##### Table of Contents









UNITED STATES SECURITIES AND EXCHANGE
COMMISSION

Washington, D.C. 20549


Form 10-Q

|           |  |                                                                                             
|---------- |  | --------------------------------------------------------------------------------------------
|(Mark One) |  |                                                                                             
|þ          |  | QUARTERLY REPORT PURSUANT TO SECTION 13
    OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 
|          
|           |  | For the quarterly period ended
    September 30, 2003                                       
|          
|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

Indicate by check mark whether the registrant is
an accelerated filer (as defined in Rule 12b-2 of the
Act).     Yes o          No þ

As of November 3, 2003, the registrant had
170,906 shares of Common Stock, par value $.01 per
share outstanding.



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TABLE OF CONTENTS



|                                                 |                                                                                               |  |  |  |  |  |  | 
|------------------------------------------------ | --------------------------------------------------------------------------------------------- |  |  |  |  |  |  | 
|                                                 | Item 2. Managements Discussion and Analysis of Financial Condition and Results of Operations
|                                                 | Item 3. Quantitative and Qualitative Disclosures About Market Risk                           
|                                                 | Item 4. Controls and Procedures                                                              
|PART II. OTHER INFORMATION                      
|                                                 | Item 1. Legal Proceedings                                                                    
|                                                 | Item 6. Exhibits and Reports on Form 8-K                                                     
|SIGNATURES                                      
|EX-31.1 Certification of Chief Executive Officer
|EX-31.2 Certification of Chief Financial Officer



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##### Table of Contents



ATRIUM CORPORATION

FORM 10-Q

Quarter Ended September 30,
2003


INDEX

|                                       |  |                                                                                                                                  |    |      |       | 
|-------------------------------------- |  | -------------------------------------------------------------------------------------------------------------------------------- | -- | ---- | ----- | 
|                                       |  |                                                                                                                                  |    | Page
|                                       |  |                                                                                                                                  |    |     
|PART I. FINANCIAL INFORMATION          |  |                                                                                                                                  |    |     
|Item 1.                                |  | Consolidated Financial Statements (unaudited):                                                                                   |    |      |       | 
|                                       |  | Consolidated Balance Sheets as of
    September 30, 2003 and December 31, 2002                                                   |    |      | 2     | 
|                                       |  | Consolidated Statements of Operations for the
    Three Months Ended September 30, 2003 and 2002                                 |    |      | 3     | 
|                                       |  | Consolidated Statements of Operations for the
    Nine Months Ended September 30, 2003 and 2002                                  |    |      | 4     | 
|                                       |  | Consolidated Statement of Stockholders
    Equity and Other Comprehensive Loss for the Nine Months Ended
    September 30, 2003 |    |      | 5     | 
|                                       |  | Consolidated Statements of Cash Flows for the
    Nine Months Ended September 30, 2003 and 2002                                  |    |      | 6     | 
|                                       |  | Notes to Consolidated Financial Statements                                                                                       |    |      | 7-15  | 
|Item 2.                                |  | Managements Discussion and Analysis of
    Financial Condition and Results of Operations                                        |    |      | 16-21 | 
|Item 3.                                |  | Quantitative and Qualitative Disclosures about
    Market Risk                                                                   |    |      | 21    | 
|Item 4.                                |  | Controls and Procedures                                                                                                          |    |      | 21    | 
|                                      
|PART II. OTHER INFORMATION             |  |                                                                                                                                  |    |     
|Item 1.                                |  | Legal Proceedings                                                                                                                |    |      | 22    | 
|Items 2, 3, 4 and 5 are not applicable |  |                                                                                                                                  |    |     
|Item 6.                                |  | Exhibits and Reports on Form 8-K                                                                                                 |    |      | 22    | 
|Signatures                             |  |                                                                                                                                  | 23 |     

1



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##### Table of Contents



ATRIUM CORPORATION

CONSOLIDATED BALANCE SHEETS

(dollars in thousands, except share
amounts)


|                                             |                                                                                                                                                                                |                                            |         |              |         |  |         |         |         | 
|-------------------------------------------- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------ | ------------------------------------------ | ------- | ------------ | ------- |  | ------- | ------- | ------- | 
|                                             |                                                                                                                                                                                | September 30,                              |         | December 31,
|                                             |                                                                                                                                                                                | 2003                                       |         | 2003        
|                                             |                                                                                                                                                                                |                                            |         |             
|                                             |                                                                                                                                                                                | (unaudited)                                |         |             
|ASSETS                                      
|CURRENT ASSETS:                              |                                                                                                                                                                                |                                            |         |              |         |  |         |        
|                                             | Cash and cash equivalents                                                                                                                                                      |                                            | $       | 8,604        |         |  | $       | 1,131   |        
|                                             | Accounts receivable, net                                                                                                                                                       |                                            |         | 4,520        |         |  |         | 1,847   |        
|                                             | Retained interest in sold accounts receivable                                                                                                                                  |                                            |         | 32,111       |         |  |         | 25,209  |        
|                                             | Other receivable  litigation settlement                                                                                                                                       |                                            |         | 11,979       |         |  |         |        |        
|                                             | Inventories                                                                                                                                                                    |                                            |         | 47,057       |         |  |         | 33,712  |        
|                                             | Prepaid expenses and other current assets                                                                                                                                      |                                            |         | 5,946        |         |  |         | 6,109   |        
|                                             | Deferred tax asset                                                                                                                                                             |                                            |         | 1,300        |         |  |         | 922     |        
|                                             |                                                                                                                                                                                |                                            |         |              |         |  |         |        
|                                             |                                                                                                                                                                                | Total current assets                       |         |              | 111,517 |  |         |         | 68,930  | 
|PROPERTY, PLANT AND EQUIPMENT, net           |                                                                                                                                                                                |                                            | 60,232  |              |         |  | 55,322  |        
|GOODWILL, net                                |                                                                                                                                                                                |                                            | 349,425 |              |         |  | 345,239 |        
|DEFERRED FINANCING COSTS, net                |                                                                                                                                                                                |                                            | 11,909  |              |         |  | 14,401  |        
|OTHER ASSETS, net                            |                                                                                                                                                                                |                                            | 10,461  |              |         |  | 8,134   |        
|                                             |                                                                                                                                                                                |                                            |         |              |         |  |         |        
|                                             |                                                                                                                                                                                | Total assets                               |         | $            | 543,544 |  |         | $       | 492,026 | 
|                                             |                                                                                                                                                                                |                                            |         |              |         |  |         |        
|LIABILITIES AND STOCKHOLDERS
    EQUITY    
|CURRENT LIABILITIES:                         |                                                                                                                                                                                |                                            |         |              |         |  |         |        
|                                             | Current portion of notes payable                                                                                                                                               |                                            | $       | 4,609        |         |  | $       | 6,524   |        
|                                             | Accounts payable                                                                                                                                                               |                                            |         | 33,318       |         |  |         | 22,535  |        
|                                             | Other payable  litigation settlement                                                                                                                                          |                                            |         | 18,450       |         |  |         |        |        
|                                             | Accrued liabilities                                                                                                                                                            |                                            |         | 34,216       |         |  |         | 31,441  |        
|                                             |                                                                                                                                                                                |                                            |         |              |         |  |         |        
|                                             |                                                                                                                                                                                | Total current liabilities                  |         |              | 90,593  |  |         |         | 60,500  | 
|                                             |                                                                                                                                                                                |                                            |         |              |         |  |         |        
|LONG-TERM LIABILITIES:                       |                                                                                                                                                                                |                                            |         |              |         |  |         |        
|                                             | Notes payable                                                                                                                                                                  |                                            |         | 335,420      |         |  |         | 329,880 |        
|                                             | Deferred tax liability                                                                                                                                                         |                                            |         | 1,300        |         |  |         | 922     |        
|                                             | Other long-term liabilities                                                                                                                                                    |                                            |         | 2,348        |         |  |         | 560     |        
|                                             |                                                                                                                                                                                |                                            |         |              |         |  |         |        
|                                             |                                                                                                                                                                                | Total long-term liabilities                |         |              | 339,068 |  |         |         | 331,362 | 
|                                             |                                                                                                                                                                                |                                            |         |              |         |  |         |        
|                                             |                                                                                                                                                                                | Total liabilities                          |         |              | 429,661 |  |         |         | 391,862 | 
|                                             |                                                                                                                                                                                |                                            |         |              |         |  |         |        
|COMMON STOCK SUBJECT TO MANDATORY REDEMPTION |                                                                                                                                                                                |                                            | 15,604  |              |         |  | 15,604  |        
|                                             |                                                                                                                                                                                |                                            |         |              |         |  |         |        
|COMMITMENTS AND CONTINGENCIES                |                                                                                                                                                                                |                                            |         |              |         |  |         |        
|STOCKHOLDERS EQUITY:                        |                                                                                                                                                                                |                                            |         |              |         |  |         |        
|                                             | Common stock $01 par value, 245,000 shares
    authorized, 170,906 and 170,700 shares issued and
    outstanding at September 30, 2003 and December 31,
    2002, respectively |                                            |         | 2            |         |  |         | 2       |        
|                                             | Paid-in capital                                                                                                                                                                |                                            |         | 179,979      |         |  |         | 179,704 |        
|                                             | Accumulated deficit                                                                                                                                                            |                                            |         | (81,236      | )       |  |         | (90,706 | )      
|                                             | Accumulated other comprehensive loss                                                                                                                                           |                                            |         | (466         | )       |  |         | (4,440  | )      
|                                             |                                                                                                                                                                                |                                            |         |              |         |  |         |        
|                                             |                                                                                                                                                                                | Total stockholders equity                 |         |              | 98,279  |  |         |         | 84,560  | 
|                                             |                                                                                                                                                                                |                                            |         |              |         |  |         |        
|                                             |                                                                                                                                                                                | Total liabilities and stockholders equity |         | $            | 543,544 |  |         | $       | 492,026 | 
|                                             |                                                                                                                                                                                |                                            |         |              |         |  |         |        

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 September 30,
2003 and 2002


(dollars in thousands)


(unaudited)


|                                                                                                                                       |                            |      |         |        |  |   |         |        | 
|-------------------------------------------------------------------------------------------------------------------------------------- | -------------------------- | ---- | ------- | ------ |  | - | ------- | ------ | 
|                                                                                                                                       |                            | 2003 |         | 2002  
|                                                                                                                                       |                            |      |         |       
|NET SALES                                                                                                                              |                            | $    | 166,873 |        |  | $ | 144,763 |       
|COST OF GOODS SOLD                                                                                                                     |                            |      | 111,914 |        |  |   | 95,977  |       
|                                                                                                                                       |                            |      |         |        |  |   |         |       
|Gross profit                                                                                                                           |                            |      | 54,959  |        |  |   | 48,786  |       
|                                                                                                                                       |                            |      |         |        |  |   |         |       
|OPERATING EXPENSES:                                                                                                                    |                            |      |         |        |  |   |         |       
|Selling, delivery, general and administrative
    expenses (excluding securitization, stock compensation and
    amortization expense) |                            |      | 33,461  |        |  |   | 30,313  |       
|                                                                                                                                       | Securitization expense     |      |         | 355    |  |   |         | 325    | 
|                                                                                                                                       | Stock compensation expense |      |         | 100    |  |   |         | 75     | 
|                                                                                                                                       | Amortization expense       |      |         | 1,092  |  |   |         | 845    | 
|                                                                                                                                       |                            |      |         |        |  |   |         |       
|SELLING, DELIVERY, GENERAL AND ADMINISTRATIVE                                                                                          |                            |      |         |        |  |   |         |       
|                                                                                                                                       | EXPENSES                   |      |         | 35,008 |  |   |         | 31,558 | 
|Special charge                                                                                                                         |                            |      | 375     |        |  |   |        |       
|                                                                                                                                       |                            |      |         |        |  |   |         |       
|                                                                                                                                       |                            |      | 35,383  |        |  |   | 31,558  |       
|                                                                                                                                       |                            |      |         |        |  |   |         |       
|                                                                                                                                       | Income from operations     |      |         | 19,576 |  |   |         | 17,228 | 
|INTEREST EXPENSE                                                                                                                       |                            |      | 11,197  |        |  |   | 11,377  |       
|OTHER EXPENSE, net                                                                                                                     |                            |      | (5      | )      |  |   | (132    | )     
|                                                                                                                                       |                            |      |         |        |  |   |         |       
|Income before income taxes                                                                                                             |                            |      | 8,374   |        |  |   | 5,719   |       
|PROVISION FOR INCOME TAXES                                                                                                             |                            |      | 343     |        |  |   | 248     |       
|                                                                                                                                       |                            |      |         |        |  |   |         |       
|NET INCOME                                                                                                                             |                            | $    | 8,031   |        |  | $ | 5,471   |       
|                                                                                                                                       |                            |      |         |        |  |   |         |       

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

3



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ATRIUM CORPORATION

CONSOLIDATED STATEMENTS OF
OPERATIONS

For the Nine Months Ended September 30,
2003 and 2002


(dollars in thousands)


(unaudited)


|                                                                                                                                       |                            |      |         |        |  |   |         |        | 
|-------------------------------------------------------------------------------------------------------------------------------------- | -------------------------- | ---- | ------- | ------ |  | - | ------- | ------ | 
|                                                                                                                                       |                            | 2003 |         | 2002  
|                                                                                                                                       |                            |      |         |       
|NET SALES                                                                                                                              |                            | $    | 442,237 |        |  | $ | 406,233 |       
|COST OF GOODS SOLD                                                                                                                     |                            |      | 299,705 |        |  |   | 273,157 |       
|                                                                                                                                       |                            |      |         |        |  |   |         |       
|Gross profit                                                                                                                           |                            |      | 142,532 |        |  |   | 133,076 |       
|                                                                                                                                       |                            |      |         |        |  |   |         |       
|OPERATING EXPENSES:                                                                                                                    |                            |      |         |        |  |   |         |       
|Selling, delivery, general and administrative
    expenses (excluding securitization, stock compensation and
    amortization expense) |                            |      | 94,352  |        |  |   | 87,900  |       
|                                                                                                                                       | Securitization expense     |      |         | 867    |  |   |         | 879    | 
|                                                                                                                                       | Stock compensation expense |      |         | 552    |  |   |         | 308    | 
|                                                                                                                                       | Amortization expense       |      |         | 3,067  |  |   |         | 2,475  | 
|                                                                                                                                       |                            |      |         |        |  |   |         |       
|SELLING, DELIVERY, GENERAL AND ADMINISTRATIVE
    EXPENSES                                                                             |                            |      | 98,838  |        |  |   | 91,562  |       
|Special charge                                                                                                                         |                            |      | 375     |        |  |   | 3,948   |       
|                                                                                                                                       |                            |      |         |        |  |   |         |       
|                                                                                                                                       |                            |      | 99,213  |        |  |   | 95,510  |       
|                                                                                                                                       |                            |      |         |        |  |   |         |       
|                                                                                                                                       | Income from operations     |      |         | 43,319 |  |   |         | 37,566 | 
|INTEREST EXPENSE                                                                                                                       |                            |      | 33,358  |        |  |   | 33,796  |       
|OTHER INCOME, net                                                                                                                      |                            |      | 159     |        |  |   | 265     |       
|                                                                                                                                       |                            |      |         |        |  |   |         |       
|Income before income taxes                                                                                                             |                            |      | 10,120  |        |  |   | 4,035   |       
|PROVISION FOR INCOME TAXES                                                                                                             |                            |      | 650     |        |  |   | 478     |       
|                                                                                                                                       |                            |      |         |        |  |   |         |       
|NET INCOME                                                                                                                             |                            | $    | 9,470   |        |  | $ | 3,557   |       
|                                                                                                                                       |                            |      |         |        |  |   |         |       

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

4



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##### Table of Contents



ATRIUM CORPORATION

CONSOLIDATED STATEMENT OF STOCKHOLDERS
EQUITY

AND OTHER COMPREHENSIVE LOSS


For the Nine Months Ended September 30,
2003


(dollars in thousands, except share
amounts)


(unaudited)


|                             |                                                                                  |         |         |         |  |             |   |               |  |               |         |        |  |   |         |       |  |   |        |       |  |   |        |       | 
|---------------------------- | -------------------------------------------------------------------------------- | ------- | ------- | ------- |  | ----------- | - | ------------- |  | ------------- | ------- | ------ |  | - | ------- | ----- |  | - | ------ | ----- |  | - | ------ | ----- | 
|                             |                                                                                  |         |         |         |  |             |   | Accumulated   |  |              
|                             |                                                                                  | Class A |         |         |  |             |   | Other         |  | Total        
|                             |                                                                                  |         |         | Paid-in |  | Accumulated |   | Comprehensive |  | Stockholders
|                             |                                                                                  | Shares  |         | Amount  |  | Capital     |   | Deficit       |  | Loss          |         | Equity
|                             |                                                                                  |         |         |         |  |             |   |               |  |               |         |       
|Balance, December 31, 2002   |                                                                                  |         | 170,700 |         |  | $           | 2 |               |  | $             | 179,704 |        |  | $ | (90,706 | )     |  | $ | (4,440 | )     |  | $ | 84,560 |      
|Issuance of Class A Shares   |                                                                                  |         | 231     |         |  |             |  |               |  |               | 300     |        |  |   |        |       |  |   |       |       |  |   | 300    |      
|Repurchase of Class A shares |                                                                                  |         | (25     | )       |  |             |  |               |  |               | (25     | )      |  |   |        |       |  |   |       |       |  |   | (25    | )    
|Comprehensive income:        |                                                                                  |         |         |         |  |             |   |               |  |               |         |        |  |   |         |       |  |   |        |       |  |   |        |      
|                             | Net income                                                                       |         |         |        |  |             |   |              |  |               |         |       |  |   |         | 9,470 |  |   |        |      |  |   |        | 9,470 | 
|                             | Net fair market value adjustment of derivative
    instruments, net of tax of $0 |         |         |        |  |             |   |              |  |               |         |       |  |   |         |      |  |   |        | 3,974 |  |   |        | 3,974 | 
|                             |                                                                                  |         |         |         |  |             |   |               |  |               |         |        |  |   |         |       |  |   |        |       |  |   |        |      
|Total comprehensive income   |                                                                                  |         |        |         |  |             |  |               |  |               |        |        |  |   | 9,470   |       |  |   | 3,974  |       |  |   | 13,444 |      
|                             |                                                                                  |         |         |         |  |             |   |               |  |               |         |        |  |   |         |       |  |   |        |       |  |   |        |      
|Balance, September 30, 2003  |                                                                                  |         | 170,906 |         |  | $           | 2 |               |  | $             | 179,979 |        |  | $ | (81,236 | )     |  | $ | (466   | )     |  | $ | 98,279 |      
|                             |                                                                                  |         |         |         |  |             |   |               |  |               |         |        |  |   |         |       |  |   |        |       |  |   |        |      

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 Nine Months Ended September 30,
2003 and 2002


(dollars in thousands)


(unaudited)


|                                               |                                                                                             |                                                         |                                           |         |         |         |       |         |         |         |  
|---------------------------------------------- | ------------------------------------------------------------------------------------------- | ------------------------------------------------------- | ----------------------------------------- | ------- | ------- | ------- | ----- | ------- | ------- | ------- | -
|                                               |                                                                                             | 2003                                                    |                                           | 2002   
|                                               |                                                                                             |                                                         |                                           |        
|CASH FLOWS FROM OPERATING ACTIVITIES:          |                                                                                             |                                                         |                                           |         |         |         |       |        
|                                               | Net income                                                                                  |                                                         | $                                         | 9,470   |         |         | $     | 3,557   |        
|                                               | Adjustments to reconcile net income to net cash
    flows provided by operating activities: |                                                         |                                           |         |         |         |       |         |        
|                                               | Depreciation and amortization                                                               |                                                         |                                           | 12,577  |         |         |       | 10,965  |        
|                                               | Non-cash stock compensation expense                                                         |                                                         |                                           | 300     |         |         |       | 225     |        
|                                               | Amortization of deferred financing costs                                                    |                                                         |                                           | 2,469   |         |         |       | 2,533   |        
|                                               | Write-off of deferred financing costs                                                       |                                                         |                                           | 29      |         |         |       |        |        
|                                               | Accretion of discount on notes payable                                                      |                                                         |                                           | 170     |         |         |       | 152     |        
|                                               | Accretion of discount on senior payment-in-kind
    notes                                   |                                                         |                                           | 7,940   |         |         |       | 6,512   |        
|                                               | Amortization of gain from sale/leaseback of
    building                                    |                                                         |                                           | (22     | )       |         |       | (32     | )      
|                                               | Special Charges                                                                             |                                                         |                                           | 375     |         |         |       | 456     |        
|                                               | Loss on sale of receivables                                                                 |                                                         |                                           | 308     |         |         |       | 664     |        
|                                               | Gain (loss) on disposals of assets                                                          |                                                         |                                           | (14     | )       |         |       | 1       |        
|                                               | Advances from litigation settlement                                                         |                                                         |                                           | 6,471   |         |         |       |        |        
|                                               | Changes in assets and liabilities, net of
    acquisitions:                                 |                                                         |                                           |         |         |         |       |         |        
|                                               |                                                                                             | Accounts receivable                                     |                                           |         | (2,492  | )       |       |         | 528     |        
|                                               |                                                                                             | Retained interest in sold accounts receivable           |                                           |         | (16,593 | )       |       |         | (12,915 | )      
|                                               |                                                                                             | Sale of accounts receivable                             |                                           |         | 12,900  |         |       |         | (4,400  | )      
|                                               |                                                                                             | Inventories                                             |                                           |         | (11,568 | )       |       |         | (1,296  | )      
|                                               |                                                                                             | Prepaid expenses and other current assets               |                                           |         | 187     |         |       |         | 563     |        
|                                               |                                                                                             | Accounts payable                                        |                                           |         | 10,386  |         |       |         | 8,271   |        
|                                               |                                                                                             | Accrued liabilities and other long-term
    liabilities |                                           |         | 4,086   |         |       |         | 1,804   |        
|                                               |                                                                                             |                                                         |                                           |         |         |         |       |        
|                                               |                                                                                             |                                                         | Net cash provided by operating activities |         |         | 36,979  |       |         |         | 17,588  |  
|                                               |                                                                                             |                                                         |                                           |         |         |         |       |        
|CASH FLOWS FROM INVESTING ACTIVITIES:          |                                                                                             |                                                         |                                           |         |         |         |       |        
|                                               | Purchases of property, plant and equipment                                                  |                                                         |                                           | (11,029 | )       |         |       | (10,362 | )      
|                                               | Proceeds from sales of assets                                                               |                                                         |                                           | 415     |         |         |       | 194     |        
|                                               | Acquisitions                                                                                |                                                         |                                           | (9,087  | )       |         |       |        |        
|                                               | Other assets                                                                                |                                                         |                                           | (3,861  | )       |         |       | (2,933  | )      
|                                               |                                                                                             |                                                         |                                           |         |         |         |       |        
|                                               |                                                                                             |                                                         | Net cash used in investing activities     |         |         | (23,562 | )     |         |         | (13,101 | )
|                                               |                                                                                             |                                                         |                                           |         |         |         |       |        
|CASH FLOWS FROM FINANCING ACTIVITIES:          |                                                                                             |                                                         |                                           |         |         |         |       |        
|                                               | Payments of capital lease obligations                                                       |                                                         |                                           | (58     | )       |         |       | (18     | )      
|                                               | Deferred financing costs                                                                    |                                                         |                                           | (7      | )       |         |       |        |        
|                                               | Proceeds from the issuance of common stock                                                  |                                                         |                                           |        |         |         |       | 1       |        
|                                               | Repurchase of stock options and common stock                                                |                                                         |                                           | (25     | )       |         |       | (124    | )      
|                                               | Scheduled principal payments on term loans                                                  |                                                         |                                           | (4,097  | )       |         |       | (4,114  | )      
|                                               | Additional principal payments on term loans                                                 |                                                         |                                           | (1,058  | )       |         |       | (684    | )      
|                                               | Checks drawn in excess of bank balances                                                     |                                                         |                                           | (699    | )       |         |       | 4,686   |        
|                                               |                                                                                             |                                                         |                                           |         |         |         |       |        
|                                               |                                                                                             |                                                         | Net cash used in financing activities     |         |         | (5,944  | )     |         |         | (253    | )
|                                               |                                                                                             |                                                         |                                           |         |         |         |       |        
|NET INCREASE IN CASH AND CASH EQUIVALENTS      |                                                                                             |                                                         | 7,473                                     |         |         |         | 4,234 |        
|CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD |                                                                                             |                                                         | 1,131                                     |         |         |         | 1,247 |        
|                                               |                                                                                             |                                                         |                                           |         |         |         |       |        
|CASH AND CASH EQUIVALENTS, END OF PERIOD       |                                                                                             | $                                                       | 8,604                                     |         |         | $       | 5,481 |        
|                                               |                                                                                             |                                                         |                                           |         |         |         |       |        

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

September 30, 2003 and 2002


(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 nine months ended
September 30, 2003 and 2002, and financial position as of
September 30, 2003 and December 31, 2002 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, 2002 included in the Companys annual
report on Form 10-K as filed with the Securities and
Exchange Commission on March 31, 2003. 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.



|   |                         
|-- | ------------------------
|2. | Stock-Based Compensation

As of September 30, 2003, the Company had
several stock-based compensation plans. The Company accounts for
these plans under the recognition and measurement principles of
the Accounting Principles Board Opinion (APB)
No. 25, Accounting for Stock Issued to
Employees, and related interpretations. Stock-based
employee compensation costs related to the issuance of stock
options is not reflected in the Companys earnings, as all
options granted under those plans had an exercise price equal to
or in excess of the estimated market value of the underlying
common stock on the date of grant.

The following table illustrates the effect on the
Companys reported net income if the Company had applied
the fair value recognition provisions of Statement of Financial
Accounting Standards (SFAS) No. 123,
Accounting for Stock-based Compensation, to
stock-based compensation plans and warrants.

|                        |                                                                                                                         |                     |       |               |       |      |       |      |       |   |       |     |       |   |       |      |       | 
|----------------------- | ----------------------------------------------------------------------------------------------------------------------- | ------------------- | ----- | ------------- | ----- | ---- | ----- | ---- | ----- | - | ----- | --- | ----- | - | ----- | ---- | ----- | 
|                        |                                                                                                                         |                     |       |              
|                        |                                                                                                                         | Three Months        |       | Nine Months  
|                        |                                                                                                                         | Ended               |       | Ended        
|                        |                                                                                                                         | September 30,       |       | September 30,
|                        |                                                                                                                         |                     |       |              
|                        |                                                                                                                         | 2003                |       | 2002          |       | 2003 |       | 2002
|                        |                                                                                                                         |                     |       |               |       |      |       |     
|Net income, as reported |                                                                                                                         | $                   | 8,031 |               |       | $    | 5,471 |      |       | $ | 9,470 |     |       | $ | 3,557 |     
|Adjustments:            |                                                                                                                         |                     |       |               |       |      |       |      |       |   |       |     |       |   |       |     
|                        | Stock-based employee compensation expense
    included in reported net income, net of related tax effects               |                     |       |              |       |      |       |     |       |   |       | 252 |       |   |       | 83   |      
|                        | Stock-based employee compensation determined
    under fair value method for all awards, net of related tax
    effects |                     |       | (34           | )     |      |       | (10  | )     |   |       | (35 | )     |   |       | (153 | )    
|                        |                                                                                                                         |                     |       |               |       |      |       |      |       |   |       |     |       |   |       |     
|                        |                                                                                                                         | Adjusted net income |       | $             | 7,997 |      |       | $    | 5,461 |   |       | $   | 9,687 |   |       | $    | 3,487 | 
|                        |                                                                                                                         |                     |       |               |       |      |       |      |       |   |       |     |       |   |       |     

The above pro forma disclosures are not
representative of pro forma effects for future periods because
the determination of the fair value of all options granted
excludes an expected volatility factor and additional option
grants may be granted.

7



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##### Table of Contents





|   |                             
|-- | ----------------------------
|3. | New Accounting Pronouncement

During January 2003, the Financial Accounting
Standards Board (FASB) issued FASB Interpretation
(FIN) No. 46, Consolidation of Variable
Interest Entities (FIN 46). FIN 46
provides guidance for companies having ownership of variable
interest entities, typically referred to as special purpose
entities, in determining whether to consolidate such variable
interest entities. FIN 46 has immediate applicability for
variable interest entities created after January 31, 2003
or interest in variable interests created after that date. For
interests in variable interest entities, FIN 46 is expected
to become effective on December 31, 2003. The Company is
considering the implications of FIN 46, however they do not
expect that adoption will have a significant effect on their
financial statements.



|   |                                              
|-- | ---------------------------------------------
|4. | Adoption of New Accounting
    Pronouncements



| |                                                                      
| | ---------------------------------------------------------------------
| | SFAS No. 143 
    Accounting for Asset Retirement
    Obligations:

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. Adoption of SFAS 143 has not had a
significant effect on the Company.



| |                                                                                                                                             
| | --------------------------------------------------------------------------------------------------------------------------------------------
| | SFAS No. 145 
    Rescission of FASB Statements No. 4, 44, and 64,
    Amendment of FASB Statement No. 13, and Technical
    Corrections:

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 was adopted by the Company on
January 1, 2003. During April of 2003, the Company expensed
$29 of deferred financing fees in connection with their 2002
excess cash flow payment (see Note 5). The loss associated
with the debt retirement is included in interest expense on the
Companys financial statements.



| |                                                                                           
| | ------------------------------------------------------------------------------------------
| | SFAS No. 146 
    Accounting for Costs Associated with Exit or Disposal
    Activities:

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. The Company adopted SFAS 146 on
January 1, 2003. Adoption of SFAS 146 did not have a
significant effect on the Company.



| |                                                                                                      
| | -----------------------------------------------------------------------------------------------------
| | SFAS No. 149 
    Amendment of Statement 133 on Derivative Instruments and
    Hedging Activities:

In April 2003, the FASB issued
SFAS No. 149, Amendment of Statement 133 on
Derivative Instruments and Hedging Activities
(SFAS 149). SFAS 149 amends and clarifies
the accounting and reporting for derivative contracts, including
hedging instruments. The amendments and clarifications under
SFAS 149 generally serve to codify the conclusions reached
by the Derivative Implementation Group, to incorporate other
FASB projects on financial instruments, and to clarify other
implementation issues. SFAS 149 became effective
prospectively for derivative contracts entered into or modified
by the Company after June 30, 2003. Adoption of
SFAS 149 has not had a significant impact on the Company.

8



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##### Table of Contents





| |                                                                                                                               
| | ------------------------------------------------------------------------------------------------------------------------------
| | SFAS No. 150 
    Accounting for Certain Financial Instruments with
    Characteristics of both Liabilities and
    Equity:

In May 2003, the FASB issued
SFAS No. 150, Accounting for Certain Financial
Instruments with Characteristics of both Liabilities and
Equity (SFAS 150). SFAS 150 requires
that certain financial instruments, which under previous
guidance were accounted for as equity, must now be accounted for
as liabilities. The financial instruments affected include
mandatorily redeemable stock, certain financial instruments that
require or may require the issuer to buy back some of its shares
in exchange for cash or other assets and certain obligations
that can be settled with shares of stock. SFAS 150 is
effective for all financial instruments entered into or modified
after May 31, 2003 and must be applied to the
Companys existing financial instruments effective
July 1, 2003. On October 29, 2003, the FASB deferred
the provisions of paragraphs 9 and 10 and related guidance in
the appendices of this pronouncement as they apply to
mandatorily redeemable noncontrolling interests. Adoption of the
effective provisions of SFAS 150 have not had a significant
effect on the Company, the Company does not expect that the
deferred provisions will have a significant effect on the
Company.

The Company issued $36,500 of senior
payment-in-kind notes (the PIK Notes) in October of
2000 with shares of stock discounted from managements
estimate of the fair market value of the common stock. These
shares are reflected on the balance sheet as common stock
subject to mandatory redemption since, if an initial public
offering has not occurred prior to October 25, 2006, the
holders of these shares can require the Company to repurchase
these shares at specified times during the period occurring
after October 25, 2006 and prior to October 25, 2010.
As the Companys common stock subject to redemption is not
mandatory, but contingent on certain events that may or may not
occur, the securities are excluded from the scope of
FAS 150 and therefore, would not be reclassified from the
current mezzanine treatment on the balance sheet at the
effective date of the pronouncement. If the Company were to
determine that the events causing the redemption will occur, the
Company will be required to reclassify the common stock subject
to redemption to be included as a liability and revalue the
security to the fair value of the common stock in the period
that the Company determines the event will occur.



| |                                                                                                                                         
| | ----------------------------------------------------------------------------------------------------------------------------------------
| | FIN No. 45 
    Guarantors Accounting and Disclosure Requirements
    for Guarantees, Including Indirect Indebtedness of
    Others:

During November 2002, the FASB issued FIN
No. 45, Guarantors Accounting and Disclosure
Requirements for Guarantees, Including Indirect Guarantees of
Indebtedness of Others (FIN 45).
FIN 45 generally requires a guarantor to recognize a
liability for obligations arising from guarantees. FIN 45
also requires new disclosures for guarantees meeting certain
criteria outlined in the pronouncement. The recognition and
measurement provisions of FIN 45 are applicable on a
prospective basis for guarantees issued or modified after
December 31, 2002. The Companys consolidated
financial statements have not been affected as a result of
adopting this pronouncement.



|   |            
|-- | -----------
|5. | 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:

|                |  |               |        |              |  |   |        |  
|--------------- |  | ------------- | ------ | ------------ |  | - | ------ | -
|                |  | September 30, |        | December 31,
|                |  | 2003          |        | 2002        
|                |  |               |        |             
|Raw materials   |  | $             | 29,432 |              |  | $ | 22,047 |  
|Work-in process |  |               | 1,507  |              |  |   | 1,041  |  
|Finished goods  |  |               | 16,285 |              |  |   | 10,667 |  
|                |  |               |        |              |  |   |        |  
|                |  |               | 47,224 |              |  |   | 33,755 |  
|LIFO reserve    |  |               | (167   | )            |  |   | (43    | )
|                |  |               |        |              |  |   |        |  
|                |  | $             | 47,057 |              |  | $ | 33,712 |  
|                |  |               |        |              |  |   |        |  

9



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##### Table of Contents





|   |              
|-- | -------------
|6. | Notes Payable

Notes payable consisted of the following:

|                                                         |                |               |         |              |  |   |         |         | 
|-------------------------------------------------------- | -------------- | ------------- | ------- | ------------ |  | - | ------- | ------- | 
|                                                         |                | September 30, |         | December 31,
|                                                         |                | 2003          |         | 2002        
|                                                         |                |               |         |             
|Revolving credit facility                                |                | $             |        |              |  | $ |        |        
|Term loan A                                              |                |               | 2,210   |              |  |   | 4,660   |        
|Term loan B                                              |                |               | 54,333  |              |  |   | 55,647  |        
|Term loan C                                              |                |               | 63,302  |              |  |   | 64,693  |        
|Senior subordinated notes                                |                |               | 175,000 |              |  |   | 175,000 |        
|Senior payment-in-kind notes                             |                |               | 57,383  |              |  |   | 50,794  |        
|Other                                                    |                |               | 676     |              |  |   | 6       |        
|                                                         |                |               |         |              |  |   |         |        
|                                                         |                |               | 352,904 |              |  |   | 350,800 |        
|Less:                                                    |                |               |         |              |  |   |         |        
|Unamortized discount on senior subordinated notes        |                |               | (1,811  | )            |  |   | (1,981  | )      
|Unamortized discount on senior payment-in-kind
    notes |                |               | (11,064 | )            |  |   | (12,415 | )      
|Current maturities of long-term debt                     |                |               | (4,609  | )            |  |   | (6,524  | )      
|                                                         |                |               |         |              |  |   |         |        
|                                                         | Long-term debt |               | $       | 335,420      |  |   | $       | 329,880 | 
|                                                         |                |               |         |              |  |   |         |        

The senior subordinated notes (the
Notes), PIK Notes and credit agreement require
the Company to meet certain financial tests pertaining to total
leverage, senior leverage, interest coverage, fixed charge
coverage and maximum capital expenditures. As of
September 30, 2003, the Company was in compliance with all
related covenants.

Additionally, the term loans have an excess
cash flows provision mandating additional principal
payments if certain cash flow targets are met during the year.
For 2002 and 2001, the excess cash flow payments were $1,058 and
$684, respectively. These amounts are required to be paid within
100 days of the fiscal year end. In December 2002, the
Company voluntarily pre-paid $6,544 on the term loans, which
reduced the mandated excess cash flow payment for 2002 to
$1,058, which was paid in April 2003.

Interest on the Companys PIK 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 rate shall
increase to 17%. The interest rate will return to 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 PIK Notes
increased to 17% in April 2002 as a result of the ratio not
being met. The interest on the PIK Notes will continue to accrue
at 17% until the default clears.

Atrium Companies has an interest rate swap
agreement to hedge exposure to interest rate fluctuations. As of
September 30, 2003, Atrium Companies had an interest rate
swap with a notional amount totaling $100,000. The swap expires
in November 2003.



|   |              
|-- | -------------
|7. | Contingencies

The Company has four unionized facilities within
the State of Texas, all of which are represented by the Union of
Needletrades, Industrial and Textile Employees
(UNITE!). During May of 2001, the Company entered
into a new three-year collective bargaining agreement with
UNITE! which will expire in 2004.

Atrium Companies 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

10



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##### Table of Contents



of recovery; and the questionable level of Atrium
Companies involvement. Atrium Companies was named in 1988
as a potentially responsible party (PRP) in two
superfund sites pursuant to the Comprehensive Environmental
Response Compensation and Liability Act of 1980, as amended.


Atrium Companies 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.

The second site is the Diaz Refinery site in
Jackson County, Arkansas. There is no documentation linking
Atrium Companies 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
Atrium Companies to the site and the De Minimis Buyout
Agreement, it is not expected that the Company will incur any
additional costs. 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 the site (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 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.

Atrium Companies owned one parcel of real estate
that requires future costs related to environmental clean-up.
The estimated costs of clean-up have been reviewed by
third-party sources and are expected not to exceed $150. The
previous owner of the property has established an escrow of $400
to remediate the associated costs. The Company sold this
property in December 1999. Atrium Companies 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.

In connection with the sale of one of Atrium
Companies facilities in December 2002, a $250 escrow was
established. The escrow is receivable upon the Company obtaining
an environmental certification on the building. The Company is
currently in the process of applying for the certification and
expects to be refunded the entire $250 escrow paid at closing
during 2003.

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



|   |                                           
|-- | ------------------------------------------
|8. | Wing Divestiture and Woodville
    Closing

During the first nine months of 2003, the accrued
provisions for Wing Industries, Inc. (Wing)
increased by $13 primarily due to a special charge recorded in
the amount of $375 for a legal settlement that was larger than
initially anticipated, offset by $362 in legal fees and exit
costs related to idle facilities, leaving a remaining accrual of
$653 for unpaid liabilities. In the same period, the Company
decreased its accrued

11



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##### Table of Contents



provisions for the Woodville closing by $142 for
a legal settlement and miscellaneous facility closure expenses,
reducing the remaining accrual to $90.




|   |             
|-- | ------------
|9. | Acquisitions

On January 31, 2003, Atrium Companies,
through its newly-formed and wholly-owned subsidiary, MD
Casting, Inc. (MD Casting), acquired substantially
all of the operating assets of Miniature Die Casting of Texas,
L.P. for a purchase price of $3,250 in cash, excluding
transaction fees of approximately $108, and the assumption of
certain liabilities with an additional amount of up to $600 to
be paid over three years upon the achievement of certain
financial targets. MD Casting is a zinc die cast hardware
manufacturer located in Fort Worth, Texas. The Company
financed the acquisition through its revolving credit facility.

The acquisition was accounted for in accordance
with SFAS No. 141, Business Combinations
(SFAS 141). The aggregate purchase price has
been allocated to the underlying assets and liabilities based
upon their respective estimated fair market values at the date
of acquisition. The excess of purchase price over the estimated
fair value of the net assets acquired (goodwill) was
$2,960. The results of MD Castings operations were
included in the Companys consolidated financial statements
beginning on February 1, 2003. The purchase price
allocation is as follows:

|                                   |                      |   |       |       | 
|---------------------------------- | -------------------- | - | ----- | ----- | 
|Accounts receivable                |                      | $ | 181   |      
|Inventory                          |                      |   | 195   |      
|Property, plant and equipment, net |                      |   | 929   |      
|Goodwill                           |                      |   | 2,960 |      
|Accounts payable                   |                      |   | (224  | )    
|Accrued liabilities                |                      |   | (283  | )    
|Other long-term liabilities        |                      |   | (400  | )    
|                                   |                      |   |       |      
|                                   | Total purchase price |   | $     | 3,358 | 
|                                   |                      |   |       |      

On April 1, 2003, Atrium Companies acquired
substantially all of the assets of Danvid Window Company
(Danvid), a wholly-owned subsidiary of American
Architectural Products Corporation (AAPC), for
approximately $5,550 in cash, excluding transaction fees of
$179, and the assumption of certain liabilities. The Company
financed the acquisition through its revolving credit facility.
The assets of Danvid have been acquired out of bankruptcy (with
both Danvid and AAPC operating as a debtor-in-possession under
Chapter 11) pursuant to an auction sale under
Sections 363 and 365 of the Bankruptcy Code. The
acquisition of Danvid, an aluminum and vinyl window and door
manufacturer, located in Dallas, Texas, further strengthens the
Companys market share in the Southern regions of the
United States.

The acquisition was accounted for in accordance
with SFAS 141 and the results of operations were included
in the Companys consolidated financial statements
beginning on April 1, 2003. The aggregate purchase price
has been allocated to the underlying assets and liabilities
based upon their respective estimated

12



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##### Table of Contents



fair market values at the date of acquisition.
The excess purchase price over the fair market value of the net
assets acquired (goodwill) was $1,226. The purchase
price allocation is as follows:


|                                   |                      |   |        |       | 
|---------------------------------- | -------------------- | - | ------ | ----- | 
|Accounts receivable                |                      | $ | 3,518  |      
|Employee receivables               |                      |   | 24     |      
|Inventory                          |                      |   | 1,581  |      
|Property, plant and equipment, net |                      |   | 2,226  |      
|Other assets, net                  |                      |   | 1,534  |      
|Goodwill                           |                      |   | 1,226  |      
|Accounts payable                   |                      |   | (872   | )    
|Accrued liabilities                |                      |   | (2,244 | )    
|Other long-term liabilities        |                      |   | (1,264 | )    
|                                   |                      |   |        |      
|                                   | Total purchase price |   | $      | 5,729 | 
|                                   |                      |   |        |      



|    |                  
|--- | -----------------
|10. | Subsequent Events



| |                   
| | ------------------
| | Kenner Transaction

On October 28, 2003, the Company entered
into a definitive agreement providing for the acquisition of the
Company by an investor group led by an affiliate of
Kenner & Company, Inc. (Kenner), a
New York-based private investment firm, UBS Capital
Americas and certain members of Atrium management. Kenner has
received financing commitments from CIBC World Markets and UBS
Investment Bank in connection with this transaction.

Pursuant to the agreement, each outstanding share
of the Companys common stock and each option, with the
exception of some shares and options owned by certain members of
management (which will be exchanged), will be acquired by KAT
Holdings, Inc. (a newly formed affiliate of Kenner &
Company), and all outstanding indebtedness (including accrued
interest) will continue to be outstanding or refinanced. The
transaction, as contemplated, will be in compliance with the
10 1/2% Senior Subordinated Notes (due 2009)
indenture. Under the indenture, Atrium Companies is required to
make an offer to purchase its 10 1/2% Senior
Subordinated Notes and will either commence the offer within
30 days after the closing of the transaction or solicit a
consent to leave the 10 1/2% Senior Subordinated Notes
outstanding. In connection with the transaction, Atrium
Companies also intends on renewing its accounts receivable
securitization facility and refinancing its existing senior
credit facility with a new senior credit facility arranged by
CIBC World Markets and UBS Investment Bank.

The acquisition is expected to be completed
during the fourth quarter of 2003 and is subject to the
availability of certain financing, the expiration of the
applicable waiting period under the Hart-Scott-Rodino Act and
other conditions.



| |                            
| | ---------------------------
| | Aluminum Screen Acquisition

On October 1, 2003, Atrium Companies
acquired substantially all of the assets of Aluminum Screen
Manufacturing, Ltd., L.L.P., a Texas registered limited
liability partnership and Texas limited partnership, Aluminum
Screen Products, Inc., a Nevada corporation and Aztex Screen
Products, L.L.C., an Arizona limited liability corporation
(collectively, Aluminum Screen) for
$16.5 million in cash. Aluminum Screen is a screen
manufacturer based in Dallas, Texas with additional operations
in Houston, Phoenix, Las Vegas and Ciudad Juarez, Mexico. The
transaction was effected through the Companys newly-formed
subsidiary, Aluminum Screen Manufacturers, Inc., a Delaware
corporation and was funded through a combination of borrowings
under the Companys revolving credit facility and accounts
receivable securitization facility.

The acquisition will be accounted for in
accordance with SFAS 141. The aggregate purchase price will
be allocated to the underlying assets and liabilities based upon
their respective estimated fair market values at the

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##### Table of Contents



date of acquisition. The results of the acquired
business will be included in the Companys consolidated
financial statements beginning on October 1, 2003.




| |                     
| | --------------------
| | Braverman Settlement

On October 1, 2003, the state district court
in Boulder, Colorado granted final approval of a settlement
agreement between Atrium Companies and its subsidiary, formerly
known as Champagne Industries, Inc. (Champagne,
renamed Atrium Door and Window Company of the Rockies), and
63 named plaintiffs who claimed to represent a purported
class of approximately 4,500 homeowners. The plaintiffs
sued Atrium Companies and Champagne, along with three other home
builder and home product manufacturer defendants, for claims
arising out of Champagnes sale of its Imperial wood window
between 1987 and 1997. Under the terms of the approved
settlement, Champagnes insurance carriers paid
approximately $18,450 to Atrium Companies for a settlement that
will be used to compensate the approximately 4,500 class
members, either through a one-time liquidated payment or through
a payment that would be used by class members for the repair and
replacement of their windows. In addition, Champagne will offer
to sell a fixed number of replacement windows to the class
members at a reduced price from Champagnes retail list
price, which will in no event be below Champagnes cost to
manufacture the replacement product. Under the terms of the
approved settlement, neither Atrium Companies nor Champagne will
pay any cash to the class members and both Atrium Companies and
Champagne were released from any liability arising from any
claims asserted or that could have been asserted by the
plaintiffs in this litigation, including any claims associated
with the Imperial window. In addition, as part of the approved
settlement, the home builder co-defendant withdrew with
prejudice its cross-claim against Champagne.

As of September 30, 2003, the Company had
cash of $6,471 as a result of the receipt of a portion of the
settlement from Atrium Companies insurance carriers, a
receivable in the amount of $11,979 for the portion of the
settlement remaining to be funded by Atrium Companies
insurance carriers, and a liability in the amount of $18,450 for
the settlement. On October 25, 2003, the Company paid
$18,450 to class members using cash received from Atrium
Companies insurance carriers.



|    |                                             
|--- | --------------------------------------------
|11. | Atrium Corporation Financial
    Information

Condensed Balance Sheets

|                                         |                                              |                                            |   |              |         |  |   |         |         | 
|---------------------------------------- | -------------------------------------------- | ------------------------------------------ | - | ------------ | ------- |  | - | ------- | ------- | 
|                                         |                                              | September 30,                              |   | December 31,
|                                         |                                              | 2003                                       |   | 2002        
|                                         |                                              |                                            |   |             
|Assets                                   |                                              |                                            |   |              |         |  |   |        
|                                         | Investment in subsidiary                     |                                            | $ | 156,486      |         |  | $ | 134,434 |        
|                                         | Deferred financing costs, net                |                                            |   | 3,716        |         |  |   | 4,109   |        
|                                         |                                              |                                            |   |              |         |  |   |        
|                                         |                                              | Total assets                               |   | $            | 160,202 |  |   | $       | 138,543 | 
|                                         |                                              |                                            |   |              |         |  |   |        
|Liabilities and Stockholders
    Equity |                                              |                                            |   |              |         |  |   |        
|                                         | Notes payable                                |                                            | $ | 46,319       |         |  | $ | 38,379  |        
|                                         | Common stock subject to mandatory redemption |                                            |   | 15,604       |         |  |   | 15,604  |        
|                                         | Stockholders equity                         |                                            |   | 98,279       |         |  |   | 84,560  |        
|                                         |                                              |                                            |   |              |         |  |   |        
|                                         |                                              | Total liabilities and stockholders equity |   | $            | 160,202 |  |   | $       | 138,543 | 
|                                         |                                              |                                            |   |              |         |  |   |        

14



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##### Table of Contents



Condensed Statements of Operations

|                                             |            |                    |        |       |  |   |       |       | 
|-------------------------------------------- | ---------- | ------------------ | ------ | ----- |  | - | ----- | ----- | 
|                                             |            |                   
|                                             |            | Three months ended
|                                             |            | September 30,     
|                                             |            |                   
|                                             |            | 2003               |        | 2002 
|                                             |            |                    |        |      
|Equity in undistributed income of subsidiary |            | $                  | 10,899 |       |  | $ | 7,947 |      
|Operating Expenses                           |            |                    |       |       |  |   | 12    |      
|Interest expense                             |            |                    | 2,868  |       |  |   | 2,464 |      
|                                             |            |                    |        |       |  |   |       |      
|                                             | Net income |                    | $      | 8,031 |  |   | $     | 5,471 | 
|                                             |            |                    |        |       |  |   |       |      

Condensed Statements of Operations

|                                             |            |                   |        |       |  |   |        |       | 
|-------------------------------------------- | ---------- | ----------------- | ------ | ----- |  | - | ------ | ----- | 
|                                             |            |                  
|                                             |            | Nine months ended
|                                             |            | September 30,    
|                                             |            |                  
|                                             |            | 2003              |        | 2002 
|                                             |            |                   |        |      
|Equity in undistributed income of subsidiary |            | $                 | 17,803 |       |  | $ | 10,482 |      
|Operating expenses                           |            |                   |       |       |  |   | 12     |      
|Interest expense                             |            |                   | 8,333  |       |  |   | 6,913  |      
|                                             |            |                   |        |       |  |   |        |      
|                                             | Net income |                   | $      | 9,470 |  |   | $      | 3,557 | 
|                                             |            |                   |        |       |  |   |        |      

Condensed Statements of Cash Flows

|                                                 |                                              |                                           |   |         |     |   |   |         |      |  
|------------------------------------------------ | -------------------------------------------- | ----------------------------------------- | - | ------- | --- | - | - | ------- | ---- | -
|                                                 |                                              |                                          
|                                                 |                                              | Nine months ended                        
|                                                 |                                              | September 30,                            
|                                                 |                                              |                                          
|                                                 |                                              | 2003                                      |   | 2002   
|                                                 |                                              |                                           |   |        
|Cash flows from operating
    activities:        |                                              |                                           |   |         |     |   |   |        
|                                                 | Net income                                   |                                           | $ | 9,470   |     |   | $ | 3,557   |     
|                                                 | Equity in undistributed income of subsidiary |                                           |   | (17,803 | )   |   |   | (10,482 | )   
|                                                 | Accretion of senior payment-in-kind notes    |                                           |   | 7,940   |     |   |   | 6,512   |     
|                                                 | Amortization of deferred financing costs     |                                           |   | 393     |     |   |   | 393     |     
|                                                 | Changes in assets and liabilities            |                                           |   |        |     |   |   | (25     | )   
|                                                 |                                              |                                           |   |         |     |   |   |        
|                                                 |                                              | Net cash used in operating activities     |   |         |    |   |   |         | (45  | )
|                                                 |                                              |                                           |   |         |     |   |   |        
|Cash flows from investing
    activities:        |                                              |                                           |   |         |     |   |   |        
|                                                 | Cash received from subsidiary                |                                           |   | 25      |     |   |   | 168     |     
|                                                 |                                              |                                           |   |         |     |   |   |        
|                                                 |                                              | Net cash provided by investing activities |   |         | 25  |   |   |         | 168  |  
|                                                 |                                              |                                           |   |         |     |   |   |        
|Cash flows from financing
    activities:        |                                              |                                           |   |         |     |   |   |        
|                                                 | Proceeds from the issuance of common stock   |                                           |   |        |     |   |   | 1       |     
|                                                 | Repurchase of stock options and common stock |                                           |   | (25     | )   |   |   | (124    | )   
|                                                 |                                              |                                           |   |         |     |   |   |        
|                                                 |                                              | Net cash used in financing activities     |   |         | (25 | ) |   |         | (123 | )
|                                                 |                                              |                                           |   |         |     |   |   |        
|Net increase in cash and cash
    equivalents    |                                              |                                           |  |         |     |   |  |        
|Cash and cash equivalents, beginning of
    year |                                              |                                           |  |         |     |   |  |        
|                                                 |                                              |                                           |   |         |     |   |   |        
|Cash and cash equivalents, end of
    year       |                                              | $                                         |  |         |     | $ |  |        
|                                                 |                                              |                                           |   |         |     |   |   |        

15



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|        |                                                                                          
|------- | -----------------------------------------------------------------------------------------
|Item 2. | Managements Discussion and Analysis
    of Financial Condition and Results of Operations

Certain Forward-Looking Statements

This Form 10-Q contains certain
forward-looking statements (as such term is defined in the
Private Securities Litigation Reform Act of 1995) relating to
the Registrant based on beliefs of management that involve
substantial risks and uncertainties. When used in this
Form 10-Q, the words anticipate,
believe, estimate, expect,
intend, and similar expressions, as they relate to
the Registrant or the Registrants management, identify
forward-looking statements. Such statements reflect the current
views of the Registrant with respect to the risks and
uncertainties regarding the operations and the results of
operations of the Registrant, as well as its customers and
suppliers, including the availability of 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
third quarter and first nine months of 2003 are not necessarily
indicative of results expected for the full year.

The operations of MD Casting and Danvid
(2003 acquisitions) are included since their date of
acquisition, January 31, 2003 and April 1, 2003,
respectively.

Net Sales.Net sales
increased by $22,110 from $144,763 during the third quarter of
2002 to $166,873 during the third quarter of 2003. The increase
in net sales was primarily the result of the 2003 acquisitions,
sales growth at the Companys vinyl and aluminum window
fabrication and aluminum extrusion operations. Net sales from
the 2003 acquisitions were $13,111 during the third quarter. Net
sales at the Companys vinyl window operations increased
$3,557, or 4.5%, from the prior year as a result of increased
volume with new and existing customers. This increase occurred
despite Lowes Companies, Inc. (Lowes)
shifting certain volume to a competitor. Net sales at the
Companys aluminum window operations increased $2,677, or
5.7%, over the prior year primarily due to increased volume with
existing customers. Net sales at the Companys aluminum
extrusion operation increased $1,475, or 13.3%, over the prior
year due to increased volume with new and existing customers.

Net sales increased by $36,004 from $406,233
during the first nine months of 2002 to $442,237 during the
first nine months of 2003. The increase in net sales was
primarily the result of the 2003 acquisitions and sales growth
at the Companys aluminum window fabrication and aluminum
extrusion operations. Net sales from the 2003 acquisitions were
$27,586 for the first nine months of 2003. The Company also
experienced increases of $5,922, or 4.4%, over the prior year
from its aluminum window operations due to increased unit volume
with the Companys existing customers. Net sales at the
Companys aluminum extrusion operation increased $4,602, or
14.9%, over the prior year due to increased volume with new and
existing customers. Net sales at the Companys vinyl window
operations decreased $917, or .4%, from the prior year as a
result of lower volume in the East related to Lowes
shifting certain volume to a competitor, offset by an increase
in volume with new and existing customers.

Cost of Goods Sold.Cost of goods sold increased from
66.3% of net sales during the third quarter of 2002 to 67.1% of
net sales during the third quarter of 2003 and increased from
67.2% of net sales during the first nine months of 2002 to 67.8%
of net sales during the first nine months of 2003. Material cost
of goods sold increased from 39.0% of net sales during the third
quarter of 2002 to 39.1% of net sales during the third quarter
of 2003 and decreased from 40.0% of net sales during the first
nine months of 2002 to 39.5% of net sales during the first nine
months of 2003. The increase in material costs, as a percentage
of net sales, during the third quarter of 2003 is primarily
related to a rise in the cost of vinyl resins and aluminum,
offset by a decrease in

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material costs as a result various cost saving
initiatives, leveraging the Companys increased purchasing
power and additional vertical integration. Material costs
decreased, as a percentage of net sales, during the first nine
months of 2003 due to the Companys various cost saving
initiatives, which were partially offset by an increase in the
cost of vinyl resins. Direct manufacturing expenses increased
from 27.3% of net sales during the third quarter of 2002 to
28.0% of net sales during the third quarter of 2003 and
increased from 27.3% of net sales during the first nine months
of 2002 to 28.3% of net sales for the first nine months of 2003.
The increase in direct manufacturing expenses during the third
quarter and first nine months of 2003 was primarily caused by
higher insurance, property taxes and labor costs.


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 (SG&A) increased
$3,148 from $30,313 (20.9% of net sales during the third quarter
of 2002) to $33,461 (20.1% of net sales during the third quarter
of 2003). SG&A for the 2003 acquisitions were $2,830 during
the third quarter. SG&A, excluding the 2003 acquisitions,
increased $318 from $30,313 during the third quarter of 2002 to
$30,631 during the third quarter of 2003. General and
administrative expenses, excluding the 2003 acquisitions,
decreased $111 from $11,836 during the third quarter of 2002 to
$11,725 during the third quarter of 2003 due to the
Companys ability to manage its overhead more efficiently
and the closure of the Companys Kel-Star facility. The
improvement to general and administrative expenses, was
partially offset by higher insurance premiums and increases in
salary expense. Delivery expenses, excluding the 2003
acquisitions, decreased from 6.6% of net sales during the third
quarter of 2002 to 6.1% of net sales during the third quarter of
2003. The Company experienced a decrease in delivery expenses as
a result of the use of a new, lower cost distribution channel
for a portion of the Companys home center deliveries and a
decrease in its leased transportation costs, primarily as a
result of a favorable contract renewal. The decrease in delivery
expenses was partially offset by an increase in fuel costs.
Selling expenses, excluding the 2003 acquisitions, were flat to
prior year at 6.2% of net sales. Selling expenses are primarily
variable in nature as a significant portion of these expenses
represent commissions.

SG&A increased by $6,452 from $87,900 (21.6%
of net sales during the first nine months of 2002) to $94,352
(21.3% of net sales during the first nine months of 2003).
SG&A for the 2003 acquisitions were $5,438 during the first
nine months of 2003. SG&A, excluding the 2003 acquisitions,
increased $995 from $87,900 during the first nine months of 2002
to $88,895 during the first nine months of 2003. General and
administrative expenses, excluding the 2003 acquisitions,
increased $442 from $34,917 during the first nine months of 2002
to $35,359 during the first nine months of 2003, largely as a
result of higher insurance costs and increases in salary
expense, offset by the Companys ability to manage its
overhead more efficiently and the closure of the Companys
Kel-Star facility. Delivery expenses, excluding the 2003
acquisitions, decreased from 6.5% of net sales during the first
nine months of 2002 to 6.4% of net sales during the first nine
months of 2003. The Company experienced a decrease in delivery
expenses as a result of the use of a new, lower cost
distribution channel for a portion of the Companys home
center deliveries and a decrease in its leased transportation
costs primarily as a result of a favorable contract renewal. The
decrease in delivery expenses was partially offset by an
increase in fuel costs. Selling expenses, excluding the 2003
acquisitions, decreased as a percentage of net sales from 6.6%
of net sales during the first nine months of 2002 to 6.5% of net
sales during the first nine months of 2003. The decrease as a
percentage of net sales resulted from modifications to the
Companys commission structure. Selling expenses are
primarily variable in nature as a significant portion of these
expenses represent commissions.

Securitization Expense.Securitization expense increased $30
from $325 in the third quarter of 2002 to $355 in the third
quarter of 2003 and decreased $12 from $879 during the first
nine months of 2002 to $867 during the first nine months of
2003. Securitization expense incurred by the Company represents
the losses on the sales of the Companys accounts
receivable, which includes both the interest expense and
commitment fee components of the transaction.

17



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##### Table of Contents



Stock Compensation Expense.Stock compensation expense increased
$25 from $75 during the third quarter of 2002 to $100 during the
third quarter of 2003 and increased $244 from $308 during the
first nine months of 2002 to $552 during the first nine months
of 2003. Stock compensation expense for the third quarter of
2003 and 2002 included payments of $100 and $75, respectively,
for services rendered, in the form of the Companys common
stock to the Companys equity sponsor, Ardshiel, Inc. Stock
compensation for the first nine months of 2003 and 2002 included
$252 and $83, respectively, for the repurchase of stock options
from current and former employees and payments of $300 and $225,
respectively, for services rendered, in the form of the
Companys common stock to Ardshiel, Inc.

Amortization Expense.Amortization expense increased $247
from $845 during the third quarter of 2002 to $1,092 during the
third quarter of 2003 and increased $592 from $2,475 during the
first nine months of 2002 to $3,067 during the first nine months
of 2003. Amortization expense increased during the third quarter
and first nine months of 2003, primarily due to increased
amortization on software implementation costs.

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 included $1,089 for litigation expenses. During the
third quarter of 2003, the Company recorded a special charge in
the amount of $375 for a legal settlement related to the
divestiture of Wing that was higher than initially anticipated.
As of September 2003, the Company still has an accrual of $653
for unpaid liabilities related to the Wing special charge.

Interest Expense.Interest expense decreased $180 from
$11,377 during the third quarter of 2002 to $11,197 during the
third quarter of 2003 and decreased $438 from $33,796 during the
first nine months of 2002 to $33,358 during the first nine
months of 2003. The decrease was due to reduced debt levels and
a decrease in the Companys weighted-average interest rate,
as a result of the expiration of one of its interest rate swap
agreements in December of 2002. The decrease was partially
offset by an interest rate increase on the Companys PIK
Notes from 15% to 17% in April 2002 (see Note 6).

Liquidity and Capital Resources

Cash generated from operations, availability
under Atrium Companies revolving credit facility and
availability under Atrium Companies accounts receivable
securitization facility are the Companys principal sources
of liquidity. During the first nine months of 2003, cash was
primarily used for capital expenditures and for the acquisitions
of Danvid and MD Casting. Net cash provided by operating
activities was $36,979 during the first nine months of 2003
compared to $17,588 during the first nine months of 2002.
Approximately $6,471 of the increase in cash provided by
operating activities is due to cash received for the Braverman
settlement (see Note 10). The increase in cash provided by
operating activities also includes amounts borrowed against
Atrium Companies accounts receivable securitization
facility, offset by a decrease in cash provided by changes in
working capital. Net cash used in investing activities during
the first nine months of 2003 was $23,562 compared to $13,101
during the first nine months of 2002. The increase in cash used
in investing activities was primarily due to the acquisition of
Danvid and MD Casting during 2003. Cash used in financing
activities during the first nine months of 2003 was $5,944
compared to $253 during the first nine months of 2002. The
increase in cash used in financing activities was primarily due
to a decrease in checks drawn in excess of bank balances and
additional principal payments on Atrium Companies term
loans.

Additionally, the term loans have an excess
cash flows provision mandating additional principal
payments if certain cash flow targets are met annually at
December 31. For 2002 and 2001, the excess cash flow
payments were $1,058 and $684, respectively. These amounts are
required to be paid within 100 days of the fiscal year end.
In December 2002, the Company voluntarily pre-paid $6,544 on the
term loans, which reduced the mandated excess cash flow payment
for 2002 to $1,058, which was paid in April of 2003.

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

18



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##### Table of Contents



date of June 30, 2004. The Company will
either renew the existing revolving credit facility or negotiate
a new facility in connection with the transaction noted in
Note 10  Subsequent Events. Additionally, Atrium
Companies has an accounts receivable securitization facility,
which can make additional funds available to the Company subject
to certain borrowing base levels. On July 3, 2003, the
receivables purchase agreement was amended, at the
Companys discretion, to increase the size of the accounts
receivable securitization facility from $42,000 to $50,000.


At September 30, 2003, the Company had
$42,912 of availability under the revolving credit facility, net
of outstanding letters of credit totaling $4,088. As of
October 27, 2003, the Company had cash of $1,646 and
$36,184 of availability under the revolving credit facility, net
of borrowings of $6,000 and outstanding letters of credit
totaling $4,816. As of September 30, 2003, the Company had
$9,000 of availability under the accounts receivable
securitization facility and an additional $7,800 currently
unavailable due to borrowing base limitations, net of
securitizations of $33,200. As of October 27, 2003, the
Company had $1,000 of availability under the accounts receivable
securitization facility and an additional $7,000 currently
unavailable due to borrowing base limitations, net of
securitizations of $42,000.

Capital Expenditures

The Company had cash capital expenditures (net of
proceeds from sales) of $10,614 during the nine months of 2003
($3,186 during the third quarter of 2003) compared to $10,168
during the first nine months of 2002 ($3,720 during the third
quarter of 2002). Capital expenditures during these periods were
a result of the Companys effort to increase plant capacity
and to increase efficiency through automation at its various
manufacturing facilities. The Company expects capital
expenditures (exclusive of acquisitions) in 2003 to be
approximately $15,000, 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.

New Accounting Pronouncement

During January 2003, the Financial Accounting
Standards Board (FASB) issued FASB Interpretation
(FIN) No. 46, Consolidation of Variable
Interest Entities (FIN 46). FIN 46
provides guidance for companies having ownership of variable
interest entities, typically referred to as special purpose
entities, in determining whether to consolidate such variable
interest entities. FIN 46 has immediate applicability for
variable interest entities created after January 31, 2003
or interest in variable interests created after that date. For
interests in variable interest entities, FIN 46 is expected
to become effective on December 31, 2003. The Company is
considering the implications of FIN 46, however they do not
expect that adoption will have a significant effect on their
financial statements.

Adoption of New Accounting
Pronouncements



| |                                                                      
| | ---------------------------------------------------------------------
| | SFAS No. 143 
    Accounting for Asset Retirement
    Obligations:

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. Adoption of SFAS 143 has not had a
significant effect on the Company.

19



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| |                                                                                                                                             
| | --------------------------------------------------------------------------------------------------------------------------------------------
| | SFAS No. 145 
    Rescission of FASB Statements No. 4, 44, and 64,
    Amendment of FASB Statement No. 13, and Technical
    Corrections:

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 was adopted by the Company on
January 1, 2003. During April of 2003, the Company expensed
$29 of deferred financing fees in connection with their 2002
excess cash flow payment (see Note 5). The loss associated
with the debt retirement is included in interest expense on the
Companys financial statements.



| |                                                                                           
| | ------------------------------------------------------------------------------------------
| | SFAS No. 146 
    Accounting for Costs Associated with Exit or Disposal
    Activities:

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. The Company adopted SFAS 146 on
January 1, 2003. Adoption of SFAS 146 did not have a
significant effect on the Company.



| |                                                                                                      
| | -----------------------------------------------------------------------------------------------------
| | SFAS No. 149 
    Amendment of Statement 133 on Derivative Instruments and
    Hedging Activities:

In April 2003, the FASB issued
SFAS No. 149, Amendment of Statement 133 on
Derivative Instruments and Hedging Activities
(SFAS 149). SFAS 149 amends and clarifies
the accounting and reporting for derivative contracts, including
hedging instruments. The amendments and clarifications under
SFAS 149 generally serve to codify the conclusions reached
by the Derivative Implementation Group, to incorporate other
FASB projects on financial instruments, and to clarify other
implementation issues. SFAS 149 became effective
prospectively for derivative contracts entered into or modified
by the Company after June 30, 2003. Adoption of
SFAS 149 has not had a significant impact on the Company.



| |                                                                                                                               
| | ------------------------------------------------------------------------------------------------------------------------------
| | SFAS No. 150 
    Accounting for Certain Financial Instruments with
    Characteristics of both Liabilities and
    Equity:

In May 2003, the FASB issued
SFAS No. 150, Accounting for Certain Financial
Instruments with Characteristics of both Liabilities and
Equity (SFAS 150). SFAS 150 requires
that certain financial instruments, which under previous
guidance were accounted for as equity, must now be accounted for
as liabilities. The financial instruments affected include
mandatorily redeemable stock, certain financial instruments that
require or may require the issuer to buy back some of its shares
in exchange for cash or other assets and certain obligations
that can be settled with shares of stock. SFAS 150 is
effective for all financial instruments entered into or modified
after May 31, 2003 and must be applied to the
Companys existing financial instruments effective
July 1, 2003. On October 29, 2003, the FASB deferred
the provisions of paragraphs 9 and 10 and related guidance in
the appendices of this pronouncement as they apply to
mandatorily redeemable noncontrolling interests. Adoption of the
effective provisions of SFAS 150 have not had a significant
effect on the Company, the Company does not expect that the
deferred provisions will have a significant effect on the
Company.

The Company issued $36,500 of senior
payment-in-kind notes (the PIK Notes) in October of
2000 with shares of stock discounted from managements
estimate of the fair market value of the common stock. These
shares are reflected on the balance sheet as common stock
subject to mandatory redemption since, if an initial public
offering has not occurred prior to October 25, 2006, the
holders of these shares can require the Company to repurchase
these shares at specified times during the period occurring
after October 25, 2006 and prior to October 25, 2010.
As the Companys common stock subject to redemption is not
mandatory, but contingent on certain events that may or may not
occur, the securities are excluded from the scope of
FAS 150 and therefore, would not be reclassified from the
current mezzanine treatment on the balance sheet at the

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effective date of the pronouncement. If the
Company were to determine that the events causing the redemption
will occur, the Company will be required to reclassify the
common stock subject to redemption to be included as a liability
and revalue the security to the fair value of the common stock
in the period that the Company determines the event will occur.




| |                                                                                                                                         
| | ----------------------------------------------------------------------------------------------------------------------------------------
| | FIN No. 45 
    Guarantors Accounting and Disclosure Requirements
    for Guarantees, Including Indirect Indebtedness of
    Others:

During November 2002, the FASB issued FIN
No. 45, Guarantors Accounting and Disclosure
Requirements for Guarantees, Including Indirect Guarantees of
Indebtedness of Others (FIN 45).
FIN 45 generally requires a guarantor to recognize a
liability for obligations arising from guarantees. FIN 45
also requires new disclosures for guarantees meeting certain
criteria outlined in the pronouncement. The recognition and
measurement provisions of FIN 45 are applicable on a
prospective basis for guarantees issued or modified after
December 31, 2002. The Companys consolidated
financial statements have not been affected as a result of
adopting this pronouncement.






|        |                                                               
|------- | --------------------------------------------------------------
|Item 3. | Quantitative and Qualitative Disclosures
    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
$507, which is included in accrued liabilities.

There have not been any material changes in the
Companys market risk during the nine months ended
September 30, 2003. For additional information related to
various market risks refer to Section 7A of the
Companys annual report on Form 10-K for the fiscal
year ended December 31, 2002.






|        |                        
|------- | -----------------------
|Item 4. | Controls and Procedures

Evaluation of Disclosure Controls and
Procedures

An evaluation of the effectiveness of the design
and operation of the Companys disclosure controls
and procedures (as defined in Rule 13a-15(e) under
the Securities Exchange Act of 1934, as amended (the
Exchange Act)) was carried out as of the last day of
the period covered by this report. This evaluation was made
under the supervision and with the participation of the
Companys management, including its Chief Executive Officer
and Chief Financial Officer. Based upon this evaluation, the
Companys Chief Executive Officer and Chief Financial
Officer have concluded that the Companys disclosure
controls and procedures (a) are effective to ensure that
information required to be disclosed by the Company in reports
filed or submitted under the Exchange Act is timely recorded,
processed, summarized and reported and (b) include, without
limitation, controls and procedures designed to ensure that
information required to be disclosed by the Company in reports
filed or submitted under the Exchange Act is accumulated and
communicated to the Companys management, including its
Chief Executive Officer and Chief Financial Officer, as
appropriate to allow timely decisions regarding required
disclosure.

Changes in Internal Controls

There have not been any changes in the
Companys internal control over financial reporting that
occurred during the period covered by this report that has
materially affected, or is reasonably likely to materially
affect, the Companys internal control over financial
reporting.

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PART II.     OTHER
INFORMATION






|        |                  
|------- | -----------------
|Item 1. | Legal Proceedings

On October 1, 2003, the state district court
in Boulder, Colorado granted final approval of a settlement
agreement between Atrium Companies and its subsidiary, formerly
known as Champagne Industries, Inc. (Champagne,
renamed Atrium Door and Window Company of the Rockies), and
63 named plaintiffs who claimed to represent a purported
class of approximately 4,500 homeowners. The plaintiffs
sued Atrium Companies and Champagne, along with three other home
builder and home product manufacturer defendants, for claims
arising out of Champagnes sale of its Imperial wood window
between 1987 and 1997. Under the terms of the approved
settlement, Champagnes insurance carriers paid
approximately $18,450 to Atrium Companies for a settlement that
will be used to compensate the approximately 4,500 class
members, either through a one-time liquidated payment or through
a payment that would be used by class members for the repair and
replacement of their windows. In addition, Champagne will offer
to sell a fixed number of replacement windows to the class
members at a reduced price from Champagnes retail list
price, which will in no event be below Champagnes cost to
manufacture the replacement product. Under the terms of the
approved settlement, neither Atrium Companies nor Champagne will
pay any cash to the class members and both Atrium Companies and
Champagne were released from any liability arising from any
claims asserted or that could have been asserted by the
plaintiffs in this litigation, including any claims associated
with the Imperial window. In addition, as part of the approved
settlement, the home builder co-defendant withdrew with
prejudice its cross-claim against Champagne.

As of September 30, 2003, the Company had
cash of $6,471 as a result of the receipt of a portion of the
settlement from Atrium Companies insurance carriers, a
receivable in the amount of $11,979 for the portion of the
settlement remaining to be funded by Atrium Companies
insurance carriers, and a liability in the amount of $18,450 for
the settlement. On October 25, 2003, the Company paid
$18,450 to class members using cash received from Atrium
Companies insurance carriers.






|        |                                     
|------- | ------------------------------------
|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  None

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SIGNATURES

Pursuant to the requirements of the Securities
Exchange Act of 1934, the registrant has duly caused this report
to be signed on its behalf by the undersigned thereunto duly
authorized.



| |                   
| | ------------------
| | ATRIUM CORPORATION
| | (Registrant)      



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

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

Date: November 3, 2003



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

| |                                             
| | --------------------------------------------
| |                                             
| | Eric W. Long                                
| | Executive Vice President and                
| | Chief Financial Officer                     
| | (Principal Financial and Accounting Officer)

Date: November 3, 2003

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ATRIUM CORPORATION

EXHIBIT INDEX

|        |    |    |  |             |  |                                                                                                                                  
|------- | -- | -- |  | ----------- |  | ---------------------------------------------------------------------------------------------------------------------------------
|Exhibit |    |    |  |            
|Number  |    |    |  | Description
|        |    |    |  |            
|        | 31 | .1 |  |             |  | Certification by Chief Executive Officer Pursuant
    to 17 CFR 240.13a-14, promulgated under the
    Sarbanes-Oxley Act of 2002.
|        | 31 | .2 |  |             |  | Certification by Chief Financial Officer Pursuant
    to 17 CFR 240.13a-14, promulgated under the
    Sarbanes-Oxley Act of 2002.

E-1