##### Table of Contents









UNITED STATES SECURITIES AND EXCHANGE
COMMISSION

Washington, D.C. 20549




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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 June 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 August 14, 2003, the registrant had
187,157 shares of Common Stock, par value $.01 per share
outstanding.



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TABLE OF CONTENTS



|                                                                                                                                      |                                                                                               |  |  |  |  |  |  | 
|------------------------------------------------------------------------------------------------------------------------------------- | --------------------------------------------------------------------------------------------- |  |  |  |  |  |  | 
|ATRIUM CORPORATION CONSOLIDATED STATEMENTS OF OPERATIONS For the Three Months Ended June 30, 2003 and 2002                           
|ATRIUM CORPORATION CONSOLIDATED STATEMENTS OF OPERATIONS For the Six Months Ended June 30, 2003 and 2002                             
|ATRIUM CORPORATION CONSOLIDATED STATEMENT OF STOCKHOLDERS EQUITY AND OTHER COMPREHENSIVE LOSS For the Six Months Ended June 30, 2003
|ATRIUM CORPORATION CONSOLIDATED STATEMENTS OF CASH FLOWS For the Six Months Ended June 30, 2003 and 2002                             
|                                                                                                                                      | 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                                                                                                                           
|ATRIUM CORPORATION EXHIBIT INDEX                                                                                                     
|EX-10.69 Amended and Restated Indenture                                                                                              
|EX-31.1 Certification by CEO - 17 CFR 240.13a-14                                                                                     
|EX-31.2 Certification by CEO - 17 CFR 240.13a-14                                                                                     



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##### Table of Contents



ATRIUM CORPORATION

FORM 10-Q

QUARTER ENDED JUNE 30, 2003


INDEX

|                                       |  |                                                                                                                            |    |      |       | 
|-------------------------------------- |  | -------------------------------------------------------------------------------------------------------------------------- | -- | ---- | ----- | 
|                                       |  |                                                                                                                            |    | Page
|                                       |  |                                                                                                                            |    |     
|PART I. FINANCIAL INFORMATION         
|Item 1.                                |  | Consolidated Financial Statements (unaudited):                                                                             |    |      |       | 
|                                       |  | Consolidated Balance Sheets as of June 30,
    2003 and December 31, 2002                                                  |    |      | 2     | 
|                                       |  | Consolidated Statements of Operations for the
    Three Months Ended
    June 30, 2003 and 2002                            |    |      | 3     | 
|                                       |  | Consolidated Statements of Operations for the Six
    Months Ended
    June 30, 2003 and 2002                              |    |      | 4     | 
|                                       |  | Consolidated Statement of Stockholders
    Equity and Other Comprehensive Loss for the Six Months Ended
    June 30, 2003 |    |      | 5     | 
|                                       |  | Consolidated Statements of Cash Flows for the Six
    Months Ended
    June 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                                  |    |      | 16-20 | 
|Item 3.                                |  | Quantitative and Qualitative Disclosures about
    Market Risk                                                             |    |      | 20-21 | 
|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)


|                                             |                                                                                                                                                                        |                             |                                            |              |         |         |         |         |         |         | 
|-------------------------------------------- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------- | --------------------------- | ------------------------------------------ | ------------ | ------- | ------- | ------- | ------- | ------- | ------- | 
|                                             |                                                                                                                                                                        | June 30,                    |                                            | December 31,
|                                             |                                                                                                                                                                        | 2003                        |                                            | 2002        
|                                             |                                                                                                                                                                        |                             |                                            |             
|                                             |                                                                                                                                                                        | (unaudited)                 |                                            |             
|ASSETS                                      
|CURRENT ASSETS:                              |                                                                                                                                                                        |                             |                                            |              |         |         |         |        
|                                             | Cash and cash equivalents                                                                                                                                              |                             | $                                          | 7,973        |         |         | $       | 1,131   |        
|                                             | Accounts receivable, net                                                                                                                                               |                             |                                            | 4,369        |         |         |         | 1,847   |        
|                                             | Retained interest in sold accounts receivable                                                                                                                          |                             |                                            | 22,023       |         |         |         | 25,209  |        
|                                             | Inventories                                                                                                                                                            |                             |                                            | 42,381       |         |         |         | 33,712  |        
|                                             | Prepaid expenses and other current assets                                                                                                                              |                             |                                            | 5,973        |         |         |         | 6,109   |        
|                                             | Deferred tax asset                                                                                                                                                     |                             |                                            | 1,090        |         |         |         | 922     |        
|                                             |                                                                                                                                                                        |                             |                                            |              |         |         |         |        
|                                             |                                                                                                                                                                        | Total current assets        |                                            |              | 83,809  |         |         |         | 68,930  |        
|PROPERTY, PLANT AND EQUIPMENT, net           |                                                                                                                                                                        |                             | 59,649                                     |              |         |         | 55,322  |        
|GOODWILL                                     |                                                                                                                                                                        |                             | 349,418                                    |              |         |         | 345,239 |        
|DEFERRED FINANCING COSTS, net                |                                                                                                                                                                        |                             | 12,731                                     |              |         |         | 14,401  |        
|OTHER ASSETS, net                            |                                                                                                                                                                        |                             | 10,226                                     |              |         |         | 8,134   |        
|                                             |                                                                                                                                                                        |                             |                                            |              |         |         |         |        
|                                             |                                                                                                                                                                        | Total assets                |                                            | $            | 515,833 |         |         | $       | 492,026 |        
|                                             |                                                                                                                                                                        |                             |                                            |              |         |         |         |        
|LIABILITIES AND STOCKHOLDERS
    EQUITY    
|CURRENT LIABILITIES:                         |                                                                                                                                                                        |                             |                                            |              |         |         |         |        
|                                             | Current portion of notes payable                                                                                                                                       |                             | $                                          | 5,285        |         |         | $       | 6,524   |        
|                                             | Accounts payable                                                                                                                                                       |                             |                                            | 37,494       |         |         |         | 22,535  |        
|                                             | Accrued liabilities                                                                                                                                                    |                             |                                            | 32,773       |         |         |         | 31,441  |        
|                                             |                                                                                                                                                                        |                             |                                            |              |         |         |         |        
|                                             |                                                                                                                                                                        | Total current liabilities   |                                            |              | 75,552  |         |         |         | 60,500  |        
|                                             |                                                                                                                                                                        |                             |                                            |              |         |         |         |        
|LONG-TERM LIABILITIES:                       |                                                                                                                                                                        |                             |                                            |              |         |         |         |        
|                                             | Notes payable                                                                                                                                                          |                             |                                            | 332,714      |         |         |         | 329,880 |        
|                                             | Deferred tax liability                                                                                                                                                 |                             |                                            | 1,090        |         |         |         | 922     |        
|                                             | Other long-term liabilities                                                                                                                                            |                             |                                            | 2,356        |         |         |         | 560     |        
|                                             |                                                                                                                                                                        |                             |                                            |              |         |         |         |        
|                                             |                                                                                                                                                                        | Total long-term liabilities |                                            |              | 336,160 |         |         |         | 331,362 |        
|                                             |                                                                                                                                                                        |                             |                                            |              |         |         |         |        
|                                             |                                                                                                                                                                        | Total liabilities           |                                            |              | 411,712 |         |         |         | 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, 170,675 and 170,700 shares issued and outstanding at
    June 30, 2003 and December 31, 2002, respectively |                             |                                            | 2            |         |         |         | 2       |        
|                                             | Paid-in capital                                                                                                                                                        |                             |                                            | 179,679      |         |         |         | 179,704 |        
|                                             | Accumulated deficit                                                                                                                                                    |                             |                                            | (89,266      | )       |         |         | (90,706 | )      
|                                             | Accumulated other comprehensive loss                                                                                                                                   |                             |                                            | (1,898       | )       |         |         | (4,440  | )      
|                                             |                                                                                                                                                                        |                             |                                            |              |         |         |         |        
|                                             |                                                                                                                                                                        |                             | Total stockholders equity                 |              |         | 88,517  |         |         |         | 84,560  | 
|                                             |                                                                                                                                                                        |                             |                                            |              |         |         |         |        
|                                             |                                                                                                                                                                        |                             | Total liabilities and stockholders equity |              | $       | 515,833 |         |         | $       | 492,026 | 
|                                             |                                                                                                                                                                        |                             |                                            |              |         |         |         |        

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

2



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ATRIUM CORPORATION

CONSOLIDATED STATEMENTS OF
OPERATIONS

For the Three Months Ended June 30, 2003
and 2002


(dollars in thousands)


(unaudited)


|                                                                                                                                       |                            |      |         |        |  |   |         |        | 
|-------------------------------------------------------------------------------------------------------------------------------------- | -------------------------- | ---- | ------- | ------ |  | - | ------- | ------ | 
|                                                                                                                                       |                            | 2003 |         | 2002  
|                                                                                                                                       |                            |      |         |       
|NET SALES                                                                                                                              |                            | $    | 161,810 |        |  | $ | 148,181 |       
|COST OF GOODS SOLD                                                                                                                     |                            |      | 109,194 |        |  |   | 98,938  |       
|                                                                                                                                       |                            |      |         |        |  |   |         |       
|Gross profit                                                                                                                           |                            |      | 52,616  |        |  |   | 49,243  |       
|                                                                                                                                       |                            |      |         |        |  |   |         |       
|OPERATING EXPENSES:                                                                                                                    |                            |      |         |        |  |   |         |       
|Selling, delivery, general and administrative
    expenses (excluding securitization, stock compensation and
    amortization expense) |                            |      | 32,924  |        |  |   | 30,959  |       
|                                                                                                                                       | Securitization expense     |      |         | 276    |  |   |         | 298    | 
|                                                                                                                                       | Stock compensation expense |      |         | 352    |  |   |         | 158    | 
|                                                                                                                                       | Amortization expense       |      |         | 1,043  |  |   |         | 826    | 
|                                                                                                                                       |                            |      |         |        |  |   |         |       
|SELLING, DELIVERY, GENERAL AND ADMINISTRATIVE
    EXPENSES                                                                             |                            |      | 34,595  |        |  |   | 32,241  |       
|Special charge                                                                                                                         |                            |      |        |        |  |   | 3,948   |       
|                                                                                                                                       |                            |      |         |        |  |   |         |       
|                                                                                                                                       |                            |      | 34,595  |        |  |   | 36,189  |       
|                                                                                                                                       |                            |      |         |        |  |   |         |       
|                                                                                                                                       | Income from operations     |      |         | 18,021 |  |   |         | 13,054 | 
|INTEREST EXPENSE                                                                                                                       |                            |      | 11,227  |        |  |   | 11,295  |       
|OTHER INCOME (EXPENSE), net                                                                                                            |                            |      | 191     |        |  |   | 181     |       
|                                                                                                                                       |                            |      |         |        |  |   |         |       
|Income before income taxes                                                                                                             |                            |      | 6,985   |        |  |   | 1,940   |       
|PROVISION FOR INCOME TAXES                                                                                                             |                            |      | 322     |        |  |   | 74      |       
|                                                                                                                                       |                            |      |         |        |  |   |         |       
|NET INCOME                                                                                                                             |                            | $    | 6,663   |        |  | $ | 1,866   |       
|                                                                                                                                       |                            |      |         |        |  |   |         |       

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 Six Months Ended June 30, 2003
and 2002


(dollars in thousands)


(unaudited)


|                                                                                                                                       |                            |      |         |        |  |   |         |        | 
|-------------------------------------------------------------------------------------------------------------------------------------- | -------------------------- | ---- | ------- | ------ |  | - | ------- | ------ | 
|                                                                                                                                       |                            | 2003 |         | 2002  
|                                                                                                                                       |                            |      |         |       
|NET SALES                                                                                                                              |                            | $    | 275,364 |        |  | $ | 261,470 |       
|COST OF GOODS SOLD                                                                                                                     |                            |      | 187,791 |        |  |   | 177,180 |       
|                                                                                                                                       |                            |      |         |        |  |   |         |       
|Gross profit                                                                                                                           |                            |      | 87,573  |        |  |   | 84,290  |       
|                                                                                                                                       |                            |      |         |        |  |   |         |       
|OPERATING EXPENSES:                                                                                                                    |                            |      |         |        |  |   |         |       
|Selling, delivery, general and administrative
    expenses (excluding securitization, stock compensation and
    amortization expense) |                            |      | 60,891  |        |  |   | 57,587  |       
|                                                                                                                                       | Securitization expense     |      |         | 512    |  |   |         | 554    | 
|                                                                                                                                       | Stock compensation expense |      |         | 452    |  |   |         | 233    | 
|                                                                                                                                       | Amortization expense       |      |         | 1,975  |  |   |         | 1,630  | 
|                                                                                                                                       |                            |      |         |        |  |   |         |       
|SELLING, DELIVERY, GENERAL AND ADMINISTRATIVE
    EXPENSES                                                                             |                            |      | 63,830  |        |  |   | 60,004  |       
|Special charge                                                                                                                         |                            |      |        |        |  |   | 3,948   |       
|                                                                                                                                       |                            |      |         |        |  |   |         |       
|                                                                                                                                       |                            |      | 63,830  |        |  |   | 63,952  |       
|                                                                                                                                       |                            |      |         |        |  |   |         |       
|                                                                                                                                       | Income from operations     |      |         | 23,743 |  |   |         | 20,338 | 
|INTEREST EXPENSE                                                                                                                       |                            |      | 22,160  |        |  |   | 22,419  |       
|OTHER INCOME (EXPENSE), net                                                                                                            |                            |      | 164     |        |  |   | 397     |       
|                                                                                                                                       |                            |      |         |        |  |   |         |       
|Income (loss) before income taxes                                                                                                      |                            |      | 1,747   |        |  |   | (1,684  | )     
|PROVISION FOR INCOME TAXES                                                                                                             |                            |      | 307     |        |  |   | 230     |       
|                                                                                                                                       |                            |      |         |        |  |   |         |       
|NET INCOME (LOSS)                                                                                                                      |                            | $    | 1,440   |        |  | $ | (1,914  | )     
|                                                                                                                                       |                            |      |         |        |  |   |         |       

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

4



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ATRIUM CORPORATION

CONSOLIDATED STATEMENT OF STOCKHOLDERS
EQUITY AND

OTHER COMPREHENSIVE LOSS


For the Six Months Ended June 30,
2003


(dollars in thousands, except share
amounts)


(unaudited)


|                                  |                                                                                  |              |         |         |  |             |   |               |  |               |         |        |  |   |         |       |  |   |        |       |  |   |        |       | 
|--------------------------------- | -------------------------------------------------------------------------------- | ------------ | ------- | ------- |  | ----------- | - | ------------- |  | ------------- | ------- | ------ |  | - | ------- | ----- |  | - | ------ | ----- |  | - | ------ | ----- | 
|                                  |                                                                                  |              |         |         |  |             |   | Accumulated   |  |              
|                                  |                                                                                  | Common Stock |         |         |  |             |   | 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 |      
|Repurchase of class A shares      |                                                                                  |              | (25     | )       |  |             |  |               |  |               | (25     | )      |  |   |        |       |  |   |       |       |  |   | (25    | )    
|Comprehensive income (loss):      |                                                                                  |              |         |         |  |             |   |               |  |               |         |        |  |   |         |       |  |   |        |       |  |   |        |      
|                                  | Net loss                                                                         |              |         |        |  |             |   |              |  |               |         |       |  |   |         | 1,440 |  |   |        |      |  |   |        | 1,440 | 
|                                  | Net fair market value adjustment of derivative
    instruments, net of tax of $0 |              |         |        |  |             |   |              |  |               |         |       |  |   |         |      |  |   |        | 2,542 |  |   |        | 2,542 | 
|                                  |                                                                                  |              |         |         |  |             |   |               |  |               |         |        |  |   |         |       |  |   |        |       |  |   |        |      
|Total comprehensive income (loss) |                                                                                  |              |        |         |  |             |  |               |  |               |        |        |  |   | 1,440   |       |  |   | 2,542  |       |  |   | 3,982  |      
|                                  |                                                                                  |              |         |         |  |             |   |               |  |               |         |        |  |   |         |       |  |   |        |       |  |   |        |      
|Balance, June 30, 2003            |                                                                                  |              | 170,675 |         |  | $           | 2 |               |  | $             | 179,679 |        |  | $ | (89,266 | )     |  | $ | (1,898 | )     |  | $ | 88,517 |      
|                                  |                                                                                  |              |         |         |  |             |   |               |  |               |         |        |  |   |         |       |  |   |        |       |  |   |        |      

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

5



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##### Table of Contents






ATRIUM CORPORATION

CONSOLIDATED STATEMENTS OF CASH
FLOWS

For the Six Months Ended June 30, 2003
and 2002


(dollars in thousands)


(unaudited)


|                                               |                                                                                           |                                                         |                                           |        |         |         |       |        |         |        |  
|---------------------------------------------- | ----------------------------------------------------------------------------------------- | ------------------------------------------------------- | ----------------------------------------- | ------ | ------- | ------- | ----- | ------ | ------- | ------ | -
|                                               |                                                                                           | 2003                                                    |                                           | 2002  
|                                               |                                                                                           |                                                         |                                           |       
|CASH FLOWS FROM OPERATING ACTIVITIES:          |                                                                                           |                                                         |                                           |        |         |         |       |       
|                                               | Net loss                                                                                  |                                                         | $                                         | 1,440  |         |         | $     | (1,914 | )      
|                                               | Adjustments to reconcile net loss to net cash
    flows provided by operating activities: |                                                         |                                           |        |         |         |       |        |        
|                                               | Depreciation and amortization                                                             |                                                         |                                           | 8,189  |         |         |       | 7,107  |        
|                                               | Non-cash stock compensation expense                                                       |                                                         |                                           | 200    |         |         |       | 150    |        
|                                               | Amortization of deferred financing costs                                                  |                                                         |                                           | 1,646  |         |         |       | 1,763  |        
|                                               | Write-off of deferred financing costs                                                     |                                                         |                                           | 29     |         |         |       |       |        
|                                               | Accretion of discount on notes payable                                                    |                                                         |                                           | 111    |         |         |       | 100    |        
|                                               | Accretion of discount on senior payment-in-kind
    notes                                 |                                                         |                                           | 5,203  |         |         |       | 4,187  |        
|                                               | Amortization of gain from sale/leaseback of
    building                                  |                                                         |                                           | (15    | )       |         |       | (26    | )      
|                                               | Special Charges                                                                           |                                                         |                                           |       |         |         |       | 1,176  |        
|                                               | Loss on sale of receivables                                                               |                                                         |                                           | 335    |         |         |       | 496    |        
|                                               | Gain (loss) on disposals of assets                                                        |                                                         |                                           | 40     |         |         |       | (13    | )      
|                                               | Changes in assets and liabilities, net of
    acquisitions:                               |                                                         |                                           |        |         |         |       |        |        
|                                               |                                                                                           | Accounts receivable                                     |                                           |        | (2,522  | )       |       |        | 54      |       
|                                               |                                                                                           | Retained interest in sold accounts receivable           |                                           |        | (15,150 | )       |       |        | (16,684 | )     
|                                               |                                                                                           | Sale of accounts receivable                             |                                           |        | 21,700  |         |       |        | 1,000   |       
|                                               |                                                                                           | Inventories                                             |                                           |        | (6,892  | )       |       |        | (1,008  | )     
|                                               |                                                                                           | Prepaid expenses and other current assets               |                                           |        | 160     |         |       |        | 389     |       
|                                               |                                                                                           | Accounts payable                                        |                                           |        | 12,376  |         |       |        | 12,608  |       
|                                               |                                                                                           | Accrued liabilities and other long-term
    liabilities |                                           |        | 1,386   |         |       |        | (3,377  | )     
|                                               |                                                                                           |                                                         |                                           |        |         |         |       |       
|                                               |                                                                                           |                                                         | Net cash provided by operating activities |        |         | 28,236  |       |        |         | 6,008  |  
|                                               |                                                                                           |                                                         |                                           |        |         |         |       |       
|CASH FLOWS FROM INVESTING ACTIVITIES:          |                                                                                           |                                                         |                                           |        |         |         |       |       
|                                               | Purchases of property, plant and equipment                                                |                                                         |                                           | (7,440 | )       |         |       | (6,505 | )      
|                                               | Proceeds from sales of assets                                                             |                                                         |                                           | 12     |         |         |       | 57     |        
|                                               | Acquisitions                                                                              |                                                         |                                           | (9,081 | )       |         |       |       |        
|                                               | Other assets                                                                              |                                                         |                                           | (2,534 | )       |         |       | (1,600 | )      
|                                               |                                                                                           |                                                         |                                           |        |         |         |       |       
|                                               |                                                                                           |                                                         | Net cash used in investing activities     |        |         | (19,043 | )     |        |         | (8,048 | )
|                                               |                                                                                           |                                                         |                                           |        |         |         |       |       
|CASH FLOWS FROM FINANCING ACTIVITIES:          |                                                                                           |                                                         |                                           |        |         |         |       |       
|                                               | Payments of capital lease obligations                                                     |                                                         |                                           | (16    | )       |         |       | (14    | )      
|                                               | Net borrowings under revolving credit facility                                            |                                                         |                                           |       |         |         |       | 4,500  |        
|                                               | 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                                                |                                                         |                                           | (2,733 | )       |         |       | (2,744 | )      
|                                               | Additional principal payments on term loans                                               |                                                         |                                           | (1,058 | )       |         |       | (684   | )      
|                                               | Checks drawn in excess of bank balances                                                   |                                                         |                                           | 1,488  |         |         |       | 1,956  |        
|                                               |                                                                                           |                                                         |                                           |        |         |         |       |       
|                                               |                                                                                           |                                                         | Net cash provided by financing activities |        |         | (2,351  | )     |        |         | 2,891  |  
|                                               |                                                                                           |                                                         |                                           |        |         |         |       |       
|NET INCREASE IN CASH AND CASH EQUIVALENTS      |                                                                                           |                                                         | 6,842                                     |        |         |         | 851   |       
|CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD |                                                                                           |                                                         | 1,131                                     |        |         |         | 1,247 |       
|                                               |                                                                                           |                                                         |                                           |        |         |         |       |       
|CASH AND CASH EQUIVALENTS, END OF PERIOD       |                                                                                           | $                                                       | 7,973                                     |        |         | $       | 2,098 |       
|                                               |                                                                                           |                                                         |                                           |        |         |         |       |       

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

6



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ATRIUM CORPORATION

NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS

June 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 six months ended June 30,
2003 and 2002, and financial position as of June 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 June 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, (APB 25) 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 (loss) if the Company had
applied the fair value recognition provisions of
SFAS No. 123, Accounting for Stock-based
Compensation, to stock-based compensation plans and
warrants.

|                               |                                                                                                                                 |                            |       |                  |       |      |       |      |       |   |       |     |       |  |        |      |        |  
|------------------------------ | ------------------------------------------------------------------------------------------------------------------------------- | -------------------------- | ----- | ---------------- | ----- | ---- | ----- | ---- | ----- | - | ----- | --- | ----- |  | ------ | ---- | ------ | -
|                               |                                                                                                                                 |                            |       |                 
|                               |                                                                                                                                 | Three Months               |       | Six Months Ended
|                               |                                                                                                                                 | Ended June 30,             |       | June 30,        
|                               |                                                                                                                                 |                            |       |                 
|                               |                                                                                                                                 | 2003                       |       | 2002             |       | 2003 |       | 2002
|                               |                                                                                                                                 |                            |       |                  |       |      |       |     
|Net income (loss), as reported |                                                                                                                                 | $                          | 6,663 |                  |       | $    | 1,866 |      |       | $ | 1,440 |     |       |  | (1,914 | )   
|Adjustments:                   |                                                                                                                                 |                            |       |                  |       |      |       |      |       |   |       |     |       |  |        |     
|                               | Stock based employee compensation expense
    included in reported net income, net of related tax effects                       |                            |       | 252              |       |      |       | 83   |       |   |       | 252 |       |  |        | 83   |       
|                               | Stock-based employee compensation expense
    determined under fair value method for all awards, net of
    related tax effects |                            |       | 37               |       |      |       | (49  | )     |   |       | (2  | )     |  |        | (143 | )     
|                               |                                                                                                                                 |                            |       |                  |       |      |       |      |       |   |       |     |       |  |        |     
|                               |                                                                                                                                 | Adjusted net income (loss) |       | $                | 6,952 |      |       | $    | 1,900 |   |       | $   | 1,690 |  |        | $    | (1,974 | )
|                               |                                                                                                                                 |                            |       |                  |       |      |       |      |       |   |       |     |       |  |        |     

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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ATRIUM CORPORATION


NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS  (Continued)

3.     New Accounting
Pronouncements

During January 2003, the Financial Accounting
Standards Board (FASB) issued FASB Interpretation
No. (FIN) 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 interest entities created after that
date. For interests in variable interest entities obtained prior
to February 1, 2003, FIN 46 becomes effective on
July 1, 2003. The Company does not believe adoption of
FIN 46 will have a significant effect on its consolidated
financial position or results of operations.

In April 2003, the FASB issued Statement of
Financial Accounting Standards (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 becomes effective prospectively for
derivative contracts entered into or modified by the Company
after June 30, 2003. The Company does not expect that the
implementation of SFAS 149 will have a material effect on
its consolidated financial position or results of operations.

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. The Company does not expect that the adoption
of this statement will have a material impact on its financial
statements.

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.

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

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ATRIUM CORPORATION


NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS  (Continued)

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. The Company adopted SFAS 143 on
January 1, 2003. Adoption of SFAS 143 did not have a
significant impact 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. Adoption of SFAS 145 has not had a
significant effect on the Company.



| |                                                                                           
| | ------------------------------------------------------------------------------------------
| | 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. SFAS 146 was adopted by the Company
on January 1, 2003. Adoption of SFAS 146 did not have
a significant effect on the Company.



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

During November 2002, the FASB issued
FIN 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:

|                |  |          |        |              |  |   |        |  
|--------------- |  | -------- | ------ | ------------ |  | - | ------ | -
|                |  | June 30, |        | December 31,
|                |  | 2003     |        | 2002        
|                |  |          |        |             
|Raw materials   |  | $        | 26,226 |              |  | $ | 22,047 |  
|Work-in process |  |          | 1,449  |              |  |   | 1,041  |  
|Finished goods  |  |          | 14,723 |              |  |   | 10,667 |  
|                |  |          |        |              |  |   |        |  
|                |  |          | 42,398 |              |  |   | 33,755 |  
|LIFO reserve    |  |          | (17    | )            |  |   | (43    | )
|                |  |          |        |              |  |   |        |  
|                |  | $        | 42,381 |              |  | $ | 33,712 |  
|                |  |          |        |              |  |   |        |  

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ATRIUM CORPORATION


NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS  (Continued)

6.     Notes
Payable

Notes payable consisted of the following:

|                                                         |                |          |         |              |  |   |         |         | 
|-------------------------------------------------------- | -------------- | -------- | ------- | ------------ |  | - | ------- | ------- | 
|                                                         |                | June 30, |         | December 31,
|                                                         |                | 2003     |         | 2002        
|                                                         |                |          |         |             
|Revolving credit facility                                |                | $        |        |              |  | $ |        |        
|Term loan A                                              |                |          | 3,014   |              |  |   | 4,660   |        
|Term loan B                                              |                |          | 54,613  |              |  |   | 55,647  |        
|Term loan C                                              |                |          | 63,582  |              |  |   | 64,693  |        
|Senior subordinated notes                                |                |          | 175,000 |              |  |   | 175,000 |        
|Senior payment-in-kind notes                             |                |          | 55,112  |              |  |   | 50,794  |        
|Other                                                    |                |          | 78      |              |  |   | 6       |        
|                                                         |                |          |         |              |  |   |         |        
|                                                         |                |          | 351,399 |              |  |   | 350,800 |        
|Less:                                                    |                |          |         |              |  |   |         |        
|Unamortized discount on senior subordinated notes        |                |          | (1,870  | )            |  |   | (1,981  | )      
|Unamortized discount on senior payment-in-kind
    notes |                |          | (11,530 | )            |  |   | (12,415 | )      
|Current maturities of long-term debt                     |                |          | (5,285  | )            |  |   | (6,524  | )      
|                                                         |                |          |         |              |  |   |         |        
|                                                         | Long-term debt |          | $       | 332,714      |  |   | $       | 329,880 | 
|                                                         |                |          |         |              |  |   |         |        

The senior subordinated notes (the
Notes), senior payment-in-kind notes (the PIK
Notes) and credit agreement require the Company to meet
certain financial tests pertaining to total leverage, senior
leverage, interest coverage and fixed charge coverage. As of
June 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
June 30, 2003, Atrium Companies had an interest rate swap
with a notional amount totaling $100,000. The swap expires in
November 2003.

7.     Contingencies

Atrium Companies and its subsidiary, formerly
known as Champagne Industries, Inc. (Champagne,
renamed Atrium Door and Window Company of the Rockies), are
defendants in a purported class action lawsuit pending in state
district court in Boulder, Colorado in which 63 homeowners,
who claim to represent a purported class of approximately 4,500
homeowners, sued Atrium Companies and Champagne, along with
three other home builder and home product manufacturer
defendants. The claims asserted against Cham-

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ATRIUM CORPORATION


NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS  (Continued)

pagne allege manufacturing and design defects
associated with its Imperial window, a half-jamb wood window
manufactured by Champagne and installed in plaintiffs
homes between 1987 and 1997. The claims asserted against Atrium
Companies, which purchased Champagne in 1999, are based on alter
ego and successor liability theories. We believe Atrium
Companies and Champagne have meritorious defenses and we have
vigorously defended against these claims.

On June 26, 2003, the Colorado state court
granted preliminary approval of a settlement agreement between
the named plaintiffs, the Company and Champagne to resolve all
claims in the class action lawsuit. Under the terms of the
proposed settlement agreement, which is subject to final
approval of the Colorado state court, Champagnes insurance
carriers will pay $18.475 million into a settlement fund
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 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 reduced price shall in no event be below Champagnes
manufacturing cost. Neither the Company nor Champagne will pay
any cash to the class members under the proposed settlement
agreement. Under the terms of the proposed settlement agreement,
all class members will release Atrium Companies and Champagne
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 proposed settlement, co-defendant
Ryland Homes has agreed to withdraw with prejudice its
cross-claim against Champagne. The hearing for final approval of
the settlement agreement is scheduled for September 9, 2003.

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 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

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ATRIUM CORPORATION


NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS  (Continued)

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 second quarter of 2003, the Company
reduced its accrued provisions for the Wing Industries, Inc.
divestiture by $48 for legal fees and exit costs related to idle
facilities, leaving a remaining accrual of $339 for unpaid
liabilities, a portion of which is still under negotiation. In
the same period, the Company decreased its accrued provisions
for the Woodville closing by $87 for a legal settlement and
miscellaneous facility closure expenses, reducing the remaining
accrual to $100.

9.     Acquisitions

On January 31, 2003, Atrium Companies,
through its newly-formed and wholly-owned subsidiary, MD
Casting, Inc. (MD Casting), completed the
acquisition of substantially all of the operating assets of
Miniature Die Casting of Texas, L.P. for a purchase price of
$3,250, excluding transaction fees of approximately $108, 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

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ATRIUM CORPORATION


NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS  (Continued)

operations were included in the Companys
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 and the assumption of certain
liabilities. The proceeds used to complete the transaction were
funded through the Companys 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 of Danvid was accounted for in
accordance with SFAS 141 and the results of the acquired
business 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
fair market values at the date of acquisition. The excess
purchase price over the fair market value of the assets acquired
(goodwill) was $1,219, the Company also incurred
$173 in transaction fees in connection with the transaction. 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                           |                      |   | 1,219  |      
|Accounts payable                   |                      |   | (871   | )    
|Accrued liabilities                |                      |   | (2,244 | )    
|Other long-term liabilities        |                      |   | (1,264 | )    
|                                   |                      |   |        |      
|                                   | Total purchase price |   | $      | 5,723 | 
|                                   |                      |   |        |      

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##### Table of Contents



ATRIUM CORPORATION


NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS  (Continued)

11.     Atrium
Corporation Financial Information

Condensed Balance Sheets

|                                             |                                            |          |         |              |  |   |         |         | 
|-------------------------------------------- | ------------------------------------------ | -------- | ------- | ------------ |  | - | ------- | ------- | 
|                                             |                                            | June 30, |         | December 31,
|                                             |                                            | 2003     |         | 2002        
|                                             |                                            |          |         |             
|Assets                                       |                                            |          |         |              |  |   |         |        
|Investment in subsidiary                     |                                            | $        | 143,855 |              |  | $ | 134,434 |        
|Deferred financing costs, net                |                                            |          | 3,848   |              |  |   | 4,109   |        
|                                             |                                            |          |         |              |  |   |         |        
|                                             | Total assets                               |          | $       | 147,703      |  |   | $       | 138,543 | 
|                                             |                                            |          |         |              |  |   |         |        
|                                            
|Liabilities and Stockholders
    Equity     |                                            |          |         |              |  |   |         |        
|                                            
|Notes payable                                |                                            | $        | 43,582  |              |  | $ | 38,379  |        
|Common stock subject to mandatory redemption |                                            |          | 15,604  |              |  |   | 15,604  |        
|Stockholders equity                         |                                            |          | 88,517  |              |  |   | 84,560  |        
|                                             |                                            |          |         |              |  |   |         |        
|                                             | Total liabilities and stockholders equity |          | $       | 147,703      |  |   | $       | 138,543 | 
|                                             |                                            |          |         |              |  |   |         |        

Condensed Statements of Operations

|                                             |            |                |       |       |  |   |       |       | 
|-------------------------------------------- | ---------- | -------------- | ----- | ----- |  | - | ----- | ----- | 
|                                             |            |               
|                                             |            | Three Months  
|                                             |            | Ended June 30,
|                                             |            |               
|                                             |            | 2003           |       | 2002 
|                                             |            |                |       |      
|Interest expense                             |            | $              | 2,810 |       |  | $ | 2,357 |      
|Equity in undistributed income of subsidiary |            |                | 9,473 |       |  |   | 4,223 |      
|                                             |            |                |       |       |  |   |       |      
|                                             | Net income |                | $     | 6,663 |  |   | $     | 1,866 | 
|                                             |            |                |       |       |  |   |       |      

Condensed Statements of Operations

|                                             |                   |                  |       |       |  |  |       |        |  
|-------------------------------------------- | ----------------- | ---------------- | ----- | ----- |  |  | ----- | ------ | -
|                                             |                   |                 
|                                             |                   | Six Months Ended
|                                             |                   | June 30,        
|                                             |                   |                 
|                                             |                   | 2003             |       | 2002 
|                                             |                   |                  |       |      
|Interest expense                             |                   |                  | 5,464 |       |  |  | 4,449 |       
|Equity in undistributed income of subsidiary |                   |                  | 6,904 |       |  |  | 2,535 |       
|                                             |                   |                  |       |       |  |  |       |       
|                                             | Net income (loss) |                  | $     | 1,440 |  |  | $     | (1,914 | )
|                                             |                   |                  |       |       |  |  |       |       

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##### Table of Contents



ATRIUM CORPORATION


NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS  (Continued)

Condensed Statements of Cash Flows

|                                                 |                                           |                  |        |      |   |   |        |      |  
|------------------------------------------------ | ----------------------------------------- | ---------------- | ------ | ---- | - | - | ------ | ---- | -
|                                                 |                                           |                 
|                                                 |                                           | Six Months Ended
|                                                 |                                           | June 30,        
|                                                 |                                           |                 
|                                                 |                                           | 2003             |        | 2002
|                                                 |                                           |                  |        |     
|Cash flows from operating
    activities:        |                                           |                  |        |      |   |   |        |     
|Net income (loss)                                |                                           | $                | 1,440  |      |   | $ | (1,914 | )   
|Equity in undistributed income of subsidiary     |                                           |                  | (6,904 | )    |   |   | (2,535 | )   
|Accretion of senior payment-in-kind notes        |                                           |                  | 5,203  |      |   |   | 4,187  |     
|Amortization of deferred financing costs         |                                           |                  | 261    |      |   |   | 262    |     
|Changes in assets and liabilities                |                                           |                  |       |      |   |   | (26    | )   
|                                                 |                                           |                  |        |      |   |   |        |     
|                                                 | Net cash used in operating activities     |                  |        |     |   |   |        | (26  | )
|                                                 |                                           |                  |        |      |   |   |        |     
|Cash flows from investing
    activities:        |                                           |                  |        |      |   |   |        |     
|Cash received from subsidiary                    |                                           |                  | 25     |      |   |   | 149    |     
|                                                 |                                           |                  |        |      |   |   |        |     
|                                                 | Net cash provided by investing activities |                  |        | 25   |   |   |        | 149  |  
|                                                 |                                           |                  |        |      |   |   |        |     
|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
second quarter and first six 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 $13,629
from $148,181 during the second quarter of 2002 to $161,810
during the second quarter of 2003. The increase in net sales was
primarily the result of the 2003 acquisitions and sales growth
at the Companys aluminum extrusion operation, offset by a
decline in net sales at the Companys vinyl window and
Darby operations. Net sales from the 2003 acquisitions were
$14,109 for the second quarter. Net sales at the Companys
aluminum extrusion operation increased $1,557, or 14.9%, over
the prior year due to increased volume with new and existing
customers. Net sales at the Companys vinyl operations
decreased $976, or 1.2%, from the prior year as a result of
lower volume in the East related to Lowes Companies, Inc.
shifting certain volume to a competitor. Sales at the
Companys Darby operation declined as a result of softer
demand in multi-family sales.

Net sales increased by $13,894 from $261,470
during the first six months of 2002 to $275,364 during the first
six 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 and extrusion operations, offset
by a decline in net sales at the Companys vinyl window and
Darby operations. Net sales from the 2003 acquisitions were
$14,476 for the first six months of 2003. The Company also
experienced increases of $3,245, or 3.7%, 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 $3,127, or
15.7%, over the prior year due to increased volume with new and
existing customers. Net sales at the Companys vinyl
operations decreased $4,474, or 3.2%, from the prior year
primarily as a result of weather conditions in the East during
the first quarter. Sales at the Companys Darby operation
declined as a result of inclement weather during the first
quarter and softer demand in multi-family sales.

Cost of Goods
Sold.Cost
of goods sold increased from 66.8% of net sales during the
second quarter of 2002 to 67.5% of net sales during the second
quarter of 2003 and increased from 67.8% of net sales during the
first six months of 2002 to 68.2% of net sales during the first
six months of 2003. Material cost of goods sold decreased from
40.5% of net sales during the second quarter of 2002 to 40.1% of
net sales during the second quarter of 2003 and decreased from
40.6% of net sales during the first six months of 2002 to 39.8%
of net sales during the first six months of 2003. The decrease
in material costs as a percentage of net sales for both the
second quarter and first six months of 2003 is primarily related
to the Companys increased purchasing power,

16



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##### Table of Contents



vertical integration through the acquisition of
MD Casting and increased automation at the Companys
manufacturing facilities, which resulted in lower scrap rates.
These improvements were partially offset by an increase in the
cost of vinyl resins over prior year. Direct manufacturing
expenses increased from 26.3% of net sales during the second
quarter of 2002 to 27.4% of net sales during the second quarter
of 2003 and increased from 27.2% of net sales during the first
six months of 2002 to 28.4% of net sales for the first six
months of 2003. The increase in direct manufacturing expenses
both for the second quarter and first six months of 2003 was
primarily caused by higher insurance 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 increased $1,965
from $30,959 (20.9% of net sales during the second quarter of
2002) to $32,924 (20.3% of net sales during the second quarter
of 2003). Selling, delivery, general and administrative expenses
for the 2003 acquisitions were $2,605 during the second quarter.
Selling, delivery, general and administrative expenses,
excluding the 2003 acquisitions, decreased $641 from $30,959
during the second quarter of 2002 to $30,318 during the second
quarter of 2003. General and administrative expenses, excluding
the 2003 acquisitions, decreased $259 from $12,358 during the
second quarter of 2002 to $12,099 during the second 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, were partially offset by higher insurance premiums.
Delivery expenses, excluding the 2003 acquisitions, were 6.3% of
net sales both for the second quarter of 2003 and 2002. Although
delivery expenses were unchanged as a percent of sales from
prior year, the Company experienced a decrease in their leased
transportation costs as a result of a favorable contract
renewal, this benefit was offset by higher fuel prices. Selling
expenses, excluding the 2003 acquisitions, decreased as a
percent of net sales from 6.3% during the second quarter of 2002
to 6.1% during the second quarter of 2002 due to modifications
in the Companys commission structure. Selling expenses are
primarily variable in nature.

Selling, delivery, general and administrative
expenses increased by $3,304 from $57,587 (22.0% of net sales
during the first six months of 2002) to $60,891 (22.1% of net
sales during the first six months of 2003). Selling, delivery,
general and administrative expenses for the 2003 acquisitions
were $2,659 during the first six months of 2003. Selling,
delivery, general and administrative expenses, excluding the
2003 acquisitions, increased $644 from $57,587 during the first
six months of 2002 to $58,231 during the first six months of
2003. General and administrative expenses, excluding the 2003
acquisitions, increased $507 from $23,094 during the first six
months of 2002 to $23,601 during the first six months of 2003,
namely as a result of higher insurance costs, 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, increased
from 6.4% of net sales during the first six months of 2002 to
6.6% of net sales during the first six months of 2003. Although
delivery expenses increased as a percent of sales from prior
year, the Company experienced a decrease in its leased
transportation costs as a result of a favorable contract
renewal, this benefit was offset by higher fuel prices. Selling
expenses, excluding the 2003 acquisitions, decreased as a
percent of net sales from 6.8% of net sales during the first six
months of 2002 to 6.6% of net sales during the first six months
of 2003. The decrease as a percent of net sales resulted from
modifications to the Companys commission structure.
Selling expenses are primarily variable in nature.

Securitization
Expense.Securitization expense decreased $22
from $298 in the second quarter of 2002 to $276 in the second
quarter of 2003 and decreased $42 from $554 during the first six
months of 2002 to $512 during the first six 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.

Stock Compensation
Expense.Stock compensation expense increased
$194 from $158 during the second quarter of 2002 to $352 during
the second quarter of 2003 and increased $219 from $233 during
the first six months of 2002 to $452 during the first six months
of 2003. Stock compensation expense for the

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##### Table of Contents



second quarter of 2003 and 2002 included $252 and
$83, respectively, for the repurchase of stock options from
current and former employees and payments of $100 and $75,
respectively, for services rendered in the form of the
Companys common stock to Ardshiel, Inc. Stock compensation
for the first six months of 2003 and 2002 included payments of
$200 and $150, respectively, for services rendered in the form
of the Companys common stock to Ardshiel, Inc.


Amortization Expense.Amortization expense increased
$217 from $826 during the second quarter of 2002 to $1,043
during the second quarter of 2003 and increased $345 from $1,630
during the first six months of 2002 to $1,975 during the first
six months of 2003. Amortization expense increased during the
second quarter and first six months of 2003 primarily due to
amortization on software implementation costs that were
capitalized during 2002.

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. As of June
2003, the Company still has an accrual of $339 for unpaid
liabilities related to the Wing special charge.

Interest Expense.Interest expense decreased $68
from $11,295 during the second quarter of 2002 to $11,227 during
the second quarter of 2003 and decreased $259 from $22,419
during the first six months of 2002 to $22,160 during the first
six months of 2003. The decrease was due to reduced debt levels
and 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 six 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 $28,236 during the first six months of 2003
compared to $6,008 during the first six months of 2002. The
increase in cash provided by operating activities is largely due
to an increase in amounts borrowed against Atrium
Companies accounts receivable securitization facility
offset by an increase in cash provided by changes in working
capital. Net cash used in investing activities during the first
six months of 2003 was $19,043 compared to $8,048 during the
first six 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 six months of 2003 was $2,351 compared to
$2,891 in cash provided by financing activities during the first
six months of 2002. The decrease in cash provided by financing
activities was primarily due to a reduction of net borrowings
under the revolving credit facility, offset by higher principal
payments on the 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 date
of June 30, 2004. Additionally, Atrium Companies has an
accounts receivable securitization facility, which can make
additional funds available to the Company depending on 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.

18



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##### Table of Contents



At June 30, 2003, the Company had $43,641 of
availability under the revolving credit facility, net of
outstanding letters of credit totaling $3,359. As of
August 11, 2003, the Company had cash of $4,240 and $42,912
of availability under the revolving credit facility, net of
outstanding letters of credit totaling $4,088. At June 30,
2003, the Company had no availability under the accounts
receivable securitization facility. As of August 11, 2003,
the Company had 1,900 of availability under the accounts
receivable securitization facility and an additional $9,100
currently unavailable due to borrowing base limitations, net of
securitizations of $39,000.

Capital Expenditures

The Company had cash capital expenditures (net of
proceeds from sales) of $7,428 during the six months of 2003
($3,559 during the second quarter of 2003) compared to $6,448
during the first six months of 2002 ($3,158 during the second
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 Pronouncements

During January 2003, the Financial Accounting
Standards Board (FASB) issued FASB Interpretation
No. (FIN) 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 interest entities created after that
date. For interests in variable interest entities obtained prior
to February 1, 2003, FIN 46 becomes effective on
July 1, 2003. The Company does not believe adoption of
FIN 46 will have a significant effect on its consolidated
financial position or results of operations.

In April 2003, the FASB issued Statement of
Financial Accounting Standards (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 becomes effective prospectively for
derivative contracts entered into or modified by the Company
after June 30, 2003. The Company does not expect that the
implementation of SFAS 149 will have a material effect on
its consolidated financial position or results of operations.

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. The Company does not expect that the adoption
of this statement will have a material impact on its financial
statements.

19



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##### Table of Contents



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. The Company adopted SFAS 143 on
January 1, 2003. Adoption of SFAS 143 did not have 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. Adoption of SFAS 145 has not had a
significant effect on the Company.



| |                                                                                           
| | ------------------------------------------------------------------------------------------
| | 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. SFAS 146 was adopted by the Company
on January 1, 2003. Adoption of SFAS 146 did not have
a significant effect on the Company.



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

During November 2002, the FASB issued FIN 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
$1,906, which is included in accrued liabilities.

20



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##### Table of Contents



There have not been any material changes in the
Companys market risk during the six months ended
June 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.

21



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##### Table of Contents






PART II. OTHER INFORMATION






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

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






|        |                                     
|------- | ------------------------------------
|Item 6. | Exhibits and Reports on
    Form 8-K

(a) Exhibits

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

(b) Reports on
Form 8-K  None

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##### Table of Contents






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: August 14, 2003



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

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

Date: August 14, 2003

23



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##### Table of Contents






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 Executive Officer Pursuant
    to 17 CFR 240.13a-14, promulgated under the Sarbanes-Oxley Act
    of 2002.                                                                                   
|        | 10.69 |             |  | First Supplemental Indenture dated as of
    May 5, 2003 to the Amended and Restated Indenture, dated as
    of June 24, 2001, among Atrium Corporation and
    U.S. Bank National Association as successor trustee.

E-1