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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
(MARK ONE)
(X) QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 1998
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OR
( ) TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from to
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Commission File Number: 333-20095
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ATRIUM COMPANIES, INC.
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(Exact name of registrant as specified in its charter)
DELAWARE 75-2642488
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(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
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(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 X No
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ATRIUM COMPANIES, INC.
FORM 10-Q
QUARTER ENDED JUNE 30, 1998
INDEX
Page
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PART I. FINANCIAL INFORMATION
Item 1. Consolidated Financial Statements (Unaudited):
Consolidated Balance Sheets as of June 30, 1998 and December 31, 1997...........................3
Consolidated Statements of Operations for the Three and Six Months Ended
June 30, 1998 and 1997........................................................................4-5
Consolidated Statements of Comprehensive Income for the Three and Six Months
Ended June 30, 1998 and 1997..................................................................6-7
Consolidated Statement of Stockholders Equity (Deficit) for the Six Months
Ended June 30, 1998.............................................................................8
Consolidated Statements of Cash Flows for the Six Months Ended June 30, 1998 and 1997...........9
Notes to Consolidated Financial Statements..................................................10-13
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations...................................................................14-15
PART II. OTHER INFORMATION
Item 1. Legal Proceedings..............................................................................16
Items 2, 3, 4 and 5 are not applicable
Item 6. Exhibits and Reports on Form 8-K...............................................................16
Signatures..............................................................................................16
Exhibit Index...........................................................................................17
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ATRIUM COMPANIES, INC.
CONSOLIDATED BALANCE SHEETS
(DOLLARS IN THOUSANDS, EXCEPT SHARE AMOUNTS)
JUNE 30, DECEMBER 31,
1998 1997
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ASSETS (UNAUDITED)
CURRENT ASSETS:
Cash and cash equivalents .................................. $ 1 $ 1
Equity securities - available for sale ..................... 113 27
Accounts receivable, net ................................... 34,005 24,376
Inventories ................................................ 19,091 16,534
Prepaid expenses and other current assets .................. 988 1,608
Deferred tax asset ......................................... 692 692
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Total current assets .................................... 54,890 43,238
PROPERTY, PLANT, AND EQUIPMENT, net ............................. 18,540 16,388
GOODWILL, net ................................................... 37,550 14,884
DEFERRED FINANCING COSTS, net ................................... 5,143 4,961
OTHER ASSETS .................................................... 4,067 3,904
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Total assets ............................................ $ 120,190 $ 83,375
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LIABILITIES AND STOCKHOLDER'S EQUITY (DEFICIT)
CURRENT LIABILITIES:
Current portion of notes payable ........................... $ 1,900 $ --
Accounts payable ........................................... 17,350 10,007
Accrued liabilities ........................................ 8,122 7,102
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Total current liabilities ............................... 27,372 17,109
LONG-TERM LIABILITIES:
Notes payable .............................................. 123,058 100,000
Deferred tax liability ..................................... 1,058 1,058
Other long-term liabilities ................................ 300 --
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Total long-term liabilities .......................... 124,416 101,058
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Total liabilities .................................... 151,788 118,167
COMMITMENTS AND CONTINGENCIES
STOCKHOLDER'S EQUITY (DEFICIT):
Common stock $.01 par value, 3,000 shares authorized,
100 shares issued and outstanding ....................... -- --
Paid-in capital ............................................ 33,512 32,790
Accumulated deficit ........................................ (65,117) (67,503)
Accumulated other comprehensive income ..................... 7 (79)
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Total stockholder's deficit .......................... (31,598) (34,792)
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Total liabilities and stockholder's deficit .... $ 120,190 $ 83,375
========== ==========
The accompanying notes are an integral part of the
consolidated financial statements.
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ATRIUM COMPANIES, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE THREE MONTHS ENDED JUNE 30, 1998 AND 1997
(DOLLARS IN THOUSANDS)
(UNAUDITED)
1998 1997
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NET SALES ....................................................... $ 63,813 $ 47,431
COST OF GOODS SOLD .............................................. 41,796 29,814
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Gross profit ................................................ 22,017 17,617
OPERATING EXPENSES:
Selling, delivery, general and administrative expenses ...... 13,169 10,761
Stock option compensation expense ........................... 106 151
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13,275 10,912
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Income from operations ................................. 8,742 6,705
INTEREST EXPENSE ................................................ 3,379 2,813
OTHER INCOME (EXPENSE), net ..................................... (279) 1,092
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Income before income taxes ............................. 5,084 4,984
PROVISION FOR INCOME TAXES ...................................... 1,750 1,758
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NET INCOME ...................................................... $ 3,334 $ 3,226
========== ==========
The accompanying notes are an integral part of the
consolidated financial statements.
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ATRIUM COMPANIES, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE SIX MONTHS ENDED JUNE 30, 1998 AND 1997
(DOLLARS IN THOUSANDS)
(UNAUDITED)
1998 1997
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NET SALES ................................................... $ 106,482 $ 85,277
COST OF GOODS SOLD .......................................... 70,526 54,379
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Gross profit ............................................ 35,956 30,898
OPERATING EXPENSES:
Selling, delivery, general and administrative expenses .. 24,377 20,815
Stock option compensation expense ....................... 447 203
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24,824 21,018
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Income from operations ............................. 11,132 9,880
INTEREST EXPENSE ............................................ 6,241 5,594
OTHER INCOME (EXPENSE), net ................................. (223) 1,037
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Income before income taxes ......................... 4,668 5,323
PROVISION FOR INCOME TAXES .................................. 1,711 1,886
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NET INCOME .................................................. $ 2,957 $ 3,437
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The accompanying notes are an integral part of the
consolidated financial statements.
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ATRIUM COMPANIES, INC.
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
FOR THE THREE MONTHS ENDED JUNE 30, 1998 AND 1997
(DOLLARS IN THOUSANDS)
(UNAUDITED)
1998 1997
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Net income ........................................................... $ 3,334 $ 3,226
Other comprehensive income:...........................................
Unrealized gains on securities:...................................
Unrealized holding gains (losses) arising during the period ... 31 (19)
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Comprehensive income ............................................. $ 3,365 $ 3,207
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The accompanying notes are an integral part of the
consolidated financial statements.
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ATRIUM COMPANIES, INC.
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
FOR THE SIX MONTHS ENDED JUNE 30, 1998 AND 1997
(DOLLARS IN THOUSANDS)
(UNAUDITED)
1998 1997
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Net income ................................................. $ 2,957 $ 3,437
Other comprehensive income:.................................
Unrealized gains on securities:.........................
Unrealized holding gains arising during the period .. 86 10
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Comprehensive income ................................... $ 3,043 $ 3,447
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The accompanying notes are an integral part of the
consolidated financial statements.
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ATRIUM COMPANIES, INC.
CONSOLIDATED STATEMENT OF
STOCKHOLDER'S EQUITY (DEFICIT)
FOR THE SIX MONTHS ENDED JUNE 30, 1998
(DOLLARS IN THOUSANDS, EXCEPT SHARE AMOUNTS)
(UNAUDITED)
ACCUMULATED
COMMON STOCK OTHER TOTAL
------------------------ PAID-IN ACCUMULATED COMPREHENSIVE STOCKHOLDER'S
SHARES AMOUNT CAPITAL DEFICIT INCOME DEFICIT
---------- ---------- ---------- ---------- ---------- ----------
Balance, December 31, 1997 ............. 100 $ -- $ 32,790 $ (67,503) $ (79) $ (34,792)
Contributions from Holding .......... -- -- 275 -- -- 275
Distributions to Holding ............ -- -- -- (571) -- (571)
Stock option compensation expense ... -- -- 447 -- -- 447
Other comprehensive income .......... -- -- -- -- 86 86
Net income .......................... -- -- -- 2,957 -- 2,957
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Balance, June 30, 1998 ................. 100 $ -- $ 33,512 $ (65,117) $ 7 $ (31,598)
========== ========== ========== ========== ========== ==========
The accompanying notes are an integral part of the
consolidated financial statements.
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ATRIUM COMPANIES, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE SIX MONTHS ENDED JUNE 30, 1998 AND 1997
(DOLLARS IN THOUSANDS)
(UNAUDITED)
1998 1997
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CASH FLOWS FROM OPERATING ACTIVITIES:
Net income ............................................................ $ 2,957 $ 3,437
Adjustments to reconcile net income to net cash provided by operating
activities:
Depreciation and amortization ...................................... 2,154 1,533
Amortization of deferred financing costs ........................... 326 322
Stock option compensation expense .................................. 447 203
Gain on retirement of assets ....................................... (37) (9)
Gain on sale of equity securities .................................. -- (2)
Deferred tax provision ............................................. -- 214
Changes in assets and liabilities, net of acquisition in 1998:
Accounts receivable, net .......................................... (6,531) (4,824)
Inventories ....................................................... (922) (6,245)
Prepaid expenses and other current assets ......................... 818 (122)
Accounts payable .................................................. 3,838 3,575
Accrued liabilities ............................................... (299) 1,009
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Net cash provided by (used in) operating activities .......... 2,751 (909)
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CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of property, plant and equipment ............................ (877) (1,259)
Proceeds from sale of assets .......................................... 56 11
Purchases of equity securities ........................................ -- (480)
Proceeds from sale of equity securities ............................... -- 375
Payment for acquisition, net of cash acquired ......................... (26,780) --
Increase in other assets .............................................. (1,082) (1,168)
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Net cash used in investing activities ............................. (28,683) (2,521)
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CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from issuance of note payable ................................ 17,500 --
Payment on note payable ............................................... (400) --
Net borrowings under revolving credit facility ........................ 7,858 2,447
Checks drawn in excess of bank balances ............................... 1,777 807
Deferred financing costs .............................................. (507) (419)
Contributions from Holding ............................................ 275 196
Distributions to Holding .............................................. (571) (110)
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Net cash provided by financing activities ......................... 25,932 2,921
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NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS ...................... -- (509)
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD ............................. 1 617
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CASH AND CASH EQUIVALENTS, END OF PERIOD ................................... $ 1 $ 108
========== ==========
SUPPLEMENTAL DISCLOSURE:
Cash paid (received) during the period for:
Interest .......................................................... $ 5,795 $ 4,915
Income taxes, net of refunds ...................................... (209) (1,229)
The accompanying notes are an integral part of the
consolidated financial statements.
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ATRIUM COMPANIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 1998 AND 1997
(DOLLARS IN THOUSANDS, EXCEPT SHARE AMOUNTS)
(UNAUDITED)
1. BASIS OF PRESENTATION:
The unaudited consolidated results of operations of Atrium Companies, Inc. (the
"Company") for the three months and six months ended June 30, 1998 and 1997,
cash flows for the six months ended June 30, 1998 and 1997 and financial
position as of June 30, 1998 and December 31, 1997 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, 1997, 1996 and 1995 included in the Company's Form 10-K as
filed with the Securities and Exchange Commission on March 30, 1998. 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 to 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 as other
comprehensive income in stockholder's 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:
JUNE 30, DECEMBER 31,
1998 1997
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Raw materials ........... $ 15,293 $ 13,653
Work-in-process ......... 681 705
Finished goods .......... 4,456 4,056
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20,430 18,414
LIFO reserve ............ (1,339) (1,880)
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$ 19,091 $ 16,534
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4. NOTES PAYABLE:
Notes payable consisted of the following:
JUNE 30, DECEMBER 31,
1998 1997
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Senior subordinated notes .............. $ 100,000 $ 100,000
Senior term loan facility .............. 17,100 --
Revolving credit facility .............. 7,858 --
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124,958 100,000
Current portion of notes payable ....... 1,900 --
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$ 123,058 $ 100,000
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In connection with the acquisition of Masterview Window Company, LLC (the
"Acquisition"), the Company entered into an amended and restated credit
agreement (the "Credit Agreement") with Bankers Trust Company, dated as of March
27, 1998. The Credit Agreement provided for a $17,500 senior term loan facility
and a $20,000 revolving credit facility (collectively, the "Credit Facility").
Annual unused commitment fees are 0.5% of the unborrowed portion of the $20,000
revolving credit facility. Borrowing rates are based upon the lender's prime
rate plus a margin of 1.25% or a Euro-dollar based rate plus a margin of 2.25%.
The term loan is payable in equal quarterly installments aggregating $1,200 in
1998, $2,200 in 1999, $3,000 in 2000, $3,200 in 2001, $3,400 in 2002, $3,600 in
2003, with the remaining payment of $900 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 loan, 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 Credit Facility terminates on
March 31, 2004.
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 (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. ACQUISITIONS:
MASTERVIEW ASSET PURCHASE:
On March 27, 1998, through its newly-formed subsidiary, Atrium Door and Window
Company of Arizona ("ADW-Arizona"), the Company acquired substantially all of
the assets of Masterview Window Company, LLC ("Masterview"), a privately held
window and door company located in Phoenix, Arizona, for
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approximately $26,800 including fees and other transaction expenses. The Company
financed the Acquisition through its Credit Facility, which included a $17,500
senior term loan with the remainder of the purchase price of approximately
$9,300 being drawn from the $20,000 revolving credit facility.
The Acquisition has been accounted for as a purchase in accordance with
Accounting Principles Board Opinion No. 16, "Business Combinations." 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, with the remainder allocated to goodwill. The purchase price
allocation, preliminary in nature and subject to change, is as follows:
Cash and cash equivalents.................................... $ 3
Accounts receivable, net..................................... 3,099
Inventories.................................................. 1,635
Prepaid expenses and other current assets.................... 206
Property, plant and equipment, net........................... 2,702
Goodwill..................................................... 22,485
Current liabilities.......................................... (3,047)
Long-term liabilities........................................ (300)
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Total purchase price................................... $ 26,783
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The Company's Consolidated Statements of Operations for the three months and six
months ended June 30, 1998 and 1997 include the operations of Atrium Door and
Window Company-West Coast ("ADW-West Coast") and ADW-Arizona from the dates of
acquisition, July 1, 1997 and March 27, 1998, respectively. The following table
presents the historical consolidated operating results of the Company for the
three months and six months ended June 30, 1998 and 1997, compared to pro forma
operating results for such periods. The following unaudited pro forma
information presents consolidated operating results as though the acquisitions
of ADW-West Coast and ADW-Arizona had occurred at the beginning of the periods
presented:
Three Months Ended Three Months Ended
June 30, 1998 June 30, 1997
------------------------------ ------------------------------
Actual Pro Forma Actual Pro Forma
----------- ----------- ----------- -----------
Net sales................... $ 63,813 $ 63,813 $ 47,431 $ 57,302
Net income.................. 3,334 3,334 3,226 3,719
Six Months Ended Six Months Ended
June 30, 1998 June 30, 1997
------------------------------ ------------------------------
Actual Pro Forma Actual Pro Forma
----------- ----------- ----------- -----------
Net sales................... $ 106,482 $ 112,701 $ 85,277 $ 104,208
Net income.................. 2,957 3,087 3,437 4,018
7. SUBSIDIARY GUARANTORS:
In connection with the issuance of the Senior Subordinated Notes (the "Notes"),
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: Atrium Door and Window Company of the Northeast
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("ADW-Northeast"), ADW-West Coast and ADW-Arizona (collectively, the Subsidiary
Guarantors). The Company has no non-guarantor direct or indirect subsidiaries.
The operations related to the assets of ADW-West Coast and ADW-Arizona are
included since July 1, 1997 and March 27, 1998, respectively, the dates of
acquisition. 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.
Following is summarized combined financial information pertaining to these
Subsidiary Guarantors:
June 30, December 31,
1998 1997
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Current assets............................................. $ 17,067 $ 12,399
Noncurrent assets.......................................... 42,251 17,148
Current liabilities........................................ 3,457 1,906
Noncurrent liabilities..................................... 300 -
Three Months Ended June 30,
----------------------------------
1998 1997
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Net sales.................................................. $ 12,711 $ 3,425
Gross profit............................................... 4,551 1,432
Net income from continuing operations...................... 1,034 270
Six Months Ended June 30,
----------------------------------
1998 1997
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Net sales.................................................. $ 17,040 $ 6,194
Gross profit............................................... 6,118 2,541
Net income from continuing operations...................... 996 314
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, 1998, the maximum
amount of Senior Indebtedness the Company and its Subsidiary Guarantors
collectively, and in the aggregate, could incur was $45,000.
8. SUBSEQUENT EVENT:
Atrium Corporation ("Holding"), parent company of Atrium Companies, Inc.,
entered into an Agreement and Plan of Merger (the "Merger Agreement"), dated as
of August 3, 1998, by and among D and W Holdings, Inc. ("Parent"), D and W
Acquisition Corp. ("Sub") and the Securityholders named therein, pursuant to
which Sub would merge with and into Holding and Holding would become a
wholly-owned subsidiary of Parent (the "Merger"). The Parent and Sub are both
newly formed companies of Ardshiel, Inc. and GE Investments (affiliates of
General Electric Corporation). The transactions contemplated in the Merger
Agreement value the Company at approximately $225 million. The closing of the
Merger is dependent upon the expiration of the Hart-Scott-Rodino waiting period
and other customary closing conditions as set forth in the Merger Agreement.
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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, which are identified by words such as
"believes," "anticipates," "expects," and words of similar import. The Company
disclaims any obligation to update any such statements or publicly announce any
updates or revisions to adjust the forward looking statements contained herein
to reflect any change in the Company's expectation with regards thereto or any
change in events, conditions, circumstances or assumptions underlying such
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.
RESULTS OF OPERATIONS
The operations of the Company are cyclical in nature and generally result in
significant increases during the peak building season which coincides with the
second and third quarters of the year. Accordingly, results of operations for
the three months and six months ended June 30, 1998 are not necessarily
indicative of results expected for the full year.
NET SALES. Net Sales increased by $16,382 from $47,431 during the second quarter
of 1997 to $63,813 during the second quarter of 1998 and $21,205 from $85,277
during the first six months of 1997 to $106,482 during the first six months of
1998. The increase was primarily due to sales from ADW-West Coast and
ADW-Arizona, acquired in July of 1997 and March of 1998, respectively.
Additionally, the Company (i) experienced growth at Atrium Wood, which was
selected to be the supplier in a national patio door sales program beginning the
third quarter of 1997, (ii) the addition of a significant customer at Extruders,
and (iii) continued growth at Kel-Star Building Products.
COST OF SALES. Cost of sales increased from 62.9% of net sales during the second
quarter of 1997 to 65.5% during the second quarter of 1998 and from 63.8% of net
sales during the first six months of 1997 to 66.2% during the first six months
of 1998. The increase was due largely to increases in direct labor and raw
material costs, which were partially offset by improvements in material costs at
the Atrium Wood division, due to the product reengineering which occurred during
1997, as well as the absorption of certain fixed overhead costs over a larger
revenue base.
SELLING, DELIVERY, GENERAL AND ADMINISTRATIVE EXPENSES. Selling, delivery,
general and administrative expenses increased $2,408 from $10,761 (22.7% of net
sales) during the second quarter of 1997 to $13,169 (20.6% of net sales) during
the second quarter of 1998 and $3,522 from $20,815 (24.4% of net sales) during
the first six months of 1997 to $24,377 (22.9% of net sales) during the first
six months of 1998. The increase was primarily due to the inclusion of selling,
delivery, general and administrative expenses of ADW-Arizona and ADW-West Coast
for three and six months, respectively, as well as an increase in amortization
expense related to software implementation costs, resulting from additional
amounts capitalized during 1997. Additionally, selling and delivery expenses
increased due to the increase in sales.
STOCK OPTION COMPENSATION EXPENSE. Stock option compensation expense decreased
$45 from $151 during the second quarter of 1997 to $106 during the second
quarter of 1998. The 1997 period included normal recurring stock option
compensation expense of $52 and a one-time charge of $99 related to the cash
redemption of certain options. Stock option compensation expense increased $244
from $203 during the first six months of 1997 to $447 during the first six
months of 1998. In addition to normal recurring
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stock option compensation expense of $211, the Company recorded a one-time
charge of $236 associated with certain variable options.
INTEREST EXPENSE. Interest expense increased $566 from $2,813 during the second
quarter of 1997 to $3,379 during the second quarter of 1998 and $647 from $5,594
during the first six months of 1997 to $6,241 during the first six months of
1998. The increase was due to an increase in average outstanding debt related to
the $17,500 senior term loan issued in connection with the Acquisition, which
took place on March 27, 1998.
OTHER INCOME (EXPENSE). Other income (expense) decreased $1,371 from other
income of $1,092 during the second quarter of 1997 to other expense of $279
during the second quarter of 1998 and $1,260 from other income of $1,037 during
the first six months of 1997 to other expense of $223 during the first six
months of 1998. The 1997 periods include an insurance settlement of $1,193 from
the business interruption portion of the Company's insurance claim filed as a
result of the January 1997 fire at the Extruders facility.
LIQUIDITY AND CAPITAL RESOURCES
The Company has a $20,000 revolving credit facility with Bankers Trust Company,
which expires March 2004. Borrowings under the revolving credit facility were
$7,858 at June 30, 1998, excluding outstanding letters of credit, totaling
$1,309. 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 June 30, 1998 the Company had additional borrowing capacity of
approximately $10,833. The Company believes that the combination of cash
generated from operations and borrowings available under the revolving credit
facility will provide sufficient funds for its capital requirements for the
time period.
Cash provided by operations was $2,751 for the first six months of 1998 as
compared to cash used in operations of $909 for the same period in 1997. The
increase in cash provided by operations in the 1998 period was primarily due to
a significant build-up in inventories at Atrium Wood, which occurred during the
second quarter of 1997. This increase was due to the selection of Atrium Wood to
be the supplier of a national patio door sales program, which began during the
third quarter of 1997. Cash used in investing activities increased from $2,521
during the first six months of 1997 to $28,683 during the first six months of
1998, while cash provided by financing activities increased from $2,921 to
$25,932 during the same period. The increase in cash used in investing
activities and cash provided by financing activities was primarily due to the
Acquisition, which totaled approximately $26,800 and was financed with a $17,500
term loan and borrowings under the revolving credit facility of approximately
$9,300.
Capital expenditures totaled $877 during the first six months of 1998 compared
to $1,259 during the 1997 period. Expenditures during the 1998 period were
primarily used to increase capacity of and further automate the Company's
extrusion and window manufacturing plants, and to further enhance the Company's
management information systems.
YEAR 2000
The Company uses a variety of hardware and software technologies in its
operations. Mainframe computer systems are utilized to operate the Company's
accounting and certain manufacturing systems. The Company has completed its
assessment of the effect of Year 2000 compliance on its management information
systems and manufacturing systems. Based on its assessment, the Company believes
that substantially all of its systems are currently Year 2000 compliant. The
Company also believes that its non-information-technology systems are Year 2000
compliant. The Company estimates that it has spent $400,000 to date to make its
system Year 2000 compliant. The Company estimates its future expenditures in
order to make its systems fully Year 2000 compliant will be less than $100,000.
If material suppliers of products or services purchased by the Company and
others with whom the Company transacts business are not Year 2000 compliant,
the Company's results of operations could be negatively impacted. Although the
Company has no reason to believe that its material vendors and other material
third parties with whom it transacts business are not Year 2000 compliant (or
will not be compliant on a timely basis), the Company is unable to determine at
this time the effect, if any, such non-compliance would have on the Company's
operations. The Company is currently in the process of assessing the Year 2000
readiness of such persons.
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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. See
Note 5 to the Consolidated Financial Statements.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
*2.1 Asset Purchase Agreement dated as of March 4, 1998,
among Masterview Window Company, LLC, Atrium
Companies, Inc. and, for the limited purposes set
forth therein, BancBoston Ventures, Inc.
*10.1 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.
27 Financial Data Schedule
- ------
* Incorporated by reference from the Registrant's Report on Form 8-K, dated
March 27, 1998 and filed on April 13, 1998.
(b) Reports on Form 8-K
On April 13, 1998, in accordance with Items 2 and 5 of Form
8-K, the Company filed a Report on Form 8-K announcing the
completion of the acquisition of Masterview Window Company,
LLC ("Masterview") on March 27, 1998 and the terms of the
related financing through an amended and restated credit
agreement with Bankers Trust Company, dated March 27, 1998.
The report also included the financial statements of
Masterview as of and for the year ended December 31, 1997, in
accordance with Item 7 of Form 8-K.
On June 12, 1998, the Company filed a Report on Form 8-K/A to
amend the Company's Report on Form 8-K dated March 27, 1998
and filed on April 13, 1998 to include the financial
statements and pro forma financial information required by
Item 7 of 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: August 14, 1998 By: /s/ JEFF L. HULL
------------------ -----------------------------------
Jeff L. Hull
Chief Financial Officer and
Secretary (Principal Financial
Officer)
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EXHIBIT INDEX
Exhibit Description
------- -----------
*2.1 Asset Purchase Agreement dated as of March 4, 1998,
among Masterview Window Company, LLC, Atrium Companies,
Inc. and, for the limited purposes set forth therein,
BancBoston Ventures, Inc.
*10.1 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.
27 Financial Data Schedule
- ------------------
* Incorporated by reference from the Registrant's Report on Form 8-K, dated
March 27, 1998 and filed on April 13, 1998.
17