##### Table of Contents









SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549


Form 10-Q

|           |  |                                                                                                 
|---------- |  | ------------------------------------------------------------------------------------------------
|(Mark One) |  |                                                                                                 
|          
|þ          |  | QUARTERLY REPORT PURSUANT TO SECTION 13
    OR 15(d)
    OF THE SECURITIES EXCHANGE ACT OF 1934 
|          
|           |  | For the quarterly period ended March 31,
    2002                                               
|          
|or        
|          
|o          |  | TRANSITION REPORT PURSUANT TO SECTION 13
    OR 15(d)
    OF THE SECURITIES EXCHANGE ACT OF 1934
|          
|           |  | For the transition period
    from           to                                                 

Commission File Number: 333-54122

Atrium Corporation

(Exact name of registrant as specified in its
charter)


|                                                                           |  |                                                      
|-------------------------------------------------------------------------- |  | -----------------------------------------------------
|Delaware(State or other jurisdiction
    of incorporation or organization) |  | 75-2642488(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



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TABLE OF CONTENTS



|                           |                                                                                               |                                                                              |  |  |  |  |  | 
|-------------------------- | --------------------------------------------------------------------------------------------- | ---------------------------------------------------------------------------- |  |  |  |  |  | 
|                           |                                                                                               | CONSOLIDATED BALANCE SHEETS (Dollars in thousands, except share amounts)    
|                           |                                                                                               | CONSOLIDATED STATEMENTS OF OPERATIONS                                       
|                           |                                                                                               | CONSOLIDATED STATEMENTS OF STOCKHOLDERS EQUITY AND OTHER COMPREHENSIVE LOSS
|                           |                                                                                               | CONSOLIDATED STATEMENTS OF CASH FLOWS                                       
|                           |                                                                                               | NOTES TO CONSOLIDATED FINANCIAL STATEMENTS                                  
|                           | Item 2. Managements Discussion and Analysis of Financial Condition and Results of Operations
|                           | Item 3. Quantitative and Qualitative Disclosure About Market Risk                            
|PART II. OTHER INFORMATION
|                           | Item 1. Legal Proceedings                                                                    
|                           | Item 6. Exhibits and Reports on Form 8-K                                                     
|SIGNATURES                



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##### Table of Contents



ATRIUM CORPORATION

FORM 10-Q

QUARTER ENDED MARCH 31, 2002


INDEX


|                                       |  |                                                                                                                                |    |      |       | 
|-------------------------------------- |  | ------------------------------------------------------------------------------------------------------------------------------ | -- | ---- | ----- | 
|                                       |  |                                                                                                                                |    | Page
|                                       |  |                                                                                                                                |    |     
|PART I
    FINANCIAL INFORMATION      
|Item 1.                                |  | Consolidated Financial Statements (Unaudited):                                                                                 |    |      |       | 
|                                       |  | Consolidated Balance Sheets as of March 31,
    2002 and December 31, 2001                                                     |    |      | 2     | 
|                                       |  | Consolidated Statements of Operations for the
    Three Months Ended March 31, 2002 and 2001                                   |    |      | 3     | 
|                                       |  | Consolidated Statements of Stockholders
    Equity and Other Comprehensive Loss for the Three Months Ended
    March 31, 2002 |    |      | 4     | 
|                                       |  | Consolidated Statements of Cash Flows for the
    Three Months Ended March 31, 2002 and 2001                                   |    |      | 5     | 
|                                       |  | Notes to Consolidated Financial Statements                                                                                     |    |      | 6-11  | 
|Item 2.                                |  | Managements Discussion and Analysis of
    Financial Condition and Results of Operations                                      |    |      | 12-15 | 
|Item 3.                                |  | Quantitative and Qualitative Disclosures about
    Market Risk                                                                 |    |      | 15    | 
|PART II
    OTHER INFORMATION         
|Item 1.                                |  | Legal Proceedings                                                                                                              |    |      | 15    | 
|Items 2, 3, 4 and 5 are not applicable |  |                                                                                                                                |    |     
|Item 6.                                |  | Exhibits and Reports on Form 8-K                                                                                               |    |      | 15    | 
|Signatures                             |  |                                                                                                                                | 16 |     

1



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##### Table of Contents



ATRIUM CORPORATION






CONSOLIDATED BALANCE SHEETS


(Dollars in thousands, except share
amounts)


|                                             |                                                                                                                                               |                                            |         |              |         |  |         |         |         | 
|-------------------------------------------- | --------------------------------------------------------------------------------------------------------------------------------------------- | ------------------------------------------ | ------- | ------------ | ------- |  | ------- | ------- | ------- | 
|                                             |                                                                                                                                               | March 31,                                  |         | December 31,
|                                             |                                                                                                                                               | 2002                                       |         | 2001        
|                                             |                                                                                                                                               |                                            |         |             
|                                             |                                                                                                                                               | (Unaudited)                                |         |             
|ASSETS                                       |                                                                                                                                               |                                            |         |             
|CURRENT ASSETS:                              |                                                                                                                                               |                                            |         |              |         |  |         |        
|                                             | Cash and cash equivalents                                                                                                                     |                                            | $       | 1,702        |         |  | $       | 1,247   |        
|                                             | Accounts receivable, net                                                                                                                      |                                            |         | 3,705        |         |  |         | 3,895   |        
|                                             | Retained interest in sold accounts receivable                                                                                                 |                                            |         | 24,374       |         |  |         | 14,373  |        
|                                             | Inventories                                                                                                                                   |                                            |         | 38,217       |         |  |         | 36,737  |        
|                                             | Prepaid expenses and other current assets                                                                                                     |                                            |         | 4,044        |         |  |         | 4,819   |        
|                                             | Deferred tax asset                                                                                                                            |                                            |         | 1,186        |         |  |         | 1,106   |        
|                                             |                                                                                                                                               |                                            |         |              |         |  |         |        
|                                             |                                                                                                                                               | Total current assets                       |         |              | 73,228  |  |         |         | 62,177  | 
|PROPERTY, PLANT AND EQUIPMENT, net           |                                                                                                                                               |                                            | 56,401  |              |         |  | 55,755  |        
|GOODWILL, net                                |                                                                                                                                               |                                            | 345,239 |              |         |  | 345,239 |        
|DEFERRED FINANCING COSTS, net                |                                                                                                                                               |                                            | 17,139  |              |         |  | 17,982  |        
|OTHER ASSETS, net                            |                                                                                                                                               |                                            | 7,571   |              |         |  | 7,366   |        
|                                             |                                                                                                                                               |                                            |         |              |         |  |         |        
|                                             |                                                                                                                                               | Total assets                               |         | $            | 499,578 |  |         | $       | 488,519 | 
|                                             |                                                                                                                                               |                                            |         |              |         |  |         |        
|LIABILITIES AND STOCKHOLDERS
    EQUITY    
|CURRENT LIABILITIES:                         |                                                                                                                                               |                                            |         |              |         |  |         |        
|                                             | Current portion of notes payable                                                                                                              |                                            | $       | 6,180        |         |  | $       | 6,191   |        
|                                             | Accounts payable                                                                                                                              |                                            |         | 29,154       |         |  |         | 18,539  |        
|                                             | Accrued liabilities                                                                                                                           |                                            |         | 29,422       |         |  |         | 29,695  |        
|                                             |                                                                                                                                               |                                            |         |              |         |  |         |        
|                                             |                                                                                                                                               | Total current liabilities                  |         |              | 64,756  |  |         |         | 54,425  | 
|                                             |                                                                                                                                               |                                            |         |              |         |  |         |        
|LONG-TERM LIABILITIES:                       |                                                                                                                                               |                                            |         |              |         |  |         |        
|                                             | Notes payable                                                                                                                                 |                                            |         | 337,648      |         |  |         | 333,760 |        
|                                             | Deferred tax liability                                                                                                                        |                                            |         | 1,186        |         |  |         | 1,106   |        
|                                             | Other long-term liabilities                                                                                                                   |                                            |         | 676          |         |  |         | 707     |        
|                                             | Swaps contract liability                                                                                                                      |                                            |         | 4,668        |         |  |         | 6,821   |        
|                                             |                                                                                                                                               |                                            |         |              |         |  |         |        
|                                             |                                                                                                                                               | Total long-term liabilities                |         |              | 344,178 |  |         |         | 342,394 | 
|                                             |                                                                                                                                               |                                            |         |              |         |  |         |        
|                                             |                                                                                                                                               | Total liabilities                          |         |              | 408,934 |  |         |         | 396,819 | 
|                                             |                                                                                                                                               |                                            |         |              |         |  |         |        
|COMMON STOCK SUBJECT TO MANDATORY REDEMPTION |                                                                                                                                               |                                            | 15,604  |              |         |  | 15,604  |        
|                                             |                                                                                                                                               |                                            |         |              |         |  |         |        
|COMMITMENTS AND CONTINGENCIES                |                                                                                                                                               |                                            |         |              |         |  |         |        
|STOCKHOLDERS EQUITY:                        |                                                                                                                                               |                                            |         |              |         |  |         |        
|                                             | Common stock $.01 par value, 245,000 shares
    authorized, 170,399 shares issued and outstanding at
    March 31, 2002 and December 31, 2001 |                                            |         | 2            |         |  |         | 2       |        
|                                             | Paid-in capital                                                                                                                               |                                            |         | 179,526      |         |  |         | 179,526 |        
|                                             | Accumulated deficit                                                                                                                           |                                            |         | (98,943      | )       |  |         | (95,163 | )      
|                                             | Accumulated other comprehensive loss                                                                                                          |                                            |         | (5,545       | )       |  |         | (8,269  | )      
|                                             |                                                                                                                                               |                                            |         |              |         |  |         |        
|                                             |                                                                                                                                               | Total stockholders equity                 |         |              | 75,040  |  |         |         | 76,096  | 
|                                             |                                                                                                                                               |                                            |         |              |         |  |         |        
|                                             |                                                                                                                                               | Total liabilities and stockholders equity |         | $            | 499,578 |  |         | $       | 488,519 | 
|                                             |                                                                                                                                               |                                            |         |              |         |  |         |        

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 March 31, 2002
and 2001


(Dollars in thousands)


(Unaudited)


|                                                                                                                                       |                            |      |         |       |  |   |         |       | 
|-------------------------------------------------------------------------------------------------------------------------------------- | -------------------------- | ---- | ------- | ----- |  | - | ------- | ----- | 
|                                                                                                                                       |                            | 2002 |         | 2001 
|                                                                                                                                       |                            |      |         |      
|NET SALES                                                                                                                              |                            | $    | 113,289 |       |  | $ | 110,623 |      
|COST OF GOODS SOLD                                                                                                                     |                            |      | 78,242  |       |  |   | 76,074  |      
|                                                                                                                                       |                            |      |         |       |  |   |         |      
|Gross profit                                                                                                                           |                            |      | 35,047  |       |  |   | 34,549  |      
|                                                                                                                                       |                            |      |         |       |  |   |         |      
|OPERATING EXPENSES:                                                                                                                    |                            |      |         |       |  |   |         |      
|Selling, delivery, general and administrative
    expenses (excluding securitization, stock compensation and
    amortization expense) |                            |      | 26,628  |       |  |   | 24,696  |      
|                                                                                                                                       | Securitization expense     |      |         | 256   |  |   |         |      | 
|                                                                                                                                       | Stock compensation expense |      |         | 75    |  |   |         | 145   | 
|                                                                                                                                       | Amortization expense       |      |         | 804   |  |   |         | 3,535 | 
|                                                                                                                                       |                            |      |         |       |  |   |         |      
|SELLING, DELIVERY, GENERAL AND ADMINISTRATIVE
    EXPENSES                                                                             |                            |      | 27,763  |       |  |   | 28,376  |      
|                                                                                                                                       |                            |      |         |       |  |   |         |      
|                                                                                                                                       | Income from operations     |      |         | 7,284 |  |   |         | 6,173 | 
|INTEREST EXPENSE                                                                                                                       |                            |      | 11,124  |       |  |   | 11,796  |      
|OTHER INCOME, net                                                                                                                      |                            |      | 216     |       |  |   | 139     |      
|                                                                                                                                       |                            |      |         |       |  |   |         |      
|Loss before income taxes                                                                                                               |                            |      | (3,624  | )     |  |   | (5,484  | )    
|PROVISION FOR INCOME TAXES                                                                                                             |                            |      | 156     |       |  |   | 214     |      
|                                                                                                                                       |                            |      |         |       |  |   |         |      
|NET LOSS                                                                                                                               |                            | $    | (3,780  | )     |  | $ | (5,698  | )    
|                                                                                                                                       |                            |      |         |       |  |   |         |      

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

3



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ATRIUM CORPORATION






CONSOLIDATED STATEMENTS OF STOCKHOLDERS
EQUITY


AND OTHER COMPREHENSIVE LOSS


For the Three Months Ended March 31,
2002


(Dollars in thousands, except share
amounts)


(Unaudited)


|                                  |                                                                                  |         |         |         |  |              |   |               |  |               |         |        |  |   |         |        |   |   |        |       |  |   |        |        |  
|--------------------------------- | -------------------------------------------------------------------------------- | ------- | ------- | ------- |  | ------------ | - | ------------- |  | ------------- | ------- | ------ |  | - | ------- | ------ | - | - | ------ | ----- |  | - | ------ | ------ | -
|                                  |                                                                                  |         |         |         |  |              |   |               |  | Accumulated   |         |       
|                                  |                                                                                  |         |         |         |  | Retained     |   | Other         |  |              
|                                  |                                                                                  | Class A |         |         |  | Earnings     |   | Comprehensive |  | Total        
|                                  |                                                                                  |         |         | Paid-in |  | (Accumulated |   | Income        |  | Stockholders
|                                  |                                                                                  | Shares  |         | Amount  |  | Capital      |   | Deficit)      |  | (Loss)        |         | Equity
|                                  |                                                                                  |         |         |         |  |              |   |               |  |               |         |       
|Balance, December 31, 2001        |                                                                                  |         | 170,399 |         |  | $            | 2 |               |  | $             | 179,526 |        |  | $ | (95,163 | )      |   | $ | (8,269 | )     |  | $ | 76,096 |       
|Comprehensive income (loss):      |                                                                                  |         |         |         |  |              |   |               |  |               |         |        |  |   |         |        |   |   |        |       |  |   |        |       
|                                  | Net loss                                                                         |         |         |        |  |              |   |              |  |               |         |       |  |   |         | (3,780 | ) |   |        |      |  |   |        | (3,780 | )
|                                  | Net fair market value adjustment of derivative
    instruments, net of tax of $0 |         |         |        |  |              |   |              |  |               |         |       |  |   |         |       |   |   |        | 2,724 |  |   |        | 2,724  |  
|                                  |                                                                                  |         |         |         |  |              |   |               |  |               |         |        |  |   |         |        |   |   |        |       |  |   |        |       
|Total comprehensive income (loss) |                                                                                  |         |        |         |  |              |  |               |  |               |        |        |  |   | (3,780  | )      |   |   | 2,724  |       |  |   | (1,056 | )     
|                                  |                                                                                  |         |         |         |  |              |   |               |  |               |         |        |  |   |         |        |   |   |        |       |  |   |        |       
|Balance, March 31, 2002           |                                                                                  |         | 170,399 |         |  | $            | 2 |               |  | $             | 179,526 |        |  | $ | (98,943 | )      |   | $ | (5,545 | )     |  | $ | 75,040 |       
|                                  |                                                                                  |         |         |         |  |              |   |               |  |               |         |        |  |   |         |        |   |   |        |       |  |   |        |       

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

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ATRIUM CORPORATION






CONSOLIDATED STATEMENTS OF CASH
FLOWS


For The Three Months Ended March 31, 2002
and 2001


(Dollars in thousands)


(Unaudited)


|                                                         |                                                                                     |                                           |                                           |        |        |        |        |        |        |        |  
|-------------------------------------------------------- | ----------------------------------------------------------------------------------- | ----------------------------------------- | ----------------------------------------- | ------ | ------ | ------ | ------ | ------ | ------ | ------ | -
|                                                         |                                                                                     | 2002                                      |                                           | 2001  
|                                                         |                                                                                     |                                           |                                           |       
|CASH FLOWS FROM OPERATING ACTIVITIES:                    |                                                                                     |                                           |                                           |        |        |        |        |       
|                                                         | Net loss                                                                            |                                           | $                                         | (3,780 | )      |        | $      | (5,698 | )     
|                                                         | Adjustments to reconcile net loss to net cash
    provided by operating activities: |                                           |                                           |        |        |        |        |        |       
|                                                         | Depreciation and amortization                                                       |                                           |                                           | 3,429  |        |        |        | 5,787  |       
|                                                         | Non-cash stock compensation expense                                                 |                                           |                                           | 75     |        |        |        |       |       
|                                                         | Amortization of deferred financing costs                                            |                                           |                                           | 884    |        |        |        | 727    |       
|                                                         | Accretion of discount on notes payable                                              |                                           |                                           | 49     |        |        |        | 44     |       
|                                                         | Accretion of discount on PIK notes                                                  |                                           |                                           | 1,961  |        |        |        | 1,697  |       
|                                                         | Accretion of gain from interest rate collars                                        |                                           |                                           |       |        |        |        | (82    | )     
|                                                         | Amortization of gain from sale/leaseback of
    building                            |                                           |                                           | (9     | )      |        |        | (2     | )     
|                                                         | Provision for bad debts                                                             |                                           |                                           | 201    |        |        |        | 190    |       
|                                                         | Gain on sales of assets                                                             |                                           |                                           |       |        |        |        | (6     | )     
|                                                         | Deferred tax provision (benefit)                                                    |                                           |                                           |       |        |        |        | (1,420 | )     
|                                                         | Changes in assets and liabilities:                                                  |                                           |                                           |        |        |        |        |        |       
|                                                         |                                                                                     | Accounts receivable                       |                                           |        | (6,410 | )      |        |        | (5,299 | )     
|                                                         |                                                                                     | Sale of accounts receivable               |                                           |        | (3,600 | )      |        |        |       |       
|                                                         |                                                                                     | Inventories                               |                                           |        | (1,480 | )      |        |        | (2,055 | )     
|                                                         |                                                                                     | Prepaid expenses and other current assets |                                           |        | 735    |        |        |        | 778    |       
|                                                         |                                                                                     | Accounts payable                          |                                           |        | 8,729  |        |        |        | 5,362  |       
|                                                         |                                                                                     | Accrued liabilities                       |                                           |        | 220    |        |        |        | 1,022  |       
|                                                         |                                                                                     |                                           |                                           |        |        |        |        |       
|                                                         |                                                                                     |                                           | Net cash provided by operating activities |        |        | 1,004  |        |        |        | 1,045  |  
|                                                         |                                                                                     |                                           |                                           |        |        |        |        |       
|CASH FLOWS FROM INVESTING ACTIVITIES:                    |                                                                                     |                                           |                                           |        |        |        |        |       
|                                                         | Purchases of property, plant and equipment                                          |                                           |                                           | (3,280 | )      |        |        | (4,769 | )     
|                                                         | Proceeds from sales of assets                                                       |                                           |                                           | (10    | )      |        |        | 27     |       
|                                                         | Other assets                                                                        |                                           |                                           | (1,013 | )      |        |        | (872   | )     
|                                                         |                                                                                     |                                           |                                           |        |        |        |        |       
|                                                         |                                                                                     |                                           | Net cash used in investing activities     |        |        | (4,303 | )      |        |        | (5,614 | )
|                                                         |                                                                                     |                                           |                                           |        |        |        |        |       
|CASH FLOWS FROM FINANCING ACTIVITIES:                    |                                                                                     |                                           |                                           |        |        |        |        |       
|                                                         | Payments of notes payable and capital lease
    obligations                         |                                           |                                           | (9     | )      |        |        | (77    | )     
|                                                         | Net borrowings under revolving credit facility                                      |                                           |                                           | 3,250  |        |        |        | 3,500  |       
|                                                         | Deferred financing costs                                                            |                                           |                                           |       |        |        |        | (106   | )     
|                                                         | Scheduled principal payments on term notes                                          |                                           |                                           | (1,374 | )      |        |        | (1,490 | )     
|                                                         | Checks drawn in excess of bank balances                                             |                                           |                                           | 1,887  |        |        |        | 1,621  |       
|                                                         |                                                                                     |                                           |                                           |        |        |        |        |       
|                                                         |                                                                                     |                                           | Net cash provided by financing activities |        |        | 3,754  |        |        |        | 3,448  |  
|                                                         |                                                                                     |                                           |                                           |        |        |        |        |       
|NET INCREASE (DECREASE) IN CASH AND CASH
    EQUIVALENTS |                                                                                     |                                           | 455                                       |        |        |        | (1,121 | )     
|CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD           |                                                                                     |                                           | 1,247                                     |        |        |        | 4,646  |       
|                                                         |                                                                                     |                                           |                                           |        |        |        |        |       
|CASH AND CASH EQUIVALENTS, END OF PERIOD                 |                                                                                     | $                                         | 1,702                                     |        |        | $      | 3,525  |       
|                                                         |                                                                                     |                                           |                                           |        |        |        |        |       

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

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##### Table of Contents



ATRIUM CORPORATION






NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS


March 31, 2002 and 2001


(Dollars in thousands, except share
amounts)


(Unaudited)


1.     Basis of
Presentation:

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

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

These consolidated financial statements and
footnotes should be read in conjunction with the Companys
audited financial statements for the fiscal year ended
December 31, 2001 included in the Companys
Form 10-K as filed with the Securities and Exchange
Commission on April 1, 2002. In the opinion of management,
all adjustments (consisting of normal recurring adjustments)
considered necessary for a fair presentation of the interim
financial information have been included. The results of
operations for any interim period are not necessarily indicative
of the results of operations for a full year. Certain
reclassifications have been made to the 2001 balances to conform
to the 2002 presentation.

2.     New Accounting
Pronouncements:

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

In April 2002, the FASB issued SFAS No. 145,
Rescission of FASB Statements No. 4, 44, and 64,
Amendment of FASB Statement No. 13, and Technical
Corrections (SFAS 145). SFAS 145 rescinds
SFAS No. 4, Reporting Gains and Losses from Extinguishment
of Debt, requiring that gains and losses from the extinguishment
of debt be classified as extraordinary items only if certain
criteria are met. SFAS 145 also amends SFAS No. 13,
Accounting for Leases, and the required accounting for
sale-leaseback transactions and certain lease modifications that
have economic effects that are similar to sale-leaseback
transactions. SFAS 145 is effective for the Company on
January 1, 2003. The Company is currently assessing the
impact of SFAS 145 and has not yet determined the effects,
if any, it will have on its consolidated financial position or
results of operations.



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

In June 2001, the FASB issued SFAS No. 141
(SFAS 141), Business Combinations
and SFAS No. 142 (SFAS 142),
Goodwill and Other Intangible Assets. SFAS 141
and SFAS 142 are effective for fiscal years beginning after
December 15, 2001. Under the new rules, goodwill and
intangible assets deemed to

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ATRIUM CORPORATION


NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS  (Continued)

have indefinite lives will no longer be amortized
but will be subject to annual impairment tests in accordance
with the statements. Other intangible assets will continue to be
amortized over their useful lives. The Company adopted
SFAS 141 and SFAS 142 on January 1, 2002 and
eliminated amortization of goodwill as of such date.
Amortization expense for goodwill for the three months ended
March 31, 2001 was $2,927. The Company has completed its
initial, transitional goodwill impairment analysis under
SFAS No. 142 as of January 1, 2002, and no
goodwill impairment was deemed to exist. In accordance with
requirements of SFAS 142, the Company will review goodwill
for impairment during the fourth quarter of each year starting
in 2002. Goodwill will also be reviewed for impairment at other
times during each year when events or changes in circumstances
indicate an impairment might be present.

As shown in the following table, the Company
would have reported a net loss of $2,771 during the three months
ended March 31, 2001 if the goodwill amortization included
in the Companys net loss, as reported, had not been
recognized.

|                     |                       |                    |        |      |        |   |        |       |        |  
|-------------------- | --------------------- | ------------------ | ------ | ---- | ------ | - | ------ | ----- | ------ | -
|                     |                       |                   
|                     |                       | Three Months Ended
|                     |                       | March 31,         
|                     |                       |                   
|                     |                       | 2002               |        | 2001
|                     |                       |                    |        |     
|Net loss as reported |                       | $                  | (3,780 | )    |        | $ | (5,698 | )    
|Adjustment:          |                       |                    |        |      |        |   |        |      
|                     | Goodwill amortization |                    |        |     |        |   |        | 2,927 |       
|                     |                       |                    |        |      |        |   |        |      
|                     |                       | Adjusted net loss  |        | $    | (3,780 | ) |        | $     | (2,771 | )
|                     |                       |                    |        |      |        |   |        |      

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

4.     Inventories:

Inventories are valued at the lower of cost or
market using the last-in, first-out (LIFO) method of
accounting. Work-in-process and finished goods inventories
consist of materials, labor and manufacturing overhead.
Inventories consisted of the following:

|                |  |           |        |              |  |   |        | 
|--------------- |  | --------- | ------ | ------------ |  | - | ------ | 
|                |  | March 31, |        | December 31,
|                |  | 2002      |        | 2001        
|                |  |           |        |             
|Raw materials   |  | $         | 22,644 |              |  | $ | 24,209 | 
|Work-in process |  |           | 1,157  |              |  |   | 1,000  | 
|Finished goods  |  |           | 14,233 |              |  |   | 11,225 | 
|                |  |           |        |              |  |   |        | 
|                |  |           | 38,034 |              |  |   | 36,434 | 
|LIFO reserve    |  |           | 183    |              |  |   | 303    | 
|                |  |           |        |              |  |   |        | 
|                |  | $         | 38,217 |              |  | $ | 36,737 | 
|                |  |           |        |              |  |   |        | 

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##### Table of Contents



ATRIUM CORPORATION


NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS  (Continued)

5.     Notes
Payable:

Notes payable consisted of the following:

|                                                  |                |           |         |              |  |   |         |         | 
|------------------------------------------------- | -------------- | --------- | ------- | ------------ |  | - | ------- | ------- | 
|                                                  |                | March 31, |         | December 31,
|                                                  |                | 2002      |         | 2001        
|                                                  |                |           |         |             
|Revolving credit facility                         |                | $         | 3,250   |              |  | $ |        |        
|Term loan A                                       |                |           | 7,371   |              |  |   | 8,185   |        
|Term loan B                                       |                |           | 59,700  |              |  |   | 59,980  |        
|Term loan C                                       |                |           | 69,267  |              |  |   | 69,547  |        
|Senior subordinated notes                         |                |           | 175,000 |              |  |   | 175,000 |        
|Senior Pay-In-Kind notes                          |                |           | 31,358  |              |  |   | 29,397  |        
|Other                                             |                |           | 19      |              |  |   | 28      |        
|                                                  |                |           |         |              |  |   |         |        
|                                                  |                |           | 345,965 |              |  |   | 342,137 |        
|Less:                                             |                |           |         |              |  |   |         |        
|Unamortized discount on senior subordinated notes |                |           | (2,137  | )            |  |   | (2,186  | )      
|Current portion of notes payable                  |                |           | (6,180  | )            |  |   | (6,191  | )      
|                                                  |                |           |         |              |  |   |         |        
|                                                  | Long-term debt |           | $       | 337,648      |  |   | $       | 333,760 | 
|                                                  |                |           |         |              |  |   |         |        

The Credit Agreement requires Atrium Companies to
meet certain financial tests pertaining to interest coverage,
fixed charge coverage and leverage. As of March 31, 2002,
Atrium Companies 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 annually at
December 31. An excess cash flow payment of $684 was made
in April 2002 related to the December 31, 2001 cash flow
results and has been reflected in current maturities of
long-term debt. There was no excess cash flow payment required
in 2001.

Interest on the PIK Notes accrues at a rate of
15%, except under the following two conditions. As defined by
the agreement, if a default occurs and remains uncured or if the
ratio of total consolidated indebtedness to consolidated cash
flow of Atrium Companies commencing with March 2002 is greater
than 3.75x, then the interest 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.

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

6.     Contingencies:

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

The Company has five unionized facilities within
the State of Texas, four of which are represented by the Union
of Needletrades, Industrial and Textile Employees
(UNITE!) and one is represented by the Sheet Metal
International Association. During May of 2001, Atrium Companies
entered into a new three-year collective bargaining agreement
with UNITE! All of these collective bargaining agreements will
expire in

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##### Table of Contents



ATRIUM CORPORATION


NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS  (Continued)

2004. Due to the decision to close the Woodville,
Texas facility in early 2002, Atrium Companies negotiated a
termination agreement with the Sheet Metal International
Association resulting in a termination of this contract.

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

Atrium Companies is a PRP at the Chemical
Recycling, Inc. or CRI Superfund site in Wylie,
Texas. Atrium Companies 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 Atrium Companies 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. Atrium Companies costs
to date associated with this site have been approximately $78,
with a current credit for overpayment of $30.

The second site is the Diaz Refinery site in
Jackson County, Arkansas. There is no documentation linking
Atrium Companies to the site. In connection with a De Minimis
Buyout Agreement, Atrium Companies 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 costs will be incurred in
the future. Records indicate that, through agreements with the
sites steering committee and the Arkansas Department of
Pollution Control (the ADPCE), Atrium Companies will
not receive any orders or be allocated additional costs for
continuing work because Atrium Companies 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.

Atrium Companies 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 not expected to exceed $150. The
previous owner of the property has established an escrow of $400
to remediate the associated costs. This property was sold in
December 1999. Atrium Companies has established a letter of
credit of $250 to cover any costs of remediation exceeding the
previous owners escrow. Atrium Companies believes the
existing escrow amount is adequate to cover costs associated
with this clean-up. No additional liabilities are believed to
exist in regards to the Companys remaining operations.

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##### Table of Contents



ATRIUM CORPORATION


NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS  (Continued)

7. Wing Divestiture and Woodville
Closing:

During the period ended March 31, 2002, the
Company reduced its accrued provisions for the Wing divestiture
by $755 for exit costs related to idle facilities. In the same
period, the Company reduced its accrued provisions for the
Woodville closing by insignificant amounts.

8. Atrium Corporation Only Financial
Information:

CONDENSED BALANCE SHEETS

|                                             |                                                |           |         |              |  |   |         |         | 
|-------------------------------------------- | ---------------------------------------------- | --------- | ------- | ------------ |  | - | ------- | ------- | 
|                                             |                                                | March 31, |         | December 31,
|                                             |                                                | 2002      |         | 2001        
|                                             |                                                |           |         |             
|Assets                                      
|Investment in subsidiary                     |                                                | $         | 117,500 |              |  | $ | 116,489 |        
|Deferred financing costs, net                |                                                |           | 4,502   |              |  |   | 4,632   |        
|                                             |                                                |           |         |              |  |   |         |        
|                                             | Total assets                                   |           | $       | 122,002      |  |   | $       | 121,121 | 
|                                             |                                                |           |         |              |  |   |         |        
|Liabilities and Stockholders
    Equity    
|Accrued liabilities                          |                                                | $         |        |              |  | $ | 24      |        
|Notes payable                                |                                                |           | 31,358  |              |  |   | 29,397  |        
|Common stock subject to mandatory redemption |                                                |           | 15,604  |              |  |   | 15,604  |        
|Stockholders equity                         |                                                |           | 75,040  |              |  |   | 76,096  |        
|                                             |                                                |           |         |              |  |   |         |        
|                                             | Total liabilities and stockholders
    equity |           | $       | 122,002      |  |   | $       | 121,121 | 
|                                             |                                                |           |         |              |  |   |         |        

CONDENSED STATEMENTS OF OPERATIONS

|                                           |  |                    |        |      |  |   |        |  
|------------------------------------------ |  | ------------------ | ------ | ---- |  | - | ------ | -
|                                           |  |                   
|                                           |  | Three months ended
|                                           |  | March 31,         
|                                           |  |                   
|                                           |  | 2002               |        | 2001
|                                           |  |                    |        |     
|Interest expense                           |  | $                  | 2,092  |      |  | $ | 1,791  |  
|Equity in undistributed loss of subsidiary |  |                    | 1,688  |      |  |   | 3,907  |  
|                                           |  |                    |        |      |  |   |        |  
|Net loss                                   |  | $                  | (3,780 | )    |  | $ | (5,698 | )
|                                           |  |                    |        |      |  |   |        |  

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##### Table of Contents



ATRIUM CORPORATION


NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS  (Continued)

CONDENSED STATEMENTS OF CASH FLOWS

|                                                   |                                            |                                           |   |        |     |   |   |        |      |  
|-------------------------------------------------- | ------------------------------------------ | ----------------------------------------- | - | ------ | --- | - | - | ------ | ---- | -
|                                                   |                                            |                                          
|                                                   |                                            | Three months ended                       
|                                                   |                                            | March 31,                                
|                                                   |                                            |                                          
|                                                   |                                            | 2002                                      |   | 2001  
|                                                   |                                            |                                           |   |       
|Cash flows from operating
    activities:          |                                            |                                           |   |        |     |   |   |       
|                                                   | Net loss                                   |                                           | $ | (3,780 | )   |   | $ | (5,698 | )   
|                                                   | Equity in undistributed loss of subsidiary |                                           |   | 1,688  |     |   |   | 3,907  |     
|                                                   | Accretion of pay-in-kind notes             |                                           |   | 1,961  |     |   |   | 1,697  |     
|                                                   | Amortization of deferred financing costs   |                                           |   | 131    |     |   |   | 94     |     
|                                                   | Deferred tax benefit                       |                                           |   |       |     |   |   |       |     
|                                                   | Changes in assets and liabilities          |                                           |   | (25    | )   |   |   |       |     
|                                                   |                                            |                                           |   |        |     |   |   |       
|                                                   |                                            | Net cash used in operating activities     |   |        | (25 | ) |   |        |     |  
|                                                   |                                            |                                           |   |        |     |   |   |       
|Cash flows from investing
    activities:          |                                            |                                           |   |        |     |   |   |       
|                                                   | Cash received from subsidiary              |                                           |   | 25     |     |   |   | 106    |     
|                                                   |                                            |                                           |   |        |     |   |   |       
|                                                   |                                            | Net cash provided by investing activities |   |        | 25  |   |   |        | 106  |  
|                                                   |                                            |                                           |   |        |     |   |   |       
|Cash flows from financing
    activities:          |                                            |                                           |   |        |     |   |   |       
|                                                   | Deferred financing costs                   |                                           |   |       |     |   |   | (106   | )   
|                                                   |                                            |                                           |   |        |     |   |   |       
|                                                   |                                            | Net cash used in financing activities     |   |        |    |   |   |        | (106 | )
|                                                   |                                            |                                           |   |        |     |   |   |       
|Net increase in cash and cash
    equivalents      |                                            |                                           |  |        |     |   |  |       
|Cash and cash equivalents, beginning of
    period |                                            |                                           |  |        |     |   |  |       
|                                                   |                                            |                                           |   |        |     |   |   |       
|Cash and cash equivalents, end of
    period       |                                            | $                                         |  |        |     | $ |  |       
|                                                   |                                            |                                           |   |        |     |   |   |       

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##### Table of Contents






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

Certain Forward-Looking Statements

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

Results of Operations

The operations of the Company are cyclical in
nature and generally result in increases during the peak
building season which coincides with the second and third
quarters of the year. Accordingly, results of operations for the
first quarter ended March 31, 2002 are not necessarily
indicative of results expected for the full year.

Net Sales.Net sales
increased by $2,666 from $110,623 during the first quarter of
2001 to $113,289 during the first quarter of 2002. The increase
during the first quarter was the result of increased sales
volume at the Companys aluminum and vinyl window
operations. The aluminum operations increased approximately
$3,355 or a 9.4% growth rate. The vinyl operations increased
approximately $2,682 or a 4.9% growth rate. This was offset by a
$3,361 or a 17.1% decrease in sales at the Companys Darby
and aluminum extrusion operations. The extrusion operations were
down primarily due to declines in aluminum prices, while the
Darby decline was a result of softer demand in the multi-family
market.

Cost of Goods Sold.Cost of goods sold increased from 68.8% of net sales during the
first quarter of 2001 to 69.1% of net sales during the first
quarter of 2002. Material cost of goods sold decreased from
41.3% of net sales during the first quarter of 2001 to 40.6% of
net sales during the first quarter of 2002. This decrease as a
percentage of net sales was primarily due to lower cost of
materials due to our increased purchasing power and the
realization of synergies from acquisitions made in prior years.
This decrease was partially offset by changes in consumer price
indices that resulted in a non-cash increase in cost of goods
sold of approximately $272 related to accounting for inventories
under the LIFO method. Direct manufacturing expenses increased
from 27.4% of net sales during the first quarter of 2001 to
28.4% of net sales during the first quarter of 2002. This
increase was primarily due to the additional expense related to
the shutdown costs of the Woodville, Texas facility and
additional expenses incurred due to the successful defense
against a union organizing effort at one of the Companys
facilities.

Selling, Delivery, General and Administrative
Expenses.Selling, delivery, general
and administrative expenses increased $1,932 from $24,696 (22.3%
of net sales during the first quarter of 2001) to $26,628 (23.5%
of net sales during the first quarter of 2002). The increase was
partially due to an increase in bonus compensation expense of
approximately $500 during the first quarter of 2002 compared to
the first quarter of 2001. The increase was also due to legal
expenses of approximately $350 which partially relate to the
successful defense against a union organizing effort at one of
the Companys facilities and establishment of the
Companys new operations in Mexico. Additionally, delivery
and selling expenses increased due to the increase in sales, as
these expenses are primarily variable.

Securitization
Expense.During the first quarter of 2002, the
Company incurred securitization expense of $256 on the sale of
Atrium Companies accounts receivable which represented the
interest expense and commitment fee components of the
transaction.

12



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##### Table of Contents



Stock Compensation
Expense.Stock compensation expense increased
from $0 during the first quarter of 2001 to $75 during the first
quarter of 2002. The increase represents payment in the form of
the Companys common stock for management fees paid to the
Companys equity sponsor.

Amortization Expense.Amortization expense decreased $2,731
from $3,535 during the first quarter of 2001 to $804 during the
first quarter of 2002. The decrease was due to the
Companys adoption of SFAS No. 142 (see
Note 3) which eliminates the amortization of goodwill
and subjects it to an annual impairment test.

Interest Expense.Interest expense decreased $672 from
$11,796 during the first quarter of 2001 to $11,124 during the
first quarter of 2002. The decrease was due to reduced debt
levels as a result of working capital improvements and the
execution of the accounts receivable securitization facility in
August 2001 from which the proceeds were used to repay long-term
debt.

Liquidity and Capital Resources

Cash generated from operations, 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 quarter of 2002, cash was
primarily used for capital expenditures and debt payments. Net
cash provided by operating activities was $1,004 during the
first quarter of 2002 compared to $1,045 during the first
quarter of 2001. The decrease in cash provided by operating
activities is largely due to an increase in accounts receivable
and a reduction in amounts sold under the accounts receivable
securitization facility offset by an increase in accounts
payable. Net cash used in investing activities during the first
quarter of 2002 was $4,303 compared to $5,614 during the first
quarter of 2001. The decrease in cash used in investing
activities was due primarily to reduced capital expenditures
during the first quarter of 2002 compared to the first quarter
of 2001. Cash provided by financing activities during the first
quarter 2002 was $3,754 compared to $3,448 during the first
quarter of 2001. The increase in cash provided by financing
activities is primarily due an increase of checks drawn in
excess of bank balances.

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. An excess cash flow payment of $684 was made
in April 2002 related to the December 31, 2001 cash flow
results and has been reflected in current maturities of
long-term debt. There was no excess cash flow payment required
in 2001.

Interest on the PIK Notes accrues at a rate of
15%, except under the following two conditions. As defined by
the agreement, if a default occurs and remains uncured or if the
ratio of total consolidated indebtedness to consolidated cash
flow of Atrium Companies commencing with March 2002 is greater
than 3.75x, then the interest 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.

Other Capital Resources

In connection with the 1998 recapitalization,
Atrium Companies entered into a Credit Agreement providing for a
revolving facility in the amount of $30,000, which was increased
to $40,000 in September 1999. In connection with the acquisition
of Ellison, the revolving credit facility was increased to
$47,000, which includes a $10,000 letter of credit sub-facility.
The revolving facility has a maturity date of June 30,
2004. Additionally, Atrium Companies has an accounts receivable
securitization facility which will make additional funds
available to the Company depending on accounts receivable
levels. At March 31, 2002, the Company had $40,983 of
availability under the revolving facility, net of borrowings of
$3,250 and outstanding letters of credit totaling $2,767. As of
May 13, 2002, the Company had cash of $2,178 and $38,983 of
availability under the Revolving Credit Facility, net of
borrowings of $5,250 and outstanding letters of credit totaling
$2,767. At March 31, 2002, the Company had $26,200 of
availability under the securitization facility, subject to
borrowing based requirements, net of securitizations of $23,800.
As of May 13, 2002, the Company had $19,400 available under
the securitization facility, net of securitizations of $30,600.

13



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##### Table of Contents



Capital Expenditures

The Company had net cash capital expenditures of
$3,290 during the first quarter of 2002 compared to $4,742
during the first quarter of 2001. Capital expenditures during
the first quarter of 2002 were largely a result of the
Companys continued efforts to increase efficiency through
automation at its various divisions. The Company expects capital
expenditures (exclusive of acquisitions, if any) in 2002 to be
approximately $13,500, however, actual capital requirements may
change based on management and strategic decisions.

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

New Accounting Pronouncements

In August 2001, the FASB issued SFAS 143,
Accounting for Asset Retirement Obligations
(SFAS 143). SFAS 143 addresses financial
accounting and reporting obligations associated with the
retirement of tangible long-lived assets and the associated
asset retirement costs. Under SFAS 143, the fair value of a
liability for an asset retirement obligation covered under the
scope of SFAS 143 would be recognized in the period in
which the liability is incurred, with an offsetting increase in
the carrying amount of the related long-lived asset.
SFAS 143 is effective for the Company on January 1,
2003. The Company is currently assessing the impact of
SFAS 143 and has not yet determined the effects, if any, it
will have on its consolidated financial position or results of
operations.

In April 2002, the FASB issued SFAS 145,
Rescission of FASB Statements No. 4, 44, and 64,
Amendment of FASB Statement No. 13, and Technical
Corrections. SFAS 145 rescinds FASB Statement
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 FASB Statement
No. 13, Accounting for Leases, and the required accounting
for sale-leaseback transactions and certain lease modifications
that have economic effects that are similar to sale-leaseback
transactions. SFAS 145 is effective for the Company on
January 1, 2003. The Company is currently assessing the
impact of SFAS 145 and has not yet determined the effects,
if any, it will have on its consolidated financial position or
results of operations.

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

In June 2001, the Financial Accounting Standards
Board issued Statement of Financial Accounting Standards
No. 141 (SFAS 141), Business
Combinations and Statement of Financial Accounting
Standards No. 142 (SFAS 142),
Goodwill and Other Intangible Assets. SFAS 141
and SFAS 142 are effective for fiscal years beginning after
December 15, 2001. Under the new rules, goodwill and
intangible assets deemed to have indefinite lives will no longer
be amortized but will be subject to annual impairment tests in
accordance with the statements. Other intangible assets will
continue to be amortized over their useful lives. The Company
adopted SFAS 141 and SFAS 142 on January 1, 2002
and eliminated amortization of goodwill as of such date.
Amortization expense for goodwill for the three months ended
March 31, 2001 was $2,927.

The Company adopted SFAS 144,
Accounting for the Impairment or Disposal of Long-Lived
Assets, effective January 1, 2002. SFAS 144
retains the fundamental provisions of existing GAAP with respect
to the recognition and measurement of long-lived asset
impairment contained in SFAS 121, Accounting for the
Impairment of Long-Lived Assets and for Long-Lived Assets to be
Disposed Of. However, SFAS 144 provides new guidance
intended to address certain implementation issues associated
with SFAS 121, including expanded guidance with respect to
appropriate cash flows to be used to determine whether
recognition of any long-lived asset impairment is required, and
if required, how to measure the amount of the impairment.
SFAS 144 also requires that any net assets to be disposed
of by sale to be reported at the lower of carrying value or fair
value less cost to sell, and expands the reporting of
discontinued operations to include any

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component of an entity with operations and cash
flows that can be clearly distinguished from the rest of the
entity. Adoption of SFAS 144 did not have a significant
effect on the Company as of January 1, 2002.





Item 3.     Quantitative
and Qualitative Disclosure About Market Risk

Market Risk

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

On November 1, 2000, Atrium Companies
entered into a $100,000 interest rate swap agreement to limit
the effect of changes in interest rates on long-term borrowings.
Under the agreement, Atrium Companies 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 $4,668 and is included in swap contract liability.

On December 8, 2000, Atrium Companies
entered into a $40,000 interest rate swap agreement to limit the
effect of changes in interest rates on long-term borrowings.
Under the agreement, Atrium Companies pays interest at a fixed
rate of 6.15% on the notional amount and receives interest
therein at the three-month LIBOR on a quarterly basis. In March
2002, Atrium Companies amended the swap notional amount to
$35,500 to maintain hedge effectiveness. This swap expires in
December 2002. The fair value of this swap is a liability of
$877 and is included in accrued liabilities.




PART II. OTHER INFORMATION




Item 1.     Legal
Proceedings

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




Item 6.     Exhibits
and Reports on Form 8-K

(a) Exhibits  None

(b) Reports on Form 8-K  None

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SIGNATURES

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



| |                   
| | ------------------
| | ATRIUM CORPORATION
| | (REGISTRANT)      

Date: May 15, 2002

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

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

Date: May 15, 2002

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

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

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