##### Table of Contents









SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549


Form 10-Q

|           |  |                                                                                                 
|---------- |  | ------------------------------------------------------------------------------------------------
|(Mark One) |  |                                                                                                 
|þ          |  | ANNUAL REPORT PURSUANT TO SECTION 13 OR
    15(d)
    OF THE SECURITIES EXCHANGE ACT OF 1934    
|          
|           |  | For the quarterly period ended June 30,
    2002                                                
|          
|or        
|          
|o          |  | 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 333-54122

Atrium Corporation

(Exact name of registrant as specified in its
charter)


|                                                                   |  |                                            
|------------------------------------------------------------------ |  | -------------------------------------------
|Delaware                                                           |  | 75-2814598                                 
|(State or other jurisdiction of
    incorporation or organization) |  | (I.R.S. Employer
    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 þ          No o



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TABLE OF CONTENTS



|                                                   |                                                                                               |                                                                                                |  |  |  |  |  | 
|-------------------------------------------------- | --------------------------------------------------------------------------------------------- | ---------------------------------------------------------------------------------------------- |  |  |  |  |  | 
|                                                   |                                                                                               | CONSOLIDATED BALANCE SHEETS                                                                   
|                                                   |                                                                                               | CONSOLIDATED STATEMENTS OF OPERATIONS                                                         
|                                                   |                                                                                               | CONSOLIDATED STATEMENTS OF OPERATIONS                                                         
|                                                   |                                                                                               | ATRIUM CORPORATION CONSOLIDATED STATEMENT OF STOCKHOLDERS EQUITY AND OTHER COMPREHENSIVE LOSS
|                                                   |                                                                                               | CONSOLIDATED STATEMENTS OF CASH FLOWS                                                         
|                                                   |                                                                                               | NOTES TO CONSOLIDATED FINANCIAL STATEMENTS                                                    
|                                                   | Item 2. Managements discussion and analysis of financial condition and results of operations
|                                                   | Item 3. Quantitative and qualitative disclosure about market risk                            
|PART II OTHER INFORMATION                         
|                                                   | Item 1. Legal Proceedings                                                                    
|                                                   | Item 6. Exhibits and Reports on Form 8-K                                                     
|SIGNATURES                                        
|EX-99.1 Certification Pursuant to 18 USC Sec. 1350
|EX-99.2 Certification Pursuant to 18 USC Sec. 1350



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##### Table of Contents



ATRIUM CORPORATION

FORM 10-Q

Quarter Ended June 30, 2002


INDEX

|                                       |  |                                                                                                                            |    |      |       | 
|-------------------------------------- |  | -------------------------------------------------------------------------------------------------------------------------- | -- | ---- | ----- | 
|                                       |  |                                                                                                                            |    | Page
|                                       |  |                                                                                                                            |    |     
|PART I
    FINANCIAL INFORMATION      
|Item 1.                                |  | Consolidated Financial Statements (Unaudited):                                                                             |    |      |       | 
|                                       |  | Consolidated Balance Sheets as of June 30,
    2002 and December 31, 2001                                                  |    |      | 2     | 
|                                       |  | Consolidated Statements of Operations for the
    Three Months Ended June 30, 2002 and 2001                                |    |      | 3     | 
|                                       |  | Consolidated Statements of Operations for the Six
    Months Ended June 30, 2002 and 2001                                  |    |      | 4     | 
|                                       |  | Consolidated Statement of Stockholders
    Equity and Other Comprehensive Loss for the Six Months Ended
    June 30, 2002 |    |      | 5     | 
|                                       |  | Consolidated Statements of Cash Flows for the Six
    Months Ended June 30, 2002 and 2001                                  |    |      | 6     | 
|                                       |  | Notes to Consolidated Financial Statements                                                                                 |    |      | 7-12  | 
|Item 2.                                |  | Managements Discussion and Analysis of
    Financial Condition and Results of Operations                                  |    |      | 13-16 | 
|Item 3.                                |  | Quantitative and Qualitative Disclosures about
    Market Risk                                                             |    |      | 17    | 
|PART II
    OTHER INFORMATION         
|Item 1.                                |  | Legal Proceedings                                                                                                          |    |      | 17    | 
|Items 2, 3, 4 and 5 are not applicable |  |                                                                                                                            |    |     
|Item 6.                                |  | Exhibits and Reports on Form 8-K                                                                                           |    |      | 17    | 
|Signatures                             |  |                                                                                                                            | 18 |     

1



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##### Table of Contents



ATRIUM CORPORATION




CONSOLIDATED BALANCE SHEETS

(Dollars in thousands, except share
amounts)


|                                             |                                                                                                                                                                            |                                            |         |              |         |  |         |         |         | 
|-------------------------------------------- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------- | ------------------------------------------ | ------- | ------------ | ------- |  | ------- | ------- | ------- | 
|                                             |                                                                                                                                                                            | June 30,                                   |         | December 31,
|                                             |                                                                                                                                                                            | 2002                                       |         | 2001        
|                                             |                                                                                                                                                                            |                                            |         |             
|                                             |                                                                                                                                                                            | (Unaudited)                                |         |             
|ASSETS                                      
|CURRENT ASSETS:                              |                                                                                                                                                                            |                                            |         |              |         |  |         |        
|                                             | Cash and cash equivalents                                                                                                                                                  |                                            | $       | 2,098        |         |  | $       | 1,247   |        
|                                             | Accounts receivable, net                                                                                                                                                   |                                            |         | 3,842        |         |  |         | 3,895   |        
|                                             | Retained interest in sold accounts receivable                                                                                                                              |                                            |         | 29,561       |         |  |         | 14,373  |        
|                                             | Inventories                                                                                                                                                                |                                            |         | 37,745       |         |  |         | 36,737  |        
|                                             | Prepaid expenses and other current assets                                                                                                                                  |                                            |         | 4,356        |         |  |         | 4,819   |        
|                                             | Deferred tax asset                                                                                                                                                         |                                            |         | 1,298        |         |  |         | 1,106   |        
|                                             |                                                                                                                                                                            |                                            |         |              |         |  |         |        
|                                             |                                                                                                                                                                            | Total current assets                       |         |              | 78,900  |  |         |         | 62,177  | 
|PROPERTY, PLANT AND EQUIPMENT, net           |                                                                                                                                                                            |                                            | 56,715  |              |         |  | 55,755  |        
|GOODWILL, net                                |                                                                                                                                                                            |                                            | 345,239 |              |         |  | 345,239 |        
|DEFERRED FINANCING COSTS, net                |                                                                                                                                                                            |                                            | 16,295  |              |         |  | 17,982  |        
|OTHER ASSETS, net                            |                                                                                                                                                                            |                                            | 7,336   |              |         |  | 7,366   |        
|                                             |                                                                                                                                                                            |                                            |         |              |         |  |         |        
|                                             |                                                                                                                                                                            | Total assets                               |         | $            | 504,485 |  |         | $       | 488,519 | 
|                                             |                                                                                                                                                                            |                                            |         |              |         |  |         |        
|                                            
|LIABILITIES AND STOCKHOLDERS
    EQUITY    
|                                            
|CURRENT LIABILITIES:                         |                                                                                                                                                                            |                                            |         |              |         |  |         |        
|                                             | Current portion of notes payable                                                                                                                                           |                                            | $       | 5,493        |         |  | $       | 6,191   |        
|                                             | Accounts payable                                                                                                                                                           |                                            |         | 33,102       |         |  |         | 18,539  |        
|                                             | Accrued liabilities                                                                                                                                                        |                                            |         | 26,981       |         |  |         | 29,695  |        
|                                             |                                                                                                                                                                            |                                            |         |              |         |  |         |        
|                                             |                                                                                                                                                                            | Total current liabilities                  |         |              | 65,576  |  |         |         | 54,425  | 
|                                             |                                                                                                                                                                            |                                            |         |              |         |  |         |        
|LONG-TERM LIABILITIES:                       |                                                                                                                                                                            |                                            |         |              |         |  |         |        
|                                             | Notes payable                                                                                                                                                              |                                            |         | 339,804      |         |  |         | 333,760 |        
|                                             | Deferred tax liability                                                                                                                                                     |                                            |         | 1,298        |         |  |         | 1,106   |        
|                                             | Other long-term liabilities                                                                                                                                                |                                            |         | 542          |         |  |         | 707     |        
|                                             | Swaps contract liability                                                                                                                                                   |                                            |         | 5,443        |         |  |         | 6,821   |        
|                                             |                                                                                                                                                                            |                                            |         |              |         |  |         |        
|                                             |                                                                                                                                                                            | Total long-term liabilities                |         |              | 347,087 |  |         |         | 342,394 | 
|                                             |                                                                                                                                                                            |                                            |         |              |         |  |         |        
|                                             |                                                                                                                                                                            | Total liabilities                          |         |              | 412,663 |  |         |         | 396,819 | 
|                                             |                                                                                                                                                                            |                                            |         |              |         |  |         |        
|COMMON STOCK SUBJECT TO MANDATORY REDEMPTION |                                                                                                                                                                            |                                            | 15,604  |              |         |  | 15,604  |        
|                                             |                                                                                                                                                                            |                                            |         |              |         |  |         |        
|COMMITMENTS AND CONTINGENCIES                |                                                                                                                                                                            |                                            |         |              |         |  |         |        
|STOCKHOLDERS EQUITY:                        |                                                                                                                                                                            |                                            |         |              |         |  |         |        
|                                             | Common stock $.01 par value,
    245,000 shares authorized, 170,444 and 170,399 shares
    issued and outstanding at June 30, 2002 and
    December 31, 2001, respectively |                                            |         | 2            |         |  |         | 2       |        
|                                             | Paid-in capital                                                                                                                                                            |                                            |         | 179,403      |         |  |         | 179,526 |        
|                                             | Accumulated deficit                                                                                                                                                        |                                            |         | (97,077      | )       |  |         | (95,163 | )      
|                                             | Accumulated other comprehensive loss                                                                                                                                       |                                            |         | (6,110       | )       |  |         | (8,269  | )      
|                                             |                                                                                                                                                                            |                                            |         |              |         |  |         |        
|                                             |                                                                                                                                                                            | Total stockholders equity                 |         |              | 76,218  |  |         |         | 76,096  | 
|                                             |                                                                                                                                                                            |                                            |         |              |         |  |         |        
|                                             |                                                                                                                                                                            | Total liabilities and stockholders equity |         | $            | 504,485 |  |         | $       | 488,519 | 
|                                             |                                                                                                                                                                            |                                            |         |              |         |  |         |        

The accompanying notes are an integral part of
the consolidated financial statements.

2



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##### Table of Contents



ATRIUM CORPORATION




CONSOLIDATED STATEMENTS OF
OPERATIONS

For the Three Months Ended June 30, 2002
and 2001


(Dollars in thousands)


(Unaudited)


|                                                                                                                                       |                            |      |         |        |  |   |         |        | 
|-------------------------------------------------------------------------------------------------------------------------------------- | -------------------------- | ---- | ------- | ------ |  | - | ------- | ------ | 
|                                                                                                                                       |                            | 2002 |         | 2001  
|                                                                                                                                       |                            |      |         |       
|NET SALES                                                                                                                              |                            | $    | 148,181 |        |  | $ | 141,570 |       
|COST OF GOODS SOLD                                                                                                                     |                            |      | 98,938  |        |  |   | 97,726  |       
|                                                                                                                                       |                            |      |         |        |  |   |         |       
|Gross profit                                                                                                                           |                            |      | 49,243  |        |  |   | 43,844  |       
|                                                                                                                                       |                            |      |         |        |  |   |         |       
|OPERATING EXPENSES:                                                                                                                    |                            |      |         |        |  |   |         |       
|Selling, delivery, general and administrative
    expenses (excluding securitization, stock compensation and
    amortization expense) |                            |      | 30,959  |        |  |   | 27,214  |       
|                                                                                                                                       | Securitization expense     |      |         | 298    |  |   |         |       | 
|                                                                                                                                       | Stock compensation expense |      |         | 158    |  |   |         | 568    | 
|                                                                                                                                       | Amortization expense       |      |         | 826    |  |   |         | 3,598  | 
|                                                                                                                                       |                            |      |         |        |  |   |         |       
|SELLING, DELIVERY, GENERAL AND ADMINISTRATIVE
    EXPENSES                                                                             |                            |      | 32,241  |        |  |   | 31,380  |       
|Special charge                                                                                                                         |                            |      | 3,948   |        |  |   | 139     |       
|                                                                                                                                       |                            |      |         |        |  |   |         |       
|                                                                                                                                       |                            |      | 36,189  |        |  |   | 31,519  |       
|                                                                                                                                       |                            |      |         |        |  |   |         |       
|                                                                                                                                       | Income from operations     |      |         | 13,054 |  |   |         | 12,325 | 
|INTEREST EXPENSE                                                                                                                       |                            |      | 11,295  |        |  |   | 11,400  |       
|OTHER INCOME (EXPENSE), net                                                                                                            |                            |      | 181     |        |  |   | (83     | )     
|                                                                                                                                       |                            |      |         |        |  |   |         |       
|Income before income taxes                                                                                                             |                            |      | 1,940   |        |  |   | 842     |       
|PROVISION FOR INCOME TAXES                                                                                                             |                            |      | 74      |        |  |   | 296     |       
|                                                                                                                                       |                            |      |         |        |  |   |         |       
|NET INCOME                                                                                                                             |                            | $    | 1,866   |        |  | $ | 546     |       
|                                                                                                                                       |                            |      |         |        |  |   |         |       

The accompanying notes are an integral part of
the consolidated financial statements.

3



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##### Table of Contents



ATRIUM CORPORATION




CONSOLIDATED STATEMENTS OF
OPERATIONS

For the Six Months Ended June 30, 2002
and 2001


(Dollars in thousands)


(Unaudited)


|                                                                                                                                       |                            |      |         |        |  |   |         |        | 
|-------------------------------------------------------------------------------------------------------------------------------------- | -------------------------- | ---- | ------- | ------ |  | - | ------- | ------ | 
|                                                                                                                                       |                            | 2002 |         | 2001  
|                                                                                                                                       |                            |      |         |       
|NET SALES                                                                                                                              |                            | $    | 261,470 |        |  | $ | 252,193 |       
|COST OF GOODS SOLD                                                                                                                     |                            |      | 177,180 |        |  |   | 173,800 |       
|                                                                                                                                       |                            |      |         |        |  |   |         |       
|Gross profit                                                                                                                           |                            |      | 84,290  |        |  |   | 78,393  |       
|                                                                                                                                       |                            |      |         |        |  |   |         |       
|OPERATING EXPENSES:                                                                                                                    |                            |      |         |        |  |   |         |       
|Selling, delivery, general and administrative
    expenses (excluding securitization, stock compensation and
    amortization expense) |                            |      | 57,587  |        |  |   | 51,910  |       
|                                                                                                                                       | Securitization expense     |      |         | 554    |  |   |         |       | 
|                                                                                                                                       | Stock compensation expense |      |         | 233    |  |   |         | 713    | 
|                                                                                                                                       | Amortization expense       |      |         | 1,630  |  |   |         | 7,133  | 
|                                                                                                                                       |                            |      |         |        |  |   |         |       
|SELLING, DELIVERY, GENERAL AND ADMINISTRATIVE
    EXPENSES                                                                             |                            |      | 60,004  |        |  |   | 59,756  |       
|Special charge                                                                                                                         |                            |      | 3,948   |        |  |   | 139     |       
|                                                                                                                                       |                            |      |         |        |  |   |         |       
|                                                                                                                                       |                            |      | 63,952  |        |  |   | 59,895  |       
|                                                                                                                                       |                            |      |         |        |  |   |         |       
|                                                                                                                                       | Income from operations     |      |         | 20,338 |  |   |         | 18,498 | 
|INTEREST EXPENSE                                                                                                                       |                            |      | 22,419  |        |  |   | 23,196  |       
|OTHER INCOME, net                                                                                                                      |                            |      | 397     |        |  |   | 56      |       
|                                                                                                                                       |                            |      |         |        |  |   |         |       
|Loss before income taxes                                                                                                               |                            |      | (1,684  | )      |  |   | (4,642  | )     
|PROVISION FOR INCOME TAXES                                                                                                             |                            |      | 230     |        |  |   | 510     |       
|                                                                                                                                       |                            |      |         |        |  |   |         |       
|NET LOSS                                                                                                                               |                            | $    | (1,914  | )      |  | $ | (5,152  | )     
|                                                                                                                                       |                            |      |         |        |  |   |         |       

The accompanying notes are an integral part of
the consolidated financial statements.

4



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ATRIUM CORPORATION

CONSOLIDATED STATEMENT OF STOCKHOLDERS
EQUITY

AND OTHER COMPREHENSIVE LOSS


For the Six Months Ended June 30,
2002


(Dollars in thousands, except share
amounts)


(Unaudited)


|                                  |                                                                                  |         |         |         |  |              |   |               |  |               |         |        |  |   |         |        |   |   |        |       |  |   |        |        |  
|--------------------------------- | -------------------------------------------------------------------------------- | ------- | ------- | ------- |  | ------------ | - | ------------- |  | ------------- | ------- | ------ |  | - | ------- | ------ | - | - | ------ | ----- |  | - | ------ | ------ | -
|                                  |                                                                                  |         |         |         |  | Retained     |   | Accumulated   |  |              
|                                  |                                                                                  | Class A |         |         |  | Earnings     |   | Other         |  | Total        
|                                  |                                                                                  |         |         | Paid-in |  | (Accumulated |   | Comprehensive |  | Stockholders
|                                  |                                                                                  | Shares  |         | Amount  |  | Capital      |   | Deficit)      |  | Income (Loss) |         | Equity
|                                  |                                                                                  |         |         |         |  |              |   |               |  |               |         |       
|Balance, December 31, 2001        |                                                                                  |         | 170,399 |         |  | $            | 2 |               |  | $             | 179,526 |        |  | $ | (95,163 | )      |   | $ | (8,269 | )     |  | $ | 76,096 |       
|Issuance of Class A Shares        |                                                                                  |         | 70      |         |  |              |  |               |  |               | 1       |        |  |   |        |        |   |   |       |       |  |   | 1      |       
|Repurchase of Class A Shares      |                                                                                  |         | (25     | )       |  |              |  |               |  |               | (25     | )      |  |   |        |        |   |   |       |       |  |   | (25    | )     
|Repurchase of stock options       |                                                                                  |         |        |         |  |              |  |               |  |               | (99     | )      |  |   |        |        |   |   |       |       |  |   | (99    | )     
|Comprehensive income (loss):      |                                                                                  |         |         |         |  |              |   |               |  |               |         |        |  |   |         |        |   |   |        |       |  |   |        |       
|                                  | Net loss                                                                         |         |         |        |  |              |   |              |  |               |         |       |  |   |         | (1,914 | ) |   |        |      |  |   |        | (1,914 | )
|                                  | Net fair market value adjustment of derivative
    instruments, net of tax of $0 |         |         |        |  |              |   |              |  |               |         |       |  |   |         |       |   |   |        | 2,159 |  |   |        | 2,159  |  
|                                  |                                                                                  |         |         |         |  |              |   |               |  |               |         |        |  |   |         |        |   |   |        |       |  |   |        |       
|Total comprehensive income (loss) |                                                                                  |         |        |         |  |              |  |               |  |               |        |        |  |   | (1,914  | )      |   |   | 2,159  |       |  |   | 245    |       
|                                  |                                                                                  |         |         |         |  |              |   |               |  |               |         |        |  |   |         |        |   |   |        |       |  |   |        |       
|Balance, June 30, 2002            |                                                                                  |         | 170,444 |         |  | $            | 2 |               |  | $             | 179,403 |        |  | $ | (97,077 | )      |   | $ | (6,110 | )     |  | $ | 76,218 |       
|                                  |                                                                                  |         |         |         |  |              |   |               |  |               |         |        |  |   |         |        |   |   |        |       |  |   |        |       

The accompanying notes are an integral part of
the consolidated financial statements.

5



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##### Table of Contents



ATRIUM CORPORATION






CONSOLIDATED STATEMENTS OF CASH
FLOWS


For the Six Months Ended June 30, 2002
and 2001


(Dollars in thousands)


(Unaudited)


|                                                         |                                                                                               |                                           |                                                         |        |         |        |        |        |         |         |  
|-------------------------------------------------------- | --------------------------------------------------------------------------------------------- | ----------------------------------------- | ------------------------------------------------------- | ------ | ------- | ------ | ------ | ------ | ------- | ------- | -
|                                                         |                                                                                               | 2002                                      |                                                         | 2001  
|                                                         |                                                                                               |                                           |                                                         |       
|CASH FLOWS FROM OPERATING ACTIVITIES:                    |                                                                                               |                                           |                                                         |        |         |        |        |       
|                                                         | Net loss                                                                                      |                                           | $                                                       | (1,914 | )       |        | $      | (5,152 | )      
|                                                         | Adjustments to reconcile net loss to net cash
    provided by (used in) operating activities: |                                           |                                                         |        |         |        |        |        |        
|                                                         | Depreciation and amortization                                                                 |                                           |                                                         | 7,107  |         |        |        | 11,861 |        
|                                                         | Non-cash stock compensation expense                                                           |                                           |                                                         | 150    |         |        |        | (25    | )      
|                                                         | Amortization of deferred financing costs                                                      |                                           |                                                         | 1,763  |         |        |        | 1,473  |        
|                                                         | Accretion of discount on senior subordinated notes                                            |                                           |                                                         | 100    |         |        |        | 89     |        
|                                                         | Accretion of discount on senior payment-in-kind
    notes                                     |                                           |                                                         | 4,187  |         |        |        | 3,489  |        
|                                                         | Accretion of gain from interest rate collars                                                  |                                           |                                                         |       |         |        |        | (164   | )      
|                                                         | Amortization of gain from sale/leaseback of
    building                                      |                                           |                                                         | (26    | )       |        |        | (3     | )      
|                                                         | Provision for bad debts                                                                       |                                           |                                                         | 496    |         |        |        | 444    |        
|                                                         | Special charge                                                                                |                                           |                                                         | 1,176  |         |        |        |       |        
|                                                         | Gain on sales of assets                                                                       |                                           |                                                         | (13    | )       |        |        | (11    | )      
|                                                         | Changes in assets and liabilities:                                                            |                                           |                                                         |        |         |        |        |        |        
|                                                         |                                                                                               | Accounts receivable                       |                                                         |        | (16,630 | )      |        |        | (13,818 | )      
|                                                         |                                                                                               | Sale of accounts receivable               |                                                         |        | 1,000   |        |        |        |        |        
|                                                         |                                                                                               | Inventories                               |                                                         |        | (1,008  | )      |        |        | (241    | )      
|                                                         |                                                                                               | Prepaid expenses and other current assets |                                                         |        | 389     |        |        |        | (336    | )      
|                                                         |                                                                                               | Accounts payable                          |                                                         |        | 12,608  |        |        |        | 5,483   |        
|                                                         |                                                                                               | Accrued liabilities                       |                                                         |        | (3,377  | )      |        |        | (5,488  | )      
|                                                         |                                                                                               |                                           |                                                         |        |         |        |        |       
|                                                         |                                                                                               |                                           | Net cash provided by (used in) operating
    activities |        |         | 6,008  |        |        |         | (2,399  | )
|                                                         |                                                                                               |                                           |                                                         |        |         |        |        |       
|CASH FLOWS FROM INVESTING ACTIVITIES:                    |                                                                                               |                                           |                                                         |        |         |        |        |       
|                                                         | Purchases of property, plant and equipment                                                    |                                           |                                                         | (6,505 | )       |        |        | (8,669 | )      
|                                                         | Proceeds from sales of assets                                                                 |                                           |                                                         | 57     |         |        |        | 42     |        
|                                                         | Other assets                                                                                  |                                           |                                                         | (1,600 | )       |        |        | (2,384 | )      
|                                                         |                                                                                               |                                           |                                                         |        |         |        |        |       
|                                                         |                                                                                               |                                           | Net cash used in investing activities                   |        |         | (8,048 | )      |        |         | (11,011 | )
|                                                         |                                                                                               |                                           |                                                         |        |         |        |        |       
|CASH FLOWS FROM FINANCING ACTIVITIES:                    |                                                                                               |                                           |                                                         |        |         |        |        |       
|                                                         | Payments of notes payable and capital lease
    obligations                                   |                                           |                                                         | (14    | )       |        |        | (152   | )      
|                                                         | Net borrowings under revolving credit facility                                                |                                           |                                                         | 4,500  |         |        |        | 1,500  |        
|                                                         | Proceeds from the issuance of common stock                                                    |                                           |                                                         | 1      |         |        |        | 10,050 |        
|                                                         | Repurchase of stock options and common stock                                                  |                                           |                                                         | (124   | )       |        |        |        |        
|                                                         | Capitalized deferred financing costs                                                          |                                           |                                                         |       |         |        |        | (1,366 | )      
|                                                         | Scheduled principal payments on term notes                                                    |                                           |                                                         | (2,744 | )       |        |        | (2,980 | )      
|                                                         | Additional principal payments on term notes                                                   |                                           |                                                         | (684   | )       |        |        |       |        
|                                                         | Checks drawn in excess of bank balances                                                       |                                           |                                                         | 1,956  |         |        |        | 4,149  |        
|                                                         |                                                                                               |                                           |                                                         |        |         |        |        |       
|                                                         |                                                                                               |                                           | Net cash provided by financing activities               |        |         | 2,891  |        |        |         | 11,201  |  
|                                                         |                                                                                               |                                           |                                                         |        |         |        |        |       
|NET INCREASE (DECREASE) IN CASH AND CASH
    EQUIVALENTS |                                                                                               |                                           | 851                                                     |        |         |        | (2,209 | )     
|CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD           |                                                                                               |                                           | 1,247                                                   |        |         |        | 4,646  |       
|                                                         |                                                                                               |                                           |                                                         |        |         |        |        |       
|CASH AND CASH EQUIVALENTS, END OF PERIOD                 |                                                                                               | $                                         | 2,098                                                   |        |         | $      | 2,437  |       
|                                                         |                                                                                               |                                           |                                                         |        |         |        |        |       

The accompanying notes are an integral part of
the consolidated financial statements.

6



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##### Table of Contents



ATRIUM CORPORATION






NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS


June 30, 2002 and 2001


(Dollars in thousands, except share
amounts)


(Unaudited)


1.     Basis of
Presentation

Atrium Corporation (the Company) is
engaged in the manufacture and sale of patio doors, windows and
various building materials throughout the United States through
its wholly-owned subsidiary Atrium Companies, Inc. (Atrium
Companies).

The unaudited consolidated financial statements
of the Company for the three and six months ended June 30,
2002 and 2001, and financial position as of June 30, 2002
and December 31, 2001 have been prepared in accordance with
generally accepted accounting principles for interim financial
reporting, the instructions to Form 10-Q and
Rule 10-01 of Regulation S-X. Accordingly, they do not
include all of the information and footnotes required by
generally accepted accounting principles for complete financial
statements.

These consolidated financial statements and
footnotes should be read in conjunction with the Companys
audited financial statements for the fiscal year ended
December 31, 2001 included in the Companys
Form 10-K as filed with the Securities and Exchange
Commission on April 1, 2002. 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
reclassifications have been made to the 2001 balances to conform
to the 2002 presentation.

2.     New Accounting
Pronouncements

In August 2001, the Financial Accounting
Standards Board (FASB) issued Statement of Financial
Accounting Standards (SFAS) No. 143,
Accounting for Asset Retirement Obligations
(SFAS 143). SFAS 143 addresses financial
accounting and reporting obligations associated with the
retirement of tangible long-lived assets and the associated
asset retirement costs. Under SFAS 143, the fair value of a
liability for an asset retirement obligation covered under the
scope of SFAS 143 would be recognized in the period in
which the liability is incurred, with an offsetting increase in
the carrying amount of the related long-lived asset.
SFAS 143 is effective for the Company on January 1,
2003. The Company is currently assessing the impact of
SFAS 143 and has not yet determined the effects, if any, it
will have on its consolidated financial position or results of
operations.

In April 2002, the FASB issued SFAS No. 145,
Rescission of FASB Statements No. 4, 44, and 64,
Amendment of FASB Statement No. 13, and Technical
Corrections (SFAS 145). SFAS 145
rescinds SFAS No. 4, Reporting Gains and Losses from
Extinguishment of Debt, requiring that gains and losses
from the extinguishment of debt be classified as extraordinary
items only if certain criteria are met. SFAS 145 also
amends SFAS No. 13, Accounting for Leases, and
the required accounting for sale-leaseback transactions and
certain lease modifications that have economic effects that are
similar to sale-leaseback transactions. SFAS 145 is
effective for the Company on January 1, 2003. Upon adoption
of SFAS 145, the Company will reclassify previously
reported extraordinary items as a component of earnings before
income taxes.

In July 2002, the FASB issued SFAS No. 146,
Accounting for Costs Associated with Exit or Disposal
Activities (SFAS 146). SFAS 146
requires that a liability for a cost associated with an exit or
disposal activity be recognized initially at fair value when the
liability is incurred. SFAS 146 is effective for the
Company on January 1, 2003 and will be applied on a
prospective basis.

7



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##### Table of Contents



ATRIUM CORPORATION


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

3.                Adoption
of SFAS No. 141, Business Combinations, SFAS
No. 142, Goodwill and Other Intangible Assets
and SFAS No. 144, Accounting for the Impairment or
Disposal of Long-Lived Assets

In June 2001, the FASB issued SFAS No. 141,
Business Combinations (SFAS 141)
and SFAS No. 142, Goodwill and Other Intangible
Assets (SFAS 142). SFAS 141 and
SFAS 142 are effective for fiscal years beginning after
December 15, 2001. Under the new rules, goodwill and
intangible assets deemed to have indefinite lives will no longer
be amortized but will be subject to annual impairment tests in
accordance with the statements. Other intangible assets will
continue to be amortized over their useful lives. The Company
adopted SFAS 141 and SFAS 142 on January 1, 2002
and eliminated amortization of goodwill as of such date.
Amortization expense for goodwill for the three and six months
ended June 2001 was $2,933 and $5,860, respectively. The Company
has completed its initial, transitional goodwill impairment
analysis under SFAS 142 as of January 1, 2002, and no
goodwill impairment was deemed to exist. In accordance with the
requirements of SFAS 142, the Company will review goodwill
for impairment during the fourth quarter of each year starting
in 2002. Goodwill will also be reviewed for impairment at other
times during each year when events or changes in circumstances
indicate an impairment might be present.

As shown in the following table, the Company
would have reported net income of $3,479 and $708 during the
three and six months ended June 30, 2001 if the goodwill
amortization included in the Companys net income (loss),
as reported, had not been recognized.

|                              |                       |                            |       |                |       |      |     |       |       |   |        |   |        |   |        |       |     | 
|----------------------------- | --------------------- | -------------------------- | ----- | -------------- | ----- | ---- | --- | ----- | ----- | - | ------ | - | ------ | - | ------ | ----- | --- | 
|                              |                       |                            |       |               
|                              |                       | Three Months               |       | Six Months    
|                              |                       | Ended June 30,             |       | Ended June 30,
|                              |                       |                            |       |               
|                              |                       | 2002                       |       | 2001           |       | 2002 |     | 2001 
|                              |                       |                            |       |                |       |      |     |      
|Net income (loss) as reported |                       | $                          | 1,866 |                |       | $    | 546 |       |       | $ | (1,914 | ) |        | $ | (5,152 | )    
|Adjustment:                   |                       |                            |       |                |       |      |     |       |       |   |        |   |        |   |        |      
|                              | Goodwill amortization |                            |       |               |       |      |     | 2,933 |       |   |        |  |        |   |        | 5,860 |    
|                              |                       |                            |       |                |       |      |     |       |       |   |        |   |        |   |        |      
|                              |                       | Adjusted net income (loss) |       | $              | 1,866 |      |     | $     | 3,479 |   |        | $ | (1,914 | ) |        | $     | 708 | 
|                              |                       |                            |       |                |       |      |     |       |       |   |        |   |        |   |        |      

The Company adopted SFAS No. 144,
Accounting for the Impairment or Disposal of Long-Lived
Assets (SFAS 144), effective
January 1, 2002. SFAS 144 retains the fundamental
provisions of existing generally accepted accounting principles
with respect to the recognition and measurement of long-lived
asset impairment contained in SFAS No. 121,
Accounting for the Impairment of Long-Lived Assets and for
Long-Lived Assets to be Disposed Of
(SFAS 121). However, SFAS 144 provides new
guidance intended to address certain implementation issues
associated with SFAS 121, including expanded guidance with
respect to appropriate cash flows to be used to determine
whether recognition of any long-lived asset impairment is
required, and if required, how to measure the amount of the
impairment. SFAS 144 also requires that any net assets to
be disposed of by sale to be reported at the lower of carrying
value or fair value less cost to sell, and expands the reporting
of discontinued operations to include any component of an entity
with operations and cash flows that can be clearly distinguished
from the rest of the entity. Adoption of SFAS 144 did not
have a significant effect on the Company as of January 1,
2002.

8



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##### Table of Contents



ATRIUM CORPORATION


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

4.     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,
|                |  | 2002     |        | 2001        
|                |  |          |        |             
|Raw materials   |  | $        | 23,471 |              |  | $ | 24,209 | 
|Work-in-process |  |          | 1,455  |              |  |   | 1,000  | 
|Finished goods  |  |          | 12,777 |              |  |   | 11,225 | 
|                |  |          |        |              |  |   |        | 
|                |  |          | 37,703 |              |  |   | 36,434 | 
|LIFO reserve    |  |          | 42     |              |  |   | 303    | 
|                |  |          |        |              |  |   |        | 
|                |  | $        | 37,745 |              |  | $ | 36,737 | 
|                |  |          |        |              |  |   |        | 

5.     Notes
Payable

Notes payable consisted of the following:

|                                                  |                |          |         |              |  |   |         |         | 
|------------------------------------------------- | -------------- | -------- | ------- | ------------ |  | - | ------- | ------- | 
|                                                  |                | June 30, |         | December 31,
|                                                  |                | 2002     |         | 2001        
|                                                  |                |          |         |             
|Revolving credit facility                         |                | $        | 4,500   |              |  | $ |        |        
|Term loan A                                       |                |          | 6,524   |              |  |   | 8,185   |        
|Term loan B                                       |                |          | 59,120  |              |  |   | 59,980  |        
|Term loan C                                       |                |          | 68,640  |              |  |   | 69,547  |        
|Senior subordinated notes                         |                |          | 175,000 |              |  |   | 175,000 |        
|Senior payment-in-kind notes                      |                |          | 33,584  |              |  |   | 29,397  |        
|Other                                             |                |          | 15      |              |  |   | 28      |        
|                                                  |                |          |         |              |  |   |         |        
|                                                  |                |          | 347,383 |              |  |   | 342,137 |        
|Less:                                             |                |          |         |              |  |   |         |        
|Unamortized discount on senior subordinated notes |                |          | (2,086  | )            |  |   | (2,186  | )      
|Current portion of notes payable                  |                |          | (5,493  | )            |  |   | (6,191  | )      
|                                                  |                |          |         |              |  |   |         |        
|                                                  | Long-term debt |          | $       | 339,804      |  |   | $       | 333,760 | 
|                                                  |                |          |         |              |  |   |         |        

The senior subordinated notes, senior
payment-in-kind notes, and credit agreement requires the Company
to meet certain financial tests pertaining to interest coverage,
fixed charge coverage and leverage. As of June 30, 2002,
the Company was in compliance with all related covenants.

Additionally, the credit agreement has an
excess cash flows provision mandating additional
principal payments on the term loans if certain cash flow
targets are met annually at December 31. An excess cash
flow payment of $684 was made in April 2002 related to the 2001
excess cash flows. An excess cash flow payment was not required
in 2001. Based on the Companys results for the first six
months of 2002, an excess cash flow payment may be required in
April 2003.

Interest on the Companys senior
payment-in-kind notes accrues at a rate of 15%, except under the
following two conditions: If a default occurs as defined by the
agreement, and remains uncured or, if the ratio of total
consolidated indebtedness to consolidated cash flow of the
Company commencing with March 2002 is greater than 3.75x, then
the interest rate shall increase to 17%. The interest rate will
return to

9



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ATRIUM CORPORATION


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

15% upon curing of a default or upon the ratio
being equal to or less than the 3.75x limit. The interest rate
on the senior payment-in-kind notes increased to 17% in April
2002 as a result of the ratio not being met.

The Company uses interest rate swap agreements to
hedge exposure to interest rate fluctuations. At
December 31, 2001, the Company had interest rate swaps with
notional amounts totaling $137,500. In March 2002, the Company
amended the notional amount of one of the swaps in order to
maintain hedge effectiveness. At June 30, 2002, the total
notional amount of the swaps was $135,500.

6.     Contingencies

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

The Company has five unionized facilities within
the State of Texas, four of which are represented by the Union
of Needletrades, Industrial and Textile Employees
(UNITE!) and one is represented by the Sheet Metal
International Association. During May of 2001, the Company
entered into a new three-year collective bargaining agreement
with UNITE! All of these collective bargaining agreements will
expire in 2004. Due to the decision to close the Woodville,
Texas facility in early 2002, the Company negotiated a
termination agreement with the Sheet Metal International
Association resulting in a termination of this contract.

The Company is involved in various stages of
investigation and cleanup related to environmental protection
matters, some of which relate to waste disposal sites. The
potential costs related to such matters and the possible impact
thereof on future operations are uncertain due in part to: the
uncertainty as to the extent of pollution; the complexity of
government laws and regulations and their interpretations; the
varying costs and effectiveness of alternative cleanup
technologies and methods; the uncertain level of insurance or
other types of recovery; and the questionable level of the
Companys involvement. In 1998, the Company was named as a
potentially responsible party (PRP) in two superfund
sites pursuant to the Comprehensive Environmental Response
Compensation and Liability Act of 1980, as amended.

The Company is a PRP at the Chemical Recycling,
Inc. or CRI Superfund site in Wylie, Texas. The
Company is a very small contributor at the CRI site, being
assigned approximately 2.788% of the damages based on its waste
volume at the site. The site was a solvent reclamation facility,
and the Company sent paint waste to the site for recycling. The
site has soil and groundwater contamination. Major removal
actions have occurred and a Work Plan for Risk Assessment/
Feasibility Study was submitted to the Environmental Protection
Agency (EPA) in October 1996. According to the
studies performed by the sites steering committee,
affected groundwater has not migrated off-site. According to the
EPA general counsel in charge of the site, the site is low
priority compared to other sites in the region. There are 115
PRPs at this site with approximately 85 that are members
of the sites steering committee. Two main PRPs,
Glidden and Sherwin Williams, account for approximately 46% of
all liability. The Companys costs to date associated with
this site have been approximately $78, with a current credit for
overpayment of $30.

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

10



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ATRIUM CORPORATION


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

ADPCE approved a work plan and no further
requirements have been assigned. Additionally, monitoring
actions were completed in 2000 and no further activities have
occurred since then.

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

The Company owned one parcel of real estate that
requires future costs related to environmental clean-up. The
estimated costs of clean-up have been reviewed by third-party
sources and are not expected to exceed $150. The previous owner
of the property has established an escrow of $400 to remediate
the associated costs. This property was sold in December 1999.
The Company has established a letter of credit of $250 to
cover any costs of remediation exceeding the previous
owners escrow. The Company believes the existing escrow
amount is adequate to cover costs associated with this clean-up.
No additional liabilities are believed to exist in regards to
the Companys remaining operations.

7.     Wing
Divestiture and Woodville Closing

During the second quarter of 2002, the Company
recorded a special charge in the amount of $3,948 for
liabilities associated with the divestiture of the assets of
Wing Industries, Inc. (Wing). The majority of the
special charge is attributable to $2,859 of exit costs
incurred by the Company on the remaining lease obligations at
Wings former facilities. The special charge also includes
$1,089 for litigation expenses. During the second quarter of
2002, $2,772 of the special charge was incurred and has been
paid by the Company, leaving a remaining accrual of $1,176 for
unpaid liabilities, which are still under negotiation.

In the same period, the Company reduced its
accrued provisions for the Woodville closing by $179. The
Company does not anticipate additional liabilities related to
the Woodville closure.

8.     Atrium
Corporation Only Financial Information

Condensed Balance Sheets

|                                             |                                            |          |         |              |  |   |         |         | 
|-------------------------------------------- | ------------------------------------------ | -------- | ------- | ------------ |  | - | ------- | ------- | 
|                                             |                                            | June 30, |         | December 31,
|                                             |                                            | 2002     |         | 2001        
|                                             |                                            |          |         |             
|Assets                                       |                                            |          |         |              |  |   |         |        
|Investment in subsidiary                     |                                            | $        | 121,034 |              |  | $ | 116,489 |        
|Deferred financing costs, net                |                                            |          | 4,372   |              |  |   | 4,632   |        
|                                             |                                            |          |         |              |  |   |         |        
|                                             | Total assets                               |          | $       | 125,406      |  |   | $       | 121,121 | 
|                                             |                                            |          |         |              |  |   |         |        
|Liabilities and Stockholders
    Equity     |                                            |          |         |              |  |   |         |        
|Accrued liabilities                          |                                            | $        |        |              |  | $ | 24      |        
|Notes payable                                |                                            |          | 33,584  |              |  |   | 29,397  |        
|Common stock subject to mandatory redemption |                                            |          | 15,604  |              |  |   | 15,604  |        
|Stockholders equity                         |                                            |          | 76,218  |              |  |   | 76,096  |        
|                                             |                                            |          |         |              |  |   |         |        
|                                             | Total liabilities and stockholders equity |          | $       | 125,406      |  |   | $       | 121,121 | 
|                                             |                                            |          |         |              |  |   |         |        

11



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##### Table of Contents



ATRIUM CORPORATION


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

Condensed Statements of Operations

|                                             |            |                    |       |       |  |   |       |     | 
|-------------------------------------------- | ---------- | ------------------ | ----- | ----- |  | - | ----- | --- | 
|                                             |            |                   
|                                             |            | Three months ended
|                                             |            | June 30,          
|                                             |            |                   
|                                             |            | 2002               |       | 2001 
|                                             |            |                    |       |      
|Interest expense                             |            | $                  | 2,357 |       |  | $ | 1,897 |    
|Equity in undistributed income of subsidiary |            |                    | 4,223 |       |  |   | 2,443 |    
|                                             |            |                    |       |       |  |   |       |    
|                                             | Net income |                    | $     | 1,866 |  |   | $     | 546 | 
|                                             |            |                    |       |       |  |   |       |    

Condensed Statements of Operations

|                                                        |          |                  |       |        |   |   |        |        |  
|------------------------------------------------------- | -------- | ---------------- | ----- | ------ | - | - | ------ | ------ | -
|                                                        |          |                 
|                                                        |          | Six months ended
|                                                        |          | June 30,        
|                                                        |          |                 
|                                                        |          | 2002             |       | 2001  
|                                                        |          |                  |       |       
|Interest expense                                        |          | $                | 4,449 |        |   | $ | 3,688  |       
|Equity in undistributed income (loss) of
    subsidiary |          |                  | 2,535 |        |   |   | (1,464 | )     
|                                                        |          |                  |       |        |   |   |        |       
|                                                        | Net loss |                  | $     | (1,914 | ) |   | $      | (5,152 | )
|                                                        |          |                  |       |        |   |   |        |       

Condensed Statements of Cash Flows

|                                                        |                                                         |                  |        |      |   |   |        |        |  
|------------------------------------------------------- | ------------------------------------------------------- | ---------------- | ------ | ---- | - | - | ------ | ------ | -
|                                                        |                                                         |                 
|                                                        |                                                         | Six months ended
|                                                        |                                                         | June 30,        
|                                                        |                                                         |                 
|                                                        |                                                         | 2002             |        | 2001
|                                                        |                                                         |                  |        |     
|Cash flows from operating
    activities:               |                                                         |                  |        |      |   |   |        |       
|Net loss                                                |                                                         | $                | (1,914 | )    |   | $ | (5,152 | )     
|Equity in undistributed (income) loss of
    subsidiary |                                                         |                  | (2,535 | )    |   |   | 1,464  |       
|Accretion of senior payment-in-kind notes               |                                                         |                  | 4,187  |      |   |   | 3,489  |       
|Amortization of deferred financing costs                |                                                         |                  | 262    |      |   |   | 199    |       
|Changes in assets and liabilities                       |                                                         |                  | (26    | )    |   |   |       |       
|                                                        |                                                         |                  |        |      |   |   |        |       
|                                                        | Net cash used in operating activities                   |                  |        | (26  | ) |   |        |       |  
|                                                        |                                                         |                  |        |      |   |   |        |       
|Cash flows from investing
    activities:               |                                                         |                  |        |      |   |   |        |       
|Cash (invested in) received from subsidiary             |                                                         |                  | 149    |      |   |   | (8,930 | )     
|                                                        |                                                         |                  |        |      |   |   |        |       
|                                                        | Net cash provided by (used in) investing
    activities |                  |        | 149  |   |   |        | (8,930 | )
|                                                        |                                                         |                  |        |      |   |   |        |       
|Cash flows from financing
    activities:               |                                                         |                  |        |      |   |   |        |       
|Proceeds from the issuance of common stock              |                                                         |                  | 1      |      |   |   | 10,050 |       
|Repurchase of stock options and common stock            |                                                         |                  | (124   | )    |   |   | (1,120 | )     
|                                                        |                                                         |                  |        |      |   |   |        |       
|                                                        | Net cash provided by (used in) financing
    activities |                  |        | (123 | ) |   |        | 8,930  |  
|                                                        |                                                         |                  |        |      |   |   |        |       
|Net increase in cash and cash
    equivalents           |                                                         |                  |       |      |   |   |       |       
|Cash and cash equivalents, beginning of
    year        |                                                         |                  |       |      |   |   |       |       
|                                                        |                                                         |                  |        |      |   |   |        |       
|Cash and cash equivalents, end of
    year              |                                                         | $                |       |      |   | $ |       |       
|                                                        |                                                         |                  |        |      |   |   |        |       

12



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|        |                                                                                          
|------- | -----------------------------------------------------------------------------------------
|Item 2. | Managements discussion and analysis
    of financial condition and results of operations

Certain Forward-Looking Statements

This 10-Q contains certain forward looking
statements (as such term is defined in the Private Securities
Litigation Reform Act of 1995) that involve substantial risks
and uncertainties relating to the Company that are based on the
beliefs of management. When used in this 10-Q, the words
anticipate, believe,
estimate, expect, intend,
and similar expressions, as they relate to the Company or the
Companys management, identify forward-looking statements.
Such statements reflect the current views of the Company with
respect to the risks and uncertainties regarding the operations
and the results of operations of the Company as well as its
customers and suppliers, including as a result of the
availability of consumer credit, interest rates, employment
trends, changes in levels of consumer confidence, changes in
consumer preferences, national and regional trends in new
housing starts, raw material costs, pricing pressures, shifts in
market demand and general economic conditions. Should one or
more of these risks or uncertainties materialize, or should
underlying assumptions or estimates prove incorrect, actual
results may vary materially from those described herein as
anticipated, believed, estimated, expected or intended.

Results of Operations

The operations of the Company are cyclical in
nature and generally result in increases during the peak
building season, which coincides with the second and third
quarters of the year. Accordingly, results of operations for the
second quarter and the first six months of 2002 are not
necessarily indicative of results expected for the full year.

Net Sales.Net sales
increased by $6,611, or 4.7% from $141,570 during the second
quarter of 2001 to $148,181 during the second quarter of 2002
and increased $9,277, or 3.7% from $252,193 during the first six
months of 2001 to $261,470 during the first six months of 2002.
The increase in net sales was due to an increase in volume at
the Companys aluminum and vinyl window operations, offset
by a decline in sales at the Darby and aluminum extrusion
operations. Net sales at the aluminum window operations
increased $5,401, or 12.2% during the second quarter of 2002 and
$8,756, or 10.9% during the first six months of 2002 over the
prior year. This increase was primarily due to increased volume
to homecenter customers. Net sales at the vinyl window
operations increased by $3,247, or 4.2% during the second
quarter of 2002 and $5,930, or 4.5% during the first six months
of 2002 over the prior year. The growth rate at the vinyl window
operations was hindered by soft sales at our West Coast
operations. Net sales at the Darby and aluminum extrusion
operations combined for a decrease of 9.8% during the second
quarter of 2002 and 13.8% during the first six months of 2002.
The decrease at the aluminum extrusion operations was virtually
all related to declining aluminum prices, which affect the
overall selling price of the extrusion product, while the
decrease at the Darby operations was a result of softer demand
in the multi-family market.

Cost of Goods Sold.Cost of goods sold as a percentage of
net sales improved from 69.0% during the second quarter of 2001
to 66.8% during the second quarter of 2002 and from 68.9% during
the first six months of 2001 to 67.8% during the first six
months of 2002. The improvement was largely the result of a
decrease in material costs as a percentage of sales, as
materials decreased from 41.8% during the second quarter of 2001
to 40.5% during the second quarter of 2002 and from 41.6% during
the first six months of 2001 to 40.6% during the first six
months of 2002. This decrease was due to our increased
purchasing power and the realization of synergies from
acquisitions made in prior years. The remaining decrease in cost
of goods sold as a percentage of net sales for the second
quarter and first six months of 2002 is due to decreases in
direct labor expenses and the absence of non-recurring expenses
related to various facility consolidations that occurred during
2001. Automation efforts have also resulted in the reduction of
direct labor expenses due to increased efficiency at the
Companys facilities. Overall, changes in the cost of goods
sold as a percentage of net sales for one period as compared to
another period may reflect a number of factors, including
changes in the relative mix of products sold and, the effects of
changes in sales prices, material costs and changes in
productivity levels.

Selling, Delivery, General and Administrative
Expenses.Selling, delivery, general
and administrative expenses increased $3,745 from $27,214 (19.2%
of net sales during the second quarter of 2001) to $30,959
(20.9% of net sales during the second quarter of 2002) and
increased $5,677 from $51,910 (20.6% of net sales

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during the first six months of 2001) to $57,587
(22.0% of net sales during the first six months of 2002).
General and administrative expenses increased $2,338 from 7.1%
of net sales during the second quarter of 2001 to 8.3% during
2002 and $4,081 from 7.5% of net sales during the first six
months of 2001 to 8.8% during 2002. The increase in general and
administrative expenses was largely the result of an $869 and
$1,679 increase in bonus compensation expense during the second
quarter and first six months, respectively, over prior year.
Additionally, professional fees increased $438 during the first
six months of 2002 over the prior year. The increase in
professional fees was attributable to the establishment of the
Companys new operations in Mexico as well as legal fees
for the successful defense against a union organizing effort at
one of the Companys facilities. The remaining increase to
general and administrative expenses was due to higher insurance
premiums in 2002, as well as an increase to salary and related
payroll expenses. Delivery expenses increased $1,206 from 5.7%
of net sales during the second quarter of 2001 to 6.3% during
2002 and $1,338 from 6.1% of net sales during the first six
months of 2001 to 6.4% during 2002. The increase in delivery
expenses was primarily related to an increase in the volume of
products shipped into the southern California market, which
resulted in a longer average distance per truckload. Selling
expenses, which consist primarily of commissions, decreased
slightly as a percentage of net sales from 6.4% during the
second quarter of 2001 to 6.3% during 2002 and from 6.9% of net
sales during the first six months of 2001 to 6.8% during 2002.


Securitization Expense.During the second quarter and first
six months ended June 2002, the Company incurred securitization
expense of $298 and $554, respectively, on the loss on the sale
of the Companys accounts receivable, which represented the
interest expense and commitment fee components of the
transaction. The Company securitized its accounts receivable in
the third quarter of 2001.

Stock Compensation Expense.Stock compensation expense decreased
$410 from $568 in the second quarter of 2001 to $158 in the
second quarter of 2002 and decreased $480 from $713 in the first
six months of 2001 to $233 in the first six months of 2002.
Stock compensation expense during the second quarter of 2001 and
2002 included $418 and $83, respectively, for the repurchase of
outstanding stock options from former employees and $150 and
$75, respectively, of payments for services rendered in the form
of the Companys common stock to the Companys equity
sponsor, Ardshiel, Inc. Stock compensation during the first six
months of 2001 and 2002 included $563 and $83, respectively, for
the repurchase of outstanding stock options from former
employees and $150 of payments for services rendered in the form
of the Companys common stock to Ardshiel, Inc.

Amortization Expense.Amortization expense decreased $2,772
from $3,598 during the second quarter of 2001 to $826 during the
second quarter of 2002 and decreased $5,503 from $7,133 during
the first six months of 2001 to $1,630 during the first six
months of 2002. The decrease was attributable to the
Companys adoption of SFAS 142 (see
Note 3) which eliminates the amortization of goodwill
and subjects it to an annual impairment test. Goodwill
amortization for the second quarter and first six months of 2001
was $2,933 and $5,860, respectively.

Special Charge.During the second quarter of 2002, the
Company recorded a special charge in the amount of $3,948 for
liabilities associated with the divestiture of the assets of
Wing. The majority of the special charge is attributable to
$2,859 of exit costs incurred by the Company on the remaining
lease obligations at Wings former facilities. The special
charge also includes $1,089 for litigation expenses. During the
second quarter of 2002, $2,772 of the special charge was
incurred and has been paid by the Company, leaving a remaining
accrual of $1,176 for unpaid liabilities, which are still under
negotiation.

Interest Expense.Interest expense decreased $105 from
$11,400 during the second quarter of 2001 to $11,295 during the
second quarter of 2002 and decreased $777, from $23,196 during
the first six months of 2001 to $22,419 during the first six
months of 2002. The decrease is attributable to reduced debt
levels in 2002 as a result of working capital improvements and
the execution of the accounts receivable securitization facility
in August 2001, from which the proceeds were used to repay
long-term debt.

Liquidity and Capital Resources

Cash generated from operations and availability
under Atrium Companies revolving credit facility and
Atrium Companies accounts receivable securitization
facility are the Companys principal sources of

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liquidity. During the first six months of 2002,
cash was primarily used for capital expenditures to increase
plant capacity and automation and for debt payments. Net cash
provided by operating activities was $6,008 during the first six
months of 2002 compared to net cash used in operating activities
of $2,399 during the first six months of 2001. The increase in
cash provided by operating activities during 2002 over the prior
year was largely due to working capital improvements. Net cash
used in investing activities during the first six months of 2002
was $8,048 compared to $11,011 during the first six months of
2001. The decrease in cash used in investing activities during
2002 over the prior year was primarily the result of a decrease
in capital expenditures made during 2002. Cash provided by
financing activities during the first six months of 2002 was
$2,891 compared to $11,201 during the first six months of 2001.
The decrease in net cash provided by financing activities was
due to a reduction in proceeds from the issuance of the
Companys common stock.


Additionally, Atrium Companies credit
agreement has an excess cash flows provision
mandating additional principal payments on the term loans if
certain cash flow targets are met annually at December 31.
An excess cash flow payment of $684 was made in April 2002
related to the 2001 excess cash flows. An excess cash flow
payment was not required in 2001. Based on Atrium
Companies results for the first six months of 2002, an
excess cash flow payment may be required in April 2003.

Interest on the Companys senior
payment-in-kind notes accrues at a rate of 15%, except under the
following two conditions: If a default occurs as defined in the
agreement, and remains uncured or, if the ratio of total
consolidated indebtedness to consolidated cash flow of the
Company commencing with March 2002 is greater than 3.75x, then
the ratio being equal to or less than the 3.75x limit. The
interest rate on the senior payment-in-kind notes increased to
17% in April 2002 as a result of the ratio not being met.

Other Capital Resources

Atrium Companies credit agreement, as
amended, provides for a revolving credit facility in the amount
of $47,000, which includes a $10,000 letter of credit
sub-facility. The revolving credit facility has a maturity date
of June 30, 2004. Additionally, Atrium Companies has an
accounts receivable securitization facility, which will make
additional funds available to the Company depending on accounts
receivable levels. On July 30, 2002 Atrium Companies
receivables purchase agreement was amended to reduce the size of
the accounts receivable securitization from $50,000 to $42,000.

At June 30, 2002, the Company had $39,733 of
availability under the revolving credit facility, net of
borrowings of $4,500 and outstanding letters of credit totaling
$2,767. As of August 9, 2002, the Company had cash of
$3,036 and $42,733 of availability under the revolving credit
facility, net of borrowings of $1,500 and outstanding letters of
credit totaling $2,767. At June 30, 2002, the Company had
$21,600 of availability under the securitization facility,
subject to borrowing based requirements, net of securitizations
of $28,400. As of August 9, 2002, the Company had $9,500
available under the securitization facility, net of
securitizations of $32,500.

Capital Expenditures

The Company had cash capital expenditures of
$6,448 during the first six months of 2002 ($3,158 during the
second quarter of 2002) compared to $8,627 during the first six
months of 2001 ($3,885 during the second quarter of 2001).
Capital expenditures both for the first six months of 2002 and
2001 are a result of the Companys effort to increase plant
capacity and to increase efficiency through automation at its
various manufacturing facilities. During 2001, the Company had
additional capital expenditures related to the opening of its
new vinyl window manufacturing and aluminum extrusion
facilities. The Company expects capital expenditures (exclusive
of acquisitions, if any) in 2002 to be approximately $13,500,
however, actual capital requirements may change based on
management and strategic decisions.

The Companys ability to meet debt service,
working capital obligations and capital expenditure requirements
is dependent upon the Companys future performance which,
in turn, will be subject to general economic conditions and to
financial, business and other factors, including factors beyond
the Companys control.

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New Accounting Pronouncements

In August 2001, the FASB issued SFAS
No. 143, Accounting for Asset Retirement
Obligations (SFAS 143). SFAS 143
addresses financial accounting and reporting obligations
associated with the retirement of tangible long-lived assets and
the associated asset retirement costs. Under SFAS 143, the
fair value of a liability for an asset retirement obligation
covered under the scope of SFAS 143 would be recognized in
the period in which the liability is incurred, with an
offsetting increase in the carrying amount of the related
long-lived asset. SFAS 143 is effective for the Company on
January 1, 2003. The Company is currently assessing the
impact of SFAS 143 and has not yet determined the effects,
if any, it will have on its consolidated financial position or
results of operations.

In April 2002, the FASB issued SFAS No. 145,
Rescission of FASB Statements No. 4, 44, and 64,
Amendment of FASB Statement No. 13, and Technical
Corrections (SFAS 145). SFAS 145
rescinds SFAS No. 4, Reporting Gains and Losses from
Extinguishment of Debt, requiring that gains and losses
from the extinguishment of debt be classified as extraordinary
items only if certain criteria are met. SFAS 145 also
amends SFAS No. 13, Accounting for Leases, and
the required accounting for sale-leaseback transactions and
certain lease modifications that have economic effects that are
similar to sale-leaseback transactions. SFAS 145 is
effective for the Company on January 1, 2003. Upon adoption
of SFAS 145, the Company will reclassify previously
reported extraordinary items as a component of earnings before
income taxes.

In July 2002, the FASB issued SFAS No. 146,
Accounting for Costs Associated with Exit or Disposal
Activities (SFAS 146). SFAS 146
requires that a liability for a cost associated with an exit or
disposal activity be recognized initially at fair value when the
liability is incurred. SFAS 146 is effective for the
Company on January 1, 2003 and will be applied on a
prospective basis.

Adoption of SFAS No. 141, SFAS
No. 142 and SFAS No. 144

In June 2001, the FASB issued SFAS No. 141,
Business Combinations (SFAS 141)
and SFAS No. 142, Goodwill and Other Intangible
Assets (SFAS 142). SFAS 141 and
SFAS 142 are effective for fiscal years beginning after
December 15, 2001. Under the new rules, goodwill and
intangible assets deemed to have indefinite lives will no longer
be amortized but will be subject to annual impairment tests in
accordance with the statements. Other intangible assets will
continue to be amortized over their useful lives. The Company
adopted SFAS 141 and SFAS 142 on January 1, 2002
and eliminated amortization of goodwill as of such date.
Amortization expense for goodwill for the three and six months
ended June 30, 2001 was $2,933 and $5,860, respectively.
The Company has completed its initial, transitional goodwill
impairment analysis under SFAS 142 as of January 1,
2002, and no goodwill impairment was deemed to exist. In
accordance with the requirements of SFAS 142, the Company
will review goodwill for impairment during the fourth quarter of
each year starting in 2002. Goodwill will also be reviewed for
impairment at other times during each year when events or
changes in circumstances indicate an impairment might be present.

The Company adopted SFAS No. 144,
Accounting for the Impairment or Disposal of Long-Lived
Assets (SFAS 144), effective
January 1, 2002. SFAS 144 retains the fundamental
provisions of existing generally accepted accounting principles
with respect to the recognition and measurement of long-lived
asset impairment contained in SFAS No. 121,
Accounting for the Impairment of Long-Lived Assets and for
Long-Lived Assets to be Disposed Of
(SFAS 121). However, SFAS 144 provides new
guidance intended to address certain implementation issues
associated with SFAS 121, including expanded guidance with
respect to appropriate cash flows to be used to determine
whether recognition of any long-lived asset impairment is
required, and if required, how to measure the amount of the
impairment. SFAS 144 also requires that any net assets to
be disposed of by sale to be reported at the lower of carrying
value or fair value less cost to sell, and expands the reporting
of discontinued operations to include any component of an entity
with operations and cash flows that can be clearly distinguished
from the rest of the entity. Adoption of SFAS 144 did not
have a significant effect on the Company as of January 1,
2002.

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Item 3.     Quantitative
and qualitative disclosure about market risk

Market Risk

The Company is exposed to market risk from
changes in interest rates and commodity pricing. The Company
uses derivative financial instruments on a limited basis to
hedge economic exposures including interest rate protection
agreements and forward commodity delivery agreements. The
Company does not enter into derivative financial instruments or
other financial instruments for speculative trading purposes.

On November 1, 2000, Atrium Companies
entered into a $100,000 interest rate swap agreement to limit
the effect of changes in interest rates on long-term borrowings.
Under the agreement, the Company pays interest at a fixed rate
of 6.66% on the notional amount and receives interest therein at
the three-month LIBOR on a quarterly basis. This swap expires in
November 2003. The fair value of this swap is a liability of
$5,443 and is included in swap contract liability.

On December 8, 2000, Atrium Companies
entered into a $40,000 interest rate swap agreement to limit the
effect of changes in interest rates on long-term borrowings. In
December of 2001 the notional amount of the swap was amended to
$37,500 and again in March 2002 to $35,500 in order to maintain
hedge effectiveness. The amended swap expires in
December 2002. Under the agreement, the Company pays
interest at a fixed rate of 6.15% on the notional amount and
receives interest therein at the three-month LIBOR on a
quarterly basis. The fair value of this swap is a liability of
$667 and is included in accrued liabilities.




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 6.     Exhibits
and Reports on Form 8-K

(a) Exhibits



| |                                                                                                                                                  
| | -------------------------------------------------------------------------------------------------------------------------------------------------
| | The exhibits filed with or incorporated by
    reference in this report are listed on the Exhibit Index
    beginning on page E-1 of this report.

(b) Reports on Form 8-K

The following reports of Form 8-K were
filled by the registrant during the second quarter:

None.

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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 CORPORATION
| | (Registrant)      

Date: August 14, 2002

| |     |                
| | --- | ---------------
| | By: | /s/JEFF L. HULL

| |                                                    
| | ---------------------------------------------------
| |                                                    
| | Jeff L. Hull                                       
| | President, Chief Executive Officer and
    Director
| | (Principal Executive Officer)                      

Date: August 14, 2002

| |     |                
| | --- | ---------------
| | By: | /s/ERIC W. LONG

| |                                                     
| | ----------------------------------------------------
| |                                                     
| | Eric W. Long                                        
| | Chief Financial Officer, Treasurer and
    Secretary
| | (Principal Financial and Accounting
    Officer)    

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ATRIUM CORPORATION

EXHIBIT INDEX


|        |      |             |  |                                                                                                                                                           
|------- | ---- | ----------- |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------
|Exhibit |      |            
|Number  |      | Description
|        |      |            
|        | 99.1 |             |  | Certification by Chief Executive Officer Pursuant
    to 18 U.S.C. Section 1350, As Adopted Pursuant to
    Section 906 of the Sarbanes-Oxley Act of 2002.
|        | 99.2 |             |  | Certification by Chief Financial Officer Pursuant
    to 18 U.S.C. Section 1350, As Adopted Pursuant to
    Section 906 of the Sarbanes-Oxley Act of 2002.

E-1