ................................. (896,224)
Deferred revenue .................................... 25,983
Other current liabilities ........................... (20,462)
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Net cash provided by operating activities ..... 2,321,827
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Cash flows from investing activities:
Purchase of property and equipment ............................ (220,883)
Sale of property and equipment ................................ 26,877
Decrease (increase) in restricted cash ........................ 83,420
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Net cash used in investing activities ......... (110,586)
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Cash flows from financing activities:
Bank overdrafts ............................................... 124,344
Proceeds from long-term debt .................................. 24,157,553
Repayments of long-term debt .................................. (25,867,041)
Distributions to members ...................................... (623,647)
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Net cash used in financing activities ......... (2,208,791)
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Net increase in cash ............................................ 2,450
Cash at beginning of period ..................................... 1,950
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Cash at end of period ........................................... $ 4,400
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Supplemental disclosure of cash flow information:
Cash paid during the period for interest ...................... $ 738,769
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The accompanying notes are an integral part of these financial statements.
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MASTERVIEW WINDOW COMPANY, L.L.C.
NOTES TO FINANCIAL STATEMENTS
1. NATURE OF BUSINESS AND ORGANIZATION:
Masterview Window Company, L.L.C. (the "Company") is engaged in the
manufacture and distribution of windows for residential construction. The
Company sells windows primarily to large home-builders in Arizona, Nevada, and
Southern California.
The Company was formed as a limited liability company on October 30,
1996 pursuant to the provisions of Section 18-101 of the Delaware Limited
Liability Company Act ("the Act") to acquire substantially all of the assets and
liabilities of Publicker Industries, Inc.'s ("Publicker") wholly-owned
subsidiary, Masterview Window Company, Inc., on October 31, 1996. The
acquisition has been accounted for as a purchase. The purchase price has been
allocated to the assets acquired and liabilities assumed based on their fair
values at the date of purchase in accordance with APB 16, Business Combinations.
The excess of the purchase price over the fair value of the net assets acquired
has been allocated to goodwill.
2. MEMBERSHIP INTERESTS:
The Company has two classes of members, holders of Class A units and
Class B units. The Class A units are non-voting units with a liquidation value
of $1,000 per unit. Class A units are entitled to preferential distributions
which accrue at 9% per annum of the liquidation value, payable on the last day
of each fiscal quarter. If prohibited by a financing agreement, the preferential
distributions are to be paid through the issuance of additional Class A units.
During 1997, 282,302 additional Class A units were issued as a preferential
distribution. All Class A units are redeemable on October 31, 2001, at the
liquidation value plus any accrued and unpaid preferential distributions.
Class B units have full voting rights. Net income and losses on these
units are allocated to the members based on each member's percentage ownership
interest in the Company. Class B Minority Members [as defined in Masterview's
Limited Liability Company Agreement (the "Agreement")] may elect, after seven
years, to have their shares repurchased at the then current fair market value as
determined by an independent appraisal.
Each member's liability for the debts and obligations of the Company is
limited as set forth in the Agreement. The term of the Company commenced on
October 31, 1996 and shall continue until December 31, 2046, unless dissolved
before such date in accordance with the provisions of the Agreement.
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MASTERVIEW WINDOW COMPANY, L.L.C.
NOTES TO FINANCIAL STATEMENTS
(CONTINUED)
3. SIGNIFICANT ACCOUNTING POLICIES:
USE OF ESTIMATES
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
INVENTORIES
Inventories are valued at the lower of cost or market, with cost
determined by the first-in, first-out (FIFO) method.
PROPERTY AND EQUIPMENT
Property and equipment is stated at cost and is being depreciated using
the straight-line method over the estimated useful lives of the related assets
which are as follows:
Buildings and improvements 7 to 24 years
Machinery and equipment 5 years
Transportation equipment 3 years
Furniture and fixtures 7 years
Maintenance and repairs are expensed as incurred. Costs of assets sold,
retired, or abandoned and the related accumulated depreciation are eliminated
from the appropriate accounts in the year of disposition, and the resulting gain
or loss is included in income.
GOODWILL
The excess of the purchase price over the fair value of the net assets
acquired is being amortized using the straight-line method over 15 years. The
Company periodically assesses the recoverability of goodwill based on the
expected future undiscounted operating cash flows of the related assets.
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MASTERVIEW WINDOW COMPANY, L.L.C.
NOTES TO FINANCIAL STATEMENTS
(CONTINUED)
DEFERRED FINANCING COSTS
Financing costs related to the acquisition of debt are deferred and
amortized over the term of the related debt using the effective interest method.
DEFERRED REVENUE
Amounts relating to the installation of glass doors and window screens
are billed in advance and deferred until the installation process is complete.
INCOME TAXES
The Company, as a L.L.C., is classified as a partnership for federal
and state income tax purposes with income or loss accruing directly to the
members. Accordingly, no provisions or credits for federal or state income taxes
are reflected in these financial statements.
RECLASSIFICATION
Certain amounts presented in the prior year have been reclassified to
conform with the current year presentation.
4. CONCENTRATIONS OF CREDIT RISK:
Financial instruments which potentially subject the Company to
concentrations of credit risk consist of cash and trade accounts receivable. The
Company places its cash with high credit quality financial institutions. At
times, such cash balances may be in excess of the FDIC insurance limit.
The Company performs ongoing credit evaluations within the context of
the industry in which it operates and maintains reserves for potential credit
losses on customer accounts when deemed necessary. During the year ended
December 31, 1997, two customers accounted for 37% of the Company's revenues.
At December 31, 1997, two customers accounted for 28% of the Company's
receivables.
The Company is a regional manufacturer of windows with market
concentration in the residential construction industry. The Company's business
is, therefore, dependent upon economic activity within Arizona, Nevada, and
Southern California.
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MASTERVIEW WINDOW COMPANY, L.L.C.
NOTES TO FINANCIAL STATEMENTS
(CONTINUED)
5. INVENTORIES:
Inventories consist of the following:
DECEMBER 31,
1997
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Raw materials ............................... $ 1,379,958
Work-in-process ............................. 80,500
Finished goods .............................. 205,000
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$ 1,665,458
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6. PROPERTY AND EQUIPMENT:
Property and equipment consist of the following:
DECEMBER 31,
1997
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Land ........................................ $ 507,000
Buildings and improvements .................. 1,309,000
Machinery and equipment ..................... 931,238
Transportation equipment .................... 324,336
Furniture and fixtures ...................... 65,500
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3,137,074
Less accumulated depreciation ............... (369,646)
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$ 2,767,428
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7. GOODWILL:
Goodwill consists of the following:
DECEMBER 31,
1997
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Goodwill .................................... $ 10,688,914
Less accumulated amortization ............... (831,362)
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$ 9,857,552
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MASTERVIEW WINDOW COMPANY, L.L.C.
NOTES TO FINANCIAL STATEMENTS
(CONTINUED)
8. DEFERRED FINANCING COSTS
Deferred financing costs consist of the following:
DECEMBER 31,
1997
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Deferred financing costs ......................... $ 203,388
Less accumulated amortization .................... (47,458)
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$ 155,930
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9. CREDIT FACILITY:
On October 31, 1996, the Company entered into a Loan and Security
Agreement with Fleet Capital Corporation (the "credit facility") which expires
on October 31, 2001. The credit facility provides for an initial term loan of
$7.2 million and a revolving line of credit. The revolving line of credit allows
for borrowings up to $3.0 million, less the amount by which the term loan
exceeds $7.0 million, and is based upon a borrowing base of eligible accounts
receivable and inventory. The credit facility is collateralized by substantially
all of the Company's assets. The revolving line of credit bears interest (at the
option of the Company) at the bank's prime rate plus 1.25% or a LIBOR Rate (as
defined in the credit facility) plus 2.5%. The term loan bears interest (at the
option of the Company) at the bank's prime rate plus 1.5% or a LIBOR Rate (as
defined in the credit facility) plus 2.75%. A commitment fee equal to .5% per
annum on the average monthly unused balance of the revolving line of credit is
also payable by the Company. Availability under the revolving line of credit was
$2,271,026 at December 31, 1997.
The credit facility agreement requires all amounts collected from trade
receivables to be held in a restricted cash account to be applied against the
credit facility.
The credit facility agreement contains covenants which limit the
Company's ability to incur additional indebtedness, pay distributions, and make
capital expenditures and requires the Company to maintain a minimum net worth
and certain financial ratios as defined in the credit facility.
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MASTERVIEW WINDOW COMPANY, L.L.C.
NOTES TO FINANCIAL STATEMENTS
(CONTINUED)
Outstanding balances on the credit facility were as follows:
DECEMBER 31,
1997
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Revolving line of credit .................... $ 728,974
Term loan ................................... 6,480,000
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7,208,924
Less current maturities ..................... 800,000
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$ 6,408,974
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The annual amount of principal maturities of long-term debt outstanding
at December 31, 1997 are as follows:
1998 ........................................ $ 800,000
1999 ........................................ 1,050,000
2000 ........................................ 1,250,000
2001 ........................................ 1,500,000
2002 ........................................ 2,608,974
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$ 7,208,974
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10. EMPLOYEE BENEFIT PLAN:
The Company has a 401(k) defined contribution plan for all eligible
employees. Eligible employees may contribute up to 15% of their annual salary
within certain limitations. The Company makes matching contributions equal to
25% of the first 6% contributed by the employee. Participants are immediately
vested in their voluntary contributions and vest 100% in the Company's
contributions after two years. The Company contributed $27,079 for the year
ended December 31, 1997.
11. UNIT OPTIONS:
On October 31, 1996, the Company granted options for 950.8 Class B
units to three officers of the Company. The options were granted with an
exercise price of $100 which was the estimated fair market price on the grant
date and may be exercised only within ten years from the date of grant. The
option agreements call for the options to be vested ratably over a five-year
period and have a weighted average grant date fair value of $26.175.
On October 31, 1996, the Company also granted options for 950.8 Class B
units to three officers of the company to be vested over a five-year period if
the actual EBITDA (as defined) is 90% or more of the budgeted EBITDA (as
defined) in each of the five years. The options were
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MASTERVIEW WINDOW COMPANY, L.L.C.
NOTES TO FINANCIAL STATEMENTS
(CONTINUED)
granted with an exercise price of $100 which was the estimated fair market price
on the grant date. The weighted average grant date fair value was $26.175.
All of the outstanding options have a weighted average remaining
contractual life of 108 months at December 31, 1997. At December 31, 1997,
380.32 options were vested.
The Company has adopted the disclosure-only provisions of SFAS No. 123,
Accounting for Stock-Based Compensation. Accordingly, no compensation cost has
been recognized for the unit option plan. Had the Company elected to adopt the
recognition provision of SFAS No. 123, net income would have been reduced by
$9,954 for the year ended December 31, 1997.
The fair value of options granted in 1996 was estimated using the
Black-Scholes option pricing model with the following weighted-average
assumptions: risk-free interest rate of 6.07%, expected life of five years, and
no expected dividends.
12. COMMITMENTS:
The Company leases certain machinery and equipment under operating
leases. Certain of these leases contain renewal provisions and purchase options.
At December 31, 1997, the future minimum lease payments under
noncancelable operating leases are as follows:
YEAR OPERATING
- ---- ------------
1998 ........................................ $ 176,112
1999 ........................................ 175,774
2000 ........................................ 174,084
2001 ........................................ 167,993
2002 ........................................ 77,593
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$ 771,556
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Rental expense under noncancelable operating leases totaled $152,202
for the year ended December 31, 1997.
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MASTERVIEW WINDOW COMPANY, L.L.C.
NOTES TO FINANCIAL STATEMENTS
(CONTINUED)
13. SUBSEQUENT EVENTS:
ACQUISITION BY ATRIUM COMPANIES, INC.
On March 4, 1998, the Company entered into an agreement to be acquired
by Atrium Companies, Inc. ("Atrium"). The agreement calls for the Company to
sell substantially all of its assets and for Atrium to acquire certain
liabilities. The total purchase price will be approximately $25,500,000.
Completion of the acquisition, which is expected to occur by the end of March
1998, is contingent on customary conditions, including the successful cash
tender offer and expiration or termination of the Hart-Scott-Rodino Act waiting
period requirements. The Company will use the proceeds from the sale to repay
the credit facility. As a condition of the credit facility, a finance charge of
$102,000 will be incurred by the Company for the early retirement of the
obligations.
MEMBER DISTRIBUTION
On January 12, 1998, a cash distribution to members of $316,537 was
made for the payment of taxes on earnings generated during the fourth quarter of
1997.
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SIGNATURES
Pursuant to the requirements of the Securities 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.
By: /s/ JEFF L. HULL
--------------------------------------------
Name: Jeff L. Hull
Title: Chief Financial Officer and Secretary
Date: April 13, 1998
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INDEX TO EXHIBITS
EXHIBIT
NUMBER
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*2.1 Asset Purchase Agreement dated as of March 4, 1998, among
Masterview Window Company, L.L.C., Atrium Companies, Inc.
and, for the limited purposes set forth therein, BancBoston
Ventures, Inc.
*99.1 Amended and Restated Credit Agreement dated as of March 27,
1998 by and among Atrium Corporation, Atrium Companies,
Inc., the Banks party thereto and Bankers Trust Company, as
Agent.
- ----------------------
*Filed herewith